<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACTS OF 1934.
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934. FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 000-24487
MIPS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0322161
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
1225 CHARLESTON ROAD, MOUNTAIN VIEW, CA 94043-1353
(Address of principal executive offices)
Registrants' telephone number, including area code: (650) 567-5000
--------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes [X] No[ ]
The number of outstanding shares of the Registrant's Common Stock,
$.001 par value, was 37,292,286 as of April 30,1999.
<PAGE>
PART 1 - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements (Unaudited):
Page
----
<S> <C>
Condensed Consolidated Balance Sheets ............................. 3
Condensed Consolidated Statements of Operations ................... 4
Condensed Consolidated Statements of Cash Flows ................... 5
Notes to Condensed Consolidated Financial Statements .............. 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition ............................. 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk ........ 19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ................................................. 20
Item 2. Changes in Securities ............................................. 20
Item 4. Submission of Matters to a Vote of Security Holders ............... 21
Item 6. Exhibits and Reports on Form 8-K .................................. 21
Signatures ................................................................. 23
Index to Exhibits .......................................................... 24
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MIPS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1999 1998
---------- ---------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................ $ 40,532 $ 45
Accounts receivable ...................................... 3,123 250
Prepaid expenses and other current assets ................ 1,009 618
---------- ---------
Total current assets ................................ 44,664 913
Equipment and furniture, net .................................. 3,260 2,787
Other assets .................................................. 1,099 996
---------- ---------
$ 49,023 $ 4,696
---------- ---------
---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ......................................... $ 8,434 $ 3,087
Accrued liabilities ...................................... 6,477 2,356
---------- ---------
Total current liabilities............................ 14,911 5,443
Deferred revenue, less current portion......................... 375 --
Stockholders' equity (deficit):
Common stock ............................................. 37 36
Additional paid-in capital ............................... 136,440 120,041
Accumulated deficit ...................................... (102,740) (120,824)
---------- ---------
Total stockholders' equity (deficit) ................ 33,737 (747)
---------- ---------
$ 49,023 $ 4,696
---------- ---------
---------- ---------
</TABLE>
See accompanying notes.
3
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MIPS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------ -----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Royalties $ 23,274 $ 18,231 $ 48,127 $ 44,990
Contract revenue 3,400 -- 5,800 827
-------- -------- -------- --------
Total revenue 26,674 18,231 53,927 45,817
Costs and expenses:
Cost of contract revenue -- -- 125 375
Research and development 5,824 4,446 15,047 39,573
Sales and marketing 1,801 1,274 4,820 4,184
General and administrative 1,718 986 4,673 3,281
Restructuring charge -- -- -- 2,614
-------- -------- -------- --------
Total costs and expenses 9,343 6,706 24,665 50,027
-------- -------- -------- --------
Operating income (loss) 17,331 11,525 29,262 (4,210)
Interest income (expense), net 469 (2) 908 (13)
-------- -------- -------- --------
Income (loss) before income taxes 17,800 11,523 30,170 (4,223)
Provision for income taxes 7,120 -- 12,068 --
-------- -------- -------- --------
Net income (loss) $ 10,680 $ 11,523 $ 18,102 $ (4,223)
-------- -------- -------- --------
-------- -------- -------- --------
Net income (loss) per share - basic $ 0.29 $ 0.32 $ 0.49 $ (0.12)
-------- -------- -------- --------
-------- -------- -------- --------
Net income (loss) per share - diluted $ 0.27 $ 0.32 $ 0.47 $ (0.12)
-------- -------- -------- --------
-------- -------- -------- --------
Common shares outstanding - basic 37,277 36,000 37,242 36,000
-------- -------- -------- --------
-------- -------- -------- --------
Common shares outstanding - diluted 39,275 36,000 38,584 36,000
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See accompanying notes.
4
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MIPS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED MARCH 31,
---------------------------
1999 1998
-------- --------
<S> <C> <C>
Operating activities:
Net income (loss) ...................................................... $ 18,102 $ (4,223)
Adjustments to reconcile net income (loss) to cash provided by (used
in) operations:
Depreciation ..................................................... 1,393 4,594
Other non-cash charges ........................................... 385 315
Restructuring charge ............................................. -- 2,614
Changes in operating assets and liabilities:
Accounts receivable .............................................. (2,873) 58
Accounts payable ................................................. 5,347 (3,664)
Other assets and liabilities, net ................................ 3,867 (1,916)
-------- --------
Net cash flow provided by (used in) operating activities,
excluding Silicon Graphics financing .............. 26,221 (2,222)
Investing activities - capital expenditures ................................. (1,866) (645)
Financing activities:
Net proceeds from issuance of common stock ............................. 16,150 --
Payments on capital lease obligations .................................. -- (331)
Financing provided from Silicon Graphics ............................... -- 3,198
-------- --------
Net cash provided by financing activities ............... 16,150 2,867
Effect of exchange rate changes on cash ..................................... (18) --
-------- --------
Net increase (decrease) in cash ............................................. 40,487 --
Cash and cash equivalents, beginning of period .............................. 45 --
-------- --------
Cash and cash equivalents, end of period .................................... $ 40,532 $ --
-------- --------
-------- --------
Supplemental disclosures of cash flow information:
Interest paid .......................................................... $ -- $ 13
-------- --------
-------- --------
Equipment transferred to Silicon Graphics .............................. -- 7,714
-------- --------
-------- --------
</TABLE>
See accompanying notes.
5
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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, Inc. ("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 broader use of these processors.
However, as the cost to design and 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 partners 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 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 provides certain
services to the Company following the Separation 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 Swiss subsidiary,
was incorporated on November 20, 1998. MIPS Denmark Development Center,
located in Copenhagen, Denmark, and a branch of the Swiss subsidiary, was
opened on December 1, 1998. This development center is engaged in product
design and development as well as support activities for the Company's
European-based customers.
BASIS OF PRESENTATION. The accompanying financial statements, through
June 30, 1998, reflect the operations of the Company's predecessor, the MIPS
Group. The balance sheet as of June 30, 1998 has been prepared using the
historical basis of accounting and includes 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. Through June 30,
1998, cash management for the Company had been done by Silicon Graphics on a
centralized basis and all cash provided by Silicon Graphics has been recorded
as interest-free
6
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MIPS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
financing from Silicon Graphics. The statement of operations for the nine
months ended March 31, 1998 includes all revenue and costs attributable to
the Company, including a corporate allocation from Silicon Graphics of the
costs of facilities and employee benefits. Additionally, incremental
corporate administration, finance and management costs have been allocated to
the Company based on certain methodologies that management believes are
reasonable under the circumstances. Subsequent to June 30, 1998, the Company
operated as a stand-alone company, MIPS Technologies, Inc. The consolidated
financial statements includes the accounts of the Company and its wholly
owned Swiss subsidiary, MIPS Technologies International A.G., after
elimination of significant intercompany transactions and balances.
The unaudited results of operations for the interim periods shown herein
are not necessarily indicative of operating results for the entire fiscal
year. In the opinion of management, the condensed consolidated financial
statements include all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial position, results of
operations and cash flows for each interim period shown.
The condensed consolidated financial statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission ("SEC") applicable to interim financial information. Certain
information and footnote disclosures included in financial statements
prepared in accordance with generally accepted accounting principles have
been omitted in these interim statements pursuant to such SEC rules and
regulations. The balance sheet at June 30, 1998 has been derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles. However, the Company believes that
the disclosures are adequate to make the information presented not
misleading. The unaudited condensed consolidated financial statements
included in this Form 10-Q should be read in conjunction with the audited
financial statements and notes thereto, for the fiscal year ended June 30,
1998, included in the Company's 1998 Annual Report on Form 10-K.
NOTE 2. COMPUTATION OF EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) ............................................... $ 10,680 $ 11,523 $ 18,102 $ (4,223)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted - average shares outstanding - basic ................... 37,277 36,000 37,242 36,000
Effect of dilutive securities-employee stock options ............ 1,998 -- 1,342 --
-------- -------- -------- --------
Weighted - average shares outstanding - diluted ................. 39,275 36,000 38,584 36,000
-------- -------- -------- --------
-------- -------- -------- --------
Net income (loss) per share - basic ............................. $ 0.29 $ 0.32 $ 0.49 $ (0.12)
-------- -------- -------- --------
-------- -------- -------- --------
Net income (loss) per share - diluted ........................... $ 0.27 $ 0.32 $ 0.47 $ (0.12)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
7
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MIPS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. NEW ACCOUNTING PRONOUNCEMENTS
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,
as 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.
In June 1997, the Financial Accounting and Standards Board issued
Statement of Financial Accounting Standards No. 131 "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 is
effective for the fiscal year ending June 30, 1999 and establishes standards
for disclosure about products, geography and major customers. The adoption of
SFAS 131 will have no impact on the Company's results of operation and
financial condition. The Company expects that implementation of this standard
will not have material effect on its annual financial statement disclosures.
NOTE 4. 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. In addition, from time to time, the Company evaluates
possible patent infringement claims against third parties and may assert such
claims, if appropriate.
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 5. RELATED PARTY TRANSACTIONS
At March 31, 1999, accounts payable includes approximately $157,000 payable
to Silicon Graphics related to certain administrative and corporate support
services provided by Silicon Graphics on behalf of the Company and approximately
$7.5 million payable to Silicon Graphics in accordance with the terms of a tax
sharing agreement pursuant to which 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.
During the nine months ended March 31, 1998, the Company was operating as a
division of Silicon Graphics and was utilizing its centralized cash management
services and processes relating to accounts payable and accrued liabilities. The
Company's net cash requirements during that period were funded by Silicon
Graphics.
8
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. SUBSEQUENT EVENTS
On April 5, 1999, the Company effected a recapitalization of its
authorized capital stock pursuant to which (i) each issued and outstanding
share of the Company's common stock, par value $0.001 per share, was
redesignated as one share of newly created and issued Class A Common Stock,
par value $0.001 per share, of the Company and (ii) Silicon Graphics, Inc.
exchanged each share of Class A Common Stock it owned 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.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS TOGETHER WITH THE
UNAUDITED FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS INCLUDED
ELSEWHERE IN THIS REPORT. Except for the historical information contained in
this Quarterly Report on Form 10-Q, this discussion contains forward-looking
statements that 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 "Factors That May Affect Our
Business" section, and other risks included from time to time in our other
Securities and Exchange Commission ("SEC") reports and press releases, copies of
which are available from us upon request. The forward-looking statements within
this Quarterly Report on Form 10-Q are identified by words such as "believes,"
"anticipates," "expects," "intends," "may" and other similar expressions.
However, these words are not the exclusive means of identifying such statements.
We undertake no obligation to update any forward-looking statements included in
this discussion.
RESULTS OF OPERATIONS
REVENUE. Our revenue consists of royalties and contract revenue earned
under contracts with our licensees. We generate royalties from the sale by
semiconductor manufacturers of products incorporating our technology. We also
receive royalties from Nintendo relating to sales of Nintendo 64 video game
players and related cartridges. 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. Contract revenue includes technology license fees and engineering
service fees earned primarily under contracts with our semiconductor
manufacturing partners. 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. Fees related to engineering services, which are performed
on a best efforts basis, are recognized as revenue when the defined
milestones are achieved and collectibility of the milestone payment is
probable. In most instances, the technology we develop, including under
engineering services contracts, can be licensed to multiple customers.
Total revenue for the third quarter and first nine months of fiscal 1999
increased by $8.4 million and $8.1 million, respectively, to $26.7 million
and $53.9 million, compared with $18.2 million and $45.8 million for the
comparable periods in fiscal 1998. Royalties for the third quarter and first
nine months of fiscal 1999 increased by $5.0 million and $3.1 million,
respectively, to $23.3 million and $48.1 million, compared with $18.2 million
and $45.0 million for the same periods in fiscal 1998. The increase in
royalties for these periods was due primarily to higher royalties derived
from sales of video game products. Contract revenue for the third quarter and
first nine months of fiscal 1999 increased by $3.4 million and $5.0 million,
respectively, compared with the same periods in fiscal 1998. The increase in
both of these periods was the result of fees generated primarily from new
agreements, and included engineering service fees of $4.9 million earned in
the second and third fiscal quarters of 1999 upon our achievement of defined
milestones.
COST OF CONTRACT REVENUE. Our cost of contract revenue consists mainly of
sublicense fees. We incur an obligation to pay these fees when we sublicense
technology to our customers that we have licensed from third parties. Sublicense
fees are recognized as cost of contract revenue when the obligation is incurred,
which is typically the same period in which the related revenue is recognized.
Cost of contract revenue was zero for the third quarter of each of
fiscal 1999 and fiscal 1998. Cost of contract revenue decreased $250,000 to
$125,000 for the first nine months of fiscal 1999 compared with the same
period in fiscal 1998. This decrease was attributable to a decrease in our
sublicensing activities which resulted in a decrease in our obligation to pay
sublicense fees to our licensor. We believe that future cost of contract
revenue will be minimal.
RESEARCH AND DEVELOPMENT. Costs incurred 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.
Research and development expenses for the third quarter and first nine
months of fiscal 1999 were $5.8 million and
10
<PAGE>
$15.1 million, respectively, compared with research and development expenses
of $4.4 million and $39.6 million for the comparable periods in fiscal 1998.
The $1.4 million increase in the third quarter of fiscal 1999 compared with
the same period in the prior year was due to the addition of resources to
support various project development activities. The $24.5 million decrease in
research and development expenses for the nine-month period reflects the
separation of the our business from that of Silicon Graphics as well as the
change in our strategic direction in the second half of fiscal 1998. Research
and development expenses for the first half of fiscal 1998 reflect the
operations of the MIPS Group, a division of Silicon Graphics, which had a
staff of 221 persons at December 31, 1997. Because the markets we have
targeted allow us to use small design teams and to rely largely on industry
standard third-party design tools, we reduced our research and development
staff in the third quarter of fiscal 1998 by approximately 185 persons in
connection with the separation and our change in strategic direction. During
the first nine months of fiscal 1999, we increased our research and
development staff to 86 persons reflecting the increasing staffing
requirements to support our project development activities, including the
addition of 24 employees to staff our development center in Copenhagen,
Denmark which opened on December 1, 1998. The development center will work on
product development as well as provide support and design expertise for the
our European-based customers. We expect research and development staff and
expenses to increase as we develop new designs for the digital consumer
products and business equipment markets.
SALES AND MARKETING, GENERAL AND ADMINISTRATIVE. Sales and marketing and
general and administrative expenses for the third quarter and first nine months
of fiscal 1999 increased by $1.3 million and $2.0 million, respectively, to $3.5
million and $9.5 million, compared to sales and marketing and general and
administrative expenses of $2.3 million and $7.5 million for the comparable
periods in fiscal 1998. The increase in both the quarter and year-to-date
periods was due to an increase in our licensing and marketing activities and the
existence of legal and administrative costs related to our status as a publicly
traded company that we did not incur in the comparable prior periods. During
the first nine months of fiscal 1999, we increased our sales and marketing
staff to 24 persons from 16 persons and our general and administrative staff
to 15 persons from 7 persons.
RESTRUCTURING CHARGE. The restructuring charge taken in the first nine
months of fiscal 1998 included $500,000 in severance related costs and $2.1
million in asset writedowns related to the shift in our strategic direction.
INTEREST INCOME (EXPENSE). For the third quarter and first nine months
of fiscal 1999, interest income was $469,000 and $908,000, respectively,
compared to interest expense of $2,000 and $13,000 for the comparable periods
in fiscal 1998. The increase in both the quarter and year-to-date periods was
primarily due to interest income earned from the investment of the net cash
proceeds of approximately $16.0 million from our July 1998 initial public
offering and the cash generated from our operating activities during fiscal
1999.
INCOME TAXES. 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 the 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.
We recorded a provision for income taxes of $7.1 million and $12.1
million for the third quarter and first nine months of fiscal 1999. The
provision for the third quarter and the first nine months of fiscal 1999 was
based on an estimated federal and state combined rate of 40% on income before
taxes. In light of both our historical losses incurred, as well as the fact
that, by operation of a 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 of our initial public offering in July 1998, no income tax
provision or benefit was reflected for the third quarter and the first nine
months of fiscal 1998.
11
<PAGE>
FINANCIAL CONDITION
At March 31, 1999, we had cash and cash equivalents of $40.5 million and
total working capital of $29.8 million, including a short-term component of
deferred revenue of $167,000.
Our operating activities provided net cash of $26.2 million for the nine
months ended March 31, 1999 compared to net cash used in operating activities
of $2.2 million for the comparable period in 1998. In the nine months ended
March 31, 1999, net cash provided by operating activities consisted mainly of
net income and increases in accounts payable and accrued liabilities,
partially offset by an increase in accounts receivable. The increases in
accounts payable and accrued liabilities were the result of accrued income
taxes and accrued compensation related to increased staffing levels, along
with accumulated performance bonuses and accrued administrative costs
associated with being a public company. The increase in accounts receivable
was due to amounts owed to us under new license agreements entered into
during the period. In the nine months ended March 31, 1998, net cash used in
operating activities consisted mainly of net loss of $4.2 million and a
decrease in accounts payable and accrued liabilities of $5.5 million
partially offset by approximately $7.2 million of non-cash charges of
depreciation and restructuring charges.
Net cash used in investing activities was $1.9 million and $645,000 for
the nine months ended March 31, 1999 and 1998, respectively. 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 $16.2 million for the nine
months ended March 31, 1999 compared to $2.9 million for the comparable
period in 1998. Net cash provided by financing activities for the nine months
ended March 31, 1999 consisted primarily of cash received in connection with
the issuance of common stock through our initial public offering, which was
completed in July 1998. Financing activities for the nine months ended March
31, 1998 consisted primarily of net funds provided by Silicon Graphics.
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,
- competing technological and market developments and
- the costs of maintaining and enforcing patent claims and other
intellectual property rights.
We believe that cash generated by our operations, together with our
current 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. 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 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 technology. In the event
that Silicon Graphics effects a tax-free distribution of its interest in us,
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
such distribution 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. We have had no direct third-party
indebtedness.
12
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FACTORS THAT MAY AFFECT OUR BUSINESS
FACTORS NEGATIVELY AFFECTING SALES OF NINTENDO 64 VIDEO GAME PLAYERS AND
RELATED CARTRIDGES COULD MATERIALLY AND ADVERSELY AFFECT US. Contract revenue
and royalties from Nintendo and NEC relating to Nintendo 64 video game
players and related cartridges accounted for 81% and 78% of our total revenue
for the three months ended March 31, 1999 and the first nine months of fiscal
1999, respectively, compared to 86% and 80% for the comparable periods in
1998. 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.
WE EXPECT THAT REVENUE WE DERIVE FROM THE SALE OF NINTENDO VIDEO GAME
PRODUCTS WILL DECLINE WITH THE EVENTUAL INTRODUCTION OF THE NEXT GENERATION
NINTENDO VIDEO GAME SYSTEM. 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. 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.
WE MUST DIVERSIFY OUR SOURCES OF REVENUE TO OFFSET THE EVENTUAL DECLINE
IN REVENUE WE DERIVE FROM SALES OF NINTENDO VIDEO GAME PRODUCTS. Our ability
to diversify our sources of revenue is still uncertain and will depend on
whether our processors and related designs are selected for design ("design
wins") into a broader range of digital consumer products and business
equipment. Our ability to achieve design wins is subject to several risks and
uncertainties, including:
- 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 risk that the performance, functionality, price and power
characteristics of our designs may not satisfy those that are critical
to specific digital consumer product applications; and
- our limited research and development and sales and marketing
experience in our target markets due to our previous focus on the
development of high performance processors for Silicon Graphics'
workstations and servers.
Even if our technology is incorporated into new products, we cannot be
certain that any such products will ultimately be brought to market, achieve
commercial acceptance or generate meaningful royalties for us.
FACTORS THAT NEGATIVELY AFFECT OUR SEMICONDUCTOR COMPANY LICENSEES COULD
ADVERSELY AFFECT OUR BUSINESS. Because our strategy has been to license our
technology to a relatively limited number of semiconductor companies, a
significant portion of our total revenue has been derived from a limited
number of semiconductor companies. Accordingly, factors negatively affecting
a particular licensee could adversely effect our results of operations and
financial condition if such licensee accounts for a significant portion of
our revenue at the time. We are 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.
Revenue from our top two semiconductor company licensees represented an
aggregate of 11% and 14% for the three months ended March 31, 1999 and the
first nine months of fiscal 1999, respectively, compared to 14% and 18% for
the
13
<PAGE>
comparable period in fiscal 1998. We expect that this revenue concentration
will continue in the future, although the identity of the particular
licensees that will account for this revenue concentration may 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.
WE DEPEND ON SEMICONDUCTOR COMPANIES AND DIGITAL CONSUMER PRODUCT
MANUFACTURERS TO ADOPT OUR TECHNOLOGY AND USE IT IN THE PRODUCTS THEY SELL.
The adoption and continued use of our technology by semiconductor companies
and digital consumer product manufacturers is important to our continued
success. We face numerous risks in obtaining agreements with semiconductor
companies and digital consumer product manufacturers on terms consistent with
our business model, including:
- the lengthy and expensive process of building a relationship with a
potential licensee;
- the fact that we may compete with the internal design teams of
semiconductor companies and digital consumer product manufacturers;
- the potential difficulties in persuading large semiconductor
companies and digital consumer product manufacturers 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
produce embedded processors using our technology.
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. Moreover, we are subject to risks beyond our control that influence
the success or failure of a particular semiconductor company or digital
consumer product manufacturer, including:
- the competition it faces and the market acceptance of its products;
- its engineering, marketing and management capabilities and the
technical challenges unrelated to our technology that it faces in
developing its products; and
- its financial and other resources.
None of our current licensees are obligated to license new or future
generations of our processor designs. In addition, because we do not control
the business practices of our licenses, 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.
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).
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS
WHICH COULD ADVERSELY AFFECT OUR STOCK PRICE. Our quarterly financial results
may vary significantly due to a number of factors, many of which are outside
of our control. In addition, 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.
In light of the foregoing, we believe that quarter-to-quarter
comparisons of our revenue and operating results may not be a good indication
of our future performance. In addition, 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.
14
<PAGE>
Factors that could cause our revenue and operating results to vary from
quarter to quarter 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 companies or digital consumer product 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.
WE ARE DEPENDENT ON THE EMERGING MARKET FOR DIGITAL CONSUMER PRODUCTS
AND CONSUMER ACCEPTANCE OF THE PRODUCTS THAT INCORPORATE OUR TECHNOLOGY. The
digital consumer products industry is presently the primary market for our
processor, core and related designs. The market for digital consumer products
is relatively new and emerging, and our success will depend largely on the
level of consumer interest in digital consumer products, many of which have
only recently been introduced to the market. In addition, the timing and
amount of royalties we receive will depend on consumer acceptance of the
products that incorporate our technology. We cannot assure you that any
products that incorporate our technology will achieve commercial acceptance
or generate meaningful royalties for us.
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; and
- the current lack of open industry standards for hardware and software
in the digital consumer products industry.
IF WE ARE UNABLE TO DEVELOP ENHANCEMENTS AND NEW GENERATIONS OF OUR
INTELLECTUAL PROPERTY, OUR ABILITY TO ACHIEVE DESIGN WINS MAY BE ADVERSELY
AFFECTED. Our future success will depend on our ability to 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. If our development efforts are not successful or are
significantly delayed, or if the characteristics of our processor and related
designs 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;
15
<PAGE>
- 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.
OUR INTELLECTUAL PROPERTY MAY BE MISAPPROPRIATED OR SUBJECT TO CLAIMS OF
INFRINGEMENT. We attempt to protect our intellectual property rights through
a combination of patent, trademark, copyright and trade secret laws, as well
as licensing agreements and employee and third-party nondisclosure and
assignment agreements. 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.
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 or unauthorized use 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 we will
be able to prevent other parties from designing and marketing unauthorized
MIPS-based products or that others will not independently develop or
otherwise acquire the same or substantially equivalent technologies as ours.
Moreover, our cross licensing arrangements, in which we license certain of
our patents but do not generally transfer know-how or other proprietary
information, may facilitate the ability of our cross-licensees, either alone
or in conjunction with others, to develop competitive products and designs.
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.
Significant 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 company licensees or
digital consumer product manufacturers 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 NEED TO CONTINUE TO DEVELOP OUR ADMINISTRATIVE INFRASTRUCTURE TO
SUPPORT OUR BUSINESS AS A STAND-ALONE COMPANY. 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 provided in the
management services agreement between the companies. If we fail to implement
the financial, 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.
IF WE FAIL TO COMPETE EFFECTIVELY IN THE MARKET FOR EMBEDDED PROCESSORS,
OUR BUSINESS WILL BE ADVERSELY AFFECTED. 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. We cannot assure you that we will be
able to compete successfully or that competitive pressures will not
materially and adversely affect our business, results of operations and
financial condition. We compete with other designers and developers of
processors and cores, as well as semiconductor manufacturers whose product
lines include processors for embedded and non-embedded applications. In
addition, we may face competition from the producers of unauthorized
MIPS-based clones and non-RISC based technology designs.
16
<PAGE>
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 technology designs.
WE MAY NOT BE ABLE TO RECRUIT AND RETAIN THE PERSONNEL TO SUCCEED. 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.
OUR SEPARATION FROM SILICON GRAPHICS MAY AFFECT US IN NEGOTIATING FUTURE
LICENSING ARRANGEMENTS AND RESOLVING FUTURE INTELLECTUAL PROPERTY DISPUTES.
We have entered into licensing arrangements with Silicon Graphics with
respect to certain of its intellectual property that we use in our business.
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 benefited 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. 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.
OUR REVENUE IS SUBJECT TO FLUCTUATIONS IN CURRENCY EXCHANGE RATES. 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. 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. In addition, 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 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.
WE HAVE GROWN RAPIDLY, AND IF WE ARE UNABLE TO MANAGE THIS GROWTH, OUR
BUSINESS WILL BE ADVERSELY AFFECTED. Our ability to continue to grow
successfully requires an effective planning and management process. Since
June 30, 1998, we have increased our headcount substantially, from 63
employees at that date to 125 employees at March 31, 1998. This increase
includes the addition of 24 employees in December 1998 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.
17
<PAGE>
Accordingly, increases in the adoption of our technology can be expected to
increase the strain on our personnel, particularly our engineers.
YEAR 2000 PROBLEMS WITH THE PRODUCTS OR INTERNAL SYSTEMS OF OUR CRITICAL
SUPPLIERS OR THIRD PARTIES WHOSE PRODUCTS INCORPORATE OUR TECHNOLOGY COULD
ADVERSELY AFFECT OUR BUSINESS. 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 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.
18
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
NOT APPLICABLE.
19
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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. In addition, from time to time, the
Company evaluates possible patent infringement claims against third parties
and may assert such claims, if appropriate.
ITEM 2. CHANGES IN SECURITIES
(a) On April 5, 1999, MIPS Technologies, Inc. effected a
recapitalization of its authorized capital stock pursuant to which each
previously issued and outstanding share of its common stock, par value $0.001
per share, was redesignated as one share of its Class A common stock, par
value $0.001 per share. Under the terms of an exchange agreement between
Silicon Graphics, Inc. and the Company, Silicon Graphics exchanged each share
of Class A common stock it owned immediately after the recapitalization for
one share of Class B common stock, par value $0.001 per share, of the
Company. The recapitalization, including (1) the adoption of the amended and
restated certificate of incorporation and the amended and restated by-laws of
the Company and (2) the exchange by Silicon Graphics of its shares of Class A
common stock for Class B common stock, was approved on March 31, 1999 by
Silicon Graphics and the holders of a majority of the shares of the Company's
common stock other than Silicon Graphics. Silicon Graphics currently
beneficially owns all of the outstanding shares of Class B common stock and
no shares of Class A common stock.
The holders of the Class A common stock, voting separately as a
class, are entitled to elect 20% of the members of the Company's board of
directors, and in no event less than one director. The holders of the Class B
common stock, voting separately as a class, are entitled to elect the
remaining members of the board of directors. After a distribution by Silicon
Graphics of its interest in the Company in a transaction intended to
generally qualify as a tax-free distribution under the Internal Revenue Code
(a "Tax-Free Distribution"), a person or group of persons acting in concert
holding 10% or more of the outstanding shares of Class B common stock must
own at least an equal percentage of the Class A common stock in order to
exercise its or their Class B common stock voting rights in the election of
directors. In all other matters submitted to a vote of stockholders, each
share of Class A and Class B common stock is entitled to one vote, and the
holders of the Class A and Class B common stock vote together as a single
class. Prior to the recapitalization, each share of common stock was entitled
to one vote in all matters submitted to a vote of stockholders, including the
election of directors, and all shares of common stock voted together as a
single class.
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 dividends and upon liquidation. The Company's
certificate of incorporation, as amended and restated in connection with the
recapitalization, contains provisions pursuant to which, under certain
circumstances, all outstanding shares of Class B common stock may be
exchanged for, or will be automatically converted into, shares of Class A
common stock on a one-for-one basis. Prior to the recapitalization, shares of
the Company's common stock were not convertible or exchangeable. For a
description of these and certain other provisions of the Company's
certificate of incorporation regarding the rights of holders of the Class A
and Class B common stock, see "Description of Capital Stock" on pages 61
through 63 of Amendment No. 4 to Form S-1 (File No. 333-73071) filed by the
Company on May 13, 1999 with the Securities and Exchange Commission, which
description is hereby incorporated by reference herein.
(b) Not applicable.
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(c) Pursuant to an Exchange Agreement between Silicon Graphics, Inc.
and the Company and in connection with the recapitalization of the authorized
capital stock of the Company, on April 5, 1999, Silicon Graphics exchanged
all of the 31,750,000 shares of Class A common stock it owned for 31,750,000
shares of Class B common stock. The shares of Class B common stock received
by Silicon Graphics in exchange for the shares of Class A common stock it
owned following the recapitalization were securities exempt from registration
pursuant to Section 3(a)(9) of the Securities Act of 1933.
(d) Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of the stockholders of the Company was held on
March 31, 1999 to consider and vote upon a proposal to recapitalize the
authorized capital stock of the Company (the "Recapitalization"), including
(a) the approval and adoption of the Company's proposed amended and restated
certificate of incorporation and the proposed amended and restated by-laws,
pursuant to which each issued and outstanding share of the Company's existing
common stock would be redesignated as one share of newly created and issued
Class A common stock, and (b) the exchange by Silicon Graphics, upon
consummation of the recapitalization and pursuant to an Exchange Agreement
between Silicon Graphics and the Company, of each share of Class A common
stock owned by Silicon Graphics for one share of newly created and issued
Class B common stock.
The following reflects the votes cast for and against the
Recapitalization, as well as the number of abstentions and broker non-votes
with respect to the Recapitalization:
<TABLE>
<S> <C>
----------------------------------------------------------------
Votes Cast For The Recapitalization: 36,434,802
----------------------------------------------------------------
Votes Cast Against The Recapitalization: 35,180
----------------------------------------------------------------
Abstentions: 2,218
----------------------------------------------------------------
Broker Non-Votes -
----------------------------------------------------------------
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 Amended and Restated By-Laws of the Registrant.
27.1 Financial Data Schedule.
99.1 "Description of Capital Stock," as contained on pages 61
through 63 of Amendment No. 4 to Form S-1 (File No. 333-73071) filed by the
Company on May 13, 1999 with the Securities and Exchange Commission.
(B) REPORTS ON FORM 8-K.
A current report on Form 8-K dated February 26, 1999 was filed with the
Securities and Exchange Commission (the "SEC") to report under Item 5
of that form in order to update certain disclosures contained in the
Company's Quarterly Report on Form 10-Q for the quarter ended December
31, 1998 under the caption
21
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"Factors that May Affect our Business."
ITEMS 3 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MIPS Technologies, Inc.
a Delaware corporation
By: /s/ KEVIN C. EICHLER
-------------------------------------------
Kevin C. Eichler
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: May 13, 1999
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of the Registrant.
3.2 Amended and Restated By-Laws of the Registrant.
27.1 Financial Data Schedule.
99.1 "Description of Capital Stock," as contained on pages 61 through 63
of Amendment No. 4 to Form S-1 (File No. 333-73071) filed by the
Company on May 13, 1999 with the Securities and Exchange Commission.
</TABLE>
24
<PAGE>
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").
(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
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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.
(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
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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).
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
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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 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
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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 if, at a meeting of stockholders called to approve
such conversion, such conversion receives 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, 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 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. 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 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.
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(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 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.
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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.
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.
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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
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
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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. (i) If, prior to a Tax-Free Spin-Off (A) 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
Corporation an opinion of counsel reasonably satisfactory to Silicon
Graphics that such Change in Tax Law would apply to a Tax-Free Spin-Off,
then Silicon Graphics shall, and shall cause each of its subsidiaries (other
than the Corporation) to, exchange all of the shares of Class B Common Stock
that it owns, directly or indirectly, for shares of Class A Common Stock on
a one-for-one basis.
(ii) 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)(ii) 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)(ii) 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
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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.
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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
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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
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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
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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
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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.
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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 8:30 a.m. (Wilmington, Delaware time), April 5, 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 1st day of April, 1999.
<TABLE>
<S> <C> <C>
MIPS TECHNOLOGIES, INC.
By: /s/ John E. Bourgoin
-----------------------------------------
Name: John E. Bourgoin
Title: President and Chief Executive
Officer
ATTEST:
/s/ Kevin C. Eichler
- ------------------------------
Name: Kevin C. Eichler
Title: Vice President and
Chief Financial Officer
</TABLE>
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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
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,
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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 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
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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.
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
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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 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
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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.
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.
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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 herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
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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 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.
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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.
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
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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 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
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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 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
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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.
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
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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.
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET, STATEMENT OF OPERATIONS AND STATEMENT OF CASH FLOWS INCLUDED IN THE
COMPANY'S FORM 10-Q FOR THE PERIOD ENDING DECEMBER 31, 1998 AND DECEMBER 31,
1997.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 40,532
<SECURITIES> 0
<RECEIVABLES> 3,123
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 44,664
<PP&E> 8,146
<DEPRECIATION> 4,886
<TOTAL-ASSETS> 49,023
<CURRENT-LIABILITIES> 14,911
<BONDS> 0
0
0
<COMMON> 37
<OTHER-SE> 33,700
<TOTAL-LIABILITY-AND-EQUITY> 49,023
<SALES> 0
<TOTAL-REVENUES> 53,927
<CGS> 125
<TOTAL-COSTS> 125
<OTHER-EXPENSES> 24,540
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 30,170
<INCOME-TAX> 12,068
<INCOME-CONTINUING> 18,102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,102
<EPS-PRIMARY> .49
<EPS-DILUTED> .47
</TABLE>
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our certificate of incorporation was amended in connection with the
recapitalization to include a variety of provisions regarding our dual class
capital structure. The following table sets forth a general description of the
relative rights of the holders of the Class A and Class B common stock as well
as the various conversion and exchange provisions of our capital stock. The
following description of our capital stock is intended as a summary only and is
qualified in its entirety by reference to our amended and restated certificate
of incorporation filed with the Registration Statement of which this Prospectus
forms a part.
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AUTHORIZED CAPITAL
STOCK............. 300,000,000 shares
COMMON STOCK...... - 150,000,000 shares of Class A common stock
- 100,000,000 shares of Class B common stock
PREFERRED STOCK... - 50,000,000 shares of preferred stock, issuable in series
OUTSTANDING CAPITAL
STOCK............. As of the date this Prospectus (without giving effect to this
offering), there are 5,584,707 shares of Class A common stock
outstanding, 31,750,000 shares of Class B common stock outstanding and
no shares of preferred 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 and Class
B common stock that will be outstanding following this offering will
be validly issued, fully paid and nonassessable.
VOTING RIGHTS:
ELECTION OF
DIRECTORS....... - Holders of Class A common stock, voting as a separate class, will be
entitled to elect 20% of the directors, and in no event less than one
director. Each share of Class A common stock has one vote in the
election of such directors.
- Holders of Class B common stock, voting as a separate class, will be
entitled to elect the remaining directors.
- After a Tax-Free Distribution, a person or group of persons acting
in concert holding 10% or more of the Class B common stock must own at
least an equal percentage of the Class A common stock to exercise
its or their Class B common stock voting rights in the election of
directors. 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.
- Our certificate of incorporation does not provide for cumulative
voting in the election of directors.
ALL OTHER
MATTERS......... Each share of Class A common stock and Class B common stock is
entitled to one vote, voting together as a single class, in all other
matters submitted to a vote of stockholders (except as otherwise
required by law).
DIVIDENDS........... Holders of Class A common stock and Class B common stock will share,
equally on a per share basis, in all dividends declared by the Board
of Directors from time to time; provided that with respect to stock
dividends, holders of
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shares of Class A common stock will only receive shares of Class A
common stock and holders of shares of Class B common stock will only
receive 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.
We may not subdivide or combine shares of either class of our common
stock without at the same time proportionally subdividing or combining
shares of the other class.
CONVERSION.......... Shares of Class B common stock are convertible into shares of Class A
common stock upon the occurrence of the following events:
- Automatically if, prior to a Tax-Free Distribution, such shares are
transferred to a person other than Silicon Graphics or one of its
subsidiaries.
- Automatically if, prior to a Tax-Free Distribution, another entity
acquires more than 50% of the voting power of Silicon Graphics in a
merger, consolidation or tender offer.
- Automatically (1) upon the closing of any transaction prior to a
Tax-Free Distribution after which Silicon Graphics owns less than 50%
of the total number of shares of Class A common stock and Class B
common stock outstanding, unless our independent directors and chief
executive officer determine prior to any such transaction that such
automatic conversion is not in our interests or the interests of our
public stockholders, and (2) in any event if, prior to a Tax-Free
Distribution, Silicon Graphics owns less than 30% of the total
number of shares of Class A common stock and Class B common stock
outstanding. These provisions are intended to ensure that Silicon
Graphics retains control of our board of directors only if it has a
substantial economic interest in us. These two automatic conversion
provisions will not apply following a Tax-Free Distribution.
- Automatically immediately prior to the effectiveness of any merger
or consolidation of us in which all or substantially all of our
capital stock is exchanged for the stock of another entity and our
stockholders 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.
- Automatically at any time after the fifth anniversary of a Tax-Free
Distribution upon the approval of such conversion by the holders of a
majority of the Class A common stock and Class B common stock,
voting as a single class.
Automatic conversion pursuant to the last two provisions described
above will not occur if the inclusion of such provisions in our
certificate of incorporation would have a material adverse effect on
Silicon Graphics' ability to timely obtain a favorable ruling from the
Internal Revenue Service that the distribution to its stockholders of
its interest in us would be tax-free.
Shares of Class B common stock will not be automatically converted
into shares of Class A common stock:
- in any transfer effected in connection with a distribution of shares
of Class B common stock to stockholders of Silicon Graphics in a
transaction intended to qualify as a Tax-Free Distribution, or
- 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.
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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 be automatically converted into shares of Class
B common stock.
All conversions will be effected on a one-for-one basis.
EXCHANGE............ Silicon Graphics will be obligated to exchange all of the outstanding
shares of Class B common stock that it owns for shares of Class A
common stock on a one-for-one basis if, prior to a Tax-Free
Distribution, the Internal Revenue Code is amended to provide, in
effect, that, generally, in a tax-free spin-off or split-off of a
subsidiary, the distributing company must hold at least 80% of the
value of the subsidiary's stock (in addition to 80% of the voting
power), and such amendment would apply to a Tax-Free Distribution by
Silicon Graphics of its interest in us.
At any time following a Tax-Free Distribution, we 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, that this provision will have no force or effect if
the inclusion of this provision in our certificate of incorporation
would have a material adverse effect on Silicon Graphics' ability to
timely obtain a favorable ruling from the Internal Revenue Service
regarding the tax-free status of the Tax-Free Distribution. On May 7,
1999, Silicon Graphics delivered to us an opinion of counsel to the
effect that the inclusion of this exchange provision in our
certificate of incorporation would have such an effect. As a result,
this provision has been rendered inoperative pursuant to its terms
and, therefore, is unavailable to us to eliminate the dual class
capital structure.
MERGERS AND
REORGANIZATIONS... All shares of Class A common stock and Class B common stock are
entitled to receive equally on a per share basis the same kind and
amount of consideration in the event of any merger, reorganization or
consolidation of us with any other company; provided, however, that,
in the event that all of the shares of Class B common stock have not
been converted into or exchanged for shares of Class A common stock,
in connection with a merger, reorganization or consolidation of us in
which all or substantially all of our common stock will be exchanged
for stock of another entity and the transaction is required to be
accounted for by the "pooling-of-interests" method, the holders of
Class A common stock and Class B common stock will be entitled to
receive shares of stock of the acquiring entity based on the relative
fair value of a share of the Class A common stock and a share of Class
B common stock as of the announcement date for such transaction.
LIQUIDATION......... All shares of Class A common stock and Class B common stock are
entitled to receive equally on a per share basis all assets available
for distribution to stockholders.
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 our common stock.
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