<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 11, 1999
REGISTRATION NO. 333-73071
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
MIPS TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 3674 77-0322161
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification
Organization) Number)
</TABLE>
1225 CHARLESTON ROAD
MOUNTAIN VIEW, CALIFORNIA 94043
(650) 567-5000
(Address, Including Zip Code, and Telephone Number, Including Area Code,
Of Registrant's Principal Executive Offices)
JOHN E. BOURGOIN
MIPS TECHNOLOGIES, INC.
1225 CHARLESTON ROAD
MOUNTAIN VIEW, CALIFORNIA 94043
(650) 567-5000
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
------------------
COPIES TO:
WILLIAM H. HINMAN, JR. DONALD M. KELLER, JR.
Shearman & Sterling Venture Law Group,
1550 El Camino Real A Professional Corporation
Menlo Park, California 94025 2800 Sand Hill Road
(650) 330-2200 Menlo Park, California 94025
(650) 854-4488
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
On March 1, 1999, MIPS Technologies, Inc. filed a definitive proxy statement
(the "Proxy Statement") with the U.S. Securities and Exchange Commission
relating to a special meeting of its stockholders called for the purpose of
approving a proposal to recapitalize the authorized capital stock of MIPS
Technologies, including (1) the approval and adoption of an amended and restated
certificate of incorporation and by-laws of MIPS Technologies pursuant to which
each issued and outstanding share of MIPS Technologies' common stock, par value
$0.001 per share, will be redesignated as one share of newly created and issued
Class A common stock, par value $0.001 per share (the "Class A Common Stock"),
of MIPS Technologies and (2) the exchange by Silicon Graphics, Inc. of each
share of Class A Common Stock it will own for one share of newly created and
issued Class B common stock, par value $0.001 per share, of MIPS Technologies
(the "Recapitalization"). The offering of shares of Class A Common Stock
described in the prospectus contained herein will only be consummated if the
Recapitalization is approved by MIPS Technologies' stockholders and effected by
MIPS Technologies, as described in the Proxy Statement. All information in this
Registration Statement and the prospectus contained herein, other than the
consolidated financial statements, assumes that the Recapitalization is approved
by the stockholders of MIPS Technologies and becomes effective.
<PAGE>
SUBJECT TO COMPLETION. DATED MARCH 11, 1999.
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
6,000,000 Shares
[LOGO]
Class A Common Stock
-------------
This is an offering of shares of Class A Common Stock of MIPS Technologies,
Inc. Silicon Graphics, Inc., a Delaware corporation, is offering all of the
shares. MIPS Technologies will not receive any of the proceeds from the sale of
the shares. The holders of MIPS Technologies' Class A Common Stock have the
right, voting as a class, to elect 20% (but in no event less than one) of the
members of MIPS Technologies' board of directors, while the holders of MIPS
Technologies' Class B Common Stock have the right to elect the remaining
directors. The Class A Common Stock and Class B Common Stock are substantially
identical in all other respects. Silicon Graphics owns all of the outstanding
shares of Class B Common Stock. Upon completion of this offering, Silicon
Graphics will own 69% of the total outstanding Class A Common Stock and Class B
Common Stock (or 67% if the Underwriters' overallotment option is exercised in
full), consisting solely of shares of Class B Common Stock.
MIPS Technologies' common stock is traded on The Nasdaq National Market
under the symbol "MIPS". MIPS Technologies will apply to redesignate MIPS
Technologies' existing common stock as Class A Common Stock under the symbol
"MIPS". On March 10, 1999, the last reported sale price of MIPS Technologies'
common stock on The Nasdaq National Market was $40.88 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 TO READ ABOUT CERTAIN FACTORS YOU
SHOULD CONSIDER BEFORE BUYING SHARES OF THE CLASS A COMMON STOCK.
------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------
<TABLE>
<CAPTION>
Per Share Total
---------- ----------
<S> <C> <C>
Initial public offering price...................................... $ $
Underwriting discount.............................................. $ $
Proceeds, before expenses, to Silicon Graphics..................... $ $
</TABLE>
The underwriters may, under certain circumstances, purchase up to an
additional 900,000 shares from Silicon Graphics at the initial public offering
price less the underwriting discount.
------------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
GOLDMAN, SACHS & CO.
CREDIT SUISSE FIRST BOSTON
BANCBOSTON ROBERTSON STEPHENS
------------
Prospectus dated , 1999.
<PAGE>
[ARTWORK TO COME]
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION ABOUT OUR COMPANY AND OUR FINANCIAL STATEMENTS AND THE NOTES TO
THOSE STATEMENTS INCLUDED ELSEWHERE IN THIS PROSPECTUS.
MIPS TECHNOLOGIES, INC.
MIPS Technologies is a leading designer of high-performance embedded 32- and
64-bit reduced instruction set computing (RISC) processors and related
intellectual property. Our 32- and 64-bit architectures enable a wide variety of
increasingly sophisticated consumer devices and business equipment. We are the
only company that currently offers embedded 64-bit processor designs for
high-volume digital consumer product applications.
We license our core processor designs and related intellectual property to
semiconductor manufacturing companies, fabless semiconductor companies and
system original equipment manufacturers. Together with our licensees, we offer a
variety of high-performance, scalable processors in standard, custom,
semi-custom and application-specific products. Our licensees include, among
others, Broadcom Corporation, Integrated Device Technology, Inc., LSI Logic
Corporation, NEC Corporation, NKK Corporation, Philips Semiconductors, Quantum
Effect Design, Inc., Texas Instruments, Inc. and Toshiba Corporation.
Our licensees currently offer over 60 standard processors based on our RISC
architecture which have a cumulative installed base of over 120 million units.
According to INSIDE THE NEW COMPUTER INDUSTRY, an industry trade publication,
the market for RISC-based processors totaled approximately 133 million units in
calendar year 1998, a 36% increase over 1997. Based on industry sources, we
believe that more than one third of these units were based on the MIPS RISC
architecture.
Our primary target market is the emerging market for digital consumer
products. We believe that our 32- and 64-bit processor designs are well suited
for this market due to the scalability and performance of our RISC architecture
and the cost and time-to-market advantages provided by our intellectual
property. We have achieved several significant design wins in this market,
including video games such as the Nintendo 64 and Sony PlayStation, handheld
personal computers such as the NEC MobilePro, the Philips Nino, the Sharp
Mobilon TriPad and the Vadem Clio, digital set-top boxes such as EchoStar's Dish
Network and General Instrument's DVi-5000+ and Internet appliances from WebTV.
THE OFFERING
The following information assumes that the underwriters do not exercise the
option granted by Silicon Graphics to purchase additional shares in the
offering. See "Underwriting". The outstanding share information excludes
7,817,714 shares of Class A Common Stock reserved for issuance under our stock
option and stock purchase plans.
<TABLE>
<S> <C>
Class A Common Stock
offered by Silicon
Graphics(1)............ 6,000,000 shares
Class A Common Stock to
be outstanding after
this offering.......... 11,542,286 shares
Class A and Class B
Common Stock to be
outstanding after this
offering............... 37,292,286 shares
Nasdaq National Market
symbol................. "MIPS"
</TABLE>
- --------------
(1) Silicon Graphics currently owns 31,750,000 shares of Class B Common Stock
and no shares of Class A Common Stock. Under the terms of our certificate of
incorporation, as amended as a result of the recapitalization, upon the
transfer by Silicon Graphics of 6,000,000 shares of Class B Common Stock to
the Underwriters in connection with this offering, such shares of Class B
Common Stock will be automatically converted into shares of Class A Common
Stock on a one-for-one basis.
3
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The historical financial information presented below, particularly for periods
prior to the third quarter of fiscal 1998, may not be indicative of our future
performance and does not necessarily reflect what our financial position and
results of operations would have been had we operated as a separate, stand-alone
entity during the periods covered. The historical financial information for such
periods does not reflect many significant changes that have occurred in our
funding and operations and the sources and costs of our revenue as a result of
both the separation of our business from that of Silicon Graphics and our shift
in strategic direction. The per share data excludes 7,817,714 shares of Class A
Common Stock reserved for issuance under our stock option and stock purchase
plans, of which 4,117,000 shares were subject to outstanding options as of
December 31, 1998. See "Management--1998 Long-Term Incentive Plan" and
"Management--Director Compensation".
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Royalties............................ $ 8,402 $ 13,576 $ 19,716 $ 37,192 $ 55,980 $ 26,759 $ 24,854
Contract revenue..................... 8,962 13,903 17,327 3,115 830 827 2,400
--------- --------- --------- --------- --------- --------- ---------
Total revenue........................ 17,364 27,479 37,043 40,307 56,810 27,586 27,254
Total costs and expenses............. 36,524 57,430 64,609 81,092 56,427 43,321 15,323
Net income (loss).................... (19,230) (30,020) (27,665) (40,835) 376 (15,746) 7,421
Net income (loss) per basic share.... $ (0.53) $ (0.83) $ (0.77) $ (1.13) $ 0.01 $ (0.44) $ 0.20
Net income (loss) per diluted
share.............................. (0.53) (0.83) (0.77) (1.13) 0.01 (0.44) 0.19
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................ $ 26,052
Working capital...................................................................... 19,065
Total assets......................................................................... 33,289
Total stockholders' equity........................................................... 22,872
</TABLE>
-----------------
THE RECAPITALIZATION AND OUR RELATIONSHIP WITH SILICON GRAPHICS
On January 14, 1999, Silicon Graphics announced its intention to dispose of
its interest in us by September 30, 2000. Silicon Graphics has advised us that
this divestiture could occur through one or more transactions. The timing and
form of any disposition will be subject to market and other conditions. Silicon
Graphics could dispose of shares of our common stock in public or private
offerings, in a dividend or other distribution to its stockholders, in an
exchange offer for outstanding shares of its common stock, or otherwise. Other
than this offering, Silicon Graphics has not formulated any definitive plans
regarding the divestiture of its interest in us. See "The Recapitalization" for
a discussion of certain matters regarding Silicon Graphics' ability to dispose
of shares of our common stock in the near term.
THE RECAPITALIZATION. In light of Silicon Graphics' intention to dispose of
its interest in us, we effected a recapitalization of our capital stock on
, 1999. The recapitalization was designed to permit an orderly,
multi-step increase in the number of shares of our common stock that are
publicly traded while preserving Silicon Graphics' ability to dispose of its
remaining interest in us in a transaction that is intended to be tax-free to
Silicon Graphics and its stockholders. As part of the recapitalization, our
common stock was
4
<PAGE>
redesignated as Class A Common Stock. Following the recapitalization, Silicon
Graphics exchanged the Class A Common Stock it owned for Class B Common Stock.
As a result, Silicon Graphics presently 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 as a class, are entitled to
elect 20% of the members of our board of directors. The holders of the Class A
Common Stock will elect one director to our board of directors at our 1999
annual meeting of stockholders. Silicon Graphics, as the holder of all of the
outstanding shares of Class B Common Stock, is entitled to elect our remaining
directors. Additional information regarding the terms of the Class A and Class B
Common Stock, including a description of certain conversion and exchange
provisions, can be found on pages 64 through 67.
RELATIONSHIP BETWEEN US AND SILICON GRAPHICS. Silicon Graphics is entitled
to elect six of the seven members of our board of directors and, following this
offering, will own approximately 69% of the total outstanding shares of Class A
and Class B Common Stock (67% if the underwriters' overallotment option is
exercised in full). Accordingly, Silicon Graphics will have the ability to
exercise a controlling influence over our business and affairs.
In connection with the recapitalization, we agreed to enter into a
distribution tax indemnification agreement with Silicon Graphics. This agreement
will apply if Silicon Graphics distributes all of its interest in us in a
transaction intended to be tax-free to Silicon Graphics and its stockholders.
The agreement will contain provisions limiting our ability to issue our capital
stock following a tax-free distribution and prohibiting certain other actions.
The agreement will also impose certain indemnification obligations on us with
respect to a tax-free distribution. In addition, at the time of our initial
public offering and the separation of our business from that of Silicon
Graphics, we entered into certain agreements with Silicon Graphics governing
various relationships between the two companies. Information regarding these
agreements can be found on pages 55 through 62.
Our headquarters are located at 1225 Charleston Road, Mountain View,
California 94043, and our telephone number is (650) 567-5000.
5
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING ANY
INVESTMENT DECISION. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE
ONLY ONES FACING OUR COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES ALSO MAY IMPAIR
OUR BUSINESS OPERATIONS. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR
BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS WOULD LIKELY SUFFER. IN
SUCH CASE, THE TRADING PRICE OF OUR CLASS A COMMON STOCK COULD DECLINE, AND YOU
MAY LOSE ALL OR PART OF YOUR INVESTMENT.
THIS PROSPECTUS CONTAINS FORWARD LOOKING STATEMENTS BASED ON OUR CURRENT
EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT OUR COMPANY AND OUR
INDUSTRY. THESE FORWARD LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED
IN SUCH STATEMENTS AS A RESULT OF CERTAIN FACTORS, AS MORE FULLY DESCRIBED IN
THIS SECTION AND ELSEWHERE IN THIS PROSPECTUS.
A SIGNIFICANT PORTION OF OUR REVENUE IS GENERATED FROM A FEW SEMICONDUCTOR
COMPANIES
We have derived a significant portion of our total revenue from a limited
number of semiconductor companies, and we expect this to continue. For the
fiscal years ended June 30, 1996, 1997 and 1998 and for the first six months of
fiscal 1999, NEC accounted for approximately 31%, 23%, 13% and 16%,
respectively, of our revenue. We believe that NEC will continue to represent
more than 10% of our total revenue for at least the next several years, although
NEC is not obligated to continue using our technology in current or future
products. While we continue to broaden our base of licensees, it is likely that
our revenue will continue to be concentrated among a small number of
semiconductor companies. The identity of particular licensees that will account
for this revenue concentration will vary from period to period depending on the
addition or expiration of contracts, the nature and timing of payments due under
our contracts and the volumes and prices at which our licensees sell products
incorporating our technology.
A SIGNIFICANT PORTION OF OUR REVENUE IS CURRENTLY DERIVED FROM A FEW PRODUCTS
To date, we have derived a substantial portion of our total revenue from
contract revenue and royalties earned on sales of video game products. In
particular, revenue from Nintendo and NEC relating to Nintendo 64 video game
players and related cartridges accounted for 23%, 69%, 79% and 75% of our total
revenue for the fiscal years ended June 30, 1996, 1997 and 1998 and the first
six months of fiscal 1999, respectively.
We anticipate that royalties related to sales of Nintendo 64 video game
cartridges will continue to represent a substantial portion of our total revenue
for the next several years. Accordingly, factors negatively affecting sales of
Nintendo 64 video game cartridges could have a material adverse effect on our
results of operations and financial condition.
The market for home entertainment products is competitive and the
introduction of new products or technologies, as well as shifting consumer
preferences, could negatively impact the amount and timing of sales of Nintendo
64 video game players and related cartridges. In addition, the eventual
introduction of the next generation Nintendo video game system is likely to
result in declining sales of Nintendo 64 video game players and related
cartridges, although sales of video game cartridges, which account for a
significant portion of our royalties, will continue, albeit at a declining rate,
for a period of time after the introduction. We developed key elements of the
Nintendo 64 system in conjunction with Silicon Graphics. These elements included
certain software and graphics technologies which, as a result of our separation
from Silicon Graphics and our shift in strategic direction in early 1998, we no
longer offer. Accordingly, we will need to generate revenue growth from our
stated markets to offset the eventual decline of
6
<PAGE>
Nintendo 64 royalties. We understand that the next generation Nintendo video
game system will not incorporate any of our technology. We value our
relationship with Nintendo; however, there can be no assurance that this
relationship will result in any revenues for us other than those generated by
the sale of Nintendo 64 video game players and related cartridges. In May 1998,
we entered into a memorandum of understanding with Silicon Graphics, Nintendo
Co. Ltd. and ArtX, Inc. resolving certain disputes among the parties. See
"Business -- Litigation".
Although we expect that an increasingly significant portion of our future
revenue will be related to sales of digital consumer and business equipment
products, our technology may not be selected for design into any such products.
Accordingly, we may remain significantly dependent on revenue related to sales
of video game products, which may decline. Our ability to diversify our sources
of revenue is still uncertain and will depend on whether our processors and
related designs are accepted in a broader range of digital consumer products and
business equipment. Our experience in these markets is limited because, prior to
1998, we were focused primarily on the development of high performance
processors for Silicon Graphics' workstations and related designs. Our new focus
requires us to shift our research and development efforts and places an
increased importance on our sales and marketing efforts. As we shift our
direction, the identity of significant products may vary from period to period
depending on the addition of new contracts and the number of designs using our
technology.
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS
Our revenue and operating results may vary significantly from quarter to
quarter due to a number of factors, many of which are outside of our control.
These factors include:
- - the demand for and average selling prices of semiconductor products that
incorporate our technology;
- - the financial terms of our contractual arrangements with our semiconductor
licensees, which may provide for significant up-front payments or payments
based on the achievement of certain milestones;
- - the relative mix of contract revenue and royalties;
- - competitive pressures resulting in lower contract revenue or royalty rates;
- - our ability to develop, introduce and market new processor intellectual
property;
- - the establishment or loss of licensing relationships with semiconductor
manufacturing companies, fabless semiconductor companies or system original
equipment manufacturers;
- - the timing of new products and product enhancements by us and our
competitors;
- - changes in development schedules, research and development expenditure levels
and product support by us and digital consumer product manufacturers;
- - seasonal fluctuations; and
- - general economic and market conditions.
Our revenue components are difficult to predict and may fluctuate
significantly from period to period. Because our expenses are largely
independent of our revenue in any particular period, it is difficult to
accurately forecast our operating results. Our operating expenses are based, in
part, on anticipated future revenue and a high percentage of our expenses are
fixed in the short term. As a result, if our revenue is below expectations in
any quarter, the adverse effect may be magnified by our inability to adjust
spending in a timely manner to compensate for the revenue shortfall.
We also expect to experience seasonal fluctuations in our revenue and
operating results because revenue related to sales of digital consumer products
is expected to constitute a substantial portion of our total revenue over the
next several years. We
7
<PAGE>
typically record royalty revenue from our licensees, including Nintendo, in the
quarter following the sale of the related digital consumer product. Because a
disproportionate amount of Nintendo 64 video game cartridges are typically sold
in our second fiscal quarter (which includes the holiday selling season), we
have realized a disproportionate amount of our revenue and operating income in
our third fiscal quarter. We expect that these seasonal fluctuations will
continue as we increase our focus on processors, cores and related designs for
high-volume digital consumer products.
In light of the foregoing and the other risks discussed in this section, we
believe that quarter-to-quarter comparisons of our revenue and operating results
may not be a good indication of our future performance. It is possible that in
some future periods our results of operations may be below the expectations of
public market analysts and investors. In this event, the price of our Class A
Common Stock may fall.
SILICON GRAPHICS CAN EXERCISE A CONTROLLING INFLUENCE OVER OUR BUSINESS AND
AFFAIRS
Silicon Graphics presently owns all of our issued and outstanding Class B
Common Stock, representing approximately 85% of the total outstanding Class A
and Class B Common Stock. Upon completion of this offering, Silicon Graphics
will continue to own all of our outstanding Class B Common Stock, representing
approximately 69% of the total outstanding Class A and Class B Common Stock (67%
if the underwriters' over-allotment option is exercised in full). Accordingly,
Silicon Graphics will be able to direct the election of 80% of our directors
(rounded up to the nearest whole director) and to exercise a controlling
influence over our business and affairs, including:
- - any determinations with respect to mergers or other business combinations;
- - the acquisition or disposition of assets;
- - future issuances of debt and equity securities; and
- - the payment of dividends on our common stock.
Similarly, for so long as Silicon Graphics continues to beneficially own in
excess of 50% of the outstanding Class A and Class B Common Stock, it will have
the power to determine matters submitted to a vote of our stockholders without
the consent of other stockholders, will have the power to prevent or cause a
change in control of us and could take other actions that might be favorable to
Silicon Graphics.
Because Silicon Graphics presently owns more than 80% of the voting power
and value of our common stock, we are a member of Silicon Graphics' consolidated
federal income tax group. When Silicon Graphics reduces its economic interest in
us as a result of this offering, we will not be a member of Silicon Graphics'
consolidated group for federal income tax purposes and we will file federal,
state and local income tax returns separately from Silicon Graphics. However,
under federal income tax laws, we will remain jointly and severally liable for
the federal income tax liability of each other member of Silicon Graphics'
consolidated group arising during periods when we were a member of the group.
Under the terms of our tax sharing agreement with Silicon Graphics, Silicon
Graphics has the sole authority to respond to and conduct tax proceedings
(including tax audits) relating to us for such periods.
WE HAVE POTENTIAL CONFLICTS OF INTEREST WITH SILICON GRAPHICS WHICH COULD
ADVERSELY AFFECT US
Conflicts of interest may arise between us and Silicon Graphics in a number
of areas relating to our past and ongoing relationships, including:
- - potential competitive business activities;
- - indemnification arrangements, including with respect to the separation of our
business from that of Silicon Graphics and the recapitalization;
- - potential acquisitions or financing transactions;
8
<PAGE>
- - sales or other dispositions by Silicon Graphics of shares of our common
stock, including through the exercise of its registration rights or in a
tax-free distribution to its stockholders;
- - the exercise by Silicon Graphics of its ability to control our management and
affairs; and
- - tax and intellectual property matters.
Silicon Graphics does not currently engage in the design and development of
processor intellectual property for embedded systems applications, however, it
is not restricted from doing so. You should be aware that our certificate of
incorporation provides that Silicon Graphics has no duty to refrain from
engaging in the same or similar activities or lines of business as MIPS
Technologies. See "Description of Capital Stock -- Corporate Opportunities". We
cannot assure you that any conflicts that may arise between us and Silicon
Graphics will be resolved in a manner that does not have a material adverse
effect on us, even if such result is not intended by Silicon Graphics. In
addition, certain of the agreements that we entered into with Silicon Graphics
in connection with the separation of our business from that of Silicon Graphics
contain specific procedures for resolving disputes between the two companies
with respect to the subject matter of those agreements. We cannot assure you
that more favorable results to us would not be obtained under different
procedures.
Ownership interests of our directors or officers in the common stock of
Silicon Graphics or service as both a director of MIPS Technologies and an
officer or employee of Silicon Graphics could create or appear to create
potential conflicts of interest when directors and officers are faced with
decisions that could have different implications for MIPS Technologies and
Silicon Graphics. Four of the seven members of our board of directors are
officers or employees of Silicon Graphics. Our certificate of incorporation
includes provisions relating to the allocation of business opportunities that
may be suitable for both MIPS Technologies and Silicon Graphics based on the
relationship to the companies of the individual to whom the opportunity is
presented and the method by which it was presented. See "Description of Capital
Stock -- Corporate Opportunities".
WE ARE DEPENDENT ON THE MARKET FOR DIGITAL CONSUMER PRODUCTS
The digital consumer products industry is presently the primary market for
our processor, core and related designs. As a result, our success will depend
largely on consumer acceptance of the products that incorporate our technology.
Our dependence on the digital consumer products industry involves several risks
and uncertainties, including:
- - changes in consumer requirements and preferences;
- - the introduction of products by our competitors embodying new technologies or
features;
- - the potentially limited opportunities for design wins with respect to certain
digital consumer products, such as video game products, due to a limited
number of product manufacturers and the length of product life cycles;
- - the difficulty in predicting the level of consumer interest in and acceptance
of many digital consumer product applications, such as handheld personal
computers and set-top boxes, which have only recently been introduced to the
market; and
- - the current lack of open industry standards for hardware and software in the
digital consumer products industry.
Factors negatively affecting the digital consumer products industry could
have a material adverse effect on our business, results of operations and
financial condition. Moreover, to the extent that the performance,
functionality, price and power characteristics of our processor designs do not
satisfy those that may be critical to specific digital consumer product
applications, the use of our processors, cores and related designs may be
9
<PAGE>
further confined to a limited segment of that industry.
The timing and amount of royalties we receive depends on sales by digital
consumer product manufacturers of products incorporating our technology. The
process of persuading digital consumer product manufacturers to adopt our
technology can be lengthy. Even if our technology is adopted, we cannot be
certain that it will be used in a product that is ultimately brought to market,
achieves commercial acceptance or generates meaningful royalties for us. We are
subject to risks beyond our control that influence the success or failure of a
particular digital consumer product manufacturer, including:
- - the competition the manufacturer faces and the market acceptance of its
products;
- - the engineering, marketing and management capabilities of the manufacturer
and the technical challenges unrelated to our technology that it faces in
developing its products; and
- - the financial and other resources of the manufacturer.
If our technology is not adopted by digital consumer product manufacturers
and incorporated into the products they sell, our business could be materially
and adversely affected. Furthermore, because we do not control the business
practices of our licensees, we do not influence the degree to which our
licensees promote our technology or set the prices at which the products
incorporating our technology are sold to digital consumer product manufacturers.
OUR SUCCESS DEPENDS ON THE USE OF OUR TECHNOLOGY IN NEW PRODUCTS
Our future success will depend on the extent to which our processor, core
and related designs are incorporated into the products of leading digital
consumer product and business equipment manufacturers ("design wins"). This
requires that we develop enhancements and new generations of our processors,
cores and other intellectual property that satisfy the requirements of specific
product applications and introduce these new technologies to the marketplace in
a timely manner. We cannot assure you that our development efforts will be
successful or that we will not encounter significant delays. If our development
efforts are not successful or are significantly delayed, or if the
characteristics of our processors, cores and other intellectual property are not
compatible with the requirements of specific product applications, our ability
to achieve design wins may be limited. Our failure to achieve a sufficient
number of design wins could have a material adverse effect on our business,
results of operations and financial condition.
Technical innovations of the type critical to our success are inherently
complex and involve several risks, including:
- - our ability to anticipate and timely respond to changes in the requirements
of digital consumer product and business equipment manufacturers;
- - our ability to anticipate and timely respond to changes in semiconductor
manufacturing processes;
- - changing consumer preferences in the digital consumer products market;
- - the emergence of new standards in the semiconductor, digital consumer product
or business equipment industries;
- - the significant investment that is often required before commercial viability
is determined; and
- - the introduction by our competitors of products embodying new technologies or
features.
Any failure by us to adequately address these risks could render our
existing processor, core and related designs obsolete and could have a material
adverse effect on our business, results of operations and financial condition.
In addition, we cannot assure you that we will have the financial and other
resources necessary to develop processor, core and related designs in the
future, or that any enhancements or new generations of the
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technology that we develop will generate revenue in excess of the costs of
development.
PROTECTION OF OUR INTELLECTUAL PROPERTY IS CRITICAL TO OUR ABILITY TO COMPETE
Our success and ability to compete are substantially dependent on our
internally developed technologies and trademarks which we attempt to protect
through a combination of patent, trademark, copyright and trade secret laws. We
also use licensing agreements and employee and third-party nondisclosure and
assignment agreements to limit access to and distribution of our proprietary
information and to obtain ownership of technology prepared on a work-for-hire
basis.
Despite our efforts to protect our intellectual property rights,
unauthorized parties may attempt to copy or otherwise obtain and use our
technologies, including in the marketing and sale of unauthorized MIPS-based
clones. We intend to vigorously protect our intellectual property rights through
litigation and other means. However, there can be no assurance that we will be
able to enforce our rights or prevent other parties from designing and marketing
unauthorized MIPS-based products.
Policing the unauthorized use of our intellectual property is difficult, and
we cannot be certain that the steps we have taken will prevent the
misappropriation of our technologies, particularly in foreign countries where
the laws may not protect our proprietary rights as fully as in the United
States. In addition, we cannot be certain that others will not independently
develop or otherwise acquire the same or substantially equivalent technologies
as ours or that the steps we have taken to obtain ownership of contributed
intellectual property and to prevent misappropriation of our intellectual
property will be sufficient.
We own 54 U.S. patents on various aspects of our technology, with expiration
dates ranging from 2006 to 2017, and have an additional 15 U.S. patent
applications pending. We also own or have filed corresponding patents and
applications in various foreign jurisdictions. We cannot assure you that any of
our patent applications will be approved or that any of the patents that we own
will not be challenged, invalidated or circumvented by others or be of
sufficient scope or strength to provide us with any meaningful protection or
commercial advantage. Moreover, significant litigation regarding intellectual
property rights exists in our industry. We cannot be certain that third parties
will not make a claim of infringement against us or against our semiconductor
manufacturing licensees in connection with their use of our technology. Any
claims, even those without merit, could be time consuming to defend, result in
costly litigation and/or require us to enter into royalty or licensing
agreements. These royalty or licensing agreements, if required, may not be
available to us on acceptable terms or at all. A successful claim of
infringement against us or one of our semiconductor manufacturing licensees in
connection with its use of our technology could adversely affect our business.
We have entered into, and in the future may enter into, cross licensing
arrangements with others, including Silicon Graphics. Under these arrangements,
we license certain of our patents in exchange for patent licenses from such
licensees but do not generally transfer know-how or other proprietary
information. Although these types of cross licensing arrangements are common in
the semiconductor and processor industries, these arrangements may facilitate
the ability of such licensees, either alone or in conjunction with others, to
develop competitive products and designs.
We have entered into licensing arrangements with Silicon Graphics with
respect to certain of its intellectual property that we use in our business. As
a result of the separation, however, we no longer have full access to Silicon
Graphics' patents and other intellectual property. In the past, the MIPS Group
benefitted from its status as a division of Silicon Graphics in its access to
the intellectual property of third parties through licensing arrangements or
otherwise, and in the negotiation of the financial and other terms of
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<PAGE>
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 HISTORICAL FINANCIAL INFORMATION DOES NOT REFLECT THE RECENT CHANGES TO OUR
BUSINESS AND STRATEGY
The historical financial information included in this prospectus for periods
prior to the third quarter of fiscal 1998 does not reflect the many significant
changes in our cost structure that have occurred as a result of the separation
of our business from that of Silicon Graphics and our shift in strategic
direction. Such historical financial information also does not reflect changes
in our funding and operations that have resulted from our transition to a
separate, stand-alone entity.
For example, in anticipation of the more limited focus of our ongoing
research and development activities, we reduced our research and development
staff by 185 persons in the third quarter of fiscal 1998. This reduction
primarily reflects the transfer to Silicon Graphics of employees engaged in the
development of next generation processors for Silicon Graphics' systems.
However, the research and development activities of the employees transferred to
Silicon Graphics did not generate any material revenue for us in recent periods
and, therefore, the reduction in our research and development staff did not
have, and is not expected to have, a material effect on our revenue. In
particular, while the royalties we received from our licensees on their sales to
Silicon Graphics of products incorporating our technology represented
approximately 20% of our total revenue in fiscal 1996, such royalties
represented less than 5% of our total revenue in fiscal 1997 and fiscal 1998 and
less than 1% in the first six months of fiscal 1999.
In addition, our sales and marketing activities have increased as a result
of our shift in focus from the design of processors addressing the needs of
Silicon Graphics to the development, marketing and licensing of processor and
related designs for a wide variety of applications in the digital consumer
products industry.
WE NEED TO CONTINUE TO DEVELOP OUR ADMINISTRATIVE INFRASTRUCTURE
Prior to the separation of our business from that of Silicon Graphics in
June 1998, we operated as a division of Silicon Graphics and not as a separate
stand-alone company. Although we continue to be a majority owned subsidiary of
Silicon Graphics, Silicon Graphics has no obligation to assist us except as
described in "Arrangements Between MIPS Technologies and Silicon Graphics--
Management Services Agreement". If we fail to implement the operational,
administrative and other systems and infrastructure necessary to support our
business as a stand-alone company, our business, results of operations and
financial condition could be adversely affected.
OUR MARKETS ARE HIGHLY COMPETITIVE AND WE MAY BE UNABLE TO COMPETE EFFECTIVELY
Competition in the market for embedded processors is intense. We believe
that the principal competitive factors in our industry are performance,
functionality, price, customizability and power consumption. Our processors and
cores compete with those of ARM Holdings plc, Hitachi Semiconductor (America)
Inc. and PowerPC (an alliance between Motorola, Inc. and IBM Corporation),
although we also compete with semiconductor manufacturers whose product lines
include processors for embedded and non-embedded applications, including Intel
Corporation, National Semiconductor Corporation, Advanced Micro Devices, Inc.
and Motorola, Inc. In addition, we may face competition from the producers of
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unauthorized MIPS-based clones and non-RISC based technology designs.
To remain competitive, we must also differentiate our processors, cores and
related designs from those available or under development by the internal design
groups of semiconductor manufacturers, including some of our current and
prospective manufacturing licensees. Many of these internal design groups have
substantial programming and design resources and are part of larger
organizations with substantial financial and marketing resources. These internal
design groups may develop products that compete directly with ours or may
actively seek to license their own technology to third-party semiconductor
manufacturers.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater brand recognition, larger
customer bases as well as greater financial and marketing resources than we do.
This may allow them to respond more quickly than we can to new or emerging
technologies and changes in customer requirements. It may also allow them to
devote greater resources than we can to the development and promotion of their
technologies and products. In addition, we may face competition from non-RISC
based designs of technology. We cannot assure you that we will be able to
compete successfully or that competitive pressures will not materially and
adversely effect our business, results of operations and financial condition.
FUTURE DISPOSITIONS OF OUR COMMON STOCK BY SILICON GRAPHICS COULD ADVERSELY
AFFECT THE MARKET PRICE FOR OUR COMMON STOCK
Following this offering, Silicon Graphics will own approximately 25,750,000
shares of Class B Common Stock (or 24,850,000 if the underwriters' overallotment
option is exercised in full). Silicon Graphics is not obligated to retain these
shares, except that it has agreed not to sell or otherwise dispose of any shares
of Class A or Class B Common Stock for prior to 180 days after the completion of
this offering without the consent of our underwriters. This agreement does not
apply to a distribution by Silicon Graphics of all of the shares of Class B
Common Stock that it owns if, in order to avoid the application of certain
recently proposed tax legislation, such distribution must be completed prior to
the date which is 180 days after completion of this offering in order for it to
be tax-free to Silicon Graphics and its stockholders.
Silicon Graphics recently announced its intention to dispose of its entire
interest in us by September 30, 2000. Subject to the above restriction and
applicable federal securities laws, Silicon Graphics may dispose of all or a
portion of the shares of Class B Common Stock that it owns in one or more
transactions, including a public or private offering, a distribution of the
shares to its stockholders, an offer to exchange the shares for outstanding
shares of its common stock, or otherwise. Although it has not formulated
definitive plans to do so, Silicon Graphics expects its divestiture will include
a distribution of a significant number of shares of Class B Common Stock to its
stockholders in a transaction intended to generally qualify as a tax-free
distribution under the Internal Revenue Code, and any such distribution may be
preceded by additional public offerings of Class A Common Stock. Silicon
Graphics has registration rights with respect to its shares of Class B Common
Stock which would facilitate any future disposition. The actual timing and form
of any disposition will be subject to market and other conditions.
We cannot assure you as to the period of time that Silicon Graphics will
retain its shares of Class B Common Stock following this offering. Moreover, the
United States Treasury Department has recently proposed legislation which, if
enacted without modification, could result in the distribution by Silicon
Graphics of all of the Class B Common Stock it owns shortly after this offering.
See "The Recapitalization -- Proposed Tax Legislation". Any sale or distribution
by Silicon Graphics of a substantial amount of Class A or Class B Common Stock
in the public market or to its stockholders, or the perception that such a sale
or distribution could occur, could have an
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<PAGE>
adverse effect on the market price of the Class A Common Stock.
There can be no assurance that, in any transfer by Silicon Graphics of a
controlling interest in us, any of our public stockholders will be able to
participate in such a transaction or will realize any premium with respect to
their shares of Class A Common Stock.
WE ARE DEPENDENT ON OUR ABILITY TO HIRE AND RETAIN KEY PERSONNEL
Our future success depends to a significant extent on the continued
contributions of our key management, technical, sales and marketing personnel,
many of whom are highly skilled and difficult to replace. We do not have
employment agreements with any of our officers or key employees. We intend to
hire additional highly skilled personnel, particularly technical personnel, for
our anticipated research and development activities. Competition for qualified
personnel, particularly those with significant experience in the semiconductor
and processor design industries, is intense. The loss of the services of any of
our key personnel or our inability to attract and retain qualified personnel in
the future could have a material adverse effect on our business, results of
operations and financial condition. In particular, our ability to hire and
retain qualified engineering personnel is essential to meet our business goals.
OUR INTERNATIONAL OPERATIONS EXPOSE US TO
SPECIAL RISKS
A substantial portion of our revenue has been, and is expected to continue
to be, derived from customers outside the United States, primarily in Japan. For
the fiscal years ended June 30, 1996, 1997 and 1998 and for the first six months
of fiscal 1999, revenue from customers outside the United States represented
approximately 83%, 87%, 90% and 90%, respectively, of our total revenue.
To date, substantially all of our revenue from international customers has
been denominated in U.S. dollars. However, to the extent that the sales by our
manufacturing licensees to their customers are denominated in foreign
currencies, the royalties we receive on such sales could be subject to
fluctuations in currency exchange rates. If the effective price of the
technology we sell to our licensees were to increase due to fluctuations in
foreign currency exchange rates, demand for our technology could fall which
would, in turn, reduce our royalties. Because we cannot predict the amount of
non-U.S. dollar denominated revenue earned by our licensees, we have not
historically attempted to mitigate the effect that currency fluctuations may
have on our revenue, and we do not presently intend to do so in the future.
The relative significance of our international operations exposes us to a
number of additional risks, including:
- - political and economic instability;
- - reduced or limited protection for intellectual property;
- - export license requirements, tariffs and other trade barriers;
- - potentially adverse tax consequences; and
- - longer accounts receivable collection periods and greater difficulty in
collection of accounts receivable.
WE HAVE GROWN RAPIDLY AND MUST MANAGE OUR GROWTH EFFECTIVELY
Our ability to continue to grow successfully requires an effective planning
and management process. Although we have developed much of the financial,
operational and administrative capabilities previously provided to us by Silicon
Graphics, we will need to continue to improve these capabilities. Since June 30,
1998, we have increased our headcount substantially, from 63 employees at that
date to 110 employees at December 31, 1998. This increase includes the addition
of 24 employees in December 1998 to staff research and development activities at
our new development center in Denmark, as well as additional employees in our
sales and marketing staff.
Our growth has placed, and the recruitment and integration of additional
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employees will continue to place, a strain on our resources. Digital consumer
product manufacturers and our semiconductor manufacturing licensees typically
require significant engineering support in the design, testing and manufacture
of products incorporating our technology. Accordingly, increases in the adoption
of our technology can be expected to increase the strain on our personnel,
particularly our engineers.
OUR ABILITY TO RAISE CAPITAL IN THE FUTURE MAY BE LIMITED
Our future liquidity and capital requirements are expected to vary from
quarter to quarter, depending on various factors, including:
- - the cost, timing and success of our product development efforts;
- - the cost and timing of our sales and marketing activities;
- - the extent to which our existing and new technologies gain market acceptance;
- - the level and timing of royalty revenue;
- - competing technological and market developments; and
- - the costs of maintaining and enforcing patent claims and other intellectual
property rights.
Prior to our initial public offering in June 1998, our working capital needs
were satisfied by Silicon Graphics. Presently, Silicon Graphics has no
obligation to assist us, financially or otherwise, except as described in
"Arrangements Between MIPS Technologies and Silicon Graphics".
We believe that cash generated by our operations, together with our current
cash balance, will be sufficient to meet our operating and capital requirements
for the foreseeable future. However, we may in the future be required to raise
additional funds through public or private financing, strategic relationships or
other arrangements. We cannot be certain that any such financing will be
available on acceptable terms, or at all, and our failure to raise capital when
needed could have a material adverse effect on our business, operating results
and financial condition. Additional equity financing may be dilutive to the
holders of our common stock, and debt financing, if available, may involve
restrictive covenants. Moreover, strategic relationships, if necessary to raise
additional funds, may require that we relinquish our rights to certain
technology.
Our ability to issue shares of our common stock in connection with an
acquisition or in a public or private offering during the 30 months following a
tax-free distribution by Silicon Graphics of its interest in us will be limited
under the terms of a distribution tax indemnification agreement which we have
agreed to enter into with Silicon Graphics prior to a tax-free distribution. See
"Arrangements Between MIPS Technologies and Silicon Graphics -- Corporate
Agreement" and "-- Exchange Agreement".
WE DEPEND ON SEMICONDUCTOR COMPANIES TO LICENSE AND INCORPORATE OUR TECHNOLOGY
INTO THEIR PRODUCTS
We do not manufacture or sell processors containing our technology. Rather,
we license our technology to semiconductor companies and digital consumer
product manufacturers who then incorporate our technology into the products they
sell. In some cases, our licensees also add custom integration services and
derivative design technologies to enhance our processor designs. Accordingly,
the adoption and continued use of our technology by semiconductor companies is
important to our continued success. None of our current semiconductor company
licensees is obligated to license new or future generations of our processor
designs. We cannot assure you that we will be able to maintain our current
relationships or establish new relationships with additional licensees, and any
failure by us to do so could have a material adverse effect on our business. We
face numerous risks in obtaining agreements with semiconductor companies on
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terms consistent with our business model, including:
- - the lengthy and expensive process of building a relationship with a potential
licensee before there is any assurance of an agreement;
- - the fact that we may compete with the internal design teams of semiconductor
companies in the development of products using technologies that are similar
to or an alternative to ours;
- - the potential difficulties in persuading large semiconductor companies to
work with us, to rely on us for critical technology, and to disclose to us
proprietary manufacturing technology; and
- - the potential difficulties in persuading potential licensees to bear certain
development costs associated with our technology and to make other necessary
investments to produce embedded processors using our technology.
We are also subject to many risks beyond our control that influence the
success of our licensees, including, for example, the highly competitive
environment in which they operate, the market for their products, their
engineering capabilities and their financial and other resources. In addition,
our separation from Silicon Graphics may negatively affect certain of our
existing licensee relationships, insofar as Silicon Graphics was a factor in
establishing and maintaining the relationship or in negotiating the financial
and other terms of our contracts with such licensees (due to, for example,
Silicon Graphics' status as a customer of such licensees).
WE WILL NOT RECEIVE ANY PROCEEDS FROM THIS OFFERING
Silicon Graphics, as the sole selling stockholder in this offering, will
receive all of the net proceeds of this offering, realizing a gain of $
per share on the stock it is selling. Silicon Graphics' unrealized gain with
respect to the shares of our common stock it will own subsequent to this
offering (based upon the public offering price on the cover page of this
prospectus) is expected to approximate $ million ($
million if the underwriters' over-allotment option is exercised in full).
POTENTIAL YEAR 2000 PROBLEMS 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 total costs associated with these efforts will be less than
$200,000, exclusive of ordinary costs to upgrade and maintain our equipment.
We intend to cooperate with our licensees and others with whom we do
business to coordinate Year 2000 compliance with operational processes and
marketed products. However, we are unable to directly assess the Year 2000
compliance of products and technologies developed by others and incorporating
our technology. To the extent that any such third-party product or technology is
not Year 2000 compliant, we may be adversely affected due to our association
with such product or technology. In addition, our revenue and operating results
could become subject to
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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.
OUR STOCK PRICE IS SUBJECT TO SIGNIFICANT FLUCTUATION
The market price of our common stock has fluctuated in the past and could
continue to be highly volatile and subject to wide fluctuations in response to
various factors, including:
- - quarterly variations in our operating results;
- - announcements of technological innovations or new products by us, our
licensees, digital consumer product manufacturers or our competitors;
- - developments with respect to patents or proprietary rights; and
- - changes in financial estimates by securities analysts.
In addition, the equity markets have experienced volatility that has
particularly affected the market prices of equity securities of many high
technology companies and that often has been unrelated or disproportionate to
their operating performance. These broad market fluctuations may adversely
affect the market price of the Class A Common Stock, and investors may be unable
to resell their shares at or above the offering price. See "Price Range of
Common Stock".
CERTAIN PROVISIONS OF OUR CORPORATE DOCUMENTS AND DELAWARE LAW MAY MAKE IT MORE
DIFFICULT FOR US TO BE ACQUIRED
Provisions of our certificate of incorporation and by-laws and Delaware law
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders. Such provisions could also make more
difficult or delay the removal of our incumbent management. See "Description of
Capital Stock". However, these provisions do not have a substantial practical
significance to investors as long as we are controlled by Silicon Graphics.
------------------
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain statements contained in this prospectus under the captions
"Prospectus Summary", "Risk Factors", "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business" including those
concerning (1) our strategy, (2) the future sources and costs of our revenue,
(3) our product development and sales and marketing efforts, and (4) our
relationship with Silicon Graphics, including the divestiture by Silicon
Graphics of its interest in us in a tax-free distribution to its stockholders or
otherwise, contain certain forward looking statements concerning our operations,
economic performance, financial condition and relationship with Silicon
Graphics. The forward looking statements contained in this prospectus are based
on current expectations and entail various risks and uncertainties that could
cause actual results to differ materially from those expressed or implied in
such forward looking statements. Factors that could cause such differences
include, but are not limited to, those discussed under "Risk Factors".
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USE OF PROCEEDS
We will not receive any proceeds from the
sale of Class A Common Stock in this offering.
PRICE RANGE OF COMMON STOCK
Our common stock has been quoted on the Nasdaq National Market under the
symbol "MIPS" since our initial public offering on June 30, 1998. Prior to such
time, there was no public market for our common stock. Effective ,
1999 and in connection with the recapitalization, our common stock, as then
quoted on the Nasdaq National Market, was redesignated as Class A Common Stock.
On the effective date of our initial public offering, June 30, 1998, the
reported last sale price of our common stock was $13.44 per share. The following
table sets forth, for the periods indicated, the high and low reported last sale
prices per share of our common stock on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL YEAR 1999
First Quarter.......................................................... $ 23.25 $ 10.63
Second Quarter......................................................... $ 32.00 $ 14.84
Third Quarter (through March 10, 1999)................................. $ 45.00 $ 28.25
</TABLE>
On March 10, 1999, the reported last sale price on our common stock on the
Nasdaq National Market was $40.88 per share. As of February 19, 1999, there were
approximately 21 stockholders of record of our common stock.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently intend to retain any future earnings to fund the development and
growth of our business and do not expect to pay any cash or stock dividends for
the foreseeable future.
CORPORATE INFORMATION
MIPS Technologies, Inc. was incorporated in Delaware in June 1992. Prior to
the separation of our business from Silicon Graphics' other operations in the
fourth quarter of fiscal 1998, our business was conducted by Silicon Graphics
primarily through its MIPS Group, a division of Silicon Graphics. Our
predecessor, MIPS Computer Systems, Inc., was founded in 1984 and was engaged in
the design and development of RISC processors for the computer systems and
embedded markets. Reference in this prospectus to "MIPS Technologies", "we",
"our" and "us" refer to MIPS Technologies, Inc. and its subsidiaries.
Our web site is located at http://www.mips.com. Information contained on our
web site does not constitute part of this prospectus.
MIPS, R3000, R4000, R5000, R8000 and R10000 are registered trademarks, and
R4300i and the MIPS logo are trademarks, of MIPS Technologies. Silicon Graphics
is a registered trademark of Silicon Graphics, Inc. This prospectus contains
other trademarks and registered trademarks of MIPS Technologies and other
companies.
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THE RECAPITALIZATION
GENERAL
On January 14, 1999, Silicon Graphics announced its intention to divest its
interest in us by September 30, 2000. Silicon Graphics has advised us that this
divestiture could be effected in one or more transactions and is expected to
include a distribution of a significant portion of its interest in us to Silicon
Graphics stockholders in a transaction intended to generally qualify as a
tax-free distribution under the Internal Revenue Code (a "Tax-Free
Distribution"). The actual timing and form of any disposition will be subject to
market and other conditions.
In light of Silicon Graphics' intention to dispose of its interest in us, on
, 1999, we effected a recapitalization of our capital stock under which
each previously issued and outstanding share of our common stock was
redesignated as one share of Class A Common Stock. Silicon Graphics and the
holders of a majority of the shares of our common stock held by persons other
than Silicon Graphics and its affiliates approved the recapitalization. Under
the terms of an exchange agreement between us and Silicon Graphics, Silicon
Graphics exchanged each share of Class A Common Stock it owned immediately after
the recapitalization for one share of Class B Common Stock. Silicon Graphics
currently beneficially owns all of the outstanding shares of Class B Common
Stock and no shares of Class A Common Stock. Under our certificate of
incorporation, prior to a Tax-Free Distribution, Silicon Graphics will continue
to own all of the outstanding shares of Class B Common Stock.
The holders of the Class A Common Stock, voting separately as a class, are
entitled to elect 20% of the members of our board of directors (the "Class A
Directors"), and in no event less than one director. One Class A Director will
be elected at our 1999 Annual Meeting of Stockholders, and the Class A Director
so elected will serve until his or her term expires at our 2002 Annual Meeting
of Stockholders. The holders of the Class B Common Stock, voting separately as a
class, are entitled to elect the remaining directors. Accordingly, Silicon
Graphics will elect six of the seven members of our board of directors.
The Class A Common Stock and the Class B Common Stock have substantially
identical rights and preferences in all other respects, including with respect
to all other matters submitted to the vote of stockholders (except as otherwise
required by law) and with respect to dividend rights and rights upon
liquidation.
The recapitalization was designed to permit an orderly, multi-step increase
in the number of shares of our common stock that are publicly traded while
preserving Silicon Graphics' ability to effect a Tax-Free Distribution. To
effect a distribution that would be tax free to Silicon Graphics and its
stockholders, current tax law requires, among other things, that Silicon
Graphics own, at the time of the distribution, capital stock representing at
least 80% of our voting power. In addition, for tax-free treatment, Silicon
Graphics must distribute all of the MIPS Technologies capital stock it then owns
to its stockholders in a single transaction.
Silicon Graphics' ability, by virtue of its ownership of all of the
outstanding shares of Class B Common Stock, to elect 80% of the members of our
board of directors (rounded up to the nearest whole director) at all times prior
to a Tax-Free Distribution will satisfy the 80% voting power requirement for a
Tax-Free Distribution under current tax law. Accordingly, prior to a Tax-Free
Distribution, under current tax law, Silicon Graphics may reduce its economic
interest in us below 80% through secondary market sales, thereby increasing the
public float of the Class A Common Stock, without jeopardizing its ability to
effect a Tax-Free Distribution of its remaining interest.
CONVERSION AND EXCHANGE PROVISIONS
Our certificate of incorporation contains provisions pursuant to which,
under certain circumstances, all outstanding shares of Class B Common Stock will
be automatically
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converted into shares of Class A Common Stock on a one-for-one basis. Certain of
these automatic conversion provisions may be triggered prior to a Tax-Free
Distribution, including upon a change of control of Silicon Graphics or if
Silicon Graphics' economic interest in us falls below certain levels. In
addition, the outstanding shares of Class B Common Stock will be automatically
converted into shares of Class A Common Stock if we are acquired, subject to
certain exceptions.
In the event that Silicon Graphics pursues and consummates a Tax-Free
Distribution, we expect that we would continue to have a dual class capital
structure only for so long as may be required for Silicon Graphics to effect,
and maintain the tax-free status of, the Tax-Free Distribution. Our certificate
of incorporation currently contains the following provisions:
- - after the fifth anniversary of a Tax-Free Distribution, the Class B Common
Stock will be converted into Class A Common Stock 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 class; and
- - at any time after a Tax-Free Distribution, we may exchange all of the
outstanding shares of Class B Common Stock for shares of Class A Common
Stock, subject to the restriction noted below.
These two provisions may not be available to us if their existence in our
certificate of incorporation precludes Silicon Graphics from timely obtaining a
favorable ruling from the Internal Revenue Service regarding the Tax-Free
Distribution.
At the present time, we do not know whether, under current tax law, the
existence of these provisions would preclude Silicon Graphics from timely
obtaining such a ruling. Moreover, even if the exchange provision described
above is effective, Silicon Graphics may prohibit us from completing such an
exchange unless certain requirements are met. In addition, we are unable to
predict if or when any other conversion provision will be triggered.
Accordingly, there can be no assurance as to the length of time that we will
continue to have the dual class capital structure, and the Class B Common Stock
could be outstanding indefinitely.
For a more complete description of the conversion and exchange provisions
contained in our certificate of incorporation, see "Description of Capital
Stock" beginning on page 64.
PROPOSED TAX LEGISLATION
On February 1, 1999, the United States Treasury Department proposed
legislation which, if enacted, would require a distributing corporation
generally to own stock representing 80% of the value of the spun-off corporation
in addition to the current requirement that it own stock representing 80% of the
voting power, in order for a spin-off to qualify for tax-free treatment under
Section 355 of the Internal Revenue Code.
We cannot predict whether this or any similar proposal will be enacted or,
if enacted, whether the final legislation will contain transitional relief that
would allow Silicon Graphics to complete a Tax-Free Distribution. If the
legislation is enacted substantially as proposed and without transitional
relief, Silicon Graphics could be required to effect a Tax-Free Distribution
shortly after this offering in order to avoid the application of such
legislation. In addition, depending on the form of such legislation, if enacted,
Silicon Graphics may be unable to effect a Tax-Free Distribution and therefore
could elect to retain its interest in us indefinitely.
EXCHANGE AGREEMENT
In connection with the recapitalization, we entered into an exchange
agreement with Silicon Graphics pursuant to which Silicon Graphics will become
obligated to purchase a pre-determined number of shares of our common stock if
it has not disposed of its entire interest in us prior to December 31, 2000,
subject to certain exceptions. Silicon Graphics may purchase such shares from us
or a third party, at its election.
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The exchange agreement also obligates the parties to enter into a
distribution tax indemnification agreement prior to a Tax-Free Distribution. The
distribution tax indemnification agreement will contain covenants limiting our
ability to take certain actions following a Tax-Free Distribution that could
cause the distribution to become taxable to Silicon Graphics and, in some
instances, its stockholders. These covenants will prohibit us from:
- - changing the relative voting rights of the Class A and Class B Common Stock
during the five-year period following the Tax-Free Distribution;
- - exchanging outstanding shares of Class B Common Stock for shares of Class A
Common Stock during the five-year period following the Tax-Free Distribution;
- - issuing capital stock in an acquisition or private or public offering during
the 30-month period following the Tax-Free Distribution; and
- - taking certain other actions.
We must indemnify Silicon Graphics if we breach these covenants and in
certain other circumstances, including if more than a specified percentage of
our stock is acquired, unless certain requirements are met. See "Arrangements
Between MIPS Technologies and Silicon Graphics -- Exchange Agreement".
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CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998,
on an actual basis and on a pro forma basis giving effect to the
recapitalization of our capital stock, which was effective as of , 1999.
You should read this information together with our financial statements and the
notes to those statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------
ACTUAL PRO FORMA
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Stockholders' equity:
Preferred Stock, par value $0.001: 50,000,000 shares authorized; no
shares issued and outstanding.................................... $ -- $ --
Common Stock, par value $0.001: 150,000,000 shares authorized;
37,292,286 shares issued and outstanding actual and no shares
issued and outstanding pro forma (1)............................. 37 --
Class A Common Stock, par value $0.001: 150,000,000 shares
authorized; no shares issued and outstanding actual and 5,542,286
shares issued and outstanding pro forma (1)...................... -- 5
Class B Common Stock, par value $0.001: 100,000,000 shares
authorized; no shares issued and outstanding actual and
31,750,000 shares issued and outstanding pro forma............... -- 32
Additional paid-in capital......................................... 136,235 136,235
Accumulated deficit................................................ (113,400) (113,400)
--------- -----------
Total stockholders' equity....................................... 22,872 22,872
--------- -----------
Total capitalization................................................. $ 22,872 $ 22,872
--------- -----------
--------- -----------
</TABLE>
- --------------
(1) Excludes 7,817,714 shares of common stock reserved for issuance under our
stock option and stock purchase plans, of which 4,117,000 shares were
subject to outstanding options as of December 31, 1998. See "Management --
1998 Long-Term Incentive Plan" and "Management -- Director Compensation".
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SELECTED CONSOLIDATED FINANCIAL DATA
You should read the selected consolidated financial data set forth below in
conjunction with "Management's Discussion and Analysis of Results of Operations
and Financial Condition" and our financial statements and the notes to those
statements included elsewhere in this prospectus. The selected consolidated
financial data set forth below as of June 30, 1996, 1997 and 1998, and for the
fiscal years then ended, have been derived from our financial statements which
have been audited by Ernst & Young LLP, independent auditors. The data as of
June 30, 1994 and 1995, and for the fiscal years then ended, and as of December
31, 1997 and 1998, and for the six months then ended, is unaudited and, in the
opinion of our management, include all adjustments (consisting only of normal
recurring accruals) necessary to present fairly our results of operations for
the periods then ended and our financial position as of such dates. The interim
period results are not necessarily indicative of results to be expected for a
full year.
The historical financial information presented below, particularly for
periods prior to the third quarter of fiscal 1998, may not be indicative of our
future performance and does not necessarily reflect what our financial position
and results of operations would have been had we operated as a separate, stand-
alone entity during the periods prior to the third quarter of fiscal 1998. The
historical financial information for such periods does not reflect many
significant changes that have occurred in our funding and operations and the
sources and costs of our revenue as a result of both the separation of our
business from that of Silicon Graphics and our shift in strategic direction.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(unaudited) (unaudited)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue:
Royalties................................. $ 8,402 $ 13,576 $ 19,716 $ 37,192 $ 55,980 $ 26,759 $ 24,854
Contract revenue.......................... 8,962 13,903 17,327 3,115 830 827 2,400
--------- --------- --------- --------- --------- --------- ---------
Total revenue........................... 17,364 27,479 37,043 40,307 56,810 27,586 27,254
Costs and expenses:
Cost of contract revenue.................. 2,768 7,364 5,580 1,345 375 375 125
Research and development.................. 24,396 39,033 48,402 68,827 43,446 35,127 9,223
Sales and marketing....................... 5,668 6,761 6,026 6,170 5,307 2,910 3,019
General and administrative................ 3,692 4,272 4,601 4,750 4,685 2,295 2,956
Restructuring charge...................... -- -- -- -- 2,614 2,614 --
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses................ 36,524 57,430 64,609 81,092 56,427 43,321 15,323
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)..................... (19,160) (29,951) (27,566) (40,785) 383 (15,735) 11,931
Interest income (expense)................... (70) (69) (99) (50) (7) (11) 438
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes........... (19,230) (30,020) (27,665) (40,835) 376 (15,746) 12,369
Provision for income taxes.................. -- -- -- -- -- -- 4,948
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)........................... $ (19,230) $ (30,020) $ (27,665) $ (40,835) $ 376 $ (15,746) $ 7,421
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) per basic share........... $ (0.53) $ (0.83) $ (0.77) $ (1.13) $ 0.01 $ (0.44) $ 0.20
Net income (loss) per diluted share......... (0.53) (0.83) (0.77) (1.13) 0.01 (0.44) 0.19
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents................... $ -- $ -- $ -- $ -- $ 45 $ -- $ 26,052
Working capital (deficiency)................ (11,230) (16,683) (8,531) (8,446) (4,530) (8,211) 19,065
Total assets................................ 12,338 15,744 15,289 19,674 4,696 16,724 33,289
Long-term obligations, net of current
maturities(1)............................. 457 739 331 -- -- -- --
Total stockholders' equity (deficit)........ (755) (3,736) 3,853 8,072 (747) 5,266 22,872
</TABLE>
- ------------------
(1) Long-term obligations consist of capital lease obligations. We leased
equipment under capital lease obligations that matured in fiscal 1998.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS TOGETHER WITH
"SELECTED CONSOLIDATED FINANCIAL DATA" AND OUR FINANCIAL STATEMENTS AND THE
NOTES TO THOSE STATEMENTS INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION
CONTAINS FORWARD LOOKING STATEMENTS BASED ON OUR CURRENT EXPECTATIONS,
ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT US AND OUR INDUSTRY. THESE FORWARD
LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE INDICATED IN THESE FORWARD LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, AS MORE FULLY DESCRIBED IN THE "RISK FACTORS" SECTION
AND ELSEWHERE IN THIS PROSPECTUS. WE UNDERTAKE NO OBLIGATION TO UPDATE PUBLICLY
ANY FORWARD LOOKING STATEMENTS FOR ANY REASON, EVEN IF NEW INFORMATION BECOMES
AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE.
OVERVIEW
Our predecessor, MIPS Computer Systems, Inc., was founded in 1984 and was
engaged in the design and development of RISC processors for the computer
systems and embedded markets. Silicon Graphics adopted the MIPS architecture for
its computer systems in 1988 and acquired MIPS Computer Systems, Inc. in 1992.
Following the acquisition, Silicon Graphics continued the MIPS processor
business through its MIPS Group (a division of Silicon Graphics), which focused
primarily on the development of high-performance processors for Silicon
Graphics' workstations and servers. In order to increase the focus of the MIPS
Group on the design and development of processor intellectual property for the
embedded market, Silicon Graphics separated the business of the MIPS Group from
its other operations and transferred to us the assets, liabilities and
intellectual property related to this business.
Until the last few years, cost considerations limited the use of MIPS RISC
processors in high-volume digital consumer products. As the cost to manufacture
processors based on the MIPS technology decreased, the MIPS Group sought to
penetrate the consumer market, both through supporting and coordinating the
efforts of the MIPS semiconductor licensees and, most notably, by partnering
with Nintendo in its design of the Nintendo 64 video game player and related
cartridges. The combination of these efforts has led to significant growth in
MIPS-based devices. Based on industry sources, we believe that more than one
third of the market for RISC-based processors were based on the MIPS RISC
architecture.
Revenue related to sales of Nintendo 64 video game players and related
cartridges currently accounts for the substantial majority of MIPS Technologies'
revenue. In the short term, we intend to use our operating cash flow, including
royalties we receive with respect to sales of Nintendo 64 video game players and
related cartridges, to fund processor and related design efforts aimed at the
digital consumer products market and to establish and strengthen relationships
with semiconductor licensees and system original equipment manufacturers (system
OEMs). As part of these efforts, we intend to develop processors with increased
flexibility and modularity that will allow our semiconductor licensees, as well
as system OEMs, to provide high-performance, customized products more quickly.
The financial statements for periods prior to the third quarter of fiscal
1998 reflect the historical results of operations, financial position and cash
flows of the MIPS Group, certain portions of which were transferred to us by
Silicon Graphics in connection with the separation of the two businesses. The
financial statements for such periods have been carved out from the financial
statements of Silicon Graphics using the historical results of operations and
historical basis of the assets and liabilities of our business, as adjusted to
reflect allocations of certain corporate charges that our management believes
are reasonable. Our financial information for periods prior to the third quarter
of fiscal 1998 may not necessarily reflect the results of our operations,
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<PAGE>
financial position and cash flows in the future or what the results of
operations, financial position and cash flows would have been had the MIPS Group
been a separate, stand-alone entity during those periods. The financial
information for such earlier periods does not reflect the many significant
changes that have occurred in our funding and operations and the sources and
costs of revenue as a result of both our separation from Silicon Graphics and
our shift in strategic direction.
REVENUE
Our revenue consists of royalties and contract revenue earned under
contracts with our licensees and under our agreement with Nintendo. Our
contracts with our licensees are typically subject to periodic renewal or
extension and expire at various dates through December 2009. We generate
royalties from the sale by semiconductor manufacturers of products incorporating
our technology. Royalty revenue generally is recognized in the quarter in which
a report is received from a licensee detailing the shipments of products
incorporating our intellectual property (i.e., generally in the quarter
following the sale of the licensee's product to its customer). Royalties may be
calculated as a percentage of the revenue received by the seller on sales of
such products or on a per unit basis. Under the terms of an agreement with
Silicon Graphics entered into in connection with the separation, we also receive
all royalties payable by Nintendo relating to sales of Nintendo 64 video game
players and related cartridges.
Contract revenue includes technology license fees and engineering services
fees. We receive license fees for the use of technology that we have developed
internally and, in some cases, that we have licensed from third parties. License
fees are typically recognized upon the execution of the license agreement and
transfer of intellectual property, provided no further significant performance
obligations exist. Technology license fees vary based on, among other things,
whether a particular technology is licensed for a single application or for
multiple or unlimited applications, and whether the license granted covers a
particular design or a broader architecture. Part of these fees may be payable
up-front and part may be due upon the achievement of certain milestones such as
provision of deliverables by us or production of semiconductor chips by the
licensee. Engineering services fees are recognized as revenue when defined
milestones are completed and the milestone payment is probable of collection. In
most instances, the technology we develop, including under engineering services
contracts, can be licensed to multiple customers.
In fiscal 1996, our total revenue was split relatively equally between
royalties and contract revenue. Royalties in fiscal 1996 were earned primarily
from NEC, while contract revenue primarily reflected engineering service fees
from Nintendo related to the Nintendo 64 video game system prior to its
commercial introduction. In fiscal 1997 and 1998 and the first six months of
fiscal 1999, our revenue mix changed significantly, with royalties representing
over 90% of our total revenue during those periods, due primarily to royalties
earned from Nintendo, and to a lesser extent NEC, on sales of Nintendo 64 video
game players and related cartridges.
Royalties from Nintendo and NEC on sales of Nintendo 64 video game players
and related cartridges accounted for approximately 79% of our total revenue for
fiscal 1998 and 75% of our total revenue for the first six months of fiscal
1999. We anticipate that revenue related to sales of Nintendo 64 video game
players and related cartridges will continue to represent a significant portion
of our total revenue for the next several years. We receive royalties from NEC
based on a percentage of the revenue derived by NEC from sales of the processor
included in the Nintendo 64 video game player. Current royalties from Nintendo
are based on unit sales of Nintendo 64 video game cartridges. We also received
royalties from Nintendo with respect to the graphics chip included in Nintendo
64 video game players, and these royalties had a lifetime cap based on unit
sales that was reached in the second quarter of fiscal 1998. There is no cap on
royalties from NEC with respect to its sale
25
<PAGE>
of processors to Nintendo for Nintendo 64 video game players or on royalties
from Nintendo with respect to sales of Nintendo 64 video game cartridges.
The market for home entertainment products is competitive and the
introduction of new products or technologies, as well as shifting consumer
preferences, could negatively impact the amount and timing of sales of Nintendo
64 video game players and related cartridges. In addition, the eventual
introduction of the next generation Nintendo video game system is likely to
result in declining sales of Nintendo 64 video game players and related
cartridges, although sales of video game cartridges, which account for a
significant portion of our royalties, will continue, albeit at a declining rate,
for a period of time after the introduction. We developed key elements of the
Nintendo 64 system in conjunction with Silicon Graphics. These elements included
certain software and graphics technologies which, as a result of our separation
from Silicon Graphics and our shift in strategic direction in early 1998, we no
longer offer. Accordingly, we will need to generate revenue growth from our
stated markets to offset the eventual decline of Nintendo 64 royalties. We
understand that the next generation Nintendo video game system will not
incorporate any of our technology. We value our relationship with Nintendo;
however, there can be no assurance that this relationship will result in any
revenues for us other than those generated by the sale of Nintendo 64 video game
players and related cartridges. In May 1998, we entered into a memorandum of
understanding with Silicon Graphics, Nintendo Co. Ltd. and ArtX, Inc. resolving
certain disputes among the parties. See "Business -- Litigation".
We expect that royalties will continue to represent a significant percentage
of our total revenue over the next several years due to our contractual
arrangements with Nintendo. The amount, timing and relative mix of royalties and
contract revenue is difficult to predict. Factors affecting the amount and
timing of our future royalties include:
- - the adoption of our technology by digital consumer product and business
equipment manufacturers;
- - consumer acceptance of products incorporating our technology;
- - changes in the average selling prices of semiconductor and digital consumer
products and business equipment; and
- - fluctuations in currency exchange rates.
Moreover, our royalty arrangements will vary from licensee to licensee
depending on a number of factors, including the amount of any license fee paid
and the marketing and engineering support required by the licensee. Contract
revenue may fluctuate significantly from period to period and any increase or
decrease in such revenue will not be indicative of future period-to-period
increases or decreases. Factors affecting the amount and timing of our future
contract revenue include:
- - the financial terms of our contractual arrangements with our semiconductor
licensees, which may provide for significant up-front payments or payments
based on the achievement of certain milestones; and
- - the adoption of our technology by semiconductor manufacturers, which is
influenced by a number of factors including competitive conditions in the
market for processor and core intellectual property.
Although a substantial portion of our total revenue to date has been derived
from royalties and contract revenue relating to sales of Nintendo 64 video game
products, we expect that royalties and contract revenue related to sales of
other digital consumer products, such as handheld personal computers, cellular
telephones and set-top boxes, as well as other video game products, will
constitute an increasingly significant portion of our total revenue. Our ability
to diversify our revenue base will depend primarily on the number and variety of
design
26
<PAGE>
wins we obtain from digital consumer product and business equipment
manufacturers, and consumer acceptance of products that incorporate our
technology. We generally do not have a direct contractual relationship with
digital consumer product manufacturers, and the royalty reports submitted by our
semiconductor licensees generally do not disclose which consumer products
include our RISC technology. As a result, it is difficult for us to identify or
predict the extent to which our future revenue will be dependent upon a
particular digital consumer product or product manufacturer.
Because revenue related to sales of digital consumer products is expected to
represent a substantial portion of our total revenue over the next several
years, we expect to experience seasonal fluctuations in our revenue and
operating results. We typically record royalty revenue from our licensees,
including Nintendo, in the quarter following the sale of the related digital
consumer product. Because a disproportionate amount of Nintendo 64 video game
cartridges are typically sold in the second fiscal quarter (which includes the
holiday selling season), we have realized a disproportionate amount of our
revenue and operating income in our third fiscal quarter. As we increase our
focus on processors, cores and related designs for high-volume digital consumer
products, similar seasonal fluctuations in our revenue and operating results can
be expected to continue.
A significant portion of our total revenue has been and is expected to
continue to be derived from a limited number of semiconductor companies. Revenue
from our top two semiconductor company licensees represented an aggregate of 48%
of our total revenue in fiscal 1996, 29% of our total revenue in fiscal 1997,
18% of our total revenue in fiscal 1998 and 14% of our total revenue for the six
months ended December 31, 1998. Although we continue to broaden our base of
licensees, it is likely that our revenue will continue to be concentrated at the
semiconductor licensee level. This revenue concentration for any given period
will vary depending on the addition or expiration of contracts, the nature and
timing of payments due under such contracts and the volumes and prices at which
our licensees sell products incorporating our technology. Accordingly, the
identity of particular licensees that will account for any such revenue
concentration will vary from period to period and may be difficult to predict.
The non-renewal of contracts by our semiconductor company licensees could
adversely affect our future operating results.
To date, companies based in Japan have accounted for the substantial
majority of our total revenue, and nearly all of our international revenue.
International revenue accounted for approximately 83% of our total revenue in
fiscal 1996, 87% of our total revenue in fiscal 1997, 90% of our total revenue
in fiscal 1998 and 90% of our total revenue for the six months ended December
31, 1998. Substantially all of this revenue has been denominated in U.S.
dollars. We expect that revenue derived from international licensees, primarily
in Asia, will continue to represent a significant portion of our total revenue.
Several countries in Asia are experiencing economic difficulties, characterized
by reduced economic activity, lack of liquidity, highly volatile foreign
currency exchange and interest rates and unstable stock markets. Several of our
licensees sell products into Asia that incorporate our processors and related
designs. Any negative impact of the circumstances in Asia on sales of such
products by our licensees could have a negative impact on our royalty revenue.
COSTS AND EXPENSES
Our costs and expenses include cost of contract revenue, research and
development expenses, sales and marketing expenses and general and
administrative expenses.
COST OF CONTRACT REVENUE
Cost of contract revenue presently consists primarily of sublicense fees. We
incur an obligation to pay these fees when we sublicense to our customers
technology that we have licensed from third parties. Sublicense fees are
recognized as cost of contract revenue when the obligation is incurred, which
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<PAGE>
is typically the same period in which the related revenue is recognized. Prior
to fiscal 1998, cost of contract revenue also included nonrecurring engineering
service costs directly related to a development agreement with a specific
licensee which were expensed as incurred over the period of services. We believe
that future cost of contract revenue will be minimal.
RESEARCH AND DEVELOPMENT
The separation of our business from that of Silicon Graphics and our shift
in strategic direction have significantly impacted our research and development
cost structure. In particular, the markets we presently target allow us to use
small design teams and to rely largely on industry standard third-party design
tools. By contrast, Silicon Graphics' complex processor requirements and its
need to develop and maintain proprietary design tools demanded that the MIPS
Group employ large design teams. As a result, we have been able to reduce our
staffing requirements and costs.
The decrease in research and development staff resulting from the separation
and shift in strategic direction was offset in part by the addition of 24
employees in December 1998 to staff research and development activities in a new
development center in Copenhagen, Denmark. These employees are engaged in
product development and also provide support and design expertise for our
European-based customers. At December 31, 1998, our research and development
staff was 75 persons, compared to 36 persons at June 30, 1998 and 221 persons at
December 31, 1997. Reflecting this change in our research and development cost
structure, our research and development expenses for the second quarter and
first six months of fiscal 1999 decreased by $13.1 million and $25.9 million,
respectively, to $4.7 million and $9.2 million, compared to $17.8 million and
$35.1 million for the comparable periods in fiscal 1998. We expect that our
research and development staff and expenses will increase as we continue to
develop new designs for the digital consumer products and business equipment
markets.
The costs we incur with respect to internally developed technology and
engineering services are included in research and development expense as they
are incurred and are not directly related to any particular licensee, license
agreement or license fee.
SALES AND MARKETING
Sales and marketing expenses include salaries, travel expenses and costs
associated with direct marketing, advertising and other marketing efforts. Costs
of technical support are also included in sales and marketing expenses. Our
sales and marketing efforts are directed at establishing and supporting
licensing relationships with semiconductor manufacturers, fabless semiconductor
companies and system OEMs. At December 31, 1998, our sales and marketing staff
totaled 22 persons. Our sales and marketing staff and related expenses are
expected to increase as we seek to diversify our revenue base.
GENERAL AND ADMINISTRATIVE
Historically, a significant portion of our general and administrative
expenses have reflected an allocation of corporate overhead by Silicon Graphics
based on headcount and a percentage allocation based on certain factors
including net sales, headcount and relative expenditure levels. Presently,
certain tax and facilities services are provided to us pursuant to our
Management Services Agreement with Silicon Graphics. While our general and
administrative expenses have remained relatively stable since the separation, we
expect that our general and administrative expenses will increase in the future
due, in part, to costs related to our status as a stand-alone entity such as
increased patent related costs and expenses related to compliance with the
reporting and other requirements of a publicly-traded company.
RESULTS OF OPERATIONS -- SIX MONTHS ENDED DECEMBER 31, 1997 AND 1998
Total revenue for the first six months of fiscal 1999 decreased by $332,000
to
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$27.3 million, compared to $27.6 million for the comparable period in fiscal
1998. Royalties for the first six months of fiscal 1999 decreased by $1.9
million to $24.9 million, compared to $26.8 million for the same period in
fiscal 1998. This decrease was due to the absence of royalties from the graphics
chips included in the Nintendo 64 video game player, which reached its cap in
the second quarter of fiscal 1998. Contract revenue for the first six months of
fiscal 1999 increased by $1.6 million to $2.4 million, compared to $827,000 for
the same period in fiscal 1998. This increase in contract revenue reflects fees
generated primarily from new agreements, and included engineering service fees
of $1.5 million based upon the achievement of defined milestones in the second
quarter of fiscal 1999.
Cost of contract revenue decreased by $250,000 to $125,000 for the first six
months of fiscal 1999 compared with the same period in fiscal 1998. The decrease
was attributable to a decrease in sublicensing activities which resulted in a
decrease in an obligation to pay sublicense fees to our licensors.
Research and development expenses for the first six months of fiscal 1999
decreased by $25.9 million, to $9.2 million, compared to research and
development expenses of $35.1 million for the comparable period in fiscal 1998.
This decrease reflects the significant reduction in our research and development
staff accompanying the separation and our change in strategic direction in the
second half of fiscal 1998. Research and development expenses for the first six
months of fiscal 1998 reflect the operations of the MIPS Group which had a staff
of 221 persons at December 31, 1997. Because the markets we target allow us to
rely largely on industry standard third-party design tools and to use smaller
design teams than were employed by the MIPS Group, we reduced our research and
development staff by approximately 185 persons in the third quarter of fiscal
1998. This decrease was offset, in part, by the addition of 24 employees to
staff our development center in Copenhagen, Denmark, which opened in December
1998.
Sales and marketing and general and administrative expenses for the first
six months of fiscal 1999 increased $770,000, to $6.0 million, compared to sales
and marketing and general and administrative expenses of $5.2 million for the
comparable period in fiscal 1998. This increase was due to an increase in
staffing levels and legal and consulting services.
The restructuring charge taken in the second quarter of fiscal 1998 included
$500,000 in severance related costs and $2.1 million in asset writedowns related
to the shift in the strategic direction.
Interest income (expense), net, for the first six months of fiscal 1999
increased by $449,000 to interest income of $438,000 compared to interest
expense of $11,000 for the comparable period in fiscal 1998. The increase was
primarily due to interest income earned from investment of the net proceeds of
approximately $16.0 million from our initial public offering and, to a lesser
extent, cash generated from operating activities.
While we are a part of Silicon Graphics' consolidated group for federal
income tax purposes, we are responsible for our income taxes through a tax
sharing agreement with Silicon Graphics. Therefore, to the extent we produce
taxable income, losses or credits, we make or receive payments as though we
filed separate federal, state and local income tax returns. We will be included
in Silicon Graphics' consolidated group for federal income tax purposes for so
long as Silicon Graphics beneficially owns at least 80% of the total voting
power and value of our outstanding common stock. Upon the consummation of this
offering we will no longer be a part of Silicon Graphics' consolidated group and
will file separate federal, state and local income tax returns.
We recorded a provision for income taxes of $4.9 million for the first six
months of fiscal 1999 compared to zero for the comparable period in fiscal 1998.
The provision for the first six months of fiscal 1999 was based on an estimated
federal and state combined rate of 40% on income before taxes. The net loss
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<PAGE>
incurred in the first six months of fiscal 1998 is primarily attributable to our
operations as a division of Silicon Graphics and were included in the income tax
returns filed by Silicon Graphics. In light of both historical losses incurred,
as well as the fact that, by operation of the tax sharing agreement, we will not
receive any benefit for losses incurred or have any tax liability for any income
earned up to the closing date of the initial public offering, no income tax
provision or benefit has been reflected for the first six months of fiscal 1998.
RESULTS OF OPERATIONS -- YEARS ENDED JUNE 30, 1996, 1997 AND 1998
Our total revenue in fiscal 1996, 1997 and 1998 was as follows:
<TABLE>
<CAPTION>
FISCAL YEAR TOTAL REVENUE
- --------------- --------------
<S> <C>
1996 $37.0 million
1997 40.3 million
1998 56.8 million
</TABLE>
Revenue for fiscal 1996 consisted of royalties from the sale by
semiconductor manufacturers of products incorporating our technology. Royalties
for fiscal 1997 and 1998 consisted of royalties from sale by semiconductor
manufacturers of products incorporating our technology and from sales of
Nintendo 64 video game players and related cartridges. The significant increase
in royalties in fiscal 1997 from fiscal 1996 and in fiscal 1998 from fiscal 1997
reflects royalties received from Nintendo and NEC related to sales of Nintendo
64 video game players and related cartridges. We earned our first significant
royalties from Nintendo 64 video game system sales in the third quarter of
fiscal 1997, following the commercial introduction of that system. In the second
quarter of fiscal 1998, royalties from the graphics chip included in the
Nintendo game player reached its cap.
Fiscal 1996 contract revenue included engineering service fees related to
development efforts for the Nintendo 64 video game system as well as
approximately $10.0 million in license fees from three licensees. Contract
revenue for fiscal 1997 consisted principally of engineering service fees from
Nintendo related to development efforts for Nintendo 64 video game products, and
for fiscal 1998 consisted principally of license fees related to code
compression technology. The decrease in contract revenue in fiscal 1997
reflected substantial completion in fiscal 1996 of the Nintendo 64 video game
system development prior to its commercial introduction by Nintendo.
Under the terms of our contracts with three of our licensees, such licensees
pay us royalties on sales to Silicon Graphics of certain products incorporating
our technology. We estimate that less than 5% of our total revenue for fiscal
1998 and less than 1% of our total revenue for the first six months of 1999 was
related to such sales.
Our cost of contract revenue in fiscal 1996, 1997 and 1998 was as follows:
<TABLE>
<CAPTION>
COST OF
FISCAL YEAR CONTRACT REVENUE
- --------------- ------------------
<S> <C>
1996 $5.6 million
1997 1.3 million
1998 375,000
</TABLE>
Cost of contract revenue in fiscal 1996 and 1997 was principally
attributable to non-recurring engineering fees related to Nintendo 64 video game
system development and in fiscal 1998 was principally attributable to sublicense
fees. The decrease in fiscal 1997 from 1996 was principally attributable to the
completion in fiscal 1996 of the Nintendo 64 video game system development. The
decrease in fiscal 1998 from 1997 was attributable to a decrease in sublicensing
activities which resulted in a decrease in our obligation to pay sublicensing
fees.
Research and development expenses in fiscal 1996, 1997 and 1998 were as
follows:
<TABLE>
<CAPTION>
RESEARCH AND
FISCAL YEAR DEVELOPMENT EXPENSES
- --------------- -----------------------
<S> <C>
1996 $48.4 million
1997 68.8 million
1998 43.4 million
</TABLE>
The increase in research and development expenses in fiscal 1997 was
attributable to
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additional personnel, including consultants, working on next generation
processor development projects. The decrease in research and development
expenses in fiscal 1998 was primarily due to the reduction in our research and
development staff from 221 persons at December 31, 1997 to 36 persons at June
30, 1998. This reduction reflects the transfer to Silicon Graphics of employees
engaged in the development of next generation processors for Silicon Graphics'
systems as well as other staff reductions associated with our change in
strategic direction.
Sales and marketing expenses in fiscal 1996, 1997 and 1998 were as follows:
<TABLE>
<CAPTION>
SALES AND
FISCAL YEAR MARKETING EXPENSES
- --------------- --------------------
<S> <C>
1996 $6.0 million
1997 6.2 million
1998 5.3 million
</TABLE>
The decrease in fiscal 1998 was primarily due to a decrease in advertising
and promotional spending.
General and administrative expenses, which remained relatively stable in
fiscal 1996, 1997 and 1998 were as follows:
<TABLE>
<CAPTION>
GENERAL AND
ADMINISTRATIVE
FISCAL YEAR EXPENSES
- --------------- --------------------
<S> <C>
1996 $4.6 million
1997 4.8 million
1998 4.7 million
</TABLE>
The restructuring charge taken in the second quarter of fiscal 1998 included
$500,000 in severance related costs and $2.1 million in asset write-downs
related to our shift in strategic direction.
Prior to the separation, we did not have a tax sharing agreement in place
but, rather, we were included in the income tax returns filed by Silicon
Graphics and its subsidiaries in various domestic and foreign jurisdictions.
Pursuant to the tax sharing agreement, we will realize no income tax benefit,
nor bear any income tax liability, related to our operations prior to the
completion of our initial public offering on July 6, 1998. Moreover, in light of
historical losses, on a stand-alone basis, our tax provision for fiscal 1998
would have been immaterial.
IMPACT OF CURRENCY
Certain of our international licensees pay royalties based on revenues that
are reported in a local currency (currently yen) and translated into U.S.
dollars at the exchange rate in effect when such revenues are reported by the
licensee. To date, substantially all of our revenue from international customers
has been denominated in U.S. dollars. However, to the extent that sales to
digital consumer product manufacturers by our manufacturing licensees are
denominated in foreign currencies, royalties we receive on such sales could be
subject to fluctuations in currency exchange rates. In addition, if the
effective price of the technology we sell to our licensees were to increase as a
result of fluctuations in foreign currency exchange rates, demand for technology
could fall which would, in turn, reduce our royalties. We are unable to predict
the amount of non-U.S. dollar denominated revenue earned by our licensees and,
therefore, have not attempted to mitigate the effect that currency fluctuations
may have on our royalty revenue.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth our statement of operations data for each of
the six quarters in the period ended December 31, 1998. This unaudited quarterly
information has been prepared on the same basis as the annual audited financial
statements and, in the opinion of our management, includes all adjustments,
consisting only of normal recurring accruals, necessary to present fairly the
information set forth therein. The operating results for any quarter are not
necessarily indicative of results for any future period.
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<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1998 1998 1998 1998
--------- -------- --------- -------- --------- --------
(IN THOUSANDS, UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Royalties............................. $14,287 $ 12,472 $18,231 $10,990 $11,611 $13,243
Contract revenue...................... 750 77 -- 3 650 1,750
--------- -------- --------- -------- --------- --------
Total revenue....................... 15,037 12,549 18,231 10,993 12,261 14,993
Costs and expenses:
Cost of contract revenue.............. 375 -- -- -- -- 125
Research and development.............. 17,338 17,789 4,446 3,873 4,552 4,667
Sales and marketing................... 1,448 1,462 1,274 1,123 1,289 1,730
General and administrative............ 1,257 1,038 986 1,404 1,135 1,821
Restructuring charge.................. -- 2,614 -- -- -- --
--------- -------- --------- -------- --------- --------
Total costs and expenses............ 20,418 22,903 6,706 6,400 6,976 8,343
--------- -------- --------- -------- --------- --------
Operating income (loss)................. (5,381) (10,354) 11,525 4,593 5,285 6,650
Interest income (expense)............... (7) (4) (2) 6 170 264
--------- -------- --------- -------- --------- --------
Income (loss) before income taxes....... (5,388) (10,358) 11,523 4,599 5,455 6,914
Provision for income taxes.............. -- -- -- -- 2,182 2,766
--------- -------- --------- -------- --------- --------
Net income (loss)....................... $(5,388) $(10,358) $11,523 $ 4,599 $ 3,273 $ 4,148
--------- -------- --------- -------- --------- --------
--------- -------- --------- -------- --------- --------
</TABLE>
Royalty revenue for the quarter ended December 31, 1997 decreased by $1.8
million, or 12.7%, compared to the prior quarter, reflecting, in part, a
decrease in royalties from the graphics chip included in the Nintendo video game
player which reached its cap during the December quarter. Royalty revenue for
the quarter ended March 31, 1998 increased by $5.8 million, or 46%, compared to
the prior quarter. This increase primarily reflects the seasonal nature of our
royalty stream, in particular royalties relating to sales of Nintendo 64 video
game products during the 1997 holiday selling season. Contract revenue for the
quarter ended December 31, 1998 increased by $1.1 million compared to the prior
quarter, due to fees generated primarily from new licensing agreements, and
included engineering service fees of $1.5 million based upon our achievement of
defined milestones during the quarter.
Research and development expenses for periods prior to the quarter ended
March 31, 1998 reflect the operations of the MIPS Group prior to the separation
of our business from that of Silicon Graphics. For the quarter ended March 31,
1998 and subsequent periods, our research and development expenses reflect the
reduction in our staff that accompanied the separation of our business from that
of Silicon Graphics and the shift in strategic direction. The restructuring
charge of $2.6 million in the second quarter of fiscal 1998 included $500,000 in
severance related costs and $2.1 million in asset writedowns related to the
separation and to our shift in strategic direction.
Our operating results for quarters subsequent to our initial public offering
in July 1998 reflect our responsibility for income taxes under our tax sharing
agreement with Silicon Graphics. The provision for income taxes was $2.2 million
for the quarter ended September 30, 1998 and $2.8 million for the quarter ended
December 31, 1998. Prior to our initial public offering, we were included in the
tax returns filed by Silicon Graphics and its subsidiaries in various domestic
and foreign jurisdictions and we did not separately record any provision for
income taxes.
We expect to experience significant fluctuations in our quarterly operating
results due to a variety of factors, many of which are outside of our control.
Factors that may adversely affect our quarterly operating results include our
ability to develop, introduce and market new processor and core designs and
design enhancements, the demand for and average selling prices of semiconductor
products that incorporate our technology, the
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<PAGE>
establishment or loss of licensing relationships, the timing of new products and
product enhancements by us and our competitors, changes in our and our
licensees' development schedules and levels of expenditures on research and
development and general economic conditions. As a result, our total revenue and
operating results in any future period cannot be predicted with certainty, and
our operating results in any quarter may not be indicative of our future
performance. In addition, we expect to experience seasonal fluctuations in our
revenue and operating results. See "-- Revenue".
LIQUIDITY AND CAPITAL RESOURCES
On July 6, 1998 we completed our initial public offering of 5,500,000 shares
of our common stock. Of the 5,500,000 shares offered, we offered 1,250,000
shares and 4,250,000 shares were offered by Silicon Graphics. Net proceeds to us
from the initial public offering were approximately $16.0 million. Our principal
capital requirements are to fund working capital needs, and to a lesser extent
capital expenditures, in order to support our revenue growth. Prior to our
initial public offering, our capital requirements were satisfied by funds
provided by Silicon Graphics through its cash management system. Since the
initial public offering, we have not participated in Silicon Graphics' cash
management system and Silicon Graphics has not provided additional funds to
finance our operations.
At December 31, 1998 we had cash and cash equivalents of $26.1 million and
working capital of $19.1 million. For the six months ended December 31, 1997,
our operating activities used net cash of $10.4 million, reflecting the net loss
we incurred during the period. For the six months ended December 31, 1998, our
operating activities provided net cash of $11.2 million, primarily reflecting
net income and an increase in accrued liabilities, partially offset by an
increase in accounts receivable. The increase in accrued liabilities was the
result of an increase in accrued compensation related to higher staffing levels,
as well as accumulated performance bonuses and increased accrued administrative
costs associated with being a new public company. The increase in accounts
receivable was due to amounts owed to us under new license agreements entered
into during the period.
Net cash used in investing activities was $452,000 for the six months ended
December 31, 1997 and $1.4 million for the six months ended December 31, 1998.
Net cash used in investing activities in both periods presented consisted of
equipment purchases and licensing of computer aided design tools used in
development. Capital expenditures have been, and future expenditures are
anticipated to be, primarily for facilities and equipment to support expansion
of our operations and licensing of computer aided design tools used in
development. We expect that our capital expenditures will increase as our
employee base grows.
Net cash provided by financing activities was $10.9 million for the six
months ended December 31, 1997 compared to $16.2 million for the comparable
period in 1998. Financing activities for the six months ended December 31, 1997
consisted primarily of net funds provided by Silicon Graphics. Net cash provided
by financing activities for the six months ended December 31, 1998 consisted
primarily of cash received in connection with the issuance of common stock in
the initial public offering.
Our future liquidity and capital requirements are expected to vary greatly
from quarter to quarter, depending on numerous factors, including, among others:
- - the cost, timing and success of product development efforts,
- - the cost and timing of sales and marketing activities,
- - the extent to which our existing and new technologies gain market acceptance,
- - the level and timing of contract revenues and royalties,
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<PAGE>
- - competing technological and market developments, and
- - the cost of maintaining and enforcing patent claims and other intellectual
property rights.
We believe that cash generated by our operations, together with our existing
cash balance, will be sufficient to meet our projected operating and capital
requirements for the foreseeable future. However, we may in the future be
required to raise additional funds through public or private financing,
strategic relationships or other arrangements. Additional equity financing may
be dilutive to holders of our common stock, and debt financing, if available,
may involve restrictive covenants. Moreover, strategic relationships, if
necessary to raise additional funds, may require that we relinquish our rights
to certain of our technologies. Our failure to raise capital when needed could
have a material adverse effect on our business, results of operations and
financial condition. We have had no direct third-party indebtedness.
Our ability to issue additional shares of our common stock in connection
with acquisitions or to raise equity capital during the 30 month period
following a Tax-Free Distribution by Silicon Graphics will be constrained by the
terms of certain of our agreements with Silicon Graphics. See "Arrangements
Between MIPS Technologies and Silicon Graphics -- Exchange Agreement" and "--
Corporate Agreement".
YEAR 2000 ISSUE
Many computer programs and embedded date-reliant systems use two digits
rather than four to define the applicable year. Programs and systems that record
only the last two digits of the calendar year may not be able to distinguish
whether "00" means 1900 or 2000. If not corrected, date-related information and
data could cause such programs or systems to fail or to generate erroneous
information.
Although our processor and related designs have no inherent time or date
function, we initiated a comprehensive assessment of our Year 2000 readiness in
September 1998. We have recently completed this assessment and have begun to
implement programs to make our information technology (IT) and related non-IT
and processes Year 2000 compliant. In addition, we recently replaced our
internal computer systems and operating and applications software. Each of the
suppliers of these systems and software has indicated to us that it believes its
products are Year 2000 compliant. We expect to complete changes to critical
systems by the third quarter of calendar year 1999. We believe that we have
allocated sufficient resources for our Year 2000 compliance efforts, and we
expect that our expenses in these efforts will be less than $200,000, exclusive
of ordinary costs to upgrade and maintain our equipment.
We intend to cooperate with our licensees and others with whom we do
business to coordinate Year 2000 compliance with operational processes and
marketed products. However, we are unable to directly assess the Year 2000
compliance of products and technologies developed by others and incorporating
our technology. To the extent that any such third-party product or technology is
not Year 2000 compliant, we may be adversely affected due to our association
with such product or technology. In addition, our revenue and operating results
could become subject to unexpected fluctuations and could be adversely effected
if our licensees or system OEMs encounter Year 2000 compliance problems that
affect their ability to distribute products that incorporate our technology.
We will also be contacting critical suppliers to determine whether the
products and services they provide are Year 2000 compliant. We will develop
contingency plans should the need arise. A delay or failure by critical
suppliers to be Year 2000 compliant could, in a worst case, interrupt our
business and have an adverse effect on our business, financial condition and
results of operations.
34
<PAGE>
BUSINESS
INDUSTRY BACKGROUND
Rapid advances in semiconductor technology have enabled the development of
higher performance processors at lower cost. As a result, it is now
cost-effective for system OEMs to embed these processors into a wider range of
electronic products and systems, including a new generation of digital consumer
products and business equipment. Processors may be purchased individually and
placed on a printed circuit board or they may be embedded into larger silicon
chips. Improvements in semiconductor manufacturing processes have enabled the
integration of entire systems onto a single integrated circuit to create complex
system-on-a-chip solutions. In many cases, these system-on-a-chip solutions are
the most cost-effective method of creating new product solutions.
However, design tool capabilities and the internal design resources of
semiconductor designers and manufacturers and system OEMs have not kept pace
with the increase in the number of transistors that can be placed on a single
chip. Consequently, a significant and growing "design gap" for semiconductor
designers and manufacturers has developed. To address this "design gap",
semiconductor designers and manufacturers are increasingly licensing proven and
reusable intellectual property components such as processors, cores, memories
and logic blocks from third-party suppliers to create differentiated products
and reduce development costs and time-to-market. The availability of low-cost,
high-performance processors and the development of system-on-a-chip technology
have contributed to the emergence and rapid growth of the market for embedded
systems, particularly advanced digital consumer products.
Embedded systems are broadly defined as microcontrollers, processors and
cores plus related software, incorporated into devices other than personal
computers, workstations, servers, mainframes and minicomputers. Until recently,
this market was dominated by low-cost 4-, 8- and 16-bit microcontrollers
embedded primarily into low-cost, high-volume consumer products such as home
appliances, facsimile machines, printers, telephone answering machines and
various automobile systems. The use of higher performance 32-and 64-bit
processors was common in higher cost but lower volume applications such as
telecommunications switching equipment and data networking routers. Although
microcontrollers are adequate for basic system control functions, they lack the
performance and bandwidth capabilities to implement today's advanced functions.
Recently, however, the price of 32- and 64-bit processors has reached the point
where it is now cost-effective to embed these solutions into low-cost, high-
volume digital consumer products. According to INSIDE THE NEW COMPUTER INDUSTRY,
the market for RISC processors increased from approximately 55 million units in
calendar year 1996 to 133 million units in calendar year 1998. This increase was
due in large part to growth in the market for digital consumer products,
including video games with 3-D interactive capabilities.
Digital consumer products that incorporate high-performance processors and
software can offer advanced functionality such as realistic 3-D graphics
rendering, digital audio and video, and communications and high-speed signal
processing. A prominent example is the home video game console, in which the use
of 32- and 64-bit embedded processors enables the processing of realistic
graphic images in products that retail for less than $150. Other examples of
digital consumer products that incorporate high-performance processors include
digital cable set-top boxes, Internet appliances and handheld personal
computers. These battery-powered devices, such as the Philips Nino and the NEC
MobilePro, are targeted at retail price points ranging from $449 to $899 and are
designed to allow consumers to access electronic mail, connect to the Internet
and run software applications such as word processors and spreadsheets.
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<PAGE>
As the lower cost of processing power has enabled higher functioning
processors for these digital consumer products, multiple software operating
systems have been developed to establish the user interface and control for
these products. Many companies, including Microsoft, Wind River Systems, Inc.
and Integrated Systems Inc., currently provide operating systems software that
support embedded systems applications. Microsoft created the Windows CE
operating system specifically for next generation digital consumer products such
as the mobile computing and Windows-based terminals markets. The widespread
adoption of the Windows CE operating system could accelerate the growth of the
digital consumer products market and hence the demand for embedded processors.
To meet the demands of the digital consumer products market, system OEMs
rely on semiconductor manufacturers to design and deliver critical components
within rigorous price and performance parameters. To ensure availability in
these high-volume markets, these OEMs prefer multiple sources of supply. In
order to supply products for these markets, semiconductor suppliers are
increasingly combining their own intellectual property with that of third-party
suppliers in the form of processor cores and other functional blocks. This
intellectual property must be customizable to allow the semiconductor
manufacturer to adapt it for specific applications and to meet stringent
time-to-market requirements. It must also be scalable to enable the manufacturer
to design a wide breadth of products. Finally, as the requirements to implement
advanced functionality such as 3-D graphics escalate, this intellectual property
must meet more demanding performance standards.
THE MIPS SOLUTION
We are a leading designer and developer of RISC-based high-performance
processor intellectual property for embedded systems applications. We are the
only company that currently offers embedded 64-bit processor designs for
high-volume digital consumer product applications. We have established a
distribution channel for our intellectual property by licensing our technology
to key semiconductor designers and manufacturers. Each of these licensees
possesses leading design and/or process technology and can leverage a strong
market position in strategic embedded markets. To date, the MIPS RISC
architecture has been used to create over 60 standard processors and several
hundred customer- and application-specific products. These standard processors
have a cumulative installed base of over 120 million units, and have been
embedded into a variety of products such as video games, color printers and
handheld personal computers. According to INSIDE THE NEW COMPUTER INDUSTRY, the
market for RISC-based processors totaled 133 million units in calendar year
1998, a 36% increase over 1997. Based on industry sources, we believe that more
than one third of these units were based on the MIPS RISC architecture.
Our technology focuses on providing cost-effective and high-performance
processors, cores and related designs for high-volume embedded applications. The
MIPS RISC architecture is flexible and allows semiconductor manufacturers to
integrate their intellectual property with our processor, core and related
designs to develop differentiated and innovative products for a variety of
embedded applications within demanding time-to-market requirements.
The advantages of the MIPS architecture relate primarily to scalability of
die size and performance. Products incorporating the MIPS architecture range
from disk drives using processor cores with a die size of less than two square
millimeters to high-performance workstations using processors with a die size of
300 square millimeters. In addition, while designed for high performance, our
RISC-based architectures have been incorporated in a number of low-power
applications such as handheld personal computers. The MIPS architecture is
designed around upward compatible instruction sets that enable manufacturers
developing products across a broad range of price/performance points to use
common support tools and software.
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<PAGE>
Through our network of semiconductor manufacturing and design companies,
system OEMs and independent software vendors, we have developed the
infrastructure to support our architecture as a standard platform for the
embedded market.
SEMICONDUCTOR LICENSEES
We currently have nine key semiconductor licensees that develop, manufacture
(or have manufactured) and sell silicon solutions based on the MIPS RISC
processor architecture. Our current semiconductor licensees include, among
others, Broadcom Corporation, Integrated Device Technology, LSI Logic
Corporation, NEC Corporation, NKK Corporation, Philips Electronics N.V., Quantum
Effect Design, Inc., Texas Instruments, Inc. and Toshiba Corporation. NEC,
Toshiba and Philips, which have been licensees since 1989, 1989 and 1995,
respectively, are among the world's largest semiconductor suppliers to the
consumer electronics market and are investing significant resources to address
the emerging digital consumer products market. Broadcom, a licensee since August
1998, is a key supplier of semiconductor products to the digital set-top box and
networking markets. LSI Logic, a licensee since 1987, is a leading supplier of
custom system-on-a-chip solutions for consumer devices, such as the Sony
PlayStation, and the communications equipment market. IDT, a licensee since
1988, is a supplier of MIPS-based processors for the set-top box used in WebTV's
Internet appliance and for communications equipment such as routers from Cisco
Systems, Inc. Several of these licensees have made significant investments in
our technology and market development which has resulted in multiple design
teams around the world engaged in the development of MIPS-based processors and
cores.
Using our flexible intellectual property, these licensees, and the multiple
design teams within these companies, are able to design optimized semiconductor
products for multiple segments of the embedded market. These licensees and their
associated design teams have developed a broad portfolio of processors and
standard products based on the MIPS RISC architecture as well as application
specific extensions which can be licensed back to us and offered to other
licensees. For example, MIPS16, an extension to the instruction set architecture
that reduces memory requirements and costs by allowing instructions to be
expressed with 16 rather than 32 bits, was developed jointly by us and LSI Logic
and is presently licensed by us to several of our semiconductor manufacturing
licensees.
We also develop and license custom core designs intended to address the
specific silicon process technology of the manufacturer to which it is licensed.
We believe that our ability to provide these custom core designs is a
significant competitive advantage. Because they are designed with the
manufacturer's specific silicon process technology in mind, these core designs
have superior performance levels and high value for the target licensee.
SYSTEM OEMs
Products based on the MIPS RISC architecture are used by a variety of system
OEMs in the embedded market. A number of high-profile digital consumer products
incorporate the MIPS RISC architecture, including the Nintendo 64 and Sony
PlayStation video game systems, the Philips Nino and NEC MobilePro handheld
personal computers, the Echo Star digital set-top box and WebTV's Internet
appliance. We participate in various sales and technical efforts directed to
system OEMs and have increased our business development organization to build
brand awareness of the MIPS RISC architecture among system OEMs.
INDEPENDENT SOFTWARE VENDORS
Our RISC architecture is further enabled by a variety of third-party
independent software vendors that provide operating systems and engineering
development tools such as compilers, debuggers and in-circuit emulation testers.
Currently, these companies provide over 150 products in support of our RISC
architecture. This substantial software support
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<PAGE>
allows system OEMs to design the MIPS processor technology into their products.
In particular, software operating systems developed by Microsoft, Wind River
Systems, Inc. and Integrated Systems Inc. are compatible with our RISC
architecture. We intend to work with Microsoft to optimize our processor designs
for products running on the Windows CE operating system.
STRATEGY
We seek to be the world's leading provider of processor and core
intellectual property for the embedded market. To establish MIPS RISC-based
processors and cores as the industry standard and to proliferate our technology
into multiple markets and applications, we have implemented a business model
based on the non-exclusive licensing of our intellectual property. Key elements
of this strategy include:
TARGET EMERGING MARKET FOR DIGITAL CONSUMER PRODUCTS
As the price of high-performance 32- and 64-bit processors has declined,
system OEMs have embedded these processors into next generation digital consumer
products. We believe that our 32- and 64-bit processor designs are well suited
for this market due to the scalability and performance of the MIPS RISC
architecture and the cost and time-to-market advantages provided by our
intellectual property. We target our processors for use in video game products,
handheld personal computers, set-top boxes, DVD players, digital televisions and
cameras and mobile telecommunications products.
LEVERAGE TECHNOLOGICAL EXPERTISE
We will focus our research and development efforts on enhancing our existing
technology to create processors, cores and related designs that are optimized
for specific embedded applications. Our strategy is to use our 32- and 64-bit
processor technology and a modular approach that emphasizes reusable and
licensable processor technologies. We believe that this increased flexibility
and modularity will allow our licensees to provide high-performance, customized
products more quickly to our customers. We also custom design cores based on a
manufacturer's specific silicon process technology. These custom core designs
have superior performance levels and a high value for the target licensee. In
addition to advancing our processor technology, we also intend to leverage our
expertise in high-performance/ high-bandwidth computer systems architecture to
develop intellectual property aimed at improving the performance and cost-
effectiveness of next generation digital consumer products.
STRATEGIC DEVELOPMENT OF LICENSEES
Our strategy has been to license the MIPS architecture to a relatively
limited set of world-class semiconductor manufacturing and design companies. We
believe that these long-term relationships have been fundamental to the
proliferation of MIPS-based products. We presently license our technology to
nine key semiconductor companies, each of which possesses leading design and/or
process technology and can leverage a strong market position in a variety of
embedded market applications. Our recently announced licensing relationships
with Texas Instruments and Broadcom are current examples of this strategy. We
may establish licenses with additional companies that we believe can offer
value-added design capabilities in our existing target markets as well as expand
the market for our processor and related designs.
STRENGTHEN MIPS' POSITION AS THE INDUSTRY STANDARD
As an early entrant in the intellectual property market, we have established
a strong brand awareness and a network of semiconductor licensees, system OEMs
and independent software vendors to support our processor and related design
efforts. We seek to expand the industry's support of the MIPS architecture by
continuing to focus on our relationships with semiconductor designers and
manufacturers, software vendors and system OEMs. We also intend to further
38
<PAGE>
enhance the MIPS brand and create market "pull" through targeted advertising and
co-marketing with our licensees and participation in standards setting for the
processor industry.
MARKETS AND APPLICATIONS
DIGITAL CONSUMER PRODUCTS
Together with our existing semiconductor manufacturing licensees and our
associated design teams, we seek to leverage our RISC architecture into
solutions for a wide variety of sophisticated, high-volume digital consumer
products such as video game products, handheld personal computers and set-top
boxes. To date, MIPS RISC-based processors have been designed into many digital
consumer products. Revenue related to the video game market presently accounts
for a substantial majority of our total revenue, and such revenue is expected to
continue to account for a significant portion of our total revenue for at least
the next several years. See "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
VIDEO GAMES. The market for video games, which represents the first
high-volume consumer application for 32- and 64-bit processors, accounted for
approximately 30 million units in 1997, of which an estimated 90% used our
technology. Our key design wins in this market include the Nintendo 64 video
game system, which uses our R4300i processor manufactured by NEC, and the Sony
PlayStation, which uses our R3000 class embedded processor developed by LSI
Logic.
SET-TOP BOXES. As digital transmission of video signals becomes more widely
available and utilized, we believe that the market for compatible set-top boxes
could represent an area of growth in the use of 32- and 64-bit processors and
related designs. Key design wins in this market include the set-top box used in
WebTV's Internet appliance, which uses our R4000 class processor manufactured by
IDT, Echostar's Dish Network set-top box, which uses our R3000 class processor
manufactured by IDT, and General Instrument's DVi-5000+ advanced interactive
digital set-top terminal, introduced in 1998, which uses a MIPS-based product
from NEC. We also expect that Broadcom will use one of our processors in its
set-top box products.
HANDHELD PERSONAL COMPUTERS. While the market for handheld personal
computers has only recently begun to develop, we expect that this market will
continue to grow. To date, our RISC-based processor designs have been
incorporated into products such as the Philips Nino and Sharp's Mobilon, both of
which use our R3000 class processor developed by Philips. In addition, NEC has
incorporated our R4000 class processor design into its MobilePro handheld
personal computer, and Vadem has incorporated a similar processor into its Clio.
OTHER DIGITAL CONSUMER PRODUCTS. Other potential digital consumer product
applications for our 32- and 64-bit processors include Windows-based terminals,
mobile telecommunications products, Digital Versatile Disk (DVD) players,
digital televisions and cameras and the automobile PC, a product that provides
drivers with a variety of services, including directions, using voice
recognition and voice synthesis.
BUSINESS EQUIPMENT
Significant design wins in network and office automation applications
include networking management equipment from Cisco and laser printers from
Hewlett-Packard, QMS, Lanier and Kodak.
PRODUCTS
We design, develop and license intellectual property for high-performance
processors. Our intellectual property is used in the design of processors,
cores, instruction set architectures (ISAs) and application specific extensions
(ASEs) that enable our semiconductor licensees to design and/or manufacture
flexible, high-performance processors and cores for embedded systems within
demanding time-to-market requirements. Through licensing and royalty-based
arrangements with our semiconductor licensees, we seek to strengthen the
position
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of the MIPS architecture and proliferate our designs in embedded systems
applications. We have not historically and do not intend to manufacture
processors and related devices.
BASIC PROCESSORS
We currently provide flexible, modular processor designs covering a range of
performance/price points to enable our licensees to provide both standardized
and customized semiconductor products more quickly to system OEMs.
R3000. The R3000 is a 32-bit processor introduced in 1988 that has served
as the basis for many derivatives by our semiconductor licensees. The small die
size (less than two square millimeters in one implementation) and performance
characteristics of the R3000 make it well-suited for applications such as video
game consoles, handheld personal computers, networking equipment and laser
printers and copiers.
R4000. The R4000 is a 64-bit processor introduced in 1992 that has served
as the basis for a variety of derivatives, including the R4300i which is used in
Nintendo 64 video game players. The R4000 was designed for applications in which
high performance is the principle objective, such as video games and network
servers and interactive consumer applications such as set-top boxes.
R5000. The R5000 is a 64-bit processor developed by QED in January 1996
that is presently licensed to us. The R5000, which we can sublicense to other
licensees, is a dual instruction issue processor that has served as the
processor in several Silicon Graphics workstations. Its performance
characteristics make it an attractive processor for more powerful and
sophisticated embedded applications.
JADE. Announced in November 1998, the Jade processor core is a
high-performance, low-power, 32-bit core designed for custom silicon-on-silicon
applications. This processor, an enhancement to the R3000, implements our
instruction set architecture and certain key features from the R4000. The Jade
core is available in both optimized and synthesizable formats and is designed
for easy integration with a wide variety of custom logic and peripherals.
OPAL. Announced in November 1998, the Opal processor core is a 64-bit core
aimed at companies with short time-to-market requirements that also require the
higher performance of a 64-bit core. The Opal core is available in both
optimized and synthesizable formats.
RUBY. Announced in November 1998, the Ruby processor is based on the MIPS V
instruction set architecture with special 64-bit operations for high performance
graphics. The Ruby processor is well suited for digital consumer devices and for
enterprise networking and communications products.
INSTRUCTION SET ARCHITECTURES
Instruction set architectures are combinations of binary instructions and
the hardware to execute them which together determine the native capability of a
processor. Instruction set architecture standards are important because, among
other things, they become the common points around which tools are built,
software libraries and compilers are written and software operating systems are
developed. Elements of an instruction set architecture may be copyrighted or
patented, thus preventing unrestricted use without a license. We license our
instruction set architectures to promote the development and marketing of our
compatible parts by our semiconductor licensees.
MIPS I/II. The MIPS I/II instruction set architecture is the basic series
of instructions for 32-bit operations. This instruction set, which is presently
used in a wide range of applications, allows the performance of integer and
floating point computation, logical operations, data movement and a variety of
other functions. Many of the R3000 class cores implement the MIPS II instruction
set architecture. Full MIPS I/II compatibility is protected by patents,
copyrights and trademarks that we own.
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MIPS III. In addition to providing full support for the MIPS II instruction
set architecture, the MIPS III instruction set architecture extends the MIPS II
instruction set architecture to 64-bit operations, increases the number of
floating point registers and adds certain other functions. The MIPS III
instruction set architecture is implemented in the R4000 series of products.
MIPS III is an instruction set that is necessary to operate 64-bit MIPS
processors in 64-bit mode.
MIPS IV. MIPS IV enhances floating point operations and adds additional
instructions that improve performance in a number of engineering and scientific
applications. The MIPS IV instruction set architecture is implemented in the
R5000 series of products.
MIPS V. MIPS V provides instructions that enhance performance in 3-D
graphics applications. Hardware for the MIPS V instruction set architecture has
not been implemented.
APPLICATION SPECIFIC EXTENSIONS
Application specific extensions are intended to provide design flexibility
for our application-specific products and are offered to our semiconductor
manufacturing licensees as optional, additional features to our processors and
cores.
MIPS16. MIPS16 is an application specific extension to our RISC
architecture introduced in October 1996 that permits substantially reduced
systems costs by reducing memory requirements through the use of 16-bit
instruction representation.
Our current processors, cores and related products incorporate the
technologies and intellectual property used by the MIPS Group in designing
processors for Silicon Graphics' high-performance computer systems, servers and
workstations. These high-end processor designs include our R8000 and R10000
processors. The R8000 processor, introduced in 1994, has floating-point and
computational capabilities that are valuable in engineering and scientific
markets. The R10000 processor, introduced in 1995, is a sophisticated 64-bit
processor capable of using dynamic instruction scheduling (out-of-order
execution) and speculative branches. Applications using the highly scalable
R10000 processor include supercomputers and high-performance servers for
commercial applications, including database management and transaction
processing. R10000 processors are used in many of the products presently sold by
Silicon Graphics. Although the R8000 and R10000 were not specifically designed
for embedded market applications, they contain sophisticated and valuable
technology and intellectual property that has been, and will continue to be,
available to us for incorporation into processor and related designs for the
embedded market.
RESEARCH AND DEVELOPMENT
We believe that our future competitive position will depend in large part on
our ability to develop new and enhanced processors, cores and related designs in
a timely and cost-effective manner. We believe that these capabilities are
necessary to meet the evolving and rapidly changing needs of semiconductor
manufacturers and system OEMs in our target markets. To this end, we have
assembled a team of highly skilled engineers that possess significant experience
in the design and development of complex processors. We are building on this
base of experience and the technologies that we have developed to enhance the
MIPS RISC architecture and develop a broader line of processors and cores that
are optimized for various applications. Our strategy is to use a modular
approach that emphasizes re-usable, licensable processors, cores and software
technology. We believe that this increased flexibility and modularity will allow
our semiconductor licensees to provide high-performance, customized products
more quickly to their customers. In addition, we develop and license
standardized instruction set architecture and application specific extensions to
work within and around our RISC architecture to enhance and tailor the
capabilities of our processor designs for specific applications.
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We develop and license our processor designs in several forms. Custom core
designs are intended to address the specific silicon process technology of the
manufacturer to which it is licensed. We believe that our ability to provide
these custom core designs is a significant competitive advantage. Because they
are designed with the manufacturer's specific silicon process technology in
mind, these core designs have superior performance levels and high value for the
target licensee.
We also generate both high-level description language representations of our
custom core designs called synthesizable or "soft" cores, and intermediate
representations with some process targeting called optimized cores.
Synthesizable and optimized cores are flexible and can be licensed to multiple
customers and used in multiple applications. Synthesizable cores are delivered
as high-level, process independent circuit descriptions, leaving the process
implementation details to the system OEM. These designs provide the greatest
flexibility to semiconductor companies. Optimized cores are generated using
standard ASIC methodologies, including circuit synthesis and automatic
place-and-route. The use of optimized cores simplifies and expedites the task of
porting a design to a specific manufacturing process. Implementation advantages
of a new process technology can be quickly exploited using optimized cores
without significant circuit redesign.
We are working with Microsoft to optimize the MIPS RISC-based processor
designs for products running on the Windows CE operating system. The Windows CE
operating system, which was developed using the MIPS RISC architecture, targets
the general embedded and digital consumer products markets as well as the mobile
computing and Windows-based terminals markets. The Windows CE operating system
has the advantage of a flexible and modular system and a large installed base of
developers who are experienced with Windows API development tools. This could
provide system OEMs with a familiar software platform and could accelerate the
growth of the digital consumer products market.
At December 31, 1998, our research and development staff totaled 75 persons
compared to 36 employees at June 30, 1998. This increase reflects, in part, the
addition of 24 employees operating out of a new development center opened in
Denmark in December 1998. Employees staffing this development center engage in
product development and provide support and design expertise for our customers
based in Europe. In the third quarter of fiscal 1998, we reduced our research
and development staff by 185 persons, reflecting the transfer to Silicon
Graphics of employees engaged in the development of next generation processors
for Silicon Graphics' systems as well as other staff reductions associated with
the separation and our shift in strategic direction.
Because we expect to use industry-standard third-party design tools, we will
not be required to develop and maintain the proprietary design tools that were
necessary in connection with the design of high-performance processors for
Silicon Graphics. As a result, we expect that our staffing requirements will be
lower than those required prior to the separation. However, we intend to hire
additional highly-skilled technical personnel to staff our anticipated research
and development activities. See "Risk Factors".
Research and development expenses in fiscal 1996, 1997 and 1998 were as
follows:
<TABLE>
<CAPTION>
RESEARCH AND
FISCAL YEAR DEVELOPMENT EXPENSES
- ------------------- -----------------------
<S> <C>
1996 $48.4 million
1997 $68.8 million
1998 $43.4 million
</TABLE>
SALES AND MARKETING
Our sales and marketing activities are focused principally on establishing
and maintaining licensing arrangements with semiconductor manufacturers and
participating in marketing, sales and technical efforts directed to system OEMs.
We license our RISC-based processors, cores and related design technology on a
non-exclusive and worldwide basis to semiconductor
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manufacturers who, in turn, sell products incorporating these technologies to
system OEMs. The partnerships we establish form a distribution channel and are
an important element of our strategy to proliferate the MIPS RISC architecture
as the standard in the embedded processor industry.
In establishing these partnerships, we seek to license our technology to
those companies we believe can offer value-added design capabilities in our
existing target markets as well as expand the market for our processor and
related designs.
We presently have two customers that individually account for more than 10%
of our total revenue: Nintendo and NEC. Substantially all of the revenue derived
from these two customers reflects contract revenue and royalties related to
development and sales of Nintendo 64 video game players and related cartridges.
Revenue related to sales of Nintendo 64 video game cartridges is expected to
continue to account for a significant portion of our total revenue for the next
several years and, therefore, we expect that a significant portion of our total
revenue will continue to be derived from Nintendo and, to a lesser extent, NEC.
We understand that the next generation Nintendo video game system will not
incorporate any of our technology. Because revenue related to sales of Nintendo
64 video game cartridges is expected to represent a substantial portion of our
total revenue, we also expect to experience seasonal fluctuations in our revenue
and operating results. See "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Revenue". For
financial information regarding revenue derived from our international
licensees, see Note 13 of Notes to Financial Statements.
Although the precise terms of our contracts vary from licensee to licensee,
they typically provide for technology license and engineering service fees which
may be payable up-front and/or upon the achievement of certain milestones such
as provision of deliverables by us or production of semiconductor products by
the licensee. Our contracts also provide for the payment of royalties to us
based on a percentage of the net revenue earned by the licensee from the sale of
products incorporating our technology and, in some cases, based on unit sales of
such products. Our contracts with our semiconductors licensees are typically
subject to periodic renewal or extension. We also offer licensees the option to
license our technology on a single-use or unlimited-use basis, and may provide
licensees with various technical support, training and consulting services and
sales and marketing support.
Certain of our marketing activities are also aimed at system OEMs. Through
targeted advertising and co-marketing programs with our licensees, we seek to
increase awareness of the MIPS RISC architecture. We believe that these efforts
will provide product differentiation that will generate demand for our
technology from digital consumer product and business equipment manufacturers,
thereby increasing demand from semiconductor manufacturers for our designs in
their products.
Because our past processor design efforts have primarily focused on serving
the needs of Silicon Graphics, and although we have always maintained a sales
and marketing staff to support our strategic relationships, our sales and
marketing activities have not historically been central to our operations.
Following the separation of our business from that of Silicon Graphics, our
sales and marketing activities have become significantly more critical to our
success, and our staff and related expenses are expected to increase as we seek
to diversify our revenue base.
INTELLECTUAL PROPERTY
We regard our patents, copyrights, mask work rights, trademarks, trade
secrets and similar intellectual property as critical to our success, and rely
on a combination of patent, trademark, copyright, mask work and trade secret
laws to protect our proprietary rights. Our failure to obtain or maintain
adequate protection of our intellectual property rights for any reason could
have a material adverse
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effect on our business, results of operations and financial condition.
We own 54 U.S. patents on various aspects of our technology, with expiration
dates ranging from 2006 to 2017, 15 pending U.S. patent applications, as well as
all foreign counterparts relating thereto. There can be no assurance that
patents will issue from any patent applications we submitted, that any patents
we hold will not be challenged, invalidated or circumvented or that any claims
allowed from our patents will be of sufficient scope or strength to provide
meaningful protection or any commercial advantage to us.
In addition, there can be no assurance that third parties will not assert
claims of infringement against us or against our licensees in connection with
their use of our technology. Such claims, even those without merit, could be
time consuming, result in costly litigation and/or require us to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to us, or at all.
Moreover, the laws of certain foreign countries may not protect our
intellectual property to the same extent as do the laws of the United States
and, because of the importance of our intellectual property rights to our
business, this could have a material adverse effect on our business, results of
operations and financial condition.
We also use licensing agreements and employee and third party nondisclosure
and assignment agreements to limit access to and distribution of our proprietary
information and to obtain ownership of technology prepared on a work-for-hire
basis. There can be no assurance that the steps we have taken to protect our
intellectual property rights will be adequate to deter misappropriation of such
rights or that we will be able to detect unauthorized uses and take immediate or
effective steps to enforce our rights. There can also be no assurance that the
steps we have taken to obtain ownership of contributed intellectual property
will be sufficient to assure our ownership of all proprietary rights.
We also rely on unpatented trade secrets to protect our proprietary
technology. No assurance can be given that others will not independently develop
or otherwise acquire the same or substantially equivalent technologies or
otherwise gain access to our proprietary technology or disclose such technology
or that we can ultimately protect our rights to such unpatented proprietary
technology. In addition, no assurance can be given that third parties will not
obtain patent rights to such unpatented trade secrets, which patent rights could
be used to assert infringement claims against us.
From time to time we have entered, and in the future may enter, into cross
licensing arrangements with others, pursuant to which we license certain of our
patents in exchange for patent licenses from such licensees. Although these
types of cross licensing arrangements are common in the semiconductor and
processor industries, and do not generally provide for transfers of know-how or
other proprietary information, such arrangements may facilitate the ability of
such licensees, either alone or in conjunction with others, to develop
competitive products and designs.
We have entered into arrangements with Silicon Graphics pursuant to which
certain intellectual property was assigned to us, subject to the grant of a
license to Silicon Graphics; certain intellectual property was retained by
Silicon Graphics, subject to the grant of a license to us; and certain
intellectual property was retained by Silicon Graphics without any ongoing
interest to us. Our inability to use Silicon Graphics' intellectual property in
the future could have a material adverse affect on our business and results of
operations.
In the past, the MIPS Group has benefitted from its status as a division of
Silicon Graphics in our access to the intellectual property of third parties
through licensing arrangements or otherwise, and in the negotiation of the
financial and other terms of any such arrangements. There can be no assurance
that the separation of our business from that of Silicon Graphics will not
adversely affect our
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ability to negotiate commercially attractive intellectual property licensing
arrangements with third parties in the future.
In addition, in connection with any future intellectual property
infringement claims, we will not have the benefit of asserting counterclaims
based on Silicon Graphics' intellectual property portfolio, nor will we be able
to provide licenses to Silicon Graphics' intellectual property in order to
resolve such claims.
COMPETITION
The market for embedded processors and cores is highly competitive and
characterized by rapidly changing technological needs and capabilities. We
believe that the principal competitive factors in the embedded processor market
are performance, functionality, price, customizability and power consumption.
Our processors and cores compete with those of ARM Holdings plc, Hitachi
Semiconductor (America) Inc. and Power PC (an alliance between Motorola, Inc.
and IBM Corporation). We also compete against certain semiconductor
manufacturers whose product lines include processors for embedded and
non-embedded applications, including Advanced Micro Devices, Inc., Intel
Corporation, Motorola, Inc. and National Semiconductor Corporation. In addition,
we may face competition from the producers of unauthorized MIPS-based clones and
non-RISC based technology designs.
In addition, we must continue to differentiate our processors, cores and
related designs from those available or under development by the internal design
groups of semiconductor manufacturers, including our current and prospective
manufacturing licensees. Many of these internal design groups have substantial
programming and design resources and are part of larger organizations, which
have substantial financial and marketing resources. There can be no assurance
that internal design groups will not develop products that compete directly with
our processor and related designs or will not actively seek to participate as
merchant vendors in the intellectual property component market by selling to
third-party semiconductor manufacturers or, if they do, that we will be able to
compete with them successfully. To the extent that these alternative
technologies provide comparable performance at a lower or similar cost than our
technology, semiconductor manufacturers may adopt and promote these alternative
technologies. Certain of our competitors have greater name recognition and
customer bases as well as greater financial and marketing resources than us, and
such competition could adversely affect our business, results of operations and
financial condition.
EMPLOYEES
As of December 31, 1998, we had 110 full time employees. Of this total, 75
were in research and development, 22 were in sales and marketing and 13 were in
finance and administration. Our future success will depend in part on our
ability to attract, retain and motivate highly qualified technical and
management personnel who are in great demand in the semiconductor industry. We
intend to hire additional highly skilled technical personnel to staff our
anticipated research and development activities. None of our employees are
represented by a labor union or subject to a collective bargaining agreement. We
believe that our relations with our employees are good.
LITIGATION
On April 6, 1998, we filed an action against ArtX, Inc. and certain
employees of ArtX, Inc. with Silicon Graphics in the Superior Court of the State
of California alleging, among other things, misappropriation of trade secrets
and breach of contractual and fiduciary duties in connection with the
defendants' actions in developing graphics technology for Nintendo's next
generation video game system. On April 23, 1998, Nintendo notified Silicon
Graphics and us of its belief that the disclosure of certain information
regarding the contract for the development of the Nintendo 64 video game system
in our registration statement relating to our initial public offering filed with
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the Securities and Exchange Commission on April 21, 1998 constituted a breach of
that contract. Silicon Graphics and we strongly disagree that any such breach
has occurred. On May 27, 1998, we entered into a memorandum of understanding
with Silicon Graphics, Nintendo and ArtX, Inc. pursuant to which Silicon
Graphics and we have dismissed without prejudice the pending lawsuit against
ArtX, Inc., and Nintendo has agreed that, in the absence of a lawsuit against
Nintendo or ArtX, Inc., it will not assert any claim that the Nintendo 64
contract has been breached in connection with the filing of our registration
statement.
From time to time, we receive communications from third parties asserting
patent or other rights covering our products and technologies. Based upon our
evaluation, we may take no action or we may seek to obtain a license. There can
be no assurance in any given case that a license will be available on terms we
consider reasonable, or that litigation will not ensue. In addition, from time
to time we evaluate possible patent infringement claims against third parties
and may assert such claims if appropriate.
FACILITIES
Our executive, administrative and technical offices currently occupy
approximately 27,500 square feet (with an option to increase to 55,000 square
feet) in a building subleased from Silicon Graphics in Mountain View,
California. Payments by us to Silicon Graphics under this sublease are equal to
amounts payable by Silicon Graphics under its sublease for the property with a
third party. This sublease will expire on May 31, 2002, subject to earlier
termination in certain circumstances.
In addition, we sublease approximately 9,000 square feet of office space
from LSI Logic in Copenhagen, Denmark. The sublease is on a month-to-month basis
until April 1999, and we have an option to assume the related lease at that
time. If the lease is assumed, it will expire in February 2006, subject to our
earlier termination. If the lease is not assumed, LSI Logic may terminate the
sublease on 90 days notice.
We believe that these facilities are adequate to meet our current needs but
that we may need to seek additional space in the future.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors
and their ages as of February 1, 1999, were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ----------------------------------------- ----------- ------------------------------------------
<S> <C> <C>
John E. Bourgoin......................... 53 Chief Executive Officer, President and
Director
Lavi Lev................................. 42 Senior Vice President, Engineering
Kevin C. Eichler......................... 39 Vice President, Chief Financial Officer
and Treasurer
Derek Meyer.............................. 38 Vice President, Sales and Marketing
Sandy Creighton.......................... 45 Vice President, General Counsel and
Secretary
Dr. Forest Baskett(1).................... 55 Director
Kenneth L. Coleman(2).................... 56 Director
Fred M. Gibbons(1)(2)(3)................. 49 Director
Anthony B. Holbrook(2)(3)................ 59 Director
William M. Kelly(1)...................... 45 Director
Teruyasu Sekimoto........................ 59 Director
</TABLE>
- --------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Option Administration Committee.
JOHN E. BOURGOIN has served as our Chief Executive Officer since February
1998 and our President since September 1996, and has served on our board of
directors since May 1997. Mr. Bourgoin has also served as a Senior Vice
President of Silicon Graphics from September 1996 through May 1998. Prior to
joining Silicon Graphics, Mr. Bourgoin was Group Vice President, Computation
Products Group at Advanced Micro Devices, Inc.
LAVI LEV has served as our Senior Vice President -- Engineering since March
1998, and was Vice President -- Engineering of Silicon Graphics from 1996 to
March 1998. From 1995 to 1996, he served as Vice President, Engineering at
MicroUnity Systems Engineering and between 1992 and 1995 he was a manager at Sun
Microsystems, Inc. Prior to joining Sun Microsystems, Inc., Mr. Lev was employed
by Intel Corporation and was involved in the development of the Pentium
processor.
KEVIN C. EICHLER has served as our Vice President, Chief Financial Officer
and Treasurer since May 1998. Prior to joining us and since 1996, Mr. Eichler
served as Vice President, Finance, Chief Financial Officer, Treasurer and
Secretary of Visigenic Software Inc., an independent provider of software tools
for distributed object technologies for the Internet, Intranet and enterprise
computing environments. From 1995 to 1996, he served as Executive Vice
President, Finance and Chief Financial Officer of National Information Group, a
provider of technology solutions for financial services companies. From 1991 to
1995, Mr. Eichler served as Executive Vice President, Finance and Chief
Financial Officer of Mortgage Quality Management, Inc., a national provider of
quality control services and technologies to residential mortgage lenders.
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Prior to 1991, Mr. Eichler held management positions with NeXT Software and
Microsoft.
DEREK MEYER joined us in May 1996 as Director of Worldwide Marketing and
Sales and became Vice President -- Sales and Marketing in March 1998. Prior to
joining us and since 1994, Mr. Meyer served as marketing director for the
TriMedia division of Philips Semiconductors and prior to that time he was
director of SPARC marketing for Sun Microsystems, Inc.
SANDY CREIGHTON joined us in June 1998 as Vice President, General Counsel
and Secretary. Prior to joining us and since 1991, Ms. Creighton was Deputy
General Counsel at Sun Microsystems, Inc.
DR. FOREST BASKETT has served on our board of directors since January 1998.
Since 1990, Dr. Baskett has served as Senior Vice President, Research and
Development of Silicon Graphics, and since 1994, has also served as its Chief
Technology Officer.
KENNETH L. COLEMAN has served on our board of directors since January 1998.
Since April 1997, Mr. Coleman has been Senior Vice President, Customer and
Professional Services of Silicon Graphics. Prior to that time, he was Senior
Vice President, Administration of Silicon Graphics.
FRED M. GIBBONS has served on our board of directors since July 1998. Since
1999, Mr. Gibbons has been a partner with Concept Stage Venture Management, an
investment firm based in California. From 1995 through 1998, Mr. Gibbons was
also a lecturer at the Stanford University Graduate School of Engineering. In
1981, Mr. Gibbons founded Software Publishing Corporation based in San Jose,
California, a company engaged in the development of software systems for
personal computer applications, and was its Chief Executive Officer through
1994. Prior to 1981, Mr. Gibbons was employed as a product and marketing manager
for Hewlett-Packard Company.
ANTHONY B. HOLBROOK has served on our board of directors since July 1998.
Mr. Holbrook retired as Chief Technical Officer of Advanced Micro Devices, Inc.
in August 1994. Mr. Holbrook joined Advanced Micro Devices, Inc. in 1973 and
served in a number of executive capacities. He was elected a corporate officer
in 1978 and in 1982 was named Executive Vice President and Chief Operating
Officer. In 1986, Mr. Holbrook was named President of Advanced Micro Devices,
Inc. and was elected to the board of directors. In 1989, he moved from Chief
Operating Officer to Chief Technical Officer and in 1990 from President to Vice
Chairman, a position he held until April 1996. Prior to joining Advanced Micro
Devices, Inc., Mr. Holbrook held engineering management positions with Fairchild
Semiconductor and Computer Micro Technology Corporation. Mr. Holbrook is also a
director of SDI, Inc., a solid state laser manufacturer.
WILLIAM M. KELLY has served on our board of directors since January 1998. He
joined Silicon Graphics in 1994 as Vice President, Business Development, General
Counsel and Secretary and, since 1997, has been Senior Vice President, Corporate
Operations of Silicon Graphics. During 1996, Mr. Kelly also served as Senior
Vice President, Silicon Interactive Group of Silicon Graphics and he served as
acting Chief Financial Officer of Silicon Graphics from May 1997 to February
1998. Prior to joining Silicon Graphics, Mr. Kelly was an attorney in private
practice.
TERUYASU SEKIMOTO has served on our board of directors since January 1998.
Mr. Sekimoto joined Silicon Graphics in 1987 as representative director of
Silicon Graphics Japan. He became Vice President, North Pacific Area in 1991 and
Senior Vice President, East Asia in 1995.
Ownership interests of our directors or officers in the common stock of
Silicon Graphics or service as both our director and as an officer or employee
of Silicon Graphics could create or appear to create potential conflicts of
interest when directors and officers are faced with decisions that could have
different implications for us and Silicon Graphics, such as potential
acquisitions or financing transactions as well as other
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corporate opportunities that may be suitable for both us and Silicon Graphics.
See "Risk Factors". Our certificate of incorporation includes certain provisions
relating to the allocation of business opportunities that may be suitable for
both us and Silicon Graphics based on the relationship to us and Silicon
Graphics of the individual to whom the opportunity is presented and the method
by which is presented. See "Description of Capital Stock -- Corporate
Opportunities". In addition, under Delaware law, our officers and directors have
fiduciary duties to our stockholders.
CLASS OF THE BOARD OF DIRECTORS
Our board of directors is divided into three classes of directors serving
staggered three-year terms. The terms of office of the directors will expire as
follows:
<TABLE>
<CAPTION>
ANNUAL MEETING AT
WHICH TERM WILL
DIRECTOR EXPIRE
- ------------------------ ---------------------
<S> <C>
Mr. Bourgoin............ 1999
Mr. Coleman............. 1999
Mr. Holbrook............ 1999
Mr. Sekimoto............ 2000
Mr. Gibbons............. 2000
Dr. Baskett............. 2001
Mr. Kelly............... 2001
</TABLE>
Silicon Graphics has the ability to change the size and composition of our
board of directors. However, to ensure that there will be at least one Class A
Director at all times, our board of directors may not consist of less than five
members. In addition, the holders of the Class B Common Stock may not remove the
Class A Director except for cause.
BOARD COMMITTEES
Our board of directors has an Audit Committee, a Compensation Committee and
an Option Administration Committee. The responsibilities of the Audit Committee
include recommending to our board of directors the independent public
accountants to be selected to conduct the annual audit of our accounts;
reviewing the proposed scope of such audit and approving the audit fees to be
paid; and reviewing the adequacy and effectiveness of our internal auditing,
accounting and financial controls with the independent public accountants and
our financial and accounting staff.
The responsibilities of the Compensation Committee include developing
performance criteria for and periodically evaluating the performance of our
Chief Executive Officer, reviewing and recommending the salary, bonus and stock
incentive compensation of our Chief Executive Officer and reviewing the
salaries, bonuses and stock incentive compensation of our other officers as
proposed by our Chief Executive Officer.
The responsibilities of the Option Administration Committee include
administering the Incentive Plan, reviewing and approving grants under the
Incentive Plan (other than grants to the Chief Executive Officer) and approving
other performance-based compensation which is intended to be excluded from the
deductibility limitations imposed by Section 162(m) of the Internal Revenue Code
of 1986.
Our board of directors may, from time to time, establish certain other
committees to facilitate the management of MIPS Technologies.
DIRECTOR COMPENSATION
Directors who do not receive compensation as one of our officers or
employees or any of our affiliates are paid an annual board membership fee. All
directors are reimbursed for reasonable expenses incurred in attending our board
of director or committee meetings.
Our board of directors and Silicon Graphics approved our Director's Stock
Option Plan in July 1998. The plan authorizes 600,000 shares of Class A Common
Stock for issuance plus an annual increase each July 1 equal to the lesser of
(1) 100,000 shares, (2) the number of shares subject to option grants in the
prior one-year period, or (3) a lesser amount determined by our board of
directors. Upon a non-employee director's election or appointment to our board
of directors, he or
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<PAGE>
she will automatically receive an initial nonstatutory stock option to purchase
40,000 shares of Class A Common Stock. Each director who has been a non-employee
director for at least six months will automatically receive an annual
nonstatutory stock option to purchase 10,000 shares of Class A Common Stock each
year on the date of the annual stockholder meeting. All stock options are
granted with an exercise price equal to the fair market value of Class A Common
Stock on the date of grant. Initial stock options vest 24% on the first
anniversary of the grant date and 2% each month thereafter; annual stock option
grants vest 2% each month over a 50-month period from the date of the grant.
Pursuant to the terms of the director stock option plan, Messrs. Holbrook and
Gibbons were each granted options to purchase 40,000 shares of Class A Common
Stock upon commencement of their term as members of our board of directors.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation earned for services rendered
to us and Silicon Graphics in all capacities for the fiscal years ended June 30,
1998 and 1997 by our Chief Executive Officer and our two other executive
officers whose salary and bonus exceeded $100,000 during the fiscal year ended
June 30, 1998. These officers are referred to as the Named Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
--------------------------------------------------- -----------------------------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1) OPTIONS/SARS COMPENSATION (2)
- ---------------------------------- --------- --------- --------- ------------------ -------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
John E. Bourgoin ................. 1998 $ 372,053 $ -- $ 21,343 559,500 $ 2,226
Chief Executive Officer and 1997 280,000 89,086 9,382 125,000 1,200
President
Lavi Lev ......................... 1998 $ 245,542 $ -- $ 309,228 298,400 $ 1,880
Senior Vice President, 1997 215,192 106,550 83,024 64,000 2,400
Engineering
Derek Meyer ...................... 1998 $ 201,456 $ -- $ 32,210 209,700(3) $ 1,793
Vice President, Sales and 1997 182,215 25,987 36,543 12,000 2,079
Marketing
</TABLE>
- --------------
(1) "Other Annual Compensation" for fiscal 1998 for the Named Executive Officers
included, in addition to certain DE MINIMIS items which are not required to
be separately described, (a) for Mr. Bourgoin: $11,348 for club membership
fees and $5,538 for an automobile allowance; (b) for Mr. Lev: $150,000 in
the form of a gross-up award related to a forgivable loan, $100,000 in
monthly amortization of a forgivable loan from Silicon Graphics and $50,538
in relocation expenses and housing allowances; and (c) for Mr. Meyer;
$32,210 on the sale of 2,500 restricted shares of Silicon Graphics common
stock.
(2) Consists of matching contributions made by Silicon Graphics under its 401(k)
plan.
(3) Consists of options exercisable to purchase 205,200 shares of MIPS
Technologies' common stock, granted by us, and options exercisable to
purchase 4,500 shares of Silicon Graphics' common stock, granted by Silicon
Graphics. In connection with their acceptance of employment with us, our
executive officers and employees that were previously employed by Silicon
Graphics mutually agreed with Silicon Graphics to forfeit all unvested
options to purchase Silicon Graphics common stock and all unvested
restricted shares of Silicon Graphics common stock. In addition, such
individuals had 30 or 90 days (depending on the terms of the option grant)
to exercise any vested options to purchase Silicon Graphics common stock,
and any vested options that remained unexercised at the end of that period
were forfeited.
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<PAGE>
OPTION GRANTS
The following tables set forth certain information with respect to option
grants made by us to the Named Executive Officers covering our Class A Common
Stock and by Silicon Graphics covering its common stock during the fiscal year
ended June 30, 1998.
<TABLE>
<CAPTION>
MIPS TECHNOLOGIES, INC.
OPTION GRANTS IN FISCAL 1998
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM (1)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
- ---------------------------------------------- ---------- --------------- -------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
John E. Bourgoin.............................. 559,500 18.67% $12.00 05/22/08 $4,222,399 $10,700,387
Lavi Lev...................................... 298,400 9.96 12.00 05/22/08 2,251,946 5,706,873
Derek Meyer................................... 205,200 6.85 12.00 05/22/08 1,548,590 3,924,431
</TABLE>
<TABLE>
<CAPTION>
POTENTIAL
SILICON GRAPHICS, INC. REALIZABLE VALUE
OPTION GRANTS IN FISCAL 1998 AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
--------------------------------------------------------------- STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS GRANTED OPTION TERM (1)
UNDERLYING TO EMPLOYEES IN EXERCISE PRICE EXPIRATION ----------------
NAME OPTIONS GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
- ---------------------------------------- --------------- --------------- -------------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
John E. Bourgoin........................ -- -- $ -- -- $ -- $ --
Lavi Lev................................ -- -- -- -- -- --
Derek Meyer............................. 4,500(2) * 12.88 11/13/07 36,437 92,337
</TABLE>
- --------------
* Less than 1%.
(1) Potential realizable value assumes that the price of the applicable stock
increases from the date of grant until the end of the option term (10 years)
at the annual rates specified (5% and 10%). The 5% and 10% assumed annual
rates of appreciation are mandated by rules of the Securities and Exchange
Commission and do not represent an estimate or projection of the future
price of the applicable stock. We do not believe that this method accurately
illustrates the potential value of a stock option. Actual gains, if any, on
stock option exercises depend upon the actual future price of the applicable
stock and the continued employment of the option holders through the vesting
period. Accordingly, the potential realizable values set forth in these
tables may not be achieved.
(2) In connection with their acceptance of employment with us, executive
officers and employees who were previously employed by Silicon Graphics
mutually agreed with Silicon Graphics to forfeit all unvested options to
purchase Silicon Graphics common stock and all unvested restricted shares of
Silicon Graphics common stock. In addition, such individuals had 30 or 90
days (depending on the terms of the option grant) to exercise any vested
options to purchase Silicon Graphics common stock, and any vested options
that remained unexercised at the end of that period were forfeited.
51
<PAGE>
OPTION EXERCISES AND OPTION VALUES
The following tables set forth certain information with respect to stock
option exercises by the Named Executive Officers during the fiscal year ended
June 30, 1998 and stock options held by them at fiscal year-end.
<TABLE>
<CAPTION>
MIPS TECHNOLOGIES, INC.
STOCK OPTION EXERCISES AND
JUNE 30, 1998 FISCAL YEAR-END VALUES
--------------------------------------------------------
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
JUNE 30, 1998 JUNE 30, 1998 (1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John E. Bourgoin.............. -- -- -- 559,500 -- $ 804,002
Lavi Lev...................... -- -- -- 298,400 -- 428,801
Derek Meyer................... -- -- -- 205,200 -- 294,872
</TABLE>
- --------------
(1) The amounts in this column reflect the difference between the closing market
price of our common stock on June 30, 1998, which was $13.44, and the option
exercise price. The actual value of unexercised options fluctuates with the
market price of the underlying stock.
<TABLE>
<CAPTION>
SILICON GRAPHICS, INC.
STOCK OPTION EXERCISES AND
JUNE 30, 1998 FISCAL YEAR-END VALUES
--------------------------------------------------------
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT JUNE 30, 1998 IN-THE-MONEY OPTIONS AT
(1) JUNE 30, 1998 (2)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John E. Bourgoin.............. -- -- 50,000 -- $ -- --
Lavi Lev...................... -- -- 21,734 -- 3,828 --
Derek Meyer................... -- -- 4,548 -- -- --
</TABLE>
- --------------
(1) All options listed in this table were either exercised or forfeited within
30 days to 90 days (depending on the terms of the option grant) after the
Named Executive Officers severed their employment relationships with Silicon
Graphics and became one of our employees.
(2) The amounts in this column reflect the difference between the closing market
price of the Silicon Graphics' common stock on June 30, 1998, which was
$12.13, and the option exercise price. The actual value of unexercised
options fluctuates with the market price of the underlying stock.
1998 LONG-TERM INCENTIVE PLAN
At the time of our initial public offering, we adopted the MIPS
Technologies, Inc. 1998 Long-Term Incentive Plan (the "Incentive Plan") in order
to attract, retain and motivate our officers and other key employees and
consultants, to compensate them for their contributions to our growth and
profits and to encourage equity ownership. The Incentive Plan authorizes the
issuance of various forms of stock-based awards to such individuals, including
stock options, stock appreciation rights, stock awards (such as restricted
stock), performance unit awards and other forms of equity-related awards which
the Option Administration Committee, in its capacity as the administrator of the
Incentive Plan, determines to be consistent with the purposes of the Incentive
Plan and our interests. An aggregate of 6,600,000 shares of Class A Common Stock
have been authorized for issuance under the Incentive Plan.
Under the Incentive Plan awards may be granted to officers, key employees
and consultants (including non-employee directors) as determined by the Option
Administration Committee, although incentive stock options intended to qualify
under Section 422 of the Internal Revenue Code may only be granted to employees.
The Option Administration
52
<PAGE>
Committee has full discretion to determine the type of award, the number of
shares related to each grant, and all other terms and conditions of awards,
provided that stock options must have a minimum 12-month vesting period (subject
to acceleration on a change in control or termination of employment as
determined by the Option Administration Committee).
As of December 31, 1998 there were outstanding options to purchase an
aggregate of 4,037,000 shares of Class A Common Stock at exercise prices ranging
from $12.00 to $22.13 per share, or a weighted average exercise price per share
of $13.90 under the Incentive Plan and there were outstanding 15,000 shares of
restricted stock, subject to repurchase.
EMPLOYEE STOCK PURCHASE PLAN
At the time of our initial public offering, we also adopted the MIPS
Technologies, Inc. Employee Stock Purchase Plan (the "Purchase Plan") in order
to provide employees the opportunity to purchase our Class A Common Stock.
Pursuant to the terms of the Purchase Plan, employees may purchase shares of our
Class A Common Stock through payroll deductions at a 15% discount from the lower
of its fair market value measured at the beginning of a pre-determined 24-month
offering period and at the end of each of four six-month exercise periods within
such offering period. An aggregate of 600,000 shares of Class A Common Stock,
subject to an annual increase to be added each July 1, beginning July 1, 1999,
equal to the lesser of 600,000 shares or 0.5% of the total number of our common
stock outstanding on a fully diluted basis on the preceding June 30 (subject to
an overall cap of 2% of the outstanding shares as of the end of the preceding
fiscal year), have been authorized for issuance under the Purchase Plan. In
order to encourage equity ownership by our employees and consultants overseas,
we have implemented a supplemental stock purchase plan with terms substantially
similar to the Purchase Plan for individuals based outside the United States. An
aggregate of 60,000 shares of Class A Common Stock have been authorized for
issuance under the Non-U.S. Purchase Plan.
CHANGE IN CONTROL AGREEMENTS
At the time of our initial public offering we also agreed to enter into
change in control agreements with our executive officers providing for certain
benefits following (1) a change in control of us and (2) certain terminations of
employment during the 24-month period following such a change in control. A
"change in control" is generally defined in the agreements to encompass
significant transactions resulting in a change in the corporate control of us,
including, among other things, an acquisition of 30% of the class of our common
stock entitled to elect a majority of our directors, the unapproved replacement
of a majority of our directors and the reacquisition by Silicon Graphics of all
or substantially all of our outstanding equity securities.
In the event of a change in control, each of our executive's options and
shares of restricted stock will become fully vested and the executive may elect,
within six months following the change in control, to have his or her options
"cashed out" at a price
53
<PAGE>
determined in the agreements. If an executive's employment is terminated other
than for cause or if an executive resigns for good reason (as such terms are
defined in the agreements), in either case within 24 months after a change in
control, the executive will be entitled to receive a lump sum cash payment equal
to 24 months' salary. Supplements to the change in control agreements provide
the executives with certain benefits upon termination of employment in limited
circumstances following a change in control of Silicon Graphics while Silicon
Graphics is still our controlling stockholder.
RELATED TRANSACTIONS
We have three outstanding loans to Mr. Lev. The first loan is a forgivable,
non-interest bearing note with a principal amount outstanding at June 30, 1998
of approximately $258,000. The principal of this loan is forgiven (reduced)
ratably on a periodic basis through December 2000, subject to Mr. Lev's
continued employment. The second loan is a forgivable, non-interest bearing
(except in certain limited circumstances) note with a principal amount
outstanding at June 30, 1998 of $250,000. The principal of this loan is
forgivable on March 1, 2002, subject to Mr. Lev's continued employment at all
times prior to such date. The third loan bears interest at an annual rate of
7.19% and had a principal amount outstanding at June 30, 1998 of $275,000. The
largest aggregate amount of these loans outstanding during the period since July
1, 1996 was approximately $900,000.
54
<PAGE>
ARRANGEMENTS BETWEEN MIPS TECHNOLOGIES AND SILICON GRAPHICS
RELATIONSHIP WITH SILICON GRAPHICS
Silicon Graphics presently owns all of our issued and outstanding Class B
Common Stock, representing approximately 85% of the outstanding Class A and
Class B Common Stock. Upon completion of this offering, Silicon Graphics will
own approximately 25,750,000 shares of Class B Common Stock, representing all of
the issued and outstanding Class B Common Stock and 69% of the outstanding Class
A and Class B Common Stock (67% if the underwriters' over-allotment option is
exercised in full). For so long as Silicon Graphics continues to beneficially
own all of the issued and outstanding Class B Common Stock, it will be able to
direct the election of a majority of our directors and to exercise a controlling
influence over our business and affairs, including any determinations with
respect to mergers or other business combinations, the acquisition or
disposition of assets, future issuances of debt and equity securities and the
payment of dividends on our common stock. Similarly, for so long as Silicon
Graphics continues to beneficially own in excess of 50% of the outstanding Class
A and Class B Common Stock, it will have the power to determine matters
submitted to a vote of stockholders without the consent of other stockholders,
will have the power to prevent or cause a change in control of us and could take
other actions that might be favorable to Silicon Graphics.
On January 14, 1999, Silicon Graphics announced its intention to divest its
interest in us by September 30, 2000. Silicon Graphics has advised us that this
divestiture could be effected in one or more transactions and is expected to
include a distribution of a significant portion of its interest in us to Silicon
Graphics stockholders in a Tax-Free Distribution. Silicon Graphics could dispose
of the shares of Class B Common Stock that it owns in one or more public or
private offerings, in a dividend or other distribution to its stockholders, in
an exchange offer for outstanding shares of its common stock, or otherwise.
However, other than this offering, Silicon Graphics has not formulated any
definitive plans regarding the divestiture of its interest in us. Accordingly,
there can be no assurance as to the period of time that Silicon Graphics will
continue to retain the shares of Class B Common Stock, except that, in
connection with this offering and our initial public offering, Silicon Graphics
has agreed not to sell or otherwise dispose of any shares of Class A or Class B
Common Stock prior to 180 days after completion of this offering without the
lead underwriter's prior written consent. This agreement does not apply to a
distribution by Silicon Graphics of all of its interest in us if, in order to
avoid the application of certain recently proposed tax legislation, such a
distribution must be completed prior to the date that is 180 days after
completion of this offering in order for Silicon Graphics to effect a Tax-Free
Distribution.
For a description of certain provisions of our certificate of incorporation
concerning the allocation of business opportunities that may be suitable for
both us and Silicon Graphics, see "Description of Capital Stock -- Corporate
Opportunities".
In connection with the recapitalization, we entered into the Exchange
Agreement with Silicon Graphics, which imposes certain obligations on the
parties relative to the recapitalization and a Tax-Free Distribution. In
addition, for the purposes of governing certain of the relationships between the
parties following the separation of their businesses and the initial public
offering, we entered into the Separation Agreement with Silicon Graphics, the
Corporate Agreement, the Technology Agreement, the Trademark Agreement, the Tax
Sharing Agreement and the Management Services Agreement, each of which was
effective as of the closing date of the initial public offering (the "Separation
Documents"). Because the Separation Documents were entered into at a time when
we were still a wholly owned subsidiary of Silicon Graphics, they are not the
result of arm's-length negotiations between the parties.
55
<PAGE>
The Exchange Agreement and the Separation Documents summarized below have been
filed as exhibits to the Registration Statement of which this prospectus forms a
part and the summaries are qualified in their entirety by reference to the full
text of the agreements. See "Where You Can Find Additional Information".
EXCHANGE AGREEMENT
Subject to the terms and conditions of the Exchange Agreement, if Silicon
Graphics has not disposed of its entire interest in us (whether through a
Tax-Free Distribution or otherwise) prior to December 31, 2000, Silicon Graphics
will accrue an obligation to purchase, on a quarterly basis, a predetermined
number of shares of Class A Common Stock and/or Class B Common Stock. This
purchase obligation terminates in the quarter preceding the quarter in which
Silicon Graphics disposes of its entire interest in us or exchanges its shares
of Class B Common Stock for Class A Common Stock as a result of a Change in Tax
Law (as defined below). We may waive all or part of Silicon Graphics' obligation
to make any such purchase if our independent directors and Chief Executive
Officer unanimously determine that such purchase is not in the interests of us
and our stockholders other than Silicon Graphics. At its sole option, Silicon
Graphics may satisfy its purchase obligation by purchasing newly issued shares
of Class B Common Stock from us or issued and outstanding shares of Class A
Common Stock in the public market or otherwise from a third party. Shares of
Class A Common Stock purchased by Silicon Graphics in satisfaction of this
obligation shall be exchanged for shares of Class B Common Stock. Silicon
Graphics will have registration rights with respect to the shares of Class A and
Class B Common Stock it purchases pursuant to this obligation.
The Exchange Agreement also requires Silicon Graphics to exchange all of its
shares of Class B Common Stock for shares of Class A Common Stock if, prior to a
Tax-Free Distribution, the Internal Revenue Code is amended (a "Change in Tax
Law") to provide in effect generally that in a tax-free spin-off of a
subsidiary, the distributing company must hold not less than 80% of the value of
the subsidiary's stock and such Change in Tax Law would apply to a Tax-Free
Distribution by Silicon Graphics.
Under the terms of the Exchange Agreement, Silicon Graphics has agreed to
indemnify and hold harmless us and our affiliates, officers, directors,
employees, agents, successors and assigns from and against any and all losses
incurred by them with respect to third party claims, to the extent such claims
arise out of the recapitalization or any distribution by Silicon Graphics of all
of its interest in us.
The Exchange Agreement also obligates the parties to enter into a
Distribution Tax Indemnification Agreement prior to a Tax-Free Distribution that
generally will limit our ability to take certain actions following a Tax-Free
Distribution that would cause the distribution to become taxable to Silicon
Graphics and, in some instances, its stockholders. In particular, under the
Distribution Tax Indemnification Agreement, we will agree not to, among other
things:
- - issue capital stock in an acquisition or private or public offering within
the 30-month period following the Tax-Free Distribution, except (1) pursuant
to the exercise of employee, director or consultant stock options or awards
and (2) the issuance of up to a cumulative amount of 10% of our stock that is
outstanding at the time of the Tax-Free Distribution;
- - amend our certificate of incorporation in a manner that affects the voting
rights with respect to the Class B Common Stock or Class A Common Stock
during the five-year period following the Tax-Free Distribution;
- - exchange any shares of Class B Common Stock for Class A Common Stock,
including pursuant to the MIPS Exchange Right, during the five-year period
following the Tax-Free Distribution;
56
<PAGE>
- - knowingly and voluntarily take any other actions during the 30-month period
following the Tax-Free Distribution which we believe will more likely than
not result in the Tax-Free Distribution becoming taxable; or
- - take any other action that would be a breach of certain reasonable covenants
or representations related to us and that are within our reasonable control
in the initial or any supplemental ruling request regarding a Tax-Free
Distribution submitted to the Internal Revenue Service.
Under the terms of the Distribution Tax Indemnification Agreement, we will
be required to indemnify Silicon Graphics from any taxes imposed on Silicon
Graphics due to a breach of the above covenants and any taxes resulting from an
acquisition of more than 10% of our stock (taking into account permitted
issuances described above) during the 30-month period following the Tax-Free
Distribution, unless (1) a supplemental ruling is obtained from the Internal
Revenue Service to the effect that such proposed action will not cause the
Tax-Free Distribution to become taxable, (2) Silicon Graphics consents to such
action or (3) we deliver to Silicon Graphics an opinion of nationally recognized
tax counsel, reasonably satisfactory to Silicon Graphics, that such action will
not cause the Tax-Free Distribution to become taxable.
The limitations on the issuance of shares of our capital stock and other
restrictions discussed above could have a negative impact on its financial
flexibility following a Tax-Free Distribution.
SEPARATION AGREEMENT
Pursuant to the Separation Agreement, Silicon Graphics transferred to us, or
agreed to transfer to us, the Company Assets and we assumed or agreed to assume
all Company Liabilities. Except as expressly set forth in the Separation
Agreement or in another Separation Document, neither party made any
representation or warranty as to the business, assets or liabilities transferred
or assumed as part of the Separation, as to any consents or approvals required
in connection therewith, as to the value of any of the assets transferred, as to
the absence of any defenses or freedom from counterclaim with respect to any
claim of any party, or as to the legal sufficiency of any assignment, document
or instrument delivered to convey title to any asset transferred. Except as
otherwise expressly set forth in the Separation Agreement or in another
Separation Document, all assets were transferred on an "as is", "where is"
basis, and we have agreed to bear the economic and legal risks that the
conveyance is insufficient to vest in the transferee good and marketable title,
free and clear of any security interest.
RELEASES AND INDEMNIFICATION
The Separation Agreement provides for a full and complete release and
discharge as of the closing date of the initial public offering of all
Liabilities existing or arising from all acts or events occurring or failing to
occur or alleged to have occurred or to have failed to occur and all conditions
existing or alleged to have existed on or prior to such date, between us and
Silicon Graphics (including any contractual arrangements or arrangements
existing or alleged to exist between us and Silicon Graphics on or before such
date), except as expressly set forth in the Separation Agreement.
We have agreed to indemnify, defend and hold harmless Silicon Graphics and
each of its subsidiaries (other than us) and each of their directors, officers
and employees, from and against any and all Liabilities relating to, arising out
of or resulting from (1) the failure of us or any other person to pay, perform
or otherwise promptly discharge any Company Liabilities or any Company Contract
in accordance with its terms; (2) the Company Business, any Company Liability or
any Company Contract; (3) any breach by us of any Separation Document; and (4)
any untrue statement or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, with respect to all
information contained in the prospectus or the registration
57
<PAGE>
statement relating to the initial public offering, subject to certain
exceptions.
Silicon Graphics has agreed to indemnify, defend and hold harmless us, each
of our subsidiaries, and each of their directors, officers and employees, from
and against any and all Liabilities relating to, arising out of or resulting
from (1) the failure of Silicon Graphics or any other person to pay, perform or
otherwise promptly discharge any liabilities of Silicon Graphics other than the
Company Liabilities; (2) any Liability other than the Company Liabilities; and
(3) any breach by Silicon Graphics of any Separation Document.
DISPUTE RESOLUTION
The Separation Agreement contains provisions that govern the resolution of
disputes, controversies or claims that may arise between us and Silicon
Graphics. These provisions contemplate that efforts will be made to resolve
disputes, controversies and claims by escalation of the matter to senior
management (or other mutually agreed representatives of the parties). If the
matter is not resolved within a period of 90 days, then upon written notice by
either party to the other, any unresolved matter shall be submitted to mediation
conducted by a mediator mutually acceptable to the parties.
Either party may apply to any court having jurisdiction and seek injunctive
relief so as to maintain the status quo until such time as the mediation is
concluded or the controversy is otherwise resolved. In the event that any
dispute, controversy or claim is, or is reasonably likely to be, in excess of
$30 million, subject to certain conditions, any party may submit such dispute,
controversy or claim to a court of competent jurisdiction and the mediation
provisions contained in the Separation Agreement will not apply.
TERMINATION; FURTHER ASSURANCES
In addition to the actions specifically provided elsewhere in the Separation
Agreement, we have agreed with Silicon Graphics to use our respective reasonable
best efforts to take all actions reasonably necessary, proper or advisable under
applicable laws, regulations and agreements, to consummate and make effective
the transactions contemplated by the Separation Documents.
Set forth below are certain defined terms contained in the Separation
Agreement.
"Company Assets" generally means:
- - all personal property, inventory, receivables, books and records, goodwill,
sales material and governmental permits and licenses, in each case to the
extent they relate to the Company Business,
- - all intellectual property transferred or licensed pursuant to the Technology
Agreement and the Trademark Agreement,
- - all Company Contracts (as defined in the Separation Agreement),
- - any assets reflected in the Company Balance Sheet as our "Assets", subject to
any dispositions of such assets subsequent to the date of the Company Balance
Sheet, and
- - any and all other assets, rights and claims held immediately prior to the
closing date for the initial public offering by Silicon Graphics and used
primarily in the Company Business, in each case other than assets that are
expressly contemplated by the Separation Documents as assets to be retained
by Silicon Graphics.
"Company Liabilities" generally means:
- - all Liabilities expressly contemplated by the Separation Documents as
Liabilities to be assumed by us, and all of our agreements, obligations and
Liabilities under the Separation Documents;
- - all Liabilities (other than income taxes) primarily relating to (a) the
operation of the Company Business; (b) the operation of any business
conducted by us or any of our subsidiaries at any time after the closing date
of the initial public offering; and (c) any Company Assets; and
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- - all Liabilities reflected as "Liabilities" or our obligations in the Company
Balance Sheet, subject to any discharge of such Liabilities subsequent to the
date of the Company Balance Sheet, in each case other than liabilities that
are expressly contemplated by the Separation Documents as liabilities to be
retained or assumed by Silicon Graphics, and all agreements and obligations
of Silicon Graphics under the Separation Documents.
"Company Business" means the business and operations of the various divisions
and subsidiaries of Silicon Graphics engaged in the development and licensing of
processor and related designs for the embedded market based on RISC
architecture, consisting principally of Silicon Graphics' MIPS Group.
CORPORATE AGREEMENT
PRE-EMPTIVE RIGHT OF SILICON GRAPHICS TO PURCHASE SHARES OF CAPITAL STOCK
Pursuant to the Corporate Agreement, we granted to Silicon Graphics a
continuing option to purchase, under certain circumstances, additional shares of
our common stock or shares of our non-voting capital stock (the "Stock Option").
The Stock Option may be exercised by Silicon Graphics simultaneously with the
issuance of any of our equity security, with respect to the common stock, only
to the extent necessary for Silicon Graphics to maintain (1) control of us
(within the meaning of Section 368(a)(2)(H) and (c) of the Internal Revenue
Code) provided such control has theretofore been maintained; (2) our status as a
member of the affiliated group of corporations (within the meaning of Section
1504 of the Internal Revenue Code) of which Silicon Graphics is the common
parent, provided such status has theretofore been maintained or (3) its
then-existing percentage of the total voting power and value of us, whichever
percentage is highest, and, with respect to shares of non-voting capital stock,
to the extent necessary to own 80% of each outstanding class of such stock. The
purchase price of the shares of common stock purchased upon any exercise of the
Stock Option will be based on the market price of the common stock at the time
of such exercise, and the purchase price of non-voting capital stock will be the
price at which such stock may be purchased by third parties. The Stock Option
expires in the event that Silicon Graphics reduces its beneficial ownership of
common stock to less than 50% of the outstanding shares of common stock.
REGISTRATION RIGHTS
The Corporate Agreement also provides that, upon request of Silicon
Graphics, we will use our best efforts to effect the registration under the
applicable federal and state securities laws of any of our shares of common
stock and non-voting capital stock beneficially owned by Silicon Graphics for
sale in accordance with Silicon Graphics' intended method of disposition
thereof, and will take such other actions as may be necessary to permit the sale
thereof in other jurisdictions, subject to certain specified limitations.
Silicon Graphics also has the right, subject to certain limitations, to include
the shares of common stock and non-voting capital stock (and any other
securities issued in respect of or in exchange for either of such securities)
beneficially owned by it in certain other registrations of our common equity
securities initiated by us on our own behalf or on behalf of our other
stockholders. We have agreed to pay all out-of-pocket costs and expenses in
connection with each such registration, except for underwriting discounts and
commissions attributable to the shares of stock sold by Silicon Graphics. In
connection with this offering, however, Silicon Graphics has agreed to waive
this provision and will pay all related expenses.
Until such time as Silicon Graphics ceases to beneficially own in excess of
50% of the outstanding common stock, it may request or participate in an
unlimited number of such registrations. After such time, Silicon Graphics will
be limited to a total of four demand and an unlimited number of "piggyback"
registrations. Subject to certain limitations specified in the Corporate
Agreement, such registration rights
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will be assignable by Silicon Graphics and its assigns. The Corporate Agreement
contains indemnification and contribution provisions by us for the benefit of
Silicon Graphics in connection with such registrations.
COVENANT AGAINST CERTAIN ACTIONS
The Corporate Agreement also provides that for so long as Silicon Graphics
maintains beneficial ownership of a majority of the number of outstanding shares
of common stock, we may not take any action or enter into any commitment or
agreement which may reasonably be anticipated to result, with or without notice
and with or without lapse of time, or otherwise, in a contravention (or an event
of default) by Silicon Graphics of: (1) any provision of applicable law or
regulation, including but not limited to provisions pertaining to the Internal
Revenue Code or the Employee Retirement Income Security Act of 1974, as amended;
(2) any provision of Silicon Graphics' certificate of incorporation or by-laws;
(3) any credit agreement or other material instrument binding upon Silicon
Graphics or any of its assets or (4) any judgment, order or decree of any
governmental body, agency or court having jurisdiction over Silicon Graphics or
any of its assets.
TECHNOLOGY AGREEMENT
Under the Technology Agreement, Silicon Graphics assigned and licensed
certain intellectual property rights to us, with a license back of certain
rights to Silicon Graphics. This assignment by Silicon Graphics included all of
its right, title and interest in and to 52 United States patents with expiration
dates ranging from 2006 through 2015, 14 pending United States patent
applications, and all foreign counterpart rights to the foregoing. In addition
to these patent rights, Silicon Graphics assigned other related intellectual
property rights, including various copyrights, mask work rights and trade
secrets.
This assignment provided us with Silicon Graphics' intellectual property
related to the MIPS RISC processor architecture for use in embedded
applications. Silicon Graphics also licensed other intellectual property rights
to us for use in our business. Certain of these rights were licensed on a
worldwide, royalty-free and exclusive basis solely for our use in the
development and licensing of processor and related designs for embedded
applications. We may in the future enter into with Silicon Graphics additional
royalty-bearing licenses with respect to other Silicon Graphics intellectual
property.
Under the Technology Agreement, we granted to Silicon Graphics a worldwide,
royalty-free, non-exclusive license with respect to the intellectual property
assigned by Silicon Graphics to us. This license back to Silicon Graphics will
be for its use in connection with the design and sale of Silicon Graphics
systems and products. Under the Separation Agreement, we are generally obligated
to indemnify Silicon Graphics for third-party claims relating to our
intellectual property. The Technology Agreement excludes trademarks and
trademark-related intellectual property, which is covered by the Trademark
Agreement.
TRADEMARK AGREEMENT
Pursuant to the Trademark Agreement, Silicon Graphics assigned to us all
trademarks, service marks, trade dress, logos and related goodwill concerning
the MIPS marks for processors and other semiconductor devices. This assignment
included all domestic and foreign registrations, as well as common law rights
throughout the world. We granted back to Silicon Graphics a worldwide,
royalty-free, and non-exclusive license to use the MIPS marks in connection with
Silicon Graphics' products that use processors embodying the MIPS architecture.
The Trademark Agreement requires that Silicon Graphics comply with reasonable
quality standards. Neither Silicon Graphics nor us has any indemnification
obligations or warranties as to the trademarks and trademark-related rights as
part of the Trademark Agreement.
TAX SHARING AGREEMENT
We are presently included in Silicon Graphics' consolidated federal income
tax
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group, and our federal income tax liability has been included in the
consolidated federal income tax liability of the Silicon Graphics group. Under
the terms of the Tax Sharing Agreement, we are obligated to make payments to
Silicon Graphics such that, with respect to any period, the amount of taxes to
be paid by us, subject to certain adjustments, is determined as though we were
to file separate federal, state and local income tax returns.
Following this offering, because Silicon Graphics will own less than 80% of
our outstanding common stock, it will no longer be included in Silicon Graphics'
consolidated federal income tax group, but will instead be required to file
separate tax returns. However, we will remain jointly and severally liable for
the federal income tax liability of each other member of the Silicon Graphics'
consolidated federal income tax group that arose during the period in which we
were included in such group. See "Risk Factors".
MANAGEMENT SERVICES AGREEMENT
Under the Management Services Agreement, Silicon Graphics agreed to provide
certain administrative and corporate support services to us on an interim or
transitional basis following the initial public offering. Services available
under the Management Services Agreement include accounting, treasury, tax,
facilities and information services. Presently, Silicon Graphics provides
certain tax and facilities services to us under this agreement.
Specified charges for such services are generally intended to allow Silicon
Graphics to recover the fully allocated direct costs of providing the services,
plus all out-of-pocket costs and expenses, but without any profit. Silicon
Graphics must provide any such services through the same or similarly qualified
personnel and the same or similar facilities as it has in the past, but the
selection of personnel to perform the various services shall be within the sole
control of Silicon Graphics. Silicon Graphics is not required to increase the
volume or quality of the services provided beyond the level at which they were
performed for us in the past. The Management Services Agreement has a three-year
term but will automatically terminate when Silicon Graphics ceases to own more
than 50% of the outstanding Class A and Class B Common Stock. Either party may
terminate the Management Services Agreement with respect to one or more of the
services provided thereunder upon giving at least 30 days prior written notice
to the other party.
FACILITIES LEASE ARRANGEMENTS
We presently sublease from Silicon Graphics approximately 27,500 square feet
(with an option to increase to 55,000 square feet) in one building in Mountain
View, California. Payments by us to Silicon Graphics under this sublease are
presently approximately $51,000 per month, increasing to approximately $67,000
per month by August 2001. The amounts we pay under this sublease are generally
equal to the amounts payable by Silicon Graphics under its sublease for the
property with a third party. This sublease will expire on May 31, 2002, subject
to earlier termination in certain circumstances.
PRINCIPAL AND SELLING STOCKHOLDER
SILICON GRAPHICS
Silicon Graphics presently owns approximately 85% of the total Class A and
Class B Common Stock outstanding, consisting of all of the issued and
outstanding shares of Class B Common Stock. Upon completion of this offering,
Silicon Graphics will beneficially own approximately 69% of the total Class A
and Class B Common Stock outstanding, consisting of all of the issued and
outstanding shares of Class B Common Stock (67% if the underwriters'
over-allotment option is exercised in full). For a description of the historical
relationship between us and Silicon Graphics, see "Management's Discussion and
Analysis of Financial Condition and Results of
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Operations" and Note 1 of Notes to Financial Statements. In connection with the
recapitalization, we entered into an exchange agreement with Silicon Graphics
which governs certain matters between the parties following the
recapitalization, and in connection with the separation of our business from the
other businesses of Silicon Graphics and the initial public offering of our
common stock in 1998, we entered into various agreements with Silicon Graphics
intended to govern the relationship between the parties on a going-forward
basis. For a description of these agreements, see "The Recapitalization" and
"Arrangements Between MIPS Technologies and Silicon Graphics".
Silicon Graphics is a leader in high-performance computing, providing a
broad range of workstations and graphics servers that deliver advanced 3-D
graphics and computing capabilities for engineering and creative professionals.
Silicon Graphics and Cray Research-branded servers and supercomputers deliver
advanced performance to technical computing professionals, with a growing
presence in strategic business analysis, web service and media serving
applications. Silicon Graphics provides solutions in several key industries,
including manufacturing, government, entertainment, communication, energy, the
sciences and education. The principal executive offices of Silicon Graphics are
located at 2011 North Shoreline Blvd., Mountain View, California 94043.
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BENEFICIAL OWNERSHIP OF COMMON STOCK BY DIRECTORS, EXECUTIVE OFFICERS AND
SILICON GRAPHICS
The following table sets forth, as of February 26, 1999, certain information
regarding the beneficial ownership of the Class A Common Stock and the Class B
Common Stock prior to and after this offering (assuming no exercise of the
underwriters' over-allotment option) by (1) Silicon Graphics, (2) each other
person known by us to own beneficially more than 5% of either the Class A Common
Stock or the Class B Common Stock, (3) each of our directors, (4) each Named
Executive Officer and (5) all directors and executive officers as a group.
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK
---------------- CLASS B COMMON STOCK
----------------------------------------
TOTAL COMMON STOCK
OWNED PRIOR TO -----------------------------
AND AFTER OWNED PRIOR TO OWNED AFTER
THIS OFFERING THIS OFFERING THIS OFFERING(1) PERCENTAGE OF TOTAL
---------------- ------------------- ------------------ COMMON STOCK(1)
PERCENTAGE PERCENTAGE PERCENTAGE -----------------------------
OF OF OF PRIOR TO AFTER
NAME OF SHAREHOLDER NUMBER CLASS NUMBER CLASS NUMBER CLASS THIS OFFERING THIS OFFERING
- ------------------------------ ------- ------- ----------- ------ --------- ------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Silicon Graphics, Inc......... -- -- 31,750,000 100% 25,750,000 100% 85.2% 69.0%
John E. Bourgoin (2).......... 17,168 * -- -- -- -- * *
Lavi Lev (3).................. 1,970 * -- -- -- -- * *
Derek Meyer................... 2,079 * -- -- -- -- * *
Dr. Forest Baskett............ -- * -- -- -- -- * *
Kenneth L. Coleman............ 1,285 * -- -- -- -- * *
Fred M. Gibbons............... -- * -- -- -- -- * *
Anthony B. Holbrook........... -- * -- -- -- -- * *
William M. Kelly.............. -- * -- -- -- -- * *
Teruyasu Sekimoto............. -- * -- -- -- -- * *
Directors and Executive
Officers as a Group (11
persons).................... 26,054 * -- -- -- -- * *
</TABLE>
- --------------
* Less than 1%. None of the options held by the directors and executive
officers were exercisable on February 26, 1999 or within 60 days thereafter.
(1) Assumes the underwriters' overallotment option is not exercised.
(2) Includes restricted stock awards under the 1998 Long-Term Incentive Plan
totaling 15,000 shares effective upon the completion of the initial public
offering.
(3) Mr. Lev disclaims beneficial ownership of 1,000 of these shares.
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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.
<TABLE>
<S> <C>
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 hereof (without giving effect to this offering), there
are 5,542,286 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 shares of Class A Common Stock will only receive
shares of Class A Common
</TABLE>
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<TABLE>
<S> <C>
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 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, 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. Under current tax law, it is
uncertain whether these conversion provisions in our certificate of
incorporation would have such an effect.
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.
</TABLE>
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<TABLE>
<S> <C>
Following a Tax-Free Distribution, shares of Class B Common Stock
shall be transferable as Class B Common Stock, subject to applicable
laws.
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. Under
current tax law, it is uncertain whether the inclusion of this
exchange provision in our certificate of incorporation would have such
an effect.
Even if this exchange provision remains available, Silicon Graphics
may limit our ability to effect such an exchange under the terms of
the Distribution Tax Indemnification Agreement.
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.
</TABLE>
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<TABLE>
<S> <C>
PREFERRED STOCK..... The preferred stock is issuable either as a class without series or in
one or more series and with such designations, rights, privileges,
restrictions and conditions for each class or series as is stated in
the resolutions providing for designation and issue of each such
series adopted by our board of directors. Our board of directors is
authorized to determine, among other things, the voting, dividend,
redemption, conversion and liquidation powers, rights and preferences
and the limitations thereon of such series. We believe that the
ability of our board of directors to issue one or more series of
preferred stock will provide us with flexibility in structuring
possible future financings and acquisitions, and in meeting other
corporate needs that may arise. The authorized shares of preferred
stock will be available for issuance without further action by
stockholders, unless such action is required by applicable law or the
rules of any stock exchange or automated quotation system on which our
securities may be listed or traded.
Although our board of directors has no present plans to issue any
preferred stock, it could issue a series of preferred stock that
could, depending on the terms of such series, impede the completion of
a merger, tender offer or other takeover attempt. Our board of
directors will make any determination to issue such shares based on
its judgment as to our best interests and the best interests of our
stockholders. Our board of directors could issue preferred stock with
voting and other rights that could adversely effect the voting power
of the holders of the Class A and Class B Common Stock, and that could
discourage an acquisition attempt through which an acquiror may be
able to change the composition of our board of directors, including a
tender offer or other transaction that some, or a majority, of our
stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over the then
current market price of such stock.
</TABLE>
CORPORATE OPPORTUNITIES
Our certificate of incorporation provides that Silicon Graphics will have no
duty to refrain from engaging in the same or similar activities or lines of
business as we are engaged, and neither Silicon Graphics nor any officer or
director thereof (except as provided below), will be liable to us or our
stockholders for breach of any fiduciary duty by reason of any such activities
of Silicon Graphics. In the event that Silicon Graphics acquires knowledge of a
potential transaction or matter which may be a corporate opportunity for both
Silicon Graphics and us, Silicon Graphics will have no duty to communicate or
offer such corporate opportunity to us and will not be liable to us or our
stockholders for breach of any fiduciary duty as one of our stockholders by
reason of the fact that Silicon Graphics pursues or acquires such corporate
opportunity for itself, directs such corporate opportunity to another person, or
does not communicate information regarding such corporate opportunity to us.
In the event that one of our directors or officers 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 us and Silicon Graphics,
our director or officer will have fully satisfied and fulfilled the fiduciary
duty of such director or officer to us and our stockholders with respect to such
corporate opportunity if such director or officer acts in a manner consistent
with the following policy:
- - a corporate opportunity offered to any person who is one of our officers, and
who is also a director but not an officer of Silicon Graphics, will belong to
us;
- - a corporate opportunity offered to any person who is a director but not one
of our officers, and who is also a director or
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officer of Silicon Graphics, will belong to us if such opportunity is
expressly offered to such person in writing solely in his or her capacity as
one of our directors, and otherwise it will belong to Silicon Graphics; and
- - a corporate opportunity offered to any person who is an officer of both us
and Silicon Graphics will belong to us if such opportunity is expressly
offered to such person in writing solely in his or her capacity as one of our
officers, and otherwise it will belong to Silicon Graphics.
For purposes of the foregoing:
- - any of our directors who is chairman of our board of directors or of a
committee thereof will not be deemed to be one of our officers by reason of
holding such position (without regard to whether such position is deemed an
office under our by-laws), unless such person is one of our full-time
employees; and
- - the terms "we", "us" and "our" mean MIPS Technologies, Inc. and all
corporations, partnerships, joint ventures, associations and other entities
in which it beneficially owns (directly or indirectly) fifty percent or more
of the outstanding voting stock, voting power, partnership interest or
similar voting interests, and
- - the term "Silicon Graphics" means Silicon Graphics, Inc. and all
corporations, partnerships, joint ventures, associations and other entities
(other than us) in which Silicon Graphics beneficially owns (directly or
indirectly) fifty percent or more of the outstanding voting stock, voting
power, partnership interests or similar voting interests.
The foregoing provisions will expire on the date that Silicon Graphics
ceases to own beneficially our common stock representing at least 20% of the
total voting power of all classes of our outstanding common stock and no person
who is one of our directors or officers is also a director or officer of Silicon
Graphics or any of its subsidiaries (other than us).
In addition to any vote of the stockholders required by our certificate of
incorporation, until the time that Silicon Graphics ceases to own beneficially
our common stock representing at least 20% of the total voting power of all
classes of our outstanding common stock, the affirmative vote of the holders of
more than 80% of the total voting power of all classes of outstanding common
stock is required to alter, amend or repeal in a manner adverse to the interests
of Silicon Graphics and its subsidiaries (other than us), or adopt any provision
adverse to the interests of Silicon Graphics and its subsidiaries (other than
us), or inconsistent with, the corporate opportunity provisions described above.
Any person purchasing or otherwise acquiring our common stock will be deemed
to have notice of, and to have consented to, the foregoing provisions regarding
corporate opportunities.
CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS THAT MAY HAVE AN
ANTI-TAKEOVER EFFECT
Certain provisions of our certificate of incorporation and by-laws
summarized below may be deemed to have an anti-takeover effect and may delay,
discourage or prevent a tender offer or takeover attempt that a stockholder
might consider to be in its best interest, including attempts that might result
in a premium being paid over the market price of the Class A Common Stock.
<TABLE>
<S> <C>
BOARD OF DIRECTORS:
NUMBER OF
DIRECTORS....... The board of directors consists of not less than five and not more
than 10 directors, with the exact number to be determined by the board
of directors. The directors, other than those elected by the holders
of preferred stock, will be classified, with respect to the time they
hold office, into three classes, as nearly equal in number as
possible. Each director will hold office until such person's successor
is duly elected and qualified.
</TABLE>
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<TABLE>
<S> <C>
FILLING
VACANCIES....... Our certificate of incorporation by-laws provide that, subject to any
rights of holders of preferred stock, and unless our board of
directors otherwise determines, newly created directorships resulting
from any increase in the number of directors shall be filled by the
vote of the majority of the directors then in office, provided that
following such appointment, 20% (rounded down to the nearest whole
number) of the number of the directors on our board of directors as so
increased, excluding the number of directors whom the holders of any
series of preferred stock have the right to elect, consists of
directors elected by (or appointed on behalf of) the holders of Class
A Common Stock. Any director so elected or appointed shall hold office
for the remainder of the full term of the class of director in which
the new directorship was created and until his or her successor is
elected and qualified.
Any vacancies on our board of directors created by the death,
resignation, disqualification or removal of a director may be filled
by the vote of the majority of the directors then in office elected
by, or appointed on behalf of, the same class of stock that elected
that director whose death, resignation or removal created the vacancy,
unless there are no such directors, in which case such vacancy may be
filled by the vote of the majority of all directors then in office,
even if less than a quorum, or by the sole remaining director. Any
vacancy on our board of directors created by the death, resignation,
disqualification or removal of a director elected by (or appointed on
behalf of) the holders of a class of stock may also be filled by a
vote of the holders of such class of stock, unless there are no
outstanding shares of such class of stock, in which case any such
vacancy may be filled by a vote of the holders of the remaining class
of stock. Any director elected to fill any such vacancy will hold
office for the remainder of the full term of the director whose
vacancy is being filled and until his or her successor is elected and
qualified. No decrease in the number of directors shall shorten the
term of any incumbent director.
REMOVAL OF
DIRECTORS....... Subject to the rights of any outstanding series of preferred stock,
any director may be removed from office, with cause, by the
affirmative vote of the holders of at least a majority of the
outstanding Class A and Class B Common Stock, voting as a single
class. Prior to a Tax-Free Distribution, any director elected by the
holders of the Class B Common Stock may be removed, with or without
cause, by the affirmative vote of the holders of at least a majority
of the outstanding Class B Common Stock.
The provisions of the corporate documents described above would
preclude a third-party from removing incumbent directors and
simultaneously gaining control of our board of directors by filling
the vacancies created by removal with its own nominees. Under the
classified board provision described above, it would take at least two
elections of directors for any individual or group to gain control of
our board of directors. Accordingly, these provisions could discourage
a third party from initiating a proxy contest, making a tender offer
or otherwise attempting to gain control of us.
</TABLE>
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<TABLE>
<S> <C>
NO STOCKHOLDER
ACTION BY WRITTEN
CONSENT; SPECIAL
MEETINGS.......... As of the time at which Silicon Graphics and its affiliates cease to
beneficially own an aggregate of at least a majority of the then
outstanding shares of Class A and Class B Common Stock (the "Trigger
Date"), any action required or permitted to be taken by the
stockholders may be effected only at a duly called annual or special
meeting of stockholders and may not be effected by a written consent
in lieu of such a meeting. Effective as of the Trigger Date, except as
otherwise required by law and subject to the rights of the holders of
any preferred stock, special meetings of stockholders for any purpose
may be called only by certain of our specified officers or by any
officer at the request in writing of a majority of our board of
directors and the power of stockholders to call a special meeting is
specifically denied. Prior to the Trigger Date, will call a special
meeting of stockholders promptly upon the request of Silicon Graphics.
These provisions may have the effect of delaying consideration of a
stockholder proposal until the next annual meeting unless a special
meeting is called by our board of directors or certain specified
officers.
ADVANCE NOTICE
PROCEDURE......... An advance notice procedure for the nomination, other than by or at
the direction of our board of directors, of candidates for election as
directors, as well as for other stockholder proposals, to be
considered at annual meetings of stockholders, must be followed to
take such actions. In general, notice of intent to nominate a director
or raise matters at such meetings will have to be received in writing
by us not less than 60 nor more than 90 days prior to the anniversary
of the previous year's annual meeting of stockholders, and must
contain certain information concerning the person to be nominated or
the matters to be brought before the meeting and concerning the
stockholder submitting the proposal. If the chairman of a meeting
determines that an individual was not nominated, or other business was
not brought before the meeting, in accordance with the advance notice
procedures, such individual will not be eligible for election as a
director, or such business will not be conducted at such meeting, as
the case may be.
The advance notice procedures do not apply to Silicon Graphics and its
affiliates prior to the Trigger Date.
CHARTER
AMENDMENTS........ Our certificate of incorporation provides that the affirmative vote of
the holders of at least 80% of the outstanding Class A and Class B
Common Stock is required to amend, repeal or adopt any provision
inconsistent with the foregoing charter provisions. Our certificate of
incorporation further provides that certain provisions of our by-laws
may be altered, amended or repealed by the affirmative vote of
directors constituting not less than a majority of our entire board of
directors (if effected by action of our board of directors) or by the
affirmative vote of the holders of at least 80% of the voting power of
all classes of outstanding capital stock, voting together as a single
class (if effected by action of the stockholders).
</TABLE>
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SECTION 203 OF DELAWARE GENERAL CORPORATION LAW
Section 203 of the Delaware General Corporation Law provides that, subject to
certain exceptions specified therein, an "interested stockholder" of a Delaware
corporation shall not engage in any business combination, including mergers or
consolidations or acquisitions of additional shares of the corporation, with the
corporation for a three-year period following the date that such stockholder
becomes an interested stockholder unless (1) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, (2) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding certain shares), or (3) on or subsequent to
such date, the business combination is approved by the board of directors of the
corporation and authorized at an annual or special meeting of stockholders by
the affirmative vote of at least 66 2/3% of the outstanding voting stock of the
corporation which is not owned by the interested stockholder. Except as
otherwise specified in Section 203, an interested stockholder is defined to
include (a) any person that is the owner of 15% or more of the outstanding
voting securities of the corporation, or is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting stock of
the corporation at any time within three years immediately prior to the date of
determination and (b) the affiliates and associates of any such person.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an interested stockholder to effect various business
combinations with a corporation for a three-year period. We have not elected to
be exempt from the restrictions imposed under Section 203. However, Silicon
Graphics and its affiliates are excluded from the definition of "interested
stockholder" pursuant to the terms of Section 203. The provisions of Section 203
may encourage persons interested in acquiring us to negotiate in advance with
our board of directors, since the stockholder approval requirement would be
avoided if a majority of the directors then in office approves either the
business combination or the transaction which results in any such person
becoming an interested stockholder. Such provisions also may have the effect of
preventing changes in our management. It is possible that such provisions could
make it more difficult to accomplish transactions which our stockholders may
otherwise deem to be in their best interests.
LIMITATION OF LIABILITY
Our certificate of incorporation provides that any of our directors will not
be personally liable to us or our stockholders for monetary damages for breach
of fiduciary duty as a director, except, if required by the DGCL as amended from
time to time, for liability (1) for breach of the director's duty of loyalty to
us or our stockholders, (2) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (3) under Section
174 of the DGCL, which concerns unlawful payments of dividends, stock purchases
or redemptions, or (4) for any transaction from which the director derived an
improper personal benefit. Neither the amendment or repeal of such provision
will eliminate or reduce the effect of such provision in respect of any matter
occurring, or any cause of action, suit or claim that, but for such provision,
would accrue or arise prior to such amendment or repeal. While our certificate
of incorporation provides directors with protection from monetary damages for
breaches from their duty of care, it does not eliminate such duty. Accordingly,
our certificate of incorporation will have no effect on the availability of
equitable remedies such as an
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injunction or rescission based on a director's breach of his or her duty of
care.
LISTING
We will apply to redesignate our existing common stock as Class A Common
Stock on the Nasdaq National Market under the symbol "MIPS".
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Class A Common Stock is Boston
EquiServe Limited Partnership located at 150 Royall Street, Canton,
Massachusetts. Its phone number is (781) 575-2000.
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SHARES AVAILABLE FOR FUTURE SALE
Upon completion of this offering, we will have 37,292,286 shares of common
stock issued and outstanding consisting of 11,542,286 shares of Class A Common
Stock and 25,750,000 shares of Class B Common Stock. All of the shares of Class
A Common Stock sold in this offering will be freely tradeable without
restriction or further registration under the Securities Act of 1933, as amended
(the "Securities Act"), unless purchased by one of our "affiliates" (as that
term is defined in Rule 144 under the Securities Act ("Rule 144")), in which
case such shares will be subject to the resale limitations of Rule 144. The
shares of Class B Common Stock outstanding following this offering, all of which
will be beneficially owned by Silicon Graphics, have not been registered under
the Securities Act and may not be sold in the absence of an effective
registration statement under the Securities Act other than in accordance with
Rule 144 or another exemption from registration.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned shares of
common stock for at least one year, including a person who may be deemed an
"affiliate", is entitled to sell in any three-month period, a number of shares
that does not exceed the greater of 1% of the class of stock being sold or the
average weekly trading volume of the class of stock being sold during the four
calendar weeks immediately preceding such sale. A person who is not deemed one
of our "affiliates" at any time during the three months preceding a sale and who
has beneficially owned shares for at least two years is entitled to sell such
shares under Rule 144 without regard to the volume limitations described above.
As defined in Rule 144, an "affiliate" of an issuer is a person that directly or
indirectly through the use of one or more intermediaries controls, is controlled
by, or is under common control with, such issuer. Rule 144A under the Securities
Act ("Rule 144A") provides a non-exclusive safe harbor exemption from the
registration requirements of the Securities Act for specified resales of
restricted securities to certain institutional investors. In general, Rule 144A
allows unregistered resales of restricted securities to a "qualified
institutional buyer", which generally includes an entity, acting for its own
account or for the account of other qualified institutional buyers, that in the
aggregate owns or invests at least $100 million in securities of unaffiliated
issuers. Rule 144A does not extend an exemption to the offer or sale of
securities that, when issued, were of the same class as securities listed on a
national securities exchange or quoted on an automated quotation system. The
shares of Class B Common Stock outstanding as of the date of this prospectus
would be eligible for resale under Rule 144A because such shares, when issued,
were not of the same class as any listed or quoted securities. The foregoing
summary of Rule 144 and Rule 144A is not intended to be a complete description
thereof.
Silicon Graphics is not obligated to retain or dispose of the shares of
Class B Common Stock that it owns, except that it has agreed not to sell or
otherwise dispose of any shares of Class A or Class B Common Stock for a period
of 180 days after completion of this offering without the consent of Goldman,
Sachs & Co. This agreement does not apply to a distribution by Silicon Graphics,
in certain limited circumstances, of all of the shares of Class B Common Stock
that it owns in a Tax-Free Distribution.
Silicon Graphics has recently announced its intention to dispose of its
interest in us by September 30, 2000. Subject to the above restriction and
applicable federal securities laws, Silicon Graphics may dispose of all or a
portion of the shares of Class B Common Stock that it owns in one or more
transactions, including a public or private offering, a distribution of the
shares to its stockholders, an offer to exchange the shares for outstanding
shares of its common stock, or otherwise. Although it has not formulated
definitive plans to do so, Silicon Graphics expects that its divestiture will
include a
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distribution of a significant number of shares of Class B Common Stock to its
stockholders in a Tax-Free Distribution. Silicon Graphics has registration
rights with respect to its shares of Class B Common Stock which would facilitate
any future disposition. See "Arrangements Between MIPS Technologies and Silicon
Graphics".
There can be no assurance as to the period of time that Silicon Graphics
will retain its shares of Class B Common Stock following this offering.
Moreover, the United States Treasury Department has recently proposed tax
legislation which, if enacted, could result in a distribution by Silicon
Graphics of all of its Class B Common Stock shortly after the completion of this
offering. See "The Recapitalization -- Proposed Tax Legislation". No prediction
can be made as to the effect, if any, that market sales of outstanding shares of
common stock owned by Silicon Graphics, or the availability of such shares for
sale, will have on the market price of the Class A Common Stock prevailing from
time to time. Nevertheless, the disposition by Silicon Graphics of substantial
amounts of Class A or Class B Common Stock in the public market, including
through a Tax-Free Distribution, or the perception that any sale or other
disposition could occur, could adversely affect the prevailing market price of
the Class A Common Stock. See "Risk Factors". In addition, as of December 31,
1998, there were outstanding options to purchase 4,117,000 shares of Class A
Common Stock which will be eligible for sale in the public market from time to
time subject to vesting. Our directors and certain of our officers have agreed
with the Underwriters not to dispose of or hedge any of their Class A Common
Stock or securities convertible into or exchangeable for shares of Class A
Common Stock during the period from the date of this prospectus continuing
through the date that is two trading days after the date of our public
announcement of our 1999 fourth quarter operating results (the date of such
announcement is currently expected to be July 20, 1999). As of February 26,
1999, such directors and officers owned 11,054 shares of our common stock that
may be sold, and held options to purchase approximately 465,000 shares of common
stock that will be exercisable, on July 23, 1999 or within 30 days thereafter.
These stock options generally have exercise prices below the current market
price of the Class A Common Stock. The possible sale of a significant number of
such shares by the holders thereof may have an adverse effect on the price of
the Class A Common Stock.
CERTAIN UNITED STATES FEDERAL TAX
CONSIDERATIONS FOR NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock applicable to Non-U.S. Holders. In general, a "Non-U.S. Holder" is any
holder of Class A Common Stock other than (1) a citizen or resident of the
United States, (2) a corporation or partnership created or organized in the
United States or under the laws of the United States or of any state (other than
any partnership treated as foreign under U.S. Treasury regulations), (3) an
estate, the income of which is includable in gross income for United States
federal income tax purposes regardless of its source or (4) a trust if (a) a
court within the United States is able to exercise primary supervision over the
administration of the trust and (b) one or more United States persons have the
authority to control all substantial decisions of the trust. This discussion is
based on current law and is for general information only. This discussion does
not address aspects of United States federal taxation other than income and
estate taxation and does not address all aspects of income and estate taxation,
nor does it consider any specific facts or circumstances that may apply to a
particular Non-U.S. Holder (including certain U.S. expatriates). ACCORDINGLY,
OFFEREES OF CLASS A COMMON STOCK ARE URGED TO CONSULT THEIR TAX ADVISERS
REGARDING THE UNITED STATES
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FEDERAL, STATE, LOCAL AND NON-UNITED STATES INCOME AND OTHER TAX CONSEQUENCES OF
HOLDING AND DISPOSING OF SHARES OF CLASS A COMMON STOCK.
An individual may, subject to certain exceptions, be deemed to be a resident
alien (as opposed to a non-resident alien) by virtue of being present in the
United States for at least 31 days in the calendar year and for an aggregate of
at least 183 days during a three-year period ending in the current calendar year
(counting for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year, and one-sixth
of the days present in the second preceding year). In addition to the
"substantial presence test" described in the immediately preceding sentence, an
alien may be treated as a resident alien if he or she (1) meets a lawful
permanent residence test (a so-called "green card" test) or (2) elects to be
treated as a U.S. resident and meets the "substantial presence test" in the
immediately following year. Resident aliens are subject to U.S. federal tax as
if they were U.S. citizens.
DIVIDENDS
In general, dividends, if any, paid to a Non-U.S. Holder will be subject to
United States withholding tax at a 30% rate (or a lower rate prescribed by an
applicable tax treaty) unless the dividends are either (1) effectively connected
with a trade or business carried on by the Non-U.S. Holder within the United
States, or (2) attributable to a permanent establishment in the United States
maintained by the Non-U.S. Holder if certain income tax treaties apply.
Dividends effectively connected with such a United States trade or business or
attributable to such a United States permanent establishment generally will not
be subject to United States withholding tax if the Non-U.S. Holder files the
appropriate U.S. Internal Revenue Service form with the payor of the dividend
(which form, under U.S. Treasury regulations generally effective for payments
made after December 31, 1999 ("Final Regulations"), will require such Non-U.S.
Holder to provide a U.S. taxpayer identification number) and generally will be
subject to United States federal income tax on a net income basis, in the same
manner as if the Non-U.S. Holder were a resident of the United States. A
non-U.S. Holder that is a corporation may be subject to an additional branch
profits tax at a rate of 30% (or such lower rate as may be specified by an
applicable treaty) on the deemed or actual repatriation from the United States
of its "effectively connected earnings and profits" subject to certain
adjustments. Under currently effective United States Treasury regulations (the
"Current Regulations"), if we have no definitive knowledge regarding the tax
status of a stockholder, we must withhold tax at the rate of 30% on all dividend
payments if such stockholder's address is outside the United States. To
determine the applicability of a tax treaty providing for a lower rate of
withholding, dividends paid to an address in a foreign country generally are
presumed, under current Internal Revenue Service guidelines, to be paid to a
resident of that country absent knowledge to the contrary. Under the Final
Regulations, however, a Non-U.S. Holder of Class A Common Stock who wishes to
claim the benefit of an applicable treaty rate generally will be required to
satisfy applicable certification and other requirements. In addition, under the
Final Regulations, in the case of Class A Common Stock held by a foreign
partnership, (1) the certification requirement will generally be applied to the
partners of the partnership and (2) the partnership will be required to provide
certain information, including a United States taxpayer Identification number.
The Final Regulations also provide look-through rules for tiered partnerships. A
Non-U.S. Holder that is eligible for a reduced rate of U.S. withholding tax
pursuant to a tax treaty may obtain a refund of any excess amounts withheld by
filing an appropriate claim for refund with the IRS.
SALE OF CLASS A COMMON STOCK
In general, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain realized upon the disposition of such holder's shares of
Class A Common Stock unless: (1) the gain is effectively connected with a trade
or business carried on by the Non-U.S. Holder within the United States, or
alternatively, if certain tax treaties apply, is
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attributable to a permanent establishment in the United States maintained by the
Non-U.S. Holder (and in either case, the branch profits tax discussed above may
also apply if the Non-U.S. Holder is a corporation); (2) the Non-U.S. Holder is
an individual who holds shares of Class A Common Stock as a capital asset and is
present in the United States for 183 days or more in the taxable year of
disposition, and either (a) such individual has "tax home" (as defined for
United States federal income tax purposes) in the United States (unless the gain
from the disposition is attributable to an office or other fixed place of
business maintained by such Non-U.S. Holder in a foreign country and such gain
has been subject to a foreign income tax equal to at least 10% of the gain
derived from such disposition), or (b) the gain is attributable to an office or
other fixed place of business maintained by such individual in the United
States; or (3) we are or have been a United States real property holding
corporation (a "USRPHC") for United States federal income tax purposes (which we
do not believe that we are or are likely to become) at any time within the
shorter of the five-year period preceding such disposition or such Non-U.S.
Holder's holding period. If we are or were to become a USRPHC at any time during
this period, gains realized upon a disposition of Class A Common Stock by a
Non-U.S. Holder which did not directly or indirectly own more than 5% of the
Class A Common Stock during this period generally would not be subject to United
States federal income tax, provided that the Class A Common Stock had been
regularly traded on an established securities market.
ESTATE TAX
Class A Common Stock owned or treated as owned by an individual who is not a
citizen or resident (as defined for United States federal estate tax purposes)
of the United States at the time of death will be includable in the individual's
gross estate for United States federal estate tax purposes (unless an applicable
estate tax treaty provides otherwise), and therefore may be subject to United
States federal estate tax.
BACKUP WITHHOLDING, INFORMATION REPORTING AND OTHER REPORTING REQUIREMENTS
We must report annually to the IRS and to each Non-U.S. Holder the amount of
dividends paid to, and the tax withheld with respect to, each Non-U.S. Holder.
These reporting requirements apply regardless of whether withholding was reduced
or eliminated by an applicable tax treaty. Copies of this information also may
be made available under the provisions of a specific treaty or agreement with
the tax authorities in the country in which the Non-U.S. Holder resides or is
established.
Under the Current Regulations, United States backup withholding tax (which
generally is imposed at the rate of 31% on certain payments to persons that fail
to furnish the information required under the United States information
reporting requirements) and information reporting requirements (other than those
discussed above) generally will not apply to dividends paid on Class A Common
Stock to a Non-U.S. Holder at an address outside the United States. Backup
withholding and information reporting generally will apply to dividends paid on
shares of Class A Common Stock to a Non-U.S. Holder at an address in the United
States, if such holder fails to establish an exemption or to provide certain
other information to the payor. Under the Final Regulations, however, a Non-U.S.
Holder of Class A Common Stock that fails to certify its Non-U.S. Holder status
in accordance with the requirements of the Final Regulations may be subject to
United States backup withholding on payments of dividends.
The payment of proceeds from the disposition of Class A Common Stock to or
through a United States office of a broker will be subject to information
reporting and backup withholding unless the owner, under penalties of perjury,
certifies, among other things, such owner's status as a Non-U.S. Holder or
otherwise establishes an exemption. The payment of proceeds from the disposition
of Class A Common Stock to or through a non-U.S. office of a non-U.S. broker
generally will not be subject to backup withholding and information reporting,
except as noted below. In the case of
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proceeds from a disposition of Class A Common Stock paid to or through a
non-U.S. office of a broker that is (1) a United States person, (2) a
"controlled foreign corporation" for United States federal income tax purposes
or (3) a foreign person 50% or more of whose gross income from certain periods
is effectively connect with a United States trade or business, information
reporting (but not backup withholding) will apply unless the broker has
documentary evidence in its files that the owner is a Non-U.S. Holder (and the
broker has no actual knowledge of the country).
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a Non-U.S. Holder will be refunded or
credited against the Non-U.S. Holder's United States federal income tax
liability, if any, provided that the required information is furnished to the
IRS.
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LEGAL MATTERS
The validity of the Class A Common Stock offered hereby will be passed upon
for us by Shearman & Sterling, Menlo Park, California, and for the Underwriters
by Venture Law Group, A Professional Corporation, Menlo Park, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements as of June 30, 1997 and 1998 and for each of the three years in the
period ended June 30, 1998, as set forth in their report. We have included our
financial statements in this prospectus in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, a Registration Statement on Form S-1 under the
Securities Act with respect to the Class A Common Stock offered in this
offering. This prospectus, filed as part of that Registration Statement, does
not contain all the information in the Registration Statement and the exhibits
and schedules thereto. For further information with respect to us and the Class
A Common Stock, you should refer to the Registration Statement and the exhibits
and schedules filed as a part thereof. Statements in this prospectus regarding
the contents of any contract or any other document are not necessarily complete
and you should refer to the copy of such contract or document filed as an
exhibit to the Registration Statement for additional information.
The Registration Statement, including exhibits and schedules thereto, may be
inspected at the public reference facilities maintained by the Securities and
Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material may be
obtained from the Public Reference Section of the Commission located at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Registration
Statement is also publicly available through the Commission's web site at
http://www.sec.gov.
As a result of our initial public offering, we became subject to the
informational requirements of the Exchange Act and have filed periodic reports
and other information with the Securities and Exchange Commission. We will
furnish to our stockholders annual reports containing consolidated financial
statements audited by an independent public accounting firm and quarterly
reports for the first three quarters of each fiscal year containing unaudited
consolidated financial information.
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MIPS TECHNOLOGIES, INC.
FINANCIAL STATEMENTS
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Report of Independent Auditors...................................................... F-2
Balance Sheets...................................................................... F-3
Statements of Operations............................................................ F-4
Statement of Stockholders' Equity (Deficit)......................................... F-5
Statements of Cash Flows............................................................ F-6
Notes to Financial Statements....................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
MIPS Technologies, Inc.
We have audited the accompanying balance sheets of MIPS Technologies, Inc.
(the "Company") as of June 30, 1997 and 1998, and the related statements of
operations, stockholders' equity (deficit) and cash flows for each of the three
years in the period ended June 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MIPS Technologies, Inc. at
June 30, 1997 and 1998, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1998 in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
San Jose, California
July 20, 1998
F-2
<PAGE>
MIPS TECHNOLOGIES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------------------- --------------
1997 1998 1998
--------- --------- --------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................... $ -- $ 45 $ 26,052
Accounts receivable................................ 381 250 2,602
Prepaid expenses and other current assets.......... 2,775 618 453
--------- --------- --------------
Total current assets............................. 3,156 913 29,107
Equipment and furniture, net......................... 15,190 2,787 3,155
Other assets......................................... 1,328 996 1,027
--------- --------- --------------
$ 19,674 $ 4,696 $ 33,289
--------- --------- --------------
--------- --------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................... $ 5,834 $ 3,087 $ 3,661
Accrued liabilities................................ 5,437 2,356 6,381
Current portion of capital lease obligations....... 331 -- --
--------- --------- --------------
Total current liabilities........................ 11,602 5,443 10,042
Deferred revenue, less current portion............... -- -- 375
Stockholders' equity (deficit):
Common stock, $0.001 par value: 150,000,000 shares
authorized. Issued and outstanding: 36,000,000
shares at June 30, 1997 and June 30, 1998 and
37,292,286 shares at December 31, 1998........... 36 36 37
Additional paid-in capital........................... 129,236 120,041 136,235
Accumulated deficit.................................. (121,200) (120,824) (113,400)
--------- --------- --------------
Total stockholders' equity (deficit)............. 8,072 (747) 22,872
--------- --------- --------------
$ 19,674 $ 4,696 $ 33,289
--------- --------- --------------
--------- --------- --------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
MIPS TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------- --------------------
1996 1997 1998 1997 1998
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Royalties................................ $ 19,716 $ 37,192 $ 55,980 $ 26,759 $ 24,854
Contract revenue......................... 17,327 3,115 830 827 2,400
--------- --------- --------- --------- ---------
Total revenue........................ 37,043 40,307 56,810 27,586 27,254
Costs and expenses (see Note 11 regarding
related party transactions with Silicon
Graphics):
Cost of contract revenue................. 5,580 1,345 375 375 125
Research and development................. 48,402 68,827 43,446 35,127 9,223
Sales and marketing...................... 6,026 6,170 5,307 2,910 3,019
General and administrative............... 4,601 4,750 4,685 2,295 2,956
Restructuring charge..................... -- -- 2,614 2,614 --
--------- --------- --------- --------- ---------
Total costs and expenses............. 64,609 81,092 56,427 43,321 15,323
--------- --------- --------- --------- ---------
Operating income (loss).................. (27,566) (40,785) 383 (15,735) 11,931
Interest income (expense)................ (99) (50) (7) (11) 438
--------- --------- --------- --------- ---------
Income (loss) before income taxes........ (27,665) (40,835) 376 (15,746) 12,369
Provision for income taxes............... -- -- -- -- 4,948
--------- --------- --------- --------- ---------
Net income (loss)........................ $ (27,665) $ (40,835) $ 376 $ (15,746) $ 7,421
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per basic share........ $ (0.77) $ (1.13) $ 0.01 $ (0.44) $ 0.20
Net income (loss) per diluted share...... (0.77) (1.13) 0.01 (0.44) 0.19
Common shares outstanding-basic.......... 36,000 36,000 36,000 36,000 37,225
Common shares outstanding-diluted........ 36,000 36,000 36,033 36,000 38,239
</TABLE>
F-4
<PAGE>
MIPS TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON ADDITIONAL ACCUMULATED STOCKHOLDERS'
STOCK PAID-IN-CAPITAL DEFICIT EQUITY (DEFICIT)
------------- -------------- ------------- ------------------
<S> <C> <C> <C> <C>
Balances at June 30, 1995.... $ 36 $ 48,928 $ (52,700) $ (3,736)
Net loss................... -- -- (27,665) (27,665)
Net financing provided from
Silicon Graphics......... -- 35,254 -- 35,254
--- -------------- ------------- --------
Balances at June 30, 1996.... 36 84,182 (80,365) 3,853
Net loss................... -- -- (40,835) (40,835)
Net financing provided from
Silicon Graphics......... -- 45,054 -- 45,054
--- -------------- ------------- --------
Balances at June 30, 1997.... 36 129,236 (121,200) 8,072
Net income................. -- -- 376 376
Net financing returned to
Silicon Graphics......... -- (1,965) -- (1,965)
Net equipment transferred
to Silicon Graphics...... -- (7,230) -- (7,230)
--- -------------- ------------- --------
Balances at June 30, 1998.... 36 120,041 (120,824) (747)
Net income (unaudited)..... -- -- 7,421 7,421
Common stock issued under
employee stock option and
purchase plans
(unaudited).............. -- 323 -- 323
Currency translation
adjustment (unaudited)... -- -- 3 3
Shares issued in initial
public offering, net of
issuance costs of $1,628
(unaudited).............. 1 15,871 -- 15,872
--- -------------- ------------- --------
Balances at December 31, 1998
(unaudited)................ $ 37 $ 136,235 $ (113,400) $ 22,872
--- -------------- ------------- --------
--- -------------- ------------- --------
</TABLE>
See accompanying notes.
F-5
<PAGE>
MIPS TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------- --------------------
1996 1997 1998 1997 1998
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)....................... $ (27,665) $ (40,835) $ 376 $ (15,746) $ 7,421
Adjustments to reconcile net income to
cash provided by (used in) operations:
Depreciation.......................... 8,201 7,343 5,044 3,063 997
Restructuring charge.................. -- -- 2,114 2,614 --
Other non-cash charges................ 28 99 362 116 133
Changes in operating assets and
liabilities:
Accounts receivable................. (218) 146 131 -- (2,352)
Accounts payable.................... 753 1,899 (2,747) (91) 4,401
Other assets and liabilities........ (8,267) (3,385) (832) (381) 574
--------- --------- --------- --------- ---------
Net cash flow provided by (used
in) operating activities,
excluding Silicon Graphics
financing....................... (27,168) (34,733) 4,448 (10,425) 11,174
Investing activities -- capital
expenditures............................ (7,257) (9,913) (2,107) (452) (1,365)
Financing activities:
Net proceeds from issuance of common
stock................................. -- -- -- -- 16,195
Payments on capital lease obligations... (829) (408) (331) (218) --
Net financing provided from (returned
to) Silicon Graphics.................. 35,254 45,054 (1,965) 11,095 --
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities............ 34,425 44,646 (2,296) 10,877 16,195
Effect of exchange rate changes on cash... -- -- -- -- 3
--------- --------- --------- --------- ---------
Net increase in cash...................... -- -- 45 -- 26,007
Cash and cash equivalents, beginning of
period.................................. -- -- -- -- 45
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of
period.................................. $ -- $ -- $ 45 $ -- $ 26,052
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental disclosures of cash flow
information:
Net equipment transferred to Silicon
Graphics............................ $ -- $ -- $ 7,230 $ -- $ --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Interest paid......................... $ 99 $ 50 $ 13 $ -- $ 10
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes.
F-6
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
NOTE 1. FORMATION AND DESCRIPTION OF BUSINESS
FORMATION OF MIPS TECHNOLOGIES, INC. (THE "COMPANY"). MIPS Technologies'
predecessor, MIPS Computer Systems, Inc., was founded in 1984 and was engaged in
the design and development of RISC processors for the computer systems and
embedded markets. Silicon Graphics adopted the MIPS architecture for its
computer systems in 1988 and acquired MIPS Computer Systems, Inc. in 1992.
Following the acquisition, Silicon Graphics continued the MIPS processor
business through its MIPS Group (a division of Silicon Graphics), which focused
primarily on the development of high-performance processors for Silicon
Graphics' workstations and servers. Until the last few years, cost
considerations limited the use of MIPS RISC processors in high-volume digital
consumer products. However, as the cost to manufacture processors based on the
MIPS technology decreased, the MIPS Group sought to penetrate the consumer
market, both through supporting and coordinating the efforts of the MIPS
semiconductor licensees and, most notably, by partnering with Nintendo in its
design of the Nintendo 64 video game player and related cartridges. Revenues
related to sales of Nintendo 64 video game players and related cartridges
currently account for the substantial majority of the Company's revenue. In
order to increase the focus of the MIPS Group on the design and development of
processor applications dedicated to the embedded market, in December 1997,
Silicon Graphics initiated a plan to separate the business of the MIPS Group
from its other operations.
In April 1998, the Board of Directors of the Company approved a transaction
pursuant to which Silicon Graphics transferred to the Company the assets and
liabilities related to the design and development of processor intellectual
property for embedded market applications (the "Separation"). In connection with
the Separation, the Company and Silicon Graphics entered into a Corporate
Agreement that provides for certain pre-emptive rights of Silicon Graphics to
purchase shares of the Company's capital stock, registration rights related to
shares of the Company's capital stock owned by Silicon Graphics and covenants
against certain actions by the Company for as long as Silicon Graphics owns a
majority of the Company's outstanding common stock. Furthermore, the Company and
Silicon Graphics entered into a Management Services Agreement pursuant to which
Silicon Graphics currently provides certain services to the Company on an
interim or transitional basis.
Since the closing of the Company's initial public offering (the "Offering")
on July 6, 1998, the Company has been a majority owned subsidiary of Silicon
Graphics.
MIPS Technologies International A.G., a wholly owned subsidiary of the
Company, was incorporated in Switzerland on November 20, 1998. MIPS Denmark
Development Center located in Copenhagen, Denmark, a branch of the Swiss
subsidiary, was opened on December 1, 1998. The development center will work on
product development as well as provide support and design expertise for the
Company's European-based customers.
BASIS OF PRESENTATION. The accompanying financial statements for periods
prior to June 30, 1998 reflect the operations of the Company's predecessor, the
MIPS Group. The balance sheets as of June 30, 1997 and 1998 have been prepared
using the historical basis of accounting and include all of the assets and
liabilities specifically identifiable to the Company and, for certain
liabilities that are not specifically identifiable, estimates have been used to
allocate a portion of Silicon Graphics' liabilities to the Company. Until June
30, 1998, cash management for the Company was done by
F-7
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
Silicon Graphics on a centralized basis and all cash provided by Silicon
Graphics was recorded as interest-free financing from Silicon Graphics in these
financial statements.
The statements of operations include all revenue and costs attributable to
the Company, including a corporate allocation of the costs of facilities and
employee benefits. Additionally, incremental corporate administration, finance
and management costs are allocated to the Company based on certain methodologies
that management believes are reasonable under the circumstances (see Note 11).
Subsequent to June 30, 1998, the Company operated as a stand-alone company,
MIPS Technologies, Inc. The consolidated financial statements include the
accounts of the Company and its wholly owned Swiss subsidiary, MIPS Technologies
International A.G., after elimination of intercompany transactions and balances.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL INFORMATION. The financial information as of December 31,
1998, and for the six months ended December 31, 1997 and 1998 are unaudited but
include all adjustments (consisting only of normal recurring adjustments) which
the Company considers necessary for a fair presentation of the financial
position at such date and the operating results and cash flows for those
periods. Results for the six months ended December 31, 1998 are not necessarily
indicative of the results to be expected for the entire year.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results inevitably will differ from those
estimates, and such differences may be material to the financial statements.
REVENUE RECOGNITION. The Company derives revenue from fees for the transfer
of proven and reusable intellectual property components or the performance of
engineering services to customer specifications. The Company enters into
licensing agreements that provide licensees the right to incorporate the
Company's intellectual property components in their products with terms and
conditions that have historically varied by licensee. Generally these agreements
include one or more of the following elements: (1) royalty payments, which are
payable upon the sale of a licensee's products, (2) nonrefundable technology
license fees, which are payable upon the transfer of intellectual property and
(3) engineering service fees, which generally are payable upon the Company's
achievement of defined milestones. No upgrades or modifications to a licensed
product are provided.
The Company classifies all revenue that involves the future sale of a
licensee's products as royalty revenue. Royalty revenue generally is recognized
in the quarter in which a report is received from a licensee detailing the
shipments of products incorporating the Company's intellectual property
components (i.e., in the quarter following the sale of licensed product by the
licensee). The Company classifies all revenue that does not involve the future
sale of a licensee's products, primarily license fees and engineering service
fees, as contract revenue. License fees are recognized upon the execution of the
license agreement and transfer of intellectual property,
F-8
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
provided no further significant performance obligations exist. Engineering
services, which are performed on a best efforts basis, are recognized as revenue
when the defined milestones are completed and the milestone payment is probable
of collection. Milestones have historically been formulated to correlate with
the estimated level of effort and related costs.
COSTS OF CONTRACT REVENUE. Cost of contract revenue consists mainly of
sublicence fees which are recognized as the obligation is incurred. Prior to
fiscal 1998, such costs also included non recurring engineering service costs
directly related to a development agreement with a specific licensee which were
expensed as incurred over the period of services.
RESEARCH AND DEVELOPMENT EXPENSES. Costs incurred with respect to
internally developed technology and engineering services are included in the
research and development expense as they are not directly related to any
particular licensee, license agreement or license fees. Such costs are expensed
as incurred.
Certain license agreements provide for limited product support that consists
of an identified customer contact at the Company and telephonic or e-mail
product support. Such support arrangements have been insignificant to date.
EQUIPMENT AND FURNITURE. Equipment and furniture is stated at cost and
depreciation is computed using the straight-line method. Useful lives of three
to seven years are used for equipment and furniture and fixtures.
PREPAID EXPENSES AND OTHER CURRENT ASSETS. Prepaid expenses and other
current assets consist principally of amounts paid by the Company in advance for
maintenance contracts on its computer-aided software design tools. These
contracts typically cover a one-year period, over which the cost is amortized.
STOCK-BASED COMPENSATION. Certain employees of the Company were granted
options to purchase Silicon Graphics common stock and were awarded restricted
shares of Silicon Graphics common stock while employed by Silicon Graphics. In
addition, certain employees of the Company purchased Silicon Graphics common
stock through the Silicon Graphics stock purchase plan. In connection with their
acceptance of employment with the Company, all unvested options to purchase
Silicon Graphics common stock and unvested restricted shares of Silicon Graphics
common stock held by employees of the Company that were previously employed by
Silicon Graphics were forfeited. In addition, such individuals had 30 or 90 days
(depending on the terms of the option grant) to exercise any vested options to
purchase Silicon Graphics common stock, and any vested options that remained
unexercised after that date were forfeited.
The Company has adopted the disclosure requirements of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-based Compensation
("SFAS 123"). As allowed by SFAS 123, the Company accounts for stock-based
employee compensation arrangements under the intrinsic value method prescribed
by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. As a result, no expense was recognized for options to purchase common
stock of Silicon Graphics (prior to the Separation) or the Company (following
its initial public offering) that were granted with an exercise price equal to
fair market value at the date of grant, and no expense was recognized in
connection with purchases under the Silicon Graphics' employee stock purchase
plan prior to the Separation. For Silicon Graphics stock options that were
F-9
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
granted and for restricted Silicon Graphics and Company common stock issued at
discounted prices, the Company recognizes compensation expense over the vesting
period for the difference between the exercise or purchase price and the fair
market value on the measurement date.
EARNINGS PER SHARE. The Company follows the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS
128 requires the presentation of basic and fully diluted earnings per share.
Basic earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares that were
outstanding during the period. Diluted earnings per share is computed giving
effect to all dilutive potential common shares that were outstanding for any
periods presented in these financial statements. The Company effected a
360,000-for-one split of its Common Stock on June 5, 1998 and the share and
earnings per share data in the financial statements give effect to that split.
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------- --------------------
1996 1997 1998 1997 1998
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net income (loss)........................ $ (27,665) $ (40,835) $ 376 $ (15,746) $ 7,421
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted-average shares outstanding --
basic.................................. 36,000 36,000 36,000 36,000 37,225
Effect of dilutive securities employee
stock options.......................... -- -- 33 -- 1,014
--------- --------- --------- --------- ---------
Weighted-average shares outstanding --
diluted................................ 36,000 36,000 36,033 36,000 38,239
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per share -- basic..... $ (0.77) $ (1.13) $ 0.01 $ (0.44) $ 0.20
Net income (loss) per share -- diluted... (0.77) (1.13) 0.01 (0.44) 0.19
</TABLE>
COMPREHENSIVE INCOME. During fiscal 1999, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). There was no impact to the Company as a result of the adoption of SFAS
130, and there is no material difference between the Company's reported net
income (loss) and the comprehensive net income (loss) under SFAS 130 for the
periods presented.
RECENT ACCOUNTING PRONOUNCEMENTS. In June 1997, the Financial Accounting
Standards Board ("FASB") issued Statement No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"). The Company is required
to adopt SFAS 131 in fiscal 1999. SFAS 131 requires disclosure of certain
information regarding operating segments, products and services, geographic
areas of operation and major customers. The adoption of SFAS 131 is
F-10
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
expected to have no impact on the Company's financial position, results of
operations or cash flows.
In March 1998, FASB issued Statement of Financial Accounting Standards No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits"
("SFAS 132"). SFAS 132 does not change the recognition or measurement of pension
or postretirement benefit plans, but revises and standardizes disclosure
requirements for pensions and other postretirement benefits. The adoption of
SFAS 132 in fiscal 1999 will have no impact on the Company's results of
operations or financial condition.
In June 1998, FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Financial Instruments and for Hedging Activities
("SFAS 133"), which provides comprehensive and consistent standards for the
recognition and measurement of derivatives and hedging activities. The Company
is required to adopt SFAS 133 in fiscal 2000. It is not anticipated to have an
impact on the Company's results of operations or financial condition when
adopted because the Company currently does not hold any derivative financial
instruments and does not expect to engage in hedging activities in the near
future.
NOTE 3. BUSINESS RISK AND CUSTOMER CONCENTRATION
The Company operates in the intensely competitive semiconductor industry
which has been characterized by price erosion, rapid technological change, short
product life cycles, cyclical market patterns and heightened foreign and
domestic competition. Significant technological changes in the industry could
affect operating results adversely. Due to the Company's focus on processor
designs dedicated to the embedded market, including digital consumer products,
the Company can be expected to experience seasonal fluctuations in its revenue
and operating results.
The Company markets and licenses its technology to a limited number of
customers and generally does not require collateral. At June 30, 1997 and 1998,
one customer accounted for 100% of accounts receivable. During the year ended
June 30, 1996, revenue from three customers represented an aggregate of 72% of
total revenue and during the years ended June 30, 1997 and 1998, revenue from
two customers represented an aggregate of 88% and 85% of total revenue,
respectively. The Company expects that a significant portion of its future
revenue will continue to be generated by a limited number of customers. The
nonrenewal or expiration of contracts between the Company and its current
customers could adversely affect near-term future operating results.
A substantial portion of the Company's revenue is derived from outside the
United States (see Note 13). The Company anticipates that revenue from
international customers will continue to represent a substantial portion of its
total revenue. To date, substantially all of the revenue from international
customers has been denominated in U.S. dollars. However, to the extent that
sales to digital consumer product manufacturers by the Company's manufacturing
partners are denominated in foreign currencies, royalties received by the
Company on such sales could be subject to fluctuations in currency exchange
rates. In addition, if the effective price of the technology sold by the Company
to its partners were to increase as a result of fluctuations in foreign currency
exchange rates, demand for the Company's technology could fall which would, in
turn, reduce the Company's royalties. The relative significance of the Company's
international operations exposes it to a number of additional risks including
political and economic instability,
F-11
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
longer accounts receivable collection periods and greater difficulty in
collection of accounts receivable, reduced or limited protection for
intellectual property, export license requirements, tariffs and other trade
barriers and potentially adverse tax consequences. There can be no assurance
that the Company will be able to sustain revenue derived from international
customers or that the foregoing factors will not have a material adverse effect
on the Company's business, operating results and financial condition.
NOTE 4. RESTRUCTURING CHARGE
The restructuring charge recorded in fiscal 1998 includes $500,000 in
severance and related costs (17 employees, a majority of which supported
research and development activities) and $2.1 million in fixed asset write-downs
related to the Company's shift in strategic direction. All severance and related
costs were paid and 16 employees were terminated as of September 30, 1998.
NOTE 5. EMPLOYEE NOTES RECEIVABLE
The Company has loans outstanding to employees and an officer. Such loans
are payable upon maturity, which ranges from three to five years from issuance.
Employee loans are included in other assets in the accompanying balance sheet
and approximated $1.3 million and $1.0 million at June 30, 1997 and 1998,
respectively. Approximately $776,000 and $432,000 of these loans at June 30,
1997 and 1998, respectively, relate to loans which are forgiven by the Company
on a periodic basis as the employee or officer remains employed by the Company.
Loan forgiveness charged to expense was $28,000, $99,000 and $240,000 in fiscal
1996, 1997 and 1998, respectively. Upon termination of employment, the
unamortized balance of the loan becomes due. Such forgivable loans bear no
interest. The balance of the loans bear interest at rates ranging from 7.19% to
7.25% and are due on dates ranging from September 1999 to March 2002.
NOTE 6. EQUIPMENT AND FURNITURE
The components of equipment and furniture are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Equipment............................................... $ 45,918 $ 7,990
Equipment under capital lease........................... 1,198 --
Furniture and fixtures.................................. 516 421
--------- ---------
47,632 8,411
Accumulated depreciation................................ (32,442) (5,624)
--------- ---------
Equipment and furniture, net............................ $ 15,190 $ 2,787
--------- ---------
--------- ---------
</TABLE>
F-12
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
NOTE 7. ACCRUED LIABILITIES
The components of accrued liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Accrued compensation and employee-related expenses......... $ 4,163 $ 194
Development and marketing funds............................ 1,053 1,555
Other accrued liabilities.................................. 221 607
--------- ---------
$ 5,437 $ 2,356
--------- ---------
--------- ---------
</TABLE>
F-13
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
NOTE 7. ACCRUED LIABILITIES (CONTINUED)
Accrued compensation and employee related expenses at June 30, 1997 include
approximately $1.6 million in accrued vacation and $1.2 million in accrued
employee relocation expenses. The development and marketing funds represent
amounts received from certain of the Company's licensees to be used in joint
development and marketing programs. In connection with the separation, all
accrued vacation amounts as of May 31, 1998 were paid to employees. The amount
accrued at June 30, 1998 represents accrued vacation costs from June 1, 1998 to
June 30, 1998.
NOTE 8. CAPITAL LEASE OBLIGATIONS
The Company leased equipment under capital lease obligations that matured in
fiscal 1998.
NOTE 9. INCOME TAXES
The net losses incurred for the fiscal years ended June 30, 1996, 1997 and
1998 are attributable to the operations of the Company as a division of Silicon
Graphics and were included in the income tax returns filed by Silicon Graphics.
In light of both historical losses incurred, as well as the fact that, by
operation of the tax sharing agreement, the Company will not receive any benefit
for losses incurred or have any tax liability for any income earned up to the
closing date of the initial public offering, no income tax provision or benefit
has been reflected for the years ended June 30 1996, 1997 and 1998.
As a member of Silicon Graphics' consolidated group for federal income tax
purposes, the Company is jointly and severally liable for the federal income tax
liability of each other member of the consolidated group. The Company is also
jointly and severally liable for pension and benefit funding termination
liabilities of other group members, as well as certain benefit plan taxes.
At June 30, 1997 and 1998, the Company's deferred tax assets and the related
valuation allowance were immaterial.
Subsequent to the initial public offering, the Company, while still a part
of Silicon Graphics' consolidated group for federal income tax purposes, is
responsible for its income taxes through a tax sharing agreement with Silicon
Graphics. Therefore, to the extent the Company produces taxable income, loss or
credits, it will make or receive payments as though it filed separate federal,
state and local income tax returns. The Company recorded a provision for income
taxes of $4.9 million for the first six months of fiscal 1999. This provision
was based on an estimated federal and state combined rate of 40% on income
before taxes.
In general, the Company will be included in Silicon Graphics' consolidated
group for federal income tax purposes for so long as Silicon Graphics
beneficially owns at least 80% of the total voting power and value of the
outstanding Common Stock.
NOTE 10. STOCKHOLDERS' EQUITY
In May 1998, the Board of Directors of the Company authorized and the
Company's stockholder later approved a 360,000-for-one stock split of the
Company's common stock and an amendment to the Company's Certificate of
Incorporation increasing the number of authorized
F-14
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
shares of common stock to 150,000,000 shares. All prior year financial
statements have been restated to effect the stock split.
PREFERRED STOCK. The Company has 50,000,000 shares of preferred stock, par
value $0.001 per share, authorized for issuance. No shares of preferred stock
have been issued.
1998 LONG-TERM INCENTIVE PLAN. The 1998 Long-Term Incentive Plan (the "1998
Plan") was adopted by the Board of Directors of the Company and approved by the
Company's stockholder in May 1998. The 1998 Plan authorized the issuance of
various forms of stock-based awards including incentive and non-qualified stock
options, stock appreciation rights, stock awards and performance unit awards to
officers and other key employees and consultants. Stock options and stock
appreciation rights are generally granted at an exercise price of not less than
the fair value on the date of grant; the prices of other stock awards are
determined by the Option Administration Committee of the Board of Directors. An
aggregate of 6,600,000 shares of common stock may be issued under the 1998 Plan
and are reserved for future issuance.
The stock option activity under the 1998 Plan is summarized as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
--------------------------------------
SHARES AVAILABLE NUMBER OF WEIGHTED AVERAGE
FOR GRANT SHARES EXERCISE PRICE PER SHARE
----------------- ----------- -------------------------
<S> <C> <C> <C>
Balance at July 1, 1997........... -- -- $ --
Shares authorized for issuance.... 6,600,000 -- --
Options granted in fiscal 1998.... (2,996,900) 2,996,900 12.00
----------------- ----------- -------
Balance at June 30, 1998.......... 3,603,100 2,996,900 $ 12.00
----------------- ----------- -------
----------------- ----------- -------
</TABLE>
At June 30, 1998, the weighted average contractual life of the options
outstanding was 10 years. There were no options exercisable at June 30, 1998.
EMPLOYEE STOCK PURCHASE PLAN. The Employee Stock Purchase Plan (the
"Purchase Plan") was adopted by the Board of Directors of the Company and
approved by the Company's stockholder in May 1998. The purpose of the Purchase
Plan is to provide employees of the Company who participate in the Purchase Plan
with an opportunity to purchase common stock of the Company through payroll
deductions. Under the Purchase Plan, eligible employees may purchase stock at
85% of the lower of the fair market value of the Company's common stock (a) on
the date of commencement of the offering period or (b) the applicable exercise
date within such offering period. A 24-month offering period commences every six
months, generally on May 1 and November 1 of each year. The offering period is
divided into four six-month exercise periods. The exercise date is the last day
of the particular six-month exercise period within the offering period. If the
fair market value of the Company's common stock on the first day of any exercise
period is less than such value on the first day of that offering period, all
employees participating in the Purchase Plan on the first day of such exercise
period will be deemed to have withdrawn from the offering period on the first
day of such exercise period and to have enrolled in the new offering period
commencing on that date. Purchases are limited to 10% of each employee's
eligible compensation. As of June 30, 1998, no shares have been issued to
employees of the Company under the Purchase Plan. Presently 600,000 shares of
the Company's common stock are reserved for future
F-15
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
issuance under the Purchase Plan, and on July 1 of each year the amount reserved
for issuance will be increased by the lesser of one-half of one percent of the
outstanding shares of the Company's common stock on a fully diluted basis or
600,000 shares, or such lesser amount determined by the Board of Directors of
the Company.
DIRECTORS' STOCK OPTION PLAN. The Board of Directors of the Company adopted
and the Company's stockholder approved the Directors' Stock Option Plan (the
"Director Plan") on July 2, 1998. The plan authorizes 600,000 shares of the
Company's common stock for issuance plus an annual increase each July 1 equal to
the lesser of (1) 100,000 shares, (2) the number of shares subject to option
granted in the prior one year period, or (3) a lesser amount determined by the
Board of Directors of the Company. Upon a non-employee director's election or
appointment to the Board, he or she will automatically receive a non-statutory
stock option to purchase 40,000 shares of the Company's common stock. Each
director who has been a non-employee director for at least six months will
automatically receive a non-statutory stock option to purchase 10,000 shares of
the Company's common stock each year on the date of the annual meeting of
stockholders. All stock options are granted an exercise price equal to the fair
market value of the Company's common stock on the date of grant. Stock options
generally vest over a 50-month period from the date of the grant. As of June 30,
1998, no shares had been issued to directors of the Company under the Director
Plan.
NON-U.S. STOCK PURCHASE PLAN. The Non-U.S. Stock Purchase Plan (the
"Non-U.S. Purchase Plan") was adopted by the Board in July 1998. The purpose of
the Non-U.S. Purchase Plan is to provide employees and consultants of the
Company who do not provide services in the United States and who participate in
the Non-U.S. Purchase Plan with an opportunity to purchase the Company's common
stock at the same discount and subject to the same general rules as the Purchase
Plan. The Non-U.S. Purchase Plan has 24-month offering periods commencing every
six months and each offering period is divided into four six-month exercise
periods. Purchases are limited to ten percent of each employee's and
consultant's eligible compensation. As of June 30, 1998, no shares had been
issued to employees or consultants of the Company under the Non-U.S. Purchase
Plan and 60,000 shares of the Company's common stock were reserved for issuance.
SILICON GRAPHICS STOCK AWARD PLANS. Certain employees of the Company were
granted options to purchase Silicon Graphics common stock and were awarded
restricted shares of Silicon Graphics common stock while employed by Silicon
Graphics. In addition, certain employees of the Company purchased Silicon
Graphics common stock through the Silicon Graphics stock purchase plan. In
connection with their acceptance of employment with the Company, all unvested
options to purchase Silicon Graphics common stock and unvested restricted shares
of Silicon Graphics common stock held by employees of the Company previously
employed by Silicon Graphics were forfeited. In addition, such individuals had
30 or 90 days from May 29, 1998 (depending on the terms of the option grant) to
exercise any vested options to purchase Silicon Graphics common stock, and any
vested options that remained unexercised after that date were forfeited.
Silicon Graphics has various stock award plans, which provide for the grant
of incentive and nonstatutory stock options and the issuance of restricted stock
to employees. Incentive stock options are granted at not less than the fair
market value on the date of grant; the prices of nonstatutory stock option
grants and restricted stock were determined by the board of directors of
F-16
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
Silicon Graphics. Under the plans, options and restricted stock generally vest
over a fifty-month period from the date of grant.
Silicon Graphics stock option activity related to employees of the Company
is summarized as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------------
NUMBER OF WEIGHTED AVG.
SHARES EXERCISE PRICE
----------- ---------------
<S> <C> <C>
Balance at June 30, 1995....................... 1,717,720 $ 17.94
Options granted................................ 772,440 26.98
Options exercised.............................. (52,039) 9.97
Options canceled............................... (649,967) 7.40
-----------
Balance at June 30, 1996....................... 1,788,154 22.26
Options granted................................ 1,641,064 21.00
Options exercised.............................. (148,748) 10.56
Options canceled............................... (1,705,085) 23.90
-----------
Balance at June 30, 1997....................... 1,575,385 18.17
Options granted................................ 161,861 12.85
Options exercised.............................. (113,427) 10.77
Options canceled............................... (1,493,260) 18.02
-----------
Balance at June 30, 1998....................... 130,559 19.62
-----------
-----------
</TABLE>
Additional information about outstanding options to purchase Silicon
Graphics common stock held by employees of the Company at June 30, 1998 is as
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND EXERCISABLE
-----------------------------------------------
WEIGHTED
AVERAGE WEIGHTED
NUMBER CONTRACTUAL AVERAGE
RANGE OF EXERCISE PRICE OF SHARES LIFE (IN YEARS) EXERCISE PRICE
- -------------------------------- ----------- ----------------- ---------------
<S> <C> <C> <C>
$8.06-$11.69.................... 11,577 6.94 $ 10.99
$12.63-$18.88................... 53,430 7.86 18.14
$20.00-$30.13................... 65,552 8.02 22.35
-----------
$8.06-$30.13.................... 130,559 7.86 19.62
-----------
-----------
</TABLE>
Shares of restricted Silicon Graphics common stock awarded to employees of
the Company in fiscal 1996, 1997 and 1998 were 40,000 shares, 83,500 shares and
27,000 shares, respectively.
At June 30, 1996, 1997 and 1998, options to purchase 856,711 shares, 480,629
shares and 130,559 shares, respectively, of Silicon Graphics common stock were
held by employees of the Company. At June 30, 1996, 1997 and 1998, there were
35,000 shares, 50,125 shares and no shares, respectively, of restricted Silicon
Graphics stock held by employees of the Company that were subject to repurchase.
F-17
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
SILICON GRAPHICS STOCK PURCHASE PLAN. Silicon Graphics has an employee
stock purchase plan under which eligible employees may purchase stock at 85% of
the lower of the closing price for the stock at the beginning of a twenty
four-month offering period or the end of each six-month purchase period. The
purchase periods generally begin in May and November. Purchases are limited to
10% of each employee's compensation. Shares issued to employees of the Company
under this plan in fiscal 1996, 1997 and 1998 were 76,084 shares, 135,808 shares
and 101,292 shares, respectively. Former employees of Silicon Graphics are not
eligible to participate in this plan.
GRANT DATE FAIR VALUES. The weighted average estimated fair value of
Silicon Graphics employee stock options granted at grant date market prices
during fiscal 1996, 1997 and 1998 was $11.32 per share, $8.08 per share and
$6.02 per share, respectively. The weighted average exercise price of Silicon
Graphics employee stock options granted at grant date market prices during
fiscal 1996, 1997 and 1998 was $29.66 per share, $20.70 per share and $14.89 per
share, respectively. The weighted average estimated fair value of Silicon
Graphics employee stock options granted at below grant date market prices during
fiscal 1996 and 1997 was $17.07 per share and $13.09 per share, respectively.
The weighted average exercise price of Silicon Graphics employee stock options
granted at below grant date market prices during 1996 and 1997 was $21.35 per
share and $15.65 per share, respectively. There were no Silicon Graphics options
granted at below grant date market price during fiscal 1998. The weighted
average estimated fair value of Silicon Graphics restricted stock granted during
fiscal 1996, 1997 and 1998 was $27.30 per share, $23.37 per share and $24.37 per
share, respectively. The weighted average estimated fair value of shares granted
under the Silicon Graphics stock purchase plan during fiscal 1996, 1997 and 1998
was $15.09 per share, $7.85 per share and $6.88 per share, respectively.
The weighted average estimated fair value of the Company's employee stock
options granted at grant date market prices during fiscal 1998 was $8.71 per
share.
The weighted average fair value of Silicon Graphics options granted has been
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions:
<TABLE>
<CAPTION>
EMPLOYEE STOCK OPTIONS STOCK PURCHASE PLAN SHARES
------------------------------------- -------------------------------------
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
------------------------------------- -------------------------------------
1996 1997 1998 1996 1997 1998
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Expected life (in years)..................... 3.8 2.7 2.7 0.5 0.5 0.5
Risk-free interest rate...................... 5.18% 6.38% 5.74% 5.49% 5.45% 5.72%
Volatility................................... 0.45 0.50 0.61 0.45 0.57 0.79
Dividend yield............................... 0% 0% 0% 0% 0% 0%
</TABLE>
F-18
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
The weighted average fair value of Company options granted has been
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions for the activity under the Company's
plans:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1998
-----------------
<S> <C>
Expected life (in years).................................................... 5.0
Risk-free interest rate..................................................... 5.66%
Volatility.................................................................. 0.70
Divided yield............................................................... 0%
</TABLE>
PRO FORMA INFORMATION. The Company has elected to follow APB 25 in
accounting for its employee stock options because the alternative fair value
accounting provided for under SFAS 123 requires the use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, no compensation expense is recognized in the Company's financial
statements except in connection with the granting of restricted shares or unless
the exercise price of the Company's employee stock options is less than the
market price of the underlying stock on the date of grant. Total compensation
expense recognized in the Company's financial statements for stock-based awards
under APB 25 for fiscal 1996, 1997 and 1998 was $0.5 million, $1.7 million and
$1.0 million, respectively.
Pro forma information regarding net income and earnings per share has been
determined as if the Company had accounted for its employee stock options and
employee stock purchase plan under the fair value method prescribed by SFAS 123.
For purposes of pro forma disclosures, the estimated fair value of the stock
awards is amortized to expense over the vesting periods. The Company's pro forma
information is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Pro forma net loss............................................. $ (30,041) $ (46,288) $ (738)
Pro forma basic and diluted net loss per share................. $ (0.83) $ (1.28) $ (0.02)
</TABLE>
The historical pro forma impact of applying the fair value method prescribed
by SFAS 123 is not representative of the impact that may be expected in the
future due to changes resulting from the Separation and the establishment of the
Company's plans during 1998.
NOTE 11. RELATED PARTY TRANSACTIONS
FUNDING. Prior to the separation, the Company utilized Silicon Graphics'
centralized cash management services and processes related to receivables,
payables, payroll and other activities and the Company's net cash requirements
were funded by Silicon Graphics. Net financing provided to the Company by
Silicon Graphics in fiscal 1996 and 1997 was approximately $35 million and $45
million, respectively. There was a net return of capital to Silicon Graphics by
the Company of approximately $9.2 million and zero in fiscal 1998. The average
balance due Silicon Graphics
F-19
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
during fiscal 1996, 1997 and 1998 was approximately $67 million, $107 million
and $125 million, respectively.
At December 31, 1998, accounts payable includes approximately $207,000
payable to Silicon Graphics related to certain administrative and corporate
support services provided by Silicon Graphics on behalf of the Company and
approximately $2.7 million taxes payable to Silicon Graphics under the tax
sharing agreement with Silicon Graphics. The tax sharing agreement provides that
the Company and Silicon Graphics will make payments to each other such that,
with respect to any period, the amount of taxes to be paid by the Company,
subject to certain adjustments, will be determined as though the Company were to
file separate federal, state and local income tax returns.
CORPORATE SERVICES. Silicon Graphics allocates a portion of its domestic
corporate expenses to its divisions, including the Company. In addition, in
accordance with Staff Accounting Bulletin No. 55, certain additional allocations
have been reflected in these financial statements. These expenses have included
corporate communications, management, compensation and benefits administration,
payroll, accounts payable, income tax compliance, treasury and other
administration and finance overhead. Allocations and charges were based on
either a direct cost pass-through or a percentage allocation for such services
provided based on factors such as net sales, headcount and relative expenditure
levels. Such allocations and corporate charges totaled $9.0 million, $11.0
million, $9.0 million, $6.2 million and zero for the years ended June 30, 1996,
1997 and 1998 and for the six-month periods ended December 31, 1997 and December
31, 1998, respectively.
In June 1998, the Company and Silicon Graphics entered into the Management
Services Agreement, pursuant to which Silicon Graphics will provide certain
administrative and corporate support services to the Company on an interim or
transitional basis, including accounting, treasury, tax, facilities and
information services. Specified charges for such services are generally intended
to allow Silicon Graphics to recover the fully allocated direct costs of
providing the services, plus all out-of-pocket costs and expenses, but without
any profit. The Management Services Agreement will have a three-year term and
will be subject to automatic termination at such time as Silicon Graphics'
beneficial ownership interest in the Company's outstanding common stock ceases
to exceed 50%. In addition, either Silicon Graphics or the Company may terminate
the Management Services Agreement with respect to one or more of the services
provided thereunder upon giving at least 30 days prior written notice to the
other party.
Management believes that the basis used for allocating corporate services is
reasonable. While the terms of these transactions may differ from those that
would result from transactions among unrelated parties, management does not
believe such differences would be material.
FACILITIES. The Company's executive, administrative and technical offices
currently occupy space in a building subleased from Silicon Graphics in Mountain
View, California. Payments by the Company to Silicon Graphics under this
sublease are expected to be $611,000, $743,000, $776,000 and $741,000 in fiscal
years 1999, 2000, 2001 and 2002, respectively. The sublease will terminate on
May 31, 2002, subject to earlier termination in certain circumstances.
F-20
<PAGE>
MIPS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1998 FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND 1998 IS UNAUDITED
NOTE 12. CONTINGENCIES
From time to time, the Company receives communications from third parties
asserting patent or other rights covering the Company's products and
technologies. Based upon the Company's evaluation, it may take no action or it
may seek to obtain a license. There can be no assurance in any given case that a
license will be available on terms the Company considers reasonable, or that
litigation will not ensue.
Management is not aware of any pending disputes that would be likely to have
a material adverse effect on the Company's business, results of operations or
financial condition.
NOTE 13. INDUSTRY AND GEOGRAPHIC SEGMENT INFORMATION
The Company operates in one industry segment. The Company's revenue by
geographic area is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
United States.................................................. $ 6,123 $ 5,066 $ 5,621
Export:
Japan........................................................ 22,620 35,241 50,939
Europe....................................................... 6,300 -- 250
Rest of World................................................ 2,000 -- --
--------- --------- ---------
Total revenue.............................................. $ 37,043 $ 40,307 $ 56,810
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 14. SUBSEQUENT EVENT (UNAUDITED)
On March 1, 1999, the Company filed a definitive proxy statement with the
U.S. Securities and Exchange Commission relating to a special meeting of its
stockholders called for the purpose of approving a proposal to recapitalize the
authorized capital stock of the Company, including (i) the approval and adoption
of an amended and restated certificate of incorporation and by-laws of the
Company pursuant to which each issued and outstanding share of the Company's
common stock, par value $0.001 per share, will be redesignated as one share of
newly created and issued Class A common stock, par value $0.001 per share, of
the Company and (ii) the exchange by Silicon Graphics, Inc. of each share of
Class A Common Stock it will own for one share of newly created and issued Class
B common stock, par value $0.001 per share, of the Company. The recapitalization
was designed to permit an orderly, multi-step increase in the number of shares
of MIPS Technologies common stock that are publicly traded while preserving
Silicon Graphics' ability to divest of its interest in MIPS Technologies in a
transaction intended to qualify generally as a tax-free distribution under the
Internal Revenue Code.
F-21
<PAGE>
UNDERWRITING
Silicon Graphics and the underwriters for the offering (the "Underwriters")
named below have entered into an underwriting agreement with respect to the
shares being offered. Subject to certain conditions, each Underwriter has
severally agreed to purchase the number of shares indicated in the following
table. Goldman, Sachs & Co., Credit Suisse First Boston Corporation and
BancBoston Robertson Stephens Inc. are the representatives of the Underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
- --------------------------------------------------------- -----------------
<S> <C>
Goldman, Sachs & Co......................................
Credit Suisse First Boston Corporation...................
BancBoston Robertson Stephens Inc........................
-----------------
Total.................................................. 6,000,000
-----------------
-----------------
</TABLE>
--------------
If the Underwriters sell more shares than the total number set forth in the
table above, the Underwriters have an option to buy up to an additional 900,000
shares from Silicon Graphics to cover such sales. They may exercise that option
for 30 days. If any shares are purchased pursuant to this option, the
Underwriters will severally purchase shares in approximately the same proportion
as set forth in the table above.
The following tables show the per share and total underwriting discounts and
commissions to be paid to the Underwriters by Silicon Graphics. Such amounts are
shown assuming both no exercise and full exercise of the Underwriters' option to
purchase 900,000 additional shares.
<TABLE>
<CAPTION>
Paid by Silicon Graphics
- -----------------------------------------------------------------------------
No Exercise Full Exercise
---------------- ----------------
<S> <C> <C>
Per Share............................... $ $
Total................................... $ $
</TABLE>
Shares sold by the Underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the Underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the Underwriters to
certain other brokers or dealers at a discount of up to $ per share from
the initial public offering price. If all the shares are not sold at the initial
offering price, the representatives may change the offering price and the other
selling terms.
We and Silicon Graphics have agreed with the Underwriters not to dispose of
or hedge any of their Class A or Class B Common Stock or securities convertible
into or exchangeable for shares of Class A or Class B Common Stock during the
period from the date of this prospectus continuing through the date 180 days
after the date of this prospectus, except with the prior written consent of the
representatives. This agreement does not apply to existing employee benefit
plans or to a distribution by Silicon Graphics of all of the Class B Common
Stock that it owns if, in order to avoid the application of certain recently
proposed tax legislation, such a distribution must be made prior to the date
that is 180 days after completion of this offering in order for Silicon Graphics
to effect a Tax-Free Distribution.
In addition, our directors and certain of our officers have agreed with the
Underwriters not to dispose of or hedge any of their Class A Common Stock or
securities convertible into or
U-1
<PAGE>
exchangeable for shares of Class A Common Stock during the period from the date
of this prospectus continuing through the date that is two trading days after
the date of our public announcement of our 1999 fourth quarter operating results
(the date of such announcement is currently expected to be July 20, 1999). As of
February 26, 1999, such directors and officers owned 11,054 shares of MIPS
Technologies common stock that may be sold, and held options to purchase
approximately 465,000 shares of common stock that will be exercisable, on July
23, 1999 or within 30 days thereafter.
In connection with this offering, the Underwriters may purchase and sell
shares of Class A Common Stock in the open market. These transactions may
include short sales, stabilizing transactions and purchases to cover positions
created by short sales. Short sales involve the sale by the Underwriters of a
greater number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the Class A
Common Stock while the offering is in progress.
The Underwriters also may impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such Underwriter in stabilizing or short covering
transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the Class A Common Stock. As a result, the price of
the Class A Common Stock may be higher than the price that otherwise might exist
in the open market. If these activities are commenced, they may be discontinued
by the Underwriters at any time. These transactions may be effected on the
Nasdaq Stock Market, in the over-the-counter market or otherwise.
Silicon Graphics will pay all expenses incurred by us in connection with the
offering. The total expenses of the offering, excluding underwriting discounts
and commissions, are estimated to be $ .
We and Silicon Graphics have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act of
1933.
In connection with this offering, certain Underwriters and selling group
members (if any) who are qualified market makers on The Nasdaq National Market
may engage in passive market making transactions in the common stock on The
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Securities Exchange Act of 1934, as amended, during the business day prior to
the pricing of the offering before the commencement of offers or sales of the
common stock. Passive market makers must comply with applicable volume and price
limitations and must be identified as such. In general, a passive market maker
must display its bid at a price not in excess of the highest independent bid of
such security; if all independent bids are lowered below the passive market
makers' bid, however, such bid must then be lowered when certain purchase limits
are exceeded.
U-2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 6
Use of Proceeds................................ 18
Price Range of Common Stock.................... 19
Dividend Policy................................ 19
Corporate Information.......................... 19
The Recapitalization........................... 20
Capitalization................................. 23
Selected Consolidated Financial Data........... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 25
Business....................................... 36
Management..................................... 48
Arrangements Between MIPS Technologies and
Silicon Graphics.............................. 55
Principal and Selling Stockholder.............. 62
Description of Capital Stock................... 64
Shares Available for Future Sale............... 73
Certain United States Federal Tax
Considerations for Non-United States
Holders....................................... 74
Legal Matters.................................. 78
Experts........................................ 78
Where You Can Find Additional Information...... 78
Index to Financial Statements.................. F-1
Underwriting................................... U-1
</TABLE>
6,000,000 Shares
[LOGO]
Class A Common Stock
-------------
PROSPECTUS
-------------
GOLDMAN, SACHS & CO.
CREDIT SUISSE FIRST BOSTON
BANCBOSTON ROBERTSON STEPHENS
Representatives of the Underwriters
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Company in connection with the sale of
the Common Stock being registered. which will be paid by Silicon Graphics, Inc.
All of the amounts shown are estimates except for the SEC registration fee, the
NASD filing fee and the Nasdaq National Market Application Fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................. $ 81,284
NASD Filing Fee.................................................. 29,739
Blue Sky Qualification Fees and Expenses......................... 5,000
Printing and Engraving Expenses.................................. 130,000
Legal Fees and Expenses.......................................... 450,000
Accounting Fees and Expenses..................................... 275,000
Miscellaneous.................................................... 16,000
---------
Total.......................................................... $ 987,023
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") empowers a
Delaware corporation to indemnify any persons who are, or are threatened to be
made, parties to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation), by reason of the fact that
such person is or was an officer or director of such corporation or is or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided that such officer or director acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and, in the case of criminal proceedings, had
no reasonable cause to believe his or her conduct was illegal. A Delaware
corporation may indemnify officers and directors against expenses (including
attorneys' fees) in connection with the defense or settlement of an action by or
in the right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him or her against expenses
which such officer or director actually and reasonably incurred. The Amended and
Restated Certificate of Incorporation of the Registrant provides for
indemnification of the officers and directors of the Registrant to the full
extent permitted by applicable law.
In accordance with Delaware law, the Amended and Restated Certificate of
Incorporation of the Registrant contains a provision to limit the personal
liability of directors of the Registrant for violations of their fiduciary duty.
This provision eliminates each director's liability to the Registrant or its
stockholders for monetary damages except (i) for any breach of the director's
duty of loyalty to the Registrant or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, providing for liability
of directors for unlawful payment of dividends or unlawful stock purchases or
redemptions or (iv) for any transaction from which a director derived an
improper personal benefit. The effect of this provision is to eliminate the
personal liability of directors for monetary damages for actions involving a
breach of their fiduciary duty of care, including any such actions involving
gross negligence. In addition, the Registrant has agreed by
II-1
<PAGE>
contract to indemnify the directors and certain officers of the Registrant for
certain liabilities incurred by such person by reason of the fact that such is a
director or officer, provided such person was acting in good faith.
Pursuant to the underwriting agreement between the Registrant, Silicon
Graphics and the underwriters filed as an exhibit to this Registration
Statement, the underwriters a party thereto have agreed to indemnify each
officer and director of the Registrant and Silicon Graphics, Inc. and each
person, if any, who controls the Company and Silicon Graphics, Inc. within the
meaning of the Securities Act of 1933, as amended (the "Securities Act"),
against certain liabilities, including liabilities under said Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Within the past three years, the Registrant has not issued or sold any
unregistered securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement*
3.1 Form of Amended and Restated Certificate of Incorporation of the Registrant
3.2 Form of Amended and Restated By-Laws of the Registrant
4.1 Form of Class A Common Stock Certificate**
5.1 Opinion of Shearman & Sterling**
10.1 Separation Agreement**
10.2 Corporate Agreement**
10.3 Management Services Agreement**
10.4 Tax Sharing Agreement**
10.5 Technology Agreement**
10.6 Trademark Agreement**
10.7 Form of Exchange Agreement
10.8.1 Joint Development and License Agreement between Nintendo Co., Ltd. and Nintendo of
America Inc. on the one hand and Silicon Graphics, Inc. and MIPS Technologies,
Inc. on the other hand (the "Joint Development and License Agreement")+
10.8.2 First Addendum to the Joint Development and License Agreement+
10.8.3 Second Addendum to the Joint Development and License Agreement+
10.8.4 Fourth Addendum to the Joint Development and License Agreement+
10.9 MIPS Technologies, Inc. 1998 Long-Term Incentive Plan**
10.10 Employee Stock Purchase Plan**
10.11 Non-US Employee Stock Option Plan
10.12 Directors' Stock Option Plan
10.13 Form of Change in Control Agreement*
10.14 Form of Indemnification Agreement
21.1 Subsidiaries of the Registrant**
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Shearman & Sterling (included in Exhibit 5.1)**
24.1 Power of Attorney**
</TABLE>
- --------------
* To be filed by amendment.
** Previously filed
+ Portions of this Exhibit have been omitted pursuant to an order granting
confidential treatment issued by the Securities and Exchange Commission on
June 29, 1998.
II-2
<PAGE>
(b) Financial Statement Schedules
Schedules have been omitted because the information required to be set forth
therein is not applicable or is shown in the Consolidated Financial Statements
or the Notes thereto.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective;
and
(ii) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall
be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Mountain View, State of California, on the 11th day
of March, 1999.
<TABLE>
<S> <C> <C>
MIPS TECHNOLOGIES, INC.
By: /s/ JOHN E. BOURGOIN
--------------------------------------
Name: John E. Bourgoin
Title: CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ JOHN E. BOURGOIN Chief Executive Officer
- ------------------------------ and Director (Principal March 11, 1999
John E. Bourgoin Executive Officer)
/s/ KEVIN C. EICHLER
- ------------------------------ Principal Financial and March 11, 1999
Kevin C. Eichler Accounting Officer
*
- ------------------------------ Director March 11, 1999
Forest Baskett
*
- ------------------------------ Director March 11, 1999
Kenneth Coleman
*
- ------------------------------ Director March 11, 1999
Fred M. Gibbons
*
- ------------------------------ Director March 11, 1999
Anthony B. Holbrook
*
- ------------------------------ Director March 11, 1999
William M. Kelly
*
- ------------------------------ Director March 11, 1999
Teruyasu Sekimoto
</TABLE>
<TABLE>
<S> <C> <C> <C>
By: /s/ SANDY CREIGHTON
------------------------- Attorney-in-Fact
Sandy Creighton
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
<S> <C>
1.1 Form of Underwriting Agreement*
3.1 Form of Amended and Restated Certificate of Incorporation of the Registrant
3.2 Form of Amended and Restated By-Laws of the Registrant
4.1 Form of Class A Common Stock Certificate**
5.1 Opinion of Shearman & Sterling**
10.1 Separation Agreement**
10.2 Corporate Agreement**
10.3 Management Services Agreement**
10.4 Tax Sharing Agreement**
10.5 Technology Agreement**
10.6 Trademark Agreement**
10.7 Form of Exchange Agreement
10.8.1 Joint Development and License Agreement between Nintendo Co., Ltd. and Nintendo of America Inc. on the
one hand and Silicon Graphics, Inc. and MIPS Technologies, Inc. on the other hand (the "Joint
Development and License Agreement")+
10.8.2 First Addendum to the Joint Development and License Agreement+
10.8.3 Second Addendum to the Joint Development and License Agreement+
10.8.4 Fourth Addendum to the Joint Development and License Agreement+
10.9 MIPS Technologies, Inc. 1998 Long-Term Incentive Plan**
10.10 Employee Stock Purchase Plan**
10.11 Non-US Employee Stock Purchase Plan
10.12 Directors' Stock Option Plan
10.13 Form of Change in Control Agreement*
10.14 Form of Indemnification Agreement
21.1 Subsidiaries of the Registrant**
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Shearman & Sterling (included in Exhibit 5.1)**
24.1 Power of Attorney**
</TABLE>
- --------------
* To be filed by amendment.
** Previously filed.
+ Portions of this Exhibit have been omitted pursuant to an order granting
confidential treatment issued by the Securities and Exchange Commission on
June 29, 1998.
<PAGE>
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
1
<PAGE>
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
2
<PAGE>
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
3
<PAGE>
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
4
<PAGE>
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. Approval of such conversion. 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.
5
<PAGE>
(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 (Wilmington, Delaware time), , 1999.
IN WITNESS WHEREOF, MIPS TECHNOLOGIES, INC. has caused this certificate to
be signed by John E. Bourgoin, its President and Chief Executive Officer, and
attested by Kevin C. Eichler, its Vice President and Chief Financial Officer, on
this day of , 1999.
<TABLE>
<S> <C> <C>
MIPS TECHNOLOGIES, INC.
By:
-----------------------------------------
Name: John E. Bourgoin
Title: President and Chief Executive
Officer
ATTEST:
- ------------------------------
Name: Kevin C. Eichler
Title: Vice President and
Chief Financial Officer
</TABLE>
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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
9
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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
10
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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
11
<PAGE>
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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EXCHANGE AGREEMENT
BETWEEN
SILICON GRAPHICS, INC.
AND
MIPS TECHNOLOGIES, INC.
DATED AS OF , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
ARTICLE I
THE EXCHANGE
1.01. The Exchange....................................................................................... 1
1.02. Closing Date....................................................................................... 1
1.03. Exchange of Certificates........................................................................... 2
ARTICLE II
PURCHASE OBLIGATION
2.01. Required Purchase Amount........................................................................... 2
2.02. Common Stock to be Purchased....................................................................... 2
2.03. Purchase Price for Shares of Class B Common Stock.................................................. 3
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.01. Organization and Qualification..................................................................... 3
3.02. Certificate of Incorporation and By-Laws........................................................... 4
3.03. Capitalization..................................................................................... 4
3.04. Authority Relative to This Agreement............................................................... 4
3.05. No Conflict; Required Filings and Consents......................................................... 5
3.06. Brokers............................................................................................ 5
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SILICON GRAPHICS
4.01. Organization and Qualification; Subsidiaries....................................................... 5
4.02. Certificate of Incorporation and By-Laws........................................................... 6
4.03. Authority Relative to This Agreement............................................................... 6
4.04. No Conflict; Required Filings and Consents......................................................... 6
4.05. Ability to Consummate the Distribution............................................................. 6
4.06. Brokers............................................................................................ 6
ARTICLE V
ADDITIONAL AGREEMENTS
5.01. Ability to Consummate the Distribution............................................................. 7
5.02. Indemnification by Silicon Graphics................................................................ 7
5.03. Transfer Restrictions.............................................................................. 8
5.04. Distribution Tax Indemnification Agreement......................................................... 8
5.05. Exchange of Shares upon Change in Tax Law.......................................................... 8
5.06. Ruling Request..................................................................................... 8
ARTICLE VI
CONDITIONS TO THE EFFECTIVENESS OF THE AGREEMENT
6.01. Conditions to the Obligations of Each Party........................................................ 9
6.02. Conditions to the Obligations of Silicon Graphics.................................................. 9
6.03. Conditions to the Obligations of the Company....................................................... 9
</TABLE>
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<TABLE>
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PAGE
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<C> <S> <C>
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.01. Termination........................................................................................ 10
7.02. Effect of Termination.............................................................................. 10
7.03. Amendment.......................................................................................... 10
7.04. Waiver............................................................................................. 10
7.05. Expenses........................................................................................... 10
ARTICLE VIII
GENERAL PROVISIONS
8.01. Notices............................................................................................ 11
8.02. Certain Definitions................................................................................ 11
8.03. Severability....................................................................................... 11
8.04. Assignment; Binding Effect; Benefit................................................................ 11
8.05. Specific Performance............................................................................... 12
8.06. Governing Law...................................................................................... 12
8.07. Headings........................................................................................... 12
8.08. Counterparts....................................................................................... 12
8.09. Entire Agreement................................................................................... 12
</TABLE>
<TABLE>
<C> <S> <C>
ANNEX A Certain Terms and Provisions of Tax Indemnification Agreement
</TABLE>
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EXCHANGE AGREEMENT dated and effective as of the Closing Date (this
"AGREEMENT") between SILICON GRAPHICS, INC., a Delaware corporation ("SILICON
GRAPHICS"), and MIPS TECHNOLOGIES, INC., a Delaware corporation (the "COMPANY").
W I T N E S S E T H
WHEREAS, on the date hereof, the authorized capital stock of the Company
consists of 200,000,000 shares, of which 150,000,000 shares are common stock,
par value $0.001 per share (the "EXISTING COMMON STOCK"), and 50,000,000 shares
are preferred stock, par value $0.001 per share (the "PREFERRED STOCK");
WHEREAS, pursuant to an amended and restated certificate of incorporation of
the Company (the "AMENDED AND RESTATED CERTIFICATE OF INCORPORATION"), the
Company intends to effect a recapitalization (the "RECAPITALIZATION") pursuant
to which (i) the authorized capital stock of the Company will increase to
300,000,000 shares, of which 150,000,000 shares will be shares of Class A Common
Stock, par value $0.001 per share (the "CLASS A COMMON STOCK"), 100,000,000
shares will be shares of Class B Common Stock, par value $0.001 per share (the
"CLASS B COMMON STOCK" and, together with the Class A Common Stock, the "COMMON
STOCK"), and 50,000,000 shares will be shares of Preferred Stock, and (ii) each
issued and outstanding share of Existing Common Stock will be changed into and
reclassified as one share of Class A Common Stock.
WHEREAS, immediately following the Recapitalization, Silicon Graphics will
be the beneficial owner of 31,750,000 shares of Class A Common Stock;
WHEREAS, upon the terms and subject to the conditions contained in this
Agreement, Silicon Graphics has agreed to exchange all of the issued and
outstanding shares of Class A Common Stock it will beneficially own immediately
following the Recapitalization for an equal number of shares of Class B Common
Stock (the "EXCHANGE");
WHEREAS, Silicon Graphics has indicated its present intention to divest of
its interest in the Company in one or more public and/or private offerings
followed by a distribution (the "DISTRIBUTION") generally intended to qualify
under Section 355 of the United States Internal Revenue Code of 1986, as amended
(the "CODE"); and
WHEREAS, in the event that the Distribution has not occurred prior to
December 31, 2000, Silicon Graphics shall become obligated to purchase a
specified number of shares of Common Stock on a quarterly basis, upon the terms
and subject to the conditions of this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Silicon Graphics and the Company hereby agree as follows:
ARTICLE I
THE EXCHANGE
SECTION 1.01. THE EXCHANGE. Upon the terms and subject to the conditions
set forth in Article VI, on the Closing Date (as defined below), each share of
Class A Common Stock beneficially owned by Silicon Graphics immediately
following the Recapitalization shall, in accordance with Section 1.03 herein, be
exchanged by Silicon Graphics for one share of Class B Common Stock, with each
such share of Class B Common Stock having the relative powers, preferences,
rights, qualifications, limitations and restrictions attaching to the Class B
Common Stock as specified in the Amended and Restated Certificate of
Incorporation.
SECTION 1.02. CLOSING DATE. The term "CLOSING DATE" means the date when
the Amended and Restated Certificate of Incorporation becomes effective under
the General Corporation Law of the State
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of Delaware. On the Closing Date, a closing will be held at the offices of
Shearman & Sterling, 555 California Street, 20(th) Floor, San Francisco, CA
94104 (or such other place as the parties may agree).
SECTION 1.03. EXCHANGE OF CERTIFICATES. On or prior to the Closing Date,
Silicon Graphics shall deposit, or shall cause to be deposited, with the Company
the certificate or certificates representing the shares of Class A Common Stock
beneficially owned by Silicon Graphics as of the Closing Date. On the Closing
Date, the Company shall issue to Silicon Graphics a new certificate or
certificates representing an aggregate number of shares of Class B Common Stock
equal to the aggregate number of shares of Class A Common Stock beneficially
owned by Silicon Graphics as of the Closing Date.
ARTICLE II
PURCHASE OBLIGATION
SECTION 2.01. REQUIRED PURCHASE AMOUNT. (a) Subject to terms and
conditions of this Agreement, if Silicon Graphics shall not have disposed of its
entire interest in the Company (whether through a Distribution or otherwise)
prior to December 31, 2000, Silicon Graphics shall, on the last day of each
fiscal quarter of the Company beginning on December 31, 2000 (the last day of
each such quarter being a "QUARTER END DATE"), and ending on the last day of the
fiscal quarter immediately preceding any such disposition (the "Required
Purchase Termination Date") accrue an obligation to purchase, with respect to
such Quarter End Date, the number of shares of Common Stock set forth below (the
total number of shares of Common Stock with respect to any Quarter End Date, as
reduced in accordance with Section 2.01(b) below, being a "REQUIRED PURCHASE
AMOUNT"):
<TABLE>
<CAPTION>
QUARTER END DATE REQUIRED PURCHASE AMOUNT
- --------------------------------------------------------------------------------------- -------------------------
<S> <C>
December 31, 2000...................................................................... 1,800,000
March 31, 2001......................................................................... 1,700,000
June 30, 2001.......................................................................... 1,800,000
September 30, 2001..................................................................... 1,700,000
December 31, 2001...................................................................... 1,800,000
March 31, 2002......................................................................... 1,700,000
June 30, 2002.......................................................................... 1,700,000
September 30, 2002..................................................................... 2,000,000
December 31, 2002 and each Quarter End Date thereafter until the Required Purchase
Termination Date..................................................................... 2,000,000
</TABLE>
(b) If, prior to the Purchase Date (as defined in Section 2.02) for any
Required Purchase Amount, the Company notifies Silicon Graphics in writing (such
writing hereinafter referred to as a "PURCHASE WAIVER") that the independent
directors and the Chief Executive Officer of the Company have unanimously
determined that the purchase of shares of Common Stock equal to such Required
Purchase Amount is not in the interests of the Company and its stockholders
(other than Silicon Graphics and its affiliates), then the Required Purchase
Amount with respect to the related Quarter End Date shall be reduced by the
number of shares of Common Stock set forth in such Purchase Waiver.
(c) Notwithstanding anything to the contrary in this Agreement, Silicon
Graphics' obligation under this Section 2.01 to purchase shares of Common Stock
equal to the Required Purchase Amount shall terminate on the Quarter End Date
immediately preceding the day on which each of Silicon Graphics and each of its
subsidiaries (other than the Company) completes the exchange of all of its
shares of Class B Common Stock for shares of Class A Common Stock pursuant to an
exchange of such shares by the Company under Section 5.05 of this Agreement.
SECTION 2.02. COMMON STOCK TO BE PURCHASED. (a) At its sole option,
Silicon Graphics may satisfy its obligation to purchase shares of Common Stock
equal to any Required Purchase Amount by purchasing (i) newly issued shares of
Class B Common Stock from the Company, (ii) issued and outstanding shares of
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Class A Common Stock in the public market or otherwise from a third party or
(iii) any combination of Class B Common Stock and Class A Common Stock pursuant
to (i) and (ii) above, in each case on or prior to the applicable Purchase Date.
If Silicon Graphics elects to purchase shares of Class B Common Stock from the
Company in full or partial satisfaction of its obligation to purchase shares of
Common Stock equal to the Required Purchase Amount, Silicon Graphics shall,
prior to the relevant Purchase Date for such Required Purchase Amount, deliver
to the Company a written notice (a "PURCHASE NOTICE") to such effect specifying
(A) the number of shares of Class B Common Stock to be purchased by Silicon
Graphics from the Company and (B) a calculation of the purchase price for such
shares as determined pursuant to the terms of Section 2.03 of this Agreement. As
soon as practicable following receipt by the Company of a Purchase Notice, the
Company will deliver to Silicon Graphics, against payment therefor, certificates
(issued in the name of Silicon Graphics) representing the shares of Class B
Common Stock being purchased pursuant to such Purchase Notice. Payment for such
shares of Class B Common Stock shall be made by wire transfer of immediately
available funds to such account as shall be specified by the Company for the
full purchase price of such shares. The parties hereto intend that each share of
Common Stock purchased by Silicon Graphics pursuant to this Section 2.02 shall
be a "Registrable Security" as defined in the Corporate Agreement, dated as of
July 6, 1998, between the Company and Silicon Graphics (the "CORPORATE
AGREEMENT"), and the parties hereby agree to amend the Corporate Agreement to
effect the foregoing.
(b) The following shall apply in determining whether Silicon Graphics has
satisfied its obligation to purchase shares of Common Stock equal to the
Required Purchase Amount with respect to any Quarter End Date: (i) each share of
Class A Common Stock purchased by Silicon Graphics in the public market or
otherwise from a third party on or prior to the applicable Purchase Date shall
be counted as four (4) shares of Common Stock purchased in satisfaction of the
Required Purchase Amount and (ii) each share of Class B Common Stock purchased
by Silicon Graphics from the Company on or prior to the applicable Purchase Date
shall be counted as one (1) share of Common Stock purchased in satisfaction of
the Required Purchase Amounts. Shares of Class A Common Stock purchased by
Silicon Graphics in the public market or otherwise from a third party, and
shares of Class B Common Stock purchased by Silicon Graphics from the Company,
shall only be applied in satisfaction of a Required Purchase Amount one time.
(c) With respect to each Quarter End Date, Silicon Graphics shall make such
purchase or purchases of shares of Common Stock equal to the Required Purchase
Amount prior to the date (the "PURCHASE DATE") which is thirty (30) days
following the public announcement by the Company of its financial results for
the fiscal quarter ending on such Quarter End Date.
SECTION 2.03. PURCHASE PRICE FOR SHARES OF CLASS B COMMON STOCK. The
purchase price per share for any newly issued shares of Class B Common Stock
purchased by Silicon Graphics from the Company in satisfaction of Silicon
Graphics' obligation to purchase a Required Purchase Amount shall be the average
of the closing prices per share of the Class A Common Stock on the Nasdaq
National Market (or, if the Class A Common Stock is no longer traded on the
Nasdaq National Market, on such other market or exchange as the Class A Common
Stock is then listed or quoted) for the last ten (10) trading days of the
quarter immediately preceding the applicable Purchase Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Silicon Graphics that as of
the Closing Date:
SECTION 3.01. ORGANIZATION AND QUALIFICATION. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of
Delaware and has all requisite corporate power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted, except where the failure to be so
organized, existing or in good
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standing or to have such corporate power, authority and governmental approvals
have not had, and could not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect (as defined below). The Company
is duly qualified or licensed as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or licensed
and in good standing that have not had, and could not reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect. The
term "COMPANY MATERIAL ADVERSE EFFECT" means any change in or effect on the
business of the Company that is materially adverse to the financial condition or
results of operations of the Company.
SECTION 3.02. CERTIFICATE OF INCORPORATION AND BY-LAWS. The Company has
heretofore made available to Silicon Graphics a complete and correct copy of the
Amended and Restated Certificate of Incorporation and the Amended and Restated
By-Laws of the Company. Upon filing and effectiveness of the Amended and
Restated Certificate of Incorporation, the Company will not be in violation of
any of the provisions of the Amended and Restated Certificate of Incorporation
or the Amended and Restated By-Laws.
SECTION 3.03. CAPITALIZATION. Effective as of the Closing Date, the
authorized capital stock of the Company will consist of (a) 250,000,000 shares
of Common Stock, of which 150,000,000 shares will be designated as Class A
Common Stock and 100,000,000 shares will be designated as Class B Common Stock
and (b) 50,000,000 shares of Preferred Stock. As of the Closing Date (after
giving effect to the Recapitalization but prior to giving effect to the Exchange
contemplated hereby), (i) 37,292,286 shares of Class A Common Stock will be
issued and outstanding, all of which will be validly issued, fully paid and
nonassessable, (ii) no shares of Class B Common Stock will be issued and
outstanding, (iii) no shares of Common Stock will be held in the treasury of the
Company, (iv) no shares of the Preferred Stock will be issued and outstanding
and (v) 7,200,000 shares are reserved for future issuance pursuant to the 1998
Long-Term Incentive Plan and the Directors' Stock Option Plan (the "COMPANY
STOCK OPTION PLANS"). Other than pursuant to the Company Stock Option Plans, the
Employee Stock Purchase Plan, the Non-U.S. Stock Purchase Plan and the Corporate
Agreement, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of the Company or obligating the Company to issue or sell any
shares of capital stock of, or other equity interests in, the Company. All
shares of Common Stock subject to issuance as aforesaid, upon issuance on the
terms and conditions specified in the instruments pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid and nonassessable.
There are no outstanding contractual obligations of the Company to repurchase,
redeem or otherwise acquire any shares of Common Stock.
SECTION 3.04. AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and, subject to the filing of the Amended and Restated Certificate of
Incorporation of the Company with the Secretary of State of the State of
Delaware, to perform its obligations hereunder and to consummate the
transactions contemplated by this Agreement. The Recapitalization has been
approved and adopted by (i) the affirmative vote of the holders of a majority of
the issued and outstanding shares of Existing Common Stock and (ii) the
affirmative vote of the holders of a majority of the issued and outstanding
shares of Existing Common Stock (excluding Silicon Graphics and its affiliates
as a stockholder for the purposes of this clause (ii)) and in accordance with
the Company's Restated Certificate of Incorporation. The execution and delivery
of this Agreement by the Company and the consummation by the Company of the
Recapitalization and the transactions contemplated by this Agreement have been
duly and validly authorized by all necessary corporate action and, except for
the filing of the Amended and Restated Certificate of Incorporation of the
Company with the Secretary of State of the State of Delaware, no other corporate
proceedings on the part of the Company are necessary to authorize the
Recapitalization, this Agreement or to consummate the transactions contemplated
by this Agreement. This Agreement has been duly and validly executed and
delivered
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by the Company and, assuming the due authorization, execution and delivery by
Silicon Graphics, constitutes a legal, valid and binding obligation of the
Company.
SECTION 3.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) The
execution and delivery of this Agreement by the Company do not, and the
performance of this Agreement by the Company will not, (i) conflict with or
violate the Amended and Restated Certificate of Incorporation or the Amended and
Restated By-laws of the Company, (ii) conflict with or violate any foreign or
domestic law, statute, ordinance, rule, regulation, order, judgment or decree
("LAW") applicable to the Company or by which any property or asset of the
Company is bound or affected, or (iii) result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of the Company pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation, except, with respect to clause (iii), for any
such conflicts, violations, breaches, defaults or other occurrences that have
not had, and could not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect, and that could not reasonably be
expected to prevent or materially delay the consummation of the transactions
contemplated by this Agreement.
(b) The execution and delivery of this Agreement by the Company do not, and
the performance of this Agreement by the Company will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
domestic or foreign governmental or regulatory authority ("GOVERNMENTAL
ENTITY"), except (i) for applicable requirements, if any, of the Securities
Exchange Act of 1934, as amended (together with the rules and regulations
promulgated thereunder, the "EXCHANGE ACT"), state securities or "blue sky" laws
("BLUE SKY LAWS") and The Nasdaq Stock Market, Inc. and (ii) where failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, has not had, and could not reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect, and
could not reasonably be expected to prevent or materially delay the consummation
of the transactions contemplated by this Agreement.
SECTION 3.06. BROKERS. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
Recapitalization or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SILICON GRAPHICS
Silicon Graphics hereby represents and warrants to the Company that as of
the Closing Date:
SECTION 4.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of
Silicon Graphics and each subsidiary of Silicon Graphics other than the Company
(the "SILICON GRAPHICS SUBSIDIARIES") is a corporation duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all corporate requisite power and authority and all
necessary governmental approvals to own, lease and operate its properties and to
carry on its business as it is now being conducted, except where the failure to
be so organized, existing or in good standing or to have such corporate power,
authority and governmental approvals have not had, and could not reasonably be
expected to have, individually or in the aggregate, a Silicon Graphics Material
Adverse Effect (as defined below). Each of Silicon Graphics and the Silicon
Graphics Subsidiaries is duly qualified or licensed as a foreign corporation to
do business, and is in good standing, in each jurisdiction where the character
of the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures to be
so qualified or licensed and in good standing that have not had, and could not
reasonably be expected to have, individually or in the aggregate, a Silicon
Graphics Material Adverse Effect. The term "SILICON GRAPHICS MATERIAL ADVERSE
EFFECT" means any change in or effect on the business
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of Silicon Graphics or the Silicon Graphics Subsidiaries that is materially
adverse to the financial condition or results of operations of Silicon Graphics
and the Silicon Graphics Subsidiaries taken as a whole.
SECTION 4.02. CERTIFICATE OF INCORPORATION AND BY-LAWS. Silicon Graphics
has heretofore made available to the Company a complete and correct copy of the
Certificate of Incorporation and the By-Laws of Silicon Graphics. Such
Certificate of Incorporation and By-Laws are in full force and effect. Silicon
Graphics is not in violation of any of the provisions of its Certificate of
Incorporation or By-Laws.
SECTION 4.03. AUTHORITY RELATIVE TO THIS AGREEMENT. Silicon Graphics has
all necessary corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by Silicon Graphics and the consummation by Silicon Graphics of the
transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate action and no other corporate proceedings
on the part of Silicon Graphics are necessary to authorize this Agreement or to
consummate the transactions contemplated by this Agreement. This Agreement has
been duly and validly executed and delivered by Silicon Graphics and, assuming
the due authorization, execution and delivery by the Company, constitutes a
legal, valid and binding obligation of Silicon Graphics.
SECTION 4.04. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) The
execution and delivery of this Agreement by Silicon Graphics do not, and the
performance of this Agreement by Silicon Graphics will not, (i) conflict with or
violate the certificate of incorporation or by-laws of Silicon Graphics or any
other Silicon Graphics Subsidiary, (ii) conflict with or violate any Law
applicable to Silicon Graphics or any Silicon Graphics Subsidiary or by which
any property or asset of Silicon Graphics or any Silicon Graphics Subsidiary is
bound or affected, or (iii) result in any breach of or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or other encumbrance on any
property or asset of Silicon Graphics or any Silicon Graphics Subsidiary
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation, except, with
respect to clause (iii), for any such conflicts, violations, breaches, defaults,
or other occurrences that have not had, and could not reasonably be expected to
have, individually or in the aggregate, a Silicon Graphics Material Adverse
Effect, and that could not reasonably be expected to prevent or materially delay
the consummation of the transactions contemplated by this Agreement.
(b) The execution and delivery of this Agreement by Silicon Graphics do not,
and the performance of this Agreement by Silicon Graphics will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Entity, except (i) for applicable requirements, if any, of
the Exchange Act and Blue Sky Laws, and (ii) where failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, has not had, and could not reasonably be expected to have,
individually or in the aggregate, a Silicon Graphics Material Adverse Effect,
and could not reasonably be expected to prevent or materially delay the
consummation of the transactions contemplated by this Agreement
SECTION 4.05. ABILITY TO CONSUMMATE THE DISTRIBUTION. As of the date of
this Agreement, Silicon Graphics is not aware of any legal or contractual
restriction affecting it or any of its assets or properties that could
reasonably be expected to prevent or materially delay the consummation of the
Distribution.
SECTION 4.06. BROKERS. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
Recapitalization or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Silicon Graphics.
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ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. ABILITY TO CONSUMMATE THE DISTRIBUTION. Silicon Graphics
shall use its reasonable efforts to avoid becoming voluntarily or involuntarily
subject to any legal or contractual restriction that could reasonably be
expected to prevent the consummation of the Distribution; PROVIDED, HOWEVER,
that Silicon Graphics shall be permitted to enter into commercially reasonable
agreements in the ordinary course of business and consistent with past practice
which may contain provisions restricting Silicon Graphics' ability to consummate
the Distribution, including, but not limited to, provisions that restrict the
ability of Silicon Graphics to declare, set aside or pay any dividend or other
distribution in respect of its capital stock.
SECTION 5.02. INDEMNIFICATION BY SILICON GRAPHICS. (a) Silicon Graphics
shall indemnify and hold harmless the Company, its affiliates and their
successors and assigns, and the officers, directors, employees and agents of the
Company, its affiliates and their successors and assigns (each an "INDEMNIFIED
PARTY") from and against any and all liabilities, losses, damages, claims, costs
and expenses, interest, awards, judgments and penalties (including, without
limitation, attorneys' and consultants' fees and expenses) actually suffered or
incurred by them (including, without limitation, any action brought or otherwise
initiated by any of them) (hereinafter a "LOSS") by reason of or in connection
with any claim or cause of action of any third party (a "THIRD PARTY CLAIM"), to
the extent, but only to the extent, such Third Party Claim arises out of the
Recapitalization or a distribution; PROVIDED, HOWEVER, that any such Third Party
Claim shall have been brought prior to the expiration of the applicable statute
of limitations period governing such claim.
(b) Notwithstanding anything to the contrary in Section 5.02(a), Silicon
Graphics shall not be obligated under Section 5.02(a) to indemnify and hold
harmless any Indemnified Party for any Losses suffered or incurred by an
Indemnified Party by reason of or in connection with any secondary sales by
Silicon Graphics of Common Stock (other than in connection with a Distribution)
following the Recapitalization.
(c) If an Indemnified Party shall receive notice of any Third Party Claim,
the Indemnified Party shall give Silicon Graphics notice of such Third Party
Claim within 30 days of the receipt by the Indemnified Party of such notice;
PROVIDED, HOWEVER, that the failure to provide such notice shall not release
Silicon Graphics from any of its obligations under this Section 5.02 except to
the extent Silicon Graphics is materially prejudiced by such failure and shall
not relieve Silicon Graphics from any other obligation or liability that it may
have to any Indemnified Party otherwise than under this Section 5.02. If Silicon
Graphics acknowledges in writing its obligation to indemnify the Indemnified
Party hereunder against any Losses that may result from such Third Party Claim,
then Silicon Graphics shall be entitled to assume and control the defense of
such Third Party Claim at its expense and through counsel of its choice if it
gives notice of its intention to do so to the Indemnified Party within five days
of the receipt of such notice from the Indemnified Party; PROVIDED, HOWEVER,
that if there exists or is reasonably likely to exist a conflict of interest
that would make it inappropriate in the judgment of the Indemnified Party, in
its sole and absolute discretion, for the same counsel to represent both the
Indemnified Party and Silicon Graphics, then the Indemnified Party shall be
entitled to retain its own counsel, in each jurisdiction for which the
Indemnified Party determines counsel is required, at the expense of Silicon
Graphics. In the event Silicon Graphics exercises the right to undertake any
such defense against any such Third Party Claim as provided above, the
Indemnified Party shall cooperate with Silicon Graphics in such defense and make
available to Silicon Graphics, at Silicon Graphics' expense, all witnesses,
pertinent records, materials and information in the Indemnified Party's
possession or under the Indemnified Party's control relating thereto as is
reasonably required by Silicon Graphics. Similarly, in the event the Indemnified
Party is, directly or indirectly, conducting the defense against any such Third
Party Claim, Silicon Graphics shall cooperate with the Indemnified Party in such
defense and make available to the Indemnified Party, at Silicon Graphics'
expense, all such witnesses, records, materials and information in Silicon
Graphics' possession or under
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Silicon Graphics' control relating thereto as is reasonably required by the
Indemnified Party. No such Third Party Claim may be settled by Silicon Graphics
without the prior written consent of the Indemnified Party.
SECTION 5.03. TRANSFER RESTRICTIONS. Silicon Graphics has been advised and
understands that all shares of Class B Common Stock acquired by Silicon Graphics
in satisfaction of its obligations under Article II or as a result of the
automatic conversion of shares of Class A Common Stock into shares of Class B
Common Stock in accordance with Article IV of the Amended and Restated
Certificate of Incorporation have not been registered under the Securities Act
of 1933, as amended (the "SECURITIES ACT"). The parties hereto agree that such
shares may be resold, pledged or otherwise transferred by Silicon Graphics only
(a) to the Company (upon exchange or redemption thereof or otherwise), (b)
pursuant to an exemption from registration under the Securities Act, or (c) in
accordance with Article III of the Corporate Agreement.
SECTION 5.04. DISTRIBUTION TAX INDEMNIFICATION AGREEMENT. Prior to the
Distribution, the Company and Silicon Graphics shall enter into a Distribution
Tax Indemnification Agreement regarding such Distribution which shall contain
(i) each of the terms and provisions included in Appendix A hereto and (ii) such
other terms and provisions as are customary for such agreements and as shall be
mutually agreed to by the parties.
SECTION 5.05. EXCHANGE OF SHARES UPON CHANGE IN TAX LAW. (a) If, prior to
a Distribution, (i) the Code has been amended by the enactment of new
legislation which, in effect, generally imposes a requirement to the effect that
in a tax-free spin-off or split-off of a subsidiary, the distributing company
must hold not less than 80% of the value of all or a portion of the subsidiary's
stock (such change in the Code being a "CHANGE IN TAX LAW") AND (ii) Silicon
Graphics receives from the Company an opinion of counsel reasonably satisfactory
to Silicon Graphics that such Change in Tax Law would apply to a Distribution,
then Silicon Graphics shall, and shall cause each of its subsidiaries (other
than the Company) to, exchange all of the shares of Class B Common Stock it
owns, directly or indirectly, for shares of Class A Common Stock on a
one-for-one basis.
(b) Within twenty (20) days of its receipt of the opinion referred to in
clause (ii) of Section 5.05(a), Silicon Graphics shall, and shall cause each of
its subsidiaries (other than the Company) to, deliver to the Company the
certificate or certificates representing the shares of Class B Common Stock it
owns and, upon receipt of such certificate or certificates, the Company shall
issue a certificate or certificates to Silicon Graphics or such subsidiary, as
the case may be, for the aggregate number of shares of Class A Common Stock
issuable in exchange therefor pursuant to Section 5.05(a).
SECTION 5.06. RULING REQUEST. Silicon Graphics has submitted to the
Internal Revenue Service (the "IRS") a ruling request seeking a favorable ruling
from the IRS that the Distribution qualifies generally as a tax-free
distribution under Section 355 of the Code (the "Ruling Request"). A copy of the
Ruling Request has been provided to the Company. In the Ruling Request, Silicon
Graphics has requested that the IRS consider, among other things, whether the
provisions contained in (a) Article IV, Section 2(i)(ii) and 2(i)(iii) of the
Amended and Restated Certificate of Incorporation regarding the automatic
conversion of shares of Class B Common Stock into shares of Class A Common Stock
and (b) Article IV, Section 2(j)(ii) of the Amended and Restated Certificate of
Incorporation regarding the exchange of shares of Class B Common Stock for
shares of Class A Common Stock, would not cause the Distribution to not qualify
generally as a tax-free distribution under Section 355 of the Code. Silicon
Graphics agrees to use good faith and reasonable best efforts to obtain the
requested rulings from the IRS. Silicon Graphics shall not take any affirmative
action for the primary purpose of rendering unavailable any transition relief
with respect to a Change in Tax Law.
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ARTICLE VI
CONDITIONS TO THE EFFECTIVENESS OF THE AGREEMENT
SECTION 6.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The obligations
of the Company and Silicon Graphics to consummate this Agreement are subject to
the satisfaction or waiver (where permissible) of the following conditions:
(a) the Amended and Restated Certificate of Incorporation shall have
become effective in accordance with the General Corporation Law of the State
of Delaware;
(b) no Governmental Entity or court of competent jurisdiction located or
having jurisdiction in the United States shall have enacted, issued,
promulgated, enforced or entered any law, rule, regulation, judgment,
decree, executive order or award (an "Order") which is then in effect and
has the effect of making the Recapitalization or the transactions
contemplated by this Agreement illegal or otherwise prohibiting consummation
of the Recapitalization or the transactions contemplated by this Agreement;
(c) the shares of Class A Common Stock to be issued in the
Recapitalization shall have been approved for quotation on the Nasdaq
National Market, subject to notice of issuance;
(d) a registration statement on Form 8-A (the "REGISTRATION STATEMENT")
registering the Class A Common Stock under the Exchange Act shall have
become effective upon filing with the Securities and Exchange Commission
("SEC") and no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceeding for that purpose shall
have been initiated by the SEC; and
(e) all consents, approvals and authorizations legally required to be
obtained to consummate this Agreement shall have been obtained from and made
with all Governmental Entities, except for such consents, approvals and
authorizations the failure of which to obtain would not have a material
adverse effect on the ability of the Company or Silicon Graphics to
consummate the transactions contemplated hereby.
SECTION 6.02. CONDITIONS TO THE OBLIGATIONS OF SILICON GRAPHICS. The
obligations of Silicon Graphics to consummate this Agreement are subject to the
satisfaction or waiver (where permissible) of the following additional
conditions:
(a) Silicon Graphics shall have received a certificate of the Chief
Executive Officer or Chief Financial Officer of the Company to the effect
that each of the representations and warranties of the Company contained in
this Agreement shall be true and correct as of the Closing Date, except
where failure to be so true and correct would not have a Company Material
Adverse Effect, and except that those representations and warranties which
address matters only as of a particular date shall remain true and correct
as of such date, except where failure to be so true and correct would not
have a Company Material Adverse Effect; and
(b) the Company shall have performed or complied with in all material
respects all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Closing Date, and
Silicon Graphics shall have received a certificate of the Chief Executive
Officer or Chief Financial Officer of the Company to that effect.
SECTION 6.03. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company to consummate this Agreement are subject to the
satisfaction or waiver (where permissible) of the following additional
conditions:
(a) the Company shall have received a certificate of an executive
officer of Silicon Graphics to the effect that each of the representations
and warranties of Silicon Graphics contained in this Agreement shall be true
and correct as of the Closing Date, except where the failure to be so true
and correct
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would not have a Silicon Graphics Material Adverse Effect, and except that
those representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date, except where
the failure to be so true and correct would not have a Silicon Graphics
Material Adverse Effect; and
(b) Silicon Graphics shall have performed or complied with in all
material respects all agreements and covenants required by this Agreement to
be performed or complied with by it on or prior to the Closing Date, and the
Company shall have received a certificate of an executive officer of Silicon
Graphics to such effect.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. TERMINATION. This Agreement, including without limitation
the obligations of Silicon Graphics under Article II hereof, may be terminated,
and the other transactions contemplated by this Agreement may be abandoned at
any time, notwithstanding any requisite approval and adoption of this Agreement
and the transactions contemplated by this Agreement, as follows:
(a) by mutual written consent of the parties, duly authorized by their
respective boards of directors based on, in the case of the Company, the
unanimous recommendation of the independent directors of the Company; and
(b) by either party, upon the exchange by Silicon Graphics of all of its
shares of Class B Common Stock for shares of Class A Common Stock under
Section 5.05 of this Agreement.
SECTION 7.02. EFFECT OF TERMINATION. In the event of termination of this
Agreement pursuant to Section 7.01, this Agreement shall forthwith become void,
there shall be no liability under this Agreement on the part of Silicon Graphics
or the Company or any of their respective officers or directors, and all rights
and obligations of each party hereto shall cease; PROVIDED, HOWEVER, that
nothing herein shall relieve any party from liability for the wilful breach of
any of its representations, warranties, covenants or agreements set forth in
this Agreement; and PROVIDED, FURTHER, that the obligations of Silicon Graphics
(i) under Section 5.02(a) to indemnify an Indemnified Party for Losses suffered
or incurred by reason of or in connection with a Third Party Claim arising out
of the Recapitalization or Distribution and (ii) under Section 7.05 to reimburse
certain fees and expenses incurred by the Company in connection with the
Recapitalization and the Distribution, shall survive.
SECTION 7.03. AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 7.04. WAIVER. At any time any party hereto may (a) extend the time
for the performance of any obligation or other act of any other party hereto,
(b) waive any inaccuracy in the representations and warranties contained herein
or in any document delivered pursuant hereto, and (c) waive compliance with any
agreement or condition contained herein. Any such extension or waiver shall be
valid if set forth in an instrument in writing signed by the party to be bound
thereby.
SECTION 7.05. EXPENSES. Silicon Graphics shall reimburse the Company for
the fees and expenses of legal counsel incurred by the Company in connection
with the Recapitalization and any distribution covered by the indemnification
provided by Silicon Graphics pursuant to Section 5.02 of this Agreement, whether
or not the Recapitalization or such distribution is consummated, in an amount
set forth in a budget to be agreed to between the parties (the "BUDGET"). In the
event that the scope or expected amount of legal work on which the Budget was
based changes, the parties shall agree to a revised budget for legal fees and
expenses (the "REVISED BUDGET") and Silicon Graphics shall pay for such revised
legal fees and expenses in accordance with the Revised Budget. Silicon Graphics
shall also reimburse the Company for (i) the reasonable fees and expenses of its
financial advisor and (ii) all other reasonable out-of-pocket expenses incurred
by the Company in connection with the Recapitalization and any distribution
covered by
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the indemnification provided by Silicon Graphics pursuant to Section 5.02 of
this Agreement. Silicon Graphics will be responsible for all of the fees, costs
and expenses incurred by Silicon Graphics in connection with the
Recapitalization and any distribution, whether or not consummated.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telecopy, facsimile, telegram or telex or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 8.01):if to Silicon Graphics:
Silicon Graphics, Inc.
2011 N. Shoreline Boulevard
Mountain View, CA 94043
Facsimile No.: (650) 933-7096
Attention: Director, Corporate Legal Services
if to the Company:
MIPS Technologies, Inc.
1225 Charleston Avenue
Mountain View, CA 94043
Facsimile No.: (650) 567-5150
Attention: Chief Executive Officer
SECTION 8.02. CERTAIN DEFINITIONS. For purposes of this Agreement, the
term:
(a) "AFFILIATE" of a specified person means a person who directly or
indirectly through one or more intermediaries controls, is controlled by, or
is under common control with such specified person;
(b) "CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON
CONTROL WITH") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management
and policies of a person, whether through the ownership of voting
securities, as trustee or executor, by contract or credit arrangement or
otherwise; and
(c) "PERSON" means an individual, corporation, partnership, limited
partnership, syndicate, person (including, without limitation, a "PERSON" as
defined in section 13(d)(3) of the Exchange Act), trust, association or
entity or government, political subdivision, agency or instrumentality of a
government.
SECTION 8.03. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated by this Agreement is not affected in
any manner materially adverse to any party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the transactions contemplated by this Agreement
be consummated as originally contemplated to the fullest extent possible.
SECTION 8.04. ASSIGNMENT; BINDING EFFECT; BENEFIT. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other party. Subject to the preceding sentence,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their
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respective successors and assigns. Except as provided in Section 5.02, nothing
in this Agreement, expressed or implied, is intended to confer on any person
other than the parties hereto or their respective successors and assigns any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
SECTION 8.05. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 8.06. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California applicable to
contracts executed in and to be performed in that state and without regard to
any applicable conflicts of law.
SECTION 8.07. HEADINGS. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 8.08. COUNTERPARTS. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
SECTION 8.09. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings among the parties with
respect thereto. No addition to or modification of any provision of this
Agreement shall be binding upon any party hereto unless made in writing and
signed by all parties hereto.
IN WITNESS WHEREOF, Silicon Graphics and the Company have caused this
Agreement to be effective as of the Closing Date by their respective officers
thereunto duly authorized.
<TABLE>
<S> <C> <C> <C>
SILICON GRAPHICS, INC.
Attest
by: By
------------------------------------ ------------------------------------
Name: Name:
Title: Title:
MIPS TECHNOLOGIES, INC.
Attest
by: By
------------------------------------ ------------------------------------
Name: Name:
Title: Title:
</TABLE>
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APPENDIX A
CERTAIN TERMS AND PROVISIONS OF DISTRIBUTION TAX INDEMNIFICATION AGREEMENT
1. DISTRIBUTION. The Company and Silicon Graphics acknowledge that Silicon
Graphics intends to distribute the remaining portion of its interest in the
Company to Silicon Graphics stockholders in a transaction intended to qualify
generally as a tax-free distribution under Section 355 of the Internal Revenue
Code (the "Distribution").
2. LIMITATIONS ON CERTAIN ACTIONS. The Company covenants and agrees that
following the Distribution it will not take, or cause or allow any Company
Affiliate to take, any of the following actions:
(A) for the thirty (30)-month period beginning on the date of the
Distribution, issue stock of the Company in an acquisition or public or
private offering, except that the Company or any Company Affiliate may issue
stock:
(1) pursuant to the exercise of employee, director or consultant
stock options, stock awards, stock purchase rights or other employment
related arrangements under any stock incentive plan then in existence;
and
(2) up to a cumulative amount of ten percent (10%) of the outstanding
stock of the Company at the time of the Distribution (in addition to the
stock that may be issued under (A)(1) above);
(B) for the five (5)-year period beginning on the date of the
Distribution, amend its certificate of incorporation (or other
organizational documents), whether through a stockholder vote or otherwise
(but not including any conversion of Class B Stock into Class A Stock in
accordance with the Company's Amended and Restated Certificate of
Incorporation, other than the Company Exchange Right), in a manner that
affects the relative voting rights of the separate classes of the Common
Stock;
(C) for the five (5)-year period beginning on the date of the
Distribution, exchange any shares of Class B Stock for Class A Stock,
including pursuant to the Company Exchange Right (but not including any
conversion of Class B Stock into Class A Stock in accordance with the
Company's Amended and Restated Certificate of Incorporation);
(D) take any action that would constitute a breach of, or an inaccuracy
in, certain reasonable representations or covenants in the Ruling Documents,
Ruling, Supplemental Ruling Documents or Supplemental Ruling with respect to
the Company that are within the reasonable control of the Company (other
than any representation or covenant related to the stock issuances
permissible under (A)(1) or (2) above or to the extent the representation or
covenant is a Non-Required Representation or Covenant (as defined below)).
(E) for the thirty (30)-month period beginning on the date of the
Distribution, knowingly and voluntarily take any other action (other than
any action which is (i) described in (A)(1) or (2) above, (ii) being
undertaken or planned at the time of the Distribution or (iii) pursuant to
the Company's Amended and Restated Certificate of Incorporation) which it
believes will more likely than not result in the Distribution failing to
qualify under Section 355 of the Code or cause the Distribution otherwise to
be taxable under Section 355(e) of the Code.
3. INDEMNITY BY THE COMPANY. Except as provided in Section 4, the Company
and each Company Affiliate shall jointly and severally indemnify Silicon
Graphics and hold it harmless from and against any federal, state or local
income or franchise taxes imposed as a result of the Distribution failing to
qualify under Section 355 of the Code or otherwise being taxable under Section
355(e) of the Code as a result (and, in each case, any analogous provision under
state or local law) of:
(A) the Company or a Company Affiliate breaching any of the covenants
contained in Section 2;
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(B) for the thirty (30)-month period beginning on the date of the
Distribution, any acquisition of stock of the Company (other than any
issuance of stock by the Company covered in Section 2(A)(1) or (2) above) by
any person or persons (including, without limitation, as a merger of another
entity with and into the Company) in excess of the amount of stock permitted
to be issued under Section 2(A)(2) above, but taking into account any prior
or subsequent issuances of stock covered by Section 2(A)(2) during such
thirty (30)-month period.
Notwithstanding anything to the contrary, Silicon Graphics shall be liable for
any federal, state or local income or franchise taxes imposed on Silicon
Graphics as a result of the Distribution failing to qualify under Section 355 of
the Code or otherwise being taxable under Section 355(e) of the Code (and, in
each case, any analogous provision under state or local law) for any reason
other than as set forth in (A) or (B) of this Section 3.
4. PERMITTED ACTIONS. Notwithstanding the provisions of Section 2 and 3,
the Company and each Company Affiliate shall have no obligation to indemnify
under Section 3 (and may take any action otherwise prohibited by Section 2) if:
(A) Silicon Graphics obtains a Supplemental Ruling issued to Silicon
Graphics that rules that such action will not cause the Distribution to fail
to qualify under Section 355 of the Code or otherwise to be taxable under
Section 355(e) of the Code;
(B) Silicon Graphics consents to such action; or
(C) the Company delivers to Silicon Graphics an opinion, in form
reasonably satisfactory to Silicon Graphics (which determination by Silicon
Graphics may take into account, among other things, whether it is the type
of action with respect to which it is reasonably satisfactory to rely on an
opinion of counsel in light of the fact that Silicon Graphics previously
obtained the Ruling with respect to the Distribution), of nationally
recognized tax counsel, to the effect that such action will not cause the
Distribution to fail to qualify under Section 355 of the Code or otherwise
to be taxable under Section 355(e) of the Code.
5. SUPPLEMENTAL RULINGS; COOPERATION.
(A) REQUEST BY SILICON GRAPHICS. Silicon Graphics shall have the right
to obtain a Supplemental Ruling in its sole and exclusive discretion. If
Silicon Graphics determines to obtain a Supplemental Ruling, the Company
shall cooperate with Silicon Graphics and take any and all actions
reasonably requested by Silicon Graphics in connection with obtaining the
Supplemental Ruling (including, without limitation, by making any reasonable
representation or covenant or providing any materials or information
requested by the Internal Revenue Service; provided that, the Company shall
not be required to make any unreasonable representation or covenant or any
other representation or covenant that is inconsistent with historical facts
or its reasonable business objectives or as to future matters or events
outside its reasonable control (a "Non-Required Representation or
Covenant")). In connection with obtaining a Supplemental Ruling, (i) Silicon
Graphics shall cooperate with and keep the Company informed in a timely
manner of all material actions taken or proposed to be taken by Silicon
Graphics in connection therewith; (ii) Silicon Graphics shall (A) reasonably
in advance of the submission of any Supplemental Ruling Documents, provide
the company with a draft copy thereof, (B) reasonably consider the Company's
comments on such draft copy, and (C) provide the Company with a final copy;
and (iii) Silicon Graphics shall provide the Company with notice reasonably
in advance of, and the Company shall have the right to attend, directly
and/or through its representatives, any formally scheduled meetings with the
Internal Revenue Service (subject to the approval of the Internal Revenue
Service) that relate to such Supplemental Ruling.
(B) REQUEST BY THE COMPANY. Silicon Graphics agrees that, if the
Company desires to obtain a Supplemental Ruling or other guidance from the
Internal Revenue Service with respect to the treatment of the Distribution
under Section 355 of the Code (which may include, among other things,
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instances in which the Company desires certain actions to fall within
Section 4(A) (e.g., because the Company prefers to seek a Supplemental
Ruling or because such actions do not fall within Sections 4(B) or (C)), at
the reasonable request of the Company Silicon Graphics shall cooperate with
the Company and use its reasonable best efforts to seek to obtain, as
expeditiously as possible, such Supplemental Ruling or other guidance. In no
event shall Silicon Graphics be required to file any Supplemental Ruling
under this Section 4 unless the Company represents that (1) it has read the
request for the Supplemental Ruling and any Supplemental Ruling Documents
and (2) all information and representations, if any, relating to the Company
and any Company Affiliate contained in the Supplemental Ruling Documents are
true, correct and complete in all material respects. The Company shall
reimburse Silicon Graphics for all reasonable costs and expenses incurred by
Silicon Graphics in obtaining a Supplemental Ruling requested by the
Company. The Company hereby agrees that Silicon Graphics shall have sole and
exclusive control subject to the provisions hereof over the process of
obtaining a Supplemental Ruling. In connection with obtaining any such
Supplemental Ruling, (i) Silicon Graphics shall cooperate with and keep the
Company informed in a timely manner of all material actions taken or
proposed to be taken by Silicon Graphics in connection therewith; (ii)
Silicon Graphics shall (A) reasonably in advance of the submission of any
Supplemental Ruling Documents, provide the Company with a draft copy
thereof, (B) reasonably consider the Company's comments on such draft copy,
and (C) provide the Company with a final copy; and (iii) Silicon Graphics
shall provide the Company with notice reasonably in advance of, and the
Company shall have the right to attend, directly and/or through its
representatives, any formally scheduled meetings with the Internal Revenue
Service (subject to the approval of the Internal Revenue Service) that
relate to such Supplemental Ruling.
(C) COOPERATION. The Company and Silicon Graphics agree to cooperate
with each other in obtaining the Ruling, any Supplemental Rulings or any
other rulings from the Internal Revenue Service or other taxing authority or
any opinions or counsel.
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EXHIBIT 10.8.1
[XXXXXX]=CERTAIN INFORMATION IN THIS DOCUMENT HAS BEEN OMITTED PURSUANT
TO AN ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND
EXCHANGE COMMISSION.
JOINT DEVELOPMENT AND LICENSE AGREEMENT
This JOINT DEVELOPMENT AND LICENSE AGREEMENT is made the 20/th/ day of
August, 1993, among Nintendo Co., Ltd., a Japan corporation having a place of
business at 60 Fukuine Kamitakamatsu-cho, Higashiyama-ku, Kyoto 605, Japan
("NCL"), Nintendo of America Inc., a Washington corporation, having a place of
business at 4820 150/th/ Avenue NE, Redmond, WA 98052 ("NOA") (NCL and NOA are
collectively referred to as "Company"), Silicon Graphics, Inc., a Delaware
corporation and MIPS Technologies, Inc., a Delaware corporation, both of which
have a place of business at 2011 North Shoreline Blvd., Mountain View, CA 94039-
7311 (collectively, "SGI").
WHEREAS, SGI (i) is in the business of designing, manufacturing and
marketing computer graphics workstation, server, subsystem, board level, and
microprocessor products, including accessories, options and software therefor,
and (ii) possesses expertise and owns proprietary rights relating to its
products, including, but not limited to, copyrights, know-how, inventions, trade
secrets, patents, patent applications and the like;
WHEREAS, Company (i) is in the business of: developing, manufacturing and
distributing high quality entertainment systems, including the Nintendo
Entertainment System(R), the Super Nintendo Entertainment System(R), the
Famicom/TM/, the Super Famicom/TM/, and the Game Boy(R) compact video game
system, and (ii) possesses expertise and owns proprietary rights relating to its
products, including, but not limited to, copyrights, know-how, inventions, trade
secrets, patents, patent applications and the like; and
WHEREAS, the parties desire to conduct joint development of products which
will incorporate certain existing technology of SGI, and new technology to be
jointly developed by the parties;
NOW, THEREFORE, in furtherance of the foregoing, and in consideration of
the mutual covenants set forth below, Company and SGI hereby agree as follows:
1. DEFINITIONS
1.1 "ACCESSORY" means a peripheral device which mechanically or
electrically connects to the Consumer Hardware to enhance the application
software. Examples of an Accessory include, but are not limited to: a
specialized joystick, head-mounted display or a CD ROM player. 1.2 "AFFILIATE"
means any Person that directly or indirectly controls, is controlled by, or is
under common control with another Person. 1.3 "AGREEMENT" means this Joint
Development and License Agreement. 1.4 "BACKGROUND TECHNOLOGY" means all
Technology which (i) is under the Control of SGI, (ii) was developed by SGI
prior to the Effective Date or is under development by SGI as of the Effective
Date, and (iii) is implemented into the design of one or more Company Products,
including but not limited to, the Technology specified in Attachment A to this
Agreement.
1.5 "COIN OPERATED HARDWARE" means a dedicated screen and speaker which
are fully integrated so as to compromise a single physical unit or multiple
physical units, when such hardware (i) remains free-standing and stationary
during play, (ii) requires the player to insert coins, paper currency, credit
cards or tokens in a metering device to initiate Video Game play or non-Video
Game applications, (iii) is otherwise designed for installation at arcades or
other retail or commercial establishments, and (iv) has a wholesale price of
less than U.S. $30,000.00.
1.6 "COIN OPERATED SOFTWARE" means Video Game and Non-Video Game
software applications for use with the Coin-Operated Hardware.
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1.7 "COMPANY" means NOA and NCL.
1.8 "COMPANY PRODUCTS" means the following products manufactured by or
on behalf of Company and/or the Licensees and sold by Company and/or the
Licensees, to the extent that they incorporate or are based upon some or all of
the Background Technology and/or the Developed Technology: (i) the Consumer
Hardware, (ii) the Packaged Software (and the application software stored
therein), (iii) Accessories, (iv) Coin Operated Hardware and (v) Coin Operated
Software.
1.9 "COMPANY TECHNOLOGY" means technology which (i) was developed by
Company prior to the Effective Date or is under development by Company as of the
Effective Date, or (ii) is otherwise independently developed or owned by
Company. In this Section 1.9, "technology" means technical information, data and
processes, whether tangible or intangible, including, without limitation, any
and all techniques, discoveries, inventions, copyrights, mask works, net lists,
know-how, patents (including any extension, reissue, continuation or renewal
patents), patent applications, mask work or copyright applications, inventor
certificates, trade secrets, designs, drawings, specifications, software
programs (including source code and object code), microcode, operating and
instruction manuals, magnetic tapes, methods of production, and other
proprietary information.
1.10 "CONSUMER HARDWARE" means stand-alone electronic hardware for
consumer use consisting of a microprocessor and other components which are
collectively designed, manufactured, distributed, sold, and marketed, at the
time of market introduction, primarily for the playing of Video Games in
conjunction with player input transmitted by "control pads" consisting of
directional buttons or switches, and/or joysticks, optical light guns,
accelerator sensors, or other peripheral devices, which may be manipulated by
the thumbs and/or one or two fingers of each hand of the player, or by the foot,
hand, head, or body of the player. Consumer Hardware generates the visual and
aural output of Video Games, or other software applications, by means of a
hard-wire interface or connection with a television set or other output display.
Based on market information currently available, examples of Consumer Hardware
currently include, but are not limited to, the following: the Nintendo
Entertainment System; the Sega Game Gear, the Nintendo Game Boy System, the
Super Nintendo Entertainment System; the Sega Genesis; Atari Jaguar; and the
Interactive Multiplayer sold under license from 3DO Company. The Consumer
Hardware may be used for software applications other than playing Video Games.
1.11 "CONTROL" means, in the case of Background Technology, the possession
by either party of the right to grant licenses or sublicenses to, or otherwise
distribute, Background Technology without (i) violating the terms of any
agreement or other arrangement with, or the rights of, any third party, or any
binding laws or regulations, and (ii) such grant or the exercise of rights
thereunder giving rise to the payment of royalties, fees or other consideration
to a third party (except for payments between a party and its Affiliates).
"Control" means, in the case of a corporation or other legal entity, the
ownership or the right to vote in the corporation sufficient to elect a majority
of the corporation's board of directors.
1.12 "COORDINATOR" means a qualified representative of a party
designated by such party as project coordinator, to be responsible for
supervising and coordinating the implementation of the Development Plan
hereunder.
1.13 "DEVELOPED TECHNOLOGY" means the Technology developed specifically
for purposes of this Agreement and delivered by SGI to Company in the course of
the Development Plan, whether or not patentable or registrable, which is
conceived or first actually reduced to practice solely by a party, or jointly by
the parties, under the Development Plan, as listed in Attachment B (Developed
Technology). Developed Technology shall not include any of the Background
Technology, regardless of whether such Background Technology is implemented or
incorporated into Developed Technology. Developed Technology shall not include
Company Technology.
1.14 "DEVELOPMENT PLAN" means the plan for the research and development
of the Developed Technology conducted under the terms and conditions of this
Agreement, as mutually agreed in writing by SGI and Company.
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1.15 "EFFECTIVE PLAN" means the date first set forth above, on which date
the term of this Agreement shall commence.
1.16 "FILING" means the submission of any documentation, application,
filing, registration or the like required to perfect or, with respect to
copyright registrations, to enforce, the parties' interest in the Developed
Technology under statutory intellectual property rights protection mechanisms,
including, without limitation, any correspondence or other communication with
any patent or copyright office or other governmental entities with respect
thereto.
1.17 "LICENSED BACKGROUND TECHNOLOGY" means Background Technology
implemented in the Developed Technology, but only to the extent that such
Background Technology is not Purchasable Background Technology.
1.18 "LICENSEE" means a third party licensed by Company to use,
design, manufacture, market, distribute and/or sell Packaged Software,
Accessories, Coin Operated Hardware, and/or Coin Operated Software.
1.19 "PACKAGED SOFTWARE" means the form by which the application software
(Video Game and non-Video Game software) used in connection with the Consumer
Hardware is distributed to consumers, including but without limitation, by semi-
conductor, magnetic, optical media and/or similar method of distribution.
Packaged Software shall exclude: (i) application software transmitted
electronically and (ii) upgrades to system software that is embedded in the
Consumer Hardware.
1.20 "PERSON" means a corporation, partnership, trust, association,
government authority, educational institution, individual or other legal entity.
1.21 "PURCHASABLE BACKGROUND TECHNOLOGY" means equipment, software and
components that SGI and/or SGI licensees make generally available to third
parties and for which separate price quotes are included in price lists,
including INDY computer systems, MIPS(R) microprocessors and MIPS(R) compilers.
1.22 "SGI" means Silicon Graphics, Inc., and MIPS Technologies, Inc
1.23 "TECHNOLOGY" means technical information, data and processes, whether
tangible or intangible, including, without limitation, any and all techniques,
discoveries, inventions, copyrights, mask works, net lists, know- how, patents
(including any extension, reissue, continuation or renewal patents), patent
applications, mask work or copyright applications, inventor certificates, trade
secrets, designs, drawings, specifications, schematics, software programs
(including source and object codes), microcode, operating and instructional
manuals, magnetic tapes, methods of production and any other proprietary
information. Technology is either Background Technology or Developed Technology.
1.24 "THEME PARK APPLICATION SYSTEM" means an entertainment device or
system that has audio and/or visual stimulation capability and (i) which has a
cost to an operator of more than U.S. $30,000.00, and (ii) is located at a theme
park, amusement park, carnival entertainment center, retail or commercial
establishment.
1.25 "VIDEO GAME" means any aurally- and visually-oriented interactive
application game software, consisting of an independently marketed and packaged
unit of Packaged Software (or such unit of the Packaged Software when packaged
and sold together with a unit of the Consumer Hardware). "Video Games" may be
played by one or more players at a time; may coordinate graphics with fanciful
tunes or thematically significant music, along with incidental sound effects;
may feature special effects; may be designated to keep score, record milestones,
or otherwise track the progress or achievement of the players in terms of
numbers or with respect to the fictional narrative of the game environment; and
are intended to amuse and entertain. Examples of Video Games include: Tetris and
Super Mario Bros. 3, both of which are distributed for play on the Nintendo
Entertainment System; Sonic the Hedgehog II,
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distributed for play on the Sega Genesis Video Game System; Street Fighter II
and NCAA Basketball, both of which are distributed for play on the Super
Nintendo Entertainment System.
ATTACHMENTS.
2.1 This Agreement includes the following attachments:
a. Attachment A (Background Technology), which sets forth and
describes the Background Technology provided hereunder;
b. Attachment B (Developed Technology), which sets forth and
describes the Technology to be developed hereunder;
c. Attachment C (Development Funding and royalties), which sets forth
the development funding and royalties payable by Company to SGI
pursuant to this Agreement;
d. Attachment D (Competitive Companies), which sets forth the
companies referred to in Section 6.4
e. Attachment E (Minimums for Exclusivity), which sets forth the
royalties payable by Company as a condition to continued exclusivity
under Section 6.4.
All attachments listed in this Section 2 are incorporated into and form a
part of this Agreement.
3. SCOPE OF AGREEMENT
3.1 SCOPE. This Agreement sets forth the terms and conditions under
which (i) the parties shall conduct joint research and development of the
Developed Technology, (ii) Company will obtain a license to use the Licensed
Background Technology and the Developed Technology and (iii) SGI will arrange to
fulfill Company's requirements for Purchasable Background Technology.
3.2 LIMITED RIGHTS. Each party hereby acknowledges and agrees that the
scope of the relationship between the parties shall be limited to the purposes
and activities set forth herein, and that the rights and obligations of the
parties with respect to each other shall be limited to those provided in this
Agreement. Neither party has the authority to assume or create any obligation
or responsibility in the name of the other party except as specifically
authorized herein, or as authorized after the Effective Date hereof by the
mutual written agreement of the parties.
4. DEVELOPMENT ACTIVITIES.
4.1 NAMING A COORDINATOR. SGI shall designate a Coordinator to Company
in writing within fifteen (15) days after the Effective Date. Company hereby
designates Genyo Takeda as its Coordinator.
4.2 TECHNICAL AND FEASIBILITY REVIEW. Beginning on the Effective Date
and thereafter through January 31, 1994, (i) Company shall have the right to
evaluate the Background Technology and evaluate its suitability for the
development of and use in Consumer Hardware and Coin Operated Hardware, (ii)
Company and SGI will agree on a Development Plan, including the schedule for the
development of Company's Consumer Hardware and Coin Operated Hardware
incorporating the Developed Technology, the allocation of responsibility between
the parties, and the deliverables to be provided by each party to the other, and
(iii) Company and SGI will agree on the budget for the Development Plan. SGI
shall deliver a budget to Company for SGI's completion of its work under the
Development Plan that: (a) is stated as a flat fee (or fixed fee) for completion
of SGI's work under the Development Plan and represents SGI's good faith
calculation of its actual costs to complete its work
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[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN ORDER
GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION.
under the Development Plan, and (b) provides reasonable detail regarding such
anticipated actual costs. Provided SGI meets the foregoing conditions, and
provided the budget is for U.S. $XXXXXXXXX or less, Company shall accept the
budget. This Agreement shall terminate automatically if: (a) Company, in its
sole discretion, desires to terminate this Agreement and gives notice of its
desire to terminate to SGI on or before January 31, 1994, or (b) if Company and
SGI do not agree in writing on the Development Plan and the budget therefor on
or before January 31, 1994; provided, however, both parties are obligated to
negotiate in good faith the details of the Development Plan and budget. If this
Agreement terminates on or before January 31, 1994, then neither party shall
have any further obligations to the other under this Agreement, including the
provisions of Section 7.0. From the Effective Date through January 31, 1994, SGI
shall facilitate Company's evaluation of the Background Technology by (i)
providing Company with a list of patents pending and issued relating to the
Background Technology, (ii) if Company so requests, providing Company with
copies of patent applications pending and issued relating to the Background
Technology; (iii) if Company so requests, meeting and conferring with Company's
patent counsel regarding such patent information; and (iv) providing Company
with such other information reasonably requested by Company regarding the
intellectual property rights of SGI relating to the Background Technology.
4.3 DEVELOPMENT PLAN REVISIONS. At any time following the agreement of
SGI and Company on the Development Plan pursuant to Section 4.2, upon the mutual
written agreement of the parties, deliverable items and tasks may be modified
in, added to, or deleted from, the Development Plan, and equitable adjustments
made to the fees payable by Company to SGI under this Agreement and the schedule
for completion of the development of the Developed Technology. SGI shall have no
obligation to implement any changes to the Development Plan, and Company shall
have no obligation to pay any additional fees to SGI on account of any such
changes, unless SGI and Company have agreed in writing on any such changes to
the Development Plan, the associated fees and/or development schedule.
4.4 DESIGN AND DEVELOPMENT ACTIVITIES. The parties shall use reasonable
efforts to conduct the research, experimentation, development and implementation
work necessary to complete the design and development of the Developed
Technology, substantially in accordance with the Development Plan Except as
otherwise provided in the Development Plan, neither party shall subcontract or
otherwise delegate the performance of the design and development services
required hereunder to any third party in amounts which, in the aggregate, exceed
Two Hundred Fifty Thousand Dollars ($250,000.00) without the prior written
approval of the other party, which approval shall not be unreasonably withheld
or delayed. To the extent that any planned procedures or development milestones
are not completed on schedule, the Coordinators shall determine whether a
rescheduling of such procedures or milestones is reasonably possible, or whether
alternative procedures or milestones should be implemented.
4.5 MEETINGS BETWEEN COORDINATORS. After the Effective Date and through
January 31, 1994, SGI shall make its Coordinator and other representatives
available from time to time for meetings (including meetings in Japan, subject
to availability) and/or telephone conferences with Company's Coordinator and
other Company representatives to assist Company with the technical and
feasibility review described in Section 4.2. Beginning on the first Monday
after the first full week following February 1, 1994, and monthly thereafter or
at such other intervals as SGI and Company may agree upon in writing during the
implementation of the Development Plan, the Coordinators shall meet at mutually
acceptable times and locations, or make contact via telephone, to discuss the
results of the Development Plan and activities which have transpired since the
previous meeting.
4.6 DEVELOPMENT TOOLS FOR LICENSEES. In connection with the Company
Products, Company shall endorse SGI computer systems and development tools as
the systems and development tools of choice to be used by Licensees. At a later
time, SGI and Company will meet and confer and agree in writing on whether SGI
will distribute such computer system and development tools directly to Licensees
or whether Company will acquire such systems and tools and distribute them to
Licensees.
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[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN ORDER
GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION.
SGI and Company will mutually agree on how and when development specifications
are provided to the Licensees.
4.7 COMPANY PRODUCT INTRODUCTIONS. Company shall have the sole
discretion to decide whether, when and how to sell Company Products. If Company
does not make first commercial sales of Consumer Hardware incorporating
Developed Technology before December 31, 1996, then the provisions of Section
6.4 shall terminate, and SGI's rights in the Developed Technology shall be as
provided in Section 6.1. The preceding date presumes SGI's timely performance of
each and every aspect of the Development Plan. If SGI is untimely in performance
under the Development Plan, such date shall be considered to be extended for a
period equivalent to the period of SGI's delay in its performance under the
Development Plan. Company presently contemplates that the Consumer Hardware
should have a suggested retail price of less than U.S. $250 to be successful,
but that such suggested retail price may change.
5. BACKGROUND TECHNOLOGY
5.1 DEVELOPMENT AND EMBEDDED BACKGROUND TECHNOLOGY LICENSES. SGI hereby
grants to Company, and Company hereby accepts, (i) a nontransferable, royalty-
free temporary license to use the Licensed Background Technology only to the
extent necessary to permit Company to participate in the Development Plan and
only for so long as the parties are developing the Developed Technology pursuant
to the Development Plan, and (ii) a worldwide, royalty-bearing license to use
the Licensed Background Technology only to the extent specifically implemented
in the Developed Technology for purposes of the design, manufacture, use, sale
and distribution of Company Products. Except as specifically provided in this
Agreement, nothing in this Agreement shall authorize or entitle Company to
manufacture any products using the Background Technology, and no implied
licenses to use or to sublicense the Background Technology are granted under
this Agreement by implication, estoppel or otherwise. Subject to the written
agreement of Company and SGI on the compensation payable by Company to SGI,
Company shall also have the right to acquire from SGI a nonexclusive license to
use the Licensed Background Technology in connection with the design,
manufacture, use and sale of Theme Park Application Systems.
5.2 COMPANY SUBLICENSES. Company shall have the right to grant
nonexclusive sublicenses to Licensees to use the Licensed Background Technology,
to the extent specifically implemented in the Developed Technology, in
connection with the design, manufacture use, sale and/or distribution of
Packaged Software, Accessories, Coin Operated Software and/or Coin Operated
Hardware, provided that all such sublicenses shall be in writing and shall be
pursuant to a form of agreement incorporating license grant and proprietary
rights provisions approved in writing by SGI, whose approval shall not be
unreasonably withheld.
5.3 SUPPLY OF PRODUCTS INCORPORATING PURCHASABLE BACKGROUND TECHNOLOGY. To
the extent that Company and/or Licensees require equipment, software and/or
components (including standard and/or customized MIPS microprocessors)
incorporating the Purchasable Background Technology for purposes of the design,
manufacture, use, sale or distribution of Company Products, SGI shall arrange
for the supply by SGI and/or its licensees of the requirements of Company and
such Licensees for such SGI equipment and/or components on SGI's or SGI's
licensees' standard commercial terms and conditions, as modified and agreed to
by the Company and SGI or the applicable SGI licensee.
5.4 MANUFACTURE OF COMPANY PRODUCTS. Company is free to choose,
negotiate the price with, and direct the work of manufacturers of any
Application Specific Integrated Circuits ("ASICs") incorporated in the Company
Products, subject to the manufacturer's ability to use necessary design rules
and process technology, and to the manufacturer(s) agreement to protect SGI's
intellectual property, and such manufacturer XXXXXX in connection with its
manufacture of ASICs for exclusive
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sale to Company or Licensees. Company is free to choose, negotiate the price
with, and direct the work of, all of the manufacturers of all other components
of Company Products.
6. RIGHTS IN DEVELOPED TECHNOLOGY
6.1 JOINT OWNERSHIP. SGI and Company shall jointly own, in equal,
undivided shares (and each party hereby assigns to the other an equal, undivided
interest in), all right, title and interest in the Developed Technology (whether
developed in whole or in part by SGI or by Company), and title to all patents,
copyrights, mask work rights and other applicable statutory intellectual
property rights issued thereon shall be joint. Except as expressly set forth in
this Agreement, either party will have the unrestricted right to use the
Developed Technology and to license any third party to use the Developed
Technology without the consent of the other party, and without any duty to
account to or to share proceeds with the other party on account of such use or
licensing of the Developed Technology.
6.2 COOPERATION OF THE PARTIES IN FILINGS. The parties shall cooperate
in Filings, and Company shall bear all out-of-pocket expenses with respect
thereto. All Filings will be made at a time when appropriate during the
development or after the completion of an item of Developed Technology under the
names of both parties as joint owners. Company shall have the primary
administrative responsibility for Filings, and Company shall bear all filing and
attorneys' fees incurred in connection therewith. As used herein,
"administrative responsibility" means the physical preparation of any documents
required for a Filing, and the submission thereof to the appropriate
governmental entity. If SGI has not yet received a proposed Filing from Company
on an item of Developed Technology, and SGI believes that a Filing should be
made with respect thereto, SGI may submit a written request to Company that
Company proceed with the preparation of such Filing, provided, however, that
Company may, at its sole discretion, proceed or decline to proceed with the
preparation of such Filing. If Company declines to prepare and submit a Filing,
SGI may proceed with the preparation and submission of such Filing at SGI's
expense. In either case, a party preparing a Filing shall submit such Filing to
the other party for its review and approval prior to any submission to any
governmental entity. A Filing shall be deemed accepted by the receiving party if
the receiving party does not provided a written notice of rejection to the
submitting party within thirty (30) days after the submitting party's notice
thereof. If a party rejects a Filing, it shall include with its rejection notice
a detailed description of its reason(s) for rejection, and shall make specific
suggestions as to any modifications which it believes should be made to the form
or content of such Filing prior to submission. If the submitting party believes
that the modifications suggested by the receiving party are inappropriate, the
submitting party's Coordinator shall contact the receiving party's Coordinator,
and the Coordinators shall arrange and hold a meeting or discussion between
appropriate reresentatives of the parties, at a mutually agreeable time and
place, in order to determine a mutually acceptable form, content and time for
the proposed Filing. Each party shall provide the other with copies of any
correspondence, materials or other communications submitted to or received from
a governmental entity or a third party relating to any Filing.
6.3 FURTHER COOPERATION. Each party will take all steps necessary to
convey to the other party joint ownership rights in the Developed Technology and
to establish, evidence, maintain, defend and enforce the intellectual property
rights therein. Without charge to the other party, each party shall give the
other party all reasonable assistance in obtaining such proprietary rights
protection and in preparing and prosecuting any patent, copyright, mask work or
other filing or application made by the other party, provided that such
assistance does not require any out-of-pocket expenditure by the party providing
such assistance. Each party shall cause to be executed assignments and all other
instruments and documents as the other party may consider necessary or
appropriate to carry out the intent of this Section 6.3. 6.4 EXCLUSIVITY. The
licenses hereby granted by SGI to Company shall be non-exclusive, except as
provided in this Section 6.4, which is subject to Sections 4.7 and 7.6:
a. Competitive Companies. During the term of this Agreement, SGI shall
not enter into joint development efforts with or grant a license of the
Background Technology to the "Competitive Companies" for any product that is or
may play, contain or use a Game. The "Competitive Companies" are the companies
listed in Attachment D and any Affiliate of any of such companies, or any
successor of such companies (e.g. by way of merger, consolidation,
reorganization, transfer of assets or otherwise).
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Nothing in the preceding sentence shall restrict SGI's direct or indirect sale
of the Purchasable Background Technology to the Competitive Companies.
b. Developed Technology. During the term of this Agreement, SGI shall
not, directly or indirectly, grant a license of the Developed Technology to any
third party (including but without limitation to the Competitive Companies), and
during the term of this Agreement, SGI shall not itself use the Developed
Technology except as provided in Section 6.5.
c. Substantially Similar Developed Technology. From the Effective Date
through one (1) year from the date of introduction of Company's Consumer
Hardware incorporating Developed Technology, SGI will not enter into a joint
development agreement with any Person to customize specifically for that Person
technology substantially similar to the Developed Technology for use in a
hardware product (whether or not specifically marketed as a "multimedia"
product) designed primarily to play Games, directly competitive with Company's
Consumer Hardware (incorporating the Developed Technology), and having a
suggested retail price of less than Seven Hundred Dollars ($700), if applicable.
d. For purposes of Sections 6.4 and 6.5, "Game" means any aurally- and
visually-oriented interactive application game software. "Games" may be played
by one or more players at a time; may coordinate graphics with fanciful tunes or
thematically significant music, along with incidental sound effects; may feature
special effects; may be designed to keep score, record milestones, or otherwise
track the progress or achievement of the players in terms of numbers or with
respect to the fictional narrative of the game environment; and are intended to
amuse and entertain. Examples of Games include: Tetris and Super Mario Bros. 3,
both of which are distributed for play on the Nintendo Entertainment System;
Sonic the Hedgehog II, distributed for play on the Sega Genesis Video Game
System; Street Fighter II and NCAA Basketball, both of which are distributed for
play on the Super Nintendo Entertainment System.
6.5 EXCEPTIONS TO COMPANY EXCLUSIVITY Notwithstanding the provisions of
Section 6.4(b), SGI shall itself be permitted to sell equipment or hardware that
incorporates the Developed Technology if: (a) such equipment or hardware does
not play, contain, or use a Game; or (b) such equipment or hardware plays,
contains or uses a Game and the wholesale cost of such equipment or hardware is
$1,000 or more. Except as explicitly provided to the contrary in this
Agreement, SGI shall have no obligation to restrict, or to attempt to restrict
the use or disposition by SGI customers or equipment, software or components
sold or licensed directly or indirectly from SGI.
6.6 THIRD PARTY SOFTWARE. The parties acknowledge that (a) they do not
currently contemplate that the Developed Technology will incorporate any third
party software, and (b) neither SGI nor Company shall incorporate any third
party software into the Developed Technology unless the parties have previously
agreed in writing on the incorporation of such software into the Developed
Technology and the allocation of responsibility for any associated royalties or
license fees.
7. PAYMENTS
7.1 DEVELOPMENT FUNDING. Provided that this Agreement does not terminate
on or before January 31, 1994, as provided in Section 4.2, during the twenty-
four (24) month period after the Effective Date, NCL shall pay (or at NCL's
election, it shall direct NOA to pay) to SGI the development funding agreed upon
pursuant to Section 4.2, which shall consist of development fees and prepaid
royalties, in the proportions provided in Attachment C. Company shall make the
initial payment specified in Attachment C within five (5) days of the Effective
Date as the initial nonrefundable installment of such development fees. The
balance shall be paid in six (6) equal, non-refundable quarterly installments
beginning on February 1, 1994, and every three (3) months thereafter.
7.2 ROYALTIES. NCL shall pay (or at NCL's election, it shall direct NOA
to pay) to SGI royalties on net sales (gross shipments less returns) of Company
Products as provided in Attachment C. If Company plans to distribute
application software for Consumer Hardware incorporating Developed Technology
electronically, Company and SGI shall agree in writing on royalties payable by
Company for such software as a condition to the electronic distribution of such
software by Company or any Licensee.
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7.3 ACCRUALS. All royalties payable by Company under Section 7.2 shall
accrue as follows: (i) for Consumer Hardware, Packaged Software, and Coin
Operated Hardware sold by NCL or any of its Affiliates, the sale shall occur
when NCL or such Affiliate sells the Consumer Hardware, Packaged Software, or
Coin Operated Hardware to its distributor or retailer, (ii) for Packaged
Software manufactured by NCL and sold by Licensees, the sale occurs when the
Packaged Software is sold by NCL to such Licensees, (iii) for Packaged Software
manufactured by Licensees and sold by the Licensees, the sale occurs when the
Packaged Software is sold by the Licensees to their distributors or retailers,
(iv) for Coin Operated Hardware sold by Licensees, the sale shall occur when the
Coin Operated Hardware is sold by the Licensees to its distributors or
retailers. For purposes of this Section 7.3, a product shall be considered
"sold" upon the earlier of the seller's shipment of or invoice for that product.
7.4 QUARTERLY PAYMENTS AND STATEMENTS. Within thirty (30) days after the
end of each calendar quarter during the term of this Agreement, NCL shall pay
(or at NCL's election it shall direct NOA to pay) to SGI all royalties that have
accrued during that quarter pursuant to Section 7.3. Each such payment shall be
accompanied by a written statement, certified to be accurate by an officer of
Company, showing the total net sales for Coin Operated Hardware, Consumer
Hardware and Packaged Software, broken down by Company Product categories, the
royalties payable by Company, and such additional information as SGI may
reasonably request regarding the sale of Company Products.
7.5 RECORDS AND AUDITS. During the term of this Agreement and for a
period of two (2) years following any expiration or termination of this
Agreement, Company shall maintain full and complete records in sufficient
detail to permit SGI to verify the accuracy of payment and statements submitted
by Company pursuant to Section 7.4. Upon reasonable notice, and no more
frequently than once in any calendar year, SGI or its certified public
accountants shall have the right to audit Company's records for the purpose of
verifying the accuracy of payments made by Company under Section 7.4. All such
audits shall be at SGI's expense, unless the audit reveals an underpayment by
Company of five percent (5%) or more in any royalty period, in which case
Company shall reimburse SGI the reasonable and documented costs of the audit.
Company shall promptly pay to SGI all underpayments disclosed by the audit,
together with interest on all overdue amounts equal to one percent (1%) per
month.
7.6 MINIMUMS FOR EXCLUSIVITY. As a condition to the continuation of
Company's rights under Section 6.4, Company shall have had royalties accrued as
provided for in Section 7.3 in an amount equal to the minimum royalties set
forth in Attachment E (provided Company thereafter makes payment of such
royalties to SGI in accordance with Section 7.4). If royalties accrued during
the applicable year do not equal or exceed the minimum royalties for that year
set forth in Attachment E, Company shall have the right, in its sole discretion,
to continue its exclusivity rights as provided in Section 6.4, to make up the
shortfall concurrently with its payment of royalties for the calendar quarter in
which the applicable year referred to in Attachment E concludes.
7.7 TAXES AND THE LIKE. Any payments made hereunder are net and exclusive
of all taxes, insurance, shipping and other charges. Company agrees to pay or
reimburse SGI for all sales, use, value added, or other taxes, duties,
importation fees or assessments with respect to this Agreement (excluding only
taxes based on the payee's net income), or shall supply appropriate tax
exemption certificates in form satisfactory to the taxing authority. The
development fees and advance royalties payable under Section 7.1 shall be
exclusive of all withholding taxes imposed by the laws of Japan. NCL shall be
entitled to withhold and deduct from royalties payable under Section 7.2
withholding taxes imposed by the laws of Japan on the remission of royalties to
the United States, provided that Company shall claim the benefits of the Treaty
on the Avoidance of Double Taxation between Japan and the United States, and
shall provide SGI with certificates of such withholding.
8. PROPRIETARY AND CONFIDENTIAL INFORMATION
8.1 CONFIDENTIALITY OF BACKGROUND TECHNOLOGY. Company acknowledges SGI's
representation that the Background Technology constitutes the valuable
proprietary and confidentiality information of SGI, and agrees to (i) retain in
confidence the Background Technology, (ii)
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restrict the use of and access to the Background Technology to its employees to
whom disclosure is necessary in connection with the license granted in this
Agreement and to authorized sublicensees and subcontractors, (iii) appropriately
bind each employee to whom any such disclosure is made to hold the Background
Technology in confidence, and (iv) not sell, lease transfer or otherwise
disclose the Background Technology to any third party except in accordance with
Section 5.0, provided, however, that Company may disclose the Background
Technology to its agents or consultants under the terms and conditions of a
signed, written confidential disclosure agreement with terms and conditions
which prohibit disclosure to other parties, and which are otherwise at least as
restrictive as the terms of subsections (i) - (iii) of this Section 8.1. Without
limiting the foregoing, Company agrees that it will treat the Background
Technology with at least the same degree of care as it would its own highly
proprietary information.
8.2 NO TRANSFER OF INTELLECTUAL PROPERTY. No right, title or interest in
or to the intellectual property in any Background Technology or any copies,
derivations or any portion of the Background Technology is transferred to
Company under this Agreement and/or as a result of Company's use of SGI's
Background Technology under any circumstances whatsoever. SGI is and shall
remain the sole and exclusive owner of the Background Technology. Company shall
remain the exclusive owner of all rights in the Company Technology.
8.3 NO TRANSFER OF RIGHTS IN TRADEMARKS. Nothing herein shall grant
either party any right, title or interest in the trade names, trademarks,
service marks, words, symbols, or other marks used, adopted or owned by the
other party (or of any third party from whom such party has acquired license
rights) from time to time, either alone or in association with other words or
names. Each party shall be free to unilaterally adopt and use trademarks for use
in conjunction with its marketing, distribution, licensing and sale of products,
provided that such trademarks do not infringe trademarks owned by the other
party.
8.4 PROPRIETARY RIGHTS NOTICES. Company shall not remove from, cover over
or prevent from being displayed the notices of SGI's copyright, trade secrets
and proprietary rights notices printed on the Background Technology, affixed to
the media or containers of the Background Technology or the Developed
Technology, embedded in the Background Technology, displayed by the Background
Technology during use, or printed on materials comprising the Background
Technology. Company acknowledges that the existence of such notice(s) does not
mean that the Background Technology or the trade secrets and proprietary
information therein have been published or otherwise made public.
8.5 NO DISCLOSURE OF AGREEMENT. Neither party shall disclose the terms
and conditions or existence of this Agreement without the prior written approval
of the other party, except as may be required by law or regulation.
8.6 EXCLUSIONS. Neither party shall have any obligation as to information
of the other party or technology, which may include Background Technology, that
(i) is known to the receiving party at the time of disclosure; or (ii) is
independently developed by the receiving party; or (iii) becomes known to the
receiving party from another source without confidentiality restriction on
subsequent disclosure or use; or (iv) is or becomes part of the public domain
through no wrongful act of the receiving party; or (v) is disclosed pursuant to
any judicial or governmental request, requirement or order; provided that the
receiving party takes reasonable steps to give the disclosing party sufficient
prior notice in order to contest such request, requirement or order; or (vi) is
furnished to a third party by the disclosing party without a similar
confidentiality restriction on such third party.
8.7 INJUNCTIVE RELIEF. Each party acknowledges and agrees that in the
event of an unauthorized use, reproduction, distribution or disclosure of any
confidential information or data contained in the technology of the other party,
an adequate remedy at law may not be available, and therefore, injunctive or
other equitable relief would be appropriate to restrain such use, reproduction,
distribution or disclosure, threatened or actual
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8.8 RESIDUALS. Notwithstanding any provision of this Section 8.0 or any
other provision of this Agreement to the contrary, neither party shall be
prohibited from, or be subject to liability for, using for any purpose the
"residuals" from the activities conducted in furtherance of the Development Plan
and from the use of or access to information or materials developed or received
hereunder, including, without limitation, any Technology. For purposes of this
Section 8.8, "residuals" means the know-how, techniques, ideas and other
intangible information that remain within the general knowledge and experience
of personnel who have participated in such activities and used or had access to
such information or materials.
9. WARRANTIES AND EXCLUSIONS
9.1 "AS IS." SGI PROVIDES THE BACKGROUND TECHNOLOGY TO COMPANY ON AN "AS-
IS" BASIS ONLY, AND DOES NOT WARRANT OR REPRESENT THAT THE OPERATION OF THE
BACKGROUND TECHNOLOGY WILL BE UNINTERRUPTED OR ERROR FREE, THAT ANY DEFECTS IN
THE BACKGROUND TECHNOLOGY ARE CORRECTABLE OR WILL BE CORRECTED, OR THAT THE USE
THEREOF WILL BE FREE FROM CLAIMS OF INFRINGEMENT.
9.2 WARRANTY EXCLUSION. NEITHER PARTY PROVIDES ANY WARRANTY WHATSOEVER TO
THE OTHER PARTY WITH RESPECT TO THE DEVELOPED TECHNOLOGY. Nothing contained in
this Agreement shall be construed as a warranty or representation by either
party that any manufacture, use, sale, lease or other disposition of the
Developed Technology will be free from infringement of any patent or other
proprietary right of any third party.
9.3 REPRESENTATIONS AND WARRANTIES.
a. By Company. Company represents and warrants to SGI as follows:
(i) This Agreement has been duly executed and delivered by Company and is
the valid and binding obligation of Company enforceable in accordance with its
terms. No approval or consent of any foreign, federal, state, county, local, or
other governmental or regulatory body, and no approval or consent of any other
Person is required in connection with the execution and delivery by Company of
this Agreement and the consummation and performance by Company of the
transactions contemplated hereby; and
(ii) The execution, delivery, and performance of this Agreement and the
consummation of the transactions contemplated hereby will not result in a
material breach or violation of or constitute (or with notice or lapse of time
or both would constitute) a default under: [1] the Articles of Incorporation,
any amendments to it, or the bylaws of Company; [2] any instrument, contract, or
other agreement to which Company is a party or by or to which Company or any of
its assets or properties is bound or subject; or [3] any order, judgment,
injunction, award, or decree of any court, arbitrator or governmental or
regulatory body against or binding upon or applicable to Company or upon the
securities, properties, and businesses of Company.
b. By SGI. SGI represents and warrants to Company as follows:
(i) This Agreement has been duly executed and delivered by SGI and is the
valid and binding obligation of SGI enforceable in accordance with its terms. No
approval or consent of any foreign, federal, state, county, local, or other
governmental or regulatory body, and no approval or consent of any other Person
is required in connection with the execution and delivery by SGI of this
Agreement and the consummation and performance by SGI of the transactions
contemplated hereby; and
(ii) The execution, delivery, and performance of this Agreement and the
consummation of the transactions contemplated hereby will not result in a
material breach or violation of or constitute (or with notice or lapse of time
or both would constitute) a default under: [1] the Articles of Incorporation,
any amendments to it, or the bylaws of SGI; [2] any instrument, contract, or
other agreement to which SGI is
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a party or by or to which SGI or any of its assets or properties is bound or
subject; or [3] any order, judgment, injunction, award, or decree of any court,
arbitrator or governmental or regulatory body against or binding upon or
applicable to SGI or upon the securities, properties, and businesses of SGI.
(iii) As of the Effective Date, no action, suit, or proceeding is currently
pending before any court or governmental or regulatory body claiming that the
Background Technology infringes or misappropriates the intellectual property
rights of any third party.
9.4 DISCLAIMER. THE FOREGOING WARRANTIES ARE IN LIEU OF, AND EACH PARTY
DISCLAIMS, ANY OTHER WARRANTIES, EXPRESS, IMPLIED OR OTHERWISE, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE AND NONINFRINGEMENT.
9.5 SGI INTELLECTUAL PROPERTY INDEMNIFICATION. SGI will defend,
indemnify, and hold harmless Company and its Affiliates, directors, officers,
employees and agents against any claim, suit or proceeding alleging that the
Background Technology or SGI's contributions to the Developed Technology or use
thereof infringes or misappropriates any U.S. OR Japanese copyright, mask work,
trade secret, patent or other intellectual property, proprietary or contract
rights of any third party and against any damages or liability resulting from
such claim, suite or proceeding, including, without limitation, reasonable
attorneys' fees and other costs and expenses, provided that (i) Company gives
SGI notice of the claim, suit or proceeding promptly after commencement thereof
(or, if later, promptly after Company learns that such claim, suit or proceeding
relates to the Background Technology or SGI's contribution to the Developed
Technology), (ii) SGI may not settle any claim, suit or proceeding without the
prior, written consent of Company which consent shall not be unreasonably
withheld, provided that if Company refuses to consent to settlement acceptable
to the plaintiff(s) and proposed by SGI to Company, SGI's total liability under
this Section 9.5 shall be limited to the amount of the proposed settlement and
attorney's fees incurred as of the date of SGI's request for Company's consent,
and (iii) Company provides SGI with all reasonable assistance requested by SGI
in connection with the defense and/or resolution of any such claim, suit or
proceeding, at SGI's expense. Notwithstanding the defense obligation of SGI
under this Section 9.5, Company shall have the right, at its own expense, to
appoint its own counsel to participate in any claim, suit or proceeding, and SGI
shall cooperate with Company and such counsel. If there is a final determination
of infringement or misappropriation, SGI shall, at its option, use reasonable
efforts to, (i) replace or modify any component of the Background Technology or
SGI's contribution to the Developed Technology with a functionally equivalent
noninfringing component that conforms to the requirements of this Agreement, or
(ii) obtain a license for Company to use such Background Technology or SGI's
contribution to the Developed Technology. Notwithstanding the foregoing, SGI
shall have no liability for a claim, suit or proceeding to the extent based on
(a) modification of the Background Technology or SGI's contribution to the
Developed Technology by or for Company (other than by SGI), or (b) Company's use
of the Background Technology or SGI's contribution to the Developed Technology
with Accessories not supplied by SGI, or (c) Company's use of a version of the
Background Technology or SGI's contribution to the Developed Technology that was
not at the time of use the most recent version provided by SGI to Company. For
purposes of this Section 9.5, SGI's contributions to the Developed Technology
shall include any technology developed by SGI subcontractors. SGI'S LIABILITY
UNDER THIS SECTION 9.5 SHALL IN NO EVENT EXCEED THE DEVELOPMENT FEES AND
ROYALTIES PAID BY COMPANY TO SGI UNDER THIS AGREEMENT.
9.6 COMPANY INTELLECTUAL PROPERTY INDEMNIFICATION. Company will defend,
indemnify, and hold harmless SGI and its Affiliates, directors, officers,
employees and agents against any claim, suit or proceeding alleging that the
Company contributions to the Developed Technology or use thereof infringes or
misappropriates any U.S. or Japanese copyright, mask work, trade secret, patent
or other intellectual property, proprietary or contract rights of any third
party and against any damages or liability resulting from such claim, suite or
proceeding, including, without limitation, reasonable attorneys' fees and other
costs and expenses, provided that (i) SGI gives Company notice of the claim,
suit or proceeding promptly after commencement thereof (or, if later, promptly
after SGI learns that such claim, suit or proceeding relates to the Company
contributions to the Developed Technology), (ii) SGI gives Company sole
authority to defend and/or resolve any such claim, suit or proceeding or the
portion
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thereof relating to the Company contributions to the Developed Technology, and
(iii) SGI provides Company with all reasonable assistance requested by Company
in connection with the defense and/or resolution of any such claim, suit or
proceeding, at Company's expense. Notwithstanding the defense obligation of
Company under this Section 9.6, SGI shall have the right, at its own expense, to
appoint its own counsel to participate in any claim, suit or proceeding, and
Company shall cooperate with SGI and such counsel. Notwithstanding the
foregoing, Company shall have no liability for a claim, suit or proceeding to
the extent based on (a) modification of the Company contributions to the
Developed Technology or (b) SGI's use of the Company contributions to the
Developed Technology with equipment or components not supplied by Company. For
purposes of this Section 9.6, Company's contributions to the Developed
Technology shall include any technology developed by Company subcontractors.
COMPANY'S LIABILITY UNDER THIS SECTION 9.6 SHALL IN NO EVENT EXCEED THE
DEVELOPMENT FEES AND ROYALTIES PAID BY COMPANY TO SGI UNDER THIS AGREEMENT.
10. LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE
OTHER PARTY FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES OF
ANY KIND, (INCLUDING WITHOUT LIMITATION LOSS OF PROFIT OR DATA) WHETHER OR NOT
ADVISED OF THE POSSIBILITY OF SUCH LOSS, HOWEVER CAUSED, WHETHER FOR BREACH OR
REPUDIATION OF CONTRACT, BREACH OF WARRANTY, NEGLIGENCE, INABILITY TO USE THE
BACKGROUND OR DEVELOPED TECHNOLOGY, OR OTHERWISE. IN NO EVENT SHALL THE
AGGREGATE LIABILITY OF EITHER PARTY TO THE OTHER EXCEED THE TOTAL AMOUNT PAYABLE
BY COMPANY TO SGI UNDER THIS AGREEMENT. THE ESSENTIAL PURPOSE OF THIS PROVISION
IS TO LIMIT THE POTENTIAL LIABILITY OF THE PARTIES ARISING OUT OF THIS AGREEMENT
AND/OR LICENSE.
11. TERM; TERMINATION.
11.1 TERM. This Agreement shall commence on the Effective Date, and shall
expire ten (10) years from the date of Company's first commercial shipment of a
Coin Operated Hardware or Consumer Hardware incorporating Developed Technology,
whichever is first, provided, however, that (i) the development stage of this
Agreement shall expire in accordance with the Development Plan, (ii) this
Agreement may be terminated earlier in accordance with Section 4.2, and (iii)
this Agreement may be terminated earlier in accordance with Section 11.2.
Company shall have the right to renew this Agreement for an additional five-year
period; provided (i) that, during the initial term of this Agreement, Company
has paid royalties to SGI in the amount set forth on Attachment E; and (ii) that
Company and SGI agree on royalty rates applicable to such five (5)-year term
(Company and SGI agree to negotiate such royalties in good faith).
11.2 TERMINATION FOR BREACH. If either party materially breaches any of
its obligations under this Agreement, upon sixty (60) days written notice
specifying such breach in detail, the notifying party may terminate this
Agreement, and all rights or licenses granted by the notifying party to the
breaching party hereunder, unless the breach specified in such notice has been
cured during the sixty (60) day period, or unless the breaching party is making
diligent efforts to cure a breach that is not reasonably susceptible of cure
within sixty (60) days. Notwithstanding the foregoing, Company shall be
obligated to cure any breach of any monetary obligations to SGI within thirty
(30) days of its receipt of notice of the breach. In the event of a termination
for breach, all licenses in Background Technology granted to the notifying party
hereunder prior to the effective date of such termination shall continue in full
force and effect.
11.3 EFFECT OF TERMINATION. In any event of termination under Section
11.2, the nonbreaching party shall be entitled to retain any Developed
Technology which it has received or developed to the date of such termination,
and all sublicenses granted by either party prior to the date of such
termination shall remain in effect.
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11.4 SURVIVAL. The rights and obligations of the parties under Sections
6.1 (JOINT OWNERSHIP), 8.0 (PROPRIETARY AND CONFIDENTIAL INFORMATION), 9.0
(WARRANTIES AND EXCLUSIONS), 10.0 (LIMITATION OF LIABILITY), 11.2, 11.3, 11.4,
12.0, and 13.1 shall survive and continue after any termination or expiration of
this Agreement or termination of any license or rights under this Agreement, for
any reason whatsoever.
12. EXPORT. Notwithstanding any rights, license or privileges specified in
this Agreement, each party agrees that it will not export any technology
provided by the other party hereunder or jointly developed hereunder, or any
part thereof, either directly or indirectly, without first obtaining any
required licenses to so export from the United States Government, and further
agrees that it will comply with all laws, rules and regulations applicable to
the export or reexport of such technology.
13. GENERAL.
13.1 GOVERNING LAW. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of California, excluding its choice of
law rules. Company hereby consents to the jurisdiction of the federal courts
located in the Northern District of California over any dispute between SGI and
Company arising out of or in connection with this Agreement, and waives any
other venue to which it may be entitled by virtue of domicile or otherwise.
13.2 SEVERABILITY. In the event that any one or more of the provisions of
this Agreement shall for any reason be held to be unenforceable in any respect
under any federal or state law, such unenforceability shall not affect any other
provision, but this Agreement shall then be construed as if such unenforceable
provision or provisions had never been contained herein, provided that in such
event the parties agree to negotiate in good faith substitute enforceable
provisions which most nearly effect the parties original intent in entering into
this Agreement.
13.3 ASSIGNMENT. Except as specifically provided to the contrary in this
Agreement, this Agreement and the licenses granted hereunder are to a specific
entity or legal person, and all rights hereunder are not assignable nor are the
obligations imposed delegable by either party without the prior written consent
of the other party which shall not be unreasonably withheld.
13.4 MODIFICATION. This Agreement may be modified only by a writing
signed by each party.
13.5 NONWAIVER. The failure of either party to enforce at any time any of
the provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce any such provisions.
13.6 NO AGENCY. This is a development and license agreement; no agency,
partnership, joint venture or other relationship is created hereby, and neither
party has any authority of any kind to bind the other party in any respect
whatsoever.
13.7 FORCE MAJEURE. Except for Company's obligations under Section 7
above, notwithstanding anything else in this Agreement, no default, delay or
failure to perform on the part of either party shall be considered a breach of
this Agreement, if such default, delay, or failure to perform is shown to be due
entirely to causes beyond the reasonable control of the party charged with a
default, including, but not limited to, causes such as strikes, lockouts or
other labor disputes, riots, civil disturbances, actions or inactions of
governmental authorities or suppliers, epidemics, war, embargoes, severe
weather, fire, earthquakes, acts of God or the public enemy, nuclear disasters,
or default of a common carrier.
13.8 NOTICES. All notices, reports, statements and approvals ("Notices")
which either party is required or permitted to give under this Agreement shall
be sufficiently given when the same shall be: (a) personally served or delivered
to the party entitled to such Notice; or (b) deposited, postage prepaid, with a
guaranteed international or domestic air courier service, addressed to the
person and address stated
14
<PAGE>
herein, or to such other person or address as may be provided in a written
notice by either party to the other; or (c) when transmitted by facsimile with
an original sent concurrently by first class mail (or guaranteed international
or domestic air courier service), addressed to the person, facsimile number, and
address stated above, or to such other person, address or facsimile number as
may be provided in a written notice by either party to the other. Notice shall
be deemed effective upon the earlier of actual receipt or three (3) business
days after mailing or transmittal.
13.9 SECTION HEADINGS AND CAPTIONS. The parties agree that the Section or
paragraph headings and captions used in this Agreement are for reference
purposes only and shall not be used in the interpretation of this Agreement.
13.10 EXECUTION IN COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be an original instrument, but all of
which shall constitute one and the same agreement. A facsimile signature shall
have the same force and effect as an original signature.
13.11 ENTIRE AGREEMENT. This Agreement supersedes all proposals oral or
written, all negotiations, conversations or discussions between the parties
relating to this Agreement and all past course of dealing or industry custom,
including the Nondisclosure Agreement between Company and SGI. It is expressly
understood and agreed that, because the parties hereto, no usage of trade or
other regular practice or method of dealing, either within the computer
industry, the software industry or between the parties hereto shall be used to
modify, interpret, supplement or alter in any manner the express terms of this
Agreement or any part hereof.
SGI: COMPANY:
SILICON GRAPHICS, INC. NINTENDO CO., LTD.
By: /s/ Wei Yen By: /s/ Mr. Hiroshi Yamauchi, President
------------ -----------------------------------
Name: Wei Yen
-------
Title: Senior Vice President
---------------------
MIPS TECHNOLOGIES, INC. NINTENDO OF AMERICA INC.
By: /s/ Wei Yen By: /s/ Mr. Minoru Arakawa, President
----------- ---------------------------------
Name: Wei Yen
-------
Title: President
---------
15
<PAGE>
ATTACHMENT A
BACKGROUND TECHNOLOGY
"Background Technology" means the MIPS Multimedia Engine, including the
MIPS microprocessor architecture and instruction set, graphics library, video
library and audio library, and SGI and MIPS API and ABI and any other Technology
(a) developed prior to the Effective Date of (b) under development at SGI as of
the Effective Date and supplied by SGI to Company in connection with the
development of the Company Products.
16
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION.
ATTACHMENT B
DEVELOPED TECHNOLOGY
"Developed Technology" means the following technology, to the extent
developed under this Agreement and delivered by SGI to Company pursuant to the
Development Plan in connection with the development of the Company Products:
XXXXXX for Company Products.
17
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[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION.
ATTACHMENT C
DEVELOPMENT FUNDING AND ROYALTIES
DEVELOPMENT FUNDING: To be agreed pursuant to Section 4.2
ADVANCE AGAINST ROYALTIES:
XXXXXXXXX of the development funding paid to SGI, up to XXXXXXXX pursuant
to Sections 4.2 and 7.1, shall be deemed an advance against royalties. All
development funding in excess of XXXXXXXXXX paid to SGI pursuant to
Sections 4.2 and 7.1 shall be deemed an advance against royalties.
INITIAL PAYMENT: XXXXXXX (such initial payment shall be considered all
development fees, and not an advance against royalties).
ROYALTIES:
a) XXXXXXXXX for each Coin Operated Hardware incorporating Developed
Technology sold by Company or Licensee;
b) XXXXXXXXX for each of the first Ten Million (10,000,000)
units of Consumer Hardware incorporating Developed Technology
sold by Company; and
c) XXXXXXXXX for each Packaged Software sold by Company or a
Licensee for use on a Consumer Hardware incorporating Developed
Technology.
No royalties are payable on Coin Operated Software or Accessories or system
software upgrades.
18
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ATTACHMENT D
COMPETITIVE COMPANIES
1. Sega Enterprises, Ltd.
2. Sega of America, Inc.
3. Atari Corp.
4. 3DO Company
19
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION.
ATTACHMENT E
MINIMUMS FOR EXCLUSIVITY
<TABLE>
<CAPTION>
MINIMUM ROYALTIES PER YEAR
YEAR (IN MILLIONS)
<S> <C>
2* XXXXXX
3 XXXXXX
4 XXXXXX
5 XXXXXX
6 XXXXXX
7 XXXXXX
8 XXXXXX
9 XXXXXX
10 XXXXXX
</TABLE>
. Ends 24 months after the date of first sale of the Consumer Hardware
incorporating Developed Technology.
20
<PAGE>
EXHIBIT 10.8.2
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN ORDER
GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE COMMISSION
FIRST ADDENDUM TO
JOINT DEVELOPMENT AND LICENSE AGREEMENT
THIS IS A FIRST ADDENDUM TO THAT CERTAIN JOINT DEVELOPMENT AND LICENSE AGREEMENT
DATED AUGUST 20, 1993, (the "Original Agreement") among Nintendo Co., Ltd.
("NCL"), Nintendo of America Inc. ("NOA")(NCL and NOA are collectively referred
to as "Company"), Silicon Graphics, Inc., and MIPS Technologies, Inc.
(collectively referred to as "SGI").
NOW, THEREFORE, the parties hereby agree as follows:
1. DEFINITIONS. THE DEFINITIONS IN THE ORIGINAL AGREEMENT ARE HEREBY
incorporated by reference in this FIRST ADDENDUM.
2. BUDGET. SGI HAS ADVISED THE COMPANY THAT THE BUDGET FOR SGI'S WORK UNDER THE
Development Plan is U.S. XXXXXXXXX (the "Budget"). The Budget represents SGI's
good faith calculation of its actual costs to complete its work under the
Development Plan which includes, but is not limited to, SGI's costs of personnel
resources, equipment costs for experimentation, development and CAD tools. The
Budget is stated as a flat fee (fixed fee) for the completion of SGI's work
under the Development Plan. Company hereby accepts the Budget and shall make
payment to SGI in accordance with Schedule B. SGI acknowledges that the Company
has already paid U.S. XXXXXXXXX of the Budget.
3. DEVELOPMENT PLAN. THE PARTIES AGREE TO THE DEVELOPMENT PLAN SET FORTH ON
Schedule A. The parties acknowledge that Section 4.4 of the Original Agreement
requires that the parties use "reasonable efforts" to develop the Developed
Technology substantially in accordance with the Development Plan attached as
Schedule A, or any revised Development Plan agreed upon by the parties,
including any applicable target dates.
Except as set forth herein, the Original Agreement is hereby ratified and
confirmed.
NINTENDO CO., LTD. NINTENDO OF AMERICA INC.
By: /s/ Hiroshi Yamauchi By: /s/ Minoru Arakawa
-------------------- ------------------
Mr. Hiroshi Yamauchi Mr. Minoru Arakawa
President President
February 4, 1994 February 5th, 1994
SILICON GRAPHICS, INC. MIPS TECHNOLOGIES, INC.
By: /s/ Wei Yen BY: /s/ Wei Yen
----------- -----------
Name: Wei Yen Name: Wei Yen
Title: Senior Vice President Title: Chairman of the Board
February 4 , 1994 February 4 , 1994
Attachments: Schedules A, A-1, and B.
<PAGE>
FINAL: 2-3-94
SCHEDULE A
DEVELOPMENT PLAN
OBJECTIVES:
The objectives under this Development Plan are to develop and design:
1. Consumer Hardware that: (a) will have SGI-Class Graphics Performance (see
definition below) and other specifications to be identified by the parties, (b)
has a target date of September 1, 1995 for commercial shipment by Company to its
retailers and dealers so that Company can sell the Consumer Hardware during the
1995 holiday season, and (c) has a suggested retail price of U.S. $250 or less.
2. Coin-Operated Hardware, which will use an enhanced and/or modified version
of the Consumer Hardware LSI chip set, the specifications for which are to be
identified by the parties by mutual agreement.
3. Initial Emulation Unit(s) (defined herein) and its video game development
environments, which will allow the Company and a relatively small number of its
video game developers to proceed as quickly as possible to create exciting video
games (prior to the time that the Licensee Emulation Unit is available) so that
video games playable on the Consumer Hardware are ready for commercial shipment
simultaneously with the commercial shipment of the Consumer Hardware in order to
support a strong launch of the Consumer Hardware.
4. a Licensee Emulation Unit (defined herein) and its video game development
environments, which will be available to Company and its licensees in order to
create exciting video games playable on the Consumer Hardware.
PARTIES' TASKS:
1. LSI (LARQE SCALE INTEGRATED CIRCUIT) DESIGN FOR CONSUMER HARDWARE.
A. DESCRIPTION: SGI shall be responsible for the LSI (Large Scale Integrated
circuit) design for the Consumer Hardware, which includes LSI's verification,
cost-conscious, testability, and reliability design for critical- mass
semiconductor production. The Consumer Hardware is expected to have SGI- Class
Graphics Performance, the current target specifications for which are set forth
in Schedule A1 (called Home Box Baseline), which target specifications set forth
the functionality of a hyper 2D application. SGI and Company acknowledge that
they will mutually agree on modifications and/or additions to the target
specifications in the Home Box Baseline to achieve the functionality of an
integrated architecture that is capable of both hyper 2D and 3D graphics for
video games. SGI and Company also acknowledge that, by mutual agreement, they
will modify functional specifications based on the affect of various functional
alternatives on the suggested retail price for the Consumer Hardware, the
desirability of the Consumer Hardware to the market, and the target dates set
forth in this Development Plan. The parties will jointly agree and approve the
final design for the LSI chip set. The parties do not know the number of LSI
chips to be designed but consider the range to be from two (2) to three (3)
chips. Company contemplates that it will designate one company (NEC) to be the
only vendor for the LSI chip set until the first commercial shipment by Company
of the Consumer Hardware. Therefore, for purposes of this Development Plan, SGI
will be obligated to work with only one vendor of the LSI chip set. The
following are the function blocks to be included in the chip(s):
(i) CENTRAL PROCESSING UNIT ("CPU").
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION.
DESCRIPTION: The parties contemplate that the CPU will be a MIPS R4000 series or
a derivative. If any customization is necessary, it will be done by SGI, in
consultation with Company and the CPU vendor selected by Company. The
customization, if any, would remove unnecessary functions from the CPU, and add
additional functions desirable for video games including, but without
limitation, security microcode for curbing counterfeiting of video games.
(ii) GRAPHIC AND/OR AUDIO DIGITAL SIGNAL PROCESSOR ("DSP")
DESCRIPTION: Programmable DSP which provides graphic geometry calculation and
other arithmetic calculations and/or sound signal generation, which will be
tuned with the CPU for maximum performance within the price considerations.
(iii) GRAPHIC DRAWING ENGINE ("GDE").
DESCRIPTION: The GDE shall have SGI-Class Graphics Performance and other
specifications to be identified by the parties (including Company's
specifications relevant to video gaming).
(iv) DYNAMIC RANDOM ACCESS MEMORY ("DRAM") DEVICES. DESCRIPTION: The Consumer
Hardware shall include an architecture for efficient utilization of dynamic
random access memory ("DRAM") devices.
(v) INPUT/OUTPUT ("I/O"). DESCRIPTION: Input from game controller, joystick,
microphone, etc. and interface to game storage device (ROM cartridge, CD ROM,
etc.), output to sound DAC (Digital to Analog Converter), output to video DAC
for a variety of video output standards, input and output with expansion port,
and input and output with communication port. The parties contemplate that the
I/O interface will be integrated into the LSI chip set.
B. DELIVERABLES AND TARGET DATES.
(i) SGI Deliverable for the LSI chip set: First silicon. A block diagram and
technical documentation related to the design of the LSI chip set delivered by
SGI to the Company.
(ii) Target Dates:
(a) Desirable Target Date for first silicon: January 1, 1995.
(b) Latest Target Date for first silicon: March 31, 1995.
(c) Desirable Target Date for finalizing the choice of DRAM: February 5, 1994.
(d) Latest Target Date for finalizing the choice of DRAM: March 15, 1994.
C. PAYMENT TO THIRD PARTY: To the extent any payment is required to be paid to
a third party for the LSI chip set, at SGI's expense, SGI shall be responsible
for making such payment (in an amount not to exceed U.S. XXXXXX
2. ENHANCED AND/OR MODIFIED VERSION OF LSI DESIGN FOR COIN-OPERATED HARDWARE.
DESCRIPTION: SGI shall be responsible for the enhancement of and/or modification
to the Consumer Hardware LSI for the Coin-Operated Hardware LSI. The parties
will meet and agree on the appropriate revisions/modifications. The target date
for meeting and reaching agreement on the appropriate revisions/modifications is
First Quarter 1994. The parties will jointly agree and approve the final design
for the enhanced LSI for the Coin-Operated Hardware.
<PAGE>
SGI DELIVERABLE: First silicon of enhanced Consumer Hardware LSI. A block
diagram and technical documentation for the LSI chip set to be delivered by SGI
to Company.
DESIRABLE TARGET DATE FOR SGI DELIVERABLE: To be agreed.
LATEST TARGET DATE FOR SGI DELIVERABLE: To be agreed.
3. ENGINEERING WORK/TECHNICAL INVESTIGATIONS.
DESCRIPTION: Although Company shall be responsible for the design and
engineering of the Consumer Hardware and Coin-Operated Hardware through use of
SGl's LSI chip set, upon the request of Company, SGI shall provide reasonable
assistance to the Company in this process including, but without limitation, by
SGI making reasonable technical investigations for assessing the feasibility of
engineering options (e.g. investigating choice of components), and by assisting
the Company with the design and engineering of the Consumer Hardware and
Coin-Operated Hardware (e.g. designing PC board artwork, FCC countermeasures,
expandability through add-ons like an CD ROM adapter). In addition, to the
extent there is a design-originated "bug" that occurs after the parties jointly
approve the final LSI chip set, SGI will provide technical advice on how to
correct the problem.
SGI DELIVERABLE: Depends on the request made by the Company.
TARGET DATE FOR SGI DELIVERABLE: For the Consumer Hardware, SGI's assistance
will be on-going until the first commercial shipment of the Consumer Hardware or
final approval of the LSI chip set for the Consumer Hardware, whichever occurs
later. For the Coin-Operated Hardware, SGI's assistance with be on-going until
the parties jointly approve the final LSI design for the Coin-Operated Hardware.
4. INITIAL EMULATION UNITS.
DESCRIPTION: SGI shall be responsible for the design of emulation units of the
Consumer Hardware (the "Initial Emulation Units"), which shall consist of the
(i) First Initial Emulation Unit, and (ii) the Second Initial Emulation Unit.
The Initial Emulation Units shall be designed according to the specifications
agreed to by SGI and Company. The Initial Emulation Units will be used by the
Company and its video game developers to develop initial games for play on the
Consumer Hardware.
FIRST INITIAL EMULATION UNIT.
The parties contemplate that the First Initial Emulation Unit will consist of a
high-performance SGI system (e.g. the Reality Engine) and software which will
closely represent the functionality of the Consumer Hardware. The parties agree
that it is important that the First Initial Emulation Unit provide a realistic
"look and feel" of the Consumer Hardware to be designed and have the approximate
clocktime of the Consumer Hardware to be designed. The parties contemplate that
SGl's tasks for the First Initial Emulation Unit will include the following: (i)
if interface hardware is necessary, implementation for a small production (10 -
20 units) of interface hardware, (ii) development of software for the First
Initial Emulation Unit, (iii) the assembly and delivery of two complete First
Initial Emulation Units (including some SGI system), one to be used by SGI and
one to be used by the Company.
SECOND INITIAL EMULATION UNIT.
The parties contemplate that the Second Initial Emulation Unit will consist of a
pre-released LSI chip set with a hardware interface to some SGI machine (e.g.
Indy). The parties contemplate that SGI's tasks for the Second Initial Emulation
Unit will include the following: (i) designing the hardware and implementation
for a small production (20 - 30 units) (iii) developing software for the Second
Initial Emulation Unit, and (iv) the assembly and delivery of twenty (20)
complete Second Initial Emulation Units (including some SGI system), five (5) to
be used by SGI and fifteen (15) to be used by the Company.
<PAGE>
SGI DELIVERABLE FOR FIRST INITIAL EMULATION UNIT: SGI shall deliver to the
Company one First Initial Emulation Unit (hardware, software, and technical
documentation). SGI to provide software updates for the First Initial Emulation
Unit via a quick and efficient distribution method. SGI shall make additional
First Initial Emulation Units available to the Company for purchase by the
Company at SGl's cost (First Initial Emulation Units supplied at SGI's cost not
to exceed 20) (additional First Initial Emulation Units not included in the
Budget).
DESIRABLE TARGET DATE FOR SGI DELIVERABLE FOR FIRST INITIAL EMULATION UNIT:
May 31, 1994.
LATEST TARGET DATE FOR SGI DELIVERABLE FOR FIRST INITIAL EMULATION UNIT:
July 31, 1994.
SGI DELIVERABLE FOR SECOND INITIAL EMULATION UNIT: SGI shall deliver to the
Company one Second Initial Emulation Unit (hardware, software, and technical
documentation). SGI to provide software updates for the Second Initial Emulation
Unit via a quick and efficient distribution method. SGI shall make additional
Second Initial Emulation Units available to the Company for purchase by the
Company (additional Second Initial Emulation Units not included in the Budget).
DESIRABLE TARGET DATE FOR SGI DELIVERABLE FOR SECOND INITIAL EMULATION
UNIT: January 1, 1995.
LATEST TARGET DATE FOR SGI DELIVERABLE FOR SECOND INITIAL EMULATION UNIT:
March 31, 1995.
5. LICENSEE EMULATION UNIT.
DESCRIPTION: Company anticipates that Company will design (or have a third party
design) an "Licensee Emulation Unit," which is defined as a home box made by
using the actual LSI chip set from the Consumer Hardware, plus extra control
hardware and interface for programming and debugging purposes. The target dates
for Company's completion of the Licensee Emulation Unit are:
DESIRABLE TARGET DATE FOR COMPLETION OF LICENSEE EMULATION UNIT: March 31, 1995.
LATEST TARGET DATE FOR COMPLETION OF LICENSEE EMULATION UNIT: April 30, 1995.
The cost associated with Company's design of the Licensee Emulation Unit is not
part of the Budget; rather, it is at Company's expense. However, SGI agrees to
provide reasonable consultation and technical advice to Company in connection
with Company's design of the Licensee Emulation Unit.
6. PROGRAMMING ENVIRONMENT(S).
DESCRIPTION: Company shall be responsible for the programming environment(s) for
the Initial Emulation Units and the Licensee Emulation Unit, which
environment(s) may be used by the Company and its video game developers for
programming video games. It is contemplated that the programming environment(s)
for the Initial Emulation Units and Licensee Emulation Units will include a
customized assembler, and a C compiler if applicable, and a computer system such
as Indy, PC and other possible systems. The Company anticipates that Company,
and initial video game developers, will use SGl's Indy for the programming
environment with the Initial Emulation Units.
<PAGE>
SGI agrees to consult with and provide technical advice to Company with regard
to the programming environment(s) for the Initial Emulation Units and the
Licensee Emulation Unit.
DESIRABLE TARGET DATE FOR COMPANY'S COMPLETION OF PROGRAMMING ENVIRONMENT
FOR INITIAL EMULATION UNIT: May 31, 1994.
LATEST TARGET DATE FOR COMPANY'S COMPLETION OF PROGRAMMING ENVIRONMENT FOR
INITIAL EMULATION UNIT: July 31, 1994.
DESIRABLE TARGET DATE FOR COMPANY'S COMPLETION OF PROGRAMMING ENVIRONMENT FOR
LICENSEE EMULATION UNIT: March 31, 1995.
LATEST TARGET DATE FOR COMPANY'S COMPLETION OF PROGRAMMING ENVIRONMENT FOR
LICENSEE EMULATION UNIT: April 30, 1995.
7. VISUAL DESIGN ENVIRONMENT.
DESCRIPTION: Company contemplates that it will contract as quickly as possible
with a third party (currently expected to be Alias Research Inc.) to develop
and/or customize the third party's off-the-shelf software to use as the visual
design environment for the Initial Emulation Units and Licensee Emulation Units.
The Company shall make the final decision regarding the choice of the third
party. Because the software for the visual design environment must efficiently
interface with the Initial Emulation Units designed by SGI, SGI and Company
shall jointly be responsible for defining the specification given to the third
party for development and/or modification of the software for the visual design
environment.
DESIRABLE TARGET DATE FOR DELIVERABLE OF VISUAL DESIGN ENVIRONMENT: May 31,
1994.
LATEST TARGET DATE FOR DELIVERABLE OF VISUAL DESIGN ENVIRONMENT: July 31, 1994.
PAYMENT TO THIRD PARTY: If the third party contracted with to do the visual
design environment requires payment of a fee, that expense is not part of the
Budget. Rather, it is at Company's expense.
8. AUDIO DESIGN ENVIRONMENT.
DESCRIPTION: Company contemplates that it will contract as quickly as possible
with a third party (currently not identified) to develop and/or customize the
third party's off-the-shelf software to use as the audio design environment for
the Initial Emulation Units and Licensee Emulation Units. The Company shall make
the final decision regarding the choice of the third party. Because the software
for the audio design environment must efficiently interface with the Initial
Emulation Units designed by SGI, SGI and Company shall jointly be responsible
for defining the specification given to the third party for development and/or
modification of the software for the audio design environment.
DESIRABLE TARGET DATE FOR DELIVERABLE OF AUDIO DESIGN ENVIRONMENT: May 31, 1994.
LATEST TARGET DATE FOR DELIVERABLE OF AUDIO DESIGN ENVIRONMENT: July 31, 1994.
PAYMENT TO THIRD PARTY: If the third party contracted with to do the audio
design environment requires payment of a fee, that expense is not part of the
Budget. Rather, it is at Company's expense.
<PAGE>
9. GRAPHICS LIBRARY TUTORIAL AND DEMONSTRATION PACKAGE.
DESCRIPTION: SGI shall be responsible for supplying the Company with one or more
sample game frameworks, source code, algorithms, and commentary illustrating the
use of a library that demonstrates and explains the creation and rendering of
hyper 2D polygons, 3D polygons, and other graphics programming techniques
relevant to the Consumer Hardware. The purpose of this software is to
demonstrate to the Company and its video game developers how hyper 2D and 3D
graphics can be accomplished in video games using the LSI chip set and versions
of the visual design environment, audio design environment, and programming
environment(s). The parties contemplate an introductory package ("Introductory
Package") and then a later more advanced package ("Advanced Package") of the
materials described in this paragraph. By way of example, and not by way of
limitation, the Company and its video game developers will need to understand
how to create a polygon. These packages are intended to assist the Company and
its video game developers in understanding good programming techniques for the
Consumer Hardware. The parties will mutually agree on the release/distribution
of the materials described in this paragraph.
SGI DELIVERABLE: Program source code, supplemented by extensive written
materials described above.
DESIRABLE TARGET DATE FOR SGI DELIVERABLE FOR INTRODUCTORY PACKAGE: May 31,
1994.
LATEST TARGET DATE FOR SGI DELIVERABLE FOR INTRODUCTORY PACKAGE: June 31, 1994.
DESIRABLE TARGET DATE FOR SGI DELIVERABLE FOR ADVANCED PACKAGE: January 31,
1995.
LATEST TARGET DATE FOR SGI DELIVERABLE FOR ADVANCED PACKAGE: March 31, 1995
ATTACHMENT: SCHEDULE A1
Silicon Graphics Confidential Home Box Baseline
SCHEDULE A1
HOME BOX BASELINE
The purpose of this document is to summarize discussions about the baseline
functionality of a future home game box. The baseline functionality is that of
a "hyper" traditional 2D video game. Other functionality such as true 3D
capability is not considered here.
1.DISPLAY
The display is from a full-screen memory image (bit map). The image is double
buffered. (There may be more than one display image, see Display Overlay.)
1.1.DISPLAY FORMAT
The display image size is 320 by 240 for NTSC at 60Hz (50Hz for PAL). A single
fixed pixel clock frequency is desirable, such as 6MHz. Various display formats
are supported:
320x240 non-interlaced. 320x240 non-interlaced with horizontal filtering to
640x240. 320x240 interlaced with vertical filtering to 320-480. 320x240
interlaced with horizontal and vertical filtering to 640x480.
<PAGE>
An option may be a 640 by 480 display image. The visible line and pixel start
location and count should be supported. Filtering may be supported through line
buffers in the display hardware.
1.2. DISPLAY OUTPUT
Display output should support analog composite video, S-video, and RGB. The
integration of the video DAC and encoder on chip is desirable. Video output
enhancement filtering such as Clear Vision should be investigated.
1.3. DISPLAY COLOR
The display color is 5/5/5 RGB in a 16 bit pixel. An option may be 8/8/8 RGB.
The display color should be gamma corrected through a lookup table in the
display hardware.
1.3.1. DISPLAY INDEXED COLOR
8 bit indexed color display should be supported. Indexed color display might
use the display gamma correction lookup table or might share the graphics
drawing lookup table.
1.4. DISPLAY OVERLAY
Display overlay of multiple images may be required if sprite performance is less
than optimal. There can be up to four overlay images. The HV starting position
and size of each image can vary. Wraparound of images during display is
supported. Images can be less than full screen size. The images are combined
in a fixed priority order. The combination is by pixel selection between
images, and there is no blending between images during overlay display. A line
buffer may be maintained to combine overlay images and perform line averaging.
2. UPDATE RATE
The maximum image update rate is 60Hz. Slower rates are under software control
by enabling an image buffer switch on vertical retrace. Applications which do
not complete an image in the update time can choose to skip the buffer switch,
or display the incomplete image. Read access to the current display line number
should be supported. A high-resolution counter for timing and profiling is
desirable.
3.SPRITES
3.1. SPRITE PERFORMANCE
The minimum goal is 2000 sprites per update or 120K per second. The average
sprite area is 16 by 16 pixels, or roughly 500K pixels per update, or 30M pixels
per second. More sprites are desirable, such as 2500 or 3000 per update.
Performance to draw the display image 8 or more times per update, or 640K
pixels, is desirable. Sprites can be of any programmable area, within a
performance limit of some maximum total number of sprites per update and total
number of pixels per update. Sprite image data should be aligned on a pixel
boundary (8 or 16 bit), so that no memory padding is needed.
3.2. SPRITE TRANSFORMATIONS
Sprites can be arbitrarily scaled, rotated, translated, and skewed. Perspective
projection should be an option, but may be lower performance. Sprite
transformation precision is 16 bit fixed point. Higher precision, such as
floating point, could be an option at lower performance.
3.3. SPRITE CLIPPING
Sprite geometry should be clipped to display image size. A programmable
clipping rectangle within the display image should also be supported.
<PAGE>
3.4. SPRITE DATA
Sprites are defined by polygons and rectangular images. The polygons may
consist of quadrilaterals, triangles, meshes of quadrilaterals, or triangle
strips. Multiple polygons may be used for a single sprite image. All polygons
must be convex and planar. Both 2D and 3D polygons are supported. Sprites with
more than one image should be investigated, including mipmaps with
microtextures.
3.5. SPRITE SAMPLING
Sprite pixels are point sampled. Interpolated sampling may be an option at lower
performance. The quality of various sampling methods, such as linear, bilinear,
and trilinear sampling should be investigated. The effect of noise and/or dither
on sampling should be investigated. Sprite interpolation should include an
option to filter only the pixel transparency or alpha component, so that edges
can be antialiased without blurring colors. Sprite mipmap images should be
investigated. The sprite rendering method is to interpolate sprite pixel
coordinates along the edges and spans of the transformed polygon enclosing the
sprite, and to access the sprite pixel color at those coordinates at each pixel
inside the polygon.
3.6. SPRITE SAMPLING PERSPECTIVE CORRECTION
Sprite sampling coordinates should be corrected for perspective. Approximate
methods such as piecewise linear approximation or curve approximation may be
used.
3.7. SPRITE COLOR
Sprite color can be 5/5/5/1 RGBA. The extra A bit is used for effects such as
translucency. Sprite color can also be 4/4/4/4 RGBA. Sprit color can also be 8
bit indexed color, which for a 5/5/5/ display image is converted to RGB through
a lookup table during drawing. When the display image is indexed color, only
indexed color sprites can be drawn.
3.8. SPRITE SHADING
Gouraud shading of a polygon enclosing a sprite, and the combination of sprite
pixel color with the interpolated polygon color is supported, for effects such
as lighting and haze.
3.9. SPRITE COMBINE
Sprite colors can be combined in several ways: Blend: sprite image translucency
applied to a single color (indexed color only?). Modulate: sprite image color
multiplied by shaded color. Decal: blend sprite image color and shaded colors by
sprite image translucency.
3.10. SPRITE PRIORITY
Sprites are drawn in back-to-front order (painter's algorithm). A per-pixel
depth comparison for sprite priority should be an option. The depth might be 8
bits per pixel. Each sprite has a single 8 bit depth value, and a depth image
equal in size to the display image is compared and updated.
3.11. SPRITE EFFECTS
A conditional write based on sprite pixel transparency is supported. Alpha
blending per sprite pixel is supported, for effects such as translucency,
shadows, and spotlights. Minimum blending functionality is (Source/2 +
Destination/2) and (Destination - Source), while general blending is a multiply
per R,G, and B component. A global alpha value can be multiplied by the sprite
pixel alpha for fade and dissolve. Indexed color display drawing might use a
palette of some number of hues, each of which has several
<PAGE>
intensity levels (such as 6 bits of hue and 2 bits of intensity), in order to
support pixel blending by changing the intensity without changing the hue, for
shadows, spotlights, and translucency.
3.12. SPRITE DECOMPRESSION
Sprites (and background images) can be decompressed. One type of decompression
is when the data is loaded from ROM, and this may be lossy methods such as JPEG.
Another type of decompression is during drawing. Indexed color is a kind of
drawing decompression. Other kinds of decompression to be investigated include
run length decoding or and block truncation decoding.
4.BACKGROUND
With a single display image, there is no significant distinction between sprites
and background images, rather backgrounds are simply larger sized sprites. If
display overlay is supported, up to three background image planes and one
foreground plane are supported. The background planes can be scrolled and
panned per update, with or without wraparound.
5.AUDIO
At least 24 channels of audio are supported. Each channel is 16 bits at up to
44.1KHz. The channels are combined into two stereo output channels. Audio is
decompressed from ADPCM. Echo processing is supported on the output channels. A
random noise function is available. Audio input with an integrated ADC is
desired.
6.OTHER
Bus sizing to allow the direct connection of 8 and 16 bit I/O devices should be
supported. DMA from I/O devices such as ROM should be supported.
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN ORDER
GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION.
SCHEDULE B
<TABLE>
<CAPTION>
DEVELOPMENT FEE ADVANCE TOTAL TO BE PAID
ROYALTY ON
<S> <C> <C> <C> <C>
1. XXXXXXXXX XXXXXXXXX XXXXXXXXX Already Paid
2. XXXXXXXXX XXXXXXXXX XXXXXXXXX February 8, 1994
3. XXXXXXXXX XXXXXXXXX XXXXXXXXX May 1, 1994
4. XXXXXXXXX XXXXXXXXX XXXXXXXXX August 1, 1994
5. XXXXXXXXX XXXXXXXXX XXXXXXXXX November 1, 1994
6. XXXXXXXXX XXXXXXXXX XXXXXXXXX February 1, 1995
7. XXXXXXXXX XXXXXXXXX XXXXXXXXX May 1, 1995
--------- --------- --------- -----------
TOTAL:XXXXXXXXX XXXXXXXXX XXXXXXXXX
</TABLE>
*NCL will make XXXXXXXXX withholding on the advance royalty, so only XXXXXXXXX
will be received by SGI.
<PAGE>
EXHIBIT 10.8.3
[XXXXXX]=CERTAIN INFORMATION IN THIS DOCUMENT HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION.
SECOND ADDENDUM TO
JOINT DEVELOPMENT AND LICENSE AGREEMENT
THIS SECOND ADDENDUM TO JOINT DEVELOPMENT AND LICENSE AGREEMENT is made as of
the _____ day of February, 1996 (the "Effective Date"), among Nintendo Co., Ltd.
("NCL"), Nintendo of America Inc. ("NOA") (NCL and NOA are referred to
collectively as "Company"), Silicon Graphics, Inc., and MIPS Technologies, Inc.
(collectively referred to as "SGI").
BACKGROUND
Company and SGI are parties to a "Joint Development and License Agreement",
dated August 20, 1993, as supplemented by the "First Addendum to Joint
Development and License Agreement", dated February 5, 1994 (collectively, the
"Agreement"). Company and SGI have agreed to enter into this Second Addendum as
it relates to the joint ownership of certain patent rights, as described herein.
NOW, THEREFORE, the parties hereby agree as follows:
1. DEFINITIONS.
(a) Unless otherwise defined in this Second Addendum, all capitalized words used
in this Second Addendum shall have the meanings set forth in the Agreement.
(b) Section 1.8. "COMPANY PRODUCTS" is hereby revised to add the phrase "and/or
Foreground Technology" immediately after the term "Developed Technology."
(c) Section 1.16, "FILING" is hereby revised to add the phrase "or Foreground
Technology" immediately after the term "Developed Technology."
(d) The last sentence of Section 1.23, "TECHNOLOGY", is hereby revised to read
as follows:
Technology is either Background Technology, Developed Technology or Foreground
Technology.
(e) A new Section 1.26 is hereby added to the Agreement as follows:
1.26 "FOREGROUND TECHNOLOGY" means those inventions listed in Schedule C,
excluding Invention 2, that are covered by a claim of a Patent(s) that issues
directed to the application of elements of the Background Technology to Company
Products (but the claim coverage may be broader than Company Products), which
Patent(s) are based on Filings that the parties mutually agree on in writing.
The parties acknowledge that the inclusion of Background Technology, Developed
Technology or Company Technology in a Foreground Technology Patent claim or
disclosure shall not be interpreted as converting such Background Technology,
Developed Technology or Company Technology into Foreground Technology.
(f) A new Section 1.27 is hereby added to the Agreement as follows:
1.27 "COPROCESSOR COMMAND SET" means (a) the binary instruction formats for
controlling or commanding the signal processor portion of the Coprocessor; and
(b) the binary command formats for controlling or commanding the display
processor portion of the Coprocessor.
<PAGE>
(g) A new Section 1.28 is hereby added to the Agreement as follows:
1.28 "MICROCODE/LIBRARIES" means the computer programs developed and delivered
by SGI to Company pursuant to this Agreement, which program(s) are to be
incorporated into each copy of the Packaged Software and executed by the
Coprocessor, and run-time modules of the graphics libraries and audio libraries
and the real-time operating system developed and delivered by SGI to Company
under this Agreement.
(h) A new Section 1.29 is hereby added to the Agreement as follows:
1.29 "PATENT" means letters patent issued under laws of the United States,
reissue patents, divisional patents, reexamination patents, continuations,
continuations-in-part and the foreign counterparts of any of the foregoing.
(i) A new Section 1.30 is hereby added to the Agreement as follows:
1.30 "CROSS LICENSE" means an agreement between either party to this Agreement
and a third party, other than a Licensee, effective prior to the Effective Date
of this Second Addendum. pursuant to which such party and the third party grant
each other licenses to patents developed or acquired during the term of such
agreement, which licenses are granted in settlement of infringement claims.
(j) A new Section 1.31 is hereby added to the Agreement as follows:
1.31 "COPROCESSOR MICROINSTRUCTION SET" means the binary instruction formats
executable by the signal processor portion of the Coprocessor. Binary versions
of the Microcode/Libraries are encoded using the Coprocessor Microinstruction
Set.
(k) A new Section 1.32 is hereby added to the Agreement as follows:
1.32 "COPROCESSOR" means the Application Specific Integrated Circuit developed
by SGI pursuant to Schedule A for incorporation in the Consumer Hardware.
(l) A new Section 1.33 is hereby added to the Agreement as follows:
1.33 "DEVELOPER'S MANUAL" shall mean all versions of the Nintendo 64
Developer's Manual, covering the topics listed in Schedule D, developed and
delivered by SGI to Company pursuant to this Agreement.
(m) A new Section 1.34 is hereby added to the Agreement as follows:
1.34 "DEVELOPMENT ENVIRONMENT" shall mean all versions of the software listed
in Schedule D, developed and delivered by SGI to Company pursuant to this
Agreement for use by Packaged Software developers.
(n) A new Section 1.35 is hereby added to the Agreement as follows:
1.35 "MASK WORK" means the layout of the Coprocessor.
2. A new Schedule C, as attached to this Second Addendum, is hereby added to
the Agreement.
3. A new Schedule D, as attached to this Second Addendum, is hereby added to
the Agreement.
4. The following is hereby added to the end of Section 6.2 of the Agreement:
SGI and Company shall use reasonable efforts to pursue and to prosecute Filings
applicable to the invention identified as "Invention 2" in Schedule C, which the
parties acknowledge is directed primarily
<PAGE>
to the protection of Developed Technology. As provided in this Section 6.2,
Company shall have the administrative responsibility for such Filings.
5. Confidentiality. New Sections 8.9, 8.10 and 8.11, which the parties agree
shall be effective as of the effective date of the Agreement, are hereby added
to the Agreement as follows:
8.9 CONFIDENTIALITY OF COMPANY TECHNOLOGY. SGI acknowledges Company's
representation that the Company Technology constitutes the valuable proprietary
and confidential information of Company, and agrees to (i) retain in confidence
the Company Technology, (ii) restrict the use of and access to the Company
Technology to its employees to whom disclosure is necessary in connection with
this Agreement, and to authorized subcontractors, (iii) appropriately bind each
employee to whom any such disclosure is made to hold the Company Technology in
confidence, and (iv) not to sell, lease, transfer or otherwise disclose the
Company Technology to any third party except as permitted by this Agreement,
provided, however, that SGI may disclose the Company Technology to its agents
and consultants; if necessary or appropriate in furtherance of SGI's development
work under this Agreement, under the terms and conditions of a signed, written
confidential disclosure agreement with terms and conditions which prohibit
disclosure to other parties, and which are otherwise at least as restrictive as
the terms of subsections (i)-(iii) of this Section 8.9. Without limiting the
foregoing, SGI agrees that it will treat the Company Technology with at least
the same degree of care as it would its own highly proprietary information.
8.10 CONFIDENTIALITY OF FOREGROUND TECHNOLOGY. SGI and Company acknowledge that
the Foreground Technology constitutes their valuable and proprietary
information. Except to the extent that any Foreground Technology is described in
any Patent, and except as otherwise agreed in writing by the parties, each of
SGI and Company agrees to (i) retain in confidence the Foreground Technology,
(ii) restrict the use of and access to the Foreground Technology to its
employees to whom disclosure is necessary or permitted in connection with the
exercise of their rights in the Foreground Technology as provided in this
Agreement, and to authorized licensees and subcontractors, (iii) appropriately
bind each employee to whom any such disclosure is made to hold the Foreground
Technology in confidence, and (iv) not sell, lease, transfer or otherwise
disclose the Foreground Technology to any third party except to licensees
permitted by this Agreement and to its agents or consultants under the terms and
conditions of a signed, written confidential disclosure agreement with terms and
conditions which prohibit disclosure to other parties, and which are otherwise
at least as restrictive as the terms of subsections (i)-(iii) of this Section
8.10. Without limiting the foregoing, SGI agrees that it will treat the
Foreground Technology with at least the same degree of care as it would its own
highly proprietary information.
8.11 CONFIDENTIALITY OF DEVELOPED TECHNOLOGY. SGI and Company acknowledge that
the Developed Technology constitutes their valuable and proprietary information.
Except to the extent that any Developed Technology is described in any Patent,
and except as otherwise agreed in writing by the parties, each of SGI and
Company agrees to (i) retain in confidence the Developed Technology, (ii)
restrict the use of and access to the Developed Technology to its employees to
whom disclosure is necessary or permitted in connection with the exercise of
their rights in the Developed Technology as provided in this Agreement, and to
authorized licensees and subcontractors, (iii) appropriately bind each employee
to whom any such disclosure is made to hold the Developed Technology in
confidence, and (iv) not sell, lease, transfer or otherwise disclose the
Developed Technology to any third party except to licensees permitted by this
Agreement and to its agents or consultants under the terms and conditions of a
signed, written confidential disclosure agreement with terms and conditions
which prohibit disclosure to other parties, and which are otherwise at least as
restrictive as the terms of subsections (i)- (iii) of this Section 8.11. Without
limiting the foregoing, SGI agrees that it will treat the Developed Technology
with at least the same degree of care as it would its own highly proprietary
information.
6. The following is hereby added to the end of Section 9.3(b) of the
Agreement:
As of the effective date of this Second Addendum, SGI represents and warrants to
Company that, to the best of SGI's actual knowledge, SGI has provided Company
with a copy of (i) all patent applications filed
<PAGE>
by SGI whose claims would be infringed by the unauthorized manufacture, use or
sale of the Consumer Hardware and/or the Packaged Software incorporating those
components of the Consumer Hardware and/or the Packaged Software developed by
SGI pursuant to this Agreement; and (ii) all patent applications currently being
prepared by SGI whose claims, as currently drafted, would be infringed by the
unauthorized manufacture, use or sale of Consumer Hardware and/or the Packaged
Software incorporating those components of the Consumer Hardware and/or the
Packaged Software developed by SGI pursuant to this Agreement. If, subsequent to
the effective date of this Second Addendum, SGI learns of any such patent
application or if any such claim is added to any such application, SGI shall
promptly notify Company.
7. Intellectual Property Indemnity. Sections 9.5 and 9.6 of the Agreement are
hereby deleted in their entirety and replaced with the following:
9.5 SGI INTELLECTUAL PROPERTY INDEMNIFICATION. SGI will defend, indemnify, and
hold harmless Company and its Affiliates, directors, officers, employees and
agents against any claim, suit or proceeding alleging that the Background
Technology or SGI's contributions to the Foreground Technology or the Developed
Technology or use thereof infringes or misappropriates any U.S. or Japanese
copyright, mask work, trade secret, patent or other intellectual property,
proprietary or contract rights of any third party and against any damages or
liability resulting from such claim, suit or proceeding, including, without
limitation, reasonable attorneys' fees and other costs and expenses, provided
that (i) Company gives SGI notice of the claim, suit or proceeding promptly
after commencement thereof (or, if later, promptly after Company learns that
such claim, suit or proceeding relates to the Background Technology or SGI's
contribution to the Foreground Technology or the Developed Technology), (ii) SGI
may not settle any claim, suit or proceeding without the prior, written consent
of Company which consent shall not be unreasonably withheld, provided that if
Company refuses to consent to settlement acceptable to the plaintiff(s) and
proposed by SGI to Company, SGI's total liability under this Section 9.5 shall
be limited to the amount of the proposed settlement and attorney's fees incurred
as of the date of SGI's request for Company's consent, and (iii) Company
provides SGI with all reasonable assistance requested by SGI in connection with
the defense and/or resolution of any such claim, suit or proceeding, at SGI's
expense. Notwithstanding the defense obligation of SGI under this Section 9.5,
Company shall have the right, at its own expense, to appoint its own counsel to
participate in any claim, suit or proceeding, and SGI shall cooperate with
Company and such counsel. If there is a final determination of infringement or
misappropriation, SGI shall, at its option, use reasonable efforts to, (i)
replace or modify any componentof the Background Technology or SGI's
contribution to the Foreground Technology or the Developed Technology with a
functionally equivalent noninfringing component that conforms to the
requirements of this Agreement, or (ii) obtain a license for Company to use such
Background Technology or SGI's contribution to the Foreground Technology or the
Developed Technology. Notwithstanding the foregoing, SGI shall have no liability
for a claim, suit or proceeding to the extent based on (a) modification of the
Background Technology or SGI's contribution lo the Foreground Technology or the
Developed Technology by or for Company (other than by SGI), or (b) Company's use
of the Background Technology or SGI's contribution to the Foreground Technology
or the Developed Technology with Accessories not supplied by SGI, or (c)
Company's use of a version of the Background Technology or SGI's contribution to
the Foreground Technology or the Developed Technology that was not at the time
of use the most recent version provided by SGI to Company. For purposes of this
Section 9.5, SGI's contributions to the Foreground Technology or the Developed
Technology shall include any technology developed by SGI subcontractors. SGI'S
LIABILITY UNDER THIS SECTION 9.5 SHALL IN NO EVENT EXCEED THE DEVELOPMENT FEES
AND ROYALTIES PAID BY COMPANY TO SGI UNDER THIS AGREEMENT.
9.6 COMPANY INTELLECTUAL PROPERTY INDEMNIFICATION. Company will defend,
indemnify, and hold harmless SGI and its Affiliates, directors, officers,
employees and agents against any claim, suit or proceeding alleging that the
Company contributions to the Foreground Technology or the Developed Technology
or use thereof infringes or misappropriates any U.S. or Japanese copyright, mask
work, trade secret, patent or other intellectual property, proprietary or
contract rights of any third party and against any damages or liability
resulting from such claim, suit or proceeding, including, without
<PAGE>
limitation, reasonable attorneys' fees and other costs and expenses, provided
that (i) SGI gives Company notice of the claim, suit or proceeding promptly
after commencement thereof (or, if later, promptly after SGI learns that such
claim, suit or proceeding relates to the Company contributions to the Foreground
Technology or the Developed Technology), (ii) SGI gives Company sole authority
to defend and/or resolve any such claim, suit or proceeding or the portion
thereof relating to the Company contributions to the Foreground Technology or
the Developed Technology, and (iii) SGI provides Company with all reasonable
assistance requested by Company in connection with the defense and/or resolution
of any such claim, suit or proceeding, at Company's expense. Notwithstanding the
defense obligation of Company under this Section 9.6, SGI shall have the right,
at its own expense, to appoint its own counsel to participate in any claim, suit
or proceeding, and Company shall cooperate with SGI and such counsel.
Notwithstanding the foregoing, Company shall have no liability for a claim, suit
or proceeding to the extent based on (a) modification of the Company
contributions to the Foreground Technology or the Developed Technology or (b)
SGI's use of the Company contributions to the Foreground Technology or the
Developed Technology with equipment or components not supplied by Company. For
purposes of this Section 9.6, Company's contributions t the Foreground
Technology or the Developed Technology shall include any technology developed by
Company subcontractors. COMPANY'S LIABILITY UNDER THIS SECTION 9.6 SHALL IN NO
EVENT EXCEED THE DEVELOPMENT FEES AND ROYALTIES PAID BY COMPANY TO SGI UNDER
THIS AGREEMENT.
8. Rights in Foreground Technology. A new Article 14.0 is hereby added to the
Agreement as follows:
14.0 RIGHTS IN FOREGROUND TECHNOLOGY.
14.1 JOINT OWNERSHIP. Subject to the terms and conditions of this Agreement,
SGI and Company shall jointly own, in equal, undivided shares (and each party
hereby assigns to the other an equal, undivided interest in) all right, title
and interest in the Foreground Technology (whether developed in whole or in part
by SGI or by Company), and title to all patents issued thereon shall be joint.
14.2 SGI RIGHTS IN FOREGROUND TECHNOLOGY. Subject to the provisions of Section
6.4(a), which shall apply to the Foreground Technology as well as the Background
Technology, SGI shall have the unrestricted right to use the Foreground
Technology and to license any third party to use the Foreground Technology
without the consent of Company, and without any duty to account to or to share
proceeds with Company, on account of such use or licensing of the Foreground
Technology. SGI's rights in the Foreground Technology shall survive the
expiration or termination of this Agreement and shall continue until the
expiration of the last Patent to expire that would be infringed by the
manufacture, use or sale of any Foreground Technology.
14.3 COMPANY RIGHTS IN FOREGROUND TECHNOLOGY. Notwithstanding Company's joint
ownership rights in the Foreground Technology, Company agrees that Company shall
only have (a) the worldwide, nontransferable (except to Company's authorized
subcontractors) right to use the Foreground Technology only in combination with
the Licensed Background Technology and the Developed Technology for purposes of
the design, manufacture, use, sale and/or distribution of Company Products, and
(b) the worldwide right to grant nonexclusive licenses to Licensees to use the
Foreground Technology, only in combination with the Licensed Background
Technology and the Developed Technology, for purposes of the design,
manufacture, use, sale and/or distribution of Packaged Software, Accessories,
Coin Operated Software and/or Coin Operated Hardware. All such licenses shall be
in writing and shall be pursuant to a form of agreement incorporating license
grant and proprietary rights provisions approved in writing by SGI, which
approval shall not be unreasonably withheld. Company shall have no obligation to
obtain the consent of SGI, or to account to or to share proceeds with SGI, on
account of such licensing or use of the Foreground Technology as permitted in
this Section 14.3. Company's rights in the Foreground Technology shall commence
as of the effective date of this Second Addendum and shall survive the
expiration of the term of this Agreement and shall continue until the expiration
of the last Patent to expire that would be infringed by the unauthorized
manufacture, use or sale of any Foreground Technology. If the parties succeed in
obtaining Patents, which they would jointly own, and which would be infringed by
the manufacture, use or sale of any Foreground Technology, SGI will
<PAGE>
not assert a claim against Company or a Licensee for infringement of any such
Patent on account of Company's or a Licensee's manufacture, use or sale of such
Foreground Technology in products other than Company Products; provided,
however, that SGI reserves the righ to assert a claim against Company for breach
of this Agreement if Company manufactures, uses, sells or licenses any products
other than Company Products which use Foreground Technology.
14.4 COOPERATION OF THE PARTIES IN FILINGS. The parties shall use reasonable
efforts to pursue and prosecute Filings applicable to the Foreground Technology.
All Filings applicable to the Foreground Technology will be made at a time when
appropriate during the development or after completion of the Foreground
Technology under the names of both parties as joint owners. Company shall have
the primary administrative responsibility for Filings with respect to the
Foreground Technology, and the parties will cooperate with respect to Filings on
the Foreground Technology (including with respect to claim amendments). Silicon
Graphics will bear all fees and out-of-pocket expenses payable to Sterne,
Kessler, Goldstein and Fox in connection therewith, and Company shall bear all
other filing fees, attorneys' fees and out-of-pocket expenses incurred in
connection therewith. As used herein, "administrative responsibility" means the
preparation of any documents required for a Filing, and the submission thereof
to the appropriate governmental entity. If SGI has not yet received a proposed
Filing from Company on an item of Foreground Technology, and SGI believes that a
Filing should be made with respect thereto, SGI may submit a written request to
Company that Company proceed with the preparation of such Filing, provided,
however, that Company may, in its sole discretion, proceed or decline to proceed
with the preparation of such Filing. If Company declines to prepare and submit a
Filing on an item of Foreground Technology, SGI may proceed with the preparation
and submission of such Filing at SGI's expense. In either case. a party
preparing a Filing shall submit such Filing to the other party for its review
and approval prior to any submission to any governmental entity. A Filing shall
be deemed accepted by the receiving party if the receiving party does not
provide written notice of rejection to the submitting party within thirty (30)
(or such shorter period as the parties may agree upon) days after the submitting
party's notice thereof. If a party rejects a Filing, it shall include with its
rejection notice a detailed description of its reason(s) for rejection, and
shall make specific suggestions as to any modifications which it believes should
be made to the form or content of such Filing prior to submission. If the
submitting party believes that the modifications suggested by the receiving
party are inappropriate, the submitting party's Coordinator shall contact the
receiving party's Coordinator, and the Coordinators shall arrange and hold a
meeting or discussion between appropriate representatives of the parties, at a
mutually acceptable time and place, to determine a mutually acceptable form,
content and time for the proposed Filing. Each party shall provide the other
with copies of any correspondence, materials or communications sbmitted to or
received from a governmental entity or a third party relating to any Filing. SGI
will provide such information regarding the Background Technology, Foreground
Technology and Developed Technology as Company may reasonably request for
purposes of permitting Company and its advisors to evaluate actual or potential
infringement claims directed at Company Products. Nothing in this Section 14.4
shall be interpreted to expand SGI's obligations under Section 9.5.
14.5 ENFORCEMENT OF RIGHTS IN FOREGROUND TECHNOLOGY. Before initiating any
action against an alleged infringer of any rights in the Foreground Technology,
each party (the "Enforcing Party") shall contact the other party to confirm that
the alleged infringer has not been granted a license to use the Foreground
Technology by the other party or has not purchased from the other party products
whose use would entitle the alleged infringer to use the Foreground Technology.
If the alleged infringer has not obtained such a license or purchased such
products, the Enforcing Party shall have the right, without further consent of
the other party, to take such steps as it chooses, in its sole discretion, to
enforce its rights as joint owner of the Foreground Technology, and the other
party shall provide such reasonable assistance as the Enforcing Party may
request in connection therewith, provided either that such assistance does not
require any out-of-pocket expenditures by the other party or that the Enforcing
Party agrees to reimburse any such out-of-pocket expenses incurred by the other
party. The Enforcing Party shall be entitled to retain all amounts recovered
from the alleged infringer in connection with the litigation and/or settlement
of any such action. The Enforcing Party shall defend, indemnify and hold
harmless the other party and its Affiliates from and against any claim, suit or
proceeding initiated against the other party by any alleged infringer in
connection with or in response to actions initiated against the alleged
infringer by the Enforcing Party, provided that (i) the other party gives the
Enforcing Party notice of the
<PAGE>
claim, suit or proceeding promptly after commencement thereof, (ii) the other
party gives the Enforcing Party sole authority to defend and/or resolve any such
claim, suit or proceeding, and (iii) the other party gives the Enforcing Party
all reasonable assistance requested by the Enforcing Party in connection with
the defense and/or settlement of the claim, suit or proceeding, at the Enforcing
Party's expense.
14.6 MICROCODE/LIBRARIES, COPROCESSOR COMMAND SET, COPROCESSOR MICROINSTRUCTION
SET, AND MASK WORK. SGI will deliver to Company the Microcode/Libraries, in
source code and object code forms, the Microcode/Libraries development
environment, and documentation of the Coprocessor Command Set and the
Coprocessor Microinstruction Set, at a time to be mutually agreed upon in
writing by SGI and Company. SGI and Company acknowledge and agree that (a) the
Developed Technology is implemented in part in each of the Microcode/Libraries,
the Coprocessor Command Set, the Coprocessor Microinstruction Set, and the Mask
Work; (b) subject to SGI's rights in the Licensed Background Technology embodied
in each of them, Company shall own any and all copyrights in the
Microcode/Libraries, the Coprocessor Command Set, the Coprocessor
Microinstruction Set, the Developer's Manual and the Development Environment;
(c) subject to SGI's rights in the Licensed Background Technology embodied in
the Coprocessor, SGI and Company shall jointly own the mask work rights in the
Mask Work; and (d) all Developed Technology incorporated in the
Microcode/Libraries, Coprocessor Command Set, Coprocessor Microinstruction Set,
and the Mask Work shall be subject to the provisions of Sections 6.4 and 6.5
applicable to the Developed Technology. Company hereby grants to SGI a paid-up,
nonexclusive, irrevocable, worldwide license to duplicate, distribute, modify,
enhance, sublicense and otherwise use or exploit the Microcode/Libraries, the
Coprocessor Command Set, the Coprocessor Microinstruction Set and the
Development Environment, subject only to the provisions of Sections 6.4, 6.5,
14.8 and 14.9.
14.7 FOREGROUND TECHNOLOGY CROSS LICENSES. Notwithstanding the parties' joint
ownership of the Foreground Technology, neither party shall have the right to
license the Foreground Technology to a third party pursuant to a Cross License
unless it obtains the prior, written agreement of the other party to this
Agreement.
14.8 LIMITATIONS ON SGI'S USE OF DEVELOPED TECHNOLOGY. In addition to the
provisions of Sections 6.4 and 6.5, SGI agrees during the term of this Agreement
that SGI shall not manufacture, have manufactured, use, license or sell the
Coprocessor except to the extent permitted by Section 6.5.
14.9 NO COMPATIBLE PROGRAM, DEVICE OR THING. During the term of this Agreement,
except as otherwise permitted by Company or as permitted by Section 6.5(b)
(which is intended to allow SGI hardware and software to be used for Packaged
Software development by Packaged Software developers authorized by Company):
(a) SGI will not license any third party to use, distribute or publish and will
not itself use, distribute or publish any version of the Microcode/Libraries or
other computer program, device or thing that, in unmodified form, (i) would
enable video game software or non- video game software authorized by Company to
be used with devices other than Company Products, or (ii) would enable video
game software or non-video game software which has not been authorized by
Company to be used with Company Products;
(b) SGI will not disclose, use or license any third party to use, the binary
format of the Coprocessor controller registers or the binary addresses
associated with the Coprocessor controller registers; and
(c) SGI will not disclose or use, or license any third party to use, the binary
command formats for controlling or commanding the display processor portion of
the Coprocessor.
14.10 SOFTWARE DEVELOPMENT BY COMPANY AND LICENSEES. As an owner of the
copyrights in the Microcode/Libraries and the Coprocessor Microinstruction Set,
the Developer's Manual and the Development Environment Company shall have the
right to develop, reproduce and distribute derivative works thereof, and to
grant Licensees the right to develop, reproduce and distribute derivative
<PAGE>
works thereof. SGI makes no claim of rights in any portions of such derivative
work(s) developed by Company and/or any Licensee.
9. Warranty Exclusion. Section 9.2. "Warranty Exclusion"s shall be amended to
insert the phrase "or Foreground Technology" immediately following the phrase
"Developed Technology", wherever it appears in such section.
10. Limitation of Liability. Article 10.0 is hereby revised to read as
follows:
10.0 LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE
OTHER PARTY FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES OF
ANY KIND (INCLUDING WITHOUT LIMITATION LOSS OF PROFIT OR DATA) WHETHER OR NOT
ADVISED OF THE POSSIBILITY OF SUCH LOSS, HOWEVER CAUSED, WHETHER FOR BREACH OR
REPUDIATION OF CONTRACT, BREACH OF WARRANTY, NEGLIGENCE, INABILITY TO USE THE
BACKGROUND TECHNOLOGY, THE FOREGROUND TECHNOLOGY, OR OTHERWISE. IN NO EVENT
SHALL THE AGGREGATE LIABILITY OF EITHER PARTY TO THE OTHER EXCEED THE TOTAL
AMOUNT PAYABLE BY COMPANY TO SGI UNDER THIS AGREEMENT. THE ESSENTIAL PURPOSE OF
THIS PROVISION IS TO LIMIT THE POTENTIAL LIABILITY OF THE PARTIES ARISING OUT OF
THIS AGREEMENT.
11. Survival of Obligations. Section 11.4 is hereby revised to add the
provisions of Article 14.0 to the list of provisions setting forth rights and
obligations of the parties that survive termination of the Agreement.
12. Effect of Addendum. Except as amended and supplemented by this Second
Addendum, the Agreement remains in effect pursuant to its terms, and is hereby
ratified and confirmed.
IN WITNESS WHEREOF, the parties have executed this Second Addendum as of the
date first written above.
NINTENDO CO., LTD. NINTENDO OF AMERICA INC.
By: /s/ [not legible] By: /s/ John [not legible]
----------------- ----------------------
Title: Senior Managing Director Title: Executive Vice President
-------------------------------
SILICON GRAPHICS, INC. MIPS TECHNOLOGIES, INC.
By: /s/ Thomas Jermoluk By: /s/ John Bourgoin
Title: President & Chief Title: President
----------------
Operating Officer
-----------------
<PAGE>
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT
TO AN ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES
AND EXCHANGE COMMISSION.
SCHEDULE C
INVENTION 1 XXXXXX
INVENTION 2 XXXXXX
INVENTION 3 XXXXXX
INVENTION 4 XXXXXX
INVENTION 5 XXXXXX
INVENTION 6 XXXXXX
<PAGE>
SCHEDULE D
Developer's Manual covers the following topics:
. Release Notes for this version of the software. . Hardware & Software
Installation and Troubleshooting. . System Overview -
Overview of the Hardware Architecture, Run-time Software Architecture, and
Compilation.
. Operating System Overview - Discussion of the organization of the N 64
Operating System and how to use it. Includes Threads, Scheduling, Pre-emption,
Input/Output Subsystem Control (Video Interface, Audio Interface, Parallel
Interface, and Controller Interface), and Memory Management. . Graphics,
Reality Signal Processor (RSP) Operation - How to use Display Lists and Display
List Hierarchies, Segments, Managing the cache, Using matrices, Vertex State,
Lighting, Materials, Textures, Fog, Clipping and Culling.
. Graphics, Reality Display Processor (RDP) Operation - RDP Pipeline
Description, RDP State, Scissoring, Detailed descriptions of each part of the
RDP Pipeline --these include the Rasterizer (RS), Texture Engine (TX), Texture
Filter (TF), Color Combiner (CC), Blender (BL), and Memory Interface (MI), Use
of Texture Mapping, including the interface, Texture Memory (TMEM), Texture
attributes, pipeline, Level-of-Detail (LOD), MIP- mapping, and special effects.
Also, a discussion of the Sprite library, including the interface, Sprite
structures. Sprite attributes. and tricks.
. The Audio Library - Overview of the Audio system, including low-level
discussion of the Sound Player, Sequence Player, and Synthesis Driver. Includes
descriptions of the interface for each, as well as how to use special effects
such as vibrato, and how to write a custom Audio Driver which interfaces with
the Synthesis Driver.
. Audio Tools - How to use the instrument Compiler (ic) for creating sound
banks, the ADPCM tools to create individual sounds and effects, and the MIDI
tools to create and modify MIDI song files.
. Audio File Format - Details of the audio file format structures. . Using
Audio Tools - Performance Tips and Hints, and various examples. . Scheduling
Audio and Graphics Tasks - Discusses the use of the scheduler (optional), how to
create command lists and manage the proportions of CPU time which the audio
tasks and graphics task receive. Describes the scheduler interface and hints for
utilizing it most effectively.
. Development Tools, Debugger - Details about the use of the debugger, as well
as how it interfaces with the host workstation to provide feedback to the
developer. . Performance Tuning - Hints and tips on getting the most
performance out of the N 64. Sections include Geometry Tuning, Raster Tuning,
CPU Tuning, and Data Reduction.
Development Environment consists of:
. Game Shop: the debugger for runtime debugging on the N 64.
. dmedia_eoe: contains the midi kernel device driver that enables an SGI
System with IRIX 5.3 installed to interface with a MIDI device;
this is necessary to support N 64 audio development tools.
. Ultra: contains the runtime operating system/audio/graphics libraries
for Packaged Software development. Also contains tools to build
ROM images and sample programs.
<PAGE>
EXHIBIT 10.8.4
[XXXXXX]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED PURSUANT TO AN
ORDER GRANTING CONFIDENTIAL TREATMENT ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION ON JUNE 29, 1998.
FOURTH ADDENDUM TO
JOINT DEVELOPMENT AND LICENSE AGREEMENT
Nintendo Co., Ltd. ("NCL"), Nintendo of America Inc. ("NOA") (NCL and
NOA are referred to collectively as "COMPANY"); and Silicon Graphics, Inc. and
MIPS Technologies, Inc. (Collectively referred to as "SGI"), have agreed to
enter into this Fourth Addendum to Joint Development and License Agreement,
which modifies the "JOINT DEVELOPMENT AND LICENSE AGREEMENT" dated August 20,
1993, as supplemented by the "FIRST ADDENDUM TO JOINT DEVELOPMENT AND LICENSE
AGREEMENT" dated February 5, 1994; the "SECOND ADDENDUM TO JOINT DEVELOPMENT AND
LICENSE AGREEMENT" dated February 21, 1996; and the "THIRD ADDENDUM TO JOINT
DEVELOPMENT AND LICENSE AGREEMENT" dated June 12, 1996 (collectively, the
"AGREEMENT").
1. Section 14.6 of the Agreement is modified as it relates to ownership
of certain rights in the Mask Work by adding underlined words and deleting
certain stricken-out words as indicated below:
14.6 MICROCODE/LIBRARIES, COPROCESSOR COMMAND SET, COPROCESSOR
MICROINSTRUCTION SET, AND MASK WORK. SGI will deliver to Company the
Microcode/Libraries, in source code and object code forms, the
Microcode/Libraries development environment, and documentation of the
Coprocessor Command Set and the Coprocessor Microinstruction Set, at a time
to be mutually agreed upon in writing by SGI and Company. SGI and Company
acknowledge and agree that (a) xxxxxxxxxxxxxxxx and (d) all Development
Technology incorporated in the Microcode/Libraries, Coprocessor Command
Set, Coprocessor Microinstruction set, and the Mask Work shall be subject
to the provisions of Section 6.4 and 6.5 applicable to the Developed
Technology. Company hereby grants to SGI a paid-up, nonexclusive,
irrevocable, worldwide license to duplicate, distribute, modify, enhance,
sublicense and otherwise use or exploit the Microcode/Libraries, the
Coprocessor Command Set, the Coprocessor Microinstruction Set, the Mask
Work and the Development Environment; subject only to the provisions of
Sections 6.4, 6.5, 14.8 and 14.9.
2. Company and SGI further agree that this Fourth Addendum is effective
retroactively as of February 21, 1996 (the "EFFECTIVE DATE").
1
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Fourth Addendum as of June
_________, 1998.
NINTENDO CO., LTD. NINTENDO OF AMERICA, INC.
By /s/ illegible By /s/ illegible
---------------------- ---------------------
Title Title
-------------------- -------------------
SILICON GRAPHICS, INC. MIPS TECHNOLOGIES, INC.
By /s/ illegible By /s/ illegible
---------------------- ---------------------
Title Title
-------------------- -------------------
2
<PAGE>
MIPS TECHNOLOGIES, INC.
NON-U.S. STOCK PURCHASE PLAN
The following constitutes the provisions of the MIPS Technologies, Inc.
Non-U.S. Stock Purchase Plan.
1. PURPOSE. The purpose of the Plan is to provide non-U.S. employees and
consultants of the Company and its Designated Subsidiaries with an opportunity
to purchase Common Stock of the Company through cash contributions. It is
believed that employee participation in ownership of the Company on this basis
will be to the mutual benefit of the employees, consultants and the Company.
2. DEFINITIONS.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" means the Common Stock, $0.001 par value, of the Company.
"COMPANY" means MIPS Technologies, Inc.
"COMMITTEE" means the committee appointed by and serving at the pleasure of
the Board to administer the Plan pursuant to Section 14.
"COMPENSATION" means base pay and consulting fees, plus any amounts
attributable to overtime, shift premium, incentive compensation, bonuses and
commissions (exclusive of "spot bonuses" and any other such item specifically
directed for all Employees by the Board or a committee), designated by the
Board, but shall exclude severance pay, pay in lieu of vacations, back pay
awards, disability benefits, deferred compensation, or any other compensation
excluded in the discretion of the Board.
Compensation shall be determined before giving effect to any salary reduction
agreement pursuant to a qualified cash or deferred arrangement within the
meaning of Section 401(k) of the Code or to any similar reduction agreement
pursuant to any cafeteria plan (within the meaning of Section 125 of the Code).
"CONSULTANT" means any person, including an advisor, engaged by the Company
or a parent or Designated Subsidiary to render services to such entity.
"CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" shall mean the absence of
any interruption or termination of service as an Employee or Consultant.
Continuous Status as an Employee or Consultant shall not be considered
interrupted in the case of a leave of absence
<PAGE>
agreed to in writing by the Company, provided that such leave is for a period
of not more than 90 days or re-employment upon the expiration of such leave
is guaranteed by contract or statute.
"CONTRIBUTIONS" means an Employee's payroll deduction, a Consultant's
invoice deductions or any participant's cash contributions made to the Plan
during an Offering Period in order to purchase shares.
"DESIGNATED SUBSIDIARIES" means the Subsidiaries which have been designated
by the Board from time to time in its sole discretion as eligible to participate
in the Plan.
"EMPLOYEE" means any person, including an officer, who is employed by the
Company or one of its Designated Subsidiaries.
"EXERCISE DATE" means the last business day of each Exercise Period in an
Offering Period.
"EXERCISE PERIOD" means a six-month period commencing on an Offering Date
or on the first business day after any Exercise Date in an Offering Period.
"OFFERING DATE" means the first day of each Offering Period of the Plan.
"OFFERING PERIOD" means a period of twenty-four (24) months consisting of
four six-month Exercise Periods during which options granted pursuant to the
Plan may be exercised.
"PLAN" means the MIPS Technologies, Inc. Employee Stock Purchase Plan.
"SUBSIDIARY" means any corporation, domestic or foreign, in which the
Company owns, directly or indirectly, 50% or more of the voting shares.
3. ELIGIBILITY.
(a) Any person who is an Employee or Consultant, as defined in paragraph
2, on the Offering Date of a given Offering Period (or as otherwise determined
by the Board or the Committee ) shall be eligible to participate in such
Offering Period under the Plan, subject to the requirements of paragraph 5(a)
and the limitations imposed by Section 423(b) of the Code.
(b) Notwithstanding any provisions of the Plan to the contrary, no
Employee or Consultant shall be granted an option under the Plan if (i)
immediately after the grant, such Employee or Consultant (or any other person
whose stock ownership would be attributed to such Employee or Consultant
pursuant to Section 424(d) of the Code) would own shares and/or hold outstanding
options to purchase shares possessing five percent (5%) or more of the total
combined voting power or value of all classes of shares of the Company or of any
subsidiary of the Company, or (ii) the rate of Contributions under such option
would permit the employee's or consultant's rights to purchase shares under all
stock purchase plans (including those described in Section 423 of the
-2-
<PAGE>
Code) of the Company and its subsidiaries to accrue (i.e., become
exercisable) at a rate which exceeds Twenty-Five Thousand Dollars ($25,000)
of fair market value of such shares (determined at the time such option is
granted) for each calendar year in which such option is outstanding at any
time.
(c) Upon reemployment of a former Employee, such former Employee will
again be eligible to participate in the Plan, subject to the requirements of
Paragraph 5(a) and the limitations imposed by Section 423(b) of the Code.
4. OFFERING PERIODS. The Plan shall be implemented by consecutive Offering
Periods with a new Offering Period commencing on or about each May 1 or November
1, provided, however, that the Offering Date of the initial Offering Period
shall be June 10, 1998. If the Company cannot make an offer under the Plan on or
about any May 1 or November 1 because of restrictions imposed by law, the
Company may make an offer as soon as practical after the expiration of such
restrictions. The Board or the Committee shall have the power to change the
duration of Offering Periods with respect to future offerings without
stockholder approval, if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first Offering Period to be affected.
5. PARTICIPATION.
(a) An eligible Employee or Consultant may become a participant in the
Plan by completing a subscription agreement authorizing payroll deductions or
Consultant's invoice deductions on the form provided by the Company and
filing it with the Company's payroll office or other appropriate department
of the Company prior to the Offering Date of the first Offering Period with
respect to which it is to be effective, unless a later time for filing the
subscription agreement is set by the Board or Committee with respect to such
Offering Period. In addition, the Board or Committee may allow a participant
to pay by check in addition to or in substitution for payroll or invoice
deductions; provided, however, that the aggregate Contributions for the
Offering Period and each Exercise Period is not in excess of 10 percent (10%)
of the participant's Compensation for the relevant period. Once enrolled,
the Employee or Consultant remains enrolled in each subsequent Offering
Period of the Plan at the designated deduction amount unless the Employee or
Consultant withdraws by providing the Company with a written Notice of
Withdrawal or files a new subscription agreement prior to the applicable
Offering Date changing the Employee's or Consultant's designated payroll or
invoice deduction. An eligible Employee or Consultant may participate in
only one Offering Period at a time.
(b) Payroll or invoice deductions for a participant shall commence with
the first payroll period following the Offering Date, or the first payroll
following the date of valid filing of the subscription agreement, or the first
invoice submitted after the valid filing of the subscription agreement,
whichever is later, and shall end when terminated by the participant as provided
in paragraph 10.
6. PAYROLL DEDUCTIONS.
-3-
<PAGE>
(a) At the time a participant files his or her subscription agreement, he
or she shall elect to have payroll or invoice deductions made on each payday
during all subsequent Offering Periods at a rate not exceeding ten percent
(10%), or such other rate as may be determined from time to time by the Board,
of the Compensation which he or she would otherwise receive during such Offering
Period without regard to deferral elections, provided that the aggregate
Contributions during any Offering Period and any Exercise Period shall not
exceed ten percent (10%), or such other percentage as may be determined from
time to time by the Board, of the aggregate Compensation which he or she would
otherwise have received during said Offering Period. Notwithstanding the
foregoing, for the initial Offering Period commencing on June 10, 1998, payroll
deductions will not commence until the first payday following the date that the
registration statement for the initial public offering of the Common Stock
becomes or is declared effective by the Securities and Exchange Commission under
the Securities Act of 1933 (the "IPO Effective Date"). The amount of initial
payroll or invoice deductions in the period from June 10, 1998 to the IPO
Effective Date will, upon authorization by the participant, be deducted in two
substantially equal payments during the first two payroll periods immediately
following the IPO Effective Date and, thereafter, payroll or invoice deductions
will be made at the rate authorized by the participant in his or her initial
subscription agreement.
(b) All Contributions authorized by a participant shall be credited to his
or her account under the Plan. A participant may not make any additional
payments into such account.
(c) A participant may discontinue his or her participation in the Plan as
provided in paragraph 10, or may change the rate of his or her Contributions
during an Offering Period by completing and filing with the Company a new
authorization for a new level of Contributions, provided that the Board may, in
its discretion, impose reasonable and uniform restrictions on participants'
ability to change the rate of Contributions. The change in rate shall be
effective no later than fifteen (15) days following the Company's receipt of the
new authorization. A participant may decrease or increase the amount of his or
her Contributions as of the beginning of an Offering Period by completing and
filing with the Company, prior to the beginning of such Offering Period, a new
subscription agreement.
(d) Notwithstanding the foregoing, to the extent necessary, but only to
such extent, to comply with Section 423(b)(8) of the Code and paragraph 3(b)
herein, a participant's rate of Contributions may be automatically decreased to
0% at such time during any Exercise Period which is scheduled to end in the
current calendar year that the aggregate of all a participant's Contributions
accumulated with respect to the applicable Offering Period and any other
Offering Period ending within the same calendar year equals $25,000.
Contributions shall recommence at the rate provided in such participant's
subscription agreement at the beginning of the next succeeding Exercise Period,
unless terminated by the participant as provided in paragraph 10.
7. GRANT OF OPTION.
(a) On each Offering Date (or on such later date specifically authorized
by the Board or the Committee), each participant shall be granted an option to
purchase on each Exercise
-4-
<PAGE>
Date (at the per share option price) a number of full shares of Common Stock
arrived at by dividing such participant's total Contributions to be
accumulated prior to such Exercise Date and retained in the participant's
account as of the Exercise Date by the lower of (i) eighty-five percent (85%)
of the fair market value of a share of Common Stock at the Offering Date, or
(ii) eighty-five percent (85%) of the fair market value of a share of Common
Stock at the Exercise Date; provided, however, that the maximum number of
shares a participant may purchase during each Offering Period shall be
determined by (i) dividing $50,000 by the fair market value of a share of
Common Stock on the Offering Date or (ii) if less, by the "Maximum Cap" set
for such Offering Period; and provided further that such purchase shall be
subject to the limitations set forth in paragraphs 3(b) and 12 hereof. The
"Maximum Cap" for each Offering Period shall be the number of shares
purchasable under the Plan during that Offering Period with the maximum
Contributions permitted by paragraph 6(a) hereof, based upon the fair market
value of a share of Common Stock at the beginning of the Offering Period.
The fair market value of a share of Common Stock shall be determined as
provided in paragraph 7(b) herein.
(b) The option price per share of such shares shall be the lower of: (i)
eighty-five percent (85%) of the fair market value of a share of Common Stock at
the Offering Date; or (ii) eighty-five percent (85%) of the fair market value of
a share of Common Stock at the Exercise Date. The fair market value of a share
of Common Stock on said dates shall be determined by the Board, based upon such
factors as the Board determines relevant; provided, however, that if there is a
public market for the Common Stock, the fair market value of a share of Common
Stock on a given date shall be the reported bid price for the Common Stock as of
such date; or, in the event that the Common Stock is listed on a national
securities exchange, the fair market value of a share of Common Stock shall be
the closing sales price of a share of Common Stock on the exchange as of such
date.
8. EXERCISE OF OPTION.
(a) Unless a participant withdraws from the Offering Period as provided in
paragraph 10, his or her option for the purchase of shares will be exercised
automatically at each Exercise Date, and the maximum number of full shares
subject to option will be purchased at the applicable option price with the
accumulated payroll or invoice deductions in his or her account. The shares
purchased upon exercise of an option hereunder shall be deemed to be transferred
to the participant on the Exercise Date.
(b) During his or her lifetime, a participant's option to purchase shares
hereunder is exercisable only by the participant.
(c) The Board may require, as a condition precedent to any purchase under
the Plan, appropriate arrangements with the participant for the withholding of
any applicable Federal, state, local or foreign withholding or other taxes.
9. DELIVERY. As promptly as practicable after the Exercise Date of each
Offering Period, the Company shall arrange for the shares purchased upon
exercise of his or her option to be
-5-
<PAGE>
electronically credited to the participant's designated brokerage account at
one of the securities brokerage firms participating in the Company's direct
deposit program from time to time. Any cash remaining to the credit of a
participant's account under the Plan after a purchase by him or her of shares
at the Exercise Date of each Offering Period which merely represents a
fractional share shall be credited to the participant's account for the next
subsequent Offering Period; any additional cash shall be returned to said
participant.
10. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A participant may withdraw all, but not less than all, the
Contributions credited to his or her account under the Plan at any time prior to
an Exercise Date by giving written notice to the Company on a form provided for
such purpose. If the participant withdraws from the Offering Period, all of the
participant's Contributions credited to his or her account will be paid to the
participant as soon as practicable after receipt of the notice of withdrawal and
his or her option for the current Offering Period will be automatically
canceled, and no further Contributions for the purchase of shares will be
allowed during such Offering Period or subsequent Offering Periods, except
pursuant to a new subscription agreement filed in accordance with paragraph 6
hereof.
(b) Upon termination of the participant's Continuous Status as an Employee
or Consultant prior to an Exercise Date of an Offering Period for any reason,
including retirement or death, the Contributions accumulated in his or her
account will be returned to him or her as soon as practicable after such
termination or, in the case of death, to the person or persons entitled thereto
under paragraph 14, and his or her option will be automatically canceled.
(c) In the event an Employee or Consultant fails to remain in Continuous
Status as an Employee or Consultant of the Company for at least twenty (20)
hours per week during an Offering Period in which the employee or consultant is
a participant, he or she will be deemed to have elected to withdraw from the
Plan, and the Contributions credited to his or her account will be returned to
the participant and the option canceled.
(d) A participant's withdrawal from an Offering Period will not have any
effect upon his or her eligibility to participate in a succeeding Offering
Period by executing and delivering to the Company a new subscription agreement
or in any similar plan which may hereafter be adopted by the Company.
11. AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD. In the event that the
fair market value of the Common Stock is lower on the first day of an Exercise
Period (the "Subsequent Exercise Period") than it was on the first Offering Date
for that Offering Period (the "Initial Offering Period"), all participants in
the Plan on the first day of the Subsequent Exercise Period shall be deemed to
have withdrawn from the Initial Offering Period on the first day of the
Subsequent Exercise Period and to have enrolled as participants in a new
Offering Period which begins on or about that day. A participant may elect to
remain in the Initial Offering Period by filing a written statement declaring
such election with the Company prior to the time of the automatic change to the
new Offering Period.
-6-
<PAGE>
12. INTEREST. No interest shall accrue on the payroll or invoice deductions
of a participant in the Plan.
13. STOCK.
(a) Subject to adjustment upon changes in capitalization of the Company as
provided in paragraph 19, the maximum number of shares of Common Stock which
shall be reserved for sale under the Plan shall be 60,000 shares.
If the total number of shares which would otherwise be subject to options
granted pursuant to paragraph 7(a) hereof on the Offering Date of an Offering
Period exceeds the number of shares then available under the Plan (after
deduction of all shares for which options have been exercised or are then
outstanding), the Company shall make a pro rata allocation of the shares
remaining available for option grant in as uniform and equitable a manner as is
practicable. In such event, the Company shall give written notice of such
reduction of the number of shares subject to the option to each participant
affected thereby and shall return any excess funds accumulated in each
participant's account as soon as practicable after the affected Exercise Date of
such Offering Period. Common Stock to be sold to participants in the Plan may
be, at the election of the Company, either treasury shares or shares authorized
but unissued.
(b) A participant will have no interest or voting rights in shares covered
by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
credited electronically to a brokerage account in the name of the participant at
one of the brokerage firms participating from time to time in the Company's
direct deposit program.
14. ADMINISTRATION. The Plan shall be administered by the Board or the
Committee. The Board or the Committee shall have the authority to (i) make all
factual determinations in the administration or interpretation of the Plan, (ii)
establish administrative regulations to further the purpose of the Plan, and
(iii) take any other action desirable or necessary to interpret, construe or
implement properly the provisions of the Plan. The administration,
interpretation or application of the Plan by the Board or the Committee shall be
final, conclusive and binding upon all participants. Members of the Board or
the Committee who are eligible Employees are permitted to participate in the
Plan, provided that:
(a) Members of the Board who participate in the Plan may not vote on any
matter affecting the administration of the Plan or the grant of any option
pursuant to the Plan.
(b) If a Committee is established to administer the Plan, no member of the
Board who participates in the Plan may be a member of the Committee.
15. DESIGNATION OF BENEFICIARY.
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<PAGE>
(a) A participant may file a written designation of a beneficiary who is
to receive shares and/or cash, if any, from the participant's account under the
Plan in the event of such participant's death at a time when cash or shares are
held for his or her account.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant in
the absence of a valid designation of a beneficiary who is living at the time
of such participant's death, the Company shall deliver such shares and/or
cash to the executor or administrator of the estate of the participant; or if
no such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares and/or cash
to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may reasonably designate.
16. RIGHTS NOT TRANSFERABLE. Neither Contributions credited to a
participant's account nor any rights with regard to the exercise of an option
or to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in paragraph 15 hereof) by the participant. Any
such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds in accordance with paragraph 10.
17. USE OF FUNDS. All Contributions received or held by the Company under
the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such Contributions.
18. REPORTS. Individual accounts will be maintained for each participant in
the Plan. Statements of account will be given to participating Employees as
soon as practicable following each Exercise Date. Such statements will set
forth the amounts of Contributions, the per share purchase price, the number of
shares purchased and the remaining cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any required
action by the stockholders of the Company, the number of shares of Common
Stock covered by each option under the Plan which has not yet been exercised
and the number of shares of Common Stock which have been authorized for
issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves"), as well as the price per share of Common
Stock covered by each option under the Plan which has not yet been exercised,
shall be proportionately adjusted for any increase or decrease in the number
of issued shares of Common Stock resulting from a stock split, stock
dividend, combination or reclassification of the Common Stock or any other
increase or decrease in the number of shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion
of any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issue by the Company of
shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to
option.
-8-
<PAGE>
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, each option under the
Plan shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation
(the "Successor Corporation"). In the event that the Successor Corporation
refuses to assume or substitute for the option, any Exercise Periods then in
progress shall be shortened by setting a new Exercise Date (the "New Exercise
Date") and any Offering Periods then in progress shall end on the New Exercise
Date. The New Exercise Date shall be before the date of the Company's proposed
sale or merger. The Board shall notify each participant in writing, at least
ten (10) business days prior to the New Exercise Date, that the Exercise Date
for the participant's option has been changed to the New Exercise Date and that
the participant's option shall be exercised automatically on the New Exercise
Date, unless prior to such date the participant has withdrawn from the Offering
Period as provided in Section 10 hereof.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of shares of its outstanding Common Stock, and
in the event of the Company being consolidated with or merged into any other
corporation.
20. AMENDMENT OR TERMINATION. The Board may at any time and for any reason
terminate or amend the Plan. Except as provided in paragraph 19 and this
paragraph 20, no such termination will affect options previously granted.
Except as provided in paragraph 19 and this paragraph 20, no amendment may make
any change in any option theretofore granted which adversely affects the rights
of any participant.
In the event the Board determines that the ongoing operation of the Plan
may result in unfavorable financial accounting consequences, the Board may, in
its discretion and, to the extent necessary or desirable, modify or amend the
Plan to reduce or eliminate such accounting consequence including, but not
limited to:
(a) altering the purchase price for any Offering Period including an
Offering Period underway at the time of the change in purchase price;
(b) shortening any Offering Period so that Offering Period ends on a new
Exercise Date, including an Offering Period underway at the time of the Board
action; and
(c) allocating shares.
Such modifications or amendments shall not require stockholder approval or
the consent of any Plan participants.
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<PAGE>
21. NOTICES. All notices or other communications by a participant to the
Company in connection with the Plan shall be deemed to have been duly given when
received in the form specified by the Company at the location, or by the person,
designated by the Company for the receipt thereof. Notices given electronically
by the Company will be deemed to be written notices under the Plan.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, if required by applicable
securities laws, the Company may require the participant for whose account the
option is being exercised to represent and warrant at the time of such exercise
that the shares are being purchased only for investment and without any present
intention to sell or distribute such shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
applicable provisions of law.
23. NO RIGHT TO EMPLOYMENT. Nothing shall confer upon any employee or
consultant of the Company any right to continued employment or consultancy with
the Company or interfere in any way with the right of the Company to terminate
the employment or consultancy of any of its employees or consultants at any
time, with or without cause.
24. TERM OF PLAN. The Plan shall remain in effect until terminated in
accordance with Paragraph 20.
25. GOVERNING LAW. All rights and obligations under the Plan shall be
construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of laws.
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<PAGE>
MIPS TECHNOLOGIES INC. NON-U.S. EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
<TABLE>
<CAPTION>
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EMPLOYEE LAST NAME FIRST NAME MI SOCIAL SECURITY # EMPLOYEE #
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
DAYTIME TELEPHONE NUMBER OFFICE LOCATION
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
/ /ORIGINAL APPLICATION / /CHANGE
</TABLE>
1. I hereby elect to participate in each Offering Period of the MIPS
Technologies Inc. Non-U.S. Employee Stock Purchase Plan (the "Plan")
beginning subsequent to the date set forth below and subscribe to purchase
shares of Common Stock of MIPS Technologies Inc. (the "Company") in
accordance with this Agreement and the Plan.
2. I hereby authorize payroll and/or invoice deductions from each paycheck
and/or invoice during each Offering Period in the amount of (1% to 10%,
whole percentages only) ____________% of my compensation (including base
pay, consulting fees and, to the extent applicable, any amounts
attributable to overtime, shift premium, incentive compensation, bonuses
and commissions) in accordance with the Plan.
3. I understand that the deductions will not begin until after the closing
date of the initial public offering of the Company's Common Stock (the
"Closing Date"). The Company will notify me when payroll deductions will
begin and I will be given the opportunity to withdraw from the Plan. If I
elect to continue participation in the Plan, payroll deductions for the
period from June 10, 1998 until the Closing Date will be made up in equal
installments over the first two payroll periods.
4. I understand that said deductions shall be accumulated for the purchase of
shares in accordance with the Plan, and that shares will be purchased for
me automatically at the end of each six-month Exercise Period unless I
withdraw from the Plan by giving written notice to the Company. I
authorize the Company to carry over to the next Exercise Period or Offering
Period any cash insufficient to purchase a share of Common Stock.
5. I have received a copy of the Company's most recent prospectus which
describes the Plan and a copy of the complete "MIPS Technologies Inc.
Employee Stock Purchase Plan." I understand that my participation in the
Plan is in all respects subject to the terms of the Plan.
6. I hereby agree to be bound by the terms of the Plan. The effectiveness of
this Subscription Agreement is dependent upon my eligibility to participate
in the Plan.
7. In the event of my death, I hereby designate my beneficiary to receive all
payments and shares due me under the Plan.
8. I agree that the shares I purchase through the MIPS Technologies Inc.
Employee Stock Purchase Plan (ESPP) will be electronically transferred to a
brokerage firm for credit to an account set up under my name. Broker
selection will be forthcoming and be announced in an additional
communication.
- --------------------------------------- ------------------------------
Employee Signature Date
- --------------------------------------- ------------------------------
Employee Signature Date
PLEASE RETURN FORM TO Trish Leeper / HR
-11-
<PAGE>
MIPS TECHNOLOGIES, INC.
DIRECTORS' STOCK OPTION PLAN
(effective as of July 6, 1998)
1. PURPOSES OF THE PLAN. The purposes of this Directors' Stock Option
Plan are to attract and retain the best available personnel for service as
Directors of the Company, to provide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their continued
service on the Board.
All options granted hereunder shall be non-statutory stock options.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ANNUAL MEETING" means the Company's regularly scheduled annual
meeting of stockholders, as provided for in the Company's bylaws.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMON STOCK" means the Common Stock of the Company.
(e) "COMPANY" means MIPS Technologies, Inc., a Delaware corporation.
(f) "CONTINUOUS STATUS AS A DIRECTOR" means the absence of any
interruption or termination of service as a Director.
(g) "DIRECTOR" means a member of the Board.
(h) "EMPLOYEE" means any person, including officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(j) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("Nasdaq") System, the Fair Market Value of a Share of Common Stock
shall be the closing sales price for such stock or the closing bid,
<PAGE>
if no sales were reported, as quoted on such system or exchange (or the
exchange with the greatest volume of trading in Common Stock) on the day of
determination, as reported in THE WALL STREET JOURNAL or such other source as
the Board deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but not
on the National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high and low asked prices
for the Common Stock on the day of determination, as reported in THE WALL STREET
JOURNAL or such other source as the Board deems reliable, or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(k) "OPTION" means a stock option granted pursuant to the Plan.
(l) "OPTIONED STOCK" means the Common Stock subject to an Option.
(m) "OPTIONEE" means an Outside Director who receives an Option.
(n) "OUTSIDE DIRECTOR" means a Director who is not an Employee.
(o) "PARENT" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(p) "PLAN" means this Directors' Stock Option Plan.
(q) "SERVICE PROVIDER" means an Employee, Director or consultant of
the Company.
(r) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(s) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 10 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 600,000 Shares plus an annual increase to be added each year
on July 1 beginning on July 1, 1999 in an amount equal to the lesser of (i)
100,000 shares, (ii) the number of shares subject to option grants in the prior
year ending June 30 or (iii) a lesser number determined by the Board (the
"Pool") of Common Stock. The Shares may be authorized, but unissued, or
reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan shall have been terminated, become available for future
grant under the Plan.
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<PAGE>
4. Administration of and Grants of Options under the Plan.
(a) ADMINISTRATOR. Except as otherwise required herein, the Plan
shall be administered by the Board, or by a compensation committee (the
"Committee") appointed by the Board.
(b) PROCEDURE FOR GRANTS. All grants of Options hereunder shall be
automatic and non-discretionary and shall be made strictly in accordance with
the following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically granted an
Option to purchase 40,000 Shares (which number shall be subject to adjustment in
the manner set forth in Section 10 hereof upon the occurrence of any event
described therein) upon the date on which such person first becomes a Director
(an "Initial Grant"), whether through election by the stockholders of the
Company or by appointment by the Board to fill a vacancy.
(iii) On the date of each Annual Meeting during the term of
this Plan, each Outside Director who has served as a Director for at least the
previous six (6) months shall automatically receive an Option to purchase
10,000 Shares, which number shall be subject to adjustment in the manner set
forth in Section 10 hereof upon the occurrence of any event described therein (a
"Renewal Grant").
(iv) The terms of each Option granted hereunder shall be as
follows:
(A) the term of the Option shall be ten (10) years.
(B) the Option shall be exercisable only while the Outside
Director remains a Service Provider, except as set forth in Section 8 hereof.
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Option.
(D) the Initial Grant will vest and become exercisable as
follows:
24% of the Shares subject to the Option shall vest
twelve months after the Option's grant date, and 2% of the
Shares subject to the Option shall vest each month
thereafter, subject to the Outside Director continuing to be
a Service Provider on such dates.
(E) The Renewal Grants will vest and become exercisable as
to 2% of the Shares subject to such Option each month beginning with the first
month after the grant date, subject to the Outside Director continuing to be a
Service Provider on such dates.
-3-
<PAGE>
(v) In the event that any Option granted under the
Plan would cause the number of Shares subject to outstanding Options plus the
number of Shares previously purchased upon exercise of Options to exceed the
Pool, then each such automatic grant shall be for that number of Shares
determined by dividing the total number of Shares remaining available for grant
by the number of Outside Directors on the automatic grant date. No further
grants shall be made until such time, if any, as additional Shares become
available for grant under the Plan through action of the stockholders to
increase the number of Shares which may be issued under the Plan or through
cancellation or expiration of Options previously granted hereunder.
(c) POWERS OF THE BOARD. Subject to the provisions and restrictions
of the Plan, the Board or the Committee shall have the authority, in its
discretion: (i) to determine, upon review of relevant information and in
accordance with Section 2(j) of the Plan, the Fair Market Value of the Common
Stock; (ii) to interpret the Plan; (iii) to prescribe, amend and rescind rules
and regulations relating to the Plan; (iv) to authorize any person to execute on
behalf of the Company any instrument required to effectuate the grant of an
Option previously granted hereunder; and (v) to make all other determinations
deemed necessary or advisable for the administration of the Plan.
(d) EFFECT OF BOARD'S DECISION. All decisions, determinations and
interpretations of the Board or the Committee shall be final.
5. ELIGIBILITY. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) hereof. An Outside Director who has been granted an Option may, if
he or she is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.
The Plan shall not confer on any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate his or her directorship at any time.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the stockholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 12 of the Plan.
7. Exercise Price and Consideration.
(a) EXERCISE PRICE. The per Share exercise price for Optioned Stock
shall be 100% of the Fair Market Value per Share on the date of grant of the
Option.
(b) FORM OF CONSIDERATION. The consideration to be paid for the
Shares to be issued upon exercise of an Option, including the method of payment,
shall be determined by the Board and may consist entirely of: (i) cash, (ii)
check, (iii) promissory note, (iv) other shares which (x) in the case of Shares
acquired upon exercise of an Option either have been owned by the Optionee for
more than six (6) months on the date of surrender, or were not acquired directly
or indirectly from the Company, and (y) have a Fair Market Value on the date of
surrender equal to the
-4-
<PAGE>
aggregate exercise price of the Shares as to which said Option shall be
exercised, (v) authorization from the Company to retain from the total number
of Shares as to which the Option is exercised that number of Shares having a
Fair Market Value on the date of exercise equal to the exercise price for the
total number of Shares as to which the Option is exercised, (vi) delivery of
a properly executed exercise notice together with irrevocable instructions to
a broker to promptly deliver to the Company the amount of sale or loan
proceeds required to pay the exercise price, (vii) by delivering an
irrevocable subscription agreement for the Shares which irrevocably obligates
the Optionee to take and pay for the Shares not more than twelve (12) months
after the date of delivery of the subscription agreement, (viii) any
combination of the foregoing methods of payment, or (ix) such other
consideration and method of payment for the issuance of Shares to the extent
permitted by applicable law.
8. Exercise of Option.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option granted
hereunder shall be exercisable at such times as are set forth in Section 4(b)
hereof; provided, however, that no Options shall be exercisable until
stockholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7(b) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall be
issued to the Optionee as soon as practicable after exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 10 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) RULE 16b-3. Options granted to Outside Directors must comply
with the applicable provisions of Rule 16b-3 promulgated under the Exchange Act
or any successor thereto and shall contain such additional conditions or
restrictions as may be required thereunder to qualify for the maximum exemption
from Section 16 of the Exchange Act with respect to Plan transactions.
(c) TERMINATION OF STATUS AS A SERVICE PROVIDER. If an Outside
Director ceases to be a Service Provider, he or she may, but only within three
(3) months after the date he or she ceases
-5-
<PAGE>
to be a Service Provider, exercise an Option to the extent that he or she was
entitled to exercise it at the date of such termination. Notwithstanding the
foregoing, in no event may the Option be exercised after its five (5) year
term has expired. To the extent that the Optionee was not entitled to
exercise an Option at the date of such termination, or if the Optionee does
not exercise such Option (which he or she was entitled to exercise) within
the time specified herein, the Option shall terminate.
(d) DISABILITY OF OPTIONEE. Notwithstanding the provisions of
Section 8(c) above, in the event an Optionee is unable to continue as a Service
Provider as a result of the Optionee's total and permanent disability (as
defined in Section 22(e)(3) of the Code), he or she may, but only within six (6)
months from the date of termination, exercise an Option to the extent that he or
she was entitled to exercise it at the date of such termination.
Notwithstanding the foregoing, in no event may the Option be exercised after its
five (5) year term has expired. To the extent that the Optionee was not
entitled to exercise the Option at the date of termination, or if the Optionee
does not exercise such Option (which he or she was entitled to exercise) within
the time specified herein, the Option shall terminate.
(e) DEATH OF OPTIONEE. In the event of the death of an Optionee, the
Option may be exercised, at any time within six (6) months following the date of
death, by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that had accrued at the date of death. Notwithstanding the
foregoing, in no event may the Option be exercised after its five (5) year term
has expired.
9. NON-TRANSFERABILITY OF OPTIONS . The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Liquidation or Merger.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
stockholders of the Company, the number of Shares covered by each outstanding
Option, and the number of Shares which have been authorized for issuance under
the Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, as well as
the price per Share covered by each such outstanding Option or Right, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares of resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of Shares of
stock of any class, or securities convertible into Shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of Shares subject to an Option.
-6-
<PAGE>
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, all outstanding Options will
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Board. The Board may, in the exercise of its sole
discretion in such instances, declare that any Option shall terminate as of a
date fixed by the Board and give each Optionee the right to exercise his or her
Option as to all or any part of the Optioned Stock, including Shares as to which
the Option would not otherwise be exercisable.
(c) MERGER OR ASSET SALE. In the event of a merger of the Company
with or into another corporation or the sale of substantially all of the assets
of the Company, outstanding Options may be assumed or equivalent options may be
substituted by the successor corporation or a Parent or Subsidiary thereof (the
"Successor Corporation"). If an Option is assumed or substituted for, the
Option or equivalent option shall continue to be exercisable as provided in
Section 4 hereof for so long as the Optionee is a Service Provider of the
Company or of the Successor Corporation. Following such assumption or
substitution, if the Optionee's status as a Service Provider of the Company or
of the Successor Corporation, as applicable, is terminated other than upon a
voluntary resignation by the Optionee, the Option or option shall become fully
exercisable, including as to Shares for which it would not otherwise be
exercisable. Thereafter, the Option or option shall remain exercisable in
accordance with Sections 8(c) through (e) above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of fifteen (15) days from the date of
such notice, and upon the expiration of such period the Option shall terminate.
For the purposes of this Section 10(c), an Option shall be
considered assumed if, following the merger or sale of assets, the Option
confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received
in the merger or sale of assets by holders of Common Stock for each Share
held on the effective date of the transaction (and if holders were offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares). If such consideration received in the
merger or sale of assets is not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon the
exercise of the Option, for each Share of Optioned Stock subject to the
Option, to be solely common stock of the successor corporation or its Parent
equal in fair market value to the per share consideration received by holders
of Common Stock in the merger or sale of assets.
11. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without
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<PAGE>
his or her consent. In addition, to the extent necessary and desirable to
comply with any applicable law or regulation, the Company shall obtain
stockholder approval of any Plan amendment in such a manner and to such a
degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option or Right
shall, for all purposes, be the date determined in accordance with Section 4(b)
hereof. Notice of the determination shall be given to each Outside Director to
whom an Option is so granted within a reasonable time after the date of such
grant.
13. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.
14. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. STOCKHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the stockholders of the Company at or prior to the first annual
meeting of stockholders subsequent to the granting of an Option hereunder. Such
stockholder approval shall be obtained in the manner and to the degree required
under applicable state and federal law.
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<PAGE>
MIPS TECHNOLOGIES, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is entered into effective as
of January 28, 1999, by and between MIPS Technologies, Inc., a Delaware
corporation ("MIPS"), and _______________ ("Indemnitee").
WHEREAS, MIPS and Indemnitee recognize that there has been a substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and the Indemnitee and other
directors, officers, employees, agents and fiduciaries of MIPS may not be
willing to continue to serve in such capacities without additional protection;
WHEREAS, MIPS desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve MIPS and, in part, in order
to induce Indemnitee to continue to provide services to MIPS, wishes to provide
for the indemnification and advancing of expenses to Indemnitee to the maximum
extent permitted by law; and
WHEREAS, in view of the considerations set forth above, MIPS desires that
effective upon the date referred to above, Indemnitee shall be indemnified by
MIPS as set forth herein.
NOW, THEREFORE, MIPS and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) INDEMNIFICATION OF EXPENSES. The Company shall indemnify Indemnitee
to the fullest extent permitted by law if Indemnitee was or is or becomes a
party to or witness or other participant in, or is threatened to be made a party
to or witness or other participant in, a Claim by reason of (or arising in part
out of) an Indemnifiable Event against any and all Expenses, including all
interest, assessments and other charges paid or payable in connection with or in
respect of such Expenses. Such payment of Expenses shall be made by the Company
as soon as practicable but in any event no later than five (5) days after
written demand by Indemnitee therefor is presented to the Company.
(b) REVIEWING PARTY.
(i) The obligations of the Company under Section l(a) shall be
subject to the condition that the Reviewing Party shall not have determined
(in a written opinion, in any case in which the Independent Legal Counsel
referred to in Section l(c) hereof is involved) that Indemnitee would not
be permitted to be
<PAGE>
indemnified under applicable law. The obligation of the Company to make an
advance payment of Expenses to Indemnitee pursuant to Section 2(a) (an
"Expense Advance") shall be subject to the condition that, if, when and to
the extent that the Reviewing Party determines that Indemnitee would not be
permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid.
(ii) Notwithstanding the foregoing paragraph (b)(i), if Indemnitee
has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing
Party that Indemnitee would not be permitted to be indemnified under
applicable law shall not be binding, and Indemnitee shall not be required
to reimburse the Company for any Expense Advance, until final judicial
determination is made with respect thereto (as to which all rights of
appeal therefrom have been exhausted or lapsed).
(iii) Indemnitee's obligation to reimburse the Company for any
Expense Advance shall be unsecured and no interest shall be charged
thereon.
(iv) If there has not been a Change in Control, the Reviewing Party
shall be selected by the Board of Directors, and if there has been such a
Change in Control (other than a Change in Control which has been approved
by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be
the Independent Legal Counsel referred to in Section l(c) hereof.
(v) If there has been no determination by the Reviewing Party or if
the Reviewing Party determines that Indemnitee substantively would not be
permitted to be indemnified in whole or in part under applicable law,
Indemnitee shall have the right to commence litigation seeking an initial
determination by the court or challenging any such determination by the
Reviewing Party or any aspect thereof, including the legal or factual bases
therefor, and the Company hereby consents to service of process and to
appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and Indemnitee.
(c) CHANGE IN CONTROL. The Company agrees that if there is a Change in
Control of the Company (other than a Change in Control which has been approved
by a majority of the Company's Board of Directors who were directors immediately
prior to such Change in Control) then with respect to all matters thereafter
arising concerning the rights of Indemnitee to payments of Expenses and Expense
Advances under this Agreement or any other agreement or under the Company's
Restated Certificate of Incorporation or By-
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<PAGE>
laws as now or hereafter in effect, the Company shall seek legal advice only
from legal counsel selected by Indemnitee and approved by the Company (which
approval shall not be unreasonably withheld) ("Independent Legal Counsel").
Such counsel, among other things, shall render its written opinion to the
Company and Indemnitee as to whether and to what extent Indemnitee would be
permitted to be indemnified under applicable law. The Company agrees to pay the
reasonable fees of the Independent Legal Counsel referred to above and to fully
indemnify such counsel against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this Agreement or
its engagement pursuant hereto.
(d) MANDATORY PAYMENT OF EXPENSES. Notwithstanding any other provision of
this Agreement other than Section 9 hereof, to the extent that Indemnitee has
been successful on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any action, suit,
proceeding, inquiry or investigation referred to in Section l(a) hereof or in
the defense of any claim, issue or matter therein, Indemnitee shall be
indemnified against all Expenses incurred by Indemnitee in connection therewith.
2. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all Expenses
incurred by Indemnitee. The advances to be made hereunder shall be paid by the
Company to Indemnitee as soon as practicable but in any event no later than five
(5) days after written demand by Indemnitee therefor to the Company.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a condition
precedent to Indemnitee's right to be indemnified under this Agreement, give the
Company notice in writing as soon as practicable of any Claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company, with a copy to the Company's Secretary, at the address
shown on the signature page of this Agreement (or such other address as the
Company shall designate in writing to Indemnitee). In addition, Indemnitee
shall give the Company such information and cooperation as it may reasonably
require and as shall be within Indemnitee's power. Promptly after receipt by
Indemnitee, or the Company, of any notice or document respecting the
commencement of a Claim naming or involving Indemnitee and relating to an
Indemnifiable Event with respect to which Indemnitee may be entitled to
indemnification or an Expense Advance pursuant to this Agreement, the party
receiving the same shall notify the other party promptly of such receipt.
(c) NO PRESUMPTIONS; BURDEN OF PROOF. For purposes of this Agreement, the
termination of any Claim by judgment, order, settlement (whether with or without
court approval) or conviction, or upon a plea of NOLO CONTENDERE, or its
equivalent, shall not
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<PAGE>
create a presumption that Indemnitee did not meet any particular standard of
conduct or have any particular belief or that a court has determined that
indemnification is not permitted by applicable law. In addition, neither the
failure of the Reviewing Party to have made a determination as to whether
Indemnitee has met any particular standard of conduct or had any particular
belief, nor an actual determination by the Reviewing Party that Indemnitee has
not met such standard of conduct or did not have such belief, prior to the
commencement of legal proceedings by Indemnitee to secure a judicial
determination that Indemnitee should be indemnified under applicable law, shall
be a defense to Indemnitee's claim or create a presumption that Indemnitee has
not met any particular standard of conduct or did not have any particular
belief. In connection with any determination by the Reviewing Party or
otherwise as to whether the Indemnitee is entitled to be indemnified hereunder,
the burden of proof shall be on the Company to establish that Indemnitee is not
so entitled.
(d) NOTICE TO INSURERS. If, at the time of the receipt by the Company of
a notice of a Claim pursuant to Section 2(b) hereof, the Company, or any
affiliate of the Company, has liability insurance in effect which may cover such
Claim, the Company shall give prompt notice of the commencement of such Claim to
the insurers in accordance with the procedures set forth in the respective
policies. The Company shall thereafter take all necessary or desirable action
to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable
as a result of such action, suit, proceeding, inquiry or investigation in
accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be obligated
hereunder to pay the Expenses of any Claim, the Company, if appropriate, shall
be entitled to assume the defense of such Claim, with counsel approved by
Indemnitee ("Retained Counsel"), upon the delivery to Indemnitee of written
notice of its election so to do. After delivery of such notice, approval of
Retained Counsel by Indemnitee and the retention of Retained Counsel by the
Company, the Company will not be liable to Indemnitee under this Agreement for
any fees of separate counsel ("Separate Counsel") subsequently incurred by
Indemnitee with respect to the same Claim; provided that, (i) Indemnitee shall
have the right to employ Separate Counsel in any such Claim at Indemnitee's
expense and (ii) if (A) the employment of Separate Counsel by Indemnitee has
been previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense, or (C) the Company shall not
continue to retain Retained Counsel to defend such Claim, then the fees and
expenses of Indemnitee's Separate Counsel shall be at the expense of the
Company.
3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. The Company hereby agrees to indemnify the Indemnitee to the
fullest extent permitted by law, notwithstanding that such indemnification is
not
4
<PAGE>
specifically authorized by the other provisions of this Agreement, the Company's
Restated Certificate of Incorporation, the Company's By-laws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its board of directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder, except as set forth in Section 8(a) hereof.
(b) NONEXCLUSIVITY. The indemnification provided by this Agreement shall
be in addition to any rights to which Indemnitee may be entitled under the
Company's Restated Certificate of Incorporation, its By-laws, any other
agreement, any vote of stockholders or disinterested directors, the General
Corporation Law of the State of Delaware, or otherwise. The indemnification
provided under this Agreement shall continue as to Indemnitee for any action
taken or not taken while serving at the request of the Company in an indemnified
capacity even though Indemnitee may have ceased to serve in such capacity.
4. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under this
Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, certificate of incorporation, by-law or otherwise)
of the amounts otherwise indemnifiable hereunder.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of
Expenses incurred in connection with any Claim, but not, however, for all of the
total amount thereof, the Company shall nevertheless indemnify Indemnitee for
the portion of such Expenses to which Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
5
<PAGE>
7. LIABILITY INSURANCE. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
8. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) EXCLUDED ACTION OR OMISSIONS. To indemnify Indemnitee for acts,
omissions or transactions from which Indemnitee may not be relieved of liability
under applicable law.
(b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance Expenses to
Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee
and not by way of defense, except (i) with respect to actions or proceedings
brought to establish or enforce a right to indemnification under this Agreement
or any other agreement or insurance policy or under the Company's Restated
Certificate of Incorporation or By-laws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or bringing of such Claim, or (iii) as
otherwise as required under Section 145 of the Delaware General Corporation Law,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be.
(c) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses incurred
by the Indemnitee with respect to any proceeding instituted by Indemnitee to
enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by the Indemnitee in such
proceeding was not made in good faith or was frivolous.
(d) CLAIMS UNDER SECTION 16. To indemnify Indemnitee for expenses and the
payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16 of the Securities Exchange Act of 1934, as
amended, or the rules and regulations promulgated thereunder, or any similar
successor statute, rules or regulations.
9. PERIOD OF LIMITATIONS. No legal action shall be brought and no cause
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the
6
<PAGE>
timely filing of a legal action within such two-year period; PROVIDED, HOWEVER,
that if any shorter period of limitations is otherwise applicable to any such
cause of action, such shorter period shall govern.
10. DEFINITIONS. For the purposes of this Agreement, the following terms
shall have the meaning assigned to them hereunder:
(a) CHANGE IN CONTROL shall mean any event in which:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended), other than (i) Silicon
Graphics, Inc. or any of its subsidiaries (other than the Company), (ii) a
trustee or other fiduciary (acting in such capacity) holding securities
under an employee benefit plan of the Company, or (iii) a corporation owned
directly or indirectly by the stockholders of the Company in substantially
the same proportions as their ownership of stock of the Company, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing more than
15% of the total voting power of the Company's then outstanding Voting
Securities.
(ii) during any period of two consecutive years commencing
immediately after the disposition by Silicon Graphics, Inc. of all of its
beneficial ownership interest in the Company, individuals who at the
beginning of such period constitute the Board of Directors of the Company
and any new directors whose election by the Board of Directors or
nomination for election by the Company's stockholders was approved by a
vote of at least two thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof; or
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation other than a merger
or consolidation which would result in the Voting Securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of (in one transaction
or a series of related transactions) all or substantially all of the
Company's assets.
(b) CLAIM shall mean any threatened, pending or completed action, suit,
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<PAGE>
proceeding, arbitration, or alternative dispute resolution mechanism, or any
hearing, inquiry or investigation that Indemnitee in good faith believes might
lead to the institution of any action, suit, proceeding, arbitration or
alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or otherwise.
(c) COMPANY shall mean and include, in addition to MIPS and any successor
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence were continued, would have had power and authority to indemnify its
directors, officers, employees, agents or fiduciaries, so that if Indemnitee is
or was a director, officer, employee, agent or fiduciary of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indemnitee
would have with respect to such constituent corporation if its separate
existence had continued.
(d) EXPENSES shall mean and include any and all expenses, including
attorneys' fees and all other costs, expenses and obligations incurred in
connection with investigating, defending, being a witness in or participating in
(including on appeal), or preparing to defend, be a witness in or participate
in, any action, suit, proceeding, arbitration, alternative dispute resolution
mechanism, hearing, inquiry or investigation, and any and all judgments, fines,
penalties and amounts paid in settlement (if such settlement is approved in
advance by the Company, which approval shall not be unreasonably withheld) of
any Claim and any federal, state, local or foreign taxes imposed on the
Indemnitee as a result of the actual or deemed receipt of any payments under
this Agreement.
(e) INDEMNIFIABLE EVENT shall mean any event or occurrence related to the
fact that Indemnitee is or was a director, officer, partner, employee, trustee,
agent or fiduciary of the Company, or any subsidiary of the Company, or is or
was serving at the request of the Company as a director, officer, partner,
employee, trustee, agent or fiduciary of any other corporation, partnership,
joint venture, trust or other enterprise, which imposes duties on, or involves
services by, such director, officer, employee, agent or fiduciary while serving
in such capacity, or by reason of any action or inaction on the part of
Indemnitee in such capacity.
(f) REVIEWING PARTY shall mean any appropriate person or body consisting
of a member or members of the Company's Board of Directors or any other person
or body appointed by the Board of Directors who is not a party to the particular
Claim for which Indemnitee is seeking indemnification, or Independent Legal
Counsel.
(g) VOTING SECURITIES shall mean any securities of the Company the holders
of
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<PAGE>
which are entitled to elect a majority of the Company's directors.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. BINDING EFFECT; SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement shall
continue in effect regardless of whether Indemnitee continues to serve as a
director, officer, employee, agent or fiduciary (as applicable) of the Company
or of any other enterprise at the Company's request.
13. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless as a part of such action a court
of competent jurisdiction over such action determines that each of the material
assertions made by Indemnitee as a basis for such action were not made in good
faith or were frivolous. In the event of an action instituted by or in the name
of the Company under this Agreement to enforce or interpret any of the terms of
this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee in defense of such action (including costs and expenses incurred with
respect to Indemnitee's counterclaims and cross-claims made in such action), and
shall be entitled to the advancement of Expenses with respect to such action,
unless as a part of such action a court having jurisdiction over such action
determines that each of Indemnitee's material defenses to such action were made
in bad faith or were frivolous.
14. NOTICE. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and signed for by the addressee, on the date of such receipt,
or (ii) if mailed by domestic certified or registered mail with postage prepaid,
on the third business day after the date postmarked. Addresses for notice to
either party are as shown on the signature page of this Agreement, or as
subsequently modified by written notice.
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15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. SEVERABILITY. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. CHOICE OF LAW. This Agreement shall be governed by and its provisions
construed and enforced in accordance with the laws of the State of Delaware, as
applied to contracts between Delaware residents, entered into and to be
performed entirely within the State of Delaware, without regard to the conflict
of laws principles thereof.
18. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. AMENDMENT AND TERMINATION. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless it is in writing signed
by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.
20. INTEGRATION AND ENTIRE AGREEMENT. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
MIPS TECHNOLOGIES, INC.
By:
--------------------------
Name: John Bourgoin
Title: President
Address:
1225 Charleston Road
Mountain View, CA 94043
AGREED TO AND ACCEPTED:
INDEMNITEE:
By:
--------------------------
Name:
Title:
Address:
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Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
July 20, 1998, in Amendment No. 1 to the Registration Statement on Form S-1
related Prospectus of MIPS Technologies, Inc., as filed with the Securities
and Exchange Commission on February 26, 1998, for the registration of
6,900,000 shares of its common stock.
ERNST & YOUNG LLP
San Jose, California
March 11, 1999
