<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 10, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
QUANTUM EFFECT DEVICES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3674 77-0290544
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
Number)
</TABLE>
3255-3 SCOTT BOULEVARD, SUITE 200
SANTA CLARA, CALIFORNIA 95054
(408) 565-0300
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
THOMAS J. RIORDAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
QUANTUM EFFECT DEVICES, INC.
3255-3 SCOTT BOULEVARD, SUITE 200
SANTA CLARA, CALIFORNIA 95054
(408) 565-0300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
ALAN C. MENDELSON, ESQ. JEFFREY R. VETTER, ESQ.
MATTHEW W. SONSINI, ESQ. CRAIG A. MENDEN, ESQ.
Cooley Godward LLP Fenwick & West LLP
Five Palo Alto Square Two Palo Alto Square
3000 El Camino Real 3000 El Camino Real
Palo Alto, CA 94306-2155 Palo Alto, CA 94306-2155
(650) 843-5000 (650) 494-0600
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
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, as amended (the "Securities Act"), check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of 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
number 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 number of the earlier effective registration statement for the same
offering. / / ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common stock, par value $0.001........ $41,400,000 $11,510
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act of 1933.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED SEPTEMBER 10, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SHARES
[LOGO]
COMMON STOCK
-----------------
QUANTUM EFFECT DEVICES, INC. IS OFFERING SHARES OF COMMON STOCK. THIS IS
OUR INITIAL PUBLIC OFFERING, AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR
SHARES. WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN
$ AND $ PER SHARE.
-------------------
WE HAVE FILED AN APPLICATION FOR OUR COMMON STOCK TO BE QUOTED ON THE NASDAQ
NATIONAL MARKET UNDER THE SYMBOL "QEDI."
-------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 7.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND
PUBLIC COMMISSIONS PROCEEDS TO QED
------------------ ------------------ ------------------
<S> <C> <C> <C>
PER SHARE.......................................... $ $ $
TOTAL.............................................. $ $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
QED HAS GRANTED THE UNDERWRITERS THE RIGHT TO PURCHASE UP TO AN ADDITIONAL
SHARES OF COMMON STOCK TO COVER OVER-ALLOTMENTS. MORGAN STANLEY & CO.
INCORPORATED EXPECTS TO DELIVER THE SHARES OF COMMON STOCK TO PURCHASERS ON
, 1999.
-------------------
MORGAN STANLEY DEAN WITTER
BANCBOSTON ROBERTSON STEPHENS
LEHMAN BROTHERS
, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Prospectus Summary............................. 4
Risk Factors................................... 7
Special Note Regarding Forward-Looking
Statements................................... 17
Use of Proceeds................................ 18
Dividend Policy................................ 18
Capitalization................................. 19
Dilution....................................... 20
Selected Financial Data........................ 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 22
<CAPTION>
PAGE
-----------
<S> <C>
Business....................................... 30
Management..................................... 42
Certain Transactions........................... 53
Principal Stockholders......................... 55
Description of Capital Stock................... 58
Shares Eligible for Future Sale................ 62
Underwriters................................... 64
Legal Matters.................................. 66
Experts........................................ 66
Additional Information......................... 66
Index to Financial Statements.................. F-1
</TABLE>
------------------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of the
prospectus or of any sale of the common stock.
UNTIL , 1999 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
For investors outside the United States: Neither we nor any of the
underwriters have done anything that would permit this offering or possession or
distribution of this prospectus in any jurisdiction where action for that
purpose is required, other than in the United States. You are required to inform
yourselves about and to observe any restrictions relating to this offering and
the distribution of this prospectus.
3
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE ENTIRE PROSPECTUS,
INCLUDING THE MORE DETAILED INFORMATION IN OUR FINANCIAL STATEMENTS AND
ACCOMPANYING NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS. YOU SHOULD CAREFULLY
CONSIDER, AMONG OTHER THINGS, THE MATTERS SET FORTH IN "RISK FACTORS."
QED
QED is a leading developer of high-performance embedded microprocessors that
perform information processing in networking/communications infrastructure
equipment, such as routers and switches; business network equipment, such as
laser printers, network computers and data storage systems; and consumer network
products, such as set-top boxes and cable modems. Each of our target markets has
experienced rapid growth as a result of the widespread deployment of networks
such as intranets and the Internet. These networks have increased in number and
complexity as has the volume of traffic they carry. The network infrastructure
and devices used to access network content must be able to cost-effectively
process increasing amounts of information, which requires larger numbers of
increasingly high-performance embedded microprocessors. Dataquest, Inc.
estimates that approximately 106 million high-performance embedded
microprocessors were shipped in 1998, and that this number will grow to
approximately 228 million in 2002.
The key advantages of our embedded microprocessors include their high levels
of information processing performance, reduced time to market and
price-competitiveness. We believe that our newest generation product, the
RM7000, is the highest-performance 64-bit embedded microprocessor in commercial
production. This product is designed for demanding networking applications, such
as high-speed routers and switches. As the cost of manufacturing our products
declines, we broaden our target markets to include customers that demand a
balance of price and performance. We consider our ability to migrate our
products into new markets to be a key advantage for us.
Embedded microprocessors are often based on a high-efficiency design
approach known as reduced instruction set computing, or RISC, which is
fundamentally different from the design approach used in most desktop computer
microprocessors. The leading RISC architecture is known as MIPS, and we
incorporate this architecture into our products. We believe that we have
assembled one of the foremost MIPS architecture design teams, with engineers
averaging approximately 13 years of microprocessor design experience. We use
third parties to fabricate our microprocessors, and by doing so seek to take
advantage of the semiconductor process expertise of leading manufacturers. This
also allows us to work with those manufacturers offering the most advanced
manufacturing processes and competitive prices.
Our objective is to maintain a leadership position in designing and
developing high-performance embedded microprocessors. In addition, we intend to
continue to introduce our products into the high-performance segments of the
embedded microprocessor market, eventually migrating these products into more
price-sensitive segments within our target markets. Further, we intend to
continue establishing relationships with customers that are market leaders in
order to be on the leading edge of new technologies and market trends.
We generate revenue primarily from direct sales of our products to systems
manufacturers and to a lesser extent from royalties associated with our license
of microprocessor designs to third parties. We have customer relationships with
market leaders in each of our target markets, including Cisco Systems, Inc.,
Hewlett-Packard Company and WebTV Networks, Inc.
We have incurred net losses in each quarter since we began developing and
marketing our own products. As of June 30, 1999, we had an accumulated deficit
of $24.4 million, and we may not achieve or sustain profitability.
We were incorporated in California in August 1991 and intend to
reincorporate in Delaware prior to this offering. Our principal executive
offices are located at 3255-3 Scott Boulevard, Suite 200, Santa Clara,
4
<PAGE>
California 95054, and our telephone number is (408) 565-0300. We maintain a
worldwide web site at www.qedinc.com. The information on our web site is not
incorporated by reference into this prospectus. All trademarks and trade names
appearing in this prospectus are the property of their respective holders.
Unless otherwise indicated, all information in this prospectus:
- gives effect to the conversion of each outstanding share of preferred
stock into one share of common stock effective upon the closing of the
offering;
- assumes no exercise of the underwriters' over-allotment option; and
- assumes our reincorporation from California into Delaware.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered............................ shares
Common stock to be outstanding after this shares
offering......................................
Use of proceeds................................. We intend to use the net proceeds from this
offering for general corporate purposes, including
capital expenditures and working capital. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol.......... QEDI
</TABLE>
The number of shares of our common stock to be outstanding immediately after
this offering is based on the number of shares outstanding at August 31, 1999.
This number does not take into account:
- 4,614,500 shares of common stock issuable upon exercise of outstanding
options at an average exercise price of $1.67 per share;
- 177,750 shares of common stock issuable upon exercise of outstanding
warrants at an average exercise price of $2.03 per share; and
- 1,967,045 shares of common stock reserved for issuance under our stock
plans, which are not subject to outstanding options.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The pro forma basic and diluted share calculation below reflects the
conversion upon the closing of this offering of all outstanding shares of
preferred stock into 13,618,837 shares of common stock as if the conversion
occurred at the date of original issuance.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Product revenue................................................. $ -- $ -- $ -- $ 1,428 $ 10,937
Total revenue................................................... 7,870 5,827 10,063 6,480 15,362
Gross profit.................................................... 7,870 5,827 10,063 2,766 6,849
Operating income (loss)......................................... 1,445 (2,041) (1,481) (9,915) (11,745)
Net income (loss) from operations............................... 890 (1,041) (1,201) (9,883) (11,769)
Pro forma basic and diluted net loss per share.................. $ (.63)
Shares used in pro forma per share calculation.................. 18,717
</TABLE>
The "as adjusted" column below reflects the issuance and sale of
shares of our common stock, at an assumed initial public offering
price of $ per share, and the application of the net proceeds from the
offering, after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us.
<TABLE>
<CAPTION>
JUNE 30, 1999
----------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents, short-term investments and restricted cash............... $ 19,465 $
Working capital.................................................................. 18,174
Total assets..................................................................... 27,879
Long-term liabilities, less current portion...................................... 2,375
Total stockholders' equity....................................................... 17,606
</TABLE>
6
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW, TOGETHER WITH ALL
OF THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS, BEFORE MAKING AN
INVESTMENT DECISION. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCURS, OUR
BUSINESS, FINANCIAL CONDITION OR OPERATING RESULTS COULD BE MATERIALLY ADVERSELY
AFFECTED. IN THIS CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND
YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY UNDER OUR CURRENT BUSINESS MODEL, WHICH
MAKES IT DIFFICULT TO PREDICT OUR FUTURE OPERATING RESULTS.
We were incorporated in 1991 and began business as a provider of proprietary
microprocessor designs to semiconductor companies. In 1996, we obtained a
license to design, manufacture and sell embedded microprocessors using
intellectual property developed by MIPS Computer Systems, Inc., currently known
as MIPS Technologies, Inc. Since obtaining this license, we have transitioned to
a company that develops and markets its own products. Therefore, we have
operated under our current business model for a short period of time. This
limited operating history makes it difficult to predict our future revenue and
expenses.
WE HAVE NOT BEEN PROFITABLE OPERATING UNDER OUR NEW BUSINESS MODEL, AND WE
MAY NOT ACHIEVE PROFITABILITY.
In 1997, we began transitioning from a provider of proprietary
microprocessor designs to a company that develops and markets its own products,
and since then we have lost money in each quarter. Although product revenue has
increased significantly in the year ended June 30, 1999, we still have not
achieved profitability. If our revenue does not increase, we may not achieve or
sustain profitability.
WE EXPERIENCE FLUCTUATIONS IN OUR OPERATING RESULTS DUE TO A NUMBER OF
FREQUENTLY CHANGING BUSINESS CONDITIONS, WHICH MAY CAUSE OUR STOCK PRICE TO
DECLINE.
We experience fluctuations in our operating results due to a variety of
factors, including:
- the timing and amount of orders from our customers, including
cancellations and reschedulings;
- the gain or loss of significant customers, including as a result of
industry consolidation;
- changes in the mix of products we sell;
- changes in demand by the end users of our customers' products;
- market acceptance of our current and future products;
- variability of our customers' product life cycles;
- changes in the average selling prices of embedded microprocessors or the
products that incorporate them due to our customers reaching volume
production, technological change, product obsolescence or otherwise; and
- cancellations, changes or delays of deliveries to us by our manufacturers,
including as a result of the availability and terms of manufacturing
capacity.
Revenue from the sale of our embedded microprocessors is dependent upon
companies designing our microprocessors into their products, which we refer to
as "design wins," the time it takes to produce our products and the timing of
customer orders. Our gross margin is impacted by the mix of revenue among our
products. As a result of these factors and those listed above, our lengthy sales
cycle and our dependence on relatively few customers whose order cycles vary
significantly, our revenue and gross margin could fluctuate significantly.
7
<PAGE>
We cannot accurately forecast all of the above factors. As a result, we
believe that period-to-period comparisons do not indicate future operating
results. Our operating results in a future quarter or quarters may fall below
the expectations of public market analysts or investors. If this were to occur,
the price of our common stock could decline.
THE INABILITY OF OUR RM7000 EMBEDDED MICROPROCESSOR TO ACHIEVE CONTINUED
MARKET ACCEPTANCE COULD HARM OUR NEAR-TERM GROWTH.
We believe that our RM7000 embedded microprocessor, which we began shipping
in the second half of 1998, will form the basis for our next-generation family
of embedded microprocessors. Although we have achieved design wins for the
RM7000, some of them may not result in revenue to us. If the RM7000 does not
achieve continued market acceptance:
- revenue from our existing products could be inadequate to cover our
expenses, including the cost of selling, marketing, developing and
manufacturing the RM7000 and other new products;
- our brand and reputation could be damaged; and
- our competitors' products could achieve greater market share as our market
share declines.
OUR FAILURE TO DEVELOP AND INTRODUCE NEW PRODUCTS ON A TIMELY BASIS COULD
IMPAIR OUR ABILITY TO ATTRACT AND RETAIN CUSTOMERS.
The semiconductor industry is characterized by rapidly changing technology,
frequent product introductions and ongoing demands for greater speed and
functionality. Therefore, we must continually design, develop and introduce new
products with improved features to be competitive. To introduce these products
on a timely basis we must:
- design innovative and performance-improving features that differentiate
our products from those of our competitors;
- transition our products to new manufacturing process technologies;
- identify emerging technological trends in our target markets, including
new standards for our products;
- accurately define and design new products to meet market needs;
- anticipate changes in end-user preferences with respect to our customers'
products;
- bring products to market on a timely basis at competitive prices; and
- respond effectively to technological changes or product announcements by
others.
We cannot assure you that we will be able to meet the design and market
introduction schedules for our new products or enhancements to our existing
products or that these products will achieve market acceptance.
WE MUST ACHIEVE NEW DESIGN WINS, AND THESE DESIGN WINS MUST TRANSLATE INTO
CUSTOMER PURCHASES, FOR OUR PRODUCT REVENUE TO INCREASE.
Our success depends in large part upon achieving design wins for our
products with current and future customers. Design wins are indications by
existing and potential customers that they intend to incorporate our products
into new designs. To achieve design wins, we must continually increase the
performance levels of our embedded microprocessors, keep pace with evolving
industry standards and introduce new products in a timely manner. If we fail to
achieve design wins, we will lose potential sales opportunities.
8
<PAGE>
Design wins, however, do not necessarily result in purchase orders for our
products. Our design wins are solely an expression of interest by customers and
are not supported by binding contracts of any nature. Design wins also may not
result in future revenue for the following reasons:
- consolidation of our customer base or acquisitions of our customers;
- failure of our customers' products to compete in their respective markets;
and
- cancellation of development of a customer's product that incorporates our
embedded microprocessors.
WE FACE INTENSE COMPETITION IN THE MARKET FOR EMBEDDED MICROPROCESSORS.
Competition in the market for embedded microprocessors is intense, and we
expect it to increase in the future. We face competition from:
- other licensees of technology from MIPS Technologies, including NEC
Corporation, Toshiba Corporation and Integrated Device Technology, Inc.;
- companies utilizing alternative reduced instruction set computing, or
RISC, technologies, including ARM/Strong Arm, developed by ARM Holdings
plc and Intel; Hitachi SH, developed by Hitachi; and PowerPC, developed by
Motorola, Inc. and IBM Corporation; and
- companies utilizing technologies other than RISC.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater brand recognition, larger
customer bases and greater financial and marketing resources than we do. They
may therefore be able to respond more quickly than we can to new or emerging
technologies and changes in customer requirements. They may also be able to
devote greater resources than we can to the development and promotion of their
technologies and products. We also face competition from several private
companies in various stages of development. In addition, our competitors that
are licensees of MIPS Technologies may obtain more favorable terms under their
current or future licenses, which would place us at a competitive disadvantage.
Furthermore, many of our existing and potential customers have the resources
to internally develop microprocessors and other devices that perform all or a
portion of the functions performed by our products. If these customers decided
to develop embedded microprocessors internally rather than purchasing our
products, we would lose sales opportunities.
IF OUR TARGET MARKETS REJECT THE MIPS MICROPROCESSOR ARCHITECTURE, SUPPORT
AND DEMAND FOR OUR PRODUCTS WILL DECLINE.
We have derived and expect to continue to derive substantially all of our
product revenue from products based on the MIPS microprocessor architecture.
Therefore, our success is dependent on continued acceptance of this architecture
within our target markets. Moreover, a large number of companies currently
develop semiconductor design tools, components and products that are compatible
with and optimized for the MIPS microprocessor architecture. If these companies
ceased to provide these tools for any reason, it could become more difficult or
less desirable for manufacturers and others to continue to support the MIPS
microprocessor architecture. If the markets for embedded microprocessors adopt
an alternative technology, we could lose the support of these MIPS
architecture-based tools, components and products and the demand for our
products would decline.
IF MIPS TECHNOLOGIES DEVELOPS FUTURE GENERATIONS OF ITS TECHNOLOGY, WE MAY
NOT BE ABLE TO OBTAIN A LICENSE ON REASONABLE TERMS.
MIPS Technologies has introduced, and will likely continue to introduce, new
generations of its microprocessor technology architecture containing
improvements that are not covered by the technology
9
<PAGE>
we are currently licensing from MIPS Technologies. Our success could depend on
our ability to develop products that incorporate those improvements. We may not
be able to license the technology for any new improvements from MIPS
Technologies on commercially reasonable terms or at all. If we cannot obtain
required licenses from MIPS Technologies, we could encounter delays in product
development while we attempt to develop similar technology, or we may not be
able to develop, manufacture and sell products incorporating this technology.
WE DEPEND UPON OUR LICENSE OF MICROPROCESSOR TECHNOLOGY FROM MIPS
TECHNOLOGIES AS THE BASIS FOR OUR PRODUCTS, AND WE WILL BE UNABLE TO MARKET
OUR PRODUCTS IF THIS LICENSE IS TERMINATED.
All of our current products and planned future products are based upon the
microprocessor technology we license from MIPS Technologies. Our failure to
comply with any of the terms of our license agreement could result in the
termination of our rights, preventing us from marketing our current and planned
products.
THE LOSS OF ANY OF OUR KEY PERSONNEL OR THE FAILURE TO HIRE AND RETAIN
ADDITIONAL QUALIFIED PERSONNEL COULD IMPAIR OUR ABILITY TO DEVELOP AND
MARKET OUR PRODUCTS.
Our success depends to a significant degree upon the continued contributions
of our key management, engineering and sales and marketing personnel, especially
our design engineers, who we believe are difficult to replace. We are
particularly dependent upon the continued services of Thomas J. Riordan, our
Chief Executive Officer, President and a director, and Raymond Kunita, our Chief
Operating Officer and Vice President of Engineering. Competition for highly
skilled managerial, engineering and sales and marketing personnel in the
semiconductor industry is intense, and we may not succeed in attracting and
retaining these personnel. Our inability to attract and retain qualified
personnel in the future or delays in hiring required personnel could impair our
ability to meet customer and technological demands or our ability to develop and
market our products. We do not have either employment contracts with, or key
person life insurance on, any of our key personnel.
OUR DEPENDENCE ON THIRD PARTIES TO FABRICATE OUR EMBEDDED MICROPROCESSORS
REDUCES OUR CONTROL OVER THE PRODUCTION, SUPPLY AND DELIVERY OF OUR
PRODUCTS.
We currently rely on third parties to fabricate our products. In the year
ended June 30, 1999, IBM and Taiwan Semiconductor Manufacturing Company Ltd., or
TSMC, performed all of our product fabrication. Our contract with IBM expires on
May 1, 2000, and we cannot assure you that we will be able to renew it.
Furthermore, IBM is not obligated under this contract to provide us with any
specified number of products, at any specified price. TSMC fabricates our
microprocessors on a purchase order basis, and we do not currently have a
long-term contract with TSMC.
There are significant risks associated with our reliance on third parties to
fabricate our products, including:
- manufacturing capacity may be unavailable to us, even though we may have
submitted a product order;
- we have limited control over product delivery schedules, and we may not
receive products within the time frames and in the volumes required by us
at a favorable cost or at all;
- we could face delays in obtaining, or we might not be able to obtain
access to, key fabrication process technologies; and
- we have limited control over quality assurance, manufacturing yields and
production costs.
Currently, our semiconductor manufacturers require approximately 13 to 15
weeks to deliver new orders, which often requires us to place orders in advance
of expected purchase orders from our
10
<PAGE>
customers. As a result, we have only a limited ability to react to fluctuations
in demand for our products, which could cause us to have an excess or a shortage
of inventory of a particular product.
If our manufacturers are unable or unwilling to continue to manufacture our
products in required volumes or at commercially acceptable costs, we may be
forced to seek other manufacturing sources for our products. Transferring to
another manufacturer would require a significant amount of time, and we cannot
assure you that we could make a smooth and timely transition.
OUR DEPENDENCE UPON THIRD PARTIES TO ASSEMBLE AND TEST SUBSTANTIALLY ALL OF
OUR PRODUCTS REDUCES OUR CONTROL OF PRODUCT DELIVERY SCHEDULES AND QUALITY
ASSURANCE.
Because third parties assemble and test substantially all of our products,
we do not directly control our product delivery schedules and quality assurance.
This lack of control has in the past, and could in the future, result in product
shortages, particularly in the case of new products. Product shortages could
increase our fabrication, assembly or testing costs or delay delivery of our
products. We do not have long-term contracts with the companies that test and
assemble our products, and we typically procure services from them on a per
order basis. Therefore, we may not be able to continue to obtain assembly and
testing services for our products on acceptable terms, or at all. If we are
required to find and qualify alternative assemblers or testers for our products,
we could experience delays in product shipments or a decline in product quality.
WE MAY NOT ACHIEVE ACCEPTABLE PRODUCT YIELDS FROM OUR THIRD-PARTY
MANUFACTURERS, WHICH COULD INCREASE THE COST AND REDUCE THE SUPPLY OF OUR
PRODUCTS.
In the process of manufacturing embedded microprocessors, contaminants,
manufacturing errors and other factors can result in a substantial percentage of
nonfunctional products, and many semiconductor companies frequently encounter
difficulties in achieving acceptable product yields. The proportion of
functional products derived from a particular manufacturing process is referred
to as product "yield." If we do not achieve planned yields, our product costs
would increase and product availability would decrease. Yield problems may not
be identified and resolved, if ever, until a product has been manufactured and
can be analyzed and tested. As a result, yield problems are often difficult,
time consuming and expensive to correct. The risk of low yields is compounded by
the offshore location of some of our third-party manufacturing facilities,
increasing the effort and time required to identify, communicate and resolve
manufacturing yield problems.
WE RELY ON FOREIGN THIRD-PARTY MANUFACTURING OPERATIONS, WHICH EXPOSES US TO
RISKS INHERENT IN INTERNATIONAL OPERATIONS.
We are subject to risks associated with conducting business outside of the
United States because a large portion of our semiconductor fabrication and
substantially all of our assembly and testing operations occur in foreign
countries. These risks include:
- unexpected changes in U.S. or foreign regulatory requirements;
- additional costs and delays associated with tariffs, quotas and other
trade barriers and restrictions; and
- uncertainties relating to political, social and economic conditions.
In addition, all of our current arrangements with third-party manufacturers
provide for pricing and payment in U.S. dollars. Fluctuations in currency
exchange rates, therefore, could cause our third-party manufacturers to increase
their prices, which would reduce our gross margin.
11
<PAGE>
OUR FAILURE TO PROTECT OUR PROPRIETARY RIGHTS, OR THE COSTS OF PROTECTING
THESE RIGHTS, MAY HARM OUR ABILITY TO COMPETE.
Third parties may be able to copy or reverse engineer aspects of our
products or obtain and use information that we regard as proprietary. Our
success and ability to compete is dependent in part upon continued protection of
our proprietary rights. Our failure to adequately protect our proprietary rights
could result in our competitors offering similar products, potentially resulting
in our loss of a competitive advantage and decreased revenue. In addition, as a
licensee of patent rights relating to the MIPS architecture, we rely upon MIPS
Technologies to enforce its patent rights against infringers. If MIPS
Technologies fails to enforce its patent rights, we might not be able to compete
successfully. We also seek to protect our trade secrets and proprietary
information through confidentiality agreements with our employees and
consultants and with other parties. However, we may not have an adequate remedy
in the event these agreements are breached or any remedy if our trade secrets
are independently developed by others. Despite our efforts to protect our
proprietary rights, existing intellectual property laws afford only limited
protection. In addition, the laws of some foreign countries provide only limited
proprietary rights protection.
Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets or to determine the validity and
scope of the proprietary rights of others. This litigation could result in
substantial costs and diversion of resources.
WE COULD BE SUBJECT TO CLAIMS OF INFRINGEMENT OF THIRD-PARTY INTELLECTUAL
PROPERTY, WHICH COULD RESULT IN SIGNIFICANT EXPENSE AND LOSS OF INTELLECTUAL
PROPERTY RIGHTS.
The semiconductor industry is characterized by uncertain and conflicting
intellectual property claims and frequent intellectual property litigation,
especially regarding patent rights. From time to time, third parties may assert
patent, copyright, trademark and other intellectual property rights to
technologies that are important to our business. We may receive notices of
claims that our products infringe or may infringe these rights. Any litigation
to determine the validity of these claims, including claims arising through our
contractual indemnification of our customers, regardless of their merit or
resolution, would likely be costly and divert the efforts and attention of our
management and technical personnel. We cannot assure you that we would prevail
in this litigation given the complex technical issues and inherent uncertainties
in intellectual property litigation. If this litigation resulted in an adverse
ruling, we could be required to:
- pay substantial damages;
- cease the manufacture, use or sale of infringing products;
- discontinue the use of certain technology; or
- obtain a license under the intellectual property rights of the third party
claiming infringement, which license may not be available on reasonable
terms, or at all.
OUR LENGTHY SALES CYCLE MAKES IT DIFFICULT FOR US TO PREDICT IF OR WHEN A
SALE WILL BE MADE, WHICH INCREASES OUR RISKS RELATED TO CUSTOMER
CANCELLATIONS.
The timing of our sales revenue is difficult to predict because of the
length and variability of the sales cycle for our products. Our sales cycle
typically includes a 3- to 6-month period prior to our achieving a design win
and an additional 12- to 24-month period before a customer commences volume
production of products incorporating our embedded microprocessors. While
potential customers are evaluating our products and before they place an order
with us, we may incur sales and marketing expenses and expend significant
management effort. Therefore, we take risks related to product cancellations or
changed product plans, which could result in the loss of anticipated sales or
missed sales opportunities.
12
<PAGE>
OUR REVENUE AND PROFITS MAY DECREASE IF WE LOSE ANY OF OUR SIGNIFICANT
CUSTOMERS.
Historically, a relatively small number of customers have accounted for a
significant portion of our total revenue in any particular period. The loss of
any significant customer could cause our revenue to decline. In the year ended
June 30, 1999, our four largest customers, including sales to their respective
manufacturing subcontractors, accounted for 23%, 20%, 15% and 12% of our total
revenue. We anticipate that sales of our products to relatively few customers
will continue to account for a significant portion of our total revenue. We have
no long-term purchase commitments with any of our significant customers.
Therefore, these customers could cease purchasing our products with limited
notice and with little or no penalty.
Our dependence on a small number of customers increases the risks associated
with our potential loss of customers resulting from business combinations or
consolidations. If a customer or potential customer were acquired or combined
with another company, the resulting company could cancel development efforts,
design wins or purchase orders as part of the integration process.
IF WE FAIL TO ESTABLISH AND MAINTAIN OUR RELATIONSHIPS WITH KEY PARTICIPANTS
IN OUR TARGET MARKETS, WE MAY HAVE DIFFICULTY MARKETING OUR PRODUCTS.
It is important to our success to establish and maintain relationships with
customers who are technology or market-share leaders in our target markets. We
believe that we need to work closely with these customers to gain valuable
insight into market demands for new products and in order to help us design new
embedded microprocessors. If we fail to establish and maintain these
relationships, it would be more difficult for us to develop and market products
offering features that address emerging market trends.
In addition, to help sell our products, we rely upon our relationships with
vendors of collateral products and tools, such as companion integrated circuits,
operating systems and a variety of system design tools. If we fail to maintain
current relationships and to develop new relationships with these vendors, our
products may not remain compatible with other products and tools. This lack of
compatibility could affect our ability to acquire greater market share.
WE DEPEND ON SALES REPRESENTATIVES TO SELL OUR PRODUCTS AND TO OBTAIN NEW
CUSTOMERS AND DESIGN WINS.
We depend on sales representatives to sell a substantial portion of our
products. We have established relationships with many of our sales
representatives within the last year, and we are unable to predict how
successful these sales representatives will be in marketing and selling our
products. In addition, we must expand the number of sales representatives both
domestically and internationally. Without this increase, we may not be able to
increase sales and market awareness of our products. Competition for qualified
sales representatives is intense. We may not be able to retain our existing
sales representatives or engage the type and number of sales representatives
that we require on a timely basis or at all. In addition, all of our sales
representatives' agreements may be terminated upon 30-days notice by either
party.
OUR RAPID GROWTH HAS STRAINED OUR RESOURCES, AND WE MAY NOT BE ABLE TO
MANAGE FUTURE GROWTH.
We have experienced a period of rapid growth and expansion, which has
placed, and continues to place, a significant strain on our resources. This
growth has required us to increase the number of our employees and otherwise
expand our operations, which has resulted in increased responsibilities for our
management. If we continue to expand our operations, we may significantly strain
our management, manufacturing, financial, information systems and other
resources. Moreover, we cannot be certain that our systems, procedures, controls
and existing space will be adequate to support our operations. We are currently
implementing a new enterprise resource planning system to accommodate the growth
in our operations, and we may not be able to implement this system effectively
or on a timely basis.
13
<PAGE>
IF OUR PRODUCTS CONTAIN DEFECTS OR FAIL TO ACHIEVE INDUSTRY RELIABILITY
STANDARDS, OUR BUSINESS REPUTATION WILL BE HARMED, AND WE MAY INCUR
SIGNIFICANT UNEXPECTED EXPENSES AND LOSE SALES OPPORTUNITIES.
Our products have in the past contained, and may in the future contain,
undetected errors. Errors are more common when products are introduced or as new
versions are released. We may find errors, defects or failures in our products
after commencement of commercial shipments. If this happens, we may experience:
- delay in or loss of market acceptance and sales;
- product returns;
- diversion of development resources;
- injury to our reputation; or
- increased service and warranty costs.
Moreover, because we design many of our embedded microprocessors for products
that provide critical communications services, we may be subject to significant
liability claims. Our agreements with customers typically contain provisions
intended to limit our exposure to liability claims. These limitations may not,
however, preclude all potential claims from being made. Our product liability
insurance may not cover any claims sought against us. Furthermore, our
agreements with our manufacturers contain limitations on their obligations to
indemnify us if our embedded microprocessors contain manufacturing defects.
Liability claims could require us to spend significant time and money in
litigation or to pay significant damages. As a result, any of these claims,
whether or not successful, could seriously damage our reputation and our
business.
RISKS RELATED TO OUR INDUSTRY
OUR REVENUE COULD DECREASE IF THE GROWTH OF OUR TARGET MARKETS SLOWS.
We derive our revenue from the sale of embedded microprocessors targeted at
the networking/communications infrastructure equipment, business network
equipment and consumer network products markets. In particular, we depend on the
continued growth of the Internet, which largely dictates the demand for the
products incorporating our embedded microprocessors. The continued growth of the
Internet depends on various factors, many of which are outside our control.
These factors include:
- the Internet infrastructure may not be able to support the demands placed
on it;
- performance and reliability of the Internet may decline as usage grows;
and
- privacy, security and authentication concerns with respect to the
transmission over the Internet of confidential information.
Although our target markets have experienced significant growth in recent
years, they may not continue to grow as rapidly or at all. If they fail to grow,
or grow more slowly than expected, our operating results could be harmed.
THE CYCLICALITY OF THE SEMICONDUCTOR INDUSTRY MAY IMPACT OUR OPERATING
RESULTS.
The semiconductor industry is highly cyclical and subject to rapid
technological change. From time to time, the semiconductor industry has
experienced significant economic downturns, characterized by diminished product
demand, accelerated erosion of prices and excess production capacity. Our
industry also periodically experiences increased demand and production capacity
constraints. Accordingly, our operating results may vary significantly as a
result of general conditions in the semiconductor industry.
14
<PAGE>
OUR FAILURE AND THE FAILURE OF OUR KEY MANUFACTURERS AND CUSTOMERS TO BE
YEAR 2000 COMPLIANT MAY HARM OUR BUSINESS AND RESULTS OF OPERATIONS.
The Year 2000 computer issue creates a significant risk for us in at least
three areas:
- systems we use to run our business;
- systems used by our manufacturers; and
- warranty or other claims arising from our products.
A failure in any of these areas to be Year 2000 compliant may seriously harm
our business and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000 Computer
System Compliance."
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE MAY BE VOLATILE, AND YOU MAY NOT BE ABLE TO RESELL YOUR
SHARES AT OR ABOVE THE OFFERING PRICE.
The market for the securities of high technology companies in general, and
of companies in the semiconductor industries in particular, has been highly
volatile. It is likely that the price of our common stock will fluctuate widely
in the future. Factors that could affect the trading price of our common stock
include:
- quarterly variations in our operating results;
- changes in the general conditions of the embedded microprocessor or
semiconductor markets;
- changes in financial estimates or recommendations by stock market analysts
regarding us or our competitors;
- our sales of common stock or other securities in the future;
- the hiring or departure of our key personnel;
- announcements by us or our competitors of significant contracts, new
products or product enhancements, acquisitions, distribution
relationships, joint ventures or capital commitments; and
- changes in market valuations of other embedded microprocessor companies.
PURCHASERS OF COMMON STOCK IN THIS OFFERING WILL SUFFER IMMEDIATE AND
SUBSTANTIAL DILUTION.
The initial public offering price is substantially higher than the book
value per share of our common stock. As a result, you will experience immediate
and substantial dilution of $ in the pro forma net tangible book value per
share, based on an assumed public offering price of $ per share. This dilution
is in large part because our earlier investors paid substantially less than the
initial public offering price in this offering when they purchased their shares
of common stock. You will experience additional dilution upon exercise of
outstanding stock options and warrants.
MANAGEMENT HAS BROAD DISCRETION ON HOW TO USE THE PROCEEDS FROM THIS
OFFERING AND MAY NOT APPLY THE PROCEEDS IN A MANNER THAT INCREASES THE VALUE
OF YOUR INVESTMENT.
Management will have broad discretion with respect to the expenditure of the
net proceeds from this offering. The proceeds have not been allocated for
specific purposes. You will be entrusting your funds to our management, upon
whose judgment you must depend, with limited information concerning the specific
working capital requirements and general corporate purposes to which the funds
will ultimately be applied. We may not be able to yield a significant return on
any investment of the proceeds.
15
<PAGE>
WE MAY ENGAGE IN ACQUISITIONS THAT MAY HARM OUR OPERATING RESULTS, DILUTE
OUR STOCKHOLDERS AND CAUSE US TO INCUR DEBT OR ASSUME CONTINGENT
LIABILITIES.
As part of our business strategy, we may make investments in complementary
companies, products or technologies that we believe would be advantageous to the
development of our business. If we acquire a company, we could have difficulty
in assimilating that company's personnel and operations. In addition, the key
personnel of the acquired company may decide not to work for us. If we make
other types of acquisitions, we could have difficulty in assimilating the
acquired technology or products into our operations. These difficulties could
disrupt our ongoing business, distract our management and employees and increase
our expenses. Furthermore, we may issue equity securities to pay for any future
acquisitions, which could be dilutive to our existing stockholders. We may also
incur debt or assume contingent liabilities in connection with acquisitions,
which could harm our operating results.
PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS OR DELAWARE LAW
MAY DELAY OR PREVENT A CHANGE OF CONTROL TRANSACTION AND, THEREFORE, DEPRESS
THE MARKET PRICE OF OUR STOCK.
Delaware corporate law and our certificate of incorporation and bylaws
contain provisions that could delay, defer or prevent a change in control of our
company on terms which you may deem advantageous. These provisions could limit
the price that investors might be willing to pay in the future for shares of our
common stock. These provisions:
- authorize the issuance of "blank check" preferred stock, which is
preferred stock that our board of directors can create and issue without
prior stockholder approval, with rights senior to those of common stock;
- provide for a board of directors with staggered terms;
- prohibit stockholder action by written consent; and
- establish advance notice requirements for submitting nominations for
election to the board of directors and for proposing matters that can be
acted upon by stockholders at a meeting.
A LIMITED NUMBER OF STOCKHOLDERS WILL HAVE THE ABILITY TO INFLUENCE THE
OUTCOME OF DIRECTOR ELECTIONS AND OTHER MATTERS REQUIRING STOCKHOLDER
APPROVAL.
After completion of this offering, our officers and directors and parties
affiliated with or related to these persons or to us will own approximately %
of the outstanding shares of our common stock. Accordingly, these stockholders
will likely determine the outcome of director elections and other matters
submitted to our stockholders for approval, including potential mergers or
acquisitions and amendments to our certificate of incorporation. Stockholders
other than these principal stockholders are therefore likely to have little or
no influence on decisions regarding these matters.
THE PRICE OF OUR STOCK COULD DECREASE AS A RESULT OF SHARES BEING SOLD IN
THE MARKET AFTER THE OFFERING.
Sales of substantial number of shares of our common stock in the public
market following this offering could cause the market price of our common stock
to decline. The number of shares of common stock available for sale in the
public market is limited by restrictions under federal securities law and under
lockup agreements that our stockholders have entered into with the underwriters,
and with us. Those lockup agreements restrict our stockholders from selling,
pledging or otherwise disposing of their shares for a period of 180 days after
the date of this prospectus without the prior written consent of Morgan Stanley
Co., Incorporated. However, Morgan Stanley Co., Incorporated may, in its sole
discretion, release all or any portion of the common stock from the restrictions
of the lockup agreements. The following table indicates approximately when the
22,874,792 shares of our common stock that are not being sold in the
16
<PAGE>
offering, but which were outstanding as of June 30, 1999, assuming the
conversion of all outstanding preferred stock, will be eligible for sale into
the public market:
<TABLE>
<CAPTION>
ELIGIBILITY OF
RESTRICTED
SHARES FOR SALE IN
PUBLIC MARKET
---------------------
<S> <C>
On the date of this prospectus......................................... 0
180 days after the date of this prospectus............................. 9,603,450
180 days after the date of this prospectus, subject to volume
limitations.......................................................... 13,271,342
</TABLE>
Additionally, of the 4,792,250 shares issuable upon exercise of outstanding
options and warrants to purchase our common stock outstanding as of August 31,
1999, approximately 2,061,371 shares will be vested and eligible for sale 180
days after the date of this prospectus. For a further description of the
eligibility of share for sale into the public market following the offering. See
"Shares Eligible for Future Sale."
In addition, as soon as practicable after the date of this prospectus, we
intend to file a registration statement on Form S-8 with the Securities and
Exchange Commission covering the 1,967,045 shares of common stock reserved for
issuance under our 1999 Equity Incentive Plan, 1999 Non-Employee Directors'
Stock Option Plan and 1999 Employee Stock Purchase Plan and for options issued
under our previous plans.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. In some cases, you can identify forward-looking
statements by terms such as "may," "will," "should," "expect," "plan,"
"anticipate," "believe," "estimate," "predict," "potential," or "continue," or
the negative of such terms or other comparable technology. The forward-looking
statements contained in this prospectus involve known and unknown risks,
uncertainties and other factors that may cause our or our industry's actual
results, level of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these statements. These factors include
those listed under "Risk Factors" and elsewhere in this prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. You should not place undue reliance on
these forward-looking statements, which apply only as of the date of this
prospectus.
17
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of shares of common
stock we are offering will be approximately $ million at an assumed initial
public offering price of $ per share, after deducting estimated underwriting
discounts and commissions and after deducting estimated offering expenses
payable by us. If the underwriters exercise their over-allotment option in full,
we estimate that our net proceeds will be approximately $ million. The primary
purposes of this offering are to obtain additional equity capital, create a
public market for our common stock and facilitate future access to public
markets.
We intend to use the net proceeds we receive from this offering for general
corporate purposes, including capital expenditures and working capital. The
amounts that we expend for these purposes will depend on a number of factors,
including future revenue growth, if any, and the amount of cash we generate from
operations. As a result, we will retain broad discretion in the allocation of
the net proceeds of this offering. A portion of the net proceeds may also be
used to acquire or invest in complementary businesses, technologies, product
lines or products. We have no current agreements or commitments with respect to
any acquisition or investment, and we are not currently engaged in negotiations
with respect to any acquisition or investment. Pending these uses, we intend to
invest the net proceeds of this offering in investment grade, interest-bearing
securities.
DIVIDEND POLICY
We have never declared nor paid any cash dividends on our capital stock. We
currently intend to retain any future earnings to finance the growth and
development of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future. Any future determination to pay cash
dividends will be at the discretion of our board of directors and will depend on
our financial condition, results of operations, capital requirements, general
business condition and other factors as our board of directors may deem
relevant.
18
<PAGE>
CAPITALIZATION
The following table sets forth QED's capitalization as of June 30, 1999 (1)
on an actual basis, (2) on a pro forma basis to reflect the conversion of all
outstanding shares of preferred stock into an aggregate of 13,618,837 shares of
common stock upon consummation of this offering, and (3) on a pro forma as
adjusted basis to give effect to the sale of the shares of common stock in
this offering at an assumed initial public offering price of $ per share and
after deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by QED.
<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C> <C>
Long-term debt and leases, less current portion............................. $ 2,375 $ 2,375 $ 2,375
---------- ----------- -----------
Stockholders' equity:
Preferred stock, $.001 par value, 13,897,750 shares authorized, 13,618,837
shares issued and outstanding, actual; 10,000,000 shares authorized, no
shares issued and outstanding pro forma and pro forma as adjusted....... 14 -- --
Common stock, $.001 par value, 29,000,000 shares authorized, 8,532,959
shares issued and outstanding, actual; 100,000,000 shares authorized,
pro forma; 22,151,796 shares issued and outstanding, pro forma; and
shares issued and outstanding, pro forma as adjusted.............. 9 22
Additional paid-in capital................................................ 43,409 43,410
Deferred stock-based compensation......................................... (1,462) (1,462) (1,462)
Accumulated deficit....................................................... (24,364) (24,364) (24,364)
---------- ----------- -----------
Total stockholders' equity.............................................. 17,606 17,606
---------- ----------- -----------
Total capitalization.................................................. $ 19,981 $ 19,981 $
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
See Notes 4 and 9 of Notes to Financial Statements for a description of our
long-term debt and leases.
The share numbers in the table above exclude:
- 5,200,121 shares of common stock issuable upon exercise of options
outstanding at June 30, 1999 at a weighted average price of $1.32 per
share;
- 205,000 shares available for future grant at June 30, 1999 under our 1992
Stock Option Plan and 1997 Stock Option Plan;
- outstanding warrants for the purchase of 177,750 shares of our common
stock at a weighted average exercise price of $2.03 per share; and
- an aggregate of 1,900,000 shares reserved for issuance under our 1999
Equity Incentive Plan, 1999 Non-Employee Directors' Stock Option Plan and
1999 Employee Stock Purchase Plan.
You should read this table in conjunction with "Management--Employee Benefit
Plans," "Description of Capital Stock" and Note 7 of Notes to Financial
Statements.
19
<PAGE>
DILUTION
Pro forma net tangible book value as of June 30, 1999 was $17.6 million, or
$.80 per share, after giving effect to the conversion of all outstanding shares
of preferred stock into an aggregate of 13,618,837 shares of common stock which
will occur upon the closing of this offering. Pro forma net tangible book value
per share before the offering has been determined by dividing pro forma net
tangible book value, total tangible assets less total liabilities by the pro
forma number of shares of common stock outstanding at June 30, 1999. After
giving effect to the sale of the common stock in this offering at an assumed
initial public offering price of $ per share, and after deducting estimated
underwriting discounts and commissions and estimated expenses of the offering,
the pro forma net tangible book value as of June 30, 1999, would have been
$ , or $ per share. This represents an increase in pro forma net tangible
book value per share of $ to existing stockholders and dilution in pro forma
net tangible book value per share of $ to new investors who purchase shares
in the offering. The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share......................... $
Pro forma net tangible book value per share as of June 30, 1999....... $ .80
Increase in pro forma net tangible book value per share attributable
to new investors....................................................
---------
Pro forma net tangible book value per share after this offering.........
---------
Dilution per share to new investors..................................... $
---------
---------
</TABLE>
The following table sets forth, on the pro forma basis described above, as
of June 30, 1999 the difference between the number of shares of common stock
purchased from QED, the total consideration paid, and the average price per
share paid by the existing stockholders and by investors purchasing shares in
this offering, based upon an assumed initial public offering price of $ per
share before deducting estimated underwriting discounts and commissions and
estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------ PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------ --------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............................. 22,151,796 % $ 41,138,000 % $ 1.86
New investors......................................
------------ --------- ------------- ---------
Totals........................................... 100.0% $ 100.0%
------------ --------- ------------- ---------
------------ --------- ------------- ---------
</TABLE>
The discussion and table above exclude 5,200,121 shares of common stock
issuable upon exercise of outstanding stock options at a weighted average
exercise price of $1.32 per share and warrants to purchase 177,750 shares of
common stock at a weighted average exercise price of $2.03 per share. To the
extent that outstanding options are exercised in the future, investors will
experience further dilution.
20
<PAGE>
SELECTED FINANCIAL DATA
You should read the selected financial data set forth below in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and related notes included elsewhere in
this prospectus. The balance sheet data as of June 30, 1998 and 1999 and the
statement of operations data for the years ended June 30, 1997, 1998 and 1999
have been derived from the audited financial statements of QED included
elsewhere in this prospectus. The balance sheet data as of June 30, 1995, 1996
and 1997 and the statement of operations data for the years ended June 30, 1995
and 1996 have been derived from audited financial statements of QED not included
in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product revenue.......................................... $ -- $ -- $ -- $ 1,428 $ 10,937
Royalty revenue.......................................... 2,363 2,712 8,850 5,052 4,425
Contract development revenue............................. 5,507 3,115 1,213 -- --
--------- --------- --------- --------- ----------
Total revenue.......................................... 7,870 5,827 10,063 6,480 15,362
--------- --------- --------- --------- ----------
Cost of product revenue.................................... -- -- -- 3,714 8,513
--------- --------- --------- --------- ----------
Gross profit............................................... 7,870 5,827 10,063 2,766 6,849
--------- --------- --------- --------- ----------
Operating expenses:
Research and development................................. 5,605 6,733 9,421 9,552 12,381
Selling, general and administrative...................... 820 1,135 2,123 2,979 5,436
Stock-based compensation................................. -- -- -- 150 777
--------- --------- --------- --------- ----------
Total operating expenses............................... 6,425 7,868 11,544 12,681 18,594
--------- --------- --------- --------- ----------
Income (loss) from operations.............................. 1,445 (2,041) (1,481) (9,915) (11,745)
Interest income (expense), net............................. 64 350 340 121 (24)
--------- --------- --------- --------- ----------
Net income (loss) before taxes............................. 1,509 (1,691) (1,141) (9,794) (11,769)
Provision (benefit) for income taxes....................... 619 (650) 60 89 --
--------- --------- --------- --------- ----------
Net income (loss).......................................... $ 890 $ (1,041) $ (1,201) $ (9,883) $ (11,769)
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Basic income (loss) per share.............................. $ .19 $ (.20) $ (.21) $ (1.53) $ (1.45)
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Diluted income (loss) per share............................ $ .14 $ (.20) $ (.21) $ (1.53) $ (1.45)
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Basic average common shares outstanding.................... 4,644 5,320 5,746 6,451 8,111
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Diluted average common shares outstanding.................. 6,444 5,320 5,746 6,451 8,111
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Pro forma basic and diluted net loss per share............. $ (.63)
----------
----------
Shares used in pro forma per share calculation............. 18,717
----------
----------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents, short-term investments and
restricted cash.......................................... $ 2,005 $ 8,215 $ 6,973 $ 9,756 $ 19,465
Working capital surplus (deficit).......................... (498) 5,036 4,027 8,221 18,174
Total assets............................................... 5,791 12,243 10,657 15,856 27,879
Long-term liabilities, less current portion................ -- -- -- 1,621 2,375
Total stockholders' equity................................. 2,061 7,156 5,995 8,509 17,606
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND
RESULTS OF OPERATIONS WITH THE FINANCIAL STATEMENTS AND THE NOTES TO THE
FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION AND
ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS, UNCERTAINTIES
AND ASSUMPTIONS. THE ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF MANY FACTORS, INCLUDING THOSE
SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We are a leading developer of high-performance embedded microprocessors for
use in information-intensive products such as networking/communications
infrastructure equipment, business network equipment and consumer network
products. We began operations in 1991 as an intellectual property company,
developing and licensing microprocessor designs for third parties in exchange
for royalty payments. During the year ended June 30, 1997, we began
transitioning to a semiconductor company that designs, develops, markets and
sells its own high-performance microprocessors using the MIPS microprocessor
architecture. Volume shipments of our products began during the three months
ended March 31, 1998.
Continuous growth in our product revenue is dependent upon an increasing
number of customers incorporating our microprocessors into their end product
designs. During the year ended June 30, 1999, we achieved numerous design wins
with existing and new customers. There is generally a time lag ranging from 12
to 24 months between a design win and our receipt of a customer order for volume
shipments of our products. Design wins are only an expression of interest by
potential customers and are not binding contracts of any nature. We cannot
assure you that design wins will result in future revenue or that such revenue
will be derived in a predictable manner.
As a result of changes in our business model, we have not entered into any
third-party licensing agreements since June 1996 and currently have no plans to
do so. Consequently, royalty revenue relates primarily to products sold by our
licensees based on designs that are maturing and will soon be obsolete. We
believe that our royalty revenue will continue to decline both in absolute
dollars and as a percentage of total revenue.
We sell our products primarily to original equipment manufacturers and
recognize product revenue at the time of product shipment, net of accruals for
sales returns and allowances. We recognize royalty revenue when third parties
and related parties sell products we have designed.
We market and sell our products primarily through a direct sales force and
through sales representatives in the United States. Although we have sales
contracts with representatives in Europe and Asia, substantially all of our
product sales to date have been to U.S.-based original equipment manufacturers
and their manufacturing subcontractors. In the year ended June 30, 1999, product
sales to U.S.-based customers and their manufacturing subcontractors accounted
for 96% of our product revenue. Also in that year, sales to our four largest
customers, including sales to their respective manufacturing subcontractors,
accounted for 23%, 20%, 15% and 12% of total revenue.
Cost of revenue includes product costs, salaries and overhead costs
associated with employees engaged in activities related to the manufacturing of
our products. Research and development expense consists primarily of salaries
and related overhead costs associated with employees engaged in research, design
and development activities as well as the cost of mask sets, wafers and other
materials and related services used in the development process. Selling, general
and administrative expense consists of salaries, commissions paid to internal
and external sales representatives, third party certification and testing costs
and legal and accounting services. Stock-based compensation expense relates both
to stock-based employee and consultant compensation arrangements.
Employee-related stock-based compensation
22
<PAGE>
expense is based on the deemed fair value of our common stock and the exercise
price of options to purchase that stock on the date of grant and is being
recognized on an accelerated basis over the vesting periods of the related
options, usually four years. Consultant stock-based compensation expense is
based on the Black-Scholes option pricing model.
We currently use independent suppliers to manufacture, test and assemble all
of our products. This business model allows us to focus our resources on the
design, development and marketing of our products, rather than on building and
maintaining manufacturing facilities. Because we must often place orders for
products with our vendors prior to entering into sales contracts, we may be
exposed to the risks associated with holding obsolete or excess inventory.
Our gross margin is affected by the mix of products sold, the position of a
product in its life cycle and expenses in connection with the manufacturing
process. For example, newly-introduced products generally have higher average
selling prices, which typically decline over product life cycles due to
competitive pressures and technological advances.
From July 1, 1997 through June 30, 1999, we have incurred losses in each
quarter. Although product revenue increased significantly during the year ended
June 30, 1999, we still had not achieved profitability. If our revenue does not
increase, our operating results will be adversely affected, and we may not be
able to achieve profitability. At June 30, 1999, we had an accumulated deficit
of $24.4 million.
23
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
Because we have a limited operating history under our current business
model, we believe that year-to-year comparisons prior to 1999 are less
meaningful than an analysis of recent quarterly operating results. Accordingly,
we are providing a discussion and analysis of our results of operations for the
six quarters ended June 30, 1999.
The following tables present selected unaudited quarterly financial
information for each of the six quarters through June 30, 1999 and the
percentage of total revenue represented by each item in our statement of
operations. This information has been presented on the same basis as the audited
financial statements appearing elsewhere in this prospectus and, in the opinion
of management, reflects all adjustments necessary for a fair presentation of
this information under generally accepted accounting principles. These quarterly
results are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------
MAR. 31, JUN. 30, SEPT. 30, DEC. 31, MAR. 31, JUN. 30,
1998 1998 1998 1998 1999 1999
-------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Product revenue.................. $ 282 $ 1,100 $ 1,383 $ 1,427 $ 2,512 $ 5,615
Royalty revenue.................. 393 462 507 255 246 380
Royalty revenue from related
parties........................ 800 871 732 823 837 645
-------- -------- --------- -------- -------- --------
Total revenue.................. 1,475 2,433 2,622 2,505 3,595 6,640
Cost of product revenue............ 603 2,114 1,845 1,275 1,951 3,442
-------- -------- --------- -------- -------- --------
Gross profit....................... 872 319 777 1,230 1,644 3,198
Operating expenses:
Research and development......... 2,283 3,008 2,933 3,404 2,917 3,127
Selling, general and
administrative................. 770 916 1,147 1,128 1,274 1,887
Stock-based compensation......... 25 125 132 148 238 259
-------- -------- --------- -------- -------- --------
Total operating expenses....... 3,078 4,049 4,212 4,680 4,429 5,273
Loss from operations............... (2,206) (3,730) (3,435) (3,450) (2,785) (2,075)
Interest income (expense), net..... (18) 56 41 (21) (155) 111
-------- -------- --------- -------- -------- --------
Net loss before income taxes....... (2,224) (3,674) (3,394) (3,471) (2,940) (1,964)
Provision for income taxes......... -- 89 -- -- -- --
-------- -------- --------- -------- -------- --------
Net loss........................... $(2,224) $(3,763) $(3,394) $(3,471) $(2,940) $(1,964)
-------- -------- --------- -------- -------- --------
-------- -------- --------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUE
----------------------------------------------------------------
MAR. 31, JUN. 30, SEPT. 30, DEC. 31, MAR. 31, JUN. 30,
1998 1998 1998 1998 1999 1999
-------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Product revenue.................. 19.1% 45.2% 52.8% 57.0% 69.9% 84.6%
Royalty revenue.................. 26.7 19.0 19.3 10.2 6.8 5.7
Royalty revenue from related
parties........................ 54.2 35.8 27.9 32.8 23.3 9.7
-------- -------- --------- -------- -------- --------
Total revenue.................. 100.0 100.0 100.0 100.0 100.0 100.0
Cost of product revenue............ 40.9 86.9 70.4 50.9 54.3 51.8
-------- -------- --------- -------- -------- --------
Gross profit....................... 59.1 13.1 29.6 49.1 45.7 48.2
Operating expenses:
Research and development......... 154.8 123.6 111.9 135.9 81.1 47.2
Selling, general and
administrative................. 52.2 37.7 43.7 45.0 35.5 28.4
Stock-based compensation......... 1.7 5.1 5.0 5.9 6.6 3.9
-------- -------- --------- -------- -------- --------
Total operating expenses....... 208.7 166.4 160.6 186.8 123.2 79.5
-------- -------- --------- -------- -------- --------
Loss from operations............... (149.6) (153.3) (131.0) (137.7) (77.5) (31.3)
Interest income (expense), net..... (1.2) 2.3 1.6 (.8) (4.3) 1.7
-------- -------- --------- -------- -------- --------
Net loss before income taxes....... (150.8) (151.0) (129.4) (138.5) (81.8) (29.6)
Provision for income taxes......... -- 3.7 -- -- -- --
-------- -------- --------- -------- -------- --------
Net loss........................... (150.8)% (154.7)% (129.4)% (138.5)% (81.8)% (29.6)%
-------- -------- --------- -------- -------- --------
-------- -------- --------- -------- -------- --------
</TABLE>
24
<PAGE>
PRODUCT REVENUE. Quarterly product revenue has increased every quarter
since we began commercial volume shipments of products in the quarter ended
March 31, 1998. This is attributable to new product introductions and
enhancements and an increasing number of design wins for our products. In
addition, the increase in product revenue reflects growth in the overall number
of customers, as well as in the number of customers reaching volume production.
ROYALTY REVENUE AND ROYALTY REVENUE FROM RELATED PARTIES. Combined royalty
revenue has decreased as a percentage of total revenue as we continue to
transition from a license model to a product model. Royalty revenue is dependent
upon shipments of products by third parties and related third parties. We have
no control over the volume or timing of these shipments, which vary from quarter
to quarter. Therefore, royalty revenue for a particular quarter could fluctuate
based on the volume or timing of shipments.
GROSS PROFIT. In the quarter ended March 31, 1998, we had minimal product
revenue, and therefore minimal direct product costs, resulting in a high gross
margin. There are no direct costs associated with our royalty revenue. During
the quarters ended June 30 and September 30, 1998 when we hired employees to
support the manufacturing process, such as test engineers, the low volume of
product sales negatively affected our gross profit. Our product gross profit
improved from the quarter ended December 31, 1998 as a result of our products
maturing and sales volumes increasing.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses have fluctuated
on a quarterly basis due to the timing of product development activities. Prior
to releasing new products, we incur one-time charges for test wafers and mask
set revisions. We have also incurred additional expenses related to hiring
contractors to assist in the development effort. In addition, the number of our
full-time employees has increased over the six quarters ended June 30, 1999, as
have related overhead expenses. To maintain our competitiveness, we expect to
continue to increase our research and development expenses in absolute dollars
each fiscal year for the foreseeable future.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses have generally increased over the six quarters ended June 30, 1999 in
response to the growth in product revenue and the overall growth of QED. The
number of our employees has increased on a quarterly basis during this period,
as have our related overhead expenses. In addition, some of the fluctuations in
quarterly selling, general and administrative expenses in the table above are
related to the timing of third party certification expenses, such as Microsoft
Windows CE certification. We expect selling, general and administrative expenses
to increase in absolute dollars as we add personnel, increase our sales and
marketing activities and incur additional costs related to being a public
company.
STOCK-BASED COMPENSATION. In connection with the granting of stock options
to our employees and consultants, we have recorded deferred stock-based
compensation totaling approximately $2.4 million through June 30, 1999, of which
$1.5 million remains to be amortized. This amount is included as a component of
stockholders' equity and is being amortized by charges to operations over the
vesting period of the related options, on an accelerated basis. The amortization
of the remaining deferred stock-based compensation at June 30, 1999 will result
in additional charges to operations through the year ended June 30, 2003. Future
compensation charges would be reduced if any employee terminates employment
prior to the expiration of the option vesting periods. The amortization of
stock-based compensation is classified as a separate component of operating
expenses in our statement of operations.
Our quarterly results of operations have fluctuated significantly in the
past and may continue to fluctuate in the future based on a number of factors,
not all of which are in our control. If revenue declines in a given quarter, our
operating results will be adversely affected because many of our expenses are
25
<PAGE>
relatively fixed. As a result, we believe period-to-period comparisons are not
necessarily meaningful and should not be relied upon as indicative of future
results.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
total revenue for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1997 1998 1999
-------- --------- --------
<S> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUE:
Revenue:
Product revenue...................................................................... --% 22.0% 71.2%
Royalty revenue...................................................................... 26.7 27.7 9.0
Royalty revenue from related parties................................................. 73.3 50.3 19.8
-------- --------- --------
Total revenue...................................................................... 100.0 100.0 100.0
Cost of product revenue................................................................ -- 57.3 55.4
-------- --------- --------
Gross profit....................................................................... 100.0 42.7 44.6
Operating expenses:
Research and development............................................................. 93.6 147.4 80.6
Selling, general and administrative.................................................. 21.1 46.0 35.4
Stock-based compensation............................................................. -- 2.3 5.1
-------- --------- --------
Total operating expenses........................................................... 114.7 195.7 121.1
-------- --------- --------
Loss from operations................................................................... (14.7) (153.0) (76.5)
Interest income (expense), net......................................................... 3.4 1.9 (.2)
-------- --------- --------
Net loss before income taxes........................................................... (11.3) (151.1) (76.7)
Provision for income taxes............................................................. .6 1.4 --
-------- --------- --------
Net loss............................................................................... (11.9)% (152.5)% (76.7)%
-------- --------- --------
-------- --------- --------
</TABLE>
COMPARISON OF THE YEARS ENDED JUNE 30, 1997, 1998 AND 1999
PRODUCT REVENUE. We did not have any product revenue during the year ended
June 30, 1997. Product revenue increased from $1.4 million in the year ended
June 30, 1998 to $10.9 million in the year ended June 30, 1999. The increase in
product revenue in the year ended June 30, 1999 was due to the sale of products
based primarily upon design wins achieved during the year ended June 30, 1998.
ROYALTY REVENUE AND ROYALTY REVENUE FROM RELATED PARTIES. Combined royalty
revenue decreased from $10.1 million in the year ended June 30, 1997 to $5.1
million in the year ended June 30, 1998 to $4.4 million in the year ended June
30, 1999. In the year ended June 30, 1997, all of our total revenue was derived
from royalty agreements, including a one-time payment of $5.1 million from a
related party.
GROSS PROFIT. There were no product sales in the year ended June 30, 1997,
and, therefore, there were no direct product costs, resulting in an overall
gross margin of 100%. Overall gross margin increased from 42.7% in the year
ended June 30, 1998 to 44.6% in the year ended June 30, 1999. We incurred a
gross loss from product sales of $2.3 million in the year ended June 30, 1998
due to the low volumes of products initially introduced by us. Gross profit from
product sales improved to $2.4 million or 22.2% of product revenue in the year
ended June 30, 1999. This increase was due to the maturing of our products, an
increase in sales volume and the absorption of fixed costs, including overhead,
over a larger unit volume.
26
<PAGE>
RESEARCH AND DEVELOPMENT. Research and development expenses increased from
$9.4 million in the year ended June 30, 1997 to $9.6 million in the year ended
June 30, 1998 and to $12.4 million in the year ended June 30, 1999. The increase
in spending on research and development during these periods reflects the
increase in hiring of engineers and consultants to develop new microprocessor
products, as well as to enhance the design of existing products. The increase
also reflects our increasing investment in hardware and software design tools
used to develop and test new products. Additionally, the cost of materials and
related services grew significantly over these periods.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased from $2.1 million in the year ended June 30, 1997 to $3.0
million in the year ended June 30, 1998 and to $5.4 million in the year ended
June 30, 1999. These increases were due to an increase in personnel and related
expenses, as well as an increase in commissions corresponding to the increase in
product revenue. Additionally, marketing expenses, professional services fees
and occupancy costs have increased in each period due to our overall growth.
STOCK-BASED COMPENSATION. We recorded deferred stock-based compensation
costs in the years ended June 30, 1998 and 1999 of $1.0 million and $1.4
million, in connection with certain stock option grants made during these
periods. This increase was primarily the result of increases in the number of
options granted due to the increased hiring of employees and an increase in the
utilization of the services of consultants. We recognized $150,000 and $777,000
of stock-based compensation expense in the years ended June 30, 1998 and 1999.
INTEREST INCOME (EXPENSE), NET. Interest income decreased from $340,000 in
the year ended June 30, 1997 to $325,000 in the year ended June 30, 1998, and
then increased to $472,000 in the year ended June 30, 1999. The fluctuations in
interest income resulted from changes in our average cash and investment
balances. In March 1999, we raised approximately $20.0 million from the sale of
our Series D preferred and common stock. We did not have any interest expense in
the year ended June 30, 1997. Interest expense increased from $204,000 in the
year ended June 30, 1998 to $496,000 in the year ended June 30, 1999. Interest
payments are related to our equipment lease lines and borrowings.
INCOME TAXES
Federal and state income taxes were minimal during the years ended June 30,
1997, 1998 and 1999 as a result of our net operating losses. As of June 30,
1999, we had available federal net operating loss carryforwards of approximately
$18.0 million and state net operating loss carryforwards of approximately $10.0
million. We also had research and development tax credit carryforwards of
approximately $1.0 million. The net operating loss and credit carryforwards will
expire at various times through 2019. As of June 30, 1999, we had deferred tax
assets of approximately $9.5 million, for which no benefit has been recorded in
our financial statements, and which consist primarily of net operating loss and
research and development tax credit carryforwards. This deferred tax asset will
be recognized in future periods as any taxable income is realized and consistent
profits are reported.
BACKLOG
At June 30, 1998, our backlog was $3.8 million compared to $12.7 million at
June 30, 1999. Our backlog consists of product orders for which a customer
purchase order has been received and accepted and which is scheduled for
shipment within 12 months. Orders that are scheduled for shipment beyond the
12-month window are not included in backlog until they fall within the 12-month
window. Orders are subject to rescheduling or cancellation by the customer,
usually without penalty. Because of possible changes in product delivery
schedules and cancellation of product orders and because our sales will
sometimes reflect orders shipped in the same quarter that they are received, our
backlog at any particular date is not necessarily indicative of actual sales for
any succeeding period.
27
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations through a combination of
sales of equity securities, cash generated by operations during our early years,
and borrowings. As of June 30, 1999, we had $17.5 million in cash, cash
equivalents and short-term investments and $2.0 million of restricted cash. Net
cash used by operating activities during the years ended June 30, 1997, 1998 and
1999 was $96,000, $10.9 million and $11.0 million. During these periods, cash
used by operating activities consisted primarily of cash utilized to fund
operating losses and for working capital. During the year ended June 30, 1999,
the items that significantly impacted cash balances were accounts receivable and
inventories, both of which increased during the year as the volume of product
sales increased.
Net cash provided by (used in) investing activities for the years ended June
30, 1997, 1998 and 1999 was $2.0 million, $(76,000) and $(18.5) million. Net
cash used in investing activities was related to the acquisition of property and
equipment and the purchase of short-term investments. Capital expenditures in
the years ended June 30, 1997, 1998 and 1999 were $936,000, $76,000 and
$493,000. Additionally, equipment acquired under capital lease arrangements was
$825,000 in the year ended June 30, 1998 and $367,000 in the year ended June 30,
1999. Overall capital spending during these periods was the result of hiring
additional employees and upgrading our design tools. This transition required us
to increase our investment in hardware infrastructure, as well as in software
tools, furniture and fixtures. As of June 30, 1999, we had no material
outstanding commitments to purchase or lease capital equipment. However, we
expect to continue investing in software and hardware design tools in future
periods and do not expect capital spending to decline in absolute dollars in any
future period.
Net cash provided by (used in) financing activities in the years ended June
30, 1997, 1998 and 1999 was $(210,000), $13.8 million and $21.2 million. The net
cash provided by financing activities in the years ended June 30, 1998 and 1999
related to the sale of shares of our preferred stock. Net cash provided by
financing activities also related to proceeds from the issuance of common stock
and proceeds from borrowings. Net cash used in financing activities related to
principal payments under capital leases and repayment of borrowings.
In January 1999, we obtained a $6.0 million line of credit expiring on
December 31, 2000. Borrowings under this line of credit currently bear interest
at an annual rate of 8.5%. This line of credit is secured by substantially all
of our tangible assets and contains financial and other covenants that arise
after more than $2.0 million has been drawn down. As of June 30, 1999, $2.0
million was outstanding under this line.
We believe that cash and cash equivalents and cash generated from
operations, if any, will be sufficient to satisfy our working capital
requirements for the next 12 months. We believe that success in our industry
requires substantial capital in order to maintain the flexibility to take
advantage of opportunities as they may arise. Therefore, we may, from time to
time, invest in or acquire complementary businesses, products or technologies.
We may effect additional equity or debt financing to fund such activities. The
sale of additional equity or convertible debt could result in additional
dilution to our stockholders.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not use derivative financial instruments in our investment portfolio.
We only invest in instruments that meet high credit and quality standards, as
specified in our investment policy guidelines. As of June 30, 1999, we had an
investment portfolio of money market funds, commercial securities and U.S.
Government bonds including those classified as short-term investments and
restricted cash of $18.8 million. These instruments, like all fixed income
instruments, are subject to interest rate risk. The fixed income portfolio will
fall in value if there were an increase in interest rates. If market interest
rates were to increase immediately and uniformly by 10% from levels as of June
30, 1999, the decline of the fair value of the fixed income portfolio would not
be material. All of our revenue is denominated in U.S. dollars, and therefore,
we do not currently engage in any currency hedging transactions.
28
<PAGE>
YEAR 2000 COMPUTER SYSTEM COMPLIANCE
BACKGROUND OF YEAR 2000 ISSUES. The Year 2000 Issue is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of our computer programs that have date-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing the disruptions of
operations, including among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
We are in the process of addressing internal and external year 2000 issues
and have established a task force with this responsibility. Although we believe
that our products and internal systems are currently Year 2000 compliant, we
cannot guarantee that our suppliers, vendors or other enterprises with which we
interact are or will be Year 2000 compliant. Failure of these enterprises to
achieve Year 2000 compliance could have a material adverse effect on our
business.
OUR EXTERNAL VENDORS. We have identified and contacted our significant
suppliers and service providers to determine the extent to which our business is
vulnerable to those third parties' failure to remediate their own Year 2000
issues. All of our significant suppliers and service providers have indicated
that they are or are expecting to achieve Year 2000 compliance by December 31,
1999. We are continuing to monitor the progress of third parties critical to our
business. We cannot be certain that the representations of these third parties
are accurate or that they will reach Year 2000 compliance in a timely manner. If
we determine that the progress of specific suppliers and service providers
toward Year 2000 compliance is insufficient, we intend to change to other
suppliers and service providers that have demonstrated Year 2000 readiness.
However, we may not find alternative suppliers or service providers.
OUR INTERNAL BUSINESS SOFTWARE. During the year ended June 30, 1999, we
installed an internal business software package. The developer of this system
has represented to us that the system is Year 2000 compliant. As a result, we
believe our internal financial systems are Year 2000 compliant.
OUR INTERNAL NON-FINANCIAL SOFTWARE AND EQUIPMENT. We have taken an
inventory of all our non-financial software and equipment that may be affected
by the Year 2000 and have identified the non-financial software and equipment
that is critical to our operations. We believe that our non-financial software
and equipment will be Year 2000 compliant by the end of 1999. If we are unable
to achieve Year 2000 compliance for our major non-financial systems and
equipment, the year 2000 could have a material impact on our operations.
COSTS OF ADDRESSING YEAR 2000 COMPLIANCE. We have incurred less than
$100,000 in costs in our Year 2000 compliance efforts, excluding costs
associated with our adoption of a Year 2000 compliant enterprise software
system. Based on our preliminary evaluations, we do not believe that in the
future we will incur significant expenses or be required to invest heavily in
additional computer system improvements to be Year 2000 compliant. However,
significant uncertainty exists concerning the potential costs and effects
associated with Year 2000 compliance. Any Year 2000 compliance problem
experienced by us or our customers could decrease demand for our products, which
could harm our business.
CONTINGENCY PLANNING. We are developing contingency plans for critical
individual information technology systems and non-information technology systems
to address year 2000 risks not fully resolved by our Year 2000 program. We
anticipate that these plans will be completed in October 1999. We believe that
the Year 2000 risk will not present significant operational problems for us.
RECENT LEGISLATION. Legislation was recently passed by Congress that
purports to limit liability for failure to be Year 2000 compliant. We cannot
assure you that this legislation will limit our liability.
WORST CASE SCENARIO. We believe that the likely worst case scenario for our
business would be if IBM and TSMC, our semiconductor manufacturers, have
inadequate Year 2000 programs, and we are unable to obtain products from them on
a timely basis. This would cause us to miss shipments, and our revenue and
results of operations would be materially impacted.
If our Year 2000 program or any third-party Year 2000 programs are
inadequate, and our business operations are materially impacted, we could incur
additional costs to recover any lost information and replace affected systems.
We believe that our systems could be replaced without significant difficulty, as
replacement systems are generally available on commercially reasonable terms. We
also have regular data back-up procedures that would assist in our recovery of
lost business information.
29
<PAGE>
BUSINESS
OVERVIEW
QED is a leading developer of high-performance embedded microprocessors that
perform information processing in networking/communications infrastructure
equipment, business network equipment and consumer network products. We believe
that we have one of the industry's most experienced microprocessor development
teams. While we focus our development efforts on the high-performance segments
of the embedded microprocessor market, we also offer our mature products to the
more price sensitive segments of our target markets. We sell our products
directly to systems manufacturers, and we outsource the fabrication of our
microprocessors to third parties. We have customer relationships with market
leaders in each of our target markets, including Cisco Systems, Hewlett-Packard
and WebTV.
INDUSTRY BACKGROUND
EMBEDDED MICROPROCESSORS
Microprocessors are generally thought of as the integrated circuits that
perform sophisticated computations and control the flow of information within
desktop computers. The majority of microprocessors, however, are hidden, or
embedded, in products and systems where they perform specialized tasks. A
microprocessor is typically classified by the number of fundamental elements of
data, or bits, that it can process at one time. Low-performance 4- and 8-bit
embedded microprocessors perform simple tasks in products such as microwave
ovens and thermostats. Complex tasks, such as delivering e-mail messages over
the Internet or presenting web pages clearly on televisions and printers,
require a high level of computing power, which can only be delivered by
high-performance 32- and 64-bit embedded microprocessors.
High-performance embedded microprocessors are configured in a system much
like a small, general-purpose computer and must support advanced software
operating systems and high-level programming languages to enable complex
application software. Uses for high-performance embedded microprocessors include
networking/communications infrastructure equipment, such as routers and
switches; business network equipment, such as laser printers, network computers
and data storage systems; and consumer network products, such as
Internet-enabled televisions and cable modems.
While the desktop microprocessor market is dominated by Intel Corporation's
"x86" complex instruction set computing, or CISC, architecture, several
microprocessor architectures have emerged within the high-performance embedded
microprocessor market. A microprocessor's architecture refers to its fundamental
operations and organization, which enable it to perform computations and to
control the flow of information. The microprocessors in this market achieve high
performance and silicon-area efficiency because they are based on reduced
instruction set computing, or RISC, architectures. The leading RISC architecture
is known as MIPS. Microprocessors based on the MIPS architecture standard have
been developed for applications ranging from game consoles such as the Sony
Playstation, to routers and switches, to multiprocessor enterprise servers. The
MIPS architecture is widely supported by independent suppliers of software and
hardware.
MARKET OPPORTUNITY FOR HIGH-PERFORMANCE EMBEDDED MICROPROCESSORS
Dataquest, Inc. estimates that worldwide unit shipments of high-performance
32-bit and 64-bit embedded microprocessors will grow from approximately 106
million in 1998 to approximately 228 million in 2002. Demand from numerous
applications for the rapid transfer and processing of digital information and
the increasing need for more complex control functions is driving the growth in
shipments of high-performance 64-bit embedded microprocessors.
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One of the most powerful drivers of the need for increased embedded
microprocessor performance has been the rapid development of intranets and the
Internet, as businesses and consumers seek immediate access to more information
and entertainment in an increasingly networked society. International Data
Corporation, or IDC, estimates that between 1995 and 1998 the number of devices
worldwide with access to the Internet grew from approximately 14 million to 120
million and estimates that there will be approximately 515 million by the end of
2002. Similarly, the amount of content available on the Internet is increasing
rapidly. IDC estimates that the number of web pages worldwide grew from
approximately 18 million in 1995 to approximately 829 million in 1998, and will
increase to approximately 7.7 billion by 2002.
In addition to this increased volume of network traffic, the emergence of
multimedia and streaming audio and video content and transaction-intensive
e-commerce web sites have strained the ability of networks to process and
transmit information quickly. These factors have created the need for increased
network capacity, or bandwidth. Advances in communication technology are helping
to alleviate bandwidth constraints by providing higher transmission capacity. To
accommodate this increased bandwidth, intelligent devices within a network's
infrastructure, such as routers and switches, as well as those used to access
information at a network's interface, such as network printers and cable modems,
are increasingly required to quickly process greater amounts of more complex
information. All of these devices therefore need high levels of performance from
the microprocessors embedded within them.
As the bandwidth and information transmission capabilities of networks have
increased, so have users' expectations for their performance. Network service
providers have responded by broadening their product offerings, allowing users
to select between varied levels of information transmission service. To provide
different levels of service, networking equipment vendors are seeking ways to
cost-effectively incorporate more processing capability within their systems. In
addition, new data communication standards and protocols are frequently being
introduced into network infrastructures to support their expanded capabilities.
Hence, networks are now required to support many standards and protocols
simultaneously. This increase in complexity requires higher performance as well
as increased flexibility from the embedded microprocessors within the devices
that manage networks.
As the popularity of the Internet has increased, more powerful and
sophisticated products have emerged to provide additional connections to
Internet users. These devices require new generations of high-performance
microprocessors that must also meet strict power consumption and heat
dissipation requirements as well as the cost constraints of systems
manufacturers.
With growing demands on network capabilities and increasing business and
consumer expectations for performance, new generations of high-performance
embedded microprocessors are required to enable cost-effective deployment of
advanced communications products, both within network infrastructures and at
network interfaces.
THE QED ADVANTAGE
QED is a leading developer of 64-bit embedded microprocessors for use in
information-intensive products requiring the highest level of performance. Our
embedded microprocessors use a RISC architecture designed to achieve high system
performance cost-effectively. Our products are based on the MIPS architecture
standard and include proprietary features designed specifically for our target
markets. We believe that our newest generation product, the RM7000, is the
highest-performance 64-bit embedded microprocessor in commercial production.
We believe that we have one of the foremost MIPS architecture design teams.
From 1988 to 1991, Tom Riordan, our Chief Executive Officer and a co-founder of
QED, was the Director of Research and Development at MIPS Computer Systems,
Inc., now known as MIPS Technologies, Inc., where he helped develop the original
MIPS architecture. At MIPS Computer Systems, Mr. Riordan was the principal logic
designer of the first commercial RISC-based embedded microprocessor. He also led
the development of
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the product that established the current 64-bit MIPS architecture standard. Ray
Kunita, our Chief Operating Officer, Vice President of Engineering and
co-founder, as well as seven of our engineers, were also employees of MIPS
Computer Systems and contributed to the development of the MIPS architecture
standard.
Each generation of our products is built around successively more advanced
microprocessor cores that are designed to remain compatible with previous
generations. This approach enables us to design a range of products including
our high-performance standard products, our market-specific derivative products
and our microprocessors with integrated components. We believe that our embedded
microprocessors offer several distinct advantages to our customers over
competing products:
HIGH PERFORMANCE. Our products are designed to deliver high levels of
processing performance to all of our target applications. This processing
performance is primarily attributable to a combination of four key features:
- 64-bit processing, which gives our embedded microprocessors up to twice
the peak data transfer rate of competing 32-bit architectures;
- superscalar technology, which enables microprocessors to issue and execute
two or more instructions simultaneously;
- two-level cache memory, which allows for substantially more memory to be
integrated with the microprocessor core, minimizing the delay associated
with moving data between the microprocessor and external memory without
slowing the microprocessor's speed; and
- multi-stage pipeline technology, which allows the microprocessor to
process several different stages of instructions simultaneously.
REDUCED TIME TO MARKET. Our microprocessors are compatible with the most
robust operating systems and powerful software programming languages. By using
the MIPS architecture standard for our products, we leverage industry support of
a wide range of operating systems, such as WindowsCE, pSOS, QNX, Linux and
support from third-party proprietary tool vendors. These attributes enable
original equipment manufacturers to incorporate our products into their systems
more quickly and easily. In addition, we design our products to maintain a high
level of hardware and software compatibility between product generations, which
we believe enables our customers to easily upgrade to our new products.
PRICE-COMPETITIVENESS. All of our products are fabricated by established
manufacturing facilities using industry-standard semiconductor fabrication
processes. Our proprietary design methodology allows our designs to be
efficiently moved from one manufacturer to another and from one fabrication
process to another. By using leading fabrication processes, we believe we can
take advantage of new processes that allow microprocessors to be made smaller
and, therefore, at lower cost. We believe this approach also enables us to move
our products quickly from prototype into production, which can reduce
development costs. Finally, implementation of higher-density fabrication
processes allows us to integrate additional features into our products, which
reduces total solution costs for our customers.
THE QED STRATEGY
Our objective is to be the leading developer and supplier of
high-performance embedded microprocessors for information-intensive products.
Key elements of our strategy to achieve this objective include:
MAINTAINING TECHNICAL LEADERSHIP IN HIGH-PERFORMANCE EMBEDDED MICROPROCESSOR
MARKETS. We believe that maintaining a technical leadership position in
developing high-performance microprocessors is critical to our success. Our
product development efforts are focused on the high-performance segments of
information-intensive markets for embedded microprocessors. We believe that our
three target markets,
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networking/communications infrastructure equipment, business network equipment
and consumer network products, will continue to experience significant growth
and to demand increased microprocessor performance and functionality. We intend
to maintain a technical leadership position by continuing to invest
substantially in research and development resources.
LEVERAGING PERFORMANCE LEADERSHIP TO OFFER A BROAD RANGE OF
PRICE/PERFORMANCE OPTIONS. We believe that technological advances gradually
reduce the cost of a given product over time. Therefore, we seek to take
advantage of this technological evolution by focusing our design efforts on the
segments of our target markets that demand the highest performance. As our
products mature and their manufacturing costs decline, we believe that we will
be able to migrate our products to more price-sensitive segments within our
target markets. In this way, we focus our resources on developing the
highest-performance embedded microprocessors while offering products with a
broad range of price/performance options targeted at a wide variety of
applications.
CAPITALIZING ON RELATIONSHIPS WITH MARKET LEADERS TO DEFINE STANDARD
PRODUCTS. We have customer relationships with technology and market leaders in
each of our target markets, including Cisco Systems, Hewlett-Packard and WebTV.
We work closely with market leaders to define standard products and features
that meet their current and anticipated product needs. We believe that these
collaborations will enable us to remain on the leading edge of new technologies
and market trends for high-performance embedded microprocessors.
CONTINUING TO ESTABLISH MIPS ARCHITECTURE SUPPORT RELATIONSHIPS. We have
relationships with key industry participants such as vendors of companion
integrated circuits, operating systems and third-party support tools. Through
these relationships we seek to offer more complete product solutions to our
customers by offering our products with those of complementary vendors. We
intend to continue to establish and maintain these relationships to help ensure
that our products achieve widespread industry adoption.
LEVERAGING FABLESS SEMICONDUCTOR MODEL. We use third parties to manufacture
our microprocessors. This "fabless" model allows us to focus resources on our
design competencies, while reducing capital and operating infrastructure
requirements. We believe this approach reduces our product development risks,
and the time to market of our new products, relative to semiconductor companies
with manufacturing facilities. By using third-party manufacturers, we can
leverage the research and development efforts of leading manufacturers and
maintain flexibility in choosing those suppliers that meet our technology or
cost requirements.
USING ADVANCED STANDARD TECHNOLOGIES. We seek to use the most advanced
standard semiconductor fabrication, testing and packaging technologies. By using
these technologies, we believe that we can reduce our time to market,
development risk and costs, help ensure product supply and improve the
reliability of our products. Our use of standard technologies also provides
flexibility, allowing us to transfer our manufacturing operations to other
suppliers or facilities more quickly and reliably.
MARKETS AND APPLICATIONS
Each of the three markets into which we sell our products is an
information-intensive market which requires high bandwidth and increasing
computational performance.
NETWORKING/COMMUNICATIONS INFRASTRUCTURE EQUIPMENT
As greater numbers of devices access intranets and the Internet and the
speed of those devices increases, the capacity of network infrastructures must
grow to accommodate the increased traffic. In addition, network content is
increasingly data-intensive. Although primarily text and graphics-based today,
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information and services available on networks, particularly the Internet, are
increasingly incorporating video and audio. To meet this bandwidth demand:
- Internet backbone speeds are being upgraded to higher data rates;
- high speed Internet access is being deployed to the home through
technologies such as xDSL and ISDN;
- networks are being upgraded to higher-speed communications protocols; and
- data and voice communications are being unified in the same network
infrastructure.
Accordingly, we design our newest microprocessors to meet the high-performance
needs of the most complex network infrastructure equipment. Our products are
designed into the following network infrastructure applications:
- ROUTERS. Routers and switch routers direct data and information packets to
the correct destinations within a network. High-performance routers are
equipped with multiple embedded microprocessors to manage different
functions such as routing packets of information, translating between
communication protocols and adding higher levels of transmission services
to a network.
- LAN SWITCHES. Local area network, or LAN, switches are intranet network
devices that provide a direct connection from the sender of information to
the receiver within an intranet. Embedded microprocessors are used to
manage information flow through LAN switches. Multiple embedded
microprocessors may be used in each LAN switch to increase the data
movement capabilities of the switch.
- ACCESS SERVERS. The nearest server to a network user is the access server,
which uses embedded microprocessors to combine discrete data streams, such
as information from individual modem lines, into fewer streams of
high-speed data.
- NETWORK INTERFACE CARDS. Network interface cards provide the physical
connection between networking equipment and a user's access device.
Network interface cards are used at all levels in a network infrastructure
from the access server connecting modem, to xDSL or ISDN connections, to
high speed routers. Performance increases within network interface cards
have been driven by the requirement to make more physical connections in a
limited space. Consequently, network interface cards are incorporating
high-performance embedded microprocessors, with at least one
microprocessor embedded into each.
- STORAGE AREA NETWORKS. The growth in the amount of critical information
processed and stored by businesses has increased the need for more
sophisticated data storage systems. Storage area networks have been
developed to address this need by distributing data storage over a network
of storage devices. The complexity of managing information within storage
area networks requires high levels of embedded microprocessor performance.
BUSINESS NETWORK EQUIPMENT
Businesses are increasingly deploying LANs as their central communications
infrastructure to perform a range of important tasks such as sending documents,
accessing databases and other enterprise-wide information, connecting with
vendors and suppliers on-line and connecting to larger networks, including the
Internet. Highly sophisticated business network equipment has been developed to
manage these tasks at the network interface. Designers of business network
equipment generally require moderate to high processing performance, but must
balance this need against the power consumption and cost of the microprocessor
embedded into their products. Products within this market include:
- PRINTERS. We believe that printers will continue to require additional
embedded microprocessor performance to manage increases in print speed,
image complexity and the addition of color.
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Multifunction printers can combine the functions of copiers, scanners, fax
equipment and printers in one device. All of these devices incorporate
embedded microprocessors for processing the increasingly sophisticated
data comprising color images, web sites and other network content.
- NETWORK COMPUTERS. The primary purpose of a network computer is to serve
as an input/output device for accessing information stored on a network.
Network computers are designed to be less expensive than traditional
desktop computers. The processing capability of a network computer is
optimized by an embedded microprocessor's ability to move and format data
for presentation to the user.
- DISK ARRAYS. Disk arrays have been developed in response to the increasing
volume of data being stored by businesses. They consist of multiple hard
drives configured to operate like a single, large disk drive. Servers can
read data from drive arrays faster and achieve greater protection from
data loss relative to traditional hard drives. Microprocessors are used in
disk arrays to control the flow of data among their component hard drives
and the server.
CONSUMER NETWORK PRODUCTS
A new class of network products has been developed to provide consumers with
additional means of accessing the Internet beyond desktop computers. Because
these are retail products, most suppliers to this market are sensitive to the
price of the microprocessors that they incorporate into their products. They are
also concerned with the power consumption and heat dissipation of the
microprocessors because the devices into which they are installed are often
relatively small. There are two principal categories of products in this market:
- CONSUMER INTERNET APPLIANCES. Products such as set-top boxes provide an
alternative way to access the Internet through services such as WebTV and
are designed to be significantly easier to install and operate and less
expensive than a PC. These devices may offer a range of services such as
digital recording and customization for each user. The challenge in this
market is to offer full-speed multimedia performance at competitive
prices. We believe that as expectations for the performance of Internet
appliances rise and as multimedia information on the Internet becomes more
sophisticated, the need for increased performance provides a significant
opportunity for our products.
- DIGITAL NETWORK TRANSMISSION PRODUCTS. In order to access new digital data
services, two classes of products, the cable modem and the "x" digital
subscriber line, or xDSL, modem, have been developed. Cable modem and xDSL
modem technology offer significantly higher network speeds than analog
modems, therefore requiring higher microprocessor performance to manage
information flow. Some cable television operators are upgrading their
networks to enable two-way communications through the use of a cable
modem. High speed access services such as Excite@Home have also emerged to
provide network infrastructure and services to cable modem customers. In
addition, xDSL modem technology has been developed to provide high speed
digital communications through existing telephone lines to the home. This
service may be offered in areas where the local telephone switch network
has been upgraded to offer digital service.
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PRODUCTS
The following chart summarizes our line of microprocessor products:
<TABLE>
<CAPTION>
PRODUCT SYSTEM
PRODUCT INTRODUCTION PERFORMANCE MEMORY INTERFACE TARGET APPLICATION
<C> <C> <C> <C> <C> <S>
RM5230 Q3 1997 175MHz 16K/16K 32-bit Consumer
RM5260 Q3 1997 175MHz 16K/16K 64-bit Business
RM5270 Q4 1997 200MHz 16K/16K 64-bit Networking
RM5231 Q3 1998 250MHz 32K/32K 32-bit Business and Consumer
RM5261 Q3 1998 266MHz 32K/32K 64-bit Business
RM5271 Q3 1998 300MHz 32K/32K 64-bit Networking and Business
RM7000 Q4 1998 266MHz 16K/16K/256K 64-bit Networking and Business
</TABLE>
In the above table, Product Introduction refers to the calendar quarter in
which the product was first commercially shipped. Performance indicates maximum
available execution speed. Memory indicates the amount of memory contained in
the instruction cache and data cache, and for the RM7000, in the level-two
cache. System Interface indicates the width of the microprocessor's path to
external input/output and memory devices.
QED PRODUCTS
In 1997, we introduced the first microprocessors supplied directly by QED,
which we named RISCMark-TM-. As of August 31, 1999, we have introduced three
generations of our products, all of which are in production:
RM5230, RM5260 AND RM5270. Introduced in 1997, this series of products is
based on the same microprocessor core. The RM5230 is currently the largest
volume product we ship and is primarily used by manufacturers of consumer
Internet appliances. The RM5260 is a higher-performance, 64-bit version of the
RM5230. The 64-bit RM5270, the highest-performance product in the series,
supports an external secondary-cache memory interface for more demanding
computing applications.
RM5231, RM5261 AND RM5271. This series of products is an upgrade to the
RM52x0 series and provides higher execution speeds and additional performance
features. The RM52x1 is currently supplied in processing speeds up to 300MHz.
These devices are designed to be compatible with the prior generation RM52x0.
RM7000. The RM7000 is the highest-performance product in our product line,
and we believe it is the highest-performance 64-bit embedded microprocessor in
commercial production. We developed the RM7000 to be the microprocessor core for
our new generation of products. This product incorporates significant design and
performance enhancements while maintaining compatibility with prior product
generations. The RM7000 is incorporated primarily into networking infrastructure
products, such as routers and switches.
LICENSED PRODUCTS. Our initial business model was to develop and license
proprietary designs based on a microprocessor architecture developed by MIPS
Computer Systems. Under this business model, we developed five microprocessors
under contract with various manufacturers. Since beginning the transition to our
new business model in June 1996, we have not entered into any new third-party
licensing agreements and currently have no plans to do so.
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TECHNOLOGY
Our design efforts are focused on creating high-performance embedded
microprocessors based on the MIPS architecture.
PROPRIETARY MIPS ARCHITECTURE DESIGNS
Our microprocessor designs based on the MIPS architecture use proprietary
logic and circuit design techniques to achieve high performance:
LOGIC DESIGN. Our microprocessors use proprietary techniques similar to
those used in high-performance workstation and mainframe microprocessor designs,
including:
- superscalar, or parallel, instruction issue, which is a way to increase
processor performance by allowing multiple operations to occur
simultaneously;
- multistage pipelines, which are a way to allow operations to be broken
down into discrete steps that can then be overlapped;
- a two-level, integrated, cache memory hierarchy, which is a design that
allows instructions and data to be delivered to and processed by a
processor's operational units at an average rate substantially greater
than that achievable with single-level caches;
- flexible cache memory management that allows a processor's cache memory to
be optimized for a specific application; and
- dynamic power management that allows elements of the processor not used
for a particular operation to be shut down.
CIRCUIT DESIGN. Rather than using commercially available circuit libraries,
we have developed proprietary circuits that are designed for building
high-performance microprocessors. Commercially available circuits are generally
optimized for the development of specific purpose integrated circuits and are
usually a poor fit for high-performance designs. Our proprietary circuits that
increase speed and/or lower power consumption include:
- asynchronous circuits, which allow high-speed functional units of the
embedded microprocessor to be built in a small area on the integrated
circuit;
- charge/discharge circuits, which allow high-speed operation by minimizing
electrical inefficiencies;
- constant current source circuits, which high-speed performance for the
most critical operations; and
- reduced voltage swing circuits, which use low power for relatively
non-critical operations.
PROPRIETARY DESIGN AND VERIFICATION ENVIRONMENT
Our embedded microprocessor development environment uses a combination of
industry standard development tools augmented and integrated together by our
proprietary design tools. Some of our proprietary tools supplement the
capabilities of commercially available tools that are optimized for specific
purpose integrated circuit development. Examples of our proprietary tools
include:
- a MIPS architecture random-sequence generator/checker, which permits
billions of verification operations to be performed on our designs prior
to manufacture;
- an in-process design database consistency manager, which permits a full
design team to work on the same design simultaneously;
- a logic synthesizer, which offers more control to the designer than
commercially available synthesizers; and
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- semiconductor manufacturing process technology conversion programs, which
are designed to permit us to move our products efficiently from one
manufacturer or manufacturing process technology to another.
RESEARCH AND DEVELOPMENT
We have assembled a core team of experienced engineers averaging
approximately 13 years of microprocessor design experience. As of August 31,
1999, 29 of our 49 research and development employees had advanced degrees.
We have three design teams. One concentrates on new product development with
the objective of developing our next generation high performance microprocessor.
A second team works on integrating more functions with existing products. The
third team transfers products to new manufacturing technologies and modifies
existing products to adapt them to new applications. Because we rely upon third
parties to manufacture our products, we do not use research and development
resources on manufacturing process technology.
Our research and development expenses were $12.4 million for the year ended
June 30, 1999, $9.6 million for the year ended June 30, 1998, and $9.4 million
for the year ended June 30, 1997. These expenses consisted primarily of salaries
and related costs of employees engaged in ongoing research.
We are designing two new microprocessors for end markets requiring a balance
between price and performance. The RM7010 will be marketed as a lower-cost
version of the RM7000 for consumer Internet appliances. The RM5720 will
integrate industry-standard connections and is intended to lower the cost of a
high performance system by eliminating the need for an external input/output and
memory controller. It will be marketed to networking infrastructure and business
network equipment manufacturers.
CUSTOMERS
We have several key customers in each of our three target markets. Because
we leverage our technology across these markets, our products may be
incorporated into equipment that is sold in several markets. Based on our
product revenue after June 30, 1998, our 20 largest customers are:
<TABLE>
<S> <C>
Aeroflex Inc.
Cisco Systems
Cobalt Group Inc.
ConvergeNet Technologies
Cosine Communication
Echostar Communications Corporation
EFI Electronics Corporation
Extreme Networks, Inc.
Genicom Corporation
Hewlett-Packard Company
Lexmark International Group
Midway Games, Inc.
Pairgain Technologies, Inc.
Philips Business Electronics B.V.
Primary Image Visions Systems Ltd.
Silicon Graphics, Inc.
Sony Corp.
Thompson Consumer Electronics (a division of
Thompson Multimedia)
WebTV Networks, Inc.
Xedia Corporation
</TABLE>
Historically, a small number of customers have accounted for a substantial
portion of our total revenue. Sales to WebTV, Integrated Device Technology, Inc.
(consisting only of royalty revenue), Cisco Systems and Echostar Communications,
including sales to their manufacturing subcontractors, accounted for
approximately 23%, 20%, 15% and 12%, of our total revenue for the year ended
June 30, 1999.
From January 1, 1998 through September 1, 1999, we achieved 112 design wins
with 56 companies. Of these design wins, 38 are in production and 6 are
considered unlikely to go into production. We define a design win as a
measurable commitment from a customer to use our products. These measures
include parts taken by the customer, a completed printed circuit board design or
a funded program that is targeted for production. A particular design win may
not result in significant product revenue to us.
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SALES AND MARKETING
In North America, we sell our products through a direct sales force of five
people, with four based in our corporate headquarters in Santa Clara, California
and one based in a regional office in Research Triangle Park, North Carolina. We
also sell our products in North America through 11 sales representatives. We
sell our products in Europe through five sales representatives. We sell our
products in Korea through a sales representative, and we sell our products in
Japan through a distributor. Our sales effort is supported by a marketing staff
of four and four applications engineers who work directly with our customers on
technical issues.
MANUFACTURING
We use independent semiconductor manufacturers to fabricate our
microprocessors. By subcontracting our manufacturing, we focus our resources on
product design to eliminate the high cost of owning and operating a
semiconductor fabrication facility. This fabless business model also allows us
to take advantage of the research and development efforts of manufacturers,
permitting us to work with those manufacturers offering the most advanced
manufacturing processes and competitive prices.
Taiwan Semiconductor Manufacturing Corporation, or TSMC, at its
manufacturing plants in Taiwan and the United States, and IBM Corporation, at
its manufacturing plants in the states of Vermont and New York, have
manufactured all of our products to date. We currently use only these two
independent manufacturers, and few of our products have been manufactured at
both manufacturing companies at any given time. As a result, any inability of
TSMC or IBM to provide the necessary capacity or output could result in
significant production delays, which could seriously harm our business. In the
event either TSMC or IBM suffers any damage to their manufacturing facilities,
or in the event of any other disruption of manufacturing capacity, we may not be
able to qualify alternative manufacturing sources for our products in a timely
manner.
We have entered into a manufacturing agreement with IBM, which expires on
May 1, 2000 or upon completion of work orders after May 1, 2000. However, the
contract does not guarantee any level of production capacity or any particular
price. We operate with TSMC on a purchase order basis and do not have a
long-term agreement with TSMC.
Our designs are compatible with industry-standard manufacturing processes.
We believe this compatibility permits the use of multiple manufacturers,
mitigating the risk of using a single source for a product. Our products are
currently fabricated using .25 micron and .35 micron process technologies. We
continuously evaluate the benefits, on a product by product basis, of migrating
to a smaller geometry process technology in order to reduce costs and increase
the performance of our embedded microprocessors. For example, we are preparing
to transition our high-end products to a .18 micron process as soon as it is
available at one of our manufacturer's facilities.
Initial testing of the silicon wafers containing our microprocessors is
primarily performed by a subcontractor located in Taiwan. Following completion
of initial testing, the silicon wafers are cut into individual semiconductors
and assembled into packages. All testing is performed on standard test equipment
using proprietary test programs developed by our test engineering group. The
test facilities are periodically audited to ensure that their procedures remain
consistent with those required for the production of leading-edge devices. We
use a subcontractor based in Korea to package all of our products. We use
standard, readily available packages for all of our products. Following
packaging, a subcontractor performs final testing.
We prequalify each manufacturing plant. We also participate in quality and
reliability monitoring through each stage of the production cycle by reviewing
data from our wafer manufacturing plant and assembly subcontractors. We closely
monitor wafer manufacturing plant production to assure consistent
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overall quality, reliability and yield levels. We purchase wafers on a
fixed-cost basis and, therefore, any improvement in manufacturing yields reduces
our cost per product.
COMPETITION
The embedded microprocessor market is intensely competitive and
characterized by continual technological change and price erosion. We expect
competition to increase as our target markets continue to grow and to present
increasingly attractive business opportunities. Many of our direct and indirect
competitors are large corporations with substantially greater technical,
financial and marketing resources and name recognition than QED. In addition,
many of these competitors have a much larger installed customer base than we do.
Competition within our industry is based on a variety of factors, including:
- microprocessor performance;
- product functionality;
- product price;
- product reliability;
- software compatibility;
- financial strength;
- name recognition;
- marketing and distribution capability; and
- customer support.
We believe that we compete favorably with respect to each of these factors.
We face competition from the following sources:
OTHER MIPS LICENSEES. We license the MIPS instruction set architecture on a
non-exclusive basis. MIPS Technologies has licensed and, we believe, will
continue to license its technology to other companies that compete or may
compete with us. Other licensees of MIPS Technologies that currently compete
with us in our target markets include NEC Corporation, Toshiba Corporation and
Integrated Device Technology.
COMPANIES UTILIZING ALTERNATIVE RISC ARCHITECTURES. We face competition
from companies that use alternative RISC architectures. These architectures
include ARM/Strong Arm, developed by ARM Holdings plc and Intel; Hitachi SH,
developed by Hitachi; and PowerPC, developed by Motorola, Inc. and IBM. While
some of these companies have targeted the lower-end segments of the embedded
microprocessor market and, therefore, do not currently compete with us, these
companies may develop products for the high-end segments of the market.
COMPANIES UTILIZING NON-RISC TECHNOLOGIES. The embedded microprocessor
market is mostly comprised of companies utilizing RISC technology. Nonetheless,
CISC architectures, including the x86 architecture, have been introduced into
our target markets and represent a source of competition.
MIPS LICENSE AND INTELLECTUAL PROPERTY
Our success and ability to compete is dependent in part upon our proprietary
technology. We rely upon a combination of patent, mask work, copyright,
trademark and trade secret laws and other means to protect our technology. We
have three issued patents and one patent application pending. We also seek to
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protect our trade secrets and proprietary technology through confidentiality
agreements with employees, consultants and other parties.
We currently derive and expect to continue to derive a substantial majority
of our revenue from the sale of products incorporating microprocessor technology
of MIPS Technologies. We have obtained the right to use this technology in our
products under a Technology License Agreement with MIPS Technologies. The
technology license granted under this agreement is perpetual and bears a royalty
based upon a percentage of our revenue derived from sales of products
incorporating the licensed technology. Our breach of this agreement could result
in our loss of these rights, which would harm our business. We also depend on
MIPS Technologies to enforce these patents against third-party infringement.
Because this license is non-exclusive, MIPS Technologies has licensed, and could
in the future license, its technologies to third parties, including our
competitors. If our competitors obtain a license from MIPS Technologies on more
favorable terms than ours, or if MIPS Technologies fails to enforce its patent
rights against infringers, we might not be able to compete successfully.
EMPLOYEES
As of August 31, 1999, we had a total of 86 full-time and 1 part-time
employees, including 49 in research and development, 15 in sales and marketing,
14 in manufacturing and 9 in general administration. As of August 31, 1999, we
had nine contractors in research and development. None of our employees is
represented by a collective bargaining agreement or an employment agreement. We
have never experienced any work stoppage. We consider our relations with our
employees to be good.
FACILITIES
Our corporate headquarters, which serves as our principal sales, marketing,
research and development and administrative office, occupies 20,407 square feet
in two adjacent buildings in Santa Clara, California under a 15,218 square foot
lease and a 5,189 square foot lease. The 15,218 square foot lease expires on
June 30, 2001, and the 5,189 square foot lease will be terminated on October 31,
1999. On August 16, 1999, we entered into a five-year lease, to commence on
November 1, 1999, for an additional 23,375 square feet of office space located
next to our corporate headquarters.
We also have a small office in Raleigh, North Carolina. The lease for this
office expires on March 15, 2000.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding our directors
and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- ----------- -----------------------------------------------------
<S> <C> <C>
Thomas J. Riordan.................................... 42 Chief Executive Officer, President and Director
Barry L. Cox......................................... 57 Chairman of the Board of Directors
Raymond Kunita....................................... 43 Chief Operating Officer and Vice President of
Engineering
Howard M. Bailey..................................... 53 Chief Financial Officer, Vice President of Finance
and Secretary
William S. Thomas.................................... 47 Vice President of Sales
Andrew J. Keane...................................... 37 Vice President of Marketing
Bruce K. Graham...................................... 39 Director
Christopher J. Schaepe............................... 35 Director
</TABLE>
THOMAS J. RIORDAN, a co-founder of QED, has served as our Chief Executive
Officer, President and director since our inception in August 1991. From
February 1985 to June 1991, Mr. Riordan served in various design and managerial
roles most recently as director of research and development at MIPS Computer
Systems, Inc., a semiconductor design company. From March 1983 to January 1985,
Mr. Riordan served as a design engineer at Weitek Corporation, a semiconductor
company. From October 1979 to February 1983, Mr. Riordan was a design engineer
at Intel Corporation, a semiconductor company. Mr. Riordan holds B.S. and M.S.
degrees in Electrical Engineering as well as a B.A. degree in Government from
the University of Central Florida and has done post-graduate work in electrical
engineering at Stanford University.
BARRY L. COX joined QED in July 1998 and has served as our Chairman of the
Board of Directors since September 1999. From January 1996 to July 1998, Mr. Cox
served as a consultant for various companies. Currently, he is a member of the
board of directors of DynaChip Corporation, SUMMIT Microelectronics, Inc. and
Real 3D, each a privately-held company, and Photon Dynamics, Inc., a
publicly-held flat panel display equipment company. From October 1993 to
December 1995, Mr. Cox was President and Chief Executive Officer of Weitek
Corporation and from April 1992 to October 1993, Mr. Cox served as President and
Chief Operating Officer. In August 1984, Mr. Cox co-founded ATEQ Corp., a
semiconductor capital equipment manufacturing company, and from October 1987 to
December 1991, Mr. Cox served as its President, Chief Executive Officer and
director. From June 1980 to April 1983, he was President of Intel Europe. Mr.
Cox holds a B.S. degree in General Engineering from the U.S. Air Force Academy
and an M.B.A. degree from Boston University.
RAYMOND KUNITA, a co-founder of QED, has served as our Chief Operating
Officer and Vice President of Engineering, among other positions, since our
inception in August 1991. From February 1986 to July 1991, Mr. Kunita served in
various design and managerial roles at MIPS Computer Systems and most recently
as Director of Engineering. From August 1984 to January 1986, Mr. Kunita served
as a design engineer responsible for the development of a RISC microprocessor at
Weitek Corporation. From February 1983 to August 1984, Mr. Kunita served as a
design engineer responsible for the development of a graphics display processor
at Mindset Corporation, a computer systems company. From July 1977 to February
1983, Mr. Kunita served in various technology development roles at Intel
Corporation. Mr. Kunita holds a B.S. degree in Electrical Engineering from the
University of Illinois.
HOWARD M. BAILEY has served as our Chief Financial Officer, Vice President
of Finance and Secretary since June 1998. From August 1994 to June 1998, Mr.
Bailey served as Chief Financial Officer of Photon Dynamics. From August 1992 to
August 1994, Mr. Bailey was a partner in the Financial Services Division
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<PAGE>
of David Powell, Inc., a financial services company, where he provided financial
consulting services. From 1989 to 1991, Mr. Bailey was the Chief Financial
Officer at Plus Logic Corporation, which was later acquired by Xilinx, Inc. From
1978 to 1983, Mr. Bailey served as a controller at Intel Corporation. Mr. Bailey
holds a B.S. degree in Economics from the University of Maryland and an M.B.A.
degree in Finance from the University of Utah.
WILLIAM S. THOMAS has served as QED's Vice President of Sales since October
1996. From October 1995 to October 1996, Mr. Thomas served as Director of
Strategic Sales at Power Trends, Inc., an integrated switching regulator
company. From November 1994 to October 1995, Mr. Thomas served as Director of
Semiconductor Sales at Celeritek, Inc., a semiconductor company. From August
1992 to November 1994, Mr. Thomas served as director of Communication Product
Marketing at Sierra Semiconductor Corp., and from October 1989 to August 1992,
as Western Area Sales Manager. Mr. Thomas holds a B.S. degree in Electrical
Engineering from the University of Florida.
ANDREW J. KEANE has served as QED's Vice President of Marketing since
February 1999. From August 1998 to February 1999, Mr. Keane worked as a
marketing consultant in various marketing positions. From March 1995 to April
1996, Mr. Keane served as Director of Product Marketing at 3dfx Interactive,
Inc., a 3D graphics company, and from April 1996 to August 1998 served as Vice
President, Marketing. From August 1994 to February 1995, Mr. Keane served as the
Product Line Manager at Xilinx, Inc. From June 1990 to August 1994, Mr. Keane
served as the Marketing Manager at MIPS Computer Systems, Inc. From August 1986
to August 1988, Mr. Keane served as an engineer at Intel Corporation. From June
1984 to August 1986, Mr. Keane was an engineer at Signetics Corporation, a
division of Philips Electronics. Mr. Keane holds a B.S. degree in Physics from
Rensselaer Polytechnic Institute and an M.B.A. degree from the University of
California, Berkeley.
BRUCE K. GRAHAM has served as a director of QED since May 1998. Mr. Graham
is a General Partner of Bessemer Venture Partners, a venture capital firm, which
he joined in December 1996. From September 1995 to December 1996, Mr. Graham was
a Vice President at Vertex Management, a venture capital firm. Mr. Graham is a
director of GenOA, HiQ Networks, LightLogic, Optical Micromachines and Summit
Microelectronics, Inc., each of which is a privately held company. Mr. Graham
holds a B.S. degree in Chemical Engineering from Princeton University and an
M.B.A. degree from Stanford Graduate School of Business.
CHRISTOPHER J. SCHAEPE has served as a director of QED since March 1997. Mr.
Schaepe is a General Partner of Weiss, Peck & Greer Venture Partners, a
technology-focused venture capital firm, which he joined in 1991. Previously,
Mr. Schaepe served in corporate finance and capital markets roles for three
years at Goldman, Sachs & Co. after his employment as a software engineer at IBM
Corporation. Mr. Schaepe is a director of Galileo Technology Ltd. and Terayon
Communication Systems, as well as several privately held companies. Mr. Schaepe
holds B.S. and M.S. degrees in Computer Science from the Massachusetts Institute
of Technology and an M.B.A. degree from Stanford Graduate School of Business.
Under a voting agreement dated April 16, 1998 that we entered into with a
number of our stockholders, the following stockholders or their affiliated
entities have appointed a member to our board of directors:
- Weiss, Peck & Greer Venture Partners, L.P., whose representative is Mr.
Schaepe;
- Bessemer Venture Partners, whose representative is Mr. Graham; and
- the common stockholders, whose representative is Mr. Riordan.
This voting agreement will terminate upon the closing of this offering.
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<PAGE>
BOARD OF DIRECTORS
Upon completion of the offering, the terms of the board of directors will be
divided into three classes each with a term of three years: Class I, whose term
will expire at the annual meeting of stockholders to be held in 2000; Class II,
whose term will expire at the annual meeting of stockholders to be held in 2001;
and Class III, whose term will expire at the annual meeting of stockholders to
be held in 2002. The Class I director positions are Messrs. Cox and Riordan, the
Class II directors are Messrs. Schaepe and Graham, and the Class III directors
are currently vacant. At each annual meeting of stockholders after the initial
classification, the successors to directors whose terms expire will be elected
to serve a term of three years. This classification of directors may have the
effect of delaying or preventing changes in our control.
BOARD COMMITTEES
AUDIT COMMITTEE. The board of directors has established an audit committee
consisting of Messrs. Graham and Schaepe. The audit committee reviews with our
independent accountants the scope and timing of their audit services and any
other services that they are asked to perform, the independent accountants'
report on our financial statements following completion of their audit, and our
policies and procedures with respect to internal accounting and financial
controls. In addition, the audit committee makes annual recommendations to our
board of directors for the appointment of independent accountants for the
upcoming year.
COMPENSATION COMMITTEE. The board of directors has established a
compensation committee consisting of Messrs. Graham and Schaepe. The
compensation committee makes recommendations to the board concerning salaries
and compensation for our officers and employees and administers our employee
benefit plans.
DIRECTOR COMPENSATION
Our directors do not currently receive any cash compensation for services on
the board of directors or any committee of our board, but directors may be
reimbursed for certain expenses in connection with attendance at board of
directors and committee meetings. All directors are eligible to participate in
our 1999 Equity Incentive Plan. Non-employee directors are eligible to
participate in our 1999 Non-Employee Directors' Stock Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers currently serves, or in the past has served,
as a member of the board of directors or compensation committee of any entity
that has one or more executive officers who serve as a member of our board or
compensation committee.
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<PAGE>
EXECUTIVE COMPENSATION
The following table presents information regarding the compensation paid to
our chief executive officer and our four other most highly compensated executive
officers whose salary and bonus exceeded $100,000 for the fiscal year ended June
30, 1999:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------------
AWARDS
ANNUAL COMPENSATION ---------------------
--------------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) UNDERLYING OPTIONS(#) COMPENSATION($)
- -------------------------------------------------- ---------- --------- --------------------- -----------------
<S> <C> <C> <C> <C>
Thomas J. Riordan
President and Chief Executive Officer........... $ 152,442 $ 60,105 150,000 $ 432(1)
Barry L. Cox
Chairman of the Board of Directors.............. 238,414 61,706 650,000 694(1)
Raymond Kunita
Chief Operating Officer and
Vice President of Engineering................... 152,442 60,105 150,000 432(1)
Howard M. Bailey
Chief Financial Officer,
Vice President of Finance
and Secretary................................... 152,385 26,545 35,000 622(1)
William S. Thomas
Vice President of Sales......................... 124,961 51,891 60,000 6,644(2)
</TABLE>
- ------------------------
(1) Represents term life insurance premiums paid on the officers' behalfs.
(2) Represents a $6,000 car allowance and $644 in term life insurance premiums
paid on Mr. Thomas' behalf.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding each grant of stock
options during the fiscal year ended June 30, 1999 to our chief executive
officer and our four other most highly compensated executive officers whose
salary and bonus exceeded $100,000 for the fiscal year ended June 30, 1999:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------ VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM
OPTIONS IN FISCAL PRICE PER EXPIRATION ----------------------
NAME GRANTED 1999 SHARE DATE 5% 10%
- ----------------------------------------- ---------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Thomas J. Riordan........................ 50,000 1.9% $ 1.00 10/20/08 $ 31,445 $ 79,687
100,000 3.9 3.00 3/29/09 188,668 478,123
Barry L. Cox............................. 600,000 23.2 1.00 6/30/08 377,337 956,245
50,000 1.9 3.00 3/29/09 94,334 239,061
Raymond Kunita........................... 50,000 1.9 1.00 10/20/08 31,445 79,687
100,000 3.9 3.00 3/29/09 188,668 478,123
Howard M. Bailey......................... 35,000 1.4 3.00 3/29/09 66,034 167,343
William S. Thomas........................ 60,000 2.3 3.00 3/29/09 113,201 286,874
</TABLE>
In fiscal year 1999, we granted to our employees options to purchase an
aggregate of 2,589,300 shares. Options were granted at an exercise price equal
to the fair market value of our common stock, as
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<PAGE>
determined by the board of directors on the date of grant. In making this
determination, the board considered a number of factors, including:
- our historical and prospective revenue and profitability;
- our cash balance and rate of cash consumption;
- the development and size of the market for our products;
- the status of our financing activities;
- the stability and tenure of our management team; and
- the breadth of our product offerings.
Potential realizable values are computed by (a) multiplying the number of
shares of common stock subject to a given option by the exercise price per
share, (b) assuming that the aggregate stock value derived from that calculation
compounds at the annual 5% or 10% rates shown in the table for the entire ten
year term of the option and (c) subtracting from that result the aggregate
option exercise price. The 5% and 10% assumed annual rates of compounded stock
price appreciation are mandated by rules of the Securities and Exchange
Commission, or SEC. We can provide no assurance to any executive officer or any
other holder of our securities that any stock price appreciation over the option
term will be at the assumed 5% and 10% levels or at any other defined level.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth the number and value of securities underlying
unexercised options held by our chief executive officer and our four other most
highly compensated executive officers whose salary and bonus exceeded $100,000
for the fiscal year ended June 30, 1999:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
UNEXERCISED OPTIONS VALUE OF UNEXERCISED
SHARES AT JUNE 30, 1999 IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE (#) AT JUNE 30, 1999 ($)
EXERCISE REALIZED -------------------------- --------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas J. Riordan............... -- $ -- 145,833 304,167 $ 670,832 $ 1,399,168
Barry L. Cox.................... 20,000 75,000 0 650,000 0 2,990,000
Raymond Kunita.................. -- -- 145,833 304,167 670,832 1,399,168
Howard M. Bailey................ 25,000 100,000 25,000 185,000 100,000 740,000
William S. Thomas............... 48,334 153,336 3,750 127,916 15,750 391,914
</TABLE>
- ------------------------
In the table above, the value of unexercised in-the-money options is based
on the fair market value of QED's common stock, determined by our board of
directors as discussed above to be $4.75 per share on or about June 30, 1999,
minus the per share exercise price multiplied by the number of shares.
EMPLOYEE STOCK PLANS
1999 EQUITY INCENTIVE PLAN
Our board of directors adopted and our stockholders approved the 1997 Stock
Option Plan in April 1997. We reserved an aggregate of 4,500,000 shares of our
common stock for issuance under the 1997 plan. Our board and stockholders
approved the 1992 Stock Option Plan in July 1992. We reserved an aggregate of
4,600,000 shares of our common stock for issuance under the 1992 plan. Our board
amended and restated both plans as the 1999 Equity Incentive Plan in September
1999, subject to stockholder approval, and increased the combined common stock
reserves of 9,100,000 shares by 1,400,000, to a total of 10,500,000 shares of
common stock.
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<PAGE>
SHARE RESERVE. We have reserved a total of 6,081,545 shares of our common
stock under the 1999 Equity Incentive Plan. On the last day of each fiscal year
for ten years, starting with the fiscal year ending June 30, 2000, the share
reserve will automatically be increased by a number of shares equal to the
greater of:
- 5% of our outstanding shares on a fully-diluted basis, or
- that number of shares subject to awards granted under the incentive plan
during the prior 12-month period.
The number of shares available for grants under incentive stock options may
not exceed 14,000,000 shares over the ten-year period. If the recipient of a
stock award does not purchase the shares subject to a stock award before the
stock award expires or otherwise terminates, the shares that are not purchased
again become available for issuance under the incentive plan.
ADMINISTRATION. Our board administers the incentive plan unless it
delegates administration to a committee. Our board has the authority to
construe, interpret and amend the incentive plan as well as to determine:
- the grant recipients;
- the grant dates;
- the number of shares subject to the award;
- the exercisability of the award;
- the exercise price;
- the type of consideration; and
- the other terms of the award.
ELIGIBILITY. Our board may grant incentive stock options that qualify under
Section 422 of the Internal Revenue Code to our employees and to the employees
of our affiliates. Our board also may grant nonstatutory stock options, stock
bonuses and restricted stock purchase awards to our employees, directors and
consultants as well as to the employees, directors and consultants of our
affiliates.
- A stock option is a contractual right to purchase a specified number of
our shares at a specified price, or exercise price, for a specified period
of time.
- An incentive stock option is a stock option that has met the
requirements of Section 422 of the Internal Revenue Code. This type of
option is free from regular tax at both the date of grant and the date
of exercise. If two holding period tests are met--two years between
grant date and sale date and one year between exercise date and sale
date--the profit on the option is long-term capital gain income. If the
holding periods are not met, there has been a disqualifying
disposition, and the difference between the exercise price and the fair
market value of the shares on the exercise date will be taxed at
ordinary income rates. The difference between the fair market value on
date of exercise and the exercise price is an item of alternative
minimum tax unless there is a disqualifying disposition in the year of
exercise.
- A nonstatutory stock option is a stock option not meeting the Internal
Revenue Code criteria for qualifying incentive stock options and,
therefore, triggering a tax upon exercise. This type of option requires
payment of state and federal income tax and, if applicable, FICA/FUTA
on the difference between the exercise price and the fair market value
on the exercise date.
- A restricted stock purchase award is an offer to purchase shares at a
price either at or near the fair market value of the shares. A stock
bonus, on the other hand, is a grant of our shares at no cost to the
recipient in consideration for past services rendered. However, we may
reacquire the shares
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<PAGE>
under either type of award at the original purchase price, which is zero
in the case of a stock bonus, if the recipient's service to us and to our
affiliates terminates before the shares vest.
Our board may not grant an incentive stock option to any person who, at the
time of the grant, owns or is deemed to own stock possessing more than 10% of
our total combined voting power or the total combined voting power of an
affiliate of ours, unless the exercise price is at least 110% of the fair market
value of the stock on the grant date and the option term is five years or less.
LIMITS ON OPTION GRANTS. There are limits on the number of shares that our
board may grant under an option.
- Section 162(m) of the Internal Revenue Code, among other things, denies a
deduction to publicly held corporations for compensation paid to the chief
executive officer and the four other highest compensated officers in a
taxable year to the extent that the compensation for each such officer
exceeds $1.0 million. When we become subject to Section 162(m), in order
to prevent options granted under the incentive plan from being included in
such compensation, our board may not grant options under the incentive
plan to an employee covering an aggregate of more than 700,000 shares in
any calendar year; and
- An employee may not receive incentive stock options that exceed the
$100,000 per year limitation set forth in Section 422(d) of the Internal
Revenue Code. In calculating the $100,000 per year limitation, we
determine the aggregate number of shares under all incentive stock options
granted to that employee that will become exercisable for the first time
during a calendar year. For this purpose, we include incentive stock
options granted under the incentive plan as well as under any other stock
plans that we or our affiliates maintain. We then determine the aggregate
fair market value of such stock as of the grant date of the option. Taking
the options into account in the order in which they were granted, we treat
only the options covering the first $100,000 worth of stock as incentive
stock options. We treat any options covering stock in excess of $100,000
as nonstatutory stock options.
OPTION TERMS. The board may grant incentive stock options with an exercise
price of 100% or more of the fair market value of a share of our common stock on
the grant date. It may grant nonstatutory stock options with an exercise price
as low as 85% of the fair market value of a share on the grant date. If the
value of our shares declines after the grant date, the board may offer
optionholders the opportunity to replace such outstanding higher-priced options
with new lower-priced options. To the extent required by Section 162(m) of the
Internal Revenue Code, the old repriced option is deemed to be canceled and a
new option granted, but both options will be counted against the Section 162(m)
limit discussed above.
The maximum option term is 10 years. The board may provide for exercise
periods of any length in individual option grants. However, generally an option
terminates three months after the optionholder's service to us and to our
affiliate terminates. If this termination is due to the optionholder's
disability, the exercise period generally is extended to 12 months. If this
termination is due to the optionholder's death or if the optionholder dies
within three months after his or her service terminates, the exercise period
generally is extended to 18 months following such death.
The board may provide for the transferability of nonstatutory stock options
but not incentive stock options. However, the optionholder may designate a
beneficiary to exercise either type of option following the optionholder's
death. If the optionholder does not designate a beneficiary, the optionholder's
option rights will pass by his or her will or by the laws of descent and
distribution.
TERMS OF OTHER STOCK AWARDS. The board determines the purchase price of
other stock awards, which may not be less than 85% of the fair market value of
our common stock on the grant date. However, the board may award stock bonuses
in consideration of past services without a purchase payment. Shares that we
sell or award under the incentive plan may, but need not be, restricted and
subject to a repurchase
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<PAGE>
option in our favor in accordance with a vesting schedule that the board
determines. The board, however, may accelerate the vesting of such restricted
stock.
OTHER PROVISIONS. Transactions not involving our receipt of consideration,
such as a merger, consolidation, reorganization, stock dividend, or stock split,
may change the class and number of shares subject to the incentive plan and to
outstanding awards. In that event, the board will appropriately adjust the
incentive plan as to the class and the maximum number of shares subject to the
incentive plan, to the cap on the number of shares available for incentive stock
options, and to the Section 162(m) limit. It also will adjust outstanding awards
as to the class, number of shares and price per share subject to these awards.
If we dissolve or liquidate, then outstanding stock awards will terminate
immediately before this event. However, we treat outstanding stock awards
differently in the following situations:
- a sale, lease or other disposition of all or substantially all of our
assets;
- a merger or consolidation in which we are not the surviving corporation;
or
- a merger in which we are the surviving corporation but the shares of our
common stock outstanding immediately before the merger are converted by
virtue of the merger into other property, such as securities or cash.
In these situations, the surviving entity will either assume or replace all
outstanding awards under the incentive plan. If it declines to do so, then
generally the vesting and exercisability of the awards will accelerate.
STOCK AWARDS GRANTED. As of August 31, 1999, we have issued 4,418,455
shares upon the exercise of options under the incentive plan, none of which have
been repurchased, 342,210 shares of which are subject to repurchase at the
original exercise price, and none of which are subject to repurchase at fair
market value; options to purchase 4,614,500 shares at a weighted average
exercise price of $1.67 were outstanding; and 67,045 shares remained available
for future grant. As of August 31, 1999, the board had not granted any stock
bonuses or restricted stock under the incentive plan.
PLAN TERMINATION. The incentive plan will terminate in 2009 unless the
board terminates it sooner.
1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In September 1999, our board adopted the 1999 Non-Employee Directors' Stock
Option Plan, subject to stockholder approval. The directors' plan provides for
the automatic grant to our non-employee directors of options to purchase shares
of our common stock.
SHARE RESERVE. We have reserved a total of 200,000 shares of our common
stock for issuance under the directors' plan, subject to stockholder approval.
On the last day of each fiscal year for 10 years, starting with the fiscal year
ending June 30, 2000, the share reserve will automatically be increased by a
number of shares equal to the greater of:
- .5% of our outstanding shares on a fully-diluted basis; or
- that number of shares subject to options granted under the directors' plan
during the prior 12-month period.
If the optionholder does not purchase the shares subject to the option
before the option expires or otherwise terminates, the shares that are not
purchased again become available for issuance under the directors' plan.
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<PAGE>
ADMINISTRATION. The board administers the directors' plan unless it
delegates administration to a committee. The board has the authority to
construe, interpret and amend the directors' plan but the directors' plan
specifies the essential terms of the options, including:
- the option recipients;
- the grant dates;
- the number of shares subject to the option;
- the exercisability of the option;
- the exercise price; and
- the type of consideration.
ELIGIBILITY. We automatically will grant an option covering 10,000 shares
to each non-employee director on the day after each annual meeting of our
stockholders, starting in 2000, at which the director is elected or re-elected
to a full three-year term. For non-employee directors who are elected or
appointed mid-term, the number of shares subject to the option will be pro rated
on the basis of 278 shares per month for each remaining month of the term of
office, rounded to the nearest whole month. The options will vest monthly over
the non-employee director's term of office.
As long as a non-employee director who is an optionholder continues to serve
with us or with an affiliate of ours, whether in the capacity of a director, an
employee or a consultant, the optionholder may exercise the option.
OPTION TERMS. Options have an exercise price equal to 100% of fair market
value of our common stock on the grant date. The option term is 10 years but it
terminates three months after the optionholder's service terminates. If this
termination is due to the optionholder's disability, the exercise period is
extended to 12 months. If this termination is due to the optionholder's death or
if the optionholder dies within three months after his or her service
terminates, the exercise period is extended to 18 months following death.
The optionholder may transfer the option by gift to immediate family or for
estate-planning purposes. The optionholder also may designate a beneficiary to
exercise the option following the optionholder's death. Otherwise, the option
exercise rights will pass by the optionholder's will or by the laws of descent
and distribution.
OTHER PROVISIONS. Transactions not involving our receipt of consideration,
such as a merger, consolidation, reorganization, stock dividend, or stock split,
may change the class and number of shares subject to the directors' plan and to
outstanding options. In that event, the board will appropriately adjust the
directors' plan as to the class and the maximum number of shares subject to the
directors' plan. It also will adjust outstanding options as to the class, number
of shares and price per share subject to these options.
If we dissolve or liquidate, then the outstanding options will terminate
immediately before this event. However, we treat outstanding options differently
in the following situations:
- a sale, lease or other disposition of all or substantially all of our
assets;
- a merger or consolidation in which we are not the surviving corporation;
or
- a merger in which we are the surviving corporation but the shares of our
common stock outstanding immediately before the merger are converted by
virtue of the merger into other property, such as securities or cash.
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In these situations, the surviving entity will either assume or replace all
outstanding options under the directors' plan. If it declines to do so, then
generally the vesting and exercisability of the options will accelerate.
OPTIONS ISSUED. We have not issued any options under the directors' plan.
PLAN TERMINATION. The directors' plan will terminate in 2009 unless the
board terminates it sooner.
1999 EMPLOYEE STOCK PURCHASE PLAN.
In September 1999, our board adopted the 1999 Employee Stock Purchase Plan,
subject to stockholder approval.
SHARE RESERVE. We have authorized the issuance of 300,000 shares of our
common stock pursuant to purchase rights granted to eligible employees under the
purchase plan. On November 1 of each year for 10 years, starting with the year
2000, the number of shares in the reserve will be increased by the greater of 1%
of our outstanding shares on a fully-diluted basis or that number of shares that
have been issued under the purchase plan during the prior 12-month period. The
automatic share reserve increase in the aggregate may not exceed 3,000,000
shares over the 10-year period.
ELIGIBILITY. The purchase plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code.
The purchase plan provides a means by which eligible employees may purchase our
common stock through payroll deductions. We implement the purchase plan by
offerings of purchase rights to eligible employees. Generally, all of our
full-time employees and full-time employees of our affiliates incorporated in
the United States who have been employed for at least five days may participate
in offerings under the purchase plan. However, no employee may participate in
the purchase plan if immediately after we grant the employee a purchase right,
the employee has voting power over 5% or more of our outstanding capital stock.
Currently, no shares of common stock had been purchased under the purchase plan.
ADMINISTRATION. Under the purchase plan, the board may specify offerings of
up to 27 months. Unless the board otherwise determines, common stock is
purchased for accounts of participating employees at a price per share equal to
the lower of:
- 85% of the fair market value of a share on the first day of the offering;
or
- 85% of the fair market value of a share on the purchase date.
For the first offering period, which will begin on the effective date of
this initial public offering, we will offer shares registered on a Form S-8
registration statement. The fair market value of the shares on the first date of
this offering will be the price per share at which our shares are first sold to
the public as specified in the final prospectus with respect to our initial
public offering. Otherwise, fair market value generally means the closing sales
price, rounded up where necessary to the nearest whole cent for the shares, or
the closing bid, if no sales were reported as quoted on the Nasdaq National
Market on the trading day prior to the relevant determination date, as reported
in THE WALL STREET JOURNAL.
The board may provide that employees who become eligible to participate
after the offering period begins nevertheless may enroll in the offering. These
employees will purchase our stock at the lower of:
- 85% of the fair market value of a share on the day they began
participating in the purchase plan; or
- 85% of the fair market value of a share on the purchase date.
If authorized by the board, participating employees may authorize payroll
deductions of up to 10% of their compensation for the purchase of stock under
the purchase plan. Generally, employees may end their participation in the
offering at any time up to 10 days before a offering period begins. Their
participation ends automatically on termination of their employment.
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<PAGE>
OTHER PROVISIONS. The board may grant eligible employees purchase rights
under the purchase plan only if the purchase rights together with any other
purchase rights granted under other employee stock purchase plans established by
us or by our affiliates, if any, do not permit the employee's rights to purchase
our stock to accrue at a rate which exceeds $25,000 of fair market value of our
stock for each calendar year in which the purchase rights are outstanding.
Upon a change in control, the board may provide that the successor
corporation will assume or substitute for outstanding purchase rights.
Alternatively, the board may shorten the offering period and provide that our
stock will be purchased for the participants immediately before the change in
control.
DESCRIPTION OF 401(K) PLAN
We maintain a 401(k) retirement savings plan for our U.S. employees. This
plan is intended to qualify as a tax-qualified plan under Section 401 of the
Internal Revenue Code and provides that each participant may contribute a
percentage of his or her pre-tax compensation. A participant's pre-tax savings
contributions may not be more than 20% of the participant's pay for the plan
year, up to a statutory limit, which is $10,000 in calendar year 1999. Under
this plan, each employee is fully vested in his or her deferred salary
contributions. Employee contributions are held and invested by the plan trustee.
This plan also permits us to make discretionary contributions, subject to
established limits. To date, we have not made any matching contributions to this
plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law, we have adopted
provisions in our certificate of incorporation and bylaws that limit or
eliminate the personal liability of our directors for a breach of their
fiduciary duty of care as a director. The duty of care generally requires that,
when acting on behalf of the corporation, directors exercise an informed
business judgment based on all material information reasonably available to
them. Consequently, a director will not be personally liable to us or our
stockholders for monetary damages or breach of fiduciary duty as a director,
except for liability for:
- any breach of the director's duty of loyalty to us or our stockholders;
- acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases, redemptions
or other distributions; or
- any transaction from which the director derived an improper personal
benefit.
Our certificate of incorporation allows us to indemnify our officers,
directors and other agents to the fullest extent permitted by Delaware law. We
intend to enter into indemnification agreements with each of our directors and
officers that are, in some cases, broader than the specific indemnification
provisions permitted by Delaware law, and that may provide additional procedural
protection. The indemnification agreements require us, among other things, to:
- indemnify officers and directors against certain liabilities that may
arise because of their status as officers or directors; and
- advance expenses, as incurred, to officers and directors in connection
with a legal proceeding, subject to limited exceptions.
Additionally, we anticipate obtaining directors' and officers' liability
insurance.
Our bylaws also permit us to purchase insurance on behalf of any officer,
director, employee or other agent for any liability arising out of his or her
actions in such capacity, regardless of whether Delaware law would permit
indemnification, and to provide indemnification in circumstances in which
indemnification is otherwise discretionary under Delaware law.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees in which indemnification is sought, nor are
we aware of any threatened litigation that may result in claims for
indemnification.
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CERTAIN TRANSACTIONS
Other than compensation agreements and other arrangements, which are
described as required in "Management," and the transactions described below,
since July 1, 1996, there has not been, nor is there currently proposed, any
transaction or series of similar transactions to which we were or will be a
party:
- in which the amount involved exceeded or will exceed $60,000; and
- in which any director, executive officer, holder of more than 5% of our
common stock on an as-converted basis or any member of their immediate
family had or will have a direct or indirect material interest.
FINANCING TRANSACTIONS
Purchasers of our preferred and common stock include, among others, the
following of our executive officers, directors and holders of more than 5% of
our outstanding stock:
<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK
COMMON ------------------------------------------------------
PURCHASER STOCK SERIES A SERIES B SERIES C SERIES D
- ---------------------------------------------------- ---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Thomas J. Riordan................................... 1,000,000 -- -- -- --
Barry L. Cox........................................ 20,000 -- -- -- --
Raymond Kunita...................................... 1,000,000 -- -- -- --
Howard M. Bailey.................................... 35,000 -- -- -- --
William S. Thomas................................... 75,000 -- -- -- --
Christopher J. Schaepe.............................. -- -- -- 28,000 --
ENTITIES AFFILIATED WITH DIRECTORS
Entities Affiliated with Bessemer Venture
Partners.......................................... -- -- -- 1,400,000 591,609
Entities Affiliated with Weiss, Peck & Greer Venture
Partners.......................................... -- -- 2,500,000 1,840,000 1,141,283
5% HOLDERS
Integrated Device Technology, Inc................... 2,200,000 1,440,000 -- -- --
Norwest Venture Partners VI, L.P.................... -- -- -- 1,200,000 507,094
Cisco Systems, Inc.................................. 237,500 -- -- -- 1,047,454
Price Per Share..................................... $0.001- $ 1.40 $ 2.40 $ 2.50 $ 4.32
$2.00
Date(s) of Purchase................................. 11/15/91- 1/24/92 3/5/97 4/16/98 3/1/99
8/31/99 and and
5/15/98 3/16/99
</TABLE>
The shares shown as held by Weiss, Peck & Greer in the above table include
shares held by Christopher J. Schaepe. Mr. Schaepe, one of our directors, is a
general partner of Weiss, Peck and Greer Venture Partners.
We have entered into an investors' rights agreement with each of the
purchasers of preferred stock set forth above and with Messrs. Riordan and
Kunita, as purchasers of the common stock set forth above. Under this agreement,
these and other stockholders are entitled to registration rights with respect to
their shares of common stock or common stock issuable upon conversion of their
preferred stock upon the closing of this offering.
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<PAGE>
AGREEMENTS WITH IDT
In January 1992, we entered into a development and license agreement with
Integrated Device Technology, or IDT, a 5% stockholder. Under this agreement, we
developed and delivered embedded microprocessor products in exchange for
milestone payments and continuing royalty payments by IDT to us. In June 1996,
we entered into a development agreement with IDT under which we agreed to modify
an embedded microprocessor for IDT and IDT agreed to make royalty payments to us
based on the product's net sales. We received aggregate royalty payments from
IDT under the two agreements of $2.3 million in the year ended June 30, 1997,
$3.3 million in the year ended June 30, 1998 and $3.0 million in the year ended
June 30, 1999.
AGREEMENTS WITH CISCO
In connection with a purchase of QED capital stock on March 1, 1999, Cisco
Systems, a 5% stockholder, and QED entered into an agreement granting Cisco
Systems a right of first negotiation in the event of a proposed change in
control of QED. This agreement will terminate upon the closing of this offering.
In the fiscal year ended June 30, 1998, Cisco Systems purchased $5,685 worth of
our products. In the fiscal year ended June 30, 1999, Cisco Systems purchased
approximately $255,000 worth of our products. These amounts exclude product
sales to Cisco Systems' manufacturing subcontractors, which amounts are
substantially larger than direct sales to Cisco Systems.
OTHER TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS
In November 1997, we entered into a consulting agreement with Barry L. Cox
under which we paid Mr. Cox an aggregate of $106,800 and granted him options to
purchase 20,000 shares of common stock. This agreement terminated in July 1998
when Mr. Cox became an employee of QED.
In June 1998, we granted Barry L. Cox an option to purchase 600,000 shares
of our common stock at an exercise price of $1.00 per share. The option vests
over five years, with 20% of the shares subject to the option vesting and
becoming exercisable upon the closing of this offering.
In May 1998, we granted Howard M. Bailey an option to purchase 200,000
shares of our common stock at an exercise price of $.75 per share. The option
vests over four years, with 50% of the shares subject to the option vesting and
becoming exercisable in the event of a change of control of QED.
In February 1999, we granted Andrew J. Keane an option to purchase 250,000
shares of our common stock at an exercise price of $2.00 per share. The option
vests over four years.
INDEMNIFICATION AGREEMENTS
We have entered into indemnification agreements with our directors and our
executive officers for the indemnification of and advancement of expenses to
these persons to the fullest extent permitted by law. We also intend to enter
into indemnification agreements with our future directors and officers.
We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. All future transactions, including loans, between us and our officers,
directors, principal stockholders and their affiliates will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested directors, and will be on terms no less favorable to us than could
be obtained from unaffiliated third parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of
our common stock as of August 31, 1999 and as adjusted to reflect our sale of
shares offered and conversion of all outstanding shares of preferred stock into
shares of common stock held by the following persons:
- each person who we know to own beneficially more than five percent of the
common stock;
- each of our directors;
- each executive officer listed in the summary compensation table; and
- all directors and executive officers as a group.
Unless indicated below, to our knowledge the persons named have sole voting
and investment power with respect to all shares shown as beneficially owned by
them, subject to community property laws where applicable. Percentage of
beneficial ownership is based on 22,874,792 shares of common stock outstanding
on an as-converted basis as of August 31, 1999. This assumes no exercise of the
underwriters' over-allotment option. If the underwriters' over-allotment option
is exercised in full, we will sell up to an aggregate of shares of common
stock and up to shares of common stock will be outstanding after the
completion of this offering.
The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the SEC, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under these rules,
beneficial ownership includes any shares as to which the individual or entity
has sole or shared voting power or investment power and any shares as to which
the individual or entity has the right to acquire beneficial ownership within 60
days after August 31, 1999 through the exercise of any stock option or other
right. The inclusion of these shares in the table, however, does not constitute
an admission that the named stockholder is a direct or indirect beneficial owner
of, or receives the economic benefit from, these shares.
Unless indicated below, each person or entity named below has an address in
care of QED's principal executive offices located at 3255-3 Scott Boulevard,
Suite 200, Santa Clara, California 95054.
<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY
OWNED
NUMBER OF SHARES ------------------------
BENEFICIALLY PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- --------------------------------------------------------------------------- ----------------- ----------- -----------
<S> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Christopher J. Schaepe(1)................................................ 5,509,283 24.1% %
Thomas J. Riordan(2)..................................................... 1,166,667 5.1
Raymond Kunita(3)........................................................ 1,166,667 5.1
Bruce K. Graham(4)....................................................... 1,991,609 8.7
Barry L. Cox(5).......................................................... 182,500 *
Howard M. Bailey(6)...................................................... 68,333 *
William S. Thomas(7)..................................................... 83,749 *
OTHER 5% STOCKHOLDERS
Entities Affiliated with Weiss, Peck & Greer Venture Partners(1)......... 5,481,283 24.0
555 California Street, Suite 3130
San Francisco, CA 94104
Integrated Device Technology, Inc........................................ 3,640,000 15.9
2975 Stender Way
Santa Clara, CA 95054
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY
OWNED
NUMBER OF SHARES ------------------------
BENEFICIALLY PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- --------------------------------------------------------------------------- ----------------- ----------- -----------
<S> <C> <C> <C>
Entities Affiliated with
Bessemer Venture Partners(4)........................................... 1,991,609 8.7
1400 Old Country Road, Suite 407
Westbury, NY 11590
Norwest Venture Partners VI, L.P......................................... 1,707,094 7.5
245 Lytton Avenue, Suite 250
Palo Alto, CA 94301
Cisco Systems, Inc....................................................... 1,284,954 5.6
255 West Tasman Drive, Bldg. J
San Jose, CA 95134
The Goldman Sachs Group, Inc............................................. 1,157,408 5.1
85 Broad Street
New York, NY 10004
All officers and directors as a group (7 persons)(8)....................... 19,290,541 84.3%
</TABLE>
- ------------------------
* Represents beneficial ownership of less than 1%.
(1) Includes:
- 2,029,216 shares held by WPG Enterprise Fund II, L.L.C.;
- 1,687,297 shares held by Weiss, Peck & Greer Venture Associates III,
L.L.C.;
- 865,267 shares held by Weiss, Peck & Greer Venture Associates IV, L.L.C.;
- 756,733 shares held by WPG Enterprise Fund III, L.L.C.;
- 109,239 shares held by Weiss, Peck & Greer Venture Associates IV Cayman,
L.P.; and
- 33,531 shares held by WPG Information Sciences Entrepreneur Fund, L.P.
WPG Venture Partners III, L.P. is the Fund Investment Advisory Member of WPG
Enterprise Fund II, L.L.C. and Weiss Peck & Greer Venture Associates III,
L.L.C. Christopher J. Schaepe, one of our directors, is a general partner of
WPG Venture Partners III, L.P. and, as such, may be deemed to share voting
and investment power with respect to the shares held by these entities. WPG
VC Fund Adviser L.L.C. is the fund investment advisory member of Weiss, Peck
& Greer Venture Associates IV, L.L.C. and WPG Enterprise Fund III, L.L.C.,
and is the general partner of WPG Information Sciences Entrepreneur Fund,
L.P. Mr. Schaepe is the Managing Member of WPG VC Fund Adviser, L.L.C. and,
as such, may be deemed to share voting and investment power with respect to
the shares held by these entities. WPG Fund Adviser, L.L.C. is the
administrative general partner of Weiss, Peck & Greer Venture Associates IV
Cayman, L.P. Mr. Schaepe is a managing member of WPG Fund Adviser, L.L.C.
and, as such, may be deemed to share voting and investment power with
respect to the shares held by Weiss, Peck & Greer Venture Associates IV
Cayman, L.P. Mr. Schaepe disclaims beneficial ownership of all shares with
respect to which he may be deemed to share voting and investment power
except to the extent of his pecuniary interests therein. Mr. Schaepe's
shares also include 24,000 shares held by Mr. Schaepe's family living trust
of which he is a trustee and 4,000 shares held by his son's revocable trust
of which Michael Chin is a trustee.
(2) Includes 166,667 shares Mr. Riordan has the right to acquire under
outstanding options exercisable within 60 days of August 31, 1999.
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<PAGE>
(3) Includes 166,667 shares Mr. Kunita has the right to acquire under
outstanding options exercisable within 60 days of August 31, 1999.
(4) Includes (1) 1,050,328 shares held by Bessemer Venture Partners IV L.P., (2)
199,160 shares held by Bessemer Venture Investors L.P., and (3) 742,121
shares held by Bessec Ventures IV L.P. Deer IV & Co. LLC is the general
partner of Bessemer Venture Partners IV L.P., Bessemer Venture Investors
L.P. and Bessec Ventures IV L.P. Bruce K. Graham, one of our directors, is a
general partner of Deer IV & Co. LLC, and may be deemed to share voting and
investment power with respect to these shares. He disclaims beneficial
ownership of these shares except to the extent of his pecuniary interests in
that entity.
(5) Includes 162,500 shares Mr. Cox has the right to acquire under outstanding
options exercisable within 60 days of August 31, 1999.
(6) Includes 33,333 shares Mr. Bailey has the right to acquire under outstanding
options exercisable within 60 days of August 31, 1999.
(7) Includes 8,749 shares Mr. Thomas has the right to acquire under outstanding
options exercisable within 60 days, and 22,917 shares acquired pursuant to
the early exercise of stock options, 8,749 shares of which will be vested
within 60 days of August 31, 1999.
(8) Includes 537,916 shares subject to options exercisable within 60 days and
22,917 shares acquired under the early exercise of stock options, 8,749
shares of which will be vested in 60 days of August 31, 1999.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon completion of this offering, our authorized capital stock will consist
of 100,000,000 shares of common stock, $.001 par value, and 10,000,000 shares of
undesignated preferred stock, $.001 par value. As of August 31, 1999, there were
22,874,792 shares of common stock outstanding held of record by approximately
134 stockholders assuming the conversion of all outstanding preferred stock into
common stock. There will be shares of common stock outstanding after
giving effect to the sale of the shares of common stock offered under this
prospectus.
COMMON STOCK
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding shares of preferred stock,
the holders of common stock are entitled to receive ratably such dividends as
may be declared by the board of directors out of funds legally available at
times and in amounts as the board may determine from time to time. See "Dividend
Policy." In the event of our liquidation, dissolution or winding up, holders of
the common stock are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preferences of any outstanding shares
of preferred stock. Holders of common stock have no preemptive rights or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are, and all shares of common stock to be outstanding upon
completion of this offering will be, fully-paid and nonassessable.
PREFERRED STOCK
We will have authorized 10,000,000 shares of undesignated preferred stock.
The board of directors will have the authority to issue the undesignated
preferred stock in one or more series and to determine the powers, preferences
and rights and the qualifications, limitations or restrictions granted to or
imposed upon any wholly unissued series of undesignated preferred stock and to
fix the number of shares constituting any series and the designation of such
series, without any further vote or action by the stockholders. The issuance of
preferred stock may have the effect of delaying, deferring or preventing any
change in control without further action by the stockholders and may adversely
affect the voting and other rights of holders of common stock, and the
likelihood that such holders will receive dividend payments and payments upon
liquidation could have the effect of delaying, deferring or preventing a change
in control. Currently, we have no plans to issue any shares of preferred stock.
OPTIONS
As of August 31, 1999, options to purchase a total of 4,614,500 shares of
common stock were outstanding and up to 1,667,045 additional shares of common
stock may be issued upon exercise of options granted in the future under the
1999 Equity Incentive Plan and the 1999 Non-Employee Directors' Stock Option
Plan. Recommendations for option grants under our stock plans are made by our
compensation committee, subject to ratification by the full board of directors.
Our compensation committee may issue options with varying vesting schedules, but
all options granted under our stock plans must be exercised within 10 years from
the date of grant.
WARRANTS
In September 1997, in conjunction with the execution of a secured promissory
note and a lease agreement, we issued two six-year warrants to purchase an
aggregate of 93,750 shares of Series B preferred stock at an exercise price of
$1.60 per share.
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<PAGE>
In July 1998, in conjunction with the execution of an amendment to the
equipment financing agreement, we issued a warrant to purchase 4,000 shares of
Series C preferred stock at an exercise price of $2.50 per share. The number and
price of such shares are subject to adjustment, including a right to purchase
additional stock. If our total cost of equipment leased pursuant to the lease
exceeds $1.2 million, the warrantholder has the right to purchase an additional
number of shares as determined by multiplying the amount by which the
warrantholder's total equipment cost exceeds $1.2 million by 5%, and dividing
the product thereof by the exercise price per share. At June 30, 1999,
borrowings under the line had not exceeded $1.2 million.
In January 1999, in conjunction with the execution of a line of credit
agreement, we issued a six-year warrant to purchase 80,000 shares of common
stock at an exercise price of $2.50 per share plus additional shares calculated
as follows: (1) 10% of the aggregate loan amounts made to us under the loan
agreement in excess of $2.0 million after the date thereof divided by (2) the
price per share of our preferred stock issued in the most recent round of
venture capital equity financing prior to the funding of the loan. At June 30,
1999, borrowings under the line had not exceeded $2.0 million.
All outstanding warrants are currently exercisable. Upon the closing of this
offering, all warrants described in this section will become exercisable for our
common stock at the rate of one share of common stock for each share of
preferred stock underlying the warrants.
REGISTRATION RIGHTS
After this offering, the holders of approximately 22,874,792 shares of
common stock and warrants to acquire 177,750 shares of common stock will be
entitled to rights with respect to the registration of those shares under the
Securities Act.
PIGGYBACK RIGHTS. Under the terms of the agreements between us and the
holders of these registrable securities, if we propose to register any of our
securities under the Securities Act, either for our own account or for the
account of other security holders exercising registration rights, these holders
are entitled to notice of registration and are entitled to include shares of
their common stock in the registration.
DEMAND RIGHTS. These holders are also entitled to certain demand
registration rights under which they may require us, on up to two occasions, to
file a registration statement under the Securities Act at our expense with
respect to our shares of common stock. We are required to use our best efforts
to effect a registration.
FORM S-3 RIGHTS. These holders may require us to file additional
registration statements on Form S-3 at our expense. All of these registration
rights are subject to conditions and limitations, among them the right of the
underwriters of an offering to limit the number of shares included in a
registration and our right not to effect a requested registration within six
months following an offering of our securities, including this offering.
Additionally, the holders of registration rights have agreed not to exercise
such rights for at least 180 days after the offering without the prior written
consent of Morgan Stanley & Co. Incorporated.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
CERTIFICATE OF INCORPORATION AND BYLAWS
Our certificate of incorporation provides that, effective upon the closing
of this offering, all stockholder actions must be effected at a duly called
meeting and not by a consent in writing. The bylaws provide that our
stockholders may call a special meeting of stockholders only upon a request of
stockholders owning at least 50% of our capital stock. These provisions of the
certificate of incorporation and bylaws could discourage potential acquisition
proposals and could delay or prevent a change in control of QED. These
provisions are intended to enhance the likelihood of continuity and stability in
the
59
<PAGE>
composition of the board of directors and in the policies formulated by the
board of directors and to discourage transactions that may involve an actual or
threatened change of control of QED. These provisions are designed to reduce our
vulnerability to an unsolicited acquisition proposal. The provisions also are
intended to discourage tactics that may be used in proxy fights. However, these
provisions could have the effect of discouraging others from making tender
offers for our shares and, as a consequence, they also may inhibit fluctuations
in the market price of our shares that could result from actual or rumored
takeover attempts. These provisions also may have the effect of preventing
changes in our management. See "Risk Factors--Provisions of Our Certificate of
Incorporation and Bylaws or Delaware Law May Delay or Prevent a Change of
Control Transaction and, Therefore, Depress the Market Price of Our Stock."
DELAWARE TAKEOVER STATUTE
We are subject to Section 203 of the Delaware General Corporation Law.
Unless our stockholders adopt an amendment to the contrary, our stock is no
longer listed on a national securities exchange or our stockholders consent,
this section prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder, unless:
- prior to becoming an interested stockholder, the board of directors of the
corporation approved either the business combination or the transaction
that resulted in the stockholder becoming an interested stockholder;
- upon consummation of the transaction that 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 for purposes of determining the
number of shares outstanding those shares owned (x) by persons who are
directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
- on or subsequent to becoming an interested stockholder, the business
combination is approved by the board of directors and authorized at an
annual or special meeting of stockholders, and not by written consent, by
the affirmative vote of at least 66 2/3% of the outstanding voting stock
that is not owned by the interested stockholder.
Section 203 defines a business combination to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
- any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder
except upon the exercise, exchange or conversion of securities exercisable
for, exchangeable for or convertible into stock of such composition, upon
a merger of a parent and a subsidiary, or upon an exchange offer by the
corporation to purchase stock made on the same terms to all holders of
said stock;
- any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
60
<PAGE>
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
CALIFORNIA FOREIGN CORPORATION LAW
Section 2115 of the California Corporations Code provides that under some
circumstances several provisions of the California Corporations Code may be
applied to foreign corporations qualified to do business in California
notwithstanding the law of the jurisdiction where the corporation is
incorporated. These corporations are referred to in this prospectus as
"quasi-California" corporations. Section 2115 applies to foreign corporations
that have more than half of their voting stock held by stockholders residing in
California and more than half of their business deriving from California,
measured on or after the 135(th) day of the corporation's fiscal year. If we
were determined to be a quasi-California corporation, we would have to comply
with California law with respect to, among other things, elections of directors
and distributions to stockholders. Under the California Corporations Code, a
corporation is prohibited from paying dividends unless:
- the retained earnings of the corporation immediately prior to the
distribution equals or exceeds the amount of the proposed distribution; or
- (a) the assets of the corporation, exclusive of specific non-tangible
assets, equal or exceed 1 1/4 times its liabilities, exclusive of specific
liabilities; and
(b) the current assets of the corporation at least equal its current
liabilities. If the average pre-tax net earnings of the corporation before
interest expense for the two years preceding the distribution was less
than the average interest expense of the corporation for those year,
however, the current assets of the corporation must exceed 1 1/4 times its
current liabilities.
Following this offering, we will be exempt from the application of Section
2115 until July 1, 2000, and after that if our voting stock is held by more than
800 stockholders of record.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is Norwest Bank
Minnesota N.A., 161 North Concord Exchange, South St. Paul, MN 55075
LISTING
We have applied for our common stock to be quoted on the Nasdaq National
Market under the trading symbol "QEDI."
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock, and sales of substantial amounts of common stock including shares issued
upon exercise of outstanding warrants or options, in the public market after
this offering could adversely affect market prices prevailing from time to time
and could impair our ability to raise capital through sale of equity securities.
Furthermore, as described below, shares currently outstanding will be
available for sale after the expiration of contractual restrictions on resale
with us and/or the underwriters. Sales of substantial amounts of our common
stock in the public market after contractual restrictions lapse could adversely
affect the prevailing market price and our ability to raise equity capital in
the future.
SALES OF RESTRICTED SHARES
Of the shares of common stock outstanding upon the completion of
this offering (assuming no exercise of the underwriters' over-allotment option),
22,874,792 shares are deemed restricted shares under Rule 144 of the Securities
Act. The number of shares of common stock available for sale in the public
market is limited by restrictions under the Securities Act and lock-up
agreements under which the holders of these shares have agreed, subject to
limited exceptions, not to sell or otherwise dispose of any of their shares for
a period of 180 days after the date of this prospectus without the prior written
consent of Morgan Stanley & Co. Incorporated.
The remaining shares will become eligible for public sale as follows:
- on the date of this prospectus, no shares other than of the
shares offered under this prospectus will be eligible for sale;
- beginning 180 days after the date of this prospectus, or earlier with the
written consent of Morgan Stanley & Co. Incorporated, 22,874,792
restricted shares will become available for sale in the public market
subject to volume limitations of Rule 144 relating to manner of sale,
notice and the availability of current public information about us.
RULE 144. In general, under Rule 144 as currently in effect beginning 90
days after this offering, a person (or persons whose shares are aggregated) who
has beneficially owned restricted shares for at least one year, including a
person who may be deemed an affiliate, is entitled to sell within any
three-month period a number of shares of common stock that exceed the greater of
1% of the then-outstanding shares of our common stock (approximately
shares after giving effect to this offering) and the average weekly trading
volume of our common stock on the Nasdaq National Market during the four
calendar weeks preceding that sale. Sales under Rule 144 are subject to
restrictions relating to manner of sale, notice and the availability of current
public information about us.
RULE 144(K). Under Rule 144(k), a person who is not our affiliate at any
time during the 90 days preceding a sale, and who has beneficially owned shares
for at least two years, would be entitled to sell their shares immediately
following this offering without regard to the volume limitations, manner of sale
provisions or notice or other requirements of Rule 144. However, the transfer
agent may require an opinion of counsel that a proposed sale of shares comes
within the terms of Rule 144 prior to effecting a transfer of the subject
shares.
OPTIONS
Any of our employees or consultants who purchased his or her shares under a
written compensatory benefit plan or contract is entitled to rely on the resale
provisions of Rule 701 of the Securities Act, which permits nonaffiliates to
sell their Rule 701 shares without having to comply with the public information,
holding period, volume limitation or notice provisions of Rule 144 and permits
affiliates to sell their Rule 701 shares without having to comply with the Rule
144 holding period restrictions, in each case commencing 90 days after the date
of this prospectus. As of the date of this prospectus, the holders of
62
<PAGE>
options to purchase approximately 2,061,371 shares of common stock will be
eligible to sell their shares on the expiration of the 180-day lock-up period.
We intend to file a registration statement on Form S-8 under the Securities
Act to register shares of common stock issued or reserved for issuance under our
stock plans within 180 days after the date of this prospectus. This would permit
the resale of such shares by nonaffiliates in the public market without
restriction under the Securities Act.
LOCK-UP AGREEMENTS
The officers, directors and stockholders of QED have agreed, subject to
limited exceptions, not to sell, transfer or otherwise dispose of, directly or
indirectly, any of their shares of common stock or any securities convertible or
exchangeable for shares of common stock for a period of 180 days after the date
of the offering without the prior written consent of Morgan Stanley & Co.
Incorporated. Morgan Stanley & Co. Incorporated, however, may in its sole
discretion, at any time without notice, release all or any portion of the shares
subject to lock-up agreements.
63
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, BancBoston Robertson Stephens Inc. and
Lehman Brothers Inc. are acting as representatives, have severally agreed to
purchase, and we have agreed to sell to them, severally, the respective numbers
of shares of common stock set forth opposite the names of the underwriters
below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---------------------------------------------------------------------------------- -----------
<S> <C>
Morgan Stanley & Co. Incorporated.................................................
BancBoston Robertson Stephens Inc.................................................
Lehman Brothers Inc...............................................................
-----------
Total.........................................................................
-----------
-----------
</TABLE>
The underwriters are offering the shares subject to their acceptance of the
shares from us and subject to prior sale. The underwriting agreement provides
that the obligations of the several underwriters to pay for and accept delivery
of the shares of common stock offered hereby are subject to the approval of
certain legal matters by their counsel and to other conditions. The underwriters
are obligated to take and pay for all of the shares of common stock offered by
this prospectus, other than those covered by the over-allotment option described
below, if any of the shares are taken.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the cover
page of this prospectus and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price.
Any underwriters may allow, and such dealers may re-allow, a concession not in
excess of $ a share to other underwriters or to other dealers. After the
initial offering of the shares of common stock, the offering price and other
selling terms may from time to time be varied by the representatives of the
underwriters.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to an aggregate of additional
shares of common stock at the public offering price set forth on the cover page
of this prospectus, less underwriting discounts and commissions. The
underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, made in connection with this offering of the shares of
common stock. To the extent this option is exercised, each underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of the additional shares of common stock as the number set forth
next to that underwriter's name in the preceding table bears to the total number
of shares of common stock set forth next to the names of all underwriters in the
preceding table.
At our request, the underwriters have reserved up to shares of common
stock to be sold in the offering for sale, at the public offering price, to
persons designated by us. The number of shares of common stock available for
sale to the general public will be reduced to the extent these persons purchase
the reserved shares. Any reserved shares that are not so purchased will be
offered by the underwriters to the general public on the same basis as the other
shares offered in this prospectus.
64
<PAGE>
We, our directors, officers and all of our stockholders, optionholders and
warrantholders have each agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the underwriters, or otherwise
during the period ending 180 days after the date of this prospectus, we will
not:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase, lend or otherwise transfer or dispose of, directly
or indirectly, any shares of common stock or any securities convertible
into or exercisable or exchangeable for common stock, whether the shares
or any of those securities are then owned by that person or are later
acquired directly from us; or
- enter into any swap or similar arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of common
stock.
whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise.
The restrictions described in the previous paragraph do not apply to:
- the sale of any shares to the underwriters;
- the issuance by QED of shares of common stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the
date of this prospectus of which the underwriters have been advised in
writing;
- transactions by any person other than QED relating to shares of common
stock or other securities acquired in open market transactions after the
completion of the offering of the shares; or
- the issuance of shares of common stock or options by QED to purchase
shares of common stock under our employee benefit plans as in existence on
the date of this prospectus provided the shares and options are subject to
a lock-up period of at least 180 days after the date of this prospectus.
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
We have submitted an application to have our common stock approved for
quotation on the Nasdaq National Market under the symbol "QEDI."
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the common stock, the underwriters may bid for, and purchase, shares of
common stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
common stock in the offering if the syndicate repurchases previously distributed
shares of common stock in transactions to cover syndicate short positions or in
stabilization transactions. Any of these activities may stabilize or maintain
the market price of the common stock above independent market levels. The
underwriters are not required to engage in these activities and may end any of
these activities at any time.
We and the underwriters have agreed to indemnify each other against
liabilities, including liabilities under the Securities Act.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the shares of
common stock. Consequently, the public offering price for the shares of common
stock will be determined by negotiations between us
65
<PAGE>
and the representatives of the underwriters. Among the factors to be considered
in determining the public offering price will be:
- our record of operations, current financial position and future prospects;
- the future prospects of our industry in general;
- the experience of our management;
- our sales, earnings and other financial operating information in recent
periods; and
- the price-earnings ratios, price-sales ratios, market prices of securities
and financial and operating information of companies engaged in activities
similar to ours.
The estimated initial public offering price range indicated on the cover
page of this prospectus is subject to change as a result of market conditions
and other factors.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Cooley Godward LLP, Palo Alto, California. Legal matters in connection with
this offering will be passed upon for the underwriters by Fenwick & West LLP,
Palo Alto, California.
EXPERTS
Our financial statements as of June 30, 1997, 1998 and 1999 and for each of
the three years in the period ended June 30, 1999, included in this prospectus
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
We filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the shares of common stock offered by this
prospectus. This prospectus does not contain all the information set forth in
the registration statement and related exhibits and schedules. For further
information with respect to QED and the common stock offered hereby, reference
is made to the registration statement and to the related exhibits and schedules.
Statements contained in this prospectus as to the contents of any contract
or other document referred to are not necessarily complete, and each of these
statements is qualified in all respects by reference to the full text of the
contract or other document filed as an exhibit to the registration statement. A
copy of the registration statement and the related exhibits and schedules may be
inspected without charge at the public reference facilities maintained by the
SEC in Room 1024, 450 Fifth Street, N.W. Washington, D.C. 20549, and at the
SEC's regional offices located at the Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048, and copies of all or any part of
the registration statement may be obtained from these offices upon payment of
the fees prescribed by the SEC. The SEC maintains a worldwide web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. The address of the
site is HTTP://WWW.SEC.GOV.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and will file
periodic reports, proxy statements and other information with the SEC. These
periodic reports, proxy statements and other information will be available for
inspection and copying at the regional offices, public reference facilities and
web site of the SEC referred to above.
66
<PAGE>
QUANTUM EFFECT DEVICES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Balance Sheets............................................................................................. F-3
Statements of Operations................................................................................... F-4
Statements of Stockholders' Equity......................................................................... F-5
Statements of Cash Flows................................................................................... F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders of
Quantum Effect Devices, Inc.:
The reincorporation as described in note 11 to the financial statements has
not been consummated at September 9, 1999. When it has been consummated, we will
be in a position to furnish the following report:
"In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Quantum Effect Devices, Inc. as of
June 30, 1998, and 1999 and the results of its operations and its cash flows for
the three years in the period ended June 30, 1999, in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards, which 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, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers, LLP
San Jose, California
August 11, 1999, except for note 11
which is as of September , 1999"
F-2
<PAGE>
QUANTUM EFFECT DEVICES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
JUNE 30, EQUITY
---------------------- JUNE 30,
1998 1999 1999
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 9,756 $ 1,442
Short-term investments.................................................... -- 16,023
Restricted cash........................................................... -- 2,000
Accounts receivable, net.................................................. 1,387 3,065
Receivables from related parties.......................................... 870 652
Inventories............................................................... 852 2,122
Prepaid expenses and other current assets................................. 1,082 768
---------- ----------
Total current assets.................................................... 13,947 26,072
Property and equipment, net................................................. 1,909 1,807
---------- ----------
Total assets.......................................................... $ 15,856 $ 27,879
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings, current portion............................................... $ 489 $ 1,140
Accounts payable.......................................................... 2,090 3,066
Accrued expenses and other current liabilities............................ 2,217 3,102
Deferred revenue.......................................................... 710 248
Capital lease obligations, current portion................................ 220 342
---------- ----------
Total current liabilities............................................... 5,726 7,898
Borrowings, non-current portion............................................. 1,143 1,949
Capital lease obligations, non-current portion.............................. 478 426
---------- ----------
Total liabilities..................................................... 7,347 10,273
---------- ----------
Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock, $.001 par value, 13,897,750 shares authorized, 9,100,000
and 13,618,837 shares issued and outstanding actual; 10,000,000 shares
authorized and none issued and outstanding pro forma (unaudited)........ 9 14 $ --
Common stock, $.001 par value, 29,000,000 shares authorized, 7,789,966 and
8,532,959 shares issued and outstanding actual; 100,000,000 shares
authorized, 22,151,796 shares issued and outstanding pro forma
(unaudited)............................................................. 8 9 22
Additional paid-in capital................................................ 21,955 43,409 43,410
Deferred stock-based compensation......................................... (868) (1,462) (1,462)
Accumulated deficit....................................................... (12,595) (24,364) (24,364)
---------- ---------- ------------
Total stockholders' equity.............................................. 8,509 17,606 $ 17,606
---------- ---------- ------------
------------
Total liabilities and stockholders' equity............................ $ 15,856 $ 27,879
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
QUANTUM EFFECT DEVICES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
Revenue:
Product revenue............................................................... $ -- $ 1,428 $ 10,937
Royalty revenue............................................................... 2,687 1,798 1,388
Royalty revenue from related parties.......................................... 7,376 3,254 3,037
--------- --------- ----------
Total revenue............................................................... 10,063 6,480 15,362
--------- --------- ----------
Cost of revenue:
Product revenue............................................................... -- 3,714 8,513
--------- --------- ----------
Gross profit................................................................ 10,063 2,766 6,849
--------- --------- ----------
Operating expenses:
Research and development...................................................... 9,421 9,552 12,381
Selling, general and administrative........................................... 2,123 2,979 5,436
Stock-based compensation...................................................... -- 150 777
--------- --------- ----------
Total operating expenses.................................................... 11,544 12,681 18,594
--------- --------- ----------
Loss from operations............................................................ (1,481) (9,915) (11,745)
Interest income................................................................. 340 325 472
Interest expense................................................................ -- (204) (496)
--------- --------- ----------
Net loss before income taxes.................................................... (1,141) (9,794) (11,769)
Provision for income taxes...................................................... 60 89 --
--------- --------- ----------
Net loss........................................................................ $ (1,201) $ (9,883) $ (11,769)
--------- --------- ----------
--------- --------- ----------
Net loss per share:
Basic and diluted............................................................. $ (.21) $ (1.53) $ (1.45)
--------- --------- ----------
--------- --------- ----------
Weighted average shares....................................................... 5,746 6,451 8,111
--------- --------- ----------
--------- --------- ----------
Pro forma net loss per share:
Basic and diluted (unaudited)................................................. $ (.63)
----------
----------
Weighted average shares (unaudited)........................................... 18,717
----------
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
QUANTUM EFFECT DEVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED
--------------- ----------------- PAID-IN STOCK-BASED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
------- ------ ------ -------- ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1996........... 4,300 $ 4 5,548 $ 6 $ 8,657 $ -- $ (1,511) $ 7,156
Exercise of stock options.......... -- -- 266 -- 40 -- -- 40
Net loss........................... -- -- -- -- -- (1,201) (1,201)
------- ------ ------ -------- ---------- ------------ ----------- --------
BALANCE AT JUNE 30, 1997........... 4,300 4 5,814 6 8,697 -- (2,712) 5,995
Issuance of Series C preferred
stock............................ 4,800 5 -- -- 11,946 -- -- 11,951
Exercise of stock options.......... -- -- 1,976 2 294 -- -- 296
Deferred stock-based compensation.. -- -- -- -- 1,018 (1,018) -- --
Amortization of deferred
stock-based compensation......... -- -- -- -- -- 150 -- 150
Net loss........................... -- -- -- -- -- -- (9,883) (9,883)
------- ------ ------ -------- ---------- ------------ ----------- --------
BALANCE AT JUNE 30, 1998........... 9,100 9 7,790 8 21,955 (868) (12,595) 8,509
Issuance of Series D preferred
stock............................ 4,519 5 -- -- 19,473 -- -- 19,478
Issuance of common stock for cash.. -- -- 238 -- 475 -- -- 475
Exercise of stock options.......... -- -- 505 1 135 -- -- 136
Deferred stock-based compensation.. -- -- -- -- 1,371 (1,371) -- --
Amortization of deferred
stock-based compensation......... -- -- -- -- -- 777 -- 777
Net loss........................... -- -- -- -- -- -- (11,769) (11,769)
------- ------ ------ -------- ---------- ------------ ----------- --------
BALANCE AT JUNE 30, 1999........... 13,619 $ 14 8,533 $ 9 $43,409 $(1,462) $(24,364) $ 17,606
------- ------ ------ -------- ---------- ------------ ----------- --------
------- ------ ------ -------- ---------- ------------ ----------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
QUANTUM EFFECT DEVICES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------
1997 1998 1999
--------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................................................... $ (1,201) $ (9,883) $ (11,769)
Adjustments to reconcile net loss to net cash used in operating activities:
Allowance for doubtful accounts............................................. -- -- 300
Depreciation and amortization............................................... 959 909 962
Amortization of deferred stock-based compensation........................... -- 150 777
Deferred income taxes....................................................... 580 89 --
Changes in assets and liabilities:
Accounts receivable....................................................... 217 (1,271) (1,760)
Inventories............................................................... -- (852) (1,270)
Prepaid expenses and other current assets................................. (476) (391) 314
Accounts payable.......................................................... 770 597 976
Accrued expenses and other current liabilities............................ 1,148 210 885
Deferred revenue.......................................................... (2,093) (451) (462)
--------- ---------- ----------
Net cash used in operating activities................................... (96) (10,893) (11,047)
--------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment......................................... (936) (76) (493)
Purchase of short term investments............................................ -- -- (16,023)
Maturities of short term investments.......................................... 2,974 -- --
Restricted cash............................................................... -- -- (2,000)
--------- ---------- ----------
Net cash provided by (used in) investing activities..................... 2,038 (76) (18,516)
--------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital leases....................................... -- (127) (297)
Proceeds from issuance of preferred stock..................................... -- 11,951 19,478
Proceeds from issuance of common stock........................................ 40 296 611
Proceeds from borrowings...................................................... -- 2,000 2,000
Repayments of borrowings...................................................... (250) (368) (543)
--------- ---------- ----------
Net cash provided by (used in) financing activities..................... (210) 13,752 21,249
--------- ---------- ----------
Net increase (decrease) in cash and cash equivalents............................ 1,732 2,783 (8,314)
Cash and cash equivalents at beginning of period................................ 5,241 6,973 9,756
--------- ---------- ----------
Cash and cash equivalents at end of period...................................... $ 6,973 $ 9,756 $ 1,442
--------- ---------- ----------
--------- ---------- ----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Income tax paid (refunded), net............................................... $ 470 $ (467) $ 55
--------- ---------- ----------
--------- ---------- ----------
Cash paid for interest........................................................ $ -- $ 170 $ 405
--------- ---------- ----------
--------- ---------- ----------
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of property and equipment through capital leases.................. $ -- $ 825 $ 367
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
QUANTUM EFFECT DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND SUMMARY OF ITS SIGNIFICANT ACCOUNTING
POLICIES:
THE COMPANY
Quantum Effect Devices, Inc. (formerly Quantum Effect Design, Inc.) ("QED"
or the "Company") was incorporated in California in August 1991 and will be
reincorporated in Delaware prior to this offering (see note 11). The Company
changed its name from Quantum Effect Design, Inc. to Quantum Effect Devices,
Inc. in August 1999. The Company is a developer and supplier of high performance
embedded microprocessors for use in information-intensive applications such as
networking/communications infrastructure equipment, business network equipment
and consumer network products.
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 revenues and expenses during the
reporting period. Actual results could differ from those estimates, and such
differences could affect the results of operations reported in future periods.
REVENUE RECOGNITION
Revenue from product sales is generally recognized upon shipment, net of
sales returns and allowances. Revenue generated by sales to distributors under
agreements allowing certain rights of return are deferred for financial
reporting purposes until the products are sold by the distributors.
Royalty revenue is recognized when third parties and related third parties
sell products that the Company has developed and licensed for production.
Royalty revenue received in advance of the sale of the licensed products is
recorded as deferred revenue and recognized when the products are sold by the
third parties.
RESEARCH AND DEVELOPMENT
Research and development expenditures are expensed as incurred.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with a maturity of three
months or less from the date of purchase to be cash equivalents. At June 30,
1999, cash and cash equivalents were held by three major U.S. financial
institutions. Cash and cash equivalents consist of cash on deposit with banks,
money market funds and commercial deposits, the fair value of which approximates
cost.
The Company classifies all short-term investments as available-for-sale.
Accordingly, these investments are carried at fair value. The fair value of such
securities approximates cost, and there were no material unrealized gains or
losses as of June 30, 1999. Short-term investments generally have maturities of
F-7
<PAGE>
QUANTUM EFFECT DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND SUMMARY OF ITS SIGNIFICANT ACCOUNTING
POLICIES: (CONTINUED)
less than one year from the date of purchase. The following table summarizes the
estimated fair value of the Company's cash, cash equivalents and short-term
investments (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1998 1999
--------- ---------
<S> <C> <C>
Cash and cash equivalents:
Cash................................................................... $ 621 $ 654
Money market funds..................................................... 1,135 788
Commercial paper....................................................... 8,000 --
--------- ---------
$ 9,756 $ 1,442
--------- ---------
--------- ---------
Short-term investments:
U.S. Government bonds and notes........................................ $ -- $ 10,943
Commercial bonds and notes............................................. -- 5,080
--------- ---------
$ -- $ 16,023
--------- ---------
--------- ---------
</TABLE>
RESTRICTED CASH
At June 30, 1999, the Company had $2.0 million invested in a certificate of
deposit with a major U.S. financial institution as security for a letter of
credit with a major supplier for the same amount. This letter of credit expires
on May 30, 2000.
CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash, cash equivalents, short-term
investments and accounts receivable. Substantially all of the Company's cash and
cash equivalents are invested in highly-liquid money market funds and commercial
securities with major financial institutions. Short-term investments consist of
U.S. government and commercial bonds and notes. The Company sells its products
principally to original equipment manufacturers and their subcontract
manufacturers. The Company performs ongoing credit evaluations of its customers
and maintains an allowance for potential credit losses. Credit losses to date
have been consistent with management's estimates.
The following table sets forth customers comprising 10% or more of the
Company's total revenue for each of the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
CUSTOMER 1997 1998 1999
- -------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
A................................................. 23% 50% 20%
B................................................. 25 23 4
C................................................. -- 19 18
D................................................. 51 -- --
E................................................. -- -- 13
F................................................. -- -- 12
</TABLE>
F-8
<PAGE>
QUANTUM EFFECT DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND SUMMARY OF ITS SIGNIFICANT ACCOUNTING
POLICIES: (CONTINUED)
The Company's accounts receivable were concentrated with two customers at
June 30, 1998 (representing 39% and 53% of aggregate receivables) and four
customers at June 30, 1999 (representing 22%, 20%, 17% and 15% of aggregate
receivables).
FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, restricted cash short-term investments,
accounts receivable, accounts payable, capital lease obligations and borrowings
approximate their fair value due to the relatively short maturities and based
upon comparable market information available at the respective balance sheet
dates. The carrying value of the Company's long-term financial instruments
approximates fair value because the interest rates approximate current market
rates of similar debt. The Company does not hold or issue financial instruments
for trading purposes.
INVENTORIES
Inventories are stated at the lower of cost or market, cost being determined
using the first-in, first-out ("FIFO") method. Appropriate consideration is
given to obsolescence, excessive levels, deterioration and other factors in
evaluating net realizable value.
PROPERTY AND EQUIPMENT
Property and equipment, including leasehold improvements, are stated at
historical cost, less accumulated depreciation and amortization. Depreciation is
computed using the straight-line method over the estimated useful lives of these
assets, ranging from three to five years, or, in the case of leasehold
improvements, over the lease period, whichever is shorter.
Upon disposal, the assets and related accumulated depreciation and
amortization are removed from the Company's accounts, and the resulting gains or
losses are reflected in the statements of operations.
Long-lived assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that their net book value
may not be recoverable. An impairment loss is recognized if the sum of the
expected future cash flows (undiscounted and before interest) from the use of
the asset is less than the net book value of the asset. The amount of the
impairment loss will generally be measured as the difference between net book
values of the assets and their estimated fair values. Based on its most recent
analysis, the Company believes that no long-lived assets were impaired at June
30, 1998 and 1999.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes
standards for reporting and displaying comprehensive income and its components
in a full set of general-purpose financial statements. There was no difference
between the Company's net loss and its total comprehensive loss for the years
ended June 30, 1997, 1998 and 1999.
F-9
<PAGE>
QUANTUM EFFECT DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND SUMMARY OF ITS SIGNIFICANT ACCOUNTING
POLICIES: (CONTINUED)
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements
using the intrinsic value method as prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25").
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the fair value of the Company's stock at the date of grant over the
stock option exercise price. The Company accounts for stock issued to
non-employees in accordance with the provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123").
SEGMENT INFORMATION
The Company has adopted the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 131 "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS No. 131"), effective for fiscal years
beginning after December 31, 1997.
The Company has determined that it has one reportable business segment: the
design, license, manufacture and marketing of integrated circuits. To date, all
of the Company's products and services have originated within the United States.
NET LOSS PER SHARE
Basic net loss per share is computed by dividing the net loss available to
common stockholders for the period by the weighted average number of common
shares outstanding during the period. Diluted net loss per share is computed
based on the weighted average number of common shares and dilutive potential
common shares outstanding. The calculation of diluted net loss per share
excludes potential common shares if the effect is anti-dilutive. Potential
common shares consist of incremental common shares issuable upon the exercise of
stock options, shares issuable upon conversion of convertible preferred stock
and common shares issuable upon the exercise of common and convertible preferred
stock warrants.
The following table sets forth the computation of basic and diluted net loss
per share for the periods presented (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
Numerator:
Net loss................................................... $ (1,201) $ (9,883) $ (11,769)
--------- --------- ----------
--------- --------- ----------
Denominator:
Weighted average common shares............................. 5,746 6,451 8,111
--------- --------- ----------
--------- --------- ----------
Net loss per share:
Basic and diluted.......................................... $ (.21) $ (1.53) $ (1.45)
--------- --------- ----------
--------- --------- ----------
</TABLE>
F-10
<PAGE>
QUANTUM EFFECT DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND SUMMARY OF ITS SIGNIFICANT ACCOUNTING
POLICIES: (CONTINUED)
The following table sets forth potential shares of common stock that are not
included in the diluted net loss per share calculation above because to do so
would be anti-dilutive for the periods presented (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Series A preferred stock............................................. 1,800 1,800 1,800
Series B preferred stock............................................. 2,500 2,500 2,500
Series C preferred stock............................................. -- 4,800 4,800
Series D preferred stock............................................. -- -- 4,519
Series B and C preferred stock warrants.............................. -- 94 98
Common stock options................................................. 3,880 3,208 5,200
Common stock warrants................................................ -- -- 80
</TABLE>
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share for the year ended June 30, 1999 is computed
using the weighted average number of common shares outstanding, including the
pro forma effects of the automatic conversion of the Company's Series A, Series
B, Series C and Series D preferred stock into shares of the Company's common
stock effective upon the closing of the Company's initial public offering
("IPO") as if such conversion occurred on July 1, 1998 or at the date of
original issuance, if later.
The resulting pro forma net loss per share can be shown as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
1999
----------
(UNAUDITED)
<S> <C>
Numerator:
Pro forma net loss.............................. $ (11,769)
----------
----------
Denominator:
Weighted average shares......................... 8,111
Assumed conversion of Series A preferred
stock......................................... 1,800
Assumed conversion of Series B preferred
stock......................................... 2,500
Assumed conversion of Series C preferred
stock......................................... 4,800
Assumed conversion of Series D preferred
stock......................................... 1,506
----------
Denominator for pro forma basic and diluted
loss per share calculation.................. 18,717
----------
----------
Pro forma net loss per share:
Basic and diluted............................... $ (.63)
----------
----------
</TABLE>
The calculation of pro forma diluted net loss per share excludes potential
common shares as the effect would be anti-dilutive. Pro forma potential common
shares are composed of incremental common shares issuable upon the exercise of
stock options and common and preferred stock warrants.
F-11
<PAGE>
QUANTUM EFFECT DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND SUMMARY OF ITS SIGNIFICANT ACCOUNTING
POLICIES: (CONTINUED)
PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
Effective upon the closing of the IPO, the outstanding shares of Series A,
Series B, Series C and Series D preferred stock will automatically convert into
an aggregate of 13,618,837 shares of common stock. The pro forma effects of
these transactions are unaudited and have been reflected in the accompanying pro
forma statement of stockholders' equity at June 30, 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AICPA") issued Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"). SOP 98-1 requires all costs related to the
development stage to be expensed as incurred. Costs incurred during the
application development stage are required to be capitalized and amortized over
the estimated useful life of the software. The Company does not expect that the
adoption of SOP 98-1 will have a material effect on its financial statements.
Sop 98-1 is effective for the Company's fiscal year ending June 30, 2000.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"), as amended by Statement of Financial Accounting Standards No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133--an amendment of FASB Statement No.
133" ("SFAS No. 137"). SFAS No. 133 requires that all derivative instruments be
recorded on the balance sheet at their fair market value. Changes in the fair
market value of derivatives are recorded each period in current earnings or
comprehensive income, depending on whether a derivative is designed as part of a
hedge transaction, and if so, the type of hedge transaction. Substantially all
of the Company's revenue and costs are denominated in U.S. dollars, and to date
the Company has not entered into any material derivative contracts. The Company
does not expect that the adoption of SFAS No. 133 will have a material effect on
its financial statements. The effective date of SFAS No. 133 as amended by SFAS
No. 137 will be for fiscal years beginning after June 15, 2000.
NOTE 2--RELATED PARTY TRANSACTIONS:
DEVELOPMENT AND LICENSE AGREEMENT WITH MOTOROLA
In August 1995, the Company issued to Motorola, Inc. ("Mortorola") 2,500,000
shares of Series B convertible preferred stock under the Series B Preferred
Stock Purchase Agreement, at a price of $2.40 per share. In February 1997,
Motorola sold all of the 2,500,000 shares of Series B convertible preferred
stock to a third party.
In August 1995, the Company entered into a Development and License Agreement
with Motorola ("the Motorola Agreement"). Under the Motorola Agreement, the
Company obtained a license from Motorola to design certain microprocessors on
behalf of Motorola in exchange for up to $1.1 million in milestone payments. In
March 1997, Motorola indicated its final acceptance of all milestones set forth
in the Motorola Agreement. As a result, the Company granted Motorola an
exclusive, royalty-bearing license to manufacture and sell the licensed product.
The full amount of milestone payments and a one-time royalty payment of $4.0
million, totaling $5.1 million, received from Motorola was recognized upon final
acceptance of the milestones in the year ended June 30, 1997. This amount is
recorded in the statement of
F-12
<PAGE>
QUANTUM EFFECT DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--RELATED PARTY TRANSACTIONS: (CONTINUED)
operations under "Royalty revenue from related parties." The Company is not
entitled to any other royalties under this contract.
DEVELOPMENT AND LICENSE AGREEMENT WITH IDT
In January 1992, the Company entered into a Development and License
Agreement (the "IDT Agreement") with Integrated Device Technology, Inc. ("IDT").
At June 30, 1999, IDT owned approximately 16.4% of the Company's outstanding
common and preferred stock. Under the terms of the IDT Agreement, IDT agreed to
fund the development of three products, based on the achievement of certain
milestones. The IDT agreement stipulated that products developed under it become
the sole and exclusive property of IDT. IDT is required to pay to the Company
royalties on QED-developed products sold by IDT for a period of ten years from
the initial royalty payment. The Company recognized IDT royalty income of
$2,276,000, $3,254,000 and $3,037,000 in the years ended June 30, 1997, 1998 and
1999, respectively. These amounts are recorded in the statement of operations
under "Royalty revenue from related parties."
SALE OF CAPITAL STOCK TO CISCO
In April 1999, in conjunction with the sale of Series D preferred stock to
other investors, the Company sold 1,047,454 shares of Series D preferred stock
and 237,500 shares of common stock to Cisco Systems, Inc. ("Cisco"). The Company
believes that these shares were sold on an arms-length basis.
Product revenue for the year ended June 30, 1999 includes sales of
approximately $255,000 made directly to Cisco. This excludes amounts sold to
Cisco's manufacturing subcontractors, which amounts are substantially larger
than direct sales to Cisco.
NOTE 3--BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1998 1999
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
ACCOUNTS RECEIVABLE, NET:
Accounts receivable.................................................... $ 1,387 $ 3,365
Less: allowance for doubtful accounts.................................. -- (300)
--------- ---------
$ 1,387 $ 3,065
--------- ---------
--------- ---------
INVENTORIES:
Work-in-progress....................................................... $ 815 $ 1,384
Finished goods......................................................... 37 738
--------- ---------
$ 852 $ 2,122
--------- ---------
--------- ---------
</TABLE>
F-13
<PAGE>
QUANTUM EFFECT DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--BALANCE SHEET COMPONENTS (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1998 1999
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
PROPERTY AND EQUIPMENT, NET:
Furniture and fixtures................................................. $ 181 $ 257
Computer hardware...................................................... 3,252 3,918
Computer software...................................................... 2,977 3,095
Leasehold improvements................................................. 23 23
--------- ---------
6,433 7,293
Less: Accumulated depreciation and amortization........................ (4,524) (5,486)
--------- ---------
$ 1,909 $ 1,807
--------- ---------
--------- ---------
</TABLE>
Assets acquired under capital lease obligations are included in property and
equipment and totaled $825,000 and $1,192,000, with related accumulated
depreciation of $167,000 and $530,000, at June 30, 1998 and 1999, respectively.
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1998 1999
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued employee compensation............................................ $ 1,126 $ 1,439
Accrued warranty......................................................... 531 929
Other.................................................................... 560 734
--------- ---------
$ 2,217 $ 3,102
--------- ---------
--------- ---------
</TABLE>
NOTE 4--BORROWINGS:
SECURED PROMISSORY NOTE
In September 1997, the Company borrowed $2,000,000 under a secured
promissory note (the "Note"). The Note is secured by certain fixed assets of the
Company and bears interest at 8.25% per annum. The Note balance is payable over
42 months commencing November 1, 1997, with a final balloon payment of $300,000.
LINE OF CREDIT
In January 1999, the Company entered into a loan and security agreement
("line of credit") with a lender, under which it may borrow up to $6,000,000.
The line of credit is collaterized by substantially all of the Company's
tangible assets and expires on December 31, 2000. Under the line of credit, the
Company borrowed $2,000,000 through June 30, 1999. Borrowings under the line of
credit are payable over 42 months commencing in July 1999, with a final balloon
payment of $200,000.
Under the line of credit, no financial covenants are required to be met for
borrowings up to $2,000,000. For incremental borrowings up to $6,000,000, QED
must maintain certain financial ratios. The line of credit prohibits the Company
from paying dividends. At June 30, 1999, the Company was in compliance with
these covenants.
F-14
<PAGE>
QUANTUM EFFECT DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--BORROWINGS: (CONTINUED)
Aggregate principal payments remaining under the Note and the line of credit
at June 30, 1999 are as follows (in thousands):
<TABLE>
<S> <C>
YEAR ENDING JUNE 30,
2000............................................................. $ 1,140
2001............................................................. 1,289
2002............................................................. 660
---------
3,089
Less: current portion............................................ (1,140)
---------
Non-current portion.............................................. $ 1,949
---------
---------
</TABLE>
NOTE 5--PREFERRED STOCK:
Preferred stock at June 30, 1999 consisted of the following (in thousands):
<TABLE>
<CAPTION>
SHARES PROCEEDS NET
------------------------ OF ISSUANCE
AUTHORIZED OUTSTANDING COSTS
----------- ----------- ------------
<S> <C> <C> <C>
Series A.............................................. 1,800 1,800 $ 2,520
Series B.............................................. 2,594 2,500 6,000
Series C.............................................. 4,804 4,800 11,951
Series D.............................................. 4,700 4,519 19,478
----------- ----------- ------------
13,898 13,619 $ 39,949
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
The holders of preferred stock have various rights and preferences as
follows:
CONVERSION
Each share of Series A, B, C and D preferred stock outstanding is
convertible into common stock at any time at the option of the holder based on a
formula which currently results in a one-for-one exchange ratio of common for
preferred. This formula is subject to adjustments for stock splits, stock
dividends, recapitalizations, and other similar transactions. The shares of
preferred stock automatically convert into shares of common stock upon the
effectiveness of a registration statement under the Securities Act of 1933, as
amended, (the "Securities Act") if the offering results in gross proceeds of at
least $10,000,000, and the per share offering price is at least $6.48.
DIVIDENDS
Noncumulative dividends at the annual rate of $.11, $.19, $.20 and $.35 per
share for Series A, B, C and D preferred stock, respectively, as declared by the
Board of Directors, are payable to the holders of preferred stock in preference
to any dividends for common stock declared by the Board of Directors. Dividends
on shares of preferred stock may exceed the annual per share rate of $.11, $.19
and $.20 and $.35 for Series A, B, C and D preferred stock, respectively, in the
event that a higher dividend rate is paid on any other class of the Company's
stock. In such an event, the dividends on the shares of preferred stock will be
paid at the same rate, determined on an if-converted basis. No dividends have
been declared to date.
F-15
<PAGE>
QUANTUM EFFECT DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--PREFERRED STOCK: (CONTINUED)
LIQUIDATION
In the event of liquidation, holders of preferred stock are entitled to a
per share distribution in preference to holders of common stock equal to $1.40,
$2.40, $2.50 and $4.32 for Series A, B, C and D preferred stock, respectively
(adjusted for stock splits, combinations or similar events), plus any declared
but unpaid dividends. In the event funds are sufficient to make a complete
distribution to the holders of preferred stock as described above, the remaining
assets will be distributed to the holders of common stock and Series A, B and C
preferred stock based upon the number of shares of common stock held by each,
assuming conversion of all shares of preferred stock into common stock; provided
that the holders of Series C preferred shall not be entitled to distributions in
excess of $10.00 per share.
VOTING
The holders of common stock are entitled to elect one of the Company's five
directors. The holders of Series A preferred stock are entitled to elect two of
the Company's five directors. The holders of Series B preferred stock are
entitled to elect one of the company's five directors. The holders of Series C
preferred stock are entitled to elect one of the company's five directors. The
holders of Series D preferred stock are not entitled to elect members of the
Company's Board of Directors. Each share of preferred stock is entitled to one
vote for each share of common stock into which the preferred stock is
convertible.
SERIES B PREFERRED STOCK WARRANTS
In connection with a secured promissory note (see note 4) and a secured
lease agreement signed in September 1997, the Company issued warrants to
purchase 93,750 shares of Series B preferred stock at an exercise price of $1.60
per share. The warrants expire in September 30, 2003 or three years from the
effective date of the Company's IPO, whichever is later. The warrants include
certain registration rights. They also include anti-dilution provisions similar
to those granted to holders of preferred stock and provide for exercise on a
"net exercise" basis. The Company has determined the value of the warrants to be
$158,000, based on the Black-Scholes option pricing model, and this amount is
being recognized as interest expense over the term of the related borrowing
agreements. Notwithstanding the above expiration dates, upon conversion of the
convertible preferred stock in connection with an IPO, the convertible preferred
stock warrants shall automatically become exercisable.
SERIES C PREFERRED STOCK WARRANTS
In July 1998, the Company issued warrants to purchase 4,000 shares of Series
C preferred stock at an exercise price of $2.50 per share in connection with an
increase of $200,000 to its existing lease line from $1,000,000 to $1,200,000.
The warrants expire in July 2004 or three years from the effective date of the
Company's initial public offering, whichever is later. The warrants include
registration rights and anti-dilution provisions similar to those granted to
holders of Series C preferred stock and provide for exercise on a "net exercise"
basis. The Company has determined the value of the warrants to be $6,000, based
on the Black-Scholes option pricing model, and this amount is being recognized
as interest expense over the term of the related borrowing agreement.
Notwithstanding the above expiration dates, upon conversion of the convertible
preferred stock in connection with an IPO, the preferred stock warrants shall
automatically become exercisable.
If the total amount of equipment purchased under the lease line exceeds
$1,200,000, the leasing company has the right to purchase an additional number
shares of Series C preferred stock determined by dividing (i) 5% of the dollar
amount of equipment leased exceeding the $1,200,000 by (ii) the adjusted
exercise price per share. At June 30, 1999, borrowings under the line did not
exceed $1,200,000.
F-16
<PAGE>
QUANTUM EFFECT DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--COMMON STOCK:
The Company's Amended and Restated Articles of Incorporation authorize the
Company to issue 29,000,000 shares of $.001 par value common stock. At June 30,
1999, there were 8,532,959 shares of common stock issued and outstanding.
As of June 30, 1999, the Company has reserved the following number of shares
of common stock for future issuance (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------
<S> <C>
Conversion of Series A preferred stock......................................... 1,800
Conversion of Series B preferred stock and warrants............................ 2,594
Conversion of Series C preferred stock and warrants............................ 4,804
Conversion of Series D preferred stock......................................... 4,700
Common stock warrant........................................................... 173
Options under stock option plans............................................... 5,405
------
Total........................................................................ 19,476
------
------
</TABLE>
COMMON STOCK WARRANT
In connection with the loan and security agreement signed in January 1999
(see note 4), the Company issued warrants to purchase 80,000 shares of common
stock at an exercise price of $2.50 per share. The warrants will become
exercisable for up to an additional 93,000 shares of common stock for 10% of the
aggregate borrowings made by the Company in excess of $2,000,000, up to a total
of $6,000,000 in borrowings. The warrants expire in December 2005 or upon a
reorganization, reclassification, consolidation, merger or sale of the Company,
as defined. The warrants include registration rights and anti-dilution
provisions similar to those granted to holders of Series C preferred stock and
provide for exercise on a "net exercise" basis. The Company determined the value
of the warrants relating to the 80,000 immediately vested shares to be $134,000,
based on the Black-Scholes option pricing model, and this amount is being
recognized as interest expense over the term of the related borrowing agreement.
At June 30, 1999, the borrowings under the line of credit had not exceeded
$2,000,000.
NOTE 7--EMPLOYEE BENEFIT PLANS:
1992 STOCK OPTION PLAN
In September 1992, the Company adopted a stock option plan (the "1992
Plan"), which authorizes the Board of Directors to grant incentive stock options
and nonstatutory stock options to employees, directors, and consultants for up
to 4,600,000 shares of common stock.
Under the 1992 Plan, incentive stock options are granted at a price that is
not to be less than 100% of the fair market value of the common stock on the
date of grant, as determined by the Board of Directors. Nonstatutory stock
options are granted at a price that is not less than 85% of the fair market
value of the common stock on the date of grant, as determined by the Board of
Directors. Options vest at 25% on the first anniversary of the date of grant and
vest in equal monthly installments over the remaining 36 months. Options granted
to stockholders who own more than 10% of the outstanding stock of the Company at
the time of grant must be issued at prices not less than 110% of the estimated
fair value of the stock on the date of grant.
F-17
<PAGE>
QUANTUM EFFECT DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--EMPLOYEE BENEFIT PLANS: (CONTINUED)
1997 STOCK OPTION PLAN
In May 1997, the Company adopted a stock option plan (the "1997 Plan"),
which authorizes the Board of Directors to grant incentive stock options and
nonstatutory stock options to employees, directors and consultants for up to
2,000,000 shares of common stock. In March 1998, September 1998 and March 1999,
the 1997 Plan was amended to increase the number of authorized shares by a total
of 2,500,000 shares of common stock.
Under the 1997 Plan, all stock options are granted at a price that is not
less than 100% of the fair market value of the stock on the date of grant, as
determined by the Board of Directors. Options vest at 25% on the first
anniversary of the date of grant and vest in equal monthly installments over the
remaining 36 months. Options are exercisable for a term of ten years after the
date of grant. No options will be granted to any individual who owns more than
10% of total combined voting power of all classes of stock.
The following table summarizes stock option activity under the 1992 Plan and
1997 Plan (in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------
OPTIONS WEIGHTED AVERAGE
AVAILABLE EXERCISE PRICE
FOR GRANT SHARES PER SHARE
----------- --------- -----------------
<S> <C> <C> <C>
Balance at June 30, 1996............................... 680 2,972 $ .15
Additional shares reserved........................... 2,000 -- --
Granted.............................................. (1,420) 1,420 .15
Canceled............................................. 246 (246) .15
Exercised............................................ -- (266) .15
----------- ---------
Balance at June 30, 1997............................... 1,506 3,880 .15
Additional shares reserved........................... 500 --
Granted.............................................. (1,332) 1,332 .59
Canceled............................................. 28 (28) .15
Exercised............................................ -- (1,976) .15
----------- ---------
Balance at June 30, 1998............................... 702 3,208 .33
Additional shares reserved........................... 2,000 -- --
Granted.............................................. (2,589) 2,589 2.31
Canceled............................................. 92 (92) .80
Exercised............................................ -- (505) .27
----------- ---------
Balance at June 30, 1999............................... 205 5,200 1.32
----------- ---------
----------- ---------
</TABLE>
F-18
<PAGE>
QUANTUM EFFECT DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--EMPLOYEE BENEFIT PLANS: (CONTINUED)
Significant option groups outstanding at June 30, 1999, and related weighted
average exercise prices and contractual life information are as follows (shares
in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED
------------------------------------------------------- AND EXERCISABLE
WEIGHTED AVERAGE --------------------------------
RANGE OF REMAINING WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE PRICE NUMBER EXERCISE PRICE
PRICES OUTSTANDING LIFE (YEARS) PER SHARE OUTSTANDING PER SHARE
- -------------------------------- ------------- --------------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
$.15............................ 1,763 7.1 $ .15 914 $ .15
.25 - 1.00..................... 1,704 8.9 .85 208 .74
1.50 - 3.00.................... 1,510 9.7 2.75 -- --
3.50 - 4.75.................... 223 9.9 4.44 -- --
----- -----
5,200 1,122
----- -----
----- -----
</TABLE>
DEFERRED STOCK-BASED COMPENSATION
In connection with certain employee stock option grants made since January
1998, the Company recognized deferred compensation, which is being amortized
over the vesting periods of the related options, usually four years, using an
appropriate accelerated basis. The fair value per share used to calculate
deferred compensation was derived by reference to the convertible preferred
stock values, reduced by an appropriate discount factor. Future compensation
charges are subject to reduction for any employee who terminates employment
prior to expiration of such employee's option vesting period.
The following table sets forth deferred compensation and the amortization of
deferred compensation (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Deferred stock-based compensation..................................... $ -- $ 773 $ 851
Amortization of deferred stock-based compensation..................... -- 111 598
</TABLE>
CONSULTANT OPTIONS
During the period from October 31, 1997 through June 30, 1999, the Company
granted options to purchase 163,100 shares of common stock to consultants in
exchange for services at exercise prices ranging from $.15 to $4.75 per share.
The Company determined the value of the options granted to consultants based
on the Black-Scholes option pricing model. The fair value of options granted to
consultants was determined using the following assumptions: expected lives of 10
years, risk free interest rates ranging from 4.45% to 5.93%, dividend yield
F-19
<PAGE>
QUANTUM EFFECT DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--EMPLOYEE BENEFIT PLANS: (CONTINUED)
of .0% and volatility of 60%. The following table summarizes the fair values and
the related amortization recorded (in thousands, except per option data):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Weighted average fair per share value of options granted to
consultants during the period...................................... $ -- $ 4.39 $ 4.84
Deferred stock-based compensation.................................... $ -- $ 245 $ 520
Amortization of deferred stock-based compensation.................... -- 39 179
</TABLE>
FAIR VALUE DISCLOSURES
Pro forma information regarding net loss and net loss per share is required
by SFAS No. 123, which also requires that the information be determined as if
the Company had accounted for its employee stock options granted under the fair
value method. The fair value for these options was estimated using the
Black-Scholes option pricing model.
The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option pricing models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's options have characteristics significantly different from those of
options of publicly traded companies and because changes in the subjective input
assumptions can materially affect the fair value estimate, in the opinion of
management, the existing models do not necessarily provide a reliable single
measure of the fair value of options.
The fair value of options at the date of grant was estimated on the date of
grant based on the minimum value method as prescribed by SFAS No. 123. The
following table summarizes the estimated fair value of options and assumptions
used in the SFAS No. 123 calculations:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Estimated fair value............................................... $ .15 $ 1.25 $ 3.17
Expected life (years).............................................. 4 4 4
Risk-free interest rate............................................ 6.66% 5.98% 5.16%
Dividend yield..................................................... -- -- --
Volatility......................................................... -- -- --
</TABLE>
F-20
<PAGE>
QUANTUM EFFECT DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--EMPLOYEE BENEFIT PLANS: (CONTINUED)
Had compensation cost for the Company's stock options been determined based
on the fair value of the options at the date of grant using the minimum value
method as required by SFAS No. 123, the Company's pro forma net loss would have
been as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
Net loss (in thousands):
As reported................................................ $ (1,201) $ (9,883) $ (11,769)
Pro forma.................................................. $ (1,217) $ (9,916) $ (12,392)
Basic and diluted net loss per share:
As reported................................................ $ (.21) $ (1.53) $ (1.45)
Pro forma.................................................. $ (.21) $ (1.54) $ (1.53)
</TABLE>
401(k) SAVINGS PLAN
Effective January 1, 1992, the Company adopted a salary savings plan (the
"Savings Plan") which conforms to Section 401(k) of the Internal Revenue Code of
1986, as amended (the "Code"), whereby eligible employees may contribute up to
20% of their earnings, not to exceed amounts allowed under the Code. Under the
terms of the Savings Plan, the Company may make contributions at the discretion
of the Board of Directors. As of June 30, 1999 the Company has not made any
contributions to the Savings Plan.
NOTE 8--INCOME TAXES:
The provision for income taxes is summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
CURRENT:
Federal............................................................. $ (503) $ -- $ --
State............................................................... (17) -- --
--------- --------- ---------
(520) -- --
--------- --------- ---------
DEFERRED:
Federal............................................................. 580 89 --
--------- --------- ---------
580 89 --
--------- --------- ---------
Provision for income taxes............................................ $ 60 $ 89 $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-21
<PAGE>
QUANTUM EFFECT DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--INCOME TAXES: (CONTINUED)
Deferred tax assets are summarized as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1998 1999
--------- ---------
<S> <C> <C>
Net operating loss carryforwards........................................... $ 3,045 $ 6,705
Research and development tax credits....................................... 375 957
Nondeductible reserves..................................................... 746 968
Depreciation and amortization.............................................. 503 456
Contract revenue........................................................... 283 128
Other...................................................................... 106 330
--------- ---------
Gross deferred tax assets.................................................. 5,058 9,544
Valuation allowance........................................................ (5,058) (9,544)
--------- ---------
Net deferred tax assets.................................................... $ -- $ --
--------- ---------
--------- ---------
</TABLE>
The Company believes that, based on a number of factors, the available
objective evidence creates sufficient uncertainty regarding the realizability of
the deferred tax assets such that a full valuation allowance has been recorded.
These factors include the Company's history of losses, recent increases in
expense levels, the fact that the market in which the Company competes is
intensely competitive and characterized by rapidly changing technology, the lack
of carryback capacity to realize deferred tax assets and the uncertainty
regarding market acceptance of the Company's products. The Company will continue
to assess the realizability of the deferred tax assets based on actual and
forecasted operating results.
At June 30, 1999, the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $18,000,000 and
$10,000,000, respectively, which expire at various dates through 2019. In
addition, the Company has research and development credit carryforwards of
approximately $1,000,000 for federal and for state purposes. These carryforwards
expire in varying amounts through 2019. Under the Tax Reform Act of 1986, the
amounts of and benefits from net operating loss and tax carryforwards may be
impaired or limited in certain circumstances. Events which could cause
limitations in the amount of net operating losses that the Company may utilize
in any one year include, but are not limited to, a cumulative ownership change
of more than 50%, as defined, over a three year period. As a result of the IPO,
such a change in ownership is expected to occur.
NOTE 9--COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office space and equipment under non-cancelable operating
and capital leases with various expiration dates through 2002. Rent expense for
operating leases was as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Rent expense.......................................................... $ 147 $ 173 $ 480
</TABLE>
F-22
<PAGE>
QUANTUM EFFECT DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments under non-cancelable operating and capital
leases are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
----------- -----------
<S> <C> <C>
YEAR ENDING JUNE 30,
2000................................................................... $ 517 $ 393
2001................................................................... 535 349
2002................................................................... -- 102
----------- -----
Total minimum lease payments........................................... $ 1,052 844
-----------
-----------
Less: amount representing interest..................................... (76)
-----
Present value of capital lease obligations............................. 768
Less: current portion.................................................. (342)
-----
Capital lease obligations, non-current portion......................... $ 426
-----
-----
</TABLE>
CONTINGENCIES
From time to time, in the normal course of business, various claims are made
against the Company. In the opinion of the Company's management, there are no
pending claims, the outcome of which is expected to result in a material adverse
effect on the financial position or results of operations of the Company.
NOTE 11--SUBSEQUENT EVENTS
INITIAL PUBLIC OFFERING
On September 1, 1999, the Company's Board of Directors authorized management
of the Company to file a Registration Statement with the Securities and Exchange
Commission permitting the Company to sell its common stock to the public.
REINCORPORATION
On September 1, 1999, the Board of Directors authorized the reincorporation
of the Company in the State of Delaware, which is expected to be completed prior
to the IPO becoming effective. All share information included in these financial
statements has been adjusted to reflect this reincorporation.
EMPLOYEE BENEFIT PLANS
On September 1, 1999, the Board of Directors authorized, subject to
stockholders' approval, establishment of the 1999 Equity Incentive Plan with
1,400,000 shares authorized, the 1999 Non-Employee Directors' Stock Option Plan
with 100,000 shares authorized, and the 1999 Employee Stock Purchase Plan with
300,000 shares reserved for issuance. The 1999 Employee Stock Purchase Plan will
become effective upon the closing of the IPO.
F-23
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the distribution of the common stock being registered. All amounts are
estimated, except the SEC Registration Fee, the NASD Filing Fee and the Nasdaq
National Market Filing Fee:
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 11,510
NASD Filing Fee................................................... 4,640
Nasdaq National Market Initial Filing Fee......................... 1,000
Blue Sky Fees and Expenses........................................ 15,000
Accounting Fees................................................... 150,000
Legal Fees and Expenses........................................... 450,000
Transfer Agent and Registrar Fees................................. 10,000
Printing and Engraving............................................ 250,000
Miscellaneous..................................................... 850
---------
Total......................................................... $ 893,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Act").
Article VI of the Registrant's Amended and Restated Certificate of Incorporation
provides for indemnification of its directors to the maximum extent permitted by
the Delaware General Corporation Law and Section 43 of Article XI of the
Registrant's Bylaws provides for indemnification of its directors, officers,
employees and other agents to the maximum extent permitted by the Delaware
General Corporation Law. In addition, the Registrant intends to enter into
Indemnification Agreements with each director and certain officers containing
provisions which are in some respects broader than the specific indemnification
provisions contained in the Delaware General Corporation Law. The
indemnification agreements may require the Company, among other things, to
indemnify its directors against certain liabilities that may arise by reason of
their status or service as directors (other than liabilities arising from
willful misconduct of culpable nature), to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified, and
to obtain directors' insurance if available on reasonable terms. Reference is
also made to Sections 7 and 8 of the Underwriting Agreement contained in Exhibit
1.1 hereto, indemnifying officers and directors of the Company against certain
liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since inception, we have sold and issued the following unregistered
securities:
(1) From May 1, 1992 to September 1999, we granted stock options to purchase
an aggregate of 9,824,000 shares of common stock at exercise prices ranging from
$0.15 to $10.00 per share to employees, consultants, directors and other service
providers pursuant to our 1992 and 1997 Stock Option Plans.
(2) On November 15, 1991, we sold 800,000 shares of common stock to each of
our founders, Earl Killian, Raymond Kunita and Thomas J. Riordan. The price per
share of $0.001 for an aggregate purchase price of $2,400.
II-1
<PAGE>
(3) On November 15, 1991, we sold 2,200,000 shares of our common stock to
Integrated Device Technology, Inc. under a stock purchase agreement at a price
per share of $0.001 for an aggregate purchase price of $2,200.
(4) On March 1, 1999, we sold 237,500 shares of our common stock and
1,047,454 shares of our Series D preferred stock to Cisco Systems, Inc. for an
aggregate purchase price of $5,000,001.
(5) On January 24, 1992, we sold an aggregate of 1,800,000 shares of Series
A preferred stock to two purchasers at a price per share of $1.40 for an
aggregate purchase price of $2,520,000.
(6) On August 18, 1995, we sold an aggregate of 2,500,000 shares of Series B
preferred stock to two purchasers at a price per share of $2.40 for an aggregate
purchase price of $6,000,000.
(7) On April 16, 1998 and May 15, 1998, we sold an aggregate of 4,800,000
shares of Series C preferred stock to 37 purchasers at a price per share of
$2.50 for an aggregate purchase price of $12,000,000.
(8) On March 1, 1999 and March 16, 1999, we sold an aggregate of 4,518,837
shares of Series D preferred stock to 28 purchasers at a price per share of
$4.32 for an aggregate purchase price of $19,521,376.
The sales and issuances of securities described in paragraphs (1) and (2)
above were deemed to be exempt from registration under the Securities Act by
virtue of Rule 701 of the Securities Act in that they were offered and sold
either pursuant to a written compensatory benefit plan or pursuant to a written
contract relating to compensation, as provided by Rule 701.
The sales and issuances of securities described in paragraphs (3) through
(8) above were deemed to be exempt from registration under the Securities Act by
virtue of Rule 4(2) or Rule 506 under Regulation D promulgated thereunder.
Appropriate legends are affixed to the stock certificates issued in the
aforemention transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. All recipients either received adequate
information about us or had access, through employment or other relationships,
to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Registrant
3.2 Form of Amended and Restated Certificate of Incorporation of the Registrant to be
filed upon the closing of the offering made pursuant to this registration
statement
3.3 Bylaws of the Registrant
4.1* Specimen Common Stock Certificate
4.2 Warrant to purchase Series B Preferred Stock, issued by Quantum Effect Design, Inc.
to Comdisco, Inc., dated September 30, 1997
4.3 Warrant to purchase Series B Preferred Stock, issued by Quantum Effect Design, Inc.
to Comdisco, Inc., dated September 30, 1997
4.4 Warrant to purchase Series C Preferred Stock, issued by Quantum Effect Design, Inc.
to Comdisco, Inc., dated July 24, 1998
4.5 Warrant to purchase Common Stock, issued by Quantum Effect Design, Inc. to Venture
Lending & Leasing II, Inc., dated January 11, 1999
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
4.6 Amended and Restated Investors' Rights Agreement dated March 16, 1999
5.1* Opinion of Cooley Godward LLP
10.1 Form of Indemnity Agreement between the Registrant and its directors and officers.
10.2* 1999 Equity Incentive Plan, Form of 1999 Equity Incentive Plan Stock Option
Agreement, and Form of 1999 Equity Incentive Grant Notice and Notice of Exercise
10.3* 1999 Employee Stock Purchase Plan and Form of Offering Document
10.4* 1999 Non-Employee Directors' Stock Option Plan and 1999 Form of Nonstatutory Stock
Option and Notice of Exercise
10.5 Commercial Lease Agreement, by and between Peachtree Associates and Quantum Effect
Design, Inc., dated March 22, 1999
10.6 Lease Agreement, by and among John Arrillaga, Richard Peery and Quantum Effect
Design, Inc., dated December 3, 1998; Amendment No. 1 to Lease Agreement dated
December 3, 1998, by and among John Arrillaga, Richard Perry and Quantum Effect
Design, Inc., dated August 16, 1999
10.7 Lease Agreement, by and among John Arrillaga, Richard Peery and Quantum Effect
Design, Inc., dated September 14, 1994; Amendment No. 1 to Lease Agreement dated
September 14, 1994, by and among John Arrillaga, Richard Peery and Quantum Effect
Design, Inc., dated February 11, 1998; Amendment No. 2 to Lease Agreement dated
September 14, 1994, by and among John Arrillaga, Richard Peery and Quantum Effect
Design, Inc., dated December 3, 1998; Amendment No. 3 to Lease Agreement dated
September 14, 1994, by and among John Arrillaga, Richard Perry and Quantum Effect
Design, Inc., dated August 16, 1999
10.8 Lease Agreement, by and among John Arrillaga, Richard Perry and Quantum Effect
Design, Inc., dated August 16, 1999
10.9** Technology License Agreement, by and between Weitek Corporation and MIPS Computer
Systems, Inc., dated June 29, 1990; Assignment Agreement, by and between Weitek
Corporation and Quantum Effect Design, Inc., dated June 19, 1996; Amendment No. 1
to the Technology License Agreement, by and between MIPS Technology, Inc. and
Quantum Effect Design, Inc., dated March 31, 1997
10.10** Agreement for Purchase and Sale of Custom Semiconductor Products, by and between
IBM Corporation and Quantum Effect Design, Inc., dated September 4, 1997
10.11** Development and License Agreement, by and between Integrated Device Technology,
Inc. and Quantum Effect Design, Inc., dated January 13, 1992
10.12** Development Agreement, by and between Integrated Device Technology, Inc. and
Quantum Effect Design, Inc., dated June 12, 1996
10.13 1997 Stock Option Agreement, by and between Barry L. Cox and Quantum Effect Design,
Inc.
10.14 1997 Stock Option Agreement, by and between Howard M. Bailey and Quantum Effect
Design, Inc.
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants
23.2* Consent of Cooley Godward LLP (included in Exhibit 5.1)
24.1 Power of Attorney (See signature pages)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
II-3
<PAGE>
** Confidential treatment has been requested with respect to portions of this
exhibit.
(b) Financial Statement Schedules
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "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 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the 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 Act shall be
deemed to be a part of this Registration Statement as of the time it was
declared effective.
(2) For purposes of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Registrant has
duly caused this Registration Statement to be signed on its behalf, by the
undersigned, thereunto duly authorized, in the City of Santa Clara, County of
Santa Clara, State of California, on September 10, 1999.
QUANTUM EFFECT DEVICES, INC.
By: /s/ THOMAS J. RIORDAN
-----------------------------------------
Thomas J. Riordan
CHIEF EXECUTIVE OFFICER, PRESIDENT AND
DIRECTOR
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Thomas J. Riordan and Howard M. Bailey, and each
of them, his attorneys-in-fact, each with the power of substitution, for him in
any and all capacities, in any and all capacities, to sign any and all
amendments to this Registration Statement (including post-effective amendments),
and to sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that such attorneys-in-fact, or his or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof. This Power of Attorney may be
signed in several counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed by the following persons in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Chief Executive Officer,
/s/ THOMAS J. RIORDAN President and Director
- ------------------------------ (Principal Executive September 10, 1999
Thomas J. Riordan Officer)
/s/ HOWARD M. BAILEY Chief Financial Officer
- ------------------------------ (Principal Financial and September 10, 1999
Howard M. Bailey Accounting Officer)
/s/ BARRY L. COX
- ------------------------------ Chairman of the Board of September 10, 1999
Barry L. Cox Directors
/s/ BRUCE K. GRAHAM
- ------------------------------ Director September 10, 1999
Bruce K. Graham
/s/ CHRISTOPHER J. SCHAEPE
- ------------------------------ Director September 10, 1999
Christopher J. Schaepe
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Registrant
3.2 Form of Amended and Restated Certificate of Incorporation of the Registrant to be filed upon the
closing of the offering made pursuant to this registration statement
3.3 Bylaws of the Registrant
4.1* Specimen Common Stock Certificate
4.2 Warrant to purchase Series B Preferred Stock, issued by Quantum Effect Design, Inc. to Comdisco,
Inc., dated September 30, 1997
4.3 Warrant to purchase Series B Preferred Stock, issued by Quantum Effect Design, Inc. to Comdisco,
Inc., dated September 30, 1997
4.4 Warrant to purchase Series C Preferred Stock, issued by Quantum Effect Design, Inc. to Comdisco,
Inc., dated July 24, 1998
4.5 Warrant to purchase Common Stock, issued by Quantum Effect Design, Inc. to Venture Lending & Leasing
II, Inc., dated January 11, 1999
4.6 Amended and Restated Investors' Rights Agreement dated March 16, 1999
5.1* Opinion of Cooley Godward LLP
10.1 Form of Indemnity Agreement between the Registrant and its directors and officers.
10.2* 1999 Equity Incentive Plan, Form of 1999 Equity Incentive Plan Stock Option Agreement, and Form of
1999 Equity Incentive Grant Notice and Notice of Exercise
10.3* 1999 Employee Stock Purchase Plan and Form of Offering Document
10.4* 1999 Non-Employee Directors' Stock Option Plan and 1999 Form of Nonstatutory Stock Option and Notice
of Exercise
10.5 Commercial Lease Agreement, by and between Peachtree Associates and Quantum Effect Design, Inc.,
dated March 22, 1999
10.6 Lease Agreement, by and among John Arrillaga, Richard Peery and Quantum Effect Design, Inc., dated
December 3, 1998; Amendment No. 1 to Lease Agreement dated December 3, 1998, by and among John
Arrillaga, Richard Perry and Quantum Effect Design, Inc., dated August 16, 1999
10.7 Lease Agreement, by and among John Arrillaga, Richard Peery and Quantum Effect Design, Inc., dated
September 14, 1994; Amendment No. 1 to Lease Agreement dated September 14, 1994, by and among John
Arrillaga, Richard Peery and Quantum Effect Design, Inc., dated February 11, 1998; Amendment No. 2
to Lease Agreement dated September 14, 1994, by and among John Arrillaga, Richard Peery and Quantum
Effect Design, Inc., dated December 3, 1998; Amendment No. 3 to Lease Agreement dated September 14,
1994, by and among John Arrillaga, Richard Perry and Quantum Effect Design, Inc., dated August 16,
1999
10.8 Lease Agreement, by and among John Arrillaga, Richard Perry and Quantum Effect Design, Inc., dated
August 16, 1999
10.9** Technology License Agreement, by and between Weitek Corporation and MIPS Computer Systems, Inc.,
dated June 29, 1990; Assignment Agreement, by and between Weitek Corporation and Quantum Effect
Design, Inc., dated June 19, 1996; Amendment No. 1 to the Technology License Agreement, by and
between MIPS Technology, Inc. and Quantum Effect Design, Inc., dated March 31, 1997
10.10** Agreement for Purchase and Sale of Custom Semiconductor Products, by and between IBM Corporation and
Quantum Effect Design, Inc., dated September 4, 1997
10.11** Development and License Agreement, by and between Integrated Device Technology, Inc. and Quantum
Effect Design, Inc., dated January 13, 1992
10.12** Development Agreement, by and between Integrated Device Technology, Inc. and Quantum Effect Design,
Inc., dated June 12, 1996
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.13 1997 Stock Option Agreement, by and between Barry L. Cox and Quantum Effect Design, Inc.
10.14 1997 Stock Option Agreement, by and between Howard M. Bailey and Quantum Effect Design, Inc.
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants
23.2* Consent of Cooley Godward LLP (included in Exhibit 5.1)
24.1 Power of Attorney (See signature pages)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
** Confidential treatment has been requested with respect to portions of this
exhibit.
<PAGE>
CERTIFICATE OF INCORPORATION OF
QUANTUM EFFECT DEVICES, INC.,
A DELAWARE CORPORATION
The undersigned, a natural person (the "Sole Incorporator"), for the
purpose of organizing a corporation to conduct the business and promote the
purposes hereinafter stated, under the provisions and subject to the
requirements of the laws of the State of Delaware hereby certifies that:
I.
The name of the Corporation is Quantum Effect Devices, Inc. (the
"Corporation").
II.
The address of the registered office of the Corporation in the State
of Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, DE
19805, and the name of the registered agent of the Corporation in the State
of Delaware at such address is Corporation Service Company.
III.
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
VI.
The Corporation is authorized to issue two classes of stock to be
designated, respectively, as "Preferred Stock" and "Common Stock." The total
number of Preferred Stock which the Corporation is authorized to issue is
Thirteen Million Eight Hundred Ninety-Seven Thousand Seven Hundred Fifty
(13,897,750), each having a par value of one-tenth of one cent ($.001). The
total number of Common Stock which the Corporation is authorized to issue is
One Hundred Million (100,000,000), each having a par value of one-tenth of one
cent ($.001).
The holders of Common Stock shall be entitled to one vote per share of
Common Stock in the election of directors and upon each other matter coming
before any vote of stockholders.
The rights, preferences, privileges and restrictions granted to and
imposed upon the Preferred Stock are as follows:
1. SERIES A PREFERRED, SERIES B PREFERRED, SERIES C PREFERRED AND SERIES D
PREFERRED STOCK. The Preferred Stock shall be issued in four series. The first
series of Preferred Stock shall be designated "Series A Preferred Stock" or
"Series A Preferred" and shall consist of 1,800,000 shares. The second series of
Preferred Stock shall be designated "Series B Preferred Stock" or "Series B
Preferred" and shall consist of 2,593,750 shares. The third series of Preferred
Stock shall be designated "Series C Preferred Stock" or "Series C Preferred" and
shall
1.
<PAGE>
consist of 4,804,000 shares. The fourth series of Preferred Stock shall be
designated "Series D Preferred Stock" or "Series D Preferred" and shall
consist of 4,700,000 shares. Collectively, the Series A Preferred, the Series
B Preferred, the Series C Preferred and the Series D Preferred are
occasionally referred to herein as "Preferred."
2. GENERAL DEFINITIONS. For purposes of this Article III, the
following definitions shall apply:
(a) "JUNIOR SHARES" shall mean all Common and any other
shares of the Corporation other than the Preferred.
(b) "SUBSIDIARY" shall mean any corporation at least fifty
percent (50%) of whose outstanding voting securities or securities
convertible into such voting securities shall at the time be owned by this
Corporation or by one or more of such subsidiaries.
(c) "BOARD OF DIRECTORS" shall mean the Board of Directors
of the Corporation.
(d) "CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares (other than Common Stock, Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred) or other securities
convertible into or exchangeable for Common Stock.
(e) "OPTIONS" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(f) "ORIGINAL ISSUE DATE" shall mean, with respect to the
Series A Preferred, Series B Preferred, Series C Preferred and Series D
Preferred, respectively, the date on which shares of Series A Preferred,
Series B Preferred, Series C Preferred or Series D Preferred were first
issued, respectively.
(g) "ADDITIONAL SHARES OF COMMON" shall mean all shares of
Common issued (or, pursuant to Section 6(d)(ii) below, deemed to be issued)
by the Corporation after the Original Issue Date, other than shares of Common
issued or issuable:
(i) upon conversion of shares of Preferred;
(ii) to officers or employees of, or consultants
to, the Corporation pursuant to any stock grant, option plan or purchase plan
or other employee stock incentive program (collectively the "Plans") approved
by the Board of Directors; PROVIDED, HOWEVER, that, with respect to the
Series A Preferred only, all such shares of Common issued or issuable to said
officers, employees or consultants do not exceed Seven Million One Hundred
Thousand (7,100,000) such shares in the aggregate, net of Company
repurchases, and with respect to the Series B Preferred, Series C Preferred
and Series D Preferred, all such shares of Common issued or issuable to said
officers, employees or consultants do not exceed Nine Million One Hundred
Thousand (9,100,000) such shares in the aggregate, net of Company repurchases;
(iii) as a dividend or distribution on Series A
Preferred, Series B Preferred, Series C Preferred or Series D Preferred;
2.
<PAGE>
(iv) by way of dividend or other distribution on
shares of Common excluded from the definition of Additional Shares of Common
by the foregoing clauses (i), (ii) and (iii); and
(v) with respect to adjustments to the Series B
Preferred Conversion Price, the Series C Preferred Conversion Price and the
Series D Preferred Conversion Price only, up to 237,500 shares of Common
Stock (as adjusted for stock splits, recapitalizations, stock dividends and
the like) to Cisco Systems, Inc.
(h) "COMMON" shall mean the Common Stock of this Corporation.
(i) "PREFERRED" shall mean the Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred Stock of the Corporation.
(j) "PURCHASE PRICE" shall mean $1.40 per share of
Series A Preferred, $2.40 per share of Series B Preferred, $2.50 per share
of Series C Preferred and $4.32 for the Series D Preferred.
(k) "HE," "SHE," "IT" shall mean any of such gender
references as required by the context and all of them if the context so
requires.
3. DIVIDENDS.
(a) SERIES A PREFERRED STOCK. The holders of the then
outstanding Series A Preferred shall be entitled to receive, if, when, and as
declared by the Board of Directors, out of any funds legally available
therefor, dividends at an annual rate not to exceed eleven cents ($0.11) for
each share of Series A Preferred, prior and in preference to any declaration
and payment of any dividend (payable other than in stock of the Corporation)
on the Junior Shares. Dividends on each share of Series A Preferred, if any,
shall be non-cumulative. Dividends, if paid or if declared and set aside for
payment, must be paid on, or declared and set aside for payment on, all
outstanding Series A Preferred, Series B Preferred, Series C Preferred and
Series D Preferred contemporaneously.
(b) SERIES B PREFERRED STOCK. The holders of the then
outstanding Series B Preferred shall be entitled to receive, if, when, and as
declared by the Board of Directors, out of any funds legally available
therefor, dividends at an annual rate not to exceed nineteen cents ($0.19)
for each share of Series B Preferred, prior and in preference to any
declaration and payment of any dividend (payable other than in stock of the
Corporation) on the Junior Shares. Dividends on each share of Series B
Preferred, if any, shall be non-cumulative. Dividends, if paid or if declared
and set aside for payment, must be paid on, or declared and set aside for
payment on, all outstanding Series A Preferred, Series B Preferred, Series C
Preferred and Series D Preferred contemporaneously.
(c) SERIES C PREFERRED STOCK. The holders of the then
outstanding Series C Preferred shall be entitled to receive, if, when, and as
declared by the Board of Directors, out of any funds legally available
therefor, dividends at an annual rate not to exceed twenty cents ($0.20) for
each share of Series C Preferred, prior and in preference to any declaration
and payment of any dividend (payable other than in stock of the Corporation)
on the Junior Shares.
3.
<PAGE>
Dividends on each share of Series C Preferred, if any, shall be
non-cumulative. Dividends, if paid or if declared and set aside for payment,
must be paid on, or declared and set aside for payment on, all outstanding
Series A Preferred, Series B Preferred, Series C Preferred and Series D
Preferred contemporaneously.
(d) SERIES D PREFERRED STOCK. The holders of the then
outstanding Series D Preferred shall be entitled to receive, if, when, and as
declared by the Board of Directors, out of any funds legally available
therefor, dividends at an annual rate not to exceed thirty-five cents ($0.35)
for each share of Series D Preferred, prior and in preference to any
declaration and payment of any dividend (payable other than in stock of the
Corporation) on the Junior Shares. Dividends on each share of Series D
Preferred, if any, shall be non-cumulative. Dividends, if paid or if declared
and set aside for payment, must be paid on, or declared and set aside for
payment on, all outstanding Series A Preferred, Series B Preferred, Series C
Preferred and Series D Preferred contemporaneously.
(e) COMMON STOCK. No shares of Common Stock shall receive
any dividend at a rate which is greater than the rate at which dividends are
simultaneously paid in respect of the Preferred Stock (based on the number of
shares of Common Stock into which the Preferred Stock is convertible on the
date of the declaration of the dividend).
(f) METHOD OF PAYMENT. Dividends shall be paid by
forwarding a check, postage prepaid, to the address of each holder (or in the
case of joint holders, to the address of any such holder), of Preferred Stock
as shown on the books of the Corporation, or to such other address as such
holder specifies for such purpose by written notice to the Corporation. The
forwarding of such check shall satisfy all obligations of the Corporation
with respect to such dividends, unless such check is not paid upon timely
presentation.
(g) PROHIBITION AND RESTRICTIONS ON PREFERRED STOCK
DIVIDEND PAYMENT. If the Board of Directors shall declare a dividend on the
outstanding shares of Series A Preferred, Series B Preferred, Series C
Preferred and Series D Preferred, and the amount available for payment
thereof is insufficient to permit the payment of the full preferential
amounts required to be paid to the holders of the outstanding shares of
Series A Preferred, Series B Preferred, Series C Preferred and Series D
Preferred, then the amount available for such dividend payments shall be
distributed ratably among the holders of the outstanding shares of Series A
Preferred, the holders of the outstanding shares of Series B Preferred, the
holders of the outstanding shares of Series C Preferred and the holders of
the outstanding shares of Series D Preferred according to (i) the respective
dividend preference amounts to which all such holders of outstanding Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred
would otherwise be entitled, and (ii) the number of outstanding shares of
each such series until each holder of outstanding shares of Series A
Preferred has received its Series A Preferred preferential amount, each
holder of outstanding shares of Series B Preferred has received its Series B
Preferred preferential amount, each holder of outstanding shares of Series C
Preferred has received its Series C Preferred preferential amount and each
holder of outstanding shares of Series D Preferred has received its Series D
Preferred preferential amount, each as applicable, in full.
4.
<PAGE>
4. LIQUIDATION PREFERENCE.
(a) PREFERRED STOCK. In the event of any liquidation,
dissolution or winding up of the Corporation and until all preferential
amounts owed to them under this Section 4(a) have been paid, the holders of
the Series A Preferred, Series B Preferred, Series C Preferred and Series D
Preferred, respectively, on a PARI PASSU basis, shall be entitled to receive,
prior and in preference to any distribution of any assets or property of the
Corporation to the holders of Junior Shares by reason of their ownership
thereof, the amount of $1.40 per share for each share of Series A Preferred
then held by them, the amount of $2.40 per share for each share of Series B
Preferred then held by them, the amount of $2.50 per share for each share of
Series C Preferred then held by them and the amount of $4.32 per share for
each share of Series D Preferred then held by them, plus an amount equal to
all declared but unpaid dividends on the Series A Preferred, Series B
Preferred, Series C Preferred and/or Series D Preferred as of the date of
liquidation (the "Liquidation Date"). If, on the Liquidation Date, the assets
and property thus distributed among the holders of the Preferred Stock shall
be insufficient to permit the payment to such holders of the full
preferential amounts due them, then the entire assets and property of the
Corporation legally available for distribution shall be distributed on a pro
rata basis among the holders of the Series A Preferred, Series B Preferred,
Series C Preferred and Series D Preferred based upon their respective
liquidation preference prices, as set forth in the preceding sentence,
multiplied by the number of outstanding shares in each Series.
(b) MERGER OR CONSOLIDATION. The Corporation's sale of all
or substantially all of its assets to, or the acquisition of the Corporation
by another entity or by another corporation by means of merger or
consolidation resulting in the exchange of the outstanding shares of the
Corporation for securities or other consideration issued, or caused to be
issued, by the acquiring corporation or its subsidiary, in which merger or
consolidation the control of this Corporation is transferred (i.e., a
transfer of more than fifty percent (50%) of the voting securities of the
Corporation to persons who did not previously own voting securities of the
Corporation), shall be deemed to be a liquidation, dissolution and winding up
of the Corporation as those terms are used in this Section 4.
(c) COMMON STOCK LIQUIDATION PREFERENCE. After the Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred have
received the liquidation preference described in Section 4(a) above, the
remaining assets of the Corporation available for distribution to
stockholders shall be distributed among the holders of the Series A
Preferred, Series B Preferred, Series C Preferred and holders of Junior
Shares pro rata, on a fully diluted, as-converted basis, based on the number
of Junior Shares held by each (assuming conversion of all such Preferred
Stock); provided that at such time as the holders of Series C Preferred shall
have received an aggregate amount of ten dollars ($10.00) per share (as
adjusted for stock splits, recapitalizations and the like) of Series C
Preferred they own, (including all distributions with respect to Series C
Preferred pursuant to Section 4(a) and this Section 4(c)), the holders
thereof shall be entitled to no further distributions with respect to such
shares of Series C Preferred.
(d) FAIR MARKET VALUE. If not readily subject to
determination, the fair value of the assets or property to be distributed
pursuant to Section 4(a), 4(b) and 4(c) above shall be determined in good
faith by the Board of Directors.
5.
<PAGE>
5. REDEMPTION. The shares of Preferred are not
redeemable.
6. CONVERSION. The holders of the Series A Preferred,
Series B Preferred, Series C Preferred and Series D Preferred shall have
conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series A Preferred,
Series B Preferred, Series C Preferred and Series D Preferred shall be
convertible at the option of the holder thereof, at any time after such
Series' respective Original Issue Date at the office of the Corporation or
any transfer agent for the Series A Preferred, Series B Preferred, Series C
Preferred or Series D Preferred, into that number of fully paid and
non-assessable shares of Common of the Corporation as is determined by
dividing the Purchase Price for each share of Series A Preferred, Series B
Preferred, Series C Preferred or Series D Preferred, respectively, by the
applicable Conversion Price, determined as hereinafter provided, in effect at
the time of such conversion. The initial Conversion Price for the Series A
Preferred shall be $1.40 per share. The initial Conversion Price for the
Series B Preferred shall be $2.40 per share. The initial Conversion Price for
the Series C Preferred shall be $2.50 per share. The initial Conversion Price
for the Series D Preferred shall be $4.32 per share. No adjustment shall be
made with respect to dividends that may be declared and unpaid at the date of
such conversion. The respective Conversion Price for the Series A Preferred,
Series B Preferred, Series C Preferred and/or Series D Preferred shall be
subject to adjustment as hereinafter provided.
(b) AUTOMATIC CONVERSION. Each share of Series A Preferred,
Series B Preferred, Series C Preferred or Series D Preferred shall
automatically be converted into share(s) of Common at the then effective
Conversion Price for such share immediately upon the closing of a firm
commitment underwritten offer and sale of Common Stock for the account of the
Corporation pursuant to an effective registration statement under the
Securities Act of 1933, as amended, at a public offering price of at least
Six Dollars and Forty-Eight Cents ($6.48) per share (appropriately adjusted
in the case of any stock split, stock dividend or recapitalization, with
aggregate cash proceeds at the public offering price equal to or exceeding
Ten Million Dollars ($10,000,000) (net of underwriting discounts and
commissions).
(c) MECHANICS OF CONVERSION. Before any holder of Series A
Preferred, Series B Preferred, Series C Preferred or Series D Preferred shall
be entitled to convert the same into shares of Common, such holder shall
surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the Series A
Preferred, Series B Preferred, Series C Preferred or Series D Preferred, and
shall give written notice to the Corporation at such office that he elects to
convert the same, and shall state therein the name or
6.
<PAGE>
names which he wishes the certificate or certificates for shares of Common to
be issued. The Corporation shall, as soon as practicable thereafter, issue
and deliver at such office to each holder of Series A Preferred, Series B
Preferred, Series C Preferred or Series D Preferred, as applicable, or to his
nominee or nominees, any certificate or certificates for the number of shares
of Common to which he shall be entitled. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the shares of the Series A Preferred, Series B Preferred, Series
C Preferred or Series D Preferred to be converted, and the person or persons
entitled to receive the shares of Common issuable upon such conversion shall
be treated for all purposes as the record holder or holders of such shares of
Common on such date. No fractional shares of Common Stock shall be issued
upon conversion of Series A Preferred, Series B Preferred, Series C Preferred
or Series D Preferred. In lieu of any fractional shares to which the holder
would otherwise be entitled, the Corporation shall pay cash equal to such
fraction multiplied by the then effective Conversion Price.
(d) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING
ISSUES.
(i) NO ADJUSTMENT OF CONVERSION PRICE. No
adjustment in the Conversion Price of a Series A Preferred, Series B
Preferred, Series C Preferred or Series D Preferred shares shall be made in
respect of the issuance of Additional Shares of Common unless the
consideration per share for an Additional Share of Common issued or deemed to
be issued by the Corporation is less than the Conversion Price in effect on
the date of, and immediately prior to such issue, for such share of Series A
Preferred, Series B Preferred, Series C Preferred or Series D Preferred.
(ii) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON.
(1) OPTIONS AND CONVERTIBLE SECURITIES.
In the event the Corporation at any time or from time to time after the
Original Issue Date shall issue any Options or Convertible Securities or
shall fix a record date for the determination of holders of any class of
securities entitled to receive any such Options or Convertible Securities,
then the maximum number of shares (as set forth in the instrument relating
thereto without regard to any provisions contained therein for a subsequent
adjustment of such number) of Common issuable upon the exercise of such
Options or, in the case of Convertible Securities and Options therefor the
conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common issued as of the time of such issue or, in case
such a record date shall have been fixed, as of the close of business on such
record date, provided that, Additional Shares of Common shall not be deemed
to have been issued unless the consideration per share (determined pursuant
to Section 6(d)(iv) hereof) of such Additional Shares of Common would be less
than the Conversion Price in effect on the date of and immediately prior to
such issue, or such record date, as the case may be, and provided further,
that in any such case in which Additional Shares of Common are deemed to be
issued:
(A) no further adjustment in the
Conversion Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
7.
<PAGE>
(B) notwithstanding the immediately
preceding clause (A), if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or decrease in the number of shares
of Common issuable, upon the exercise, conversion or exchange thereof, the
Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities; and
(C) no readjustment pursuant to clause
(B) above shall have the effect of increasing the Conversion Price to an
amount which exceeds the lower of (i) the Conversion Price on the original
adjustment date or (ii) the Conversion Price that would have resulted from
any issuance of Additional Shares of Common between the original adjustment
date and such readjustment date.
(2) STOCK DIVIDENDS AND SUBDIVISION. In
the event the Corporation at any time or from time to time after the Original
Issue Date shall declare or pay any dividend on the Common payable in Common
without declaring or paying an equivalent dividend upon the Preferred, or
effect a subdivision of the outstanding shares of Common into a greater
number of shares of Common (by reclassification or otherwise than by payment
of a dividend in Common) without making a corresponding adjustment in the
Preferred, then and in any such event Additional Shares of Common shall be
deemed to have been issued:
(A) in the case of any such dividend,
immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or
(B) in the case of any such subdivision,
at the close of business on the date immediately prior to the date upon which
such corporate action becomes effective.
(iii) ADJUSTMENT OF CONVERSION PRICE UPON
ISSUANCE OF ADDITIONAL SHARES OF COMMON. In the event the Corporation shall
issue Additional Shares of Common (including Additional Shares of Common
deemed to be issued pursuant to Section 6(d)(ii)) without consideration or
for a consideration per share less than the respective Conversion Price for
Series A Preferred, Series B Preferred, Series C Preferred or Series D
Preferred in effect on the date of and immediately prior to such issue, then
and in such event, such respective Conversion Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying such respective Conversion Price by a fraction, (A)
the numerator of which shall be the number of shares of Common outstanding
immediately prior to such issue plus the number of shares of Common which the
aggregate consideration received by the Corporation for the total number of
Additional Shares of Common so issued would purchase at such respective
Conversion Price and (B) the denominator of which shall be the number of
shares of Common outstanding immediately prior to such issue plus the number
of such Additional Shares of Common so issued; and provided further that, for
the purposes of this Section 6(d)(iii), all shares of Common issuable upon
conversion of outstanding Convertible
8.
<PAGE>
Securities shall be deemed to be outstanding, and immediately after any
Additional Shares of Common are deemed issued pursuant to Section 6(d)(ii),
such Additional Shares of Common shall be deemed to be outstanding.
(iv) DETERMINATION OF CONSIDERATION. For
purposes of this Section 6(d), the consideration received by the Corporation
for the issue of any Additional Shares of Common shall be computed as follows:
(1) CASH AND PROPERTY. Such
consideration shall:
(A) insofar as it consists of
cash, be computed at the aggregate amount of cash received by the Corporation
after deduction of (i) any expenses payable, directly or indirectly, by the
Corporation, and (ii) any underwriting or similar commissions, compensation,
discounts or concessions paid or allowed by the Corporation;
(B) insofar as it consists of
property other than cash, be computed at the fair value thereof at the time
of such issue, as determined in good faith by the Board of Directors; and
(C) in the event Additional
Shares of Common are issued together with other shares or securities or other
assets of the Corporation for consideration which covers both, be the
proportion of such consideration so received, computed as provided in clauses
(A) and (B) above, as determined in good faith by the Board of Directors.
(2) OPTIONS AND CONVERTIBLE SECURITIES.
The consideration per share received by the Corporation for Additional Shares
of Common deemed to have been issued pursuant to Section 6(d)(ii)(l),
relating to Options and Convertible Securities, shall be determined by
dividing:
(x) the total amount, if any,
received or receivable by the Corporation as consideration for the issue of
such Option or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment
of such consideration) payable to the Corporation upon the exercise of such
Options or the conversion or exchange of such Convertible Securities, or in
the case of Options for Convertible Securities, the exercise of such Options
for Convertible Securities and the conversion or exchange of such Convertible
Securities, by
(y) the maximum number of
shares of Common (as set forth in the instruments relating thereto, without
regard to any provision contained therein for a subsequent adjustment of such
number) issuable upon the exercise of Options or the conversion or exchange
of such Convertible Securities.
(v) ADJUSTMENT FOR OTHER DIVIDENDS AND
DISTRIBUTIONS. In the event the Corporation at any time or from time to time
makes, or fixes a record date for the determination of holders of Common
entitled to receive, a dividend or other distribution payable in securities
of the Corporation other than shares of Common, then and in such event
provision shall be made so that the holders of Series A Preferred, Series B
Preferred, Series C Preferred
9.
<PAGE>
and Series D Preferred shall receive upon conversion thereof, in addition to
the number of shares of Common receivable thereupon, the amount of securities
of the Corporation which they would have received had their Series A
Preferred, Series B Preferred, Series C Preferred or Series D Preferred been
converted into Common on the date of such event and had they thereafter,
during the period from the date of such event to and including the date of
conversion, retained such securities receivable by them as aforesaid during
such period, subject to all other adjustments called for during such period
under this Section 6 with respect to the rights of the holders of the Series
A Preferred, Series B Preferred, Series C Preferred and Series D Preferred.
(vi) REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR
SALES OF ASSETS. If at any time or from time to time there is (1) a capital
reorganization of the Common (other than a recapitalization, subdivision,
combination, reclassification or exchange of shares provided for elsewhere in
this Section 6 or other than a transaction deemed to be a liquidation,
dissolution or winding up of the Corporation pursuant to Section 4(b) hereof)
or (2) a merger or consolidation of the Corporation with or into another
corporation, or the sale of all or substantially all of the Corporation's
properties and assets to any other person, as a part of such reorganization,
merger, consolidation or sale, the terms of which have been approved by a
majority of the Series A Preferred, Series B Preferred, Series C Preferred
and Series D Preferred, then provision shall be made so that the holders of
the Series A Preferred, Series B Preferred, Series C Preferred and Series D
Preferred shall thereafter be entitled to receive, upon conversion of the
Series A Preferred, Series B Preferred, Series C Preferred and Series D
Preferred, the number of shares of stock or other securities or property of
the Corporation, or of the successor corporation resulting from such merger
or consolidation or sale, to which a holder of Common deliverable upon
conversion of the Series A Preferred, Series B Preferred, Series C Preferred
and Series D Preferred would have been entitled on such capital
reorganization, merger, consolidation, or sale. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
6 with respect to the rights of the holders of the Series A Preferred, Series
B Preferred, Series C Preferred and Series D Preferred after the
reorganization, merger, consolidation or sale to the end that the provisions
of this Section 6 (including adjustment of the Conversion Price then in
effect and number of shares purchasable upon conversion of the Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred)
shall be applicable after that event and be as nearly equivalent to the
provisions hereof as may be practicable.
(vii) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE,
SUBSTITUTION AND STOCK SPLIT. If the Common issuable upon conversion of the
Series A Preferred, Series B Preferred, Series C Preferred and/or Series D
Preferred shall be changed into the same or different number of shares of any
other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than with respect to any such change
provided for above) the Conversion Price then in effect shall, concurrently
with the effectiveness of such reorganization or reclassification, be
proportionately adjusted such that the Series A Preferred, Series B
Preferred, Series C Preferred and/or Series D Preferred shall be convertible
into, in lieu of the number of shares of Common which the holders would
otherwise have been entitled to receive, a number of shares of such other
class or classes of stock equivalent to the number of shares of Common that
would have been subject to receipt by the holders upon conversion of the
Series A Preferred, Series B Preferred, Series C Preferred and/or Series D
Preferred immediately before that change. If the Corporation effects a stock
split or similar transaction with respect to the Common issuable upon
conversion of the Series A Preferred, Series B Preferred, Series C
10.
<PAGE>
Preferred and/or Series D Preferred, the Conversion Price then in effect
shall, concurrently with the effectiveness of such reverse stock split or
stock combination, be proportionately adjusted to reflect such stock split or
similar transaction.
(e) NO IMPAIRMENT. Without the consent of a majority of
each of the Series A Preferred, Series B Preferred, Series C Preferred and
Series D Preferred Shares, voting as separate classes, the Corporation will
not, by amendment of its Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but it will at all times in good faith assist
in the carrying out of all of the provisions of this Section 6 and in the
taking of all such action as may be necessary or appropriate in order to
protect the respective Conversion Rights of the holders of the Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred
against impairment.
(f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment of the Conversion Price pursuant to this
Section 6, upon the request of any holder of Series A Preferred, Series B
Preferred, Series C Preferred or Series D Preferred, the Corporation, at its
expense, shall promptly compute such adjustment or readjustment and furnish
to each respective holder of Series A Preferred, Series B Preferred, Series C
Preferred and Series D Preferred a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred, Series B Preferred, Series C
Preferred or Series D Preferred, furnish or cause to be furnished to each
holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price in effect at the time, and (iii) the
number of shares of Common and the amount, if any, of other property which at
the time would be received upon the conversion of the Series A Preferred,
Series B Preferred, Series C Preferred or Series D Preferred.
(g) NOTICES OF RECORD DATE. In the event of any taking by
the Corporation of the record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive
any dividend (other than a cash dividend) or other distribution, the
Corporation shall mail to each respective holder of Series A Preferred,
Series B Preferred, Series C Preferred and/or Series D Preferred, at least
twenty (20) days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend
or distribution.
(h) RESERVATION OF STOCK. The Corporation shall at all
times reserve and keep available out of its authorized but unissued shares of
Common solely for the purpose of effecting the respective conversion of the
shares of the Series A Preferred, Series B Preferred, Series C Preferred and
Series D Preferred, such number of its shares of Common as shall from time to
time be sufficient to effect the respective conversion of all outstanding
shares of Series A Preferred, Series B Preferred, Series C Preferred and
Series D Preferred; and if at any time the number of authorized but unissued
shares of Common shall not be sufficient to effect the conversion of all the
then outstanding shares of the Series A Preferred, Series B Preferred, Series
C Preferred and Series D Preferred, the Corporation will take such corporate
action as may, in
11.
<PAGE>
the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common to such number of shares as shall be sufficient for
such purpose.
(i) NOTICES. Any notice required by the provisions of this
Section 6 to be given to the holders of shares of Series A Preferred, Series
B Preferred, Series C Preferred and/or Series D Preferred shall be deemed
given upon receipt. Notice may be deposited in the United States certified or
registered mail, first class postage prepaid, or by personal (courier)
delivery and addressed to each holder of record of his address appearing on
the books of the Corporation.
7. VOTING RIGHTS.
(a) BOARD OF DIRECTORS.
(i) ELECTION OF BOARD OF DIRECTORS. The Board of
Directors of this Corporation shall be five (5) in number. With respect to
any election of directors to the Corporation's Board of Directors: (1) the
Series A Preferred shall have the right to elect two and only two members of
the Board, voting separately as a class, (2) the Series B Preferred shall
have the right to elect one and only one member of the Board, voting
separately as a class, (3) the Series C Preferred shall have the right to
elect one and only one member of the Board, voting separately as a class, and
(4) the Common shall have the right to elect one and only one member of the
Board, voting separately as a class.
(ii) VACANCIES IN BOARD OF DIRECTORS. Any vacancy
created on this Corporation's Board of Directors shall be filled by a successor
Director who shall be elected in the manner by which his or her predecessor
was elected, as provided above. Any Director who has been elected to this
Corporation's Board of Directors as provided above may be removed during
his/her term of office in accordance with the Delaware General Corporation
Law, and any vacancy thereby created shall be filled as provided in the
immediately preceding sentence.
The authorized number of Directors on the Board of Directors shall be five
(5) unless changed by the consent of the holders of a majority of each of the
Common, the Series A Preferred, the Series B Preferred and the Series C
Preferred, each voting as a separate class.
(b) OTHER MATTERS. On all other matters to come before the
stockholders, the Series A Preferred, Series B Preferred, Series C Preferred
and Series D Preferred shall have that number of votes per share (rounded up
or down to the nearest whole share) equivalent to the number of shares of
Common into which a share of Series A Preferred, Series B Preferred, Series C
Preferred and Series D Preferred, respectively, is convertible determined by
reference to the Conversion Price then in effect for such Series of Preferred
at the record date of determination of the holders of the shares entitled to
vote or, if no such record date is established, at the date such vote is
taken or any written consent of the stockholders is first solicited, which
vote may be cast as provided by the laws of the State of Delaware, the
Corporation's Articles of Incorporation, and the Corporation's Bylaws, and
except those matters required by law to be submitted to a class vote, shall
vote with the holders of the Common Stock, and shall be entitled to notice of
any stockholders' meeting in accordance with the Bylaws of the Corporation.
12.
<PAGE>
8. COVENANTS.
(a) So long as any Series A, Series B, Series C or Series D
Preferred shall be outstanding, this Corporation shall not, without first
obtaining the respective affirmative vote or written consent of not less than
a majority of the outstanding shares of the holders of each of the Series A,
Series B and Series C and Series D Preferred, voting as separate classes:
(i) amend or repeal any provision of, or add any
provision to, this Corporation's Articles of Incorporation or Bylaws if such
action would alter or change the preferences, rights, privileges or powers
of, or the restrictions provided for the benefit of, any Series A, Series B,
Series C or Series D Preferred;
(ii) authorize or issue shares of any class or
series of stock having any preference or priority as to dividends or assets
superior to any such preference or priority of the Series A, Series B or
Series C Preferred, or authorize or issue shares of stock of any class or any
bonds, debentures, notes or other obligations convertible into or
exchangeable for, or having option rights to purchase, any shares of stock of
this Corporation having any preference or priority as to dividends or assets
superior to any such preference or priority of the Series A, Series B, Series
C or Series D Preferred;
(iii) reclassify any Junior Shares into shares
having any preference or priority as to dividends or assets superior to any
such preference or priority of the Series A, Series B, Series C or Series D
Preferred;
(iv) effect a merger, reorganization, or sale of
the Corporation or substantially all the Corporation's assets; or
(v) effect a reclassification or recapitalization
of the outstanding capital stock of the Corporation.
9. RESIDUAL RIGHTS. All rights accruing to the outstanding shares
of the Corporation not expressly provided for to the contrary herein shall be
vested in the Common.
V.
The liability of the directors for monetary damages shall be eliminated
to the fullest extent under applicable law.
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for any 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. If the Delaware General Corporation Law
is amended after approval by the stockholders of this Article to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law, as so
amended.
Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
13.
<PAGE>
VII.
The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute and all rights conferred upon the
stockholders herein are granted subject to this reservation.
The name and the mailing address of the Sole Incorporator is as
follows:
Sandra L. Geiger
Cooley Godward LLP
5 Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
IN WITNESS WHEREOF, this Certificate has been subscribed this 9th
day of September, 1999 by the undersigned who affirms that the statements
made herein are true and correct.
\s\ Sandra L. Geiger
---------------------------
SANDRA L. GEIGER
Sole Incorporator
14.
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
QUANTUM EFFECT DEVICES, INC.
QUANTUM EFFECT DEVICES, INC., a corporation organized and existing
under the laws of the state of Delaware (the "Corporation") hereby certifies
that:
1. The name of the Corporation is Quantum Effect Devices, Inc.
2. The date of filing of the Corporation's original Certificate of
Incorporation was September 9, 1999.
3. The Amended and Restated Certificate of Incorporation of the
Corporation as provided in Exhibit A hereto was duly adopted in accordance with
the provisions of Section 242 and Section 245 of the General Corporation Law of
the State of Delaware by the Board of Directors of the Corporation.
4. Pursuant to Section 245 of the Delaware General Corporation Law,
approval of the stockholders of the Corporation has been obtained.
5. The Amended and Restated Certificate of Incorporation so adopted
reads in full as set forth in Exhibit A attached hereto and is hereby
incorporated by reference.
IN WITNESS WHEREOF, the undersigned has signed this Amended and
Restated Certificate of Incorporation this ___ day of November, 1999, and hereby
affirms and acknowledges under penalty of perjury that the filing of this
Amended and Restated of Incorporation is the act and deed of Quantum Effect
Devices, Inc.
QUANTUM EFFECT DEVICES, INC.
By
--------------------------------------
Thomas J. Riordan
President and Chief Executive Officer
1.
<PAGE>
EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
QUANTUM EFFECT DEVICES, INC.
I.
The name of this corporation is QUANTUM EFFECT DEVICES, INC.
II.
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, and the
name of the registered agent of the corporation in the State of Delaware at such
address is the Corporation Research Company.
III.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
IV.
A. This corporation is authorized to issue two classes of stock to
be designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is One Hundred
Ten Million (110,000,000) shares. One Hundred Million (100,000,000) shares
shall be Common Stock, each having a par value of one-tenth of one cent
($.001). Ten Million (10,000,000) shares shall be Preferred Stock, each
having a par value of one-tenth of one cent ($.001).
B. The Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is hereby authorized, by filing a
certificate (a "Preferred Stock Designation") pursuant to the Delaware
General Corporation Law ("DGCL"), to fix or alter from time to time the
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions of any wholly unissued
series of Preferred Stock, and to establish from time to time the number of
shares constituting any such series or any of them; and to increase or
decrease the number of shares of any series subsequent to the issuance of
shares of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be decreased in
accordance with the foregoing sentence, the shares constituting such decrease
shall resume the status that they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
2.
<PAGE>
V.
A. For the management of the business and for the conduct of the
affairs of the corporation, and in further definition, limitation and
regulation of the powers of the corporation, of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided
that:
1. The management of the business and the conduct of the
affairs of the corporation shall be vested in its Board of Directors. The
number of directors which shall constitute the whole Board of Directors shall
be fixed exclusively by one or more resolutions adopted by the Board of
Directors.
2. BOARD OF DIRECTORS
a. Subject to the rights of the holders of any
series of Preferred Stock to elect additional directors under specified
circumstances, following the closing of the initial public offering pursuant
to an effective registration statement under the Securities Act of 1933, as
amended (the "1993 Act"), covering the offer and sale of Common Stock to the
public (the "Initial Public Offering"), the directors shall be divided into
three classes designated as Class I, Class II and Class III, respectively.
Directors shall be assigned to each class in accordance with a resolution or
resolutions adopted by the Board of Directors. At the first annual meeting of
stockholders following the closing of the Initial Public Offering, the term
of office of the Class I directors shall expire and Class I directors shall
be elected for a full term of three years. At the second annual meeting of
stockholders following the Initial Public Offering, the term of office of the
Class II directors shall expire and Class II directors shall be elected for a
full term of three years. At the third annual meeting of stockholders
following the Initial Public Offering, the term of office of the Class III
directors shall expire and Class III directors shall be elected for a full
term of three years. At each succeeding annual meeting of stockholders,
directors shall be elected for a full term of three years to succeed the
directors of the class whose terms expire at such annual meeting. During such
time or times that the corporation is subject to Section 2115(b) of the
California General Corporation Law ("CGCL"), this Section A.2.a of this
Article V shall become effective and be applicable only when the corporation
is a "listed" corporation within the meaning of Section 301.5 of the CGCL.
b. In the event that the corporation (i) is
subject to Section 2115(b) of the CGCL AND (ii) is not a "listed" corporation
or ceases to be a "listed" corporation under Section 301.5 of the CGCL,
Section A. 2. a. of this Article V shall not apply and all directors shall be
shall be elected at each annual meeting of stockholders to hold office until
the next annual meeting.
c. No person entitled to vote at an election for
directors may cumulate votes to which such person is entitled, unless, at the
time of such election, the corporation (i) is subject to Section 2115(b) of
the CGCL AND (ii) is not a "listed" corporation or ceases to be a "listed"
corporation under Section 301.5 of the CGCL. During this time, every
stockholder entitled to vote at an election for directors may cumulate such
stockholder's votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the
3.
<PAGE>
number of votes to which such stockholder's shares are otherwise entitled, or
distribute the stockholder's votes on the same principle among as many
candidates as such stockholder thinks fit. No stockholder, however, shall be
entitled to so cumulate such stockholder's votes unless (i) the names of such
candidate or candidates have been placed in nomination prior to the voting
and (ii) the stockholder has given notice at the meeting, prior to the
voting, of such stockholder's intention to cumulate such stockholder's votes.
If any stockholder has given proper notice to cumulate votes, all
stockholders may cumulate their votes for any candidates who have been
properly placed in nomination. Under cumulative voting, the candidates
receiving the highest number of votes, up to the number of directors to be
elected, are elected.
Notwithstanding the foregoing provisions of this section, each director shall
serve until his successor is duly elected and qualified or until his death,
resignation or removal. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
3. REMOVAL OF DIRECTORS
a. During such time or times that the corporation is
subject to Section 2115(b) of the CGCL, the Board of Directors or any
individual director may be removed from office at any time without cause by
the affirmative vote of the holders of at least a majority of the outstanding
shares entitled to vote on such removal; provided, however, that unless the
entire Board is removed, no individual director may be removed when the votes
cast against such director's removal, or not consenting in writing to such
removal, would be sufficient to elect that director if voted cumulatively at
an election which the same total number of votes were cast (or, if such
action is taken by written consent, all shares entitled to vote were voted)
and the entire number of directors authorized at the time of such director's
most recent election were then being elected.
b. At any time or times that the corporation is not
subject to Section 2115(b) of the CGCL and subject to any limitations imposed
by law, Section A. 3. a. above shall no longer apply and removal shall be as
provided in Section 141(k) of the DGCL.
4. VACANCIES
a. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from
death, resignation, disqualification, removal or other causes and any newly
created directorships resulting from any increase in the number of directors,
shall, unless the Board of Directors determines by resolution that any such
vacancies or newly created directorships shall be filled by the stockholders,
except as otherwise provided by law, be filled only by the affirmative vote
of a majority of the directors then in office, even though less than a quorum
of the Board of Directors, and not by the stockholders. Any director elected
in accordance with the preceding sentence shall hold office for the remainder
of the full term of the director for which the vacancy was created or
occurred and until such director's successor shall have been elected and
qualified.
4.
<PAGE>
b. If at the time of filling any vacancy or any newly
created directorship, the directors then in office shall constitute less than
a majority of the whole board (as constituted immediately prior to any such
increase), the Delaware Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent (10%) of the total
number of the shares at the time outstanding having the right to vote for
such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen
by the directors then in offices as aforesaid, which election shall be
governed by Section 211 of the DGCL.
c. At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy by the
directors then in office who have been elected by stockholders shall
constitute less than a majority of the directors then in office, then
(i) Any holder or holders of an aggregate of five
percent (5%) or more of the total number of shares at the time outstanding
having the right to vote for those directors may call a special meeting of
stockholders; or
(ii) The Superior Court of the proper county
shall, upon application of such stockholder or stockholders, summarily order
a special meeting of stockholders, to be held to elect the entire board, all
in accordance with Section 305(c) of the CGCL. The term of office of any
director shall terminate upon that election of a successor.
B.
1. BYLAW AMENDMENTS
Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of
the voting power of all of the then-outstanding shares of the voting stock of
the corporation entitled to vote. The Board of Directors shall also have the
power to adopt, amend, or repeal Bylaws.
2. The directors of the corporation need not be elected by
written ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the
corporation except at an annual or special meeting of stockholders called in
accordance with the Bylaws or by written consent of stockholders in
accordance with the Bylaws prior to the closing of the Initial Public
Offering and following the closing of the Initial Public Offering no action
shall be taken by the stockholders by written consent.
4. Advance notice of stockholder nominations for the
election of directors and of business to be brought by stockholders before
any meeting of the stockholders of the corporation shall be given in the
manner provided in the Bylaws of the corporation.
5.
<PAGE>
VI.
A. The liability of the directors for monetary damages shall be
eliminated to the fullest extent under applicable law.
B. This corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the CGCL) for breach of duty to the
corporation and its shareholders through bylaw provisions or through
agreements with the agents, or through shareholder resolutions, or otherwise,
in excess of the indemnification otherwise permitted by Section 317 of the
CGCL, subject, at any time or times the corporation is subject to Section
2115(b) to the limits on such excess indemnification set forth in Section 204
of the CGCL.
C. Any repeal or modification of this Article VI shall be
prospective and shall not affect the rights under this Article VI in effect
at the time of the alleged occurrence of any act or omission to act giving
rise to liability or indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, except
as provided in paragraph B. of this Article VII, and all rights conferred
upon the stockholders herein are granted subject to this reservation.
B. Notwithstanding any other provisions of this Amended and Restated
Certificate of Incorporation or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any affirmative vote of
the holders of any particular class or series of the Voting Stock required by
law, this Amended and Restated Certificate of Incorporation or any Preferred
Stock Designation, the affirmative vote of the holders of at least sixty-six
and two-thirds percent (66-2/3%) of the voting power of all of the
then-outstanding shares of the voting stock, voting together as a single
class, shall be required to alter, amend or repeal this Amended and Restated
Certificate of Incorporation.
6.
<PAGE>
BYLAWS
OF
QUANTUM EFFECT DEVICES, INC.
(A DELAWARE CORPORATION)
<PAGE>
TABLE OF CONTENTS
<TABLE>
PAGE
----
<S> <C>
ARTICLE I OFFICES............................................................ 1
Section 1. Registered Office.............................................. 1
Section 2. Other Offices.................................................. 1
ARTICLE II CORPORATE SEAL..................................................... 1
Section 3. Corporate Seal................................................. 1
ARTICLE III STOCKHOLDERS' MEETINGS............................................. 1
Section 4. Place Of Meetings.............................................. 1
Section 5. Annual Meetings................................................ 1
Section 6. Special Meetings............................................... 4
Section 7. Notice Of Meetings............................................. 5
Section 8. Quorum......................................................... 5
Section 9. Adjournment And Notice Of Adjourned Meetings................... 5
Section 10. Voting Rights.................................................. 6
Section 11. Joint Owners Of Stock.......................................... 6
Section 12. List Of Stockholders........................................... 6
Section 13. Action Without Meeting......................................... 6
Section 14. Organization................................................... 7
ARTICLE IV DIRECTORS.......................................................... 8
Section 15. Number And Term Of Office...................................... 8
Section 16. Powers......................................................... 8
Section 17. Classes of Directors........................................... 8
Section 18. Vacancies...................................................... 9
Section 19. Resignation.................................................... 10
Section 20. Removal........................................................ 10
Section 21. Meetings....................................................... 11
Section 22. Quorum And Voting.............................................. 12
Section 23. Action Without Meeting......................................... 12
Section 24. Fees And Compensation.......................................... 12
Section 25. Committees..................................................... 12
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<CAPTION>
PAGE
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<S> <C>
Section 26. Organization................................................... 13
ARTICLE V OFFICERS........................................................... 14
Section 27. Officers Designated............................................ 14
Section 28. Tenure And Duties Of Officers.................................. 14
Section 29. Delegation Of Authority........................................ 15
Section 30. Resignations................................................... 15
Section 31. Removal........................................................ 16
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES
OWNED BY THE CORPORATION........................................... 16
Section 32. Execution Of Corporate Instruments............................. 16
Section 33. Voting Of Securities Owned By The Corporation.................. 16
ARTICLE VII SHARES OF STOCK.................................................... 16
Section 34. Form And Execution Of Certificates............................. 16
Section 35. Lost Certificates.............................................. 17
Section 36. Transfers...................................................... 17
Section 37. Fixing Record Dates............................................ 17
Section 38. Registered Stockholders........................................ 19
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION................................ 19
Section 39. Execution Of Other Securities.................................. 19
ARTICLE IX DIVIDENDS.......................................................... 19
Section 40. Declaration Of Dividends....................................... 19
Section 41. Dividend Reserve............................................... 19
ARTICLE X FISCAL YEAR........................................................ 20
Section 42. Fiscal Year.................................................... 20
ARTICLE XI INDEMNIFICATION.................................................... 20
Section 43. Indemnification Of Directors, Officers, Employees And
Other Agents................................................... 20
ARTICLE XII NOTICES............................................................ 23
Section 44. Notices........................................................ 23
ARTICLE XIII AMENDMENTS......................................................... 25
ii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<CAPTION>
PAGE
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<S> <C>
Section 45. Amendments..................................................... 25
ARTICLE XIV LOANS TO OFFICERS.................................................. 25
Section 46. Loans To Officers.............................................. 25
</TABLE>
iii.
<PAGE>
BYLAWS
OF
QUANTUM EFFECT DEVICES, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the
corporation in the State of Delaware shall be in the City of Wilmington,
County of New Castle.
SECTION 2. OTHER OFFICES. The corporation shall also have and
maintain an office or principal place of business at such place as may be
fixed by the Board of Directors, and may also have offices at such other
places, both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation
may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETINGS.
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors. Nominations of persons
for election to the Board of Directors of the corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders: (i) pursuant to the corporation's notice of meeting of
stockholders; (ii) by or at the direction of the Board of Directors; or (iii) by
any stockholder of the corporation who was a
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stockholder of record at the time of giving of notice provided for in the
following paragraph, who is entitled to vote at the meeting and who complied
with the notice procedures set forth in Section 5.
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of Section 5(a) of these
Bylaws, (i) the stockholder must have given timely notice thereof in writing to
the Secretary of the corporation, (ii) such other business must be a proper
matter for stockholder action under the Delaware General Corporation Law
("DGCL"), (iii) if the stockholder, or the beneficial owner on whose behalf any
such proposal or nomination is made, has provided the corporation with a
Solicitation Notice (as defined in this Section 5(b)), such stockholder or
beneficial owner must, in the case of a proposal, have delivered a proxy
statement and form of proxy to holders of at least the percentage of the
corporation's voting shares required under applicable law to carry any such
proposal, or, in the case of a nomination or nominations, have delivered a proxy
statement and form of proxy to holders of a percentage of the corporation's
voting shares reasonably believed by such stockholder or beneficial owner to be
sufficient to elect the nominee or nominees proposed to be nominated by such
stockholder, and must, in either case, have included in such materials the
Solicitation Notice, and (iv) if no Solicitation Notice relating thereto has
been timely provided pursuant to this section, the stockholder or beneficial
owner proposing such business or nomination must not have solicited a number of
proxies sufficient to have required the delivery of such a Solicitation Notice
under this Section 5. To be timely, a stockholder's notice shall be delivered to
the Secretary at the principal executive offices of the Corporation not later
than the close of business on the ninetieth (90th) day nor earlier than the
close of business on the one hundred twentieth (120th) day 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 more than thirty (30)
days prior to or delayed by more than thirty (30) days after the anniversary of
the preceding year's annual meeting, notice by the stockholder to be timely must
be so delivered not earlier than the close of business on the one
hundred twentieth (120th) day prior to such annual meeting and not later than
the close of business on the later of the ninetieth (90th) day prior to such
annual meeting or the tenth (10th) day following the day on which public
announcement of the date of such meeting is first made. 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
proposed 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 "1934 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); (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
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made (i) the name and address of such stockholder, as they appear on the
corporation's books, and of such beneficial owner, (ii) the class and number
of shares of the corporation which are owned beneficially and of record by
such stockholder and such beneficial owner, and (iii) whether either such
stockholder or beneficial owner intends to deliver a proxy statement and form
of proxy to holders of, in the case of the proposal, at least the percentage
of the corporation's voting shares required under applicable law to carry the
proposal or, in the case of a nomination or nominations, a sufficient number
of holders of the corporation's voting shares to elect such nominee or
nominees (an affirmative statement of such intent, a "Solicitation Notice").
(c) Notwithstanding anything in the second sentence of Section
5(b) of these Bylaws to the contrary, in the event that the number of directors
to be elected to the Board of Directors of the Corporation is increased and
there is no public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by the corporation
at least one hundred (100) days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's 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 (10th) day following the day on which such public
announcement is first made by the corporation.
(d) Only such 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 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, or proposed, as the case may be, in accordance with the
procedures set forth in these Bylaws and, if any proposed nomination or
business is not in compliance with these Bylaws, to declare that such
defective proposal or nomination shall not be presented for stockholder
action at the meeting and shall be disregarded.
(e) Notwithstanding the foregoing provisions of this Section
5, in order to include information with respect to a stockholder proposal in the
proxy statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Nothing in these Bylaws shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the corporation proxy statement pursuant to
Rule 14a-8 under the 1934 Act.
(f) 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 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 1934 Act.
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SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation
may be called, for any purpose or purposes, by (i) the Chairman of the Board
of Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board of Directors for adoption) or (iv) the holders of fifty percent of the
Company's Common Stock.
At any time or times that the corporation is subject to Section 2115(b) of the
California General Corporation Law ("CGCL"), stockholders holding five percent
(5%) or more of the outstanding shares shall have the right to call a special
meeting of stockholders only as set forth in Section 18(c) herein.
(b) If a special meeting is properly called by any person
or persons other than the Board of Directors, the request shall be in
writing, specifying the general nature of the business proposed to be
transacted, and shall be delivered personally or sent by registered mail or
by telegraphic or other facsimile transmission to the Chairman of the Board
of Directors, the Chief Executive Officer, or the Secretary of the
corporation. No business may be transacted at such special meeting otherwise
than specified in such notice. The Board of Directors shall determine the
time and place of such special meeting, which shall be held not less than
thirty-five (35) nor more than one hundred twenty (120) days after the date
of the receipt of the request. Upon determination of the time and place of
the meeting, the officer receiving the request shall cause notice to be given
to the stockholders entitled to vote, in accordance with the provisions of
Section 7 of these Bylaws. If the notice is not given within one hundred
(100) days after the receipt of the request, the person or persons properly
requesting the meeting may set the time and place of the meeting and give the
notice. Nothing contained in this paragraph (b) shall be construed as
limiting, fixing, or affecting the time when a meeting of stockholders called
by action of the Board of Directors may be held.
(c) 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 or (ii) by any stockholder of the
corporation who is a stockholder of record at the time of giving notice
provided for in these Bylaws who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this Section 6(c). In
the event the corporation calls a special meeting of stockholders for the
purpose of electing one or more directors to the Board of Directors, any such
stockholder may nominate a person or persons (as the case may be), for
election to such position(s) as specified in the corporation's notice of
meeting, if the stockholder's notice required by Section 5(b) of these Bylaws
shall be delivered to the Secretary at the principal executive offices of the
corporation not earlier than the close of business on the one hundred
twentieth (120th) day prior to such special meeting and not later than the
close of business on the later of the ninetieth (90th) day prior to such
meeting or the tenth (10th) day following the day on which public
announcement 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. In
no event shall the public announcement of an adjournment of a special meeting
commence a new time period for the giving of a stockholder's notice as
described above.
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SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law
or the Certificate of Incorporation, written notice of each meeting of
stockholders shall be given not less than ten (10) nor more than sixty (60)
days before the date of the meeting to each stockholder entitled to vote at
such meeting, such notice to specify the place, date and hour and purpose or
purposes of the meeting. Notice of the time, place and purpose of any meeting
of stockholders may be waived in writing, signed by the person entitled to
notice thereof, either before or after such meeting, and will be waived by
any stockholder by his attendance thereat in person or by proxy, except when
the stockholder attends a meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Any stockholder so waiving notice
of such meeting shall be bound by the proceedings of any such meeting in all
respects as if due notice thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote
shall constitute a quorum for the transaction of business. In the absence of
a quorum, any meeting of stockholders may be adjourned, from time to time,
either by the chairman of the meeting or by vote of the holders of a majority
of the shares represented thereat, but no other business shall be transacted
at such meeting. The stockholders present at a duly called or convened
meeting, at which a quorum is present, may continue to transact business
until adjournment, notwithstanding the withdrawal of enough stockholders to
leave less than a quorum. Except as otherwise provided by statute, the
Certificate of Incorporation or these Bylaws, in all matters other than the
election of directors, the affirmative vote of the majority of shares present
in person or represented by proxy at the meeting and entitled to vote on the
subject matter shall be the act of the stockholders. Except as otherwise
provided by statute, the Certificate of Incorporation or these Bylaws,
directors shall be elected by a plurality of the votes of the shares present
in person or represented by proxy at the meeting and entitled to vote on the
election of directors. Where a separate vote by a class or classes or series
is required, except where otherwise provided by the statute or by the
Certificate of Incorporation or these Bylaws, a majority of the outstanding
shares of such class or classes or series, present in person or represented
by proxy, shall constitute a quorum entitled to take action with respect to
that vote on that matter and, except where otherwise provided by the statute
or by the Certificate of Incorporation or these Bylaws, the affirmative vote
of the majority (plurality, in the case of the election of directors) of the
votes cast by the holders of shares of such class or classes or series shall
be the act of such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days or if after the
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adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities
having voting power stand of record in the names of two (2) or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in
common, tenants by the entirety, or otherwise, or if two (2) or more persons
have the same fiduciary relationship respecting the same shares, unless the
Secretary is given written notice to the contrary and is furnished with a
copy of the instrument or order appointing them or creating the relationship
wherein it is so provided, their acts with respect to voting shall have the
following effect: (a) if only one (1) votes, his act binds all; (b) if more
than one (1) votes, the act of the majority so voting binds all; (c) if more
than one (1) votes, but the vote is evenly split on any particular matter,
each faction may vote the securities in question proportionally, or may apply
to the Delaware Court of Chancery for relief as provided in the DGCL, Section
217(b). If the instrument filed with the Secretary shows that any such
tenancy is held in unequal interests, a majority or even-split for the
purpose of subsection (c) shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and
make, at least ten (10) days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at said meeting, arranged in
alphabetical order, showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time
thereof and may be inspected by any stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of
Incorporation, any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum
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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.
(b) Every written consent shall bear the date of signature of
each stockholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
(60) days of the earliest dated consent delivered to the corporation in the
manner herein required, written consents signed by a sufficient number of
stockholders to take action are delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to
those stockholders who have not consented in writing. If the action which is
consented to is such as would have required the filing of a certificate under
any section of the DGCL if such action had been voted on by stockholders at a
meeting thereof, then the certificate filed under such section shall state,
in lieu of any statement required by such section concerning any vote of
stockholders, that written consent has been given in accordance with Section
228 of the DGCL.
(d) Notwithstanding the foregoing, no such action by written
consent may be taken following the closing of the initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock
of the corporation (the "Initial Public Offering").
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the
Board of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen by a
majority in interest of the stockholders entitled to vote, present in person or
by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
(b) The Board of Directors of the corporation shall be
entitled to make such rules or regulations for the conduct of meetings of
stockholders as it shall deem necessary, appropriate or convenient. Subject to
such rules and regulations of the Board of Directors, if any, the chairman of
the meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are necessary, appropriate or convenient for the proper conduct of the
meeting, including, without limitation, establishing an agenda or order of
business for the meeting, rules and procedures for maintaining order at the
meeting and the safety of those present, limitations on participation in such
meeting to stockholders of record of the corporation and their duly authorized
and constituted proxies and such other persons as the chairman shall permit,
restrictions on entry to the meeting after the time fixed for the commencement
thereof, limitations on the time allotted to questions or comments by
participants and regulation of the opening and closing of the polls for
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balloting on matters which are to be voted on by ballot. Unless and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the
Certificate of Incorporation. Directors need not be stockholders unless so
required by the Certificate of Incorporation. If for any cause, the directors
shall not have been elected at an annual meeting, they may be elected as soon
thereafter as convenient at a special meeting of the stockholders called for
that purpose in the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be
exercised, its business conducted and its property controlled by the Board of
Directors, except as may be otherwise provided by statute or by the
Certificate of Incorporation.
SECTION 17. CLASSES OF DIRECTORS.
(a) Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the Initial Public Offering, the directors shall be
divided into three classes designated as Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first annual
meeting of stockholders following the closing of the Initial Public Offering,
the term of office of the Class I directors shall expire and Class I directors
shall be elected for a full term of three years. At the second annual meeting of
stockholders following the Initial Public Offering, the term of office of the
Class II directors shall expire and Class II directors shall be elected for a
full term of three years. At the third annual meeting of stockholders following
the Initial Public Offering, the term of office of the Class III directors shall
expire and Class III directors shall be elected for a full term of three years.
At each succeeding annual meeting of stockholders, directors shall be elected
for a full term of three years to succeed the directors of the class whose terms
expire at such annual meeting. During such time or times that the corporation is
subject to Section 2115(b) of the CGCL, this Section 17(a) shall become
effective and apply only when the corporation is a "listed" corporation within
the meaning of Section 301.5 of the CGCL.
(b) In the event that the corporation (i) is subject to
Section 2115(b) of the CGCL and (ii) is not a "listed" corporation or ceases to
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be a "listed" corporation under Section 301.5 of the CGCL, Section 17(a) of
these Bylaws shall not apply and all directors shall be elected at each annual
meeting of stockholders to hold office until the next annual meeting.
(c) No person entitled to vote at an election for directors
may cumulate votes to which such person is entitled, unless, at the time of
such election, the corporation (i) is subject to Section 2115(b) of the CGCL
and (ii) is not a "listed" corporation or ceases to be a "listed" corporation
under Section 301.5 of the CGCL. During this time, every stockholder entitled
to vote at an election for directors may cumulate such stockholder's votes
and give one candidate a number of votes equal to the number of directors to
be elected multiplied by the number of votes to which such stockholder's
shares are otherwise entitled, or distribute the stockholder's votes on the
same principle among as many candidates as such stockholder thinks fit. No
stockholder, however, shall be entitled to so cumulate such stockholder's
votes unless (i) the names of such candidate or candidates have been placed
in nomination prior to the voting and (ii) the stockholder has given notice
at the meeting, prior to the voting, of such stockholder's intention to
cumulate such stockholder's votes. If any stockholder has given proper notice
to cumulate votes, all stockholders may cumulate their votes for any
candidates who have been properly placed in nomination. Under cumulative
voting, the candidates receiving the highest number of votes, up to the
number of directors to be elected, are elected.
Notwithstanding the foregoing provisions of this section, each director shall
serve until his successor is duly elected and qualified or until his death,
resignation or removal. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
SECTION 18. VACANCIES.
(a) Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A vacancy
in the Board of Directors shall be deemed to exist under this Section 18 in the
case of the death, removal or resignation of any director.
(b) If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the
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directors chosen by the directors then in offices as aforesaid, which
election shall be governed by Section 211 of the DGCL.
(c) At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy, the directors
then in office who have been elected by stockholders shall constitute less than
a majority of the directors then in office, then
(1) Any holder or holders of an aggregate of five
percent (5%) or more of the total number of shares at the time outstanding
having the right to vote for those directors may call a special meeting of
stockholders; or
(2) The Superior Court of the proper county shall,
upon application of such stockholder or stockholders, summarily order a
special meeting of stockholders, to be held to elect the entire board, all in
accordance with Section 305(c) of the CGCL. The term of office of any
director shall terminate upon that election of a successor.
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
SECTION 20. REMOVAL.
(a) During such time or times that the corporation is subject
to Section 2115(b) of the CGCL, the Board of Directors or any individual
director may be removed from office at any time without cause by the affirmative
vote of the holders of at least a majority of the outstanding shares entitled to
vote on such removal; provided, however, that unless the entire Board is
removed, no individual director may be removed when the votes cast against such
director's removal, or not consenting in writing to such removal, would be
sufficient to elect that director if voted cumulatively at an election which the
same total number of votes were cast (or, if such action is taken by written
consent, all shares entitled to vote were voted) and the entire number of
directors authorized at the time of such director's most recent election were
then being elected.
(b) Following any date on which the corporation is no
longer subject to Section 2115(b) of the CGCL and subject to any limitations
imposed by law, Section 20(a) above shall no longer apply and removal shall
be as provided in Section 141(k) of the DGCL.
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SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an annual
meeting of the Board of Directors shall be necessary and such meeting shall be
held for the purpose of electing officers and transacting such other business as
may lawfully come before it.
(b) REGULAR MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, regular meetings of the Board of Directors may be
held at any time or date and at any place within or without the State of
Delaware which has been designated by the Board of Directors and publicized
among all directors. No formal notice shall be required for regular meetings of
the Board of Directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may
be held at any time and place within or without the State of Delaware
whenever called by the Chairman of the Board, the President or any two of the
directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors,
or of any committee thereof, may participate in a meeting by means of 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
by such means shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex, or
by electronic mail or other electronic means, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) WAIVER OF NOTICE. The transaction of all business at
any meeting of the Board of Directors, or any committee thereof, however
called or noticed, or wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum be present and
if, either before or after the meeting, each of the directors not present
shall sign a written waiver of notice. All such waivers shall be filed with
the corporate records or made a part of the minutes of the meeting.
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SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a
greater number and except with respect to indemnification questions arising
under Section 43 hereof, for which a quorum shall be one-third of the exact
number of directors fixed from time to time in accordance with the
Certificate of Incorporation, a quorum of the Board of Directors shall
consist of a majority of the exact number of directors fixed from time to
time by the Board of Directors in accordance with the Certificate of
Incorporation; PROVIDED, HOWEVER, at any meeting whether a quorum be present
or otherwise, a majority of the directors present may adjourn from time to
time until the time fixed for the next regular meeting of the Board of
Directors, without notice other than by announcement at the meeting.
(b) At each meeting of the Board of Directors at which a
quorum is present, all questions and business shall be determined by the
affirmative vote of a majority of the directors present, unless a different vote
be required by law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, 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 such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
DGCL to be submitted to stockholders for approval, or (ii) adopting, amending or
repealing any bylaw of the corporation.
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(b) OTHER COMMITTEES. The Board of Directors may, from time to
time, appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall any such committee have the powers denied to
the Executive Committee in these Bylaws.
(c) TERM. Each member of a committee of the Board of
Directors shall serve a term on the committee coexistent with such member's
term on the Board of Directors. The Board of Directors, subject to any
requirements of any outstanding series of preferred Stock and the provisions
of subsections (a) or (b) of this Bylaw, may at any time increase or decrease
the number of members of a committee or terminate the existence of a
committee. The membership of a committee member shall terminate on the date
of his death or voluntary resignation from the committee or from the Board of
Directors. The Board of Directors may at any time for any reason remove any
individual committee member and the Board of Directors may fill any committee
vacancy created by death, resignation, removal or increase in the number of
members of the committee. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee, and, in addition, in
the absence or disqualification of any member of a committee, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place
of any such absent or disqualified member.
(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places
as are determined by the Board of Directors, or by any such committee, and
when notice thereof has been given to each member of such committee, no
further notice of such regular meetings need be given thereafter. Special
meetings of any such committee may be held at any place which has been
determined from time to time by such committee, and may be called by any
director who is a member of such committee, upon written notice to the
members of such committee of the time and place of such special meeting given
in the manner provided for the giving of written notice to members of the
Board of Directors of the time and place of special meetings of the Board of
Directors. Notice of any special meeting of any committee may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends such special
meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened. A majority of the authorized number of members
of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which
a quorum is present shall be the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President (if a
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director), or if the President is absent, the most senior Vice President (if
a director), or, in the absence of any such person, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the
meeting. The Secretary, or in his absence, any Assistant Secretary directed
to do so by the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation
shall include, if and when designated by the Board of Directors, the Chairman
of the Board of Directors, the Chief Executive Officer, the President, one or
more Vice Presidents, the Secretary, the Chief Financial Officer, the
Treasurer and the Controller, all of whom shall be elected at the annual
organizational meeting of the Board of Directors. The Board of Directors may
also appoint one or more Assistant Secretaries, Assistant Treasurers,
Assistant Controllers and such other officers and agents with such powers and
duties as it shall deem necessary. The Board of Directors may assign such
additional titles to one or more of the officers as it shall deem
appropriate. Any one person may hold any number of offices of the corporation
at any one time unless specifically prohibited therefrom by law. The salaries
and other compensation of the officers of the corporation shall be fixed by
or in the manner designated by the Board of Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman
of the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers, as
the Board of Directors shall designate from time to time.
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(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume
and perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors and shall record
all acts and proceedings thereof in the minute book of the corporation. The
Secretary shall give notice in conformity with these Bylaws of all meetings
of the stockholders and of all meetings of the Board of Directors and any
committee thereof requiring notice. The Secretary shall perform all other
duties given him in these Bylaws and other duties commonly incident to his
office and shall also perform such other duties and have such other powers,
as the Board of Directors shall designate from time to time. The President
may direct any Assistant Secretary to assume and perform the duties of the
Secretary in the absence or disability of the Secretary, and each Assistant
Secretary shall perform other duties commonly incident to his office and
shall also perform such other duties and have such other powers as the Board
of Directors or the President shall designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may
from time to time delegate the powers or duties of any officer to any other
officer or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
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SECTION 31. REMOVAL. Any officer may be removed from office at any
time, either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE
CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of
Directors may, in its discretion, determine the method and designate the
signatory officer or officers, or other person or persons, to execute on
behalf of the corporation any corporate instrument or document, or to sign on
behalf of the corporation the corporate name without limitation, or to enter
into ocntracts on behalf of the corporation, except where otherwise provided
by law or these Bylaws, and such execution or signature shall be binding upon
the corporation.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock
and other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent
with the Certificate of Incorporation and applicable law. Every holder of
stock in the corporation shall be entitled to have a certificate signed by or
in the name of the corporation by the Chairman of the Board of Directors, or
the President or any Vice President and by the Treasurer or Assistant
Treasurer or the Secretary or Assistant Secretary, certifying the number of
shares owned by him in the corporation. Any or all of the signatures on the
certificate may be facsimiles. In case any officer, transfer agent,
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or registrar who has signed or whose facsimile signature has been placed upon
a certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued with the same
effect as if he were such officer, transfer agent, or registrar at the date
of issue. Each certificate shall state upon the face or back thereof, in full
or in summary, all of the powers, designations, preferences, and rights, and
the limitations or restrictions of the shares authorized to be issued or
shall, except as otherwise required by law, set forth on the face or back a
statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights. Within a reasonable time after the
issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section
or otherwise required by law or with respect to this section a statement that
the corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights. Except as otherwise expressly provided by law, the rights and
obligations of the holders of certificates representing stock of the same
class and series shall be identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to agree to indemnify the corporation in such manner as it shall
require or to give the corporation a surety bond in such form and amount as it
may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the
corporation shall be made only upon its books by the holders thereof, in
person or by attorney duly authorized, and upon the surrender of a properly
endorsed certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and
perform any agreement with any number of stockholders of any one or more
classes of stock of the corporation to restrict the transfer of shares of
stock of the corporation of any one or more classes owned by such
stockholders in any manner not prohibited by the DGCL.
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon
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which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall, subject to applicable law, not be
more than sixty (60) nor less than ten (10) days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; PROVIDED, HOWEVER, that the Board of Directors may fix a new record
date for the adjourned meeting.
(b) Prior to the Initial Public Offering, in order that the
corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. Any stockholder
of record seeking to have the stockholders authorize or take corporate action
by written consent shall, by written notice to the Secretary, request the
Board of Directors to fix a record date. The Board of Directors shall
promptly, but in all events within ten (10) days after the date on which such
a request is received, adopt a resolution fixing the record date. If no
record date has been fixed by the Board of Directors within ten (10) days of
the date on which such a request is received, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation by delivery to its registered office in the State of Delaware,
its principal place of business or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders
are recorded. Delivery made to the corporation's registered office shall be
by hand or by certified or registered mail, return receipt requested. If no
record date has been fixed by the Board of Directors and prior action by the
Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights or the stockholders entitled to
exercise any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action, the Board of Directors
may fix, in advance, a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted, and which
record date shall be not more than sixty (60) days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board
of Directors adopts the resolution relating thereto.
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SECTION 38. REGISTERED STOCKHOLDERS. 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, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may
be authorized by the Board of Directors, and the corporate seal impressed
thereon or a facsimile of such seal imprinted thereon and attested by the
signature of the Secretary or an Assistant Secretary, or the Chief Financial
Officer or Treasurer or an Assistant Treasurer; PROVIDED, HOWEVER, that where
any such bond, debenture or other corporate security shall be authenticated
by the manual signature, or where permissible facsimile signature, of a
trustee under an indenture pursuant to which such bond, debenture or other
corporate security shall be issued, the signatures of the persons signing and
attesting the corporate seal on such bond, debenture or other corporate
security may be the imprinted facsimile of the signatures of such persons.
Interest coupons appertaining to any such bond, debenture or other corporate
security, authenticated by a trustee as aforesaid, shall be signed by the
Treasurer or an Assistant Treasurer of the corporation or such other person
as may be authorized by the Board of Directors, or bear imprinted thereon the
facsimile signature of such person. In case any officer who shall have signed
or attested any bond, debenture or other corporate security, or whose
facsimile signature shall appear thereon or on any such interest coupon,
shall have ceased to be such officer before the bond, debenture or other
corporate security so signed or attested shall have been delivered, such
bond, debenture or other corporate security nevertheless may be adopted by
the corporation and issued and delivered as though the person who signed the
same or whose facsimile signature shall have been used thereon had not ceased
to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital
stock of the corporation, subject to the provisions of the Certificate of
Incorporation and applicable law, if any, may be declared by the Board of
Directors pursuant to law at any regular or special meeting. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation and applicable law.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board
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of Directors from time to time, in their absolute discretion, think proper as
a reserve or reserves to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the corporation, or for such
other purpose as the Board of Directors shall think conducive to the
interests of the corporation, and the Board of Directors may modify or
abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall
be fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
OTHER AGENTS.
(a) DIRECTORS AND OFFICERS. The corporation shall indemnify
its directors and officers to the fullest extent not prohibited by the DGCL
or any other applicable law; PROVIDED, HOWEVER, that the corporation may
modify the extent of such indemnification by individual contracts with its
directors and officers; and, PROVIDED, FURTHER, that the corporation shall
not be required to indemnify any director or officer in connection with any
proceeding (or part thereof) initiated by such person unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding
was authorized by the Board of Directors of the corporation, (iii) such
indemnification is provided by the corporation, in its sole discretion,
pursuant to the powers vested in the corporation under the DGCL or any other
applicable law or (iv) such indemnification is required to be made under
subsection (d).
(b) EMPLOYEES AND OTHER AGENTS. The corporation shall have
power to indemnify its employees and other agents as set forth in the DGCL or
any other applicable law. The Board of Directors shall have the power to
delegate the determination of whether indemnification shall be given to any such
person to such officers or other persons as the Board of Directors shall
determine.
(c) EXPENSES. The corporation shall advance to any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he 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, partnership, joint venture, trust or
other enterprise, prior to the final disposition of the proceeding, promptly
following request therefor, all expenses incurred by any director or officer in
connection with such proceeding
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upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not
entitled to be indemnified under this Section 43 or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant
to paragraph (e) of this Section 43, no advance shall be made by the
corporation to an officer of the corporation (except by reason of the fact
that such officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably
and promptly made (i) by the Board of Directors by a majority vote of a
quorum consisting of directors who were not parties to the proceeding, or
(ii) if such quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, that the facts known to the decision-making party at the time such
determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in
or not opposed to the best interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and
officers and officers under this Bylaw shall be deemed to be contractual
rights and be effective to the same extent and as if provided for in a
contract between the corporation and the director or officer. Any right to
indemnification or advances granted by this Section 43 to a director or
officer shall be enforceable by or on behalf of the person holding such right
in any court of competent jurisdiction if (i) the claim for indemnification
or advances is denied, in whole or in part, or (ii) no disposition of such
claim is made within ninety (90) days of request therefor. The claimant in
such enforcement action, if successful in whole or in part, shall be entitled
to be paid also the expense of prosecuting his claim. In connection with any
claim for indemnification, the corporation shall be entitled to raise as a
defense to any such action that the claimant has not met the standards of
conduct that make it permissible under the DGCL or any other applicable law
for the corporation to indemnify the claimant for the amount claimed. In
connection with any claim by an officer of the corporation (except in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such officer is or was a director
of the corporation) for advances, the corporation shall be entitled to raise
a defense as to any such action clear and convincing evidence that such
person acted in bad faith or in a manner that such person did not believe to
be in or not opposed to the best interests of the corporation, or with
respect to any criminal action or proceeding that such person acted without
reasonable cause to believe that his conduct was lawful. 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 has met the applicable standard of conduct set
forth in the DGCL or any other applicable law, 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
claimant has not met the applicable standard of conduct. In any suit brought
by a director or officer to enforce a right to indemnification or to an
advancement of expenses hereunder, the burden of proving that the director or
officer is not
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entitled to be indemnified, or to such advancement of expenses, under this
Section 43 or otherwise shall be on the corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Bylaw shall not be exclusive of any other right which such person
may have or hereafter acquire under any applicable statute, provision of the
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law, or by any other applicable law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any
person by this Bylaw shall continue as to a person who has ceased to be a
director, officer, employee or other agent and shall inure to the benefit of
the heirs, executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the DGCL or
any other applicable law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Section 43.
(h) AMENDMENTS. Any repeal or modification of this Section 43
shall only be prospective and shall not affect the rights under this Bylaw in
effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and officer to the full
extent not prohibited by any applicable portion of this Section 43 that shall
not have been invalidated, or by any other applicable law. If this Section 43
shall be invalid due to the application of the indemnification provisions of
another jurisdiction, then the corporation shall indemnify each director and
officer to the full extent under any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly
construed and shall include, without limitation, the investigation,
preparation, prosecution, defense, settlement, arbitration and appeal of, and
the giving of testimony in, any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed
and shall include, without limitation, court costs, attorneys' fees, witness
fees, fines, amounts paid in settlement or
22.
<PAGE>
judgment and any other costs and expenses of any nature or kind incurred in
connection with any proceeding.
(3) The term the "corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger
which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so
that any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall
stand in the same position under the provisions of this Section 43 with
respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had
continued.
(4) References to a "director," "officer,"
"employee," or "agent" of the corporation shall include, without limitation,
situations where such person is serving at the request of the corporation as,
respectively, a director, officer, employee, trustee or agent of another
corporation, partnership, joint venture, trust or other enterprise.
(5) References to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan;
and references to "serving at the request of the corporation" shall include
any service as a director, officer, employee or agent of the corporation
which imposes duties on, or involves services by, such director, officer,
employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to
in this Section 43.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to
any director may be given by the method stated in subsection (a), or by
overnight delivery service, facsimile, telex or telegram, except that such
notice other than one which is delivered personally shall be sent to such
address as such director shall have filed in writing with the Secretary, or, in
the absence of such filing, to the last known post office address of such
director.
23.
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(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by
a duly authorized and competent employee of the corporation or its transfer
agent appointed with respect to the class of stock affected, specifying the name
and address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail or by
overnight delivery service, as above provided, shall be deemed to have been
given as at the time of mailing, and all notices given by facsimile, telex or
telegram shall be deemed to have been given as of the sending time recorded at
time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of
time within which any stockholder may exercise any option or right, or enjoy
any privilege or benefit, or be required to act, or within which any director
may exercise any power or right, or enjoy any privilege, pursuant to any
notice sent him in the manner above provided, shall not be affected or
extended in any manner by the failure of such stockholder or such director to
receive such notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the DGCL, the certificate shall state, if such is the fact and if
notice is required, that notice was given to all persons entitled to receive
notice except such persons with whom communication is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever
notice is required to be given, under any provision of law or the Certificate
of Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of
the taking of action by written consent without a meeting to such person
during the period between such two consecutive annual meetings, or (ii) all,
and at least two, payments (if sent by first class mail) of dividends or
interest on securities during a twelve-month period, have been mailed
addressed to such person at his address as shown on the records of the
corporation and have been returned undeliverable, the giving of such notice
to such person shall not be required. Any action or meeting which shall be
taken or held without notice to such person shall have the same force and
effect as if such notice had been duly given.
24.
<PAGE>
If any such person shall deliver to the corporation a written notice setting
forth his then current address, the requirement that notice be given to such
person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the DGCL, the certificate need not state that notice was not
given to persons to whom notice was not required to be given pursuant to this
paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the voting stock of the
corporation entitled to vote. The Board of Directors shall also have the power
to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
25.
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY
COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS.
WARRANT AGREEMENT
TO PURCHASE SHARES OF THE SERIES B PREFERRED STOCK OF
QUANTUM EFFECT DESIGN, INC.
DATED AS OF SEPTEMBER 30, 1997 (THE "EFFECTIVE DATE")
WHEREAS, Quantum Effect Design, Inc., a California corporation (the
"Company") has entered into a Loan and Security Agreement dated as of
September 30, 1997, and related Promissory Note (collectively, the "Loan")
with Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant the Warrantholder, in
consideration for such Loan, the right to purchase shares of the Series B
Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Loan and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the
Warrantholder is entitled, upon the terms and subject to the conditions
hereinafter set forth, to subscribe to and purchase, from the Company, 62,500
fully paid and non-assessable shares of the Company's Series B Preferred
Stock ("Preferred Stock") at a purchase price of $1.60 per share (the
"Exercise Price"). The number and purchase price of such shares are subject
to adjustment as provided in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT
Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period of (i)
six (6) years or (ii) three (3) years from the effective date of the
Company's initial public offering, whichever is longer.
Notwithstanding the previous sentence, if all of the Preferred Stock
is converted into shares of Common Stock in connection with a registration of
the Company's Common Stock under the 1933 Act, then this Warrant shall
automatically become exercisable for that number of shares of Common Stock
equal to the number of shares of Stock received thereupon had been
simultaneously converted into shares of Common Stock immediately prior to
such event, and the Exercise Price shall be automatically adjusted to equal
the amount obtained by dividing (i) the aggregate Exercise Price of the
shares of Preferred Stock for this which this Warrant was exercisable
immediately prior to such conversion, by (ii) the number of shares of Common
Stock for which this Warrant is exercisable immediately after such conversion.
3. EXERCISE OF THE PURCHASE RIGHTS
The purchase rights set forth in this Warrant Agreement are
exercisable by the Warrantholder, in whole or in part, at any time, or from
time to time, prior to the expiration of the term set forth in Section 2
above, by
1.
<PAGE>
tendering to the Company at its principal office a notice of exercise in the
form attached hereto as Exhibit I (the "Notice of Exercise"), duly completed
and executed. Promptly upon receipt of the Notice of Exercise and the payment
of the purchase price in accordance with the terms set forth below, and in no
event later than twenty-one (21) days thereafter, the Company shall issue to
the Warrantholder a certificate for the number of shares of Preferred Stock
purchased and shall execute the acknowledgment of exercise in the form
attached hereto as Exhibit II (the "Acknowledgment of Exercise") indicating
the number of shares which remain subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election after
(i) by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
Y(A-B)
X = --------
A
Where X = the number of shares of Preferred Stock to be issued to the
Warrantholder
Y = the number of shares of Preferred Stock requested to be
exercised under this Warrant Agreement
A = the fair market value of one (1) share of Preferred Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of Preferred
Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise is in connection with an initial public offering of
the Company's Common Stock, and if the Company's Registration Statement
relating to such public offering has been declared effective by the SEC, then
the fair market value per share shall be the product of (x) the initial
"Price to Public" specified in the final prospectus with respect to the
offering and (y) the number of shares of Common Stock into which each share
of Preferred Stock is convertible at the time of such exercise;
(ii) if this Warrant is exercised after, and not in connection with the
Company's initial public offering; and:
(a) if traded on a securities exchange, the fair market value shall
be deemed to be the product of (x) the average of the closing prices over
a twenty-one (21) day period ending three days before the day the current
fair market value of the securities is being determined and (y) the
number of shares of Common Stock into which each share of Preferred Stock
is convertible at the time of such exercise; or
(b) if actively traded over-the-counter, the fair market value
shall be deemed to be the product of (x) the average of the closing bid
and asked prices quoted on the NASDAQ System (or similar system) over the
twenty-one (21) day period ending three days before the date the current
fair market value of the securities is being determined and (y) the
number of shares of Common Stock into which each share of Preferred Stock
is convertible at the time of such exercise:
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Preferred Stock shall be the product of (x) the
highest price per share with the Company could obtain from a willing buyer
(not a current employee or director) for shares of Common Stock sold by the
Company, from authorized but unissued shares, as determined in good faith by
its Board of Directors and (y) the number of shares of Common Stock into
which each share of Preferred Stock is convertible at the time of such
exercise, unless the Company shall become subject to a merger, acquisition or
other consolidation pursuant to which the Company is not the surviving party,
in which case the fair market value of Preferred Stock shall be deemed to be
the value received by the holders of the Company's Preferred Stock on a
common equivalent basis pursuant to such merger or acquisition.
2.
<PAGE>
Upon partial exercise by either cash or Net Issuance, the Company
shall promptly issue an amended Warrant Agreement representing the remaining
number of shares purchasable hereunder. All other terms and conditions of
such amended Warrant Agreement shall be identical to those contained herein,
including, but not limited to the Effective date hereof.
4. RESERVATION OF SHARES.
(a) AUTHORIZATION AND RESERVATION OF SHARES. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved
a sufficient number of shares of its Preferred Stock to provide for the
exercise of the rights to purchase Preferred Stock as provided for herein.
(b) REGISTRATION OR LISTING. If any shares of Preferred Stock
required to be reserved hereunder require registration with or approval of
any governmental authority under any Federal or State law (other than any
registration under the Securities Act of 1933, as amended ("1933 Act"), as
then in effect, or any similar Federal statute then enforced, or any state
securities law, required by reason of any transfer involved in such
conversion), before such shares may be issued upon conversion, the Company
will, at its expense and as expeditiously as possible, use its best efforts
to cause such shares to be duly registered, listed or approved for listing on
such domestic securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall
be issued upon the exercise of the Warrant, but in lieu of such fractional
shares the Company shall make a cash payment therefor upon the basis of the
Exercise Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any
voting rights or other rights as a shareholder of the Company prior to the
exercise of the Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address
of the registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred
Stock purchasable hereunder are subject to adjustment, as follows:
(a) MERGER AND SALE OF ASSETS. If at any time there shall be a
capital reorganization of the shares of the Company's stock (other than a
combination, reclassification, exchange or subdivision of shares otherwise
provided for herein), or a merger or consolidation of the Company with or
into another corporation whether or not the Company is the surviving
corporation, or the sale of all or substantially all of the Company's
properties and assets to any other person (hereinafter referred to as a
"Merger Event"), then, as a part of such Merger Event, lawful provision shall
be made so that the Warrantholder shall thereafter be entitled to receive,
upon exercise of the Warrant, the number of shares of preferred stock or
other securities of the successor corporation resulting from such Merger
Event, equivalent in value to that which would have been issuable if
Warrantholder had exercised this Warrant immediately prior to the Merger
Event. In any such case, appropriate adjustment (as determined in good faith
by the Company's Board of Directors) shall be made in the application of the
provisions of this Warrant Agreement with respect to the rights and interest
of the Warrantholder after the Merger Event to the end that the provisions of
this Warrant Agreement (including adjustments of the Exercise Price and
number of shares of Preferred Stock purchasable) shall be applicable to the
greatest extent possible.
3.
<PAGE>
(b) RECLASSIFICATION OF SHARES. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under
this Warrant Agreement exist into the same or a different number of
securities of any other class or classes, this Warrant Agreement shall
thereafter represent the right to acquire such number and kind of securities
as would have been issuable as the result of such change with respect to the
securities which were subject to the purchase rights under this Warrant
Agreement immediately prior to such combination, reclassification, exchange,
subdivision or other change.
(c) SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) STOCK DIVIDENDS. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution
specifically provided for in the foregoing subsections (a) or (b)) of the
Company's stock, then the Exercise Price shall be adjusted, from and after
the record date of such dividend or distribution to that price determined by
multiplying the Exercise Price in effect immediately prior to such record
date by a fraction (i) the numerator of which shall be the total number of
all shares of the Company's stock outstanding immediately prior to such
dividend or distribution, and (ii) the denominator of which shall be the
total number of all shares of the Company's stock outstanding immediately
after such dividend or distribution. The Warrantholder shall thereafter be
entitled to purchase, at the Exercise Price resulting from such adjustment,
the number of shares of Preferred Stock (calculated to the nearest whole
share) obtained by multiplying the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Preferred Stock issuable upon
the exercise hereof immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment.
(e) ANTIDILUTION RIGHTS. Additional antidilution rights applicable
to the Preferred Stock purchasable hereunder are as set forth in the
Company's Amended and Restated Articles of Incorporation, as amended through
the Effective Date, a true and complete copy of which is attached hereto as
Exhibit IV (the "Charter"). The Company shall promptly provide the
Warrantholder with any restatement, amendment, modification or waiver of the
Charter. The Company shall provide Warrantholder with prior written notice of
any issuance of its stock or other equity security to occur after the
Effective Date of this Warrant, other than those issuances described in
Section 2g(i) through 2g(iv) of the Charter, which notice shall include (a)
the price at which such stock or security is to be sold, (b) the number of
shares to be issued, and (c) such other information as necessary for
Warrantholder to determine if a dilutive event has occurred.
(f) NOTICE OF ADJUSTMENTS. If: (i) the Company shall declare any
dividend or distribution upon its stock, whether in cash, property, stock or
other securities; (ii) the Company shall offer for subscription pro rata t
the holders of any class of its Preferred or other convertible stock any
additional shares of stock of any class or other rights; (iii) there shall be
any Merger Event; (iv) there shall be an initial public offering; or (v)
there shall be any voluntary dissolution, liquidation or winding up of the
Company; then, in connection with each such event, the Company shall send to
the Warrantholder: (A) at least twenty (20) days' prior written notice of the
date on which the books of the company shall close or a record shall be taken
for such dividend, distribution, subscription rights (specifying the date on
which the holders of Preferred Stock shall be entitled thereto) or for
determining rights to vote in respect of such merger Event, dissolution,
liquidation or winding up; (B) in the case of any such Merger Event,
dissolution, liquidation or winding up, at least twenty (20) days' prior
written notice of the date when the same shall take place (and specifying the
date on which the holders of Preferred Stock shall be entitled to exchange
their Preferred Stock for securities or other property deliverable upon such
Merger Event, dissolution, liquidation or winding up); and (C) in the case of
a public offering, the Company shall give the Warrantholder at least twenty
(20) days written notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i)
the event requiring the adjustment, (ii) the amount of the adjustment, (iii)
the method by which such adjustment was calculated, (iv) the Exercise Price,
and (v) the number of shares subject to purchase hereunder after giving
effect to such adjustment, and shall be given by first class mail, postage
prepaid, addressed to the Warrantholder, at the address as shown on the books
of the Company.
4.
<PAGE>
(g) TIMELY NOTICE. Failure to timely provide such notice required by
subsection (f) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained
in any insufficient notice received by Warrantholder. The notice period shall
begin on the date Warrantholder actually receives a written notice containing
all the information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) RESERVATION OF PREFERRED STOCK. The Preferred Stock issuable
upon exercise of the Warrantholder's rights has been duly and validly
reserved and, when issued in accordance with the provisions of this Warrant
Agreement, will be validly issued, fully paid and non-assessable, and will be
free of any taxes, liens, charges or encumbrances of any nature whatsoever,
provided, however, that the Preferred Stock issuable pursuant to this Warrant
Agreement may be subject to restrictions on transfer under state and/or
Federal securities laws. The Company has made available to the Warrantholder
true, correct and complete copies of its Charter and Bylaws, as amended. The
issuance of certificates for shares of Preferred Stock upon exercise of the
Warrant Agreement shall be made without charge to the Warrantholder for any
issuance tax in respect thereof, or other cost incurred by the Company in
connection with such exercise and the related issuance of shares of Preferred
Stock. The Company shall not be required to pay any tax which may be payable
in respect of any transfer involved and the issuance and delivery of any
certificate in a name other than that of the Warrantholder.
(b) DUE AUTHORITY. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire
the shares of Preferred Stock, have been duly authorized by all necessary
corporate action on the part of the Company, and the Loans and this Warrant
Agreement are not inconsistent with the Company's Charter or Bylaws, do not
contravene any law or governmental rule, regulation or order applicable to
it, do not and will not contravene any provision of, or constitute a default
under, any indenture, mortgage, contract or other instrument to which it is a
party or by which it is bound, and the Loans and this Warrant Agreement
constitute legal, valid and binding agreements of the Company, enforceable in
accordance with their respective terms.
(c) CONSENTS AND APPROVALS. No consent or approval of, giving of
notice to, registration with, or taking of any other action in respect of any
state, Federal or other governmental authority or agency is required with
respect to the execution, delivery and performance by the Company of its
obligations under this Warrant Agreement, except for the filing of notices
pursuant to Regulation D under the 1933 Act and any filing required by
applicable state securities law, which filings will be effective by the time
required thereby.
(d) ISSUED SECURITIES. All issued and outstanding shares of Common
Stock, Preferred Stock or any other securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. All
outstanding shares of Common Stock, Preferred Stock and any other securities
were issued in full compliance with all Federal and state securities laws. In
addition, as of June 30, 1997:
(i) The authorized capital of the Company consisted of (A)
15,500,000 shares of Common Stock and (B) 4,300,000 shares of preferred
stock, consisting of 1,800,000 shares designated as Series A Preferred
Stock, all of which are issued and outstanding and 2,500,000 shares
designated as Series B Preferred Stock. 2,500,000 of which are issued
and outstanding and are convertible into 4,300,000 shares of Common
Stock. In addition, the Company has reserved 9,000,000 shares of Common
Stock for issuance under its two Incentive Stock Option Plans. There are
no other options, warrants, conversion privileges or other rights
presently outstanding to purchase or otherwise acquire any authorized
but unissued shares of the Company's capital stock or other securities
of the Company.
(ii) Except as set forth on Schedule V hereto, in accordance with
the Company's Charter, no shareholder of the Company has preemptive
rights to purchase new issuances of the Company's capital stock.
(e) INSURANCE. The Company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarity situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
5.
<PAGE>
(f) OTHER COMMITMENTS TO REGISTER SECURITIES. Except as set forth on
Schedule V, the Company is not, pursuant to the terms of any other agreement
currently in existence, under any obligation to register under the 1933 Act
any of its presently outstanding securities or any of its securities which
may hereafter be issued.
(g) EXEMPT TRANSACTION. Subject to the accuracy of the
Warrantholder's representations in Section 10 hereof, the issuance of the
Preferred Stock upon exercise of this Warrant will constitute a transaction
exempt from (i) the registration requirements of Section 5 of the 1933 Act,
in reliance upon Section 4(2) thereof, and (ii) the qualification
requirements of the applicable state securities laws.
(h) COMPLIANCE WITH RULE 144. At the written consent of the
Warrantholder, who proposes to sell Preferred Stock issuable upon the
exercise of the Warrant in compliance with Rule 144 promulgated by the
Securities and Exchange Commission, the Company shall furnish to the
Warrantholder, within ten days after receipt of such request, a written
statement confirming the Company's compliance with the filing requirements of
the Securities and Exchange Commission as set forth in such Rule, as such
Rule may be amended from time to time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company
in reliance upon the following representations and covenants of the
Warrantholder:
(a) INVESTMENT PURPOSE. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights
contained herein will be acquired for investment and not with a view to the
sale or distribution of any part thereof, and the Warrantholder has no
present intention of selling or engaging in any public distribution of the
same except pursuant to a registration or exemption.
(b) PRIVATE ISSUE. The Warrantholder understands (i) that the
Preferred Stock issuable upon exercise of this Warrant is not registered
under the 1933 Act or qualified under applicable state securities laws on the
ground and the issuance contemplated by this Warrant Agreement will be exempt
from the registration and qualifications requirements thereof, and (ii) that
the Company's reliance on such exemption is predicated on the representation
set forth in this Section 10.
(c) DISPOSITION OF WARRANTHOLDER'S RIGHTS. In no event will the
Warantholder make a disposition of any of its rights to acquire Preferred
Stock or Preferred Stock issuable upon exercise of such rights unless and
until (i) it shall have notified the Company of the proposed disposition, and
(ii) if requested b the Company, it shall have furnished the Company with an
opinion of counsel (which counsel may either be inside or outside counsel to
the Warrantholder) satisfactory to the Company and its counsel to the effect
that (A) appropriate action necessary for compliances with the 1933 Act has
been taken, or (B) an exemption from the registration requirements of the
1933 Act is available. Notwithstanding the foregoing, the restrictions
imposed upon the transferability of any of its rights to acquire Preferred
Stock or Preferred Stock issuable on the exercise of such rights do not apply
to transfers from the beneficial owner of any of the aforementioned
securities to its nominee or from such nominee to its beneficial owner, and
shall terminate as to any particular share of Preferred Stock when (1) such
security shall have been effectively registered under the 1933 Act and sold
by the holder thereof in accordance with such registration or (2) such
security shall have been sold without registration in compliance with Rule
144 under the 1933 Act, or (3) a letter shall have been issued to the
Warrantholder at its request by the staff of the Securities and Exchange
Commission or a ruling shall have been issued to the Warrantholder at its
request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security
is transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever
the restrictions imposed hereunder shall terminate, as hereinabove provided,
the Warantholder or holder of a share of Preferred Stock then outstanding as
to which such restrictions have terminated shall be entitled to receive from
the Company, without expense to such holder, one or more new certificates for
the Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) FINANCIAL RISK. The Warrantholder has such knowledge and
experience in financial and business matters as to be capable of evaluating
the merits and risks of its investment, and has the ability to bear the
economic risks of its investment.
6.
<PAGE>
(e) RISK OF REGISTRATION. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission
pursuant to Section 12 of the 1934 Act (the "1934 Act"), or file reports
pursuant to Section 15(d), of the 1934 Act*, or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires
to sell (i) the rights to purchase Preferred Stock pursuant to this Warrant
Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to
purchase. It may be required to hold such securities for an indefinite
period. The Warrantholder also understands that any sale of its rights of the
Warrantholder to purchase Preferred Stock or Preferred Stock which might be
made by it in reliance upon Rule 144 under the 1933 Act may be made only in
accordance with the terms and conditions of that Rule.
(f) ACCREDITED INVESTOR. Warrantholder is an "accredited investor"
within the meaning of the Securities and Exchange Rule 501 of Regulation D,
as presently in effect.
11. RIGHT OF FIRST OFFER.
In accordance with the provisions of Section 8 of the
Charter, if the Company proposes to offer any "Junior Shares" or
"Convertible Securities" (as defined in the Charter) ("Shares"), the
Company shall promptly provide Warrantholder with an offer to sell
Warrantholder on the same terms and conditions a portion of such
Shares equal to the proportion that the number of shares of Preferred
Stock to be issued upon exercise hereunder or number of shares of
common stock upon conversion thereof, bears to the total number of
shares of common stock of the Company then outstanding (assuming full
conversion of all shares of referred Stock and exercise of all options).
12. TRANSFERS.
Subject to the terms and conditions contained in Section 10
hereof, this Warrant Agreement and all rights hereunder are
transferable in whole or in part by the Warrantholder and any
successor transferee, only to an Affiliate as defined in the 1933 Act,
of Warrantholder, provided, however, in no event shall the number of
transfers of the rights and interests in all of the Warrants exceed
three (3) transfers. The transfer shall be recorded on the books of
the Company upon receipt by the Company of a notice of transfer in the
form attached hereto as Exhibit III (the "Transfer Notice"), at its
principal offices and the payment to the Company of all transfer taxes
and other governmental charges imposed on such transfer.
13. MISCELLANEOUS.
(a) EFFECTIVE DATE. The provisions of the Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been
executed and delivered by the Company on the date hereof. This Warrant
Agreement shall be binding upon any successors or assigns of the Company.
(b) ATTORNEY'S FEES. In any litigation, arbitration or court
proceeding between the Company and the Warrantholder relating hereto, the
prevailing party shall be entitled to attorneys' fees and expenses and all
costs of proceedings incurred in enforcing this Warrant Agreement.
(c) GOVERNING LAW. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State
of Illinois.
(d) COUNTERPARTS. This Warrant Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(e) NOTICES. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal
delivery, facsimile transmission (provided that the original is sent by
personal delivery or mall as hereafter set forth) or seven (7) days after
deposit in the United States mail, by registered or certified mail, addressed
(i) to the Warrantholder at 6111 North River Road, Rosemont, Illinois 60018,
Attention: James Labe, Venture Group, cc: Legal Department, Attention:
General Counsel, (and/or, if by facsimile, (847) 518-5465 and (847) 518-5088
and (ii) to the Company at 3255-3 Scott Blvd., Suite 200, Santa Clara,
California 95054, Attention: President (and/or if by facsimile, (408)
565-0335 or at such other address as any such party may subsequently
designate by written notice to the other party.
7.
<PAGE>
(f) REMEDIES. In the event of any default hereunder, the
non-defaulting party may proceed to protect and enforce its rights either by
suit in equity and/or by action at law, including but not limited to an
action for damages as a result of any such default, and/or an action for
specific performance for any default where Warrantholder will not have an
adequate remedy at law and where damages will not be readily ascertainable.
The Company expressly agrees that it shall not oppose an application by the
Warrantholder or any other person entitled to the benefit of this Agreement
requiring specific performance of any or all provisions hereof or enjoining
the Company from continuing to commit any such breach of this Agreement.
(g) NO IMPAIRMENT OF RIGHTS. The Company will not, by amendment of
its Charter or through any other means, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of
all such actions as may be necessary or appropriate in order to protect the
rights of the Warrantholder against impairment.
(h) SURVIVAL. The representations, warranties, covenants and
conditions of the respective parties contained herein or made pursuant to
this Warrant Agreement shall survive the execution and delivery of this
Warrant Agreement.
(i) SEVERABILITY. In the event any one or more of the provisions of
this Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision,
which comes closest to the intention of the parties underlying the invalid,
illegal or unenforceable provision.
(j) AMENDMENTS. Any provision of this Warrant Agreement may be
amended by a written instrument signed by the Company and by the
Warrantholder.
(k) ADDITIONAL DOCUMENTS. The Company, upon execution of this
Warrant Agreement, shall provide the Warrantholder with an officer's
certificate with respect to the representations, warranties and covenants set
forth in subparagraphs (a) through (d), (f) and (g) of Section 9 above. The
Company shall also supply such other documents as the Warrantholder may from
time to time reasonable request.
8.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be executed by its officers thereunto duly authorized as of the
Effective Date.
COMPANY:
QUANTUM EFFECT DESIGN, INC.
By: \s\ Thomas J. Riordan
-------------------------
Title: President and CEO
----------------------
WARRANTHOLDER:
COMDISCO, INC.
By: \s\ James L. Labe
----------------------------
Title: James L. Labe, President
-------------------------
Comsdisco Ventures Division
-------------------------------
9.
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
TO:
-----------------------------
(1) The Undersigned Warrantholder hereby elects to purchase ______ shares
of the Series B Preferred Stock of Quantum Effect Design, Inc. pursuant
to the terms of the Warrant Agreement dated the 30th day of September,
1997 (the "Warrant Agreement") between Quantum Effect Design, Inc. and
the Warrantholder, and tenders herewith payment of the purchase price
for such shares in full, together with all applicable transfer taxes,
if any.
(2) In exercising its rights to purchase the Series B Preferred Stock of
Quantum Effect Design, Inc., the undersigned hereby confirms and
acknowledges the investment representations and warranties made in
Section 10 of the Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series B Preferred Stock in the name of the undersigned or in such
other name as is specified below.
--------------------------------------------
(Name)
--------------------------------------------
(Address)
Warrantholder: COMDISCO, INC.
By:
-----------------------------------------
Title:
--------------------------------------
Date:
---------------------------------------
10.
<PAGE>
EXHIBIT II
ACKNOWLEDGEMENT OF EXERCISE
The undersigned _______________________________, hereby acknowledges
receipt of the "Notice of Exercise" from Comdisco, Inc. to purchase ___
shares of the Series B Preferred Stock of Quantum Effect Design, Inc.,
pursuant to the terms of the Warrant Agreement, and further acknowledges that
____ shares remain subject to purchase under the terms of the Warrant
Agreement.
Company: QUANTUM EFFECT DESIGN, INC.
By:
-------------------------------------
Title:
----------------------------------
Date:
-----------------------------------
11.
<PAGE>
EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this
form and supply required information. Do not use this form to purchase
shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to:
- ----------------------------------------------------------
(Please Print)
whose address is
------------------------------------------
- ----------------------------------------------------------
Dated:
-------------------------------------------
Holder's Signature:
------------------------------
Holder's Address:
--------------------------------
-------------------------------------------------
Signature Guaranteed:
-------------------------------------
NOTE: The signature to this Transfer Notice must correspond with the name
as it appears on the face of the Warrant Agreement, without alteration
or enlargement or any change whatsoever. Officers of corporations and
those acting in a fiduciary or other representative capacity should
file proper evidence of authority to assign the foregoing Warrant
Agreement.
12.
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL)
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS.
WARRANT AGREEMENT
TO PURCHASE SHARES OF THE SERIES B PREFERRED STOCK OF
QUANTUM EFFECT DESIGN, INC.
DATED AS OF SEPTEMBER 30, 1997 (THE "EFFECTIVE DATE")
WHEREAS, Quantum Effect Design, Inc., a California corporation (the
"Company") has entered into a Master Lease Agreement dated as of September 30,
1997, Equipment Schedule No. VL-1 dated as of September 30, 1997, and related
Summary Equipment Schedules (collectively, the "Leases") with Comdisco, Inc., a
Delaware corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant the Warrantholder, in
consideration for such Leases, the right to purchase shares of the Series B
Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the
Warrantholder is entitled, upon the terms and subject to the conditions
hereinafter set forth, to subscribe to and purchase, from the Company, 31,250
fully paid and non-assessable shares of the Company's Series B Preferred
Stock ("Preferred Stock") at a purchase price of $1.60 per share (the
"Exercise Price"). The number and purchase price of such shares are subject
to adjustment as provided in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT
Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period of (i)
six (6) years or (ii) three (3) years from the effective date of the
Company's initial public offering, whichever is longer.
Notwithstanding the previous sentence, if all of the Preferred Stock
is converted into shares of Common Stock in connection with a registration of
the Company's Common Stock under the 1933 Act, then this Warrant shall
automatically become exercisable for that number of shares of Common Stock
equal to the number of shares of Common Stock that would have been received
if this Warrant had been exercised in full and the shares of Preferred Stock
received thereupon had been simultaneously converted into shares of Common
Stock immediately prior to such event, and the Exercise Price shall be
automatically adjusted to equal the amount obtained by dividing (i) the
aggregate Exercise price of the shares of Preferred Stock for this which the
Warrant was exercisable immediately prior to such conversion, by (ii) the
number of shares of Common Stock for which this Warrant is exercisable
immediately after such conversion.
1.
<PAGE>
3. EXERCISE OF THE PURCHASE RIGHTS
The purchase rights set forth in this Warrant Agreement are
exercisable by the Warrantholder, in whole or in part, at any time, or form time
to time, prior to the expiration of the term set forth in Section 2 above, by
tendering to the Company at its principal office a notice of exercise in the
form attached hereto as Exhibit 1 (the "Notice of Exercise"), duly completed and
executed. Promptly upon receipt of the Notice of Exercise and the payment of the
purchase price in accordance with the terms set forth below, and in no event
later than twenty-one (21) days thereafter, the Company shall issue to the
Warrantholder a certificate for the number of shares of Preferred Stock
purchased and shall execute the acknowledgment of exercise in the form attached
hereto as Exhibit II (the "Acknowledgment of Exercise") indicating the number of
shares which remain subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election after
(i) by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
Y(A-B)
X = -------
A
Where X = the number of shares of Preferred Stock to be issued to
the Warrantholder
Y = the number of shares of Preferred Stock requested to be
exercised under this Warrant Agreement
A = the fair market value of one (1) share of Preferred Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of
Preferred Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise is in connection with an initial public
offering of the Company's Common Stock, and if the Company's Registration
Statement relating to such public offering has been declared effective by the
SEC, then the fair market value per share shall be the product of (x) the
initial "Price to Public" specified in the final prospectus with respect to
the offering and (y) the number of shares of Common Stock into which each
share of Preferred Stock is convertible at the time of such exercise;
(ii) if this Warrant is exercised after, and not in connection with
the Company's initial public offering; and:
(a) if traded on a securities exchange, the fair market value
shall be deemed to be the product of (x) the average of the closing
prices over a twenty-one (21) day period ending three days before the
day the current fair market value of the securities is being determined
and (y) the number of shares of Common Stock into which each share of
Preferred Stock is convertible at the time of such exercise; or
(b) if actively traded over-the-counter, the fair market value
shall be deemed to be the product of (x) the average of the closing
bid and asked prices quoted on the NASDAQ system (or similar system)
over the twenty-one (21) day period ending three days before the day
the current fair market value of the securities is being determined
and (y) the number of shares of Common Stock into which each share of
preferred Stock is convertible at the time of such exercise:
(iii) if at any time the Common Stock is not listed on any
securities exchange or quoted in the NASDAQ System or the over-the-counter
market, the current fair market value of Preferred Stock shall be the product
of (x) the highest price per share with the Company could obtain from a
willing buyer (not a current employee or director) for shares of Common Stock
sold by the Company, from authorized but unissued shares, as determined in
good faith by its Board of Directors and (y) the number of shares of Common
Stock into which each
2.
<PAGE>
share of Preferred Stock is convertible at the time of such exercise, unless
the Company shall become subject to a merger, acquisition or other
consolidation pursuant to which the Company is not the surviving party, in
which case the fair market value of Preferred Stock shall be deemed to be the
value received by the holders of the Company's Preferred Stock on a common
equivalent basis pursuant to such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective date hereof.
4. RESERVATION OF SHARES.
(a) AUTHORIZATION AND RESERVATION OF SHARES. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved
a sufficient number of shares of its Preferred Stock to provide for the
exercise of the rights to purchase Preferred Stock as provided for herein.
(b) REGISTRATION OR LISTING. If any shares of Preferred Stock
required to be reserved hereunder require registration with or approval of
any governmental authority under any Federal or State law (other than any
registration under the Securities Act of 1933, as amended ("1933 Act"), as
then in effect, or any similar Federal statute then enforced, or any state
securities law, required by reason of any transfer involved in such
conversion), before such shares may be issued upon conversion, the Company
will, at its expense and as expeditiously as possible, use its best efforts
to cause such shares to be duly registered, listed or approved for listing on
such domestic securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall
be issued upon the exercise of the Warrant, but in lieu of such fractional
shares the Company shall make a cash payment therefor upon the basis of the
Exercise Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any
voting rights or other rights as a shareholder of the Company prior to the
exercise of the Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address
of the registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred
Stock purchasable hereunder are subject to adjustment, as follows:
(a) MERGER AND SALE OF ASSETS. If at any time there shall be a
capital reorganization of the shares of the Company's stock (other than a
combination, reclassification, exchange or subdivision of shares otherwise
provided for herein), or a merger or consolidation of the Company with or
into another corporation whether or not the Company is the surviving
corporation, or the sale of all or substantially all of the Company's
properties and assets to any other person (hereinafter referred to as a
"Merger Event"), then, as a part of such Merger Event, lawful provision shall
be made so that the Warrantholder shall thereafter be entitled to receive,
upon exercise of the Warrant, the number of shares of preferred stock or
other securities of the successor corporation resulting from such Merger
Event, equivalent in value to that which would have been issuable if
Warrantholder had exercised this Warrant immediately prior to the Merger
Event. In any such case, appropriate adjustment (as determined in good faith
by the Company's Board of Directors) shall be made in the application of the
provisions of this Warrant
3.
<PAGE>
Agreement with respect to the rights and interest of the Warrantholder after
the Merger Event to the end that the provisions of this Warrant Agreement
(including adjustments of the Exercise Price and number of shares of
Preferred Stock purchasable) shall be applicable to the greatest extent
possible.
(b) RECLASSIFICATION OF SHARES. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under
this Warrant Agreement exist into the same or a different number of
securities of any other class or classes, this Warrant Agreement shall
thereafter represent the right to acquire such number and kind of securities
as would have been issuable as the result of such change with respect to the
securities which were subject to the purchase rights under this Warrant
Agreement immediately prior to such combination, reclassification, exchange,
subdivision or other change.
(c) SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) STOCK DIVIDENDS. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution
specifically provided for in the foregoing subsections (a) or (b)) of the
Company's stock, then the Exercise Price shall be adjusted, from and after
the record date of such dividend or distribution, to that price determined by
multiplying the Exercise Price in effect immediately prior to such record
date by a fraction (i) the numerator of which shall be the total number of
all shares of the Company's stock outstanding immediately prior to such
dividend or distribution, and (ii) the denominator of which shall be the
total number of all shares of the Company's stock outstanding immediately
after such dividend or distribution. The Warrantholder shall thereafter be
entitled to purchase, at the Exercise Price resulting from such adjustment,
the number of shares of Preferred Stock (calculated to the nearest whole
share) obtained by multiplying the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Preferred Stock issuable upon
the exercise hereof immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment.
(e) RIGHT TO PURCHASE ADDITIONAL STOCK. If, the Warrantholder's
total cost of equipment leased pursuant to the Leases exceeds $1,000,000.00,
Warrantholder shall have the right to purchase from the Company, at the
Exercise Price (adjusted as set forth herein), an additional number of
shares, which number shall be determined by (i) multiplying the amount by
which the Warrantholder's total equipment cost exceeds $1,000,000.00 by 5%,
and (ii) dividing the product thereof by the Exercise Price per share
referenced above.
(f) ANTIDILUTION RIGHTS. Additional antidilution rights applicable
to the Preferred Stock purchasable hereunder are as set forth in the
Company's Amended and Restated Articles of Incorporation, as amended through
the Effective Date, a true and complete copy of which is attached hereto as
Exhibit IV (the "Charter"). The Company shall promptly provide the
Warrantholder with any restatement, amendment, modification or waiver of the
Charter. The Company shall provide Warrantholder with prior written notice of
any issuance of its stock or other equity security to occur after the
Effective Date of this Warrant, other than those issuances described in
Section 2g(i) through 2g(iv) of the Charter, which notice shall include (a)
the price at which such stock or security is to be sold, (b) the number of
shares to be issued, and (c) such other information as necessary for
Warrantholder to determine of a dilutive event has occurred.
(g) NOTICE OF ADJUSTMENTS. If: (i) the Company shall declare any
dividend or distribution upon its stock, whether in cash, property, stock or
other securities; (ii) the Company shall offer for subscription prorata to
the holders of any class of its Preferred or other convertible stock any
additional shares of stock of any class or other rights; (iii) there shall be
any Merger Event; (iv) there shall be an initial public offering; or (v)
there shall be any voluntary dissolution, liquidation or winding up of the
Company; then, in connection with each such event, the Company shall send to
the Warrantholder: (A) at least twenty (20) days' prior written notice of the
date on which the books of the Company shall close or a record shall be taken
for such dividend, distribution, subscription rights (specifying the date on
which the holders of Preferred Stock shall be entitled thereto) or for
determining rights to vote in respect of such Merger Event, dissolution,
liquidation or winding up; (B) in the case of any such Merger Event,
dissolution, liquidation or winding up, at least twenty (20) days' prior
written notice of the date when the same shall take place (and specifying the
date on which the holders of Preferred Stock shall be entitled to exchange
4.
<PAGE>
their Preferred Stock for securities or other property deliverable upon such
Merger Event, dissolution, liquidation or winding up); and (C) in the case of
a public offering, the Company shall give the Warrantholder at least twenty
(20) days written notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(h) TIMELY NOTICE. Failure to timely provide such notice required by
subsection (f) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained
in any insufficient notice received by Warrantholder. The notice period shall
begin on the date Warrantholder actually receives a written notice containing
all the information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) RESERVATION OF PREFERRED STOCK. The Preferred Stock issuable
upon exercise of the Warrantholder's rights has been duly and validly
reserved and, when issued in accordance with the provisions of this Warrant
Agreement, will be validly issued, fully paid and non-assessable, and will be
free of any taxes, liens, charges or encumbrances of any nature whatsoever;
provided, however, that the Preferred Stock issuable pursuant to this Warrant
Agreement may be subject to restrictions on transfer under state and/or
Federal securities laws. The Company has made available to the Warrantholder
true, correct and complete copies of its Charter and Bylaws, as amended. The
issuance of certificates for shares of Preferred Stock upon exercise of the
Warrant Agreement shall be made without charge to the Warrantholder for any
issuance tax in respect thereof, or other cost incurred by the Company in
connection with such exercise and the related issuance of shares of Preferred
Stock. The Company shall not be required to pay any tax which may be payable
in respect of any transfer involved and the issuance and delivery of any
certificate in a name other than that of the Warrantholder.
(b) DUE AUTHORITY. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire
the shares of Preferred Stock, have been duly authorized by all necessary
corporate action on the part of the Company, and the Leases and this Warrant
Agreement are not inconsistent with the Company's Charter or Bylaws, do not
contravene any law or governmental rule, regulation or order applicable to
it, do not and will not contravene any provision of, or constitute a default
under, any indenture, mortgage, contract or other instrument to which it is a
party or by which it is bound, and the Leases and this Warrant Agreement
constitute legal, valid and binding agreements of the Company, enforceable in
accordance with their respective terms.
(c) CONSENTS AND APPROVALS. No consent or approval of, giving of
notice to, registration with, or taking of any other action in respect of any
state, Federal or other governmental authority or agency is required with
respect to the execution, delivery and performance by the Company of its
obligations under this Warrant Agreement, except for the filing of notices
pursuant to Regulation D under the 1933 Act and any filing required by
applicable state securities law, which filings will be effective by the time
required thereby.
(d) ISSUED SECURITIES. All issued and outstanding shares of Common
Stock, Preferred Stock or any other securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. All
outstanding shares of Common Stock, Preferred Stock and any other securities
were issued in full compliance with all Federal and state securities laws. In
addition, as of June 30, 1997:
(i) The authorized capital of the Company consisted of
(A) 15,000,000 shares of Common Stock and (B) 4,300,000 shares of
preferred stock, consisting of 1,800,000 shares designated as
Series A Preferred Stock, all of which are issued and outstanding
and 2,500,000 shares designated as Series B Preferred Stock,
2,500,000 of which are issued and outstanding and are convertible
into 4,300,000 shares of Common Stock. In addition, the Company has
reserved 9,000,000 shares of Common Stock for issuance under its
two incentive Stock Option Plans. There are no other options,
warrants, conversion privileges or other rights presently
outstanding to purchase or otherwise acquire any authorized but
unissued shares of the Company's capital stock or other securities
of the Company.
5.
<PAGE>
(ii) Except as set forth on Schedule V hereto, in
accordance with the Company's Charter, no shareholder of the Company
has preemptive rights to purchase new issuances of the Company's
capital stock.
(e) INSURANCE. The Company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarity situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) OTHER COMMITMENTS TO REGISTER SECURITIES. Except as set forth on
Schedule V, the Company is not, pursuant to the terms of any other agreement
currently in existence, under any obligation to register under the 1933 Act
any of its presently outstanding securities or any of its securities which
may hereafter be issued.
(g) EXEMPT TRANSACTION. Subject to the accuracy of the
Warrantholder's representations in Section 10 hereof, the issuance of the
Preferred Stock upon exercise of this Warrant will constitute a transaction
exempt from (i) the registration requirements of Section 5 of the 1933 Act,
in reliance upon Section 4(2) thereof, and (ii) the qualification
requirements of the applicable state securities laws.
(h) COMPLIANCE WITH RULE 144. At the written consent of the
Warrantholder, who proposes to sell Preferred Stock issuable upon the
exercise of the Warrant in compliance with Rule 144 promulgated by the
Securities and Exchange Commission, the Company shall furnish to the
Warrantholder, within ten days after receipt of such request, a written
statement confirming the Company's compliance with the filing requirements of
the Securities and Exchange Commission as set forth in such Rule, as such
Rule may be amended from time to time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in
reliance upon the following representations and covenants of the
Warrantholder:
(a) INVESTMENT PURPOSE. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights
contained herein will be acquired for investment and not with a view to the
sale or distribution of any part thereof, and the Warrantholder has no
present intention of selling or engaging in any public distribution of the
same except pursuant to a registration or exemption.
(b) PRIVATE ISSUE. The Warrantholder understands (i) that the
Preferred Stock issuable upon exercise of this Warrant is not registered
under the 1933 Act or qualified under applicable state securities laws on the
ground that the issuance contemplated by this Warrant Agreement will be
exempt from the registration and qualifications requirements thereof, and
(ii) that the Company's reliance on such exemption is predicated on the
representation set forth in this Section 10.
(c) DISPOSITION OF WARRANTHOLDER'S RIGHTS. In no event will the
Warantholder make a disposition of any of its rights to acquire Preferred
Stock or Preferred Stock issuable upon exercise of such rights unless and
until (i) it shall have notified the Company of the proposed disposition, and
(ii) if requested by the Company, it shall have furnished the Company with an
opinion of counsel (which counsel may either be inside or outside counsel to
the Warrantholder) satisfactory to the Company and its counsel to the effect
that (A) appropriate action necessary for compliance with the 1933 Act has
been taken, or (B) an exemption from the registration requirements of the
1933 Act is available. Notwithstanding the foregoing, the restrictions
imposed upon the transferability of any of its rights to acquire Preferred
Stock or Preferred Stock issuable on the exercise of such rights do not apply
to transfers from the beneficial owner of any of the aforementioned
securities to its nominee or from such nominee to its beneficial owner, and
shall terminate as to any particular share of Preferred Stock when (1) such
security shall have been effectively registered under the 1933 Act and sold
by the holder thereof in accordance with such registration or (2) such
security shall have been sold without registration in compliance with Rule
144 under the 1933 Act, or (3) a letter shall have been issued to the
Warrantholder at its request by the staff of the Securities and Exchange
Commission or a ruling shall have been issued to the Warrantholder at its
request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security
is
6.
<PAGE>
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever
the restrictions imposed hereunder shall terminate, as hereinabove provided,
the Warantholder or holder of a share of Preferred Stock then outstanding as
to which such restrictions have terminated shall be entitled to receive from
the Company, without expense to such holder, one or more new certificates for
the Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) FINANCIAL RISK. The Warrantholder has such knowledge and
experience in financial and business matters as to be capable of evaluating
the merits and risks of its investment, and has the ability to bear the
economic risks of its investment.
(e) RISK OF REGISTRATION. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission
pursuant to Section 12 of the 1934 Act (the "1934 Act"), or file reports
pursuant to Section 15(d), of the 1934 Act*, or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires
to sell (i) the rights to purchase Preferred Stock pursuant to this Warrant
Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to
purchase, it may be required to hold such securities for an indefinite
period. The Warrantholder also understands that any sale of its rights of the
Warrantholder to purchase Preferred Stock which might be made by it in
reliance upon Rule 144 under the 1933 Act may be made only in accordance with
the terms and conditions of that Rule.
(f) ACCREDITED INVESTOR. Warrantholder is an "accredited investor"
within the meaning of the Securities and Exchange Rule 501 of Regulation D,
as presently in effect.
11. RIGHT OF FIRST OFFER.
In accordance with the provisions of Section 8 of the Charter, if
the Company proposes to offer any "Junior Shares" or "Convertible Securities"
(as defined in the Charter) ("Shares"), the Company shall promptly provide
Warrantholder with an offer to sell Warrantholder on the same terms and
conditions a portion of such Shares equal to the proportion that the number
of shares of Preferred Stock to be issued upon exercise hereunder or number
of shares of common stock upon conversion thereof, bears to the total number
of shares of common stock of the Company then outstanding (assuming full
conversion of all shares of Preferred Stock and exercise of all options).
12. TRANSFERS.
Subject to the terms and conditions contained in Section 10 hereof,
this Warrant Agreement and all rights hereunder are transferable in whole or
in part by the Warrantholder and any successor transferee, only to an
Affiliate, as defined in the 1933 Act of Warrantholder, provided, however, in
no event shall the number of transfers of the rights and interests in all of
the Warrants exceed three (3) transfers. The transfer shall be recorded on
the books of the Company upon receipt by the Company of a notice of transfer
in the form attached hereto as Exhibit III (the "Transfer Notice"), at its
principal offices and the payment to the Company of all transfer taxes and
other governmental charges imposed on such transfer.
13. MISCELLANEOUS.
(a) EFFECTIVE DATE. The provisions of the Warrant Agreement shall
be construed and shall be given effect in all respects as if it had been
executed and delivered by the Company on the date hereof. This Warrant
Agreement shall be binding upon any successors or assigns of the Company.
(b) ATTORNEY'S FEES. In any litigation, arbitration or court
proceeding between the Company and the Warrantholder relating hereto, the
prevailing party shall be entitled to attorneys' fees and expenses and all
costs of proceedings incurred in enforcing this Warrant Agreement.
(c) GOVERNING LAW. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State
of Illinois.
7.
<PAGE>
(d) COUNTERPARTS. This Warrant Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(e) NOTICES. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal
delivery, facsimile transmission (provided that the original is sent by
personal delivery or mall as hereafter set forth) or seven (7) days after
deposit in the United States mail, by registered or certified mail, addressed
(i) to the Warrantholder at 6111 North River Road, Rosemont, Illinois 60018,
Attention: James Labe, Venture Group, cc: Legal Department, Attention:
General Counsel, (and/or, if by facsimile, (847) 518-5465 and (847) 518-5088)
and (ii) to the Company at 3255-3 Scott Blvd., Suite 200, Santa Clara,
California 95054, Attention: President (and/or if by facsimile, (408)
565-0335 or at such other address as any such party may subsequently
designate by written notice to the other party.
(f) REMEDIES. In the event of any default hereunder, the
non-defaulting party may proceed to protect and enforce its rights either by
suit in equity and/or by action at law, including but not limited to an
action for damages as a result of any such default, and and/or an action for
specific performance for any default where Warrantholder will not have an
adequate remedy at law and where damages will not be readily ascertainable.
The Company expressly agrees that it shall not oppose an application b the
Warrantholder or any other person entitled to the benefit of this Agreement
requiring specific performance of any or all provisions hereof or enjoining
the Company from continuing to commit any such breach of this Agreement.
(g) NO IMPAIRMENT OF RIGHTS. The Company will not, by amendment of
its Charter or through any other means, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of
all such actions as may be necessary or appropriate in order to protect the
rights of the Warrantholder against impairment.
(h) SURVIVAL. The representations, warranties, covenants and
conditions of the respective parties contained herein or made pursuant to
this Warrant Agreement shall survive the execution and delivery of this
Warrant Agreement.
(i) SEVERABILITY. In the event any one or more of the provisions of
this Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision,
which comes closest to the intention of the parties underlying the invalid,
illegal or unenforceable provision.
(j) AMENDMENTS. Any provision of this Warrant Agreement may be
amended by a written instrument signed by the Company and by the
Warrantholder.
(k) ADDITIONAL DOCUMENTS. The Company, upon execution of this
Warrant Agreement, shall provide the Warrantholder with an officer's
certificate with respect to the representations, warranties and covenants set
forth in subparagraphs (a) through (d), (f) and (g) of Section 9 above. The
Company shall also supply such other documents as the Warrantholder may from
time to time reasonable request.
8.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be executed by its officers thereunto duly authorized as of the
Effective Date.
COMPANY:
QUANTUM EFFECT DESIGN, INC.
By: \s\ Thomas J. Riordan
-------------------------
Title: President and CEO
-------------------------
WARRANTHOLDER:
COMDISCO, INC.
By: \s\ James P. Labe
--------------------------------
Title: James P. Labe, President
------------------------------
Comdisco Ventures Division
------------------------------------
9.
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
TO:____________________________
(1) The Undersigned Warrantholder hereby elects to purchase ______ shares
of the Series B Preferred Stock of Quantum Effect Design, Inc. pursuant
to the terms of the Warrant Agreement dated the 30th day of September,
1997 (the "Warrant Agreement") between Quantum Effect Design, Inc. and
the Warrantholder, and tenders herewith payment of the purchase price
for such shares in full, together with all applicable transfer taxes,
if any.
(2) In exercising its rights to purchase the Series B Preferred Stock of
Quantum Effect Design, Inc., the undersigned hereby confirms and
acknowledges the investment representations and warranties made in
Section 10 of the Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series B Preferred Stock in the name of the undersigned or in such
other name as is specified below.
--------------------------------------
(Name)
--------------------------------------
(Address)
Warrantholder: COMDISCO, INC.
By:
----------------------------------------
Title:
--------------------------------------
Date:
--------------------------------------
10.
<PAGE>
EXHIBIT II
ACKNOWLEDGEMENT OF EXERCISE
The undersigned _______________________________, hereby acknowledges
receipt of the "Notice of Exercise" from Comdisco, Inc. to purchase ___ shares
of the Series B Preferred Stock of Quantum Effect Design, Inc., pursuant to the
terms of the Warrant Agreement, and further acknowledges that ____ shares remain
subject to purchase under the terms of the Warrant Agreement.
Company: QUANTUM EFFECT DESIGN, INC.
By:
-----------------------------
Title:
--------------------------
Date:
---------------------------
11.
<PAGE>
EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this
form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to:
- ------------------------------------
(Please Print)
whose address is
-------------------------------
- ------------------------------------------------
Dated:
------------------------------------
Holder's Signature:
---------------------------
Holder's Address:
-----------------------------
---------------------------------------------
Signature Guaranteed:
---------------------------------
The Warrantholder hereby represents and warrants to the Company that the
transferee is an Affiliate (as defined in the Securities Act of 1933, as
amended) of the Warrantholder.
NOTE: The signature to this Transfer Notice must correspond with the name as
it appears on the face of the Warrant Agreement, without alteration or
enlargement or any change whatsoever. Officers of corporations and
those acting in a fiduciary or other representative capacity should
file proper evidence of authority to assign the foregoing Warrant
Agreement.
12.
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL)
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS.
WARRANT AGREEMENT
TO PURCHASE SHARES OF THE SERIES C PREFERRED STOCK OF
QUANTUM EFFECT DESIGN, INC.
DATED AS OF JULY 24, 1998 (THE "EFFECTIVE DATE")
WHEREAS, Quantum Effect Design, Inc., a California corporation (the
"Company") has entered into a Side Letter dated as of July 24, 1998, amending
Equipment Schedule No. VL-1 dated as of September 30, 1997, Master Lease
Agreement dated as of September 30, 1997, and related Summary Equipment
Schedules (collectively, the "Leases") with Comdisco, Inc., a Delaware
corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in
consideration for such Leases, the right to purchase shares of its Series C
Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of the mutual covenants and
agreements contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder
is entitled, upon the terms and subject to the conditions hereinafter set forth,
to subscribe to and purchase, from the Company, 4,000 fully paid and
non-assessable shares of the Company's Series C Preferred Stock ("Preferred
Stock") at a purchase price of $2.50 per share (the "Exercise Price"). The
number and purchase price of such shares are subject to adjustment as provided
in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period of (i) six
(6) years or (ii) three (3) years from the effective date of the Company's
initial public offering, whichever is longer.
Notwithstanding the previous sentence, if all of the Preferred Stock is
converted into shares of Common Stock in connection with a registration of the
Company's Common Stock under the 1933 Act, then this Warrant shall automatically
become exercisable for that number of shares of Common Stock equal to the number
of shares of Common Stock that would have been received if this Warrant had been
exercised in full and the shares of Preferred Stock received thereupon had been
simultaneously converted into shares of Common Stock immediately prior to such
event, and the Exercise Price shall be automatically adjusted to equal the
amount obtained by dividing (i) the aggregate Exercise Price of the shares of
Preferred Stock for this which this Warrant was exercisable immediately prior to
such conversion, by (ii) the number of shares of Common Stock for which this
Warrant is exercisable immediately after such conversion.
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<PAGE>
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable
by the Warrantholder, in whole or in part, at any time, or from time to time,
prior to the expiration of the term set forth in Section 2 above, by tendering
to the Company at its principal office a notice of exercise in the form attached
hereto as Exhibit I (the "Notice of Exercise"), duly completed and executed.
Promptly upon receipt of the Notice of Exercise and the payment of the purchase
price in accordance with the terms set forth below, and in no event later than
twenty-one (21) days thereafter, the Company shall issue to the Warrantholder a
certificate for the number of shares of Preferred Stock purchased and shall
execute the acknowledgement of exercise in the form attached hereto as Exhibit
II (the "Acknowledgement of Exercise") indicating the number of shares which
remain subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either
(i) by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
Y(A-B)
X = --------
A
Where: X = the number of shares of Preferred Stock to be issued to
the Warrantholder,
Y = the number of shares of Preferred Stock
requested to be exercised under this Warrant
Agreement.
A = the fair market value of one (1) shares of Preferred
Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of
Preferred Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise is in connection with an initial public
offering of the Company's Common Stock, and if the Company's
registration Statement relating to such public offering has been
declared effective by the SEC, then the fair market value per share
shall be the product of (x) the initial "Price to Public" specified
in the final prospectus with respect to the offering and (y) the number
of shares of Common Stock into which each share of Preferred Stock is
convertible at the time of such exercise;
(ii) if this Warrant is exercised after, and not in
connection with the Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market
value shall be deemed to be the product of (x) the average of
the closing prices over a twenty-one (21) day period ending
three days before the day the current fair market value of the
securities is being determined and (y) the number of shares of
Common Stock into which each share of Preferred Stock is
convertible at the time of such exercise; or
(b) if actively traded over-the-counter, the fair market
value shall be deemed to be the product of (x) the average of
the closing bid and asked prices quoted on the NASDAQ system
(or similar system) over the twenty-one (21) day period ending
three days before the day the current fair market value of the
securities is being determined and (y) the number of shares of
Common Stock into which each share of Preferred Stock is
convertible at the time of such exercise;
(iii) if at any time the Common Stock is not listed on any
securities exchange or quoted in the NASDAQ System or the
over-the-counter market, the current fair market value of Preferred
Stock shall be the product of (x) the highest price per share which
the Company could obtain from a willing buyer (not a current
employee or director) for shares of Common Stock sold by the
Company, from authorized but
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<PAGE>
unissued shares, as determined in good faith by its Board of
Directors and (y) the number of shares of Common Stock into which
each share of Preferred Stock is convertible at the time of such
exercise, unless the Company shall become subject to a merger,
acquisition or other consolidation pursuant to which the Company is
not the surviving party, in which case fair market value of
Preferred Stock shall be deemed to be the value received by the
holders of the Company's Preferred Stock on a common equivalent
basis pursuant to such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
(a) AUTHORIZATION AND RESERVATION OF SHARES. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved
a sufficient number of shares of its Preferred Stock to provide for the
exercise of the rights to purchase Preferred Stock as provided for herein.
(b) REGISTRATION OR LISTING. If any shares of Preferred Stock
required to be reserved hereunder require registration with or approval of
any governmental authority under any Federal or State law (other than any
registration under the Securities Act of 1933, as amended ("1933 Act"), as
then in effect, or any similar Federal statute then enforced, or any state
securities law, required by reason of any transfer involved in such
conversion), before such shares may be issued upon conversion, the Company
will, at its expense and as expeditiously as possible, use its best efforts
to cause such shares to be duly registered, listed or approved for listing on
such domestic securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of
the registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred
Stock purchasable hereunder are subject to adjustment, as follows:
(a) MERGER AND SALE OF ASSETS. If at any time there shall be a
capital reorganization of the shares of the Company's stock (other than a
combination, reclassification, exchange or subdivision of shares otherwise
provided for herein), or a merger or consolidation of the Company with or
into another corporation whether or not the Company is the surviving
corporation, or the sale of all or substantially all of the Company's
properties and assets to any other person (hereinafter referred to as a
"Merger Event"), then, as a part of such Merger Event, lawful provision shall
be made so that the Warrantholder shall thereafter be entitled to receive,
upon exercise of the Warrant, the number of shares of preferred stock or
other securities of the successor corporation resulting from such Merger
Event, equivalent in value to that which would have been issuable if
Warrantholder had exercised this Warrant immediately prior to the Merger
Event. In any such case, appropriate adjustment (as determined in good
- 3 -
<PAGE>
faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Warrant Agreement with respect to the rights and
interest of the Warrantholder after the Merger Event to the end that the
provisions of this Warrant Agreement (including adjustments of the Exercise
Price and number of shares of Preferred Stock purchasable) shall be
applicable to the greatest extent possible.
(b) RECLASSIFICATION OF SHARES. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under
this Warrant Agreement exist into the same or a different number of
securities of any other class or classes, this Warrant Agreement shall
thereafter represent the right to acquire such number and kind of securities
as would have been issuable as the result of such change with respect to the
securities which were subject to the purchase rights under this Warrant
Agreement immediately prior to such combination, reclassification, exchange,
subdivision or other change.
(c) SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) STOCK DIVIDENDS. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution
specifically provided for in the foregoing subsections (a) or (b)) of the
Company's stock, then the Exercise Price shall be adjusted, from and after
the record date of such dividend or distribution, to that price determined by
multiplying the Exercise Price in effect immediately prior to such record
date by a fraction (i) the numerator of which shall be the total number of
all shares of the Company's stock outstanding immediately prior to such
dividend or distribution, and (ii) the denominator of which shall be the
total number of all shares of the Company's stock outstanding immediately
after such dividend or distribution. The Warrantholder shall thereafter be
entitled to purchase, at the Exercise Price resulting from such adjustment,
the number of shares of Preferred Stock (calculated to the nearest whole
share) obtained by multiplying the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Preferred Stock issuable upon
the exercise hereof immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment.
(e) RIGHT TO PURCHASE ADDITIONAL STOCK. If, at the Warrantholder's
total cost of equipment leased pursuant to the Leases exceeds $1,200,000.00,
Warrantholder shall have the right to purchase from the Company, at the
Exercise Price (adjusted as set forth herein), an additional number of
shares, which number shall be determined by (i) multiplying the amount by
which the Warrantholder's total equipment cost exceeds $1,200,000.00 by 5%,
and (ii) dividing the product thereof by the Exercise Price per share
referenced above.
(f) ANTIDILUTION RIGHTS. Additional antidilution rights applicable
to the Preferred Stock purchasable hereunder are as set forth in the
Company's Amended and Restated Articles of Incorporation, as amended through
the Effective Date, a true and complete copy of which is attached hereto as
Exhibit IV (the "Charter"). The Company shall promptly provide the
Warrantholder with any restatement, amendment, modification or waiver of the
Charter. The Company shall provide Warrantholder with prior written notice of
any issuance of its stock or other equity security to cover after the
Effective Date of this Warrant, other than those issuances described in
Section 2g(i) through 2g(iv) of the Charter, which notice shall include (a)
the price at which such stock or security is to be sold, (b) the number of
shares to be issued, and (c) such other information as necessary for
Warrantholder to determine if a dilutive event has occurred.
(g) NOTICE OF ADJUSTMENTS. If: (i) the Company shall declare any
dividend or distribution upon its stock, whether in cash, property, stock or
other securities; (ii) the Company shall offer for subscription prorata to
the holders of any class of its Preferred or other convertible stock any
additional shares of stock of any class or other rights; (iii) there shall be
any Merger Event; (iv) there shall be an initial public offering; or (v)
there shall be any voluntary dissolution, liquidation or winding up of the
Company; then, in connection with each such event, the Company shall send to
the Warrantholder: (A) at least twenty (20) days' prior written notice of the
date on which the books of the Company shall close or a record shall be taken
for such dividend, distribution, subscription rights (specifying the date on
which the holders of Preferred Stock shall be entitled thereto) or for
determining rights to vote in respect of such Merger Event, dissolution,
liquidation or winding up; (B) in the case of any such Merger Event,
dissolution, liquidation or winding up, at least twenty (20) days' prior
written notice of the date when the same shall take place (and specifying the
date on which the holders of Preferred Stock shall be entitled to exchange
- 4 -
<PAGE>
their Preferred Stock for securities or other property deliverable upon such
Merger Event, dissolution, liquidation or winding up); and (C) in the case of
a public offering, the Company shall give the Warrantholder at least twenty
(20) days written notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address shown on the books of the Company.
(h) TIMELY NOTICE. Failure to timely provide such notice required by
subsection (f) above shall entitled Warrantholder to retain the benefit of
the applicable notice period notwithstanding anything to the contrary
contained in any insufficient notice received by Warrantholder. The notice
period shall begin on the date Warrantholder actually receives a written
notice containing all the information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) RESERVATION OF PREFERRED STOCK. The Preferred Stock issuable
upon exercise of the Warrantholder's rights has been duly and validly
reserved and, when issued in accordance with the provisions of this Warrant
Agreement, will be validly issued, fully paid and non-assessable, and will be
free of any taxes, liens, charges or encumbrances of any nature whatsoever;
provided, however, that the Preferred Stock issuable pursuant to this Warrant
Agreement may be subject to restrictions on transfer under state and/or
Federal securities laws. The Company has made available to the Warrantholder
true, correct and complete copies of its Charter and Bylaws, as amended. The
issuance of certificates for shares of Preferred Stock upon exercise of the
Warrant Agreement shall be made without charge to the Warrantholder for any
issuance tax in respect thereof, or other cost incurred by the Company in
connection with such exercise and the related issuance of shares of Preferred
Stock. The Company shall not be required to pay any tax which may be payable
in respect of any transfer involved and the issuance and delivery of any
certificate in a name other than that of the Warrantholder.
(b) DUE AUTHORITY. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire
the shares of Preferred Stock, have been duly authorized by all necessary
corporate action on the part of the Company, and the Leases and this Warrant
Agreement are not inconsistent with the Company's Charter or Bylaws, do not
contravene any law or governmental rule, regulation or order applicable to
it, do not and will not contravene any provision of, or constitute a default
under, any indenture, mortgage, contract or other instrument to which it is a
party or by which it is bound, and the Leases and this Warrant Agreement
constitute legal, valid and binding agreements of the Company, enforceable in
accordance with their respective terms.
(c) CONSENTS AND APPROVALS. No consent or approval of, giving of
notice to, registration with, or taking of any other action in respect of any
state, Federal or other governmental authority or agency is required with
respect to the execution, delivery and performance by the Company of its
obligations under this Warrant Agreement, except for the filing of notices
pursuant to Regulation D under the 1933 Act and any filing required by
applicable state securities law, which filings will be effective by the time
required thereby.
(d) ISSUED SECURITIES. All issued and outstanding shares of Common
Stock, Preferred Stock or any other securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. All
outstanding shares of Common Stock, Preferred Stock and any other securities
were issued in full compliance with all Federal and state securities laws. In
addition, as of June 30, 1997:
(i) The authorized capital of the Company consisted of (A)
15,500,000 shares of Common Stock and (B) 4,300,000 shares of
preferred stock, consisting of 1,800,000 shares designated as a
Series A Preferred Stock, all of which are issued and outstanding
and 2,500,000 shares designated as Series B Preferred Stock,
2,500,000 of which are issued and outstanding and are convertible
into 4,300,000 shares of Common Stock. In addition, the Company had
reserved 9,000,000 shares of Common Stock for issuance under its two
Incentive Stock Option Plans. There are no other options, warrants,
conversion privileges or other rights presently outstanding to
purchase or otherwise acquire any authorized but unissued shares of
the Company's capital stock or other securities of the Company.
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<PAGE>
(ii) Except as set forth on Schedule V hereto, in accordance
with the Company's Charter, no shareholder of the Company has
preemptive rights to purchase new issuances of the Company's capital
stock.
(e) INSURANCE. The Company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) OTHER COMMITMENTS TO REGISTER SECURITIES. Except as set forth on
Schedule V, the Company is not, pursuant to the terms of any other agreement
currently in existence, under any obligation to register under the 1933 Act
any of its presently outstanding securities or any of its securities which
may hereafter be issued.
(g) EXEMPT TRANSACTION. Subject to the accuracy of the
Warrantholder's representations in Section 10 hereof, the issuance of the
Preferred Stock upon exercise of this Warrant will constitute a transaction
exempt (i) the registration requirements of Section 5 of the 1933 Act, in
reliance upon Section 4(2) thereof, and (ii) the qualification requirements
of the applicable state securities laws.
(h) COMPLIANCE WITH RULE 144. At the written request of the
Warrantholder, who proposes to sell Preferred Stock issuable upon the
exercise of the Warrant in compliance with Rule 144 promulgated by the
Securities and Exchange Commission, the Company shall furnish to the
Warrantholder, within ten days after receipt of such request, a written
statement confirming the Company's compliance with the filing requirements of
the Securities and Exchange Commission as set forth in such Rule, as such
Rule may be amended from time to time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) INVESTMENT PURPOSE. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights
contained herein will be acquired for investment and not with a view to the
sale or distribution of any part thereof, and the Warrantholder has no
present intention of selling or engaging in any public distribution of the
same except pursuant to a registration exemption.
(b) PRIVATE ISSUE. The Warrantholder understands (i) that the
Preferred Stock issuable upon exercise of this Warrant is not registered
under the 1933 Act or qualified under applicable state securities laws on the
ground that the issuance contemplated by this Warrant Agreement will be
exempt from the registration and qualifications requirements thereof, and
(ii) that the Company's reliance on such exemption is predicated on the
representations set forth in this Section 10.
(c) DISPOSITION OF WARRANTHOLDER'S RIGHTS. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred
Stock or Preferred Stock issuable upon exercise of such rights unless and
until (i) it shall have notified the Company of the proposed disposition, and
(ii) if requested by the Company, it shall have furnished the Company with an
opinion of counsel (which counsel may either be inside or outside counsel to
the Warrantholder) satisfactory to the Company and its counsel to the effect
that (A) appropriate action necessary for compliance with the 1933 Act has
been taken, or (B) an exemption from the registration requirements of the
1933 Act is available. Notwithstanding the foregoing, the restrictions
imposed upon the transferability of any of its rights to acquire Preferred
Stock or Preferred Stock issuable on the exercise of such rights do not apply
to transfers from the beneficial owner of any of the aforementioned
securities to its nominee or from such nominee to its beneficial owner, and
shall terminate as to any particular share of Preferred Stock when (1) such
security shall have been effectively registered under the 1933 Act and sold
by the holder thereof in accordance with such registration or (2) such
security shall have been sold without registration in compliance with Rule
144 under the 1933 Act, or (3) a letter shall have been issued to the
Warrantholder at its request by the staff of the Securities and Exchange
Commission or a ruling shall have been issued to Warrantholder at its request
by such Commission stating that no action shall be recommended by such staff
or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions sets forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever
the
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<PAGE>
restrictions imposed hereunder shall terminate, as hereinabove provided,
the Warrantholder or holder of a share of Preferred Stock then outstanding as
to which such restrictions have terminated shall be entitled to receive from
the Company, without expense to such holder, one or more new certificates for
the Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) FINANCIAL RISK. The Warrantholder has such knowledge and
experience in financial and business matters as to be capable of evaluating
the merits and risks of its investment, and has the ability to bear the
economic risks of its investment.
(e) RISK OF NO REGISTRATION. The Warrantholder understands that if
the Company does not register with the Securities and Exchange Commission
pursuant to Section 12 of the 1934 Act (the "1934 Act"), or file reports
pursuant to Section 15(d), of the 1934 Act, or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires
to Sell (i) the rights to purchase Preferred Stock pursuant to this Warrant
Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to
purchase, it may be required to hold such securities for an indefinite
period. The Warrantholder also understands that any sale of its rights of the
Warrantholder to purchase Preferred Stock of Preferred Stock which might be
made by it in reliance upon Rule 144 under the 1933 Act may be made only in
accordance with the terms and conditions of that Rule.
(f) ACCREDITED INVESTOR. Warrantholder is an "accredited investor"
within the meaning of the Securities and Exchange Rule 501 of Regulation D,
as presently in effect.
11. RIGHT OF FIRST OFFER.
Promptly upon execution of the Warrant Agreement, the Company will
use its best efforts to amend the Rights Agreement to add Warrantholder as a
party thereto and to provide that the shares issuable upon exercise of this
Warrant are "Registrable Securities" thereunder.
12. TRANSFERS.
Subject to the terms and conditions contained in Section 10 hereof,
this Warrant Agreement and all rights hereunder are transferable in whole or
in part by the Warrantholder and any successor transferee, only to an
Affiliate, as defined in the 1933 Act of Warrantholder, provided, however, in
no event shall the number of transfers of the rights and interests in all of
the Warrants exceed three (3) transfers. The transfer shall be recorded on
the books of the Company upon receipt by the Company of a notice of transfer
in the form attached hereto as Exhibit III (the "Transfer Notice"), at its
principal offices and the payment to the Company of all transfer taxes and
other governmental charges imposed on such transfer.
13. MISCELLANEOUS.
(a) EFFECTIVE DATE. The provisions of this Warrant Agreement
shall be construed and shall be given effect in all respects as if it had
been executed and delivered by the Company on the date hereof. This Warrant
Agreement shall be binding upon any successors or assigns of the Company.
(b) ATTORNEY'S FEES. In any litigation, arbitration or court
proceeding between the Company and the Warrantholder relating hereto, the
prevailing party shall be entitled to attorneys' fees and expenses and all
costs of proceedings incurred in enforcing this Warrant Agreement.
(c) GOVERNING LAW. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State
of Illinois.
(d) COUNTERPARTS. This Warrant Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(e) NOTICES. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal
delivery, facsimile transmission (provided that the original is sent by
personal delivery or mail as hereinafter set forth) or seven (7) days after
deposit in the United States mail, by registered or
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<PAGE>
certified mail, addressed (i) to the Warrant holders at 6111 North River
Road, Rosemont, Illinois 60018, Attention: James Labe, Venture Group, cc:
Legal Department, Attention: General Counsel, (and/or, if by facsimile, (847)
518-5465 and (847) 518-5088) and (ii) to the Company at 3255-3 Scott Blvd.,
Suite 200, Santa Clara, California 95054, Attention: President (and/or if by
facsimile, (408) 565-0335) or at such other address as any such party may
subsequently designate by written notice to the other party.
(f) REMEDIES. In the event of any default hereunder, the
non-defaulting party may proceed to protect and enforce its rights either by
suit in equity and/or by action at law, including but not limited to an
action for damages as a result of any such default, and/or an action for
specific performance for any default where Warrantholder will not have an
adequate remedy at law and where damages will not be readily ascertainable.
The Company expressly agrees that it shall not oppose an application by the
Warrantholder or any other person entitled to the benefit of this Agreement
requiring specific performance of any or all provisions hereof or enjoining
the Company from continuing to commit any such breach of this Agreement.
(g) NO IMPAIRMENT OF RIGHTS. The Company will not, by amendment of
its Charter or through any other means, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of
all such actions as maybe necessary or appropriate in order to protect the
rights of the Warrantholder against impairment.
(h) SURVIVAL. The representations, warranties, covenants and
conditions of the respective parties contained herein or made pursuant to
this Warrant Agreement shall survive the execution and delivery of this
Warrant Agreement.
(i) SEVERABILITY. In the event any one or more of the provisions of
this Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision,
which comes closest to the intention of the parties underlying the invalid,
illegal or unenforceable provision.
(j) AMENDMENTS. Any provision of this Warrant Agreement may be
amended by a written instrument signed by the Company and by the
Warrantholder.
(k) ADDITIONAL DOCUMENTS. The Company, upon execution of this
Warrant Agreement, shall provide the Warrantholder with an officer's
certificate with respect to the representations, warranties and covenants set
forth in subparagraphs (a) through (d), (f) and (g) of Section 9 above. The
Company shall also supply such other documents as the Warrantholder may from
time to time reasonably request.
IN WITNESS WHEREOF, the parties hereby have caused this Warrant
Agreement to be executed by its officers thereunto duly authorized as of the
Effective Date.
COMPANY:
QUANTUM EFFECT DESIGN, INC.
By: \s\ Howard Bailey
-----------------------
Title: CFO
WARRANTHOLDER:
COMDISCO, INC.
By: \s\ Jill C. Hanses
-----------------------
Title: Jill C. Hanses
Assistant Vice President
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<PAGE>
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK OF
QUANTUM EFFECT DESIGN, INC.
(Void after January 11, 2006)
For value received, VENTURE LENDING & LEASING II INC. and any person to
whom the interest in this Warrant is lawfully transferred (the "Holder"), is
entitled to purchase, subject to the terms and conditions set forth herein, that
number of fully paid and nonassessable shares of the common stock of QUANTUM
EFFECT DESIGN, INC. a California corporation (the "Company") set forth below in
Section 1 (c) for the warrant exercise price per share set forth below in
Section 1 (b). This Warrant is being issued in connection with, and as required
by, that certain Loan and Security Agreement dated as of even date herewith by
and between the Company and the original Holder (the "Loan and Security
Agreement").
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
(a) COMMON STOCK. The Holder of this Warrant is entitled to
purchase, subject to the terms and conditions set forth herein, that number
of the Company's currently authorized Common Stock (the "Common Stock") as
calculated pursuant to Section 1 (c).
(b) WARRANT EXERCISE PRICE. For purposes of this Warrant
the initial exercise price shall be $2.50 per share, (the "Stock Purchase
Price").
(c) NUMBER OF SHARES: INCREASES IN NUMBER OF SHARE. The
Holder may purchase up to 80,000 shares of the Company's Common Stock upon
vesting of this Warrant and; this Warrant shall become exercisable for
additional shares calculated as follows: (i) 10% of the aggregate loan
amounts made to the Company under the Loan and Security Agreement in excess
of $2,000,000 after the date hereof divided by (ii) the price per share of
the Borrower's Preferred stock issued in the most recent round of venture
capital equity financing prior to funding of such Loan.
(d) EXERCISE PERIOD. This warrant will be exercisable from
time to time until the earlier of a termination in accordance with Section
4.3 or 5:00 (Pacific time) on December 15, 2005 (the "Expiration Date"),
(e) METHOD OF EXERCISE; CASH PAYMENT. The purchase right
represented by this Warrant may be exercised by the Holder, in whole or in
part, for up to the total number of shares remaining available to exercise by
the surrender of this Warrant (with the Notice of Exercise in the form
attached hereto as duly executed) at the principal office of the Company and
by the payment to the Company, by check made payable to the Company drawn on
a United States bank and for United States funds of an amount in each case
equal to the then applicable Stock Purchase Price per share multiplied by the
number of Shares then being purchased.
1.
<PAGE>
(f) Unless an election is made pursuant to clause (g) of
this Section 1, this Warrant shall be exercisable at the option of the
Holder, at any time or from time to time, during the Exercise Period
specified in Section 1 (d) for all or any portion of the shares of Common
Stock (but not for a fraction of a share) which may be purchased hereunder
for the Stock Purchase Price multiplied by the number of shares to be
purchased. The Company agrees that the shares of Common Stock purchased under
this Warrant shall be and are deemed to be issued to the holder hereof as the
record owner of such shares as of the close of business on the date on which
the form of subscription shall have been delivered and payment made for such
shares. Subject to the provisions of Section 2, certificates for the shares
of Common Stock so purchased, together with any other securities or property
to which the Holder hereof is entitled upon such exercise, shall be delivered
to the Holder hereof by the Company at the Company's expense within a
reasonable time after the rights represented by this Warrant have been so
exercised. Except as provided in clause (e) of this Section 1, in case of a
purchase of less than all the shares which may be purchased under this
Warrant, the Company shall cancel this Warrant and execute and deliver a new
Warrant or Warrants of like tenor for the balance of the shares purchasable
under the Warrant surrendered upon such purchase to the Holder hereof within
a reasonable time. Each stock certificate so delivered shall be in such
denominations of Stock as may be requested by the Holder hereof and shall be
registered in the name of such Holder or such other name as shall be
designated by such Holder, subject to the limitations contained in Section 2.
(g) The Holder, in lieu of exercising this Warrant by the
payment of the Stock Purchase Price pursuant to clause (a) of this Section 1,
may elect, at any time on or before the Expiration Date, to receive that
number of shares of Stock equal to the quotient of: (i) the difference
between (A) the Per Share Price (as hereinafter defined) of the Stock, less
(B) the Stock Purchase Price then in effect, multiplied by the number of
shares of Stock the Holder would otherwise have been entitled to purchase
hereunder pursuant to clause (a) of this Section 1 (or such lesser number of
shares as the Holder may designate in the case of a partial exercise of this
Warrant); over (ii) the Per Share Price. Election to exercise under this
section (b) may be made by delivering a signed Form of Subscription to the
Company via facsimile, to be followed by delivery of the warrant.
(h) For purposes of clause (b) of this Section 1, "Per
Share Price" means: the greater of (A) the closing price of the Company's
Common Stock as quoted by NASDAQ or listed on any exchange, whichever is
applicable, as published in the Western Edition of THE WALL STREET JOURNAL
for the trading day immediately prior to the date of the Holder's election
hereunder or, (B) if applicable at the time of or in connection with the
exercise, the gross sales price of one share of the Company's Common Stock
pursuant to a registered public offering or that amount which shareholders of
the Company will receive for each share of Common Stock pursuant to such
merger, reorganization or sale of assets. If the Company's Common Stock is
not quoted by NASDAQ or listed on an exchange, the Per Share Price of the
Common Stock shall be the price per share which the Company would obtain from
a willing buyer for shares sold by the Company from authorized but unissued
shares as such price shall be determined by the Company's Board of Directors.
(i) As soon as reasonably practicable after the occurrence
or non-occurrence of the latest event or condition under this warrant
resulting in an increase in the number of shares issuable under this Section
1or resulting in an adjustment pursuant to Section 4, the Company shall
execute and deliver a supplement to this Warrant in substantially the form of
EXHIBIT "A" attached hereto, completed with such quantity and exercise price
as have been determined as a result of the occurrence of such events or
conditions. The provisions of such supplement, once completed and executed,
shall control the interpretation and exercise of this Warrant.
2.
<PAGE>
2. LIMITATION ON TRANSFER.
(a) The Warrant and the Common Stock shall not be
transferable except upon the conditions specified in this Section 2, which
conditions are intended to ensure compliance with the provisions of the
Securities Act. Each holder of this Warrant or the Stock issuable hereunder
will cause any proposed transferee of the Warrant or Stock to agree to take
and hold such securities subject to the provisions and upon the conditions
specified in this Section 2.
(b) Each certificate representing (i) this Warrant, (ii)
the Common Stock, and (iii) any other securities issued in respect to the
Common Stock issued upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event, shall (unless otherwise permitted by
the provisions of this Section 2 or unless such securities have been
registered under the Securities Act or sold under Rule 144) be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
(c) The Holder of this Warrant and each person to whom this
Warrant is subsequently transferred represents and warrants to the Company
(by acceptance of such transfer) that it will not transfer the Warrant (or
securities issuable upon exercise hereof unless a registration statement
under the Securities Act was in effect with respect to such securities at the
time of issuance thereof) except pursuant to (i) an effective registration
statement under the Securities Act, (ii) Rule 144 under the Securities Act
(or any other rule under the Securities Act relating to the disposition of
securities), or (iii) an opinion of counsel, reasonably satisfactory to
counsel for the Company, that an exemption from such registration is
available.
3. SHARES TO BE FULLY PAID: RESERVATION OF SHARES
The Company covenants and agrees that all shares of Common Stock which
may be issued upon the exercise of the rights represented by this Warrant will,
upon issuance in accordance with the terms hereof, be duly authorized, validly
issued, fully paid and nonassessable and free from all preemptive rights of any
shareholder and free of all taxes, liens and charges with respect to the issue
thereof. The Company further covenants and agrees that during the period within
which the rights represented by this Warrant may be exercised, the Company will
at all times have authorized and reserved, for the purpose of issue or transfer
upon exercise of the subscription rights evidenced by this Warrant, a sufficient
number of shares of authorized but unissued Common Stock, or other securities
and property, when and as required to provide for the exercise of the rights
represented by this Warrant. The Company will take all such action as may be
necessary to assure that such shares of Common Stock may be issued as provided
herein without violation of any applicable law or regulation, or of any
requirements of any domestic securities exchange upon which the Common Stock may
be listed. The Company will not take any action which would result in any
adjustment of the Stock Purchase Price (as defined in Section 4 hereof) if the
total number of shares of Common Stock issuable after such action upon the
conversion of all such shares of Preferred Stock together with all shares of
Common Stock then outstanding and then issuable upon exercise of all options and
upon the conversion of all convertible securities then outstanding would exceed
the total number of shares of Common Stock then authorized by the Company's
Articles of Incorporation.
3.
<PAGE>
4. ADJUSTMENT OF STOCK PURCHASE PRICE NUMBER OF SHARES.
The Stock Purchase Price and the number of shares purchasable upon
the exercise of this Warrant shall be subject to adjustment from time to time
upon the occurrence of certain events described in this Section 4. Upon each
adjustment of the Stock Purchase Price, the Holder of this Warrant shall
thereafter be entitled to purchase, at the Stock Purchase Price resulting
from such adjustment, the number of shares obtained by multiplying the Stock
Purchase Price in effect immediately prior to such adjustment by the number
of shares purchasable pursuant hereto immediately prior to such adjustment,
and dividing the product thereof by the Stock Purchase Price resulting from
such adjustment.
4.1 SUBDIVISION OR COMBINATION OF STOCK. In case the
Company shall at any time subdivide its outstanding shares of Common Stock
into a greater number of shares, the Stock Purchase Price in effect
immediately prior to such subdivision shall be proportionately reduced, and
conversely, in case the outstanding shares of Common Stock of the Company
shall be combined into a smaller number of shares, the Stock Purchase Price
in effect immediately prior to such combination shall be proportionately
increased.
4.2 DIVIDENDS IN COMMON STOCK, PROPERTY, RECLASSIFICATION.
If at any time or from time to time the holders of Common Stock (or any
shares of stock or other securities at the time receivable upon the exercise
of this Warrant) shall have received or become entitled to receive, without
payment therefor,
(a) Common Stock, or any shares of stock or other
securities whether or not such securities are at any time directly or
indirectly convertible into or exchangeable for Preferred Stock, or any
rights or options to subscribe for, purchase or otherwise acquire any of the
foregoing by way of dividend or other distribution, or
(b) any cash paid or payable otherwise than as a cash
dividend, or
(c) Common Stock or other or additional stock or other
securities or property (including cash) by way of spinoff, split-up,
reclassification, combination of shares or similar corporate rearrangement,
(other than shares of Common Stock issued as a stock split, adjustments in
respect of which shall be covered by the terms of Section 4.1 above),
Then and in each such case, the Holder hereof shall, upon the exercise of this
Warrant, be entitled to receive, in addition to the number of shares of Stock
receivable thereupon, and without payment of any additional consideration
therefore, the amount of stock and other securities and property (including cash
in the cases referred to in clauses (b) and (c) above) which such Holder would
hold on the date of such exercise had he been the holder of record of such
Common Stock as of the date on which holders of Common Stock received or became
entitled to receive such shares and/or all other additional stock and other
securities and property.
4.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER
OR SALE. If any capital reorganization of the capital stock of the Company,
or any consolidation or merger of the Company with another corporation, or
the sale of all or substantially all of its assets to another corporation
shall be effected in such a way that holders of Common Stock shall be
entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock ("Corporate Event"), then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, lawful and
adequate provisions shall be made whereby the holder hereof shall thereafter
have the right to purchase and receive (in lieu of the shares of the Common
Stock of the Company immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby) such shares of stock,
securities or assets as
4.
<PAGE>
may be issued or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares of such
stock immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby, provided, however, in the event that 1) the
effective price of such Corporate Event is in excess of the exercise price
hereof effective at the time of the Corporate Event, 2) the consideration
received in such Corporate Event is cash or shares that are of a publicly
traded company listed on a national market or exchange, without restrictions
within 90 days of the close of such Corporate Event, except for those of Rule
144 or as necessary to meet pooling requirements, and 3) the Company's
shareholders own less than 50% of the voting securities of the surviving
entity, then this Warrant shall be deemed exercised in accordance with the
provisions of section l(b) upon the closing of the Corporate Event. In any
such case, appropriate provision shall be made with respect to the rights and
interests of the holder of this Warrant to the end that the provisions hereof
(including, without limitation, provisions for adjustments of the Stock
Purchase Price and of the number of shares purchasable and receivable upon
the exercise of this Warrant) shall thereafter be applicable, as nearly as
may be possible, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof. The Company will not effect
any such consolidation, merger or sale unless, prior to the consummation
thereof, the successor corporation (if other than the Company) resulting from
such consolidation or the corporation purchasing such assets shall assume by
written instrument, executed and mailed or delivered to the registered Holder
hereof at the last address of such Holder appearing on the books of the
Company, the obligation to deliver to such Holder such shares of stock,
securities or assets as, in accordance with and subject to the foregoing
provisions, such Holder may be entitled to purchase.
4.4 SALE OR ISSUANCE BELOW PURCHASE PRICE. The Holder shall
receive antidilution protection commensurate with the rights granted to the
holders of Series C Preferred Stock pursuant to Article III section 6(d) of
the Company's Articles of Incorporation, as the same may be amended from time
to time.
4.5 NOTICE OF ADJUSTMENT. Upon any adjustment of the Stock
Purchase Price, and/or any increase or decrease in the number of shares
purchasable upon the exercise of this Warrant the Company shall give written
notice thereof, pursuant to Section 1(g) hereof.
4.6 OTHER NOTICES. If at any time:
(a) the Company shall declare any cash dividend upon
its Preferred or Common Stock,
(b) the Company shall declare any dividend upon its
Preferred or Common Stock payable in stock or make any special dividend or
other distribution to the holders of its Preferred Stock;
(c) the Company shall offer for subscription pro rata
to the holders of its Stock any additional shares of stock of any class or
other rights;
(d) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or
merger of the Company with, or sale of all or substantially all of its assets
to, another corporation;
(e) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company; or
(f) the Company shall take or propose to take any
other action, notice of which is actually provided to holders of the
Preferred or Common Stock;
5.
<PAGE>
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the holder of this Warrant at the address of
such holder as shown on the books of the Company, (i) at least 10 day's prior
written notice of the date on which the books of the Company shall close or a
record shall be taken for such dividend, distribution or subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, or other action and (ii) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, or other action, at least 10 day's written notice of the date when
the same shall take place. Any notice given in accordance with the foregoing
clause (i) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Stock shall be entitled
thereto. Any notice given in accordance with the foregoing clause (ii) shall
also specify the date on which the holders of Stock shall be entitled to
exchange their Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, or other action as the case may be.
4.7 CERTAIN EVENTS. If any change in the outstanding
Preferred Stock of the Company or any other event occurs as to which the
other provisions of this Section 4 are not strictly applicable or if strictly
applicable would not fairly protect the purchase rights of the Holder of the
Warrant in accordance with the essential intent and principles of such
provisions, then the Board of Directors of the Company shall make an
adjustment in the number and class of shares available under the Warrant, the
Stock Purchase Price and/or the application of such provisions, in accordance
with such essential intent and principles, so as to protect such purchase
rights as aforesaid. The adjustment shall be such as will give the Holder of
the Warrant upon exercise for the same aggregate Stock Purchase Price the
total number, class and kind of shares as he would have owned had the Warrant
been exercised prior to the event and had he continued to hold such shares
until after the event requiring adjustment.
5. ISSUE TAX. The issuance of certificates for shares of Common
Stock upon the exercise of the Warrant shall be made without charge to the
Holder of the Warrant for any issue tax in respect thereof, provided,
however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of
any certificate in a name other than that of the then Holder of the Warrant
being exercised.
6. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any Warrant or of any shares of Common Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
7. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent as a shareholder in respect of
meetings of shareholders for the election of directors of the Company or any
other matters or any rights whatsoever as a shareholder of the Company. No
dividends or interest shall be payable or accrued in respect of this Warrant
or the interest represented hereby or the shares purchasable hereunder until,
and only to the extent that, this Warrant shall have been exercised. No
provisions hereof, in the absence of affirmative action by the holder to
purchase shares of Common Stock, and no mere enumeration herein of the rights
or privileges of the Holder hereof, shall give rise to any liability of such
Holder for the Stock Purchase Price or as a shareholder of the Company,
whether such liability is asserted by the Company or by its creditors.
8. INTENTIONALLY OMITTED.
9. REGISTRATION AND INFORMATION RIGHTS. The Holder hereof shall be
entitled, with respect to the shares of Common Stock issued upon exercise
hereof, to all of the information and
6.
<PAGE>
registration rights set forth in the Investor Rights Agreement dated as of
April 16, 1998 (the "Investors' Rights Agreement") to the same extent and on
the same terms and conditions as possessed by the Investors thereunder. The
Company shall take such action as may be reasonably necessary to assure that
the granting of such registration rights to the Holder does not violate the
provisions of such agreement or any of the Company's charter documents or
rights of prior grantees of registration rights.
10. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights
and obligations contained in Sections 6 and 9 of the Company, of the Holder
of this Warrant and of the holder of shares of Common Stock issued upon
exercise of this Warrant shall survive the exercise of this Warrant.
11. MODIFICATION AND WAIVER. This Warrant and any provision hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
12. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall
be deemed to have been given (i) upon receipt if delivered personally or by
courier (ii) upon confirmation of receipt if by telecopy or (iii) three
business days after deposit in the US mail, with postage prepaid and
certified or registered, to each such holder at its address as shown on the
books of the Company or to the Company at the address indicated therefor in
the first paragraph of this Warrant.
13. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets. All of the
obligations of the Company relating to the Common Stock issuable upon the
exercise of this Warrant shall survive the exercise and termination of this
Warrant. All of the covenants and agreements of the Company shall inure to
the benefit of the successors and assign of the holder hereof.
14. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The descriptive headings
of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of California.
15. LOST WARRANTS OR STOCK CERTIFICATE. The Company represents and
warrants to the Holder hereof that upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any Warrant or stock certificate and, in the case of any such loss, theft or
destruction, upon receipt of an indemnity reasonably satisfactory to the
Company, or in the case of any such mutilation upon surrender and
cancellation of such Warrant or stock certificate, the Company at its expense
will make and deliver a new Warrant or stock certificate, of like tenor, in
lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate.
16. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any
fractional share, pay the holder entitled to such fraction a sum in cash
equal to such fraction multiplied by the then effective Stock Purchase Price.
17. REPRESENTATIONS OF HOLDER. With respect to this Warrant, Holder
represents and warrants to the Company as follows:
17.1 EXPERIENCE. It is experienced in evaluating and
investing in companies engaged in businesses similar to that of the Company;
it understands that investment in the Warrant involves
7.
<PAGE>
substantial risks; it has made detailed inquiries concerning the Company, its
business and services, its officers and its personnel; the officers of the
Company have made available to Holder any and all written information it has
requested; the officers of the Company have answered to Holder's satisfaction
all inquiries made by it; in making this investment it has relied upon
information made available to it by the Company, and it has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of investment in the Company and it is able
to bear the economic risk of that investment.
17.2 INVESTMENT. It is acquiring the Warrant for investment
for its own account and not with a view to, or for resale in connection with,
any distribution thereof. It understands that the Warrant, the shares of
Common Stock issuable upon exercise thereof, have not been registered under
the Securities Act of 1933, as amended, nor qualified under applicable state
securities laws.
17.3 RULE 144. It acknowledges that the Warrant and the
Common Stock must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available. It has been advised or is aware of the provisions of Rule 144
promulgated under the Securities Act.
17.4 ACCESS TO DATA. It has had an opportunity to discuss
the Company's business, management and financial affairs with the Company's
management and has had the opportunity to inspect the Company's facilities.
18. ADDITIONAL REPRESENTATIONS AND COVENANTS OF THE COMPANY. The
Company hereby represents, warrants and agrees as follows:
18.1 CORPORATE POWER. The Company has all requisite
corporate power and corporate authority to issue this Warrant and to carry
out and perform its obligations hereunder.
18.2 AUTHORIZATION. All corporate action on the part of
the Company, its directors and shareholders necessary for the authorization,
execution, delivery and performance by the Company of this has been taken.
This Warrant is a valid and binding obligation of the Company.
18.3 OFFERING. Subject in part to the truth and accuracy of
Holder's representations set forth in Section 17 hereof, the offer, issuance
and sale of the Warrant is, and the issuance of Common Stock upon exercise of
the Warrant will be exempt from the registration requirements of the
Securities Act, and are exempt from the qualification requirements of any
applicable state securities laws; and neither the Company nor anyone acting
on its behalf will take any action hereafter that would cause the loss of
such exemptions.
18.4 STOCK ISSUANCE. Upon exercise of the Warrant, the
Company will use its best efforts to cause stock certificates representing
the shares of Common Stock purchased pursuant to the exercise to be issued in
the individual names of Holder, its nominees or assignees, as appropriate at
the time of such exercise.
18.5 ARTICLES AND BY-LAW. The Company has provided Holder
with true and complete copies of the Company's Articles or Certificate of
Incorporation, By-Laws, and each Certificate of Determination or other
charter document setting, forth any rights, preferences and privileges of
Company's capital stock, each as amended and in effect on the date of
issuance of this Warrant.
18.6 CONVERSION OF PREFERRED STOCK. As of the date hereof,
each share of the Preferred Stock is convertible into one share of the Common
Stock.
8.
<PAGE>
18.7 FINANCIAL AND OTHER REPORT. From time to time up to
the earlier of the Expiration Date or the complete exercise of this Warrant,
the Company shall furnish to Holder upon request the financial information
required under section 2.1 of the Investors' Rights Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this 11th day of January,
1999.
QUANTUM EFFECT DESIGN, INC.
By: \s\ Howard Bailey
---------------------
Title: CFO
------------------
9.
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: ________________________________
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for,
and to purchase thereunder, (1) See Below ( )shares (the "Shares:) of
Stock of ___________ and herewith makes payment of ________________
Dollars ($___________) therefor, and requests that the certificates for
such shares be issued in the name of, and delivered to, _________,
whose address is ________________________.
The undersigned hereby elects to convert _____ percent (__%) of the
value of the Warrant pursuant to the provisions of Section l(b) of the
Warrant.
The undersigned represents that it is acquiring such Common Stock for its own
account for investment and not with a view to or for sale in connection with any
distribution thereof (subject, however, to any requirement of law that the
disposition thereof shall at all times be within its control.
Dated: _________________________
Holder: _________________________
By: _________________________
Its: _________________________
(Address)
_________________________________
_________________________________
(1) Insert here the number of shares called for on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised), in either case without making any adjustment
for additional Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of the
Warrant, may be deliverable upon exercise.
1.
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant, hereby
sells, assigns and transfers all of the rights of the undersigned under the
within Warrant, with respect to the number of shares of Common Stock covered
thereby set forth hereinbelow, unto:
<TABLE>
<CAPTION>
Name of Assignee Address No. of Shares
--------------------------------------------------
<S> <C> <C>
</TABLE>
Dated: _________________________
Holder: _________________________
By: _________________________
Its: _________________________
1.
<PAGE>
EXHIBIT "A"
[On letterhead of the Company]
Reference is hereby made to that certain Warrant dated ______________
199__, issued by QUANTUM EFFECT DESIGN, INC., a California corporation (the
"Company"), to VENTURE LENDING & LEASING II, INC., a Maryland corporation (the
"Holder").
[IF APPLICABLE] Section 1 (c) of the Warrant provides for an increase
in the actual number of shares of the Company's capital stock issuable upon
exercise of the Warrant and the initial exercise price per share are to be
determined by reference to one or more events or conditions subsequent to the
issuance of the Warrant. Such events or conditions have now occurred or lapsed,
and the Company wishes to confirm the actual number of shares issuable and the
initial exercise price. The provisions of this Supplement to Warrant are
incorporated into the Warrant by this reference, and shall control the
interpretation and exercise of the Warrant.
[IF APPLICABLE] Notice is hereby given pursuant to Section 4.5 of the
Warrant that the following adjustment(s) have been made to the Warrant:
[describe adjustments, setting forth details regarding method of calculation and
facts upon which calculation is based].
This certifies that the Holder is entitled to purchase from the Company
______________ (________) fully paid and nonassessable shares of the Company's
__________ Stock at a price _________ of Dollars (_________) per share (the
"Stock Purchase Price"). The Stock Purchase Price and the number of shares
purchasable under the Warrant remain subject to adjustment as provided in
Section 4 of the Warrant.
Executed this _____ day of ______________199__.
QUANTUM EFFECT DESIGN, INC.
By: ______________________________
Name: ____________________________
Title: ___________________________
1.
<PAGE>
QUANTUM EFFECT DESIGN, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS
AGREEMENT
MARCH 16, 1999
<PAGE>
QUANTUM EFFECT DESIGN, INC.
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
This Investors' Rights Agreement (the "AGREEMENT") is made as of the
16th day of March 1999, by and among Quantum Effect Design, Inc., a California
corporation (the "COMPANY"), and the parties listed on EXHIBIT A hereto, each of
which is herein referred to as an "INVESTOR."
RECITALS
A. The Company and certain of the Investors have entered into an
Investors' Rights Agreement dated as of April 16, 1998 (the "RIGHTS AGREEMENT").
B. The Company and certain of the Investors are entering into a Series
D Preferred Stock Purchase Agreement of even date herewith and/or a Unit
Purchase Agreement, pursuant to which such Investors will purchase shares of the
Company's Series D Preferred Stock and/or Common Stock (the "SERIES D
AGREEMENTS").
C. In connection with the transactions contemplated by the Series D
Agreements, the parties hereto wish to amend and restate the Rights Agreement as
set forth herein.
AGREEMENT
In consideration of the mutual covenants and agreements contained
herein and for other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto hereby agree, as follows:
1. REGISTRATION RIGHTS.
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The terms "REGISTER" "REGISTERED" and "REGISTRATION"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act of 1933,
as amended (the "SECURITIES ACT"), and the declaration or ordering of
effectiveness of such registration statement or document;
(b) The term "REGISTRABLE SECURITIES" means (i) the shares
of Common Stock issuable or issued upon conversion of the Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock and the
Series D Preferred Stock of the Company, (ii) the shares of Common Stock
issued to the persons or entities listed on EXHIBIT A that hold such shares,
(iii) shares of Common Stock of the Company issued (or issuable upon the
conversion or exercises of any warrant, right or other security which is
issued) to the persons or entities listed on Exhibit A pursuant to preemptive
rights or rights of first refusal, and (iv) any other shares of Common Stock
of the Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, the
shares listed in (i) and (ii); PROVIDED, HOWEVER,
1.
<PAGE>
that the foregoing definition shall exclude in all cases any Registrable
Securities sold by a person in a transaction in which his or her rights under
this Agreement are not assigned. Notwithstanding the foregoing, Common Stock
or other securities shall only be treated as Registrable Securities if and so
long as (A) they have not been sold to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction, (B)
the registration rights associated with such securities have not been
terminated pursuant to Section 1. 16 hereof;
(c) The number of shares of "REGISTRABLE SECURITIES THEN
OUTSTANDING" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;
(d) The term "HOLDER" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1. 12 of this Agreement;
(e) The term "FORM S-3" means such form under the
Securities Act as in effect on the date hereof or any successor form under
the Securities Act;
(f) The term "SEC" means the Securities and Exchange
Commission; and
(g) The term "QUALIFIED IPO" means a firm commitment
underwritten public offering by the Company of shares of its Common Stock
pursuant to a registration statement on Form S-1 under the Securities Act,
the public offering price of which is not less than $6.48 per share
(appropriately adjusted for any stock split, dividend, combination or other
recapitalization) and which results in aggregate cash proceeds to the Company
of $10,000,000 (net of underwriting discounts and commissions).
1.2 REQUEST FOR REGISTRATION.
(a) If the Company shall receive at any time after
the earlier of (i) April 16, 2001, or (ii) one (1) year after the effective
date of the first registration statement for a public offering of securities
of the Company (other than a registration statement relating either to the
sale of securities to employees of the Company pursuant to a stock option,
stock purchase or similar plan or an SEC Rule 145 transaction), a written
request from the Holders of at least forty percent (40%) of the Registrable
Securities then outstanding that the Company file a registration statement
under the Securities Act covering the registration of Registrable Securities
which would yield an anticipated aggregate offering price, net of
underwriting discounts and commissions, of at least $7,500,000 then the
Company shall, within ten (10) days of the receipt thereof, give written
notice of such request to all Holders and shall, subject to the limitations
of subsection 1.2(b), use its best efforts to effect as soon as practicable,
and in any event within 60 days of the receipt of such request, the
registration under the Securities Act of all Registrable Securities which the
Holders request to be registered within twenty (20) days of the mailing of
such notice by the Company in accordance with Section 3.3.
2.
<PAGE>
(b) If the Holders initiating the registration request
hereunder ("INITIATING HOLDERS") intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall
so advise the Company as a part of their request made pursuant to this
Section 1.2 and the Company shall include such information in the written
notice referred to in subsection 1.2(a). The underwriter will be selected by
a majority in interest of the Initiating Holders and shall be reasonably
acceptable to the Company. In such event, the right of any Holder to include
his Registrable Securities in such registration shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise
mutually agreed by a majority in interest of the Initiating Holders and such
Holder) to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company
as provided in subsection 1.5(e)) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of this Section 1.2, if the
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities
which would otherwise be underwritten pursuant hereto, and the number of
shares of Registrable Securities that may be included in the underwriting
shall be allocated among all Holders thereof, including the Initiating
Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; PROVIDED,
HOWEVER, that the number of shares of Registrable Securities to be included
in such underwriting shall not be reduced unless all other securities are
first entirely excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this
Section 1.2, a certificate signed by the President of the Company stating
that in the good faith judgment of the Board of Directors of the Company, it
would be seriously detrimental to the Company and its shareholders for such
registration statement to be filed and it is therefore essential to defer the
filing of such registration statement, the Company shall have the right to
defer such filing for a period of not more than 120 days after receipt of the
request of the Initiating Holders; PROVIDED, HOWEVER, that the Company may
not utilize this right more than once in any twelve-month period.
(d) In addition, the Company shall not be obligated to
effect, or to take any action to effect, any registration pursuant to this
Section 1.2:
(i) After the Company has effected two (2)
registrations pursuant to this Section 1.2 and such registrations have been
declared or ordered effective;
(ii) During the period starting with the date
sixty (60) days prior to the company's good faith estimate of the date of
filing of, and ending on a date one hundred eighty (180) days after the
effective date of, a registration subject to Section 1.3 hereof; provided
that the Company is actively employing in good faith all reasonable efforts
to cause such registration statement to become effective; or
(iii) If the Initiating Holders propose to dispose
of shares of Registrable Securities that may be immediately registered on
Form S-3 pursuant to a request made pursuant to Section 1.4 below.
3.
<PAGE>
1.3 COMPANY REGISTRATION. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a
registration effected by the Company for shareholders other than the Holders)
any of its stock under the Securities Act in connection with the public
offering of such securities solely for cash (other than a registration
relating solely to the sale of securities to participants in a Company stock
plan or a transaction covered by Rule 145 under the Securities Act, a
registration in which the only stock being registered is Common Stock
issuable upon conversion of debt securities which are also being registered,
or any registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty (20) days after mailing of
such notice by the Company in accordance with Section 3.3, the Company shall,
subject to the provisions of Section 1.8, cause to be registered under the
Securities Act all of the Registrable Securities that each such Holder has
requested to be registered.
1.4 FORM S-3 REGISTRATION. In case the Company shall receive
from any Holder or Holders of not less than thirty percent (30%) of the
Registrable Securities then outstanding a written request or requests that
the Company effect a registration on Form S-3 and any related qualification
or compliance with respect to all or a part of the Registrable Securities
owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other
Holders; and
(b) as soon as practicable, effect such
registration and all such qualifications and compliances as may be so
requested and as would permit or facilitate the sale and distribution of all
or such portion of such Holder's or Holders' Registrable Securities as are
specified in such request, together with all or such portion of the
Registrable Securities of any other Holder or Holders joining in such request
as are specified in a written request given within 15 days after receipt of
such written notice from the Company; PROVIDED, HOWEVER, that the Company
shall not be obligated to effect any such registration, qualification or
compliance, pursuant to this Section 1.4: (i) if Form S-3 is not available
for such offering by the Holders; (ii) if the Holders, together with the
holders of any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $1,000,000; (iii) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors
of the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form
S-3 registration statement for a period of not more than 120 days after
receipt of the request of the Holder or Holders under this Section 1.4;
PROVIDED, HOWEVER, that the Company shall not utilize this right more than
once in any twelve-month period; (iv) if the Company has, within the twelve
(12) month period preceding the date of such request, already effected one
registration on Form S-3 for the Holders pursuant to this Section 1.4; (v) in
any particular jurisdiction in which the Company would be required to qualify
to do business or to execute a general consent to service of process in
effecting such registration, qualification or compliance; (vi) during the
period ending one hundred eighty (180) days after the effective date
4.
<PAGE>
of a registration statement subject to Section 1.3, or (vii) if the Company
has already effected four registrations on Form S-3 for the Holders pursuant
to this Section 1.4.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt
of the request or requests of the Holders. Registrations effected pursuant to
this Section 1.4 shall not be counted as demands for registration or
registrations effected pursuant to Sections 1.2 or 1.3, respectively.
1.5 OBLIGATIONS OF THE COMPANY. Whenever required under this
Section I to effect the registration of any Registrable Securities, the
Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder,
keep such registration statement effective for up to one hundred twenty (120)
days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition of
all securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities
or Blue Sky laws of such jurisdictions as shall be reasonably requested by
the Holders, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each
Holder participating in such underwriting shall also enter into and perform
its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the
circumstances then existing, such obligation to continue for one hundred
twenty (120) days.
5.
<PAGE>
(g) Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number for
all such Registrable Securities, in each case not later than the effective
date of such registration.
(i) Use its best efforts to furnish, at the request of any
Holder requesting registration of Registrable Securities pursuant to this
Section 1, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this
Section 1, if such securities are being sold through underwriters, or, if
such securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i)
an opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given
to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting registration of
Registrable Securities and (ii) a letter dated such date, from the
independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants
to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting registration of
Registrable Securities.
1.6 FURNISH INFORMATION. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Section 1
with respect to the Registrable Securities of any selling Holder that such
Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of such
Holder's Registrable Securities. The Company shall have no obligation with
respect to any registration requested pursuant to Section 1.2 or Section 1.4
of this Agreement if, as a result of the application of the preceding
sentence, the number of shares or the anticipated aggregate offering price of
the Registrable Securities to be included in the registration does not equal
or exceed the number of shares or the anticipated aggregate offering price
required to originally trigger the Company's obligation to initiate such
registration as specified in subsection 1.2(a) or subsection 1.4(b)(2),
whichever is applicable.
1.7 EXPENSES OF REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, Section 1.3
or Section 1.4 including (without limitation) all registration, filing and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of one
counsel for the selling Holders selected by them with the approval of the
Company, which approval shall not be unreasonably withheld, shall be borne by
the Company; PROVIDED, HOWEVER, that the Company shall not be required to pay
for any expenses of any registration proceeding begun pursuant to Section 1.2
if the registration request is subsequently withdrawn at the request of the
Holders of a majority of the Registrable Securities to be registered (in
which case all participating Holders shall bear such expenses), unless the
Holders of a majority of the Registrable Securities agree to forfeit their
right to one demand registration pursuant to Section 1.2 ; provided further,
however, that if at the
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time of such withdrawal, the Holders have learned of a material adverse
change in the condition, business, or prospects of the Company from that
known to the Holders at the time of their request and have withdrawn the
request with reasonable promptness following disclosure by the Company of
such material adverse change, then the Holders shall not be required to pay
any of such expenses and shall retain their rights pursuant to Section 1.2.
1.8 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the
Company shall not be required under Section 1.3 to include any of the
Holders' securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected
by it (or by other persons entitled to select the underwriters), and then
only in such quantity as the underwriters determine in their sole discretion
will not jeopardize the success of the offering by the Company. If the total
amount of securities, including Registrable Securities, requested by
shareholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters
determine in their sole discretion will not jeopardize the success of the
offering (the securities so included to be apportioned pro rata among the
selling shareholders according to the total amount of securities entitled to
be included therein owned by each selling shareholder or in such other
proportions as shall mutually be agreed to by such selling shareholders) but
in no event shall the amount of securities of the selling Holders included in
the offering be reduced below thirty-five percent (35%) of the total amount
of securities included in such offering, unless such offering is the initial
public offering of the Company's securities, in which case the selling
Holders may be excluded if the underwriters make the determination described
above. For purposes of the preceding parenthetical concerning apportionment,
for any selling shareholder which is a holder of Registrable Securities and
which is a partnership or corporation, the partners, retired partners and
shareholders of such holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing persons shall be deemed to be a single "SELLING SHAREHOLDER," and
any pro-rata reduction with respect to such "selling shareholder" shall be
based upon the aggregate amount of shares carrying registration rights owned
by all entities and individuals included in such "selling shareholder," as
defined in this sentence.
1.9 DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect
to the interpretation or implementation of this Section 1.
1.10 INDEMNIFICATION. In the event any Registrable Securities
are included in a registration statement under this Section 1.10:
(a) To the extent permitted by law, the Company
will indemnify and hold harmless each Holder, its directors, officers,
fiduciaries, employees and stockholders or any underwriter (as defined in the
Securities Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Securities Act or the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), against any
losses, claims, damages,
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or liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as
such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (collectively a "VIOLATION"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission
to state therein a material fact required to be stated therein, or necessary
to make the statements therein not misleading, or (iii) any violation or
alleged violation by the Company of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any state securities law; and the Company
will pay to each such Holder, underwriter or controlling person, as incurred,
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or
action; provide , however, that the indemnity agreement contained in this
subsection 1. 1 0(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability, or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable to any Holder, underwriter or
controlling person for any such loss, claim, damage, liability, or action to
the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly
for use in connection with such registration by any such Holder, underwriter
or controlling person.
(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of
its officers who has signed the registration statement, each person, if any,
who controls the Company within the meaning of the Securities Act, any
underwriter, any other Holder selling securities in such registration
statement and any controlling person of any such underwriter or other Holder,
against any losses, claims, damages, or liabilities (joint or several) to
which any of the foregoing persons may become subject, under the Securities
Act, the Exchange Act or other federal or state law, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereto) arise out of
or are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and each such Holder will pay, as incurred, any legal
or other expenses reasonably incurred by any person intended to be
indemnified pursuant to this subsection 1.10(b), in connection with
investigating or defending any such loss, claim, damage, liability, or
action; PROVIDED, HOWEVER, that the indemnity agreement contained in this
subsection 1.10(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; PROVIDED, that in no event shall any indemnity under this
subsection 1.10(b) exceed the net proceeds from the offering received by such
Holder, except in the case of willful fraud by such Holder.
(c) Any person entitled to indemnification under this
Agreement shall notify promptly the indemnifying party in writing of the
commencement of any action or proceeding with respect to which a claim for
indemnification may be made pursuant to this Section 1.10, but the failure of
any indemnified party to provide such notice shall not relieve the
indemnifying party of its obligations under the preceding paragraphs of this
Section 1.10, except
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to the extent the indemnifying party is materially prejudiced thereby, and
shall not relieve the indemnifying party from any liability which it may have
to any indemnified party otherwise than under this Section 1.10. In case any
action or proceeding is brought against an indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, unless in the reasonable
opinion of outside counsel to the indemnified party a conflict of interest
between such indemnified and indemnifying parties may exist in respect of
such claim, to assume the defense thereof jointly with any other indemnifying
party similarly notified, to the extent that it chooses, with counsel
reasonably satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party that it so chooses, the
indemnifying party shall not be liable to such indemnified party for any
legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation; PROVIDED, HOWEVER, that (i) if the indemnifying party fails to
take reasonable steps necessary to defend diligently the action or proceeding
within 20 days after receiving notice from such indemnified party that the
indemnified party believes it has failed to do so; or (ii) if such
indemnified party who is a defendant in any action or proceeding which is
also brought against the indemnifying party reasonably shall have concluded
that there may be one or more legal defenses available to such indemnified
party which are not available to the indemnifying party; or (ii) if
representation of both parties by the same counsel is otherwise inappropriate
under applicable standards of professional conduct, then, in any such case,
the indemnified party shall have the right to assume or continue its own
defense as set forth above (but with no more than one firm of counsel for all
indemnified parties in each jurisdiction, except to the extent any
indemnified party or parties reasonably shall have concluded that there may
be legal defenses available to such party or parties which are not available
to the other indemnified parties or to the extent representation of all
indemnified parties by the same counsel is otherwise inappropriate under
applicable standards or professional conduct) and the indemnifying party
shall be liable for any expense therefor. No indemnifying party shall,
without the written consent of the indemnified party, effect the settlement
or compromise of, or consent to the entry of any judgment with respect to,
any pending or threatened action or claim in respect of which indemnification
or contribution may be sought hereunder (whether or not the indemnified party
is an actual or potential party to such action or claim) unless which
settlement, compromise or judgment (A) includes an unconditional release of
the indemnified party from all liability arising out of such action or claim
and (B) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section
1.10 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or
expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss,
liability, claim, damage, or expense in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of
the indemnified party on the other in connection with the statements or
omissions that resulted in such loss, liability, claim, damage or expense as
well as any other relevant equitable considerations; PROVIDED, that in no
event shall any contribution by a Holder under this Subsection 1.10(b) exceed
the net proceeds from the offering received by such Holder, less any amounts
paid by such holder under Section 1.10(b), except in the case of willful
fraud by such Holder. The relative fault of the indemnifying party and of the
indemnified party shall be
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determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering
are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view
to making available to the Holders the benefits of Rule 144 promulgated under
the Securities Act and any other rule or regulation of the SEC that may at
any time permit a Holder to sell securities of the Company to the public
without registration or pursuant to a registration on Form S-3, the Company
agrees to:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after ninety
(90) days after the effective date of the first registration statement filed
by the Company for the offering of its securities to the general public so
long as the Company remains subject to the periodic reporting requirements
under Sections 13 or 15(d) of the Exchange Act;
(b) take such action, including the voluntary registration
of its Common Stock under Section 12 of the Exchange Act, as is necessary to
enable the Holders to utilize Form S-3 for the sale of their Registrable
Securities, such action to be taken as soon as practicable after the end of
the fiscal year in which the first registration statement filed by the
Company for the offering of its securities to the general public is declared
effective;
(c) file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144
(at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy
of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested in availing any Holder of any rule
or regulation of the SEC which permits the selling of any such securities
without registration or pursuant to such form.
1.12 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section I may be
assigned (but only with all
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related obligations) by a Holder to a transferee or assignee of at least
100,000 shares of such securities (or all of such Holder's Registrable
Securities, if less), PROVIDED the Company is, within a reasonable time after
such transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and PROVIDED, FURTHER, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Securities Act. For the purposes of determining the
number of shares of Registrable Securities held by a transferee or assignee,
the holdings of transferees and assignees of a partnership who are partners,
affiliates or retired partners of such partnership (including spouses and
ancestors, lineal descendants and siblings of such partners or spouses who
acquire Registrable Securities by gift, will or intestate succession) shall
be aggregated together and with the partnership; PROVIDED that all assignees
and transferees who would not qualify individually for assignment of
registration rights shall have a single attorney-in-fact for the purpose of
exercising any rights, receiving notices or taking any action under Section 1.
1.13 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration filed under Section
1.2 hereof, unless under the terms of such agreement, such holder or
prospective holder may include such securities in any such registration only
to the extent that the inclusion of his securities will not reduce the amount
of the Registrable Securities of the Holders which is included or (b) to make
a demand registration which could result in such registration statement being
declared effective prior to the earlier of either of the dates set forth in
subsection 1.2(a) or within one hundred twenty (120) days of the effective
date of any registration effected pursuant to Section 1.2.
1.14 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees
that, during the period of duration (up to, but not exceeding, 180 days)
specified by the Company and an underwriter of Common Stock or other
securities of the Company, following the effective date of the registration
statement of the Company filed under the Securities Act in connection with
its initial public offering, it shall not, to the extent requested by the
Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees
or constituent partners who agree to be similarly bound) any securities of
the Company held by it at the commencement of that period except Common Stock
included in such registration; PROVIDED, HOWEVER, that all officers and
directors of the Company and all other persons with registration rights
(whether or not pursuant to this Agreement) enter into similar agreements.
Notwithstanding anything herein to the contrary, nothing in this Agreement
shall restrict Goldman, Sachs & Co. and its affiliates from engaging in
brokerage, investment advisory, investment company, financial advisory,
anti-raid advisory, financing, asset management, trading, market making,
arbitrage and other similar activities conducted in the ordinary course of
its and its affiliates' business.
In order to enforce the foregoing covenant, the Company may impose
stoptransfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities
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of every other person subject to the foregoing restriction) until the end of
such period, and each Holder agrees that, if so requested, such Holder will
execute an agreement in the form provided by the underwriter containing terms
which are essentially consistent with the provisions of this Section 1.14.
Notwithstanding the foregoing, the obligations described in this
Section 1. 14 shall not apply to a registration relating solely to employee
benefit plans on Form S- I or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to an SEC Rule 145 transaction
on Form S-4 or similar forms which may be promulgated in the future.
1.15 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be
entitled to exercise any right provided for in this Section I after the
earlier of (i) four (4) years following the consummation of a Qualified IPO,
(ii) such time as Rule 144 (without regard to Rule 144(k)) or another similar
exemption under the Securities Act is available for the sale of all of such
Holder's shares during a three (3) month period without registration, or
(iii) such time as the Holder holds Registrable Securities constituting less
than one percent (1%) of the outstanding voting securities of the Company.
2. COVENANTS OF THE COMPANY.
2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver
to each Holder of at least 250,000 shares of Registrable Securities, (except
for a Holder reasonably deemed by the Company to be a competitor of the
Company):
(a) as soon as practicable, but in any event within ninety
(90) days after the end of each fiscal year of the Company, an income
statement for such fiscal year, a balance sheet of the Company and statement
of shareholder's equity as of the end of such year, and a statement of cash
flows for such year, such year-end financial reports to be in reasonable
detail, prepared in accordance with generally accepted accounting principles
("GAAP"), and audited and certified by an independent public accounting firm
of nationally recognized standing selected by the Company;
(b) as soon as practicable, but in, any event within
forty-five (45) days after the end of each of the first three (3) quarters of
each fiscal year of the Company, an unaudited profit or loss statement and an
unaudited balance sheet as of the end of such fiscal quarter and as of the
end of each month during such quarter, in reasonable detail and prepared in
accordance with GAAP;
(c) as soon as practicable, but in any event thirty (30)
days prior to the end of each fiscal year, a budget and business plan for the
next fiscal year, prepared on a monthly basis, including balance sheets and
sources and applications of funds statements for such months, and, as soon as
prepared, any other budgets or revised budgets prepared by the Company and
approved by the board of directors;
(d) with respect to such financial statements called for in
subsection (b) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with GAAP consistently applied with
prior practice for earlier periods (with the exception of footnotes that
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may be required by GAAP) and fairly present the financial condition of the
Company and its results of operation for the period specified, provided that
the foregoing shall not restrict the right of the Company to change its
accounting principles consistent with GAAP, if the Board of Directors
determines that it is in the best interest of the Company to do so;
(e) such other information related to the financial
condition, business, prospects or corporate affairs of the Company as the
Investor may from time to time request, PROVIDED, HOWEVER, that the Company
shall not be obligated under this subsection (f) or any other subsection of
Section 2.1 to provide information which it deems in good faith to be a trade
secret or similar confidential information.
2.2 INSPECTION. The Company shall permit each Holder of at least
500,000 shares of Registrable Securities (except for a Holder reasonably
deemed by the Company to be a competitor of the Company), at such Holder's
expense, to visit and inspect the Company's properties, to examine its books
of account and records and to discuss the Company's affairs, finances and
accounts with its officers, all at such reasonable times as may be requested
by the Investor; PROVIDED, HOWEVER, that the Company shall not be obligated
pursuant to this Section 2.2 to provide access to any information which it
reasonably considers to be a trade secret or similar confidential information.
2.3 RIGHT OF FIRST OFFER. Subject to the terms and conditions
specified in this Section 2.3, the Company hereby grants to each Investor
and/or its affiliates holding at least 500,000 shares of Registrable
Securities (except for Comdisco, Inc., which shall be granted rights
hereunder notwithstanding any failure to hold such number of shares of
Registrable Securities) a right of first offer with respect to future sales
by the Company of its Shares (as hereinafter defined). For purposes of this
Section 2.3, Investor includes any general partners and affiliates of an
Investor. An Investor who chooses to exercise the right of first offer may
designate as purchasers under such right itself or its partners or affiliates
in such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("SHARES"), the Company shall first make an offering of such Shares to
each Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("NOTICE") to the Investors stating (i) its bona fide intention to offer such
Shares, (ii) the number of such Shares to be offered, and (iii) the price and
terms, if any, upon which it proposes to offer such Shares.
(b) Within 15 calendar days after delivery of the Notice,
the Investor may elect to purchase or obtain, at the price and on the terms
specified in the Notice, up to that portion of such Shares which equals the
proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion and exercise of all convertible or exercisable
securities then held, by such Investor bears to the total number of shares of
Common Stock then outstanding (assuming full conversion and exercise of all
convertible or exercisable securities). The Company shall promptly, in
writing, inform each Investor that purchases all the shares available to it
(each, a "FULLY-EXERCISING INVESTOR") of any other Investor's failure to do
likewise.
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During the ten (10)-day period commencing after receipt of such information,
each Fully-Exercising Investor shall be entitled to obtain that portion of
the Shares for which Investors were entitled to subscribe but which were not
subscribed for by the Investors that is equal to the proportion that the
number of shares of Common Stock issued and held, or issuable upon conversion
and exercise of all convertible or exercisable securities then held, by such
Fully Exercising Investor bears to the total number of shares of Common Stock
then outstanding (assuming full conversion and exercise of all convertible or
exercisable securities) and held by all Fully-Exercising Investors.
(c) The Company may, during the 45-day period following the
expiration of the period provided in subsection 2.3(b) hereof, offer the
remaining unsubscribed portion of the Shares to any person or persons at a
price not less than, and upon terms no more favorable to the offeree than
those specified in the Notice. If the Company does not enter into an
agreement for the sale of the Shares within such period, or if such agreement
is not consummated within 60 days of the execution thereof, the right
provided hereunder shall be deemed to be revived and such Shares shall not be
offered unless first reoffered to the Investors in accordance herewith.
(d) The right of first offer in this paragraph 2.3 shall
not be applicable (i) to the issuance or sale of Common Stock (or options
therefor) to employees, consultants and directors, pursuant to plans or
agreements approved by the Board of Directors for the primary purpose of
soliciting or retaining their services, (ii) to or after consummation of a
Qualified IPO, (iii) to the issuance of securities pursuant to the conversion
or exercise of convertible or exercisable securities (provided that the right
of first offer applied to the original issuance of such convertible or
exercisable securities), (iv) to the issuance of securities in connection
with a bona fide business acquisition of or by the Company, whether by
merger, consolidation, sale of assets, sale or exchange of stock or
otherwise, (v) to the issuance of securities to financial institutions or
lessors in connection with commercial credit arrangements, equipment
financings, or similar transactions, or (vi) to the issuance or sale of the
Company's Series D Preferred Stock.
(e) The right of first offer may be assigned to a
transferee acquiring, on an as-converted basis, at least 500,000 shares of
the Investor's shares of the Company's Common Stock, or all of such
Investor's shares, if less.
2.4 BOARD OBSERVER RIGHTS. Each Investor holding not less than
500,000 shares of Series C Preferred Stock or Series D Preferred Stock of the
Company shall be entitled to appoint one person who is reasonably acceptable
to the Board of Directors to attend in a nonvoting capacity meetings of the
Company's Board of Directors from time to time, subject to exclusion in the
event that the Board of Directors determines, in its discretion, that such
attendance would involve a conflict of interest or would involve the
disclosure of confidential and proprietary information in a manner harmful to
the Company.
2.5 TERMINATION OF COVENANTS.
(a) The covenants set forth in Sections 2.1 through Section
2.4 shall terminate as to each Investor and be of no further force or effect
(i) immediately prior to the consummation of a Qualified IPO, or (ii) when
the Company shall sell, convey, or otherwise
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dispose of or encumber all or substantially all of its property or business
or merge into or consolidate with any other corporation (other than a
wholly-owned subsidiary corporation) or effect any other transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of the Company is disposed of, provided that this subsection
(ii) shall not apply to a merger effected exclusively for the purpose of
changing the domicile of the Corporation.
(b) The covenants set forth in Sections 2.1 and 2.2 shall
terminate as to each Holder and be of no further force or effect when the
Company first becomes subject to the periodic reporting requirements of
Sections 13 or 15(d) of the Exchange Act, if this occurs earlier than the
events described in Section 2.5(a) above.
3. MISCELLANEOUS.
3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided in
this Agreement, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective permitted successors and
assigns of the parties (including transferees of any of the Preferred Stock
or any Common Stock issued upon conversion thereof). Nothing in this
Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
3.2 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders
of a majority of the Registrable Securities. Any amendment or waiver effected
in accordance with this paragraph shall be binding upon each holder of any of
such securities (including the securities into which such securities are
convertible or exercisable) then outstanding, each future holder of all such
Registrable Securities, and the Company.
3.3 NOTICES. Unless otherwise provided, any notice required or
permitted by this Agreement shall be in writing and shall be deemed
sufficient upon delivery, when delivered personally or by overnight courier
or sent by telegram or fax, or forty-eight (48) hours after being deposited
in the U.S. mail, as certified or registered mail, with postage prepaid, and
addressed to the party to be notified at such party's address or fax number
as set forth below or on EXHIBIT A hereto or as subsequently modified by
written notice.
3.4 SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith. In the event that the parties
cannot reach a mutually agreeable and enforceable replacement for such
provision, then (a) such provision shall be excluded from this Agreement, (b)
the balance of the Agreement shall be interpreted as if such provision were
so excluded and (c) the balance of the Agreement shall be enforceable in
accordance with its terms.
3.5 TERMINATION OF THE PRIOR AGREEMENTS. The Company and the
parties hereto hereby agree that any provisions in any prior agreements
pertaining to the subject matter hereof are hereby terminated and superseded
in their entirety by the provisions hereof. The
15.
<PAGE>
rights and covenants provided herein set forth the sole and entire agreement
between the Company and the Investors with respect to the subject matter
hereof, and to the extent there is a conflict between this Agreement and any
prior agreement, this Agreement shall control.
3.6 WAIVER OF RIGHT OF FIRST OFFER. With respect to the
issuance of up to 4,700,000 shares of Series D Preferred Stock and 237,500
shares of Common Stock pursuant to the Series D Agreements, as the same may
be amended from time to time according to their respective terms, each
Investor by its execution hereof hereby waives (for itself and on behalf of
all Investors) any rights it may have pursuant to Section 2.3 and any prior
agreement to purchase a greater number of shares of Series D Preferred Stock
and/or Common Stock than the number, if any, such Investor is purchasing
under the Series D Agreements. Each Investor further consents to the addition
as an Investor hereunder (and the listing on Exhibit A hereto) of any
purchaser under the Series D Agreements and Venture Lending and Leasing II,
Inc.
3.7 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto shall be governed, construed and interpreted in accordance
with the laws of the State of California, without giving effect to principles
of conflicts of laws.
3.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.9 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.10 AGGREGATION OF STOCK. All shares of the Preferred Stock and
Common Stock held or acquired by affiliated entities or persons shall be
aggregated together for the purpose of determining the availability of any
rights under this Agreement.
16.
<PAGE>
The parties have executed this Amended and Restated Investors' Rights
Agreement as of the date first above written.
COMPANY:
QUANTUM EFFECT DESIGN:
By: /s/ Thomas J. Riordan
--------------------------------
Name: Thomas J. Riordan
--------------------------------
(Print)
Title: President and CEO
--------------------------------
Address:
--------------------------------
----------------------------------------
----------------------------------------
INVESTORS:
By:
--------------------------------
Name:
--------------------------------
(Print)
Title:
--------------------------------
Address:
--------------------------------
----------------------------------------
----------------------------------------
SIGNATURE PAGE TO AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
The parties have executed this Amended and Restated Investors' Rights
Agreement as of the date first above written.
COMPANY:
QUANTUM EFFECT DESIGN:
By:
---------------------------------
Name:
---------------------------------
(Print)
Title:
--------------------------------
Address:
------------------------------
--------------------------------------
--------------------------------------
INVESTORS:
By: /s/ Michael J. Stark
---------------------------------
Name: Michael J. Stark
---------------------------------
(Print)
Title:
--------------------------------
Address: 2549A Clay Street
------------------------------
Hillsborough, CA 94010
------------------------------
SIGNATURE PAGE TO AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
The parties have executed this Amended and Restated Investors' Rights
Agreement as of the date first above written.
COMPANY:
QUANTUM EFFECT DESIGN:
By:
---------------------------------
Name:
---------------------------------
(Print)
Title:
--------------------------------
Address:
------------------------------
--------------------------------------
--------------------------------------
INVESTORS:
By: /s/ Daniel Niles
---------------------------------
Name: Daniel Niles
---------------------------------
(Print)
Title:
--------------------------------
Address: 299 Santa Paula Avenue
-----------------------------
San Francisco, CA 94127
-----------------------------
SIGNATURE PAGE TO AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
The parties have executed this Amended and Restated Investors' Rights
Agreement as of the date first above written.
COMPANY:
QUANTUM EFFECT DESIGN:
By:
---------------------------------
Name:
---------------------------------
(Print)
Title:
--------------------------------
Address:
------------------------------
--------------------------------------
--------------------------------------
INVESTORS:
By: /s/ S. F. Kaufman
---------------------------------
Name: S. F. Kaufman
---------------------------------
(Print)
Title: Managing Director
--------------------------------
Address: 220 Clark Drive
------------------------------
San Mateo, CA 94402
------------------------------
SIGNATURE PAGE TO AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
The parties have executed this Amended and Restated Investors' Rights
Agreement as of the date first above written.
COMPANY:
QUANTUM EFFECT DESIGN:
By:
-------------------------------
Name:
-------------------------------
(Print)
Title:
------------------------------
Address:
----------------------------
------------------------------------
------------------------------------
INVESTORS:
By: /s/ Brian S. Bean
-------------------------------
Name: Brian S. Bean
-------------------------------
(Print)
Title: Managing Director
------------------------------
Address:
----------------------------
----------------------------
SIGNATURE PAGE TO AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
The parties have executed this Amended and Restated Investors' Rights
Agreement as of the date first above written.
COMPANY:
QUANTUM EFFECT DESIGN:
By:
------------------------------
Name:
------------------------------
(Print)
Title:
-----------------------------
Address:
---------------------------
-----------------------------------
-----------------------------------
INVESTORS:
By: /s/ Anthony P. Brenner
------------------------------
Name: Anthony P. Brenner
------------------------------
(Print)
Title: Managing Director
-----------------------------
Address: 555 California Street, Suite 2350
-----------------------------------
San Francisco, CA 94104
-----------------------------------
SIGNATURE PAGE TO AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
The parties have executed this Amended and Restated Investors' Rights
Agreement as of the date first above written.
COMPANY:
QUANTUM EFFECT DESIGN:
By:
------------------------------
Name:
------------------------------
(Print)
Title:
-----------------------------
Address:
---------------------------
-----------------------------------
-----------------------------------
INVESTORS:
By: /s/ J. Stephen Perkins
------------------------------
Name: J. Stephen Perkins
------------------------------
(Print)
Title:
-----------------------------
Address: C/o Omega Venture Partners
---------------------------
555 California, Suite 2350
---------------------------
San Francisco, CA 94104
---------------------------
SIGNATURE PAGE TO AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
The parties have executed this Amended and Restated Investors' Rights
Agreement as of the date first above written.
COMPANY:
QUANTUM EFFECT DESIGN:
By:
------------------------------
Name:
------------------------------
(Print)
Title:
-----------------------------
Address:
---------------------------
-----------------------------------
-----------------------------------
INVESTORS:
By: /s/ Daniel J. Dunn
------------------------------
Name: Daniel J. Dunn
------------------------------
(Print)
Title: Managing Director
-----------------------------
Address: 60 Dartmouth Drive
---------------------------
Larkspur, CA 94939
---------------------------
SIGNATURE PAGE TO AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
The parties have executed this Amended and Restated Investors' Rights
Agreement as of the date first above written.
COMPANY:
QUANTUM EFFECT DESIGN:
By:
------------------------------
Name:
------------------------------
(Print)
Title:
-----------------------------
Address:
---------------------------
-----------------------------------
-----------------------------------
INVESTORS:
By: /s/ Gerald K. Hwasta
------------------------------
Name: Gerald K. Hwasta
------------------------------
(Print)
Title: Senior Associate
-----------------------------
Address: 1770 North Point #3
---------------------------
San Francisco, CA 94123
---------------------------
SIGNATURE PAGE TO AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
The parties have executed this Amended and Restated Investors' Rights
Agreement as of the date first above written.
COMPANY:
QUANTUM EFFECT DESIGN:
By:
------------------------------
Name:
------------------------------
(Print)
Title:
-----------------------------
Address:
---------------------------
-----------------------------------
-----------------------------------
INVESTORS:
By: /s/ Raymond E. Carey, IV
------------------------------
Name: Raymond E. Carey, IV
------------------------------
(Print)
Title: Associate
-----------------------------
Address: BancBoston Robertson Stephens
-----------------------------------
555 California Street, Suite 2600
-----------------------------------
San Francisco, CA 94104
-----------------------------------
SIGNATURE PAGE TO AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
The parties have executed this Amended and Restated Investors' Rights
Agreement as of the date first above written.
COMPANY:
QUANTUM EFFECT DESIGN:
By:
------------------------------
Name:
------------------------------
(Print)
Title:
-----------------------------
Address:
---------------------------
-----------------------------------
-----------------------------------
INVESTORS:
By: Hambrecht & Quist California
------------------------------
Name: /s/ Robert N. Savoie
------------------------------
(Print)
Title: Robert N. Savoie
-------------------------------------
Tax Director, Attorney-in-Fact
-------------------------------------
Address: One Bush Street
-----------------------------------
San Francisco, CA 94104
-----------------------------------
SIGNATURE PAGE TO AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
The parties have executed this Amended and Restated Investors' Rights
Agreement as of the date first above written.
COMPANY:
QUANTUM EFFECT DESIGN:
By:
------------------------------
Name:
------------------------------
(Print)
Title:
-----------------------------
Address:
---------------------------
-----------------------------------
-----------------------------------
INVESTORS:
By: Hambrecht & Quist Employee Venture
---------------------------------------
Name: /s/ Robert N. Savoie
---------------------------------------
(Print)
Title: Robert N. Savoie
--------------------------------------
Tax Director, Attorney-in-Fact
--------------------------------------
Address: One Bush Street
------------------------------------
San Francisco, CA 94104
------------------------------------
SIGNATURE PAGE TO AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
The parties have executed this Amended and Restated Investors' Rights
Agreement as of the date first above written.
COMPANY:
QUANTUM EFFECT DESIGN:
By:
------------------------------
Name:
------------------------------
(Print)
Title:
-----------------------------
Address:
---------------------------
-----------------------------------
-----------------------------------
INVESTORS:
By: /s/ Kenneth Hao
--------------------------------------
Name: Kenneth Hao
--------------------------------------
(Print)
Title:
-------------------------------------
Address: One Bush Street
-----------------------------------
San Francisco, CA 94104
-----------------------------------
SIGNATURE PAGE TO AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
The parties have executed this Amended and Restated Investors' Rights
Agreement as of the date first above written.
COMPANY:
QUANTUM EFFECT DESIGN:
By:
------------------------------
Name:
------------------------------
(Print)
Title:
-----------------------------
Address:
---------------------------
-----------------------------------
-----------------------------------
INVESTORS:
By: /s/ James A. Davidson
--------------------------------------
Name: James A. Davidson
--------------------------------------
(Print)
Title:
-------------------------------------
Address: c/o Silver Lake Partners
-----------------------------------
2800 Sand Hill Road #10
-----------------------------------
Menlo Park , CA 94025
-----------------------------------
SIGNATURE PAGE TO AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
The parties have executed this Amended and Restated Investors' Rights
Agreement as of the date first above written.
COMPANY:
QUANTUM EFFECT DESIGN:
By:
------------------------------
Name:
------------------------------
(Print)
Title:
-----------------------------
Address:
---------------------------
-----------------------------------
-----------------------------------
INVESTORS:
By: /s/ David Wehmer
--------------------------------------
Name: David Wehmer
--------------------------------------
(Print)
Title: Analyst
-------------------------------------
Address: 3624 25th Street
-----------------------------------
San Francisco, CA 94110
-----------------------------------
SIGNATURE PAGE TO AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D
NAME/ADDRESS/FAX NO. COMMON PREFERRED PREFERRED PREFERRED PREFERRED
- ---------------------------------------- -------------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Integrated Device Technology, Inc. 2,200,000 1,440,000
2975 Stender Way, M/S C4-01
Santa Clara, CA 95054
Fax: (408) 492-8454
Attention: Len Perham
Berg and Berg Enterprises 360,000
1005-D Bandley Drive
Cupertino, CA 95014
Fax: (408) 725-1626
Attention:
Thomas Riordan 1,000,000
C/o Quantum Effect Design, Inc.
3255-3 Scott Boulevard, Suite 200
Santa Clara, CA 95054
Fax: (408) 565-0348
Attention: Thomas Riordan
Raymond Kunita 1,000,000
C/o Quantum Effect Design, Inc.
3255-3 Scott Boulevard, Suite 200
Santa Clara, CA 95054
Fax: (408) 565-0348
Attention: Raymond Kunita
Earl Killian 800,000
27961 Central Drive
Los Altos Hills, CA 94022
Fax: (408) 873-1164
Attention: Earl Killian
BESSEMER VENTURE INVESTORS L.P. 140,000 59,160
1400 Old Country Road, Suite 407
Westbury, NY 11590
Fax: (650) 854-7415
Attention: Bruce K. Graham/Bob Buescher
BESSEMER VENTURE PARTNERS IV L.P. 721,350 328,978
1400 Old Country Road, Suite 407
Westbury, NY 11590
Fax: (650) 854-7415
Attention: Bruce K. Graham/Bob Buescher
BESSEC VENTURES IV L.P. 538,650 203,471
1400 Old Country Road, Suite 407
Westbury, NY 11590
Fax: (650) 854-7415
Attention: Bruce K. Graham/Bob Buescher
NORWEST VENTURE PARTNERS VI, L.P. 1,200,000 507,096
245 Lytton Avenue, Suite 250
Palo Alto, CA 94301
Fax: (650)321-8010
Attention: Kevin Hall
<PAGE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D
NAME/ADDRESS/FAX NO. COMMON PREFERRED PREFERRED PREFERRED PREFERRED
- ---------------------------------------- -------------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
WPG ENTERPRISE FUND II, L.L.C. 1,365,000 414,960 249,256
555 California Street, Suite 3130
San Francisco, CA 94104
Fax: (415) 989-5108
Attention: Melissa Alves
WEISS, PECK & GREER VENTURE 1,135,000 345,040 307,257
ASSOCIATES III, L.L.C.
555 California Street, Suite 3130
San Francisco, CA 94104
Fax: (415) 989-5108
Attention: Melissa Alves
WPG ENTERPRISE FUND III, L.P. 463,104 296,629
555 California Street, Suite 3130
San Francisco, CA 94107
Fax: (415) 989-5108
Attention: Melissa Alves
WEISS, PECK & GREER VENTURE 529,524 42,387
ASSOCIATES IV, L.P.
555 California Street, Suite 3130
San Francisco, CA 94107
Fax: (415) 989-5108
Attention: Melissa Alves
WPG INFORMATION SCIENCES 20,520 13,011
ENTREPRENEUR FUND, L.P.
555 California Street, Suite 3130
San Francisco, CA 94107
Fax: (415) 989-5108
Attention: Melissa Alves
WEISS, PECK & GREER VENTURE 66,852 335,743
ASSOCIATES IV CAYMAN, L.P.
555 California Street, Suite 313O
San Francisco, CA 94107
Fax: (415) 989-5108
Attention: Melissa Alves
Comdisco, Inc. 93,750* 16,123
C/o Comdisco Ventures
3000 Sand Hill Road
Building 1, Suite 155
Menlo Park, CA 94025
Fax: (650) 854-4026
Attention:
Patrick Barry 8,000
178 El Dorado
Palo Alto, CA 94306
Fax: (650) 233-8386
Attention: Patrick Barry
Mark B. Weeks 4,000
1800 Alford Avenue
Los Altos, CA 94024
Fax: (650) 233-8386
Attention: Mark B. Weeks
<PAGE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D
NAME/ADDRESS/FAX NO. COMMON PREFERRED PREFERRED PREFERRED PREFERRED
- ---------------------------------------- -------------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Steve Kaney 16,000
9625 Haverhill Lane
Alpharetta, GA 30022
Fax: (919)
Stephanie Freidrich 14,000
119 Highlands Lake Drive
Cary, NC 27511
Fax: (770)
James N. Chapman 10,000
2020 Ashton Avenue
Menlo Park, CA 94025
Michael J. Stark 6,000 34,722
c/o Robertson Stephens Funds
555 California Street
San Francisco, CA 94104
Fax: (415) 781-0278
Timark L.P. 20,000
14585 Big Basin Way
Saratoga, CA 95070
Fax: (415) 872-0224
Attention: Frank Marshall
Hambrecht & Quist LLC 80,000
1 Bush Street
San Francisco, CA 94107
Fax: (415) 576-3624
Attention: Jeffrey C. Gustafson
James E. Davidson 5,500
1832 Floribunda Avenue
Hillsborough, CA 94010
Fax: (650) 348-7849
Kenneth Y. Hao 5,500 17,361
1000 North Point Street, # 1607
San Francisco, CA 94109
Fax: (415) 673-4640
Jeffrey C. Gustafson 4,000
3141 Gough Street
San Francisco, CA 94123
Fax: (415) 439-3808
Robert C. Chaplinski 5,000
3237 Novara Way
Pleasanton, CA 94566
Fax: (510) 461-1556
Annette Bianchi 10,000
1535 Seneca Lane
San Mateo, CA 94402
Barry Eggers 16,000
25466 Adobe Lane
Los Altos Hills, CA 94022
<PAGE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D
NAME/ADDRESS/FAX NO. COMMON PREFERRED PREFERRED PREFERRED PREFERRED
- ---------------------------------------- -------------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Philip Black 10,000
3055 Pacific Apt. #3
San Francisco, CA 94115
Chris Schaepe 28,000
3721 Ortega Court
Palo Alto, CA 94303
Greer Family Partners L.P. 12,000
555 California Street, Suite 47601
San Francisco, CA 94104
Fax: (415) 989-5108
Gil Cogan 28,000
555 California Street, Suite 47601
San Francisco, CA 94104
Fax: (415) 989-5108
Lee-Yi Hsiang Su 16,000
c/o Peter Nieh
1839 Jefferson Street
San Francisco, CA 94123
Manuel Alba-Marquez 40,000
Galileo Technology
1598 Rosesheal Drive
San Jose, CA 95125
Menachem Schwartz 4,800
Trumpeldor 63/9
Petah Tikva
Israel
Eliaz Lavi 4,800
21 Ilanot St.
Haifa
Israel 34324
Eyal Waldman 4,800
21 Ilanot St.
Haifa
Israel 34324
David Schemla 4,800
Moshav Manov
D. N. Misgav
20184
Israel
Mitchell A. Kahn 4,800
1265 Kotenberg Ave.
San Jose, CA 95125
John C. Mein 4,000
Moshav Manov
D. N. Misgav
20184
Israel
<PAGE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D
NAME/ADDRESS/FAX NO. COMMON PREFERRED PREFERRED PREFERRED PREFERRED
- ---------------------------------------- -------------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Venture Lending and Leasing 11, Inc. 80,000*
20 10 North First Street, Suite 3 10
San Jose, CA 95131
THE GOLDMAN SACHS GROUP L.L.C. 1,157,408
85 Broad Street
New York, NY
Attn: Joe DiSabato
CISCO SYSTEMS, INC. 237,500 1,047,454
255 West Tasman Drive, Bldg. J
San Jose, CA 95134
Attn: Michael Volpi
Steven Schaepe 5,787
Bank Boston Robertson Stephens Inc.
100 Federal Street, I I th Floor
Boston, MA 02110
Michael Stark 6,944
Omega Venture Partners
555 California Street, Suite 2350
San Francisco, CA 94104
Daniel Niles 6,944
Omega Venture Partners
555 California Street, Suite 2350
San Francisco, CA 94104
Seymour F. Kaufman 6,944
Omega Venture Partners
555 California Street, Suite 2350
San Francisco, CA 94104
Brian Bean 5,787
Omega Venture Partners
555 California Street, Suite 2350
San Francisco, CA 94104
Anthony Brenner 4,629
Omega Venture Partners
555 California Street, Suite 2350
San Francisco, CA 94104
Stephen Perkins 694
Omega Venture Partners
555 California Street, Suite 2350
San Francisco, CA 94104
Daniel Dunn 925
Omega Venture Partners
555 California Street, Suite 2350
San Francisco, CA 94104
Gerald Hwasta 1,157
Omega Venture Partners
555 California Street, Suite 2350
San Francisco, CA 94104
<PAGE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D
NAME/ADDRESS/FAX NO. COMMON PREFERRED PREFERRED PREFERRED PREFERRED
- ---------------------------------------- -------------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Raymond Carey 694
Omega Venture Partners
555 California Street, Suite 2350
San Francisco, CA 94104
Hambrecht & Quist California 6,945
1 Bush Street
San Francisco, CA 94104
Hambrecht & Quist Employee Fund, L.P. 11 6,945
I Bush Street
San Francisco, CA 94104
Kenneth Hao 1,157
Hambrecht & Quist California
I Bush Street
San Francisco, CA 94104
James Davidson 1,157
1 Bush Street
San Francisco, CA 94104
David Wehner 1,157
1 Bush Street
San Francisco, CA 94104
</TABLE>
*Represents shares issuable upon exercise of the Warrant Agreements.
Such shares are deemed to be Registrable Securities only upon and to the extent
of such exercise.
<PAGE>
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of _________,
1999 by and between QUANTUM EFFECT DEVICES, INC., a Delaware corporation (the
"Corporation"), and ____________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in
his/her capacity as _______________ of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as
______________ of the Corporation, the Corporation has determined and agreed to
enter into this Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as
_______________ after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as
______________ of the Corporation or as a director, officer or other
fiduciary of an affiliate of the Corporation (including any employee benefit
plan of the Corporation) faithfully and to the best of his ability so long as
he is duly elected and qualified in accordance with the provisions of the
Bylaws or other applicable charter documents of the Corporation or such
affiliate; PROVIDED, HOWEVER, that Agent may at any time and for any reason
resign from such position (subject to any contractual obligation that Agent
may have assumed apart from this Agreement) and that the Corporation or any
affiliate shall have no obligation under this Agreement to continue Agent in
any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold
harmless and indemnify Agent to the fullest extent authorized or permitted by
the provisions of the Bylaws and the Code, as the same may be amended from
time to time (but, only to the extent that such
1.
<PAGE>
amendment permits the Corporation to provide broader indemnification rights
than the Bylaws or the Code permitted prior to adoption of such amendment).
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further
agrees to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys'
fees), witness fees, damages, judgments, fines and amounts paid in settlement
and any other amounts that Agent becomes legally obligated to pay because of
any claim or claims made against or by him in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative (including an action by or in
the right of the Corporation) to which Agent is, was or at any time becomes a
party, or is threatened to be made a party, by reason of the fact that Agent
is, was or at any time becomes a director, officer, employee or other agent
of Corporation, or is or was serving or at any time serves at the request of
the Corporation as a director, officer, employee or other agent of another
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise; and
(b) otherwise to the fullest extent as may be provided to
Agent by the Corporation under the non-exclusivity provisions of the Code and
Section 43 of the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent for an accounting
of profits made from the purchase or sale by Agent of securities of the
Corporation pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law;
(b) on account of Agent's conduct that was knowingly
fraudulent or deliberately dishonest or that constituted willful misconduct;
(c) on account of Agent's conduct that constituted a breach
of Agent's duty of loyalty to the Corporation or resulted in any personal
profit or advantage to which Agent was not legally entitled;
(d) for which payment is actually made to Agent under a
valid and collectible insurance policy or under a valid and enforceable
indemnity clause, bylaw or agreement, except in respect of any excess beyond
payment under such insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this respect,
both the Corporation and Agent have been advised that the Securities and
Exchange Commission believes that indemnification for liabilities arising
under the federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(f) in connection with any proceeding (or part thereof)
initiated by Agent, or any proceeding by Agent against the Corporation or its
directors, officers, employees or other
2.
<PAGE>
agents, unless (i) such indemnification is expressly required to be made by
law, (ii) the proceeding was authorized by the Board of Directors of the
Corporation, (iii) such indemnification is provided by the Corporation, in
its sole discretion, pursuant to the powers vested in the Corporation under
the Code, or (iv) the proceeding is initiated pursuant to Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise) and shall continue thereafter so
long as Agent shall be subject to any possible claim or threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative, by reason of the fact that
Agent was serving in the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this
Agreement to indemnification by the Corporation for a portion of the expenses
(including attorneys' fees), witness fees, damages, judgments, fines and
amounts paid in settlement and any other amounts that Agent becomes legally
obligated to pay in connection with any action, suit or proceeding referred
to in Section 3 hereof even if not entitled hereunder to indemnification for
the total amount thereof, and the Corporation shall indemnify Agent for the
portion thereof to which Agent is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30)
days after receipt by Agent of notice of the commencement of any action, suit
or proceeding, Agent will, if a claim in respect thereof is to be made
against the Corporation under this Agreement, notify the Corporation of the
commencement thereof; but the omission so to notify the Corporation will not
relieve it from any liability which it may have to Agent otherwise than under
this Agreement. With respect to any such action, suit or proceeding as to
which Agent notifies the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate therein
at its own expense;
(b) except as otherwise provided below, the Corporation
may, at its option and jointly with any other indemnifying party similarly
notified and electing to assume such defense, assume the defense thereof,
with counsel reasonably satisfactory to Agent. After notice from the
Corporation to Agent of its election to assume the defense thereof, the
Corporation will not be liable to Agent under this Agreement for any legal or
other expenses subsequently incurred by Agent in connection with the defense
thereof except for reasonable costs of investigation or otherwise as provided
below. Agent shall have the right to employ separate counsel in such action,
suit or proceeding but the fees and expenses of such counsel incurred after
notice from the Corporation of its assumption of the defense thereof shall be
at the expense of Agent unless (i) the employment of counsel by Agent has
been authorized by the Corporation, (ii) Agent shall have reasonably
concluded that there may be a conflict of interest between the Corporation
and Agent in the conduct of the defense of such action or (iii) the
Corporation shall not in fact have employed counsel to assume the defense of
such action, in each of which cases the fees and expenses of Agent's separate
counsel shall be at the expense of the Corporation.
3.
<PAGE>
The Corporation shall not be entitled to assume the defense of any action,
suit or proceeding brought by or on behalf of the Corporation or as to which
Agent shall have made the conclusion provided for in clause (ii) above; and
(c) the Corporation shall not be liable to indemnify Agent
under this Agreement for any amounts paid in settlement of any action or
claim effected without its written consent, which shall not be unreasonably
withheld. The Corporation shall be permitted to settle any action except that
it shall not settle any action or claim in any manner which would impose any
penalty or limitation on Agent without Agent's written consent, which may be
given or withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all
expenses incurred by Agent in connection with such proceeding upon receipt of
an undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by
this Agreement to Agent shall be enforceable by or on behalf of Agent in any
court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim
is made within ninety (90) days of request therefor. Agent, in such
enforcement action, if successful in whole or in part, shall be entitled to
be paid also the expense of prosecuting his claim. It shall be a defense to
any action for which a claim for indemnification is made under Section 3
hereof (other than an action brought to enforce a claim for expenses pursuant
to Section 8 hereof, provided that the required undertaking has been tendered
to the Corporation) that Agent is not entitled to indemnification because of
the limitations set forth in Section 4 hereof. Neither the failure of the
Corporation (including its Board of Directors or its stockholders) to have
made a determination prior to the commencement of such enforcement action
that indemnification of Agent is proper in the circumstances, nor an actual
determination by the Corporation (including its Board of Directors or its
stockholders) that such indemnification is improper shall be a defense to the
action or create a presumption that Agent is not entitled to indemnification
under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable
the Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's
Certificate of Incorporation or Bylaws, agreement, vote of stockholders or
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office.
4.
<PAGE>
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall
continue after Agent has ceased to be a director, officer, employee or other
agent of the Corporation or to serve at the request of the Corporation as a
director, officer, employee or other agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
and shall inure to the benefit of Agent's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business or assets of the Corporation, expressly
to assume and agree to perform this Agreement in the same manner and to the
same extent that the Corporation would be required to perform if no such
succession had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid for any reason, such invalidity
or unenforceability shall not affect the validity or enforceability of the
other provisions hereof. Furthermore, if this Agreement shall be invalidated
in its entirety on any ground, then the Corporation shall nevertheless
indemnify Agent to the fullest extent provided by the Bylaws, the Code or any
other applicable law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced
in accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the
existence of this Agreement.
17. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication
was directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with
postage prepaid:
(a) If to Agent, at the address indicated on the
signature page hereof.
5.
<PAGE>
(b) If to the Corporation, to
Quantum Effect Devices, Inc.
3255-3 Scott Boulevard, Suite 200
Santa Clara, CA 95054
or to such other address as may have been furnished to Agent by the
Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
QUANTUM EFFECT DEVICES, INC.
By:
-----------------------------
Title:
-----------------------------
AGENT
--------------------------------
Address:
--------------------------------
--------------------------------
6.
<PAGE>
COMMERCIAL LEASE AGREEMENT
THIS LEASE, made this 22ND day of MARCH, 1999, by and between PEACHTREE
ASSOCIATES, ("Landlord") whose address is 7511 MOURNING DOVE ROAD, SUITE 104,
RALEIGH, NC 27615 and QUANTUM EFFECT DESIGN ("Tenant") whose address is
______________________________.
WITNESSETH:
PREMISES
1. Landlord, for and in consideration of the rents, covenants, agreements and
stipulations hereinafter mentioned, provided for and covenanted to be paid, kept
and preformed by Tenant, leases and rents unto Tenant, and Tenant hereby leases
and takes upon the terms and conditions which hereinafter appear, the following
described property (hereinafter called the "Premises") to wit:
Address: 7511 MOURNING DOVE ROAD, SUITE 104, RALEIGH, NC 27615
Legal Description: _________________________________________
/ / See attached Exhibit ______ for legal description of premises.
TERM
2. The Tenant shall have and hold the Premises for a term of 1 YEAR beginning on
the 16TH day of MARCH, 1999, and ending on the 15TH day of MARCH, 2000, at
midnight, unless sooner terminated as hereinafter provided. The first Lease Year
Anniversary shall be the date twelve (12) calendar months after the first day of
the first full month of the term hereof and successive Lease Year Anniversaries
shall be the date twelve (12) calendar months from the previous Lease Year
Anniversary. QED SHALL HAVE THE RIGHT TO TERMINATE THIS LEASE UPON GIVING NINETY
(90) DAYS WRITTEN NOTICE TO THE OTHER PARTY.
RENTAL
3. Tenant agrees to pay Landlord or its Agent without demand, deduction or set
off, an annual rent of $9,000.00 payable in monthly installments of $750.00 in
advance on the first day of each calendar month during the term hereof. Upon
execution of this Lease, Tenant shall pay to Landlord the first month's rent due
hereunder. Rental for any period during the term hereof which is less than one
month shall be the pro-rated portion of the monthly rental due. On each Lease
Year Anniversary the annual rental payable hereunder (and accordingly the
monthly installments) shall be adjusted:
/ / any change in the Consumer Price Index, Urban Wage Earners and
Clerical Workers, All Cities (CPI-W, 1982-1984=100) ("Index") by
multiplying the then effective annual rental by the value of said Index
for the month two months prior to the Lease Year Anniversary and dividing
the product by the value of said Index for the month two months prior to the
previous Lease Year Anniversary (in the instance of the first Lease Year
Anniversary the value of the Index for the month two months prior to the
first full month of the term hereof). In the event the Index ceases
1.
<PAGE>
to be published, there shall be substituted for the Index the measure
published by the US Department of Labor which most nearly approximates the
Index;
/ / as follows: __________________________________
/ / If this box is checked, Tenant shall pay all rental to
Landlord's Agent at the following address: ________________________
LATE CHARGES
4. If Landlord fails to receive any rent payment within 10 days after it becomes
due, Tenant shall pay Landlord, as additional rental, a late charge equal to TEN
percent (10%) of the overdue amount or $____________, whichever is greater, plus
actual bank fees incurred for returned or dishonored checks. The parties agree
that such a late charge represents a fair and reasonable estimate of the cost
Landlord will incur by reason of such late payment.
SECURITY DEPOSIT
5. Tenant shall deposit with Landlord or its Agent upon execution of this lease
$NONE as a security deposit which shall be held as security for the full and
faithful performance by Tenant of each and every term, covenant and condition of
this Lease. If any of the rents or other charges or sums payable by Tenant shall
be over-due and unpaid or should payments be made on behalf of Tenant, or should
Tenant fail to perform any of the terms of this Lease, then Landlord or its
Agent may, at its option, appropriate and apply the security deposit, or so much
thereof as may be necessary, to compensate toward the payment of the rents,
charges or other sums due from Tenant, or towards any loss, damage or expense
sustained by Landlord resulting from such default on the part of the Tenant; and
in such event Tenant shall upon demand restore the security deposit to the
original sum deposited. In the event Tenant furnishes Landlord with proof that
all utility bills have been paid through the date of Lease termination, and
performs all of Tenant's other obligations under this Lease, the security
deposit shall be returned in full to Tenant within thirty (30) days after the
expiration or sooner termination of the term of this Lease and the surrender of
the Premises by Tenant in compliance with the provisions of this Lease. The
Security Deposit may be placed in an interest bearing account and any interest
thereon shall be the property of the party holding the same.
/ / If this box is checked, Agent shall hold the Security
Deposit and be entitled to the interest thereon.
UTILITY BILLS
6. (a) Tenant shall pay the following utilities: NONE.
(b) Landlord shall pay the following utilities: _________________
Responsibility to pay for a utility service shall include all metering, hook-up
fees or other miscellaneous charges associated with the installation and
maintenance of such utility in said party's name.
2.
<PAGE>
COMMON AREA COSTS; RULES AND REGULATIONS
7. If the premises are part of a larger building or group of buildings, Tenant
shall pay as additional rental monthly, in advance, its pro rata share of common
area maintenance costs as hereinafter more particularly set forth in the Special
Stipulations (see Paragraph 38). The Rules and Regulations, if any, attached
hereto are made a part of this Lease. Tenant agrees to perform and abide by
these Rules and Regulations, if any, and such other Rules and Regulations, if
any, as may be made from time to time by Landlord.
USE OF PREMISES
8. The Premises shall be used for _______________ purposes only and no other.
The Premises shall not be used for any illegal purposes, nor in any manner to
create any nuisance or trespass, nor in any manner to vitiate the insurance or
increase the rate of insurance on the Premises. In the event Tenant's use of the
Premises results in an increase in the rate of insurance on the Premises, Tenant
shall pay to Landlord, upon demand and as additional rental, the amount of any
such increase.
TAX AND INSURANCE ESCALATION
9. Tenant shall pay upon demand as additional rental during the term of this
Lease, and any extension or renewal thereof:
/ / The amount by which all taxes (including but not limited to, ad valorem
taxes, special assessments and any other governmental charges) on the
Premises for each tax year exceed all taxes on the Premises for the tax year
199____; or
/ / all taxes (including but not limited to, ad valorem taxes, special
assessments and any other governmental charges) on the Premises for each tax
year.
In the event the Premises are less than the entire property assessed for such
taxes for any such tax year, then the tax for any such year applicable to the
Premises shall be determined by proration on the basis that the rentable floor
area of the Premises bears to the rentable floor area of the entire property
assessed. If the final year of the Lease term fails to coincide with the tax
year, then any excess for the tax year during which the term ends shall be
reduced by the pro rata part of such tax year beyond the Lease term. If such
taxes for the year in which the Lease terminates are not ascertainable before
payment of the last month's rental, then the amount of such taxes assessed
against the property for the previous tax year shall be used as a basis for
determining the pro rata share, if any, to be paid by Tenant for that portion of
the last Lease year.
Tenant shall further pay upon demand as additional rental during the term of
this Lease, and any extension or renewal thereof:
/ / the excess cost of fire and extended coverage insurance including any
and all public liability insurance on the building over the cost of the first
year of the Lease term for each subsequent year during the term of this
Lease; or
3.
<PAGE>
/ / all fire and extended coverage insurance including any and all public
liability insurance on the building.
In the event the Premises are less than the entire property, then the insurance
payable by Tenant for the Premises shall be determined by proration on the basis
that the rentable floor area of the Premises bears to the rentable floor area of
the entire property. Tenant shall pay all taxes and insurance as provided herein
within fifteen (15) days after receipt of notice from Landlord as to the amount
due. Tenant shall be solely responsible for insuring Tenant's personal and
business property and for paying any taxes or governmental assessments levied
thereon.
INDEMNITY; INSURANCE
10. Tenant agrees to and hereby does indemnify and save Landlord harmless
against all claims for damages to persons or property by reason of Tenant's use
or occupancy of the Premises, and all expenses incurred by Landlord because
thereof, including attorney's fees and court costs. Supplementing the foregoing
and in addition thereto, Tenant shall during the term of this Lease and any
extension or renewal thereof and at Tenant's expense, maintain in full force and
effect comprehensive general liability insurance with limits of $____________
per person and $__________ per accident, and property damage limits of
$__________, which insurance shall contain a special endorsement recognizing and
insuring any liability accruing to Tenant under the first sentence of this
paragraph, and naming Landlord as additional insured. Tenant shall provide
evidence of such insurance to Landlord prior to the commencement of the term of
this Lease. Landlord and Tenant each hereby release and relieve the other, and
waive any right of recovery, for loss or damage arising out of or incident to
the perils insured against which perils occur in, on or about the Premises,
whether due to the negligence of Landlord or Tenant or their agents, employees,
contractors and/or invitees, to the extent that such loss or damage is within
the policy limits of said comprehensive general liability insurance. Landlord
and Tenant shall, upon obtaining the policies of insurance required, give notice
to the insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease.
REPAIRS BY LANDLORD
11. Landlord agrees to keep in good repair the roof, foundation and exterior
walls of the Premises (exclusive of all glass and exclusive of all exterior
doors) and underground utility and sewer pipes outside the exterior walls of the
building, except repairs rendered necessary by the negligence or intentional
wrongful acts of Tenant, its agents, employees or invitees. If the Premises are
part of a larger building or group of buildings, then to the extent that the
grounds are common areas, Landlord shall maintain the grounds surrounding the
building, including paving, the mowing of grass, care of shrubs and general
landscaping. Tenant shall promptly report in writing to Landlord any defective
condition known to it which Landlord is required to repair and failure to report
such conditions shall make Tenant responsible to Landlord for any liability,
claim, demand or cause of action arising on account of Tenants breach of the
provisions of this paragraph.
REPAIRS BY TENANT
4.
<PAGE>
12. Tenant accepts the Premises in their present condition and as suited for the
uses intended by Tenant. Tenant shall, throughout the initial term of this
Lease, and any extension of renewal thereof, at its expense, maintain in good
order and repair the Premises, including the building, heating and air
conditioning equipment (including but not limited to replacement of parts,
compressors, air handling units and heating units) and other improvements
located thereon, except those repairs expressly required to be made by Landlord
hereunder. Unless the grounds are common areas of a building(s) larger than the
Premises, Tenant further agrees to care for the grounds around the building,
including paving, the mowing of grass, care of shrubs and general landscaping.
Tenant agrees to return the Premises to Landlord at the expiration or prior
termination of this Lease, in as good condition and repair as when first
received, natural wear and tear, damage by storm, fire, lightning, earthquake or
other casualty alone excepted. Tenant, Tenant's employees, agents, contractors
or subcontractors shall take no action which may void any manufacturers or
installers warranty with relation to the Premises. Tenant shall indemnify and
hold Landlord harmless from any liability, claim, demand or cause of action
arising on account of Tenants breach of the provisions of this paragraph.
ALTERATIONS
13. Tenant shall not make any alterations, additions, or improvements to the
Premises without Landlord's prior written consent. Tenant shall promptly remove
any alterations, additions, or improvements constructed in violation of this
Paragraph upon Landlord's written request. All approved alterations, additions,
and improvements will be accomplished in a good and workmanlike manner, in
conformity with all applicable laws and regulations, and by a contractor
approved by Landlord, free of any liens or encumbrances. Landlord may require
Tenant to remove any alterations, additions or improvements (whether or not made
with Landlord's consent) at the termination of the Lease and to restore the
Premises to its prior condition, all at Tenant's expense. All alterations,
additions and improvements which Landlord has not required Tenant to remove
shall become Landlord's property and shall be surrendered to Landlord upon the
termination of this Lease, except that Tenant may remove any of Tenant's
machinery or equipment which can be removed without material damage to the
Premises. Tenant shall repair, at Tenant's expense, any damage to the Premises
caused by the removal of any such machinery or equipment.
REMOVAL OF FIXTURES
14. Tenant may (if not in default hereunder) prior to the expiration of this
Lease, or any extension or renewal thereof, remove all fixtures and equipment
which it has placed in the Premises, provided Tenant repairs all damage to the
Premises caused by such removal.
DESTRUCTION OF OR DAMAGE TO PREMISES
15. If the Premises are totally destroyed by storm, fire, lightning, earthquake
or other casualty, this lease shall terminate as of the date of such destruction
and rental shall be accounted for as between Landlord and Tenant as of that
date. If the premises are damaged but not wholly destroyed by any such
casualties, rental shall abate in such proportion as effective use of the
Premises has been affected and Landlord shall restore Premises to substantially
the same
5.
<PAGE>
condition as before damage as speedily as is practicable, whereupon full
rental shall recommence.
GOVERNMENTAL ORDERS
16. Tenant agrees, at its own expense, to comply promptly with all requirements
of any legally constituted public authority made necessary by reason of Tenant's
occupancy of the Premises. Landlord agrees to comply promptly with any such
requirements if not made necessary by reason of Tenant's occupancy. It is
mutually agreed, however, between Landlord and Tenant, that if in order to
comply with such requirements, the cost to Landlord or Tenant, as the case may
be, shall exceed a sum equal to one year's rent, then Landlord or Tenant,
whichever is obligated to comply with such requirements, may terminate this
Lease by giving written notice of termination to the other party by registered
mail, which termination shall become effective sixty (60) days after receipt of
such notice and which notice shall eliminate the necessity of compliance with
such requirements by giving such notice unless the party giving such notice of
termination shall, before termination becomes effective, pay to the party giving
notice all cost of compliance in excess of one year's rent, or secure payment of
said sum in manner satisfactory to the party giving notice.
CONDEMNATION
17. If the whole of the Premises, or such portion thereof as will make the
Premises unusable for the purposes herein leased, is condemned by any legally
constituted authority for any public use or purpose, then in either of said
events the term hereby granted shall cease from the date when possession thereof
is taken by public authorities, and rental shall be accounted for as between
Landlord and Tenant as of said date. Such termination, however, shall be without
prejudice to the rights of either Landlord or Tenant to recover compensation and
damage caused by condemnation from the condemnor. It is further understood and
agreed that Tenant shall not have any rights in any award made to Landlord by
any condemnation authority.
ASSIGNMENT AND SUBLETTING
18. Tenant shall not, without the prior written consent of Landlord, which shall
not be unreasonably withheld, assign this Lease or any interest hereunder, or
sublet the Premises or any part thereof, or permit the use of the Premises by
any party other than the Tenant. Consent to any assignment or sublease shall not
impair this provision and all later assignments or subleases shall be made
likewise only on the prior written consent of Landlord. The assignee of Tenant,
at option of Landlord, shall become directly liable to Landlord for all
obligations of Tenant hereunder, but no sublease or assignment by Tenant shall
relieve Tenant of any liability hereunder.
EVENTS OF DEFAULT
19. The happening of any one or more of the following events (hereinafter any
one of which may be referred to as an "Event of Default") during the term of
this Lease, or any renewal or extension thereof, shall constitute a breach of
this Lease on the part of the Tenant: (a) Tenant fails to pay the rental as
provided for herein; (b) Tenant abandons or vacates the Premises; (c) Tenant
fails to comply with or abide by and perform any other obligation imposed upon
Tenant
6.
<PAGE>
under this Lease; (d) Tenant is adjudicated bankrupt; (e) A permanent
receiver is appointed for Tenant's property and such receiver is not removed
within sixty (60) days after written notice from Landlord to Tenant to obtain
such removal; (f) Tenant, either voluntarily or involuntarily, takes advantage
of any debt or relief proceedings under any present or future law, whereby the
rent or any part thereof is, or is proposed to be reduced or payment thereof
deferred; (g) Tenant makes an assignment for benefit of creditors; or (h)
Tenant's effects are levied upon or attached under process against Tenant, which
is not satisfied or dissolved within thirty (30) days after written notice from
Landlord to Tenant to obtain satisfaction thereof.
REMEDIES UPON DEFAULT
20. Upon the occurrence of Event of Default, Landlord may pursue any one or more
of the following remedies separately or concurrently, without prejudice to any
other remedy herein provided or provided by law: (a) if the Event of Default
involves nonpayment of rental and Tenant fails to cure such default within five
(5) days after receipt of written notice thereof from Landlord, or if the Event
of Default involves a default in performing any of the terms or provisions of
this Lease other than the payment of rental and Tenant fails to cure such
default within fifteen (15) days after receipt of written notice of default from
Landlord, Landlord may terminate this Lease by giving written notice to Tenant
and upon such termination shall be entitled to recover from Tenant damages as
may be permitted under applicable law; or (b) if the Event of Default involves
any matter other than those set forth in item (a) of this paragraph, Landlord
may terminate this Lease by giving written notice to Tenant and, upon such
termination, shall be entitled to recover from the Tenant damages in an amount
equal to all rental which is due and all rental which would otherwise have
become due throughout the remaining term of this Lease, or any renewal or
extension thereof (as if this Lease had not been terminated); or (c) at the best
price obtainable by reasonable effort, without advertisement and by private
negotiations and for any term Landlord deems proper, with Tenant being liable to
Landlord for the deficiency, if any, between Tenant's rent hereunder and the
price obtained by Landlord on reletting, provided however, that Landlord shall
not be considered to be under any duty by reason of this provision to take any
action to mitigate damages by reason of Tenant's default. In the event Landlord
hires an attorney to enforce its rights upon default, Tenant shall in addition
be liable for reasonable attorney's fees and all costs of collection.
EXTERIOR SIGNS
21. Tenant shall place no signs upon the outside walls or roof of the Premises,
except with the express written consent of the Landlord. Any and all signs
placed on the Premises by Tenant shall be maintained in compliance with
governmental rules and regulations governing such signs and Tenant shall be
responsible to Landlord for any damage caused by installation, use or
maintenance of said signs, and all damage incident to removal thereof.
LANDLORD'S ENTRY OF PREMISES
22. Landlord may advertise the Premises "For Rent" or "For Sale" _____ days
before the termination of this Lease. Landlord may enter the Premises at
reasonable hours to exhibit same to prospective purchasers or tenants and to
make repairs required of Landlord under the terms hereof or to make repairs to
Landlord's adjoining property, if any.
7.
<PAGE>
EFFECT OF TERMINATION OF LEASE
23. No termination of this Lease prior to the normal ending thereof, by lapse of
time or otherwise, shall affect Landlord's right to collect rent for the period
prior to termination thereof.
MORTGAGEE'S RIGHTS
24. Tenant's rights shall be subject to any bona fide mortgage, deed of trust or
other security interest which is now or may hereafter be placed upon the
Premises by Landlord. Tenant shall, if requested by Landlord, execute a separate
agreement reflecting such subordination, and shall be obligated to execute such
documentation as may facilitate Landlord's sale or refinancing of the Premises,
including, but not limited to estoppel certificates, subordination or attornment
agreements.
QUIET ENJOYMENT
25. So long as Tenant observes and performs the covenants and agreements
contained herein, it shall at all times during the Lease term peacefully and
quietly have and enjoy possession of the Premises, but always subject to the
terms hereof. Provided, however, that in the event Landlord shall sell or
otherwise transfer its interest in the Premises, Tenant agrees to attorn to any
new owner or interest holder and shall, if requested by Landlord, execute a
separate agreement reflecting such attornment, provided that said agreement
requires the new owner or interest holder to recognize its obligations and
Tenant's rights hereunder.
HOLDING OVER
26. If Tenant remains in possession of the Premises after expiration of the term
hereof, with Landlord's acquiescence and without any express agreement of the
parties, Tenant shall be a tenant at will at the rental rate which is in effect
at end of this Lease and there shall be no renewal of this Lease by operation of
law. If Tenant remains in possession of the Premises after expiration of the
term hereof without Landlord's acquiescence, Tenant shall be a tenant at
sufferance and commencing on the date following the date of such expiration, the
monthly rental payable under Paragraph 3 above shall for each month, or fraction
thereof during which Tenant so remains in possession of the premises, be twice
the monthly rental otherwise payable under Paragraph 3 above.
ATTORNEY'S FEES
27. In the event that any action or proceeding is brought to enforce any term,
covenant or condition of this Lease on the part of Landlord or tenant, the
prevailing party in such litigation shall be entitled to recover reasonable
attorney's fees and costs.
RIGHTS CUMULATIVE
28. All rights, powers and privileges conferred hereunder upon parties hereto
shall be cumulative and not restrictive of those given by law.
WAIVER OF RIGHTS
8.
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29. No failure of Landlord to exercise any power given Landlord hereunder or to
insist upon strict compliance by Tenant of its obligations hereunder and no
custom or practice of the parties at variance with the terms hereof shall
constitute a waiver of Landlord's rights to demand exact compliance with the
terms hereof.
ENVIRONMENTAL LAWS
30. (a) Tenant shall not bring onto the Premises any Hazardous Materials (as
defined below) without the prior written approval by Landlord. Any approval must
be preceded by submission to Landlord of appropriate Material Safety Data Sheets
(MSD Sheets). In the event of approval by Landlord, Tenant covenants that it
will (1) comply with all requirements of any constituted public authority and
all federal, state and local codes, statutes, ordinances, rules and regulations,
and laws, whether now in force or hereafter adopted relating to Tenant's use of
the Premises, or elating to the storage, use, disposal processing, distribution,
shipping or sales of any hazardous, flammable, toxic or dangerous materials,
waste or substance, the presence of which is regulated by a federal, state, or
local law, ruling, rule or regulation (hereafter collectively referred to as
"Hazardous Materials"); (2) comply with any reasonable recommendations by the
insurance carrier or either Landlord or Tenant relating to the use by Tenant on
the Premises of such Hazardous Materials; (3) refrain from unlawfully disposing
of or allowing the disposal of any Hazardous Materials upon, within, about or
under the Premises; and (4) remove all Hazardous Materials from the Premises,
either after their use by Tenant or upon the expiration or earlier termination
of this lease, in compliance with all applicable laws.
(b) Tenant shall be responsible for obtaining all necessary permits in
connection with its use, storage and disposal of Hazardous Materials, and shall
develop and maintain , and where necessary file with the appropriate
authorities, all reports, receipts, manifest, filings, lists and invoices
covering those Hazardous Materials and Tenant shall provide Landlord with copies
of all such items upon request. Tenant shall provide within five (5) days after
receipt thereof, copies of all notices, orders, claims or other correspondence
from any federal, state or local government or agency alleging any violation of
any environmental law or regulation by Tenant, or related in any manner to
Hazardous Materials. In addition, Tenant shall provide Landlord with copies of
all response to such correspondence at the time of the response.
(c) Tenant hereby indemnifies and holds harmless Landlord, its successors
and assigns from and against any and all losses, liabilities, damages,
injuries, penalties, fines, costs, expenses and claims of any and every kind
whatsoever (including attorney's fees and costs, expenses or claims asserted
or arising under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, from time to time, and regulations
promulgated thereunder, any so-called state or local "Superfund" or
"Superlien" law, or any other federal, state or local statute, law or
ordinance, cod, rule, regulation , order or decree regulating, relating to,
or imposing liability or standards of conduct concerning any Hazardous
Materials) paid, incurred or suffered by, or asserted against, Landlord as a
result of any claim, demand or judicial or administrative action by any
person or entity (including governmental or private entities) for, with
respect to, or as a director indirect result of, the presence on or under or
the escape, seepage, leakage, spillage, discharge, emission or release from
the Premises on any Hazardous Materials caused by Tenant or Tenant's agents,
employees, invitees or successors in interest. This indemnity shall also
apply to any release of Hazardous Materials caused by a fire
9.
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or other casualty to the Premises if such Hazardous Materials were stored on
the Premises by Tenant, its agents, employees, invitees or successors in
interest.
(d) If Tenant fails to comply with the Covenants to be performed
hereunder with respect to Hazardous materials, or if an environmental
protection lien is filed against the premises as a result of the actions of
Tenant, its agents, employees or invitees, then the occurrence of any such
events shall be considered a default hereunder.
(e) Tenant will give Landlord prompt notice of any release of Hazardous
Materials, reportable or non-reportable, to federal, state or local
authorities, of any fire, or any damage occurring on or to the Premises.
(f) Tenant will use and occupy the Premises and conduct its business in
such a manner that the Premises are neat, clean and orderly at all times with
all chemicals or Hazardous Materials marked for easy identification and
stored according to all codes as outlined above.
(g) The warranties and indemnities contained in this Paragraph shall
survive the termination of this Lease.
TIME OF ESSENCE
31. Time is of the essence in this Lease.
ABANDONMENT
32. Tenant shall not abandon the Premises at any time during the Lease term. If
Tenant shall abandon the premises or be dispossessed by process of law, any
Personal Property belonging to Tenant and left on the Premises shall, at option
of Landlord, be deemed abandoned, and available to landlord to use or sell to
offset any rent due or any expenses incurred by removing same and restoring the
Premises.
DEFINITIONS
33. "Landlord" as used in this Lease shall include the undersigned, its heirs,
representatives, assigns and successors in title to the Premises. "Agent" as
used in this Lease shall mean the party designated as same in Paragraph 34, its
heirs, representatives, assigns and successors. "Tenant" shall include the
undersigned and its heirs representatives, assigns and successors, and if this
lease shall be validly assigned or sublet, shall include also Tenant's assignees
or sublessees as to the Premises covered by such assignment or sublease.
"Landlord", "Tenant" and "Agent" include male and female, singular and plural,
corporate, partnership or individual, as may fit the particular parties.
NOTICES
34. All notices required or permitted under this Lease shall be in writing and
shall be personally delivered or sent by U.S. certified mail, return receipt
requested, postage prepaid. Notices to Tenant shall be delivered or sent to the
address shown at the beginning of this Lease, except that upon Tenant taking
possession of the Premises, then the Premises shall be Tenant's
10.
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address for such purposes. notices to Landlord shall be delivered or sent to
the address shown at the beginning of this Lease, and notices to Agent, if
any, shall be delivered or sent to the address set forth in Paragraph 3
hereof.
ALL NOTICES SHALL BE EFFECTIVE UPON DELIVERY. ANY PARTY MAY CHANGE ITS NOTICE
ADDRESS UPON WRITTEN NOTICE TO THE OTHER PARTIES, GIVEN AS PROVIDED HEREIN.
ENTIRE AGREEMENT
35. This Lease contains the entire agreement of the parties hereto, and no
representations, inducements, promises or agreements, oral or otherwise, between
the parties, not embodied herein shall be of any force or effect. This Lease may
not be modified except by a writing signed by all the parties hereto.
AUTHORIZED LEASE EXECUTION
36. Each individual executing this Lease as director, officer, partner, member,
or agent of a corporation, limited liability company, or partnership represents
and warrants that he is duly authorized to execute and deliver this Lease on
behalf of such corporation, limited liability company or partnership.
TRANSFER OF LANDLORD'S INTEREST
37. In the event of the sale, assignment or transfer by Landlord of its interest
in the Premises or in this Lease (other than a collateral assignment to secure a
debt of Landlord) to a successor in interest who expressly assumes the
obligations of Landlord under this Lease, Landlord shall thereupon be released
and discharged from all its covenants and obligations under this Lease, except
those obligations that have accrued prior to such sale, assignment or transfer;
and Tenant agrees to look solely to the successor in interest of Landlord for
the performance of those covenants accruing after such sale, assignment or
transfer. Landlord's assignment of this Lease, or of any or all of its rights in
this Lease, shall not affect Tenant's obligations hereunder, and Tenant shall
attorn and look to the assignee as Landlord, provided Tenant has first received
written notice of the assignment of Landlord's interest.
SPECIAL STIPULATIONS
38. Any special stipulations are set forth in the attached Exhibit ____. In so
far as said Special Stipulations conflict with any of the foregoing provisions,
said Special Stipulations shall control.
MEMORANDUM OF LEASE
39. Upon request by either Landlord or Tenant, the parties hereto shall execute
a short form lease (Memorandum of Lease) in recordable form, setting forth such
provisions hereof (other than the amount of Base Monthly Rent and other sums
due) as either party may wish to incorporate. The cost of recording such
memorandum of lease shall be borne by the party requesting execution of same.
11.
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THIS DOCUMENT IS A LEGAL DOCUMENT. EXECUTION OF THIS DOCUMENT HAS LEGAL
CONSEQUENCES THAT COULD BE ENFORCEABLE IN A COURT OF LAW. THE NORTH CAROLINA
ASSOCIATION OF REALTORS-Registered Trademark- MAKES NO REPRESENTATIONS
CONCERNING THE LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX CONSEQUENCES OF THIS
DOCUMENT OR THE TRANSACTION TO WHICH IT RELATES AND RECOMMENDS THAT YOU
CONSULT YOUR ATTORNEY,
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals, the date and years first above written.
LANDLORD:
Individual Business Entity:
PEACHTREE ASSOCIATES
By: /s/ Sig Hutchinson
----------------------------
SIG HUTCHINSON
Title: MANAGING PARTNER
TENANT:
Individual Business Entity:
QUANTUM EFFECT DESIGN
By: /s/ Howard Bailey
----------------------------
Title: CFO
12.
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LEASE AGREEMENT
THIS LEASE, made this 3rd day of December, 1998 between JOHN ARRILLAGA,
Trustee, or his Successor Trustee, UTA dated 7/20/7 (JOHN ARRILLAGA SURVIVOR'S
TRUST) as amended, and RICHARD T. PERRY, Trustee, or his Successor Trustee, UTA
dated 7/20/77 (RICHARD T. PERRY SEPARATE PROPERTY TRUST) as amended, hereinafter
called Landlord, and QUANTUM EFFECT DESIGN, INC., a California corporation,
hereinafter called Tenant.
W I T N E S S E T H
Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord those certain premises (the "Premises") outlined in red on Exhibit "A"
attached hereto and incorporated hereby by this reference thereto more
particularly described as follows:
"A portion of that certain 22,500+/- square foot, one-story building
located at 3255-4 Scott Boulevard, Suite 105, Santa Clara, California
95054, consisting of approximately 5,189+/- square feet of space. Said
Premises is more particularly shown within the area outlined in Red on
EXHIBIT A attached hereto. The entire parcel, of which the Premises is
a part, is shown within the area outlined in Green on EXHIBIT A
attached. The Premises is leased on an "as-is" basis, in its present
condition, and in the configuration as shown in Red on EXHIBIT B to be
attached hereto.
As used herein the Complex shall mean and include all of the land
outlined in Green and described in Exhibit "A", attached hereto, and all of the
buildings, improvements, fixtures and equipment now or hereafter situated on
said land.
Said letting and hiring is upon and subject to the terms, covenants and
conditions hereinafter set forth and Tenant covenants as a material part of the
consideration for this Lease to perform and observe each and all of said terms,
covenants and conditions. This Lease is made upon the conditions of such
performance and observance.
1. USE. Tenant shall use the Premises only in conformance with
applicable governmental regulations, rules and ordinances for the purpose of
general office, light manufacturing, research and development, and storage and
other uses necessary for Tenant to conduct Tenant's business, provided that such
uses shall be in accordance with all applicable governmental laws and ordinances
and for no other purpose. Tenant shall not do or permit to be done in or about
the Premises or the Complex nor bring or keep or permit to be brought or kept in
or about the Premises or the Complex anything which is prohibited by or will in
any way increase the existing rate of (or otherwise affect) fire or any
insurance covering the Complex or any part thereof, or any of its contents, or
will cause a cancellation of any insurance covering the Complex or any part
thereof, or any of its contents. Tenant shall not do or permit to be done
anything in, on or about the Premises or the Complex which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Complex or injure or annoy them, or use or allow the Premises to be used for any
improper, immoral, unlawful or objectionable purpose, nor
1.
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shall Tenant cause, maintain or permit any nuisance in, on or about the
Premises or the Complex. No sale by auction shall be permitted on the
Premises. Tenant shall not place any loads upon the floors, walls, or
ceiling, which endanger the structure, or place any harmful fluids or other
materials in the drainage system of the building, or overload existing
electrical or other mechanical systems. No waste materials or refuse shall be
dumped upon or permitted to remain upon any part of the Premises or outside
of the building in which the Premises are a part, except in trash containers
placed inside exterior enclosures designated by Landlord for that purpose or
inside of the building proper where designated by Landlord. No materials,
supplies, equipment, finished products or semi-finished products, raw
materials or articles of any nature shall be stored upon or permitted to
remain outside the Premises or on any portion of common area of the Complex.
No loudspeaker or other device, system or apparatus which can be heard
outside the Premises shall be used in or at the Premises without the prior
written consent of the Landlord. Tenant shall not commit or suffer to be
committed any waste in or upon the Premises. Tenant shall indemnify, defend
and hold Landlord harmless against any loss, expense, damage, attorneys'
fees, or liability arising out of failure of Tenant to comply with any
applicable law. Tenant shall comply with any covenant, condition, or
restriction (""C&R's") affecting the Premises. The provisions of this
paragraph are for the benefit of Landlord only and shall not be construed to
be for the benefit of any tenant or occupant of the Complex.
2. TERM.*
A. Subject to Paragraph 55, the term of this Lease shall be for
a period of two (2) years five (5) months (unless sooner terminated as
hereinafter provided) and, subject to Paragraphs 2(b) and 3, shall commence
on the 1st day of February, 1999 and end on the 30th of June of 2001.
B. Subject to Paragraph 55, possession of the Premises shall be
deemed tendered and the term of this Lease shall commence on February 1, 1999
or as otherwise agreed in writing.
3. POSSESSION. If Landlord, for any reason whatsoever, cannot
deliver possession of said premises to Tenant at the commencement of the said
term, as hereinbefore specified, this Lease shall not be void or voidable; no
obligation of Tenant shall be affected thereby; nor shall Landlord or
Landlord's agents be liable to Tenant for any loss or damage resulting
therefrom; but in that event the commencement and termination dates of the
Lease, and all other dates affected thereby shall be revised to conform to
the date of Landlord's delivery of possession, as specified in Paragraph 2(b)
above. The above is, however, subject to the provision that the period of
delay, of delivery of the premises shall not exceed 60 days from the
commencement date herein (except those delays caused by Acts of God, strikes,
war, utilities, governmental bodies, weather, unavailable materials, and
delays beyond Landlord's control shall
- ---------------------------
* It is agreed in the event said Lease commences on a date other than the first
day of the month the term of the Lease will be extended to account for the
number of days in the partial month. The Basic Rent during the resulting partial
month will be pro-rated (for the number of days in the partial month) at the
Basic Rent scheduled for the projected commencement date as shown in
paragraph 43.
2.
<PAGE>
be excluded in calculating such period) in which issuance Tenant, at its
option, may, by written notice to Landlord, terminate this Lease.
4. RENT.
A. BASIC RENT. Tenant agrees to pay to Landlord at such place
as Landlord may designate without deduction, effect, prior notice, or demand,
and Landlord agrees to accept as Basic Rent for the leased Premises the total
sum of THREE HUNDRED TWELVE THOUSAND THREE HUNDRED SEVENTY SEVEN AND 80/100
($312,377.80) Dollars in lawful money of the Untied States of America,
payable as follows:
SEE PARAGRAPHS 43 FOR BASIC RENT SCHEDULE
B. TIME FOR PAYMENT. In the event that the term of this Lease
commences on a date other than the first day of a calendar month, on the date
of commencement of the term hereof Tenant shall pay to Landlord as rent for
the period from such date of commencement to the first day of the next
succeeding calendar month that proportion of the monthly rent hereunder which
the number of days between such date of commencement and the first day of the
next succeeding calendar month bears to thirty (30). In the event the term of
this Lease for any reason ends on a date other than the last day of a
calendar month, on the first day of the last calendar month of the term
hereof Tenant shall pay to Landlord as rent for the period from said first
day of said last calendar month to and including the last day of the term
here that proportion of the monthly rent hereunder which the number of days
between said first day of said last calendar month and the first day of the
term here bears to thirty (30).
C. LATE CHARGE. Notwithstanding any other provision of this
Lease, if Tenant is in default in the payment of rental as set forth in this
Paragraph 4 when due, or any part thereof, Tenant agrees to pay Landlord, in
addition to the delinquent rental due, a late charge for each rental payment
in default ten (10) days. Said late charge shall equal ten percent (10%) of
each rental payment so in default.
D. ADDITIONAL RENT. Beginning with the commencement date of the
term of this Lease, Tenant shall pay to Landlord in addition to the Basic
Rent and as Additional Rent the following:
(a) Tenant's proportionate share of all Taxes relating to
the Complex as set forth in Paragraph 12, and
(b) Tenant's proportionate share of all insurance premiums
relating to the Complex, as set forth in Paragraph 15, and
(c) Tenant's proportionate share of expenses for the
operation, management, maintenance and repair of the Building (including
common areas of the Buildings) and Common Areas of the Complex in which the
Premises are located as set forth in Paragraph 7, and
3.
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(d) All charges, costs and expenses, which Tenant is
required to pay hereunder, together with all interest and penalties, costs
and expense; including attorneys' fees and legal expenses, that may accrue
thereto in the event of Tenant's failure to pay such amounts, and all
damages, reasonable costs and expenses which Landlord may incur by reason of
default of Tenant or failure on Tenant's part to comply with the terms of
this Lease. In the event of nonpayment by Tenant of Additional Rent Landlord
shall have all the rights and remedies with respect thereto as Landlord has
for nonpayment of rent.
Landlord shall have all the rights and remedies with respect thereto
as Landlord has for nonpayment of rent. The Additional Rent due hereunder
shall be paid to Landlord or Landlord's agent (i) within five days for taxes
and insurance and within thirty days for all other Additional Rent items
after presentation of invoice from Landlord or Landlord's agent setting forth
such Additional Rent and/or (ii) at the option of Landlord, Tenant shall pay
to Landlord monthly, in advance, Tenant's pro rata share of an amount
estimated by Landlord to be Landlord's approximate average monthly
expenditure for such Additional Rent items, which estimated amount shall be
reconciled within 120 days of the end of each calendar year or more
frequently if Landlord so elects to do so at Landlord's sole and absolute
discretion, as compared to Landlord's actual expenditure for said Additional
Rent items, with Tenant paying to Landlord, upon demand, any amount of actual
expenses expended by Landlord in excess of said estimated amount, or Landlord
refunding to Tenant (providing Tenant is not in default in the performance of
any of the terms, covenants and conditions of this Lease) any amount of
estimated payments made by Tenant in excess of Landlord's actual expenditures
for said Additional Rent items.
The respective obligations of Landlord and Tenant under this
paragraph shall survive the expiration or other termination of the term of
this Lease, and if the term hereof shall expire or shall otherwise terminate
on a day other than the last day of a calendar year, the actual Additional
Rent incurred for the calendar year in which the term hereof expires or
otherwise terminates shall be determined and settled on the basis of the
statement of actual Additional Rent for such calendar year and shall be pro
rated in the proportion which the number of days in such calendar year
preceding such expiration or termination bears to 365.
E. FIXED MANAGEMENT FEE. Beginning with the Commencement Date
of the Term of this Lease, Tenant shall pay to Landlord, in addition to the
Basic Rent and Additional Rent, a fixed monthly management fee ("Management
Fee") equal to 3% of the Basic Rent due for each month during the Lease Term.
E. PLACE OF PAYMENT OF RENT AND ADDITIONAL RENT. All Basic Rent
hereunder and all payments hereunder for Additional Rent shall be paid to
Landlord at the office of Landlord at Peery/Arrillaga, File 1504, Box 60000,
San Francisco, CA 94160 or to such other person or to each other place as
Landlord may from time to time designate in writing.
F. SECURITY DEPOSIT. Concurrently with Tenant's execution of
this Lease, Tenant shall deposit with Landlord the sum of TWENTY TWO THOUSAND
EIGHT HUNDRED THIRTY ONE AND 60/100 ($22,831.60) Dollars. Said sum shall be
held by Landlord as a Security Deposit for the faithful performance by Tenant
of all of the terms,
4.
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covenants, and conditions of this Lease to be kept and performed by Tenant
during the term hereof. If Tenant defaults with respect to any provision of
this Lease, including, but not limited to, the provisions relating to the
payment of rent and any of the monetary sums due herewith, Landlord may (but
shall not be required to) use, apply or retain all or any part of this
Security Deposit for the payment of any other amount which Landlord may spend
by reason of Tenant's default or to compensate Landlord for any other loss or
damage which Landlord may suffer by reason of Tenant's default. If any
portion of said Deposit is so used or applied, Tenant shall, within ten (10)
days after written demand therefor, deposit cash with Landlord in the amount
sufficient to restore the Security Deposit to its original amount. Tenant's
failure to do so shall be a material breach of this Lease. Landlord shall not
be required to keep this Security Deposit separate from its general funds,
and Tenant shall not be entitled to interest on such Deposit. If Tenant fully
and faithfully performs every provision of this Lease to be performed by it,
the Security Deposit or any balance thereof shall be returned to Tenant (or
at Landlord's option, to the last assignee of Tenant's interest hereunder) at
the expiration of the Lease term and after Tenant has vacated the Premises.
In the event of termination of Landlord's interest in this Lease, Landlord
shall transfer said Deposit to Landlord's successor in interest whereupon
Tenant agrees to release Landlord from liability for the return of such
Deposit or the accounting therefor.
5. RULES AND REGULATIONS AND COMMON AREA. Subject to the terms and
conditions of this Lease and such Rules and Regulations as Landlord may from
time to time prescribe, Tenant and Tenant's employees, invitees and customers
shall, in common with other occupants of the Complex in which the Premises are
located, and their respective employees, invitees and customers, and others
entitled to the use thereof, have the nonexclusive right to sue the access
roads, parking areas, and facilities provided and designated by Landlord for the
general use and convenience of the occupants of the Complex in which the
Premises are located, which areas and facilities are referred to herein as
"Common Area." This right shall terminate upon the termination of this Lease.
Landlord reserves the right from time to time to make changes in the shape,
size, location, amount and extent of Common Area. Landlord further reserves the
right to promulgate such reasonable rules and regulations relating to the use of
the Common Area, and any part or parts thereof, as Landlord may deem appropriate
for the best interests of the occupants of the Complex. The Rules and
Regulations shall be binding upon Tenant upon delivery of a copy of them to
Tenant, and Tenant shall abide by them and cooperate in their observance. Such
Rules and Regulations may be amended by landlord from time to time, with or
without advance notice, and all amendments shall be effective upon delivery of a
copy to Tenant. Landlord shall not be responsible to Tenant for the
non-performance by any other tenant or occupant of the Complex of any of said
Rules and Regulations.
Landlord shall operate, manage and maintain the Common Area. The manner
in which the Common Area shall be maintained and the expenditures for such
maintenance shall be at the discretion of Landlord.
6. PARKING. Tenant shall have the right to use with other tenants or
occupants of the Complex 16 parking spaces in the common parking areas of the
Complex. Tenant agrees, that Tenant, Tenant's employees, agents, representatives
and/or invitees shall not use parking spaces in excess of said 16 spaces
allocated to Tenant hereunder. Landlord shall have the right,
5.
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at Landlord's sole discretion, to specifically designate the location of
Tenant's parking spaces within the common parking areas of the Complex in the
event of a dispute among the tenants occupying the building and/or Complex
referred to herein, in which event Tenant agrees that Tenant, Tenant's
employees, agents, representatives and/or invitees shall not use any parking
spaces other than those parking spaces specifically designated by Landlord
for Tenant's use. Said parking spaces, if specifically designated by Landlord
to Tenant, may be relocated by Landlord at any time, and from time to time,
Landlord reserves the right, at Landlord's sole discretion, to rescind any
specific designation of parking spaces, thereby returning Tenant's parking
spaces to the common parking area. Landlord shall give Tenant written notice
of any change in Tenant's parking spaces. Tenant shall not, at any time,
park, or permit to be parked, any trucks or vehicles adjacent to the loading
areas so as to interfere in any way with the use of such areas, nor shall
Tenant at any time park, or permit the parking of Tenant's trucks or other
vehicles or the trucks and vehicles of Tenant's suppliers or others, in any
portion of the common area not designated by Landlord for such use by Tenant.
Tenant shall not park nor permit to be parked, any inoperative vehicles or
equipment on any portion of the common parking area or other common areas of
the Complex. Tenant agrees to assume responsibility for compliance by its
employees within the parking provision contained herein. If Tenant or its
employees park in other than such designated parking areas, then Landlord may
charge Tenant, as an additional charge, and Tenant agrees to pay, ten
($10.00) Dollars per day for each day or partial day each such vehicle is
parked in any area other than that designated. Tenant hereby authorizes
Landlord at Tenant's sole expense to tow away from the Complex any vehicle
belonging to Tenant or Tenant's employees parked in violation of this
provision, or to attach violation stickers or notices to such vehicles.
Tenant shall use the parking areas for vehicle parking only, and shall not
use the parking areas for storage.
7. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON
AREAS OF THE COMPLEX AND BUILDING IN WHICH THE PREMISES ARE LOCATED. As
Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall
pay to Landlord Tenant's proportionate share (calculated on a square footage or
other equitable basis as calculated by Landlord) of all expenses of operation,
management, maintenance and repair of the Common Areas of the Complex including,
but not limited to, license, permit, and inspection fees; security; utility
charges associated with exterior landscaping and lighting (including water and
sewer charges); all charges incurred in the maintenance and replacement of
landscaped areas, lakes, parking lots and paved areas (including repairs,
replacement, resealing and restriping), sidewalks, driveways, maintenance,
repair and replacement of all fixtures and electrical, mechanical, and plumbing
systems; structural elements and exterior surfaces of the buildings, salaries
and employee benefits of personnel and payroll taxes applicable thereto;
supplies, materials, equipment and tools; the cost of capital expenditures which
have the effect of reducing operating expenses, provided, however, that in the
event Landlord makes such capital improvements, Landlord may amortize its
investment in said improvements (together with interest at the rate of fifteen
(15%) percent per annum on the unamortized balance) as an operating expense in
accordance with standard account practices, provided, that such amortization is
not at a rate greater than the anticipated savings in the operating expenses.
6.
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"Additional Rent" as used herein shall not include Landlord's debt
repayments; interest on charges; expenses directly or indirectly incurred by
Landlord for the benefit of any other tenant; cost of the installation of
partitioning or any other tenant improvements; cost of attracting tenants;
depreciation; interest, or executive salaries.
As Additional Rent and in accordance with paragraph 4D of this Lease,
Tenant shall pay its proportionate share (calculated on a square footage or
other equitable basis as calculated by Landlord) of the cost of operation
(including common utilities, management, maintenance, and repair of the building
(including common areas such as lobbies, restroom, janitor's closets, hallways,
elevators, mechanical and telephone rooms, stairwells, entrances, spaces above
the ceilings and janitorization of said common areas) in which the Premises are
located. The maintenance items herein referred to include, but are not limited
to, all windows, window frames, plate glass, glazing, truck doors, main plumbing
systems of the building such as water and rain lines, sinks, toilets, faucets,
drains, showers and water fountains), main electrical systems (such as panels
and conduits), heating and air conditioning systems (such as compressors, fans,
air handlers, ducts, boilers, heaters), store fronts, roofs, downspouts,
building common area interiors (such as wall coverings, window coverings, floor
coverings and partitioning), ceilings, building exterior doors, skylights (if
any) automatic fire extinguishing systems, and elevators; license, permit, and
inspection fees; security, salaries and employee benefits of personnel and
payroll taxes applicable thereto; supplies, materials, equipment and tools; the
cost of capital expenditures which have the effect of reducing operating
expenses, provided, however that in the event Landlord makes such capital
improvements, Landlord may amortize its investment in said improvements
(together with interest at the rate of fifteen percent (15%) per annum on the
unamortized balance) as an operating expense in accordance with standard
accounting practices, provided, that such amortization is not at a rate greater
than the anticipated savings in the operating expenses. Tenant hereby waives all
rights under, and benefits of, subsection 1 of Section 1932 and Sections 1941
and 1942 of the California Civil Code and under any similar law, statute or
ordinance now or hereafter in effect.
8. ACCEPTANCE AND SURRENDER OF PREMISES. By entry hereunder, Tenant
accepts the Premises as being in good and sanitary order, condition and repair
and accepts the building and improvements included in the Premises in their
present condition and without representation or warranty by Landlord as to the
condition of such building or as to the use or occupancy which may be made
thereof. Any exceptions to the foregoing must be by written agreement executed
by Landlord and Tenant. Tenant agrees on the last day of the Lease term, or on
the sooner termination of this Lease, to surrender the Premises promptly and
peaceably to Landlord in good condition and repair (damage by Acts of God, fire,
normal wear and tear excepted), with all interior walls painted, or cleaned so
that they appear freshly painted, and repaired and replaced, if damaged; all
floors cleaned and waxed; all carpets cleaned and shampooed; the air
conditioning and heating equipment serviced by a reputable and licensed service
firm and in good operating condition (provided the maintenance of such equipment
has been Tenant's responsibility during the term of this Lease) together with
all alterations, additions, and improvements which may have been made in, to, or
on the Premises (except movable trade fixtures installed at the expense of
Tenant) except that Tenant shall ascertain from Landlord within thirty (30) days
before the end of the term of this Lease whether Landlord
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desires to have the Premises or any part or parts thereof restored to their
condition and configuration as when the Premises were delivered to Tenant and
if Landlord shall so desire, then Tenant shall restore said Premises or such
part or parts thereof before the end of this Lease at Tenant's sole cost and
expense. Tenant, on or before the end of the term or sooner termination of
this Lease, shall remove all of Tenant's personal property and trade fixtures
from the Premises, and all property not so removed on or before the end of
the term or sooner termination of this Lease shall be deemed abandoned by
Tenant and title to same shall thereupon pass to Landlord without
compensation to Tenant. Landlord may, upon termination of this Lease, remove
all moveable furniture and equipment so abandoned by Tenant, at Tenant's sole
cost, and repair any damage caused by such removal at Tenant's sole cost. If
the Premises be not surrendered at the end of the term or sooner termination
of this Lease, Tenant shall indemnify Landlord against loss or liability
resulting from the delay by Tenant in so surrendering the Premises including,
without limitation, any claims made by any succeeding tenant founded on such
delay. Nothing contained herein shall be construed as an extension of the
term hereof or as a consent of Landlord to any holding over by Tenant. The
voluntary or other surrender of this Lease or the Premises by Tenant or a
mutual cancellation of this Lease shall not work as a merger and, at the
option of Landlord, shall either terminate all or any existing subleases or
subtenancies or operate as an assignment to Landlord of all or any such
subleases or subtenancies.
9. ALTERATIONS AND ADDITIONS. Tenant shall not make, or suffer to be
made, any alteration or addition to the Premises, or any part thereof, without
the written consent of Landlord first hand and obtained by Tenant, but at the
cost of Tenant, and any addition to, or alteration of, the Premises, except
moveable furniture and trade fixtures, shall at once become a part of the
Premises and belong to Landlord. Landlord reserves the right to approve all
contractors and mechanics proposed by Tenant to make such alterations and
additions. Tenant shall retain title to all moveable furniture and trade
fixtures placed in the Premises. All heating, lighting, electrical, air
conditioning, floor to ceiling partitioning, drapery, carpeting, and floor
installations made by Tenant, together with all property that has become an
integral part of the Premises, shall not be deemed trade fixtures. Tenant agrees
that it will not proceed to make such alteration or additions, without having
obtained consent from Landlord to do so, and until five (5) days from the
receipt of such consent, in order that Landlord may post appropriate notices to
avoid any liability to contractors or material suppliers for payment for
Tenant's improvements. Tenant will at all times permit such notices to be posted
and to remain posted until the completion of work. Tenant shall, if required by
Landlord, secure at Tenant's own cost and expense, a completion and lien
indemnity bond, satisfactory to Landlord, for such work. Tenant further
covenants and agrees that any mechanic's lien filed against the Premises or
against the Premises or against the complex for work claimed to have been done
for, or materials claimed to have been furnished to Tenant, will be discharged
by Tenant, by bond or otherwise, within thirty (30) days after the filing
thereof, at the cost of expense of Tenant. Any exceptions to the foregoing must
be made in writing and executed by both Landlord and Tenant.
10. TENANT MAINTENANCE. Tenant shall, at its sole cost and expense,
keep and maintain the Premise (including appurtenances) and every part thereof
in a high standard of maintenance and repair, and in good and sanitary
condition. Tenant's maintenance and repair responsibilities herein referred to
include, but are not limited to, janitorization, plumbing systems
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within the non-common areas of the Premises (such as water and drain lines,
sinks), electrical systems within the non-common areas of the Premises (such
as outlets, lighting fixtures, lamps, bulbs, tubes, ballasts), heating and
air conditioning controls within the non-common areas of the Premises (such
as mixing boxes, thermostats, time clocks, supply and return grills), all
interior improvements within the premises including but not limited to: wall
coverings, window coverings, acoustical ceilings, vinyl tile, carpeting,
partitioning, doors (both interior and exterior, including closing
mechanisms, latches, locks), and all other interior improvements of any
nature whatsoever. Tenant agrees to provide carpet shields under all rolling
chairs or to otherwise be responsible for wear and tear of the carpet caused
by such rolling chairs if such wear and tear exceeds that caused by normal
foot traffic in surrounding areas. Areas of excessive wear shall be replaced
at Tenant's sole expense upon Lease termination. See Paragraph 51.
11. UTILITIES OF THE BUILDING IN WHICH THE PREMISES ARE LOCATED. As
Additional Rent and in accordance with paragraph 4 D of this Lease, Tenant shall
pay its proportionate share (calculated on a square footage or other equitable
basis as calculated by Landlord) of the cost of all utility charges such as
water, gas, electricity, telephone, telex and other electronic communications
service, sewer service, waste-pick-up and any other utilities, materials or
services furnished directly to the building in which the Premises are located,
including, without limitation, any temporary or permanent utility surcharge or
other exactions whether or not hereinafter imposed.
Landlord shall not be liable for and Tenant shall not be entitled to
any abatement or reduction of rent by reason of any interruption or failure of
utility services in the Premises when such interruption or failure is caused by
accident, breakage, repair, strikes, lockouts, or other labor disturbances or
labor disputes of any nature, or by any other cause, similar or dissimilar,
beyond the reasonable control of Landlord.
Provided that Tenant is not in default in the performance or observance
of any of the terms, covenants or conditions of this Lease to be performed or
observed by the Landlord shall furnish to the Premises between the hours of 8:00
a.m. and 6:00 p.m. Monday through Fridays (holidays excepted) and subject to the
rules and regulations of the complex hereinbefore referred to, reasonable
quantities of water, gas and electricity suitable for the intended use of the
Premises and heat and air conditioning required in Landlord's judgment for the
comfortable use and occupation of the Premises for such purposes. Tenant may,
from time to time, have its staff and equipment operate within the Premises on a
twenty-four (24) hour-a-day, seven (7) day-a-week schedule, and Tenant shall pay
for any extra utilities used by Tenant. Tenant agrees that at all times it will
cooperate fully with Landlord and abide by all regulations and requirements that
Landlord may prescribe for the proper functioning and protection of the building
heating, ventilating, and air conditioning systems. Whenever heat generating
machines, equipment, or any other devices (including exhaust fans) are used in
the Premises by Tenant which affect the temperature or otherwise maintained by
the air conditioning system, Landlord shall have the right to install
supplementary air conditioning units in the Premises and the cost thereof,
including the cost of installation and the cost of operation and maintenance
thereof, shall be paid by Tenant to Landlord upon demand by Landlord. Tenant
will not, without the written consent of Landlord, use any apparatus or device
in the premises (including, without limitation),
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electronic data processing machines or machines using current in excess of
110 Volts which will in any way increase the amount of electricity, gas,
water or air conditioning usually furnished or supplied to premises being
used as general office space, or connect with electric current (except
through existing electrical outlets in the Premises), or with gas or water
pipes any apparatus or device for the purposes of using electric current,
gas, or water. If Tenant shall require water, gas, or electric current in
excess of that usually furnished or supplied to premises being used as
general office space. Tenant shall first obtain the written consent of
Landlord, which consent shall not be unreasonably withheld and Landlord may
cause an electric current, gas or water meter to be installed in the Premises
in order to measure the amount of electric current, gas or water consumed for
any such excess use. The cost of any such meter and of the installation,
maintenance and repair thereof, all charges for such excess water, gas and
electric current consumed (as shown by such meters and at the rates then
charged by the furnishing public utility); and any additional expense
incurred by Landlord in keeping account of electric current, gas, or water so
consumed shall be paid by Tenant, and Tenant agrees to pay Landlord therefor
promptly upon demand by Landlord.
12. TAXES.
A. As Additional Rent and in accordance with paragraph 4 D of
this Lease, Tenant shall pay to Landlord Tenant's proportionate share of all
Real Property Taxes, which pro rata share shall be allocated to the leased
Premises by square footage or other equitable basis, as calculated by
Landlord. The term "Real Property Taxes," as used herein, shall mean (i) all
taxes, assessments, levies and other charges of any kind or nature
whatsoever, general and special, foreseen and unforeseen (including all
installments of principal and interest required to pay any general or special
assessments for public improvements and any increases resulting from
reassessments caused by any change in ownership of the Complex) now or
hereafter imposed by a governmental or quasi-governmental authority or
special district having the direct or indirect power to tax or levy
assessments, which are levied or assessed against, or with respect to the
value, occupancy or use of, all or any portion of the Complex (as now
constructed or as may at any time hereafter be constructed, altered, or
otherwise changed) or Landlord's interest therein; any improvements located
within the Complex (regardless of ownership); the fixtures, equipment and
other property of Landlord, real or personal, that are an integral part of
and located in the Complex; or parking areas, public utilities, or energy
within the Complex; (ii) all charges levies or fees imposed by reason of
environmental regulation or other governmental control of the Complex; and
(iii) all costs and fees (including attorneys' fees) incurred by Landlord in
contesting any Real Property Tax and in negotiating with public authorities
as to any Real Property Tax. If at any time during the term of this Lease the
taxation or assessment of the complex prevailing as of the commencement date
of this Lease shall be altered so that in lieu of or in addition to any Real
Property Tax described above there shall be levied, assessed or imposed
(whether by reason of a change in the method of taxation or assessment,
creation of a new tax or charge, or any other cause) an alternate or
additional tax or charge (i) on the value, use or occupancy of the Complex or
Landlord's interest therein or (ii) on or measured by the gross receipts,
income or rentals for the Complex, on Landlord's business of leasing the
Complex, or computed in any manner with respect to the operation of the
Complex, then any such tax or charge, however designated, shall be included
within the meaning of the term "Real
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Property Taxes" for purposes of this Lease. If any Real Property Tax is based
upon property or rents unrelated to the Complex, then only that part of such
real Property Tax that is fairly allocable to the Complex shall be included
within the meaning of the term "Real Property Taxes." Notwithstanding the
foregoing, the term "Real Property Taxes" shall not include estate,
inheritance, gift or franchise taxes of Landlord or the federal or state net
income tax imposed on Landlord's income from all sources.
B. TAXES ON TENANT'S PROPERTY.
(a) Tenant shall be liable for and shall pay ten
days before delinquency, taxes levied against any personal property or
trade fixtures placed by Tenant in or about the Premises. If any such taxes
on Tenant's personal property or trade fixtures are levied against Landlord
or Landlord's property or if the assessed value of the Premises is increased
by the inclusion therein of a value placed upon such personal property or
trade fixtures of Tenant and if Landlord, after written notice to Tenant,
pays the taxes based on such increased assessment, which Landlord shall have
the right to do regardless of the validity thereof, but only under proper
protest is requested by Tenant. Tenant shall upon demand, as the case may be,
repay to Landlord the taxes so levied against Landlord, or the proportion of
such taxes resulting from such increase in the assessment; provided that in
any such event Tenant shall have the right, in the name of Landlord and with
Landlord's full cooperation, to bring suit in any court of competent
jurisdiction to recover the amount of any such taxes so paid under protest,
and any amounts so recovered shall belong to Tenant.
(b) If Tenant improvements in the Premises, whether
installed, and/or paid for by Landlord or Tenant and whether or not affixed
to the real property so as to become a part thereof, are assessed for real
property tax purposes at a valuation higher than the valuation at which
standard office improvements in other space in the Complex are assessed, then
the real property taxes and assessments levied against Landlord or the
Complex by reason of such excess assessed valuation shall be deemed to be
taxes levied against personal property of Tenant and shall be governed by the
provisions of 12Ba above. If the records of the County Assessor are available
and sufficiently detailed to serve as a basis for determining whether said
Tenant improvements are assessed at a higher valuation than standard office
improvements in other space in the Complex, such records shall be binding on
both the Landlord and the Tenant. If the records of the County Assessor are
not available or sufficiently detailed to serve as a basis for making said
determination, the actual cost of construction shall be used.
13. LIABILITY INSURANCE. Tenant, at Tenant's expense, agrees to keep in
force during the term of this Lease a policy of commercial general liability
insurance with a combined single limit coverage of not less than Two Million
Dollars ($2,000,000) per occurrence for injuries to or death of persons
occurring in, on or about the Premises or the Complex, and property damage. The
policy or policies affecting such insurance, certificates of insurance of which
shall be furnished to Landlord, shall name Landlord as additional insureds, and
shall insure any liability of Landlord, contingent or otherwise, as respects
acts or omissions of Tenant, its agents, employees or invitees or otherwise by
any conduct or transactions of any of said persons in or about or concerning the
Premises, including any failure of Tenant to observe or
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perform any of its obligations hereunder; shall be issued by an insurance
company admitted to transact business in the State of California; and shall
provide that the insurance effected thereby shall not be canceled, except
upon thirty (30) days prior written notice to Landlord. If, during the term
of this Lease, in the considered opinion of Landlord's Lender, insurance
advisor, or counsel, the amount of insurance described in this paragraph 13
is not adequate, Tenant agrees to increase said coverage to such reasonable
amount as Landlord's Lender, insurance advisor, or counsel shall deem
adequate.
14. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMANS COMPENSATION
INSURANCE. Tenant shall maintain a policy or policies of fire and property
damage insurance in "all risk" form with a sprinkler leakage endorsement
insuring the personal property, inventory, trade fixtures, and leasehold
improvements within the leased Premises for the full replacement value thereof.
The proceeds from any of such policies shall be used for the repair or
replacement of such items so insured. Tenant shall also maintain a policy or
policies of workman's compensation insurance and any other employee benefit
insurance sufficient to comply with all laws.
15. PROPERTY INSURANCE. Landlord shall purchase and keep in force and
as Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant
shall pay to Landlord (or Landlord's agent if so directed by Landlord) Tenant's
proportionate share (calculated on a square footage or other equitable basis as
calculated by Landlord) of the deductibles on insurance claims and the cost of
policy or policies of insurance covering loss or damage to the Premises and
Complex in the amount of the full replacement value thereof, providing
protection against those perils included within the classification of "all
risks" insurance and flood and/or earthquake insurance, if available, plus a
policy of rental income insurance in the amount of one hundred percent (100%) of
twelve (12) months Basic Rent, plus sums paid as Additional Rent. If such
insurance cost is increased due to Tenant's use of the Premises or the Complex,
Tenant agrees to pay to Landlord the full cost of such increase. Tenant shall
have no interest in nor any right to the proceeds of any insurance procured by
Landlord for the Complex.
Landlord and Tenant do each hereby respectively release the other, to
the extent of insurance coverage of the releasing party, from any liability for
loss or damage caused by fire or any of the extended coverage casualties
included in the releasing party's insurance policies, irrespective of the cause
of such fire or casualty; provided, however, that if the insurance policy of
either releasing party prohibits such waiver, then this waiver shall not take
effect until consent to such waiver is obtained. If such waiver is so
prohibited, the insured party affected shall promptly notify the other party
thereof.
16. INDEMNIFICATION. Landlord shall not be liable to Tenant and Tenant
hereby waives all claims against Landlord for any injury to or death of any
person or damage to or destruction of property in or about the Premises or the
Complex by or from any cause whatsoever, including, without limitation, gas,
fire, oil, electricity or leakage of any character from the roof, walls,
basement or other portion of the Premises or the Complex but excluding, however
the willful misconduct or negligence of Landlord, its agents, servants,
employees,
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invitees, or contractors of which negligence Landlord has knowledge and
reasonable time to correct. Except as to injury to persons or damage to
property to the extent arising from the willful misconduct or the negligence
of Landlord, its agents, servants, employees, invitees, or contractors,
Tenant shall hold Landlord harmless from and defend Landlord against any and
all expenses, including reasonable attorneys' fees, in connection therewith,
arising out of any injury to or death of any person or damage to or
destruction of property occurring in, on or about the Premises, or any part
thereof, from any cause whatsoever.
17. COMPLIANCE. Tenant, at its sole cost and expense, shall promptly
comply with all laws, statutes, ordinances and governmental rules,
regulations or requirements now or hereafter in effect; with the requirements
of any board of fire underwriters or other similar body now or hereafter
constituted; and with any direction or occupancy certificate issued pursuant
to law by any public officer; provided, however, that no such failure shall
be deemed a breach of the provisions if Tenant, immediately upon
notification, commences to remedy or rectify said failure. The judgment of
any court of competent jurisdiction or the admission of Tenant in any action
against Tenant, whether Landlord be a party thereto or not, that Tenant has
violated any such laws, statute, ordinance or governmental rule, regulation,
requirements, direction or provisions, shall be conclusive of that fact as
between Landlord and Tenant. This paragraph shall not be interpreted as
requiring Tenant to make structural changes or improvements, except to the
extent such changes or improvements are required as a result of Tenant's use
of the Premises. Tenant shall, at its sole cost and expense, comply with any
and all requirements pertaining to said Premises, of any insurance
organization or company, necessary for the maintenance of reasonable fire and
public liability insurance covering the Premises.
18. LIENS. Tenant shall keep the Premises and the Complex free from
any liens arising out of any work performed, materials furnished or
obligation incurred by Tenant. In the event that Tenant shall not, within ten
(10) days following the imposition of such lien, cause the same to be
released of record, Landlord shall have, in addition to all other remedies
provided herein and by law, the right, but no obligation, to cause the same
to be released by such means as it shall deem proper, including payment of
the claim giving rise to such lien. All sums paid by Landlord for such
purpose, and all expenses incurred by it in connection therewith, shall be
payable to Landlord by Tenant on demand with interest at the prime rate of
interest as quoted by the Bank of America.
19. ASSIGNMENT AND SUBLETTING. Tenant shall not assign, transfer, or
hypothecate the leasehold estate under this Lease, or any interest therein,
and shall not sublet the Premises, or any part thereof, or any right or
privilege appurtenant thereto, or suffer any other person or entity to occupy
or use the Premises, or any portion thereof, without, in each case, the prior
written consent of Landlord which consent will not be unreasonably withheld.
As a condition for granting this consent to any assignment, transfer or
subletting, Landlord shall require Tenant to pay to Landlord, as additional
rent, all rents and/or additional consideration due Tenant from its
assignees, transferees, or subtenants in excess of the Rent payable by Tenant
to landlord hereunder for the assigned, transferred, and/or subleased space.
Tenant shall, by thirty (30) days written notice, advise Landlord of its
intent to assign or transfer Tenant's interest in the Lease or sublet the
Premises or any portion thereof for any part of the term hereof. Within
thirty
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(30) days after receipt of said written notice, Landlord may, in its
sole discretion, elect to terminate this Lease as to the portion of the
Premises described in Tenant's notice on the date specified in Tenant's
notice by giving written notice of such election to terminate. If no such
notice to terminate is given to Tenant within said thirty (30) day period,
Tenant may proceed to locate an acceptable sublessee, assignee, or other
transferee for presentment to Landlord for Landlord's approval, all in
accordance with the terms, covenants, and conditions of this paragraph 19. If
Tenant intends to sublet the entire Premises and Landlord elects to terminate
this Lease, this Lease shall be terminated on the date specified in Tenant's
notice. If, however, this Lease shall terminate pursuant to the foregoing
with respect to less than all the Premises, the rent, as defined and reserved
hereinabove shall be adjusted on a pro rata basis to the number of square
feet retained by Tenant, and this Lease as so amended shall continue in full
force and effect. In the event Tenant is allowed to assign, transfer or
sublet the whole or any part of the Premises, with the prior written consent
of Landlord, no assignee, transferee or subtenant shall assign or transfer
this Lease, either in whole or in part, or sublet the whole or any part of
the Premises, without also having obtained the prior written consent of
Landlord which consent shall not be unreasonably withheld. A consent of
Landlord to one assignment, transfer, hypothecation, subletting, occupation
or use by any other person shall not release Tenant from any of Tenant's
obligations hereunder or be deemed to be a consent to any subsequent similar
or dissimilar assignment, transfer, hypothecation, subletting, occupation or
use by any other person. Any such assignment, transfer, hypothecation,
subletting, occupation or use without such consent shall be voided and shall
constitute a breach of this Lease by Tenant and shall, at the option of
Landlord exercised by written notice to Tenant, terminate this Lease. The
leasehold estate under this Lease shall not, nor shall any interest therein,
be assignable for any purpose by operation of law without the written consent
of Landlord which consent shall not be unreasonably withheld. As a condition
to its consent, Landlord shall require Tenant to pay all expenses in
connection with the assignment, and Landlord shall require Tenant's assignee
or transferee (or other assignees or transferees) to assume in writing all of
the obligations under this Lease and for Tenant to remain liable to Landlord
under this Lease.
20. SUBORDINATION AND MORTGAGES. In the event Landlord's title or
leasehold interest is now or hereafter encumbered by a deed of trust, upon the
interest of Landlord in the land and buildings in which the demised Premises are
located, to secure a loan from a lender (hereinafter referred to as "Lender") to
Landlord, Tenant shall, at the request of Landlord or Lender, execute in writing
an agreement subordinating its rights under this Lease to the lien of such deed
of trust, or, if so requested, agreeing that the lien of Lender's deed of trust
shall be or remain subject and subordinate to the rights of Tenant under this
Lease. Notwithstanding any such subordination, Tenant's possession under this
Lease shall not be disturbed if Tenant is not in default and so long as Tenant
shall pay all rent and observe and perform all of the provisions set forth in
this Lease.
21. ENTRY BY LANDLORD. Landlord reserves, and shall at all reasonable
times after at least 24 hours notice (except in emergencies) have the right to
enter the Premises to inspect them: to perform any services to be provided by
Landlord hereunder, to submit the Premises to prospective purchasers, mortgagers
or tenants; to post notices of nonresponsbility; and to alter, improve or repair
reasonably required by the character of the work to be performed;
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provided, however that the business of Tenant shall be interfered with to the
least extent that is reasonably practical. For each of the foregoing
purposes, any entry to the Premises obtained by Landlord by any of said
means, or otherwise, shall not under any circumstances be construed or deemed
to be a forcible or unlawful entry into or a detainer of the Premises or an
eviction, actual or constructive, of Tenant from the Premises or any portion
thereof. Landlord shall also have the right at any time to change the
arrangement or location of entrances or passageways, doors and doorways, and
corridors, elevators, stairs, toilets or other public parts of the Complex
and to change the name, number or designation by which the Complex is
commonly known, and none of the foregoing shall be deemed an actual or
constructive eviction of Tenant, or shall entitle Tenant to any reduction of
rent hereunder.
22. BANKRUPTCY AND DEFAULT. The commencement of a bankruptcy action or
liquidation action or reorganization action or insolvency action or an
assignment of or by Tenant for the benefit of creditors, or any similar action
undertaken by Tenant, or the insolvency of Tenant, shall, at Landlord's option,
constitute a breach of this Lease by Tenant. If the trustee or receiver
appointed to serve during a bankruptcy, liquidation, reorganization, insolvency
or similar action elects to reject Tenant's unexpired Lease, the trustee or
receiver shall notify Landlord in writing of its election within thirty (30)
days after an order for relief in a liquidation action or within thirty (30)
days after the commencement of any action.
Within thirty (30) days after court approval of the assumption of this
Lease, the trustee or receiver shall cure (or provide adequate assurance to the
reasonable satisfaction of Landlord that the trustee or receiver shall cure) any
and all previous defaults under the unexpired Lease and shall compensate
Landlord for all actual pecuniary loss and herein, includes, but shall not be
limited to: (i) assurance of source and payment of rent, and other consideration
due under this Lease; (ii) assurance that the assumption or assignment of this
Lease will not breach substantially any provision, such as radius, location,
use, or exclusivity provision, in any agreement relating to the above described
Premises.
Nothing contained in this section shall affect the existing right of
Landlord to refuse to accept an assignment upon commencement of or in connection
with a bankruptcy, liquidation, reorganization or insolvency action or an
assignment of Tenant for the benefit of creditors or other similar act. Nothing
contained in this Lease shall be construed as giving or granting or creating an
equity in the demised Premises to Tenant. In no event shall the leasehold estate
under this Lease, or any interest therein, be assigned by voluntary or
involuntary bankruptcy proceeding without the prior written consent of Landlord.
In no event shall this Lease or any rights or privileges hereunder be an asset
of Tenant under any bankruptcy, insolvency or reorganization proceedings.
The failure to perform or honor any covenant, condition or
representation made under this Lease shall constitute default hereunder by
Tenant upon expiration of the appropriate grace period hereinafter provided.
Tenant shall have a period of five (5) days from the date of written notice from
Landlord within which to cure any default in the payment of rental or adjustment
thereto. Tenant shall have a period of thirty (30) days from the date of written
notice from landlord within which to cure any other default under this Lease;
provided, however, that if the
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nature of Tenant's failure is such that more than thirty (30) days is
reasonably required to cure the same, Tenant shall not be in default so long
as Tenant commences performance within such thirty (30) day period and
thereafter prosecutes the same to completion. Upon an uncured default of this
Lease by Tenant, Landlord shall have the following rights and remedies in
addition to any other rights or remedies available to Landlord at law or in
equity:
(a) The rights and remedies provided for by California Civil Code
Section 1931.2 including but not limited to, recovery of the worth at the
time of award of the amount by which the unpaid rent for the balance of the
term after the time of award exceeds the amount of rental loss for the same
period that Tenant proves could be reasonably avoided, as computed pursuant
to subsection (b) of said Section 1951.2. Any proof by Tenant under
subparagraphs (2) and (3) of Section 1951.2 of the California Civil Code of
the amount of rental loss that could be reasonably avoided shall be made in
the following manner: Landlord and Tenant shall each select a licensed real
estate broker in the business of renting property of the same type and use as
the Premises and in the same geographic vicinity. Such two real estate
brokers shall select a third licensed real estate broker, and the three
licensed real estate brokers so selected shall determine the amount of the
rental loss that could be reasonably avoided from the balance of the term of
this Lease after the time of award. The decision of the majority of said
licensed real estate brokers shall be final and binding upon the parties
hereto.
(b) The rights and remedies provided by California Civil Code
Section which allows Landlord to continue to Lease in effect and to enforce
all of its rights and remedies under this Lease, including the right to
recover rent as it becomes due, for so long as Landlord does not terminate
Tenant's right to possession; acts of maintenance or preservation, efforts to
relet the Premises, or the apportionment of a receiver upon Landlord's
initiative to protect its interest under this Lease shall not constitute a
termination of Tenant's right to possession.
(c) The right to terminate this Lease by giving notice to Tenant
in accordance with applicable law.
(d) To the extent permitted by law, the right and power to enter
the Premises and remove therefrom all persons and property, to store such
property in a public warehouse or elsewhere at the cost of and for the
account of Tenant, and to sell such property and apply such proceeds
therefrom pursuant to applicable California law, Landlord may from time to
time sublet the Premises or any part thereof for such term or terms (which
may extend beyond the term of this Lease) and at such rent and such other
terms as Landlord in its sole discretion may deem advisable, with the right
to make alterations and repairs to the Premises. Upon each subletting, (i)
Tenant shall be immediately liable to pay Landlord, in addition to
indebtedness other than rent due hereunder, the cost of such subletting,
including, but not limited to, reasonable attorneys' fees, and any real
estate commissions actually paid, and the cost of such alterations and
repairs incurred by Landlord and the amount, if any, by which the rent
hereunder for the period of such subletting (to the extent such period does
not exceed the term hereof) exceeds the amount to be paid as rent for the
Premises for such period or (ii) at the option of Landlord, rents received
form such subletting shall be applied first to payment of indebtedness other
than rent due hereunder from Tenant to Landlord; second, to the payment of
any costs of such subletting and of such
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alterations and repairs; third to payment of rent due and unpaid hereunder;
and the residue, if any, shall be held by Landlord and applied in payment of
future rent as the same becomes due hereunder. If Tenant has been credited
with any rent to be received by such subletting under option (i) and such
rent shall not be promptly paid to Landlord by subtenant(s), or if such
rentals received from such subletting under option (ii) during any month be
less than to be paid during the month by Tenant hereunder. Tenant shall pay
any such deficiency to landlord. Such deficiency shall be calculated and paid
monthly. For all purposes set forth in this subparagraph d, no taking
possession of the Premises by Landlord shall be construed as an election on
its part to terminate this Lease unless a written notice of such intention be
given to Tenant. Notwithstanding any such subletting without termination,
Landlord may at any time hereafter elect to terminate this Lease for such
previous breach.
(e) The right to have a receiver appointed for Tenant upon
application by Landlord, to take possession of the Premises and to apply any
rental collected from the Premises and to exercise all other rights and
remedies granted to Landlord pursuant to subparagraph d above.
23. ABANDONMENT. Tenant shall not vacate or abandon the Premises at any
time during the term of this Lease and if Tenant shall abandon, vacate or
surrender said Premises, or be dispossessed by the process of law, or otherwise,
any personal property belonging to Tenant and left on the Premises shall be
deemed to be abandoned, at the option of Landlord, except such property as may
be mortgaged to Landlord.
24. DESTRUCTION. In the event the Premises are destroyed in whole or in
part from any cause, except for routine maintenance and repairs and incidental
damage and destruction caused by vandalism and accidents for which Tenant is
responsible for under Paragraph 10, Landlord may, at its option:
(a) Rebuild or restore the Premises to their condition prior
to the damage or destruction, or
(b) Terminate this Lease (providing that the Premises is damaged
to the extent of 33-1/3% of the replacement cost).
If Landlord does not give Tenant notice in writing within thirty (30)
days from the destruction of the Premises of its election to either rebuild or
restore them, or to terminate this Lease, Landlord shall be deemed to have
elected to rebuild or restore them, in which event Landlord agrees, at its
expense, promptly to rebuild or restore the Premises to their condition prior to
the damage or destruction. Tenant shall be entitled to a reduction in rent while
such repair is being made in the proportion that the area of the Premises
rendered untenantable by such damage bears to the total area of the Premises. If
Landlord initially estimates that the rebuilding or restoration will exceed 180
days or if Landlord does not complete the rebuilding or restoration within one
hundred eighty (180) days following the date of destruction (such period of time
to be extended for delays caused by the fault or neglect of Tenant or because of
Acts of God, acts of subcontractors, or delay of the contractors or
subcontractors due to such causes or other contingencies beyond the control of
Landlord), then Tenant shall have the right to
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terminate this Lease by giving fifteen (15) days prior written notice to
Landlord. Notwithstanding anything herein to the contrary, Landlord's
obligation to rebuild or restore shall be limited to the building and
interior improvements constructed by Landlord as they existed as of the
commencement date of the Lease and shall not include restoration of Tenant's
trade fixtures, equipment, merchandise, or any improvements, alterations or
additions made by Tenant to the Premises, which Tenant shall forthwith
replace or fully repair at Tenant's sole cost and expense provided this Lease
is not cancelled according to the provisions above.
Unless this Lease is terminated pursuant to the foregoing provisions,
this Lease shall remain in full force and effect. Tenant hereby expressly waives
the provisions of Section 1932, Subdivision 2, in Section 1933, Subdivision 4 of
the California Civil Code.
In the event that the building in which the Premises are situated is
damaged or destroyed to the extent of not less then 33-1/3% of the replacement
cost thereof, Landlord may elect to terminate this Lease, whether the Premises
be injured or not. Notwithstanding anything to the contrary herein, Landlord may
terminate this Lease in the event of an uninsured event or if insurance proceeds
are insufficient to cover 100% of the rebuilding costs net of the deductible.
25. EMINENT DOMAIN. If all or any part of the Premises shall be taken
by any public or quasi-public authority under the power of eminent domain or
conveyance in lieu thereof, this Lease shall terminate as to any portion of the
Premises so taken or conveyed on the date when title vests in the condemnor, and
Landlord shall be entitled to any and all payment, income, rent, award, or any
interest therein whatsoever which may be paid or made in connection with such
taking or conveyance, and Tenant shall have no claim against Landlord or
otherwise for the value of any unexpired term of this Lease. Notwithstanding the
foregoing paragraph, any compensation specifically awarded Tenant for loss of
business, Tenant's personal property, moving cost or loss of goodwill, shall be
and remain the property of Tenant.
If (i) any action or proceeding is commenced for such taking of the
Premises or any part thereof, or if Landlord is advised in writing by any entity
or body having the right or power of condemnation of its intention to condemn
the premises or any portion thereof, or (ii) any foregoing events occur with
respect to the taking of any space in the Complex not leased hereby, or if any
such spaces so taken or conveyed in lieu of such taking and Landlord shall
decide to discontinue to use and operation of the Complex, or decide to
demolish, alter or rebuild the Complex, then, in any such events Landlord shall
have the right to terminate this Lease by giving Tenant written notice thereof
within sixty (60) days of the date of receipt of said written advice, or
commencement of said action or proceeding, or taking conveyance, which
termination shall take place as of the first to occur of the last day of the
calendar month next following the month in which such notice is given or the
date on which title to the Premises shall vest in the condemnor.
In the event of such a partial taking or conveyance of the Premises, if
the portion of the Premises taken or conveyed is so substantial that the Tenant
can no longer reasonably conduct its business, Tenant shall have the privilege
of terminating this Lease within sixty (60) days form the date of such taking or
conveyance, upon written notice to Landlord of its intention so to do,
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and upon giving of such notice this Lease shall terminate on the last day of
the calendar month next following the month in which such notice is given,
upon payment by Tenant of the rent from the date of such taking or conveyance
to the date of termination.
If a portion of the Premises be taken by condemnation or conveyance in
lieu thereof and neither Landlord nor Tenant shall terminate this Lease as
provided herein, this Lease shall continue in full force and effect as to the
part of the Premises not so taken or conveyed, and the rent herein shall be
apportioned as of the date of such taking or conveyance so that thereafter the
rent to be paid by Tenant shall be in the ratio that the area of the portion of
the Premises not so taken or conveyed bears to the total area of the Premises
prior to such taking.
26. SALE OR CONVEYANCE BY LANDLORD. In the event of a sale or
conveyance of the Complex or any interest therein, by an owner of the reversion
then constituting Landlord, the transferor shall thereby be released from any
further liability upon any of the terms, covenants or conditions (express or
implied) herein contained in favor of Tenant, and in such event, insofar as such
transfer is concerned. Tenant agrees to look solely to the responsibility of the
successor in interest of such transferor in and to the Complex and this Lease.
This Lease shall not be affected by any such sale or conveyance, and Tenant
agrees to attorn to the successor in interest of such transferor.
27. ATTORNMENT TO LENDER OR THIRD PARTY. In the event the interest of
Landlord in the land and buildings in which the leased Premises are located
(whether such interest of Landlord is a fee title interest or a leasehold
interest) is encumbered by deed of trust, and such interest is acquired by the
lender or any third party through judicial foreclosure or by exercise of a power
of sale at private trustee's foreclosure sale, Tenant hereby agrees to attorn to
the purchaser at any such foreclosure sale and to recognize such purchaser as
the Landlord under this Lease. In the event the lien of the deed of trust
securing the loan from a Lender to Landlord is prior and paramount to the Lease,
this Lease shall nonetheless continue in full force and effect for the remainder
of the unexpired term hereof, at the same rental herein reserved and upon all
the other terms, conditions and covenants herein contained.
28. HOLDING OVER. Any holding over by Tenant after expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall not constitute a renewal or extension of the Lease or
give Tenant any rights in or to the Leased Premises except as expressly provided
in this Lease. Any holding over after the expiration or other termination of the
term of this Lease, with the consent of Landlord, shall be construed to be a
tenancy from month to month, on the same terms and conditions herein specified
insofar as applicable except that the monthly Basic Rent shall be increased to
an amount equal to one hundred fifty percent (150%) of the monthly Basic Rent
required during the last month of the Lease term.
29. CERTIFICATE OF ESTOPPEL. Tenant shall at any time upon not less
than ten (10) days' prior written notice from Landlord execute, acknowledge and
deliver to Landlord a statement in writing (i) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification and certifying that this Lease, as so modified, is
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in full force and effect) and the date to which the rent and other charges
are paid in advance, if any, and (ii) acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on the part of Landlord hereunder,
or specifying such defaults, if any, are claimed. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Premises. Tenant's failure to deliver such statement within such time shall
be conclusive upon Tenant that this Lease is in full force and effect,
without modification except as may be represented by Landlord; that there are
no uncured defaults in Landlord's performance, and that not more than one
month's rent has been paid in advance.
30. CONSTRUCTION CHANGES. It is understood that the description of the
Premises and the location of ductwork, plumbing and other facilities therein are
subject to such minor changes as Landlord or Landlord's architect determines to
be desirable in the course of construction of the Premises, and no such changes,
or any changes in plans for any other portions of the Complex shall affect this
Lease or entitle Tenant to any reduction of rent hereunder or results in any
liability of Landlord to Tenant. Landlord does not guarantee the accuracy of any
drawings supplied to Tenant and verification of the accuracy of such drawings
rests with Tenant.
31. RIGHT OF LANDLORD TO PERFORM. All terms, covenants and conditions
of this Lease to be performed or observed by Tenant shall be performed or
observed by Tenant at Tenant's sole cost and expense and without any reduction
of rent. If Tenant shall fail to pay any sum of money, or other rent, required
to be paid by it hereunder and such failure shall continue for five (5) days
after written notice by Landlord, or shall fail to perform any other term or
covenant hereunder on its part to be performed, and such failure shall continue
for thirty (30) days after written notice thereof by Landlord, Landlord, without
waiving or releasing Tenant from any obligation of Tenant hereunder, may, but
shall not be obligated to, make any such payment or perform any such other term
or covenant on Tenant's part to be performed. All sums so paid by Landlord and
all necessary costs of such performance by Landlord together with interest
thereon at the rate of the prime rate of interest per annum as quoted by the
Bank of America from the date of such payment or performance by Landlord, shall
be paid (and Tenant covenants to make such payment) to Landlord on demand by
Landlord, and Landlord shall have (in addition to any other right or remedy of
Landlord) the same rights and remedies in the event of nonpayment by Tenant as
in the case of failure by Tenant in the payment of rent hereunder.
32. ATTORNEYS' FEES.
(a) In the event that either Landlord or Tenant should bring
suit for the possession of the Premises, for the recovery of any sum due
under this Lease, or because of the breach of any provision of this Lease, or
for any other relief against the other party hereunder, then all costs and
expenses, including reasonable attorneys' fees, incurred by the prevailing
party therein shall be paid by the other party, which obligation on the part
of the other party shall be deemed to have accrued on the date of the
commencement of such action and shall be enforceable whether or not the
action is prosecuted to judgement.
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(b) Should Landlord be named as a defendant in any suit brought
against Tenant in connection with or arising out of Tenant's occupancy
hereunder, Tenant shall pay to Landlord its costs and expenses incurred in
such suit, including a reasonable attorney's fee.
33. WAIVER. The waiver by either part of the other party's failure to
perform or observe any term, covenant or condition herein contained to be
performed or observed by such waiving party shall not be deemed to be a waiver
of such term, covenant or condition or of any subsequent failure to the party
failing to perform or observe the same or any other such item, covenant or
condition therein contained, and no custom or practice which may develop between
the parties hereto during the term hereof shall be deemed a waiver of, or in any
way affect, the right of either party to insist upon performance and observance
by the other party in strict accordance with the terms hereof.
34. NOTICES. All notices, demands, requests, advices or designations
which may be or are required to be given by either party to the other hereunder
shall be in writing. All notices, demands, requests, advices or designations by
Landlord to Tenant shall be sufficiently given, made or delivered if personally
served on Tenant by leaving the same at the Premises or if sent by United States
certified or registered mail, postage prepaid, addressed to Tenant at the
Premises. All notices, demands, requests, advices or designations by Tenant to
Landlord shall be sent by United States certified or registered mail, postage
prepaid, addressed to Landlord at its offices at Peery/Arrillaga, 2560 Mission
College Blvd., Suite 101, Santa Clara, CA 95054. Each notice, request, demand,
advice or designation referred to in this paragraph shall be deemed received on
the date of the personal service or mailing thereof in the manner herein
provided, as the case may be.
35. EXAMINATION OF LEASE. Submission of this instrument for examination
or signature by Tenant does not constitute a reservation of or option for a
lease, and this instrument is not effective as a lease or otherwise until its
execution and delivery by both Landlord and Tenant.
36. DEFAULT BY LANDLORD. Landlord shall not be in default unless
Landlord fails to perform obligations required of Landlord within a reasonable
time, but in no event earlier than thirty (30) days after written notice by
Tenant to Landlord and to the holder of any first mortgage or deed of trust
covering the Premises whose name and address shall have heretofore been
furnished to Tenant in writing, specifying wherein landlord has failed to
perform such obligations; provided, however, that if the nature of Landlord's
obligations is such that more than thirty (30) days are required for
performance, then Landlord shall not be in default if Landlord commences
performance within such thirty (30) day period and thereafter diligently
prosecutes the same to completion.
37. CORPORATE AUTHORITY. If Tenant is a corporation (or a partnership),
each individual executing this Lease on behalf of said corporation (or
partnership) represents and warrants that he is duly authorized to execute and
deliver this Lease on behalf of said corporation (or partnership) in accordance
with the by-laws of said corporation (or partnership in accordance with the
partnership agreement) and that this Lease is binding upon said corporation (or
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partnership) in accordance with its terms if Tenant is a corporation, Tenant
shall, within thirty (30) days after execution of this Lease, deliver to
Landlord a certified copy of the resolution of the Board of Directors of said
corporation authorizing or ratifying the execution of this Lease.
38. LIMITATION OF LIABILITY. In consideration of the benefits accruing
hereunder, Tenant and all successors and assigns covenant and agree that, in the
event of any actual or alleged failure, breach or default hereunder by Landlord:
(i) the sole and exclusive remedy shall be against
Landlord and Landlord's assets;
(ii) no partner of Landlord shall be sued or named as a party
in any suit or action (except as may be necessary to secure jurisdiction of the
partnership);
(iii) no service of process shall be made against any partner
of Landlord (except as may be necessary to secure jurisdiction of the
partnership);
(iv) no partner of Landlord shall be required to answer or
otherwise plead to any service of process;
(v) no judgment will be taken against any partner of
Landlord;
(vi) any judgment taken against any partner of Landlord
may be vacated and set aside at any time without hearing;
(vii) no writ of execution will ever be levied against the
assets of any partner of Landlord;
(viii) these covenants and agreements are enforceable both by
landlord and also by any partner of Landlord.
Tenant agrees that each of the foregoing covenants and agreements shall
be applicable to any covenant or agreement either expressly contained in this
Lease or imposed by statute or at common law.
39. MISCELLANEOUS AND GENERAL PROVISIONS.
(a) Tenant shall not, without the written consent of Landlord,
use the name of the building for any purpose other than as the address of the
business conducted by Tenant in the Premises.
(b) This Lease shall in all respects be governed by and
construed in accordance with the laws of the State of California. If any
provision of this Lease shall be invalid, unenforceable or ineffective for
any reason whatsoever, all other provisions hereof shall be and remain in
full force and effect.
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(c) The term "Premises" includes the space leased hereby and
any improvements now or hereafter installed therein or attached thereto. The
term "Landlord" or any pronoun used in place thereof includes the plural as
well as the singular and the successors and assigns of Landlord. The term
"Tenant" or any pronoun used in place thereof includes the plural as well as
the singular and individuals, firms, associations, partnerships and
corporations, and their and each of their respective heirs, executors,
administrators, successors and permitted assigns, according to the context
hereof, and the provisions of this Lease shall inure to the benefit of and
bind such heirs, executors, administrators, successors and permitted assigns.
The term "person" includes the plural as well as the singular and
individuals, firms, associations, partnerships and corporations. Words used in
any gender include other genders. If there be more than one Tenant the
obligations of Tenant hereunder are joint and several. The paragraph headings of
this Lease are for convenience of reference only and shall have no effect upon
the construction of any provision hereof.
(d) Time is of the essence of this Lease and of each and all of
its provisions.
(e) At the expiration or earlier termination of this Lease,
Tenant shall execute, acknowledge and deliver to Landlord, within ten (10)
days after written demand from Landlord to Tenant, any quitclaim deed or
other document required by any reputable title company, licensed to operate
in the State of California, to remove the cloud or encumbrance created by
this Lease from the real property of which Tenant's Premises are a part.
(f) This instrument along with any exhibits and attachments
hereto constitutes the entire agreement between Landlord and Tenant relative
to the Premises and this agreement and the exhibits and attachments may be
altered, amended or revoked only by an instrument in writing signed by both
Landlord and Tenant. Landlord and Tenant agree hereby that all prior or
contemporaneous oral agreements between and among themselves and their agents
or representatives relative to the leasing of the Premises are merged in or
revoked by this agreement.
(g) Neither Landlord nor Tenant shall record this Lease or a
short form memorandum hereof without the consent of the other.
(h) Tenant further agrees to execute any amendments required by
a lender to enable Landlord to obtain financing, so long as Tenant's rights
hereunder are not substantially affected.
(i) Paragraphs 43 through 55 are added hereto and are included
as a part of this lease.
(j) Clauses, plats and riders, if any, signed by Landlord and
Tenant and endorsed on or affixed to this Lease are a part hereof.
(k) Tenant covenants and agrees that no diminution or shutting
off of light, air or view by any structure which may be hereafter erected
(whether or not by landlord) shall in any
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way affect his Lease, entitle Tenant to any reduction of rent hereunder or
result in any liability of Landlord to Tenant.
41. BROKERS. Tenant warrants that it had dealings with only the
following real estate brokers or agents in connection with the negotiation of
this Lease: none; and that it knows of no other real estate broker or agent who
is entitled to a commission in connection with this Lease.
42. SIGNS. No sign, placard, picture, advertisement, name or notice
shall be inscribed, displayed or printed or affixed on or to any part of the
outside of the Premises or any exterior windows of the Premises without the
written consent of Landlord first had and obtained and Landlord shall have the
right to remove any such sign, placard, picture, advertisement, name or notice
without notice to and at the expense of Tenant. If Tenant is allowed to print or
affix or in any way place a sign in, on, or about the Premises, upon expiration
or other sooner termination of this Lease, Tenant at Tenant's sole cost and
expense shall both remove such sign and repair all damage in such a manner as to
restore all aspects of the appearance of the Premises to the condition prior to
the placement of said sign.
All approved signs or lettering on outside of doors shall be printed,
painted, affixed or inscribed at the expense of Tenant by a person approved of
by Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door partition or wall which may appear unsightly from
outside the Premises.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered
this Lease as of the day and year first above written.
LANDLORD: TENANT:
JOHN ARRILLAGA SEPARATE PROPERTY TRUST QUANTUM EFFECT DESIGN, INC.,
a California corporation
By: \s\ John Arrillaga By: \s\ John P. Walsh
------------------------------ ----------------------------
John Arrillaga, Trustee John P. Walsh, Director, Human
Resources
Date: 1/26/99 Date: 1-20-99
------------------------------ ----------------------------
RICHARD T. PEERY SEPARATE PROPERTY TRUST
By: \s\ Richard T. Peery
------------------------------
Richard T. Peery, Trustee
Date: 1/26/99
------------------------------
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Paragraphs 43 through 55 to Lease Agreement dated December 3, 1998, By and
Between the John Arrillaga Survivor's Trust and the Richard T. Peery Separate
Property Trust, as Landlord, and QUANTUM EFFECT DESIGN, INC., a California
corporation, as Tenant for 5,189+/- Square Feet of Space Located at 3255-4 Scott
Blvd., Suite 105, Santa Clara, California.
43. BASIC RENT. In accordance with Paragraph 4(A) herein, the total
aggregate sum of THREE HUNDRED TWELVE THOUSAND THREE HUNDRED SEVENTY SEVEN AND
80/100 DOLLARS ($312,377.80), shall be payable as follows:
On February 1, 1999, the sum of TEN THOUSAND THREE HUNDRED
SEVENTY EIGHT AND NO/100 DOLLARS ($10,378.00) shall be due, and a like sum due
on the first day of each month thereafter, through and including January 1,
2000.
On February 1, 2000, the sum of TEN THOUSAND EIGHT HUNDRED
NINETY SIX AND 90/100 DOLLARS ($10,896.90) shall be due, and a like sum due on
the first day of each month thereafter, through and including January 1, 2001.
On February 1, 2001, the sum of ELEVEN THOUSAND FOUR HUNDRED
FIFTEEN AND 80/100 DOLLARS ($11,415.80) shall be due, and a like sum due on the
first day of each month thereafter, through and including June 1, 2001; or until
the entire aggregate sum of THREE HUNDRED TWELVE THOUSAND THREE HUNDRED SEVENTY
SEVEN AND 80/100 DOLLARS ($312,377.80) has been paid.
44. "AS-IS" BASIS. It is hereby agreed that the Premises leased
hereunder is leased strictly on an "as-is" basis and in its present condition,
and in the configuration as shown on Exhibit B attached hereto, and by reference
made a part hereof. It is specifically agreed between the parties that Landlord
shall not be required to make, nor be responsible for any cost, in connection
with any repair, restoration, and/or improvement to the Premises in order for
this Lease to commence, or thereafter, throughout the Term of this Lease.
Notwithstanding anything to the contrary within this Lease, Landlord makes no
warranty or representation of any kind or nature whatsoever as to the condition
or repair of the Premises, nor as to the use or occupancy which may be made
thereof.
45. CONSENT. Whenever the consent of one party to the other is required
hereunder, such consent shall not be unreasonably withheld.
46. CHOICE OF LAW; SEVERABILITY. This Lease shall in all respects be
governed by and construed in accordance with the laws of the State of
California. If any provisions of this Lease shall be invalid, unenforceable, or
ineffective for any reason whatsoever, all other provisions hereof shall be and
remain in full force and effect.
47. AUTHORITY TO EXECUTE. The parties executing this Lease Agreement
hereby warrant and represent that they are properly authorized to execute this
Lease Agreement and bind the parties on behalf of whom they execute this Lease
Agreement and to all of the terms, covenants and conditions of this Lease
Agreement as they relate to the respective parties hereto.
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48. ASSESSMENT CREDITS. The demised property herein may be subject to a
special assessment levied by the City of Santa Clara as part of an Improvement
District. As a part of said special assessment proceedings (if any), additional
bonds were or may be sold and assessments were or may be levied to provide for
construction contingencies and reserve funds. Interest shall be earned on such
funds created for contingencies and on reserve funds which will be credited for
the benefit of said assessment district. To the extent surpluses are created in
said district through unused contingency funds, interest earnings or reserve
funds, such surpluses shall be deemed the property of Landlord. Notwithstanding
that such surpluses may be credited on assessments otherwise due against the
Leased Premises, Tenant shall pay to Landlord, as additional rent if, and at the
time of any such credit of surpluses, an amount equal to all such surpluses so
credited. For example: if (i) the property is subject to an annual assessment of
$1,000.00, and (ii) a surplus of $200.00 is credited towards the current year's
assessment which reduces the assessment amount shown on the property tax bill
from $1,000.00 to $800.00, Tenant shall, upon receipt of notice from Landlord,
pay to Landlord said $200.00 credit as Additional Rent.
49. ASSIGNMENT AND SUBLETTING (CONTINUED).
A. Notwithstanding the foregoing, Landlord and Tenant agree
that it shall not be unreasonable for Landlord to refuse to consent to a
proposed assignment, sublease or other transfer ("Proposed Transfer") if the
Premises or any other portion of the Property would become subject to
additional or different Government Requirements as a direct or indirect
consequence of the Proposed Transfer and/or the Proposed Transferee's use and
occupancy of the Premises and the Property. However, Landlord may, in its
sole discretion, consent to such a Proposed Transfer where Landlord is
indemnified by Tenant and (i) Subtenant or (ii) Assignee, in form and
substance satisfactory to Landlord's counsel, by Tenant and/or the Proposed
Transferee from and against any and all costs, expenses, obligations and
liability arising out of the Proposed Transfer and/or the Proposed
Transferee's use and occupancy of the Premises and the Property.
B. Any and all sublease agreement(s) between Tenant and any and
all subtenant(s) (which agreements must be consented to by Landlord, pursuant
to the requirements of this Lease) shall contain the following language:
"If Landlord and Tenant jointly and voluntarily elect, for any reason
whatsoever, to terminate the Master Lease prior to the scheduled Master Lease
termination date, then this Sublease (if then still in effect) shall terminate
concurrently with the termination of the Master Lease. Subtenant expressly
acknowledges and agrees that (1) the voluntary termination of the Master Lease
by Landlord and Tenant and the resulting termination of this Sublease shall not
give Subtenant any right or power to make any legal or equitable claim against
Landlord, including without limitation any claim for interference with contract
or interference with prospective economic advantage, and (2) Subtenant hereby
waives any and all rights it may have under law or at equity against Landlord to
challenge such an early termination of the Sublease, and unconditionally
releases and relieves Landlord, and its officers, directors, employees and
agents, from any and all claims, demands, and/or causes of action whatsoever
(collectively, "Claims"), whether such matters are known or unknown, latent or
apparent, suspected or
26.
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unsuspected, foreseeable or unforeseeable, which Subtenant may have arising
out of or in connection with any such early termination of this Sublease.
Subtenant knowingly and intentionally waives any and all protection which is
or may be given by Section 1542 of the California Civil Code which provides
as follows: "A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his settlement
with debtor.
The term of this Sublease is therefore subject to early termination.
Subtenant's initials here below evidence (a) Subtenant's consideration of and
agreement to this early termination provision, (b) Subtenant's acknowledgment
that, in determining the net benefits to be derived by Subtenant under the terms
of this Sublease, Subtenant has anticipated the potential for early termination,
and (c) Subtenant's agreement to the general waiver and release of Claims above.
Initials: Initials:
---------------------- ---------------------
Subtenant Tenant
50. BANKRUPTCY AND DEFAULT. Paragraph 22 is modified to provide that
with respect to non-monetary defaults not involving Tenant's failure to pay
Basic Rent or Additional Rent, Tenant shall not be in default of any
non-monetary obligation if (i) more than thirty (30) days is required to cure
such non-monetary default, and (ii) Tenant commences cure of such default as
soon as reasonably practicable after receiving written notice of such default
from Landlord and thereafter continuously and with due diligence prosecutes such
cure to completion.
51. ABANDONMENT. Paragraph 23 is modified to provide that Tenant shall
not be in default under the Lease if it leaves all or any part of Premises
vacant so long as (i) Tenant is performing all of its other obligations under
the Lease including the obligation to pay Basic Rent and Additional Rent, (ii)
Tenant provides on-site security during normal business hours for those parts of
the Premises left vacant, (iii) such vacancy does not materially and adversely
affect the validity or coverage of any policy of insurance carried by Landlord
with respect to the Premises, and (iv) the utilities and bearing and ventilation
system are operated and maintained to the extent necessary to prevent damage to
the Premises or its systems.
52. HAZARDOUS MATERIALS. Landlord and Tenant agree as follows with
respect to the existence or use of "Hazardous Materials" (as defined herein) on,
in, under or about the Premises and real property located beneath said Premises
and the common areas of the Complex (hereinafter collectively referred to as the
"Property"):
A. As used herein, the term "Hazardous Materials" shall mean
any material, waste, chemical, mixture or byproduct which is or hereafter is
defined, listed or designated under Environmental Laws (defined below) as a
pollutant, or as a contaminant, or as a toxic or hazardous substance, waste
or material, or any other unwholesome, hazardous, toxic, biohazardous, or
radioactive material, waste, chemical, mixture or byproduct, or which is
listed, regulated or restricted by any Environmental Law (including, without
limitation, petroleum hydrocarbons or any distillates or derivatives or
fractions thereof, polychlorinated biphenyls, or asbestos). As used herein,
the term "Environmental Laws" shall mean any applicable Federal,
27.
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State of California or local government law (including common law), statute,
regulation, rule, ordinance, permit, license, order, requirement, agreement,
or approval, or any determination, judgment, directive, or order of any
executive or judicial authority at any level of Federal, State of California
or local government (whether now existing or subsequently adopted or
promulgated) relating to pollution or the protection of the environment,
ecology, natural resources, or public health and safety.
B. Tenant shall obtain Landlord's written consent, which may be
withheld in Landlord's discretion, prior to the occurrence of any Tenant's
Hazardous Materials Activities (defined below); provided, however, that
Landlord's consent shall not be required for normal use in compliance with
applicable Environmental Laws of customary household and office supplies
(Tenant shall first provide Landlord with a list of said materials use), such
as mild cleaners, lubricants and copier toner. As used herein, the term
"Tenant's Hazardous Materials Activities" shall mean any and all use,
handling, generation, storage, disposal, treatment, transportation, release,
discharge, or emission of any Hazardous Materials on, in, beneath, to, from,
at or about the Property, in connection with Tenant's use of the Property, or
by Tenant or by any of Tenant's agents, employees, contractors, vendors,
invitees, visitors or its future subtenants or assignees. Tenant agrees that
any and all Tenant's Hazardous Materials Activities shall be conducted in
strict, full compliance with applicable Environmental Laws at Tenant's
expense, and shall not result in any contamination of the Property or the
environment. Tenant agrees to provide Landlord with prompt written notice of
any spill or release of Hazardous Materials at the Property during the term
of the Lease of which Tenant becomes aware, and further agrees to provide
Landlord with prompt written notice of any violation of Environmental Laws in
connection with Tenant's Hazardous Materials Activities of which Tenant
becomes aware. If Tenant's Hazardous Materials Activities involve Hazardous
Materials other than normal use of customary household and office supplies,
Tenant also agrees at Tenant's expense: (i) to install such Hazardous
Materials monitoring, storage and containment devices as Landlord reasonably
deems necessary (Landlord shall have no obligation to evaluate the need for
any such installation or to require any such installation); (ii) provide
Landlord with a written inventory of such Hazardous Materials, including an
update of same each year upon the anniversary date of the Commencement Date
of the Lease ("Anniversary Date"); and (iii) on each Anniversary Date, to
retain a qualified environmental consultant, acceptable to Landlord, to
evaluate whether Tenant is in compliance with all applicable Environmental
Laws with respect to Tenant's Hazardous Materials Activities. Tenant, at its
expense, shall submit to Landlord a report from such environmental consultant
which discusses the environmental consultant's findings within two (2) months
of each Anniversary Date. Tenant, at its expense, shall promptly undertake
and complete any and all steps necessary, and in full compliance with
applicable Environmental Laws, to fully correct any and all problems or
deficiencies identified by the environmental consultant, and promptly provide
Landlord with documentation of all such corrections.
C. Prior to termination or expiration of the Lease, Tenant, at
its expense, shall (i) properly remove from the Property all Hazardous
Materials which come to be located at the Property in connection with
Tenant's Hazardous Materials Activities, and (ii) fully comply with and
complete all facility closure requirements of applicable Environmental Laws
regarding Tenant's Hazardous Materials Activities, including but not limited
to (x) properly restoring and
28.
<PAGE>
repairing the Property to the extent damaged by such closure activities, and
(y) obtaining from the local Fire Department or other appropriate
governmental authority with jurisdiction a written concurrence that closure
has been completed in compliance with applicable Environmental Laws. Tenant
shall promptly provide Landlord with copies of any claims, notices, work
plans, data and reports prepared, received or submitted in connection with
any such closure activities.
D. If Landlord, in its sole discretion, believes that the
Property has become contaminated as a result of Tenant's Hazardous Materials
Activities, Landlord in addition to any other rights it may have under this
Lease or under Environmental Laws or other laws, may enter upon the Property
and conduct inspection, sampling and analysis, including but not limited to
obtaining and analyzing samples of soil and groundwater, for the purpose of
determining the nature and extent of such contamination. Tenant shall
promptly reimburse Landlord for the costs of such an investigation, including
but not limited to reasonable attorneys' fees Landlord incurs with respect to
such investigation, that discloses Hazardous Materials contamination for
which Tenant is liable under this Lease. Notwithstanding the above, Landlord
may, at its option and in its sole and absolute discretion, choose to perform
remediation and obtain reimbursement for cleanup costs as set forth herein
from Tenant. Any cleanup costs incurred by Landlord as the result of Tenant's
Hazardous Materials Activities shall be reimbursed by Tenant within thirty
(30) days of presentation of written documentation of the expense to Tenant
by Landlord. Such reimbursable costs shall include, but not be limited to,
any reasonable consultant and attorney fees incurred by Landlord. Tenant
shall take all actions necessary to preserve any claims it has against third
parties, including, but not limited to, its insurers, for claims related to
its operation, management of Hazardous Materials or contamination of the
Property. Except as may be required of Tenant by applicable Environmental
Laws, Tenant shall not perform any sampling, testing, or drilling to identify
the presence of any Hazardous Materials at the Property, without Landlord's
prior written consent which may be withheld in Landlord's discretion. Tenant
shall promptly provide Landlord with copies of any claims, notices, work
plans, data and reports prepared, received or submitted in connection with
any sampling, testing or drilling performed pursuant to the preceding
sentence.
E. Tenant shall indemnify, defend (with legal counsel
acceptable to Landlord, whose consent shall not unreasonably be withheld) and
hold harmless Landlord, its employee, assigns, successors,
successors-in-interest, agents and representatives from and against any and
all claims (including but not limited to third party claims from a private
party or a government authority), liabilities, obligations, losses, causes of
action, demands, governmental proceedings or directives, fines, penalties,
expenses, costs (including but not limited to reasonable attorneys',
consultants' and other experts' fees and costs), and damages, which arise
from or relate to: (i) Tenant's Hazardous Materials Activities; (ii) any
Hazardous Materials contamination caused by Tenant prior to the Commencement
Date of the Lease; or (iii) the breach of any obligation of Tenant under this
Paragraph 52 (collectively, "Tenant's Environmental Indemnification").
Tenant's Environmental Indemnification shall include but is not limited to
the obligation to promptly and fully reimburse Landlord for losses in or
reductions to rental income, and diminution in fair market value of the
Property. Tenant's Environmental Indemnification shall further include but is
not limited to the obligation to diligently and properly implement to
completion, at Tenant's expense, any and all environmental investigation,
removal, remediation,
29.
<PAGE>
monitoring, reporting, closure activities, or other environmental response
action (collectively, "Response Actions"). Tenant shall promptly provide
Landlord with copies of any claims, notices, work plans, data and reports
prepared, received or submitted in connection with any Response Actions.
It is agreed that the Tenant's responsibilities related to Hazardous Materials
will survive the expiration or termination of this Lease and that Landlord may
obtain specific performance of Tenant's responsibilities under this Paragraph
52.
53. LEASE TERMS CO-TERMINOUS. It is acknowledged that (i) concurrently
with the execution of this Lease, Landlord and Tenant are also executing
Amendment No. 2 dated December 3, 1998 to Lease Agreement dated September 14,
1994 (hereinafter referred to as the "Existing Lease") affecting adjacent
property and (ii) it is the intention of the parties that the Term of this Lease
be coterminous with the Term of the Existing Leases such that the terms of both
leases expire on the same date; provided, however, the termination of this Lease
resulting from the terms and conditions stated under Paragraph 22 "Bankruptcy
and Default" (subject to Landlord's option as stated in the respective leases'
"Cross Default" Paragraph) or Paragraph 24 "Destruction" or Paragraph 25
"Eminent Domain" shall not result in a termination of the Existing Lease, unless
Landlord elects, at its sole and absolute discretion, to terminate the Existing
Lease.
54. CROSS DEFAULT. As a material part of the consideration for the
execution of this Lease by Landlord, it is agreed between Landlord and Tenant
that a default under this Lease, or a default under the Existing Lease may, at
the option of Landlord, be considered a default under both leases, in which
event Landlord shall be entitled (but in no event required) to apply all rights
and remedies of Landlord under the terms of one lease to both leases including,
but not limited to, the right to terminate one or both of said leases by reason
of a default under said Existing Lease or hereunder.
55. LEASE CONTINGENT UPON LANDLORD OBTAINING TERMINATION AGREEMENT WITH
CURRENT TENANT. This Lease is subject to and conditional upon Landlord obtaining
from Circuit City Stores, Inc. ("Circuit City"), the current tenant occupying
the Premises leased hereunder, a Termination Agreement satisfactory, to Landlord
on or before January 31, 1999. In the event Landlord is unable to obtain said
satisfactory Termination Agreement on or before January 31, 1999, this Lease
Agreement shall, at Landlord's option (a) be rescinded, or (b) the Commencement
Date hereof shall be modified to reflect the date Landlord so obtains said
satisfactory Termination Agreement and receives possession of the Premises
hereunder free and clear of Circuit City's occupancy; provided, however, that
said period of delay caused by Circuit City shall not extend beyond March 31,
1999. In the event this Lease does not commence by April 1, 1999 (subject only
to the delays covered in Paragraph 3) this Lease shall be automatically
rescinded.
30.
<PAGE>
[SITE PLAN]
31.
<PAGE>
[FIRST FLOOR PLAN]
<PAGE>
AMENDMENT NO. 1
TO LEASE
THIS AMENDMENT NO. 1 is made and entered into this 16th day of
August, 1999, by and been JOHN ARRILLAGA, Trustee, or his Successor Trustee
UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR'S TRUST) as amended, and RICHARD
T. PEERY, Trustee, or his Successor Trustee UTA dated 7/20/77 (RICHARD T.
PEERY SEPARATE PROPERTY TRUST) as amended, collectively as LANDLORD, and
QUANTUM EFFECT DESIGN, INC., a California corporation, as TENANT.
RECITALS
A. WHEREAS, by Lease Agreement dated December 3, 1998 Landlord
leased to Tenant approximately 5,189+/- square feet of that certain 22,500+/-
square foot building located at 3255-4 Scott Blvd., Suite 105, Santa Clara,
California, the details of which are more particularly set forth in said
December 3, 1998 Lease Agreement, and
B. WHEREAS, said Lease was amended by the Commencement Letter
dated February 5, 1999 which confirmed the February 1, 1999 Lease
Commencement Date and the June 30, 2001 Lease Termination Date, and,
C. WHEREAS it is now the desire of the parties hereto to amend the
Lease by (i) terminating said Lease effective October 31, 1999 and (ii)
amending the Aggregate Rent of said Lease Agreement as hereinafter set forth.
AGREEMENT
NOW THEREFORE, for valuable consideration, receipt of which is
hereby acknowledged, and in consideration of the hereinafter mutual promises,
the parties hereto do agree as follows:
1. TERMINATION OF LEASE: As an accommodation to Tenant, Landlord
has agreed to the early termination of said Lease Agreement effective October
31, 1999, subject to Paragraph 2 below and the terms and conditions stated
herein. Tenant shall be responsible for relinquishing the Premises in the
condition required under Lease Paragraph 8 ("Acceptance and Surrender of
Premises") and Lease paragraph 9 ("Alterations and Additions"). Prior to
Lease Termination, Landlord and Tenant shall conduct a joint inspection of
the Premises to determine the extent of the work required by Tenant to comply
with the provisions of said Paragraphs 8 and 9 ("Restoration Work"). In lieu
of Tenant completing the required Restoration Work, Tenant agrees to pay to
Landlord a fee equal to the total of the estimates received from Landlord's
contractors for the Restoration Work ("Restoration Fee"). Said Restoration
Fee shall be paid by Tenant to Landlord within ten days after Tenant receives
Landlord's statement of said Restoration Fee. Tenant shall be responsible for
paying all Basic Rent and Additional Rent and fulfilling all Lease
obligations as contained in said Lease through the date of termination.
Notwithstanding the above, Tenant's obligations as stated in Lease Paragraphs
12 ("Taxes"), 17 ("Compliance") and 52 ("Hazardous Materials") shall survive
the Termination Date of this Lease.
2. EARLY TERMINATION OF LEASE CONTINGENT UPON LANDLORD OBTAINING
AN AGREEMENT WITH TENANT TO LEASE OTHER PREMISES: Landlord's agreement to
allow the early termination of Tenant's Lease is subject to and conditional
upon Landlord obtaining an executed agreement from Tenant to lease space
located at 2500 Augustine Drive, Suite 200, Santa Clara, California (the "New
Premises Lease") commencing the day following the early Termination Date of
Tenant's Lease. In the event Landlord is unable to obtain the executed New
Premises Lease with Tenant on or before October 31, 1999 and/or in the event
said New Premises Lease does not commence on November 1, 1999, the
Termination Date of this Lease shall be modified to reflect the date Landlord
so obtains the executed New Premises Lease and said New Premises Lease
commences. In the event Landlord does not obtain the executed New Premises
Lease with Tenant, this Lease shall continue in full force and effect through
the scheduled Lease Termination Date of June 30, 2001 and this Amendment No.
1 shall be automatically rescinded. In no event, shall Tenant's termination
date exceed the original Termination Date of (provided Tenant fully complies
with the terms and conditions in Paragraph 8, "Acceptance and Surrender of
Premises", of the Lease Agreement).
33.
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3. AGGREGATE RENT: The Aggregate Basic Rent for the Lease shall be
decreased by $218,975.80 or from $312,377.80 to $93,402.00.
EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and
conditions of said December 3, 1998 Lease Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this
Amendment No. 1 to Lease as of the day and year last written below.
LANDLORD: TENANT:
JOHN ARRILLAGA SURVIVOR'S TRUST QUANTUM EFFECT DESIGN, INC.
a California corporation
By: /s/ John Arrillaga By: /s/ John P. Walsh
------------------------------------ -----------------------------
John Arrillaga, Trustee John P. Walsh, Director,
Human Resources
Date: 8/30/99 JP Walsh
------------------------------------ ---------------------------------
Print or Type Name
Title: Director, HR
---------------------------
Date: 8/25/99
---------------------------
RICHARD T. PEERY SEPARATE PROPERTY TRUST
By: /s/ Richard T. Peery
------------------------------------
Richard T. Peery, Trustee
Date: 8/26/99
------------------------------------
34.
<PAGE>
LEASE AGREEMENT
THIS LEASE, made this 14th day of September, 1994 between JOHN
ARRILLAGA, Trustee, or his Successor Trustee, UTA dated 7/20/77, (JOHN
ARRILLAGA SEPARATE PROPERTY TRUST) as amended, and RICHARD T. PEERY, Trustee,
or his Successor Trustee, UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE
PROPERTY TRUST) as amended, hereinafter called Landlord, and QUANTUM EFFECT
DESIGN, INC., a California corporation, hereinafter called Tenant.
W I T N E S S E T H
Landlord hereby leases to Tenant and Tenant hereby hires and takes
from Landlord those certain premises (the "Premises") outlined in red on
Exhibit "A" attached hereto and incorporated hereby by this reference thereto
more particularly described as follows:
A portion of that certain 45,000-plus or minus- square foot, two-story
building located at 3255-3 Scott Boulevard, Suite 200, Santa Clara,
California 95054, consisting of approximately 15,218-plus or minus-
square feet of space. Said Premises is more particularly shown within
the area outlined in Red on EXHIBIT A. The entire parcel, of which the
Premises is a part, is shown within the area outlined in Green on
EXHIBIT A attached hereto. The Premises is leased on an "as-is" basis,
in its present condition, and in the configuration as shown in Red on
EXHIBIT B to be attached hereto.
As used herein the Complex shall mean and include all of the land
outlined in Green and described in Exhibit "A," attached hereto, and all of
the buildings, improvements, fixtures and equipment now or hereafter situated
on said land.
Said letting and hiring is upon and subject to the terms, covenants
and conditions hereinafter set forth and Tenant covenants as a material part
of the consideration for this Lease to perform and observe each and all of
said terms, covenants and conditions. This Lease is made upon the conditions
of such performance and observance.
1. USE. Tenant shall use the Premises only in conformance with
applicable governmental regulations, rules and ordinances for the purpose of
general office, light manufacturing, research and development, and storage
and other uses necessary for Tenant to conduct Tenant's business, provided
that such uses shall be in accordance with all applicable governmental laws
and ordinances and for no other purpose. Tenant shall not do or permit to be
done in or about the Premises or the Complex nor bring or keep or permit to
be brought or kept in or about the Premises or the Complex anything which is
prohibited by or will in any way increase the existing rate of (or otherwise
affect) fire or any insurance covering the Complex or any part thereof, or
any of its contents, or will cause a cancellation of any insurance covering
the Complex or any part thereof, or any of its contents. Tenant shall no do
or permit to be done anything in, on or about the Premises or the Complex
which will in any way obstruct or interfere with the rights of other tenants
or occupants of the Complex or injure or annoy them, or use or allow the
Premises to be used for any improper, immoral, unlawful or objectionable
purpose, nor
1.
<PAGE>
shall Tenant cause, maintain or permit any nuisance in, on or about the
Premises or the Complex. No sale by auction shall be permitted on the
Premises. Tenant shall not place any loads upon the floors, walls, or
ceiling, which endanger the structure, or place any harmful fluids or other
materials in the drainage system of the building, or overload existing
electrical or other mechanical systems. No waste materials or refuse shall be
dumped upon or permitted to remain upon any part of the Premises or outside
of the building in which the Premises are a part, except in trash containers
placed inside exterior enclosures designated by Landlord for that purpose or
inside of the building proper where designated by Landlord. No materials,
supplies, equipment, finished products or semi-finished products, raw
materials or articles of any nature shall be stored upon or permitted to
remain outside the Premises or on any portion of common area of the Complex.
No loudspeaker or other device, system or apparatus which can be heard
outside the Premises shall be used in or at the Premises without the prior
written consent of the Landlord. Tenant shall not commit or suffer to be
committed any waste in or upon the Premises. Tenant shall indemnify, defend
and hold Landlord harmless against any loss, expense, damage, attorneys'
fees, or liability arising out of failure of Tenant to comply with any
applicable law. Tenant shall comply with any covenant, condition, or
restriction ("C&R's") affecting the Premises. The provisions of this
paragraph are for the benefit of Landlord only and shall not be construed to
be for the benefit of any tenant or occupant of the Complex.
2. TERM.*
A. The term of this Lease shall be for a period of three
(3) years six (6) months sixteen (16) days (unless sooner terminated as
hereinafter provided) and, subject to Paragraphs 2(B) and 3, shall commence
on the 15th day of November, 1994 and end on the 31st of May of 1998.
B. Possession of the Premises shall be deemed tendered and
the term of this Lease shall commence when the first of the following occurs:
(a) One day after a Certificate of Occupancy is granted by
the proper governmental agency, or, if the governmental agency having
jurisdiction over the area in which the Premises are situated does not issue
certificates of occupancy, then the same number of days after certification
by Landlord's architect or contractor that Landlord's construction work has
been completed; or
(b) Upon the occupancy of the Premises by any of Tenant's
operating personnel; or
(c) When the Tenant Improvements have been substantially
completed for Tenant's use and occupancy, in accordance and compliance with
Exhibit B of this Lease Agreement; or
- --------
* It is agreed in the event said Lease commences on a date other than the
first day of the month the term of the Lease will be extended to account for
the number of days in the partial month. The Basic Rent during the resulting
partial month will be pro-rated (for the number of days in the partial month)
at the Basic Rent scheduled for the projected commencement date as shown in
paragraph 43.
2.
<PAGE>
(d) As otherwise agreed in writing.
3. POSSESSION. If Landlord, for any reason whatsoever, cannot
deliver possession of said premises to Tenant at the commencement of the said
term, as hereinbefore specified, this Lease shall not be void or voidable; no
obligation of Tenant shall be affected thereby; nor shall Landlord or
Landlord's agents be liable to Tenant for any loss or damage resulting
therefrom; but in that event the commencement and termination dates of the
Lease, and all other dates affected thereby shall be revised to conform to
the date of Landlord's delivery of possession, as specified in Paragraph 2(b)
above. The above is, however, subject to the provision that the period of
delay of delivery of the premises shall not exceed 60 days from the
commencement date herein (except those delays caused by Acts of God, strikes,
war, utilities, governmental bodies, weather, unavailable materials, and
delays beyond Landlord's control shall be excluded in calculating such
period) in which issuance Tenant, at its option, may, by written notice to
Landlord, terminate this Lease.
4. RENT.
A. BASIC RENT. Tenant agrees to pay to Landlord at such
place as Landlord may designate without deduction, offset, prior notice, or
demand, and Landlord agrees to accept as Basic Rent for the leased Premises
the total sum of FIVE HUNDRED TWENTY ONE THOUSAND TWO HUNDRED FOUR AND 13/100
($521,204.13) Dollars in lawful money of the United States of America,
payable as follows:
SEE PARAGRAPH 43 FOR BASIC RENT SCHEDULE.
B. TIME FOR PAYMENT. In the event that the term of this
Lease commences on a date other than the first day of a calendar month, on
the date of commencement of the term hereof Tenant shall pay to Landlord as
rent for the period from such date of commencement to the first day of the
next succeeding calendar month that proportion of the monthly rent hereunder
which the number of days between such date of commencement and the first day
of the next succeeding calendar month bears to thirty (30). In the event the
term of this Lease for any reason ends on a date other than the last day of a
calendar month, on the first day of the last calendar month of the term
hereof Tenant shall pay to Landlord as rent for the period from said first
day of said last calendar month to and including the last day of the term
here that proportion of the monthly rent hereunder which the number of days
between said first day of said last calendar month and the first day of the
term hereof bears to thirty (30).
C. LATE CHARGE. Notwithstanding any other provision of this
Lease, if Tenant is in default in the payment of rental as set forth in this
Paragraph 4 when due, or any part thereof, Tenant agrees to pay Landlord, in
addition to the delinquent rental due, a late charge for each rental payment
in default ten (10) days. Said late charge shall equal ten percent (10%) of
each rental payment so in default.
D. ADDITIONAL RENT. Beginning with the commencement date of
the term of this Lease, Tenant shall pay to Landlord in addition to the Basic
Rent and as Additional Rent the following:
3.
<PAGE>
(a) Tenant's proportionate share of all Taxes relating to
the Complex as set forth in Paragraph 12, and
(b) Tenant's proportionate share of all insurance
premiums relating to the Complex, as set forth in Paragraph 15, and
(c) Tenant's proportionate share of expenses for the
operation, management, maintenance and repair of the Building (including
common areas of the Building) and Common Areas of the Complex in which the
Premises are located as set forth in Paragraph 7, and
(d) All charges, costs and expenses, which Tenant is
required to pay hereunder, together with all interest and penalties, costs
and expenses; including attorneys' fees and legal expenses, that may accrue
thereto in the event of Tenant's failure to pay such amounts, and all
damages, reasonable costs and expenses which Landlord may incur by reason of
default of Tenant or failure on Tenant's part to comply with the terms of
this Lease. In the event of nonpayment by Tenant of Additional Rent, Landlord
shall have all the rights and remedies with respect thereto as Landlord has
for nonpayment of rent.
The Additional Rent due hereunder shall be paid to Landlord
or Landlord's agent (i) within five days for taxes and insurance and within
thirty (30) days for all other additional Rent items after presentation of
invoice from Landlord or Landlord's agent setting forth such Additional Rent
and/or (ii) at the option of Landlord, Tenant shall pay to Landlord monthly,
in advance, Tenant's pro rata share of an amount estimated by Landlord to be
Landlord's approximate average monthly expenditure for such Additional Rent
items, which estimated amount shall be reconciled within 120 days of the end
of each calendar year or more frequently if Landlord so elects to do so at
Landlord's sole and absolute discretion, as compared to Landlord's actual
expenditure for said Additional Rent items, with Tenant paying to Landlord,
upon demand, any amount of actual expenses expended by Landlord in excess of
said estimated amount, or Landlord refunding to Tenant (providing Tenant is
not in default in the performance of any of the terms, covenants and
conditions of this Lease) any amount of estimated payments made by Tenant in
excess of Landlord's actual expenditures for said Additional Rent items.
The respective obligations of Landlord and Tenant under this
paragraph shall survive the expiration or other termination of the term of
this Lease, and if the term hereof shall expire or shall otherwise terminate
on a day other than the last day of a calendar year, the actual Additional
Rent incurred for the calendar year in which the term hereof expires or
otherwise terminates shall be determined and settled on the basis of the
statement of actual Additional Rent for such calendar year and shall be pro
rated in the proportion which the number of days in such calendar year
preceding such expiration or termination bears to 365.
E. PLACE OF PAYMENT OF RENT AND ADDITIONAL RENT. All Basic
Rent hereunder and all payments hereunder for Additional Rent shall be paid
to Landlord at the office of Landlord at Peery/Arrillaga, File 1504, Box
60000, San Francisco, CA 94160 or to such other person or to each other place
as Landlord may from time to time designate in writing.
4.
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F. SECURITY DEPOSIT. Concurrently with Tenant's execution
of this Lease, Tenant shall deposit with Landlord the sum of TWENTY FIVE
THOUSAND EIGHT HUNDRED SEVENTY AND 60/100 ($25,870.60) Dollars. Said sum
shall be held by Landlord as a Security Deposit for the faithful performance
by Tenant of all of the terms, covenants, and conditions of this Lease to be
kept and performed by Tenant during the term hereof. If Tenant defaults with
respect to any provision of this Lease, including, but not limited to, the
provisions relating to the payment of rent and any of the monetary sums due
herewith, Landlord may (but shall not be required to) use, apply or retain
all or any part of this Security Deposit for the payment of any other amount
which Landlord may spend by reason of Tenant's default or to compensate
Landlord for any other loss or damage which Landlord may suffer by reason of
Tenant's default. If any portion of said Deposit is so used or applied,
Tenant shall, within ten (10) days after written demand therefor, deposit
cash with Landlord in the amount sufficient to restore the Security Deposit
to its original amount. Tenant's failure to do so shall be a material breach
of this Lease. Landlord shall not be required to keep this Security Deposit
separate from its general funds, and Tenant shall not be entitled to interest
on such Deposit. If Tenant fully and faithfully performs every provision of
this Lease to be performed by it, the Security Deposit or any balance thereof
shall be returned to Tenant (or at Landlord's option, to the last assignee of
Tenant's interest hereunder) at the expiration of the Lease term and after
Tenant has vacated the Premises. In the event of termination of Landlord's
interest in this Lease, Landlord shall transfer said Deposit to Landlord's
successor in interest whereupon Tenant agrees to release Landlord from
liability for the return of such Deposit or the accounting therefor.
5. RULES AND REGULATIONS AND COMMON AREA. Subject to the terms and
conditions of this Lease and such Rules and Regulations as Landlord may from
time to time prescribe, Tenant and Tenant's employees, invitees and customers
shall, in common with other occupants of the Complex in which the Premises
are located, and their respective employees, invitees and customers, and
others entitled to the use thereof, have the nonexclusive right to use the
access roads, parking areas, and facilities provided and designated by
Landlord for the general use and convenience of the occupants of the Complex
in which the Premises are located, which areas and facilities are referred to
herein as "Common Area." This right shall terminate upon the termination of
this Lease. Landlord reserves the right from time to time to make changes in
the shape, size, location, amount and extent of Common Area. Landlord further
reserves the right to promulgate such reasonable rules and regulations
relating to the use of the Common Area, and any part or parts thereof, as
Landlord may deem appropriate for the best interests of the occupants of the
Complex. The Rules and Regulations shall be binding upon Tenant upon delivery
of a copy of them to Tenant, and Tenant shall abide by them and cooperate in
their observance. Such Rules and Regulations may be amended by landlord from
time to time, with or without advance notice, and all amendments shall be
effective upon delivery of a copy to Tenant. Landlord shall not be
responsible to Tenant for the non-performance by any other tenant or occupant
of the Complex of any of said Rules and Regulations.
Landlord shall operate, manage and maintain the Common Area. The
manner in which the Common Area shall be maintained and the expenditures for
such maintenance shall be at the discretion of Landlord.
5.
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6. PARKING. Tenant shall have the right to use with other tenants or
occupants of the Complex 55 parking spaces in the common parking areas of the
Complex. Tenant agrees, that Tenant, Tenant's employees, agents,
representatives and/or invitees shall not use parking spaces in excess of
said 55 spaces allocated to Tenant hereunder. Landlord shall have the right,
at Landlord's sole discretion, to specifically designate the location of
Tenant's parking spaces within the common parking areas of the Complex in the
event of a dispute among the tenants occupying the building and/or Complex
referred to herein, in which event Tenant agrees that Tenant, Tenant's
employees, agents, representatives and/or invitees shall not use any parking
spaces other than those parking spaces specifically designated by Landlord
for Tenant's use. Said parking spaces, if specifically designated by Landlord
to Tenant, may be relocated by Landlord at any time, and from time to time,
Landlord reserves the right, at Landlord's sole discretion, to rescind any
specific designation of parking spaces, thereby returning Tenant's parking
spaces to the common parking area. Landlord shall give Tenant written notice
of any change in Tenant's parking spaces. Tenant shall not, at any time,
park, or permit to be parked, any trucks or vehicles adjacent to the loading
areas so as to interfere in any way with the use of such areas, nor shall
Tenant at any time park, or permit the parking of Tenant's trucks or other
vehicles or the trucks and vehicles of Tenant's suppliers or others, in any
portion of the common area not designated by Landlord for such use by Tenant.
Tenant shall not park nor permit to be parked, any inoperative vehicles or
equipment on any portion of the common parking area or other common areas of
the Complex. Tenant agrees to assume responsibility for compliance by its
employees within the parking provision contained herein. If Tenant or its
employees park in other than such designated parking areas, then Landlord may
charge Tenant, as an additional charge, and Tenant agrees to pay, ten
($10.00) Dollars per day for each day or partial day each such vehicle is
parked in any area other than that designated. Tenant hereby authorizes
Landlord at Tenant's sole expense to tow away from the Complex any vehicle
belonging to Tenant or Tenant's employees parked in violation of this
provision, or to attach violation stickers or notices to such vehicles.
Tenant shall use the parking areas for vehicle parking only, and shall not
use the parking areas for storage.
7. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON
AREAS OF THE COMPLEX AND BUILDING IN WHICH THE PREMISES ARE LOCATED. As
Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant
shall pay to Landlord Tenant's proportionate share (calculated on a square
footage or other equitable basis as calculated by Landlord) of all expenses
of operation, management, maintenance and repair of the Common Areas of the
Complex including, but not limited to, license, permit, and inspection fees;
security; utility charges associated with exterior landscaping and lighting
(including water and sewer charges); all charges incurred in the maintenance
of landscaped areas, lakes, parking lots, sidewalks, driveways, maintenance,
repair and replacement of all fixtures and electrical, mechanical, and
plumbing systems; structural elements and exterior surfaces of the buildings;
salaries and employee benefits of personnel and payroll taxes applicable
thereto; supplies, materials, equipment and tools; the cost of capital
expenditures which have the effect of reducing operating expenses, provided,
however, that in the event Landlord makes such capital improvements, Landlord
may amortize its investment in said improvements (together with interest at
the rate of fifteen (15%) percent per annum on the unamortized balance) as an
operating expense in accordance with standard account practices,
6.
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provided, that such amortization is not at a rate greater than the
anticipated savings in the operating expenses.
"Additional Rent" as used herein shall not include Landlord's debt
repayments; interest on charges; expenses directly or indirectly incurred by
Landlord for the benefit of any other tenant; cost of the installation of
partitioning or any other tenant improvements; cost of attracting tenants;
depreciation; interest, or executive salaries.
As Additional Rent and in accordance with paragraph 4D of this
Lease, Tenant shall pay its proportionate share (calculated on a square
footage or other equitable basis as calculated by Landlord) of the cost of
operation (including common utilities, management, maintenance, and repair of
the building (including common areas such as lobbies, restroom, janitor's
closets, hallways, elevators, mechanical and telephone rooms, stairwells,
entrances, spaces above the ceilings and janitorization of said common areas)
in which the Premises are located. The maintenance items herein referred to
include, but are not limited to, all windows, window frames, plate glass,
glazing, truck doors, main plumbing systems of the building (such as water
and rain lines, sinks, toilets, faucets, drains, showers and water
fountains), main electrical systems (such as panels and conduits), heating
and air conditioning systems (such as compressors, fans, air handlers, ducts,
boilers, heaters), store fronts, roofs, downspouts, building common area
interiors (such as wall coverings, window coverings, floor coverings and
partitioning), ceilings, building exterior doors, skylights (if any)
automatic fire extinguishing systems, and elevators; license, permit, and
inspection fees; security, salaries and employee benefits of personnel and
payroll taxes applicable thereto; supplies, materials, equipment and tools;
the cost of capital expenditures which have the effect of reducing operating
expenses, provided, however that in the event Landlord makes such capital
improvements, Landlord may amortize its investment in said improvements
(together with interest at the rate of fifteen percent (15%) per annum on the
unamortized balance) as an operating expense in accordance with standard
accounting practices, provided, that such amortization is not at a rate
greater than the anticipated savings in the operating expenses. Tenant hereby
waives all rights under, and benefits of, subsection 1 of Section 1932 and
Sections 1941 and 1942 of the California Civil Code and under any similar
law, statute or ordinance now or hereafter in effect.
8. ACCEPTANCE AND SURRENDER OF PREMISES. By entry hereunder, Tenant
accepts the Premises as being in good and sanitary order, condition and
repair and accepts the building and improvements included in the Premises in
their present condition and without representation or warranty by Landlord as
to the condition of such building or as to the use or occupancy which may be
made thereof. Any exceptions to the foregoing must be by written agreement
executed by Landlord and Tenant. Tenant agrees on the last day of the Lease
term, or on the sooner termination of this Lease, to surrender the Premises
promptly and peaceably to Landlord in good condition and repair (damage by
Acts of God, fire, normal wear and tear excepted), with all interior walls
painted, or cleaned so that they appear freshly painted, and repaired and
replaced, if damaged; all floors cleaned and waxed; all carpets cleaned and
shampooed; the air conditioning and heating equipment serviced by a reputable
and licensed service firm and in good operating condition (provided the
maintenance of such equipment has been Tenant's responsibility during the
term of this Lease) together with all alterations,
7.
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additions, and improvements which may have been made in, to, or on the
Premises (except movable trade fixtures installed at the expense of Tenant)
except that Tenant shall ascertain from Landlord within thirty (30) days
before the end of the term of this Lease whether Landlord desires to have the
Premises or any part or parts thereof restored to their condition and
configuration as when the Premises were delivered to Tenant and if Landlord
shall so desire, then Tenant shall restore said Premises or such part or
parts thereof before the end of this Lease at Tenant's sole cost and expense.
Tenant, on or before the end of the term or sooner termination of this Lease,
shall remove all of Tenant's personal property and trade fixtures from the
Premises, and all property not so removed on or before the end of the term or
sooner termination of this Lease shall be deemed abandoned by Tenant and
title to same shall thereupon pass to Landlord without compensation to
Tenant. Landlord may, upon termination of this Lease, remove all moveable
furniture and equipment so abandoned by Tenant, at Tenant's sole cost, and
repair any damage caused by such removal at Tenant's sole cost. If the
Premises be not surrendered at the end of the term or sooner termination of
this Lease, Tenant shall indemnify Landlord against loss or liability
resulting from the delay by Tenant in so surrendering the Premises including,
without limitation, any claims made by any succeeding tenant founded on such
delay. Nothing contained herein shall be construed as an extension of the
term hereof or as a consent of Landlord to any holding over by Tenant. The
voluntary or other surrender of this Lease or the Premises by Tenant or a
mutual cancellation of this Lease shall not work as a merger and, at the
option of Landlord, shall either terminate all or any existing subleases or
subtenancies or operate as an assignment to Landlord of all or any such
subleases or subtenancies.
9. ALTERATIONS AND ADDITIONS. Tenant shall not make, or suffer to be
made, any alteration or addition to the Premises, or any part thereof,
without the written consent of Landlord first had and obtained by Tenant, but
at the cost of Tenant, and any addition to, or alteration of, the Premises,
except moveable furniture and trade fixtures, shall at once become a part of
the Premises and belong to Landlord. Landlord reserves the right to approve
all contractors and mechanics proposed by Tenant to make such alterations and
additions. Tenant shall retain title to all moveable furniture and trade
fixtures placed in the Premises. All heating, lighting, electrical, air
conditioning, floor to ceiling partitioning, drapery, carpeting, and floor
installations made by Tenant, together with all property that has become an
integral part of the Premises, shall not be deemed trade fixtures. Tenant
agrees that it will not proceed to make such alteration or additions, without
having obtained consent from Landlord to do so, and until five (5) days from
the receipt of such consent, in order that Landlord may post appropriate
notices to avoid any liability to contractors or material suppliers for
payment for Tenant's improvements. Tenant will at all times permit such
notices to be posted and to remain posted until the completion of work.
Tenant shall, if required by Landlord, secure at Tenant's own cost and
expense, a completion and lien indemnity bond, satisfactory to Landlord, for
such work. Tenant further covenants and agrees that any mechanic's lien filed
against the Premises or against the Complex for work claimed to have been
done for, or materials claimed to have been furnished to Tenant, will be
discharged by Tenant, by bond or otherwise, within thirty (30) days after the
filing thereof, at the cost and expense of Tenant. Any exceptions to the
foregoing must be made in writing and executed by both Landlord and Tenant.
8.
<PAGE>
10. TENANT MAINTENANCE. Tenant shall, at its sole cost and expense,
keep and maintain the Premises (including appurtenances) and every part
thereof in a high standard of maintenance and repair, and in good and
sanitary condition. Tenant's maintenance and repair responsibilities herein
referred to include, but are not limited to, janitorization, plumbing systems
within the non-common areas of the Premises (such as water and drain lines,
sinks), electrical systems within the non-common areas of the Premises (such
as outlets, lighting fixtures, lamps, bulbs, tubes, ballasts), heating and
air conditioning controls within the non-common areas of the Premises (such
as mixing boxes, thermostats, time clocks, supply and return grills), all
interior improvements within the premises including but not limited to: wall
coverings, window coverings, acoustical ceilings, vinyl tile, carpeting,
partitioning, doors (both interior and exterior, including closing
mechanisms, latches, locks), and all other interior improvements of any
nature whatsoever. Tenant agrees to provide carpet shields under all rolling
chairs or to otherwise be responsible for wear and tear of the carpet caused
by such rolling chairs if such wear and tear exceeds that caused by normal
foot traffic in surrounding areas. Areas of excessive wear shall be replaced
at Tenant's sole expense upon Lease termination. See Paragraph 51.
11. UTILITIES OF THE BUILDING IN WHICH THE PREMISES ARE LOCATED. As
Additional Rent and in accordance with paragraph 4 D of this Lease. Tenant
shall pay its proportionate share (calculated on a square footage or other
equitable basis as calculated by Landlord) of the cost of all utility charges
such as water, gas, electricity, telephone, telex and other electronic
communications service, sewer service, waste-pick-up and any other utilities,
materials or services furnished directly to the building in which the
Premises are located, including, without limitation, any temporary or
permanent utility surcharge or other exactions whether or not hereinafter
imposed.
Landlord shall not be liable for and Tenant shall not be entitled to
any abatement or reduction of rent by reason of any interruption or failure
of utility services in the Premises when such interruption or failure is
cause by accident, breakage, repair, strikes, lockouts, or other labor
disturbances or labor disputes of any nature, or by any other cause, similar
or dissimilar, beyond the reasonable control of Landlord.
Provided that Tenant is not in default in the performance or
observance of any of the terms, covenants or conditions of this Lease to be
performed or observed by it, Landlord shall furnish to the Premises between
the hours of 8:00 a.m. and 6:00 p.m. Monday through Fridays (holidays
excepted) and subject to the rules and regulations of the complex
hereinbefore referred to, reasonable quantities of water, gas and electricity
suitable for the intended use of the Premises and heat and air conditioning
required in Landlord's judgment for the comfortable use and occupation of the
Premises for such purposes. Tenant may, from time to time, have its staff and
equipment operate within the Premises on a twenty-four (24) hour-a-day, seven
(7) day-a-week schedule, and Tenant may operate equipment which requires
excess electricity; however, Tenant shall pay for any extra utilities used by
Tenant. Tenant agrees that at all times it will cooperate fully with Landlord
and abide by all regulations and requirements that Landlord may prescribe for
the proper functioning and protection of the building heating, ventilating,
and air conditioning systems. Whenever heat generating machines, equipment,
or any other devices (including exhaust fans) are used in the Premises by
Tenant which affect the temperature or otherwise
9.
<PAGE>
maintained by the air conditioning system, Landlord shall have the right to
install supplementary air conditioning units in the Premises and the cost
thereof, including the cost of installation and the cost of operation and
maintenance thereof, shall be paid by Tenant to Landlord upon demand by
Landlord. Tenant will not, without the written consent of Landlord, use any
apparatus or device in the premises (including, without limitation),
electronic data processing machines or machines using current in excess of
110 Volts which will in any way increase the amount of electricity, gas,
water or air conditioning usually furnished or supplied to premises being
used as general office space, or connect with electric current (except
through existing electrical outlets in the Premises), or with gas or water
pipes any apparatus or device for the purposes of using electric current,
gas, or water. If Tenant shall require water, gas, or electric current in
excess of that usually furnished or supplied to premises being used as
general office space, Tenant shall first obtain the written consent of
Landlord, which consent shall not be unreasonably withheld and Landlord may
cause an electric current, gas or water meter to be installed in the Premises
in order to measure the amount of electric current, gas or water consumed for
any such excess use. The cost of any such meter and of the installation,
maintenance and repair thereof, all charges for such excess water, gas and
electric current consumed (as shown by such meters and at the rates then
charged by the furnishing public utility); and any additional expense
incurred by Landlord in keeping account of electric current, gas, or water so
consumed shall be paid by Tenant, and Tenant agrees to pay Landlord therefor
promptly upon demand by Landlord.
12. TAXES.
A. As Additional Rent and in accordance with paragraph 4 D
of this Lease, Tenant shall pay to Landlord Tenant's proportionate share of
all Real Property Taxes, which pro rata share shall be allocated to the
leased Premises by square footage or other equitable basis, as calculated by
Landlord. The term "Real Property Taxes," as used herein, shall mean (i) all
taxes, assessments, levies and other charges of any kind or nature
whatsoever, general and special, foreseen and unforeseen (including all
installments of principal and interest required to pay any general or special
assessments for public improvements and any increases resulting from
reassessments caused by any change in ownership of the Complex) now or
hereafter imposed by any governmental or quasi-governmental authority or
special district having the direct or indirect power to tax or levy
assessments, which are levied or assessed against, or with respect to the
value, occupancy or use of, all or any portion of the Complex (as now
constructed or as may at any time hereafter be constructed, altered, or
otherwise changed) or Landlord's interest therein; any improvements located
within the Complex (regardless of ownership); the fixtures, equipment and
other property of Landlord, real or personal, that are an integral part of
and located in the Complex; or parking areas, public utilities, or energy
within the Complex; (ii) all charges, levies or fees imposed by reason of
environmental regulation or other governmental control of the Complex; and
(iii) all costs and fees (including attorneys' fees) incurred by Landlord in
contesting any Real Property Tax and in negotiating with public authorities
as to any Real Property Tax. If at any time during the term of this Lease the
taxation or assessment of the complex prevailing as of the commencement date
of this Lease shall be altered so that in lieu of or in addition to any Real
Property Tax described above there shall be levied, assessed or imposed
(whether by reason of a change in the method of taxation or assessment,
creation of a new tax or charge, or any other cause) an alternate or
additional tax or charge (i) on the value,
10.
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use or occupancy of the Complex or Landlord's interest therein or (ii) on or
measured by the gross receipts, income or rentals for the Complex, on
Landlord's business of leasing the Complex, or computed in any manner with
respect to the operation of the Complex, then any such tax or charge, however
designated, shall be included within the meaning of the term "Real Property
Taxes" for purposes of this Lease. If any Real Property Tax is based upon
property or rents unrelated to the Complex, then only that part of such real
Property Tax that is fairly allocable to the Complex shall be included within
the meaning of the term "Real Property Taxes." Notwithstanding the foregoing,
the term "Real Property Taxes" shall not include estate, inheritance, gift or
franchise taxes of Landlord or the federal or state net income tax imposed on
Landlord's income from all sources.
B. TAXES ON TENANT'S PROPERTY.
(a) Tenant shall be liable for and shall pay ten days
before delinquency, taxes levied against any personal property or trade
fixtures placed by Tenant in or about the Premises. If any such taxes on
Tenant's personal property or trade fixtures are levied against Landlord or
Landlord's property or if the assessed value of the Premises is increased by
the inclusion therein of a value placed upon such personal property or trade
fixtures of Tenant and if Landlord, after written notice to Tenant, pays the
taxes based on such increased assessment, which Landlord shall have the right
to do regardless of the validity thereof, but only under proper protest if
requested by Tenant. Tenant shall upon demand, as the case may be, repay to
Landlord the taxes so levied against Landlord, or the proportion of such
taxes resulting from such increase in the assessment; provided that in any
such event Tenant shall have the right, in the name of Landlord and with
Landlord's full cooperation, to bring suit in any court of competent
jurisdiction to recover the amount of any such taxes so paid under protest,
and any amounts so recovered shall belong to Tenant.
(b) If Tenant improvements in the Premises, whether
installed, and/or paid for by Landlord or Tenant and whether or not affixed
to the real property so as to become a part thereof, are assessed for real
property tax purposes at a valuation higher than the valuation at which
standard office improvements in other space in the Complex are assessed, then
the real property taxes and assessments levied against Landlord or the
Complex by reason of such excess assessed valuation shall be deemed to be
taxes levied against personal property of Tenant and shall be governed by the
provisions of 12Ba above. If the records of the County Assessor are available
and sufficiently detailed to serve as a basis for determining whether said
Tenant improvements are assessed at a higher valuation than standard office
improvements in other space in the Complex, such records shall be binding on
both the Landlord and the Tenant. If the records of the County Assessor are
not available or sufficiently detailed to serve as a basis for making said
determination, the actual cost of construction shall be used.
13. LIABILITY INSURANCE. Tenant, at Tenant's expense, agrees to keep
in force during the term of this Lease a policy of comprehensive public
liability insurance with limits in the amount of $500,000/$1,000,000 for
injuries to or death of persons occurring in, on or about the Premises or the
Complex, and property damage insurance with limits of $500,000. The policy or
policies affecting such insurance, certificates of insurance of which shall
be furnished
11.
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to Landlord, shall name Landlord as additional insureds, and shall insure any
liability of Landlord, contingent or otherwise, as respects acts or omissions
of Tenant, its agents, employees or invitees or otherwise by any conduct or
transactions of any of said persons in or about or concerning the Premises,
including any failure of Tenant to observe or perform any of its obligations
hereunder; shall be issued by an insurance company admitted to transact
business in the State of California; and shall provide that the insurance
effected thereby shall not be canceled, except upon thirty (30) days prior
written notice to Landlord. If, during the term of this Lease, in the
considered opinion of Landlord's Lender, insurance advisor, or counsel, the
amount of insurance described in this paragraph 13 is not adequate, Tenant
agrees to increase said coverage to such reasonable amount as Landlord's
Lender, insurance advisor, or counsel shall deem adequate.
14. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMANS COMPENSATION
INSURANCE. Tenant shall maintain a policy or policies of fire and property
damage insurance in "all risk" form with a sprinkler leakage endorsement
insuring the personal property, inventory, trade fixtures, and leasehold
improvements within the leased Premises for the full replacement value
thereof. The proceeds from any of such policies shall be used for the repair
or replacement of such items so insured. Tenant shall also maintain a policy
or policies of workman's compensation insurance and any other employee
benefit insurance sufficient to comply with all laws.
15. PROPERTY INSURANCE. Landlord shall purchase and keep in force
and as Additional Rent and in accordance with Paragraph 4D of this Lease,
Tenant shall pay to Landlord (or Landlord's agent) Tenant's proportionate
share (calculated on a square footage or other equitable basis as calculated
by Landlord) of the cost of policy or policies of insurance covering loss or
damage to the Premises and Complex in the amount of the full replacement
value thereof, providing protection against those perils included within the
classification of "all risks" insurance and flood and/or earthquake
insurance, if available, plus a policy of rental income insurance in the
amount of one hundred percent (100%) of twelve (12) months Basic Rent, plus
sums paid as Additional Rent. If such insurance cost is increased due to
Tenant's use of the Premises or the Complex, Tenant agrees to pay to Landlord
the full cost of such increase. Tenant shall have no interest in nor any
right to the proceeds of any insurance procured by Landlord for the Complex.
Landlord and Tenant do each hereby respectively release the other,
to the extent of insurance coverage of the releasing party, from any
liability for loss or damage caused by fire or any of the extended coverage
casualties included in the releasing party's insurance policies, irrespective
of the cause of such fire or casualty; provided, however, that if the
insurance policy of either releasing party prohibits such waiver, then this
waiver shall not take effect until consent to such waiver is obtained. If
such waiver is so prohibited, the insured party affected shall promptly
notify the other party thereof.
16. INDEMNIFICATION. Landlord shall not be liable to Tenant and
Tenant hereby waives all claims against Landlord for any injury to or death
of any person or damage to or destruction of property in or about the
Premises or the Complex by or from any cause
12.
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whatsoever, including, without limitation, gas, fire, oil, electricity or
leakage of any character from the roof, walls, basement or other portion of
the Premises or the Complex but excluding, however the willful misconduct or
negligence of Landlord, its agents, servants, employees, invitees, or
contractors of which negligence Landlord has knowledge and reasonable time to
correct. Except as to injury to persons or damage to property to the extent
arising from the willful misconduct or negligence of Landlord, its agents,
servants, employees, invitees, or contractors, Tenant shall hold Landlord
harmless from and defend Landlord against any and all expenses, including
reasonable attorneys' fees, in connection therewith, arising out of any
injury to or death of any person or damage to or destruction of property
occurring in, on or about the Premises, or any part thereof, from any cause
whatsoever.
17. COMPLIANCE. Tenant, at its sole cost and expense, shall promptly
comply with all laws, statutes, ordinances and governmental rules,
regulations or requirements now or hereafter in effect; with the requirements
of any board of fire underwriters or other similar body now or hereafter
constituted; and with any direction or occupancy certificate issued pursuant
to law by any public officer; provided, however, that no such failure shall
be deemed a breach of the provisions if Tenant, immediately upon
notification, commences to remedy or rectify said failure. The judgment of
any court of competent jurisdiction or the admission of Tenant in any action
against Tenant, whether Landlord be a party thereto or not, that Tenant has
violated any such laws, statute, ordinance or governmental rule, regulation,
requirements, direction or provisions, shall be conclusive of that fact as
between Landlord and Tenant. This paragraph shall not be interpreted as
requiring Tenant to make structural changes or improvements, except to the
extent such changes or improvements are required as a result of Tenant's use
of the Premises. Tenant shall, at its sole cost and expense, comply with any
and all requirements pertaining to said Premises, of any insurance
organization or company, necessary for the maintenance of reasonable fire and
public liability insurance covering the Premises.
18. LIENS. Tenant shall keep the Premises and the Complex free from
any liens arising out of any work performed, materials furnished or
obligation incurred by Tenant. In the event that Tenant shall not, within ten
(10) days following the imposition of such lien, cause the same to be
released of record, Landlord shall have, in addition to all other remedies
provided herein and by law, the right, but no obligation, to cause the same
to be released by such means as it shall deem proper, including payment of
the claim giving rise to such lien. All sums paid by Landlord for such
purpose, and all expenses incurred by it in connection therewith, shall be
payable to Landlord by Tenant on demand with interest at the prime rate of
interest as quoted by the Bank of America.
19. ASSIGNMENT AND SUBLETTING. Tenant shall not assign, transfer, or
hypothecate the leasehold estate under this Lease, or any interest therein,
and shall not sublet the Premises, or any part thereof, or any right or
privilege appurtenant thereto, or suffer any other person or entity to occupy
or use the Premises, or any portion thereof, without, in each case, the prior
written consent of Landlord which consent will not be unreasonably withheld.
As a condition for granting this consent to any assignment, transfer or
subletting, Landlord may require that Tenant agrees to pay to Landlord, as
additional rent, all rents or additional consideration received by Tenant
from its assignees, transferees, or subtenants in excess of the
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rent payable by Tenant to Landlord hereunder. Tenant shall, by thirty (30)
days written notice, advise Landlord of its intent to assign or transfer
Tenant's interest in the Lease or sublet the Premises or any portion thereof
for any part of the term hereof. Within thirty (30) days after receipt of
said written notice, Landlord may, in its sole discretion, elect to terminate
this Lease as to the portion of the Premises described in Tenant's notice on
the date specified in Tenant's notice by giving written notice of such
election to terminate. If no such notice to terminate is given to Tenant
within said thirty (30) day period, Tenant may proceed to locate an
acceptable sublessee, assignee, or other transferee for presentment to
Landlord for Landlord's approval, all in accordance with the terms,
covenants, and conditions of this paragraph 19. If Tenant intends to sublet
the entire Premises and Landlord elects to terminate this Lease, this Lease
shall be terminated on the date specified in Tenant's notice. If, however,
this Lease shall terminate pursuant to the foregoing with respect to less
than all the Premises, the rent, as defined and reserved hereinabove shall be
adjusted on a pro rata basis to the number of square feet retained by Tenant,
and this Lease as so amended shall continue in full force and effect. In the
event Tenant is allowed to assign, transfer or sublet the whole or any part
of the Premises, with the prior written consent of Landlord, no assignee,
transferee or subtenant shall assign or transfer this Lease, either in whole
or in part, or sublet the whole or any part of the Premises, without also
having obtained the prior written consent of Landlord which consent shall not
be unreasonably withheld. A consent of Landlord to one assignment, transfer,
hypothecation, subletting, occupation or use by any other person shall not
release Tenant from any of Tenant's obligations hereunder or be deemed to be
a consent to any subsequent similar or dissimilar assignment, transfer,
hypothecation, subletting, occupation or use by any other person. Any such
assignment, transfer, hypothecation, subletting, occupation or use without
such consent shall be voided and shall constitute a breach of this Lease by
Tenant and shall, at the option of Landlord exercised by written notice to
Tenant, terminate this Lease. The leasehold estate under this Lease shall
not, nor shall any interest therein, be assignable for any purpose by
operation of law without the written consent of Landlord which consent shall
not be unreasonably withheld. As a condition to its consent, Landlord may
require Tenant to pay all expenses in connection with the assignment, and
Landlord may require Tenant's assignee or transferee (or other assignees or
transferees) to assume in writing all of the obligations under this Lease and
for Tenant to remain liable to Landlord under this Lease.
20. SUBORDINATION AND MORTGAGES. In the event Landlord's title or
leasehold interest is now or hereafter encumbered by a deed of trust, upon
the interest of Landlord in the land and buildings in which the demised
Premises are located, to secure a loan from a lender (hereinafter referred to
as "Lender") to Landlord, Tenant shall, at the request of Landlord or Lender,
execute in writing an agreement subordinating its rights under this Lease to
the lien of such deed of trust, or, if so requested, agreeing that the lien
of Lender's deed of trust shall be or remain subject and subordinate to the
rights of Tenant under this Lease. Notwithstanding any such subordination,
Tenant's possession under this Lease shall not be disturbed if Tenant is not
in default and so long as Tenant shall pay all rent and observe and perform
all of the provisions set forth in this Lease.
21. ENTRY BY LANDLORD. Landlord reserves, and shall at all
reasonable times after at least 24 hours notice (except in emergencies) have
the right to enter the Premises to
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inspect them: to perform any services to be provided by Landlord hereunder,
to submit the Premises to prospective purchasers, mortgagers or tenants; to
post notices of nonresponsibility; and to alter, improve or repair the
premises and any portion of the Complex, all without abatement of rent; and
may erect scaffolding and other necessary structures in or through the
Premises where reasonably required by the character of the work to be
performed; provided, however that the business of Tenant shall be interfered
with to the least extent that is reasonably practical. For each of the
foregoing purposes, any entry to the Premises obtained by Landlord by any of
said means, or otherwise, shall not under any circumstances be construed or
deemed to be a forcible or unlawful entry into or a detainer of the Premises
or an eviction, actual or constructive, of Tenant from the Premises or any
portion thereof. Landlord shall also have the right at any time to change the
arrangement or location of entrances or passageways, doors and doorways, and
corridors, elevators, stairs, toilets or other public parts of the Complex
and to change the name, number or designation by which the Complex is
commonly known, and none of the foregoing shall be deemed an actual or
constructive eviction of Tenant, or shall entitle Tenant to any reduction of
rent hereunder.
22. BANKRUPTCY AND DEFAULT. The commencement of a bankruptcy action
or liquidation action or reorganization action or insolvency action or an
assignment of or by Tenant for the benefit of creditors, or any similar
action undertaken by Tenant, or the insolvency of Tenant, shall, at
Landlord's option, constitute a breach of this Lease by Tenant. If the
trustee or receiver appointed to serve during a bankruptcy, liquidation,
reorganization, insolvency or similar action elects to reject Tenant's
unexpired Lease, the trustee or receiver shall notify Landlord in writing of
its election within thirty (30) days after an order for relief in a
liquidation action or within thirty (30) days after the commencement of any
action.
Within thirty (30) days after court approval of the assumption of
this Lease, the trustee or receiver shall cure (or provide adequate assurance
to the reasonable satisfaction of Landlord that the trustee or receiver shall
cure) any and all previous defaults under the unexpired Lease and shall
compensate Landlord for all actual pecuniary loss and herein, includes, but
shall not be limited to: (i) assurance of source and payment of rent, and
other consideration due under this Lease; (ii) assurance that the assumption
or assignment of this Lease will not breach substantially any provision, such
as radius, location, use, or exclusivity provision, in any agreement relating
to the above described Premises.
Nothing contained in this section shall affect the existing right of
Landlord to refuse to accept an assignment upon commencement of or in
connection with a bankruptcy, liquidation, reorganization or insolvency
action or an assignment of Tenant for the benefit of creditors or other
similar act. Nothing contained in this Lease shall be construed as giving or
granting or creating an equity in the demised Premises to Tenant. In no event
shall the leasehold estate under this Lease, or any interest therein, be
assigned by voluntary or involuntary bankruptcy proceeding without the prior
written consent of Landlord. In no event shall this Lease or any rights or
privileges hereunder be an asset of Tenant under any bankruptcy, insolvency
or reorganization proceedings.
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The failure to perform or honor any covenant, condition or
representation made under this Lease shall constitute default hereunder by
Tenant upon expiration of the appropriate grace period hereinafter provided.
Tenant shall have a period of five (5) days from the date of written notice from
Landlord within which to cure any default in the payment of rental or adjustment
thereto. Tenant shall have a period of thirty (30) days from the date of written
notice from landlord within which to cure any other default under this Lease;
provided, however, that if the nature of Tenant's failure is such that more than
thirty (30) days is reasonably required to cure the same, Tenant shall not be in
default so long as Tenant commences performance within such thirty (30) day
period and thereafter prosecutes the same to completion. Upon an uncured default
of this Lease by Tenant, Landlord shall have the following rights and remedies
in addition to any other rights or remedies available to Landlord at law or in
equity;
(a) The rights and remedies provided for by California Civil
Code Section 1951.2 including but not limited to, recovery of the worth at
the time of award of the amount by which the unpaid rent for the balance of
the term after the time of award exceeds the amount of rental loss for the
same period that Tenant proves could be reasonably avoided, as computed
pursuant to subsection (b) of said Section 1951.2. Any proof by Tenant under
subparagraphs (2) and (3) of Section 1951.2 of the California Civil Code of
the amount of rental loss that could be reasonably avoided shall be made in
the following manner: Landlord and Tenant shall each select a licensed real
estate broker in the business of renting property of the same type and use as
the Premises and in the same geographic vicinity. Such two real estate
brokers shall select a third licensed real estate broker, and the three
licensed real estate brokers so selected shall determine the amount of the
rental loss that could be reasonably avoided from the balance of the term of
this Lease after the time of award. The decision of the majority of said
licensed real estate brokers shall be final and binding upon the parties
hereto.
(b) The rights and remedies provided by California Civil
Code Section which allows Landlord to continue to Lease in effect and to
enforce all of its rights and remedies under this Lease, including the right
to recover rent as it becomes due, for so long as Landlord does not terminate
Tenant's right to possession; acts of maintenance or preservation, efforts to
relet the Premises, or the appointment of a receiver upon Landlord's
initiative to protect its interest under this Lease shall not constitute a
termination of Tenant's right to possession.
(c) The right to terminate this Lease by giving notice to
Tenant in accordance with applicable law.
(d) To the extent permitted by law, the right and power to
enter the Premises and remove therefrom all persons and property, to store
such property in a public warehouse or elsewhere at the cost of and for the
account of Tenant, and to sell such property and apply such proceeds
therefrom pursuant to applicable California law. Landlord may from time to
time sublet the Premises or any part thereof for such term or terms (which
may extend beyond the term of this Lease) and at such rent and such other
terms as Landlord in its sole discretion may deem advisable, with the right
to make alterations and repairs to the Premises. Upon each subletting, (i)
Tenant shall be immediately liable to pay Landlord, in addition to
indebtedness other than rent due hereunder, the cost of such subletting,
including, but not limited to,
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reasonable attorneys' fees, and any real estate commissions actually paid,
and the cost of such alterations and repairs incurred by Landlord and the
amount, if any, by which the rent hereunder for the period of such subletting
(to the extent such period does not exceed the term hereof) exceeds the
amount to be paid as rent for the Premises for such period or (ii) at the
option of Landlord, rents received from such subletting shall be applied
first to payment of indebtedness other than rent due hereunder from Tenant to
Landlord; second, to the payment of any costs of such subletting and of such
alterations and repairs; third to payment of rent due and unpaid hereunder;
and the residue, if any, shall be held by Landlord and applied in payment of
future rent as the same becomes due hereunder. If Tenant has been credited
with any rent to be received by such subletting under option (i) and such
rent shall not be promptly paid to Landlord by subtenant(s), or if such
rentals received from such subletting under option (ii) during any month be
less than to be paid during the month by Tenant hereunder, Tenant shall pay
any such deficiency to landlord. Such deficiency shall be calculated and paid
monthly. For all purposes set forth in this subparagraph d, no taking
possession of the Premises by Landlord shall be construed as an election on
its part to terminate this Lease unless a written notice of such intention be
given to Tenant. Notwithstanding any such subletting without termination,
Landlord may at any time hereafter elect to terminate this Lease for such
previous breach.
(e) The right to have a receiver appointed for Tenant upon
application by Landlord, to take possession of the Premises and to apply any
rental collected from the Premises and to exercise all other rights and
remedies granted to Landlord pursuant to subparagraph d above.
23. ABANDONMENT. Tenant shall not vacate or abandon the Premises at
any time during the term of this Lease (except that Tenant may vacate so long
as it pays rent, provides an on-site security guard during normal business
hours from Monday through Friday, and otherwise performs its obligations
hereunder) and if Tenant shall abandon, vacate or surrender said Premises, or
be dispossessed by the process of law, or otherwise, any personal property
belonging to Tenant and left on the Premises shall be deemed to be abandoned,
at the option of Landlord, except such property as may be mortgaged to
Landlord.
24. DESTRUCTION. In the event the Premises are destroyed in whole or
in part from any cause, except for routine maintenance and repairs and
incidental damage and destruction caused by vandalism and accidents for which
Tenant is responsible for under Paragraph 10, Landlord may, at its option:
(a) Rebuild or restore the Premises to their condition prior
to the damage or destruction, or
(b) Terminate this Lease (providing that the Premises is damaged
to the extent of 33-1/3% of the replacement cost).
If Landlord does not give Tenant notice in writing within thirty
(30) days from the destruction of the Premises of its election to either
rebuild or restore them, or to terminate this Lease, Landlord shall be deemed
to have elected to rebuild or restore them, in which event Landlord agrees,
at its expense, promptly to rebuild or restore the Premises to their
condition
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prior to the damage or destruction. However, Tenant shall be responsible for
paying one hundred percent (100%) of the insurance deductible, provided the
damage is exclusive to Tenant's Leased Premises; if the damage is
non-exclusive to Tenant's Leased Premises and Tenant did not cause said
damage, Tenant shall pay its pro-rata share of the deductible. Tenant shall
be entitled to a reduction in rent while such repair is being made in the
proportion that the area of the Premises rendered untenantable by such damage
bears to the total area of the Premises. If Landlord initially estimates that
the rebuilding or restoration will exceed one hundred eighty (180) days or if
Landlord does not complete the rebuilding or restoration within one hundred
eighty (180) days following the date of destruction (such period of time to
be extended for delays caused by the fault or neglect of Tenant or because of
Acts of God, acts of subcontractors, or delay of the contractors or
subcontractors due to such causes or other contingencies beyond the control
of Landlord), then Tenant shall have the right to terminate this Lease by
giving fifteen (15) days prior written notice to Landlord. Notwithstanding
anything herein to the contrary, Landlord's obligation to rebuild or restore
shall be limited to the building and interior improvements constructed by
Landlord as they existed as of the commencement date of the Lease and shall
not include restoration of Tenant's trade fixtures, equipment, merchandise,
or any improvements, alterations or additions made by Tenant to the Premises,
which Tenant shall forthwith replace or fully repair at Tenant's sole cost
and expense provided this Lease is not cancelled according to the provisions
above.
Unless this Lease is terminated pursuant to the foregoing
provisions, this Lease shall remain in full force and effect. Tenant hereby
expressly waives the provisions of Section 1932, Subdivision 2, in Section
1933, Subdivision 4 of the California Civil Code.
In the event that the building in which the Premises are situated is
damaged or destroyed to the extent of not less than 33-1/3% of the
replacement cost thereof, Landlord may elect to terminate this Lease, whether
the Premises be injured or not. In the event the destruction of the Premises
is caused by Tenant and Landlord elects not to rebuild as provided for
herein, Tenant shall still pay the deductible portion of Landlord's insurance
proceeds.
25. EMINENT DOMAIN. If all or any part of the Premises shall be
taken by any public or quasi-public authority under the power of eminent
domain or conveyance in lieu thereof, this Lease shall terminate as to any
portion of the Premises so taken or conveyed on the date when title vests in
the condemnor, and Landlord shall be entitled to any and all payment, income,
rent, award, or any interest therein whatsoever which may be paid or made in
connection with such taking or conveyance, and Tenant shall have no claim
against Landlord or otherwise for the value of any unexpired term of this
Lease. Notwithstanding the foregoing paragraph, any compensation specifically
awarded Tenant for loss of business, Tenant's personal property, moving cost
or loss of goodwill, shall be and remain the property of Tenant.
If (i) any action or proceeding is commenced for such taking of the
Premises or any part thereof, or if Landlord is advised in writing by any
entity or body having the right or power of condemnation of its intention to
condemn the premises or any portion thereof, or (ii) any foregoing events
occur with respect to the taking of any space in the Complex not leased
hereby, or if any such spaces so taken or conveyed in lieu of such taking and
Landlord shall decide to
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discontinue the use and operation of the Complex, or decide to demolish,
alter or rebuild the Complex, then, in any such events Landlord shall have
the right to terminate this Lease by giving Tenant written notice thereof
within sixty (60) days of the date of receipt of said written advice, or
commencement of said action or proceeding, or taking conveyance, which
termination shall take place as of the first to occur of the last day of the
calendar month next following the month in which such notice is given or the
date on which title to the Premises shall vest in the condemnor.
In the event of such a partial taking or conveyance of the Premises,
if the portion of the Premises taken or conveyed is so substantial that the
Tenant can no longer reasonably conduct its business, Tenant shall have the
privilege of terminating this Lease within sixty (60) days from the date of
such taking or conveyance, upon written notice to Landlord of its intention
so to do, and upon giving of such notice this Lease shall terminate on the
last day of the calendar month next following the month in which such notice
is given, upon payment by Tenant of the rent from the date of such taking or
conveyance to the date of termination.
If a portion of the Premises be taken by condemnation or conveyance
in lieu thereof and neither Landlord nor Tenant shall terminate this Lease as
provided herein, this Lease shall continue in full force and effect as to the
part of the Premises not so taken or conveyed, and the rent herein shall be
apportioned as of the date of such taking or conveyance so that thereafter
the rent to be paid by Tenant shall be in the ratio that the area of the
portion of the Premises not so taken or conveyed bears to the total area of
the Premises prior to such taking.
26. SALE OR CONVEYANCE BY LANDLORD. In the event of a sale or
conveyance of the Complex or any interest therein, by an owner of the
reversion then constituting Landlord, the transferor shall thereby be
released from any further liability upon any of the terms, covenants or
conditions (express or implied) herein contained in favor of Tenant, and in
such event, insofar as such transfer is concerned. Tenant agrees to look
solely to the responsibility of the successor in interest of such transferor
in and to the Complex and this Lease. This Lease shall not be affected by any
such sale or conveyance, and Tenant agrees to attorn to the successor in
interest of such transferor.
27. ATTORNMENT TO LENDER OR THIRD PARTY. In the event the interest
of Landlord in the land and buildings in which the leased Premises are
located (whether such interest of Landlord is a fee title interest or a
leasehold interest) is encumbered by deed of trust, and such interest is
acquired by the lender or any third party through judicial foreclosure or by
exercise of a power of sale at private trustee's foreclosure sale, Tenant
hereby agrees to attorn to the purchaser at any such foreclosure sale and to
recognize such purchaser as the Landlord under this Lease. In the event the
lien of the deed of trust securing the loan from a Lender to Landlord is
prior and paramount to the Lease, this Lease shall nonetheless continue in
full force and effect for the remainder of the unexpired term hereof, at the
same rental herein reserved and upon all the other terms, conditions and
covenants herein contained.
28. HOLDING OVER. Any holding over by Tenant after expiration or
other termination of the term of this Lease with the written consent of
Landlord delivered to Tenant
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shall not constitute a renewal or extension of the Lease or give Tenant any
rights in or to the Leased Premises except as expressly provided in this
Lease. Any holding over after the expiration or other termination of the term
of this Lease, with the consent of Landlord, shall be construed to be a
tenancy from month to month, on the same terms and conditions herein
specified insofar as applicable except that the monthly Basic Rent shall be
increased to an amount equal to one hundred fifty percent (150%) of the
monthly Basic Rent required during the last month of the Lease term.
29. CERTIFICATE OF ESTOPPEL. Tenant shall at any time upon not less
than ten (10) days' prior written notice to Landlord execute, acknowledge and
deliver to Landlord a statement in writing (i) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature
of such modification and certifying that this Lease, as so modified, is in
full force and effect) and the date to which the rent and other charges are
paid in advance, if any, and (ii) acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on the part of Landlord hereunder,
or specifying such defaults, if any, are claimed. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Premises. Tenant's failure to deliver such statement within such time shall
be conclusive upon Tenant that this Lease is in full force and effect,
without modification except as may be represented by Landlord; that there are
no uncured defaults in Landlord's performance, and that not more than one
month's rent has been paid in advance.
30. CONSTRUCTION CHANGES. It is understood that the description of
the Premises and the location of ductwork, plumbing and other facilities
therein are subject to such minor changes as Landlord or Landlord's architect
determines to be desirable in the course of construction of the Premises, and
no such changes, or any changes in plans for any other portions of the
Complex shall affect this Lease or entitle Tenant to any reduction of rent
hereunder or results in any liability of Landlord to Tenant. Landlord does
not guarantee the accuracy of any drawings supplied to Tenant and
verification of the accuracy of such drawings rests with Tenant.
31. RIGHT OF LANDLORD TO PERFORM. All terms, covenants and
conditions of this Lease to be performed or observed by Tenant shall be
performed or observed by Tenant at Tenant's sole cost and expense and without
any reduction of rent. If Tenant shall fail to pay any sum of money, or other
rent, required to be paid by it hereunder or shall fail to perform any other
term or covenant hereunder on its part to be performed, and such failure
shall continue for five (5) days after written notice thereof by Landlord,
Landlord, without waiving or releasing Tenant from any obligation of Tenant
hereunder, may, but shall not be obligated to, make any such payment or
perform any such other term or covenant on Tenant's part to be performed. All
sums so paid by Landlord and all necessary costs of such performance by
Landlord together with interest thereon at the rate of the prime rate of
interest per annum as quoted by the Bank of America from the date of such
payment or performance by Landlord, shall be paid (and Tenant covenants to
make such payment) to Landlord on demand by Landlord, and Landlord shall have
(in addition to any other right or remedy of Landlord) the same rights and
remedies in the event of nonpayment by Tenant as in the case of failure by
Tenant in the payment of rent hereunder.
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32. ATTORNEYS' FEES.
(a) In the event that either Landlord or Tenant should bring
suit for the possession of the Premises, for the recovery of any sum due
under this Lease, or because of the breach of any provision of this Lease, or
for any other relief against the other party hereunder, then all costs and
expenses, including reasonable attorneys' fees, incurred by the prevailing
party therein shall be paid by the other party, which obligation on the part
of the other party shall be deemed to have accrued on the date of the
commencement of such action and shall be enforceable whether or not the
action is prosecuted to judgement.
(b) Should Landlord be named as a defendant in any suit brought
against Tenant in connection with or arising out of Tenant's occupancy
hereunder, Tenant shall pay to Landlord its costs and expenses incurred in
such suit, including a reasonable attorney's fee.
33. WAIVER. The waiver by either part of the other party's failure
to perform or observe any term, covenant or condition herein contained to be
performed or observed by such waiving party shall not be deemed to be a
waiver of such term, covenant or condition or of any subsequent failure to
the party failing to perform or observe the same or any other such item,
covenant or condition therein contained, and no custom or practice which may
develop between the parties hereto during the term hereof shall be deemed a
waiver of, or in any way affect, the right of either party to insist upon
performance and observance by the other party in strict accordance with the
terms hereof.
34. NOTICES. All notices, demands, requests, advices or designations
which may be or are required to be given by either party to the other
hereunder shall be in writing. All notices, demands, requests, advices or
designations by Landlord to Tenant shall be sufficiently given, made or
delivered if personally served on Tenant by leaving the same at the Premises
or if sent by United States certified or registered mail, postage prepaid,
addressed to Tenant at the Premises. All notices, demands, requests, advices
or designations by Tenant to Landlord shall be sent by United States
certified or registered mail, postage prepaid, addressed to Landlord at its
offices at Peery/Arrillaga, 2560 Mission College Blvd., Suite 101, Santa
Clara, CA 95054. Each notice, request, demand, advice or designation referred
to in this paragraph shall be deemed received on the date of the personal
service or mailing thereof in the manner herein provided, as the case may be.
35. EXAMINATION OF LEASE. Submission of this instrument for
examination or signature by Tenant does not constitute a reservation of or
option for a lease, and this instrument is not effective as a lease or
otherwise until its execution and delivery by both Landlord and Tenant.
36. DEFAULT BY LANDLORD. Landlord shall not be in default unless
Landlord fails to perform obligations required of Landlord within a
reasonable time, but in no event earlier than thirty (30) days after written
notice by Tenant to Landlord and to the holder of any first mortgage or deed
of trust covering the Premises whose name and address shall have heretofore
been furnished to Tenant in writing, specifying wherein landlord has failed
to perform such obligations; provided, however, that if the nature of
Landlord's obligations is such that more than
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thirty (30) days are required for performance, then Landlord shall not be in
default if Landlord commences performance within such thirty (30) day period
and thereafter diligently prosecutes the same to completion.
37. CORPORATE AUTHORITY. If Tenant is a corporation (or a
partnership), each individual executing this Lease on behalf of said
corporation (or partnership) represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of said corporation
(or partnership) in accordance with the by-laws of said corporation (or
partnership in accordance with the partnership agreement) and that this Lease
is binding upon said corporation (or partnership) in accordance with its
terms if Tenant is a corporation, Tenant shall, within thirty (30) days after
execution of this Lease, deliver to Landlord a certified copy of the
resolution of the Board of Directors of said corporation authorizing or
ratifying the execution of this Lease.
38. LIMITATION OF LIABILITY. In consideration of the benefits
accruing hereunder, Tenant and all successors and assigns covenant and agree
that, in the event of any actual or alleged failure, breach or default
hereunder by Landlord:
(i) the sole and exclusive remedy shall be against Landlord
and Landlord's assets;
(ii) no partner of Landlord shall be sued or named as a party
in any suit or action (except as may be necessary to secure jurisdiction of
the partnership);
(iii) no service of process shall be made against any partner
of Landlord (except as may be necessary to secure jurisdiction of the
partnership);
(iv) no partner of Landlord shall be required to answer or
otherwise plead to an service of process;
(v) no judgment will be taken against any partner of Landlord;
(vi) any judgment taken against any partner of Landlord may be
vacated and set aside at any time without hearing;
(vii) no writ of execution will ever be levied against the
assets of any partner of Landlord;
(viii) these covenants and agreements are enforceable both by
landlord and also by any partner of Landlord.
Tenant agrees that each of the foregoing covenants and agreements
shall be applicable to any covenant or agreement either expressly contained
in this Lease or imposed by statute or at common law.
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39. MISCELLANEOUS AND GENERAL PROVISIONS.
(a) Tenant shall not, without the written consent of Landlord,
use the name of the building for any purpose other than as the address of the
business conducted by Tenant in the Premises.
(b) This Lease shall in all respects be governed by and
construed in accordance with the laws of the State of California. If any
provision of this Lease shall be invalid, unenforceable or ineffective for
any reason whatsoever, all other provisions hereof shall be and remain in
full force and effect.
(c) The term "Premises" includes the space leased hereby and any
improvements now or hereafter installed therein or attached thereto. The term
"Landlord" or any pronoun used in place thereof includes the plural as well
as the singular and the successors and assigns of Landlord. The term "Tenant"
or any pronoun used in place thereof includes the plural as well as the
singular and individuals, firms, associations, partnerships and corporations,
and their and each of their respective heirs, executors, administrators,
successors and permitted assigns, according to the context hereof, and the
provisions of this Lease shall inure to the benefit of and bind such heirs,
executors, administrators, successors and permitted assigns.
The term "person" includes the plural as well as the singular and
individuals, firms, associations, partnerships and corporations. Words used
in any gender include other genders. If there be more than one Tenant the
obligations of Tenant hereunder are joint and several. The paragraph headings
of this Lease are for convenience of reference only and shall have no effect
upon the construction of any provision hereof.
(d) Time is of the essence of this Lease and of each and all of
its provisions.
(e) At the expiration or earlier termination of this Lease,
Tenant shall execute, acknowledge and deliver to Landlord, within ten (10)
days after written demand from Landlord to Tenant, any quitclaim deed or
other document required by any reputable title company, licensed to operate
in the State of California, to remove the cloud or encumbrance created by
this Lease from the real property of which Tenant's Premises are a part.
(f) This instrument along with any exhibits and attachments
hereto constitutes the entire agreement between Landlord and Tenant relative
to the Premises and this agreement and the exhibits and attachments may be
altered, amended or revoked only by an instrument in writing signed by both
Landlord and Tenant. Landlord and Tenant agree hereby that all prior or
contemporaneous oral agreements between and among themselves and their agents
or representatives relative to the leasing of the Premises are merged in or
revoked by this agreement.
(g) Neither Landlord nor Tenant shall record this Lease or a
short form memorandum hereof without the consent of the other.
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(h) Tenant further agrees to execute any amendments required by
a lender to enable Landlord to obtain financing, so long as Tenant's rights
hereunder are not substantially affected.
(i) Paragraphs 43 through 51 are added hereto and are included
as a part of this lease.
(j) Clauses, plats and riders, if any, signed by Landlord and
Tenant and endorsed on or affixed to this Lease are a part hereof.
(k) Tenant covenants and agrees that no diminution or shutting
off of light, air or view by any structure which may be hereafter erected
(whether or not by Landlord) shall in any way affect his Lease, entitle
Tenant to any reduction of rent hereunder or result in any liability of
Landlord to Tenant.
41. BROKERS. Tenant warrants that it had dealings with only the
following real estate brokers or agents in connection with the negotiation of
this Lease: none; and that it knows of no other real estate broker or agent
who is entitled to a commission in connection with this Lease.
42. SIGNS. No sign, placard, picture, advertisement, name or notice
shall be inscribed, displayed or printed or affixed on or to any part of the
outside of the Premises or any exterior windows of the Premises without the
written consent of Landlord first had and obtained and Landlord shall have
the right to remove any such sign, placard, picture, advertisement, name or
notice without notice to and at the expense of Tenant. If Tenant is allowed
to print or affix or in any way place a sign in, on, or about the Premises,
upon expiration or other sooner termination of this Lease, Tenant at Tenant's
sole cost and expense shall both remove such sign and repair all damage in
such a manner as to restore all aspects of the appearance of the Premises to
the condition prior to the placement of said sign.
All approved signs or lettering on outside of doors shall be
printed, painted, affixed or inscribed at the expense of Tenant by a person
approved of by Landlord. Tenant shall not place anything or allow anything to
be placed near the glass of any window, door partition or wall which may
appear unsightly from outside the Premises.
Paragraphs 43 through 51 to Lease Agreement dated September 14, 1994, By and
Between the John Arrillaga and Richard T. Peery Separate Property Trusts, as
Landlord, and Quantum Effect Design, Inc., a California corporation, as
Tenant for 15,218+/- Square Feet of Space Located at 3255-3 Scott Blvd.,
Suite 200, Santa Clara, California.
43. BASIC RENT. In accordance with Paragraph 4(A) herein, the total
aggregate sum of FIVE HUNDRED TWENTY ONE THOUSAND TWO HUNDRED FOUR AND 13/100
DOLLARS ($521,204.13), shall be payable as follows:
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On November 15, 1994, the sum of FOUR THOUSAND FIVE HUNDRED
THIRTY THREE AND 33/100 DOLLARS ($4,533.33) shall be due, representing the
rental for the period November 15, 1994 through November 30, 1994.
On December 1, 1994, the sum EIGHT THOUSAND FIVE HUNDRED
AND 00/100 DOLLARS ($8,500.00) shall be due, and a like sum due on the first
day of each month thereafter, through and including May 1, 1995.
On June 1, 1995, the sum TWELVE THOUSAND NINE HUNDRED
THIRTY FIVE AND 30/100 DOLLARS ($12,935.30) shall be due, and a like sum due
on the first day of each month thereafter, through and including May 1, 1998;
or until the entire aggregate sum of FIVE HUNDRED TWENTY ONE THOUSAND TWO
HUNDRED FOUR AND 13/100 DOLLARS ($521,204.13) has been paid.
44. EARLY ENTRY. Tenant and its agents and contractors shall be
permitted to enter the Premises prior to the Commencement Date for the
purpose of installing at Tenant's sole cost and expense, Tenant's trade
fixtures and equipment, telephone equipment, security systems and cabling for
computers. Such entry shall be subject to all of the terms and conditions of
this Lease, except that Tenant shall not be required to pay any Rent on
account thereof. Any entry or installation work by Tenant and its agents in
the Premises pursuant to this Paragraph 44 shall (i) be undertaken at
Tenant's SOLE RISK, (ii) not interfere with or delay Landlord's work in the
Premises, and (iii) not be deemed occupancy or possession of the Premises for
purposes of the Lease. Tenant shall indemnify, defend, and hold Landlord
harmless from any and all loss, damage, liability, expense (including
reasonable attorney's fees), claim or demand of whatsoever character, direct
or consequential, including, but without limiting thereby the generality of
the foregoing, injury to or death of persons and damage to or loss of
property arising out of the exercise by Tenant of any early entry right
granted hereunder. In the event Tenant's work in said Premises delays the
completion of the interior improvements to be provided by Landlord, if any,
or in the event Tenant has not completed the aforementioned installations by
the scheduled Commencement Date, it is agreed between the parties that this
Lease will commence on the scheduled Commencement Date of October 15, 1994
regardless of the construction status of said interior improvements.
45. "AS-IS" BASIS. Subject to Paragraphs 50 and 51, it is hereby
agreed that the Premises leased hereunder is leased strictly on an "as-is"
basis and in its present condition, and in the configuration as shown on
Exhibit B to be attached hereto, and by reference made a part hereof. Except
for those improvements as shown on Exhibit B to be attached hereto, Landlord
shall not be required to make, nor be responsible for any cost, in connection
with any repair, restoration, and/or improvement to the Premises in order for
this Lease to commence. Landlord makes no warranty or representation of any
kind or nature whatsoever as to the condition or repair of the Premises, nor
as to the use or occupancy which may be made thereof.
46. CONSENT. Whenever the consent of one party to the other is
required hereunder, such consent shall not be unreasonably withheld.
25.
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47. FIRST RIGHT OF REFUSAL. Provided Tenant is not in default of any
of the terms, covenants, and conditions of this Lease Agreement, Tenant,
during the term of this Lease and subject to the provisions hereinafter
contained, shall have a First Right of Refusal to lease approximately
8,341-plus or minus- square feet of space in the condition and configuration
as shown in Red on the attached Exhibit C, consisting of the remaining second
floor space in which the Leased Premises are located (hereinafter referred to
as ("First Right Space") upon the following terms and conditions:
(a) It is understood that said First Right Space, as of the date
of this Lease, is vacant and unleased. Provided said First Right Space is
vacant and Landlord is not actively negotiating with a third party to lease
said First Right Space, Landlord agrees that Tenant shall have the right to
lease said First Right Space at the Basic Rental Rate of $.85 per square foot
per month for a period through April 30, 1998 and upon the same terms,
covenants, and conditions outlined in this September 14, 1994 Lease Agreement
between Landlord and Tenant.
(b) In the event Landlord receives an offer to lease said First
Right Space from a third party, at a rental and upon terms and conditions
which are satisfactory to Landlord, Landlord shall, prior to executing a
lease agreement with a third party for said First Right Space, offer said
First Right Space to Tenant at the same rental (notwithstanding anything to
the contrary, in no event shall Tenant's Basic Rent be less than the Basic
Rent stated above) and upon the same terms, covenants, and conditions upon
which Landlord is willing to lease to a third party for Tenant's First Right
of Refusal. Tenant shall have three (3) days after receipt of said rental and
terms and conditions in which to accept said rental and terms and conditions
in writing. In the event Tenant rejects or fails to accept said rent, terms
and conditions and execute a lease agreement for said First Right Space at
the rental and upon the terms and conditions so presented by Landlord within
said three (3) day period, Tenant shall have no further First Right of
Refusal and Landlord shall be free to execute a lease with a third party
without further obligation to Tenant with respect to said First Right Space,
and this Lease Agreement dated September 14, 1994 shall continue in full
force and effect for the full remaining term hereof, absent of this Paragraph
47.
(c) INCREASED SECURITY DEPOSIT: In the event Tenant expands the
Leased Premises to include said First Right Space pursuant to this Paragraph
47, Tenant's Security Deposit shall be increased to equal twice the Basic
Rental of the entire Leased Premises, which includes said First Right Space,
due for the last month of the Term (For Example: if the last month's Basic
Rental of the Term is $20,025.15, the revised Security Deposit shall be
$40,050.30 ($20,025.15 per month x 2)).
(d) The First Right of Refusal of Tenant under this Paragraph 47
is granted for Tenant's personal benefit and may not be assigned or
transferred by Tenant. In the event that Landlord consents to a sublease or
assignment under Paragraph 19, the first right granted herein shall be void
and of no force and effect, whether or not Tenant shall have purported to
exercise such first right option prior to such assignment or sublease.
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48. OPTION TO EXTEND LEASE FOR THREE (3) YEARS. Provided Tenant is
not in default (pursuant to Paragraph 22 of the Lease, i.e., Tenant has
received notice and any applicable cure period has expired without cure) in
any of the terms, covenants, and conditions of this Lease Agreement, Landlord
hereby grants to Tenant an Option to Extend this Lease Agreement for an
additional three (3) year period upon the following terms and conditions:
(a) Tenant shall give Landlord written notice of Tenant's
exercise of this Option to Extend later than April 30, 1997, in which event
the Lease shall be considered extended for an additional three (3) years upon
the same terms and conditions, absent this Paragraph 48, and subject to the
Basic Rental provisions set forth below. In the event that Tenant fails to
timely exercise Tenant's option as set forth herein in writing, Tenant shall
have no further Option to Extend this Lease, and this Lease shall continue in
full force and effect for the full remaining term hereof, absent of this
Paragraph 48.
(b) In the event Tenant timely exercises Tenant's Option to
Extend as set forth herein, Landlord shall, within fifteen (15) days after
receipt of Tenant's exercise of option, advise Tenant of the Basic Rental
required for the Extended Term of the Lease. Tenant shall have fifteen (15)
days after receipt from the Landlord of said new Basic Rental in which to
accept said new Basic Rental and enter into written documentation confirming
same. In the event Tenant fails to execute said written documentation
confirming said new Basic Rental for the Extended Term of Lease within said
fifteen (15) day period, Tenant shall have no further Option to Extend this
Lease, and this Lease shall continue in full force and effect for the full
remaining term hereof absent of this Paragraph 48, with Landlord having no
further responsibility or obligation to Tenant with respect to Tenant's
Option to Extend.
(c) The option rights of Tenant under this Paragraph 48, and the
Extended Term thereunder, are granted for Tenant's personal benefit and may
not be assigned or transferred by Tenant, either voluntarily or by operation
of law, in any manner whatsoever. In the vent that Landlord consents to a
sublease or assignment under Paragraph 19, the option granted herein and any
Extended Term thereunder shall be void and of no force and effect, whether or
not Tenant shall have purported to exercise such option prior to such
assignment or sublease.
(d) INCREASED SECURITY DEPOSIT: In the event the term of
Tenant's Lease extended pursuant to this Paragraph 48, Tenant's Security
Deposit shall be increased to equal twice the Basic Rental due for the last
month of the Extended Term (for example: if the last month's Basic Rental
during the Extended Term is $15,000.00, the revised Security Deposit shall be
$30,000.00 ($15,000.00 per month x 2)).
49. HAZARDOUS MATERIALS. Landlord and Tenant agree as follows with
respect to the existence or use of "Hazardous Materials" (as defined herein)
on, in, under or about the Premises and real property located beneath said
Premises (hereinafter collectively referred to as the "Property") and the
Complex:
As used herein, the term "Hazardous Materials" shall mean any
hazardous or toxic substance, material or waste which is or becomes subject
to or regulated by any local
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governmental authority, the State of California, or the United States
Government. The term "Hazardous Materials" includes, without limitation, any
material or hazardous substance which is (i) listed under Article 9 or
defined as "hazardous" or "extremely hazardous" pursuant to Article 11 of
Title 22 of the California Administrative Code, Division 4, Chapter 30, (ii)
listed or defined as a "hazardous waste" pursuant to the Federal Resource
Conservation and Recovery Act, Section 42 U.S.C. Section 6901 et seq., (iii)
listed or defined as "hazardous substance" pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section
9601 et seq. (42 U.S.C. Section 9601), (iv) petroleum or any derivative of
petroleum, or (v) asbestos.
Subject to the terms of this Paragraph 49, Tenant shall have no
obligation to "clean up," reimburse, release, indemnify, or defend Landlord
with respect to any Hazardous Materials which Tenant (prior to and during the
term of the Lease) or other parties on the Property (during the term of this
Lease) did not store, dispose, or transport in, use, or cause to be on the
Property or the Complex in violation of applicable law.
Tenant will be 100 percent liable and responsible for: (i) any and
all "cleanup" of said Hazardous Materials contamination which Tenant, its
agents, employees, contractors, invitees or its future subtenants and/or
assignees (if any), or other parties on the Property, does store, dispose, or
transport in, use or cause to be on the Property and which Tenant, its
agents, employees, contractors, invitees or its future subtenants and/or
assignees (if any), or other parties on the Property, does store, dispose, or
transport in, use or cause to be on the Complex, and (ii) any claims,
including third party claims, resulting from such Hazardous Materials
contamination. Tenant shall indemnify Landlord and hold Landlord harmless
from any liabilities, demands, costs, expenses and damages, including,
without limitation, attorney fees incurred as a result of any claims
resulting from such Hazardous Materials contamination.
Tenant also agrees not to use or dispose of any Hazardous Materials
on the Property or the Complex without first obtaining Landlord's written
consent. In the event consent is granted by Landlord, Tenant agrees to
complete compliance with governmental regulations, and prior to the
termination of said Lease Tenant agrees to follow the proper closure
procedures and will obtain a clearance from the local fire department and/or
the appropriate city agency. If Tenant uses Hazardous Materials, Tenant also
agrees to install, at Tenant's expense, such Hazardous Materials monitoring
devices as Landlord deems reasonably necessary. It is agreed that the
Tenant's responsibilities related to Hazardous Materials will survive the
termination date of the Lease and that Landlord may obtain specific
performance of Tenant's responsibilities under this Paragraph 49.
50. PUNCH LIST. In addition to and notwithstanding anything to the
contrary in Paragraphs 8 and 45 of this Lease, Tenant shall have sixty (60)
days after the Commencement Date to provide Landlord with a written "punch
list" pertaining to latent defects in the Building and in the interior
improvements constructed by Landlord for Tenant. Landlord shall have sixty
(60) days thereafter (or longer if necessary, provided Landlord is diligently
pursuing the completion of the same) to complete the "punch list" items
without the Commencement Date of the Lease and Tenant's obligation to pay
Rental thereunder being affect. Notwithstanding the
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foregoing, a crack in the foundation, or exterior walls that does not
endanger the structural integrity of the building, or which is not
life-threatening, shall not be considered material, nor shall Landlord be
responsible for repair of same. This Paragraph shall be of no force and
effect if Tenant shall fail to give any such notice to Landlord within sixty
(60) days after the commencement of the term of this Lease.
51. MAINTENANCE OF THE PREMISES. In addition to, and notwithstanding
anything to the contrary in Paragraph 10, Landlord shall maintain the
structural shell, foundation, and roof structure (but not the interior
improvements, roof membrane, or glazing) of the building leased hereunder at
Landlord's cost and expense provided Tenant has not caused such damage, in
which event Tenant shall be responsible for 100 percent of any such costs for
repair or damage so caused by the Tenant. Notwithstanding the foregoing, a
crack in the foundation, or exterior walls that does not endanger the
structural integrity of the building, or which is not life-threatening, shall
not be considered material, nor shall Landlord be responsible for repair of
same.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered
this Lease as of the day and year first above written.
LANDLORD: TENANT:
JOHN ARRILLAGA SEPARATE PROPERTY QUANTUM EFFECT DESIGN, INC., a California
TRUST corporation
By: \s\ John Arrillaga By: \s\ Raymond Kunita
------------------- -------------------
JOHN ARRILLAGA, Trustee
RICHARD T. PEERY SEPARATE PROPERTY Title: Chief Operating Officer
TRUST ------------------------
By: \s\ Richard T. Peery Type of Print Name: Raymond Kunita
--------------------- ---------------
RICHARD T. PEERY, Trustee
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Park Square 1-3
AMENDMENT NO. 1
TO LEASE
THIS AMENDMENT NO. 1 is made and entered into this 11th day of
February, 1998, by and between JOHN ARRILLAGA, Trustee, or his Successor
Trustee UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR'S TRUST) (previously known
as the "John Arrillaga Separate Property Trust") as amended, and RICHARD T.
PEERY, Trustee, or his Successor Trustee UTA dated 7/20/77 (RICHARD T. PEERY
SEPARATE PROPERTY TRUST) as amended, collectively as LANDLORD, and QUANTUM
EFFECT DESIGN, INC., a California corporation, as TENANT.
RECITALS
A. WHEREAS, by Lease Agreement dated September 14, 1994 Landlord
leased to Tenant approximately 15,218-plus or minus- square feet of that
certain 45,000-plus or minus- square foot building located at 3255-3 Scott
Blvd., Suite 200, Santa Clara, California, the details of which are more
particularly set forth in said September 14, 1994 Lease Agreement, and
B. WHEREAS, said Lease was amended by the Commencement Letter dated
December 2, 1994 which changed the Commencement Date of the Lease from
November 15, 1994 to November 24, 1994, and changed the Termination Date from
May 31, 1998 to June 30, 1998, and,
C. WHEREAS, it is now the desire of the parties hereto to amend the
Lease by (i) extending the Term for three years, changing the Termination
Date from June 30, 1998 to June 30, 2001, (ii) amending the Basic Rent
schedule and Aggregate Rent accordingly, (iii) increasing the Security
Deposit required under the Lease, (iv) amending the Management Fee charged to
Tenant, (vii) amending Lease Paragraphs 13 ("Liability Insurance"), 15
("Property Insurance") and 19 ("Assignment and Subletting"), (viii) replacing
Lease Paragraphs 39 ("Limitation of Liability") and 49 ("Hazardous
Materials"), (ix) deleting Lease Paragraphs 47 ("First Right of Refusal") and
48 ("Option to Extend Lease for Three (3) Years") and (x) adding paragraphs
("Authority to Execute") and ("Assessment Credits") to said Lease Agreement
as hereinafter set forth.
AGREEMENT
NOW THEREFORE, for valuable consideration, receipt of which is
hereby acknowledged, and in consideration of the hereinafter mutual promises,
the parties hereto do agree as follows:
1. TERM OF LEASE: It is agreed between the parties that the Term of
said Lease Agreement shall be extended for an additional three (3) year
period, and the Lease Termination Date shall be changed from June 30, 1998 to
June 30, 2001.
2. BASIC RENTAL FOR EXTENDED TERM OF LEASE: The monthly Basic Rental
for the Extended Term of Lease shall be as follows:
On July 1, 1998, the sum of THIRTY THOUSAND FOUR HUNDRED THIRTY-SIX
AND NO/100 DOLLARS ($30,436.00) shall be due, and a like sum due on the first
day of each month thereafter through and including June 1, 1999.
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On July 1, 1999, the sum of THIRTY-ONE THOUSAND NINE HUNDRED
FIFTY-SEVEN AND 80/100 DOLLARS ($31,957.80) shall be due, and a like sum due
on the first day of each month thereafter through and including June 1, 2000.
On July 1, 2000, the sum of THIRTY THREE THOUSAND FOUR HUNDRED
SEVENTY NINE AND 60/100 DOLLARS ($33,479.60) shall be due, and a like sum due
on the first day of each month thereafter through and including June 1, 2001.
The Aggregate Basic Rent for the Lease shall be increased by
$1,150,480.80 or from $531,589.43 to $ 1,682,070.23.
3. SECURITY DEPOSIT: Tenant's Security Deposit shall be increased by
$41,088.60, or from $25,870.60 to $66,959.20, payable upon Tenant's execution
of this Amendment No. 1.
4. MANAGEMENT FEE: Beginning July 1, 1998, Tenant shall pay to
Landlord, in addition to the Basic Rent and Additional Rent, a FIXED monthly
management fee ("Management Fee") equal to three percent (3%) of the Basic
Rent due for each month throughout the remaining Lease Term. Tenant shall
remain liable for the five percent (5%) management fee previously charged
against Additional Rent through June 30, 1998.
5. LIABILITY INSURANCE: The liability insurance requirement as
stated in Lease Paragraph 13 ("Liability Insurance") is hereby amended as
follows: "Tenant's liability insurance policy shall be a policy of commercial
general liability insurance with a combined single limit coverage of not less
than Two Million Dollars ($2,000,000.00) per occurrence for injuries to or
death of persons occurring in, on or about the Premises or Complex and
property damage.
6. PROPERTY INSURANCE: Lease Paragraph 15 ("Property Insurance") is
hereby amended to include the following: "Tenant acknowledges that as part of
the cost of insurance policies for the Premises, Tenant is responsible for
the payment of insurance deductibles on insurance claims as they relate to
the Premises".
7. ASSIGNMENT AND SUBLETTING: Lease Paragraph 19 ("Assignment and
Subletting") shall be amended to include the following language:
"Any and all sublease agreement(s) between Tenant and any and all
subtenant(s) (which agreements must be consented to by Landlord, pursuant to
the requirements of this Lease) shall contain the following language:
"If Landlord and Tenant jointly and voluntarily elect, for any reason
whatsoever, to terminate the Master Lease prior to the scheduled Master
Lease termination date, then this Sublease (if then still in effect)
shall terminate concurrently with the termination of the Master Lease.
Subtenant expressly acknowledges and agrees that (1) the voluntary
termination of the Master Lease by Landlord and Tenant and the
resulting termination of this Sublease shall not give Subtenant any
right or power to make any legal or equitable claim against Landlord,
including without limitation any claim for interference with contract
or interference with prospective economic advantage, and (2) Subtenant
hereby
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waives any and all rights it may have under law or at equity
against Landlord to challenge such an early termination of the
Sublease, and unconditionally releases and relieves Landlord, and its
officers, directors, employees and agents, from any and all claims,
demands, and/or causes of action whatsoever (collectively, "Claims"),
whether such matters are known or unknown, latent or apparent,
suspected or unsuspected, foreseeable or unforeseeable, which Subtenant
may have arising out of or in connection with any such early
termination of this Sublease. Subtenant knowingly and intentionally
waives any and all protection which is or may be given by Section 1542
of the California Civil Code which provides as follows: "A general
release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release,
which if suspect to exist in his favor at the time of executing the
release, him must have materially affected his settlement with debtor.
The term of this Sublease is therefore subject to early
termination. Subtenant's initials here below evidence (a) Subtenant's
consideration of and agreement to this early termination provision, (b)
Subtenant's acknowledgment that, in determining the net benefits to be
derived by Subtenant under the terms of this Sublease, Subtenant has
anticipated the potential for early termination, and (c) Subtenant's
agreement to the general waiver and release of Claims above.
Initials: Initials:
--------------- --------------
Subtenant Tenant
8. LIMITATION OF LIABILITY. Lease Paragraph 39 ("Limitation of
Liability") shall be deleted and replaced in its entirety by the following:
"39. LIMITATION OF LIABILITY. In consideration of the
benefits accruing hereunder, Tenant and all successors and assigns
covenant and agree that, in the event of any actual or alleged
failure, breach or default hereunder by Landlord:
(i) the sole and exclusive remedy shall be against Landlord's
interest in the Premises leased herein;
(ii) no partner of Landlord shall be sued or named as a party
in any suit or action (except as may be necessary to secure
jurisdiction of the partnership);
(iii) no service of process shall be made against any partner
of Landlord (except as may be necessary to secure jurisdiction of the
partnership);
(iv) no partner of Landlord shall be required to answer or
otherwise plead to any service of process;
(v) no judgment will be taken against any partner of Landlord;
(vi) any judgment taken against any partner of Landlord may be
vacated and set aside at any time without hearing;
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(vii) no writ of execution will ever be levied against the
assets of any partner of Landlord;
(viii) these covenants and agreements are enforceable both by
Landlord and also by any partner of Landlord.
Tenant agrees that each of the foregoing covenants and
agreements shall be applicable to any covenant or agreement either
expressly contained in this Lease or imposed by statute or at common
law."
9. HAZARDOUS MATERIALS: Lease Paragraph 49 ("Hazardous Materials")
shall be deleted and replaced in its entirety by the following:
"49. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with
respect to the existence or use of "Hazardous Materials" (as defined
herein) on, in, under or about the Premises and real property located
beneath said Premises and the common areas of the Complex (hereinafter
collectively referred to as the "Property"):
A. As used herein, the term "Hazardous Materials" shall mean
any material, waste, chemical, mixture or byproduct which is or
hereafter is defined, listed or designated under Environmental Laws
(defined below) as a pollutant, or as a contaminant, or as a toxic or
hazardous substance, waste or material, or any other unwholesome,
hazardous, toxic, biohazardous, or radioactive material, waste,
chemical, mixture or byproduct, or which is listed, regulated or
restricted by any Environmental Law (including, without limitation,
petroleum hydrocarbons or any distillates or derivatives or fractions
thereof, polychlorinated biphenyls, or asbestos). As used herein, the
term "Environmental Laws" shall mean any applicable Federal, State of
California or local government law (including common law), statute,
regulation, rule, ordinance, permit, license, order, requirement,
agreement, or approval, or any determination, judgment, directive, or
order of any executive or judicial authority at any level of Federal,
State of California or local government (whether now existing or
subsequently adopted or promulgated) relating to pollution or the
projection of the environment, ecology, natural resources, or public
health and safety.
B. Tenant shall obtain Landlord's written consent, which may
be withheld in Landlord's discretion, prior to the occurrence of any
Tenant's Hazardous Materials Activities (defined below); provided,
however, that Landlord's consent shall not be required for normal use
in compliance with applicable Environmental Laws of customary household
and office supplies (Tenant shall first provide Landlord with a list of
said materials use), such as mild cleaners, lubricants and copier
toner. As used herein, the term "Tenant's Hazardous Materials
Activities" shall mean any and all use, handling, generation, storage,
disposal, treatment, transportation, discharge, or emission of any
Hazardous Materials on, in, beneath, to, from, at or about the
Property, in connection with Tenant's use of the Property, or by Tenant
or by any of Tenant's agents, employees, contractors, vendors,
invitees, visitors or its future subtenants or assignees. Tenant agrees
that any and all Tenant's Hazardous Materials Activities shall be
conducted in strict, full compliance with applicable Environmental Laws
at Tenant's expense, and shall not result
33.
<PAGE>
in any contamination of the Property or the environment. Tenant
agrees to provide Landlord with prompt written notice of any spill or
release of Hazardous Materials at the Property during the term of the
Lease of which Tenant becomes aware, and further agrees to provide
Landlord with prompt written notice of any violation of Environmental
Laws in connection with Tenant's Hazardous Materials Activities of
which Tenant becomes aware. If Tenant's Hazardous Materials Activities
involve Hazardous Materials other than normal use of customary
household and office supplies. Tenant also agrees at Tenant's expense:
(i) to install such Hazardous Materials monitoring, storage and
containment devices as Landlord reasonably deems necessary (Landlord
shall have no obligation to evaluate the need for any such
installation or to require any such installation); (ii) provide
Landlord with a written inventory of such Hazardous Materials,
including an update of same each year upon the anniversary date of
the Commencement Date of thc Lease ("Anniversary Date"); and (iii) on
each Anniversary Date, to retain a qualified environmental consultant,
acceptable to Landlord, to evaluate whether Tenant is in compliance
with all applicable Environmental Laws with respect to Tenant's
Hazardous Materials Activities. Tenant, at its expense, shall submit
to Landlord a report from such environmental consultant which
discusses the environmental consultant's findings within two (2)
months of each Anniversary Date. Tenant, at its expense, shall
promptly undertake and complete any and all steps necessary, and in
full compliance with applicable Environmental Laws, to fully correct
any and all problems or deficiencies identified by the environmental
consultant, and promptly provide Landlord with documentation of all
such corrections.
C. Prior to termination or expiration of the Lease, Tenant, at
its expense, shall (i) properly remove from the Property all Hazardous
Materials which come to be located at the Property in connection with
Tenant's Hazardous Materials Activities; and (ii) fully comply with and
complete all facility closure requirements of applicable Environmental
Laws regarding Tenant's Hazardous Materials Activities, including but
not limited to (x) properly restoring and repairing the Property to the
extent damaged by such closure activities, and (y) obtaining from the
local Fire Department or other appropriate governmental authority with
jurisdiction a written concurrence that closure has been completed in
compliance with applicable Environmental Laws. Tenant shall promptly
provide Landlord with copies of any claims, notices, work plans, data
and reports prepared, received or submitted in connection with any such
closure activities.
D. If Landlord, in its sole discretion, believes that the
Property has become contaminated as a result of Tenant's Hazardous
Materials Activities, Landlord in addition to any other rights it may
have under this Lease or under Environmental Laws or other laws, may
enter upon the Property and conduct inspection, sampling and analysis,
including but not limited to obtaining and analyzing samples of soil
and groundwater, for the purpose of determining the nature and extent
of such contamination. Tenant shall promptly reimburse Landlord for the
costs of such an investigation, including but not limited to reasonable
attorneys' fees Landlord incurs with respect to such investigation,
that discloses Hazardous Materials contamination for which Tenant is
liable under this Lease. Except as may be required of Tenant by
applicable Environmental Laws, Tenant shall not perform any sampling,
testing, or drilling to identify the presence of any Hazardous
Materials at the Property, without Landlord's prior written consent
which may
34.
<PAGE>
be withheld in Landlord's discretion. Tenant shall promptly provide
Landlord with copies of any claims, notices, work plans, data and
reports prepared, received or submitted in connection with any
sampling, testing or drilling performed pursuant to the preceding
sentence.
E. Tenant shall indemnify, defend (with legal counsel
acceptable to Landlord, whose consent shall not unreasonably be
withheld) and hold harmless Landlord, its employees, assigns,
successors, successors-in-interest, agents and representatives from and
against any and all claims (including but not limited to third party
claims from a private party or a government authority), liabilities,
obligations, losses, causes of action, demands, governmental
proceedings or directives, fines, penalties, expenses, costs (including
but not limited to reasonable attorneys', consultants' and other
experts' fees and costs), and damages, which arise from or relate to:
(i) Tenant's Hazardous Materials Activities; (ii) releases or
discharges of Hazardous Materials at the Property, which occur during
the Term of this Lease, (iii) any Hazardous Materials contamination
caused by Tenant prior to the Commencement Date of the Lease; or (iv)
the breach of any obligation of Tenant under this Paragraph 49
(collectively, "Tenant's Environmental Indemnification") Tenant's
Environmental Indemnification shall include but is not limited to the
obligation to promptly and fully reimburse Landlord for losses in or
reductions to rental income, and diminution in fair market value of thc
Property. Tenant's Environmental Indemnification shall further include
but is not limited to the obligation to diligently and properly
implement to completion, at Tenant's expense, any and all environmental
investigation, removal, remediation, monitoring, reporting, closure
activities, or other environmental response action (collectively,
"Response Actions"). Tenant shall promptly provide Landlord with copies
of any claims, notices, work plans, data and reports prepared, received
or submitted in connection with any Response Actions.
It is agreed that the Tenant's responsibilities related to Hazardous
Materials will survive the expiration or termination of this Lease and
that Landlord may obtain specific performance of Tenant's
responsibilities under this Paragraph 49."
10. FIRST RIGHT OF REFUSAL: Pursuant to Letter Agreement dated
August 2, 1995, Tenant rejected its First Right of Refusal to lease an
additional 8,341 + square feet; therefore, according to the terms of Lease
Paragraph 47 ("First Right of Refusal"), the parties hereto agree that said
Lease Paragraph 47 is deleted in its entirety and of no further force or
effect.
11. OPTION TO EXTEND LEASE FOR THREE (3) YEARS: The parties hereto
acknowledge and agree that Tenant's Option to Extend the Term of thc Lease
expired on April 30, 1997; therefore, Lease Paragraph 48 ("Option to Extend
Lease for Three (3) Years") is hereby deleted in its entirety and of no
further force or effect.
12. AUTHORITY TO EXECUTE. The parties executing this Agreement
hereby warrant and represent that they arc properly authorized to execute
this Agreement and bind the parties on behalf of whom they execute this
Agreement and to all of the terms, covenants and conditions of this Agreement
as they relate to the respective parties hereto.
35.
<PAGE>
13. ASSESSMENT CREDITS: The demised property herein may be subject
to a special assessment levied by the City of Santa Clara as part of an
Improvement District. As a part of said special assessment proceedings (if
any), additional bonds were or may be sold and assessments were or may be
levied to provide for construction contingencies and reserve funds. Interest
shall be earned on such funds created for contingencies and on reserve funds
which will be credited for the benefit of said assessment district. To the
extent surpluses are created in said district through unused contingency
funds, interest earnings or reserve funds, such surpluses shall be deemed thc
property of Landlord. Notwithstanding that such surpluses may be credited on
assessments otherwise due against the Leased Premises, Tenant shall pay to
Landlord, as additional rent if, and at the time of any such credit of
surpluses, an amount equal to all such surpluses so credited. For example: if
(i) the property is subject to an annual assessment of $1,000.00, and (ii) a
surplus of $200.00 is credited towards the current year's assessment which
reduces the assessment amount shown on the property tax bill from $1,000.00
to $800.00, Tenant shall, upon receipt of notice from Landlord, pay to
Landlord said $200.00 credit as Additional Rent.
EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and
conditions of said September 14, 1994 Lease Agreement shall remain in full
force and effect.
IN W1TNESS WHEREOF, Landlord and Tenant have executed this
Amendment No. 1 to Lease as of the day and year last written below.
LANDLORD: TENANT:
JOHN ARRILLAGA SURVIVOR'S TRUST QUANTUM EFFECT DESIGN, INC
a California corporation
By: /s/ John Arrillaga By: /s/ John P. Walsh
----------------------------- -------------------------
John Arrillaga, Trustee
Date: 3/16/98 John P. Walsh
---------------------------- ----------------------------
Print or Type Name
RICHARD T. PEERY SEPARATE Title: Director, HR
PROPERTY TRUST ----------------------
By /s/ Richard T. Peery Date: 3/10/98
----------------------------- -----------------------
Richard T. Peery, Trustee
Date: 3/13/98
---------------------------
36.
<PAGE>
AMENDMENT NO. 2
TO LEASE
THIS AMENDMENT NO. 2 is made and entered into this 3rd day of
December, 1998, by and between JOHN ARRILLAGA, Trustee, or his Successor
Trustee UTA dated 7/20/77 (JOHN ARR1LLAGA SURVIVOR'S TRUST) (previously known
as the "John Arrillaga Separate Property Trust") as amended, and RICHARD T.
PEERY, Trustee, or his Successor Trustee UTA dated 7/20/77 (RICHARD T. PEERY
SEPARATE PROPERTY TRUST) as amended, collectively as LANDLORD, and QUANTUM
EFFECT DESIGN, INC., a California corporation, as TENANT.
RECITALS
A. WHEREAS, by Lease Agreement dated September 14, 1994 Landlord
leased to Tenant approximately 15,218+ square feet of that certain 45,000+
square foot building located at 3255-3 Scott Blvd., Suite 200, Santa Clara,
California, the details of which are more particularly set forth in said
September 14, 1994 Lease Agreement, and
B. WHEREAS, said Lease was amended by the Commencement Letter dated
December 2, 1994 which changed the Commencement Date of the Lease from
November 15, 1994 to November 24, 1994, and changed the Termination Date from
May 31, 1998 to June 30, 1998, and,
C. WHEREAS, said Lease was amended by Amendment No. 1 dated February
11, 1998, which (i) extended the Lease Term for three years, (ii) amended the
Basic Rent schedule, Aggregate Rent and Security Deposit accordingly, (iii)
amended the Management Fee charged to Tenant, (iv) amended Lease Paragraphs
13 ("Liability Insurance"), 15 ("Property Insurance") and 19 ("Assignment and
Subletting"), (v) replaced Lease Paragraphs 39 ("Limitation of Liability")
and 49 ("Hazardous Materials"), (vi) deleted Lease Paragraphs 47 ("First
Right of Refusal") and 48 ("Option to Extend Lease for Three Years"), and
(vii) added paragraphs ("Authority to Execute") and ("Assignment Credits") to
said Lease, and,
D. WHEREAS, it is now the desire of the parties hereto to amend the
Lease by adding paragraphs ("Cross Default") and ("Lease Terms Co-Terminous")
to said Lease Agreement as hereinafter set forth.
AGREEMENT
NOW THEREFORE, for valuable consideration, receipt of which is
hereby acknowledged, and in consideration of the hereinafter mutual promises,
the parties hereto do agree as follows:
1. LEASE TERMS CO-TERMINOUS: It is acknowledged that (i) concurrently
with the execution of this Amendment No. 2, Landlord and Tenant are also
executing a lease agreement dated December 3, 1998 (hereinafter referred to
as the "New Lease") affecting adjacent property located at 3255-4 Scott
Blvd., Suite 105, Santa Clara, California and (ii) it is the intention of the
parties that the term of this Lease be co-terminous with the term of the New
Lease such that the terms of both leases expire on the same date; provided,
however, the termination of this Lease
37.
<PAGE>
resulting from the terms and conditions stated under Paragraph 22 `Bankruptcy
and Default' (subject to Landlord's option as stated in the respective
leases' "Cross Default' Paragraph) or Paragraph 24 "Destruction" or Paragraph
25 "Eminent Domain" shall not result in a termination of the New Lease,
unless Landlord elects, at its sole and absolute discretion, to terminate
both of the leases.
2. CROSS DEFAULT: As a material part of the consideration for the
execution of the New Lease by Landlord, it is agreed between Landlord and
Tenant that a default under this Lease, or a default under said New Lease
may, at the option of Landlord, be considered a default under both leases, in
which event Landlord shall be entitled (but in no event required) to apply
all rights and remedies of Landlord under the terms of one lease to both
leases including, but not limited to, the right to terminate one or both of
said leases by reason of a default under said New Lease or hereunder.
EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and
conditions of said September 14, 1994 Lease Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed
this Amendment No. 2 to Lease as of the day and year last written below.
LANDLORD: TENANT:
JOHN ARRILLAGA SURVIVOR'S TRUST QUANTUM EFFECT DESIGN, INC.
a California corporation
By: /s/ John Arrillaga By: /s/ J. P. Walsh
--------------------------- -----------------------------------
John Arrillaga, Trustee John P. Walsh, Director, Human Resources
Date: 1/26/99 Date: 1/26/99
------------------------- ---------------------------------
RICHARD T. PEERY SEPARATE
PROPERTY TRUST
By: /s/ Richard T. Peery
---------------------------
Rich T. Peery, Trustee
Date: 1/26/99
-------------------------
38.
<PAGE>
AMENDMENT NO. 3
TO LEASE
THIS AMENDMENT NO. 3 is made and entered into this 16th day of
August, 1999, by and between JOHN ARRILLAGA, Trustee, or his Successor
Trustee UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR'S TRUST) (previously known
as the "John Arrillaga Separate Property Trust") as amended, and RICHARD T.
PEERY, Trustee, or his Successor Trustee UTA dated 7/20/77 (RICHARD T. PEERY
SEPARATE PROPERTY TRUST) as amended, collectively as LANDLORD, and QUANTUM
EFFECT DESIGN, INC., A CALIFORNIA CORPORATION, as TENANT.
RECITALS
A. WHEREAS, by Lease Agreement dated September 14, 1994 Landlord
leased to Tenant approximately 15,218+/- square feet of that certain
45,000+/- square foot building located at 3255-3 Scott Blvd., Suite 200,
Santa Clara, California, the details of which are more particularly set forth
in said September 14, 1994 Lease Agreement, and
B. WHEREAS, said Lease was amended by the Commencement Letter dated
December 2, 1994 which changed the Commencement Date of the Lease from
November 15, 1994 to November 24, 1994, and changed the Termination Date from
May 31, 1998 to June 30, 1998, and,
C. WHEREAS, said Lease was amended by Amendment No. 1 dated February
11, 1998, which (i) extended the Lease Term for three years, (ii) amended the
Basic Rent schedule, Aggregate Rent and Security Deposit accordingly, (iii)
amended the Management Fee charged to Tenant, (iv) amended Lease Paragraphs
13 ("Liability Insurance"), 15 ("Property Insurance") and 19 ("Assignment and
Subletting"), (v) replaced Lease Paragraphs 39 ("Limitation of Liability")
and 49 ("Hazardous Materials"), (vi) deleted Lease Paragraphs 47 ("First
Right of Refusal") and 48 ("Option to Extend Lease for Three Years"), and
(vii) added paragraphs ("Authority to Execute") and ("Assignment Credits") to
said Lease, and,
D. WHEREAS, said Lease was amended by Amendment No. 2 dated December
3, 1998, which added a "Cross Default" paragraph and "Co-Terminous" paragraph
as related to Tenant's additional leased premises located at 3255-4 Scott
Blvd., Suite 105, Santa Clara, California, and
E. WHEREAS, it is now the desire of the parties hereto to amend the
Lease by (i) deleting Paragraph 1 of Amendment No. 2 dated December 3, 1998
("Lease Terms Co-Terminous") and Paragraph 2 of Amendment No. 2 dated
December 3, 1998 ("Cross Default") and (ii) adding a paragraph ("Cross
Default") related to Tenant's additional leased premises located at 2500
Augustine Drive, Suite 200, Santa Clara, California as hereinafter set forth.
AGREEMENT
NOW THEREFORE, for valuable consideration, receipt of which is
hereby acknowledged, and in consideration of the hereinafter mutual promises,
the parties hereto do agree as follows:
1. TERMINATION OF LEASE FOR 3255-4 SCOTT BLVD.: Subject to the terms of this
Paragraph, it is hereby acknowledged that Tenant's other existing lease with
Landlord for premises located at 3255-4 Scott Blvd., Suite 105, Santa Clara,
California ("PSI-4 Lease") as referenced in Paragraph 1 of Amendment No. 2
dated December 3, 1998 ("Lease Terms Co-Terminous") and Paragraph 2 of
Amendment No. 2 dated December 3, 1998 ("Cross Default") is scheduled to
terminate effective October 31, 1999. Therefore, it is agreed between the
parties that Lease Paragraphs 46 ("Lease Terms Co-Terminous") and 47 ("Cross
Default") of this Lease shall be deleted in their entirety and be of no
further force or effect effective as of October 31, 1999. In the event said
PSI-4 Lease does not terminate on October 31, 1999, the parties hereto agree
that the provisions of Paragraph 1 and 2 of Amendment No. 2 shall continue in
full force and effect until the actual termination date of said PSI-4 Lease.
39.
<PAGE>
2. CROSS DEFAULT: It is acknowledged that (i) concurrently with the
execution of this Amendment No. 3, Landlord and Tenant are also executing a
lease agreement dated August 18, 1998 (hereinafter referred to as the "New
Premises Lease") affecting property located 2500 Augustine Drive, Suite 200,
Santa Clara, California. As a material part of the consideration for the
execution of the New Premises Lease by Landlord, it is agreed between
Landlord and Tenant that a default under this Lease, or a default under said
New Premises Lease may, at the option of Landlord, be considered a default
under both leases, in which event Landlord shall be entitled (but in no event
required) to apply all rights and remedies of Landlord under the terms of one
lease to both leases including, but not limited to, the right to terminate
one or both of said leases by reason of a default under said New Premises
Lease or hereunder.
EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and
conditions of said September 14, 1994 Lease Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this
Amendment No. 3 to Lease as of the day and year last written below.
LANDLORD: TENANT:
JOHN ARRILLAGA SURVIVOR'S TRUST QUANTUM EFFECT DESIGN, INC.
a California corporation
By: /s/ John Arrillaga By: /s/ John P. Walsh
--------------------------------- -----------------------------
John Arrillaga, Trustee John P. Walsh, Director,
Human Resources
Date: 8/30/99 Date: 8/25/99
-------------------------------- ---------------------------
RICHARD T. PEERY SEPARATE PROPERTY
TRUST
By: /s/ Richard T. Peery
---------------------------------
Richard T. Peery, Trustee
Date: 8/26/99
--------------------------------
40.
<PAGE>
LEASE AGREEMENT
THIS LEASE, made this 16th day of August, 1999 between JOHN
ARRILLAGA, Trustee, or his Successor Trustee, UTA dated 7/20/77, (JOHN
ARRILLAGA SEPARATE PROPERTY TRUST) as amended, and RICHARD T. PEERY, Trustee,
or his Successor Trustee, UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE
PROPERTY TRUST) as amended, hereinafter called Landlord, and QUANTUM EFFECT
DESIGN, INC., a California corporation, hereinafter called Tenant.
W I T N E S S E T H
Landlord hereby leases to Tenant and Tenant hereby hires and takes
from Landlord those certain premises (the "Premises") outlined in red on
Exhibit "A" attached hereto and incorporated hereby by this reference thereto
more particularly described as follows:
A portion of that certain 45,000+ square foot, two-story building
located at 2500 Augustine Drive, Suite 200, Santa Clara, California
94065, consisting of approximately 23,375+ square feet on the second
floor of the building. Said Premises is more particularly shown within
the area outlined in Red on EXHIBIT A. The entire parcel, of which the
Premises is a part, is shown within the area outlined in Green on
EXHIBIT A attached hereto. The Premises is leased on an "as-is" basis,
in its present condition, and in the configuration as shown in Red on
EXHIBIT B to be attached hereto.
As used herein the Complex shall mean and include all of the land
outlined in Green and described in Exhibit "A," attached hereto, and all of
the buildings, improvements, fixtures and equipment now or hereafter situated
on said land.
Said letting and hiring is upon and subject to the terms, covenants
and conditions hereinafter set forth and Tenant covenants as a material part
of the consideration for this Lease to perform and observe each and all of
said terms, covenants and conditions. This Lease is made upon the conditions
of such performance and observance.
1. USE. Tenant shall use the Premises only in conformance with
applicable governmental regulations, rules and ordinances for the purpose of
general office, light manufacturing, research and development, and storage
and other uses necessary for Tenant to conduct Tenant's business, provided
that such uses shall be in accordance with all applicable governmental laws
and ordinances and for no other purpose. Tenant shall not do or permit to be
done in or about the Premises or the Complex nor bring or keep or permit to
be brought or kept in or about the Premises or the Complex anything which is
prohibited by or will in any way increase the existing rate of (or otherwise
affect) fire or any insurance covering the Complex or any part thereof, or
any of its contents, or will cause a cancellation of any insurance covering
the Complex or any part thereof, or any of its contents. Tenant shall no do
or permit to be done anything in, on or about the Premises or the Complex
which will in any way obstruct or interfere with the rights of other tenants
or occupants of the Complex or injure or annoy them, or use or allow the
Premises to be used for any improper, immoral, unlawful or objectionable
purpose, nor
1.
<PAGE>
shall Tenant cause, maintain or permit any nuisance in, on or about the
Premises or the Complex. No sale by auction shall be permitted on the
Premises. Tenant shall not place any loads upon the floors, walls, or
ceiling, which endanger the structure, or place any harmful fluids or other
materials in the drainage system of the building, or overload existing
electrical or other mechanical systems. No waste materials or refuse shall be
dumped upon or permitted to remain upon any part of the Premises or outside
of the building in which the Premises are a part, except in trash containers
placed inside exterior enclosures designated by Landlord for that purpose or
inside of the building proper where designated by Landlord. No materials,
supplies, equipment, finished products or semi-finished products, raw
materials or articles of any nature shall be stored upon or permitted to
remain outside the Premises or on any portion of common area of the Complex.
No loudspeaker or other device, system or apparatus which can be heard
outside the Premises shall be used in or at the Premises without the prior
written consent of the Landlord. Tenant shall not commit or suffer to be
committed any waste in or upon the Premises. Tenant shall indemnify, defend
and hold Landlord harmless against any loss, expense, damage, attorneys'
fees, or liability arising out of failure of Tenant to comply with any
applicable law. Tenant shall comply with any covenant, condition, or
restriction ("CC&R's") affecting the Premises. The provisions of this
paragraph are for the benefit of Landlord only and shall not be construed to
be for the benefit of any tenant or occupant of the Complex.
2. TERM.*
A. The term of this Lease shall be for a period of five (5)
years (unless sooner terminated as hereinafter provided) and, subject to
Paragraphs 2(B) and 3, shall commence on the 1st day of November, 1999 and
end on the 31st of October of 2004.
B. Possession of the Premises shall be deemed tendered and
the term of this Lease shall commence on November 1, 1999, or as otherwise
agreed in writing.
3. POSSESSION. If Landlord, for any reason whatsoever, cannot
deliver possession of said premises to Tenant at the commencement of the said
term, as hereinbefore specified, this Lease shall not be void or voidable; no
obligation of Tenant shall be affected thereby; nor shall Landlord or
Landlord's agents be liable to Tenant for any loss or damage resulting
therefrom; but in that event the commencement and termination dates of the
Lease, and all other dates affected thereby shall be revised to conform to
the date of Landlord's delivery of possession, as specified in Paragraph 2(b)
above. The above is, however, subject to the provision that the period of
delay of delivery of the premises shall not exceed 30 days from the
commencement date herein (except those delays caused by Acts of God, strikes,
war, utilities, governmental bodies, weather, unavailable materials, and
delays beyond Landlord's control shall be excluded in calculating such
period) in which issuance Tenant, at its option, may, by written notice to
Landlord, terminate this Lease.
- -------------------------
* It is agreed in the event said Lease commences on a date other than the
first day of the month the term of the Lease will be extended to account for
the number of days in the partial month. The Basic Rent during the resulting
partial month will be pro-rated (for the number of days in the partial month)
at the Basic Rent scheduled for the projected commencement date as shown in
paragraph 43.
2.
<PAGE>
4. RENT.
A. BASIC RENT. Tenant agrees to pay to Landlord at such
place as Landlord may designate without deduction, offset, prior notice, or
demand, and Landlord agrees to accept as Basic Rent for the leased Premises
the total sum of THREE MILLION FOUR HUNDRED THIRTY SIX THOUSAND ONE HUNDRED
TWENTY FIVE AND NO/100 ($3,436,125.00) Dollars in lawful money of the United
States of America, payable as follows:
SEE PARAGRAPH 43 FOR BASIC RENT SCHEDULE.
B. TIME FOR PAYMENT. In the event that the term of this
Lease commences on a date other than the first day of a calendar month, on
the date of commencement of the term hereof Tenant shall pay to Landlord as
rent for the period from such date of commencement to the first day of the
next succeeding calendar month that proportion of the monthly rent hereunder
which the number of days between such date of commencement and the first day
of the next succeeding calendar month bears to thirty (30). In the event the
term of this Lease for any reason ends on a date other than the last day of a
calendar month, on the first day of the last calendar month of the term
hereof Tenant shall pay to Landlord as rent for the period from said first
day of said last calendar month to and including the last day of the term
here that proportion of the monthly rent hereunder which the number of days
between said first day of said last calendar month and the first day of the
term hereof bears to thirty (30).
C. LATE CHARGE. Notwithstanding any other provision of this
Lease, if Tenant is in default in the payment of rental as set forth in this
Paragraph 4 when due, or any part thereof, Tenant agrees to pay Landlord, in
addition to the delinquent rental due, a late charge for each rental payment
in default ten (10) days. Said late charge shall equal ten percent (10%) of
each rental payment so in default.
D. ADDITIONAL RENT. Beginning with the commencement date of
the term of this Lease, Tenant shall pay to Landlord in addition to the Basic
Rent and as Additional Rent the following:
(a) Tenant's proportionate share of all Taxes
relating to the Complex as set forth in Paragraph 12, and
(b) Tenant's proportionate share of all insurance
premiums and deductibles relating to the Complex, as set forth in Paragraph
15, and
(c) Tenant's proportionate share of expenses for
the operation, management, maintenance and repair of the Building (including
common areas of the Building) and Common Areas of the Complex in which the
Premises are located as set forth in Paragraph 7, and
(d) All charges, costs and expenses, which Tenant
is required to pay hereunder, together with all interest and penalties, costs
and expenses; including attorneys' fees and legal expenses, that may accrue
thereto in the event of Tenant's failure to pay such amounts,
3.
<PAGE>
and all damages, reasonable costs and expenses which Landlord may incur by
reason of default of Tenant or failure on Tenant's part to comply with the
terms of this Lease. In the event of nonpayment by Tenant of Additional Rent,
Landlord shall have all the rights and remedies with respect thereto as
Landlord has for nonpayment of rent.
The Additional Rent due hereunder shall be paid to Landlord
or Landlord's agent (i) within five days for taxes and insurance and within
thirty (30) days for all other additional Rent items after presentation of
invoice from Landlord or Landlord's agent setting forth such Additional Rent
and/or (ii) at the option of Landlord, Tenant shall pay to Landlord monthly,
in advance, Tenant's pro rata share of an amount estimated by Landlord to be
Landlord's approximate average monthly expenditure for such Additional Rent
items, which estimated amount shall be reconciled within 120 days of the end
of each calendar year or more frequently if Landlord so elects to do so at
Landlord's sole and absolute discretion, as compared to Landlord's actual
expenditure for said Additional Rent items, with Tenant paying to Landlord,
upon demand, any amount of actual expenses expended by Landlord in excess of
said estimated amount, or Landlord refunding to Tenant (providing Tenant is
not in default in the performance of any of the terms, covenants and
conditions of this Lease) any amount of estimated payments made by Tenant in
excess of Landlord's actual expenditures for said Additional Rent items.
The respective obligations of Landlord and Tenant under this
paragraph shall survive the expiration or other termination of the term of
this Lease, and if the term hereof shall expire or shall otherwise terminate
on a day other than the last day of a calendar year, the actual Additional
Rent incurred for the calendar year in which the term hereof expires or
otherwise terminates shall be determined and settled on the basis of the
statement of actual Additional Rent for such calendar year and shall be pro
rated in the proportion which the number of days in such calendar year
preceding such expiration or termination bears to 365.
E. FIXED MANAGEMENT FEE. Beginning with the Commencement
Date of the Term of this Lease, Tenant shall pay to Landlord, in addition to
the Basic Rent and Additional Rent, a fixed monthly fee ("Management Fee")
equal to 3% of the Basic Rent due for each month during the Lease Term.
F. PLACE OF PAYMENT OF RENT AND ADDITIONAL RENT. All Basic
Rent hereunder and all payments hereunder for Additional Rent shall be paid
to Landlord at the office of Landlord at Peery/Arrillaga, File 1504, Box
60000, San Francisco, CA 94160 or to such other person or to each other place
as Landlord may from time to time designate in writing.
F. SECURITY DEPOSIT. Concurrently with Tenant's execution
of this Lease, Tenant shall deposit with Landlord the sum of ONE HUNDRED
TWENTY THREE THOUSAND EIGHT HUNDRED EIGHTY SEVEN AND 50/100 ($123,887.50)
Dollars. Said sum shall be held by Landlord as a Security Deposit for the
faithful performance by Tenant of all of the terms, covenants, and conditions
of this Lease to be kept and performed by Tenant during the term hereof. If
Tenant defaults with respect to any provision of this Lease, including, but
not limited to, the provisions relating to the payment of rent and any of the
monetary sums due herewith, Landlord may (but shall not be required to) use,
apply or retain all or any part of this
4.
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Security Deposit for the payment of any other amount which Landlord may spend
by reason of Tenant's default or to compensate Landlord for any other loss or
damage which Landlord may suffer by reason of Tenant's default. If any
portion of said Deposit is so used or applied, Tenant shall, within ten (10)
days after written demand therefor, deposit cash with Landlord in the amount
sufficient to restore the Security Deposit to its original amount. Tenant's
failure to do so shall be a material breach of this Lease. Landlord shall not
be required to keep this Security Deposit separate from its general funds,
and Tenant shall not be entitled to interest on such Deposit. If Tenant fully
and faithfully performs every provision of this Lease to be performed by it,
the Security Deposit or any balance thereof shall be returned to Tenant (or
at Landlord's option, to the last assignee of Tenant's interest hereunder) at
the expiration of the Lease term and after Tenant has vacated the Premises.
In the event of termination of Landlord's interest in this Lease, Landlord
shall transfer said Deposit to Landlord's successor in interest whereupon
Tenant agrees to release Landlord from liability for the return of such
Deposit or the accounting therefor.
5. RULES AND REGULATIONS AND COMMON AREA. Subject to the terms and
conditions of this Lease and such Rules and Regulations as Landlord may from
time to time prescribe, Tenant and Tenant's employees, invitees and customers
shall, in common with other occupants of the Complex in which the Premises
are located, and their respective employees, invitees and customers, and
others entitled to the use thereof, have the nonexclusive right to use the
access roads, parking areas, and facilities provided and designated by
Landlord for the general use and convenience of the occupants of the Complex
in which the Premises are located, which areas and facilities are referred to
herein as "Common Area." This right shall terminate upon the termination of
this Lease. Landlord reserves the right from time to time to make changes in
the shape, size, location, amount and extent of Common Area. Landlord further
reserves the right to promulgate such reasonable rules and regulations
relating to the use of the Common Area, and any part or parts thereof, as
Landlord may deem appropriate for the best interests of the occupants of the
Complex. The Rules and Regulations shall be binding upon Tenant upon delivery
of a copy of them to Tenant, and Tenant shall abide by them and cooperate in
their observance. Such Rules and Regulations may be amended by landlord from
time to time, with or without advance notice, and all amendments shall be
effective upon delivery of a copy to Tenant. Landlord shall not be
responsible to Tenant for the non-performance by any other tenant or occupant
of the Complex of any of said Rules and Regulations.
Landlord shall operate, manage and maintain the Common Area. The
manner in which the Common Area shall be maintained and the expenditures for
such maintenance shall be at the discretion of Landlord.
6. PARKING. Tenant shall have the right to use with other tenants or
occupants of the Complex 70 parking spaces in the common parking areas of the
Complex. Tenant agrees, that Tenant, Tenant's employees, agents,
representatives and/or invitees shall not use parking spaces in excess of
said 70 spaces allocated to Tenant hereunder. Landlord shall have the right,
at Landlord's sole discretion, to specifically designate the location of
Tenant's parking spaces within the common parking areas of the Complex in the
event of a dispute among the tenants occupying the building and/or Complex
referred to herein, in which event Tenant agrees that Tenant, Tenant's
employees, agents, representatives and/or invitees shall not use any parking
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spaces other than those parking spaces specifically designated by Landlord
for Tenant's use. Said parking spaces, if specifically designated by Landlord
to Tenant, may be relocated by Landlord at any time, and from time to time,
Landlord reserves the right, at Landlord's sole discretion, to rescind any
specific designation of parking spaces, thereby returning Tenant's parking
spaces to the common parking area. Landlord shall give Tenant written notice
of any change in Tenant's parking spaces. Tenant shall not, at any time,
park, or permit to be parked, any trucks or vehicles adjacent to the loading
areas so as to interfere in any way with the use of such areas, nor shall
Tenant at any time park, or permit the parking of Tenant's trucks or other
vehicles or the trucks and vehicles of Tenant's suppliers or others, in any
portion of the common area not designated by Landlord for such use by Tenant.
Tenant shall not park nor permit to be parked, any inoperative vehicles or
equipment on any portion of the common parking area or other common areas of
the Complex. Tenant agrees to assume responsibility for compliance by its
employees within the parking provision contained herein. If Tenant or its
employees park in other than such designated parking areas, then Landlord may
charge Tenant, as an additional charge, and Tenant agrees to pay, ten
($10.00) Dollars per day for each day or partial day each such vehicle is
parked in any area other than that designated. Tenant hereby authorizes
Landlord at Tenant's sole expense to tow away from the Complex any vehicle
belonging to Tenant or Tenant's employees parked in violation of this
provision, or to attach violation stickers or notices to such vehicles.
Tenant shall use the parking areas for vehicle parking only, and shall not
use the parking areas for storage.
7. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON
AREAS OF THE COMPLEX AND BUILDING IN WHICH THE PREMISES ARE LOCATED. As
Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant
shall pay to Landlord Tenant's proportionate share (calculated on a square
footage or other equitable basis as calculated by Landlord) of all expenses
of operation, management, maintenance and repair of the Common Areas of the
Complex including, but not limited to, license, permit, and inspection fees;
security; utility charges associated with exterior landscaping and lighting
(including water and sewer charges); all charges incurred in the maintenance
and replacement of landscaped areas, lakes, parking lots and paved areas
(including repairs, replacement, resealing and restriping), sidewalks,
driveways, maintenance, repair and replacement of all fixtures and
electrical, mechanical, and plumbing systems; structural elements and
exterior surfaces of the buildings; salaries and employee benefits of
personnel and payroll taxes applicable thereto; supplies, materials,
equipment and tools; the cost of capital expenditures which have the effect
of reducing operating expenses, provided, however, that in the event Landlord
makes such capital improvements, Landlord may amortize its investment in said
improvements (together with interest at the rate of fifteen (15%) percent per
annum on the unamortized balance) as an operating expense in accordance with
standard account practices, provided, that such amortization is not at a rate
greater than the anticipated savings in the operating expenses.
"Additional Rent" as used herein shall not include Landlord's debt
repayments; interest on charges; expenses directly or indirectly incurred by
Landlord for the benefit of any other tenant; cost of the installation of
partitioning or any other tenant improvements; cost of attracting tenants;
depreciation; interest, or executive salaries.
6.
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As Additional Rent and in accordance with paragraph 4D of this
Lease, Tenant shall pay its proportionate share (calculated on a square
footage or other equitable basis as calculated by Landlord) of the cost of
operation (including common utilities, management, maintenance, and repair of
the building (including common areas such as lobbies, restroom, janitor's
closets, hallways, elevators, mechanical and telephone rooms, stairwells,
entrances, spaces above the ceilings and janitorization of said common areas)
in which the Premises are located. The maintenance items herein referred to
include, but are not limited to, all windows, window frames, plate glass,
glazing, truck doors, main plumbing systems of the building (such as water
and rain lines, sinks, toilets, faucets, drains, showers and water
fountains), main electrical systems (such as panels and conduits), heating
and air conditioning systems (such as compressors, fans, air handlers, ducts,
boilers, heaters), store fronts, roofs, downspouts, building common area
interiors (such as wall coverings, window coverings, floor coverings and
partitioning), ceilings, building exterior doors, skylights (if any)
automatic fire extinguishing systems, and elevators; license, permit, and
inspection fees; security, salaries and employee benefits of personnel and
payroll taxes applicable thereto; supplies, materials, equipment and tools;
the cost of capital expenditures which have the effect of reducing operating
expenses, provided, however that in the event Landlord makes such capital
improvements, Landlord may amortize its investment in said improvements
(together with interest at the rate of fifteen percent (15%) per annum on the
unamortized balance) as an operating expense in accordance with standard
accounting practices, provided, that such amortization is not at a rate
greater than the anticipated savings in the operating expenses. Tenant hereby
waives all rights under, and benefits of, subsection 1 of Section 1932 and
Sections 1941 and 1942 of the California Civil Code and under any similar
law, statute or ordinance now or hereafter in effect.
8. ACCEPTANCE AND SURRENDER OF PREMISES. By entry hereunder, Tenant
accepts the Premises as being in good and sanitary order, condition and
repair and accepts the building and improvements included in the Premises in
their present condition and without representation or warranty by Landlord as
to the condition of such building or as to the use or occupancy which may be
made thereof. Any exceptions to the foregoing must be by written agreement
executed by Landlord and Tenant. Tenant agrees on the last day of the Lease
term, or on the sooner termination of this Lease, to surrender the Premises
promptly and peaceably to Landlord in good condition and repair (damage by
Acts of God, fire, normal wear and tear excepted), with all interior walls
painted, or cleaned so that they appear freshly painted, and repaired and
replaced, if damaged; all floors cleaned and waxed; all carpets cleaned and
shampooed; the air conditioning and heating equipment serviced by a reputable
and licensed service firm and in good operating condition (provided the
maintenance of such equipment has been Tenant's responsibility during the
term of this Lease) together with all alterations, additions, and
improvements which may have been made in, to, or on the Premises (except
movable trade fixtures installed at the expense of Tenant) except that Tenant
shall ascertain from Landlord within thirty (30) days before the end of the
term of this Lease whether Landlord desires to have the Premises or any part
or parts thereof restored to their condition and configuration as when the
Premises were delivered to Tenant and if Landlord shall so desire, then
Tenant shall restore said Premises or such part or parts thereof before the
end of this Lease at Tenant's sole cost and expense. Tenant, on or before the
end of the term or sooner termination of this Lease, shall remove all of
Tenant's personal property and trade fixtures from the Premises,
7.
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and all property not so removed on or before the end of the term or sooner
termination of this Lease shall be deemed abandoned by Tenant and title to
same shall thereupon pass to Landlord without compensation to Tenant.
Landlord may, upon termination of this Lease, remove all moveable furniture
and equipment so abandoned by Tenant, at Tenant's sole cost, and repair any
damage caused by such removal at Tenant's sole cost. If the Premises be not
surrendered at the end of the term or sooner termination of this Lease,
Tenant shall indemnify Landlord against loss or liability resulting from the
delay by Tenant in so surrendering the Premises including, without
limitation, any claims made by any succeeding tenant founded on such delay.
Nothing contained herein shall be construed as an extension of the term
hereof or as a consent of Landlord to any holding over by Tenant. The
voluntary or other surrender of this Lease or the Premises by Tenant or a
mutual cancellation of this Lease shall not work as a merger and, at the
option of Landlord, shall either terminate all or any existing subleases or
subtenancies or operate as an assignment to Landlord of all or any such
subleases or subtenancies.
9. ALTERATIONS AND ADDITIONS. Tenant shall not make, or suffer to be
made, any alteration or addition to the Premises, or any part thereof,
without the written consent of Landlord first had and obtained by Tenant, but
at the cost of Tenant, and any addition to, or alteration of, the Premises,
except moveable furniture and trade fixtures, shall at once become a part of
the Premises and belong to Landlord. Landlord reserves the right to approve
all contractors and mechanics proposed by Tenant to make such alterations and
additions. Tenant shall retain title to all moveable furniture and trade
fixtures placed in the Premises. All heating, lighting, electrical, air
conditioning, floor to ceiling partitioning, drapery, carpeting, and floor
installations made by Tenant, together with all property that has become an
integral part of the Premises, shall not be deemed trade fixtures. Tenant
agrees that it will not proceed to make such alteration or additions, without
having obtained consent from Landlord to do so, and until five (5) days from
the receipt of such consent, in order that Landlord may post appropriate
notices to avoid any liability to contractors or material suppliers for
payment for Tenant's improvements. Tenant will at all times permit such
notices to be posted and to remain posted until the completion of work.
Tenant shall, if required by Landlord, secure at Tenant's own cost and
expense, a completion and lien indemnity bond, satisfactory to Landlord, for
such work. Tenant further covenants and agrees that any mechanic's lien filed
against the Premises or against the Complex for work claimed to have been
done for, or materials claimed to have been furnished to Tenant, will be
discharged by Tenant, by bond or otherwise, within thirty (30) days after the
filing thereof, at the cost and expense of Tenant. Any exceptions to the
foregoing must be made in writing and executed by both Landlord and Tenant.
10. TENANT MAINTENANCE. Tenant shall, at its sole cost and expense,
keep and maintain the Premises (including appurtenances) and every part
thereof in a high standard of maintenance and repair, and in good and
sanitary condition. Tenant's maintenance and repair responsibilities herein
referred to include, but are not limited to, janitorization, plumbing systems
within the non-common areas of the Premises (such as water and drain lines,
sinks), electrical systems within the non-common areas of the Premises (such
as outlets, lighting fixtures, lamps, bulbs, tubes, ballasts), heating and
air conditioning controls within the non-common areas of the Premises (such
as mixing boxes, thermostats, time clocks, supply and return grills), all
interior improvements within the premises including but not limited to: wall
coverings, window
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coverings, acoustical ceilings, vinyl tile, carpeting, partitioning, doors
(both interior and exterior, including closing mechanisms, latches, locks),
and all other interior improvements of any nature whatsoever. Tenant agrees
to provide carpet shields under all rolling chairs or to otherwise be
responsible for wear and tear of the carpet caused by such rolling chairs if
such wear and tear exceeds that caused by normal foot traffic in surrounding
areas. Areas of excessive wear shall be replaced at Tenant's sole expense
upon Lease termination.
11. UTILITIES OF THE BUILDING IN WHICH THE PREMISES ARE LOCATED. As
Additional Rent and in accordance with paragraph 4 D of this Lease. Tenant
shall pay its proportionate share (calculated on a square footage or other
equitable basis as calculated by Landlord) of the cost of all utility charges
such as water, gas, electricity, telephone, telex and other electronic
communications service, sewer service, waste-pick-up and any other utilities,
materials or services furnished directly to the building in which the
Premises are located, including, without limitation, any temporary or
permanent utility surcharge or other exactions whether or not hereinafter
imposed.
Landlord shall not be liable for and Tenant shall not be entitled to
any abatement or reduction of rent by reason of any interruption or failure
of utility services in the Premises when such interruption or failure is
cause by accident, breakage, repair, strikes, lockouts, or other labor
disturbances or labor disputes of any nature, or by any other cause, similar
or dissimilar, beyond the reasonable control of Landlord.
Provided that Tenant is not in default in the performance or
observance of any of the terms, covenants or conditions of this Lease to be
performed or observed by it, Landlord shall furnish to the Premises between
the hours of 8:00 a.m. and 6:00 p.m. Monday through Fridays (holidays
excepted) and subject to the rules and regulations of the complex
hereinbefore referred to, reasonable quantities of water, gas and electricity
suitable for the intended use of the Premises and heat and air conditioning
required in Landlord's judgment for the comfortable use and occupation of the
Premises for such purposes. Tenant may, from time to time, have its staff and
equipment operate within the Premises on a twenty-four (24) hour-a-day, seven
(7) day-a-week schedule, and Tenant may operate equipment which requires
excess electricity; however, Tenant shall pay for any extra utilities used by
Tenant. Tenant agrees that at all times it will cooperate fully with Landlord
and abide by all regulations and requirements that Landlord may prescribe for
the proper functioning and protection of the building heating, ventilating,
and air conditioning systems. Whenever heat generating machines, equipment,
or any other devices (including exhaust fans) are used in the Premises by
Tenant which affect the temperature or otherwise maintained by the air
conditioning system, Landlord shall have the right to install supplementary
air conditioning units in the Premises and the cost thereof, including the
cost of installation and the cost of operation and maintenance thereof, shall
be paid by Tenant to Landlord upon demand by Landlord. Tenant will not,
without the written consent of Landlord, use any apparatus or device in the
premises (including, without limitation), electronic data processing machines
or machines using current in excess of 110 Volts which will in any way
increase the amount of electricity, gas, water or air conditioning usually
furnished or supplied to premises being used as general office space, or
connect with electric current (except through existing electrical outlets in
the Premises), or with gas or water pipes any apparatus or device for the
purposes of using
9.
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electric current, gas, or water. If Tenant shall require water, gas, or
electric current in excess of that usually furnished or supplied to premises
being used as general office space, Tenant shall first obtain the written
consent of Landlord, which consent shall not be unreasonably withheld and
Landlord may cause an electric current, gas or water meter to be installed in
the Premises in order to measure the amount of electric current, gas or water
consumed for any such excess use. The cost of any such meter and of the
installation, maintenance and repair thereof, all charges for such excess
water, gas and electric current consumed (as shown by such meters and at the
rates then charged by the furnishing public utility); and any additional
expense incurred by Landlord in keeping account of electric current, gas, or
water so consumed shall be paid by Tenant, and Tenant agrees to pay Landlord
therefor promptly upon demand by Landlord.
12. TAXES.
A. As Additional Rent and in accordance with paragraph 4 D
of this Lease, Tenant shall pay to Landlord Tenant's proportionate share of
all Real Property Taxes, which pro rata share shall be allocated to the
leased Premises by square footage or other equitable basis, as calculated by
Landlord. The term "Real Property Taxes," as used herein, shall mean (i) all
taxes, assessments, levies and other charges of any kind or nature
whatsoever, general and special, foreseen and unforeseen (including all
installments of principal and interest required to pay any general or special
assessments for public improvements and any increases resulting from
reassessments caused by any change in ownership of the Complex) now or
hereafter imposed by any governmental or quasi-governmental authority or
special district having the direct or indirect power to tax or levy
assessments, which are levied or assessed against, or with respect to the
value, occupancy or use of, all or any portion of the Complex (as now
constructed or as may at any time hereafter be constructed, altered, or
otherwise changed) or Landlord's interest therein; any improvements located
within the Complex (regardless of ownership); the fixtures, equipment and
other property of Landlord, real or personal, that are an integral part of
and located in the Complex; or parking areas, public utilities, or energy
within the Complex; (ii) all charges, levies or fees imposed by reason of
environmental regulation or other governmental control of the Complex; and
(iii) all costs and fees (including attorneys' fees) incurred by Landlord in
contesting any Real Property Tax and in negotiating with public authorities
as to any Real Property Tax. If at any time during the term of this Lease the
taxation or assessment of the complex prevailing as of the commencement date
of this Lease shall be altered so that in lieu of or in addition to any Real
Property Tax described above there shall be levied, assessed or imposed
(whether by reason of a change in the method of taxation or assessment,
creation of a new tax or charge, or any other cause) an alternate or
additional tax or charge (i) on the value, use or occupancy of the Complex or
Landlord's interest therein or (ii) on or measured by the gross receipts,
income or rentals for the Complex, on Landlord's business of leasing the
Complex, or computed in any manner with respect to the operation of the
Complex, then any such tax or charge, however designated, shall be included
within the meaning of the term "Real Property Taxes" for purposes of this
Lease. If any Real Property Tax is based upon property or rents unrelated to
the Complex, then only that part of such real Property Tax that is fairly
allocable to the Complex shall be included within the meaning of the term
"Real Property Taxes." Notwithstanding the foregoing, the term "Real Property
Taxes" shall not include estate, inheritance, gift or franchise taxes of
Landlord or the federal or state net income tax imposed on
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Landlord's income from all sources. The term "Real Estate Taxes" shall also
include supplemental taxes related to the period of Tenant's Lease Term
whenever levied, including any such taxes that may be levied after the Lease
Term has expired.
B. TAXES ON TENANT'S PROPERTY.
(a) Tenant shall be liable for and shall pay
ten days before delinquency, taxes levied against any personal property or
trade fixtures placed by Tenant in or about the Premises. If any such taxes
on Tenant's personal property or trade fixtures are levied against Landlord
or Landlord's property or if the assessed value of the Premises is increased
by the inclusion therein of a value placed upon such personal property or
trade fixtures of Tenant and if Landlord, after written notice to Tenant,
pays the taxes based on such increased assessment, which Landlord shall have
the right to do regardless of the validity thereof, but only under proper
protest if requested by Tenant. Tenant shall upon demand, as the case may be,
repay to Landlord the taxes so levied against Landlord, or the proportion of
such taxes resulting from such increase in the assessment; provided that in
any such event Tenant shall have the right, in the name of Landlord and with
Landlord's full cooperation, to bring suit in any court of competent
jurisdiction to recover the amount of any such taxes so paid under protest,
and any amounts so recovered shall belong to Tenant.
(b) If Tenant improvements in the Premises,
whether installed, and/or paid for by Landlord or Tenant and whether or not
affixed to the real property so as to become a part thereof, are assessed for
real property tax purposes at a valuation higher than the valuation at which
standard office improvements in other space in the Complex are assessed, then
the real property taxes and assessments levied against Landlord or the
Complex by reason of such excess assessed valuation shall be deemed to be
taxes levied against personal property of Tenant and shall be governed by the
provisions of 12Ba above. If the records of the County Assessor are available
and sufficiently detailed to serve as a basis for determining whether said
Tenant improvements are assessed at a higher valuation than standard office
improvements in other space in the Complex, such records shall be binding on
both the Landlord and the Tenant. If the records of the County Assessor are
not available or sufficiently detailed to serve as a basis for making said
determination, the actual cost of construction shall be used.
13. LIABILITY INSURANCE. Tenant, at Tenant's expense, agrees to keep
in force during the term of this Lease a policy of commercial general
liability insurance with a combined single limit coverage of not less than
Two Million Dollars ($2,000,000) per occurrence for injuries to or death of
persons occurring in, on or about the Premises or the Complex, and property.
The policy or policies affecting such insurance, certificates of insurance of
which shall be furnished to Landlord, shall name Landlord as additional
insureds, and shall insure any liability of Landlord, contingent or
otherwise, as respects acts or omissions of Tenant, its agents, employees or
invitees or otherwise by any conduct or transactions of any of said persons
in or about or concerning the Premises, including any failure of Tenant to
observe or perform any of its obligations hereunder; shall be issued by an
insurance company admitted to transact business in the State of California;
and shall provide that the insurance effected thereby shall not be canceled,
except upon thirty (30) days prior written notice to Landlord. If, during the
term of this
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Lease, in the considered opinion of Landlord's Lender, insurance advisor, or
counsel, the amount of insurance described in this paragraph 13 is not
adequate, Tenant agrees to increase said coverage to such reasonable amount
as Landlord's Lender, insurance advisor, or counsel shall deem adequate.
14. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMANS COMPENSATION
INSURANCE. Tenant shall maintain a policy or policies of fire and property
damage insurance in "all risk" form with a sprinkler leakage endorsement
insuring the personal property, inventory, trade fixtures, and leasehold
improvements within the leased Premises for the full replacement value
thereof. The proceeds from any of such policies shall be used for the repair
or replacement of such items so insured. Tenant shall also maintain a policy
or policies of workman's compensation insurance and any other employee
benefit insurance sufficient to comply with all laws.
15. PROPERTY INSURANCE. Landlord shall purchase and keep in force
and as Additional Rent and in accordance with Paragraph 4D of this Lease,
Tenant shall pay to Landlord (or Landlord's agent if so directed by Landlord)
Tenant's proportionate share (calculated on a square footage or other
equitable basis as calculated by Landlord) of the deductibles on insurance
claims and the cost of policy or policies of insurance covering loss or
damage to the Premises and Complex in the amount of the full replacement
value thereof, providing protection against those perils included within the
classification of "all risks" insurance and flood and/or earthquake
insurance, if available, plus a policy of rental income insurance in the
amount of one hundred percent (100%) of twelve (12) months Basic Rent, plus
sums paid as Additional Rent. If such insurance cost is increased due to
Tenant's use of the Premises or the Complex, Tenant agrees to pay to Landlord
the full cost of such increase. Tenant shall have no interest in nor any
right to the proceeds of any insurance procured by Landlord for the Complex.
Landlord and Tenant do each hereby respectively release the other,
to the extent of insurance coverage of the releasing party, from any
liability for loss or damage caused by fire or any of the extended coverage
casualties included in the releasing party's insurance policies, irrespective
of the cause of such fire or casualty; provided, however, that if the
insurance policy of either releasing party prohibits such waiver, then this
waiver shall not take effect until consent to such waiver is obtained. If
such waiver is so prohibited, the insured party affected shall promptly
notify the other party thereof.
16. INDEMNIFICATION. Landlord shall not be liable to Tenant and
Tenant hereby waives all claims against Landlord for any injury to or death
of any person or damage to or destruction of property in or about the
Premises or the Complex by or from any cause whatsoever, including, without
limitation, gas, fire, oil, electricity or leakage of any character from the
roof, walls, basement or other portion of the Premises or the Complex but
excluding, however the willful misconduct or negligence of Landlord, its
agents, servants, employees, invitees, or contractors of which negligence
Landlord has knowledge and reasonable time to correct. Except as to injury to
persons or damage to property to the extent arising from the willful
misconduct or negligence of Landlord, its agents, servants, employees,
invitees, or
12.
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contractors, Tenant shall hold Landlord harmless from and defend Landlord
against any and all expenses, including reasonable attorneys' fees, in
connection therewith, arising out of any injury to or death of any person or
damage to or destruction of property occurring in, on or about the Premises,
or any part thereof, from any cause whatsoever.
17. COMPLIANCE. Tenant, at its sole cost and expense, shall promptly
comply with all laws, statutes, ordinances and governmental rules,
regulations or requirements now or hereafter in effect; with the requirements
of any board of fire underwriters or other similar body now or hereafter
constituted; and with any direction or occupancy certificate issued pursuant
to law by any public officer; provided, however, that no such failure shall
be deemed a breach of the provisions if Tenant, immediately upon
notification, commences to remedy or rectify said failure. The judgment of
any court of competent jurisdiction or the admission of Tenant in any action
against Tenant, whether Landlord be a party thereto or not, that Tenant has
violated any such laws, statute, ordinance or governmental rule, regulation,
requirements, direction or provisions, shall be conclusive of that fact as
between Landlord and Tenant. This paragraph shall not be interpreted as
requiring Tenant to make structural changes or improvements, except to the
extent such changes or improvements are required as a result of Tenant's use
of the Premises. Tenant shall, at its sole cost and expense, comply with any
and all requirements pertaining to said Premises, of any insurance
organization or company, necessary for the maintenance of reasonable fire and
public liability insurance covering the Premises.
18. LIENS. Tenant shall keep the Premises and the Complex free from
any liens arising out of any work performed, materials furnished or
obligation incurred by Tenant. In the event that Tenant shall not, within ten
(10) days following the imposition of such lien, cause the same to be
released of record, Landlord shall have, in addition to all other remedies
provided herein and by law, the right, but no obligation, to cause the same
to be released by such means as it shall deem proper, including payment of
the claim giving rise to such lien. All sums paid by Landlord for such
purpose, and all expenses incurred by it in connection therewith, shall be
payable to Landlord by Tenant on demand with interest at the prime rate of
interest as quoted by the Bank of America.
19. ASSIGNMENT AND SUBLETTING. Tenant shall not assign, transfer, or
hypothecate the leasehold estate under this Lease, or any interest therein,
and shall not sublet the Premises, or any part thereof, or any right or
privilege appurtenant thereto, or suffer any other person or entity to occupy
or use the Premises, or any portion thereof, without, in each case, the prior
written consent of Landlord which consent will not be unreasonably withheld.
As a condition for granting this consent to any assignment, transfer or
subletting, Landlord shall require Tenant to pay to Landlord, as Additional
Rent, all rents and/or additional consideration received by Tenant from its
assignees, transferees, or subtenants in excess of the rent payable by Tenant
to Landlord hereunder for the assigned, transferred, and/or subleased space.
Tenant shall, by thirty (30) days written notice, advise Landlord of its
intent to assign or transfer Tenant's interest in the Lease or sublet the
Premises or any portion thereof for any part of the term hereof. Within
thirty (30) days after receipt of said written notice, Landlord may, in its
sole discretion, elect to terminate this Lease as to the portion of the
Premises described in Tenant's notice on the date specified in Tenant's
notice by giving written notice of such election to terminate. If no
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such notice to terminate is given to Tenant within said thirty (30) day
period, Tenant may proceed to locate an acceptable sublessee, assignee, or
other transferee for presentment to Landlord for Landlord's approval, all in
accordance with the terms, covenants, and conditions of this paragraph 19. If
Tenant intends to sublet the entire Premises and Landlord elects to terminate
this Lease, this Lease shall be terminated on the date specified in Tenant's
notice. If, however, this Lease shall terminate pursuant to the foregoing
with respect to less than all the Premises, the rent, as defined and reserved
hereinabove shall be adjusted on a pro rata basis to the number of square
feet retained by Tenant, and this Lease as so amended shall continue in full
force and effect. In the event Tenant is allowed to assign, transfer or
sublet the whole or any part of the Premises, with the prior written consent
of Landlord, no assignee, transferee or subtenant shall assign or transfer
this Lease, either in whole or in part, or sublet the whole or any part of
the Premises, without also having obtained the prior written consent of
Landlord which consent shall not be unreasonably withheld. A consent of
Landlord to one assignment, transfer, hypothecation, subletting, occupation
or use by any other person shall not release Tenant from any of Tenant's
obligations hereunder or be deemed to be a consent to any subsequent similar
or dissimilar assignment, transfer, hypothecation, subletting, occupation or
use by any other person. Any such assignment, transfer, hypothecation,
subletting, occupation or use without such consent shall be voided and shall
constitute a breach of this Lease by Tenant and shall, at the option of
Landlord exercised by written notice to Tenant, terminate this Lease. The
leasehold estate under this Lease shall not, nor shall any interest therein,
be assignable for any purpose by operation of law without the written consent
of Landlord which consent shall not be unreasonably withheld. As a condition
to its consent, Landlord shall require Tenant to pay all expenses in
connection with the assignment, and Landlord shall require Tenant's assignee
or transferee (or other assignees or transferees) to assume in writing all of
the obligations under this Lease and for Tenant to remain liable to Landlord
under this Lease.
20. SUBORDINATION AND MORTGAGES. In the event Landlord's title or
leasehold interest is now or hereafter encumbered by a deed of trust, upon
the interest of Landlord in the land and buildings in which the demised
Premises are located, to secure a loan from a lender (hereinafter referred to
as "Lender") to Landlord, Tenant shall, at the request of Landlord or Lender,
execute in writing an agreement subordinating its rights under this Lease to
the lien of such deed of trust, or, if so requested, agreeing that the lien
of Lender's deed of trust shall be or remain subject and subordinate to the
rights of Tenant under this Lease. Notwithstanding any such subordination,
Tenant's possession under this Lease shall not be disturbed if Tenant is not
in default and so long as Tenant shall pay all rent and observe and perform
all of the provisions set forth in this Lease.
21. ENTRY BY LANDLORD. Landlord reserves, and shall at all
reasonable times after at least 24 hours notice (except in emergencies) have
the right to enter the Premises to inspect them: to perform any services to
be provided by Landlord hereunder, to submit the Premises to prospective
purchasers, mortgagers or tenants; to post notices of nonresponsibility; and
to alter, improve or repair the premises and any portion of the Complex, all
without abatement of rent; and may erect scaffolding and other necessary
structures in or through the Premises where reasonably required by the
character of the work to be performed; provided, however that the business of
Tenant shall be interfered with to the least extent that is reasonably
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practical. For each of the foregoing purposes, any entry to the Premises
obtained by Landlord by any of said means, or otherwise, shall not under any
circumstances be construed or deemed to be a forcible or unlawful entry into
or a detainer of the Premises or an eviction, actual or constructive, of
Tenant from the Premises or any portion thereof. Landlord shall also have the
right at any time to change the arrangement or location of entrances or
passageways, doors and doorways, and corridors, elevators, stairs, toilets or
other public parts of the Complex and to change the name, number or
designation by which the Complex is commonly known, and none of the foregoing
shall be deemed an actual or constructive eviction of Tenant, or shall
entitle Tenant to any reduction of rent hereunder.
22. BANKRUPTCY AND DEFAULT. The commencement of a bankruptcy action
or liquidation action or reorganization action or insolvency action or an
assignment of or by Tenant for the benefit of creditors, or any similar
action undertaken by Tenant, or the insolvency of Tenant, shall, at
Landlord's option, constitute a breach of this Lease by Tenant. If the
trustee or receiver appointed to serve during a bankruptcy, liquidation,
reorganization, insolvency or similar action elects to reject Tenant's
unexpired Lease, the trustee or receiver shall notify Landlord in writing of
its election within thirty (30) days after an order for relief in a
liquidation action or within thirty (30) days after the commencement of any
action.
Within thirty (30) days after court approval of the assumption of
this Lease, the trustee or receiver shall cure (or provide adequate assurance
to the reasonable satisfaction of Landlord that the trustee or receiver shall
cure) any and all previous defaults under the unexpired Lease and shall
compensate Landlord for all actual pecuniary loss and herein, includes, but
shall not be limited to: (i) assurance of source and payment of rent, and
other consideration due under this Lease; (ii) assurance that the assumption
or assignment of this Lease will not breach substantially any provision, such
as radius, location, use, or exclusivity provision, in any agreement relating
to the above described Premises.
Nothing contained in this section shall affect the existing right of
Landlord to refuse to accept an assignment upon commencement of or in
connection with a bankruptcy, liquidation, reorganization or insolvency
action or an assignment of Tenant for the benefit of creditors or other
similar act. Nothing contained in this Lease shall be construed as giving or
granting or creating an equity in the demised Premises to Tenant. In no event
shall the leasehold estate under this Lease, or any interest therein, be
assigned by voluntary or involuntary bankruptcy proceeding without the prior
written consent of Landlord. In no event shall this Lease or any rights or
privileges hereunder be an asset of Tenant under any bankruptcy, insolvency
or reorganization proceedings.
The failure to perform or honor any covenant, condition or
representation made under this Lease shall constitute default hereunder by
Tenant upon expiration of the appropriate grace period hereinafter provided.
Tenant shall have a period of five (5) days from the date of written notice
from Landlord within which to cure any default in the payment of rental or
adjustment thereto. Tenant shall have a period of thirty (30) days from the
date of written notice from landlord within which to cure any other default
under this Lease; provided, however, that if the nature of Tenant's failure
is such that more than thirty (30) days is reasonably required to cure
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the same, Tenant shall not be in default so long as Tenant commences
performance within such thirty (30) day period and thereafter prosecutes the
same to completion. Upon an uncured default of this Lease by Tenant, Landlord
shall have the following rights and remedies in addition to any other rights
or remedies available to Landlord at law or in equity;
(a) The rights and remedies provided for by California
Civil Code Section 1951.2 including but not limited to, recovery of the worth
at the time of award of the amount by which the unpaid rent for the balance
of the term after the time of award exceeds the amount of rental loss for the
same period that Tenant proves could be reasonably avoided, as computed
pursuant to subsection (b) of said Section 1951.2. Any proof by Tenant under
subparagraphs (2) and (3) of Section 1951.2 of the California Civil Code of
the amount of rental loss that could be reasonably avoided shall be made in
the following manner: Landlord and Tenant shall each select a licensed real
estate broker in the business of renting property of the same type and use as
the Premises and in the same geographic vicinity. Such two real estate
brokers shall select a third licensed real estate broker, and the three
licensed real estate brokers so selected shall determine the amount of the
rental loss that could be reasonably avoided from the balance of the term of
this Lease after the time of award. The decision of the majority of said
licensed real estate brokers shall be final and binding upon the parties
hereto.
(b) The rights and remedies provided by California Civil
Code Section which allows Landlord to continue to Lease in effect and to
enforce all of its rights and remedies under this Lease, including the right
to recover rent as it becomes due, for so long as Landlord does not terminate
Tenant's right to possession; acts of maintenance or preservation, efforts to
relet the Premises, or the appointment of a receiver upon Landlord's
initiative to protect its interest under this Lease shall not constitute a
termination of Tenant's right to possession.
(c) The right to terminate this Lease by giving notice to
Tenant in accordance with applicable law.
(d) To the extent permitted by law, the right and power to
enter the Premises and remove therefrom all persons and property, to store
such property in a public warehouse or elsewhere at the cost of and for the
account of Tenant, and to sell such property and apply such proceeds
therefrom pursuant to applicable California law. Landlord may from time to
time sublet the Premises or any part thereof for such term or terms (which
may extend beyond the term of this Lease) and at such rent and such other
terms as Landlord in its sole discretion may deem advisable, with the right
to make alterations and repairs to the Premises. Upon each subletting, (i)
Tenant shall be immediately liable to pay Landlord, in addition to
indebtedness other than rent due hereunder, the cost of such subletting,
including, but not limited to, reasonable attorneys' fees, and any real
estate commissions actually paid, and the cost of such alterations and
repairs incurred by Landlord and the amount, if any, by which the rent
hereunder for the period of such subletting (to the extent such period does
not exceed the term hereof) exceeds the amount to be paid as rent for the
Premises for such period or (ii) at the option of Landlord, rents received
from such subletting shall be applied first to payment of indebtedness other
than rent due hereunder from Tenant to Landlord; second, to the payment of
any costs of such subletting and of such alterations and repairs; third to
payment of rent due and unpaid
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hereunder; and the residue, if any, shall be held by Landlord and applied in
payment of future rent as the same becomes due hereunder. If Tenant has been
credited with any rent to be received by such subletting under option (i) and
such rent shall not be promptly paid to Landlord by subtenant(s), or if such
rentals received from such subletting under option (ii) during any month be
less than to be paid during the month by Tenant hereunder, Tenant shall pay
any such deficiency to landlord. Such deficiency shall be calculated and paid
monthly. For all purposes set forth in this subparagraph d, no taking
possession of the Premises by Landlord shall be construed as an election on
its part to terminate this Lease unless a written notice of such intention be
given to Tenant. Notwithstanding any such subletting without termination,
Landlord may at any time hereafter elect to terminate this Lease for such
previous breach.
(e) The right to have a receiver appointed for Tenant upon
application by Landlord, to take possession of the Premises and to apply any
rental collected from the Premises and to exercise all other rights and
remedies granted to Landlord pursuant to subparagraph d above.
23. ABANDONMENT. Tenant shall not vacate or abandon the Premises at
any time during the term of this Lease and if Tenant shall abandon, vacate or
surrender said Premises, or be dispossessed by the process of law, or
otherwise, any personal property belonging to Tenant and left on the Premises
shall be deemed to be abandoned, at the option of Landlord, except such
property as may be mortgaged to Landlord.
24. DESTRUCTION. In the event the Premises are destroyed in whole or
in part from any cause, except for routine maintenance and repairs and
incidental damage and destruction caused by vandalism and accidents for which
Tenant is responsible for under Paragraph 10, Landlord may, at its option:
(a) Rebuild or restore the Premises to their
condition prior to the damage or destruction, or
(b) Terminate this Lease (providing that the Premises is
damaged to the extent of 33-1/3% of the replacement cost).
If Landlord does not give Tenant notice in writing within thirty
(30) days from the destruction of the Premises of its election to either
rebuild or restore them, or to terminate this Lease, Landlord shall be deemed
to have elected to rebuild or restore them, in which event Landlord agrees,
at its expense, promptly to rebuild or restore the Premises to their
condition prior to the damage or destruction. However, Tenant shall be
responsible for paying one hundred percent (100%) of the insurance
deductible, provided the damage is exclusive to Tenant's Leased Premises; if
the damage is non-exclusive to Tenant's Leased Premises and Tenant did not
cause said damage, Tenant shall pay its pro-rata share of the deductible.
Tenant shall be entitled to a reduction in rent while such repair is being
made in the proportion that the area of the Premises rendered untenantable by
such damage bears to the total area of the Premises. If Landlord initially
estimates that the rebuilding or restoration will exceed one hundred eighty
(180) days or if Landlord does not complete the rebuilding or restoration
within one hundred eighty (180) days following the date of destruction (such
period of time to be extended for delays caused by the
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fault or neglect of Tenant or because of Acts of God, acts of subcontractors,
or delay of the contractors or subcontractors due to such causes or other
contingencies beyond the control of Landlord), then Tenant shall have the
right to terminate this Lease by giving fifteen (15) days prior written
notice to Landlord. Notwithstanding anything herein to the contrary,
Landlord's obligation to rebuild or restore shall be limited to the building
and interior improvements constructed by Landlord as they existed as of the
commencement date of the Lease and shall not include restoration of Tenant's
trade fixtures, equipment, merchandise, or any improvements, alterations or
additions made by Tenant to the Premises, which Tenant shall forthwith
replace or fully repair at Tenant's sole cost and expense provided this Lease
is not cancelled according to the provisions above.
Unless this Lease is terminated pursuant to the foregoing
provisions, this Lease shall remain in full force and effect. Tenant hereby
expressly waives the provisions of Section 1932, Subdivision 2, in Section
1933, Subdivision 4 of the California Civil Code.
In the event that the building in which the Premises are situated is
damaged or destroyed to the extent of not less than 33-1/3% of the
replacement cost thereof, Landlord may elect to terminate this Lease, whether
the Premises be injured or not. Notwithstanding anything to the contrary
herein, Landlord may terminate this Lease in the event of an uninsured event
or if insurance proceeds are insufficient to cover 100% of the rebuilding
costs net of the deductible.
25. EMINENT DOMAIN. If all or any part of the Premises shall be
taken by any public or quasi-public authority under the power of eminent
domain or conveyance in lieu thereof, this Lease shall terminate as to any
portion of the Premises so taken or conveyed on the date when title vests in
the condemnor, and Landlord shall be entitled to any and all payment, income,
rent, award, or any interest therein whatsoever which may be paid or made in
connection with such taking or conveyance, and Tenant shall have no claim
against Landlord or otherwise for the value of any unexpired term of this
Lease. Notwithstanding the foregoing paragraph, any compensation specifically
awarded Tenant for loss of business, Tenant's personal property, moving cost
or loss of goodwill, shall be and remain the property of Tenant.
If (i) any action or proceeding is commenced for such taking of the
Premises or any part thereof, or if Landlord is advised in writing by any
entity or body having the right or power of condemnation of its intention to
condemn the premises or any portion thereof, or (ii) any foregoing events
occur with respect to the taking of any space in the Complex not leased
hereby, or if any such spaces so taken or conveyed in lieu of such taking and
Landlord shall decide to discontinue the use and operation of the Complex, or
decide to demolish, alter or rebuild the Complex, then, in any such events
Landlord shall have the right to terminate this Lease by giving Tenant
written notice thereof within sixty (60) days of the date of receipt of said
written advice, or commencement of said action or proceeding, or taking
conveyance, which termination shall take place as of the first to occur of
the last day of the calendar month next following the month in which such
notice is given or the date on which title to the Premises shall vest in the
condemnor.
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In the event of such a partial taking or conveyance of the Premises,
if the portion of the Premises taken or conveyed is so substantial that the
Tenant can no longer reasonably conduct its business, Tenant shall have the
privilege of terminating this Lease within sixty (60) days from the date of
such taking or conveyance, upon written notice to Landlord of its intention
so to do, and upon giving of such notice this Lease shall terminate on the
last day of the calendar month next following the month in which such notice
is given, upon payment by Tenant of the rent from the date of such taking or
conveyance to the date of termination.
If a portion of the Premises be taken by condemnation or conveyance
in lieu thereof and neither Landlord nor Tenant shall terminate this Lease as
provided herein, this Lease shall continue in full force and effect as to the
part of the Premises not so taken or conveyed, and the rent herein shall be
apportioned as of the date of such taking or conveyance so that thereafter
the rent to be paid by Tenant shall be in the ratio that the area of the
portion of the Premises not so taken or conveyed bears to the total area of
the Premises prior to such taking.
26. SALE OR CONVEYANCE BY LANDLORD. In the event of a sale or
conveyance of the Complex or any interest therein, by an owner of the
reversion then constituting Landlord, the transferor shall thereby be
released from any further liability upon any of the terms, covenants or
conditions (express or implied) herein contained in favor of Tenant, and in
such event, insofar as such transfer is concerned. Tenant agrees to look
solely to the responsibility of the successor in interest of such transferor
in and to the Complex and this Lease. This Lease shall not be affected by any
such sale or conveyance, and Tenant agrees to attorn to the successor in
interest of such transferor.
27. ATTORNMENT TO LENDER OR THIRD PARTY. In the event the interest
of Landlord in the land and buildings in which the leased Premises are
located (whether such interest of Landlord is a fee title interest or a
leasehold interest) is encumbered by deed of trust, and such interest is
acquired by the lender or any third party through judicial foreclosure or by
exercise of a power of sale at private trustee's foreclosure sale, Tenant
hereby agrees to attorn to the purchaser at any such foreclosure sale and to
recognize such purchaser as the Landlord under this Lease. In the event the
lien of the deed of trust securing the loan from a Lender to Landlord is
prior and paramount to the Lease, this Lease shall nonetheless continue in
full force and effect for the remainder of the unexpired term hereof, at the
same rental herein reserved and upon all the other terms, conditions and
covenants herein contained.
28. HOLDING OVER. Any holding over by Tenant after expiration or
other termination of the term of this Lease with the written consent of
Landlord delivered to Tenant shall not constitute a renewal or extension of
the Lease or give Tenant any rights in or to the Leased Premises except as
expressly provided in this Lease. Any holding over after the expiration or
other termination of the term of this Lease, with the consent of Landlord,
shall be construed to be a tenancy from month to month, on the same terms and
conditions herein specified insofar as applicable except that the monthly
Basic Rent shall be increased to an amount equal to one hundred fifty percent
(150%) of the monthly Basic Rent required during the last month of the Lease
term.
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29. CERTIFICATE OF ESTOPPEL. Tenant shall at any time upon not less
than ten (10) days' prior written notice from Landlord execute, acknowledge
and deliver to Landlord a statement in writing (i) certifying that this Lease
is unmodified and in full force and effect (or, if modified, stating the
nature of such modification and certifying that this Lease, as so modified,
is in full force and effect) and the date to which the rent and other charges
are paid in advance, if any, and (ii) acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on the part of Landlord hereunder,
or specifying such defaults, if any, are claimed. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Premises. Tenant's failure to deliver such statement within such time shall
be conclusive upon Tenant that this Lease is in full force and effect,
without modification except as may be represented by Landlord; that there are
no uncured defaults in Landlord's performance, and that not more than one
month's rent has been paid in advance.
30. CONSTRUCTION CHANGES. It is understood that the description of
the Premises and the location of ductwork, plumbing and other facilities
therein are subject to such minor changes as Landlord or Landlord's architect
determines to be desirable in the course of construction of the Premises, and
no such changes, or any changes in plans for any other portions of the
Complex shall affect this Lease or entitle Tenant to any reduction of rent
hereunder or results in any liability of Landlord to Tenant. Landlord does
not guarantee the accuracy of any drawings supplied to Tenant and
verification of the accuracy of such drawings rests with Tenant.
31. RIGHT OF LANDLORD TO PERFORM. All terms, covenants and
conditions of this Lease to be performed or observed by Tenant shall be
performed or observed by Tenant at Tenant's sole cost and expense and without
any reduction of rent. If Tenant shall fail to pay any sum of money, or other
rent, required to be paid by it hereunder and such failure shall continue for
five (5) days after written notice thereof by Landlord, or shall fail to
perform any other term or covenant hereunder on its part to be performed, and
such failure shall continue for thirty (30) days after written notice thereof
by Landlord, Landlord, without waiving or releasing Tenant from any
obligation of Tenant hereunder, may, but shall not be obligated to, make any
such payment or perform any such other term or covenant on Tenant's part to
be performed. All sums so paid by Landlord and all necessary costs of such
performance by Landlord together with interest thereon at the rate of the
prime rate of interest per annum as quoted by the Bank of America from the
date of such payment or performance by Landlord, shall be paid (and Tenant
covenants to make such payment) to Landlord on demand by Landlord, and
Landlord shall have (in addition to any other right or remedy of Landlord)
the same rights and remedies in the event of nonpayment by Tenant as in the
case of failure by Tenant in the payment of rent hereunder.
32. ATTORNEYS' FEES.
(a) In the event that either Landlord or Tenant should
bring suit for the possession of the Premises, for the recovery of any sum
due under this Lease, or because of the breach of any provision of this
Lease, or for any other relief against the other party hereunder, then all
costs and expenses, including reasonable attorneys' fees, incurred by the
prevailing party therein shall be paid by the other party, which obligation
on the part of the other party shall be
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deemed to have accrued on the date of the commencement of such action and
shall be enforceable whether or not the action is prosecuted to judgement.
(b) Should Landlord be named as a defendant in any suit
brought against Tenant in connection with or arising out of Tenant's
occupancy hereunder, Tenant shall pay to Landlord its costs and expenses
incurred in such suit, including a reasonable attorney's fee.
33. WAIVER. The waiver by either part of the other party's failure
to perform or observe any term, covenant or condition herein contained to be
performed or observed by such waiving party shall not be deemed to be a
waiver of such term, covenant or condition or of any subsequent failure to
the party failing to perform or observe the same or any other such item,
covenant or condition therein contained, and no custom or practice which may
develop between the parties hereto during the term hereof shall be deemed a
waiver of, or in any way affect, the right of either party to insist upon
performance and observance by the other party in strict accordance with the
terms hereof.
34. NOTICES. All notices, demands, requests, advices or designations
which may be or are required to be given by either party to the other
hereunder shall be in writing. All notices, demands, requests, advices or
designations by Landlord to Tenant shall be sufficiently given, made or
delivered if personally served on Tenant by leaving the same at the Premises
or if sent by United States certified or registered mail, postage prepaid,
addressed to Tenant at the Premises. All notices, demands, requests, advices
or designations by Tenant to Landlord shall be sent by United States
certified or registered mail, postage prepaid, addressed to Landlord at its
offices at Peery/Arrillaga, 2560 Mission College Blvd., Suite 101, Santa
Clara, CA 95054. Each notice, request, demand, advice or designation referred
to in this paragraph shall be deemed received on the date of the personal
service or mailing thereof in the manner herein provided, as the case may be.
35. EXAMINATION OF LEASE. Submission of this instrument for
examination or signature by Tenant does not constitute a reservation of or
option for a lease, and this instrument is not effective as a lease or
otherwise until its execution and delivery by both Landlord and Tenant.
36. DEFAULT BY LANDLORD. Landlord shall not be in default unless
Landlord fails to perform obligations required of Landlord within a
reasonable time, but in no event earlier than thirty (30) days after written
notice by Tenant to Landlord and to the holder of any first mortgage or deed
of trust covering the Premises whose name and address shall have heretofore
been furnished to Tenant in writing, specifying wherein landlord has failed
to perform such obligations; provided, however, that if the nature of
Landlord's obligations is such that more than thirty (30) days are required
for performance, then Landlord shall not be in default if Landlord commences
performance within such thirty (30) day period and thereafter diligently
prosecutes the same to completion.
37. CORPORATE AUTHORITY. If Tenant is a corporation (or a
partnership), each individual executing this Lease on behalf of said
corporation (or partnership) represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of said corporation
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(or partnership) in accordance with the by-laws of said corporation (or
partnership in accordance with the partnership agreement) and that this Lease
is binding upon said corporation (or partnership) in accordance with its
terms if Tenant is a corporation, Tenant shall, within thirty (30) days after
execution of this Lease, deliver to Landlord a certified copy of the
resolution of the Board of Directors of said corporation authorizing or
ratifying the execution of this Lease.
38. LIMITATION OF LIABILITY. In consideration of the benefits
accruing hereunder, Tenant and all successors and assigns covenant and agree
that, in the event of any actual or alleged failure, breach or default
hereunder by Landlord:
(i) the sole and exclusive remedy shall be against
Landlord and Landlord's assets;
(ii) no partner of Landlord shall be sued or named as a
party in any suit or action (except as may be necessary to secure
jurisdiction of the partnership);
(iii) no service of process shall be made against any
partner of Landlord (except as may be necessary to secure jurisdiction of the
partnership);
(iv) no partner of Landlord shall be required to
answer or otherwise plead to an service of process;
(v) no judgment will be taken against any partner of
Landlord;
(vi) any judgment taken against any partner of Landlord may
be vacated and set aside at any time without hearing;
(vii) no writ of execution will ever be levied against the
assets of any partner of Landlord;
(viii) these covenants and agreements are enforceable both
by landlord and also by any partner of Landlord.
Tenant agrees that each of the foregoing covenants and agreements
shall be applicable to any covenant or agreement either expressly contained
in this Lease or imposed by statute or at common law.
39. MISCELLANEOUS AND GENERAL PROVISIONS.
(a) Tenant shall not, without the written consent of
Landlord, use the name of the building for any purpose other than as the
address of the business conducted by Tenant in the Premises.
(b) This Lease shall in all respects be governed by and
construed in accordance with the laws of the State of California. If any
provision of this Lease shall be invalid, unenforceable or ineffective for
any reason whatsoever, all other provisions hereof shall be and remain in
full force and effect.
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(c) The term "Premises" includes the space leased hereby
and any improvements now or hereafter installed therein or attached thereto.
The term "Landlord" or any pronoun used in place thereof includes the plural
as well as the singular and the successors and assigns of Landlord. The term
"Tenant" or any pronoun used in place thereof includes the plural as well as
the singular and individuals, firms, associations, partnerships and
corporations, and their and each of their respective heirs, executors,
administrators, successors and permitted assigns, according to the context
hereof, and the provisions of this Lease shall inure to the benefit of and
bind such heirs, executors, administrators, successors and permitted assigns.
The term "person" includes the plural as well as the singular and
individuals, firms, associations, partnerships and corporations. Words used in
any gender include other genders. If there be more than one Tenant the
obligations of Tenant hereunder are joint and several. The paragraph headings of
this Lease are for convenience of reference only and shall have no effect upon
the construction of any provision hereof.
(d) Time is of the essence of this Lease and of each and all
of its provisions.
(e) At the expiration or earlier termination of this Lease,
Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) days
after written demand from Landlord to Tenant, any quitclaim deed or other
document required by any reputable title company, licensed to operate in the
State of California, to remove the cloud or encumbrance created by this Lease
from the real property of which Tenant's Premises are a part.
(f) This instrument along with any exhibits and attachments
hereto constitutes the entire agreement between Landlord and Tenant relative to
the Premises and this agreement and the exhibits and attachments may be altered,
amended or revoked only by an instrument in writing signed by both Landlord and
Tenant. Landlord and Tenant agree hereby that all prior or contemporaneous oral
agreements between and among themselves and their agents or representatives
relative to the leasing of the Premises are merged in or revoked by this
agreement.
(g) Neither Landlord nor Tenant shall record this Lease or a
short form memorandum hereof without the consent of the other.
(h) Tenant further agrees to execute any amendments required
by a lender to enable Landlord to obtain financing, so long as Tenant's rights
hereunder are not substantially affected.
(i) Paragraphs 43 through 54 are added hereto and are
included as a part of this lease.
(j) Clauses, plats and riders, if any, signed by Landlord
and Tenant and endorsed on or affixed to this Lease are a part hereof.
(k) Tenant covenants and agrees that no diminution or
shutting off of light, air or view by any structure which may be hereafter
erected (whether or not by Landlord) shall in
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any way affect his Lease, entitle Tenant to any reduction of rent hereunder
or result in any liability of Landlord to Tenant.
41. BROKERS. Tenant warrants that it had dealings with only the
following real estate brokers or agents in connection with the negotiation of
this Lease: none; and that it knows of no other real estate broker or agent
who is entitled to a commission in connection with this Lease.
42. SIGNS. No sign, placard, picture, advertisement, name or notice
shall be inscribed, displayed or printed or affixed on or to any part of the
outside of the Premises or any exterior windows of the Premises without the
written consent of Landlord first had and obtained and Landlord shall have
the right to remove any such sign, placard, picture, advertisement, name or
notice without notice to and at the expense of Tenant. If Tenant is allowed
to print or affix or in any way place a sign in, on, or about the Premises,
upon expiration or other sooner termination of this Lease, Tenant at Tenant's
sole cost and expense shall both remove such sign and repair all damage in
such a manner as to restore all aspects of the appearance of the Premises to
the condition prior to the placement of said sign.
All approved signs or lettering on outside of doors shall be
printed, painted, affixed or inscribed at the expense of Tenant by a person
approved of by Landlord. Tenant shall not place anything or allow anything to
be placed near the glass of any window, door partition or wall which may
appear unsightly from outside the Premises.
Paragraphs 43 through 51 to Lease Agreement dated August 16, 1994,
By and Between the John Arrillaga and Richard T. Peery Separate Property
Trusts, as Landlord, and Quantum Effect Design, Inc., a California
corporation, as Tenant for 23,375 PLUS OR MINUS Square Feet of Space Located
at 2500 Augustine Drive, Suite 200, Santa Clara, California.
43. BASIC RENT. In accordance with Paragraph 4(A) herein, the total
aggregate sum of THREE MILLION FOUR HUNDRED THIRTY SIX THOUSAND ONE HUNDRED
TWENTY FIVE AND NO/100 DOLLARS ($3,436,125.00), shall be payable as follows:
On November 1, 1999, the sum of FIFTY TWO THOUSAND FIVE HUNDRED
NINETY THREE AND 75/100 DOLLARS ($52,593.75) shall be due, and a like sum due
on the first day of each month thereafter, through and including October 1,
2000.
On November 1, 2000, the sum of FIFTY FOUR THOUSAND NINE HUNDRED
THIRTY ONE AND 25/100 DOLLARS ($54,931.25) shall be due, and a like sum due
on the first day of each month thereafter, through and including October 1,
2001.
On November 1, 2001, the sum of FIFTY SEVEN THOUSAND TWO HUNDRED
SIXTY EIGHT AND 75/100 DOLLARS ($57,268.75) shall be due, and a like sum due
on the first day of each month thereafter, through and including October 1,
2002.
24.
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On November 1, 2002, the sum of FIFTY NINE THOUSAND SIX HUNDRED
SIX AND 25/100 DOLLARS ($59,606.25) shall be due, and a like sum due on the
first day of each month thereafter, through and including October 1, 2003.
On November 1, 2003, the sum of SIXTY ONE THOUSAND NINE HUNDRED
FORTY THREE AND 75/100 DOLLARS ($61,943.75) shall be due, and a like sum due
on the first day of each month thereafter, through and including October 1,
2004, or until the entire aggregate sum of THREE MILLION FOUR HUNDRED THIRTY
SIX THOUSAND ONE HUNDRED TWENTY FIVE AND NO/100 DOLLARS ($3,436,125.00) has
been paid.
44. "AS-IS" BASIS. It is hereby agreed that the Premises leased
hereunder is leased strictly on an "as-is" basis and in its present
condition, and in the configuration as shown on Exhibit B to be attached
hereto, and by reference made a part hereof. It is specifically agreed
between the parties that Landlord shall not be required to make, nor be
responsible for any cost, in connection with any repair, restoration, and/or
improvement to the Premises in order for this Lease to commence, or
thereafter, throughout the Term of this Lease. Notwithstanding anything to
the contrary within this Lease, Landlord makes no warranty or representation
of any kind or nature whatsoever as to the condition or repair of the
Premises, nor as to the use or occupancy which may be made thereof.
45. CONSENT. Whenever the consent of one party to the other is
required hereunder, such consent shall not be unreasonably withheld.
46. CHOICE OF LAW: SEVERABILITY. This Lease shall in all respects be
governed by and construed in accordance with the laws of the State of
California. If any provisions of this Lease shall be invalid, unenforceable,
or ineffective for any reason whatsoever, all other provisions hereof shall
be and remain in full force and effect.
47. AUTHORITY TO EXECUTE. The parties executing this Lease Agreement
hereby warrant and represent that they are properly authorized to execute
this Lease Agreement and bind the parties on behalf of whom they execute this
Lease Agreement and to all of the terms, covenants and conditions of this
Lease Agreement as they relate to the respective parties hereto.
48. ASSESSMENT CREDITS. The demised property herein may be subject
to a special assessment levied by the City of Santa Clara as part of an
Improvement District. As a part of said special assessment proceedings (if
any), additional bonds were or may be sold and assessments were or may be
levied to provide for construction contingencies and reserve funds. Interest
shall be earned on such funds created for contingencies and on reserve funds
which will be credited for the benefit of said assessment district. To the
extent surpluses are created in said district through unused contingency
funds, interest earnings or reserve funds, such surpluses shall be deemed the
property of Landlord. Notwithstanding that such surpluses may be credited on
assessments otherwise due against the Leased Premises, Tenant shall pay to
Landlord, as additional rent if, and at the time of any such credit of
surpluses. an amount equal to all such surpluses so credited. For example: if
(1) the property is subject to an annual assessment of $1,000.00 and (ii) a
surplus of $200.00 is credited towards the current year's assessment which
25.
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reduces the assessment amount shown on the property tax bill from $1,000.00
to $800.00, Tenant shall, upon receipt of notice from Landlord, pay to
Landlord said $200.00 credit as Additional Rent.
49. ASSIGNMENT AND SUBLETTING (CONTINUED):
A. Notwithstanding the foregoing, Landlord and Tenant agree
that it shall not be unreasonable for Landlord to refuse to consent to a
proposed assignment, sublease or other transfer ("Proposed Transfer") if the
Promises or any other portion of the Property would become subject to
additional or different Government Requirements as a direct or indirect
consequence of the Proposed Transfer arid/or the Proposed Transferee's use
and occupancy of the Promises and the Property. However, Landlord may, in its
sole discretion, consent to such a Proposed Transfer where Landlord is
indemnified by Tenant and (i) Subtenant or (ii) Assignee, in form and
substance satisfactory to Landlord's counsel, by Tenant and/or the Proposed
Transferee from and against any and all costs, expenses. obligations and
liability arising out of the Proposed Transfer and/or the Proposed
Transferee's use and occupancy of the Premises and the Property.
B. Any and all sublease agreement(s) between Tenant and any
and all subtenant(s) (which agreements must be consented to by Landlord,
pursuant to the requirements of this Lease) shall contain the following
language:
"If Landlord and Tenant jointly and voluntarily
elect, for any reason whatsoever, to terminate the Master
Lease prior to the scheduled Master Lease termination date,
then this Sublease (if then still in effect) shall terminate
concurrently with the termination of the Master Lease.
Subtenant expressly acknowledges and agrees that (1) the
voluntary termination of the Master Lease by Landlord and
Tenant and the resulting termination of this Sublease shall
not give Subtenant any right or power to make any legal or
equitable claim against Landlord, including without limitation
any claim for interference with contract or interference with
prospective economic advantage, and (2) Subtenant hereby
waives any and air rights it may have under law or at equity
against Landlord to challenge such an early termination of the
Sublease, and unconditionally releases and relieves Landlord,
and its officers, directors, employees and agents, from any
and all claims, demands, and/or causes of action whatsoever
(collectively, "Claims"), whether such matters are known or
unknown, latent or apparent, suspected or unsuspected,
foreseeable or unforeseeable, which Subtenant may have arising
out of or in connection with any such early termination of
this Sublease. Subtenant knowingly and intentionally waives
any and all protection which is or may be given by Section
1542 of the California Civil Code which provides as follows:
"A general release does not extend to claims which the
creditor does not
26.
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know or suspect to exist in his favor at the time of
executing the release, which if known by him must have
materially affected his settlement with debtor.
The term of this Sublease is therefore subject to
early termination. Subtenant's initials here below evidence
(a) Subtenant's consideration of and agreement to this early
termination provision, (b) Subtenant's acknowledgment that, in
determining the net benefits to be derived by Subtenant under
the terms of this Sublease, Subtenant has anticipated the
potential for early termination, and (c) Subtenant's agreement
to the general waiver and release of Claims above.
Initials: Initials:
------------------ ----------------
Subtenant Subtenant
50. BANKRUPTCY AND DEFAULT. Paragraph 22 is modified to provide that
with respect to non-monetary defaults not involving Tenant's failure to pay
Basic Rent or Additional Rent, To shall not be in default of any non-monetary
obligation if (i) more than thirty (30) days is required to cure such
non-monetary default, and (ii) Tenant commences cure of such default as soon
as reasonably practicable after receiving written notice of such default from
Landlord and thereafter `continuously and with due diligence prosecutes such
cure to completion.
51. ABANDONMENT. Paragraph 23 is modified to provide that Tenant
shall not be in default under the Lease if it leaves all or any part of
Premises vacant so long as (i) Tenant is performing all of its other
obligations under the Lease including the obligation to pay Basic Rent and
Additional Rent (ii) Tenant provides on-site security during normal business
hours for those parts of the Premises left vacant, (iii) such vacancy does
not materially and adversely affect the validity or coverage of any policy of
insurance carried by Landlord with respect to the Premises, and (iv) the
utilities and heating and ventilation system are operated and maintained to
the extent necessary to prevent damage to the Premises or its systems.
52. HAZARDOUS MATERIALS. Landlord and Tenant agree as follows with
respect to the existence or use of "Hazardous Materials" (as defined herein)
on, in, under or about the Premises and real property located beneath said
Premises and the common areas of the Complex (hereinafter collectively
referred to as the "property"):
A. As used herein, the term "Hazardous Materials" shall mean any
material, waste, chemical, mixture or byproduct which is or hereafter is
defined, listed or designated under Environmental Laws (defined below) as a
pollutant, or as a contaminant, or as a toxic or hazardous substance, waste
or material, or any other unwholesome, hazardous, toxic, biohazardous, or
radioactive material, wage, chemical, mixture or byproduct. or which is
listed, regulated or restricted by any Environmental Law (including, without
limitation, petroleum hydrocarbons or any distillates or derivatives or
fractions thereof, polychlorinated biphenyls, or
27.
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asbestos). As used herein, the term "Environmental Laws" shall mean any
applicable Federal. State of California or local government laws (including
common law), statute, regulation, rule, ordinance, permit, license, order,
requirement, agreement, or approval, or any determination, judgment,
directive, or order of any executive or judicial authority at any level of
Federal, State of California or local government (whether now existing or
subsequently adopted or promulgated) relating to pollution or the protection
of the environment, ecology, natural resources, or public health and safety.
B. Tenant shall obtain Landlord's written consent, which
may be withheld in Landlord's discretion, prior to the occurrence of any
Tenant's Hazardous Materials Activities (defined below); provided, however;
that Landlord's consent shall not be required for normal use in compliance
with applicable Environmental Laws of customary household and office supplies
(Tenant shall first provide Landlord with a list of said materials use), such
as mild cleaners, lubricants and copier toner. As used herein, the term
"Tenant's Hazardous Materials Activities" shall mean any and all use,
handling, generation, storage, disposal, treatment, transportation, release,
discharge, or emission of any Hazardous Materials on, in, beneath, to, from,
at or about the Property, in connection with Tenant's use of the Property, or
by Tenant or by any of Tenant's agents, employees, contractors, vendors,
invitees, visitors or its future subtenants or assignees. Tenant agrees that
any and all Tenant's Hazardous Materials Activities shall be conducted in
strict, full compliance with applicable Environmental Laws at Tenant's
expense, and shall not result in any contamination of the Property or the
environment. Tenant agrees to provide Landlord with prompt written notice of
any spill or release of Hazardous Materials at the Property during the term
of the Lea of which Tenant becomes aware,. and further agrees to provide
Landlord with prompt written notice of any violation of Environmental Laws in
connection with Tenant's Hazardous Materials Activities of which Tenant
becomes aware. If Tenant's Hazardous Materials Activities involve Hazardous
Materials other than normal use of customary household and office supplies,
Tenant also agrees at Tenant's expense: (i) to install such Hazardous
Materials monitoring, storage and containment devices as Landlord reasonably
deems necessary (Landlord shall have no obligation to evaluate the need for
any such installation or to require any such installation); (B) provide
Landlord with a written inventory of such Hazardous Materials, including an
update of same each year upon die anniversary date. of the Commencement Date
of the Lease ("Anniversary Date"); and (iii) on each Anniversary Date, to
retain a qualified environmental consultant, acceptable to Landlord, to
evaluate whether Tenant is in compliance with all applicable Environmental
Laws with respect to Tenant's Hazardous Materials Activities. Tenant, at its
expense, shall submit to Landlord a report from such environmental consultant
which discusses the environmental consultant's findings within two (2) months
of each Anniversary Date. Tenant, at its expense, shall promptly undertake
and complete any and all steps necessary, and in full compliance with
applicable Environmental Laws, to fully correct any and all problems or
deficiencies identified by the environmental consultant, and promptly provide
Landlord with documentation of all such corrections.
C. Prior to termination or expiration of the Lease, Tenant,
at its expense, shall (i) properly remove from the Property all Hazardous
Materials which come to be located at the Property in connection with
Tenant's Hazardous Materials Activities, and (ii) fully comply with and
complete all facility closure requirements of applicable Environmental Laws
regarding
28.
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Tenant's Hazardous Materials Activities, including but not limited to (x)
properly restoring and repairing the Property to the extent damaged by such
closure activities, and (y) obtaining from the local Fire Department or other
appropriate governmental authority with jurisdiction a written concurrence
that closure has been completed in compliance with applicable Environmental
Laws. Tenant shall promptly provide Landlord with copies of any claims,
notices, work plans, data and reports prepared, received or submitted in
connection with any such closure activities.
D. If Landlord, in its sole discretion, believes that the
Property has become contaminated as a result of Tenant's Hazardous Materials
Activities, Landlord in addition to any other rights it may have under this
Lease or under Environmental. Laws or other laws, may enter upon the Property
and conduct inspection, sampling and analysis, including but not limited to
obtaining and analyzing samples of soil and groundwater, for the purpose of
determining the nature and extent of such contamination. Tenant shall
promptly reimburse Landlord for the costs of such an investigation, including
but not limited to reasonable attorneys' fees Landlord incurs with respect to
such investigation, that discloses Hazardous Materials contamination for
which Tenant is liable under this Lease. Notwithstanding the above, Landlord
may, at its option and in its sole and absolute discretion, choose to perform
remediation and obtain reimbursement for cleanup costs as set forth herein
from Tenant. Any cleanup costs incurred by Landlord as the result of Tenant's
Hazardous Materials Activities shall be reimbursed by Tenant within thirty
(30) days of presentation of written documentation of the expense to Tenant
by Landlord. Such reimbursable costs shall include, but not be limited to,
any reasonable consultant and attorney fees incurred by Landlord. Tenant
shall take all actions necessary to preserve any claims it has against third
parties, including, but not limited to, its insurers, for claims related to
its operation, management of Hazardous Materials or contamination of the
Property. Except as may be required of Tenant by applicable Environmental
Laws, Tenant shall not perform any sampling, testing, or drilling to identify
the presence of any Hazardous Materials at the Property, without Landlord's
prior written consent which my be withheld in Landlord's discretion. Tenant
shall promptly provide Landlord with copies of any claim, notices, work
plans, data and reports prepared, received or submitted in connection with
any sampling, testing or drilling performed pursuant to the preceding
sentence.
E. Tenant shall indemnify, defend (with legal counsel
acceptable to Landlord, whose consent shall not unreasonably be withheld) and
hold harmless Landlord its employees, assigns, successors,
successors-in-interest agents and representatives from and against any and
all claims (including but not limited to third party claims from a private
party or it government authority), liabilities, obligations, losses, causes
of action, demands, governmental proceedings or directives, fines, penalties,
expenses, costs (including but not limited to reasonable attorneys',
consultants' and other experts' fees and costs), and damages, which arise
from or relate to: (i) Tenant's Hazardous Materials Activities; (ii) any
Hazardous Materials contamination caused by Tenant prior to the Commencement
Date of the Lease or (iii) the breach of any obligation of Tenant under this
Paragraph 52 (collectively, "Tenant's Environmental Indemnification").
Tenant's Environmental Indemnification shall Include but is not limited to
the obligation to promptly and fully reimburse Landlord for losses in or
reductions to rental income, and diminution in fair market value of the
Property. Tenant's Environmental Indemnification shall further include but is
not limited to the obligation to diligently and properly implement to
29.
<PAGE>
completion, at Tenant's expense, any and all environmental investigation,
removal, remediation, monitoring, reporting, closure activities, or other
environmental response action (collectively, "Response Actions"). Tenant
shall promptly provide Landlord with copies of any claims, notices, work
plans, data and reports prepared, received or submitted in connection with
any Response Actions.
It is agreed that the Tenant's responsibilities related to Hazardous
Materials will survive the expiration or termination of this Lease and that
Landlord may obtain specific performance of Tenant's responsibilities under
this Paragraph 52.
53. CROSS DEFAULT. It is acknowledged that concurrently with the
execution of this Lease, Landlord and Tenant are also executing Amendment No.
3 dated August 16, 1999 to Lease Agreement dated September 14, 1994
(hereinafter referred to as the "Existing Lease" affecting property located
at 3255-3 Scott Blvd., Suite 200, Santa Clara, California. As a material part
of the consideration for the execution of this Lease by Landlord, it is
agreed between Landlord and Tenant that a default under this Lease, or a
default under the Existing Lease may, at the option of Landlord be considered
a default under both leases, in which event Landlord shall be entitled (but
in no event required) to apply all rights and remedies of Landlord under the
terms of one lease to both leases including, but not limited to, the right to
terminate one or both of said leases by reason of a default under said
Existing Lease or hereunder.
54. LEASE CONTINGENT UPON LANDLORD OBTAINING TERMINATION AGREEMENT
WITH CURRENT TENANT. This Lease is subject to and conditional upon Landlord
obtaining from Ambit Design Systems, Inc. ("Ambit"), the current tenant
occupying Premises leased hereunder, a Termination Agreement satisfactory to
Landlord on or before October 31, 1999. In the event Landlord is unable to
obtain said satisfactory Termination Agreement on or before October 31, 1999,
this Lease Agreement shall, at Landlord's option (a) be rescinded, or (b) the
Commencement Date hereof shall be modified to reflect the date Landlord so
obtains said satisfactory Termination Agreement and receives possession of
the Premises hereunder free and clear of Ambit's occupancy; provided,
however, that said period of delay caused by Ambit shall not extend beyond
November 30, 1999. In the event this Lease does not commence by December 1,
1999 (subject only to the delays covered in Paragraph 3) this Lease shall be
automatically rescinded.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered
this Lease as of the day and year last written below.
LANDLORD: TENANT:
JOHN ARRILLAGA SEPARATE PROPERTY QUANTUM EFFECT DESIGN, INC., a California
TRUST corporation
By: \s\ John Arrillaga By: \s\ J. P. Walsh
------------------------- ------------------------------
JOHN ARRILLAGA, Trustee
RICHARD T. PEERY SEPARATE PROPERTY
TRUST Title: Director - Human Resources
---------------------------
By: \s\ Richard T. Peery
--------------------------
RICHARD T. PEERY, Trustee Type of Print Name: J.P. WALSH
--------------
30.
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Exhibit 10.9
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
TECHNOLOGY LICENSE AGREEMENT
------------------------------------
This Technology License Agreement ("Agreement") is made as of this 29th day
of June, 1990 by and between WEITEK Corporation, a corporation with a
principal place of business at 1060 Arques Avenue, Sunnyvale, California
94086 ("WEITEK") and MIPS Computer Systems, Inc., a California corporation
with a principal place of business at 950 de Gulgne Drive, Sunnyvale,
California 94086 ("MIPS"). WEITEK and MIPS are sometimes referred to singly
as "party" and collectively as the "parties."
1. DEFINITIONS
The following terms shall have the following meanings for purposes of this
Agreement:
1.1 ASP - means the average selling price during the fiscal quarter for
which compensation is being computed. The ASP shall be computed by dividing
the Net Revenue received by WEITEK from the sale of each type of MIPS Chip
(on a component basis) or Modified MIPS Chip (on a component basis) by the
total number of each type of MIPS Chip or Modified MIPS Chip thereof sold
during the applicable fiscal quarter.
1.2 DESIGNATED PROCESS TECHNOLOGY - means any technology for the design
and manufacture of integrated circuit products that incorporates a type of
circuit structure containing both p-channel and n-channel MOS devices on the
same silicon substrate (CMOS OR Bi-CMOS).
1.3 EFFECTIVE DATE - means the date first above written.
1.4 GENERATION - means a MIPS Architecture and its Lineal Descendants, a
MIPS Chip and its Lineal Descendants and/or a WEITEK Chip and its Lineal
Descendants, all in the same Designated Process Technology.
1.5 INTERNAL USE - means the use of a product (whether hardware,
software or combination thereof) to perform its intended and customary
function by and for the benefit of the party using the product and not for
sale, distribution or sublicensing to others. Internal Use includes, but is
not limited to, evaluation, development, maintenance, customer support,
employee training and the like.
1.6 LINEAL DESCENDANT - means changes and/or modifications within the
same Process Technology of MIPS Architecture, MIPS Chip, or WEITEK Chip
containing common design parameters and substantially similar functions
and/or capabilities. Such changes and/or modifications includes as examples,
without limitation, whether singly or in combination, such items as changes
to improve manufacturability, process yield, or reliability, changes to fix
functional design errors, and changes of speed and/or pin-out.
1.7 MIPS - means MIPS Computer Systems, Inc., a California corporation
and each of its subsidiaries which, except for MIPS Computer Systems, Inc.,
50% or more of the voting stock or controlling equity is directly owned by
MIPS Computer Systems, Inc., or 100% of the voting stock or controlling
equity interest of which is directly owned by a corporation which is itself
at least 50% or more owned by MIPS Computer Systems, Inc.
1.8 MIPS-BASED SYSTEM - means a computer system containing a CPU which
employs MIPS Architecture and/or MIPS Instruction Set.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
- 1 -
<PAGE>
1.9 MIPS ARCHITECTURE - means the organization, structure, and content
of any CPU or CPU support chips, or portions thereof, as designed and
enhanced by MIPS, including but not limited to, MIPS Instruction Set (for
example, the architecture set forth in the book entitled, MIPS RISC
ARCHITECTURE) and interface specifications.
1.10 MIPS CHIP(S) - mean(s) (a) the CPU product(s) designed and/or
modified by or on behalf of MIPS; (b) the CO-processor product(s) designed
and/or modified by or on behalf of MIPS to connect with and operate with the
CPU'S; and (c) any other integrated circuit product(s) designed, developed,
and/or acquired by MIPS during the Term of this Agreement which (i) is
offered by MIPS for sale on a component basis to third parties in the
ordinary course of business or (ii) is offered to other MIPS architecture
licensees for manufacture and sale on a component basis to third parties in
the ordinary course of business. Notwithstanding the foregoing, nothing in
this definition shall require MIPS, or be deemed to create an obligation on
the part of MIPS, to create, develop, or acquire any particular MIPS Chip
referred to above. MIPS Chips do not include those custom MIPS Chips designed
by or on behalf of MIPS exclusively for a third party.
1.11 MIPS COMMERCIAL DOCUMENTATION - means the manuals, user guides, and
other documentation relating to MIPS Architecture, MIPS Chips, MIPS
Commercial Software or MIPS Systems, as applicable, including all
modifications, Patches, New Releases, Updates, derivations of and any other
changes thereto, whether in written, graphical, human readable or
machine-readable form, and on any medium, when MIPS offers for sale or
distribution to third parties in the ordinary course of business, as set
forth in MIPS then current price list or similar publication.
1.12 MIPS COMMERCIAL SOFTWARE - means the software in both source code
form and object code form owned, licensed or otherwise acquired by MIPS as of
the Effective Date or thereafter during the Term including all modifications,
Patches, New Releases, Updates, derivations of and any other changes thereto,
whether in written, graphical, human readable, machine-executable or
machine-readable form, and on any medium, which MIPS offers for licensing by
third parties in the ordinary course of business, as set forth in MIPS then
current price list or similar publication. MIPS Commercial Software includes
MIPS Binary Software and MIPS Source Code Software.
1.13 MIPS DOCUMENTATION - means MIPS Commercial Documentation and MIPS
Architecture License Documentation.
1.14 MIPS INSTRUCTION SET - means all or a portion of MIPS instruction
set as implemented in MIPS Chips, as applicable (for example, the instruction
set specified in the book entitled "MIPS RISC ARCHITECTURE").
1.15 MIPS ARCHITECTURE LICENSE DOCUMENTATION - means the manuals, user
guides and other documentation relative to the MIPS Architecture, MIPS Chips
or MIPS Software, as applicable, including all modifications, Patches, New
Releases, Updates, derivations of and other changes thereto, whether in
written graphical, human readable or machine readable form, and on any
medium, which MIPS makes available to architecture licensees, which is not
set forth in MIPS then current price list or similar publication and which is
provided by MIPS to WEITEK for any of the activities contemplated to be
performed by WEITEK pursuant to this Agreement.
1.16 MIPS ARCHITECTURE LICENSE SOFTWARE - means the software in source
code form or object code form owned, licensed or otherwise acquired by MIPS
as of the Effective Date or thereafter during the Term including all
modifications, Patches, New Releases, Updates, derivations of and any other
changes thereto, whether in written, graphical, human readable or
machine-readable form, and on any medium,
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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which MIPS licenses to architecture licensees, provided by MIPS to WEITEK for
any of the activities contemplated to be performed by WEITEK pursuant to this
Agreement.
1.17 MIPS BINARY SOFTWARE - means MIPS Commercial Software in object code
form (also called binary or executable code).
1.18 MIPS SOFTWARE - means MIPS Commercial Software and MIPS Architecture
License Software.
1.19 MIPS SOURCE CODE SOFTWARE - means MIPS Commercial Software in source
code form, or in a form from which a human readable form can be produced
without reverse compilation.
1.20 MIPS SYSTEM - means a computer system manufactured by or on behalf
of MIPS and containing one or more MIPS Chips.
1.21 MIPS TECHNOLOGY - means all patents (including utility models),
copyrights, mask work rights, trademarks, trade secrets and know-how or
portions thereof owned, licensed or otherwise acquired by MIPS as of the
Effective Date or thereafter during the Term with respect to the technology
licensed by MIPS to WEITEK pursuant to this Agreement. MIPS Technology
includes MIPS Architecture, MIPS Chips, MIPS Documentation, MIPS Software and
MIPS Systems.
1.22 MODULE - means two (2) or more integrated circuit products on a
substrate.
1.23 NET REVENUE - means the gross revenue received by WEITEK for
products incorporating and/or based upon MIPS Technology which are sold,
licensed or otherwise distributed by or on behalf of WEITEK, accounted for in
accordance with generally accepted accounting principles consistently
applied, and after deduction for discounts, returns, freight, insurance,
taxes and duties, if any, and after deduction of payments for any
compensation or other consideration payable by WEITEK to a third party upon
the grant of sublicenses with respect to MIPS Technology or prerequisites
thereto (such as an AT&T UNIX license).
1.24 NEW RELEASE - means any revision of MIPS Documentation and/or MIPS
Software which contains major enhancements and which may include new features
and/or new functions and which is offered for sale or license by MIPS on a
general commercial basis in the ordinary course of business.
1.25 PATCHES - means any revision to MIPS Documentation and/or MIPS
Software which contains bug fixes only and which contains no enhancements and
no new features or new functions.
1.26 RUNTIME - means any software which (a) has been compiled, assembled
or interpreted by WEITEK or any of its sublicensees using MIPS Commercial
Software, or (b) incorporates a runtime library portion of a MIPS compiler or
substantial portion thereof, or (c) incorporates Systems Programmer's Package
(SPP) or a substantial portion thereof.
1.27 SOURCE MATERIALS - means MIPS Source Code Software, MIPS
Architecture License Software and/or MIPS Architecture License Documentation.
1.28 TERM - means the term of this Agreement, commencing upon the
Effective Date and extending for a period of time of five (5) years
thereafter, unless terminated or cancelled sooner in accordance with the
provisions of this Agreement.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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1.29 UPDATE(S) - means any revision to MIPS Documentation and/or MIPS
Software which contains Patches and certain enhancements and/or new features
and/or new functions but is not a sufficient revision to constitute a New
Release.
1.30 WEITEK - means WEITEK Corporation, a California corporation and each
of its subsidiaries which, except for WEITEK Corporation, 50% or more of the
voting stock or controlling equity is directly owned by WEITEK Corporation,
or 100% of the voting stock or controlling equity interest of which is
directly owned by a corporation which is itself at least 50% or more owned by
WEITEK Corporation.
1.31 WEITEK CHIP(S) - mean(s) an integrated circuit product which
embodies or is based upon part or all of MIPS Technology licensed by MIPS to
WEITEK and implemented in Designated Process Technology and which is not
pin-compatible with MIPS Chips.
2. TECHNOLOGY LICENSE
2.1 ARCHITECTURE
2.1.1 LEVEL 2 ARCHITECTURE LICENSE - COMPONENT SALE. Subject to
the terms and conditions of this Agreement, upon payment by WEITEK
to MIPS of the fees set forth in section 3.1.1, below, and subject
to payment to MIPS of the royalties set forth in section 3.1.2,
below, MIPS shall grant to WEITEK and WEITEK shall accept a
worldwide, personal, non-exclusive, non-transferable,
royalty-bearing (as set forth in section 3, below), non-assignable
and revocable right and license to use (without the right to
sublicense, transfer or convey such rights, in whole or in part)
MIPS Technology, only as set forth in Exhibit A, for the purposes of
designing, modifying, manufacturing, having manufactured, marketing,
selling and otherwise disposing of integrated circuits which embody
or are based upon part or all of MIPS Technology licensed by MIPS to
WEITEK and implemented in Designated Process Technology and which
are not pin-compatible with MIPS Chips, in WEITEK products, as
components or Modules. The deliverables set forth on Exhibit A are
the same as those provided to all Level 2 Architecture Licensees
for the same Generation in the same Designated Process Technology.
MIPS agrees, during the Term of this Agreement, to provide to WEITEK
the deliverables which are provided to Level 2 Architecture
Licensees for the same Generation in the same Process Technology
provided that WEITEK is entitled to receive said deliverables under
the terms of this Agreement. WEITEK Chips shall not be eligible for
certification by MIPS. WEITEK shall bear the entire expense of all
development, manufacturing, sale and support activities and WEITEK
shall be responsible for performing all work involved. When
referring to WEITEK Chips, WEITEK shall state that such chips
incorporate MIPS Architecture.
2.1.1.1 LINEAL DESCENDANTS. Subject to the terms and
conditions of this Agreement, MIPS shall, [*] provide to
WEITEK all rights, licenses, and deliverables with respect
to Lineal Descendants of the then current Generation of
MIPS Chip licensed by MIPS to WEITEK and for which WEITEK
has paid a fee.
2.1.1.2 NEW GENERATIONS. Subject to the terms and
conditions of this Agreement, upon payment to MIPS of the
fees set forth in section 3.1.1.2, below, and subject to
payment to MIPS of applicable royalties as set forth in
section 3.1.2, MIPS shall provide to WEITEK all rights,
licenses and deliverables for new Generations of MIPS Chips
after the first Generation licensed by WEITEK, provided
that WEITEK has acquired and paid for each previous
Generation.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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2.1.1.3 NEW PROCESS TECHNOLOGIES. Subject to the terms
and conditions of this Agreement, upon payment to MIPS of
the fees set forth in section 3.1.1.3, below, subject to
payment to MIPS of applicable royalties as set forth in
section 3.1.2, and subject to such additional terms and
conditions as are necessary as a function of technical
aspects of the proposed new process technology
implementation. MIPS shall provide to WEITEK all rights,
licenses, and deliverables regarding any then current
Generation of MIPS Architecture implemented in a process
technology other than Designated Process Technology.
2.1.2 R5000 OPTION
Subject to the terms and conditions of this Agreement, and upon payment
of the fees set forth in section 3.2, below, MIPS shall grant to WEITEK
and WEITEK shall accept the same rights, licenses and obligations with
respect to the deliverables set forth in Exhibit B, as those rights and
licenses set forth in section 2.1.1, above.
2.1.3 ARCHITECTURE MAINTENANCE
Subject to the terms and conditions of this Agreement and upon payment
of the fees set forth in section 3.3, below, MIPS shall provide WEITEK
with corrections and modifications to the Exhibit A deliverables and,
if applicable, the Exhibit B deliverables, for the Designated Process
Technology which MIPS makes available in the ordinary course of
business to its licensees.
2.2 SOFTWARE LICENSE
2.2.1 MIPS SOURCE CODE SOFTWARE. Subject to the terms and
conditions of this Agreement and the MIPS Source Code Use License
Agreement, and upon payment by WEITEK to MIPS of the applicable
license fees, MIPS shall grant to WEITEK and WEITEK shall accept a
world-wide, personal, non-exclusive, non-transferable,
non-sublicenseable, non-assignable and revocable right and license,
without any right to market, sublicense or distribute, to use, copy,
and modify (except as set forth in section 2.2.5, below) for
Internal Use only and only with MIPS Chips in Designated Process
Technology and/or MIPS Systems, certain MIPS Source Code Software as
set forth on the Source Code Use License Agreement. WEITEK shall be
entitled to market, sublicense and distribute WEITEK modifications
to MIPS Source Code Software licensed by WEITEK from MIPS Integrated
with MIPS Source Code Software subject to each sublicensee (a)
having signed a MIPS Source Code Use License Agreement which is then
currently in full force and effect and (b) having licensed the
equivalent release of MIPS Source Code Software from MIPS. WEITEK
may request that MIPS license MIPS Source Code Software to certain
WEITEK customers on MIPS then current terms, conditions and prices.
Modified MIPS Binary Software may be generated by MIPS Source Code
Software modified by or on behalf of WEITEK for use in and sublicense
in accordance with section 2.2.2, below and in connection with WEITEK
products containing WEITEK Chips in Designed Process Technology (except
as specified in section 2.2.5 below).
2.2.2 MIPS BINARY SOFTWARE. Subject to the terms and conditions
of this Agreement and the MIPS Binary Software License Agreement and
upon payment by WEITEK to MIPS of the applicable license fees,
distribution fees and sublicense fees. MIPS shall grant to WEITEK
and WEITEK shall accept a world-wide, personal, non-exclusive,
non-transferable, fee-bearing, non-assignable and revocable right
and license to use for Internal Use and for sublicensing, copy for
Internal Use and for sublicensing, market, grant non-exclusive
sublicenses for use and distribute
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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certain MIPS Binary Software, as set forth on the Binary Software
License Agreement all for use only with WEITEK Chips in Designated
Process Technology and/or MIPS-based Systems.
2.2.3 FUTURE SOFTWARE RELEASES. Updates and Patches to MIPS
Source Code Software modified by WEITEK may be distributed without
charge to sublicensees by WEITEK provided (1) WEITEK has a then
current MIPS Source Code Use License Agreement with rights to
distribute Binaries of such software and a then current Software
Maintenance Agreement with MIPS for the specific MIPS Software at
the equivalent release level, (2) the sublicensee has signed a MIPS
Source Code Use License Agreement which is then currently in full
force and effect and (3) the sublicensee has licensed the equivalent
release of unmodified MIPS Source Code Software from MIPS.
Updates and Patches to MIPS Binary Software may be distributed to
WEITEK's sublicensees, without charge to WEITEK, provided WEITEK has
the then current release of MIPS Binary Software and a Software
Maintenance Agreement with MIPS regarding such software which is then
currently in full force and effect.
New Releases, distributed by WEITEK to new sublicensees or to
sublicensees who do not have the next prior release, are subject to the
full New Release fee less discounts applicable to WEITEK, New Releases
supplied to current sublicensees who have the next prior release are
supplied as upgrades to New Releases at a fee, which is a percentage of
the New Release fee (less discounts applicable to WEITEK) specified in
MIPS then current price list.
2.2.4 MIPS ARCHITECTURE LICENSE SOFTWARE. Subject to the terms
and conditions of this Agreement and the Source Code Use License
Agreement and upon payment by WEITEK to MIPS of the compensation set
forth in section 3.1.1, MIPS shall grant to WEITEK and WEITEK shall
accept a worldwide, personal, non-exclusive, non-transferable,
non-sublicenseable, non-assignable and revocable right and license
without any right to market, distribute or sublicense, to use, copy
and modify (except as set forth in section 2.2.5, below), all for
Internal Use only and only with MIPS Systems, certain MIPS
Architecture License Software, as set forth in Exhibit A.
2.2.5 LIMITATIONS. Neither WEITEK nor any sublicensee of WEITEK
shall be authorized or permitted, unless MIPS has agreed in writing
in advance, to (a) sublicense or distribute Source Materials, (b)
operate (including, without limitation, store, compile and/or edit)
Source Materials on systems other than MIPS Systems and/or MIPS
Chips in Designated Process Technology, (c) rehost Source Materials
with the result that they operate with systems other than MIPS
Systems and/or MIPS Chips in Designated Process Technology, (d)
retarget Source Materials with the result that Binaries may be
generated which are capable of operating with systems other than
MIPS Systems and/or MIPS Chips in Designated Process Technology
and/or MIPS-based Systems, (e) modify Source Materials or Binaries
in order to incorporate any portion of MIPS compiler back end
including the optimizer with any compiler front end other than the
compiler front ends licensed by WEITEK from MIPS, (f) retarget
System Programmer's Package with the result that it models or
simulates any computer architecture other than MIPS Architecture,
(g) modify, adapt, reverse engineer, decompile, disassemble or
create derivative works based on MIPS Binary Software, (h) in lieu
of a sublicense, lease, rent, loan, or sell MIPS Binary Software on
a temporary or permanent basis or, (i) sublicense, distribute or
make available to any third party Source Materials.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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2.3 DOCUMENTATION RIGHTS
2.3.1 MIPS ARCHITECTURE LICENSE DOCUMENTATION. Subject to the
terms and conditions of this Agreement and upon payment by WEITEK to
MIPS of the fees set forth in section 3.1.1 MIPS shall grant to
WEITEK and WEITEK shall accept a worldwide, personal, non-exclusive,
fully-paid, non-transferable, non-assignable and revocable right and
license, to use, modify, copy and distribute, all for Internal Use
only, without any right to market, copy or distribute outside of
WEITEK, MIPS Architecture License Documentation as set forth in
Exhibit A.
2.3.2 MIPS COMMERCIAL DOCUMENTATION. Subject to the terms and
conditions of this Agreement and upon payment by WEITEK to MIPS of
the fees set forth in section 3.1.1, MIPS shall grant to WEITEK and
WEITEK shall accept a world-wide, personal, fully-paid,
non-exclusive, non-transferable, non-assignable and revocable (only
in accordance with section 8) right and license, to use, modify and
distribute all for Internal Use and for distribution outside of
WEITEK. MIPS Commercial Documentation, WEITEK shall be responsible
for creating and publishing in a timely manner technical
documentation to assist WEITEK's customers.
2.4 UPDATES/MAINTENANCE/SUPPORT
2.4.1 ARCHITECTURE LICENSE. MIPS shall, at no additional charge
to the compensation set forth in section 3.1.1, provide to WEITEK,
for one (1) year from the Effective Date, all corrections and
modifications to the same Generation of MIPS Architecture licensed
by MIPS to WEITEK which MIPS makes available in the ordinary course
of its business to its architecture licensees for Designated Process
Technology.
Upon payment of the fees set forth in section 3.3, MIPS shall provide
to WEITEK, updates and maintenance support to the Deliverables set
forth in Exhibit A, with respect to each Generation of MIPS
Architecture for Designated Process Technology for which WEITEK has
paid the applicable fee.
2.4.2 ARCHITECTURE LICENSE SOFTWARE. WEITEK shall bear the sole
and complete responsibility for maintaining and supporting MIPS
Architecture License Software unless the parties mutually agree
otherwise. MIPS shall promptly after availability, provide to WEITEK
Updates for MIPS Architecture License Software, in accordance with
section 2.4.1 above.
2.4.3 MIPS SOFTWARE. Subject to the terms and conditions of this
Agreement and MIPS then current standard Software Maintenance
Agreement and upon payment by WEITEK to MIPS of the fees set forth
in section 3.4.4, MIPS shall periodically provide to WEITEK all
Patches and Updates made by MIPS to MIPS Software licensed by WEITEK
(except as otherwise specified herein).
2.5 RESERVATION
MIPS reserves all rights and licenses not expressly granted to WEITEK.
2.6 NO CONTEST
WEITEK shall not contest or take any action to impair MIPS ownership or the
validity of MIPS Technology for which WEITEK is a licensee or holder of rights
under this Agreement.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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2.7 NO SUPPORT
MIPS shall have no responsibility or obligation, unless specifically provided
otherwise herein or unless otherwise mutually agreed, to provide any maintenance
or support whatsoever to any person or entity, including WEITEK, regarding (a)
MIPS Chips, (b) WEITEK Chips, (c) MIPS Architecture License Software, (d)
WEITEK's modifications to MIPS Commercial Software, (e) WEITEK's modifications
to MIPS Commercial Documentation, (f) WEITEK's modifications to MIPS
Architecture License Documentation, (g) any other modification by or on behalf
of WEITEK to MIPS Technology, (h) WEITEK software or (i) third party products
including software.
2.8 WEITEK PURCHASES OF MIPS PRODUCTS
MIPS agrees to negotiate with WEITEK in good faith a Volume Purchase Agreement.
Said agreement will allow WEITEK to purchase MIPS Products at the then current
discount levels offered to other Level 2 Architecture Licensees purchasing under
similar terms and conditions.
3. COMPENSATION
3.1 LEVEL 2 ARCHITECTURE LICENSE - COMPONENT SALES. In consideration of the
Level 2 Architecture License-Component Sales set forth in section 2.1.1, above,
WEITEK shall pay MIPS as follows:
3.1.1 TECHNOLOGY LICENSE FEE
3.1.1.1 INITIAL FEE. WEITEK shall pay MIPS a
non-refundable license fee of [*] of which shall
constitute prepaid royalties and such [*] shall be payable
within forty-five (45) days of the Effective Date, [*] shall
constitute a non-refundable licensee fee, in payment of
which MIPS shall accept [*] in engineering services from
WEITEK and a credit in an amount of [*] from WEITEK which
shall be applied pro-rata as payment against [*] of
WEITEK products purchased by MIPS for use in MIPS Systems.
This credit and the right to take engineering services
shall expire at a date to be mutually agreed but in no
event later than the Term of this Agreement.
WEITEK and MIPS shall mutually agree upon the scope of the
work to be performed by WEITEK and schedule therefor.
Engineering services performed by WEITEK shall be valued at
[*] per day in 1990 and 1991. This value shall increase by
10% per year after 1991. These services shall be performed
by senior architecture, software, logic or circuit design
engineers, or others as may be mutually agreed. Both
parties agree that it is preferable that MIPS purchase
WEITEK product rather than WEITEK services and MIPS agrees
to use its best efforts to achieve this objective. Despite
using its best efforts, if MIPS is unable to purchase [*]
of WEITEK products by December 31, 1992, then MIPS shall
have the right to accept additional engineering services in
lieu of any unutilized portions of the [*] WEITEK product
purchase credit. All work products shall be subject to
reasonable acceptance by MIPS.
To the fullest extent permitted bylaw, the work product of all
engineering services performed by WEITEK for MIPS in lieu of
cash payments hereunder shall be a "Work Made for Hire."
Accordingly, WEITEK hereby: (a) makes an assignment of
copyright to MIPS; (b) grants to MIPS all right, title and
interest including, without limitation, the
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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right of MIPS to grant licenses and sublicenses to others
and to file for copyright and patent with respect thereto,
without accounting to WEITEK, in and to all such work
products and all patents, copyrights, mask work rights,
trade secrets and other proprietary rights therein or based
thereon.
3.1.1.2 NEW GENERATION RELEASES. If during the Term of
the Technology License WEITEK desires to receive any new
Generation releases; i.e., beyond the R5000, then WEITEK
shall pay MIPS a one-time, up-front, non-recoverable
license fee of [*] for each new Generation within thirty
(30) days of delivery of the release. Included in the fee
for any such new Generation releases will be one (1) year
of maintenance comparable to what is provided herein in
connection with the initial Deliverables. [*] WEITEK may
not skip a Generation.
3.1.1.3 OTHER PROCESS TECHNOLOGIES.
3.1.1.3.1 If during the Term of the Agreement WEITEK
desires to implement MIPS Chips, based on the deliverables
provided in CMOS specified in Exhibit A in any Process
Technology other than CMOS or Bi-CMOS, then WEITEK shall
pay to MIPS a onetime, up-front, non-recoverable license
fee of [*] for each additional Process Technology other
than CMOS or Bi-CMOS per new Generation in which WEITEK
intends to implement. Said fee shall be payable within
thirty (30) days of notice by WEITEK to MIPS that WEITEK
intends to commence work to implement the deliverables
provided in CMOS in another Process Technology.
3.1.1.3.2 If during the Term of this Agreement WEITEK
desires to implement MIPS Chips based upon deliverables
which may be subsequently available from MIPS in any
Process Technology other than CMOS, then WEITEK shall pay
to MIPS, MIPS then current license fee for each additional
Process Technology per new Generation. Said fee shall be
payable within thirty (30) days of receipt by WEITEK from
MIPS of the deliverables implemented in any Process
Technology other than CMOS.
3.1.2 ROYALTIES. WEITEK shall pay royalties to MIPS regarding
WEITEK Chips manufactured by or on behalf of WEITEK (for WEITEK's
Internal Use and for external sales) in an amount equal to the
following:
(a) [*], the royalty rate shall be [*] of the Net
Revenue received by WEITEK per WEITEK Chip sold as a
component or in a Module, which is based upon the Exhibit A
Architecture License deliverables.
(b) For all other WEITEK Chips the royalty rate shall be
[*] of the Net Revenue received by WEITEK.
WEITEK must pay a royalty on each WEITEK Chip manufactured by
or on behalf of WEITEK and sold or used internally but only
one royalty shall be payable for each such WEITEK Chip. WEITEK
shall pay the same royalty on a dollar per unit basis,
regarding WEITEK Chips used by WEITEK for internal purposes,
as WEITEK pays regarding sales of the same grade WEITEK Chips
to unaffiliated third parties during the same period of time.
No royalty shall be payable by WEITEK to MIPS for any WEITEK
Chip purchased by MIPS from WEITEK in accordance with this
Agreement.
3.2 R5000 OPTION
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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Upon exercise of the option as set forth in section 2.1.2, above, WEITEK
shall pay MIPS [*], which MIPS shall accept in the form of engineering
services to be provided by WEITEK to MIPS, as mutually agreed by the parties,
or other compensation as mutually agreed by the parties. WEITEK shall pay
royalties to MIPS with respect to WEITEK Chips based upon the Exhibit B
deliverables upon the same terms, conditions and prices as set forth in
section 3.1.2. with respect to the Exhibit A deliverables, except that the
royalty rate for WEITEK Chips as specified in section 3.1.2.(a) shall be [*]
and for section 3.1.2(b) the royalty shall be [*].
3.3 ARCHITECTURE MAINTENANCE
In consideration of the grant of rights set forth in section 2.1.3., above,
WEITEK shall pay MIPS [*] per year in advance for architecture maintenance.
Architecture Maintenance is provided to Weitek at no cost for the first 12
months from the date of delivery of deliverables in Exhibit A, and if
applicable in Exhibit B. Weitek is under no obligation to buy support
thereafter.
3.4 SOFTWARE FEES
3.4.1 MIPS SOURCE CODE SOFTWARE. WEITEK shall pay to MIPS, MIPS
then current standard license fees for each license of MIPS Source
Code Software which WEITEK wishes to obtain as set forth on the
Source Code Use License Agreement. WEITEK may license MIPS Source
Code Software on a single user, site or corporate basis.
3.4.2 MIPS BINARY SOFTWARE. WEITEK shall pay to MIPS, MIPS then
current standard license fees, distribution fees and sublicense fees
for each sublicense and/or Internal Use copy of MIPS Binary Software
as set forth on the Binary Software License Agreement. If WEITEK
sublicenses, MIPS Binary Software as modified by WEITEK, WEITEK
shall pay MIPS the same sublicense fee as if WEITEK were
sublicensing unmodified MIPS Binary Software.
3.4.3 RUNTIME FEES. WEITEK shall pay to MIPS, MIPS then current
applicable Runtime Fee for each Runtime used or distributed by
WEITEK.
3.4.4 MAINTENANCE. WEITEK shall pay to MIPS, MIPS then current
standard software maintenance fees regarding all MIPS Software on
which WEITEK desires to obtain Patches, Upgrades and/or New
Releases, as applicable.
3.5 PAYMENT
Except as otherwise explicitly provided in section 3.1.1, WEITEK shall make
payments of all compensation due to MIPS within thirty (30) days following
the end of each WEITEK fiscal quarter for the payment due during the quarter.
On any overdue payments, WEITEK shall pay a one and one-half percent (1-1/2%)
per month finance charge, of, if lower, the highest rate then permitted by
law, upon the unpaid balance until the date of payment.
3.6 RECORDS AND REPORTS
3.6.1 RECORDS. WEITEK shall keep accurate records reasonably
necessary in accordance with generally accepted accounting
principles consistently applied to ascertain the amount of fees,
royalties and other compensation payable to MIPS relating to (a) the
total amount of Net Revenue regarding WEITEK Chips sold as
components or in Modules, (b) the total amount of royalties payable
in connection with WEITEK Chips, (c) the total number of licenses
and sublicenses of MIPS Commercial Software and the total amount of
license, sublicense, distribution and New
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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Release fees payable therefor and (d) copies of WEITEK sublicense
agreements. Notwithstanding the foregoing, WEITEK shall not be
obligated to keep copies of actual binary licenses other than a
standard form of such binary license.
3.6.2 REPORTS. WEITEK shall report to MIPS on a WEITEK fiscal
quarterly basis for each WEITEK Chip manufactured by or on behalf of
WEITEK, the Net Revenues for WEITEK Chips so manufactured, each type
of MIPS Commercial Software reproduced/licensed/sublicensed by
WEITEK, the quantity of MIPS Commercial Software so
reproduced/licensed/sublicensed, and the total amount of royalties,
distribution fees, license fees and sublicense fees due and owing to
MIPS for such WEITEK fiscal quarter. The reports described in this
section 3.6.2. shall be made to MIPS no later than thirty (30) days
after the close of each WEITEK fiscal quarter.
3.6.3 AUDIT. MIPS shall have the right, through a nationally
recognized independent CPA firm, to make an examination and audit,
at its own expense, not more frequently than once per year, during
normal business hours, of WEITEK's records and accounts as may
contain information bearing upon the amounts due hereunder for a
period of time up to five (5) years prior to the date of the audit.
Prompt adjustment shall be made by WEITEK for any underpayments
disclosed by such audit. In the event that any quarterly report
understates the compensation due to MIPS for any fiscal quarter by
more than ten percent (10%), WEITEK shall pay any shortfall plus
reimburse MIPS for the cost of such audit, but in no case shall the
amount reimbursed for the audit exceed the amount identified as
shortfall, nor shall any auditor be compensated or incentivized
based on the number of errors found. Any and all information
regarding Weitek sales or customers shall be treated as Proprietary
and Confidential Information and shall not be disclosed to any third
party unless legally required to do so.
3.7 TAXES
In addition to the compensation set forth above, WEITEK shall exclusively
bear and pay all sales, use, VAT or other taxes, fees, duties, tariffs and
levies imposed as a result of payment of the compensation set forth above,
other than taxes measured by MIPS income.
4. INTELLECTUAL PROPERTY RIGHTS
All right, title and interest in and to all MIPS Technology, including any
MIPS modifications, enhancements or derivations thereof, and any copies of
all or any part thereof, all know-how and all proprietary rights, including
patents, patent applications, copyrights, mask work rights and trade secrets,
shall at all times be and remain with MIPS or its suppliers, as applicable,
WEITEK shall have no ownership of MIPS Technology, other than ownership of
the physical media.
All right, title and interest in and to all WEITEK technology, including any
WEITEK modifications, enhancements or derivations thereof, and any copies of
all or any part thereof, all know-how and all proprietary rights, including
patents, patent applications, copyrights, mask work rights and trade secrets,
shall at all times be and remain with WEITEK or its suppliers, as applicable.
MIPS shall have no ownership of WEITEK technology, other than ownership of
the physical media.
All proprietary notices, labels or marks relating to MIPS intellectual
property rights ("Notices") incorporated in, marked on, or fixed to MIPS
Chips, MIPS Software, MIPS Documentation or MIPS Technology or products
incorporating or based upon MIPS Technology by MIPS or its suppliers shall
not be removed, altered or obliterated by WEITEK and WEITEK shall, where
appropriate, duplicate any such Notices on any copies, in whole or in part,
in any form. In addition, WEITEK shall, where appropriate, incorporate
adequate notices to protect MIPS intellectual property rights on any MIPS
Technology or
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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products incorporating or based upon MIPS Technology or any modifications to
MIPS Technology or products incorporating or based upon MIPS Technology made
by or on behalf of WEITEK.
WEITEK shall not delivery any MIPS Technology or products incorporating or
based upon MIPS Technology or modifications to MIPS Technology made by or on
behalf of WEITEK or any portion thereof, or any technical data relating
thereto, to any branch or agency of the United States Government without a
written predetermination that such items will be protected by limited or
restricted rights as set forth in DOD FAR 52.227-7013 or equivalent rights
and without taking all required actions to preserve such rights including,
without limitation: (a) marking MIPS Software or modified MIPS Software with
the then currently prescribed Restricted Rights Legend, (b) marking technical
data with the then currently prescribed Limited Rights Legend, and (c)
ensuring that the contract with the U.S. Government or agency thereof
contains the standard Department of Defense "Rights in Technical Data and
Computer Software" clause at DOD FAR 52.227-7013 and the "Restrictive
Markings on Technical Data" clause at DOD FAR 52.227-7018 or the equivalent
clauses for other government agencies.
5. PROGRAM MANAGEMENT
5.1 LIAISON
Each party will identify an individual employee ("Program Manager") who shall
be responsible for interfacing with the other party. The Program Manager
shall be technically knowledgeable about his employer's products and design
and manufacturing activities and possess adequate communication skills to
keep the other party fully informed relative to his employer's performance
under this Agreement. Each party will notify the other in writing or any
successor or designee of the Program Manager. The Program Manager shall be
responsible for fielding inquiries and facilitating the administration of
this Agreement. The parties agree to conduct regular discussions as and when
appropriate.
5.2 ON-SITE
Both parties shall permit appropriate employees of the other party to visit
their facilities for the purpose of conducting program discussions. Both
parties shall be required to give reasonable notice of their intent to visit
and shall conduct such visits during normal business hours, subject to mutual
convenience of the parties.
Employees of one party visiting the site of the other party (a) shall not be
deemed to be employees of the party at the site being visited and (b) shall
observe the rules and regulations (as to safety and security) of the party at
the site being visited.
Each party shall indemnify the other party against all loss and liability for
personal injury and property damage caused by the negligence and/or willful
acts or omissions of its employees at the site of the other party.
5.3 OTHER TECHNOLOGY
It is expressly contemplated by the parties that WEITEK [*]. WEITEK, in its
discretion, may disclose to MIPS summary technical information regarding any
such [*]. MIPS may identify to WEITEK areas of technology which MIPS
considers will be useful, for the achievement of the mutual goals and
objectives of the parties and this Agreement, for MIPS to obtain a license
from WEITEK in such area. If the parties determine that such a license may be
appropriate, the parties will negotiate in good faith regarding whether
WEITEK will license MIPS as to
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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<PAGE>
any such proprietary [*] any portions thereof, including the applicable
terms, conditions and fees of such license.
6. TRAINING
6.1 ARCHITECTURE
MIPS shall provide to WEITEK, at no charge to WEITEK additional to the
compensation set forth in section 3.1.1, twenty (20) person hours of training
to assist WEITEK in understanding MIPS Architecture. The parties agree to
negotiate in good faith as to WEITEK's additional training needs.
6.2 MIPS COMMERCIAL SOFTWARE TRAINING
WEITEK may purchase training from MIPS in accordance with the then current
MIPS Customer Services price list.
7. PROPRIETARY INFORMATION AGREEMENT
All information, documentation and devices exchanged between the parties
hereunder other than Proprietary Information shall be received and treated by
the receiving party on a nonconfidential and unrestricted basis, subject,
however, to the restrictions imposed by the Patent, Mask Work Right and
Copyright Laws through the grant of valid patents, mask work rights and
copyrights; provided, however, the parties agree, for a period of ten (10)
years from the date of disclosure, without the prior written consent of the
other party regarding a specific contemplated transaction:
7.1 not to disclose Proprietary Information of the other party outside
of the receiving party unless such Proprietary Information is produced or
disclosed pursuant to applicable laws, regulations or court order, provided
the receiving party has given the disclosing party prompt notice of such
request so that the disclosing party has an opportunity to defend, limit or
protect such production or disclosure; and
7.2 to limit dissemination of the other party's Proprietary Information
to only those of the receiving party's officers, directors and employees who
require access thereto to perform their functions regarding the purposes of
this Agreement; and
7.3 not to use Proprietary Information of the other party except for
purposes of this Agreement.
The standard of care to be exercised by the receiving party to meet these
obligations shall be the standard exercised by the receiving party with
respect to its own proprietary information of a similar nature, but in no
event less than due care.
Proprietary Information shall not include any data, information or device
that is: (a) in the possession of the receiving party prior to its disclosure
by the disclosing party and not subject to other restrictions on disclosure;
(b) independently developed by the receiving party without access to
Proprietary Information; (c) publicly disclosed by the disclosing party; (d)
rightfully received by the receiving party from a third party without
restrictions on disclosures; or (e) approved in writing for unrestricted
release or unrestricted disclosure by the disclosing party.
8. GENERAL TERMS AND CONDITIONS
8.1 GOVERNING LAW
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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<PAGE>
This Agreement shall be governed by the laws of the State of California,
excluding its conflict of laws rules. The parties consent to the personal and
exclusive jurisdiction and value of the California federal and state courts,
as applicable.
8.2 DISCLAIMER OF WARRANTY
MIPS TECHNOLOGY IS BEING PROVIDED TO WEITEK BY MIPS ON AN "AS IS" BASIS. MIPS
MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR
STATUTORY, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
8.3 TERM, CANCELLATION AND TERMINATION
8.3.1 TERM
The Term of this Agreement shall be for five (5) years commencing upon the
Effective Date, unless earlier cancelled or terminated in accordance with the
provisions hereof.
8.3.2 TERMINATION
Either party may terminate or suspend this Agreement effective immediately
and without liability upon written notice to the other party if any one of
the following events occurs:
8.3.2.1 the other party files a voluntary petition in bankruptcy or
otherwise seeks protection under any law for the protection of
debtors;
8.3.2.2 a proceeding is instituted against the other party under
any provision of any bankruptcy law which is not dismissed within
ninety (90) days;
8.3.2.3 the other party is adjudged a bankrupt;
8.3.2.4 a court assumes jurisdiction of all or a substantial
portion of the assets of the other party under a reorganization law;
8.3.2.5 a trustee or receiver is appointed by a court for all or a
substantial portion of the assets of the other party;
8.3.2.6 the other party becomes insolvent, ceases or suspends
business;
8.3.2.7 the other party makes an assignment of all or a majority of
its assets for the benefit of its creditors; or
8.3.2.8 the other party admits in writing its inability to pay its
debts as they become due.
8.3.3 CANCELLATION FOR CAUSE
If either party fails to perform or violates any material obligation pursuant
to this Agreement, then, upon thirty (30) days written notice to the
breaching party specifying such default (the "Default Notice"), the
non-breaching party may terminate or suspend this Agreement, without
liability, unless:
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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<PAGE>
8.3.3.1 The breach specified in the Default Notice has been cured
within the thirty (30) day period; or
8.3.3.2 The default reasonably requires more than thirty (30) days
to correct (specifically excluding any failure to pay money), and
the defaulting party has begun substantial corrective action to
remedy the default within such thirty (30) day period and diligently
pursues such action, in which event, termination shall not be
effective unless ninety (90) days has expired from the date of the
Default Notice without such corrective action being completed and
the default remedied.
8.3.4 CONTINUATION
Notwithstanding the expiration, termination or cancellation of this
Agreement for any reason except for cancellation for cause attributable
to WEITEK in accordance with section 8.3.3, above, the rights and
licenses granted to WEITEK pursuant to section 2 of this Agreement,
with respect to MIPS Technology, shall survive the expiration,
termination or cancellation of this Agreement subject to WEITEK's (a)
having paid to MIPS the fees set forth in section 3 which have become
due and payable prior to the expiration, termination or cancellation of
this Agreement, (b) compliance with its non-disclosure obligations and
(c) payment to MIPS of all applicable royalties, distribution fees,
sublicense fees and other software fees as and when such amounts become
due and payable. The right of WEITEK to receive from MIPS (a) new
Generations of MIPS Technology, (b) information on future Generations
of MIPS Technology and (c) information on new technology shall
terminate upon the expiration or earlier cancellation or termination of
this Agreement.
8.4 PUBLIC ANNOUNCEMENTS
The parties shall, after the Effective Date, make joint announcements
regarding this transaction and their relationship in mutually agreeable forms
and at a mutually agreeable times. Such announcements shall include a
statement, among others, that WEITEK is adopting MIPS Architecture and MIPS
Technology for future RISC products.
Prior to such announcements, the parties agree to keep confidential and not
to disclose to the public or any third party other than external auditors and
disclosures required by law (regarding which the disclosing party shall, in
all instances other than regarding necessary approvals of United States
government and authorities, give the other party advance written notice of
the material circumstances which require the disclosure and the information
to be disclosed) any information regarding this matter without the prior
consent of the other party.
8.5 EXPORT
Before exporting or reexporting any MIPS Technology, including Updates, or
any technical information, technical data (including any confidential
information) or the direct product of such technical data of either party,
the receiving party must fully comply with all then current laws of the
United States including, without limitation, rules and regulations of the
United States Office of Export Administration and other applicable U.S.
governmental agencies.
8.6 ASSIGNMENT
Neither party shall assign this Agreement or any of the licenses or rights,
or delegate any duties created hereunder to any person or entity without the
prior written consent of the other party, except as expressly
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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<PAGE>
set forth herein, and except that (1) MIPS may assign this Agreement to a
person or entity with which it has merged or which has otherwise succeeded to
all or substantially all of the business and assets of MIPS, and which has
assumed in writing or by operation of law its obligations under this
Agreement; and (2) WEITEK may assign this Agreement to a person or entity
with which it has merged or which has otherwise succeeded to all or
substantially all of the business and assets of WEITEK, and which has assumed
in writing or by operation of law its obligations under this Agreement,
provided said person or entity is not a competitor of MIPS in that it
produces non-MIPS RISC-based products. Any attempt of assignment or
delegation without the required consent shall be void. This section is not
intended to prohibit either party from reasonably subcontracting work in the
course of exercising its rights or complying with its obligations pursuant to
this Agreement.
8.7 LIMITATION OF DAMAGES
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR COSTS OF PROCUREMENT OF
SUBSTITUTE GOODS OR SERVICES, LOSS OF USE, DATA OR PROFITS, INTERRUPTION OF
BUSINESS OR ANY SPECIAL, INCIDENTAL, INDIRECT, EXEMPLARY, OR CONSEQUENTIAL
DAMAGES, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, HOWEVER CAUSED
AND ON ANY THEORY OF LIABILITY, WHETHER IN AN ACTION FOR CONTRACT, STRICT
LIABILITY OR TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, AND WHETHER OR NOT THE
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
EACH AND EVERY PROVISION OF THIS AGREEMENT WHICH PROVIDES FOR A LIMITATION OF
LIABILITY, DISCLAIMER OF WARRANTY OR EXCLUSION OF DAMAGES IS INTENDED BY THE
PARTIES TO BE SEVERABLE AND INDEPENDENT OF ANY OTHER SUCH PROVISION. FURTHER,
IN THE EVENT THAT ANY REMEDY HEREUNDER IS DETERMINED TO HAVE FAILED OF ITS
ESSENTIAL PURPOSE, ALL LIMITATIONS OF LIABILITY AND EXCLUSIONS OF DAMAGES
SHALL REMAIN IN EFFECT.
THE LIABILITY OF EACH PARTY, RESPECTIVELY, IN ANY SINGLE EVENT OR IN THE
AGGREGATE, SHALL NOT EXCEED U.S. $1,000,000.
8.8 SURVIVAL
The provisions of section 3 (Compensation), section 4 (Intellectual Property
Rights), section 7 (Proprietary Information), section 8.1 (Governing Law),
section 8.2 (Disclaimer of Warranty), section 8.5 (Export), section 8.6
(Assignment), section 8.7 (Limitation of Damages), section 9 (Inventions),
section 10 (Indemnification) and section 11 (Entire Agreement) shall survive
the expiration, cancellation or termination of this Agreement.
9. INVENTIONS
9.1 WEITEK. All discoveries, improvements and inventions
conceived or first reduced to practice exclusively by or on behalf
of WEITEK (collectively, "WEITEK Inventions") shall be the property
of WEITEK exclusively throughout the world, WEITEK shall have the
exclusive, world-wide right, title and interest in and to all
intellectual property rights relating to WEITEK Inventions.
9.2 MIPS. All discoveries, improvements and inventions
conceived or first reduced to practice exclusively by or on behalf
of MIPS (collectively, "MIPS Inventions") shall be the property of
MIPS exclusively throughout the world. MIPS shall have the
exclusive, world-wide right, title and interest in and to all
intellectual property rights relating to MIPS Inventions.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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10. PROPRIETARY RIGHTS INDEMNIFICATION
10.1 INDEMNIFICATION
10.1.1 INDEMNIFICATION BY MIPS. MIPS shall indemnify and hold
WEITEK harmless against any action based on a claim that MIPS
Technology when used in accordance with this Agreement infringes a
United States patent or copyright, shall defend at MIPS expense all
suits against WEITEK based upon such a claim and shall pay all costs
and damages finally awarded against WEITEK in such suit, provided
that WEITEK shall notify MIPS promptly in writing of such suit and
at MIPS request and at MIPS expense MIPS is given sole control of
such suit and all information and assistance for defense of same
reasonably requested by MIPS. MIPS shall not be liable for any costs
or expenses incurred by WEITEK after MIPS has assumed the defense of
such action. WEITEK shall have the right to be represented by its
own attorney at WEITEK's expense. This indemnity does not extend to
any suit based upon an infringement or alleged infringement of any
patent, copyright, mask work right or trademark by WEITEK's
manufacturing process or modification of MIPS Technology made by or
on behalf of WEITEK; the use of MIPS Technology in combination with
other technology or software not provided by MIPS or a modification
or enhancement to MIPS Technology not made by MIPS, if such claim
would not have occurred but for such combination, modification or
enhancement; any marking or branding applied to MIPS Technology or
modification or design of MIPS Technology by or at the request of
WEITEK, except any such marking or branding in accordance with MIPS
written instructions; or any infringement based upon third party
software except as to any modifications or enhancements to such
software made by MIPS and delivered to WEITEK. The foregoing states
the entire liability of MIPS for trade secret, patent, mask work
right, copyright, trademark or other proprietary rights infringement.
10.1.2 INDEMNIFICATION BY WEITEK. WEITEK shall indemnify and hold
MIPS harmless against any action based on a claim that (1) the
process used by or on behalf of WEITEK in manufacturing products
incorporating or based upon MIPS Technology, or (2) any WEITEK
modification of MIPS Technology, if such claim would not have
occurred but for such modification or (3) the use of MIPS Technology
in combination with other equipment, software, data or technology
not provided by MIPS, if such claim would not have occurred but for
such use in combination or (4) any marking or branding applied to
MIPS Technology by or at the request of WEITEK except any such
marking or branding in accordance with MIPS written instructions, or
(5) any infringement based upon third party software except as to
any modifications or enhancements to such software made by MIPS and
delivered to WEITEK, has infringed a United States patent or
copyright, shall defend at WEITEK's expense all suits against MIPS
based upon such a claim and shall pay all costs and damages finally
awarded against MIPS in such suit, provided that MIPS shall notify
WEITEK's expense WEITEK is given sole control of such suit and all
information and assistance for defense of same reasonably requested
by WEITEK. WEITEK shall not be liable for any costs or expenses
incurred by MIPS after WEITEK has assumed the defense of such
action. MIPS shall have the right to be represented by its own
attorney at MIPS expense. The foregoing states the entire liability
of WEITEK for trade secret, patent, mask work right, copyright,
trademark or other proprietary rights infringement.
10.2 REMEDY FOR INFRINGEMENT
10.2.1 If any MIPS Technology or any portion thereof, for which
MIPS is responsible as set forth in section 10.1.1, is finally
adjudged to infringe a United States patent or copyright as to which
MIPS is obligated to indemnify WEITEK in accordance with section
10.1.1, MIPS shall use reasonable best efforts to:
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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10.2.1.1 procure the right to continue using the
unmodified MIPS Technology,
10.2.1.2 modify the MIPS Technology so that becomes
non-infringing, or
10.2.1.3 replace the unmodified MIPS Technology, or
infringing portions thereof, with reasonably equivalent
non-infringing products.
10.2.2 If any WEITEK manufacturing process, any modification to
MIPS Technology, any use of MIPS Technology in combination, any
marking or branding of MIPS Technology, or any infringement based
upon third party software for which WEITEK is responsible as set
forth in section 10.1.2, is finally adjudged to infringe a United
States patent or copyright as to which WEITEK is obligated to
indemnify MIPS in accordance with section 10.1.2, WEITEK shall use
reasonable best efforts to:
10.2.2.1 procure the right to continue using the process,
modification, marking branding or use in combination
10.2.2.2 modify the process, modification, marking,
branding or use in combination so that it becomes
non-infringing, or
10.2.2.3 replace the process, modification, marking,
branding or use in combination, or infringing portions
thereof, with reasonably equivalent non-infringing products
or processes.
10.2.3 In the event that there is a final adjudication of
infringement, the liability of the indemnifying party for
infringement indemnification shall terminate with respect to all
damages regarding the infringing intellectual property arising after
the date of such final adjudication.
11. ENTIRE AGREEMENT
This Agreement and the exhibits attached hereto contain and constitute the
sole, complete and entire agreement and understanding of the parties
concerning the matters contained herein and may not be altered, modified or
changed in any manner except by writing duly executed by the parties. No
statements, promises or representations have been made by any party to
another, or are relied upon, and no consideration has been or is offered,
promised, expected or held out, other than as stated in this Agreement. No
party is relying on any representations other than those expressly set forth
herein. No conditions precedent to the effectiveness of this Agreement exist,
other than as may be expressly provided herein. There are no oral or written
collateral agreements. All prior and contemporaneous discussions and
negotiations have been, and are, merged and integrated into, and superseded
by, this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representative.
WEITEK CORPORATION MIPS COMPUTER SYSTEMS, INC.
"WEITEK" "MIPS"
By: \s\ John Barnes By: \s\
--------------------------------- ---------------------------------
Title: V.P. Development Title: Vice President and Treasurer
------------------------------- ------------------------------
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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<PAGE>
Date: 8-10-90 Date: August 14, 1990
-------------------------------- -------------------------------
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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<PAGE>
EXHIBIT A
ARCHITECTURE LICENSE DELIVERABLES
A. MIPS R Series Architecture Specification including the Instruction
Set descriptions for the R4000 Series.
B. MIPS Instruction Set and System Performance Simulator (SABLE).
C. MIPS R4000 Test Program
1. Source code in Teradyne J953 format
2. Pattern source code (Assembly language)
D. MIPS R4000 RTL Model
1. All RTL equations for each chip (ASCII, on tape)
2. Binary, executable copy of the MIPS simulator for the R4000
(SLOGAN)
3. Overview block diagrams of the R4000
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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<PAGE>
EXHIBIT B
ARCHITECTURE LICENSE DELIVERABLES
A. MIPS R5000 Architecture Specification (superscalar)
B. MIPS R5000 Instruction Set and System Performance Simulator (SABLE)
C. MIPS R5000 Test Programs
1. Source code in MIPS then current tester format
2. Pattern source code (Assembly language)
D. MIPS R5000 RTL Model
1. All RTL equations for each chip (ASCII, on tape)
2. Binary, executable copy of the MIPS simulator for the MIPS
Chip
E. MIPS R5000 Diagnostics
F. Interface Specifications
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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<PAGE>
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
ASSIGNMENT AGREEMENT
This Assignment Agreement ("Agreement") is made and entered into as of
the 19th day of June, 1996 (the "Effective Date") between Weitek Corporation,
a California corporation ("Weitek"), and Quantum Effect Design, Inc.
("Quantum").
WHEREAS, Weitek and MIPS Technologies, Inc. ("MIPS") are parties to that
certain Technology License Agreement dated as of June 29, 1990 (the "License
Agreement"); and
WHEREAS, Weitek desires to assign the License Agreement to Quantum, and
Quantum desires to accept such assignment; and
WHEREAS, MIPS has consented to such assignment;
NOW THEREFORE, in consideration of the mutual promises made herein,
Weitek and Quantum hereby agree as follows:
1. ASSIGNMENT AND ASSUMPTION. Weitek hereby assigns to Quantum all of
Weitek's rights and interest in and to the License Agreement, and Quantum
hereby accepts such assignment and assumes and agrees to perform all of the
obligations of the licensee under the License Agreement. (The assignment of
the rights and obligations under the License Agreement provided for in this
Section 1 is referred to as the "Assignment.")
2. CONSIDERATION. In consideration for the Assignment, Quantum hereby
agrees to pay to Weitek the [*] as follows: concurrent with the execution of
this Agreement, (i) Quantum shall pay to Weitek by wire transfer the [*] and
(ii) shall execute and deliver to Weitek, and pay when due, a promissory note
in the form attached hereto as Exhibit A.
3. INDEMNIFICATION. Weitek hereby agrees to indemnify and hold
harmless Quantum, its officers, directors and stockholders from any and all
royalties, fees, payments and other liabilities owing to MIPS under the
License Agreement from the effective date of the License Agreement to the
Effective Date hereof. Quantum hereby agrees to indemnify and hold harmless
Weitek, its officers, directors and stockholders from any and all royalties,
fees payments and other liabilities owing to MIPS under the License Agreement
from and after the Effective Date hereof.
4. NO WARRANTIES GIVEN. Weitek's assignment hereunder is made with no
representation or warranty of any type (other than to represent to Quantum
that the Assignment has been approved by MIPS). Quantum acknowledges that it
has reviewed and understands the scope of the License Agreement, and is not
relying any representation of Weitek with respect to the execution and
delivery of this Agreement.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
22.
<PAGE>
5. MISCELLANEOUS.
5.1 COMPLETE AGREEMENT; NO ORAL MODIFICATION. This Agreement
constitutes the entire Agreement between the parties with respect to the
subject matter hereof, and supersedes all other communications or
negotiations relating thereto between the parties. No amendment or change
hereof or addition to this Agreement shall be effective unless reduced to a
writing signed by authorized representatives of the parties.
5.2 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original and both together shall be
deemed to be one and the same agreement.
IN WITNESS WHEREOF THE PARTIES HAVE EXECUTED THIS LICENSE AGREEMENT AS
OF THE EFFECTIVE DATE SET FORTH ON THE FIRST PAGE HEREOF.
WEITEK CORPORATION QUANTUM EFFECT DESIGN, INC.
By: \s\ R.I.S. Bohnet By: \s\ Thomas J. Riordan
---------------------------- -------------------------------
Name: R.I.S. Bohnet Name: Thomas J. Riordan
-------------------------- -----------------------------
Title: President Title: President
------------------------- ----------------------------
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
23.
<PAGE>
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
AMENDMENT No. 1 TO THE
TECHNOLOGY LICENSE AGREEMENT
This Amendment No. 1 to the Technology License Agreement (this "Amendment")
is entered into between MIPS Technologies, Inc. ("MIPS") and Quantum Effect
Design, Inc. ("QED"), effective March 31, 1997.
WHEREAS, MIPS Computer Systems, Inc. ("MCSI") and Weitek Corporation
("Weitek") entered into a Technology License Agreement, dated June 19, 1990
(the "Weitek Technology License Agreement"), under which MCSI licensed to
Weitek certain technology, including the MIPS(R) Instruction Set Architecture;
WHEREAS, MCSI merged into Silicon Graphics, Inc. ("SGI") effective on June
29, 1992, and MIPS, as the surviving business entity to MCSI, succeeded to
the rights and obligations of MCSI under the Weitek Technology License
Agreement;
WHEREAS, Effective June 19, 1996, Weitek assigned to QED all of Weitek's
rights and interests in and to the Weitek Technology License Agreement and
QED accepted such assignment and assumed and agreed to perform all of the
obligations of Weitek under the. Weitek Technology License Agreement;
WHEREAS, MIPS consented to such assignment; and
WHEREAS, QED has exercised the R5000 Option described in Section 2.1.2 of the
Weitek Technology License Agreement and QED and MIPS have agreed to the form
of compensation, valued at [*], which QED owes MIPS for the exercise of such
option as required by Section 3.2 of the Weitek Technology License Agreement.
NOW THEREFORE. the parties agree as follows:
A. The parties acknowledge and agree that MIPS and QED are bound by the
terms and conditions of the Weitek Technology License Agreement, in the
manner specified in Section 8.3.4, to the same extent that each party's
predecessor in interest (i.e., MCSI and Weitek) was bound as of the
expiration date of the Weitek Technology License Agreement. Further, all
references to Weitek in the Weitek Technology License Agreement will be
deemed references to QED. For convenience of drafting, references in this
Amendment to defined terms which are used in the Weitek Agreement and which
contain "Weitek" will include `QED" instead of "Weitek". For example, "Weitek
Chips" are referred to as "QED Chips" in this Amendment.
B. The parties acknowledge and agree that (a) the R5000 Option
described in Section 2.1.2 constitutes a license to the MIPS IV Instruction
Set Architecture, (b) the scope of QED's license rights to the MIPS IV
Instruction Set Architecture are specified in Section 2.1.1, and (c) the
license is effective in the manner specified in Section 8.3.4. Further, since
QED already has the technology required to exercise such license rights, the
parties acknowledge and agree that MIPS is not required to provide QED with
any deliverables, notwithstanding anything contained in the Weitek Technology
License Agreement or Exhibit B to the contrary.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
24.
<PAGE>
C. Notwithstanding anything contained in Section 3.2 of the Weitek
Technology License Agreement to the contrary, the parties acknowledge and
agree that as compensation for the R5000 Option as set forth in Section
2.1.2, QED will pay MIPS [*], in the following manner:
(i) QED will pay MIPS [*] by April 30, 1997, in immediately
available funds in the manner specified by MIPS.
(ii) The remaining [*] will be paid by QED to MIPS in the form
of incremental royalties (i.e., increased royalties paid in addition to those
otherwise payable under the Weitek Technology License Agreement) on each of
the specified QED Chips in accordance with the following schedule:
<TABLE>
<CAPTION>
QED Chip Incremental Royalty %
-------- ---------------------
<S> <C>
RM5230 [*]
RM5260 [*]
RM7000 [*]
</TABLE>
(iii) Incremental royalties for other QED Chips will be mutually
agreed upon in writing based on the likeness of such QED Chips to the above
QED Chips considering the similarity of the core processor design and ASP.
So-called "ASSP" (highly integrated derivatives) of a QED Chip will be
subject to the incremental royalty rate applicable to the QED Chip from which
it was derived. The parties must make good faith efforts to agree to the
appropriate incremental royalty prior to the shipment of any of the QED Chips
described in this Section C(iii).
(iv) At any time prior to April 30, 2000, QED may compensate
MIPS for the then-current outstanding balance of the [*] compensation for the
R5000 Option by means of engineering services that are mutually agreed upon
in writing by MIPS and QED.
(v) If the entire [*] compensation has not been paid by April
30, 2000, QED will pay in full to MIPS the remaining balance of the [*]
compensation in a lump sum by that date. QED's obligation to pay the [*]
compensation will survive any expiration or termination of the Weitek
Technology License Agreement.
MIPS Technologies Quantum Effect Design, Inc.
By: \s\ John Burgoin By: \s\ Thomas J. Riordan
-------------------------------- --------------------------------
Name: John Bourgoin Name: Thomas J. Riordan
------------------------------ ------------------------------
Title: President, MTI Title: President
----------------------------- -----------------------------
Date: 3/31/97 Date: 31 March 97
------------------------------ ------------------------------
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
25.
<PAGE>
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
September 4, 1997
Agreement for Purchase and Sale of Custom Semiconductor Products
(Purchase Order Based)
AGREEMENT NUMBER: X0468
This Agreement is entered into by and between International Business Machines
Corporation ("IBM"), incorporated under the laws of the State of New York and
with an address for purposes of this Agreement of 1000 River Street, Essex
Junction, Vermont, 05452 and Quantum Effect Design, Inc. ("Customer"),
incorporated under the laws of the State of California with an address for
purposes of this Agreement of 3255-3 Scott Boulevard, Suite 200, Santa Clara,
California. IBM and Customer agree as follows:
This Agreement is a master purchase agreement for the manufacture and sale of
custom integrated circuit products ("Products(s)"). This Agreement, and its
mutually agreed upon work orders ("Task Orders") issued under this Agreement,
shall solely govern IBM's manufacture and sale of Products to Customer. A
Task Order shall become subject to this Agreement when it has been signed by
IBM and Customer. Task Orders shall describe the respective responsibilities
of the parties (e.g., deliverable materials and specifications, Product
description(s), manufacture and qualification of Product prototypes, as well
as technical responsibilities) with regard to specific Product(s), as well as
specific purchasing information (e.g., manufacturing lead times, Product
pricing and ordering, as well as billing locations). Task Orders shall be in
the form as set forth in Exhibit A. The term of a Task Order shall run from
the effective date on the Task Order until the earlier of: 1) the expiration
date stated in the Task Order; or 2) termination of this Agreement or the
Task Order. In the event of an inconsistency between the terms and conditions
of this Agreement and those of a Task Order, the Task Order will prevail.
DEFINITIONS:
"PRE-PRODUCTION UNIT" means a preliminary version of any Product fabricated
under IBM's usual manufacturing cycle, including usual manufacturing
inspections and which may use a design and mask set that has not been
verified by Customer. (Pre-production is also known within IBM as "PQ-level".)
"PRODUCTION" means a unit of a Product manufactured after receipt of
Customer's Prototype Acceptance. (Production is also known within IBM as
"Q-level".)
"PROTOTYPE" means a preliminary version of any Product fabricated under an
expedited manufacturing cycle without all usual manufacturing inspections
which may or may not be functional and which are not suitable for production
in commercial quantities. (Prototype is also known within IBM as "P-level")
PROTOTYPE ACCEPTANCE means Customer's written approval that Customer is
satisfied with its Prototype qualification results and its evaluation process
has demonstrated (by lot number) which Prototypes are satisfactory to
Customer. Prototype Acceptance will serve as Customer's authorization to IBM
to manufacture the Product in production.
1. TERM OF AGREEMENT: This Agreement is effective on July 30, 1997 (the
"Commencement Date"). This Agreement will expire on the later of May 1, 2000
(the "Expiration Date") or upon completion of the last Task Order entered
into prior to the Expiration Date, subject to Section 16 (Termination Rights).
2. FORECASTS: Each Task Order shall contain a forecast of Customer's
anticipated demand for Product for the first twelve (12) month period of the
Task Order's term. For each Task Order Customer shall provide an updated
forecast to IBM in writing no later than the fifteenth (15th) day of each
month which shall cover a rolling twelve (12) month period (not to exceed the
term of this Agreement), which will be subject to acceptance by IBM's
Technical Coordinator. IBM's Technical Coordinator shall make a
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
September 4, 1997
determination regarding acceptance, in writing, within five (5) business days
after receipt by IBM. All forecasts shall be in the same format as set forth
in the Task Order. Forecasts shall be provided to IBM's Technical Coordinator
identified in the applicable Task Order.
The initial forecast set forth in a Task Order shall constitute good faith
estimates of Customer's anticipated requirements for Products for the periods
indicated based on current market conditions, and IBM's acceptance shall
constitute IBM's good faith intention to quote and supply such requirements
if requested and ordered by Customer in accordance with Section 3.0. IBM has
no obligation to accept any portion of a purchase order for a quantity of
Products (a) which results in a cumulative quantity of Products that exceeds
the lesser of 1) the forecasted shipment quantity for such period (plus an
additional quantity not to exceed fifty percent (50%) of the monthly average
quantity of Product purchased within the prior three (3) months) or 2) a
quantity not to exceed one hundred-fifty (150) wafers in addition to the
average quantity of Product purchased within the prior three (3) months) or
(b) if Customer fails to meet the terms and conditions of this Agreement,
including, without limitation, requesting delivery dates that are
inconsistent with the minimum purchase order lead times set forth in the Task
Order.
IBM agrees to provide Customer with twelve (12) month's prior written notice
in the event that IBM voluntarily determines that IBM shall discontinue
practicing the process technology used to manufacture Products under this
Agreement, where IBM is under no compulsion of any nature to do so.
3. ORDERS: After the parties have executed a Task Order, Customer will
request delivery of Products by issuing written purchase orders to the IBM
ordering location set forth in the Task Order. Purchase orders are subject
to, and IBM will accept purchase orders that comply with: 1) the terms and
conditions of this Agreement and the applicable Task Order. Purchase orders
shall only specify:
a) PO NUMBER
b) TAX STATUS - EXEMPT OR NON-EXEMPT
c) SHIP TO LOCATION - COMPLETE ADDRESS
d) BILL TO LOCATION - COMPLETE ADDRESS
e) ORDER FROM LOCATION - COMPLETE ADDRESS
f) PRODUCT PART NUMBERS AND QUANTITIES BEING ORDERED
(IN INCREMENTS OF THE MINIMUM ORDER QUANTITY ("MOQ");
g) THE PRODUCT'S APPLICABLE UNIT PRICE;
h) SHIPPING INSTRUCTIONS, INCLUDING PREFERRED COURIER.
i) REQUESTED SHIPMENT DATES
j) THE AGREEMENT NUMBER OF THIS AGREEMENT.
k) NAME OF CUSTOMER CONTACT
Customer's first purchase order for Products shall serve as Customer's
written notice of Prototype Acceptance. Thereafter Product supplied to
Customer will be warranted as set forth in Section 13.
Within ten (10) business days after IBM's receipt of Customer's purchase
order IBM shall issue a written sales acknowledgment which shall recite the
Agreement Number, Product and Customer's shipping instructions, as well as
establish the quantities being sold, the Product's applicable unit price and
the scheduled shipment dates for the Product(s). Scheduled shipment dates
will be adjusted by IBM to account for any Customer caused delay, including,
without limitation, Customer issued Stop Production Notices ("SPN's").
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
September 4, 1997
This Agreement shall take precedence over and govern in case of any
additional, different or conflicting terms and conditions in any purchase
order(s) or any other form of either party. Purchase orders and other forms
of either party may not vary the terms of this Agreement. Additional,
different or conflicting terms and conditions on a purchase order or other
form shall be of no effect unless specifically agreed to in writing by the
parties.
4. LEAD TIMES, SHIPMENT, TITLE AND RISK OF LOSS: IBM will schedule each
Product for delivery in accordance with the Product's manufacturing lead
times, as set forth in the applicable Task Order. Products shall be shipped
from the manufacturing location FOB for domestic U.S. destinations and
ExWorks (as defined in the 1990 INCO Terms) for international shipments.
Title and risk of loss for a Product passes to Customer when IBM delivers the
Product to the carrier for shipment to Customer.
5. PRICES, INVOICING, PAYMENT TERMS AND TAXES: The engineering charges and
the price/quantity matrix in the applicable Task Order will apply to the
Products. Task Orders will include non-binding prices provided as budgetary
estimates. All estimated prices shall be specifically designated as budgetary
estimates. IBM will invoice Customer for engineering charges associated with
Products in accordance with such Task Order. IBM will invoice Customer for
Products upon shipment. All payments owed by Customer to IBM under this
Agreement, including, without limitation, cancellation and engineering
charges, as well as payment for Products purchased, are payable in U.S.
dollars and receipt of payment by IBM will be due net thirty (30) days after
the date of the invoice; provided, however, that IBM reserves the right to
modify such credit terms in the event that Customer's account balances exceed
Customer's credit limit with IBM. IBM may discontinue work and may not ship
Product if Customer's account becomes in arrears. Customer will be liable for
interest on any overdue payment under this Agreement, up to the maximum legal
rate in the jurisdiction where the claim is being asserted. Customer is
responsible for all taxes related to Products except for taxes based on IBM's
net income. No payments owed by Customer to IBM under this Agreement are
subject to any right of setoff by Customer.
6. PRODUCT SHIPMENT RESCHEDULING RIGHTS: For a purchase order which is more
than thirty (30) days, but less than sixty (60) days, from its scheduled
shipment date, Customer may request in writing a onetime deferral of the
scheduled shipment date not to exceed thirty (30) days, with no cancellation
charge imposed. If Customer cancels an order after wafer start or exceeds the
foregoing Product shipment rescheduling rights in this Section 6, Customer
agrees to pay the cancellation charge set forth in the Task Order upon
receipt of IBM's invoice.
7. ORDER CHANGES: If IBM's ability to supply Product(s) to Customer is
constrained for any reason, including, without limitation, availability of
manufacturing materials or tools, and any IBM agreed-to Product shipment date
will be missed, IBM will reduce the quantities of Product(s) supplied to
Customer in proportion to the reduction in quantities of products of the same
technology or utilizing the same manufacturing process to be supplied to
satisfy others, which shall include IBM's internal customers. Receipt of such
allocated supply and later delivery of all undelivered ordered quantities
after the constraint ends constitutes IBM's entire liability and Customer's
exclusive remedy in the event of such Product supply constraint.
8. ENGINEERING CHANGES: IBM may implement Engineering Changes required to
satisfy governmental standards, protect Product, system or data integrity, or
for environmental, health or safety reasons ("Mandatory Engineering
Changes"). IBM shall provide Customer with notice that Mandatory Engineering
Changes are required as soon as reasonably practicable under the
circumstances. For all previously shipped Product not incorporating Mandatory
Engineering Changes, IBM may provide replacement Products (including parts,
materials and documentation) at the expense of the party at fault. Customer
must use reasonable efforts to install Mandatory Engineering Changes on all
Customer installed Products and Products in its inventory. If IBM requests
the return of Products displaced by installation of
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
September 4, 1997
replacement Products, Customer will promptly return any displaced Products to
IBM after installation of such replacement Products, at IBM's expense. In
addition to Mandatory Engineering Changes, IBM may implement Engineering
Changes that result in cost reductions to the Product ("Elective Engineering
Changes") with prior approval from Customer. Such approval shall not be
unreasonably withheld. IBM shall give Customer prompt notice of Elective
Engineering Changes. IBM may make available other Engineering Changes
("Optional Engineering Changes"). The cost of any Optional Engineering
Changes that Customer desires to implement will be borne by Customer and will
be determined through a request for quote process.
9. CONFIDENTIAL INFORMATION EXCHANGES: The disclosures of IBM Confidential
Information to Customer pursuant to Amendment 1 (dated January 10, 1997) and
Amendment 2 (dated March 27, 1997) to the Confidential Information Exchange
Agreement shall be subject to and governed by the Confidential Information
Exchange Agreement (CIEA PCC960507), dated September 3, 1996. Other
confidential information of either party shall be identified as that party's
confidential information and shall be exchanged pursuant to the terms of the
agreement for exchange of confidential information (agreement number: V1397),
between IBM and Customer dated November, 21, 1996, which is hereby
incorporated by reference. All other information exchanged by the parties
shall be deemed non-confidential.
Neither party shall disclose the terms and conditions or subject matter of
this Agreement, except as may be required by law or government rule or
regulation, or except as might otherwise be agreed to by the other party in
writing, which shall not be unreasonably withheld.
10. CUSTOMER REPRESENTATIONS: Customer warrants it is the originator,
rightful owner or licensee of all designs, information, and materials
supplied to IBM hereunder, and that no part of such materials knowingly
infringes the intellectual property of any third party. All computer data
provided to IBM by Customer will be free from any virus, worm or other
routines that would permit unauthorized access or otherwise harm software,
hardware or data.
Customer will not utilize Products in conjunction with any medical
implantation or other direct life support applications where malfunction may
result in injury, harm or death to persons, or in conjunction with aviation
or nuclear materials (collectively, "Ultra-hazardous Uses"). Customer agrees
to require the same commitment from its own customers in all contracts or
sale documents, if any, under which Customer sells the Product or a device
incorporating the Product.
Customer agrees to defend, indemnify and hold IBM harmless from and against
all claims, whether based in contract, tort (including, without limitation,
negligence), or otherwise for any losses, expenses, damages and liabilities
which may arise out of Customer's use, distribution or sale of Products,
except those caused solely by Product defects in materials or workmanship as
warranted under Section 13 (Limited Warranty), or to the extent caused by the
negligence or intentional wrongful acts of IBM. IBM shall tender to Customer
the defense of any claim made against IBM hereunder and Customer shall defend
same with counsel subject to the prior approval of IBM.
11. INTELLECTUAL PROPERTY RIGHTS: IBM shall own any physical masks made by
IBM using data provided by Customer. IBM will use tangible GDS II (or any
other file format as agreed to by the parties) data received from Customer or
generated exclusively for Customer hereunder, and any masks made from such
data, only to manufacture Products for sale to Customer. IBM will perform an
incoming inspection on masks. Thereafter IBM, at its expense, will be
responsible for replacing masks that exhibit defects solely as a result of
manufacturing processes. Subject to section 7 of this Agreement, IBM will
expedite the manufacture of wafers to replace the defective wafers that were
manufactured using such masks. Upon written request from Customer, IBM will
promptly destroy masks for Products and provide Customer with a written
certification to document that the destruction has occurred.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
September 4, 1997
The purchase, receipt or possession of Products from or through IBM carries
no license or immunity, express or implied, under any patent of IBM covering
the combination of such Products with other products purchased from others or
the use of any such combination, or under any patent or other intellectual
property right of any third party relating to such Products or their
combinations with any other products.
Neither this Agreement, nor the sale of Products hereunder, shall be deemed
to give either party any right to use the other party's trademarks or any of
the other party's trade names without specific, prior written consent.
12. INTELLECTUAL PROPERTY INDEMNIFICATION: IBM shall indemnify Customer
from and against any damages finally settled or awarded by a court of
competent jurisdiction resulting from any direct infringement of any patents
or copyrights of a third party in any country in which IBM sells
semiconductor products, arising as a result of any of IBM's manufacturing
process, equipment or testing, that is not specifically required by
Customer's designs, specifications or instructions. IBM shall defend at its
own expense, including reasonable attorney's fees, any suit brought against
Customer alleging such infringement. In the event that Customer becomes
enjoined from using Product in its inventory due to such infringement, IBM at
its option and expense, will secure for Customer the right to continue to use
and market the Product, or modify or replace the Product with a
non-infringing product. If IBM determines that neither of the foregoing
alternatives is reasonably available, Customer may return the Product in
Customer's inventory to IBM for a credit equal to the price paid for units of
Product affected. IBM shall have no obligation regarding any claim based upon
modification of the Product by Customer or its customers. Customer shall
indemnify IBM from and against any damages finally settled or awarded by a
court of competent jurisdiction resulting from any direct infringement of any
patents or copyrights of a third party in any country where Customer uses or
distributes the Product, arising as a result of IBM's compliance with any of
Customer's design, specifications, instructions or modifications of the
Product by Customer and shall defend at its own expense, including reasonable
attorney's fees, any suit brought against IBM alleging any such infringement.
The rights provided in this Section 12 are contingent upon the party seeking
to enforce indemnification giving prompt written notice to the indemnifying
party regarding any claim, demand or action for which the indemnified party
seeks indemnification. The indemnified party is required to fully cooperate
with the indemnifying party at the indemnifying party's expense and shall
allow the indemnifying party to control the defense or settlement of any such
claim, demand or action, including obtaining the written consent of the
indemnifying party prior to any settlement proposal or settlement, which
shall not be unreasonably withheld. IBM shall have the right to waive
Customer's obligations under this Section 12 and provide for its own defense,
at IBM's sole discretion and expense.
Except as expressly stated in this Agreement, this Section 12 states the
entire liability of the parties and their exclusive remedies with respect to
infringement and all other warranties against infringement of any
intellectual property rights, statutory, express or implied are hereby
disclaimed.
13. LIMITED WARRANTY: IBM warrants Product(s) to be free from defects in
material and workmanship for one (1) year after the date of delivery to
Customer. Customer acknowledges that the functionality of Products is
contingent upon Customer's designs and therefore, no warranty applies to the
functionality of Products manufactured for or sold to Customer, except
insofar as functional defects result solely from defects in materials and
workmanship. Once IBM receives Customer's Prototype Acceptance for
Pre-production Units, the applicable Pre-production Units (as identified by
lot numbers in the Prototype Acceptance) will be warranted as Production
Products. Except as provided in the foregoing sentence, Prototypes are
provided on an "AS IS" basis, without warranty of any kind. For warranty
purposes only, Products will be deemed delivered five (5) days after the date
of shipment. This warranty applies only to Customer, as the original
purchaser from IBM, and Customer may not transfer this warranty to any third
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
September 4, 1997
party. If Customer believes that a Product is not as warranted, Customer
will: 1) promptly notify IBM in writing; and 2) at IBM's request, return the
Product freight prepaid to IBM's designated location. If IBM reasonably
determines that the Product does not meet its warranty, IBM will, at IBM's
option (subject to Customer's option in 14.a.), repair or replace the
Product, or issue a credit or refund of the purchase price. This warranty
will not include credit, repair, or replacement of a Product which has a
defect due to Customer's or a third party's actions or omissions.
PRODUCT PROTOTYPES PROVIDED TO CUSTOMER BY IBM ARE PROVIDED "AS IS" WITHOUT
WARRANTY OF ANY KIND, EXPRESS OR IMPLIED INCLUDING BUT NOT LIMITED TO ANY
IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS OR USE FOR A PARTICULAR
PURPOSE.
THE FOREGOING IBM WARRANTIES AS STATED IN THIS SECTION 13 (LIMITED WARRANTY)
ARE IN LIEU OF ALL OTHER WARRANTIES FROM IBM, EXPRESS OR IMPLIED, INCLUDING,
WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS OR
USE FOR A PARTICULAR PURPOSE.
14. LIMITED LIABILITY: The following sets forth IBM's entire liability and
Customer's exclusive remedy.
a. In all situations involving warranty claims, Customer's exclusive remedy
is the replacement of the Products or a credit to Customer of the purchase
price paid for such units by Customer, at IBM's sole discretion, provided,
however, that if a Product is in production and if Customer has no overdue
accounts receivable owed to IBM, Customer may elect whether it prefers a
replacement or a credit.
b. IBM's liability for actual damages under any given Task Order hereunder,
for any cause whatsoever (other than as set forth in a. above), shall be
limited to the greater of two hundred thousand dollars ($200,000) or the
applicable unit price paid for the specific units of Product that caused the
damages or that are the subject matter of, or are directly related to, the
cause of action. This limitation will apply, except as otherwise stated in
this Section, regardless of the form of action, whether in contract or in
tort, including negligence. This limitation will not apply to the payment of
costs, damages and reasonable attorney's fees referred to in Section 12
(Intellectual Property Indemnification). This limitation will also not apply
to claims by Customer for bodily injury or damage to real property or
tangible personal property caused by IBM's negligence.
c. In no event will either party be liable to the other party for any lost
profits, lost savings, incidental damages or other consequential damages,
except as provided in Section 12. In addition IBM will not be liable for any
claim based on any third-party claim, except as provided in Sections 12. In
no event will IBM be liable for any damages caused by Customer's failure to
perform Customer's responsibilities.
d. In addition, IBM shall have no liability when the Products are used in
conjunction with any Ultra-hazardous Uses.
15. TERMINATION RIGHTS: If either party is in default of any material
provision of this Agreement, the party not in default may provide a
termination notice to the defaulting party. The termination notice shall
specify:
a) the nature of the default;
b) the date, at least thirty (30) days from the date of such notice
from the other party, by which the defaulting party shall demonstrate a cure
of the default; and
c) the date upon which the Agreement will terminate if the
defaulting party does not cure the default.
In addition, either party may terminate this Agreement immediately upon
written notice if the other party:
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
September 4, 1997
a) becomes insolvent, files a petition in bankruptcy, becomes
dissolved or liquidated, files a petition for dissolution or liquidation,
makes an assignment for benefit of creditors, or has a receiver appointed for
its business; or
b) is subject to property attachment or court injunction or court
order which has a substantial negative effect on its ability to fulfill its
obligations under this Agreement.
IBM shall have the right to terminate this Agreement upon twelve (12) month's
written notice if Customer transfers substantially all of its business or
assets to a third party
IBM may temporarily cease manufacturing Product with respect to the relevant
Task Order(s) if IBM receives a charge or claim that any of Customer's
deliverable items (which include, without limitation, GDS II tape,
specifications, instructions, test data, as well as those items described
under "Customer Deliverable Items" of the applicable Task Order) infringes
third party intellectual property rights. IBM shall thereafter provide
Customer's Technical Coordinator with a written statement of the reasons why
IBM has ceased production. If Customer fails to reach a resolution
satisfactory to IBM regarding such actual or potential infringement within
ninety (90) days after receipt of such notice, IBM may terminate the relevant
Task Order(s) or this Agreement upon written notice.
If this Agreement is terminated, all Task Orders still in effect shall be
deemed terminated on the effective date of the Agreement's termination.
Products under this Agreement and the applicable Task Order are
non-cancelable after wafer start and Customer agrees to pay the Production
Price (as stated in the applicable Task Order) for such Product upon receipt
of IBM's invoice in the event that this Agreement or Task Order(s) are
terminated.
16. ASSIGNMENT: Neither party to this Agreement may assign its obligations
or delegate its duties in whole or in part without the prior written consent
of the other except (a) to a purchaser or transferee of substantial all of
its assets or business to which this Agreement pertains and (b) IBM may
freely assign its right to payment hereunder without prior notice or consent.
Any other assignments or delegations will be void.
17. RELATIONSHIP OF THE PARTIES: Each party hereto is an independent
contractor and is not an agent of the other party for any purpose whatsoever.
Neither party shall make any warranties or representations on the other
party's behalf, nor shall it assume or create any other obligations on the
other party's behalf. Customer shall not solicit for employment any IBM
employee who is directly engaged in performing activities under this
Agreement.
18. COMPETITIVE PRODUCTS AND SERVICES: Neither this Agreement, nor any Task
Orders issued hereunder, will impair any right of IBM or Customer to design,
develop, manufacture, market, service, or otherwise deal in, directly or
indirectly, other products or services, including, without limitation, those
which are competitive with those offered by IBM or Customer. This Agreement
is nonexclusive.
19. NOTICES: All notices, requests, consents and other communications under
this Agreement shall be in writing and shall be sent by a traceable means of
delivery. Such communications shall be deemed delivered when received by the
party's designee referenced below. Each party may change its designee upon
written notice to the other party's designee.
<TABLE>
<S> <C>
IBM Quantum Effect Design, Inc.
Dept. LJGV / 965-3J Director of Manufacturing
1000 River Street 3255-3 Scott Boulevard, Suite 200
Essex Junction, VT 05452 Santa Clara, California 95054
FAX: 802-769-3988 FAX: 408- 565-0335
Attn: Contract Administrator Attn: Phil Hamister
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
September 4, 1997
Day to day activities under Task Orders will be directed by technical
coordinators who will be responsible for maintaining technical liaison
between the parties ("Technical Coordinators"). Task Orders shall designate
a Technical Coordinator for each party. Either party may change its
respective individual designated for receipt of notices, and/or Technical
Coordinator and their addresses designated for notices by notifying the other
party's Technical Coordinator.
20. GENERAL: If any provision of this Agreement is found to be invalid,
illegal or unenforceable under any applicable statute or rule of law, they
are to that extent to be deeded omitted from this Agreement. The validity,
legality and enforceability of such provision and the remainder of this
Agreement shall continue in effect in every other respect, so long as the
remaining provisions of this Agreement still expresses the intent of the
parties. If the intent of the parties cannot be preserved, this Agreement
shall be either renegotiated or terminated.
Except for Customer's obligation to pay amounts due under this Agreement,
neither party will be responsible for any failure or delay in its performance
under this Agreement due to causes, including, without limitation, acts of
God, natural disasters, acts of civil or military authority, epidemics,
riots, wars, sabotage, and governmental actions, which are beyond such
party's reasonable control, provided that the affected party: (a) gives the
other party prompt written notice of such cause; and (b) uses its reasonable
efforts to correct such failure or delay in its performance.
The laws of the State of New York shall govern this Agreement, without regard
to the conflict of laws principles thereof. Any proceedings to resolve
disputes relating to this Agreement shall be commenced in the State of New
York. The parties waive their respective rights to a jury trial and agree
that any proceeding under this Agreement shall be tried by judge without a
jury.
Neither Customer nor IBM will bring a legal action against the other more
than three (3) years after the cause of action arose, except for actions for
non-payment and enforcement of intellectual property rights or
indemnification.
Customer agrees to comply with its obligations under all applicable United
States, and other country or country group, laws and regulations, including,
without limitation, those relating to the export of commodities and technical
data as they relate to the activities under this Agreement. Customer agrees
that Products, and technical data provided under this Agreement may be
subject to restrictions under the export control laws and regulations of the
United States. Customer hereby gives its written assurance that neither
Products or technical data provided by IBM under this Agreement, nor the
direct product thereof, will be exported, or re-exported, directly or
indirectly by Customer or any party under its control, to prohibited
countries or nationals thereof without first obtaining applicable government
approval. Customer further agrees it is responsible for obtaining required
government documents and approvals prior to export of any Product or
technical data by Customer or any party under its control.
Customer agrees that it shall not sell Products or technical data to third
parties which Customer has reason to believe may allow such Products or
technical data to be exported contrary to the terms of this paragraph.
All obligations and duties which by their nature survive the expiration or
termination of this Agreement shall remain in effect beyond expiration or
termination and remain in effect and apply to respective successors and
assigns until they have been fulfilled.
A waiver or failure by a party to demand performance or to exercise a right,
when entitled, will not prejudice the party's ability to enforce such
performance or right.
The United Nations Convention on Contracts for the International Sale of
Goods does not apply to this Agreement.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
September 4, 1997
The headings in this Agreement are for reference only. They will not affect
the meaning or interpretation of this Agreement.
This Agreement, as well as any Task Orders issued hereunder, may only be
modified by a written amendment signed by both parties. This Agreement shall
not be supplemented or modified by any course of dealing, course of
performance or trade usage.
21. SOLE AGREEMENT: Each party acknowledges that it has read this
Agreement, understands it, and agrees to be bound by its terms and
conditions. Further, the parties agree that this Agreement and any mutually
agreed to Task Orders and amendments, represents the entire and complete
agreement between the parties, which supersedes all prior proposals,
agreements, and all other communications (whether oral or written) between
the parties relating to the subject matter hereof. Customer's purchase order
number Q10430, dated June 24, 1997 shall be governed by this Agreement and
shall be treated as issued under this Agreement.
AGREED TO AND ACCEPTED BY:
INTERNATIONAL BUSINESS MACHINES QUANTUM EFFECT DESIGN, INC.
CORPORATION
By: /s/ Peter D. Hansen By: /a/ Raymond Kunita
--------------------------------- ---------------------------------
AUTHORIZED SIGNATURE AUTHORIZED SIGNATURE
NAME: Peter Hansen NAME: Raymond Kunita
TITLE: VP, North American Sales TITLE: C.O.O.
DATE: November 12, 1997 DATE: 9/4/97
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
September 4, 1997
Exhibit A
(Page 1 of 4)
Task Order
(Task Order # X0468-1)
This Task Order is solely governed by the terms and conditions of Agreement
Number: X0468
1.0 TERM OF TASK ORDER: This Task Order will be effective on June 30, 1997
and will expire on May 1, 2000.
2.0 PRODUCT NAME AND DESCRIPTION:
Sierra, CMOS 5SF, 3LM, 7.4 x 8.4mm, Tested modules (5 second test).
3.0 PRODUCT SPECIFICATIONS:
Sierra, 208 Power Quad 4 package (28mm sq.) lead form 1.30 mm /
standoff 0.33 mm
4.0 DELIVERABLE ITEMS:
CUSTOMER: GDS II Tape
Sierra Test Tape (working test program for Teradyne
J971 tester, including all test vector files identified as part of the
wafer and module test. Test vectors must compile without error using
the standard Teradyne J971 tester tools and libraries).
Chip I/O pad coordinates (X/Y coordinates for GDS II
data with probe metal layer) with a functional description of the pads
(i.e., I/O, Vdd, Gnd, etc.)
Physical package outline drawing of the module
(AMKOR/ANAM drawing number 32536).
Two (2) hand-plug loadboard and test sockets to be
used for test program debug and verification activities. The
loadboard channel I/O mappings and power supply requirements must be
compatible with IBM's test systems. Each loadboard must include a
socket that is compatible with the Sierra module package.
IBM: CMOS 5SF Spice models
CMOS 5SF Process Ground Rules Probe cards, as
described in Section 6, below Deltaflex Handler Kit
to support Sierra package dimensions
5.0 PRODUCT DEMAND FORECAST:
12 month rolling forecast covering the period beyond the Purchase Order Lead
Time.
<TABLE>
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Year: 1998
Month: Jan. Feb. March April May June July Aug. Sept. Oct. Nov. Dec.
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[*]
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
September 4, 1997
Exhibit A (continued)
(Page 2 of 4)
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Year: 1999
Month: Jan. Feb. March April May June July Aug. Sept. Oct. Nov. Dec.
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[*]
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Minimum Order Quantity ("MOQ") is one (1) twenty four (24) wafer lot.
6.0 ENGINEERING CHARGES (NRE CHARGES):
NRE Charges include the following: [*]
1. Spice models (CMOS 5SF simulation models)
2. Process Ground Rules (CMOS 5SF ES# 77H9983, dated
June 1997)
3. Processing Customer's GDS II tape
4. Processing Customer's Test Tape
5. Mask build
6. Minimum of two (2) wafers/maximum of six (6) wafers,
subject to yield.
BURN-IN NRE Charges: [*]
Design and build of burn-in boards (BIB's) (quantity of 16) 10 week
lead time.
Design and build of sockets, if design exists lead time is 10 weeks,
otherwise lead time is 16 weeks.
Burn-in test implementation, 2 weeks duration.
IBM will provide a separate quotation for additional burn-in
services if requested by Customer.
NRE Charges payable 50% upon placement of purchase order and 50% upon
delivery of Prototypes.
NRE Services not included in NRE Charges noted above: Probe testing NRE
charges per part number as described below.
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Price Leadtime
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1. Probe cards (quantity of two (2)): $10,000.00 6 weeks
2. Test program installation on
Teradyne J971 and verification
by IBM:
wafer test $5,000 3 weeks
module test $5,000 3 weeks
3. Delta flex handler kit for
manufacturing test: $15,000 12 weeks
Total $35,000
</TABLE>
These NRE Charges are payable 100% upon placement of purchase order
therefore.
7.0 PROTOTYPE PRICING:
Two (2) prototype wafers included in the NRE Charge of [*]
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
September 4, 1997
Prototype modules: [*] per module
Exhibit A (continued)
(Page 3 of 4)
8.0 PRODUCT PRICE/QUANTITY MATRIX (PRODUCT UNIT PRICE):
SIERRA Per Unit Prices
Pre-production
[*]
SIERRA Per Unit Prices
Production
[*]
Price Adders: [*] per module for modules tested using Teradyne
J971 tester.
[*] per module for 24 hour built-in
[*] per module for 6 hour burn-in
Prices are based on the die image and package combination described
above. IBM reserves the right to re-quote Product prices if changes in
the Product design require a different die image size, package option,
or other similar change from the Product description above.
Customer agrees to pay any price adjustments due as a result of its
failure to purchase the quantity of Products upon which the initial
invoiced prices were based.
Minimum Order Quantity for Production units: one lot of twenty-four
(24) wafers, Customer must purchase all modules that yield from
wafer lots under this Agreement.
9.0 MANUFACTURING LEAD TIME (PURCHASE ORDER LEAD TIME):
Prototype modules: 70 days
Pre Production and Production: 70 days
10.0 MODULE ACCEPTANCE CRITERIA:
IBM production of Product in module format shall meet IBM's standing
quality, reliability, defect density and yield practices for the
applicable process and packaging technologies. The Product will be
tested according to Customer's Sierra Test Tape, as identified in
Section 4 of this Exhibit A. The Product will be packaged according to
the AMKOR/ANAM physical outline drawing for the 208 pin PowerQuad 4
package, AMKOR/ANAM drawing number 32536.
11.0 ORDER CHANGES / CANCELLATION CHARGES:
The following percentages of unit price will be due to IBM for
any units cancelled or scrapped at Customer's request or units
scrapped as a result of yield deficiencies caused in whole or
part by Customer's design and for units deemed cancelled due
to Customer exceeding the rescheduling rights set forth in
Section 6 of the Agreement.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
September 4, 1997
Exhibit A (continued)
(Page 4 of 4)
Number of days of notice
prior to scheduled shipment date Percent of unit price due to IBM
Between wafer start and [*]
[*] days prior to
scheduled shipment
less than [*] days prior [*]
to scheduled shipment
12.0 TASK ORDER TECHNICAL COORDINATORS:
IBM Microelectronics Quantum Effect Design, Inc.
Director of Manufacturing
1000 River Street 3255-3 Scott Boulevard, Suite 200
Essex Junction, VT 05452 Santa Clara, California 95054
FAX: 802-769-6206 FAX: 408-565-0335
Attn: Dan Ratliff Attn: Phil Hamister
13.0 SHIPPING/BILLING/ORDERING LOCATIONS:
Customer's Ship to Location: Customer's Bill to Location:
Per purchase orders Per purchase orders
IBM's Ordering Location:
International Business Machines Corporation
1055 Joaquin Rd.
Mountain View, CA 94043
Attention: Michele Young
Fax: 415-694-3157
AGREED TO AND ACCEPTED BY:
INTERNATIONAL BUSINESS MACHINES QUANTUM EFFECT DESIGN, INC.
CORPORATION
By: /s/ Peter D. Hansen By: /s/ Raymond Kunita
---------------------------------- ----------------------------------
AUTHORIZED SIGNATURE AUTHORIZED SIGNATURE
NAME: Peter Hansen NAME: Raymond Kunita
TITLE: VP, North American Sales TITLE: C.O.O.
DATE: November 12, 1997 DATE: 9/4/97
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
DEVELOPMENT AND LICENSE AGREEMENT
Made as of January 13, 1992, by and between Quantum Effect Design,
Inc., a California corporation having its principal place of business at 2670
Seeley Road, San Jose, California 95134 ("QED") and Integrated Device
Technology, Inc., a Delaware corporation having its principal place of
business at 2975 Stender Way, Santa Clara, CA 95054 ("IDT").
WHEREAS, IDT is a party to a manufacturing, marketing and purchase
agreement with MIPS Computer Systems, Inc. ("MIPS"); and
WHEREAS, IDT is licensed by MIPS to make, have made, use, modify,
market and distribute MIPS Chips and modifications thereof; and
WHEREAS, QED desires to design modifications to MIPS Chips for IDT;
and
WHEREAS, IDT desires to contract with QED for the design of
Modifications to MIPS Chips;
NOW, THEREFORE, the parties agree as follows:
1. DEVELOPMENT OF IDT R4551.
1.1 QED shall develop, in accordance with the terms and
conditions hereinafter set forth, a modified MIPS Chip for IDT known as the
IDT R4551, more fully described in the R4551 Product Specification attached
hereto as Exhibit 1 and made a part hereof. Exhibit 1 may be amended from
time to time by agreement of the parties.
1.2 QED shall develop, in accordance with the terms and
conditions hereinafter set forth, two additional products more fully
described in the Additional Products Specification attached hereto as Exhibit
l-A, and made a part hereof. Such additional products are hereinafter
referred to as the "Second Product" and "Third Product" respectively, and as
the "Additional Products" collectively. The R4551, Second Product, and Third
Product are collectively referred to as the "Products."
1.3 IDT's process capability is described in Exhibit 2, the IDT
Process Capability Description, attached hereto and made a part hereof. IDT
shall deliver or otherwise make available to QED on QED's request, IDT's
layout design rules, transistor rules and such other information as may be
reasonably required by QED to perform its obligations hereunder.
1.4 QED shall develop the Products in a first class workmanlike
manner compatible with IDT's design rules and in all manner and respects
compatible with IDT's process capability.
1.5 All revisions to Product specifications shall be effective
only if made in writing and signed by each party hereto. All signed modified
Product specifications shall be attached hereto and shall supersede the
earlier version.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
1.
<PAGE>
2. TIME OF DEVELOPMENT.
2.1 QED shall develop the R4551 in a timely manner in
accordance with the schedule set forth in the R4551 Development and NRE
Schedule attached hereto as Exhibit 3 and made a part hereof.
2.2 QED shall develop the Additional Products in a timely
manner in accordance with the Schedule set forth in the Additional Products
Development and NRE Schedule attached hereto as Exhibit 3-A and made a part
hereof.
2.3 QED and all of its employees shall devote their full time
and attention to the development of the R4551 on behalf of IDT. QED shall not
perform services for any other person nor undertake the development of any
product nor embark on any other project without the prior consent of IDT
until the performance of all R4551 milestones, including without limitation
the delivery by QED to IDT of the deliverables pursuant to Exhibit 4, the
R4551 Deliverables List, attached hereto and made a part hereof.
2.3.1 Provided IDT shall notify QED in accordance with
Paragraph 4.2 and timely provide funding to QED pursuant to Exhibits 3 and/or
3-A, QED and all of its employees shall devote their full time and attention
to the development of the Second and/or Third Products on behalf of IDT. The
foregoing covenant to devote full time and attention to the development of
the Second and Third Products shall expire if (i) QED has completed all R4551
milestones, including without limitation the delivery by QED to IDT of the
deliverables pursuant to Exhibit 4, the R4551 Deliverables List, and (ii) QED
is taking all reasonable actions to meet the Additional Products milestones
under Exhibit 3A at such time. In the event IDT shall fail to so notify QED
or shall fail to timely fund the Second and/or Third Product, as applicable,
then QED shall, by notice to IDT and IDT's failure to cure within ten days of
receipt of such notice, have no obligation to develop such Second and/or
Third Product.
2.4 QED shall deliver to IDT the deliverables set forth on
Exhibit 4 with respect to the R4551 and set forth on Exhibit 4-A, the Second
and Third Products Deliverables List, attached hereto and made a part hereof,
with respect to the Second and Third Products, and in accordance with the
schedule set forth in Exhibits 3 and 3A. QED shall assist and cooperate with
IDT in making available to IDT all technology and commercially exploitable
know-how and technical data which QED has, develops, or acquires during the
term of this Agreement pertaining to the manufacture, use, or sale of the
Products.
3. DELIVERABLES.
3.1 QED shall deliver to IDT the items in the R4551 Deliverable
List in all material ways sufficient and complete to enable one reasonably
skilled in the art to create a fully functional state of the art mask set.
QED shall deliver such items in accordance with the schedule set forth in
Exhibit 3 and in all ways compliant with Exhibit 4.
3.2 QED shall deliver to IDT the items in the Additional
Products Deliverables List in all ways sufficient and complete to enable one
reasonably skilled in the art to create a fully functional state of the art
mask set. QED shall deliver such items in accordance with the schedule set
forth in Exhibit 3-A and in all ways compliant with Exhibit 4-A.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
2.
<PAGE>
3.3 IDT shall deliver to QED in a timely manner the information
set forth in Exhibits 3 and 3-A required to be delivered by IDT to QED. QED
shall notify IDT in the event IDT shall fail to meet any obligation hereunder.
3.4 QED shall deliver to IDT in a timely manner any and all
updates to any of the items in the R4551 and Additional Products Deliverables
Lists.
4. PAYMENT BY IDT.
4.1 Provided QED has performed the material obligations
required to be performed by it pursuant to the terms of this Agreement, or
has at such time cured any failure to do so within a reasonable time after
its receipt of notice of such failure from IDT and prior to receipt of notice
of termination for material breach from IDT, IDT shall make the cash payments
associated with the R4551 milestone schedule in the amounts and at the times
specified in Exhibit 3. In the event QED shall fail to perform any material
obligation due to any breach of any material obligation of IDT hereunder,
then any such failure by QED shall be excused and IDT shall make such payment
as if QED had performed such material obligation.
4.2 Provided QED has performed when due each and every material
obligation required to be performed by it pursuant to the terms of this
Agreement, or has at such time cured any failure to do so within a reasonable
time after its receipt of notice of such failure from IDT and prior to
receipt of notice of termination for material breach from IDT, IDT shall not
unreasonably refuse to make the payments associated with the Additional
Products milestone schedule in the amounts and at the times specified in
Exhibit 3-A. IDT's refusal to make such payments shall be considered
reasonable if IDT is unable to sell licenses for the Second Product or Third
Product at prices approximately equal to the payments required to be made to
QED pursuant to Exhibit 3-A in connection with the development thereof or if
IDT's Board of Directors determines in good faith that such payments are not
in IDT's best interests at such time. Upon receipt of request from QED on or
about three months prior to the date of any payment associated with any
Additional Product, IDT and QED shall meet and confer with regard to the
specification for such Additional Product and shall review such
specification. IDT shall upon the review of the specification notify QED
whether or not IDT shall thereafter make the NRE payments when due with
regard to such Additional Product.
4.2.1 In the event IDT shall fail to pay at least [*]
of the NRE (which is all of the NRE for the R4551) required to be paid by it
pursuant to Exhibit 3 in connection with the R4551 and after receipt of
notice from QED, IDT shall thereafter fail to cure any such failure within
sixty days of such notice, then QED may, subject to QED's obtaining all
necessary licenses and authority from MIPS, obtain funding for the completion
of development of the IDT R4551 by the license thereof to a MIPS
Semiconductor or Architectural licensee on such terms as QED in its sole
judgment shall deem acceptable. In the event of any such license to a third
party, provided IDT shall have paid at least [*] of the NRE required to be
paid by IDT hereunder for the IDT 4551 Product, then IDT shall have the
nonexclusive right to make, to have made, to use, and to sell such IDT R4551
at a unit royalty rate no less favorable than that payable by such third
party.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
3.
<PAGE>
4.2.2 In the event IDT shall fail to make any of the
payments required to be made by it pursuant to Exhibit 3-A with respect to
the Second Product and/or Third Product, and after receipt of notice from QED
thereafter fail to cure any such failure within sixty days of such notice,
then QED may, subject to QED's obtaining all necessary licenses and authority
from MIPS, obtain funding for the completion of development of such unfunded
Second and/or Third Product by the license thereof to a MIPS licensee on such
terms as QED in its sole judgment shall deem acceptable. In the event of any
such license to a third party, provided IDT shall have paid not less than 50%
of the NRE required to be paid by IDT hereunder for such Additional Second or
Third Product, then IDT shall have the nonexclusive right to make, to have
made, to use, and to sell such unfunded Second and/or Third Products at a
unit royalty rate no less favorable than that payable by such third party.
4.3 IDT shall use its best efforts to find one or more
alternate sources ("Alternate Source") for Products that are properly
licensed by MIPS. If any Alternate Source shall require material changes or
modifications to IDT's design rules which impact QED, then any agreement
between IDT and such Alternate Source shall be subject to QED's prior
consent, which consent shall not be unreasonably withheld. An Alternate
Source shall have rights to make, use, and sell Products but no right to have
Products made for it nor to grant sublicenses nor to transfer any such right
to a third party. IDT shall enter into Alternate Source agreements which
shall provide for a target royalty of [*] of the proceeds of the sale of
Products, net of duties, returns, discounts, freight, taxes, insurance,
royalties or other charge or cost paid to IDT ("Net Sales Proceeds"). Units
incorporated as a component of a system (whether consumed internally or sold
to third parties) shall be royalty bearing hereunder based on such party's
lowest retail price for quantity shipments to an unrelated third party or
such other reasonable method for computing royalties as may be agreed upon
from time to time. In the event market conditions shall indicate that a
Product is not competitive solely due to the royalty paid to QED, IDT and QED
shall negotiate in good faith to lower such royalty to a rate which enables
IDT and its customers to compete effectively, but in no case shall the
royalty be less than [*]. All net royalties paid to IDT hereunder by any
Alternate Source, shall be paid to QED monthly. IDT shall be entitled to
reimbursement of reasonable administrative costs and costs of collection,
including reasonable accounting and legal fees incurred as a result of any
dispute concerning royalties due IDT for the Products from any person other
than QED. All payments to QED by IDT hereunder shall be subject to deduction
for any taxes, withholding or similar charge imposed by any government other
than taxes based upon IDT's net income.
4.4 "Best Efforts" as used in this Agreement shall mean that
level of effort which the party would use in furthering its own business
interests taking into account cost, opportunity, competitive and other market
conditions, and available capital.
4.5 For any Product sold by IDT, IDT shall pay to QED a
continuing royalty in the amount equal to the lesser of: (i) [*] of Net Sales
Proceeds of Products, or (ii) such lower percentage as determined in
accordance with 4.3 above, such royalty being adjusted from time to time
after the date hereof effective as of the date of any such price adjustment.
Notwithstanding the foregoing, IDT shall not lower the target royalty
percentage except in accordance with paragraph 4.3 above. The royalty
provided for by this Paragraph shall be payable quarterly within sixty days
after the end of each of IDT's fiscal quarters.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
4.
<PAGE>
4.6 IDT shall keep true and accurate books of account and shall
keep and maintain all records, documents and other instruments relating to
Net Sales Proceeds of Products in reasonable detail to enable QED to verify
that royalties due under this Agreement have been properly paid. In any
calendar year, not more frequently than once such year, QED shall have the
right to designate a firm of certified or chartered public accountants,
reasonably acceptable to IDT, to inspect IDT's relevant books of accounts,
records, documents and instruments relating to royalty payments made
hereunder to ascertain the accuracy of reports and payments. Such public
accountants shall execute confidentiality agreements with IDT in form and
substance acceptable to IDT, provided, however, that the accountants shall
disclose the amount of any discrepancy and the basis thereof to QED. No
officer or employee of QED shall have the right to inspect such records
directly. In the event any such audit shall reveal that IDT failed to pay at
least 90% of the amount required to be paid to QED hereunder in any year,
then, in any such event, IDT shall, upon receipt of proper invoices, pay the
amount it failed to pay and the cost of such audit. In all other cases, QED
shall bear the cost of any such audit.
4.7 IDT shall use commercially reasonable efforts to secure
from each Alternate Source reasonable rights to audit its relevant books of
account, documents, records and instruments from time to time to assure
compliance with its royalty obligations for Products.
4.8 Royalties provided for herein shall be payable on
derivatives of Products provided, however, that royalties shall be adjusted
in any of the following events:
(a) If only the RTL (Logical) Database is used (the
Schematic and Layout Databases are not used) in the
development of the derivative product, then the royalty for
such derivative product shall be fifty (50) percent of the
royalty otherwise payable; provided, however, (i) that if
more than half of the lines of code of the source code
software constituting the RTL Database are modified in such
derivative product, then the royalty for such derivative
product shall be zero (0) percent: or (ii) that if a
number of new lines of code, equal to fifty (50%) of the
number of lines of the original source code software, are
added to the original RTL Database source code to form such
derivative product, then the royalty for such derivative
product shall be twenty-five (25) percent of the royalty
otherwise payable.
(b) If the Schematic or Layout Database is used
(solely or in addition to the RTL Database) in the
development of the derivative product, then the royalty
shall be one hundred (100) percent of the royalty otherwise
payable, provided, (i) that if more than half of the area
of the Schematic or Layout Database (excluding from such
calculation areas of cache array) is modified, then the
royalty for such derivative product shall be fifty (50)
percent of the royalty otherwise payable; or (ii) that if
there is added to the Schematic or Layout Database new
areas equal to at least half of the area of the Schematic
or Layout Database (excluding from such calculation areas
of cache array), then the royalty for such derivative
product shall be seventy-five (75) percent of the royalty
otherwise payable.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
5.
<PAGE>
In any of the foregoing cases, the mere deletion of code from the RTL
Database or deletion of areas of the Schematic or Layout Database shall
not constitute a modification or addition and shall have no effect on
the amount of royalty payable.
5. COST OF MASK SETS.
IDT shall procure and pay the cost of production of each mask set
required by IDT to manufacture the R4551. In the event that there shall be
errors in any mask set resulting in whole or in part from circuit design
errors, QED shall bear all costs and expenses incurred by IDT in reworking,
remaking or otherwise correcting any such mask set other than the first two
mask sets which shall be at IDT's expense. In the event that any mask set
requires reworking, remaking or correcting due to manufacturability issues or
due to design rule changes implemented by IDT, then, in any such event, the
cost of such reworked mask set shall be borne by IDT, including time and
materials for work performed by QED.
6. QUALITY OF MASK SETS.
6.1 QED shall fully support IDT in the development of each mask
set and in its characterization and testing until such mask set has been
released for manufacture of integrated circuits for delivery to IDT's most
favored customers.
6.2 QED shall provide reasonable engineering support to IDT so
that IDT yields are comparable to IDT's other products, that is that the
number of good die per wafer manufactured using a mask set produced with a
QED developed database equals the yield predicted using IDT defect density
charts for other comparable integrated circuits manufactured by IDT with
similar active areas, complexity, die size, cache ratio, and design rules.
7. CONFIDENTIALITY.
7.1 "Confidential Information" is all information identified in
writing as confidential, trade secret or proprietary information and all
information which the receiving party knows or has reason to know is
confidential, trade secret or proprietary information of the other. All
information which is licensed to IDT by MIPS or which was or is hereafter
provided directly or indirectly by MIPS to IDT shall be Confidential
Information subject to the terms of this Section 7. However, no information
shall be Confidential Information and nothing in this Agreement shall limit a
party's right to use and disclose it if it: (a) is, at the time of
disclosure, in the public domain, (b) has been disclosed by IDT (or MIPS in
the case of MIPS' information) to others without any obligation of
confidentiality or such disclosed information became part of the public
domain by publication or otherwise without a breach of any obligation of
confidentiality, (c) was known by a party at the time of disclosure without
any obligation of confidentiality whether written, oral, implied, or (d) was
disclosed to such party by a third party without breach of any obligation of
confidentiality, or (e) is independently created by a party without use of
any Confidential Information of the other party.
7.2 QED may use Confidential Information solely to develop the
IDT R4551 and Additional Products and for no other purpose. QED shall at all
times take every reasonable precaution to protect the confidentiality of the
Confidential Information and shall use at least the
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
6.
<PAGE>
same degree of care as it uses in protecting QED's valuable trade secrets and
proprietary information but in no case less than due care under the
circumstances.
7.3 QED represents that it has not disclosed and agrees that it
shall not disclose Confidential Information to any QED employee or contractor
unless such employee or contractor has signed QED's standard Employee's
Invention and Non-Disclosure Agreement or other comparable confidentiality
agreement and such agreement or reasonable substitute therefor is in effect
at the time of such disclosure. QED shall not disclose Confidential
Information to any third party without IDT's prior consent. QED agrees to
cooperate with IDT in the enforcement of the terms and conditions of such
agreements in the event of the breach thereof.
7.3.1 Unless authorized under the terms of this
Agreement, IDT shall not disclose any Confidential Information to any third
party without QED's prior consent.
7.4 QED represents that (i) it does not have possession of
written or tangible property which is the property of MIPS or of any other
third person which has not been rightfully obtained and the continuing
possession of which is not authorized by the owner thereof and (ii) that it
has not disclosed any information to IDT which QED does not have the right to
disclose.
7.5 QED agrees to indemnify and hold IDT harmless from and
against any liability to any third party arising from or connected with the
violation by QED or any employee or contractor of QED of such third party's
rights in the performance of work for IDT hereunder. IDT shall fully
cooperate with QED in the defense of any such claim.
7.6 QED shall send to IDT a copy of any notice or communication
from any person asserting that QED is violating such person's rights in the
performance of QED's obligations hereunder or otherwise involving a claim
against QED directly or indirectly involving IDT.
8. OWNERSHIP OF PRODUCTS.
8.1 Subject to Paragraphs 4.2.1 and 4.2.2, IDT shall be the
sole and exclusive owner of the Products. IDT shall be the sole and exclusive
owner of any and all information, inventions, and discoveries or other
tangible and intangible property made by QED, or any employee or contractor
of QED in the performance of work hereunder regarding the Products.
8.2 QED may purchase from IDT any tangible and intangible
property (other than the R4551 and Additional Products), including but not
limited to, inventions, patents, circuit technology, logic design,
copyrights, development tools, logical and physical databases, software and
related technology, made solely by QED during the performance of work
hereunder (hereinafter the "QED Workproduct") for the purchase price of $100
plus actual costs and expenses paid by IDT to others, such option to be
exercised by notice to IDT six months prior to the expiration of five years
from the date hereof and payment of such price, provided, however, that such
option shall not be exercisable in the event that the exercise thereof shall
result in the breach of any duty of either IDT, QED, or third party to MIPS
or other entity. It is anticipated that the exercise of the foregoing option
shall be contingent upon QED's being at such time a technology licensee of
MIPS. In the event of QED's exercise of the foregoing purchase option, QED
may make, use or sell any product based on, utilizing, or incorporating any
portion or all of the QED Workproduct and IDT shall have a perpetual, fully
paid, royalty free, transferable,
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
7.
<PAGE>
nonexclusive license to make, have made, use and sell the QED Workproduct.
Nothing contained herein shall be construed: (i) to grant to QED the right to
make, use or sell the Products, or (ii) to make, use or sell any product
which is competitive (that is, capable of being a replacement for any of the
Products) with any of the Products within 18 months of the date of
commencement of commercial shipments of such Product by IDT.
8.3 IDT may make, use and sell QED Workproduct, other than
semiconductors, which contains MIPS Information. Such QED Workproduct shall
be the exclusive property of IDT, IDT shall pay a royalty to QED of [*] of
the Net Sales Price as defined above of sales of QED Workproduct sold by IDT.
8.3.1 Subject to 4.3, IDT may grant a license to make,
use and sell any or all Products to Toshiba, NKK, or Siemens and to retain [*]
of any license fee, non-recurring engineering fee, or other payment,
excluding Royalty and other payments based on units made, used or sold,
("License Fee") without accounting for any portion thereof to QED. In the
event any one of the foregoing companies shall fail to obtain such a license
from IDT, then IDT may (1) at any time prior to November 1, 1992, grant such
a license to another company and retain [*] of any License Fee, or (2) at any
time after November 1, 1992, grant such a license to another company, retain
the first [*] of any License Fee, pay [*] of the balance of such License Fee
to QED, and retain [*] of the balance of such License Fee. If IDT shall at
any time grant such licenses to companies other than Toshiba, NKK, Siemens,
or replacement for one such company, then IDT shall retain the first [*]
received by it for such licenses, pay to QED the next [*] received by IDT for
such licenses, and thereafter pay to QED [*] of each such License Fee and
retain [*] of each such License Fee. All payments to QED by IDT hereunder
shall be subject to deduction for taxes, withholding or similar charge
imposed by any government other than taxes based upon IDT's net income. Any
such license to Toshiba, Siemens, NKK or other company shall be perpetual and
shall have a term independent of the term of this Agreement.
8.3.2 If IDT shall grant a license to make, use, and
sell the Additional Products to any third party, then QED shall be the
developer of such Additional Products. IDT shall have no obligation under
this Paragraph if any of Messrs. Killian, Kunita, or Riordan shall not at
such time be full time employees of QED.
8.4 QED grants to IDT a perpetual, nonexclusive, worldwide,
license to make, have made, use, modify, market and distribute and sell any
products, inventions, patents, circuit technology, logic design, copyrights,
development tools, logical and physical databases, software and related
technology developed by QED during the term of this Agreement, provided IDT
pay QED a royalty and NRE to be negotiated, but which shall not exceed the
most favored royalty or NRE paid by another third party or licensee.
8.5 The parties shall cooperate in the prosecution of any
patents arising out of the Products or other work performed hereunder.
8.6 The Patent Cross License Agreement attached hereto as
Exhibit 5 is hereby made a part hereof.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
8.
<PAGE>
9. CHOICE OF LAW. This Agreement is made in and shall be construed in
accordance with the laws of the state of California.
10. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of
the parties with respect to the subject matter hereof and supersedes any
prior agreement or memorandum of understanding. The Memorandum of
Understanding of September 13, 1991, is void and of no force or effect
whatsoever. This Agreement may only be modified by a written instrument
signed by each party hereto.
11. WAIVER. No waiver of any right or default hereunder shall constitute
a waiver of the right or default in any subsequent exercise thereof.
12. TIME LIMIT FOR SUIT. Any action by QED or IDT hereunder must be
commenced within one year of the date the cause of action arose.
13. SEVERABILITY. If any provision of these terms and conditions shall
be ruled unenforceable, then the remainder shall be enforced to the extent
permissible.
14. TERM.
14.1 This Agreement shall terminate on the later to occur of
five years from the date of this Agreement, but in no event prior to the
completion of the development of the Products in accordance with the terms
hereof.
14.2 All licenses and rights granted to IDT by QED and by IDT
to others, and IDT's obligation to pay royalties thereon to QED hereunder
shall be perpetual and shall survive termination of this Agreement.
14.3 In the event of a breach of any material obligation by a
party hereto, the damaged party shall notify the breaching party of such
breach by notice. The breaching party shall have thirty days to cure such
breach. In the event the breaching party shall fail to cure such breach
within said thirty days, the innocent party may thereafter terminate this
Agreement by notice given not more than three months following such initial
notice. In the event the innocent party shall fail to terminate this
Agreement by notice within such three month period, then such party shall
have waived such breach and shall not be entitled to thereafter terminate
this Agreement based on such breach.
14.4 Neither party shall be liable for any delay in performing
any obligation hereunder due to causes beyond its reasonable control,
including, without limitation, acts of the judiciary, natural disaster, war,
or civil unrest. In the event of any such delay, the time for performance by
the affected party shall be extended for a period equal to the period of such
delay.
15. NOTICES. Any notice or consent required or permitted to be granted,
obtained or sent hereunder shall be duly given if in writing and shall be
effective when personally delivered or mailed, postage prepaid, as follows:
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
9.
<PAGE>
If to IDT: President
Integrated Device Technology, Inc.
2975 Stender Way
Santa Clara, CA 95054
With a copy to:
Jack Menache
Attorney at Law
4073 Eagle Nest Lane
Danville, CA 94506
If to QED: President
Quantum Effect Design, Inc.
2670 Seeley Road
San Jose, CA 95134
With a copy to:
Jerrold Petruzzelli, Esq.
Holtzmann, Wise & Shepard
3030 Hansen Way
Palo Alto, CA 94306
Either party may, by written notice, amend the person or address set forth
above and such amendment shall be effective upon receipt by the other party.
16. ASSIGNMENT.
QED shall not assign this Agreement to any other party, by operation
of law or otherwise, without the prior consent of IDT.
17. HIRING.
Neither party shall hire any of the other's employees without the
consent of the other party. In the event of a breach of this provision, the
breaching party shall pay on demand to the injured party an amount equal to
two times such employee's annual salary paid by the injured party at the time
of the hiring. Neither party shall issue stock nor any option to any person
who was employed by the other during the prior 12 months without such other
party's written consent.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
10.
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Development and
License Agreement as of the date first above written.
INTEGRATED DEVICE TECHNOLOGY, INC. QUANTUM EFFECT DEVICE, INC.
By: /s/ Leonard Perham By: /s/ Thomas J. Riordan
------------------------------- -------------------------------
Title: CEO Title: President & CEO
---------------------------- ----------------------------
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
11.
<PAGE>
EXHIBIT 1
R4551 PRODUCT SPECIFICATION
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
12.
<PAGE>
EXHIBIT 1-A
ADDITIONAL PRODUCTS SPECIFICATION
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
13.
<PAGE>
EXHIBIT 1
P1 SPECIFICATION
OVERVIEW
P1 is a single-chip processor that includes the CPU, MMU, floating
point, and primary caches. P1 is R4000PC instruction-set and
signal-compatible, but will be significantly lower power and lower cost,
while delivering similar performance. The intended market for P1 is the MIPS
PC marketplace.
P1 will not have integrated secondary cache control, or
multiprocessor support.
TECHNOLOGY
The design target for P1 is IDTs 3.3V CEMOS 7 and one other, as yet
undetermined, process. Initially P1 may be built in IDT's 5V CEMOS 6 process,
but production is expected to be in 3.3V CEMOS 7.
The process must support 3 levels of metal, a 31 MU SQUARED SRAM
cell, a contacted metal 1 pitch of 2.1 MU, contacted metal 2 and metal 3
pitches of 2.7 MU and silicided poly. We assume that the propagation delay of
a fan-out of three inverter is < 250ps for center-line processing over the
full voltage and temperature range (including 2.7V, 120 DEGREES C), which
probably requires an Leff of 0.3-0.4 MU in a 3.3V technology. The processor
cycle time is specified as a multiple of this process-dependent value.
INSTRUCTION SET
P1 will execute the same instruction set as the R4000PC, including
the 64-bit instructions. It will also be significantly R4000PC coprocessor
zero compatible, and fully compatible with Microsoft's NT operating system.
The virtual address size is 40 bits, and the physical address size is 36
bits -- the same as the R4000PC.
CACHES
The instruction and data caches will each be:
- 16 KB in size
- 2-way set associative
- 16B lines
- writeback
Set associatively is used because the caches are small and there is
no secondary cache. It is possible that 32B lines will be used instead of
(but not in addition to) 16B lines. The line will be chosen to be compatible
with the Microsoft NT high-volume system platform.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
14.
<PAGE>
TLB
The TLB will be the same as the R4000PC in organization and size
(i.e. 48 entries).
FLOATING POINT
P1 will have a separate floating-point datapath with the following
functional unit characteristics:
<TABLE>
<CAPTION>
Instruction Latency Repeat
----------- ------- ------
<S> <C> <C>
add.d, sub.d 6 4
mul.d 6 4
div.d 60 60
sqrt.d 120 120
</TABLE>
PERFORMANCE
The performance goals for P1 are:
- Internal cycle time LESS THAN OR EQUAL TO 40 inverter
delays (as defined above)
- SPECint of approximately 0.6-0.7 internal MHz
- Peak MFLOP/s of 0.5 internal MHz
In a process with 250ps inverters, P1 should execute instructions at
100MHz or better, and deliver approximately 60-70 SPECint and 50 peak MFLOP/s.
Initial parts may be as slow as 50 inverter delays.
POWER
The power goal for P1 is 2.5W PLUS OR MINUS 10% at 100MHz, 3.3V. The
design will be fully static, and will support software-controlled clock
slowdown, as on the R4000PC. Active power management will be employed
throughout the design.
PACKAGE
P1 will be available in both PQFP and PGA packages with 200 or fewer
pins.
SYSTEM INTERFACE
The input clock for P1 is multiplied by 2 by an on-chip PLL to
produce the internal clock. P1 will operate its system interface at one-half
of the internal clock. To operate P1 at its 100MHz internal execution rate
requires a 50MHz input clock, and a 50MHz system interface.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
15.
<PAGE>
Because 3.3V process technologies will probably not support it, P1
will not be designed to accept 5V signals on its input pins. Also, the
primary package for P1 will be a PQFP, and not a PGA. Thus P1 will not be
able to directly fill R4000PC sockets.
The primary external interface of P1 will be a logical (but not
electrical) subset of the R4000PC SYSAD bus. Some existing R4000PC system
designs may be usable with P1 if converted to 3.3V technology and the PC
board layout is changed.
However, if implemented in a 5V technology and suitably packaged, P1
would be socket-compatible with a R4000PC configured with the same line
sizes, refill patterns, etc. as supported by P1.
DIE
The target die-size for P1 is 67mm SQUARED PLUS OR MINUS 10% in
0.6 MU CMOS, or a little more than half the R4000PC die size in the same
technology. Approximately 18% of the die will be SRAM cells.
<TABLE>
<CAPTION>
Cache Die Size %SRAM
- ----- -------- -----
<S> <C> <C>
16K/16K 67mm SQUARED 18%
32K/32K 82mm SQUARED 32%
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
16.
<PAGE>
EXHIBIT 1-A
P2 SPECIFICATION
OVERVIEW
P2 is a single-chip processor that includes the CPU, MMU, floating
point, and primary caches. P2 is a derivative of the QED P1 processor with
changes designed to improve performance, particularly floating point
performance.
P2 will not have integrated secondary cache control, or
multiprocessor support.
TECHNOLOGY
The design target for P2 is the same as for P1, i.e. IDT's 3.3V
CEMOS 7 and one other, as yet undetermined, process.
INSTRUCTION SET
P2's instruction set will be a superset of P1's. The new
instructions will all be floating-point and are described below. The virtual
address size and the physical address size will be the same as P1.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
17.
<PAGE>
CACHES
The instruction and data caches will be the same as P1 in
organization, but twice the size, i.e. 32KB in size.
TLB
The TLB will be the same as P1 in organization, but 72-96 entries
instead of 48.
FLOATING POINT
P2 will support the MIPS III instruction set with the introduction
of fused multiply/add instructions (e.g. mad.d). A fused multiply/add
operation, with only one rounding at the end (but not after the multiply)
allows an operation latency similar to the time for a multiply alone. Many
important floating point algorithms use roughly equal numbers of multiply and
add operations, and so the multiply/add fused operation both lowers the
latency for intermediate calculations and reduces the number of instructions
required to execute the algorithm. Since many engineering and scientific
algorithms are instruction issue limited, this reduction may significantly
speed processing. Multiply/add hardware can also be used to efficiently
implement divide and square root.
P2 will have a separate floating-point datapath with the following
functional unit characteristics:
<TABLE>
<CAPTION>
Instruction Latency Repeat
----------- ------- ------
<S> <C> <C>
add.s, add.d 3-4 2-3
mul.s, mul.d 3-4 2-3
mad.s, mad.d 3-4 2-3
div.d 20-30 20-30
sqrt.d 30-40 30-40
</TABLE>
PERFORMANCE
The performance goals for P2 are:
- Internal cycle time same as P1
- SPECint of approximately 0.7 internal MHz
- SPECmark of approximately 0.8 internal MHz
- Peak MFLOP/s of 0.67-1.0 internal MHz
In a process with 250ps inverters, P2 should execute instructions at
100MHz or better, and deliver approximately 80 SPECmarks and 67-100 peak
MFLOP/s. Because of the larger
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
18.
<PAGE>
data cache and TLB, P2 will deliver higher performance on real applications
than the ratio of P2/P1 peak MFLOP/s alone would suggest.
POWER
The power goal for P2 is 3.5-4.0W PLUS OR MINUS 10% at 100MHz, 3.3V.
The design will be fully static, and will support software-controlled clock
slowdown identical to P1. Active power management will be employed throughout
the design.
PACKAGE
P2 will be available in the same package(s) as P1.
SYSTEM INTERFACE
The system interface of P2 will be the same as P1.
DIE
The target die-size for P2 is 100mm SQUARED PLUS OR MINUS 10% in 0.6
MU CMOS.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
19.
<PAGE>
EXHIBIT 1-A
P3 SPECIFICATION
OVERVIEW
P3 is a single-chip processor that includes the CPU, MMU, floating
point, and primary caches. P3 is a derivative of the QED P1 processor with
changes designed to reduce cost, primarily to serve the embedded market.
TECHNOLOGY
The design target for P3 is the same as for P1, i.e. IDT's 3.3V
CEMOS 7 and one other, as yet undetermined, process.
INSTRUCTION SET
P3's instruction set will be the same as P1's. The virtual address
size and the physical address size will be the same as P1.
CACHES
The instruction and data caches will be the same as P1 in
organization and size.
TLB
The TLB will be the same as P1 in organization and size.
FLOATING POINT
P3 will have the same floating point as P1.
PERFORMANCE
The performance goals for P3 are:
- Internal cycle time same as P1
- SPECint of approximately 0.6-0.7 internal MHz
In a process with 250ps inverters, P3 should execute instructions at
100MHz or better, and deliver approximately 60-70 SPECint.
POWER
The power goal for P3 is 2.5W PLUS OR MINUS 10% at 100MHz, 3.3V. The
design will be fully static, and will support software-controlled clock
slowdown identical to P1. Active power management will be employed throughout
the design.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
20.
<PAGE>
PACKAGE
P3 will be available in a 144-pin PQFP.
SYSTEM INTERFACE
The system interface of P3 will be functionally similar to P1, but
with a 32-bit SYSAD bus instead of 64-bit.
DIE
The target die-size for P3 is the same as P1.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
21.
<PAGE>
EXHIBIT 2
IDT PROCESS CAPABILITY
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
22.
<PAGE>
EXHIBIT 2
R4551 TECHNOLOGY REQUIREMENTS
R4551 Design Assumptions
The R4551 will be laid out such that a linear shrink of the layout
will allow it to be processed using either on of the following IDT
technologies:
1) 3.3V CEMOS 7 with 2 levels of poly and 3 levels of metal
2) 5.OV CEMOS 6 with 2 levels of poly and 3 levels of metal
(To be used only if the design is ready before the CEMOS 7
process.)
First tapeout for the R4551 is expected 4/l/91.
The R4551 is expected to be in production sometime during the fourth
calendar quarter of 1993.
Technology Assumptions
<TABLE>
<S> <C> <C>
1) 1/15/92 CEMOS 6 interlayer capacitances available.
2) 1/15/92 CEMOS 7 interlayer capacitances available.
3) 1/31/92*** CEMOS 7 models available. Best/worst case
estimates also available.
4) 1/31/92 Final layout rules for 3.3V, 3 level metal
CEMOS 7.
5) 1/31/92 Final CEMOS 7 DRC program available.
6) 2/7/92*** Final CEMOS 7 electromigration rules
available.
7) 2/10/92 Verification that CEMOS 7 inverter speed is
less than 250pS for a fanout of 3 load and
operation at 2.7V, 120 degrees C.
8) 2/28/92 CEMOS 6 best/worst case models available.
9) 3/31/92 Final CEMOS 7 process parameter specification
update.
10) 3/31/92 Final memory cell available.
11) 4/30/92 Final CEMOS 7 3.3V nominal simulation models
available.
12) 5/30/92 Final CEMOS 7 best case and estimated worst
case models available.
</TABLE>
*** Changes to Anita Hansen's Technology Assumptions memo dated 1/13/92.
Further delays in dates for these deliverables will translate to a day for
day slip in the R4551 schedule.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
23.
<PAGE>
EXHIBIT 3
R4551 DEVELOPMENT AND NRE SCHEDULE
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
24.
<PAGE>
EXHIBIT 3
R4551 DEVELOPMENT AND NRE SCHEDULE
<TABLE>
<CAPTION>
DATE NRE DUE MILESTONE
- ---- ------- ---------
<S> <C> <C> <C>
1/1/92 (IDT) Preliminary design rules for CMOS 7 to QED
1/15/92 (IDT) P1 Preliminary Functional Specification accepted
1/15/92 [*] (both) contract signed
1/15/92 (IDT) Final layout design rules for CMOS 7 to QED (i.
changes to the design rules beyond this date
which require modifications to the layout
database in the worst case resets schedule to
this point and will in any case move the tapeout
date beyond the 3/31/93 target ii. a slip in the
delivery date of this milestone causes a
day-for-day slip in the schedule)
1/15/92 (QED) RTL entry begins
4/15/92 [*] (QED) Final P1 Functional Specification
7/15/92 [*] (QED) 50% of RTL model written
10/15/92 [*] (QED) RTL model substantially complete and runs basic
diags
1/15/93 [*] (QED) 75% of layout complete
2/28/93 (QED) initial P1 layout complete
3/31/93 (QED) final LVS, DRC, ERC complete
3/31/93 (QED) P1 RTL model runs R400OPC Microsoft Windows NT in
simulator
4/15/93 [*] (QED) Tape-out alpha P1 to IDT by 3/31/93
4/30/93 (QED) Function test vector coverage
5/26/93 (IDT) Deliver alpha P1 parts to QED
7/15/93 [*]
8/ 5/93 (QED) 50% of alpha P1 chip debug complete
8/20/93 (IDT) P1 marketing and announcement plan complete
10/15/93 (QED) 80% test vector coverage
10/15/93 [*] (QED) Sample P1 parts available by 10/21/93, test
vector conversion software delivered
11/19/93 (IDT) P1 product announcement
1/21/94 (QED) P1 runs R400OPC Microsoft Windows NT
1/21/94 (QED) Production P1 parts available
4/21/94 (QED) P1 RTL and Schematic databases delivered
4/21/94 (QED) Final P1 test vectors available (95% coverage)
10/31/94 (QED) P1 Cache/Memory Performance Simulator delivered
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
25.
<PAGE>
EXHIBIT 3-A
ADDITIONAL PRODUCTS DEVELOPMENT & NRE SCHEDULE
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
26.
<PAGE>
(Page 1 of 2)
EXHIBIT 3-A
ADDITIONAL PRODUCTS DEVELOPMENT AND NRE SCHEDULE
P2
<TABLE>
<CAPTION>
DATE NRE DUE MILESTONE
- ---- ------- ---------
<S> <C> <C> <C>
12/ 2/91 (QED) Preliminary P2 Functional Specification
3/16/92 (IDT) Preliminary P2 Functional Specification accepted
9/30/92 (IDT) Commit to P2 project
10/15/92 [*] (QED) Recruiting begun
1/15/93 [*] (QED) Full staff in place for P2
4/15/93 [*] (QED) RTL entry begins
7/15/93 [*] (QED) Final P2 Functional Specification
10/15/93 [*] (QED) RTL model substantially complete and runs basic
diags
1/14/94 [*] (QED) Tape-out alpha P2 to IDT by 12/31/93
2/25/94 (IDT) Deliver P2 parts to QED
4/15/94 [*]
5/ 9/94 (QED) 50% of alpha P2 chip debug complete
5/20/94 (IDT) P2 marketing and announcement plan complete
7/15/94 (QED) 80% test vector coverage
7/15/94 [*] (QED) Sample P2 parts available by 7/25/94
8/22/94 (IDT) P2 product announcement
10/24/94 (QED) Production P2 parts available
1/23/95 (QED) P2 RTL and Schematic databases delivered
1/23/95 (QED) Final P2 test vectors available (95% coverage)
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
27.
<PAGE>
(Page 2 of 2)
EXHIBIT 3-A
ADDITIONAL PRODUCTS DEVELOPMENT AND NRE SCHEDULE
P3
<TABLE>
<CAPTION>
DATE NRE DUE MILESTONE
- ---- ------- ---------
<S> <C> <C> <C>
12/ 2/91 (QED) Preliminary P3 Functional Specification
3/16/92 (IDT) Preliminary P3 Functional Specification accepted
2/26/93 (IDT) Commit to P3 project
4/15/93 [*] (QED) Recruiting begun
7/15/93 [*] (QED) Full staff in place for P3
10/15/93 [*] (QED) Final P3 Functional Specification
1/14/94 [*] (QED) RTL model substantially complete and runs basic
diags
4/15/94 [*] (QED) Tape-out alpha P3 to IDT by 3/31/94
5/26/94 (IDT) Deliver alpha P3 parts to QED
7/15/94 [*]
8/ 5/94 (QED) 50% of alpha P3 chip debug complete
7/22/94 (IDT) P3 marketing and announcement plan complete
9/30/94 (QED) 80% test vector coverage
10/15/94 [*]
10/24/94 (IDT) P3 product announcement
11/ 7/94 (QED) Production P3 parts available
1/15/95 [*]
2/ 6/95 (QED) P3 RTL and Schematic databases delivered
2/ 6/95 (QED) Final P3 test vectors available (95% coverage)
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
28.
<PAGE>
EXHIBIT 4
R4551 DELIVERABLES LIST
1. ARCHITECTURE
Functional Specification
Test suits for simulators (Source Code and Executable's)
Cache/Memory system performance simulator comparable in
functionality to cache 4000.
2. LOGIC AND CIRCUITS.
Schematics database and libraries
LVS and DRC results
3. LAYOUT
Design Rules Used:
A. Electrical transistor models
B. Die design rules for assembly
C. Layout rules
D. Structures used in the generation of 5x recticles
Layout database
4. TESTING
Test programs for wafers and components
Pin assignment list for tester
Software for generation of test programs
5. PACKAGES
Package specifications
Package drawings and vendors
Bonding diagrams
The foregoing shall be as customarily provided by a developer using for
comparative purposes the items delivered by MIPS to IDT in connection with
the development of the MIPS R3000.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
29.
<PAGE>
EXHIBIT 4-A
SECOND AND THIRD PRODUCTS DELIVERABLES LIST
1. ARCHITECTURE
Functional Specification
Test suits for simulators (Source Code and Executable's)
Cache/Memory system performance simulator comparable in
functionality to cache 4000.
2. LOGIC AND CIRCUITS
Schematics database and libraries
LVS and DRC results
3. LAYOUT
Design Rules Used:
A. Electrical transistor models
B. Die design rules for assembly
C. Layout rules
D. Structures used in the generation of 5x recticles
Layout database
4. TESTING
Test programs for wafers and components
Pin assignment list for tester
Software for generation of test programs
5. PACKAGES
Package specifications
Package drawings and vendors
Bonding diagrams
The foregoing shall be as customarily provided by a developer using for
comparative purposes the items delivered by MIPS to IDT in connection with
the development of the MIPS R3000.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
30.
<PAGE>
EXHIBIT 5 - PATENT CROSS LICENSE AGREEMENT
This Agreement is made as of January 13, 1992, between Integrated
Device Technology, Inc., a Delaware corporation having its principal place of
business at 2975 Stender Way, Santa Clara, CA 95054 ("IDT") and Quantum
Effect Design, Inc., a California corporation having its principal place of
business at 2670 Seeley Road, San Jose. California 95134 ("QED").
WHEREAS, IDT AND QED own, and have or may have rights in, various
patents issued and applications for patents pending in various countries of
the world, as to which they desire to exchange licenses with each other as
hereinafter provided; and
WHEREAS, IDT and QED are engaged in continuing research, development
and engineering in regard to integrated circuits, boards, systems, software,
peripherals and other electronic devices and have programs for the patenting
of invention resulting therefrom;
NOW, THEREFORE, in view of the premises and in consideration of the
mutual covenants contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement:
SECTION 1. "PATENTS" means patents, applications for patent,
inventors certificates and registrations of all countries of the world,
including all divisional and continuations thereof, that have a first filing
date in any country prior to the termination date of this Agreement, which
are now owned or controlled, or may hereafter during the life of this
Agreement be owned or controlled by any party to this Agreement. The term
"control" shall include, without limitation, (i) the right to grant licenses
without having to pay a royalty, or any other payment, to others than
employees or Associated Companies or current consultants of such party, or
(ii) the right to grant licenses on payment of a one-time paid up license fee
which paid up license fee is paid in advance to such party by the licensee.
SECTION 2. "Associated Company" means:
(i) a corporation more than fifty percent (50%)
of whose stock entitled to vote for the election
of directors (other than preferred stock entitled
to vote upon failure of the corporation to pay
dividends), or
(ii) a partnership or other entity more than
fifty percent (50%) of which, is owned or
controlled, directly or indirectly, at any time
during the term of this Agreement, by IDT or QED.
SECTION 3. "PRODUCT" means any integrated circuit, device, circuit
board, system, combination, software, or any part thereof and any process
used for the manufacture, test or use thereof.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
31.
<PAGE>
ARTICLE II
MUTUAL RELEASES
SECTION 1. IDT and its Associated Companies hereby release, acquit
and forever discharge QED and its Associated Companies from any and all
liability for acts prior to the effective date of the Agreement, which if
done after the effective date would be licensed hereunder.
SECTION 2. QED and its Associated Companies hereby release, acquit
and forever discharge IDT and its Associated Companies from any and all
liability for acts prior to the effective date of the Agreement, which if
done after the effective date would be licensed hereunder.
ARTICLE III
LICENSES
SECTION 1.
(a) QED and its Associated Companies grant and agree to grant to
IDT and to its Associated Companies under QED'S and its Associated Companies'
PATENTS a worldwide nonexclusive license to make, to have made for sale or
use by IDT and its Associated Companies, to use, to lease and to sell or
otherwise dispose of any PRODUCT.
(b) IDT and its Associated Companies grant and agree to grant to
QED and to its Associated Companies under IDT'S and its Associated Companies'
PATENTS a worldwide nonexclusive license to make, to have made for sale or
use by QED and its Associated Companies, to use, to lease and to sell or
otherwise dispose of, any PRODUCT.
(c) IDT and QED each additionally grants to the other and to its
Associated Companies the right in connection with the manufacture of any
PRODUCT under paragraphs (a) and (b), above, to make and have made, and to
use machines, tools, apparatus, and equipment covered by any of IDT'S, QED'S,
or any Associated Companies' PATENTS, as the case may be, and to dispose of
such machines, tools, apparatus and equipment by sale or otherwise when no
longer required in such manufacture, provided however, that such sale or
disposal of such machines, tools, apparatus and equipment shall carry no
express or implied rights to make, use or sell any PRODUCT.
SECTION 2. Each Associated Company of each party hereto shall be
bound by the terms and conditions of this Agreement as fully as if such
Associated Company had separately affixed its signature to this Agreement.
The term "party" shall not include an Associated Company. Each party hereto
represents that it has the authority to bind each of its Associated Companies
and that such party has taken all action required to be taken by it to enter
into this Agreement on behalf of each of its Associated Companies. Each party
agrees to take such action as may be required to cause any entity which
becomes an Associated Company during the term of this Agreement to be bound
by the terms of this Agreement to the same extent as if such
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
32.
<PAGE>
Associated Company had executed this Agreement on its effective date, such
action to be taken within thirty (30) days of the date such entity becomes an
Associated Company.
SECTION 3. In the event any third party shall, directly or
indirectly, acquire more than fifty percent (50%) of (i) the stock entitled
to vote for the election of directors of QED or IDT (other than preferred
stock entitled to vote upon failure of the corporation to pay dividends), or
(ii) the ownership or control of IDT or QED, then, in any such event, such
third party may, by its written agreement, become bound to all of the terms
of this Agreement, including becoming a party hereto and thereby granting
licenses and releases under all of its and its Associated Companies' PATENTS
to the other party and each Associated Company of the other party. Should
such third party not agree in writing, within thirty (30) days of such
acquisition to be bound by this Agreement as a party hereto, then such third
party shall have no rights hereunder, and the other party and its Associated
Companies shall continue to be licensed under the LICENSED PATENTS of the
acquired party and each of its Associated Companies without regard to such
acquisition.
SECTION 4. Except as set forth in Sections 2 and 3 above, neither
party nor any Associated Company shall assign or transfer, by operation of
law or otherwise, without the prior written consent of the other party, any
license or right granted hereunder or any interest therein, or grant any
sublicense for any purpose, and any such assignment or transfer or sublicense
shall be null and void. No third party shall acquire any rights hereunder as
a result of the acquisition of or merger with any Associated Company, by
operation of law or otherwise.
SECTION 5. Notwithstanding anything to the contrary set forth
herein, with respect to United States Patent 4,710,927 "Diagnostic Circuit"
dated December 1, 1987, and any patent issuing on US department of Commerce
application 07/629,285 filed on December 18, 1990, and any foreign
counterpart of such patents (a "Miller Patent"), the licenses granted herein
shall be limited to the incorporation of a circuit within the scope of the
claims of the Miller Patent in a single integrated circuit solely for the
purpose of facilitating the testing of electrical circuits in said single
integrated circuit and such license shall not extend to the use of the
diagnostic circuit to test or otherwise diagnose combinations of such
integrated circuit with other products, structures or apparatus.
ARTICLE IV
COMPENSATION
The entire compensation for and under this Agreement is the mutual
promises and licenses granted hereunder.
ARTICLE V
WAIVER
No waiver, express or implied, of any breach of any term, condition, or
obligation of this Agreement shall be construed as a waiver of any subsequent
breach of that term, condition, or obligation, or
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
33.
<PAGE>
of any other term, condition or obligation of this Agreement of the same or
different nature.
ARTICLE VI
FILING REQUIREMENTS
None of the parties hereto nor any of their Associated Companies
shall be required by anything contained in this Agreement to file in any
country an application for patent on any invention, or to secure any patent
or, once having filed an application for patent or obtained a patent, to
maintain the patent application or patent in force.
ARTICLE VII
TERM AND TERMINATION OF AGREEMENT
SECTION 1. This Agreement shall extend from the date hereof for a
term of five (5) years.
SECTION 2. The licenses granted under this Agreement shall extend
for the lives of the PATENTS covered by this Agreement.
SECTION 3. Termination of this Agreement, in whole or in part, by
governmental action, shall relieve the parties and any Associated Company of
the parties of both rights and obligations hereunder to the extent of such
termination.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 1. No party hereto nor any Associated Company shall be
deemed to own or control any Patent which meets each and every of the
following conditions: (i) was invented or acquired in connection with work
performed pursuant to an agreement with a third party other than an
Associated Company, (ii) such agreement required the assignment of the Patent
to such third party, and (iii) the party or Associated Company does not have
the right to license the patent to third parties without payment of a royalty
or fee other than a one-time paid up license fee.
SECTION 2. Nothing contained in this Agreement shall be construed
as:
(a) a warranty or representation by any licensor as to the validity
or scope of any patent; or
(b) a warranty or representation that any manufacture, sale, lease,
use or other disposition hereunder will be free from infringement of patents
other than those under which and to the extent to which licenses are in force
hereunder; or
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
34.
<PAGE>
(c) an agreement to bring or prosecute actions or suits against
third parties for infringement or conferring any right to bring or prosecute
actions or suits against third parties for infringement; or
(d) conferring any right to use in advertising, publicity, or
otherwise, any trademark, trade name or name, or any contraction,
abbreviation or simulation thereof, of either party; or
(e) conferring by implication, estoppel or otherwise, upon any
party licensed hereunder, any license or other right under any copyright,
mask work, know how, trade secret or patent except the licenses and rights
expressly granted hereunder.
ARTICLE IX
NOTICE
Any notice, request or statement hereunder shall be deemed to be
sufficiently given or rendered when sent by registered mail and if given or
rendered to IDT, addressed to:
President
Integrated Device Technology, Inc.
2975 Stender Way
Santa Clara, CA 95054
With a copy to:
Jack Menache
Attorney at Law
4073 Eagle Nest Lane
Danville, CA 94506
or, if given or rendered to QED, addressed to:
President
Quantum Effect Design, Inc.
2670 Seeley Road
San Jose, CA 95134
or, in any case, to such changed address or person as IDT or QED shall have
specified to the other by written notice.
ARTICLE X
MODIFICATION OF AGREEMENT
This Agreement sets forth the entire agreement and understanding
between the parties and Associated Companies as to the subject matter of this
Agreement and merges all prior discussions between them, and no one of the
parties or Associated Companies shall be bound by
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
35.
<PAGE>
any modification of this Agreement, or by any conditions, definitions,
warranties, or representations with respect to the subject matter of this
Agreement, other than as expressly provided in this Agreement, or as duly set
forth on or subsequent to the date hereof in writing, referencing this
Agreement, and signed by a duly authorized representative of the party or
Associated Company to be bound thereby.
ARTICLE XI
APPLICABLE LAW
This Agreement and matters connected with the performance hereof
shall be construed, interpreted, applied, and governed in all respects in
accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
in duplicate originals by their respective duly authorized officers.
IDT QED
By: /s/ Leonard Perham By: /s/ Thomas J. Riordan
-------------------------------- --------------------------------
Leonard Perham Thomas J. Riordan
- ------------------------------------ ------------------------------------
Name Name
CEO President and CEO
- ------------------------------------ ------------------------------------
Title Title
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
36.
<PAGE>
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
DEVELOPMENT AGREEMENT
This agreement ("Agreement") is made as of June 12, 1996, by and
between Quantum Effect Design, Inc., a California corporation having its
principal place of business at 3255-3 Scott Blvd., Santa Clara, California
95054 ("QED") and Integrated Device Technology, Inc., a Delaware corporation
having its principal place of business at 2975 Stender Way, Santa Clara, CA
95054 ("IDT").
WHEREAS, IDT is a licensee of SGI's Triton microprocessor (also
known as the IDT R5000); and
WHEREAS, QED developed the R5000 for SGI; and
WHEREAS, IDT desires to hire QED to modify IDT's R5000; and
WHEREAS, QED desires to modify IDT's R5000 as a work for hire:
NOW, THEREFORE, the parties agree as follows:
1. MODIFICATION OF R5000.
1.1 QED shall deliver to IDT, in accordance with the terms and conditions
hereinafter set forth, REV 2.X of the IDT R5000 (hereinafter, the
"Product").
1.2 QED shall develop the Product in a first class workmanlike manner
compatible with IDT's design rules and in all manner and respects
compatible with IDT's process capability.
1.3 All revisions to Product specifications shall be effective only if made
in writing and signed by each party hereto. All signed modified Product
specifications shall be attached hereto and shall supersede the earlier
version.
2. DELIVERY. QED shall deliver the Product to IDT on or about June 13,
1996.
3. DELIVERABLES. QED shall deliver to IDT the database for the Product in
all ways sufficient and complete to enable one reasonably skilled in
the art to create a fully functional state of the art mask set.
4. PAYMENT BY IDT.
4.1 IDT shall pay to QED a continuing royalty of [*] of the Net Sales
Proceeds of the Product and derivatives thereof. Royalties shall be
payable quarterly within forty-five days after the end of each of
IDT's fiscal quarters. No royalty shall be payable on sales of the
Product to SGI.
4.2 IDT shall keep true and accurate books of account and shall keep and
maintain for a period of not less than four years, all records,
documents and other instruments relating to Net Sales Proceeds of the
Product in reasonable detail to enable QED to verify that
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
1.
<PAGE>
royalties due under this Agreement have been properly paid. Such
records shall include (i) net units shipped by IDT to customers
other than distributors, (ii) net units shipped by IDT to its
distributors, (iii) net revenue on such shipments from all customers
other than distributors, (iii) net units shipped by IDT to its
distributors, (iv) net revenue on shipments by IDT to its
distributors, and (v) to the extent reasonably available to IDT, net
unit sales, net revenues, and inventory of IDT's distributors. In
any calendar year, not more frequently than once such year, QED
shall have the right to designate a firm of certified or chartered
public accountants, reasonably acceptable to IDT, to inspect IDT's
relevant books of accounts, records, documents and instruments
relating to royalty payments made hereunder to ascertain the
accuracy of reports and payments. Such public accountants shall
execute confidentiality agreements with IDT in form and substance
acceptable to IDT. No officer or employee of QED shall have the
right to inspect such records directly. In the event any such audit
shall reveal that IDT failed to pay at least 90% of the amount
required to be paid to QED hereunder in any year, then, in any such
event, IDT shall pay the amount it failed to pay and the cost of
such audit. In all other cases, QED shall bear the cost of any such
audit.
5. CONFIDENTIALITY.
5.1 "Confidential Information" is all information identified in writing as
confidential, trade secret or proprietary information and all
information which the receiving party knows or has reason to know is
confidential, trade secret or proprietary information. All information
which is licensed to IDT by SGI or which was or is hereafter provided
directly or indirectly by SGI to IDT shall be Confidential Information
subject to the terms of this Section 5. However, no information shall
be Confidential Information and nothing in this Agreement shall limit a
party's right to use and disclose it if it: (a) is, at the time of
disclosure, in the public domain, (b) has been disclosed by IDT (or SGI
in the case of SGI's information) to others without any obligation of
confidentiality or such disclosed information became part of the public
domain by publication or otherwise without a breach of any obligation
of confidentiality, (c) was known by a party at the time of disclosure
without any obligation of confidentiality whether written, oral,
implied, or (d) was disclosed to such party by a third party without
breach of any obligation of confidentiality, or (e) is independently
created by a party without use of any Confidential Information of the
other party.
5.2 QED may use Confidential Information solely to develop the Product and
for no other purpose. QED shall at all times take every reasonable
precaution to protect the confidentiality of the Confidential
Information and shall use at least the same degree of care as it uses
in protecting QED's valuable trade secrets and proprietary information
but in no case less than due care under the circumstances.
6. OWNERSHIP OF PRODUCT.
6.1 IDT shall be the sole and exclusive owner of the modifications to
the R5000 made by QED hereunder and embodied in Product.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
2.
<PAGE>
7. CHOICE OF LAW. This Agreement is made in and shall be construed in
accordance with the laws of the state of California.
8. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the
parties with respect to the subject matter hereof. This Agreement may
only be modified by a written instrument signed by each party hereto.
9. WAIVER. No waiver of any right or default hereunder shall constitute a
waiver of the right or default in any subsequent exercise thereof.
10. TIME LIMIT FOR SUIT. Any action by QED or IDT hereunder must be
commenced within one year of the date the cause of action arose.
11. SEVERABILITY. If any provision of these terms and conditions shall be
ruled unenforceable, then the remainder shall be enforced to the extent
permissible.
12. TERM. This Agreement shall remain in effect so long as IDT shall
manufacture and/or sell the Product.
12.1 IDT's obligation to pay royalties (and audit rights) thereon to QED
hereunder shall continue so long as IDT shall sell the Product.
12.2 In the event of a breach of any material obligation by a party hereto,
the damaged party shall notify the breaching party of such breach by
notice. The breaching party shall have thirty days to cure such breach.
In the event the breaching party shall fail to cure such breach within
said thirty days, the innocent party may thereafter terminate this
Agreement forthwith by notice.
12.3 Neither party shall be liable for any delay in performing any
obligation hereunder due to causes beyond its reasonable control,
including, without limitation, acts of the judiciary, natural disaster,
war, or civil unrest. In the event of any such delay, the time for
performance by the affected party shall be extended for a period equal
to the period of such delay.
13. NOTICES. Any notice or consent required or permitted to be granted,
obtained or sent hereunder shall be duly given if in writing and shall
be effective when personally delivered or mailed, postage prepaid, as
follows:
If to IDT: President and Chief Executive Officer
Integrated Device Technology. Inc.
2975 Stender Way
Santa Clara, CA 95054
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
3.
<PAGE>
With a copy to:
Jack Menache
Attorney at Law
4073 Eagle Nest Lane
Danville, CA 94506-5811
If to QED: President
Quantum Effect Design. Inc.
3255-3 Scott Blvd.
Santa Clara, California 95054
With a copy to:
Jerrold Petruzzelli, Esq.
Holtzman, Wise & Shepard
3030 Hansen Way
Palo Alto, CA 94306
Each party shall have ten days following receipt of any notice of
breach or default to cure such breach or default and any such cure
shall be promptly communicated to the other party in writing.
14. ASSIGNMENT. Neither party shall assign this Agreement to any other
party, by operation of law or otherwise, without the prior consent of
the other.
IN WITNESS WHEREOF, the parties have signed this Development
Agreement as of the date first above written.
Integrated Device Technology, Inc. Quantum Effect Device, Inc.
By: /s/ 6/14/96 By: /s/ 6/14/96
-------------------------------- --------------------------------
Title: Vice President & General Title: Vice President Marketing and
Manager Sales
----------------------------- -----------------------------
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
4.
<PAGE>
June 14, 1996
CONFIDENTIAL INFORMATION TRANSMITTAL RECORD
To: Integrated Device Technology
By: Quantum Effect Design
8mmTAR tape containing
ARIEL-2.1 RTL, SCHEMATIC AND LAYOUT DATABASE
delivered to person signed below.
<TABLE>
<S> <C> <C> <C>
- ---------------------- --------------- --------------- ---------------
IDT Date QED Date
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
1.
<PAGE>
QUANTUM EFFECT DESIGN, INC.
1997 STOCK OPTION PLAN
NOTICE OF STOCK OPTION GRANT
BARRY L. COX
5525 Bennett Valley Road
Santa Rosa, CA 95404
You have been granted an option to purchase Common Stock "COMMON STOCK"
of Quantum Effect Design, Inc. (the "COMPANY") as follows:
Board Approval Date: June 23, 1998
Date of Grant: July 1, 1998
Vesting Commencement Date: July 1, 1998
Exercise Price per Share: $1.00
Total Number of Shares Granted: 387,500 (This is part of a total
grant of 600,000 shares,
387,500 shares of which are
ISOs and 212,500 shares of
which are NSOs.)
Total Exercise Price: $387,500
Type of Option: X Incentive Stock Option
--------
Nonstatutory Stock Option
--------
Term/Expiration Date: July 1, 2008
Vesting Schedule: This Option may be exercised, in
whole or in part, in accordance with
the following schedule: one-fifth
(1/5th ) of the Shares subject to
the Option shall vest on the one
year anniversary of the Vesting
Commencement Date and
one-forty-eighth (1/48th) of the
remaining number of Shares subject
to the Option shall vest on the 1st
of each month thereafter.
Notwithstanding the foregoing, 20%
of the Shares subject to the Option
shall immediately vest and become
exercisable in the event of (I) a
merger, consolidation or sale of
substantially all of the assets of
the Company, in each case the effect
of which is to transfer voting
control of the Company or (ii) the
Company's initial public
1.
<PAGE>
offering of its Common Stock
pursuant to a registration statement
filed with the Securities and
Exchange Commission under the
Securities Act of 1933, as amended.
Termination Period: This Option may be exercised
for three (3) months after
termination of employment or
consulting relationship except as
set out in Sections 6 and 7 of the
Stock Option Agreement (but in no
event later than the Expiration
Date).
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Stock Option Plan and the Stock Option
Agreement, both of which are attached and made a part of this document.
BARRY L. COX QUANTUM EFFECT DESIGN, INC.
By:
- --------------------------------- -------------------------------
Signature
- --------------------------------- ----------------------------------
Print Name Print Name and Title
2.
<PAGE>
QUANTUM EFFECT DESIGN, INC.
1997 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
1. GRANT OF OPTION. Quantum Effect Design, Inc., a California
corporation (the "COMPANY"), hereby grants to Barry L. Cox ("OPTIONEE"), an
option (the "Option") to purchase a total number of shares of Common Stock
(the "SHARES") set forth in the Notice of Stock Option Grant, at the exercise
price per share set forth in the Notice of Stock Option Grant (the "EXERCISE
PRICE") subject to the terms, definitions and provisions of the 1997 Stock
Option Plan (the "PLAN") adopted by the Company, which is incorporated herein
by reference. Unless otherwise defined herein, the terms defined in the Plan
shall have the same defined meanings in this Option.
If designated an Incentive Stock Option, this Option is intended to
qualify as an Incentive Stock Option as defined in Section 422 of the Code.
2. EXERCISE OF OPTION. This Option shall be exercisable during its Term
in accordance with the Vesting Schedule set out in the Notice of Stock Option
Grant and with the provisions of Section 9 of the Plan as follows:
(a) RIGHT TO EXERCISE.
(i) This Option may not be exercised for a fraction of a share.
(ii) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 5, 6 and 7 below, subject to the limitation contained in Section
2(a)(i).
(iii) In no event may this Option be exercised after the
Expiration Date of this Option as set forth in the Notice of Stock Option
Grant.
(b) METHOD OF EXERCISE. This Option shall be exercisable by
execution and delivery of the Exercise Notice and Restricted Stock Purchase
Agreement attached hereto as EXHIBIT A (the "EXERCISE AGREEMENT") or of any
other form of written notice approved for such purpose by the Company which
shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised, and such other
representations and agreements as to the holder's investment intent with
respect to such shares of Common Stock as may be required by the Company
pursuant to the provisions of the Plan. Such written notice shall be signed
by Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The written notice shall be accompanied by payment
of the Exercise Price. This Option shall be deemed to be exercised upon
receipt by the Company of such written notice accompanied by the Exercise
Price.
1.
<PAGE>
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of
applicable law and the requirements of any stock exchange upon which the Shares
may then be listed. Assuming such compliance, for income tax purposes the Shares
shall be considered transferred to Optionee on the date on which the Option is
exercised with respect to such Shares.
3. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any of
the following, or a combination thereof, at the election of Optionee:
(a) cash;
(b) check;
(c) surrender of other shares of Common Stock of the Company which
(i) in the case of Shares acquired pursuant to the exercise of a Company
option, have been owned by Optionee for more than six months on the date of
surrender, and (ii) have a Fair Market Value on the date of surrender equal
to the Exercise Price of the Shares as to which the Option is being exercised;
(d) if there is a public market for the Shares and they are
registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), delivery of a properly executed exercise notice together
with irrevocable instructions to a broker to deliver promptly to the Company
the amount of sale or loan proceeds required to pay the Exercise Price; or
(e) a promissory note in the form attached to this Agreement as
Exhibit B, or in any other form approved by the Company.
4. RESTRICTIONS ON EXERCISE. This Option may not be exercised until
such time as the Plan has been approved by the shareholders of the Company, or
if the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the
Federal Reserve Board. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
5. TERMINATION OF RELATIONSHIP. In the event of termination of
Optionee's Continuous Status as an Employee or Consultant, Optionee may, to
the extent otherwise so entitled at the date of such termination (the
"TERMINATION DATE"), exercise this Option during the Termination Period set
forth in the Notice of Stock Option Grant. To the extent that Optionee was
not entitled to exercise this Option at such Termination Date, or if Optionee
does not exercise this Option within the Termination Period, the Option shall
terminate.
6. DISABILITY OF OPTIONEE.
(a) Notwithstanding the provisions of Section 5 above, in the
event of termination of Optionee's Continuous Status as an Employee or
Consultant as a result of Optionee's total and permanent disability (as
defined in Section 22(e)(3) of the Code), Optionee
2.
<PAGE>
may, but only within twelve months from the Termination Date (but in no event
later than the Expiration Date set forth in the Notice of Stock Option
Grant), exercise this Option to the extent Optionee was entitled to exercise
it as of such Termination Date. To the extent that Optionee was not entitled
to exercise the Option as of the Termination Date, or if Optionee does not
exercise such Option (to the extent so entitled) within the time specified in
this Section 6(a), the Option shall terminate.
(b) Notwithstanding the provisions of Section 5 above, in the
event of termination of Optionee's consulting relationship or Continuous
Status as an Employee as a result of disability not constituting a total and
permanent disability (as set forth in Section 22(e)(3) of the Code), Optionee
may, but only within six months from the Termination Date (but in no event
later than the Expiration Date set forth in the Notice of Stock Option
Grant), exercise the Option to the extent Optionee was entitled to exercise
it as of such Termination Date; provided, however, that if this is an
Incentive Stock Option and Optionee fails to exercise this Incentive Stock
Option within three months from the Termination Date, this Option will cease
to qualify as an Incentive Stock Option (as defined in Section 422 of the
Code) and Optionee will be treated for federal income tax purposes as having
received ordinary income at the time of such exercise in an amount generally
measured by the difference between the Exercise Price for the Shares and the
Fair Market Value of the Shares on the date of exercise. To the extent that
Optionee was not entitled to exercise the Option at the Termination Date, or
if Optionee does not exercise such Option to the extent so entitled within
the time specified in this Section 6(b), the Option shall terminate.
7. DEATH OF OPTIONEE. In the event of the death of Optionee (a) during
the Term of this Option and while an Employee or Consultant of the Company
and having been in Continuous Status as an Employee or Consultant since the
date of grant of the Option, or (b) within 30 days after Optionee's
Termination Date, the Option may be exercised at any time within six months
following the date of death (but in no event later than the Expiration Date
set forth in the Notice of Stock Option Grant), by 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 Termination Date.
8. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by him
or her. The terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of Optionee.
9. TERM OF OPTION. This Option may be exercised only within the Term
set forth in the Notice of Stock Option Grant, subject to the limitations set
forth in Section 7 of the Plan.
10. TAX CONSEQUENCES. Set forth below is a brief summary as of the date
of this Option of certain of the federal and California tax consequences of
exercise of this Option and disposition of the Shares under the laws in
effect as of the Date of Grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND
THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A
TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
3.
<PAGE>
(a) EXERCISE OF INCENTIVE STOCK OPTION. If this Option qualifies
as an Incentive Stock Option, there will be no regular federal or California
income tax liability upon the exercise of the Option, although the excess, if
any, of the Fair Market Value of the Shares on the date of exercise over the
Exercise Price will be treated as an adjustment to the alternative minimum
tax for federal tax purposes and may subject Optionee to the alternative
minimum tax in the year of exercise.
(b) EXERCISE OF NONSTATUTORY STOCK OPTION. If this Option does not
qualify as an Incentive Stock Option, there may be a regular federal income
tax liability and a California income tax liability upon the exercise of the
Option. Optionee will be treated as having received compensation income
(taxable at ordinary income tax rates) equal to the excess, if any, of the
Fair Market Value of the Shares on the date of exercise over the Exercise
Price. If Optionee is an employee, the Company will be required to withhold
from Optionee's compensation or collect from Optionee and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.
(c) DISPOSITION OF SHARES. In the case of a Nonstatutory Stock
Option, if Shares are held for at least one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for
federal and California income tax purposes. In the case of an Incentive Stock
Option, if Shares transferred pursuant to the Option are held for at least
one year after exercise and are disposed of at least two years after the Date
of Grant, any gain realized on disposition of the Shares will also be treated
as long-term capital gain for federal and California income tax purposes. In
either case, the long-term capital gain will be taxed for federal income tax
and alternative minimum tax purposes at a maximum rate of 28% if the Shares
are held more than one year but less than 18 months after exercise and at 20%
if the Shares are held more than 18 months after exercise. If Shares
purchased under an Incentive Stock Option are disposed of within one year
after exercise or within two years after the Date of Grant, any gain realized
on such disposition will be treated as compensation income (taxable at
ordinary income rates) to the extent of the difference between the Exercise
Price and the lesser of (i) the Fair Market Value of the Shares on the date
of exercise, or (ii) the sale price of the Shares.
(d) NOTICE OF DISQUALIFYING DISPOSITION OF INCENTIVE STOCK OPTION
SHARES. If the Option granted to Optionee herein is an Incentive Stock
Option, and if Optionee sells or otherwise disposes of any of the Shares
acquired pursuant to the Incentive Stock Option on or before the later of (i)
the date two years after the Date of Grant, or (ii) the date one year after
the date of exercise, Optionee shall immediately notify the Company in
writing of such disposition. Optionee acknowledges and agrees that he or she
may be subject to income tax withholding by the Company on the compensation
income recognized by Optionee from the early disposition by payment in cash
or out of the current earnings paid to Optionee.
11. WITHHOLDING TAX OBLIGATIONS. Optionee understands that, upon
exercising a Nonstatutory Stock Option, he or she will recognize income for
tax purposes in an amount equal to the excess of the then Fair Market Value
of the Shares over the Exercise Price. However, the timing of this income
recognition may be deferred for up to six months if Optionee is subject to
Section 16 of the Exchange Act. If Optionee is an employee, the Company will
be required to withhold from Optionee's compensation, or collect from
Optionee and pay to the applicable taxing authorities an amount equal to a
percentage of this compensation income. Additionally,
4.
<PAGE>
Optionee may at some point be required to satisfy tax withholding obligations
with respect to the disqualifying disposition of an Incentive Stock Option.
Optionee shall satisfy his or her tax withholding obligation arising upon the
exercise of this Option by one or some combination of the following methods:
(a) by cash payment, (b) out of Optionee's current compensation, (c) if
permitted by the Administrator, in its discretion, by surrendering to the
Company Shares which (i) in the case of Shares previously acquired from the
Company, have been owned by Optionee for more than six months on the date of
surrender, and (ii) have a Fair Market Value on the date of surrender equal
to or greater than Optionee's marginal tax rate times the ordinary income
recognized, or (d) by electing to have the Company withhold from the Shares
to be issued upon exercise of the Option that number of Shares having a Fair
Market Value equal to the amount required to be withheld. For this purpose,
the Fair Market Value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined (the "Tax
Date").
If Optionee is subject to Section 16 of the Exchange Act (an "Insider"),
any surrender of previously owned Shares to satisfy tax withholding
obligations arising upon exercise of this Option must comply with the
applicable provisions of Rule 16b-3 promulgated under the Exchange Act ("Rule
16b-3").
All elections by Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made; and
(c) all elections shall be subject to the consent or disapproval
of the Administrator.
12. MARKET STANDOFF AGREEMENT. In connection with the initial public
offering of the Company's securities and upon request of the Company or the
underwriters managing such underwritten offering of the Company's securities,
Optionee hereby agrees not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Shares (other than
those included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time
(not to exceed 180 days) from the effective date of such registration as may
be requested by the Company or such managing underwriters and to execute an
agreement reflecting the foregoing as may be requested by the underwriters at
the time of the Company's initial public offering.
[SIGNATURE PAGE FOLLOWS]
5.
<PAGE>
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall constitute
one document.
QUANTUM EFFECT DESIGN, INC.
By:
----------------------------------
-------------------------------------
(Print name and title)
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE OPTION HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT OR CONSULTANCY AT
THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED
THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND
AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN
WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY
RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE
COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY
TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that
he or she is familiar with the terms and provisions thereof, and hereby
accepts this Option subject to all of the terms and provisions thereof.
Optionee has reviewed the Plan and this Option in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
and fully understands all provisions of the Option. Optionee hereby agrees to
accept as binding, conclusive and final all decisions or interpretations of
the Administrator upon any questions arising under the Plan or this Option.
Dated: July 1, 1998
------------------------------------
Barry L. Cox
1.
<PAGE>
EXHIBIT A
QUANTUM EFFECT DESIGN, INC.
1997 STOCK OPTION PLAN
EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT
This Agreement ("AGREEMENT") is made as of ______________, by and
between Quantum Effect Design, Inc., a California corporation (the
"COMPANY"), and ((Optionee)) ("PURCHASE"). To the extent any capitalized
terms used in this Agreement are not defined, they shall have the meaning
ascribed to them in the 1997 Stock Option Plan.
1. EXERCISE OF OPTION. Subject to the terms and conditions hereof,
Purchaser hereby elects to exercise his or her option to purchase ________
shares of the Common Stock (the "SHARES") of the Company under and pursuant
to the Company's 1997 Stock Option Plan (the "PLAN") and the Stock Option
Agreement dated July 1, 1998 (the "OPTION AGREEMENT"). The purchase price for
the Shares shall be $1.00 per Share for a total purchase price of
$___________. The term "Shares" refers to the purchased Shares and all
securities received in replacement of the Shares or as stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser
is entitled by reason of Purchaser's ownership of the Shares.
2. TIME AND PLACE OF EXERCISE. The purchase and sale of the Shares
under this Agreement shall occur at the principal office of the Company
simultaneously with the execution and delivery of this Agreement in
accordance with the provisions of Section 2(b) of the Option Agreement. On
such date, the Company will deliver to Purchaser a certificate representing
the Shares to be purchased by Purchaser (which shall be issued in Purchaser's
name) against payment of the exercise price therefor by Purchaser by (a)
check made payable to the Company, (b) cancellation of indebtedness of the
Company to Purchaser, (c) delivery of shares of the Common Stock of the
Company in accordance with Section 3 of the Option Agreement, (d) delivery of
a promissory note in the form attached as Exhibit B to the Option Agreement
(or in any form acceptable to the Company), or (e) a combination of the
foregoing. If Purchaser delivers a promissory note as partial or full payment
of the purchase price, Purchaser will also deliver a Pledge and Security
Agreement in the form attached as Exhibit C to the Option Agreement (or in
any form acceptable to the Company).
3. LIMITATIONS ON TRANSFER. In addition to any other limitation on
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares except in compliance with
the provisions below and applicable securities laws.
(a) RIGHT OF FIRST REFUSAL. Before any Shares held by Purchaser or
any transferee of Purchaser (either being sometimes referred to herein as the
"HOLDER") may be sold or otherwise transferred (including transfer by gift or
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section 3(a) (the "RIGHT OF FIRST REFUSAL").
1.
<PAGE>
(i) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares
shall deliver to the Company a written notice (the "NOTICE") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii)
the name of each proposed purchaser or other transferee ("PROPOSED
TRANSFEREE"); (iii) the number of Shares to be transferred to each Proposed
Transferee; and (iv) the terms and conditions of each proposed sale or
transfer. The Holder shall offer the Shares at the same price (the "OFFERED
PRICE") and upon the same terms (or terms as similar as reasonably possible)
to the Company or its assignee(s).
(ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within
30 days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (iii) below.
(iii) PURCHASE PRICE. The purchase price ("PURCHASE PRICE")
for the Shares purchased by the Company or its assignee(s) under this Section
3(a) shall be the Offered Price. If the Offered Price includes consideration
other than cash, the cash equivalent value of the non-cash consideration
shall be determined by the Board of Directors of the Company in good faith.
(iv) PAYMENT. Payment of the Purchase Price shall be made, at
the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the
Holder to the Company (or, in the case of repurchase by an assignee, to the
assignee), or by any combination thereof within 30 days after receipt of the
Notice or in the manner and at the times set forth in the Notice.
(v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares
proposed in the Notice to be transferred to a given Proposed Transferee are
not purchased by the Company and/or its assignee(s) as provided in this
Section 3(a), then the Holder may sell or otherwise transfer such Shares to
that Proposed Transferee at the Offered Price or at a higher price, provided
that such sale or other transfer is consummated within 60 days after the date
of the Notice and provided further that any such sale or other transfer is
effected in accordance with any applicable securities laws and the Proposed
Transferee agrees in writing that the provisions of this Section 3 shall
continue to apply to the Shares in the hands of such Proposed Transferee. If
the Shares described in the Notice are not transferred to the Proposed
Transferee within such period, or if the Holder proposes to change the price
or other terms to make them more favorable to the Proposed Transferee, a new
Notice shall be given to the Company, and the Company and/or its assignees
shall again be offered the Right of First Refusal before any Shares held by
the Holder may be sold or otherwise transferred.
(vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the
contrary contained in this Section 3(a) notwithstanding, the transfer of any
or all of the Shares during Purchaser's lifetime or on Purchaser's death by
will or intestacy to Purchaser's Immediate Family (as defined below) or a
trust for the benefit of Purchaser's Immediate Family shall be exempt from
the provisions of this Section 3(a). "IMMEDIATE FAMILY" as used herein shall
mean spouse, lineal descendant or antecedent, father, mother, brother or
sister. In such case, the transferee or other recipient shall receive and
hold the Shares so transferred subject to the
2.
<PAGE>
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section 3.
(b) INVOLUNTARY TRANSFER.
(i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY TRANSFER.
In the event, at any time after the date of this Agreement, of any transfer
by operation of law or other involuntary transfer (including death or
divorce, but excluding a transfer to Immediate Family as set forth in Section
3(a)(vi) above) of all or a portion of the Shares by the record holder
thereof, the Company shall have an option to purchase all of the Shares
transferred at the greater of the purchase price paid by Purchaser pursuant
to this Agreement or the Fair Market Value of the Shares on the date of
transfer. Upon such a transfer, the person acquiring the Shares shall
promptly notify the Secretary of the Company of such transfer. The right to
purchase such Shares shall be provided to the Company for a period of 30 days
following receipt by the Company of written notice by the person acquiring
the Shares.
(ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to any
stock to be transferred pursuant to Section 3(b)(i), the price per Share
shall be a price set by the Board of Directors of the Company that will
reflect the current value of the stock in terms of present earnings and
future prospects of the Company. The Company shall notify Purchaser or his or
her executor of the price so determined within 30 days after receipt by it of
written notice of the transfer or proposed transfer of Shares. However, if
the Purchaser does not agree with the valuation as determined by the Board of
Directors of the Company, the Purchaser shall be entitled to have the
valuation determined by an independent appraiser to be mutually agreed upon
by the Company and the Purchaser and whose fees shall be borne equally by the
Company and the Purchaser.
(c) ASSIGNMENT. The right of the Company to purchase any part of
the Shares may be assigned in whole or in part to any shareholder or
shareholders of the Company or other persons or organizations; provided,
however, that an assignee, other than a corporation that is the Parent or a
100% owned Subsidiary of the Company, must pay the Company, upon assignment
of such right, cash equal to the difference between the original purchase
price and Fair Market Value, if the original purchase price is less than the
Fair Market Value of the Shares subject to the assignment.
(d) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of Shares
or any interest therein will receive and hold such Shares or interest subject
to the provisions of this Agreement. Any sale or transfer of the Company's
Shares shall be void unless the provisions of this Agreement are satisfied.
(e) TERMINATION OF RIGHTS. The Right of First Refusal granted the
Company by Section 3(a) above and the option to repurchase the Shares in the
event of an involuntary transfer granted the Company by Section 3(b) above
shall terminate upon the first sale of Common Stock of the Company to the
general public pursuant to a registration statement filed with and declared
effective by the Securities and Exchange Commission under the Securities Act
of 1933, as amended (the "Securities Act"). Upon termination of the Right of
First Refusal described in Section 3(a) above, a new certificate or
certificates representing the Shares not
3.
<PAGE>
repurchased shall be issued, on request, without the legend referred to in
Section 6(a)(ii) herein and delivered to Purchaser.
4. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the securities.
Purchaser is purchasing these securities for investment for his or her own
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act.
(b) Purchaser understands that the securities have not been
registered under the Securities Act by reason of a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Purchaser's investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, Purchaser must hold the Shares indefinitely unless
they are registered with the Securities and Exchange Commission and qualified
by state authorities, or an exemption from such registration and
qualification requirements is available. Purchaser acknowledges that the
Company has no obligation to register or qualify the Shares for resale'.
Purchaser further acknowledges that if an exemption from registration or
qualification is available, it may be conditioned on various requirements
including, but not limited to, the time and manner of sale, the holding
period for the Shares, and requirements relating to the Company which are
outside of the Purchaser's control, and which the Company is under no
obligation and may not be able to satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the
Shares. Purchaser represents that Purchaser has consulted any tax consultants
Purchaser deems advisable in connection with the purchase or disposition of
the Shares and that Purchaser is not relying on the Company for any tax
advice.
5. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. The certificate or certificates representing the
Shares shall bear the following legends (as well as any legends required by
applicable state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE
BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR
IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO
SUCH SALE, DISTRIBUTION OR OTHER DISPOSITION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM
4.
<PAGE>
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A
COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY.
(iii) IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN
CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE
OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S
RULES.
Purchaser understands that transfer of the Shares may be restricted by
Section 260.141.11 of the Rules of the California Corporations Commissioner,
a copy of which is attached to this Agreement.
(b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make
appropriate notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
6. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company, or a Parent or
Subsidiary of the Company, to terminate Purchaser's employment or consulting
relationship, for any reason, with or without cause.
7. MARKET STAND-OFF AGREEMENT. In connection with the initial public
offering of the Company's securities and upon request of the Company or the
underwriters managing such underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option
for the purchase of, or otherwise dispose of any Shares (other than those
included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time
(not to exceed 180 days) from the effective date of such registration as may
be requested by the Company or such managing underwriters and to execute an
agreement reflecting the foregoing as may be requested by the underwriters at
the time of the Company's initial public offering.
5.
<PAGE>
8. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State
of California, without giving effect to principles of conflicts of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the
parties to this Agreement. The failure by either party to enforce any rights
under this Agreement shall not be construed as a waiver of any rights of such
party.
(c) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith. In the event that the parties
cannot reach a mutually agreeable and enforceable replacement for such
provision, then (i) such provision shall be excluded from this Agreement,
(ii) the balance of the Agreement shall be interpreted as if such provision
were so excluded and (iii) the balance of the Agreement shall be enforceable
in accordance with its terms.
(d) CONSTRUCTION. This Agreement is the result of negotiations
between and has been reviewed by each of the parties hereto and their
respective counsel, if any; accordingly, this Agreement shall be deemed to be
the product of all of the parties hereto, and no ambiguity shall be construed
in favor of or against any one of the parties hereto.
(e) NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient when delivered personally
or sent by telegram or fax or 48 hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(f) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) SUCCESSORS AND ASSIGNS. The rights and benefits of this
Agreement shall inure to the benefit of, and be enforceable by the Company's
successors and assigns. The rights and obligations of Purchaser under this
Agreement may only be assigned with the prior written consent of the Company.
(h) CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED
WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE
ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE
SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100,25102 OR
25105 OF THE CALIFORNIA
6.
<PAGE>
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
[SIGNATURE PAGE FOLLOWS]
7.
<PAGE>
The parties have executed this Exercise Notice and Restricted Stock
Purchase Agreement as of the date first set forth above.
COMPANY:
QUANTUM EFFECT DESIGN, INC.
By:
---------------------------------------
Name:
------------------------------------
(print)
Title:
------------------------------------
Address: 3255-3 Scott Boulevard, Suite 200
Santa Clara, CA 95054
PURCHASER:
BARRY L. COX
------------------------------------------
(Signature)
------------------------------------------
(Print Name)
Address:
------------------------------------------
------------------------------------------
I, _______________, spouse of Barry L. Cox, have read and hereby approve the
foregoing Agreement. In consideration of the Company's granting my spouse the
right to purchase the Shares as set forth in the Agreement, I hereby agree to be
bound irrevocably by the Agreement and further agree that any community property
or similar interest that I may have in the Shares shall hereby be similarly
bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with
respect to any amendment or exercise of any rights under the Agreement.
------------------------------------------
Spouse of Barry L. Cox
1.
<PAGE>
EXHIBIT B
PROMISSORY NOTE
$ __________________ _____________, California
________________, __________
For value received, the undersigned promises to pay Quantum Effect
Design, Inc., a California corporation (the "Company"), at its principal office
the principal sum of $___________ with interest from the date hereof at a rate
of ________ % per annum, compounded semiannually, on the unpaid balance of such
principal sum. Such principal and interest shall be due and payable on
__________.
If the undersigned's employment or consulting relationship with the
Company is terminated for any reason, voluntarily or involuntarily, prior to
payment in full of this Note, this Note shall be immediately due and payable.
Principal and interest are payable in lawful money of the United States
of America. AMOUNTS DUE UNDER THIS NOTE MAY BE PREPAID AT ANY TIME WITHOUT
PREMIUM OR PENALTY.
Should suit be commenced to collect any sums due under this Note, such
sum as the Court may deem reasonable shall be added hereto as attorneys' fees.
The makers and endorsers have severally waived presentment for payment, protest,
notice of protest and notice of nonpayment of this Note.
This Note, which is full recourse, is secured by a pledge of certain
shares of Common Stock of the Company and is subject to the terms of a Pledge
and Security Agreement between the undersigned and the Company of even date
herewith.
------------------------------------
Barry L. Cox
1.
<PAGE>
EXHIBIT C
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT (the "AGREEMENT") is entered into
this _________ day of _______________________ by and between QUANTUM EFFECT
DESIGN, INC., a California corporation (the "COMPANY") and Barry L. Cox
("PURCHASER").
RECITALS
In connection with Purchaser's exercise of an option to purchase certain
shares of the Company's Common Stock (the "SHARES") pursuant to a Stock
Option Agreement dated July 1, 1998 between Purchaser and the Company,
Purchaser is delivering a promissory note of even date herewith (the "NOTE")
in full or partial payment of the exercise price for the Shares. The company
requires that the Note be secured by a pledge of the Shares on the terms set
forth below.
AGREEMENT
In consideration of the Company's acceptance of the Note as full or
partial payment of the exercise price of the Shares, and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. The Note shall become payable in full upon the voluntary or
involuntary termination or cessation of employment of Purchaser with the
Company, for any reason, with or without cause (including death or
disability).
2. Purchaser shall deliver to the Secretary of the Company, or his or
her designee (hereinafter referred to as the "PLEDGE HOLDER"), all
certificates representing the Shares, together with an Assignment Separate
from Certificate in the form attached to this Agreement as ATTACHMENT A
executed by Purchaser and by Purchaser's spouse (if required for transfer),
in blank, for use in transferring all or a portion of the Shares to the
Company if, as and when required pursuant to this Agreement. In addition, if
Purchaser is married, Purchaser's spouse shall execute the signature page
attached to this Agreement.
3. As security for the payment of the Note and any renewal, extension
or modification of the Note, Purchaser hereby grants to the Company a
security interest in and pledges with and delivers to the Company Purchaser's
Shares (sometimes referred to herein as the "COLLATERAL").
4. In the event that Purchaser prepays all or a portion of the Note,
in accordance with the provisions thereof, Purchaser intends, unless written
notice to the contrary is delivered to the Pledge Holder, that the Shares
represented by the portion of the Note so repaid, including annual interest
thereon, shall continue to be so held by the Pledge Holder, to serve as
independent collateral for the outstanding portion of the Note for the
purpose of commencing the holding period set forth in Rule 144(d) promulgated
under the Securities Act of 1933, as amended (the "SECURITIES ACT").
1.
<PAGE>
5. In the event of any foreclosure of the security interest created by
this Agreement, the Company may sell the Shares at a private sale or may
repurchase the Shares itself. The parties agree that, prior to the
establishment of a public market for the Shares of the Company, the
securities laws affecting sale of the Shares make a public sale of the Shares
commercially unreasonable. The parties further agree that the repurchasing of
such Shares by the Company, or by any person to whom the Company may have
assigned its rights under this Agreement, is commercially reasonable if made
at a price determined by the Board of Directors in its discretion, fairly
exercised, representing what would be the Fair Market Value of the Shares
reduced by any limitation on transferability, whether due to the size of the
block of shares or the restrictions of applicable securities laws.
6. In the event of default in payment when due of any indebtedness
under the Note, the Company may elect then, or at any time thereafter, to
exercise all rights available to a secured party under the California
Commercial Code including the right to sell the Collateral at a private or
public sale or repurchase the Shares as provided above. The proceeds of any
sale shall be applied in the following order:
(a) To the extent necessary, proceeds shall be used to pay all
reasonable expenses of the Company in enforcing this Agreement and the Note,
including, without limitation, reasonable attorney's fees and legal expenses
incurred by the Company.
(b) To the extent necessary, proceeds shall be used to satisfy any
remaining indebtedness under Purchaser's Note.
(c) Any remaining proceeds shall be delivered to Purchaser.
7. Upon full payment by Purchaser of all amounts due under the Note,
Pledge Holder shall deliver to Purchaser all Shares in Pledge Holder's
possession belonging to Purchaser, and Pledge Holder shall thereupon be
discharged of all further obligations under this Agreement.
2.
<PAGE>
The parties have executed this Pledge and Security Agreement as of the
date first set forth above.
COMPANY:
QUANTUM EFFECT DESIGN, INC.
By:
---------------------------------------
Name:
------------------------------------
(print)
Title:
------------------------------------
Address: 3255-3 Scott Boulevard, Suite 200
Santa Clara, CA 95054
PURCHASER:
BARRY L. COX
------------------------------------------
(Signature)
------------------------------------------
(Print Name)
Address:
------------------------------------------
------------------------------------------
1.
<PAGE>
ATTACHMENT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Pledge and Security
Agreement between the undersigned ("PURCHASE") and Quantum Effect Design, Inc.
(the "COMPANY") dated ___________ (the "AGREEMENT"), Purchaser hereby sells,
assigns and transfers unto the Company ______________ (_______) shares of the
Common Stock of the Company, standing in Purchaser's name on the books of the
Company and represented by Certificate No. __, and hereby irrevocably appoints
______________ to transfer said stock on the books of the Company with full
power of substitution in the premises. THIS ASSIGNMENT MAY ONLY BE USED AS
AUTHORIZED BY THE AGREEMENT.
Dated:
-------------------------
Signature:
---------------------------------------
---------------------------------------
Spouse of (if applicable)
INSTRUCTION: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to perfect the security interest
of the Company pursuant to the Agreement.
1.
<PAGE>
QUANTUM EFFECT DESIGN, INC.
1997 STOCK OPTION PLAN
NOTICE OF STOCK OPTION GRANT
BARRY L. COX
5525 Bennett Valley Road
Santa Rosa, CA 95404
You have been granted an option to purchase Common Stock "COMMON STOCK"
of Quantum Effect Design, Inc. (the "COMPANY") as follows:
Board Approval Date: June 23, 1998
Date of Grant: July 1, 1998
Vesting Commencement Date: July 1, 1998
Exercise Price per Share: $1.00
Total Number of Shares Granted: 212,500 (This is part of a total
grant of 600,000 shares,
387,500 shares of which are
ISOs and 212,500 shares of
which are NSOs.)
Total Exercise Price: $212,500
Type of Option: Incentive Stock Option
--------
X Nonstatutory Stock Option
--------
Term/Expiration Date: July 1, 2008
Vesting Schedule: This Option may be exercised, in
whole or in part, in accordance with
the following schedule: one-fifth
(1/5th ) of the Shares subject to
the Option shall vest on the one
year anniversary of the Vesting
Commencement Date and
one-forty-eighth (1/48th) of the
remaining number of Shares subject
to the Option shall vest on the 1st
of each month thereafter.
Notwithstanding the foregoing, 20%
of the Shares subject to the Option
shall immediately vest and become
exercisable in the event of (I) a
merger, consolidation or sale of
substantially all of the assets of
the Company, in each case the effect
of which is to transfer voting
control of the Company or (ii) the
Company's initial public
1.
<PAGE>
offering of its Common Stock
pursuant to a registration statement
filed with the Securities and
Exchange Commission under the
Securities Act of 1933, as amended.
Termination Period: This Option may be exercised for
three (3) months after termination
of employment or consulting
relationship except as set out in
Sections 6 and 7 of the Stock Option
Agreement (but in no event later
than the Expiration Date).
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and
governed by the terms and conditions of the Stock Option Plan and the Stock
Option Agreement, both of which are attached and made a part of this document.
BARRY L. COX QUANTUM EFFECT DESIGN, INC.
By:
- ---------------------------------- -------------------------------
Signature
- ---------------------------------- ----------------------------------
Print Name Print Name and Title
2.
<PAGE>
QUANTUM EFFECT DESIGN, INC.
1997 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
8. GRANT OF OPTION. Quantum Effect Design, Inc., a California
corporation (the "COMPANY"), hereby grants to Barry L. Cox ("OPTIONEE"), an
option (the "Option") to purchase a total number of shares of Common Stock
(the "SHARES") set forth in the Notice of Stock Option Grant, at the exercise
price per share set forth in the Notice of Stock Option Grant (the "EXERCISE
PRICE") subject to the terms, definitions and provisions of the 1997 Stock
Option Plan (the "PLAN") adopted by the Company, which is incorporated herein
by reference. Unless otherwise defined herein, the terms defined in the Plan
shall have the same defined meanings in this Option.
If designated an Incentive Stock Option, this Option is intended to
qualify as an Incentive Stock Option as defined in Section 422 of the Code.
9. EXERCISE OF OPTION. This Option shall be exercisable during its
Term in accordance with the Vesting Schedule set out in the Notice of Stock
Option Grant and with the provisions of Section 9 of the Plan as follows:
(a) RIGHT TO EXERCISE.
(i) This Option may not be exercised for a fraction of a share.
(ii) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 5, 6 and 7 below, subject to the limitation contained in Section
2(a)(i).
(iii) In no event may this Option be exercised after the
Expiration Date of this Option as set forth in the Notice of Stock Option
Grant.
(b) METHOD OF EXERCISE. This Option shall be exercisable by
execution and delivery of the Exercise Notice and Restricted Stock Purchase
Agreement attached hereto as Exhibit A (the "EXERCISE AGREEMENT") or of any
other form of written notice approved for such purpose by the Company which
shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised, and such other
representations and agreements as to the holder's investment intent with
respect to such shares of Common Stock as may be required by the Company
pursuant to the provisions of the Plan. Such written notice shall be signed
by Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The written notice shall be accompanied by payment
of the Exercise Price. This Option shall be deemed to be exercised upon
receipt by the Company of such written notice accompanied by the Exercise
Price.
1.
<PAGE>
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of
applicable law and the requirements of any stock exchange upon which the
Shares may then be listed. Assuming such compliance, for income tax purposes
the Shares shall be considered transferred to Optionee on the date on which
the Option is exercised with respect to such Shares.
10. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any of
the following, or a combination thereof, at the election of Optionee:
(a) cash;
(b) check;
(c) surrender of other shares of Common Stock of the Company which
(i) in the case of Shares acquired pursuant to the exercise of a Company
option, have been owned by Optionee for more than six months on the date of
surrender, and (ii) have a Fair Market Value on the date of surrender equal
to the Exercise Price of the Shares as to which the Option is being exercised;
(d) if there is a public market for the Shares and they are
registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), delivery of a properly executed exercise notice together
with irrevocable instructions to a broker to deliver promptly to the Company
the amount of sale or loan proceeds required to pay the Exercise Price; or
(e) a promissory note in the form attached to this Agreement as
Exhibit B, or in any other form approved by the Company.
11. RESTRICTIONS ON EXERCISE. This Option may not be exercised until
such time as the Plan has been approved by the shareholders of the Company,
or if the issuance of such Shares upon such exercise or the method of payment
of consideration for such shares would constitute a violation of any
applicable federal or state securities or other law or regulation, including
any rule under Part 207 of Title 12 of the Code of Federal Regulations as
promulgated by the Federal Reserve Board. As a condition to the exercise of
this Option, the Company may require Optionee to make any representation and
warranty to the Company as may be required by any applicable law or
regulation.
12. TERMINATION OF RELATIONSHIP. In the event of termination of
Optionee's Continuous Status as an Employee or Consultant, Optionee may, to
the extent otherwise so entitled at the date of such termination (the
"TERMINATION DATE"), exercise this Option during the Termination Period set
forth in the Notice of Stock Option Grant. To the extent that Optionee was
not entitled to exercise this Option at such Termination Date, or if Optionee
does not exercise this Option within the Termination Period, the Option shall
terminate.
13. DISABILITY OF OPTIONEE.
(a) Notwithstanding the provisions of Section 5 above, in the
event of termination of Optionee's Continuous Status as an Employee or
Consultant as a result of Optionee's total and permanent disability (as
defined in Section 22(e)(3) of the Code), Optionee
2.
<PAGE>
may, but only within twelve months from the Termination Date (but in no event
later than the Expiration Date set forth in the Notice of Stock Option
Grant), exercise this Option to the extent Optionee was entitled to exercise
it as of such Termination Date. To the extent that Optionee was not entitled
to exercise the Option as of the Termination Date, or if Optionee does not
exercise such Option (to the extent so entitled) within the time specified in
this Section 6(a), the Option shall terminate.
(b) Notwithstanding the provisions of Section 5 above, in the
event of termination of Optionee's consulting relationship or Continuous
Status as an Employee as a result of disability not constituting a total and
permanent disability (as set forth in Section 22(e)(3) of the Code), Optionee
may, but only within six months from the Termination Date (but in no event
later than the Expiration Date set forth in the Notice of Stock Option
Grant), exercise the Option to the extent Optionee was entitled to exercise
it as of such Termination Date; provided, however, that if this is an
Incentive Stock Option and Optionee fails to exercise this Incentive Stock
Option within three months from the Termination Date, this Option will cease
to qualify as an Incentive Stock Option (as defined in Section 422 of the
Code) and Optionee will be treated for federal income tax purposes as having
received ordinary income at the time of such exercise in an amount generally
measured by the difference between the Exercise Price for the Shares and the
Fair Market Value of the Shares on the date of exercise. To the extent that
Optionee was not entitled to exercise the Option at the Termination Date, or
if Optionee does not exercise such Option to the extent so entitled within
the time specified in this Section 6(b), the Option shall terminate.
14. DEATH OF OPTIONEE. In the event of the death of Optionee (a) during
the Term of this Option and while an Employee or Consultant of the Company
and having been in Continuous Status as an Employee or Consultant since the
date of grant of the Option, or (b) within 30 days after Optionee's
Termination Date, the Option may be exercised at any time within six months
following the date of death (but in no event later than the Expiration Date
set forth in the Notice of Stock Option Grant), by 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 Termination Date.
15. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by him
or her. The terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of Optionee.
16. TERM OF OPTION. This Option may be exercised only within the Term
set forth in the Notice of Stock Option Grant, subject to the limitations set
forth in Section 7 of the Plan.
17. TAX CONSEQUENCES. Set forth below is a brief summary as of the date
of this Option of certain of the federal and California tax consequences of
exercise of this Option and disposition of the Shares under the laws in
effect as of the Date of Grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND
THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A
TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
3.
<PAGE>
(a) EXERCISE OF INCENTIVE STOCK OPTION. If this Option qualifies
as an Incentive Stock Option, there will be no regular federal or California
income tax liability upon the exercise of the Option, although the excess, if
any, of the Fair Market Value of the Shares on the date of exercise over the
Exercise Price will be treated as an adjustment to the alternative minimum
tax for federal tax purposes and may subject Optionee to the alternative
minimum tax in the year of exercise.
(b) EXERCISE OF NONSTATUTORY STOCK OPTION. If this Option does not
qualify as an Incentive Stock Option, there may be a regular federal income
tax liability and a California income tax liability upon the exercise of the
Option. Optionee will be treated as having received compensation income
(taxable at ordinary income tax rates) equal to the excess, if any, of the
Fair Market Value of the Shares on the date of exercise over the Exercise
Price. If Optionee is an employee, the Company will be required to withhold
from Optionee's compensation or collect from Optionee and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.
(c) DISPOSITION OF SHARES. In the case of a Nonstatutory Stock
Option, if Shares are held for at least one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for
federal and California income tax purposes. In the case of an Incentive Stock
Option, if Shares transferred pursuant to the Option are held for at least
one year after exercise and are disposed of at least two years after the Date
of Grant, any gain realized on disposition of the Shares will also be treated
as long-term capital gain for federal and California income tax purposes. In
either case, the long-term capital gain will be taxed for federal income tax
and alternative minimum tax purposes at a maximum rate of 28% if the Shares
are held more than one year but less than 18 months after exercise and at 20%
if the Shares are held more than 18 months after exercise. If Shares
purchased under an Incentive Stock Option are disposed of within one year
after exercise or within two years after the Date of Grant, any gain realized
on such disposition will be treated as compensation income (taxable at
ordinary income rates) to the extent of the difference between the Exercise
Price and the lesser of (i) the Fair Market Value of the Shares on the date
of exercise, or (ii) the sale price of the Shares.
(d) NOTICE OF DISQUALIFYING DISPOSITION OF INCENTIVE STOCK OPTION
SHARES. If the Option granted to Optionee herein is an Incentive Stock
Option, and if Optionee sells or otherwise disposes of any of the Shares
acquired pursuant to the Incentive Stock Option on or before the later of (i)
the date two years after the Date of Grant, or (ii) the date one year after
the date of exercise, Optionee shall immediately notify the Company in
writing of such disposition. Optionee acknowledges and agrees that he or she
may be subject to income tax withholding by the Company on the compensation
income recognized by Optionee from the early disposition by payment in cash
or out of the current earnings paid to Optionee.
18. WITHHOLDING TAX OBLIGATIONS. Optionee understands that, upon
exercising a Nonstatutory Stock Option, he or she will recognize income for
tax purposes in an amount equal to the excess of the then Fair Market Value
of the Shares over the Exercise Price. However, the timing of this income
recognition may be deferred for up to six months if Optionee is subject to
Section 16 of the Exchange Act. If Optionee is an employee, the Company will
be required to withhold from Optionee's compensation, or collect from
Optionee and pay to the applicable taxing authorities an amount equal to a
percentage of this compensation income. Additionally,
4.
<PAGE>
Optionee may at some point be required to satisfy tax withholding obligations
with respect to the disqualifying disposition of an Incentive Stock Option.
Optionee shall satisfy his or her tax withholding obligation arising upon the
exercise of this Option by one or some combination of the following methods:
(a) by cash payment, (b) out of Optionee's current compensation, (c) if
permitted by the Administrator, in its discretion, by surrendering to the
Company Shares which (i) in the case of Shares previously acquired from the
Company, have been owned by Optionee for more than six months on the date of
surrender, and (ii) have a Fair Market Value on the date of surrender equal
to or greater than Optionee's marginal tax rate times the ordinary income
recognized, or (d) by electing to have the Company withhold from the Shares
to be issued upon exercise of the Option that number of Shares having a Fair
Market Value equal to the amount required to be withheld. For this purpose,
the Fair Market Value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined (the "Tax
Date").
If Optionee is subject to Section 16 of the Exchange Act (an "Insider"),
any surrender of previously owned Shares to satisfy tax withholding
obligations arising upon exercise of this Option must comply with the
applicable provisions of Rule 16b-3 promulgated under the Exchange Act ("Rule
16b-3").
All elections by Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made; and
(c) all elections shall be subject to the consent or disapproval
of the Administrator.
19. MARKET STANDOFF AGREEMENT. In connection with the initial public
offering of the Company's securities and upon request of the Company or the
underwriters managing such underwritten offering of the Company's securities,
Optionee hereby agrees not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Shares (other than
those included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time
(not to exceed 180 days) from the effective date of such registration as may
be requested by the Company or such managing underwriters and to execute an
agreement reflecting the foregoing as may be requested by the underwriters at
the time of the Company's initial public offering.
[SIGNATURE PAGE FOLLOWS]
5.
<PAGE>
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall constitute
one document.
QUANTUM EFFECT DESIGN, INC.
By:
--------------------------------
-----------------------------------
(Print name and title)
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE OPTION HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT OR CONSULTANCY AT
THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED
THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND
AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN
WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY
RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE
COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY
TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that
he or she is familiar with the terms and provisions thereof, and hereby
accepts this Option subject to all of the terms and provisions thereof.
Optionee has reviewed the Plan and this Option in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
and fully understands all provisions of the Option. Optionee hereby agrees to
accept as binding, conclusive and final all decisions or interpretations of
the Administrator upon any questions arising under the Plan or this Option.
Dated: July 1, 1998
-----------------------------------
Barry L. Cox
1.
<PAGE>
EXHIBIT A
QUANTUM EFFECT DESIGN, INC.
1997 STOCK OPTION PLAN
EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT
This Agreement ("AGREEMENT") is made as of ______________, by and
between Quantum Effect Design, Inc., a California corporation (the "COMPANY"),
and ((Optionee)) ("PURCHASE"). To the extent any capitalized terms used in this
Agreement are not defined, they shall have the meaning ascribed to them in the
1997 Stock Option Plan.
20. EXERCISE OF OPTION. Subject to the terms and conditions hereof,
Purchaser hereby elects to exercise his or her option to purchase ________
shares of the Common Stock (the "SHARES") of the Company under and pursuant
to the Company's 1997 Stock Option Plan (the "PLAN") and the Stock Option
Agreement dated July 1, 1998 (the "OPTION AGREEMENT"). The purchase price for
the Shares shall be $1.00 per Share for a total purchase price of
$___________. The term "Shares" refers to the purchased Shares and all
securities received in replacement of the Shares or as stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser
is entitled by reason of Purchaser's ownership of the Shares.
21. TIME AND PLACE OF EXERCISE. The purchase and sale of the Shares
under this Agreement shall occur at the principal office of the Company
simultaneously with the execution and delivery of this Agreement in
accordance with the provisions of Section 2(b) of the Option Agreement. On
such date, the Company will deliver to Purchaser a certificate representing
the Shares to be purchased by Purchaser (which shall be issued in Purchaser's
name) against payment of the exercise price therefor by Purchaser by (a)
check made payable to the Company, (b) cancellation of indebtedness of the
Company to Purchaser, (c) delivery of shares of the Common Stock of the
Company in accordance with Section 3 of the Option Agreement, (d) delivery of
a promissory note in the form attached as Exhibit B to the Option Agreement
(or in any form acceptable to the Company), or (e) a combination of the
foregoing. If Purchaser delivers a promissory note as partial or full payment
of the purchase price, Purchaser will also deliver a Pledge and Security
Agreement in the form attached as Exhibit C to the Option Agreement (or in
any form acceptable to the Company).
22. LIMITATIONS ON TRANSFER. In addition to any other limitation on
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares except in compliance with
the provisions below and applicable securities laws.
(a) RIGHT OF FIRST REFUSAL. Before any Shares held by Purchaser or
any transferee of Purchaser (either being sometimes referred to herein as the
"HOLDER") may be sold or otherwise transferred (including transfer by gift or
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section 3(a) (the "RIGHT OF FIRST REFUSAL").
1.
<PAGE>
(i) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares
shall deliver to the Company a written notice (the "NOTICE") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii)
the name of each proposed purchaser or other transferee ("PROPOSED
TRANSFEREE"); (iii) the number of Shares to be transferred to each Proposed
Transferee; and (iv) the terms and conditions of each proposed sale or
transfer. The Holder shall offer the Shares at the same price (the "OFFERED
PRICE") and upon the same terms (or terms as similar as reasonably possible)
to the Company or its assignee(s).
(ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within
30 days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (iii) below.
(iii) PURCHASE PRICE. The purchase price ("PURCHASE PRICE")
for the Shares purchased by the Company or its assignee(s) under this Section
3(a) shall be the Offered Price. If the Offered Price includes consideration
other than cash, the cash equivalent value of the non-cash consideration
shall be determined by the Board of Directors of the Company in good faith.
(iv) PAYMENT. Payment of the Purchase Price shall be made, at
the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the
Holder to the Company (or, in the case of repurchase by an assignee, to the
assignee), or by any combination thereof within 30 days after receipt of the
Notice or in the manner and at the times set forth in the Notice.
(v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares
proposed in the Notice to be transferred to a given Proposed Transferee are
not purchased by the Company and/or its assignee(s) as provided in this
Section 3(a), then the Holder may sell or otherwise transfer such Shares to
that Proposed Transferee at the Offered Price or at a higher price, provided
that such sale or other transfer is consummated within 60 days after the date
of the Notice and provided further that any such sale or other transfer is
effected in accordance with any applicable securities laws and the Proposed
Transferee agrees in writing that the provisions of this Section 3 shall
continue to apply to the Shares in the hands of such Proposed Transferee. If
the Shares described in the Notice are not transferred to the Proposed
Transferee within such period, or if the Holder proposes to change the price
or other terms to make them more favorable to the Proposed Transferee, a new
Notice shall be given to the Company, and the Company and/or its assignees
shall again be offered the Right of First Refusal before any Shares held by
the Holder may be sold or otherwise transferred.
(vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the
contrary contained in this Section 3(a) notwithstanding, the transfer of any
or all of the Shares during Purchaser's lifetime or on Purchaser's death by
will or intestacy to Purchaser's Immediate Family (as defined below) or a
trust for the benefit of Purchaser's Immediate Family shall be exempt from
the provisions of this Section 3(a). "IMMEDIATE FAMILY" as used herein shall
mean spouse, lineal descendant or antecedent, father, mother, brother or
sister. In such case, the transferee or other recipient shall receive and
hold the Shares so transferred subject to the
2.
<PAGE>
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section 3.
(b) INVOLUNTARY TRANSFER.
(i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY TRANSFER. In
the event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including death or divorce,
but excluding a transfer to Immediate Family as set forth in Section 3(a)(vi)
above) of all or a portion of the Shares by the record holder thereof, the
Company shall have an option to purchase all of the Shares transferred at the
greater of the purchase price paid by Purchaser pursuant to this Agreement or
the Fair Market Value of the Shares on the date of transfer. Upon such a
transfer, the person acquiring the Shares shall promptly notify the Secretary
of the Company of such transfer. The right to purchase such Shares shall be
provided to the Company for a period of 30 days following receipt by the
Company of written notice by the person acquiring the Shares.
(ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to any
stock to be transferred pursuant to Section 3(b)(i), the price per Share
shall be a price set by the Board of Directors of the Company that will
reflect the current value of the stock in terms of present earnings and
future prospects of the Company. The Company shall notify Purchaser or his or
her executor of the price so determined within 30 days after receipt by it of
written notice of the transfer or proposed transfer of Shares. However, if
the Purchaser does not agree with the valuation as determined by the Board of
Directors of the Company, the Purchaser shall be entitled to have the
valuation determined by an independent appraiser to be mutually agreed upon
by the Company and the Purchaser and whose fees shall be borne equally by the
Company and the Purchaser.
(c) ASSIGNMENT. The right of the Company to purchase any part of
the Shares may be assigned in whole or in part to any shareholder or
shareholders of the Company or other persons or organizations; provided,
however, that an assignee, other than a corporation that is the Parent or a
100% owned Subsidiary of the Company, must pay the Company, upon assignment
of such right, cash equal to the difference between the original purchase
price and Fair Market Value, if the original purchase price is less than the
Fair Market Value of the Shares subject to the assignment.
(d) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of Shares
or any interest therein will receive and hold such Shares or interest subject
to the provisions of this Agreement. Any sale or transfer of the Company's
Shares shall be void unless the provisions of this Agreement are satisfied.
(e) TERMINATION OF RIGHTS. The Right of First Refusal granted the
Company by Section 3(a) above and the option to repurchase the Shares in the
event of an involuntary transfer granted the Company by Section 3(b) above
shall terminate upon the first sale of Common Stock of the Company to the
general public pursuant to a registration statement filed with and declared
effective by the Securities and Exchange Commission under the Securities Act
of 1933, as amended (the "Securities Act"). Upon termination of the Right of
First Refusal described in Section 3(a) above, a new certificate or
certificates representing the Shares not
3.
<PAGE>
repurchased shall be issued, on request, without the legend referred to in
Section 6(a)(ii) herein and delivered to Purchaser.
23. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the securities.
Purchaser is purchasing these securities for investment for his or her own
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act.
(b) Purchaser understands that the securities have not been
registered under the Securities Act by reason of a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Purchaser's investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, Purchaser must hold the Shares indefinitely unless
they are registered with the Securities and Exchange Commission and qualified
by state authorities, or an exemption from such registration and
qualification requirements is available. Purchaser acknowledges that the
Company has no obligation to register or qualify the Shares for resale'.
Purchaser further acknowledges that if an exemption from registration or
qualification is available, it may be conditioned on various requirements
including, but not limited to, the time and manner of sale, the holding
period for the Shares, and requirements relating to the Company which are
outside of the Purchaser's control, and which the Company is under no
obligation and may not be able to satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the
Shares. Purchaser represents that Purchaser has consulted any tax consultants
Purchaser deems advisable in connection with the purchase or disposition of
the Shares and that Purchaser is not relying on the Company for any tax
advice.
24. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. The certificate or certificates representing the
Shares shall bear the following legends (as well as any legends required by
applicable state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE
BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR
IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO
SUCH SALE, DISTRIBUTION OR OTHER DISPOSITION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM
4.
<PAGE>
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A
COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY.
(iii) IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN
CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE
OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S
RULES.
Purchaser understands that transfer of the Shares may be restricted by
Section 260.141.11 of the Rules of the California Corporations Commissioner, a
copy of which is attached to this Agreement.
(b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make
appropriate notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
25. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company, or a Parent or
Subsidiary of the Company, to terminate Purchaser's employment or consulting
relationship, for any reason, with or without cause.
26. MARKET STAND-OFF AGREEMENT. In connection with the initial public
offering of the Company's securities and upon request of the Company or the
underwriters managing such underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option
for the purchase of, or otherwise dispose of any Shares (other than those
included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time
(not to exceed 180 days) from the effective date of such registration as may
be requested by the Company or such managing underwriters and to execute an
agreement reflecting the foregoing as may be requested by the underwriters at
the time of the Company's initial public offering.
5.
<PAGE>
27. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State
of California, without giving effect to principles of conflicts of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the
parties to this Agreement. The failure by either party to enforce any rights
under this Agreement shall not be construed as a waiver of any rights of such
party.
(c) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith. In the event that the parties
cannot reach a mutually agreeable and enforceable replacement for such
provision, then (i) such provision shall be excluded from this Agreement,
(ii) the balance of the Agreement shall be interpreted as if such provision
were so excluded and (iii) the balance of the Agreement shall be enforceable
in accordance with its terms.
(d) CONSTRUCTION. This Agreement is the result of negotiations
between and has been reviewed by each of the parties hereto and their
respective counsel, if any; accordingly, this Agreement shall be deemed to be
the product of all of the parties hereto, and no ambiguity shall be construed
in favor of or against any one of the parties hereto.
(e) NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient when delivered personally
or sent by telegram or fax or 48 hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(f) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) SUCCESSORS AND ASSIGNS. The rights and benefits of this
Agreement shall inure to the benefit of, and be enforceable by the Company's
successors and assigns. The rights and obligations of Purchaser under this
Agreement may only be assigned with the prior written consent of the Company.
(h) CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED
WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE
ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE
SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100,25102 OR
25105 OF THE CALIFORNIA
6.
<PAGE>
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
[SIGNATURE PAGE FOLLOWS]
7.
<PAGE>
The parties have executed this Exercise Notice and Restricted Stock
Purchase Agreement as of the date first set forth above.
COMPANY:
QUANTUM EFFECT DESIGN, INC.
By:
---------------------------------------
Name:
------------------------------------
(print)
Title:
------------------------------------
Address: 3255-3 Scott Boulevard, Suite 200
Santa Clara, CA 95054
PURCHASER:
BARRY L. COX
------------------------------------------
(Signature)
------------------------------------------
(Print Name)
Address:
------------------------------------------
------------------------------------------
I, _______________, spouse of Barry L. Cox, have read and hereby approve the
foregoing Agreement. In consideration of the Company's granting my spouse the
right to purchase the Shares as set forth in the Agreement, I hereby agree to be
bound irrevocably by the Agreement and further agree that any community property
or similar interest that I may have in the Shares shall hereby be similarly
bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with
respect to any amendment or exercise of any rights under the Agreement.
------------------------------------------
Spouse of Barry L. Cox
1.
<PAGE>
EXHIBIT B
PROMISSORY NOTE
$ __________________ _____________, California
_________________, __________
For value received, the undersigned promises to pay Quantum Effect
Design, Inc., a California corporation (the "Company"), at its principal office
the principal sum of $___________ with interest from the date hereof at a rate
of ________ % per annum, compounded semiannually, on the unpaid balance of such
principal sum. Such principal and interest shall be due and payable on
__________.
If the undersigned's employment or consulting relationship with the
Company is terminated for any reason, voluntarily or involuntarily, prior to
payment in full of this Note, this Note shall be immediately due and payable.
Principal and interest are payable in lawful money of the United States
of America. AMOUNTS DUE UNDER THIS NOTE MAY BE PREPAID AT ANY TIME WITHOUT
PREMIUM OR PENALTY.
Should suit be commenced to collect any sums due under this Note, such
sum as the Court may deem reasonable shall be added hereto as attorneys' fees.
The makers and endorsers have severally waived presentment for payment, protest,
notice of protest and notice of nonpayment of this Note.
This Note, which is full recourse, is secured by a pledge of certain
shares of Common Stock of the Company and is subject to the terms of a Pledge
and Security Agreement between the undersigned and the Company of even date
herewith.
---------------------------------------
Barry L. Cox
1.
<PAGE>
EXHIBIT C
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT (the "AGREEMENT") is entered into
this _________ day of _______________________ by and between QUANTUM EFFECT
DESIGN, INC., a California corporation (the "COMPANY") and Barry L. Cox
("PURCHASER").
RECITALS
In connection with Purchaser's exercise of an option to purchase certain
shares of the Company's Common Stock (the "SHARES") pursuant to a Stock
Option Agreement dated July 1, 1998 between Purchaser and the Company,
Purchaser is delivering a promissory note of even date herewith (the "NOTE")
in full or partial payment of the exercise price for the Shares. The company
requires that the Note be secured by a pledge of the Shares on the terms set
forth below.
AGREEMENT
In consideration of the Company's acceptance of the Note as full or
partial payment of the exercise price of the Shares, and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
parties hereto agree as follows:
28. The Note shall become payable in full upon the voluntary or
involuntary termination or cessation of employment of Purchaser with the
Company, for any reason, with or without cause (including death or
disability).
29. Purchaser shall deliver to the Secretary of the Company, or his or
her designee (hereinafter referred to as the "PLEDGE HOLDER"), all
certificates representing the Shares, together with an Assignment Separate
from Certificate in the form attached to this Agreement as ATTACHMENT A
executed by Purchaser and by Purchaser's spouse (if required for transfer),
in blank, for use in transferring all or a portion of the Shares to the
Company if, as and when required pursuant to this Agreement. In addition, if
Purchaser is married, Purchaser's spouse shall execute the signature page
attached to this Agreement.
30. As security for the payment of the Note and any renewal, extension
or modification of the Note, Purchaser hereby grants to the Company a
security interest in and pledges with and delivers to the Company Purchaser's
Shares (sometimes referred to herein as the "COLLATERAL").
31. In the event that Purchaser prepays all or a portion of the Note,
in accordance with the provisions thereof, Purchaser intends, unless written
notice to the contrary is delivered to the Pledge Holder, that the Shares
represented by the portion of the Note so repaid, including annual interest
thereon, shall continue to be so held by the Pledge Holder, to serve as
independent collateral for the outstanding portion of the Note for the
purpose of commencing the holding period set forth in Rule 144(d) promulgated
under the Securities Act of 1933, as amended (the "SECURITIES ACT").
1.
<PAGE>
32. In the event of any foreclosure of the security interest created by
this Agreement, the Company may sell the Shares at a private sale or may
repurchase the Shares itself. The parties agree that, prior to the
establishment of a public market for the Shares of the Company, the
securities laws affecting sale of the Shares make a public sale of the Shares
commercially unreasonable. The parties further agree that the repurchasing of
such Shares by the Company, or by any person to whom the Company may have
assigned its rights under this Agreement, is commercially reasonable if made
at a price determined by the Board of Directors in its discretion, fairly
exercised, representing what would be the Fair Market Value of the Shares
reduced by any limitation on transferability, whether due to the size of the
block of shares or the restrictions of applicable securities laws.
33. In the event of default in payment when due of any indebtedness
under the Note, the Company may elect then, or at any time thereafter, to
exercise all rights available to a secured party under the California Commercial
Code including the right to sell the Collateral at a private or public sale or
repurchase the Shares as provided above. The proceeds of any sale shall be
applied in the following order:
(a) To the extent necessary, proceeds shall be used to pay all
reasonable expenses of the Company in enforcing this Agreement and the Note,
including, without limitation, reasonable attorney's fees and legal expenses
incurred by the Company.
(b) To the extent necessary, proceeds shall be used to satisfy any
remaining indebtedness under Purchaser's Note.
(c) Any remaining proceeds shall be delivered to Purchaser.
34. Upon full payment by Purchaser of all amounts due under the Note,
Pledge Holder shall deliver to Purchaser all Shares in Pledge Holder's
possession belonging to Purchaser, and Pledge Holder shall thereupon be
discharged of all further obligations under this Agreement.
2.
<PAGE>
The parties have executed this Pledge and Security Agreement as of the
date first set forth above.
COMPANY:
QUANTUM EFFECT DESIGN, INC.
By:
---------------------------------------
Name:
------------------------------------
(print)
Title:
------------------------------------
Address: 3255-3 Scott Boulevard, Suite 200
Santa Clara, CA 95054
PURCHASER:
BARRY L. COX
------------------------------------------
(Signature)
------------------------------------------
(Print Name)
Address:
------------------------------------------
------------------------------------------
1.
<PAGE>
ATTACHMENT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Pledge and Security
Agreement between the undersigned ("PURCHASE") and Quantum Effect Design, Inc.
(the "COMPANY") dated ___________ (the "AGREEMENT"), Purchaser hereby sells,
assigns and transfers unto the Company ______________ (_______) shares of the
Common Stock of the Company, standing in Purchaser's name on the books of the
Company and represented by Certificate No. __, and hereby irrevocably appoints
______________ to transfer said stock on the books of the Company with full
power of substitution in the premises. THIS ASSIGNMENT MAY ONLY BE USED AS
AUTHORIZED BY THE AGREEMENT.
Dated:
-----------------------
Signature:
---------------------------------------
---------------------------------------
Spouse of (if applicable)
INSTRUCTION: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to perfect the security interest of
the Company pursuant to the Agreement.
1.
<PAGE>
QUANTUM EFFECT DESIGN, INC.
1997 STOCK OPTION PLAN
NOTICE OF STOCK OPTION GRANT
Howard Bailey
Address: __________________________
__________________________
__________________________
You have been granted an option to purchase Common Stock ("Common
Stock") of Quantum Effect Design, Inc. (the "Company") as follows:
Board Approval Date: April 27, 1998
Date of Grant June 1, 1998
Vesting Commencement Date: June 1, 1998
Exercise Price per Share: $0.75
Total Number of Shares Granted: 200,000
Total Exercise Price: $150,000.00
Type of Option: _X_ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: June 1, 2008
Vesting Schedule: This Option may be exercised, in
whole or in part, in accordance with
the following schedule: 1/4 of the
Shares subject to the Option shall
vest on the one year anniversary of
the Vesting Commencement Date and
1/48 of the remaining Shares subject
to the Option shall vest on the 1st
of each month thereafter.
Notwithstanding the foregoing, 50% of
the Shares subject to the Option
shall immediately vest and become
exercisable in the event of a merger,
consolidation or sale of
substantially all of the assets of
the Company, in each case the effect
of which is to transfer voting
control
1.
<PAGE>
of the Company, taking place
prior to June 1, 2000.
Termination Period: This Option may be exercised for
three (3) months after termination of
employment or consulting relationship
except as set out in Sections 6 and 7
of the Stock Option Agreement (but in
no event later than the Expiration
Date).
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and
governed by the terms and conditions of the Stock Option Plan and the Stock
Option Agreement, both of which are attached and made a part of this document.
HOWARD BAILEY QUANTUM DESIGN, INC.
/s/ Howard Bailey By: /s/ JP Walsh
- -------------------------------- ----------------------------------
Signature
JP Walsh, Director, HR
- -------------------------------- --------------------------------------
Print Name Print Name and Title
2.
<PAGE>
QUANTUM EFFECT DESIGN, INC.
1997 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
1. GRANT OF OPTION. Quantum Effect Design, Inc., a California
corporation (the "Company"), hereby grants to Howard Bailey ("Optionee"), an
option (the "Option") to purchase a total number of shares of Common Stock
(the "Shares") set forth in the Notice of Stock Option Grant, at the exercise
price per share set forth in the Notice of Stock Option Grant (the "Exercise
Price") subject to the terms, definitions and provisions of the 1997 Stock
Option Plan (the "Plan") adopted by the Company, which is incorporated herein
by reference. Unless otherwise defined herein, the terms defined in the Plan
shall have the same defined meanings in this Option.
If designated an Incentive Stock Option, this Option is intended to
qualify as an Incentive Stock Option as defined in Section 422 of the Code.
2. EXERCISE OF OPTION. This Option shall be exercisable during its
Term in accordance with the Vesting Schedule set out in the Notice of Stock
Option Grant and with the provisions of Section 9 of the Plan as follows:
(a) RIGHT TO EXERCISE.
(i) This Option may not be exercised for a fraction of a
share.
(ii) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 5, 6 and 7 below, subject to the limitation contained in Section
2(a)(i).
(iii) In no event may this Option be exercised after the
Expiration Date of this Option as set forth in the Notice of Stock Option
Grant.
(b) METHOD OF EXERCISE. This Option shall be exercisable by
execution and delivery of the Exercise Notice and Restricted Stock Purchase
Agreement attached hereto as EXHIBIT A (the "Exercise Agreement") or of any
other form of written notice approved for such purpose by the Company which
shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised, and such other
representations and agreements as to the holder's investment intent with
respect to such shares of Common Stock as may be required by the Company
pursuant to the provisions of the Plan. Such written notice shall be signed
by Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The written notice shall be accompanied by payment
of the Exercise Price. This Option shall be deemed to be exercised upon
receipt by the Company of such written notice accompanied by the Exercise
Price.
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of
applicable law and the requirements of
3.
<PAGE>
any stock exchange upon which the Shares may then be listed. Assuming such
compliance, for income tax purposes the Shares shall be considered
transferred to Optionee on the date on which the Option is exercised with
respect to such Shares.
3. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any
of the following, or a combination thereof, at the election of Optionee:
(a) cash;
(b) check;
(c) surrender of other shares of Common Stock of the Company which
(i) in the case of Shares acquired pursuant to the exercise of a Company
option, have been owned by Optionee for more than six months on the date of
surrender, and (ii) have a Fair Market Value on the date of surrender equal
to the Exercise Price of the Shares as to which the option is being exercised;
(d) if there is a public market for the Shares and they are
registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), delivery of a properly executed exercise notice together
with irrevocable instructions to a broker to deliver promptly to the Company
the amount of sale or loan proceeds required to pay the Exercise Price; or
(e) a promissory note in the form attached to this Agreement as
Exhibit B, or in any other form approved by the Company.
4. RESTRICTIONS ON EXERCISE. This Option may not be exercised until
such time as the Plan has been approved by the shareholders of the Company,
or if the issuance of such Shares upon such exercise or the method of payment
of consideration for such shares would constitute a violation of any
applicable federal or state securities or other law or regulation, including
any rule under Part 207 of Title 12 of the Code of Federal Regulations as
promulgated by the Federal Reserve Board. As a condition to the exercise of
this Option, the Company may require Optionee to make any representation and
warranty to the Company as may be required by any applicable law or
regulation.
5. TERMINATION OF RELATIONSHIP. In the event of termination of
Optionee's Continuous Status as an Employee or Consultant, Optionee may, to
the extent otherwise so entitled at the date of such termination (the
"Termination Date"), exercise this Option during the Termination Period set
forth in the Notice of Stock Option Grant. To the extent that Optionee was
not entitled to exercise this Option at such Termination Date, or if Optionee
does not exercise this option within the Termination Period, the Option shall
terminate.
6. DISABILITY OF OPTIONEE.
(a) Notwithstanding the provisions of Section 5 above, in the
event of termination of Optionee's Continuous Status as an Employee or
Consultant as a result of Optionee's total and permanent disability (as
defined in Section 22(e)(3) of the Code), Optionee may, but only within
twelve months from the Termination Date (but in no event later than the
Expiration Date set forth in the Notice of Stock Option Grant), exercise this
Option to the extent
4.
<PAGE>
Optionee was entitled to exercise it as of such Termination Date. To the
extent that Optionee was not entitled to exercise the Option as of the
Termination Date, or if Optionee does not exercise such Option (to the extent
so entitled) within the time specified in this Section 6(a), the Option shall
terminate.
(b) Notwithstanding the provisions of Section 5 above, in the
event of termination of Optionee's consulting relationship or Continuous
Status as an Employee as a result of disability not constituting a total and
permanent disability (as set forth in Section 22(e)(3) of the Code), Optionee
may, but only within six months from the Termination Date (but in no event
later than the Expiration Date set forth in the Notice of Stock Option
Grant), exercise the Option to the extent Optionee was entitled to exercise
it as of such Termination Date; provided, however, that if this is an
Incentive Stock Option and Optionee fails to exercise this Incentive Stock
Option within three months from the Termination Date, this Option will cease
to qualify as an Incentive Stock Option (as defined in Section 422 of the
Code) and Optionee will be treated for federal income tax purposes as having
received ordinary income at the time of such exercise in an amount generally
measured by the difference between the Exercise Price for the Shares and the
Fair Market Value of the Shares on the date of exercise. To the extent that
Optionee was not entitled to exercise the Option at the Termination Date, or
if Optionee does not exercise such Option to the extent so entitled within
the time specified in this Section 6(b), the Option shall terminate.
7. DEATH OF OPTIONEE. In the event of the death of Optionee (a)
during the Term of this Option and while an Employee or Consultant of the
Company and having been in Continuous Status as an Employee or Consultant
since the date of grant of the Option, or (b) within 30 days after Optionee's
Termination Date, the Option may be exercised at any time within six months
following the date of death (but in no event later than the Expiration Date
set forth in the Notice of Stock Option Grant), by 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 Termination Date.
8. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by him
or her. The terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of Optionee.
9. TERM OF OPTION. This Option may be exercised only within the Term
set forth in the Notice of Stock Option Grant, subject to the limitations set
forth in Section 7 of the Plan.
10. TAX CONSEQUENCES. Set forth below is a brief summary as of the
date of this Option of certain of the federal and California tax consequences
of exercise of this Option and disposition of the Shares under the laws in
effect as of the Date of Grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND
THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A
TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) EXERCISE OF INCENTIVE STOCK OPTION. If this Option qualifies
as an Incentive Stock Option, there will be no regular federal or California
income tax liability upon
5.
<PAGE>
the exercise of the Option, although the excess, if any, of the Fair Market
Value of the Shares on the date of exercise over the Exercise Price will be
treated as an adjustment to the alternative minimum tax for federal tax
purposes and may subject Optionee to the alternative minimum tax in the year
of exercise.
(b) EXERCISE OF NONSTATUTORY STOCK OPTION. If this Option does
not qualify as an Incentive Stock Option, there may be a regular federal
income tax liability and a California income tax liability upon the exercise
of the Option. Optionee will be treated as having received compensation
income (taxable at ordinary income tax rates) equal to the excess, if any, of
the Fair Market Value of the Shares on the date of exercise over the Exercise
Price. If Optionee is an employee, the Company will be required to withhold
from Optionee's compensation or collect from Optionee and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.
(c) DISPOSITION OF SHARES. In the case of a Nonstatutory Stock
Option, if Shares are held for at least one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for
federal and California income tax purposes. In the case of an Incentive Stock
Option, if Shares transferred pursuant to the Option are held for at least
one year after exercise and are disposed of at least two years after the Date
of Grant, any gain realized on disposition of the Shares will also be treated
as long-term capital gain for federal and California income tax purposes. In
either case, the long-term capital gain will be taxed for federal income tax
and alternative minimum tax purposes at a maximum rate of 28% if the Shares
are held more than one year but less than 18 months after exercise and at 20%
if the Shares are held more than 18 months after exercise. If Shares
purchased under an Incentive Stock Option are disposed of within one year
after exercise or within two years after the Date of Grant, any gain realized
on such disposition will be treated as compensation income (taxable at
ordinary income rates) to the extent of the difference between the Exercise
Price and the lesser of(i) the Fair Market Value of the Shares on the date of
exercise, or (ii) the sale price of the Shares.
(d) NOTICE OF DISQUALIFYING DISPOSITION OF INCENTIVE STOCK OPTION
SHARES. If the Option granted to Optionee herein is an Incentive Stock
Option, and if Optionee sells or otherwise disposes of any of the Shares
acquired pursuant to the Incentive Stock Option on or before the later of (i)
the date two years after the Date of Grant, or (ii) the date one year after
the date of exercise, Optionee shall immediately notify the Company in
writing of such disposition. Optionee acknowledges and agrees that he or she
may be subject to income tax withholding by the Company on the compensation
income recognized by Optionee from the early disposition by payment in cash
or out of the current earnings paid to Optionee.
11. WITHHOLDING TAX OBLIGATIONS. Optionee understands that, upon
exercising a Nonstatutory Stock Option, he or she will recognize income for
tax purposes in an amount equal to the excess of the then Fair Market Value
of the Shares over the Exercise Price. However, the timing of this income
recognition may be deferred for up to six months if Optionee is subject to
Section 16 of the Exchange Act. If Optionee is an employee, the Company will
be required to withhold from Optionee's compensation, or collect from
Optionee and pay to the applicable taxing authorities an amount equal to a
percentage of this compensation income. Additionally, Optionee may at some
point be required to satisfy tax withholding obligations with respect to the
disqualifying disposition of an Incentive Stock Option. Optionee shall
satisfy his or her tax
6.
<PAGE>
withholding obligation arising upon the exercise of this Option by one or
some combination of the following methods: (a) by cash payment, (b) out of
Optionee's current compensation, (c) if permitted by the Administrator, in
its discretion, by surrendering to the Company Shares which (i) in the case
of Shares previously acquired from the Company, have been owned by Optionee
for more than six months on the date of surrender, and (ii) have a Fair
Market Value on the date of surrender equal to or greater than Optionee's
marginal tax rate times the ordinary income recognized, or (d) by electing to
have the Company withhold from the Shares to be issued upon exercise of the
Option that number of Shares having a Fair Market Value equal to the amount
required to be withheld. For this purpose, the Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax
to be withheld is to be determined (the "Tax Date").
If Optionee is subject to Section 16 of the Exchange Act (an "Insider"),
any surrender of previously owned Shares to satisfy tax withholding
obligations arising upon exercise of this Option must comply with the
applicable provisions of Rule 16b-3 promulgated under the Exchange Act ("Rule
16b-3").
All elections by Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax
Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made; and
(c) all elections shall be subject to the consent or disapproval
of the Administrator.
12. MARKET STANDOFF AGREEMENT. In connection with the initial public
offering of the Company's securities and upon request of the Company or the
underwriters managing such underwritten offering of the Company's securities,
Optionee hereby agrees not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Shares (other than
those included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time
(not to exceed 180 days) from the effective date of such registration as may
be requested by the Company or such managing underwriters and to execute an
agreement reflecting the foregoing as may be requested by the underwriters at
the time of the Company's initial public offering.
[Signature Page Follows]
7.
<PAGE>
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall constitute
one document.
QUANTUM EFFECT DESIGN, INC.
By: __________________________________
______________________________________
(Print name and title)
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE OPTION HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT OR CONSULTANCY AT
THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED
THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES
AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION
PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE
ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE
COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY
TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that
he or she is familiar with the terms and provisions thereof, and hereby
accepts this Option subject to all of the terms and provisions thereof.
Optionee has reviewed the Plan and this Option in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
and fully understands all provisions of the Option. Optionee hereby agrees
to accept as binding, conclusive and final all decisions or interpretations
of the Administrator upon any questions arising under the Plan or this Option.
Dated:____________________________ ______________________________________
Howard Bailey
8.
<PAGE>
EXHIBIT A
QUANTUM EFFECT DESIGN, INC.
1997 STOCK OPTION PLAN
EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT
This Agreement ("Agreement") is made as of __________, by and between
Quantum Effect Design, Inc., a California corporation (the "Company"), and
Howard Bailey ("Purchaser"). To the extent any capitalized terms used in
this Agreement are not defined, they shall have the meaning ascribed to them
in the 1997 Stock Option Plan.
1. EXERCISE OF OPTION. Subject to the terms and conditions hereof,
Purchaser hereby elects to exercise his or her option to purchase shares of
the Common Stock (the "Shares") of the Company under and pursuant to the
Company's 1997 Stock Option Plan (the "Plan") and the Stock Option Agreement
dated June 1, 1998 (the "Option Agreement"). The purchase price for the
Shares shall be $0.75 per Share for a total purchase price of $__________.
The term "Shares" refers to the purchased Shares and all securities received
in replacement of the Shares or as stock dividends or splits, all securities
received in replacement of the Shares in a recapitalization, merger,
reorganization, exchange or the like, and all new, substituted or additional
securities or other properties to which Purchaser is entitled by reason of
Purchaser's ownership of the Shares.
2. TIME AND PLACE OF EXERCISE. The purchase and sale of the Shares
under this Agreement shall occur at the principal office of the Company
simultaneously with the execution and delivery of this Agreement in
accordance with the provisions of Section 2(b) of the Option Agreement. On
such date, the Company will deliver to Purchaser a certificate representing
the Shares to be purchased by Purchaser (which shall be issued in Purchaser's
name) against payment of the exercise price therefor by Purchaser by (a)
check made payable to the Company, (b) cancellation of indebtedness of the
Company to Purchaser, (c) delivery of shares of the Common Stock of the
Company in accordance with Section 3 of the Option Agreement, (d) delivery of
a promissory note in the form attached as Exhibit B to the Option Agreement
(or in any form acceptable to the Company), or (e) a combination of the
foregoing. If Purchaser delivers a promissory note as partial or full
payment of the purchase price, Purchaser will also deliver a Pledge and
Security Agreement in the form attached as Exhibit C to the Option Agreement
(or in any form acceptable to the Company).
3. LIMITATIONS ON TRANSFER. In addition to any other limitation on
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares except in compliance with
the provisions below and applicable securities laws.
(a) RIGHT OF FIRST REFUSAL. Before any Shares held by Purchaser
or any transferee of Purchaser (either being sometimes referred to herein as
the "Holder") may be sold or otherwise transferred (including transfer by
gift or operation of law), the Company or its assignee(s) shall have a right
of first refusal to purchase the Shares on the terms and conditions set forth
in this Section 3(a) (the "Right of First Refusal").
1.
<PAGE>
(i) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares
shall deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii)
the name of each proposed purchaser or other transferee ("Proposed
Transferee"); (iii) the number of Shares to be transferred to each Proposed
Transferee; and (iv) the terms and conditions of each proposed sale or
transfer. The Holder shall offer the Shares at the same price (the "Offered
Price") and upon the same terms (or terms as similar as reasonably possible)
to the Company or its assignee(s).
(ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within
30 days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (iii) below.
(iii) PURCHASE PRICE. The purchase price ("Purchase
Price") for the Shares purchased by the Company or its assignee(s) under this
Section 3(a) shall be the Offered Price. If the Offered Price includes
consideration other than cash, the cash equivalent value of the non-cash
consideration shall be determined by the Board of Directors of the Company in
good faith.
(iv) PAYMENT. Payment of the Purchase Price shall be made,
at the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the
Holder to the Company (or, in the case of repurchase by an assignee, to the
assignee), or by any combination thereof within 30 days after receipt of the
Notice or in the manner and at the times set forth in the Notice.
(v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares
proposed in the Notice to be transferred to a given Proposed Transferee are
not purchased by the Company and/or its assignee(s) as provided in this
Section 3(a), then the Holder may sell or otherwise transfer such Shares to
that Proposed Transferee at the Offered Price or at a higher price, provided
that such sale or other transfer is consummated within 60 days after the date
of the Notice and provided further that any such sale or other transfer is
effected in accordance with any applicable securities laws and the Proposed
Transferee agrees in writing that the provisions of this Section 3 shall
continue to apply to the Shares in the hands of such Proposed Transferee. If
the Shares described in the Notice are not transferred to the Proposed
Transferee within such period, or if the Holder proposes to change the price
or other terms to make them more favorable to the Proposed Transferee, a new
Notice shall be given to the Company, and the Company and/or its assignees
shall again be offered the Right of First Refusal before any Shares held by
the Holder may be sold or otherwise transferred.
(vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the
contrary contained in this Section 3(a) notwithstanding, the transfer of any
or all of the Shares during Purchaser's lifetime or on Purchaser's death by
will or intestacy to Purchaser's Immediate Family (as defined below) or a
trust for the benefit of Purchaser's Immediate Family shall be exempt from
the provisions of this Section 3(a). "Immediate Family" as used herein shall
mean spouse, lineal descendant or antecedent, father, mother, brother or
sister. In such case, the transferee or other recipient shall receive and
hold the Shares so transferred subject to the
2.
<PAGE>
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section 3.
(b) INVOLUNTARY TRANSFER.
(i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY TRANSFER.
In the event, at any time after the date of this Agreement, of any transfer
by operation of law or other involuntary transfer (including death or
divorce, but excluding a transfer to Immediate Family as set forth in Section
3(a)(vi) above) of all or a portion of the Shares by the record holder
thereof, the Company shall have an option to purchase all of the Shares
transferred at the greater of the purchase price paid by Purchaser pursuant
to this Agreement or the Fair Market Value of the Shares on the date of
transfer. Upon such a transfer, the person acquiring the Shares shall
promptly notify the Secretary of the Company of such transfer. The right to
purchase such Shares shall be provided to the Company for a period of 30 days
following receipt by the Company of written notice by the person acquiring
the Shares.
(ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to any
stock to be transferred pursuant to Section 3(b)(i), the price per Share
shall be a price set by the Board of Directors of the Company that will
reflect the current value of the stock in terms of present earnings and
future prospects of the Company. The Company shall notify Purchaser or his
or her executor of the price so determined within 30 days after receipt by it
of written notice of the transfer or proposed transfer of Shares. However,
if the Purchaser does not agree with the valuation as determined by the Board
of Directors of the Company, the Purchaser shall be entitled to have the
valuation determined by an independent appraiser to be mutually agreed upon
by the Company and the Purchaser and whose fees shall be borne equally by the
Company and the Purchaser.
(c) ASSIGNMENT. The right of the Company to purchase any part of
the Shares may be assigned in whole or in part to any shareholder or
shareholders of the Company or other persons or organizations; provided,
however, that an assignee, other than a corporation that is the Parent or a
100% owned Subsidiary of the Company, must pay the Company, upon assignment
of such right, cash equal to the difference between the original purchase
price and Fair Market Value, if the original purchase price is less than the
Fair Market Value of the Shares subject to the assignment.
(d) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of
Shares or any interest therein will receive and hold such Shares or interest
subject to the provisions of this Agreement. Any sale or transfer of the
Company's Shares shall be void unless the provisions of this Agreement are
satisfied.
(e) TERMINATION OF RIGHTS. The Right of First Refusal granted the
Company by Section 3(a) above and the option to repurchase the Shares in the
event of an involuntary transfer granted the Company by Section 3(b) above
shall terminate upon the first sale of Common Stock of the Company to the
general public pursuant to a registration statement filed with and declared
effective by the Securities and Exchange Commission under the Securities Act
of 1933, as amended (the "Securities Act"). Upon termination of the Right of
First Refusal described in Section 3(a) above, a new certificate or
certificates representing the Shares not
3.
<PAGE>
repurchased shall be issued, on request, without the legend referred to in
Section 6(a)(ii) herein and delivered to Purchaser.
4. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the securities.
Purchaser is purchasing these securities for investment for his or her own
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act.
(b) Purchaser understands that the securities have not been
registered under the Securities Act by reason of a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Purchaser's investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, Purchaser must hold the Shares indefinitely unless
they are registered with the Securities and Exchange Commission and qualified
by state authorities, or an exemption from such registration and
qualification requirements is available. Purchaser acknowledges that the
Company has no obligation to register or qualify the Shares for resale.
Purchaser further acknowledges that if an exemption from registration or
qualification is available, it may be conditioned on various requirements
including, but not limited to, the time and manner of sale, the holding
period for the Shares, and requirements relating to the Company which are
outside of the Purchaser's control, and which the Company is under no
obligation and may not be able to satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the
Shares. Purchaser represents that Purchaser has consulted any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company
for any tax advice.
5. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. The certificate or certificates representing the
Shares shall bear the following legends (as well as any legends required by
applicable state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE, DISTRIBUTION OR OTHER DISPOSITION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
4.
<PAGE>
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE
COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE COMPANY.
(iii) IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR. WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE
STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
Purchaser understands that transfer of the Shares may be restricted by
Section 260.141.11 of the Rules of the California Corporations Commissioner,
a copy of which is attached to this Agreement.
(b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make
appropriate notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
6. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in
any manner whatsoever the right or power of the Company, or a Parent or
Subsidiary of the Company, to terminate Purchaser's employment or consulting
relationship, for any reason, with or without cause.
7. MARKET STAND-OFF AGREEMENT. In connection with the initial public
offering of the Company's securities and upon request of the Company or the
underwriters managing such underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option
for the purchase of, or otherwise dispose of any Shares (other than those
included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time
(not to exceed 180 days) from the effective date of such registration as may
be requested by the Company or such managing underwriters and to execute an
agreement reflecting the foregoing as may be requested by the underwriters at
the time of the Company's initial public offering.
8. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State
of California, without giving effect to principles of conflicts of law.
5.
<PAGE>
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the
parties to this Agreement. The failure by either party to enforce any rights
under this Agreement shall not be construed as a waiver of any rights of such
party.
(c) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith. In the event that the parties
cannot reach a mutually agreeable and enforceable replacement for such
provision, then (i) such provision shall be excluded from this Agreement,
(ii) the balance of the Agreement shall be interpreted as if such provision
were so excluded and (iii) the balance of the Agreement shall be enforceable
in accordance with its terms.
(d) CONSTRUCTION. This Agreement is the result of negotiations
between and has been reviewed by each of the parties hereto and their
respective counsel, if any; accordingly, this Agreement shall be deemed to be
the product of all of the parties hereto, and no ambiguity shall be construed
in favor of or against any one of the parties hereto.
(e) NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient when delivered personally
or sent by telegram or fax or 48 hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(f) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) SUCCESSORS AND ASSIGNS. The rights and benefits of this
Agreement shall inure to the benefit of, and be enforceable by the Company's
successors and assigns. The rights and obligations of Purchaser under this
Agreement may only be assigned with the prior written consent of the Company.
(h) CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED
WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE
ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE
SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR
25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS
AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED,
UNLESS THE SALE IS SO EXEMPT.
[Signature Page Follows]
6.
<PAGE>
The parties have executed this Exercise Notice and Restricted Stock
Purchase Agreement as of the date first set forth above.
COMPANY:
QUANTUM EFFECT DESIGN, INC.
By: /s/ JP Walsh
----------------------------------
Name: JP Walsh
--------------------------------
(print)
Title: Director, HR
-------------------------------
Address: 3255-3 Scott Boulevard, Suite 200
Santa Clara, CA 95054
PURCHASER:
HOWARD BAILEY
/s/ Howard Bailey
-------------------------------------
(Signature)
_____________________________________
(Print Name)
Address:
_____________________________________
_____________________________________
I, _______________, spouse of Howard Bailey, have read and hereby
approve the foregoing Agreement. In consideration of the Company's granting
my spouse the right to purchase the Shares as set forth in the Agreement, I
hereby agree to be bound irrevocably by the Agreement and further agree that
any community property or similar interest that I may have in the Shares
shall hereby be similarly bound by the Agreement. I hereby appoint my spouse
as my attorney-in-fact with respect to any amendment or exercise of any
rights under the Agreement.
_____________________________________
Spouse of Howard Bailey
7.
<PAGE>
STATE OF CALIFORNIA -- CALIFORNIA ADMINISTRATIVE CODE
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: RESTRICTION ON TRANSFER.
(a) The issuer of any security upon which a restriction on transfer
has been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall
cause a copy of this section to be delivered to each issuee or transferee of
such security at the time the certificate evidencing the security is
delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to
consummate a sale or transfer of such security, or any interest therein,
without the prior written consent of the Commissioner (until this condition
is removed pursuant to Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section
25102 of the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or
any custodian or trustee for the account of the transferor or the
transferor's ancestors, descendants, or spouse; or to a transferee by a
trustee or custodian for the account of the transferee or the transferee's
ancestors, descendants or spouse;
(5) to holders of securities of the same class of the same
issuer;
(6) (6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code
(either acting as such or as a finder) to a resident of a foreign state,
territory or country who is neither domiciled in this state to the knowledge
of the broker-dealer, nor actually present in this state if the sale of such
securities is not in violation of any securities law of the foreign state,
territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other
lien given by the purchaser to the seller upon a sale of the security for
which the Commissioner's written consent is obtained or under this rule not
required;
(10) by way of a sale qualified under Sections 25111, 25112,
25113 or 25121 of the Code, of the securities to be transferred, provided
that no order under Section 25140 or Subdivision (a) of Section 25143 is in
effect with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 2511 I,
25112 or 25113 of the Code, provided that no order under Section 25140 or
Subdivision (a) of Section 25143 is in effect with respect to such
qualification;
(13) between residents of foreign states, territories or
countries who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed
Property Law or to the administrator of the unclaimed property law of another
state;
(15) by the State Controller pursuant to the Unclaimed
Property Law or by the administrator of the unclaimed property law of another
state if, in either such case, such person (i) discloses to potential
purchasers at the sale that transfer of the securities is restricted under
this rule, (ii) delivers to each purchaser a copy of this rule, and (iii)
advises the Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer
does not involve a change in the beneficial ownership of the securities; or
(17) by way of an offer and sale of outstanding securities in
an issuer transaction that is subject to the qualification requirement of
Section 25110 of the Code but exempt from that qualification requirement by
subdivision (f) of Section 25102;
provided that any such transfer is on the condition that any certificate
evidencing the security issued to such transferee shall contain the legend
required by this section.
(c) The certificates representing all such securities subject to
such a restriction on transfer, whether upon initial issuance or upon any
transfer thereof, shall bear on their face a legend, prominently stamped or
printed thereon in capital letters of not less than 10-point size, reading as
follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT
THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE
STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
<PAGE>
EXHIBIT B
PROMISSORY NOTE
$_________ __________, California
_______________, _____
For value received, the undersigned promises to pay Quantum Effect
Design, Inc., a California corporation (the "Company"), at its principal
office the principal sum of $__________ with interest from the date hereof at
a rate of _____% per annum, compounded semiannually, on the unpaid balance of
such principal sum. Such principal and interest shall be due and payable on
__________.
If the undersigned's employment or consulting relationship with the
Company is terminated for any reason, voluntarily or involuntarily, prior to
payment in full of this Note, this Note shall be immediately due and payable.
Principal and interest are payable in lawful money of the United States
of America. AMOUNTS DUE UNDER THIS NOTE MAY BE PREPAID AT ANY TIME WITHOUT
PREMIUM OR PENALTY.
Should suit be commenced to collect any sums due under this Note, such
sum as the Court may deem reasonable shall be added hereto as attorneys'
fees. The makers and endorsers have severally waived presentment for
payment, protest, notice of protest and notice of nonpayment of this Note.
This Note, which is full recourse, is secured by a pledge of certain
shares of Common Stock of the Company and is subject to the terms of a Pledge
and Security Agreement between the undersigned and the Company of even date
herewith.
______________________________________
Howard Bailey
<PAGE>
EXHIBIT C
PLEDGE AND SECURITY AGREEMENT
This Pledge and Security Agreement (the "Agreement") is entered into
this _____ day of _______________, by and between Quantum Effect Design,
Inc., a California corporation (the "Company") and Howard Bailey
("Purchaser").
RECITALS
In connection with Purchaser's exercise of an option to purchase certain
shares of the Company's Common Stock (the "Shares") pursuant to a Stock
Option Agreement dated June 1, 1998 between Purchaser and the Company,
Purchaser is delivering a promissory note of even date herewith (the "Note")
in full or partial payment of the exercise price for the Shares. The company
requires that the Note be secured by a pledge of the Shares on the terms set
forth below.
AGREEMENT
In consideration of the Company's acceptance of the Note as full or
partial payment of the exercise price of the Shares, and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. The Note shall become payable in full upon the voluntary or
involuntary termination or cessation of employment of Purchaser with the
Company, for any reason, with or without cause (including death or
disability).
2. Purchaser shall deliver to the Secretary of the Company, or his or
her designee (hereinafter referred to as the "Pledge Holder"), all
certificates representing the Shares, together with an Assignment Separate
from Certificate in the form attached to this Agreement as ATTACHMENT A
executed by Purchaser and by Purchaser's spouse (if required for transfer),
in blank, for use in transferring all or a portion of the Shares to the
Company if, as and when required pursuant to this Agreement. In addition, if
Purchaser is married, Purchaser's spouse shall execute the signature page
attached to this Agreement.
3. As security for the payment of the Note and any renewal, extension
or modification of the Note, Purchaser hereby grants to the Company a
security interest in and pledges with and delivers to the Company Purchaser's
Shares (sometimes referred to herein as the "Collateral").
4. In the event that Purchaser prepays all or a portion of the Note,
in accordance with the provisions thereof, Purchaser intends, unless written
notice to the contrary is delivered to the Pledge Holder, that the Shares
represented by the portion of the Note so repaid, including annual interest
thereon, shall continue to be so held by the Pledge Holder, to serve as
independent collateral for the outstanding portion of the Note for the
purpose of commencing the holding period set forth in Rule 144(d) promulgated
under the Securities Act of 1933, as amended (the "Securities Act").
<PAGE>
5. In the event of any foreclosure of the security interest created by
this Agreement, the Company may sell the Shares at a private sale or may
repurchase the Shares itself. The parties agree that, prior to the
establishment of a public market for the Shares of the Company, the
securities laws affecting sale of the Shares make a public sale of the Shares
commercially unreasonable. The parties further agree that the repurchasing
of such Shines by the Company, or by any person to whom the Company may have
assigned its rights under this Agreement, is commercially reasonable if made
fit a price determined by the Board of Directors in its discretion, fairly
exercised, representing what would be the Fair Market Value of the Shares
reduced by any limitation on transferability, whether due to the size of the
block of shares or the restrictions of applicable securities laws.
6. In the event of default in payment when due of any indebtedness
under the Note, the Company may elect then, or at any time thereafter, to
exercise all rights available to a secured party under the California
Commercial Code including the right to sell the Collateral at a private or
public sale or repurchase the Shares as provided above. The proceeds of any
sale shall be applied in the following order:
(a) To the extent necessary, proceeds shall be used to pay all
reasonable expenses of the Company in enforcing this Agreement and the Note,
including, without limitation, reasonable attorney's fees and legal expenses
incurred by the Company.
(b) To the extent necessary, proceeds shall be used to satisfy any
remaining indebtedness under Purchaser's Note.
(c) Any remaining proceeds shall be delivered to Purchaser.
7. Upon full payment by Purchaser of all amounts due under the Note,
Pledge Holder shall deliver to Purchaser all Shares in Pledge Holder's
possession belonging to Purchaser, and Pledge Holder shall thereupon be
discharged of all further obligations under this Agreement.
2.
<PAGE>
The parties have executed this Pledge and Security Agreement as of the
date first set forth above.
COMPANY:
QUANTUM EFFECT DESIGN, INC.
By:__________________________________
Name:________________________________
(print)
Title:_______________________________
Address: 3255-3 Scott Boulevard, Suite 200
Santa Clara, CA 95054
PURCHASER:
HOWARD BAILEY
_____________________________________
(Signature)
_____________________________________
(Print Name)
Address:
_____________________________________
_____________________________________
3.
<PAGE>
ATTACHMENT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Pledge and Security
Agreement between the undersigned ("Purchaser") and Quantum Effect Design,
Inc. (the "Company") dated _______________ (the "Agreement"), Purchaser
hereby sells, assigns and transfers unto the Company _______________
(_______) shares of the Common Stock of the Company, standing in Purchaser's
name on the books of the Company and represented by Certificate No. ___, and
hereby irrevocably appoints ____________________ to transfer said stock on
the books of the Company with full power of substitution in the premises.
THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT.
Dated:_________________________
Signature:
__________________________________
__________________________________
Spouse of (if applicable)
Instruction: Please do not fill in any blanks other than the signature
line. The purpose of this assignment is to perfect the security interest of
the Company pursuant to the Agreement.
4.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated August 11, 1999, except
as to Note 11 which is as of September 1, 1999, relating to the financial
statements of Quantum Effect Devices, Inc., which appears in such Prospectus. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
PricewaterhouseCoopers, LLP
San Jose, California
September 9, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 1,442
<SECURITIES> 16,023
<RECEIVABLES> 4,017
<ALLOWANCES> 300
<INVENTORY> 2,122
<CURRENT-ASSETS> 26,072
<PP&E> 7,293
<DEPRECIATION> 5,486
<TOTAL-ASSETS> 27,879
<CURRENT-LIABILITIES> 7,898
<BONDS> 0
0
14
<COMMON> 9
<OTHER-SE> 17,583
<TOTAL-LIABILITY-AND-EQUITY> 27,879
<SALES> 10,937
<TOTAL-REVENUES> 15,362
<CGS> 8,513
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 18,594
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 496
<INCOME-PRETAX> (11,769)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,769)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,769)
<EPS-BASIC> (1.45)
<EPS-DILUTED> (1.45)
</TABLE>
