<PAGE>
As filed with the Securities and Exchange Commission on October 14, 1999.
Registration No. 333-86591
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
FORM S-1
AMENDMENT NO. 1
to
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
VIRATA CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware No. 3674 77-0521696
(State of Incorporation) (Primary Standard Industrial (IRS employer
Classification Code Number) identification number)
</TABLE>
---------------
2933 Bunker Hill Lane, Suite 201
Santa Clara, California 95054
(408) 566-1000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
Andrew Vought
Chief Financial Officer
2933 Bunker Hill Lane, Suite 201
Santa Clara, California 95054
(408) 566-1000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
Douglas D. Smith Nora L. Gibson
Gibson, Dunn & Crutcher LLP Brobeck, Phleger & Harrison LLP
One Montgomery Street, Telesis Tower One Market, Spear Street Tower
San Francisco, California 94104 San Francisco, California 94105
(415) 393-8200 (415) 442-0900
</TABLE>
---------------
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, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement of the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
<CAPTION>
Proposed Maximum
Title of Each Class of Aggregate Amount Of
Securities to be Registered Offering Price(1) Registration Fee(2)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.001 par value.................. $57,500,000 $16,000
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
(1)Estimated solely for purposes of calculating the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act of 1933.
(2)$13,900 was paid at time of the initial filing of this Registration
Statement.
---------------
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 state that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained 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 it is not soliciting +
+an offer to buy these securities in any state where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 14, 1999
5,000,000 Shares
[LOGO OF VIRATA]
VIRATA CORPORATION
Common Stock
--------
Prior to this offering, there has been no public market for our common stock.
The initial public offering price is expected to be between $9.00 and $11.00
per share. We have applied to have our common stock approved for listing on The
Nasdaq Stock Market's National Market under the symbol "VRTA."
The underwriters have an option to purchase a maximum of 750,000 additional
shares to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" on page 8.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Virata
------------- ------------- -------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
Warburg Dillon Read LLC
Thomas Weisel Partners LLC
The date of this prospectus is , 1999.
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 8
Special Note Regarding Forward Looking Statements........................ 21
Use Of Proceeds.......................................................... 21
Dividend Policy.......................................................... 21
Capitalization........................................................... 22
Dilution................................................................. 23
Selected Consolidated Financial Data..................................... 24
Management's Discussion And Analysis Of Financial Condition And Results
Of Operations........................................................... 26
Business................................................................. 42
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management................................................................. 55
Certain Transactions....................................................... 63
Principal Stockholders..................................................... 68
Description Of Capital Stock............................................... 70
Certain Provisions In Our Certificate Of Incorporation And Bylaws.......... 72
Shares Eligible For Future Sale............................................ 74
Underwriting............................................................... 75
Notice To Canadian Residents............................................... 78
Legal Matters.............................................................. 79
Experts.................................................................... 79
Additional Information..................................................... 79
Index To Consolidated Financial Statements................................. F-1
</TABLE>
------------
You should rely only on the information contained in this document. We have
not authorized anyone to provide you with information that is different. This
document may only be used where it is legal to sell these securities. The
information in this document may only be accurate on the date of this
document.
Virata(R), ATMOS(R) and ATOM(R) are registered trademarks of Virata.
ISOS(TM), Proton(TM), Hydrogen(TM), Helium(TM), Lithium(TM) and Beryllium(TM)
are our trademarks and may be subject of pending trademark applications. This
prospectus also makes reference to trademarks of other companies.
Dealer Prospectus Delivery Obligation
Until , 1999 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
3
<PAGE>
PROSPECTUS SUMMARY
This following summary highlights basic information about us and this
offering contained more fully elsewhere in this prospectus. Because it is a
summary, it does not contain all of the information that you should consider
before investing. You should read this entire prospectus carefully, including
the section entitled "Risk Factors" and the financial statements and the
related notes to those statements included in this prospectus. This prospectus
contains forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from those anticipated in the forward-
looking statements as a result of factors described under the heading "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" as well as discussions elsewhere in this
prospectus.
Virata Corporation
Virata provides communications processors combined with integrated software
modules to manufacturers of equipment utilizing digital subscriber line, or
DSL, technologies. These "integrated software on silicon" product solutions
enable our customers to develop a diverse range of DSL equipment, including
modems, gateways and routers targeted at the voice and high-speed data network
access, or broadband, market. We believe our systems expertise, products and
support services enable DSL equipment manufacturers to simplify product
development, reduce the time it takes for products to reach the market and
focus resources on product differentiation and enhancement.
Significant growth in demand for broadband access is being driven by
consumers and businesses who find current dial-up Internet access too slow and
services based on existing high-speed technologies, such as frame relay or
T1/E1, too expensive. By contrast, DSL technologies enable service providers to
offer a wide range of affordable broadband services using the existing copper
wire telephone line infrastructure.
To meet the demands of the rapidly growing DSL market, equipment
manufacturers encounter a number of challenges, including evolving technical
standards, an expanding range of feature expectations and shorter product life-
cycles. In response to these challenges, equipment manufacturers are
increasingly relying upon third party specialists to supply key technology
components, including semiconductors and software. However, combining these
individual elements can be a complex, costly and time-consuming task.
Our integrated products replace numerous software elements and
semiconductors that would otherwise have to be obtained from multiple vendors
and then integrated and tested. Our products meet applicable DSL standards and
are based on a flexible design that:
. simplifies the addition of features;
. can be used with a range of third party physical layer transceivers,
which are the other primary semiconductor components required for
communications equipment; and
. delivers the required functionality and performance at a compelling
price.
By adopting our solutions, our customers enjoy numerous benefits including:
. faster time-to-market;
. reduced product cost;
. opportunity to focus their engineering resources on product
differentiation and enhancement;
. ability to design multiple products using different subsets of our
modular software; and
. re-use of software extensions they develop on future generations of
their products.
4
<PAGE>
Our objective is to be the leading supplier of communications processors and
integrated software to manufacturers of voice and high-speed data network
access equipment. We intend to achieve this objective by:
. initially focusing on DSL markets;
. leveraging our flexible semiconductor and software designs to introduce
an expanding range of communications processors and software modules;
. licensing our software to all our customers; and
. pursuing strategic acquisitions.
We outsource the manufacturing of our semiconductors, which allows us to
focus our resources on the design, development and marketing of our products.
To date we have licensed our software to 27 companies. These customers have
developed, or are developing, 73 designs of which 27 are currently shipping.
Our largest customers in terms of revenues include Orckit Communications,
Com21, Netopia and Westell Technologies. In July 1998, we completed the
acquisition of RSA Communications, our first strategic acquisition.
Our commercial, financial and operations headquarters are in Santa Clara,
California. Research and development facilities and sales offices are located
in Raleigh, North Carolina, and Cambridge, England. The address of our
principal executive office is 2933 Bunker Hill Lane, Suite 201, Santa Clara,
California 95054 where the telephone number is (408) 566-1000. Our Internet
address on the worldwide web is http://www.virata.com. Information contained on
our website does not constitute part of this prospectus.
5
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by us............ 5,000,000 shares
Common stock to be outstanding after
the offering......................... 19,472,161 shares
Use of proceeds....................... We intend to use the net proceeds of
this offering primarily for working
capital and general corporate
purposes, including expenditures for
research and development of new
products and sales and marketing
efforts. See "Use of Proceeds."
Proposed Nasdaq National Market
symbol............................... VRTA
</TABLE>
The common stock outstanding after this offering is based on the number of
shares outstanding on October 3, 1999.
The common stock outstanding after this offering excludes 3,672,475 shares
of our common stock which may be issued upon exercise of currently outstanding
stock options and warrants outstanding as of October 3, 1999, with a weighted
average exercise price of $4.92 per share, and approximately 3.6 million other
shares of common stock reserved for issuance under our stock plans. See
"Capitalization," "Management--Director Compensation," "--Employee Stock Option
Plan" and "--Employee Stock Purchase Plan" and "Description of Capital Stock."
----------------
This prospectus is subject to completion prior to this offering. Among other
things, this prospectus describes our company as we currently expect it to
exist at the time of this offering. Except as otherwise indicated, all
information in this prospectus assumes the underwriters' over-allotment option
will not be exercised and gives effect to:
. the issuance of series E preference shares by Virata Limited (see
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Recent Developments--Private Placement Financing");
. a change in our fiscal year (see "selected Consolidated Financial
Data");
. the reorganization of Virata Limited (see "Certain Transactions--
Reorganization of Virata Limited"); and
. a 1 for 6.7 reverse stock split of our common stock (see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Recent Developments--Reverse Stock Split").
Offers and sales of the common stock are subject to restrictions in relation
to the United Kingdom, details of which are set out in "Underwriting," and in
other jurisdictions. The distribution of this prospectus may also be restricted
by law in some jurisdictions.
Unless the context otherwise requires, the terms "Virata," "we," "us" or
"our" refer to Virata Corporation and its direct and indirect subsidiaries,
Virata Limited, Virata Santa Clara Corporation and Virata Raleigh Corporation.
6
<PAGE>
Summary Consolidated Financial Information
(in thousands, except for per share data)
<TABLE>
<CAPTION>
Six Months Six Months
Year Ended March 31, Ended Ended
--------------------------- September 30, October 3,
1997 1998 1999 1998 1999
------- -------- -------- ------------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues:
Semiconductors ........ $ -- $ 505 $ 2,784 $ 1,697 $ 3,493
Systems, license,
services and royalty.. 6,953 8,426 6,472 3,424 2,184
------- -------- -------- -------- -------
Total revenues........ 6,953 8,931 9,256 5,121 5,677
Total cost of
revenues............. 3,939 3,787 3,997 2,263 2,770
------- -------- -------- -------- -------
Gross profit............. 3,014 5,144 5,259 2,858 2,907
------- -------- -------- -------- -------
Operating expenses:
Research and
development........... 3,518 3,987 8,323 3,586 5,130
Sales and marketing.... 4,753 4,076 2,917 1,381 1,896
General and
administrative........ 3,410 4,917 5,567 3,099 2,303
Non-recurring charges,
amortization of
intangibles and stock
compensation.......... -- 2,270 7,203 6,080 875
------- -------- -------- -------- -------
Total operating
expenses................ 11,681 15,250 24,010 14,146 10,204
------- -------- -------- -------- -------
Loss from operations..... (8,667) (10,106) (18,751) (11,288) (7,297)
Interest and other income
(expense), net.......... 127 (172) 1,594 (407) (275)
------- -------- -------- -------- -------
Net loss................. $(8,540) $(10,278) $(17,157) $(11,695) $(7,572)
======= ======== ======== ======== =======
Net loss per share:
Basic and diluted...... $ (0.80) $ (0.90) $ (1.33) $ (0.91) $ (0.57)
======= ======== ======== ======== =======
Weighted average
shares................ 10,676 11,482 12,881 12,790 13,359
======= ======== ======== ======== =======
Pro forma net loss per
share:
Basic and diluted...... $ (1.42) $ (0.60)
======== =======
Weighted average
shares................ 12,075 12,642
======== =======
</TABLE>
<TABLE>
<CAPTION>
As of October 3, 1999
--------------------------
Pro Pro Forma
Actual Forma As Adjusted
------- ------ -----------
(unaudited)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents............................ $ 4,137 12,037 57,287
Working capital...................................... 1,720 9,620 54,870
Total assets......................................... 12,562 20,462 65,712
Total long term liabilities.......................... 986 986 986
Total stockholders' equity .......................... 5,882 13,782 59,032
</TABLE>
See notes 1 and 13 of the notes to the consolidated financial statements
included in this prospectus for an explanation of the determination of the
number of shares used in computing per share data.
The pro forma numbers reflect the issuance of series E preference shares by
Virata Limited, the reorganization of Virata Limited and a 1 for 6.7 reverse
stock split of our common stock.
The pro forma as adjusted numbers give effect to our receipt of the net
proceeds from the sale of 5,000,000 shares of common stock offered in this
offering at an assumed initial public offering price of $10.00 per share, after
deducting underwriting discounts and commissions and estimated offering
expenses. See "Use of Proceeds" and "Capitalization."
7
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing us. Additional risks and uncertainties not presently known to
us or that we currently deem immaterial may also impair our business
operations. If any of the following risks actually occur, our business,
financial condition or results of operations could be harmed. If that happens,
the trading price of our common stock could decline, and you may lose all or
part of your investment. These risk factors are not intended to represent a
complete list of the general or specific risk factors that may affect us.
Risks Relating to Our Business
We have a limited operating history selling products to the digital
subscriber line, or DSL, market and we cannot be sure that we can
successfully implement our business strategy
We have not had a long history of selling our products to the DSL market or
generating significant revenues and many of our products have only recently
been introduced. Furthermore, we have limited historical financial data that
can be used in evaluating our business and our prospects and in projecting
future operating results. For example, we cannot forecast operating expenses
based on our historical results because they are limited, and we are required
to forecast expenses in part on future revenue projections. Most of our
expenses are fixed in the short term and we may not be able to quickly reduce
spending if our revenue is lower than we had projected, therefore net losses
in a given quarter would be greater than expected. In addition, our ability to
forecast accurately our quarterly revenue is limited due to a number of
factors described in detail below, making it difficult to predict the quarter
in which sales will occur.
You must consider our prospects in light of the risks, expenses and
difficulties we might encounter because we are at an early stage of
development in a new and rapidly evolving market. Many of these risks are
described under the sub-headings below. We may not successfully address any or
all of these risks and our business strategy may not be successful.
We have not reported an operating profit since our incorporation and expect
future losses
We have not reported an operating profit for any fiscal year since our
incorporation and experienced net losses of approximately $7.6 million, $17.2
million, $10.3 million, and $8.5 million for the six months ended October 3,
1999 and the fiscal years ended March 31, 1999, 1998, and 1997, respectively.
We expect to continue to incur net losses, and these losses may be
substantial. Further, we expect to incur substantial negative cash flow in the
future. Because of continuing substantial capital expenditures and product
development, sales, marketing and administrative expenses, we will need to
generate significant revenues to achieve profitability and positive cash flow.
Even if we are able to achieve profitability and positive cash flow, we may
not be able to sustain or increase profitability or cash flow
Even if we do achieve profitability and positive cash flow, we may not be
able to sustain or increase profitability or cash flow on a quarterly or
annual basis. Our ability to generate future revenues will depend on a number
of factors, many of which are beyond our control. These factors include:
. the rate of market acceptance of high speed network access;
. the rate of market acceptance of our products and the demand for
equipment that incorporates our products;
. changes in industry standards governing DSL technologies;
. the extent and timing of new customer transactions;
8
<PAGE>
. personnel changes, particularly those involving engineering and
technical personnel;
. regulatory developments; and
. general economic trends.
Due to these factors, we cannot forecast with any degree of accuracy what
our revenues will be in future periods and we may not be able to achieve or
sustain profitability or positive cash flow.
Our operating results in one or more future periods are likely to fluctuate
significantly from quarter to quarter
Our revenues, expenses and operating results are likely to fluctuate
significantly in the future on a quarterly and an annual basis due to a number
of factors, many of which are outside our control. For example, our results of
operations could be negatively impacted by the following:
. the loss of or decrease in sales to a major customer or failure to
complete significant transactions;
. the timing and size of semiconductor orders from, and shipments to, our
existing and new customers;
. unexpected delays in introducing new or enhanced products, including
manufacturing delays;
. the volume and average cost of products manufactured;
. the timing and size of expenses, including expenses of developing new
products and product enhancements;
. the timing and rate of deployment of DSL services by telecommunications
service providers and alternative high-speed data transmission
technologies, such as cable modems and high-speed wireless data
transmission; and
. announcements of new products, design wins and product enhancements by
competitors and the entry of new competitors into our market.
Accordingly, our revenues, expenses and results of operations could vary
significantly in the future, and you should not rely upon period-to-period
comparisons as indications of future performance.
If telecommunications service providers do not initiate broad deployment of
DSL services, we may not be able to generate substantial sales of our products
The success of our products may depend upon the decision by
telecommunications service providers to broadly deploy DSL technologies and the
timing of such deployment. If telecommunications service providers do not offer
DSL services on a timely basis or if there are technical difficulties with the
deployment of DSL services, sales of our products may decline, which would have
a negative impact on our results of operations. Factors that may impact this
deployment include:
. a prolonged approval process, including laboratory tests, technical
trials, marketing trials, initial commercial deployment and full
commercial deployment;
. the development of a viable business model for DSL services, including
the capability to market, sell, install and maintain DSL services;
. cost constraints, such as installation costs and space and power
requirements at the telecommunications service provider's central
office;
. varying and uncertain conditions of the local loop, including the size
and length of the copper wire, electrical interference and interference
with existing voice and data telecommunications services;
. challenges of interoperability among DSL equipment manufacturers'
products;
. evolving industry standards for DSL technologies; and
. government regulation.
9
<PAGE>
If equipment manufacturers do not incorporate our products in their
equipment, we may not be able to generate sales of our products in volume
quantities
We rely upon equipment manufacturers to design our products into their
equipment. We further rely on this equipment to be successful. If equipment
that incorporates our products is not accepted in the marketplace, we may not
achieve sales of our products in volume quantities, which would have a
negative impact on our results of operations.
If we are unable to maintain and cultivate relationships with equipment
manufacturers, we may not be able to generate sales of our products in volume
quantities
We believe that our success in penetrating markets for our products depends
on our ability to maintain and cultivate relationships with equipment
manufacturers that are leaders in the DSL equipment market or that are
designing our products into their network systems. Accordingly, in selling to
equipment manufacturers, we often incur significant expenditures prior to
volume sales of new products. Our inability to develop relationships with
additional DSL equipment manufacturers could result in a decrease in the sales
of our products, which would have a negative impact on our results of
operations.
If we cannot successfully anticipate trends in the markets for our products
and our customers' products, we may not be able to generate substantial sales
of our products
We must anticipate the price, performance and functionality requirements of
equipment manufacturers who design DSL equipment. We must also successfully
develop products that meet these requirements and make these products
available on a timely basis and in sufficient quantities. If we do not
anticipate trends in the DSL market and meet the requirements of DSL equipment
manufacturers, then we may be unable to generate substantial sales of our
products which would have a negative impact on our results of operations.
While we have a strategy of licensing and partnering with as many key
participants in our markets as possible, some equipment manufacturers will be
more successful than others in developing and marketing their products that
incorporate our semiconductor products and it is difficult for us to predict
which of these customers will generate revenues for us. Our product sales are
almost completely dependent upon the relative success of our customers in the
marketplace for high-speed network access equipment.
We depend on third party foundries to manufacture, assemble and test our
products, and we may experience delays in receiving semiconductor devices
We do not own or operate a semiconductor fabrication facility, rather our
semiconductor devices are generally sourced at different foundries. We intend
to continue to rely on third-party foundries and other specialist suppliers
for all of our manufacturing, assembly and testing requirements. However,
these foundries are not obligated to supply products to us for any specific
period, in any specific quantity or at any specific price, except as may be
provided in a particular purchase order that has been accepted by one of them.
As a result, we cannot directly control semiconductor delivery schedules,
which could lead to product shortages, quality assurance problems and
increases in the costs of our products. In addition, we have experienced
delays and may in the future experience delays in receiving semiconductor
devices from foundries, and we cannot be sure that we will be able to obtain
semiconductor within the time frames and in the volumes required by us at an
affordable cost or at all. Any disruption in the availability of
semiconductors or any problems associated with the delivery, quality or cost
of the fabrication assembly and testing of our products could significantly
hinder our ability to deliver our products to our customers.
If the foundries we currently use are unable to provide us with
semiconductors, we may be required to seek a new manufacturer of our
semiconductors, and we cannot be certain that a new manufacturer of our
semiconductors will be available. Furthermore, switching to a new manufacturer
could require six months or more and would involve significant expense and
disruption to our business.
10
<PAGE>
If there is a shortage in worldwide foundry capacity, we may not be able to
obtain sufficient allocation of manufacturing capacity to meet our
manufacturing requirements
From time to time there may be shortages in worldwide foundry capacity due
to increases in semiconductor demand or other factors. In the event of such a
shortage, we may not be able to obtain a sufficient allocation of foundry
capacity to meet our product needs. In addition, such a shortage could lengthen
our products' manufacturing cycle and cause a delay in the shipments of our
products to our customers.
In order to secure foundry capacity, we may be required to enter into
financial and other arrangements with foundries
Allocation of a foundry's manufacturing capacity may be influenced by a
customer's size or the existence of a long-term agreement with the foundry. To
address foundry capacity constraints, other semiconductor suppliers that rely
on third-party foundries have utilized various arrangements, including equity
investments in or loans to independent component manufacturers, in exchange for
guaranteed production capacity, joint ventures to own and operate foundries, or
"take or pay" contracts that commit a company to purchase specified quantities
of components over extended periods. While we are not currently a party to any
of these arrangements, we may decide to enter into such arrangements in the
future. We cannot be sure, however, that these arrangements will be available
to us on acceptable terms or at all. Any of these arrangements could require us
to commit substantial capital. The need to commit substantial capital could
require us to obtain additional debt or equity financing, which could result in
dilution to our earnings or the ownership of our stockholders. We cannot be
sure that this additional financing, if required, would be available when
needed or, if available, could be obtained on terms acceptable to us.
If the foundries we currently use do not achieve the necessary yields or
product reliability, our customer relationships, business and results of
operations could be harmed
The manufacture of our products is a highly complex and precise process,
requiring production in a highly controlled environment. Changes in the
manufacturing processes or the inadvertent use of defective or contaminated
materials by a foundry could adversely affect such a foundry's ability to
achieve acceptable manufacturing yields and product reliability. If the
foundries we currently use do not achieve the necessary yields or product
reliability, our customer relationships, business and results of operations
could suffer.
We depend on a license from Advanced RISC Machines to manufacture certain of
our planned ATOM products and the loss or inability to maintain the license
could result in increased costs or delays in the manufacturing of our products
Our ATOM products feature embedded ARM RISC microprocessors and,
accordingly, are required to be manufactured under a license from Advanced RISC
Machines, or ARM, the owner of the intellectual property to the ARM RISC
microprocessor. In the past, we were required to use foundries with an ARM
license for the manufacture of our ATOM products. In June 1999, we obtained a
per semiconductor design ARM license, which means that we are now able to
select foundry suppliers that best meet our quality, delivery and cost
objectives regardless of whether they have their own ARM license or not. With
this greater flexibility, we are able to assume more of the manufacturing and
quality control responsibilities, including contracting for wafer processing,
assembly and testing from separate suppliers. If we lose or are unable to
maintain the per semiconductor design license, we would be required to seek
alternative fabrication facilities in our manufacturing of our ATOM products.
Without the ARM license, the number of fabrication facilities we could use in
our manufacturing would be substantially reduced to those fabrication
facilities that themselves have been directly licensed by Advanced RISC
Machines. Accordingly, the loss of, or our inability to maintain the ARM
license may result in increased costs or delays in our ability to manufacture
our products and could harm our results of operations.
Our customer base is concentrated, and the loss of one or more of our
customers would result in a loss of a significant amount of our revenues
A relatively small number of customers account for a large percentage of our
total revenues. We expect this trend to continue. Our business will be
seriously harmed if we do not generate as much revenue as we
11
<PAGE>
expect from these customers, experience a loss of any of our significant
customers or suffer a substantial reduction in orders from these customers. For
the fiscal year ended March 31, 1999, Com21 and Orckit Communications accounted
for 22.6% and 15.7%, respectively, of our total revenues. For the six months
ended October 3, 1999, Orckit Communications, Com21, Netopia and Westell
Technologies accounted for 51.5%, 11.6%, 8.9% and 7.0%, respectively, of our
total revenues. Our future success depends in significant part upon the
decision of our customers to continue to purchase products from us.
Furthermore, it is possible that equipment manufacturers may design and develop
internally, or acquire, their own semiconductor technology, rather than
continue to purchase semiconductors from third parties like us. If we are not
successful in maintaining relationships with key customers, and winning new
customers, our business would be harmed. In addition, because a significant
portion of our business has been and is expected to continue to be derived from
orders placed by a limited number of large customers, variations in the timing
of these orders can cause significant fluctuations in our operating results.
If we do not achieve design wins with DSL equipment manufacturers, we may be
unable to secure sales from these customers in the future
Once a DSL equipment manufacturer has designed a supplier's semiconductor
into its products, the DSL equipment manufacturer may be reluctant to change
its source of semiconductors due to the significant costs associated with
qualifying a new supplier. Accordingly, our failure to achieve design wins with
DSL equipment manufacturers which have chosen a competitor's semiconductor
could create barriers to future sales opportunities with these DSL equipment
manufacturers.
Our customers are not subject to any binding agreements and, therefore, we
cannot be certain that we will sell any of our products
Achieving a design win with a customer does not create a binding commitment
from that customer to purchase our products. Rather, a design win is solely an
expression of interest by potential customers in purchasing our products and is
not supported by binding commitments of any nature. Accordingly, a customer can
choose at any time to discontinue using our products in their designs or
product development efforts. Even if our products are chosen to be incorporated
into a customer's products, we still may not realize significant revenues from
that customer if their products are not commercially successful. Therefore, we
cannot be sure that any design win will result in purchase orders for our
products, or that these purchase orders will not be later canceled. Our
inability to convert design wins into actual sales and any cancellation of a
purchase order could harm our business, financial condition and results of
operations.
We incur expenses based upon projected product needs of our customers, but
these customers are not subject to any minimum purchase requirements
We work closely with our customers to determine their future product needs
and receive a rolling forecast for products. We have incurred and expect to
continue to incur expenses based upon these sales forecasts. However, our
customer purchase agreements generally contain no minimum purchase requirements
and customers typically purchase our products pursuant to short-term purchase
orders that may be canceled without charge if notice is given within an agreed-
upon period. Therefore, we cannot be sure that the actual product revenues
which we will receive will be commensurate with the level of expenses that we
will incur based on forecasts we receive from our customers in any future
period. As a result, cancellations, deferrals or reductions in pending purchase
orders could harm our business, financial condition and results of operations.
Most of our revenues have been and will be derived from a limited number of
products, and the failure of any of these products to gain market acceptance
may harm our business
For the fiscal year ended March 31, 1999, approximately 21.6% and 10.7%,
respectively, of our total revenues were generated from sales of our Hydrogen
product and Proton family of products. For the six months
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ended October 3, 1999, approximately 59.3%, 33.1% and 7.6%, respectively, of
our semiconductor revenues were generated from sales of our Proton family and
Hydrogen and Helium products. We expect that our Proton family will represent
a diminishing proportion of our total revenues while a substantial portion of
our total revenues will be derived from our Hydrogen, Helium and Lithium
products in the foreseeable future. Therefore, broad market acceptance of the
Hydrogen, Helium and Lithium products is critical to our success. We cannot be
sure that our products will attain broad market acceptance. Any failure to
achieve broad market acceptance will harm our business, operating results and
financial condition.
Because our products typically have lengthy sales cycles, we may experience
substantial delays between incurring expenses related to research and
development and the generation of sales revenue and may not ultimately sell a
large volume of our products
It usually takes more than one year, occasionally more than two years, for
us to realize volume shipments of our semiconductor products after we first
contact a customer. We first work with customers to achieve a design win,
which may take six months or longer, at which time we sell a source code
license. Our customers then complete the design, testing and evaluation of
their systems and begin the marketing process, a period which typically lasts
an additional three to six months or longer. As a result, a significant period
of time may elapse between our sales efforts and our realization of revenues,
if any, from volume purchasing of our products by our customers.
If we deliver products with defects, our credibility will be harmed, and the
sales and market acceptance of our products will decrease
Our products are complex and may contain errors, defects and bugs when
introduced. If we deliver products with errors, defects or bugs, our
credibility and the market acceptance and sales of our products could be
significantly harmed. Furthermore, the nature of our products may also delay
the detection of any such error or defect. If our products contain errors,
defects and bugs, then we may be required to expend significant capital and
resources to alleviate these problems. This could result in the diversion of
technical and other resources from our other development efforts. Any actual
or perceived problems or delays may also adversely affect our ability to
attract or retain customers.
We may be subject to product liability claims resulting from defects in our
products
The occurrence of any defects, errors or failures in our products could
lead to product liability claims or lawsuits against us or against our
customers. In addition, we have agreed to indemnify certain of our customers
in certain limited circumstances against liability from defects in our
products. A successful product liability claim could result in substantial
cost and divert management's attention and resources, which could cause
serious harm to our business, financial condition and results of operations.
Although we have not experienced any product liability claims to date, the
sale and support of our products entail the risk of these claims.
A substantial portion of our sales are generated outside the United States,
and difficulties associated with international operations could harm our
business
One of our principal subsidiaries is incorporated under the laws of, and
its principal offices are located in, the United Kingdom. In addition, for the
fiscal year ended March 31, 1999, we generated approximately 40.3% of our
revenues from sources outside the United States, with 16.5% and 13.8% of our
total revenues derived from customers based in Israel and Europe,
respectively. In the six months ended October 3, 1999, 52.4% of our total
revenues was derived from customers based in Israel. We expect that sales to
these international customers will continue to account for a significant
portion of our total revenues for at least the next 12 months. Accordingly, we
are subject to the political, economic and other conditions affecting
countries or jurisdictions other than the United States, including Israel,
Europe and Asia. Any interruption or curtailment of trade between the
countries in which we operate and their present trading partners, change in
exchange rates or
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a significant downturn in the political, economic or financial condition of
these countries could cause demand for and revenue from our products to
decrease, our costs of doing business to increase or our being subject to
increased regulation including future import and export restrictions.
We may not be able to manage our expanding operations and growth
We have rapidly and significantly expanded our operations, including the
number of our employees, the geographic scope of our activities and our product
offerings. We expect that further significant expansion will be required to
address potential growth in our customer base and market opportunities. If we
are unable to manage growth effectively, we may not be able to take advantage
of market opportunities, develop or enhance our products or our technical
capabilities, execute our business plan or otherwise respond to competitive
pressures or unanticipated requirements. To successfully manage the anticipated
growth of our operations, we believe we must effectively be able to:
. improve our existing and implement new operational, financial and
management information controls, reporting systems and procedures;
. hire, train and manage additional qualified personnel;
. expand and upgrade our core technologies; and
. effectively manage multiple relationships with our customers, suppliers
and other third parties.
Our suppliers and our systems may not be able to support the development of
and demand for our products
The development of equipment using our products requires training and
support. If we are unable to provide this training and support for our
products, more time may be necessary to complete the implementation process and
customer satisfaction may be adversely affected. In addition, our suppliers may
not be able to meet increased demand for our products. We cannot be sure that
our systems, procedures or controls or those of our suppliers' will be adequate
to support the anticipated growth in our operations or the demand for our
products.
Our executive officers and key personnel are critical to our business, and
these officers and personnel may not remain with us in the future; our success
will depend on the continued performance of our key personnel and our ability
to attract and retain additional qualified personnel
Our success depends to a significant degree upon the continued contributions
of our executive management team, and our technical, marketing, sales customer
support and product development personnel. The loss of such personnel could
significantly harm our business, financial condition and results of operations.
We do not have any life insurance or other insurance covering the loss of any
of our key employees.
Because our products are specialized and complex, our success depends upon
our ability to attract, train and retain qualified personnel, including
qualified technical, marketing and sales personnel. However, the competition
for personnel is intense and we may have difficulty attracting and retaining
such personnel. In addition, companies in the communications, software and
semiconductor industries have frequently made unfair hiring practices claims
against competitors who have hired away such companies' personnel. We cannot be
sure that these claims will not be made against us in the future as we seek to
hire qualified personnel, or that any of these claims would be decided in our
favor. We may incur substantial costs in defending ourselves against any such
claims, regardless of their merits.
We have entered into employment agreements with our executive officers (see
"Management--Employment Agreements") and certain other key employees that
provide for set terms of employment. In addition, all of our employees in the
United Kingdom have employment agreements pursuant to the laws of the United
Kingdom, subject generally to four weeks notice of termination. Our employment
agreements do not contain anti-competition clauses.
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If our software and hardware products or our internal systems are not Year
2000 compliant, the Year 2000 issue could seriously harm our business,
financial condition, liquidity and results of operations
The term "Year 2000 issue" is a general term used to describe the various
problems that may result from the improper processing of dates and date-
sensitive calculations by computers and other machinery as the Year 2000 is
approached and reached. As a result of the Year 2000 issue, we may experience
serious unanticipated problems and costs caused by undetected errors or defects
in the technology used in our software and hardware products and internal
systems. In addition, we may be required to defend our products or services in
legal proceedings, and we cannot guarantee that we will remain free of Year
2000 related disputes. If our software and hardware products or our internal
systems are not Year 2000 compliant, the Year 2000 issue could seriously harm
our business, financial condition, liquidity and results of operations. Until
the Year 2000 occurs, we cannot be sure that we will not be affected by the
Year 2000 issue. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Compliance Disclosure."
Risks Relating to our Industry
The markets in which we compete are highly competitive and we cannot be
certain that our products will be accepted in the marketplace
The market for software and communications semiconductor solutions is
intensely competitive and characterized by rapid technological change, evolving
standards, short product life cycles and price erosion. We expect competition
to intensify as current competitors expand their product offerings and new
competitors enter the market. Given the highly competitive environment in which
we operate, we cannot be sure that any competitive advantages enjoyed by our
products would be sufficient to establish and sustain our products in the
market. Any increase in price or other competition could result in erosion of
our market share, to the extent we have obtained market share, and could harm
our business, financial condition and results of operations. We cannot be sure
that we will have the financial resources, technical expertise or marketing and
support capabilities to continue to compete successfully.
We face competition from a variety of vendors, including software and
semiconductor companies, which generally vary in size and in the scope and
breadth of products and services offered. We also face competition from
customers' or prospective customers' own internal development efforts. Many of
the companies that compete, or may compete in the future, against us have
longer operating histories, greater name recognition, larger installed customer
bases and significantly greater financial, technical and marketing resources.
These competitors may also have pre-existing relationships with our customers
or potential customers. As a result, they may be able to introduce new
technologies, respond more quickly to changing customer requirements or devote
greater resources to the development, promotion and sale of their products than
we can. Our competitors may successfully integrate the functionality of our
software and communication processors into their products and thereby render
our products obsolete. Further, in the event of a manufacturing capacity
shortage, these competitors may be able to manufacture products when we are
unable to do so.
We believe our principal competitors include or will include Alcatel
Microelectronics, Analog Devices, Centillium Technology, Conexant Systems,
GlobeSpan, Lucent Technologies, Motorola and Texas Instruments. In addition,
there have been a number of announcements by other semiconductor companies
including IBM and Intel and smaller emerging companies that they intend to
enter the market segments adjacent to or addressed by our products.
The markets in which our customers compete are highly competitive and we
cannot be certain that our customers will continue to purchase our products
Many of our customers face significant competition in their markets. If our
customers are unable to successfully market and sell their products which
incorporate our products, these customers may cease to purchase our products,
which may have a negative impact on our results of operations.
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Competitive forces may cause the average selling price of our products to
decline
Due to the competitive factors in our market, in the past we have
experienced, and we anticipate that we will continue to experience, decreases
in the average selling prices of our products. If the average selling prices
of our products decline without an offsetting decline in our product costs, we
will experience a decline in gross margin which may have a negative impact on
our results of operations.
Rapid changes in the market for semiconductors may render our products
obsolete or unmarketable
The markets for our products and services are characterized by rapidly
changing technology, short product life cycles, evolving industry standards,
changes in customer needs, growing competition and new product introductions.
If our product development and enhancements take longer than planned, the
availability of our products would be delayed. Any such delay may render our
products obsolete or unmarketable, which would have a negative impact on our
ability to sell our products and our results of operations.
Failure to enhance our existing products or to develop and introduce new
products that meet changing customer requirements and emerging industry
standards could negatively impact our ability to sell our products
Our success is dependent, in part, on our ability, in a timely and cost-
effective manner, to:
. successfully develop, introduce and market new and enhanced products at
competitive prices in order to meet changing customer needs;
. respond effectively to new technological changes or new product
announcements by others;
. effectively use and offer leading technologies; and
. maintain close working relationships with our key customers.
We cannot be sure that we will be successful in these pursuits, that the
growth in demand will continue or that our products will achieve market
acceptance. Our failure to develop and introduce new products that are
compatible with industry standards and that satisfy customer requirements or
the failure of our products to achieve broad market acceptance could have a
negative impact on our ability to sell our products and our results of
operations.
The development of new products requires substantial time and expense and we
may not be able to recover our development costs
The pursuit of necessary technological advances and the development of new
products require substantial time and expense. Enhancements to existing
products or the introduction of new products by us or our competitors have the
potential to replace or provide lower cost alternatives to our existing
products or render these products obsolete, unmarketable or inoperable. The
mere announcement of any enhancement or new product could cause potential
customers to defer or cancel purchases of existing products and services.
Therefore, we cannot be sure that we will be able to recover the costs of the
development of our products or succeed in adapting our business to
advancements.
Other high speed data transmission technologies may compete effectively with
digital subscriber line services, which may cause sales of our products to
decline and harm our business
DSL services are competing with a variety of different broadband data
transmission technologies, including cable modems, satellite and other
wireless technologies. If any technology that is competing with DSL technology
is more reliable, faster, less expensive or has other advantages over DSL
technology, then the demand for our semiconductors may decrease, which would
harm our business and operating results.
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We expect that price competition among our competitors and volume purchases
by large customers will have a negative impact on our gross margins in the
future
We expect that price competition among our competitors and volume purchases
of our products at discounted prices will have a negative impact on our gross
margin for these products. We anticipate that average per unit selling prices
of DSL semiconductors will continue to decline as product technologies mature.
Since we do not manufacture our own products, we may be unable to reduce our
manufacturing costs in response to declining average per unit selling prices.
Many of our competitors are larger with greater resources and therefore may be
able to achieve greater economies of scale and would be less vulnerable to
price competition. Further, we expect that average per unit selling prices of
our products will decrease in the future due to volume discounts to our large
customers. These declines in average per unit selling prices will generally
lead to declines in our gross margins for these products.
We may not be able to adequately protect our intellectual property rights
The measures on which we rely to protect our intellectual property afford
only limited protection and we cannot be certain that these safeguards will
adequately protect our intellectual property and other valuable competitive
information. In addition, the laws of some countries in which we sell or plan
to sell our products, including the Peoples' Republic of China, Korea and
certain other Asian countries, may not protect our proprietary rights as fully
as do the laws of the United Kingdom or the United States. If we are unable to
adequately protect our proprietary rights, we may lose any competitive
advantage we may have over our competitors.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use trade secrets
or other information that we regard as proprietary. Our competitors may also
independently develop similar technologies. Moreover, through our
participation in various industry groups, we have entered into cross-licenses
for intellectual property necessary to the implementation of certain types of
standards-compliant products. Such cross-licenses may limit our ability to
enforce our intellectual property rights against competitors.
We may be involved in costly litigation with respect to our proprietary
rights
The industries in which we compete are characterized by numerous
allegations of patent infringement among competitors. Such an infringement
claim could be asserted against us or by us in the future. The defense or
prosecution of any such claim could result in us incurring substantial
expenses and diverting significant management attention and other resources
away from our operations. In the event of an adverse result in any future
litigation or claim, we may be required:
. to pay substantial damages, including treble damages if we are held to
have willfully infringed on the intellectual property of another;
. to halt the manufacture, use and sale of infringing products or
technology;
. forfeit a competitive advantage;
. to expend significant resources to develop non-infringing technology; or
. to obtain licenses to the infringing technology, which may not be
available on commercially reasonable terms, or at all.
In order for us to meet certain industry standards, we may be required to pay
royalties to the owners of the intellectual property underlying the standards
In order to comply with the International Telecommunications Union V.34,
V.90 and G.992.2 ADSL standards, the software embedded in our current and
planned future products may use the proprietary technology of various parties
advancing or promoting these standards. Where such owners are members of such
working
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group or union, they must provide a license upon reasonable terms, which may
include the payment of a reasonable royalty. However, if such owners are not
members of such working group or union, there may be no limit on the terms or
the amount of the royalty with respect to such proprietary technology. As a
result, the cumulative effect of the terms and royalties with respect to the
use of the proprietary technology necessary to meet such industry standards
could increase the cost of our products to the point that they are no longer
competitive and could limit our ability to meet certain industry standards.
Our products and those of our customers are subject to government
regulations, and changes in current or future laws or regulations that
negatively impact our products and technologies could harm our business
The jurisdiction of the Federal Communications Commission, or the FCC,
extends to the entire U.S. communications industry, including our customers
and their products and services that incorporate our products. Future FCC
regulations affecting the U.S. communications services industry, our customers
or our products may have a negative impact on our business. For example, FCC
regulatory policies that affect the availability of data and Internet services
may impede our customers' penetration into certain markets or affect the
prices that they are able to charge. In addition, international regulatory
bodies have introduced new regulations for the communications industry. Delays
caused by our compliance with regulatory requirements may result in order
cancellations or postponements of product purchases by our customers, which
would harm our business and adversely affect our results of operations and
financial condition.
Risks Relating to this Offering
There has been no prior market for our common stock and our stock price may
decline after this offering
Prior to this offering, you could not buy or sell our common stock on a
public market. The initial public offering price of our common stock will be
determined by negotiation among us and representatives of the underwriters and
may not be indicative of the price that will prevail in the open market after
this offering. In addition, the market price of our shares of common stock may
be highly volatile and could be subject to wide fluctuations. We cannot be
certain that an active trading market for our common stock will develop or be
sustained, or that the price of our stock will not decline after this
offering.
Market fluctuations could negatively impact the market price of our stock
The stock markets, and in particular the Nasdaq stock market, have
experienced extreme price and volume fluctuations that have affected and
continue to affect the market prices of equity securities of many technology
companies. These fluctuations often have been unrelated or disproportionate to
the operating performance of those companies. We also expect that the market
price of our common stock will fluctuate as a result of variations in our
quarterly operating results. These fluctuations may be exaggerated if the
trading volume of our common stock is low. In addition, due to the technology-
intensive and emerging nature of our business, the market price of our common
stock may rise and fall in response to:
. announcements of technological or competitive developments;
. acquisitions or strategic alliances by us or our competitors;
. the gain or loss of a significant customer or order; and
. changes in estimates of our financial performance or changes in
recommendations by securities analysts.
Accordingly, market fluctuations, as well as general economic, political and
market conditions such as recessions, interest rate changes or international
currency fluctuations, may negatively impact the market price of our common
stock.
We could be subject to class action litigation due to stock price volatility,
which, if it occurs, will distract management and result in substantial
costs, and could result in judgments against us
In the past, securities class action litigation has often been brought
against companies following periods of volatility in the market price of their
securities. We may be the target of similar litigation in the future.
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Securities litigation could result in substantial costs and divert management's
attention and resources, which could cause serious harm to our business,
financial condition and results of operations.
Our current stockholders will benefit from this offering, and you will
experience immediate dilution
The initial public offering price is expected to be substantially higher
than the current book value per share of our outstanding common stock. As a
result, investors purchasing our common stock in this offering will incur
immediate dilution of approximately $7.12 per share in the book value of our
common stock from the price they pay for our common stock. In addition, we have
issued options to acquire common stock at prices significantly below the
initial public offering price. To the extent these outstanding options are
ultimately exercised, there will be further dilution to investors in this
offering. See "Dilution."
Our principal stockholders and management have the ability to control
stockholder votes, and this control could adversely affect our stock price or
lessen any premium over market price that an acquiror might otherwise pay
Immediately following the offering, our officers and directors and their
affiliates will own or control approximately 47.1% of our common stock
(assuming no purchases of shares of common stock in this offering by our
officers and directors and their affiliates). Accordingly, our officers,
directors and their affiliates, as a group, have the ability to control the
election of a majority of the members of our board of directors and the outcome
of corporate actions requiring stockholder approval. This concentration of
ownership may have the effect of delaying, deferring or preventing a change in
control of us, or may impede a merger, consolidation, takeover or other
business combination involving us. This concentration of ownership could also
adversely affect our stock's market price or lessen any premium over market
price that an acquiror might otherwise pay.
Provisions of our charter documents and Delaware law could prevent or delay a
change in control of us and may reduce the market price of our common stock
Certain provisions of our certificate of incorporation and bylaws and the
provisions of Delaware law could have the effect of delaying, deferring or
preventing our acquisition. For example, we have authorized but unissued shares
of preferred stock which could be used to fend off a takeover attempt, our
stockholders may not take actions by written consent, our stockholders are
limited in their ability to make proposals at stockholder meetings and our
directors may be removed only for cause and upon the affirmative vote of at
least 80% of our outstanding voting shares. See "Description of Capital Stock."
We have broad discretion to use the offering proceeds and how we invest these
proceeds may not increase our profits or market value
As of the date of this prospectus, we have no specific plans to use the net
proceeds from this offering other than for general corporate purposes.
Accordingly, our management will have considerable discretion in the
application of the net proceeds, and may apply the net proceeds in ways which
may not increase our profitability or our market value. See "Use of Proceeds."
You will not have the opportunity, as part of your investment decision, to
assess whether the proceeds are being used appropriately.
A substantial number of our shares of common stock are eligible for future
sale, and the sale of these shares may depress our stock price
Upon completion of the offering, we will have approximately 19,472,161
shares of common stock outstanding and 20,222,161 shares outstanding if we
issue shares upon exercise of the underwriters' over-allotment option. All of
these shares will be freely tradable without restriction or further
registration under the federal securities laws, except for shares purchased in
this offering by or held by our affiliates. See "Shares Eligible for Future
Sale." In addition, as of October 3, 1999 there were outstanding options and
warrants to purchase 3,672,475 shares of our common stock. Furthermore, as of
October 3, 1999, stockholders holding
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approximately 12,181,694 shares of common stock had been granted registration
rights with respect to their shares of common stock. See "Description of
Capital Stock--Registration Rights." In the future we may register for resale
the shares underlying the outstanding options, grant additional options or
grant additional registration rights.
While our existing stockholders and option holders are generally subject to
lock-up agreements and the provisions of our bylaws restricting their ability
to sell shares of our common stock, when these restrictions expire, these
shares will be eligible for sale, in some cases without restriction. See
"Shares Eligible for Future Sale." A sale of a substantial number of shares,
particularly by our directors and officers, or the perception that this sale
could occur, could have an adverse effect on the price of our common stock.
We may need to raise additional capital in the future, and if we are unable to
secure adequate funds on terms acceptable to us, we may be unable to execute
our business plan
If the proceeds of this offering, together with our existing cash balances
and cash flow expected from future operations, are not sufficient to meet our
liquidity needs, we will need to raise additional funds. If adequate funds are
not available on acceptable terms or at all, we may not be able to take
advantage of market opportunities, develop or enhance new products, pursue
acquisitions that would complement our existing product offerings or enhance
our technical capabilities, execute our business plan or otherwise respond to
competitive pressures or unanticipated requirements, which could seriously harm
our business, operating results and financial condition.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the sections entitled "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," contains forward-looking statements
within the meaning of the federal securities laws. These statements relate to
future events or our future financial performance, and involve known and
unknown risks, uncertainties, and other factors that may cause our actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. These
risks and other factors include, among other things, those listed under "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," as well as elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by terminology such
as "may," "will," "should," "expects," "intends," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential" or "continue," or the negative
of these terms or other comparable terminology. These statements are only
predictions and may be inaccurate. Actual events or results may differ
materially. In evaluating these statements, you should specifically consider
various factors, including the risks outlined under "Risk Factors." These
factors may cause our actual results to differ materially from any forward-
looking statement.
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. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results.
USE OF PROCEEDS
Our net proceeds from the sale of the 5,000,000 of common stock offered by
us are estimated to be approximately $45.3 million, based on an assumed initial
public offering price per share of $10.00, and after deducting estimated
underwriting discounts and commissions and offering expenses payable by us. If
the underwriters exercise the over-allotment option in full, our net proceeds
are estimated to be $52.2 million. See "Underwriting."
We intend to use the net proceeds of this offering primarily for working
capital and general corporate purposes, including expenditures for research and
development of new products and sales and marketing efforts. In addition, we
may use a portion of the net proceeds to acquire complementary products,
technologies or businesses; however, we currently have no commitments or
agreements and are not involved in any negotiations to do so. Pending use of
the net proceeds of this offering, we intend to invest the net proceeds in
interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared nor paid any dividends on our capital stock. We
currently intend to retain any future earnings for use in the operation and
expansion of our business and we do not anticipate paying any dividends on our
capital stock in the foreseeable future. Additionally, our line of credit
currently prohibits the payment of dividends.
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CAPITALIZATION
The table below sets forth the following information:
. the actual capitalization of Virata Limited, our predecessor, as of
October 3, 1999;
. our capitalization as of October 3, 1999, after giving pro forma effect
to the issuance of series E preference shares by Virata limited, the
reorganization of Virata Limited and a 1 for 6.7 reverse stock split of
our common stock.
. our pro forma capitalization as of October 3, 1999, as adjusted to give
effect to the sale of 5,000,000 shares of common stock offered in this
offering at an assumed offering price of $10.00 per share, after
deducting underwriting discounts and commissions and estimated offering
expenses.
The capitalization information in the table below is qualified by the more
detailed consolidated financial statements and related notes beginning on page
F-1 of this prospectus. The table should be read in conjunction with those
consolidated financial statements and related notes and the sections of this
prospectus titled "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
As of October 3, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except share
and
per share data)
(unaudited)
<S> <C> <C> <C>
Capital lease obligations, long-term........... $ 986 $ 986 $ 986
-------- -------- --------
Stockholders' equity:
Common stock, $0.01 par value per share,
95,000,000 shares authorized, 13,547,599
shares issued and outstanding, actual;
$0.001 par value per share, 40,000,000
shares authorized, 14,472,161 shares issued
and outstanding, pro forma; $0.001 par value
per share, 40,000,000 shares authorized,
19,472,161 shares issued and outstanding,
pro forma as adjusted....................... 215 14 19
Convertible preferred stock, $0.02 par value
per share, 86,100,000 shares authorized,
51,431,179 shares issued and outstanding,
actual; $0.001 par value per share,
5,000,000 shares authorized, zero shares
issued and outstanding, pro forma; $0.001
par value per share, 5,000,000 shares
authorized, zero shares issued and
outstanding, pro forma as adjusted.......... 801 -- --
Additional paid-in capital..................... 63,095 71,997 117,242
Accumulated other comprehensive income......... 1,064 1,064 1,064
Unearned stock compensation.................... (1,093) (1,093) (1,093)
Accumulated deficit............................ (58,200) (58,200) (58,200)
-------- -------- --------
Total stockholders' equity................. 5,882 13,782 59,032
-------- -------- --------
Total Capitalization..................... $ 6,868 $ 14,768 $ 60,018
======== ======== ========
</TABLE>
The common stock outstanding after this offering is based on the number of
shares outstanding on October 3, 1999.
The common stock outstanding after this offering excludes 3,672,475 shares
of our common stock which may be issued upon exercise of currently outstanding
stock options and warrants outstanding as of October 3, 1999, with a weighted
average exercise price of $4.92 per share; and approximately 3.6 million other
shares of common stock reserved for issuance under our stock plans. See
"Management--Director Compensation", "--Employee Stock Option Plan" and "--
Employee Stock Purchase Plan" and "Description of Capital Stock."
22
<PAGE>
DILUTION
As of October 3, 1999, our pro forma net tangible book value was
approximately $10.8 million, or $0.75 per share of our common stock. Pro forma
net tangible book value per share represents the amount of our total tangible
assets less total liabilities, divided by the number of shares of our common
stock outstanding. Dilution in net tangible book value per share represents the
difference between the amount per share of common stock paid by purchasers of
common stock in this offering and the net tangible book value per share of
common stock immediately after this offering. Our pro forma net tangible book
value as of October 3, 1999 is calculated after giving effect to the issuance
of series E preference shares by Virata Limited, the reorganization of Virata
Limited and a 1 for 6.7 reverse stock split of our common stock.
Our pro forma as adjusted net tangible book value as of October 3, 1999 was
approximately $56.1 million, or $2.88 per share of our common stock, after
giving effect to the receipt of the net proceeds from the sale of the 5,000,000
shares of common stock offered by us, assuming an initial public offering price
of $10.00 per share and after deducting the estimated underwriting discounts
and commissions and estimated offering expenses.
This amount represents an immediate increase in pro forma net tangible book
value of $2.13 per share to the existing stockholders and an immediate dilution
of $7.12 per share to purchasers of common stock in the offering. The following
table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $10.00
Pro forma net tangible book value per share as of October 3,
1999........................................................... $0.75
Increase in net tangible book value per share attributable to
new investors.................................................. 2.13
-----
Pro forma as adjusted net tangible book value per share after the
offering......................................................... 2.88
------
Dilution in net tangible book value per share to new investors.... $ 7.12
======
</TABLE>
The following table summarizes, as of October 3, 1999, the difference
between the number of shares of common stock purchased from us, the total
consideration paid and the average price per share paid by existing
stockholders and to be paid by new investors purchasing shares of common stock
in this offering, before deducting the underwriting discounts and commissions
and estimated expenses payable by us, at an assumed initial public offering
price of $10.00 per share.
<TABLE>
<CAPTION>
Shares Total
Purchased Consideration Average
-------------- ---------------- Price
Number Percent Amount Percent Per Share
------ ------- -------- ------- ---------
(in thousands, except percentages and per
share data)
<S> <C> <C> <C> <C> <C>
Existing stockholders................. 14,472 74.3% $ 61,571 55.2% $ 4.25
New investors......................... 5,000 25.7 50,000 44.8 10.00
------ ---- -------- ----
Total............................... 19,472 100% $111,571 100%
====== ==== ======== ====
</TABLE>
The foregoing computations are based on the number of shares of common stock
outstanding on October 3, 1999.
The common stock outstanding after this offering excludes 3,672,475 shares
of our common stock which may be issued upon exercise of currently outstanding
stock options and warrants outstanding as of October 3, 1999, with a weighted
average exercise price of $4.92 per share, and approximately 3.6 million other
shares of common stock reserved for issuance under our stock plans. See
"Capitalization," "Management--Director Compensation", "--Employee Stock Option
Plan" and "--Employee Stock Purchase Plan" and "Description of Capital Stock."
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read with the
consolidated financial statements and related notes beginning on page F-1 of
this prospectus and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" beginning on page 26 of this prospectus.
The selected consolidated statement of operations data for each of the three
fiscal years ended March 31, 1997, 1998 and 1999 and selected consolidated
balance sheet data as of March 31, 1998 and 1999 are derived from, and
qualified by reference to, the audited consolidated financial statements
included elsewhere in this prospectus. The selected consolidated statement of
operations data for each of the two fiscal years ended March 31, 1995 and 1996
and selected consolidated balance sheet data as of March 31, 1995, 1996 and
1997 are derived from audited financial statements not included in this
prospectus. Information for the fiscal year ended March 31, 1999 includes the
results of operations for RSA Communications, Inc. only since July 17, 1998,
the closing date of the acquisition. For information showing our unaudited pro
forma results of operations including RSA Communications, Inc. for the fiscal
year ended March 31, 1999, see Virata Corporation Pro Forma Combined Financial
Information on page F-33.
Effective October 3, 1999, we changed our fiscal year such that each quarter
ends on the Sunday closest to the calendar quarter end.
The selected consolidated statement of operations data for the six months
ended September 30, 1998 and October 3, 1999 and the selected consolidated
balance sheet data as of October 3, 1999 are derived from unaudited
consolidated financial statements included elsewhere in this prospectus. The
unaudited consolidated financial statements have been prepared by us on a basis
consistent with our audited consolidated financial statements and, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of our results of
operations and financial position as of and for those periods.
<TABLE>
<CAPTION>
Six Months Six Months
Year Ended March 31, Ended Ended
--------------------------------------------- September 30, October 3,
1995 1996 1997 1998 1999 1998 1999
------- ------- ------- -------- -------- ------------- ----------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues:
Semiconductors......... $ -- $ -- $ -- $ 505 $ 2,784 $ 1,697 $ 3,493
License................ -- 85 971 1,570 1,628 1,009 528
Services and royalty... 226 333 1,134 1,206 2,367 1,075 808
Systems................ -- 2,424 4,848 5,650 2,477 1,340 848
------- ------- ------- -------- -------- -------- -------
Total revenues....... 226 2,842 6,953 8,931 9,256 5,121 5,677
------- ------- ------- -------- -------- -------- -------
Cost of revenues:
Semiconductors......... -- -- -- 325 2,421 1,333 1,941
License................ -- -- -- -- -- -- --
Services and royalty
...................... 100 55 185 192 528 229 338
Systems................ -- 1,854 3,754 3,270 1,048 701 491
------- ------- ------- -------- -------- -------- -------
Total cost of
revenues............ 100 1,909 3,939 3,787 3,997 2,263 2,770
------- ------- ------- -------- -------- -------- -------
Gross profit............ 126 933 3,014 5,144 5,259 2,858 2,907
Operating expenses:
Research and
development........... 3,587 4,402 3,518 3,987 8,323 3,586 5,130
Sales and marketing.... 365 4,037 4,753 4,076 2,917 1,381 1,896
General and
administrative........ 1,278 2,096 3,410 4,917 5,567 3,099 2,303
Restructuring costs.... -- -- -- 1,871 -- -- --
Amortization of
intangible assets..... -- -- -- -- 549 137 370
Amortization of stock
compensation.......... -- -- -- 399 1,394 683 505
Acquired in-process
research and
development........... -- -- -- -- 5,260 5,260 --
------- ------- ------- -------- -------- -------- -------
Total operating
expenses............ 5,230 10,535 11,681 15,250 24,010 14,146 10,204
------- ------- ------- -------- -------- -------- -------
Loss from operations.... (5,104) (9,602) (8,667) (10,106) (18,751) (11,288) (7,297)
Interest and other
income (expense), net.. 4 264 127 (172) 1,594 (407) (275)
------- ------- ------- -------- -------- -------- -------
Net loss................ $(5,100) $(9,338) $(8,540) $(10,278) $(17,157) $(11,695) $(7,572)
======= ======= ======= ======== ======== ======== =======
Net loss per share:
Basic and diluted...... $ (0.56) $ (0.89) $ (0.80) $ (0.90) $ (1.33) $ (0.91) $ (0.57)
======= ======= ======= ======== ======== ======== =======
Weighted average
shares................ 9,150 10,481 10,676 11,482 12,881 12,790 13,359
======= ======= ======= ======== ======== ======== =======
Pro forma net loss per
share:
Basic and diluted...... $ (1.42) $ (0.60)
======== =======
Weighted average
shares................ 12,075 12,642
======== =======
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
March 31,
---------------------------------------- October 3,
1995 1996 1997 1998 1999 1999
------- ------ ------- ------- ------- -----------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash and cash
equivalents............. $ 451 $1,315 $ 3,752 $ 767 $ 8,616 $ 4,137
Working capital.......... (3,206) 451 6,346 (3,653) 8,042 1,720
Total assets............. 2,086 4,422 12,066 5,950 19,187 12,562
Total long term
liabilities............. -- 48 875 738 1,130 986
Total stockholders'
equity (deficit)........ (2,129) 1,850 6,857 (3,085) 12,719 5,882
</TABLE>
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section of this prospectus includes a number of forward-looking
statements that reflect our current views with respect to future events and
financial performance. We use words such as "anticipates," "believes,"
"expects," "future," and "intends," and similar expressions to identify
forward-looking statements. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this prospectus.
These forward-looking statements are subject to risks and uncertainties that
could cause actual results to differ materially from historical results or our
predictions. These risks are described in "Risk Factors" and elsewhere in this
prospectus. See "Special Note Regarding Forward-Looking Statements."
Overview
We were incorporated in June 1993 in Cambridge, England, as a spin-out from
the Olivetti Research Laboratory (now AT&T Laboratories). Until 1995, we were a
development stage company focused primarily on product development. From first
production revenue shipment in April 1995 through March 1996, we focused on
developing and delivering ATM-based, board-level systems primarily for local
area network applications. In mid 1996, we began licensing our software suite
and selling our semiconductors to developers of broadband access products. In
September 1997, we ceased development of our systems products and focused
exclusively on expanding our software offering and developing additional
semiconductors for the broadband marketplace with a focus on the DSL market. We
recently moved our corporate headquarters from Cambridge, England to Santa
Clara, California.
We generate revenues from sales of semiconductors, systems-level products,
software licenses, maintenance, royalties and related design services.
Semiconductor revenues have come from two sources, our Proton family of ASIC
products and our ATOM family of ASSPs. An equipment manufacturer, or OEM,
licenses our software, which permits them to purchase our semiconductors for
use in their products. We support our licensee customers through the sale of
maintenance contracts and design services. Since September 1997, we have sold
our systems-level products primarily to one customer, and we expect sales of
these products to decline. We sell our products through a direct sales force,
which we believe most effectively allows us to serve our customers. We also
utilize a sales representative in Taiwan.
Revenues from the sale of both semiconductors and systems are recognized
upon shipment to customers. Allowances are provided for estimated returns at
the time of shipment. We recognize software license revenues under Statement of
Position, or SOP, 97-2, Software Revenue Recognition, and SOP 98-9,
Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain
Transactions. When contracts contain multiple elements and vendor-specific
objective evidence exists for all undelivered elements, we account for the
delivered elements in accordance with the "Residual Method" prescribed by SOP
98-9. Software licenses are generally recognized as revenue upon shipment of
the software product. In the event that we grant our customers the right to
specified upgrades, license revenue is deferred until delivery of the specific
upgrade. If vendor-specific objective evidence of fair value does not exist,
then the entire license fee is deferred until the delivery of the specified
upgrade. We recognize revenues from maintenance and support services provided
to licensees ratably over the term of the agreement, generally one year, and
recognize revenues from design services provided to OEMs as the services are
performed.
It usually takes more than one year, occasionally more than two years, for
us to realize volume shipments of our semiconductor products after we first
contact a customer. We first work with customers to achieve a design win, which
may take six months or longer, at which time we sell a source code license. Our
customers then complete the design, testing and evaluation of their systems and
begin the marketing process, a period which typically lasts an additional three
to six months or longer. As a result, a significant period of time may elapse
between our sales efforts and our realization of revenues, if any, from volume
purchases of our products by our customers. We generally sell our products
based on individual purchase orders. Our customers are not obligated by long-
term contracts to purchase our semiconductors and can generally cancel or
reschedule orders upon short notice. As of October 3, 1999, our backlog was
approximately $7.5 million, including the backlog for semiconductors, which was
approximately $6.8 million.
26
<PAGE>
Achieving a design win with a customer does not create a binding commitment
from that customer to purchase our products. Rather, it is a decision by a
customer to use our products in the design process of their products. A
customer can choose at any time to discontinue using our products in their
designs or product development efforts. Even if our products are chosen to be
incorporated into a customer's products, we may still not realize significant
revenues from that customer if their products are not commercially successful.
We have a strategy of licensing and partnering with as many key participants in
our markets as possible, and we have achieved a significant number of design
wins. Nevertheless, some customers will be more successful than others in
developing and marketing their products that incorporate our semiconductor
products, and it is difficult for us to predict which of these customers will
generate revenues for us. Our semiconductor product sales are almost completely
dependent upon the relative success of our customers in the marketplace for
broadband access products.
We have spent considerable resources developing our Beryllium product for
the ADSL market, and we are just beginning to work with potential customers for
this product. Our future success will depend, in part, on the success of
Beryllium. However, we do not expect to know whether we will realize
significant commercial shipments of Beryllium until the second half of 2000.
Our revenues to date have been concentrated with a small number of
customers. We expect this concentration to continue. For the fiscal year ended
March 31, 1999, Com21 and Orckit Communications accounted for 22.6% and 15.7%,
respectively, of our total revenues. For the six months ended October 3, 1999,
Orckit Communications, Com21, Netopia and Westell Technologies accounted for
51.5%, 11.6% 8.9% and 7.0%, respectively, of our total revenues.
International revenues accounted for 44.2% of total revenues for the fiscal
year ended March 31, 1998 and 40.3% for the fiscal year ended March 31, 1999.
Sales to customers in Israel represented 10.8% and 16.5% of total revenues for
the fiscal year ended March 31, 1998 and March 31, 1999, respectively. For the
six months ended October 3, 1999, revenues from these Israeli customers were
52.4% of total revenues. International revenues are denominated solely in U.S.
dollars, which reduces our exposure to fluctuations in revenues attributable to
changes in foreign currency exchange rates. However, we experience risks
inherent in international business. These risks include extended collection
time for receivables, reduced ability to enforce contractual obligations and
reduced protection of our intellectual property. Our material costs are
denominated in U.S. dollars and our operating expenses are split between U.S.
dollars and British pounds sterling.
Our gross margin has fluctuated significantly due primarily to product mix.
For the fiscal year ended March 31, 1999, our semiconductor gross margin was
13.0%, our license gross margin was 100.0%, our services and royalty gross
margin was 77.7% and our systems gross margin was 57.7%. We believe our gross
margin may continue to fluctuate because we expect semiconductors to be a
greater percentage of total revenues and increased competition and more
consumer oriented markets may impact pricing.
Since inception, we have invested heavily in research and development and
have built a worldwide sales force and administration infrastructure, which has
contributed to net losses. Additionally, we have chosen to operate principally
in three locations: Cambridge, England; Raleigh, North Carolina; and Santa
Clara, California. We believe that our strategy of locating research and
development in Cambridge and Raleigh has provided access to high quality
engineers and contributed to low turnover. However, we incur higher general and
administrative expenses associated with multi-site operations. We plan to
continue to invest to exploit market opportunities and revenues may not
increase at a rate sufficient to achieve and maintain profitability.
In September 1997, we implemented a new business strategy and reduced the
resources allocated to the systems line of business. A restructuring plan was
implemented in the second half of fiscal 1998 which resulted in one-time
charges of $1.9 million for the year ended March 31, 1998. Approximately
$900,000 of the restructuring charge represents employee costs, $900,000
represents asset write-downs and $71,000 relates to other restructuring costs.
We continue to sell our systems products to one principal customer and systems
revenues for the six months ended October 3, 1999 were $848,000.
27
<PAGE>
To extend our analog and DSL technical capabilities, in July 1998 we
acquired RSA Communications, a privately-held company based in Raleigh, North
Carolina specializing in analog modem software development. Financial
information for the fiscal year ended March 31, 1999 includes the results of
operations for RSA Communications beginning July 17, 1998, the closing date of
the acquisition. The transaction was accounted for as a purchase business
combination, under the purchase method of accounting. The aggregate purchase
price is required to be allocated to the tangible and identifiable intangible
assets acquired and liabilities assumed on the basis of their fair values on
the acquisition date. Based on a valuation by an independent appraiser, $5.3
million of the $9.3 million purchase price was allocated to in-process research
and development. The core technologies acquired in the RSA Communications
acquisition were the ADSL PHY software and voiceband modem protocol software.
The significant in-process research and development projects include V.90 modem
software and two software algorithms, the modem modulation software algorithm
and the ADSL software algorithm.
The V.90 modem software is voiceband modem software for the Hitachi SH-3
processor on a Windows CE platform. This software project was completed
subsequent to the acquisition in 1998 and has been licensed to Hitachi. At the
time of the acquisition this project was approximately 90% complete, and the
fair value assigned to this project was $2.4 million.
The modem modulation software algorithm includes layer 1 software (PHY
software) that provides modulation/demodulation functions of a voiceband modem,
and layer 2 software for a voiceband modem that provides functions such as
control, error correction and data compression. It has a complete set of
flexible and portable voiceband modem and facsimile protocols required for our
customers' voiceband modem products. At the time of the acquisition, this
project was approximately 90% complete, and the fair value assigned to this
project was $2.4 million. This project was subsequently terminated.
The ADSL software algorithm is a complete software stack that is compliant
with the ITU G.992.2 Standard. The fair value assigned to this project was
$425,000 at the time of the acquisition when this project was approximately 35%
complete. The project is currently 85% complete and has a remaining expected
development cost of $375,000. The remaining risks affecting the timely
completion and commercialization of this project are minimal. The remaining
uncertainties that might affect the outcome of this project are related to the
size of the developing ADSL market.
The in-process research and development valuation was determined using the
income-based approach for the V.90 modem software and replacement cost method
for the software algorithms. The acquired in-process technology was not
considered to have reached technological feasibility and had no alternative
future use. Accordingly, the amount was charged to operations upon acquisition.
For more information on the valuation of the acquired in-process research and
development, see Note 4 of notes to consolidated financial statements. For
information showing our unaudited pro forma results of operations including RSA
Communications for the fiscal year ended March 31, 1999, see Virata Corporation
Pro Forma Combined Financial Information on page F-33.
Our limited operating history in the DSL market makes it difficult to
forecast our future operating results accurately. To date, we have not achieved
profitability in any quarterly or annual period, and as of October 3, 1999, we
had an accumulated deficit of $58.2 million. Although our total revenues have
grown in recent quarters, we cannot be certain that our total revenues will
increase at a rate sufficient to achieve and maintain profitability.
Recent Developments
Financial Trends
Our revenues have increased during each of the past four quarters ended
October 3, 1999, however, we continue to operate at a loss, with operating
expenses exceeding revenues.
28
<PAGE>
Private Placement Financing
On October 12, 1999, in a private placement with Siemens Information and
Communication Networks, Inc., Olivetti Telemedia Investments B.V. and LSI Logic
Inc., Virata Limited issued 6,153,846 shares of its series E preference shares
at a purchase price of $1.30 per share, prior to giving effect to the 1 for 6.7
reverse stock split, for an aggregate purchase price of $8.0 million. The
series E preference shares will convert into 918,484 shares of our common stock
immediately prior to this offering. See "Certain Transactions." In connection
with the private placement, the investors in the private placement were granted
registration rights for the shares of common stock they purchased. See
"Description of Capital Stock--Registration Rights."
The series E investors include:
<TABLE>
<CAPTION>
Investment
Investor (millions) Description
-------- ---------- -----------
<S> <C> <C>
Olivetti Telemedia 3.0 Parent of Telecom Italia and Telecom Italia
Investments B.V. ...... Mobile, Italy's largest wireless and
Europe's largest wireless carriers,
respectively. Olivetti was an important
source of our initial technology.
Siemens Information and
Communication Networks, 3.0 Siemens is a leading worldwide
Inc. .................. telecommunications company and a customer
of ours since August 1999.
LSI Logic Inc. ......... 2.0 A leading global supplier of semiconductor
products. LSI is currently one of our
principal suppliers of semiconductors.
</TABLE>
In addition to the financial investment, we believe that our strategic
relationships with the series E investors will benefit our business by
providing access to additional technical, marketing and distribution expertise,
and potentially a large number of end users of DSL technologies.
Reorganization
Immediately prior to this offering, Virata Corporation became the holding
company of Virata Limited, pursuant to a share reconstruction under Section 425
of the United Kingdom Companies Act of 1985. See "Certain Transactions--
Reorganization of Virata Limited."
Reverse Stock Split
Immediately prior to this offering and immediately after the reorganization
of Virata Limited, we will effect a 1 for 6.7 reverse stock split of our common
stock. No fractional shares will be issued as a result of the reverse stock
split. In lieu of any fractional shares, shareholders will be paid an amount in
cash equal to such fractional interest multiplied by the initial price to the
public of our common stock in this offering.
29
<PAGE>
Results of Operations
The following table sets forth, for the periods presented, certain data from
our consolidated statement of operations expressed as a percentage of total
revenues.
<TABLE>
<CAPTION>
Six Months Six Months
Year Ended March 31, Ended Ended
------------------------ September 30, October 3,
1997 1998 1999 1998 1999
------ ------ ------ ------------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data as a
Percentage of Total
Revenues
Revenues:
Semiconductors........... -- % 5.7% 30.1% 33.1% 61.6%
License.................. 14.0 17.6 17.6 19.7 9.3
Services and royalty..... 16.3 13.4 25.5 21.0 14.2
Systems.................. 69.7 63.3 26.8 26.2 14.9
------ ------ ------ ------ ------
Total revenues......... 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------
Cost of revenues:
Semiconductors........... -- 3.6 26.2 26.0 34.2
License.................. -- -- -- -- --
Services and royalty..... 2.7 2.2 5.7 4.5 6.0
Systems.................. 54.0 36.6 11.3 13.7 8.6
------ ------ ------ ------ ------
Total cost of
revenues.............. 56.7 42.4 43.2 44.2 48.8
------ ------ ------ ------ ------
Gross profit.............. 43.3 57.6 56.8 55.8 51.2
Operating expenses:
Research and
development............. 50.6 44.6 89.9 70.0 90.4
Sales and marketing...... 68.4 45.6 31.5 27.0 33.4
General and
administrative.......... 49.0 55.1 60.2 60.5 40.6
Restructuring costs...... -- 20.9 -- -- --
Amortization of
intangible assets....... -- -- 5.9 2.7 6.5
Amortization of stock
compensation............ -- 4.5 15.1 13.3 8.9
Acquired in-process
research and
development............. -- -- 56.8 102.7 --
------ ------ ------ ------ ------
Total operating
expenses.............. 168.0 170.7 259.4 276.2 179.8
------ ------ ------ ------ ------
Loss from operations...... (124.7) (113.1) (202.6) (220.4) (128.6)
Interest and other income
(expense), net........... 1.9 (2.0) 17.2 (8.0) (4.8)
------ ------ ------ ------ ------
Net loss.................. (122.8)% (115.1)% (185.4)% (228.4)% (133.4)%
====== ====== ====== ====== ======
</TABLE>
Six Months Ended September 30, 1998 and October 3, 1999
Total Revenues
Total revenues increased 10.9% from $5.1 million for the six months ended
September 30, 1998 to $5.7 million for the six months ended October 3, 1999.
While total revenues were largely unchanged, semiconductor revenues increased
while license, services and royalty, and systems revenues decreased
significantly.
Semiconductor revenues increased 105.8% from $1.7 million for the six months
ended September 30, 1998 to $3.5 million for the six months ended October 3,
1999. The increase in semiconductor revenues, from 33.1% of total revenues for
the six months ended September 30, 1998 to 61.6% of total revenues for the six
months ended October 3, 1999, was due primarily to a substantial increase in
shipments of semiconductors to Orckit Communications. Sales to this customer
totaled $2.9 million in the six months ended October 3, 1999.
License revenues decreased 47.7% from $1.0 million for the six months ended
September 30, 1998 to $528,000 for the six months ended October 3, 1999. The
decrease in license revenues, from 19.7% of total revenues for the six months
ended September 30, 1998 to 9.3% of total revenues for the six months ended
October 3, 1999, was largely due to a decrease in the average selling price for
software licenses.
Services and royalty revenues decreased 24.8% from $1.1 million for the six
months ended September 30, 1998 to $808,000 for the six months ended October 3,
1999. The decrease in services and royalty revenues,
30
<PAGE>
from 21.0% of total revenues for the six months ended September 30, 1998 to
14.2% of total revenues for the six months ended October 3, 1999, was due
primarily to the introduction of our design and consulting services, offset by
a decrease in royalty revenues.
Systems revenues decreased 36.7% from $1.3 million for the six months ended
September 30, 1998 to $848,000 for the six months ended October 3, 1999. The
decrease in systems revenues, from 26.2% of total revenues for the six months
ended September 30, 1998 to 14.9% of total revenues for the six months ended
October 3, 1999, was the result of our decision in September 1997 to focus our
efforts on semiconductor sales.
Cost of Revenues and Gross Margin
Total cost of revenues consists primarily of semiconductor costs paid to
foundry vendors, costs attributable to design services and software maintenance
and operations expense including miscellaneous cost of revenues. Total cost of
revenues increased 22.4% from $2.3 million for the six months ended September
30, 1998 to $2.8 million for the six months ended October 3, 1999. The increase
in total cost of revenues, from 44.2% of total revenues for the six months
ended September 30, 1998 to 48.8% of total revenues for the six months ended
October 3, 1999, was primarily due to the increase in cost associated with
higher semiconductor unit sales.
Semiconductor cost of revenues increased 45.6% from $1.3 million for the six
months ended September 30, 1998 to $1.9 million for the six months ended
October 3, 1999. The increase in semiconductor gross margin, from 21.4% for the
six months ended September 30, 1998 to 44.4% for the six months ended October
3, 1999, was primarily due to product mix and an increase in sales volume
during the six months ended October 3, 1999.
There are no costs of revenues associated with our software license
revenues. As noted above, license revenues decreased 47.7% for the six months
ended October 3, 1999 as compared to the six months ended September 30, 1998.
The revenue decrease negatively impacted gross margins.
Services and royalty cost of revenues increased 47.6% from $229,000 for the
six months ended September 30, 1998 to $338,000 for the six months ended
October 3, 1999. The decrease in gross margin associated with services and
royalty revenues, from 78.7% for the six months ended September 30, 1998 to
58.2% for the six months ended October 3, 1999, was primarily the result of
costs incurred for design services and expenses associated with royalty
revenues.
Systems cost of revenues decreased 30.0% from $701,000 for the six months
ended September 30, 1998 to $491,000 for the six months ended October 3, 1999.
The decrease in systems gross margin, from 47.7% for the six months ended
September 30, 1998 to 42.1% for the six months ended October 3, 1999, was
primarily due to a change in customer mix.
Research and Development Expenses
Research and development expenses consist primarily of engineering staffing
costs and technology license fees. Research and development expenses increased
43.1% from $3.6 million, or 70.0% of total revenues, for the six months ended
September 30, 1998 to $5.1 million, or 90.4% of total revenues, for the six
months ended October 3, 1999. The increase was primarily due to the addition of
research and development personnel, which grew from 43 to 81 engineers as a
result of the acquisition of RSA Communications and accelerated new product
development. In comparison to the previous period, the number of new products
under development increased substantially. We expect research and development
expenses to increase in absolute dollar amounts in future periods as we further
expand our research and development organization and acquire additional
intellectual property for inclusion in semiconductor device designs.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of employee salaries, sales
commissions, travel and related costs for sales and marketing personnel,
promotional materials and trade show expenses. Sales and marketing
31
<PAGE>
expenses increased 37.3% from $1.4 million, or 27.0% of total revenues, for the
six months ended September 30, 1998 to $1.9 million, or 33.4% of total
revenues, for the six months ended October 3, 1999. The increase was primarily
due to the addition of sales and marketing personnel and increased marketing
activity. We expect sales and marketing expenses to increase in absolute dollar
amounts in future periods as sales and marketing activities increase.
General and Administrative
General and administrative expenses consist primarily of employee salaries
and related expenses for executive, accounting, legal and administrative
personnel, and costs associated with facilities, professional service fees and
other general corporate expenses. General and administrative expenses decreased
25.7% from $3.1 million, or 60.5% of total revenues, for the six months ended
September 30, 1998 to $2.3 million, or 40.6% of total revenues, for the six
months ended October 3, 1999. The decrease was primarily due to bad debt
expense which decreased from $1.3 million for the six months ended September
30, 1998 to $60,000 for the six months ended October 3, 1999. We expect general
and administrative expenses to increase in absolute dollar amounts as we
further invest in infrastructure and incur additional expenses related to the
anticipated growth of our business and operation as a publicly held company.
Amortization of Intangible Assets
Amortization of intangible assets expense is related to the acquisition of
RSA Communications, which occurred in July 1998. For the six months ended
October 3, 1999, amortization of intangible assets expense was $370,000. We are
amortizing the intangible assets on a straight-line basis over 60 months
beginning in the quarter ended September 30, 1998.
Amortization of Stock Compensation
Through October 3, 1999, we had recorded a total of $3.4 million of unearned
stock compensation. We recognized amortization of stock compensation of
$683,000 for the six months ended September 30, 1998 and $505,000 for the six
months ended October 3, 1999.
Interest Expense
Interest expense resulted primarily from interest expense related to
obligations under capital leases and our bank line of credit. Interest expense
decreased from $102,000 for the six months ended September 30, 1998 to $92,000
for the six months ended October 3, 1999.
Interest Income and Other Income (Expense), Net
Interest income and other income (expense), net consists primarily of
interest earned on cash and cash equivalents, short-term investments and
foreign currency translation adjustments. Interest income and other income
(expense), net decreased from an expense of $305,000 for the six months ended
September 30, 1998 to an expense of $183,000 for the six months ended October
3, 1999. The decrease in interest income and other income (expense), net was
primarily due to lower average cash balances in the six months ended October 3,
1999. In addition, we recorded a foreign currency transactions loss of $732,000
for the six months ended September 30, 1998 and a foreign currency transactions
loss of $333,000 for the six months ended October 3, 1999.
Income Taxes
Since inception, we have incurred net losses for federal and state tax
purposes and have not recognized any tax provision or benefit.
32
<PAGE>
Fiscal Years Ended March 31, 1997, 1998 and 1999
Total Revenues
Total revenues increased 28.4% from $7.0 million for the fiscal year ended
March 31, 1997 to $8.9 million for the fiscal year ended March 31, 1998. Total
revenues increased 3.6% to $9.3 million for the fiscal year ended March 31,
1999.
No semiconductor revenues were recorded in the fiscal year ended March 31,
1997. Semiconductor revenues increased 451.1% from $505,000 for the fiscal year
ended March 31, 1998 to $2.8 million for the fiscal year ended March 31, 1999.
Semiconductor revenues increased from 5.7% of total revenues for the fiscal
year ended March 31, 1998 to 30.1% of total revenues for the fiscal year ended
March 31, 1999 as a growing number of software licensees began initial trials
and deployments of broadband access devices.
License revenues increased 61.7% from $971,000 for the fiscal year ended
March 31, 1997 to $1.6 million for the fiscal year ended March 31, 1998. The
increase in license revenues, from 14.0% of total revenue for the fiscal year
ended March 31, 1997 to 17.6% for the fiscal year ended March 31, 1998, was the
result of increased success expanding our software licensee customer base.
License revenues of $1.6 million for the fiscal year ended March 31, 1999 were
substantially the same as the fiscal year ended March 31, 1998. License
revenues were 17.6% of total revenues for both the fiscal year ended March 31,
1998 and 1999.
Services and royalty revenues increased 6.3% from $1.1 million for the
fiscal year ended March 31, 1997 to $1.2 million for the fiscal year ended
March 31, 1998, but decreased from 16.3% to 13.5% of total revenues. Services
and royalty revenues increased 96.3% to $2.4 million for the fiscal year ended
March 31, 1999 and increased to 25.6% of total revenue. The increase is due
primarily to revenues contributed by Virata Raleigh Corporation under analog
modem consulting engineering agreements.
Systems revenues for the fiscal year ended March 31, 1997 totaled $4.8
million, or 69.7% of total revenues. Systems revenues increased 16.5% to $5.7
million for the fiscal year ended March 31, 1998. Systems revenues decreased
56.2% to $2.5 million for the fiscal year ended March 31, 1999. The decrease in
systems revenues, from 63.3% of total revenues for the fiscal year ended March
31, 1998 to 26.8% of total revenues for the fiscal year ended March 31, 1999,
was primarily due to our decision in September 1997 to focus our sales and
development efforts on semiconductor devices for the DSL market. During the
fiscal year ended March 31, 1999, sales to Com21 represented 72.4% of systems-
level product revenues.
Cost of Revenues and Gross Margin
Total cost of revenues consists primarily of semiconductor costs paid to
foundry vendors, costs attributable to design services and software maintenance
and operations expense including miscellaneous cost of revenues. Total cost of
revenues was $3.9 million, or 56.7% of total revenues, for the fiscal year
ended March 31, 1997. Cost of revenues increased from $3.8 million, or 42.4% of
total revenues, for the fiscal year ended March 31, 1998 to $4.0 million, or
43.2% of total revenues, for the fiscal year ended March 31, 1999.
No semiconductor revenues or costs were recorded for the fiscal year ended
March 31, 1997. Cost of revenues for semiconductors increased 644.6% from
$325,000 for the fiscal year ended March 31, 1998 to $2.4 million for the
fiscal year ended March 31, 1999. Semiconductor gross margin decreased from
35.6% for the fiscal year ended March 31, 1998 to 13.0% for the fiscal year
ended March 31, 1999 as a result of reduced selling prices for existing
products and product costs and inventory provisions associated with new product
introductions.
There are no costs of revenues associated with our software license
revenues.
Services and royalty cost of revenues increased 3.8% from $185,000 for the
fiscal year ended March 31, 1997 to $192,000 for the fiscal year ended March
31, 1998. Cost of revenues for services and royalty revenues
33
<PAGE>
increased 174.4% to $528,000 for the fiscal year ended March 31, 1999. Services
and royalty revenues gross margin increased from 83.7% for the fiscal year
ended March 31, 1997 to 84.1% for the fiscal year ended March 31, 1998.
Services and royalty revenues gross margin decreased to 77.7% for the fiscal
year ended March 31, 1999 as the result of costs associated with design
services revenues and royalty expenses associated with royalty income.
Systems cost of revenues decreased 12.9% from $3.8 million for the fiscal
year ended March 31, 1997 to $3.3 million for the fiscal year ended March 31,
1998. For the fiscal year ended March 31, 1999, systems cost of revenues
decreased 68.0% to $1.0 million. Gross margin for systems products improved
from 22.6% for the fiscal year ended March 31, 1997 to 42.1% for the fiscal
year ended March 31, 1998. Systems product gross margin improved further to
57.7% for the fiscal year ended March 31, 1999 as the result of decreased
operations support expenses and a narrower systems product range.
Research and Development Expenses
Research and development expenses increased 13.3% from $3.5 million for the
fiscal year ended March 31, 1997 to $4.0 million for the fiscal year ended
March 31, 1998. The increase was attributable primarily to the addition of
personnel in our research and development organization associated with
semiconductor product development. Research and development expenses increased
108.9% to $8.3 million for the fiscal year ended March 31, 1999. The increase
was primarily the result of increased staffing in Cambridge, England, as well
as the addition of personnel as a result of the acquisition of RSA
Communications and continued hiring at our Raleigh, North Carolina facility
following the acquisition.
Sales and Marketing Expenses
Sales and marketing expenses decreased 14.2% from $4.8 million for the
fiscal year ended March 31, 1997 to $4.1 million for the fiscal year ended
March 31, 1998. Sales and marketing expenses decreased a further 28.4% to $2.9
million for the fiscal year ended March 31, 1999. The decrease in sales and
marketing expenses in both periods resulted from our reduced emphasis on
systems-level products from September 1997 and increased focus on semiconductor
products. Sales efforts for semiconductors are targeted to fewer customers and
require lower sales and marketing staffing.
General and Administrative Expenses
General and administrative expenses increased 44.2% from $3.4 million for
the fiscal year ended March 31, 1997 to $4.9 million for the fiscal year ended
March 31, 1998. The increase was primarily due to a $1.1 million bad debt
provision for the fiscal year ended March 31, 1998. General and administrative
expenses increased 13.2% to $5.6 million for the fiscal year ended March 31,
1999. The increase was primarily due to increased staff performing general and
administrative tasks added as a result of the acquisition of RSA Communications
and increased bad debt provision.
Restructuring Cost
We recognized $1.9 million of restructuring cost for the fiscal year ended
March 31, 1998 associated with our reduced emphasis on systems-level products.
Amortization of Intangible Assets
Amortization of intangible assets expense is related to the acquisition of
RSA Communications, which occurred in July 1998. During the fiscal year ended
March 31, 1999, amortization of intangible assets expense was $549,000. We are
amortizing the intangible assets on a straight-line basis over 60 months
beginning in the quarter ended September 30, 1998.
34
<PAGE>
Amortization of Stock Compensation
During the fiscal years ended March 31, 1998 and 1999, we recorded a total
of $3.3 million of unearned stock compensation. We recognized amortization of
stock compensation of $399,000 for the fiscal year ended March 31, 1998 and
$1.4 million for the fiscal year ended March 31, 1999.
Interest Expense
Interest expense increased from $72,000 for the fiscal year ended March 31,
1997 to $214,000 for the fiscal year ended March 31, 1998. The increase in
interest expense was primarily due to interest expense associated with capital
equipment under our lease facility. Interest expense decreased from $214,000
for the fiscal year ended March 31, 1998 to $155,000 for the fiscal year ended
March 31, 1999. The decrease in interest expense was primarily due to interest
expense associated with capital equipment under our lease facility.
Interest Income and Other Income (Expense), Net
Interest and other income (expense), net consists primarily of income earned
on cash and cash equivalents and short-term investments, foreign exchange gains
and losses and income tax refunds. Interest income for the fiscal years ended
March 31, 1997, 1998 and 1999 were $396,000, $121,000, and $786,000,
respectively. Interest income for each fiscal year corresponded to the average
cash balance during the years. During the fiscal years ended March 31, 1997 and
1998 foreign exchange losses were $197,000 and $80,000, respectively. During
the fiscal year ended March 31, 1999 the foreign exchange gain was $427,000,
and an income tax refund was $531,000. Losses at RSA Communications, subsequent
to its acquisition, allowed for the income tax refund.
Income Taxes
Since inception, we have incurred net losses for federal and state tax
purposes and have not recognized any tax provision or benefit. At March 31,
1999, the Company had approximately $14.2 million, $11.7 million and $23.2
million in federal, state and foreign net operating loss carryforwards,
respectively, to reduce future taxable income. The net operating loss
carryforwards expires between 2002 and 2019 for both federal and state
purposes, if not utilized.
As of March 31, 1999, we had deferred tax assets of $14.5 million, which
were fully offset by a valuation allowance. Deferred tax assets consist
principally of the federal and state net operating loss carryforwards,
capitalized start-up expenditures, accruals and reserves not currently
deductible for tax purposes, research and development credits and foreign tax
credit carryforwards. We have provided a valuation allowance due to the
uncertainty of generating future profits that would allow for the realization
of these deferred tax assets. Accordingly, no tax benefit was recorded in the
accompanying consolidated statements of operations.
35
<PAGE>
Quarterly Results of Operations
The following table sets forth our consolidated operating results for each
of the six quarters ended October 3, 1999. This data has been derived from
unaudited consolidated financial statements that, in the opinion of our
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of this information when read in
conjunction with our annual audited consolidated financial statements and notes
thereto appearing elsewhere in this prospectus. These operating results are not
necessarily indicative of results of any future period.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------
June 30, Sept 30, Dec 31, Mar 31, June 30, Oct 3,
1998 1998 1998 1999 1999 1999
-------- -------- ------- ------- -------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Semiconductors......... $ 675 $ 1,022 $ 425 $ 662 $ 1,419 $ 2,074
License................ 994 15 175 444 274 254
Services and royalty... 341 734 700 592 373 435
Systems................ 754 586 417 720 599 249
------ -------- ------- ------- ------- -------
Total revenues....... 2,764 2,357 1,717 2,418 2,665 3,012
------ -------- ------- ------- ------- -------
Cost of revenues:
Semiconductors......... 419 914 246 842 811 1,130
License................ -- -- -- -- -- --
Services and royalty... 55 174 138 161 138 200
Systems................ 444 257 374 (27) 324 167
------ -------- ------- ------- ------- -------
Total cost of
revenues............ 918 1,345 758 976 1,273 1,497
------ -------- ------- ------- ------- -------
Gross profit............ 1,846 1,012 959 1,442 1,392 1,515
Operating expenses:
Research and
development........... 1,202 2,384 2,553 2,184 2,549 2,581
Sales and marketing.... 532 849 710 826 923 973
General and
administrative........ 759 2,340 965 1,503 903 1,400
Amortization of
intangible assets..... -- 137 206 206 194 176
Amortization of stock
compensation.......... 306 377 363 348 266 239
Acquired in-process
research and
development........... -- 5,260 -- -- -- --
------ -------- ------- ------- ------- -------
Total operating
expenses............ 2,799 11,347 4,797 5,067 4,835 5,369
------ -------- ------- ------- ------- -------
Loss from operations.... (953) (10,335) (3,838) (3,625) (3,443) (3,854)
Interest and other
income (expense), net.. 10 (417) 648 1,353 428 (703)
------ -------- ------- ------- ------- -------
Net loss................ $ (943) $(10,752) $(3,190) $(2,272) $(3,015) $(4,557)
====== ======== ======= ======= ======= =======
As a Percentage of Total
Revenues
Revenues:
Semiconductors......... 24.4% 43.4% 24.7% 27.4% 53.2% 68.9%
License................ 36.0 0.6 10.2 18.3 10.3 8.3
Services and royalty... 12.3 31.1 40.8 24.5 14.0 14.4
Systems................ 27.3 24.9 24.3 29.8 22.5 8.4
------ -------- ------- ------- ------- -------
Total revenues....... 100.0 100.0 100.0 100.0 100.0 100.0
------ -------- ------- ------- ------- -------
Cost of revenues:
Semiconductors......... 15.1 38.8 14.3 34.8 30.4 37.5
License................ -- -- -- -- -- --
Services and royalty... 2.0 7.4 8.0 6.6 5.2 6.7
Systems................ 16.1 10.9 21.8 (1.1) 12.2 5.5
------ -------- ------- ------- ------- -------
Total cost of
revenues............ 33.2 57.1 44.1 40.3 47.8 49.7
------ -------- ------- ------- ------- -------
Gross profit............ 66.8 42.9 55.9 59.7 52.2 50.3
Operating expenses:
Research and
development........... 43.5 101.1 148.7 90.3 95.7 85.7
Sales and marketing.... 19.2 36.0 41.4 34.2 34.6 32.3
General and
administrative........ 27.5 99.3 56.2 62.2 33.9 46.5
Amortization of
intangible assets..... -- 5.8 12.0 8.5 7.2 5.9
Amortization of stock
compensation.......... 11.1 16.0 21.1 14.4 10.0 7.9
Acquired in-process
research and
development........... -- 223.2 -- -- -- --
------ -------- ------- ------- ------- -------
Total operating
expenses............ 101.3 481.4 279.4 209.6 181.4 178.3
------ -------- ------- ------- ------- -------
Loss from operations.... (34.5) (438.5) (223.5) (149.9) (129.2) (128.0)
Interest and other
income (expense), net.. 0.4 (17.7) 37.7 56.0 16.1 (23.3)
------ -------- ------- ------- ------- -------
Net loss................ (34.1)% (456.2)% (185.8)% (93.9)% (113.1)% (151.3)%
====== ======== ======= ======= ======= =======
</TABLE>
36
<PAGE>
Semiconductor revenues increased 51.4% to $1.0 million for the three months
ended September 30, 1998 as compared to $675,000 for the prior three-month
period. Semiconductor revenues decreased 58.4% to $425,000 for the three months
ended December 31, 1998 as compared to the prior three-month period. This
increase followed by a decrease was due to the timing of shipments to one
customer.
Our software license revenues have fluctuated during the last six quarters
ended October 3, 1999. Because of the limited number of licenses signed during
any three-month period, small changes in the number of licenses sold caused
significant changes in quarterly license revenues. During the three months
ended June 30, 1998, we adopted SOP 97-2, which affected the periods in which
license revenues were recognized. In addition, we substantially reduced the
average selling price for our licenses, which contributed to the increase in
the number of licenses sold and also contributed to the fluctuations in
quarterly license revenues.
Services and royalty revenues increased 115.4% from $341,000 for the three
months ended June 30, 1998 to $734,000 for the three months ended September 30,
1998. The increase was due primarily to the acquisition of RSA Communications
in July 1998. Services and royalty revenues have subsequently declined for
three quarters following the three months ended September 30, 1998 reflecting
our decision to offer consulting services only to companies that sign a
software license agreement.
Research and development expenditures increased 98.4% from $1.2 million for
the three months ended June 30, 1998 to $2.4 million for the three months ended
September 30, 1998. The increase was primarily due to our acquisition of RSA
Communications, which added 17 engineers to our staff, and accelerated product
development.
General and administrative expenses increased 208.3% to $2.3 million in the
three months ended September 30, 1998 as compared to $759,000 for the prior
three-month period. General and administrative expenses decreased 58.8% to
$965,000 in the three months ended December 31, 1998 as compared to the prior
three-month period. The increase followed by a decrease was principally due to
bad debt expense arising primarily from two customers. The first bad debt
expense related to a systems-level product customer, which purchased
substantially all of our remaining adapter card products. The customer
subsequently went out of business. The second bad debt expense related to Hayes
Microcomputer's decision to file for bankruptcy. We have adopted credit
policies that we believe will limit future customer non-payments. However, we
can not offer any assurances regarding the effectiveness of these policies or
of our ability in general to limit customer non-payments.
Our operating results have fluctuated significantly from quarter to quarter
in the past, and we expect these fluctuations to continue in the future. For a
list of factors that might affect fluctuations in our operating results, see
"Risk Factors--Our operating results in one or more future periods are likely
to fluctuate significantly and may fail to meet or exceed the expectations of
securities analysts or investors, which may cause our stock price to decline."
We believe period to period comparisons of our operating results are not
meaningful. You should not rely on our quarterly operating results to predict
our future performance.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through venture
capital and corporate investments in our convertible preferred stock, which
total approximately $57.1 million in aggregate net proceeds through October 3,
1999. We have also financed our operations through equipment lease financing,
which totaled $1.8 million in principal amount outstanding at October 3, 1999.
As of October 3, 1999, we had approximately $4.1 million of cash and cash
equivalents, working capital of approximately $1.7 million and approximately
$1.8 million under an equipment lease.
Net cash used in operating activities for the fiscal year ended March 31,
1997 of $7.0 million was primarily due to net operating losses of $8.5 million
and an increase in accounts receivable and other current
37
<PAGE>
assets of $797,000, and $615,000, respectively, partially offset by
depreciation and amortization of $1.1 million and increases in accounts payable
and accrued liabilities of $1.0 million and $818,000, respectively. Net cash
used in operating activities for the fiscal year ended March 31, 1998 of $9.2
million was primarily due to net operating losses of $10.3 million and an
increase in accounts receivable of $1.7 million, partially offset by
depreciation and amortization of $1.1 million and a provision for doubtful
accounts of $1.1 million. Net cash used in operating activities for the fiscal
year ended March 31, 1999 of $9.5 million was primarily due to net operating
losses of $17.2 million and a decrease in accrued liabilities of $2.1 million,
partially offset by depreciation and amortization of $1.7 million, a write off
of in-process research and development of $5.3 million, amortization of stock
compensation of $1.4 million and a provision for doubtful accounts of
$1.5 million.
Net cash used in operating activities for the six months ended September 30,
1998 of $4.0 million was primarily due to net operating losses of $11.7 million
and decreases in accrued liabilities of $1.6 million, partially offset by
depreciation and amortization of $673,000, a write-off of in-process research
and development of $5.3 million, a provision for doubtful accounts of $1.3
million, amortization of stock compensation of $683,000, decreases in accounts
receivable and other current assets of $327,000 and $478,000, respectively and
increases in accounts payable of $534,000. Net cash used in operating
activities for the six months ended October 3, 1999 of $5.1 million was
primarily due to net operating losses of $7.6 million and increases in
inventory of $430,000, partially offset by depreciation and amortization of
$1.2 million, amortization of stock compensation of $505,000, increases in
accrued liabilities of $376,000 and decreases in accounts receivable of
$914,000.
Net cash used in investing activities was $622,000 and $174,000 for the
fiscal years ended March 31, 1997 and 1998, respectively, which primarily
reflected purchases of property and equipment. Net cash used in investing
activities was $8.3 million for the fiscal year ended March 31, 1999, which
reflected purchases of property and equipment of $2.1 million, the net cash
paid in connection with the acquisition of RSA Communications of $5.1 million
and the purchase of short-term investments of $1.0 million. For the six months
ended September 30, 1998, net cash used in investing activities was
$5.8 million, due to the acquisition of RSA Communications and $618,000 of
capital equipment purchases. For the six months ended October 3, 1999, net cash
provided by investing activities was $702,000, primarily due to sales of short-
term investments of $1 million offset by capital equipment purchases of
$299,000.
Net cash provided by financing activities was $13.3 million, $2.8 million
and $25.6 million for the fiscal years ended March 31, 1997, 1998 and 1999,
respectively. Net cash provided by financing activities was $24.6 million for
the six months ended September 30, 1998. Net cash used by financing activities
was $377,000 for the six months ended October 3, 1999. Net cash provided by
financing activities in each of these periods was attributable primarily to
proceeds from the issuance of convertible preferred stock, proceeds from
equipment lease financing less repayments on capital lease obligations and, for
the fiscal year ended March 31, 1998, a revolving credit facility.
On August 29, 1999, we entered into a loan and security agreement with
Venture Banking Group, an entity of Greater Bay Bancorp, that provides for
borrowings up to $3.0 million. The agreement bears interest at prime rate plus
one-half percent, and all outstanding advances are due in August 2000.
Borrowings are secured by our property, equipment, intellectual property,
inventory and receivables and require that we comply with certain financial
covenants including the maintenance of specific minimum ratios. As of October
3, 1999, we had $483,000 outstanding debt under this agreement, bearing
interest of 8.75%.
We believe that the net proceeds from this offering, together with our
current cash, cash equivalents, short-term investments and borrowings under our
current credit facility, will be sufficient to meet our anticipated cash needs
for working capital and capital expenditures for the next 12 month. Therefore,
if cash generated from operations is insufficient to satisfy our longterm
liquidity requirements, we may seek to sell additional equity or debt
securities or to obtain an additional credit facility. If additional funds are
raised through the issuance of
38
<PAGE>
debt securities, these securities could have rights, preferences and privileges
senior to holders of common stock, and the terms of any debt could impose
restrictions on our operations. The sale of additional equity or debt
securities could result in additional dilution to our stockholders, and
additional financing may not be available in amounts or on terms acceptable to
us, if at all. If we are unable to obtain this additional financing, we may be
required to reduce the scope of our planned product development and marketing
efforts, which could harm our business, financial condition and operating
results.
Year 2000 Compliance Disclosure
The term "Year 2000 issue" is a general term used to describe the various
problems that may result from the improper processing of dates and date-
sensitive calculations by computers and other machinery as the Year 2000 is
approached and reached. These problems generally arise from the fact that most
of the world's computer hardware and software have historically used only two
digits to identify the year in a date. As a result, date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. These
problems may also arise from other sources as well, such as the use of special
codes and conventions in software that make use of the date field. If not
corrected, these electronic systems could fail or create erroneous results when
addressing dates on and after January 1, 2000.
State of Readiness
To address the Year 2000 issue, we have assembled a team that is responsible
for evaluating our state of readiness in connection with the Year 2000 issue.
Our information services and operations departments have evaluated the
Year 2000 issue, and one employee from each of these departments is designated
as a Year 2000 coordinator.
Our Year 2000 activities have focused primarily in five areas:
. products--analyzing software, semiconductor and circuit boards;
. systems--analyzing financial, materials planning, computer aided design
tools, PC desktops, applications and data;
. suppliers--ensuring a continuous supply of goods and services;
. customers--responding to customers requesting information; and
. policies and contingency plans--adopting policies in areas such as human
resources, finance, travel and security.
For each of these five areas, our strategy has been to:
. develop an awareness and understanding of particular issues;
. determine an appropriate solution for each issue, and plan and provide
resources for the solution;
. validate, test and document the solution;
. execute the solution; and
. ensure that an adequate contingency plan is in place.
Examples of our activities and conclusions in connection with the Year 2000
issue are as follows:
Products
None of our semiconductor products, embedded software or systems-level
products contain any date-related information or circuitry, nor do they have
any functionality specific to time of day, week, month or year. The only
exception to the preceding sentence is that we delivered ATM video storage
system devices to less than 50 customers in 1995 and 1996 for use in
experimental near-video-on-demand. We believe any Year 2000 problems arising in
such devices would in any event cause only negligible loss of functionality to
such devices. However, we cannot be certain of or control the use and
application of our products in conjunction with third party software
development or operating systems, and the failure of such third party products
due to Year 2000 problems could harm our development or sales activities
related to such third party products.
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Systems
We have audited our internal systems and data, both information technology
and non-information technology, including those used for financial and
materials management and for computer aided design workstations and software.
In addition, we have tested our desktop and laptop PCs and applications and
have installed service pack software as required. Further, we have implemented
procedures to ensure that any new hardware or software purchased between now
and the end of 1999 will, when installed, undergo similar tests and audits.
Based on our preliminary assessment, we do not believe that our material
internal systems will be affected by the Year 2000 issue.
Suppliers
In early 1999, we issued Year 2000 questionnaires to over 100 of our
suppliers. We have received satisfactory responses to such questionnaires from
all but eight of these suppliers. We removed these eight suppliers from our
list of approved vendors and determined not to reinstate such suppliers until
they provide us with adequate assurances regarding Year 2000 readiness. The
goods and services previously provided by these eight suppliers are available
to us from other sources at comparable prices. In addition, we have taken
reasonable steps to audit our corporate services, including a review of
infrastructure items such as premises systems, telephones, air conditioners,
elevators and fire alarms. Nevertheless, we are not capable of independently
evaluating the state of Year 2000 readiness of our suppliers, and the failure
of suppliers and other third parties to identify and resolve Year 2000 issues
in a timely manner could harm our business, financial condition or results of
operation.
Customers
We have responded to each customer that has inquired about our Year 2000
readiness and have completed Year 2000 questionnaires upon request. However,
our products, once shipped to customers, are incorporated into other products
that we do not develop. The performance of our products could be affected if a
Year 2000 problem exists in a different component of a customer's product. We
have not, and will not, assess the existence of these potential problems in
customers' products or any other information regarding customers' state of Year
2000 readiness. In addition, our current or future customers may incur
significant expenses to achieve Year 2000 readiness, or customers may face
litigation costs. In either case, Year 2000 problems could reduce or eliminate
the budgets that current or potential customers may have for purchases of our
products and services. As a result, our business, results of operations or
financial conditions could be harmed.
Policies and Contingency Plans
We have developed, and will continue to develop, policies regarding matters
such as vacation time, travel, asset management and security during the roll-
over period. In addition, we intend to implement a complete back-up of all of
our business and technical computer data, with multiple copies of such data
being held in secure locations on December 30, 1999.
Costs to Address the Year 2000 Issue
Our Year 2000 activity has not required significant expense and we expect
that operating costs and margins will not be affected by Year 2000 issues. To
date, we estimate that we have spent approximately $50,000 on implementation of
our Year 2000 preparations, the majority of which relates to staffing costs in
coordinating and auditing ourselves. We believe that only a nominal amount of
work remains to be completed on Year 2000 preparation and we estimate the
remaining costs to completion will not exceed $25,000.
Legal Proceedings
We have not been party to any litigation or proceedings related to the Year
2000 issue, and we are not presently aware of any circumstances that could give
rise to such proceedings. However, we cannot be sure that
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we will not in the future be required to defend our products or services in
legal proceedings, and we cannot guarantee that we will remain free of Year
2000 related disputes. Any liability of Year 2000 related damages, including
consequential damages, could harm our business, operating results and financial
condition.
Based on currently available information, we do not believe that Year 2000
issues will harm our business, financial condition, liquidity or overall
results of operations. However, until the Year 2000 occurs, it is uncertain to
what extent we may be affected by Year 2000 issues.
Risks
As a result of the Year 2000 issue, we may experience serious unanticipated
problems and costs caused by undetected errors or defects in the technology
used in our software and hardware products and internal systems. In addition,
we may be required to defend our products or services in legal proceedings, and
we cannot guarantee that we will remain free of Year 2000 related disputes. If
our software and hardware products or our internal systems are not Year 2000
compliant, the Year 2000 issue could harm our business, financial condition,
liquidity and results of operations. Until the Year 2000 occurs, we cannot be
sure that we will not be affected by the Year 2000 issue.
We do not believe that our company has any specific internal Year 2000
exposure, therefore, the worst case scenario takes the form of non-specific
disruption caused to the environment surrounding us and our operations such as
power failure, communications breakdown, inability of employees to attend the
workplace, transportation failure and/or similar failures occurring at our
customers or suppliers. This is essentially the same worst case scenario that
all businesses face at this time.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivatives and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. In July 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date
of FASB Statement No. 133." SFAS No. 137 deferred the effective date of SFAS
No. 133 until fiscal years beginning after June 15, 2000. We will adopt SFAS
No. 133 during the year ending March 31, 2002. To date, we have not engaged in
derivative or hedging activities. We cannot predict the impact of adopting SFAS
No. 133 if we were to engage in derivative and hedging activities in the
future.
Qualitative and Quantitative Disclosures About Market Risk
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we may
invest in may be subject to market risk. This means that a change in prevailing
interest rates may cause the principal amount of the investment to fluctuate.
For example, if we hold a security that was issued with a fixed interest rate
at the then-prevailing rate and the prevailing interest rate later rises, the
principal amount of our investment will probably decline. To minimize this risk
in the future, we intend to maintain our portfolio of cash equivalents and
short-term investments in a variety of securities, including commercial paper,
money market funds, government and non-government debt securities and
certificates of deposit. In general, money market funds are not subject to
market risk because the interest paid on such funds fluctuates with the
prevailing interest rate. As of October 3, 1999, all of our investments were in
money market funds, certificates of deposits or high quality commercial paper.
See note 1 of the notes to the consolidated financial statements.
We develop products in both the United Kingdom and the United States and
sell in North America, Asia, Israel and Europe. As a result, our financial
results could be affected by factors such as changes in foreign
currency exchange rates or weak economic conditions. A strengthening of the
dollar could make our products less competitive in foreign markets, since all
of our sales are currently made in U.S. dollars.
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BUSINESS
This prospectus contains, in addition to historical information, forward-
looking statements that involve risks and uncertainties. Our actual results
could differ significantly from the results discussed in the forward-looking
statements. Factors that could contribute to such differences include those
discussed in "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," as well as those discussed
elsewhere in this prospectus.
Introduction
Virata provides communications processors combined with integrated software
modules to manufacturers of equipment utilizing digital subscriber line, or
DSL, technologies. These "integrated software on silicon" product solutions
enable our customers to develop a diverse range of DSL equipment, including
modems, gateways and routers targeted at the voice and high-speed data network
access, or broadband, market. We believe our systems expertise, products and
support services enable DSL equipment manufacturers to simplify product
development, reduce the time it takes for products to reach the market and
focus resources on product differentiation and enhancement. We outsource the
manufacturing of our semiconductors, which allows us to focus our resources on
the design, development and marketing of our products. To date we have licensed
our software to 27 companies. These customers have developed, or are
developing, 73 designs of which 27 are currently shipping.
Industry Background
The amount of data being carried over the Internet and private
communications networks has grown dramatically in recent years. International
Data Corporation estimates that the number of Internet users worldwide was
approximately 142 million in 1998 and will reach approximately 502 million in
2003. This tremendous growth in data traffic is expected to continue as the
number of users accessing networks increases and as businesses and consumers
demand richer content and more complex applications for activities such as
telecommuting, electronic commerce and interactive media. These activities
require the transmission of large amounts of data which, in turn, requires
high-speed, broadband data access services for end users to obtain data
reliably and within practical time constraints.
To meet the demand for high-speed, broadband data transmission, network
service providers continue to install high-bandwidth fiber optic transmission
equipment, high-speed switches and core routers in the Internet backbone and in
interoffice networks. While this network backbone is capable of delivering data
at very high speeds, an access bottleneck exists between the telephone
companies' central offices and the end users' premises. The copper line
connections between the telecommunications service provider's central office
and the end user are commonly known as the local loop, or the last mile. The
last mile infrastructure was originally designed for low-speed analog voice
traffic rather than high-speed digital data transmission. As a result, access
to the Internet and private communications networks over the copper wire
infrastructure of the last mile has typically been limited to data transmission
rates of up to 56 Kbps using standard dial-up analog modems, or 128 Kbps using
integrated services digital network, or ISDN, modems. At these rates, several
minutes may be required to access a media rich website, and several hours may
be required to transfer or download large files.
In an effort to provide greater bandwidth in the local loop, network service
providers are deploying higher speed access services, such as frame relay or
T1/E1. However, the historical pricing structure has limited such services to
larger businesses. This competitive environment started to change with the
passage of the Federal Telecommunications Act of 1996 and was accelerated with
the recent merger of AT&T and TCI. The Federal Telecommunications Act
intensified the competitive environment by requiring incumbent local exchange
carriers, to lease portions of their networks, including the local loop, to
other telecommunications service providers. These changes in competitive
structures coincided with the maturation of DSL technology, enabling high-
bandwidth data networking over the existing local loop copper infrastructure.
As a result, a number of companies, including Covad Communications, MCI
WorldCom, NorthPoint Communications, Rhythms
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NetConnections and Sprint, are now deploying high-speed services using DSL
technologies over the copper infrastructure owned by the incumbent local
exchange carriers. In addition, AT&T has announced plans to offer broadband and
interactive services, including telephony, on a broad scale over TCI's cable
systems over the next few years. In response to these competitive pressures,
and in an effort to increase revenues and maintain their existing customer
base, incumbent local exchange carriers are now aggressively committing their
resources to deploy DSL services.
DSL enables data transmission speeds of 128 Kbps to 52 Mbps using the
existing local loop copper wire infrastructure. DSL delivers "always on"
availability, eliminating the tedious dial-up process associated with
traditional analog modem technologies. DSL is a point-to-point technology that
connects the end user to a telecommunications service provider's central office
or to an intermediate hub. DSL equipment is deployed at each end of the copper
wire and the transmission speed depends on the length and condition of the
existing wire as well as the capabilities of the DSL equipment.
DSL implementations offer several attractive benefits over other broadband
technologies, including:
. Dedicated bandwidth. Some alternative high-speed data transmission
solutions, such as cable, are shared-media systems where many users are
attached to the same cable loop, and may suffer performance degradation
or security breaches as users are added to the network. Because each DSL
connection is dedicated to a single user, DSL does not suffer from such
service degradation and enables a higher level of security.
. Broad coverage. Dataquest estimates that the number of installed
telephone lines worldwide was approximately 831 million in 1998 and will
reach over 1.0 billion in 2002. Since virtually all businesses and homes
in developed countries have installed copper telephone wire connections,
DSL technologies can be made available to a large percentage of
potential end users.
. Low cost. Because DSL uses the existing local loop connection, it is
generally less expensive to deploy than other high-speed data
transmission technologies. In addition, recent advances in technology
development, industry standardization and competition are further
enabling widespread, low-cost deployment of DSL.
. Scalable to customer requirements. DSL technology enables service
providers to regulate the transmission speed for individual customers,
allowing tiered pricing at various service levels. Service providers can
then more efficiently segment their customer base.
. Natural upgrade from analog modems. DSL modems use the same phone port
as analog modems, providing the user with a simple upgrade path.
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Equipment manufacturers encounter a number of challenges to meet the demands
of the growing DSL market. These challenges include constantly evolving
technology and networking standards, an expanding range of feature expectations
and shorter product life-cycles. To meet these challenges and reduce the time
it takes for their products to reach the market, equipment manufacturers are
increasingly relying on multiple third-party vendors to deliver critical
component building blocks that can be incorporated into a complete DSL product.
A typical DSL customer premises system, such as a modem, gateway or router,
includes the primary building blocks which are illustrated below:
DSL Customer Premises Equipment
[LOGO OF DSL CUSTOMER PREMISES EQUIPMENTS]
The front end circuitry which is comprised of semiconductors and other
components, receives and transmits the electronic signal and converts that
signal to either analog or digital streams. The physical layer semiconductor,
or PHY, together with its software, establishes, maintains and controls the
digital encoding and decoding of the signal and ensures reliable transmission
of information over the copper wire infrastructure. The layer 2 and 3
processor, combined with complex, multifunctional software modules, is
responsible for managing the addressing, routing, switching and protocol
conversions needed to encapsulate and route
information packets.
The integration of these individual components from multiple third-party
vendors can be a complex, time consuming and costly process. While today there
are a number of vendors which deliver a portion of either the hardware or
software building blocks, an opportunity exists for a supplier capable of
delivering higher levels of integration of both semiconductor and software
components.
The Virata Solution
We provide a solution that combines communications processors with
integrated software modules to manufacturers of equipment utilizing digital
subscriber line, or DSL, technologies. Our systems expertise, "integrated
software on silicon" product solutions and support services enable our
customers to simplify product development, reduce the time it takes for
products to reach the market and focus resources on product differentiation and
enhancement. Our communications processors perform system functions which
require real-time processing speed and are technically mature, thus unlikely to
change as standards evolve. Our proprietary software is used for protocol
processing, management and control of network and semiconductor interfaces,
allowing our communications processors to be fine tuned or fully customized for
specific applications. This approach delivers off-the-shelf functionality for
rapid development, scalability from single PCs to complex edge routers and
flexibility to add new features and quickly respond to evolving standards. Key
features of our solution include:
. Flexible design. Our products are based on a flexible design that
simplifies the addition of features. This design enables new services
such as voice, video and security to be added incrementally as broadband
solutions evolve.
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. PHY-independent. Our devices use generic, industry standard interfaces
to attach to any third party DSL physical layer semiconductor, which are
the other primary semiconductor components required for communications
equipment. By being PHY-independent, our products are able to meet the
demands of multiple OEMs for a wide array of applications within the
broadband local loop.
. Compelling price/performance. By designing software to run only on our
semiconductors we are able to achieve efficiency in silicon area and
code size. The combination of these features results in high
performance, low power consumption and compelling price/performance.
. Standards compliant. Our products are compliant with relevant ATM Forum,
IETF, ITU and other industry standards. Such standards evolve over time
and our products are designed to accommodate such changes.
Our customers recognize the following key benefits from using our solutions:
. Faster time-to-market. Fewer building blocks to integrate results in
shorter development and test cycles, lower engineering risks, faster
product introduction and reduced development costs.
. Reduced product cost. Eliminating costly external components and
reducing board space leads to lower product cost.
. Differentiation. Our customers' engineering resources can be focused on
product differentiation through value-added features and innovations,
rather than on elements contained in our solution.
. Platform for multiple products. Our modular software and hardware
architecture enables the design of multiple products using different
subsets of our modular software.
. Re-usability. As we add features and capabilities to our communications
processors and software modules, software extensions developed by our
customers can continue to be used on future generations of their
products.
The Virata Strategy
Our objective is to be the leading provider of communications processors
integrated with a comprehensive suite of related software to manufacturers of
voice and high-speed data network access equipment. Key elements of our
strategy include:
. Initial focus on DSL. We have built extensive expertise providing
solutions that integrate communications processors with software for the
content and connection enabling layers of the broadband communications
network. While our core technologies are capable of supporting a number
of broadband access alternatives, we have chosen to initially focus on
the DSL market.
. License our software to all customers. We typically license our software
to a customer at the time we achieve an initial design win. The customer
then designs products incorporating our communications processors, which
they purchase separately from us. By standardizing on our software,
customers build a foundation for integrating additional functionality
and designing next generation products. We believe that once a customer
employs our architecture and experiences the benefits of our systems
expertise, we become that customer's preferred partner for future
products.
. Leverage our flexible design. Our integrated solution provides us
substantial flexibility to extend our existing products, whether at the
software or semiconductor level, to meet evolving standards and features
required by the market. This approach allows our customers to achieve
faster time-to-market, lower development costs and focus engineering
resources on proprietary product feature development.
. Pursue strategic acquisitions. Our strategy is to enhance our growth
capability by pursuing selective acquisitions. This strategy allows us
to more rapidly obtain complementary technologies and engineering talent
and to access certain markets and key customer relationships. Consistent
with this strategy, we acquired RSA Communications in 1998. We believe
completing selective acquisitions will be important to remain
competitive as a complete solutions provider to manufacturers of
broadband access equipment.
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Products
We specialize in communications processors that are integrated with a
comprehensive suite of software for DSL equipment manufacturers. Our
communications processors perform the critical content encapsulation and
content routing functionality required in DSL equipment, which is commonly
referred to as layer 2 and layer 3 processing. Our system combines multiple
elements required for managing the addressing, routing, switching and protocol
conversions needed to encapsulate and route information packets. This
integration of communications processors and software provides our customers a
comprehensive, tested, self sufficient product that replaces semiconductors,
software and support previously sourced from multiple vendors.
Semiconductor Products
We offer two families of semiconductor products: the Proton family of
application specific integrated circuits, or ASICS, and the ATOM family of
application specific standard products, or ASSPs. The Proton ASICs are used in
various combinations to enable different applications including switching
fabrics for small to mid-sized DSLAMs. Proton products enabled customers to
quickly develop their products prior to the establishment of widely accepted
broadband access standards. The following is a list of our Proton family
products:
<TABLE>
<CAPTION>
Product Function Target Applications Introduction Date
<C> <S> <C> <C>
Boson ISA bus interface ATM adapter cards April 1995
- -----------------------------------------------------------------------------------
Quark ATM cell buffer and April 1995
processor for switch or
adapter network ports
- ------------------------------------------------------------
--------------------
Gluon ATM Forum CRC generator A combination of these April 1995
and ARM RISC products creates a switching
microprocessor support fabric for DSLAMs or cable
head-ends
- ------------------------------------------------------------
--------------------
Hadron ATM cell address hasher January 1996
for switching
applications
- ------------------------------------------------------------
--------------------
TBX ATM traffic shaping August 1997
controller and buffer
for switching
applications
</TABLE>
The establishment of broadband access standards and our experience with the
Proton ASIC family has enabled us to design the ATOM family of ASSPs for OEMs
focusing on the DSL market. These communications processors combine the
relevant elements of the Proton ASICs with at least one embedded ARM RISC
microprocessor. ATOM devices also provide Ethernet, PCI or USB network
interfaces as well as Utopia for connection to physical layer devices and other
semiconductors. While Hydrogen features a single embedded ARM RISC
microprocessor, Helium and Lithium contain two ARM RISC microprocessors to
separate protocol and network processing. The Hydrogen, Helium and Lithium
ASSPs support physical layer devices from a broad range of vendors. The
following is a list of our PHY-independent ATOM family products:
<TABLE>
<CAPTION>
Product Interfaces Target Applications Introduction Date
<C> <S> <C> <C>
Hydrogen PCI, Utopia 1 and ATM25 DSL internal and external August 1997
PHY modems and set-top boxes
- -------------------------------------------------------------------------------------
Helium USB, Utopia 1/2, ADSL DSL external modems, June 1999
T1.432, HDLC and 10BaseT gateways, routers, DSLAMs
Ethernet and DLC line cards
- -------------------------------------------------------------------------------------
Lithium PCI, Utopia 1/2 and ADSL DSL internal and external October 1999
T1.432 modems, gateways and set-top
boxes
</TABLE>
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We are developing a new generation of ATOM products to support the
transition from analog access equipment to next-generation DSL equipment. These
products leverage our extensible architecture to combine PHY layer processing
for both analog and digital technologies along with the layer 2 and layer 3
functionality of Helium and Lithium into a single highly integrated device. The
first PHY-integrated product we are developing for this market is Beryllium,
which is described below:
<TABLE>
<CAPTION>
Product Interfaces Target Applications Introduction Date
<C> <S> <C> <C>
Beryllium ADSL, V.90, PCI and USB ADSL/V.90 internal and March 2000
interfaces (for Ethernet external modems and gateways
and home phone-line
networking)
</TABLE>
By utilizing the Beryllium solution, equipment manufacturers will be able to
offer products that are functional with either dial-up 56K V.90 or ADSL
networks. Because of its dual V.90 and ADSL character, Beryllium will allow the
consumer to buy an "ADSL-ready" modem and subsequently upgrade from V.90 to
ADSL network access without any changes to their modem equipment once ADSL
services are available from the consumer's service provider. We cannot be sure
that if new products or product enhancements are developed, any such new
products or product enhancements will be developed in time to capture market
opportunities or achieve a significant or substantial level of acceptance in
new and existing markets.
Software
Our software is key to providing flexible, off-the-shelf processing
solutions. Multiple software modules deliver management and support for
functions at the link, protocol and physical layer. These modules operate on
top of ATMOS, our real-time operating system, which is optimized for
communications applications that run on ARM RISC microprocessors. The software
provides our customers a ready-to-deploy menu of over 50 modules to meet their
specific product requirements. Together, the modules complete a customized,
sophisticated system which supports multiple functions including quality of
service, system management, bridging, tunneling, address translation, signaling
and routing. We also offer customers a full set of software development tools
including compilers, linkers and other special-purpose tools.
Design and Support Services
We offer a number of design and support services which we believe add
substantial value to our product offerings. Our key services are detailed
below:
Custom Design Services
Our Customer Services and Solutions group specializes in product development
engagements for customers that require additional resources or particular
technical skills during the development stage. A typical project will take
three to six months to complete and comprises development and delivery of
system hardware, software and all supporting documentation enabling the
customer to rapidly commence production. We believe these services provide a
critical advantage in winning business.
Technical Support Services
Once customers have purchased a license for our software, they desire to
quickly and efficiently commence product development. We assist our customers
by providing five days of comprehensive training in the use of our
semiconductors and software development systems. Through our extranet site,
which is accessible to all of our customers, we deliver new software and
documentation and take action on bug reports. Our support engineers assist our
customers throughout the product development cycle which can include formal and
informal design reviews.
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Evaluation Systems
We help our customers accelerate their product development programs by
designing a board-level evaluation system for each ATOM product. Typically each
time a new ATOM ASSP is introduced, an evaluation system featuring the new
product is made available to our customers simultaneously with the first
release to customers of the new semiconductor. This approach provides an
effective way for our customers to evaluate the new semiconductor and its
software while enabling designers to add their own functionality.
Technology
A key element of our success is our technology expertise which spans
physical, networking and protocol layer processing and systems-level knowledge.
Our semiconductor and software architectures are designed to enable the rapid,
flexible development of new products to meet the evolving feature, performance
and standards compliance demands of the broadband access market. A single-chip,
multi-processor architecture was chosen as the most flexible and cost-efficient
approach to the complex challenge of satisfying the requirements of:
. layer 2 and 3 processing for broad application across the different DSL
technologies when used in conjunction with physical layer transceivers
from third party vendors;
. integration of analog processing with DSL processing on a single
communications processor;
. processing support for an evolving range of services and applications
such as high speed Internet access, corporate routing, voice services,
security and encryption for Virtual Private Networks, or VPNs, and video
distribution; and
. broad application of our solutions whether used in modems close-coupled
to PCs, Internet appliances, remote gateways and routers, DSLAMs or
DLCs.
We believe the core of our technology expertise is delivered to our
customers through our ASSP architecture, software architecture, communications
algorithms, digital signal processing, ATM, Frame and Internet protocol
processing and systems-level expertise.
ASSP Architecture
Our current ASSP architecture is specifically designed to meet the
performance and feature demands for broadband access equipment. This
architecture provides the flexibility for application in a wide range of
customer premises equipment without the need for additional processing support.
For example, when used inside or close coupled to a PC, our ASSPs and software
place minimal demands on the host PC processor freeing it to focus on its own
operating system and application software support. We believe this approach
results in improved user satisfaction through enhanced PC reliability and
better performance, and minimized support costs for PC suppliers and service
providers.
The architecture is based on a dual bus structure. One bus connects the
embedded ARM RISC processors used for protocol processing, network processing
and other control functions with a wide range of physical interfaces. These
physical interfaces support connection of our communications processors to
other semiconductors and memory systems as well as to external devices such as
PCs and Ethernet hubs. The second bus supports DSPs and other specialized
processors. Both buses access common resources such as an SDRAM controller, an
interprocessor gateway, processor registers and debugging facilities.
This architecture makes it possible for us to quickly develop new ASSPs to
meet evolving standards and the application demands of the market.
Software Architecture
By simultaneously developing the software and semiconductor architectures,
we have achieved tight software/semiconductor integration. This results in
better system performance, smaller chip size, fewer lines of
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code and lower memory requirements than is possible by the complex alternative
of assembling, integrating and
testing functionally equivalent software elements from multiple off-the-shelf
sources. Our software architecture partitions the processing requirements into
time critical and non-time critical tasks. All time critical code is optimized
to run on the network processor ensuring the high performance required for low
latency and control of external interfaces. A compact real-time operating
system controls processing on the protocol processor.
The modular construction of the software architecture makes it easier to add
further functionality without the need to re-test the integrity of the entire
software stack. This facilitates rapid development and release of new software
features.
Communications Algorithms and Digital Signal Processing
Communications algorithms are the processes and techniques used to transform
a digital data stream into a specially conditioned signal suitable for
transmission across copper telephone wires. We have extensive experience
developing software code for the voice modem market and are leveraging that
expertise to develop the solutions required for the ITU G.992.2 standard. PHY
layer code is executed in our Beryllium communications processor using a
compact, low power DSP supported by fixed function processors.
ATM, Frame and Internet Protocol Processing
The ATM processing software manages, channels, buffers and shapes ATM cells
and utilizes the custom hardware filters in the semiconductors to achieve the
optimum trade-off between software flexibility and hardware performance. To
support transmission of frame encapsulated data, our software supplies drivers
for Ethernet and HDLC as well as a variety of methods for encapsulating frames
over ATM. The software management capabilities for layer 3 processing include
TCP/IP, IP routing, network address translation, IP configuration and
tunneling.
Systems-Level Expertise
We have accumulated experience designing systems-level products that meet
the technical challenges of the local loop environment and of interoperability
with products from other suppliers. This know-how is embedded in our products.
Our customers additionally benefit from this experience during their product
architecture and design milestone reviews.
Partner Reference Design Programs
We develop and deliver board-level DSL products with providers of PHY level
communications processors. These products, or partner reference designs,
include our layer 2 and 3 communications processors and software modules and
our partner's PHY layer hardware. These programs allow us to benefit from the
expanded reach of the partner's sales organization. Our customers also benefit
from a more complete solution which allows faster time-to-market. One partner
reference design is currently offered through our joint development program
with ST Microelectronics. We are currently seeking to extend the partner
reference design program to expand our reach into additional DSL market
segments.
49
<PAGE>
Customers
We sell our products to established telecommunications equipment vendors,
modem manufacturers and broadband access equipment companies, including the
following 27 customers who have licensed our software:
<TABLE>
<CAPTION>
Customers Markets
<C> <S> <C>
Abocom Systems Next Level Communications DSL
Ambit Microsystems Opencon Systems
Asustek Computer Opnet Technology
Bosch Telecom Orckit Communications
Broadband Technologies Presence Technology
Coppercom Siemens A.G.
D-Link Sphere Communications
Diamond Multimedia Systems Tainet Communications System
E-Tech Teltrend
IPM Datacom Viagate Technologies
Mariner Networks Westell Technologies
Netopia Xavi Technology
- --------------------------------------------------------------------
Adaptive Broadband Wireless
- --------------------------------------------------------------------
Com21 Pace Micro Technology Cable
</TABLE>
These customers have developed or are developing 73 equipment designs based
on our semiconductors and software. Of these 73 designs, 27 are currently
shipping.
Our ASICs and ASSPs are employed by our customers in the following
representative product types:
. DSL modems which are installed inside PCs;
. DSL modems which are connected to a PC via a USB or Ethernet link;
. DSL gateways and routers;
. DSLAMs and DLCs; and
. Cable modem head-ends.
We depend on a relatively small number of customers for a large percentage
of our revenues. For the six months ended October 3, 1999, Orckit
Communications, Com21, Netopia and Westell Technologies accounted for 51.5%,
11.6%, 8.9% and 7.0%, respectively, of our total revenues. We do not have
purchase orders with any of our customers that obligate them to continue to
purchase our products and these customers could cease purchasing our products
at any time.
For the twelve months ended October 3, 1999, Orckit Communications, Com21,
Westell Technologies and Netopia accounted for 35.0%, 17.3%, 7.3% and 6.6%,
respectively, of our total revenues.
Sales and Marketing
Our sales and marketing strategy is to license our software and secure
design wins with industry leaders in emerging high growth segments of the
broadband access equipment market. We typically license our software to a
customer at the time we achieve an initial design win. The customer then
designs products incorporating our communications processors, which they
purchase separately from us. As a result, prior to completing the license
agreement, our development engineers often act as consultants to customers to
assist them with their architectural decisions. We generally employ a direct
sales model to build a close relationship with customers both prior to and
following the execution of a license. In Taiwan, we work with a dedicated
representative firm.
Generally, our sales team consists of qualified engineers who are located in
California, Massachusetts, North Carolina and the United Kingdom providing
coverage of the U.S. and Europe. The sales team is supported by development
engineers that work directly with customers on their new product developments.
50
<PAGE>
We manage a number of marketing programs designed to communicate our
capabilities and benefits to broadband access equipment manufacturers. Our
Internet site is an important marketing tool where a wide range of information
is available including product information, white papers, application notes,
press releases, contributed articles and presentations. In addition we
participate in industry trade shows, technical conferences and technology
seminars, conduct press tours and publish technical articles in industry
journals.
Research and Development
As of October 3, 1999 we had 81 engineers based in Raleigh, North Carolina
and Cambridge, England. Of these engineers, 27 have advanced degrees, including
nine with Ph.D.s. Several individuals were early developers in voice modem
software and ATM technologies.
Since mid-1998, we have been investing a significant portion of our research
and development expenditures in the development of Beryllium and its associated
software to address the ASDL G.992.2 market. We believe that we must continue
to innovate, extend the range and enhance our products and services to maintain
our leadership position. We cannot be sure that our research and development
efforts will result in the introduction of a new product or product
enhancements or that any new product will achieve market acceptance. We will
invest further to expand our research and development head-count and
capabilities. Our research and development expenditures were $4.0 million and
$8.3 million in the fiscal years ended March 31, 1998 and 1999, respectively.
Manufacturing
We outsource the manufacturing, assembly and testing of all our
semiconductors. This fabless semiconductor model allows us to focus our
resources on the design, development and marketing of our products. Our Proton
semiconductors and current ATOM communications processors have all been sourced
from suppliers that deliver fully assembled and tested products on a turnkey
basis.
The current ATOM products incorporate embedded ARM RISC microprocessors and
are supplied by companies that have an ARM license. In June 1999, we entered
into a per semiconductor design license agreement with ARM which allows us to
select foundry suppliers that best meet our quality, delivery and cost
objectives. We have also expanded our operations team so that we will be able
to assume more of the manufacturing and quality control responsibilities,
including contracting for wafer processing, assembly and testing from separate
suppliers. Further benefits will include accelerating the transition of our
devices into progressively smaller die size, providing important advantages,
including lower cost, defect rates and power consumption / heat dissipation and
higher speed, all of which are important to the commercial success of our
semiconductor products.
Because we rely on third party foundries for substantially all of our
manufacturing, assembly and testing requirements, we cannot be sure that we
will be able to obtain semiconductors within the time frames and in the volumes
required by us at an affordable cost or at all. These third party foundries are
not obligated to supply products to us for any specific period, in any specific
quantity or at any specific price, except as may be provided in a particular
purchase order that has been accepted by one of them. We have experienced
delays and may in the future experience delays in receiving semiconductors from
these foundries. If the foundries we currently use are unable to provide us
with their products on a turnkey basis or we are otherwise required to find
alternative subcontractors, product shipments could be delayed significantly.
Any problems associated with the delivery, quality or cost of the assembly and
testing of our products could seriously harm our business, financial condition
and results of operations.
Competition
The communications semiconductor market is intensely competitive and
characterized by rapid technological change, evolving standards, short product
life cycles and price erosion. Major competitive factors
51
<PAGE>
in the market we address include technical innovation, product features and
performance, level of integration, reliability, price, total system cost, time-
to-market, customer support and reputation. We believe that while, today, no
other single company offers a competing integrated solution, there is
competition with respect to individual elements of our solution. We also
believe that competition may increase substantially as the introduction of new
technologies and potential regulatory changes create new opportunities for
established and emerging companies.
We face competition from semiconductor device suppliers, software
development companies and vertically integrated telecommunications equipment
vendors. We believe our principal competitors for each of our products include:
. Proton, our family of ASICs: devices from Motorola, PMC-Sierra and
Transwitch;
. Hydrogen, Helium and Lithium, our PHY-neutral ASSPs: devices from BASIS
Communications, Motorola and IDT;
. Beryllium, our planned integrated PHY, ADSL/V.90 product: devices from
Alcatel Microelectronics, Analog Devices, Centillium Technology,
Conexant Systems, Globespan, Lucent Technologies and Texas Instruments;
and
. Software: operating systems and software stacks from Wind River Systems
and Integrated Systems; and networking and protocol layer software from
Harris & Jeffries, Iverness Systems, Microsoft and Trillium.
In addition, there have been a number of announcements by other
semiconductor companies including IBM and Intel and smaller emerging companies
that they intend to enter the market segments adjacent to or addressed by our
products.
Many of the companies that compete, or may compete against us in the future,
have longer operating histories, greater name recognition, larger installed
customer bases and significantly greater financial, technical and / or
marketing resources. As a result, they may be able to respond more quickly to
changing customer circumstances or to devote greater resources to the
development, promotion and sale of their products than we can. We cannot be
sure that our current or future competitors will not develop and introduce new
products that will be priced lower, provide superior performance or achieve
greater market acceptance than our products. Furthermore, current or potential
competitors have established, or may establish, cooperative relationships among
themselves or with third parties to increase the ability of their products to
address the needs of our prospective customers. Accordingly, it is possible
that new alliances among our competitors will emerge and rapidly acquire market
share, which would harm our business.
In addition, many of our customers and potential customers have substantial
technological capabilities and financial resources. Some customers have already
developed, or in the future may develop, technologies that will compete
directly with our products and services. Because these companies do not
purchase all of their semiconductors from suppliers such as us, if they
displace our customers in the equipment market, our customers would no longer
need our products, and our business, financial condition and results of
operations would be seriously harmed.
Given the highly competitive environment in which we operate, we cannot be
sure that any current competitive advantages enjoyed by our products will be
sufficient to establish or sustain our position in the market. Any increase in
price from our suppliers or other competition could result in erosion of our
market share and could harm our business, financial condition and results of
operations. We cannot be sure that we will have the financial resources,
technical expertise or marketing and support capabilities to continue to
compete successfully.
52
<PAGE>
Intellectual Property
We rely primarily on a combination of patents, copyrights, trademarks, trade
secret laws, contractual provisions, licenses and maskwork protection to
protect our intellectual property. We also enter into confidentiality
agreements with our employees, consultants and customers and seek to control
access to, and distribution of, our other proprietary information. However,
these measures afford only limited protection. There is no guarantee that such
safeguards will protect our intellectual property and other valuable
competitive information.
Our success depends significantly upon our ability to protect our
intellectual property. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our products or obtain and
use information that we regard as proprietary. Our competitors may also
independently develop similar technologies. In addition, in the past,
competitors have recruited our employees who have had access to our proprietary
technologies, processes and operations. Our competitors' recruiting efforts,
which we expect will continue, expose us to the risk that such employees will
misappropriate our intellectual property. Furthermore, the laws of some foreign
countries do not protect our proprietary rights as fully as do the laws of the
United States. Many U.S. companies have encountered substantial infringement
problems in such countries, some of which are countries in which we have sold
and continue to sell products. There is a risk that our means of protecting our
proprietary rights may not be adequate. Our failure to adequately protect our
proprietary rights may seriously harm our business.
As of October 3, 1999, we have been granted one patent in the United States,
with three counterpart patents in other countries. Our patents have expiration
dates ranging from 2016 to 2017. In addition, we have nine patent applications
pending in the United Kingdom and four pending in the United States. We also
have 24 patent applications pending in various countries other than the United
Kingdom and the United States. These patents may never be issued. Even if these
patents are issued, taken together with our existing patents, they may not
provide sufficiently broad protection to protect our proprietary rights, or
they may prove to be unenforceable. We also utilize unpatented proprietary
know-how and trade secrets and employ various methods to protect our trade
secrets and know-how.
From time to time, we may desire or be required to renew or to obtain
licenses from others in order to further develop and market commercially viable
products effectively. We cannot be sure that any necessary licenses will be
available or will be available on reasonable terms.
We have registered the trademarks "Virata," "ATMOS" and "ATOM." "ISOS,"
"Proton," "Hydrogen," "Helium," "Lithium," and "Beryllium" are also our
trademarks.
Legal Proceedings
We are not currently a party to any legal proceedings, nor to our knowledge,
is any such proceeding threatened.
Employees
As of October 3, 1999, we had 113 full-time employees in our worldwide
operations. Of that total, 81 were primarily engaged in engineering, 12 were
engaged in sales and marketing and the remainder were engaged in operational,
financial and administrative functions. As of October 3, 1999, 15 of our
employees were located at our facilities in Santa Clara, California, 63 of our
employees were located at our facilities in Cambridge, England, and 35 were
located at our facilities in Raleigh, North Carolina. None of our employees are
covered by, nor are we a party to, any collective bargaining agreement. We
believe our employee relations are good.
53
<PAGE>
Facilities
Our headquarters are located in Santa Clara, California, where we lease
approximately 13,000 square feet of office space under a lease that expires in
September 2001. Approximately 4,500 square feet of our Santa Clara facility is
subleased to a third party under a lease that expires in September 2001.
Additionally, we lease approximately 9,600 square feet of office and laboratory
space in Cambridge, England, under two leases that expire in 2004 and 2005 and
approximately 13,200 square feet of office space in Raleigh, North Carolina,
under a lease that expires in September 2003. We believe that our current
facilities are adequate to conduct our business operations for the next 12
months, with the exception of our Santa Clara facility. We anticipate that we
may need to expand our office space at our Santa Clara facility within the next
12 months.
54
<PAGE>
MANAGEMENT
Directors, Executive Officers and Key Employees
Our current board of directors consists of Messrs. Charles Cotton, Hermann
Hauser, Bandel Carano and Peter Morris. Our current executive officers are
Charles Cotton, Michael Gulett and Andrew Vought. Following this offering, our
directors, executive officers and key employees are expected to be as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Charles Cotton.......... 52 Chief Executive Officer and Director
Michael Gulett.......... 46 President, Chief Operating Officer
Andrew Vought........... 44 Senior Vice President, Finance, Chief Financial Officer and Secretary
Martin Jackson.......... 40 Chief Technology Officer and Director
Daniel Karr............. 39 Vice President, Worldwide Sales
Thomas Cooper........... 50 Senior Vice President, Corporate Development
Duncan Greatwood........ 32 Vice President, Marketing
Bernard Glasauer........ 39 Vice President, Operations
Wayne Whitlock.......... 40 Vice President, Engineering
Dr. Paul Walsh.......... 39 Vice President, Software Engineering
Dr. Hermann Hauser...... 50 Chairman of the Board
Marco De Benedetti...... 37 Director
Gary Bloom.............. 39 Director
Bandel Carano........... 38 Director
Professor Andrew
Hopper................. 46 Director
Peter Morris............ 43 Director
Patrick Sayer........... 41 Director
Giuseppe Zocco.......... 33 Director
</TABLE>
Charles Cotton has been our Chief Executive Officer since September 1997.
Mr. Cotton joined us in January 1995, first as a consultant, and then in August
1995 as our General Manager, Europe, and was subsequently promoted to Chief
Operating Officer in July 1996. From January 1991 to December 1995, Mr. Cotton
was an independent consultant. In 1990, he served as Chief Executive Officer of
Shandwick Europe, a public relations consulting firm. From 1988 to 1989, Mr.
Cotton served as President of Thermal Scientific and as a Director of its
parent company, Thermal Scientific plc. From 1983 to 1986, he served in a
variety of international marketing and operations functions for Sinclair
Research. Mr. Cotton holds an honors degree in Physics from Oxford University.
Michael Gulett joined us in November 1998 as Chief Operating Officer and was
promoted to President and Chief Operating Officer in June 1999. Prior to
joining us, Mr. Gulett was President and Chief Executive Officer at Paradigm
Technology, a developer of fast, static memory solutions, in Milpitas,
California, from February 1993 to June 1998. Mr. Gulett has also held
management positions at VLSI Technology, California Devices, Intel Corporation
and NCR. Mr. Gulett holds a B.S.E.E. from the University of Dayton.
Andrew Vought joined us in May 1996 as Chief Financial Officer and was named
Senior Vice President of Finance in September 1997. From January 1995 to May
1996, Mr. Vought founded and served as a General Partner of Cheyenne Capital
Corporation, a private venture capital firm. From May 1990 to July 1994,
Mr. Vought served as Chief Financial Officer of Micro Power Systems, an analog
semiconductor company. Mr. Vought has also held senior finance and
manufacturing management positions with Diasonics and the European
semiconductor operations of Texas Instruments. Mr. Vought serves on the board
of directors of SCM Microsystems, a supplier of digital access control and
connectivity solutions. Mr. Vought holds an M.B.A. from the Harvard Business
School and a B.S. in Finance and a B.A. in Environmental Studies from the
University of Pennsylvania.
55
<PAGE>
Martin Jackson is our Chief Technology Officer and has directed new product
development since joining us in April 1994. Prior to joining us, Mr. Jackson
was a co-founder and Vice President of Technology of EO--formerly Active Book
Company. Mr. Jackson also co-founded Tadpole Technology, a developer of high
performance computer boards. Mr. Jackson is acknowledged as a leader in the
application of asynchronous transfer mode technology for provisioning broadband
in the local loop and serves on the board of directors of the ADSL Forum. Mr.
Jackson holds an M.A. in Electrical Sciences and a M.A. Engineering from the
University of Cambridge.
Daniel Karr became our Vice President, Worldwide Sales in August 1999. Prior
to joining us, Mr. Karr was Vice President of Worldwide Sales at S3, a supplier
of multimedia hardware and software for the PC market, from April 1996 to
August 1999. From January 1988 to April 1996, Mr. Karr held various positions
at Cirrus Logic, a manufacturer of integrated circuits, where his last position
was Sales Director. Mr. Karr earned a B.A. in Physics and Mathematics from
Linfield College.
Thomas Cooper is our Senior Vice President, Corporate Development and has
been employed by us in various capacities since December 1994. Prior to joining
us, Mr. Cooper served as Vice President of Distribution for Network Equipment
Technologies Inc., an early entrant into in the asynchronous transfer mode
market, from 1992 to December 1994. He holds an M.B.A. from the University of
Toledo (Ohio) and a B.A. in English from Hamilton College.
Duncan Greatwood is our Vice President, Marketing, having previously been
our Vice President, European Sales. Mr. Greatwood joined us in November 1997.
Before being hired by us, Mr. Greatwood held a variety of management positions
in the software engineering and marketing functions of Madge Networks, a
network equipment company, from 1989 to November 1997. At Madge Networks, Mr.
Greatwood was responsible for activities in the areas of voice-over-IP
(Internet Protocol) and multiservice networking. Mr. Greatwood holds a degree
in Mathematics from Oxford University and an M.B.A. from London Business
School.
Bernard Glasauer is our Vice President, Operations and joined us in June
1999. Prior to joining us, Mr. Glasauer was Vice President of Engineering at
Cypress Semiconductor from 1996 to 1999. Prior to that Mr. Glasauer was the
Vice President of Quality from 1994 to 1996 and held other senior business and
engineering management positions at Cypress Semiconductor from 1988 to 1994.
Mr. Glasauer holds a B.S. degree in Electrical Engineering/Computer Science and
Materials Science Engineering and a B.A. in Economics from the University of
California.
Wayne Whitlock is our Vice President, Engineering and joined us in July
1998. Prior to joining us, Mr. Whitlock was Vice President, Engineering for RSA
Communications, the predecessor of Virata Raleigh Corporation, from October
1994 to July 1998. Prior to that, Mr. Whitlock was employed by International
Business Machines from July 1981 to October 1994. His most recent position with
IBM, which began in 1993, was Program Manager with the wireless Mobile Data
Division, developing PCMCIA wireless WAN devices for portable PCs. Mr. Whitlock
holds a B.S. in Electrical Engineering from Virginia Tech.
Dr. Paul Walsh is our Vice President, Software Engineering and joined us in
January 1999. Prior to joining us, Dr. Walsh was Senior Manager--Engineering,
at Ionica plc, from November 1995 to January 1999. Prior to Ionica, Dr. Walsh
held a Senior Manager role at Nortel/BNR Europe, from January 1992 to October
1995, where he was responsible for the design, build and delivery of systems to
provide Network Management of first SDH and later Passive Optical Networks.
Dr. Walsh holds a Ph.D. in Psychology from the City of London Polytechnic, an
M.Sc. (Distinction) in Social Psychology from London School of Economics and a
B.A. (1st Class Hons) in Psychology from the University College, Galway.
Dr. Hermann Hauser is one of our co-founders and serves as our Chairman. Dr.
Hauser's principal occupation is Director of Amadeus Capital Partners Ltd., a
venture capital fund management company. He has held this position since
December 1997. Dr. Hauser has also co-founded more than 20 other high
technology
56
<PAGE>
companies, including Acorn Computer Group plc, EO Ltd., Harlequin, IXI Ltd.,
Vocalis, Electronic Share Information, Advanced Displays Limited and SynGenix.
Dr. Hauser holds a Ph.D. in Physics from Cambridge University.
Marco De Benedetti is Chairman and Managing Director of Telecom Italia
Mobile S.p.A., Europe's largest cellular phone operator. He has held that
position since July 1999. Prior to joining Telecom Italia Mobile,
Mr. De Benedetti was chairman of Infostrada S.p.A., a company controlled by
Olivetti operating as an alternative fixed line carrier in Italy. Prior to
joining Olivetti in 1990, Mr. De Benedetti worked for the investment bank
Wasserstein, Perella & Co. in mergers and acquisitions from 1987 to 1989. Mr.
De Benedetti holds an M.B.A. from the Wharton School of the University of
Pennsylvania and a B.S. in Economics and History from Wesleyan University.
Gary Bloom is Executive Vice President of Oracle Corporation and has been
employed by Oracle since September 1986. Mr. Bloom received a B.S. in Computer
Science from California Polytechnic State University at San Luis Obispo.
Bandel Carano is a General Partner of Oak Investment Partners in Palo Alto,
California, a private venture capital firm, which he joined in 1985. Mr. Carano
currently serves as a member of the Investment Advisory Board of the Stanford
University Engineering Venture Fund. Mr. Carano also serves as a member of the
board of Advanced Radio Telecom and several private companies. Mr. Carano holds
both an M.S. and a B.S. in Electrical Engineering from Stanford University.
Professor Andrew Hopper is one of our co-founders. Since November 1997,
Professor Hopper has been the Professor of Communications Engineering within
the Department of Engineering at Cambridge University and prior to that he was
a Reader. Since 1986, Professor Hopper has also been the Managing Director of
the Olivetti Research Laboratory, now AT&T Laboratories-Cambridge. Professor
Hopper is considered one of the early developers of asynchronous transfer mode
technology and has over 20 years experience in networking, computer systems and
multimedia. Professor Hopper is also involved with the commercialization of
technology with a number of Cambridge-area firms. Professor Hopper is a Fellow
of the Royal Academy of Engineering and holds a Ph.D. from Cambridge
University.
Peter T. Morris is a General Partner of New Enterprise Associates in Menlo
Park, California, where he has been employed since 1992. Mr. Morris specializes
in information technologies, with a focus on communications and the Internet.
His current board memberships include Gadzoox Networks, Packeteer and several
private companies. Before joining New Enterprise Associates, Mr. Morris served
in various capacities with Telebit from 1987 to 1991. Prior to that he was with
Montgomery Securities, an investment bank, from 1985 to 1987, and Bain and
Company, a management consultancy, from 1980 to 1982. Mr. Morris holds an
M.B.A. and a B.S. in Electrical Engineering from Stanford University.
Patrick Sayer is a General Partner of Lazard Freres et Cie, a French
investment bank, where he oversees the technology, telecommunications and media
sectors. Mr. Sayer has worked within the Lazard Freres Group throughout his
career with assignment in its international advisory group, the corporate
finance department and the mergers and acquisitions department. In addition,
Mr. Sayer is the Chairman of the Investment Committee of Eurafrance and Gaz et
Eaux, two French publicly traded holding companies ultimately controlled by the
Lazard Freres Group. Mr. Sayer is a graduate of Ecole Polytechnique and Ecole
des Mines de Paris.
Giuseppe Zocco is a General Partner of Index Ventures, a private venture
capital firm based in Geneva, Switzerland, which he joined in 1996. Prior to
joining Index Ventures, Mr. Zocco was a management consultant with McKinsey and
Company from 1988 to 1996, working in several of its European offices and its
EuroCenter, a special consulting unit focused on Pan-European clients.
Mr. Zocco holds an M.B.A. from Stanford Business School, a B.A. in Finance from
Bocconi University in Milan, and an I.E.P. from the London Business School. He
is a director of Belle Systems A/S and Evolve Software.
57
<PAGE>
Board Committees
Our board of directors currently consists of four directors. Following this
offering, our board of directors is anticipated to consist of ten directors,
each holding office until the next annual meeting of stockholders. Following
this offering, our board of directors is also anticipated to have an Executive
Committee, Compensation Committee, Audit Committee and Director Compensation
Committee.
Executive Committee. The executive committee of our board of directors is
anticipated to consist of Messrs. Hauser, Carano, Cotton and Morris. The
executive committee will be authorized to act with respect to all matters
arising before the board, except where prohibited by Delaware law.
Compensation Committee. The compensation committee will review approve
and/or make recommendations to the board regarding all forms of compensation
provided to our executive officers, including stock compensation and loans. In
addition, the compensation committee will review approve and/or make
recommendations on stock compensation arrangements for all of our other
employees. As part of the foregoing, the compensation committee will administer
our stock incentive and other employee benefit plans. The members of the
compensation committee are anticipated to be Messrs. Hauser, Carano and Zocco.
Audit Committee. The audit committee will monitor our corporate financial
reporting and the internal and external audits, including our internal audit
and control functions, the results and scope of the annual audit and other
services provided by our independent auditors and our compliance with legal
matters that have a significant impact on our financial reports. The audit
committee will also consult with our management and our independent auditors
prior to the presentation of financial statements to stockholders and, as
appropriate, initiates inquiries into aspects of our financial affairs. In
addition, the audit committee will have the responsibility to consider and
recommend the appointment of, and to review fee arrangements with, our
independent auditors. The members of the audit committee are anticipated to be
Messrs. Morris, Sayer and Zocco.
Director Compensation Committee. The director compensation committee will
review and make recommendations to the board regarding all forms of
compensation provided to our non-employee directors. As part of the foregoing,
the director compensation committee will administer our non-employee director
compensation plan that we anticipate adopting prior to this offering. The
members of the director compensation committee are anticipated to be Messrs.
Cotton and Jackson.
Director Compensation
Directors who are our full-time employees receive no additional compensation
for serving on our board of directors or its committees; however, each director
will be reimbursed for his or her out-of-pocket expenses in attending board
meetings. Following this offering, it is anticipated that directors who are not
our employees will receive compensation for participation in meetings of our
board of directors and serving on and attending meetings of either the
compensation or the audit committees. See "Certain Transactions" for a
description of transactions involving directors or their affiliates and us, if
any.
Prior to this offering, we anticipate that we will adopt a compensation plan
for our non-employee directors, commensurate with plans offered by companies in
our industry or related industries.
Compensation Committee Interlocks and Insider Participation
Prior to this offering, our board of directors did not have a compensation
committee and all compensation decisions were made by our full board of
directors. In the fiscal year ended March 31, 1999, the full board of
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<PAGE>
directors determined the compensation of all executive officers, including
Mr. Cotton in his capacity of Chief Executive Officer. Upon completion of this
offering, it is anticipated that the compensation committee will make all
compensation decisions. We are not aware of any interlocking relationship
existing between our board of directors or proposed compensation committee and
the board of directors or compensation committee of any other company, nor are
we aware of any such interlocking relationship existing in the past.
Executive Compensation
The following table sets forth the approximate cash compensation (including
cash bonuses) paid or awarded by us for the fiscal year ended March 31, 1999 to
our Chief Executive Officer and the other four most highly compensated
executive officers who were serving as executive officers as of March 31, 1999
(the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------- ------------
Securities
Name and Principal Fiscal Underlying All Other
Position Year Salary($) Bonus($) Options(#) Compensation($)
- ------------------ ------ --------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Charles Cotton.......... 1999 224,940 60,000 108,208 24,000(1)
Chief Executive
Officer and Director
Michael Gulett(2)....... 1999 82,372 54,167 238,805 1,827(3)
President and Chief
Operating Officer
Andrew Vought........... 1999 184,875 40,000 55,970 1,230(4)
Senior Vice President,
Finance,
Chief Financial
Officer and Secretary
Martin Jackson.......... 1999 128,099 -- 44,776 8,392(5)
Chief Technology
Officer and Director
Thomas Cooper........... 1999 153,606 30,250 82,089 1,273(6)
Senior Vice President
Corporate Development
</TABLE>
- --------
(1) Represents an accrued pension contribution paid by us for the benefit of
Mr. Cotton under our pension arrangement.
(2) Mr. Gulett was hired in November 1998 and, therefore, such amounts are for
less than a full year.
(3) Represents a matching contribution paid by us for the benefit of Mr. Gulett
under our 401(k) plan.
(4) Represents a matching contribution paid by us for the benefit of Mr. Vought
under our 401(k) plan.
(5) Represents an accrued pension contribution paid by us for the benefit of
Mr. Jackson under our pension arrangement.
(6) Represents a matching contribution paid by us for the benefit of Mr. Cooper
under our 401(k) plan.
Option Grants in Fiscal Year Ended March 31, 1999
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------
Potential Realizable
Percent of Value at Assumed
Number of Total Options Annual Rates of Stock
Shares Granted to Price Appreciation For
Underlying Employees Exercise or Option Term ($)(3)
Options in Fiscal Base Price Expiration -----------------------
Name Granted (#) Year (%)(1) ($/sh)(2) Date 5% 10%
- ---- ---------- ------------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Charles Cotton.......... 108,208 7.0 4.69 4/28/05 206,603 481,474
Michael Gulett.......... 238,805 15.4 4.69 11/13/05 455,952 1,062,563
Andrew Vought........... 55,970 3.6 4.69 4/28/05 106,864 249,038
Martin Jackson.......... 44,776 2.9 4.69 4/28/05 85,491 199,231
Thomas Cooper........... 82,089 5.3 4.69 4/28/05 156,734 365,256
</TABLE>
59
<PAGE>
- --------
(1) Based on options to purchase a total of 1,549,282 shares of our common
stock granted during the fiscal year ended March 31, 1999.
(2) The exercise price was equal to the fair market value of our common stock
on the date of grant, as determined by our board of directors. The board
based its determination in part on the fact that, at the time, there was no
public market for the shares underlying the options granted, nor was there
anticipated to be such a market in the next 12 months, such shares were
subordinate to the outstanding preference shares with respect to payments
upon liquidation and dividends, such shares did not have registration
rights and the company was not yet profitable. Based on this information,
the board determined that the exercise price should be equal to
approximately 65% of the price per share of the series D preference shares
that had recently been sold in a private placement.
(3) The potential realizable value is calculated based on the seven year term
of the options at the time of grant. Stock price appreciation of 5% and 10%
is assumed pursuant to the rules promulgated by the Securities and Exchange
Commission and does not represent our prediction of our stock price
performance. The potential realizable value at 5% and 10% appreciation is
calculated by assuming that the exercise price in the date of grant
appreciates at the indicated rate for the entire term of the option and
that the option is exercised at the exercise price and sold on the last day
of its term at the appreciated price.
Aggregated Option Exercises in the Last Fiscal Year and Fiscal Year End Option
Values
The table below sets forth information with respect to the ownership and
value of options held by the Named Executive Officers identified in the summary
compensation table as of March 31, 1999. No options were exercised by these
individuals during the fiscal year ended March 31, 1999. We have no outstanding
stock appreciation rights.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options
Year End (#) at Fiscal year End ($)(1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles Cotton.............. 94,869 203,638 696,696 1,119,805
Michael Gulett.............. -- 238,805 -- 960,000
Andrew Vought............... 72,014 114,552 529,867 648,633
Martin Jackson.............. 57,276 69,589 458,108 356,492
Thomas Cooper............... 45,771 103,482 355,467 481,933
</TABLE>
- --------
(1) Based on a fair market value of our common stock as of October 3, 1999
equal to $8.71 per share, less the exercise price payable for such shares.
Employment Agreements
Each of our Named Executive Officers is a party to an employment agreement
with Virata Limited. Following this offering, we anticipate that we will assume
each of these employment agreements.
Charles Cotton. Under the terms of his employment agreement dated September
17, 1997, as amended on May 1, 1999, Mr. Cotton receives an annual base salary
of (Pounds)155,875, with an additional bonus of $120,000 upon successful
achievement of specific objectives. Mr. Cotton is entitled to participate in
our stock incentive plans. As of October 3, 1999, Mr. Cotton had received
options to purchase an aggregate of 397,014 shares of our common stock at a
weighted average exercise price of $4.15 per share. In general, these options
vest equally over four years. Mr. Cotton is also entitled to a bonus of up to
$500,000 in the event we are sold during the term of his employment. We may
terminate Mr. Cotton's employment for cause at any time, or without cause upon
18 months written notice from the termination date. Mr. Cotton may voluntarily
resign upon six months written notice of his intention to leave. In the event
that Mr. Cotton is terminated without cause or following a change in our
control, Mr. Cotton will be entitled to salary continuation and vesting of his
share options for the 18 month period following termination.
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<PAGE>
Michael Gulett. Under the terms of his employment agreement dated October
14, 1998, Mr. Gulett receives an annual base salary of $225,000, with an
additional bonus of $100,000 upon successful achievement of specific
objectives. Mr. Gulett is entitled to participate in our stock incentive plans.
As of October 3, 1999, Mr. Gulett had received options to purchase an aggregate
of 337,313 shares of our common stock at a weighted average exercise price of
$5.90 per share. These options vest equally over four years. The employment
agreement may be terminated by Mr. Gulett or us at any time, with or without
cause. In the event that Mr. Gulett is terminated without cause or following a
change in our control, Mr. Gulett will be entitled to salary continuation and
vesting of his share options for the 12 month period following termination.
Andrew Vought. Under the terms of his employment agreement dated May 10,
1996, as amended May 1, 1999, Mr. Vought receives an annual base salary of
$182,750 with an additional bonus of $75,000 upon successful achievement of
specific objectives. Mr. Vought is entitled to participate in our stock
incentive plans. As of October 3, 1999, Mr. Vought had received options to
purchase an aggregate of 246,268 shares of our common stock at a weighted
average exercise price of $3.95 per share. In general, these options vest
equally over four years. Mr. Vought is also entitled to a bonus of up to
$500,000 in the event we are sold during the term of his employment. We may
terminate Mr. Vought's employment for cause at any time, or without cause upon
18 months written notice from the termination date. Mr. Vought may voluntarily
resign upon six months written notice of his intention to leave. In the event
that Mr. Vought is terminated without cause or following a change in our
control, Mr. Vought will be entitled to salary continuation and vesting of his
share options for the 18 month period following termination.
Martin Jackson. Under the terms of his employment agreement dated May 5,
1997, Mr. Jackson receives an annual base salary of (Pounds)81,969. Mr. Jackson
is entitled to participate in our stock incentive plans. As of October 3, 1999,
Mr. Jackson had received options to purchase an aggregate of 152,985 shares of
our common stock at a weighted average exercise price of $3.42 per share. In
general, these options vest equally over four years. We may terminate Mr.
Jackson's employment for cause at any time, or without cause upon 12 months
written notice from the termination date. Mr. Jackson may voluntarily resign
upon three months written notice of his intention to leave.
Thomas Cooper. Under the terms of his employment agreement dated December
16, 1994, Mr. Cooper receives an annual base salary of $161,250, with an
additional bonus of $30,000 upon successful achievement of specific objectives.
Mr. Cooper is entitled to participate in our stock incentive plans. As of
October 3, 1999, Mr. Cooper had received options to purchase an aggregate of
179,104 shares of our common stock at a weighted average exercise price of
$4.02 per share. These options vest equally over four years. The employment
agreement may be terminated by Mr. Cooper or us at any time, with or without
cause. In the event that Mr. Cooper is terminated without cause or following a
change in our control, Mr. Cooper will be entitled to salary continuation and
vesting of his share options for the 12 month period following termination.
Employee Stock Option Plan
Prior to the consummation of this offering, we anticipate that we will adopt
the Virata Corporation 1999 Stock Incentive Plan. We anticipate that the plan
will also be approved by our stockholders prior to the consummation of this
offering. The 1999 Stock Incentive Plan will not limit any award to any
specified form or structure. The types and amount of awards will be determined
at the discretion of the board of directors or a committee of the board of
directors empowered to administer the 1999 Stock Incentive Plan. We anticipate
that the compensation committee of the board of directors will administer the
1999 Stock Incentive Plan following this offering. The maximum number of shares
of our common stock that may be issued under the 1999 Stock Incentive Plan is
expected to be approximately 5.8 million shares. If incentive stock options are
issued, these options must comply with Section 422 of the Internal Revenue
Code. Any of our employees, non-employee directors, independent contractors or
consultants or those of our subsidiaries are eligible to be considered for the
grant of an award under our 1999 Stock Incentive Plan. The board of directors
may amend or terminate the 1999 Stock Incentive Plan at any time and in any
matter, subject to the rights of recipients of awards under the
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<PAGE>
plan, and subject to any required stockholder approvals and the requirements of
Sections 411 and 162(m) of the Internal Revenue Code. The 1999 Stock Incentive
Plan will terminate in November, 2019. We will issue stock options to our
employees under the 1999 Stock Incentive Plan by way of individual option
agreements with each employee.
As of October 3, 1999 there were options outstanding to purchase
3,239,230 ordinary shares issued to our employees under the plans of or
agreements with Virata Limited. The outstanding options are exercisable at a
price per share ranging between $0.11 and $8.71 and generally vest over a four-
year period from the date of grant. These options are granted in three specific
categories: ordinary, top-up and bonus. Top-up options are granted to employees
whose ordinary options have fully vested on a purely discretionary basis. Top-
up options are subject to the same vesting schedule as ordinary options. Bonus
options vest on the date granted and are generally subject to completion of
individual performance targets by the option holder. All options are non-
transferable, but form part of the option holder's estate in the event of
death. An option may be exercised in whole or in part, but not more that three
times in the period commencing on the first anniversary of the date of grant of
the option and ending on the seventh anniversary of the date of its grant. An
option lapses on the seventh anniversary from the date of its grant. In the
event that a general offer is made to the holders of our common stock to
acquire all of the outstanding shares of our common stock, we are required to
use our best efforts to ensure that the offer is extended to the option
holders. If an option holder ceases to be our employee for any reason, any
options unexercised on such date and in respect of which a right of exercise
has accrued must be exercised within 90 days of such date. Upon the expiration
of this 90 day period, any options that remain unexercised will lapse. Prior to
the consummation of this offering these options will become convertible or
exercisable into shares of our common stock.
Employee Stock Purchase Plan
Prior to the consummation of this offering, we anticipate that we will adopt
an employee stock purchase plan for our employees, commensurate with plans
offered by companies in our industry or related industries.
Employee Benefit Plans
We have two benefit plans, one in the United Kingdom, and a separate plan in
the United States. The United Kingdom plan includes private health care,
permanent health insurance, death in service coverage and a pension
arrangement. In addition, under the United Kingdom plan, we match pension
contributions of up to 5% of an employee's salary. Contributions for the years
ended March 31, 1997, 1998 and 1999 were $105,500, $109,400 and $112,600,
respectively.
The United States plan includes a medical plan, life insurance, accidental
death and dismemberment insurance, long-term disability, IRC Section 125
premium payment plan, COBRA and a 401(k) retirement plan. Under the United
States plan, effective with the acquisition of RSA Communications in July 1998,
we also provide a 50% matching contribution to the retirement plan of up to
$2,000 per calendar year per employee. Contributions for the year ended March
31, 1999 amounted to $58,000.
Limitation of Liability and Indemnification Matters
Our Certificate of Incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Our bylaws provide that we shall
indemnify each of our directors and officers against expenses (including
attorney's fees), judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with any proceeding, arising by reason of the
fact that such person is or was one of our directors or officers or serving as
director or officer of another corporation, partnership, joint venture, trust,
or other enterprise at our request. We have also entered into agreements to
indemnify directors and certain executive officers.
62
<PAGE>
CERTAIN TRANSACTIONS
The following is a description of transactions during our last three fiscal
years and the six months ended October 3, 1999 to which we have been a party,
in which the amount involved in the transaction exceeds $60,000 and in which
any director, executive officer or holder of more than 5% of our capital stock
had or will have a direct or indirect material interest other than compensation
arrangements that are otherwise required to be described under "Management."
Issuances of Ordinary Shares
During the past three fiscal years and the six months ended October 3, 1999,
we have issued ordinary shares of Virata Limited as follows (the following
information does not give effect to the 1 for 6.7 reverse stock split):
. In July 1997, we issued a warrant to purchase 75,000 ordinary shares in
a private placement to Dr. Robert W. Wilmott at an exercise price per
share of $0.08 in exchange for consulting services valued at $18,000 by
our board which were provided to us by Dr. Wilmott; this warrant was
exercised in full by Dr. Wilmott in September 1999; and
. In July 1998, we issued 1,540,000 ordinary shares in a private placement
at a purchase price of $1.01 per share and aggregate proceeds of
$1,555,400 to Munther Qubain in connection with the acquisition of RSA
Communications; and
. We have issued an aggregate of 1,332,599 ordinary shares in connection
with the exercise of options by our employees.
Issuances of Preference Shares
During the past three fiscal years and the six months ended October 3, 1999,
we have issued preference shares and warrants for preference shares of Virata
Limited as follows (the following information does not give effect to the 1 for
6.7 reverse stock split):
. in June 1996 and October 1996, we issued 2,713,670 series B preference
shares in a private placement at a purchase price of (Pounds)0.70 per
share and aggregate proceeds of (Pounds)1,899,569 to 3i Group plc, New
Enterprise Associates, Oak Investment Partners VI and Oak VI Affiliates
Fund;
. in June 1996, we issued 6,666,667 series C preference shares in a
private placement at a purchase price of $1.50 per share and aggregate
proceeds of $10,000,000 to Oracle Corporation;
. in October 1996, we issued a warrant to purchase 61,705 series C
preference shares in a private placement to Comdisco Ventures at an
exercise price per share of $1.50 in connection with an equipment
financing;
. in September 1997, we issued a warrant to purchase 8,000 series C
preference shares in a private placement to Comdisco Ventures at an
exercise price per share of $1.50 in connection with an equipment
financing;
. in December 1997, we issued a warrant to purchase 35,294 series C
preference shares in a private placement to Venture Banking Group, an
entity of Greater Bay Bancorp, at an exercise price per share of $1.70
in connection with a loan and security agreement; in June 1998, this
warrant automatically converted into a warrant to purchase 35,294 series
D preference shares at an exercise price per share of $1.70;
. in December 1997 and January 1998, we issued bridge notes in the
aggregate amount of $2,642,980 in a private placement to 3i Group plc,
New Enterprise Associates, Oak Investment Partners VI, Oak VI Affiliates
Fund, Oracle Corporation, Olivetti Telemedia Investments B.V., Professor
Hopper and Elserino Piol that were convertible into our series D
preference shares;
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<PAGE>
. in March 1998, we issued a bridge note in the amount of $700,000 in a
private placement to The Index Special Situations Fund Ltd that was
convertible into our series D preference shares;
. in June 1998, we sold 24,780,934 series D preference shares in a private
placement at a purchase price of $1.10 per share and aggregate proceeds
of $27,259,027 to Oak Investment Partners VI, Financiere et Industrielle
Gaz et Eaux, New Enterprise Associates, Oracle Corporation, 3i Group
plc, The British Bank of the Middle East, Moore Global Investments Ltd,
Lombard Odier & Cie, Olivetti Telemedia Investments B.V., Elara Ltd, The
Index Special Situations Fund, Ltd., Bank Morgan Stanley AG ZH, Societe
Financiere Mirelis S.A., Pharos Genesis Fund Ltd., Pharos Fund Ltd.,
Pictet & Cie Banquiers, Remington Investment Strategies LP, Lighthouse
Partners USA, LP, Faisal Finance (Jersey) Ltd., Banque SCS Alliance
S.A., Crescent International Ltd., Denmore Investments Ltd., 4C Ventures
LP, Galba Anstalt, L.B. Finance S.A., Jordana-Gerhardt Family Trust
u/d/t 3/21/97, Oak VI Affiliates Fund, ppon Pictet & Cie, Societe
Financiere Mirelis S.A., Marcuard Cook & Cie S.A., Banca Del Gottardo,
Bank Julius Baes Zurich, Banque Privee ed. De Rothschild, Algonquin
Trust S.A., Manpower S.A., Bank Julius Bar & CO AG, Rex A. Sherry & Lori
Kargionis-Sherry, Trustees of the Sherry Family Trust, Lighthouse
Genesis Partners USA, LP, Credit Suisse Private Banking, Archery
Capital, Fondation de Prevoyance Manpower, Ayers-Plant Family Trust,
Messrs. D. Bertholet, T. Thornhill, M. Bertholet, R. Bishop, T. Saint-
Loup, J. Metzger, T Bungener, M. Sullivan, T. Keegen, D. Castagna, P.
Harvey, and G. Guthrie, in which Index Securities S.A. acted as
placement agent and received a fee of 7% of the aggregate proceeds and
warrants;
. in June 1998, in connection with the conversion of bridge notes in the
aggregate amount of $3,342,980, we issued 3,039,073 series D preference
shares in a private placement to 3i Group plc, New Enterprise
Associates, Oak Investment Partners VI, Oak VI Affiliates Fund, Oracle
Corporation, Olivetti Telemedia Investments B.V., The Index Special
Situations Fund Ltd., Professor Hopper and Mr. Piol;
. in June 1998, in connection with conversion of 12,460,150 series B
preference shares and 2,000,000 series C preference shares with an
aggregate value of $16,635,368, we issued 15,123,062 series D preference
shares in a private placement to 3i Group plc, 4C Ventures LP, New
Enterprise Associates, Oak Investment Partners VI, Oak VI Affiliates
Fund and Oracle Corporation;
. in June 1998, we issued a warrant to Messrs. G. Rimer, N. Rimer, D.
Rimer, G. Zocco, B. Dalle, H. Lebret, J. Peterschmitt and Genevest S.A.
to purchase, 1,595,054 series D preference shares in a private placement
at an exercise price of $1.10 in connection with Index Securities S.A.
acting as placement agent in our series D preference share financing;
. in June 1998, we issued a 21,818 series D preference shares in a private
placement to Professor Hopper for aggregate consideration of $24,000,
representing the amount of the fee Professor Hopper would have received
for serving on our technology advisory board;
. in July 1998, we issued 606,500 series D preference shares in a private
placement for aggregate consideration of $667,150 to Munther Qubain in
connection with the acquisition of RSA Communications;
. in September 1998, we issued a warrant to purchase 109,091 series D
preference shares in a private placement to Comdisco Ventures at an
exercise price per share of $1.10 in connection with an equipment
financing;
. in May 1999, we issued a warrant to purchase 54,545 series D preference
shares in a private placement to Comdisco Ventures at an exercise price
per share of $1.10 in connection with an equipment financing; and
. in October 1999, we issued 6,153,846 series E preference shares in a
private placement at a purchase price of $1.30 per share and aggregate
proceeds of $8,000,000 to Siemens Information and Communication
Networks, Inc., Olivetti Telemedia Investments B.V. and LSI Logic Inc.
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Our officers, directors and 5% stockholders participated in the foregoing
transactions as follows (the following information does not give effect to the
1 for 6.7 reverse stock split):
<TABLE>
<CAPTION>
Number of Number of Number of Number of Bridge Notes
Series B Series C Series D Series E and
Name of Purchaser Shares Shares Shares Shares Warrants(1)
- ----------------- --------- --------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Gaz et Eaux............. -- -- 7,348,111 -- --
New Enterprise
Associates............. 766,883(2) -- 5,582,978(3) -- 343,275
Oak Investment Partners
Limited(4)............. 2,400,028(2) -- 7,945,331(5) -- 488,508
Olivetti Telemedia
Investments B.V. ...... -- -- 870,239(6) 2,307,692 627,814
Oracle Corporation...... -- 6,667,667(7) 4,194,421(8) -- 558,057
3i plc.................. 517,257(2) -- 3,836,628(9) -- 245,355
Charles Cotton.......... -- -- -- -- --
Michael Gulett.......... -- -- -- -- --
Andrew Vought........... -- -- -- -- --
Martin Jackson.......... -- -- -- -- --
Thomas Cooper........... -- -- -- -- --
Dr. Hermann Hauser...... -- -- 75,152(10) -- 75,152
Marco De Benedetti...... -- -- -- -- --
Gary Bloom(11).......... -- 6,667,667 4,194,421 -- 558,057
Bandel Carano(12)....... 2,400,028 -- 7,945,331 -- 488,508
Professor Andrew
Hopper................. -- -- 40,000(13) -- 18,182
Peter Morris(14)........ 766,883 -- 5,582,978 -- 343,275
Patrick Sayer(15)....... -- -- 7,348,111 -- --
Giuseppe Zocco(16)...... -- -- 374,108 -- 374,108
All of our directors and
executive officers as a
group (15 persons)..... 3,684,168 6,666,667 30,226,968 2,307,692 2,712,269
</TABLE>
- --------
(1) All of the bridge notes were subsequently converted into series D
preference shares in June 1998.
(2) Such shares were converted into series D preference shares in June 1998.
(3) Includes 343,275 series D preference shares issued upon conversion of
bridge notes in June 1998.
(4) Includes shares beneficially owned by Oak VI Affiliates Fund Limited.
(5) Includes 488,508 series D preference shares issued upon conversion of
bridge notes in June 1998.
(6) Includes 627,814 series D preference shares issued upon conversion of
bridge notes in June 1998.
(7) 2,000,000 of such shares were converted into series D preference shares in
June 1998 in June 1998.
(8) Includes 558,057 series D preference shares issued upon conversion of
bridge notes in June 1998.
(9) Includes 245,355 series D preference shares issued upon conversion of
bridge notes in June 1998.
(10) Represents series D preference shares issued upon conversion of bridge
notes in June 1998 held by Providence Investment Company Ltd, a Company
wholly owned by Providence Trust, of which Mr. Hauser may be a
beneficiary.
(11) Represents shares of our common stock beneficially owned by Oracle
Corporation, of which Mr. Bloom is an Executive Vice President. Mr. Bloom
disclaims all beneficial ownership of these shares.
(12) Represents shares of our common stock beneficially owned by Oak Investment
Partners, of which Mr. Carano is the General Partner. Mr. Carano disclaims
all beneficial ownership of these shares.
(13) Includes 18,182 series D preference shares issued upon conversion of
bridge notes in June 1998 and 21,818 series D preference shares issued in
exchange for Professor Hopper creating our technology advisory board.
(14) Represents shares of our common stock beneficially owned by New Enterprise
Associates, of which Mr. Morris is the General Partner. Mr. Morris
disclaims all beneficial ownership of these shares.
(15) Represents shares of our common stock beneficially owned by Gaz et Eaux,
of which Mr. Sayer is the General Partner. Mr. Sayer disclaims all
beneficial ownership of these shares.
(16) Represents a warrant for series D preference shares issued in connection
with Index Securities S.A. acting as placement agent in our series D
preference share financing.
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<PAGE>
Reorganization of Virata Limited
In connection with a reorganization to create Virata Corporation as the
holding company of Virata Limited, all of the outstanding ordinary and
preference shares, and any other securities that are convertible into ordinary
and preference shares, of Virata Limited will be cancelled, new ordinary shares
of Virata Limited will be issued to Virata Corporation and shares of our common
stock will be issued to the former shareholders of Virata Limited. These
transactions will take place immediately prior to the consummation of this
offering and will be effected pursuant to a share reconstruction under Section
425 of the United Kingdom Companies Act of 1985. Any securities that are
convertible or exercisable into ordinary shares or preference shares of Virata
Limited will become convertible or exercisable into shares of our common stock
upon consummation of the share reconstruction.
The following table illustrates the conversion of the shares of Virata
Limited into shares of our common stock:
<TABLE>
<CAPTION>
Number of Shares Number of Shares of
Series of Virata Limited Outstanding as of Common Stock Received
Shares October 3, 1999 (1) Conversion Rate (2) In the the Reorganization
- ------------------------ ------------------- ------------------- -------------------------
<S> <C> <C> <C>
Ordinary Shares......... 13,547,599 1 for 6.7 2,021,999
Series A Preference
Shares................. 1,798,720 1 for 6.7 268,459
Series B Preference
Shares................. 1,394,406 1 for 6.7 208,116
Series C Preference
Shares................. 4,666,667 1 for 5.58(3) 835,820
Series D Preference
Shares................. 43,571,387 1 for 4.26(4) 10,219,283
Series E Preference
Shares................. 6,153,846 1 for 6.7 918,484
</TABLE>
- --------
(1) After giving effect to the issuance of series E preference shares by Virata
Limited.
(2) After giving effect to the 1 for 6.7 reverse stock split.
(3) As a consequence of the antidilution provisions of the series C preference
shares, the conversion rate of the series C preference shares was increased
from 1 for 6.7 to 1 for 5.58.
(4) Pursuant to their terms, the conversion rate of the series D preference
shares was increased from 1 for 6.7 to 1 for 4.26.
All of the shares of our common stock issued as a result of the
reorganization of Virata Limited and any shares of our common stock issued
after the effective date of the reorganization upon the exercise of options or
warrants of Virata Limited that were outstanding as of the effective date of
the reorganization, will be subject to certain transfer restrictions, pursuant
to Section 6.06 of our bylaws. See "Certain Provisions in our Certificate of
Incorporation and Bylaws--Transfer Restrictions in the Bylaws."
Acorn Computer
We entered into a technology license, manufacturing license and supply
agreement with Acorn Computer Group plc, or Acorn, in October 1998, pursuant to
which Acorn is able to manufacture certain ATM hardware with binary software
and software designs employing integrated circuits purchased from us. Acorn
subsequently transferred the license to Pace Micro Technology. For the three-
year period ended March 31, 1999 and the six months ended October 3, 1999, we
had aggregate sales to Acorn of approximately $674,000 and purchases from Acorn
of approximately $7,500. Dr. Hauser, Professor Hopper and Mr. De Benedetti were
directors of Acorn and have no affiliation with Pace Micro Technology.
Adaptive Broadband Limited
We entered into a technology license, manufacturing license and supply
agreement in March 1998, as amended in May 1999, with Adaptive Broadband
Limited, or ABL, a wholly owned subsidiary of Adaptive Broadband Corporation,
formerly California Microwave. Under the agreement, ABL has licensed our
software
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and is able to design, manufacture and sell products incorporating integrated
circuits purchased from us. Prof. Hopper is a director of ABL. To date, we have
received approximately $495,000 in license fees and product purchases from ABL
and, as of October 3, 1999, there was no outstanding balance owed to us.
Advanced RISC Machines
We entered into a consulting arrangement in November 1997 with Advanced RISC
Machines Ltd., or ARM, a United Kingdom corporation. Under the agreement
Advanced RISC Machines provided us with services relating to the development of
the Lithium integrated circuit. We entered into a per semiconductor design
license agreement in June 1999 under which we are able to design, have
manufactured and sell integrated circuits incorporating the ARM RISC
microprocessor core. We also entered into a limited use software agreement in
June 1999, which provides us with a six month evaluation license for certain
software. Acorn Computer Group plc, of which Dr. Hauser, Professor Hopper and
Mr. De Benedetti were directors, owned approximately 40% of Advanced RISC
Machines Ltd. at the time the foregoing agreements were entered into. We have
paid approximately $1.2 million in fees to ARM under these agreements as of
October 3, 1999.
Olivetti Telemedia Investments B.V. and its Affiliates
We entered into a formation and license agreement in December 1993, as
supplemented in April 1994 and September 1994, with Olivetti Telemedia and its
parent, Ing. C. Olivetti & C. S.p.A. Pursuant to the license agreement, we were
granted an exclusive, world-wide license to exploit certain technology, subject
to certain conditions, and agreed to cooperate with respect to certain
technological matters, in exchange for an option, which has been fully
exercised. Additionally, we entered into an agreement with an affiliate of
Olivetti Telemedia in July 1995, under which we sold systems products to
Olivetti and its affiliates. For the three-year period ended March 31, 1999 and
the six months ended October 3, 1999, we had aggregate sales to Olivetti
Telemedia and its affiliates of approximately $209,000 and purchases from
Olivetti Telemedia and its affiliates of approximately $10,000. Olivetti
Telemedia holds approximately 11.5% of our common stock, after giving effect to
the issuance of series E preference shares by Virata Limited.
Telemedia Systems Limited
We occasionally buy products from and sell products to Telemedia Systems
Limited, or Telemedia, a United Kingdom corporation, on terms similar to terms
we negotiate with unaffiliated third parties. For the three year period ended
March 31, 1999 and the six months ended October 3, 1999, we had aggregate sales
to Telemedia of approximately $226,000 and purchases from Telemedia of
approximately $293,000. Dr. Hauser, Professor Hopper and Mr. De Benedetti serve
as directors of Telemedia.
67
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our outstanding shares of common stock as of October 3, 1999 held
by:
. each person or group known to us to be the beneficial owner of more than
5% of our outstanding common stock;
. each of our Named Executive Officers;
. each of our directors; and
. all of our directors and executive officers as a group.
Unless otherwise indicated, and subject to community property laws where
applicable, each of the persons named in the table have sole voting and
investment power with respect to all of the shares of common stock shown held
by them.
In calculating beneficial and percentage ownership, all shares of common
stock that a named stockholder or specified group will have the right to
acquire within 60 days of October 3, 1999 upon exercise of stock options are
deemed to be outstanding for the purpose of computing the ownership of such
stockholder, but are not deemed to be outstanding for the purpose of computing
the percentage of common stock owned by any other stockholder. As of October 3,
1999, an aggregate of 14,472,161 shares of common stock were outstanding.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Owned After the
Offering Offering
---------------------------------------------
Name Number Percent Number Percent
- ---- ------------ ------------------- ----------
<S> <C> <C> <C> <C>
Oak Investment Partners 1,863,510 12.9%
Limited.......................
525 University Avenue, Suite
1300
Palo Alto, CA 94301
Oracle Corporation............. 1,819,586 12.6
500 Oracle Parkway
Redwood Shores, CA 94065
Gaz et Eaux.................... 1,723,437 11.9
3 Rue Jacques Bingen
Paris, 75017, France
Olivetti Telemedia Investments 1,667,941 11.5
B.V...........................
Herengracht, 548
Amsterdam, The Netherlands
New Enterprise Associates...... 1,309,440 9.0
1119 St. Paul Street
Baltimore, MD 21202
3i plc......................... 899,848 6.2
91 Waterloo Road
London SE1 8XP, United Kingdom
Charles Cotton(1).............. 167,428 1.1
Michael Gulett(1).............. 59,701 *
Andrew Vought(1)............... 114,692 *
Martin Jackson(1).............. 82,027 *
Daniel Karr(1)................. -- --
Thomas Cooper(1)............... 84,733 *
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Owned After the
Offering Offering
---------------------------------------------
Name Number Percent Number Percent
- ---- ------------ ------------------- ----------
<S> <C> <C> <C> <C>
Dr. Hermann Hauser(2)........ 243,596 1.7
Marco De Benedetti........... 1,667,941 11.5
Gary Bloom(3)................ 1,819,586 12.6
Bandel Carano(4)............. 1,863,510 12.9
Professor Andrew Hopper...... 233,262 1.6
Peter Morris(5).............. 1,309,440 9.0
Patrick Sayer(6)............. 1,723,437 11.9
Giuseppe Zocco(7)............ 55,837 *
All of our directors and
executive officers as a
group (15 persons).......... 9,433,322 62.7
</TABLE>
- --------
* Less than 1%.
(1) Represents shares of our common stock underlying options that are vested or
will vest within 60 days of October 3, 1999.
(2) Represents shares of our common stock owned by Providence Investment
Company Limited, which is wholly owned by the Providence Trust, of which
Mr. Hauser may be a beneficiary.
(3) Represents shares held by Oracle Corporation. Mr. Bloom is an Executive
Vice President of Oracle. Mr. Bloom disclaims all beneficial ownership of
these shares.
(4) Represents shares of our common stock beneficially owned by Oak Investment
Partners, of which Mr. Carano is the General Partner. Mr. Carano disclaims
all beneficial ownership of these shares.
(5) Represents shares of our common stock beneficially owned by New Enterprise
Associates, of which Mr. Morris is the General Partner. Mr. Morris
disclaims all beneficial ownership of these shares.
(6) Represents shares of our common stock beneficially owned by Gaz et Eaux, of
which Mr. Sayer is the General Partner. Mr. Sayer disclaims all beneficial
ownership of these shares.
(7) Mr. Zocco owns a warrant to purchase 55,837 shares of our common stock.
69
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, our authorized capital stock will consist
of 40,000,000 shares of common stock, $.001 par value, and 5,000,000 shares of
preferred stock, $.001 par value. The description of our capital stock below
and certain provisions of our charter documents is not complete and is
qualified by our certificate of incorporation and bylaws, which are included as
exhibits to the registration statement that this prospectus is a part of, and
by applicable provisions of the Delaware General Corporate Law.
Common Stock
As of October 3, 1999, there were 14,472,161 shares of common stock
outstanding. Upon completion of this offering, there will be 19,472,161 shares
of our common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. Holders of the
common stock are entitled to one vote per share on each matter submitted to a
vote of our stockholders. Beneficial owners of common stock are entitled to
receive ratably those dividends declared by our board of directors out of
legally available funds. Upon our liquidation, dissolution or winding up, our
common stockholders are entitled to share ratably in all of our assets which
are legally available for distribution, after payment of all debts and other
liabilities and the liquidation preference of any outstanding series of
preferred stock. Holders of common stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of common stock are,
when issued and delivered, validly issued, fully-paid and non-assessable under
the Delaware General Corporation Law.
Preferred Stock
Immediately after this offering, there will be no shares of our preferred
stock outstanding. However, our certificate of incorporation provides that our
preferred stock be divisible into and issuable in one or more series. The
rights and preferences of the different series may be established by our board
of directors without further action by our stockholders. Our board of directors
will be authorized with respect to each series to fix and determine, among
other things:
. its dividend rate;
. its liquidation preference;
. whether or not the shares will be convertible into, or exchangeable for,
any other securities; and
. whether or not the shares will have voting rights, and, if so, determine
the extent of the voting powers and the conditions under which the
shares will vote as a separate class.
We believe that our board of directors' ability to issue preferred stock on
such a wide variety of terms will enable the preferred stock to be used for
important corporate purposes, such as financing acquisitions or raising
additional capital. However, were it inclined to do so, our board of directors
could issue all or part of the preferred stock with (among other things)
substantial voting power or advantageous conversion rights. This stock could be
issued to persons deemed by our board of directors likely to support our
current management in a context for control of us, either as a precautionary
measure or in response to a specific takeover threat. We have no current plans
to issue preferred stock for any purpose.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock
Transfer and Trust Company. Its phone number is (212) 936-5100.
Listing
We have applied to have our common stock approved for quotation on the
Nasdaq National Market under symbol "VRTA."
70
<PAGE>
Registration Rights
Concurrent with this offering, we anticipate that we will enter into a
registration rights agreement with holders of our common stock who previously
held shares of the series B, series C, series D and series E preference shares
of Virata Limited or warrants to purchase shares of the series B, series C,
series D and series E preference shares of Virata Limited. As of October 3,
1999, these holders held approximately 12,181,694 of our outstanding shares.
The description of our registration rights agreement below is not complete
and is qualified by our registration rights agreement that is included as an
exhibit to the Registration Statement of which this prospectus is a part.
Requested Registration
Any time after six months after the closing date of this offering, holders
of at least 50% of the registrable securities may request that we file a
registration statement. Such request must be with respect to at least 30% of
the registrable securities held by such holders and such securities must have a
minimum aggregate fair market value of at least $5.0 million. Upon such a
request, we are required to use our reasonable efforts to cause such shares to
be registered, subject to certain conditions and limitations. The holders of
registrable securities are entitled to two such demand registrations.
In addition, if at any time we are entitled to file a registration statement
on Form S-3 (or any successor form), holders of at least 20% of the registrable
securities may request that we file a registration statement. Such request must
be with respect to registrable securities having a minimum aggregate fair
market value of $500,000. The holders of registrable securities are entitled to
two such S-3 registrations in any twelve-month period.
If the registration is an underwritten public offering and the underwriters
limit the number of securities that may be included in the registration, then
the number of registrable securities that may be included in the registration
and underwriting will be allocated among the holders of registrable securities
requesting registration in proportion, as nearly as practicable, to the
respective number registrable securities requested to be registered.
Company Registration
If we propose to register any of our or a holder's common stock under the
Securities Act, holders of registrable securities have the opportunity to
include their registrable securities in such registration. However, if the
registration is an underwritten public offering and the underwriters limit the
number of securities that may be included in the registration, then the number
of registrable securities that may be included in the registration and
underwriting may be cut back to zero. In such event, any registrable securities
that are included in the registration and underwriting will be allocated among
the holders of registrable securities based on the total number of our
securities held by such holder.
Termination of Registration Rights
The registration rights terminate as to registrable securities on the
earlier of (1) the date of the sale of such Registrable Securities pursuant to
a Registration Statement or Rule 144 under the Securities Act (or any similar
provision then in force); (2) the date such registrable securities become
capable of being distributed pursuant to Rule 144(k); or (3) the date such
registrable securities become distributable without being subject to Rule 144
or registration. Notwithstanding the above, the registration rights agreement
will terminate in 2006.
71
<PAGE>
CERTAIN PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BYLAWS
Stockholder Meetings
Our bylaws provide that following this offering, any action required to be
taken or that may be taken at any meeting of our stockholders may only be taken
at a meeting of stockholders and may not be taken by the written consent of the
stockholders. Special meetings of stockholders may only be called by our board
of directors, the chairman of our board or the chief executive officer, and
only such business brought forth by or at the direction of our board of
directors or the stockholders may be conducted. If a stockholder wishes to
propose an item for consideration at any meeting, the stockholder must give
written notice to us not less than 90 days before the meeting or, if later, the
tenth day following the date of the first public announcement of the meeting,
or such other date as is necessary to comply with applicable federal proxy
solicitation rules and other regulations.
Board of Directors
Our bylaws provide that the number of directors may not be less than three
nor more than fourteen, until changed by an amendment duly adopted by our board
of directors or stockholders. Our bylaws further provide that the exact number
of directors shall be fixed from time to time, within such range, by our board
of directors. Currently, the number of directors is fixed at four. Our bylaws
provide that our board of directors will be divided into three classes of
directors, which serve for staggered three-year terms. Our bylaws do not
provide for cumulation of stockholder votes in the election of directors.
According to our bylaws, each director may be removed only for cause and only
by the affirmative vote of at least 80% of the total number of the then
outstanding shares of capital stock entitled to vote generally in the election
of directors. Our bylaws provide that nominations for election of directors may
be made by our board of directors or any stockholder entitled to vote in the
election of directors. If a stockholder wishes to nominate a director, the
stockholder must give written notice to us not less than 90 days before the
meeting or, if later, the tenth day following the date of the first public
announcement of the meeting.
Amendment of Our Charter Documents
Our certificate of incorporation may not be amended without the approval of
the holders of a majority of our outstanding voting shares or the approval of
at least a majority of our directors. Our bylaws contain provisions requiring
the affirmative vote of at least 80% of the total number of the then
outstanding shares of capital stock entitled to vote generally in the election
of directors to amend, alter or repeal the provisions of our bylaws relating to
the calling of special meetings of stockholders, advance notice of stockholder
business or nominees, removal of directors, stockholder action without a
meeting or amendments of our bylaws. These provisions of our charter documents
may delay, defer or prevent a change in control without further action by our
stockholders, may discourage bids for the common stock at a premium over the
market price of the common stock and may adversely affect the market price of
the common stock.
Transfer Restrictions in the Bylaws
In order to facilitate this offering, all of the shares of our common stock
issued as a result of the reorganization of Virata Limited and any shares of
our common stock issued after the effective date of the reorganization upon the
exercise of options or warrants of Virata Limited that were outstanding as of
the effective date of the reorganization, will be subject to a "lock up" period
during which the transfer of such shares will be restricted. See "Certain
Transactions--Reorganization of Virata Limited." Section 6.06 of our bylaws
provides that such shares may not be offered, sold, pledged or otherwise
disposed of, directly or indirectly nor may the holders of such shares publicly
disclose the intention to make any such offer, sale pledge or disposal for up
to 180 days after the Effective Date without the prior written consent of
Virata Corporation. A legend denoting such transfer restrictions will be
stamped or otherwise imprinted on the certificate representing such shares.
Neither we nor our transfer agent and registrar will make any transfer of
shares of our common stock if such transfer would constitute a violation or
breach of this provision of our bylaws.
72
<PAGE>
Effect of Delaware Anti-takeover Statute
We are subject to Section 203 of the Delaware General Corporation Law which,
subject to certain exceptions, prohibits a Delaware corporation from engaging
in any "business combination" which includes a merger or sale of more than 10%
of the corporation's assets, with any interested stockholder for a period of
three years following the date that such stockholder became an interested
stockholder, unless:
. before such date, our board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
. upon completion of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by persons who
are directors and also officers; or
. on or after such date, the business combination is approved by our 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 two-thirds of the outstanding voting stock which is not owned by
the interested stockholder.
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 or any entity or person affiliated with or controlling or
controlled by such entity or person.
73
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock. Upon
completion of this offering, there will be approximately 19,472,161 shares of
our common stock outstanding, assuming no exercise of the underwriters' over-
allotment option and no exercise of outstanding options. All of these shares
will be freely tradable without restriction or further registration under the
Securities Act, pursuant to an exemption provided by Section 3(a)(10) of the
Securities Act, except for any such shares held by our affiliates. Shares held
or purchased in this offering by one of our affiliates may not be sold in the
public market without registration under the Securities Act or in compliance
with an applicable exemption from registration as provided in Rule 144 or Rule
701 under the Securities Act, which rules are summarized below.
In general, under Rule 144 as currently in effect, a person who is one of
our affiliates, is entitled to sell within any three-month period a number of
shares that does not exceed the greater of 1% of the shares of our common stock
then outstanding, equaling approximately 194,722 shares immediately after this
offering, or the average weekly trading volume of our common stock in the
public market during the four calendar weeks immediately before such sale.
Sales under Rule 144 are also subject to certain requirements as to the manner
of sale, notice and availability of current public information concerning us.
Under Rule 144(k), a person who has not been one of our "affiliates" at any
time during the 90 days before a sale, and who has beneficially owned shares
proposed to be sold for at least two years, is entitled to sell such shares
without regard to the volume limitations, manner of sale provisions or notice
requirements.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 under the Securities Act, as
currently in effect, permits the resale of securities originally purchased from
us by our employees, directors, officers, consultants or advisers prior to the
closing of this offering in connection with a compensatory stock or option plan
or written agreement, by persons who are not our "affiliates" subject only to
the manner-of-sale provisions of Rule 144 and by our affiliates under Rule 144
without compliance with its minimum holding period requirement.
All of our officers, directors and stockholders have agreed that they will
not offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, any of our shares or any securities convertible into or
exchangeable or exercisable for any of our shares, or publicly disclose the
intention to make any such offer, sale, pledge or disposal, for a period
beginning on the date of this prospectus and continuing to the date which is
180 days after the date of this prospectus, without the prior written consent
of Credit Suisse First Boston, which consent may be withheld in its sole
discretion. Credit Suisse First Boston may, in its sole discretion and any time
without notice, release all or any portion of the securities subject to these
lock-up agreements. In addition, we have agreed that, for a period of 180 days
after the date of this prospectus, we will not, without the consent of Credit
Suisse First Boston, issue, offer, sell or grant options to purchase or
otherwise dispose of any equity securities or securities convertible into or
exchangeable for equity securities except for (1) the issuance of shares of
common stock offered hereby and (2) shares of common stock issued upon the
exercise of outstanding options on or after the date of this prospectus. See
"Underwriting."
In addition, all of the shares of our common stock issued as a result of the
reorganization of Virata Limited and any shares of our common stock issued
after the effective date of the reorganization upon the exercise of options or
warrants of Virata Limited that were outstanding as of the effective date of
the reorganization, will be subject to certain transfer restrictions pursuant
to Section 6.06 of our bylaws. See "Certain Transactions--Reorganization of
Virata Limited" and "Certain Provisions in our Certificate of Incorporation and
Bylaws--Transfer Restrictions in the Bylaws."
There are no restrictions on resale with respect to any of our securities,
other than restrictions imposed by lock-up agreements, our bylaws and
applicable securities laws. All of the shares of our common stock outstanding
prior to this offering will be available for sale in the public market
immediately upon expiration of the 180 day lock-up period, subject to the
volume limitations and other conditions of Rule 144 with respect to shares held
by our affiliates.
74
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, Warburg Dillon Read LLC
and Thomas Weisel Partners LLC are acting as representatives, the following
respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
Warburg Dillon Read LLC............................................
Thomas Weisel Partners LLC.........................................
---------
Total.......................................................... 5,000,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that, if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 750,000 additional shares at the initial public offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay:
<TABLE>
<CAPTION>
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts
and commissions paid by
us..................... $ $ $ $
Expenses payable by us.. $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We, our executive officers and directors, and existing holders of our
securities which holders own or have the right to acquire more than 1% of our
outstanding shares of common stock, have agreed that we will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly, or
file with the Securities and Exchange Commission a registration statement under
the Securities Act relating to, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any of our common stock, or
publicly disclose the intention to make an offer, sale, pledge, disposition or
filing, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus, except
in our case issuances pursuant to the exercise of employee stock options
outstanding on the date hereof.
The underwriters have reserved for sale, at the initial public offering
price, up to 250,000 shares of common stock for employees, directors and other
persons associated with us who have expressed an interest in
75
<PAGE>
purchasing common stock in the offering. The number of shares available for
sale to the general public in this offering will be reduced to the extent these
persons purchase the reserved shares. Any reserved shares not so purchased will
be offered by the underwriters to the general public on the same terms as the
other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be
required to make in that respect.
We have applied to list our shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "VRTA."
Prior to the offering, there has been no public market for the common stock.
The initial public offering price for the common stock will be determined by
negotiation between us and the representatives, and may not reflect the market
price for the common stock following this offering. The principal factors
considered in determining the initial public offering price of our common stock
will be:
. the information in this prospectus and otherwise available to the
representatives;
. market conditions for initial public offerings;
. the history of and prospects for the industry in which we will compete;
. the ability of our management;
. our prospects for future earnings, the present state of our development
and our current financial condition;
. the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies; and
. the general condition of the securities markets at the time of this
offering.
We cannot be sure that the initial public offering price will correspond to
the price at which common stock will trade in the public market following this
offering or that an active trading market for the common stock will develop and
continue after this offering.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934, as amended.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
. Stabilizing transactions permit bids to purchase shares of the common
stock so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq Stock Market's National Market or otherwise and, if
commenced, may be discontinued at any time.
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<PAGE>
Each underwriter has represented and agreed that:
. it and each of its affiliates have not offered or sold, and will not
offer or sell any common stock to persons in the United Kingdom, except
to those persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent)
for the purpose of their businesses or otherwise in circumstances which
have not resulted and will not result in an offer to the public in the
United Kingdom within the meaning of the Public Offers of Securities
Regulations 1995;
. it and each of its affiliates have complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the common stock in, from or
otherwise involving the United Kingdom; and
. it and each of its affiliates have only issued or passed on and will
only issue or pass on in the United Kingdom any document received by it
in connection with the issue of the common stock to a person who is of a
kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a person to
whom the document may otherwise lawfully be issued or passed on.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has acted as a lead or co-manager on over
40 offerings of equity securities that have been completed. Thomas Weisel
Partners does not have any material relationship with us or any of our
officers, directors or other controlling persons, except with respect to its
contractual relationship with us pursuant to the underwriting agreement entered
into in connection with this offering.
77
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (1) the purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under the securities laws, (2) where required
by law, that the purchaser is purchasing as principal and not as agent, and (3)
the purchaser has reviewed the text above under "Resale Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U. S. federal securities.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or these
persons in Canada or to enforce a judgment obtained in Canadian courts against
such issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser in this offering. This report must be
in the form attached to British Columbia Securities Commission Blanket Order
BOR #95/17, a copy of which may be obtained from us. Only one report must be
filed in respect of common stock acquired on the same date and under the same
prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult with their own legal and
tax advisors with respect to the tax consequences of an investment in the
common stock in their particular circumstances and with respect to the
eligibility of the common stock for investment by the purchaser under relevant
Canadian legislation.
78
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
shares of common stock offered hereby will be passed upon for us by Gibson,
Dunn & Crutcher LLP, San Francisco, California. Certain legal matters in
connection with this offering will be passed upon for the underwriters by
Brobeck, Phleger & Harrison LLP, San Francisco, California.
EXPERTS
The consolidated financial statements of Virata Corporation as of March 31,
1998 and 1997 and for each of the three years in the period ended March 31,
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.
The financial statements of RSA Communications, Inc. as of March 31, 1998
and 1997 and for the period from June 6, 1997 through March 31, 1998, the
period from April 1, 1997 through June 5, 1997, and the year ended March 31,
1997 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 Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered in this offering. This prospectus does not contain all of
the information contained in the registration statement and the exhibits and
schedule filed with the registration statement. For further information with
respect to Virata and the common stock offered in this offering, we refer you
to the registration statement and the exhibits and schedules filed as a part of
the registration statement. Statements contained in this prospectus concerning
the contents of any contract or any other document referred to are not
necessarily complete. We refer you to the copy of such contract or document
filed as an exhibit to the registration statement.
Our registration statement, including exhibits and schedules attached
thereto, may be inspected without charge at the Securities and Exchange
Commission's public reference facilities in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Securities and Exchange Commission's
regional offices located at the Northwest Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048. You may also obtain copies of all or any part
of our registration statement from such offices after payment of fees
prescribed by the Securities and Exchange Commission. The Securities and
Exchange Commission maintains a worldwide website that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the Securities and Exchange Commission at
http://www.sec.gov.
79
<PAGE>
VIRATA CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Virata Corporation
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheet................................................. F-3
Consolidated Statement of Operations....................................... F-4
Consolidated Statement of Stockholders' Equity (Deficit)................... F-5
Consolidated Statement of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements................................. F-7
RSA Communications, Inc.
Report of Independent Accountants.......................................... F-22
Balance Sheet.............................................................. F-23
Statement of Operations.................................................... F-24
Statement of Stockholder's Equity (Deficit)................................ F-25
Statement of Cash Flows.................................................... F-26
Notes to Financial Statements.............................................. F-27
Pro Forma Combined Financial Information (unaudited)
Overview................................................................... F-33
Pro Forma Combined Statement of Operations (unaudited)..................... F-34
Notes to Pro Forma Combined Financial Information (unaudited).............. F-35
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Virata Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity (deficit) and
of cash flows present fairly, in all material respects, the financial position
of Virata Corporation and its subsidiaries (the "Company") at March 31, 1998
and 1999, and the results of their operations and their cash flows for each of
the three years in the period ended March 31, 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.
/s/ PricewaterhouseCoopers LLP
San Jose, California
August 31, 1999 except as to note 13, which is
as of October 12, 1999
F-2
<PAGE>
VIRATA CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Pro Forma,
Stockholders
March 31, Equity at
------------------ October 3, October 3,
1998 1999 1999 1999
-------- -------- ----------- ------------
(unaudited) (unaudited)
(Note 2)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....... $ 767 $ 8,616 $ 4,137
Short-term investments.......... -- 1,001 --
Accounts receivables, net of
allowance for doubtful accounts
and returns of $1,567, $2,742
and $630, respectively......... 2,091 2,267 1,180
Inventories..................... 434 264 705
Other current assets............ 1,352 1,232 1,392
-------- -------- --------
Total current assets........... 4,644 13,380 7,414
Property and equipment, net....... 1,306 2,479 2,198
Intangible assets................. -- 3,328 2,950
-------- -------- --------
Total assets................... $ 5,950 $ 19,187 $ 12,562
======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current Liabilities:
Accounts payable................ $ 1,727 $ 2,112 $ 2,100
Accrued liabilities............. 2,641 1,887 2,282
Deferred revenue................ 317 489 458
Convertible loan from related
parties........................ 2,712 -- --
Short-term borrowings........... 417 -- --
Capital lease obligations,
current........................ 483 850 854
-------- -------- --------
Total current liabilities...... 8,297 5,338 5,694
Capital lease obligations, long-
term............................. 738 1,130 986
-------- -------- --------
9,035 6,468 6,680
-------- -------- --------
Commitments (Note 8)
Stockholders' Equity (Deficit)
Convertible preferred stock,
$0.02 par value at March 31,
1998 and 1999 and October 3,
1999 and $0.001 par value at
pro forma; 36,100,000,
86,100,000, 86,100,000
(unaudited) and 5,000,000
(unaudited) shares authorized
at March 31, 1998 and 1999,
October 3, 1999, and pro forma,
respectively; 22,319,943,
51,431,179, 51,431,179
(unaudited) and zero
(unaudited) shares issued and
outstanding at March 31, 1998
and 1999, October 3, 1999 and
pro forma, respectively
(liquidation preference $57,929
(unaudited) at October 3,
1999).......................... 1,709 801 801 --
Common stock, $0.01 par value at
March 31, 1998 and 1999 and
October 3, 1999 and $0.001 par
value at pro forma; 45,000,000,
95,000,000, 95,000,000
(unaudited) and 40,000,000
(unaudited) shares authorized
at March 31, 1998 and 1999,
October 3, 1999, and pro forma,
respectively; 11,752,415,
13,340,644, 13,547,599,
(unaudited) and 14,472,161
(unaudited) shares issued and
outstanding at March 31, 1998
and 1999, October 3, 1999, and
pro forma, respectively........ 185 211 215 14
Additional paid-in capital...... 29,432 62,964 63,095 71,997
Accumulated other comprehensive
income......................... 619 871 1,064 1,064
Unearned stock compensation..... (1,559) (1,500) (1,093) (1,093)
Accumulated deficit............. (33,471) (50,628) (58,200) (58,200)
-------- -------- -------- --------
Total stockholders' equity
(deficit)..................... (3,085) 12,719 5,882 $ 13,782
-------- -------- -------- ========
Total liabilities and
stockholders' equity
(deficit)..................... $ 5,950 $ 19,187 $ 12,562
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
VIRATA CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended March 31, Six Months Ended
--------------------------- ------------------------
September 30, October 3,
1997 1998 1999 1998 1999
------- -------- -------- ------------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Semiconductors........ $ -- $ 505 $ 2,784 $ 1,697 $ 3,493
License............... 971 1,570 1,628 1,009 528
Services and royalty.. 1,134 1,206 2,367 1,075 808
Systems............... 4,848 5,650 2,477 1,340 848
------- -------- -------- -------- -------
Total revenues...... 6,953 8,931 9,256 5,121 5,677
------- -------- -------- -------- -------
Cost of revenues:
Semiconductors........ -- 325 2,421 1,333 1,941
License............... -- -- -- -- --
Services and royalty.. 185 192 528 229 338
Systems............... 3,754 3,270 1,048 701 491
------- -------- -------- -------- -------
Total cost of
revenues........... 3,939 3,787 3,997 2,263 2,770
------- -------- -------- -------- -------
Gross profit............ 3,014 5,144 5,259 2,858 2,907
------- -------- -------- -------- -------
Operating expenses:
Research and
development.......... 3,518 3,987 8,323 3,586 5,130
Sales and marketing... 4,753 4,076 2,917 1,381 1,896
General and
administrative....... 3,410 4,917 5,567 3,099 2,303
Restructuring costs... -- 1,871 -- -- --
Amortization of
intangible assets.... -- -- 549 137 370
Amortization of stock
compensation......... -- 399 1,394 683 505
Acquired in-process
research and
development.......... -- -- 5,260 5,260 --
------- -------- -------- -------- -------
Total operating
expenses........... 11,681 15,250 24,010 14,146 10,204
------- -------- -------- -------- -------
Loss from operations.... (8,667) (10,106) (18,751) (11,288) (7,297)
Interest expense........ (72) (214) (155) (102) (92)
Interest income and
other income (expense),
net.................... 199 42 1,749 (305) (183)
------- -------- -------- -------- -------
Net loss................ $(8,540) $(10,278) $(17,157) $(11,695) $(7,572)
======= ======== ======== ======== =======
Basic and diluted net
loss per share......... $ (0.80) $ (0.90) $ (1.33) $ (0.91) $ (0.57)
======= ======== ======== ======== =======
Weighted average common
shares--basic
and diluted............ 10,676 11,482 12,881 12,790 13,359
======= ======== ======== ======== =======
Unaudited pro forma
basic and diluted net
loss per share (Note
1)..................... $ (1.42) $ (0.60)
======== =======
Pro forma weighted
average shares--basic
and diluted............ 12,075 12,642
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
VIRATA CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Convertible Accumulated Total
Preferred Stock Common Stock Additional Other Unearned Stockholders' Total
---------------- ------------- Paid-in Comprehensive Stock Accumulated Equity Comprehensive
Shares Amount Shares Amount Capital Income (Loss) Compensation Deficit (Deficit) Income
------ -------- ------ ------ ---------- ------------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March
31, 1996......... 12,940 $ 1,564 10,600 $ 165 $ 14,437 $ 338 $ -- $ (14,653) $ 1,851 $ --
Issuance of
Series B
convertible
preferred
stock........... 2,713 45 -- -- 3,080 -- -- -- 3,125 --
Issuance of
Series C
convertible
preferred
stock........... 6,667 100 -- -- 9,900 -- -- -- 10,000 --
Issuance of
common stock for
cash............ -- -- 337 6 19 -- -- -- 25 --
Net loss........ -- -- -- -- -- -- -- (8,540) (8,540) (8,540)
Currency
translation
adjustment...... -- -- -- -- -- 391 -- -- 391 391
------- -------- ------ ------ -------- ------ -------- --------- ------- --------
Balance, March
31, 1997......... 22,320 1,709 10,937 171 27,436 729 -- (23,193) 6,852 (8,149)
========
Issuance of
common stock for
cash............. -- -- 815 14 38 -- -- -- 52 --
Unearned stock
compensation..... -- -- -- -- 1,958 -- (1,958) -- -- --
Amortization of
unearned stock
compensation..... -- -- -- -- -- -- 399 -- 399 --
Net loss......... -- -- -- -- -- -- -- (10,278) (10,278) (10,278)
Currency
translation
adjustment....... -- -- -- -- -- (110) -- -- (110) (110)
------- -------- ------ ------ -------- ------ -------- --------- ------- --------
Balance, March
31, 1998......... 22,320 1,709 11,752 185 29,432 619 (1,559) (33,471) (3,085) (10,388)
========
Change in the
par value of
Series A
convertible
preferred
stock............ -- (1,366) -- -- 1,366 -- -- -- -- --
Issuance of
Series D
convertible
preferred stock
and warrants..... 24,781 410 -- -- 24,672 -- -- -- 25,082 --
Issuance of
Series D
convertible
preferred stock,
common stock and
options for
acquisition...... 606 10 1,540 25 3,553 -- -- -- 3,588 --
Issuance of
Series D
convertible
preferred stock
upon conversion
of debt.......... 3,039 38 -- -- 2,576 -- -- -- 2,614 --
Issuance of
Series D
convertible
preferred stock
for cash......... 22 -- -- -- 24 -- -- -- 24 --
Issuance of
common stock for
cash............. -- -- 49 1 6 -- -- -- 7 --
Exchange Series
B and Series C
convertible
preferred stock
to Series D
convertible
preferred
stock............ 663 -- -- -- -- -- -- -- -- --
Unearned stock
compensation..... -- -- -- -- 1,335 -- (1,335) -- -- --
Amortization of
unearned stock
compensation..... -- -- -- -- -- -- 1,394 -- 1,394 --
Net loss......... -- -- -- -- -- -- -- (17,157) (17,157) (17,157)
Unrealized gain
on investments... -- -- -- -- -- 1 -- -- 1 1
Currency
translation
adjustment....... -- -- -- -- -- 251 -- -- 251 251
------- -------- ------ ------ -------- ------ -------- --------- ------- --------
Balance, March
31, 1999......... 51,431 801 13,341 211 62,964 871 (1,500) (50,628) 12,719 (16,905)
========
Issuance of
common stock for
cash
(unaudited)...... -- -- 207 4 33 -- -- -- 37 --
Unearned stock
compensation
(unaudited)...... -- -- -- -- 98 -- (98) -- -- --
Amortization of
unearned stock
compensation
(unaudited)...... -- -- -- -- -- -- 505 -- 505 --
Net loss
(unaudited)...... -- -- -- -- -- -- -- (7,572) (7,572) (7,572)
Currency
translation
adjustment
(unaudited)...... -- -- -- -- -- 193 -- -- 193 193
------- -------- ------ ------ -------- ------ -------- --------- ------- --------
Balance, October
3, 1999
(unaudited)...... 51,431 $ 801 13,548 $ 215 $ 63,095 $1,064 $ (1,093) $ (58,200) $ 5,882 $ (7,379)
======= ======== ====== ====== ======== ====== ======== ========= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
VIRATA CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended March 31, Six Months Ended
------------------------------ ------------------------
September 30, October 3,
1997 1998 1999 1998 1999
-------- --------- --------- ------------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $ (8,540) $ (10,278) $ (17,157) $(11,695) $ (7,572)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Provision for doubtful
accounts and
returns.............. 111 1,075 1,458 1,334 157
Acquired in-process
research and
development.......... -- -- 5,260 5,260 --
Depreciation and
amortization......... 1,085 1,079 1,695 673 1,162
Amortization of stock
compensation......... -- 399 1,394 683 505
Changes in current
assets and
liabilities:
Accounts receivable.. (797) (1,651) (739) 327 914
Inventories.......... (129) 393 158 76 (430)
Other current
assets.............. (615) (445) 82 478 (174)
Accounts payable..... 1,027 (339) 248 534 9
Accrued liabilities.. 818 280 (2,083) (1,614) 376
Deferred revenue..... -- 306 184 (21) (22)
-------- --------- --------- -------- --------
Net cash used in
operating
activities......... (7,040) (9,181) (9,500) (3,965) (5,075)
-------- --------- --------- -------- --------
Cash flows from
investing activities:
Sale of short-term
investments........... -- -- -- -- 1,001
Purchase of short-term
investments........... -- -- (1,000) -- --
Purchase of property
and equipment, net.... (622) (174) (2,127) (618) (299)
Cash paid in connection
with acquisition, net
of cash acquired...... -- -- (5,149) (5,149) --
-------- --------- --------- -------- --------
Net cash (used in)
provided by
investing
activities......... (622) (174) (8,276) (5,767) 702
-------- --------- --------- -------- --------
Cash flows from
financing activities:
Proceeds from issuance
of convertible
preferred stock, net
of issuance costs..... 13,125 -- 25,106 25,106 --
Proceeds from issuance
of common stock....... 25 52 7 5 37
Proceeds from capital
leases................ 227 11 1,201 20 --
Repayments of capital
lease obligations..... (122) (277) (318) (104) (414)
Proceeds from
convertible loan...... -- 2,606 -- -- --
Proceeds from
(repayment of) bank
borrowings............ -- 417 (417) (417) --
-------- --------- --------- -------- --------
Net cash provided by
(used in) financing
activities......... 13,255 2,809 25,579 24,610 (377)
-------- --------- --------- -------- --------
Effect of exchange rate
changes on cash........ 380 24 46 756 271
-------- --------- --------- -------- --------
Net increase (decrease)
in cash and cash
equivalents............ 5,973 (6,522) 7,849 15,634 (4,479)
-------- --------- --------- -------- --------
Cash and cash
equivalents at
beginning of period.... 1,316 7,289 767 767 8,616
-------- --------- --------- -------- --------
Cash and cash
equivalents at end of
period................. $ 7,289 $ 767 $ 8,616 $ 16,401 $ 4,137
======== ========= ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
VIRATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--The Company and Summary of Significant Accounting Policies:
The Company
Virata Corporation (the "Company") was formed in 1993 as Advanced
Telecommunications Modules Limited, a corporation organized in the United
Kingdom, as a spin-off from Olivetti Research Laboratories. In February 1998,
the Company changed its name to Virata Limited. In July 1998, the Company
completed its acquisition of RSA Communications, Inc. ("RSA Communications"), a
corporation organized in North Carolina (see Note 4). RSA was subsequently
renamed to Virata Raleigh Corporation.
The historical financial statements presented are those of Virata Limited.
In August 1999, Virata Corporation was created and as of October 3, 1999 it had
no operations, assets or issued shares. Immediately prior to the initial public
offering ("IPO"), Virata Corporation will become the holding company of Virata
Limited (see Note 13). The reorganization will be accounted for on a historical
basis.
Effective October 3, 1999, the Company changed the fiscal year such that
each quarter ends on the Sunday closest to the calendar quarter end.
The Company is a provider of solutions that integrate communication
processors with a suite of software for the digital subscriber line equipment
market.
Principles of consolidation and basis of presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Interim financial information (unaudited)
The accompanying interim consolidated financial statements as of October 3,
1999 and for the six months ended September 30, 1998 and October 3, 1999 are
unaudited but have been prepared on the same basis as the annual financial
statements and, in the opinion of management, reflect all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the Company's financial condition at October 3, 1999 and the results of
operations and cash flows for the six months ended September 30, 1998 and
October 3, 1999. The results of operations of any interim period are not
necessarily indicative of the results of operations for the full year.
Use of estimates
The preparation of consolidated 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 consolidated
financial statements and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue recognition
Revenues from the sale of both semiconductors and systems are recognized
upon shipment to customers. Allowances are provided for estimated returns at
the time of shipment. The Company recognizes software license revenue under
Statement of Position ("SOP") 97-2, Software Revenue Recognition, and SOP 98-9,
Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain
Transactions. When contracts contain multiple elements and vendor-specific
objective evidence exists for all undelivered elements,
F-7
<PAGE>
VIRATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the Company accounts for the delivered elements in accordance with the
"Residual Method" prescribed by SOP 98-9. Software licenses are generally
recognized as revenue upon shipment of the software product. In the event the
Company grants customers the right to specified upgrades, license revenue is
deferred until delivery of the specific upgrade. If vendor-specific objective
evidence of fair value does not exist, then the entire license fee is deferred
until the delivery of the specified upgrade. The Company recognizes revenues
from maintenance and support services provided to licensees ratably over the
term of the agreement, generally one year, and recognizes revenues from design
services provided to customers as the services are performed.
Cash equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. At March 31,
1998 and 1999, $767,000 and $7,142,000, respectively, of money market funds and
certificate of deposits, the fair value of which approximates costs, are
included in cash and cash equivalents. The Company deposits cash and cash
equivalents with high credit quality financial institutions.
Investments
Investments consist of high quality debt securities with original maturity
dates greater than ninety days. In accordance with Statement of Financial
Accounting Standard ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," the Company's investments are classified as
available-for-sale and, at the balance sheet date, are reported at fair value,
with the unrealized gains and losses, net of related taxes, reported as a
component of Other Comprehensive Income (Loss). The cost of these investments
at March 31, 1999 was $1,000,000. Gains and losses on the sale of available-
for-sale securities are determined using the specific-identification method.
Fair value of financial instruments
Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable,
accrued expenses and other liabilities approximate fair value due to their
short maturities. Based upon borrowing rates currently available to the Company
for leases with similar terms, the carrying value of capital lease obligations
approximate fair value.
Segment information
Effective April 1, 1998, the Company adopted the provisions of SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The
Company identifies its operating segments based on business activities,
management responsibility and geographical location. During each of the three
years in the period ended March 31, 1999, the Company operated in one operating
segment, primarily in the United States and Europe.
Concentration of credit risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents, and accounts
receivable. The Company's accounts receivable are derived from revenues earned
primarily from customers located in the U.S. and Europe. The Company performs
ongoing credit evaluations of its customers' financial condition and,
generally, requires no collateral from its customers. The Company maintains an
allowance for doubtful accounts receivable based upon the expected
collectibility of accounts receivable.
F-8
<PAGE>
VIRATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company currently has the following concentrations of revenues and trade
accounts receivables:
<TABLE>
<CAPTION>
Year Ended Six Months
March 31, Ended
---------------- October 3,
1997 1998 1999 1999
---- ---- ---- -----------
(unaudited)
<S> <C> <C> <C> <C>
Revenues
- --------
Customer A........................................... -- 10% 16% 52%
Customer B........................................... 21% 17% 22% 12%
Customer C........................................... -- 10% 3% --
</TABLE>
Revenues from customers located outside the United States were 47% in 1997,
44% in 1998 and 40% in 1999. The Company has $974,000 and $1,800,000 invested
in identifiable tangible assets in Europe as of March 31, 1998 and 1999,
respectively. The remaining identifiable tangible assets are located in the
United States.
<TABLE>
<CAPTION>
March 31,
---------- October 3,
1998 1999 1999
---- ---- -----------
(unaudited)
<S> <C> <C> <C>
Accounts Receivable
- -------------------
Customer A................................................ 23% 54% 72%
Customer B................................................ 11% 11% 2%
Customer C................................................ 28% -- --
Customer D................................................ 18% -- --
</TABLE>
Inventories
Inventories consist solely of finished goods and are stated at the lower of
cost or market, cost being determined using the first-in, first-out method.
Property and equipment
Property and equipment are recorded at cost. Depreciation and amortization
are computed on a straight-line basis over the estimated useful lives of the
assets, as follows:
<TABLE>
<S> <C>
Computer and network equipment and software........................ 2-3 years
Furniture and office equipment..................................... 5 years
Research and development equipment................................. 2-3 years
</TABLE>
Leasehold improvements are amortized on a straight-line basis over the life
of the lease, or the useful life of the assets, whichever is shorter.
Impairment of long-lived assets
The Company evaluates the recoverability of long-lived assets in accordance
with Statement of Financial Accounting Standards No. 121. "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of "
("SFAS No. 121"). SFAS No. 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets.
F-9
<PAGE>
VIRATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Intangible assets
Intangible assets consist of goodwill, which is being amortized on a
straight line basis over five years.
The Company investigates potential impairments of its goodwill on an
exception basis when evidence exists that events or changes in circumstances
may have made recovery of the carrying value unlikely. An impairment loss is
recognized when the expected undiscounted future net cash flows is less than
the carrying amount of the asset. No such losses have been identified to date.
Recent accounting pronouncement
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivatives and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. In July 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133." SFAS No. 137 deferred the effective date of SFAS
No. 133 until fiscal years beginning after June 15, 2000. The Company will
adopt SFAS No. 133 during its year ending March 31, 2002. To date, the Company
has not engaged in derivative or hedging activities. The Company is unable to
predict the impact of adopting SFAS No. 133 if it were to engage in derivative
and hedging activities in the future.
Net loss per share
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share" and SEC Staff Accounting Bulletin ("SAB") No. 98. Under
the provisions of SFAS No. 128 and SAB No. 98, basic and diluted net loss per
share is computed by dividing the net loss available to holders of common stock
for the period by the weighted average number of shares of common stock
outstanding during the period. The calculation of diluted net loss per share
excludes potential shares of common stock if their effect is anti-dilutive.
Potential common stock consists of shares of common stock issuable upon the
exercise of stock options and warrants and shares issuable upon conversion of
the Series A, B, C, and D convertible preferred stock.
The following tables sets forth potential shares of common stock as
converted that are not included in the diluted net loss per share calculation
above because to do so would be anti-dilutive for the period indicated (in
thousands):
<TABLE>
<CAPTION>
March 31,
--------------------
September 30, October 3,
1997 1998 1999 1998 1999
------ ------ ------ ------------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Series A convertible preferred
stock.......................... 1,799 1,799 1,799 1,799 1,799
Series B convertible preferred
stock.......................... 13,855 13,855 1,394 1,394 1,394
Series C convertible preferred
stock.......................... 8,000 8,000 5,600 5,600 5,600
Series D convertible preferred
stock.......................... -- -- 68,469 68,469 68,469
Convertible preferred stock
warrants....................... 74 139 2,817 2,817 2,903
Common stock warrants........... -- 75 75 75 --
Common stock options............ 2,777 4,796 14,516 11,664 21,704
------ ------ ------ ------ -------
26,505 28,664 94,670 91,818 101,869
====== ====== ====== ====== =======
</TABLE>
Pro forma net loss per share (unaudited)
Pro forma net loss per share for the year ended March 31, 1999 is computed
using the weighted average number of shares of common stock outstanding,
including the pro forma effects of: (i) the cancellation of all
F-10
<PAGE>
VIRATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
outstanding convertible preferred and common stock and all other securities
convertible into preferred or common stock of Virata Limited, (ii) the issuance
of new common shares of Virata Limited to Virata Corporation and the issuance
of shares of common stock of Virata Corporation to the former shareholders of
Virata Limited, and (iii) a 1 for 6.7 reverse common stock split, effective
upon the closing of the Company's IPO as if such transaction occurred on April
1, 1998, or at the date of original stock issuance, if later. The resulting pro
forma adjustment includes a decrease in the weighted average shares used to
compute basic net loss per share for the fiscal year ended March 31, 1999 and
the six months ended October 3, 1999. The calculation of diluted net loss per
share excludes potential shares of common stock as their effect would be anti-
dilutive.
Unaudited Pro Forma Stockholders' Equity
The Board of Directors have authorized the filing of a registration
statement with the Securities and Exchange Commission to register shares of its
common stock in connection with a proposed IPO. If the IPO is consummated under
the terms presently anticipated (i) all outstanding convertible preferred and
common stock and all other securities convertible into preferred or common
stock of Virata Limited will be cancelled (ii) new common shares of Virata
Limited will be issued to Virata Corporation and Virata Corporation will issue
shares of common stock to the former shareholders of Virata Limited, and (iii)
a 1 for 6.7 reverse stock split will be effected on all common shares. In
October 1999, the Company issued 6,153,846 shares of series E convertible
preferred stock for net proceeds of $7.9 million (see Note 13). These events
have been reflected in the unaudited pro forma stockholders' equity.
Stock compensation
The Company accounts for stock compensation arrangements in accordance with
provision of Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees" and complies with the disclosure provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation." Under APB No. 25,
unearned stock compensation is based on the difference, if any, on the date of
the grant, between the fair value of the Company's common stock and the
exercise price. Unearned stock compensation is amortized and expensed in
accordance with FASB Interpretation No. 28. The Company accounts for stock
issued to non-employees in accordance with the provisions of SFAS No.123 and
Emerging Issues Task Force Issue No. 96-18, "Accounting for Equity Instruments
that are Issued to Other than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services."
Comprehensive income
Comprehensive income consists of foreign currency translation gains and
losses and other unrealized gains and losses arising from the valuation of
short-term investments and is presented in the Consolidated Statement of
Stockholders' Equity (Deficit). Balance sheet accounts of foreign operations
are translated using the period-end exchange rate, and income statement
accounts are translated on a monthly basis using the average exchange rate for
the period. Unrealized gains and losses on translation adjustments are recorded
in stockholders' equity as other comprehensive income. The currency translation
adjustments are not adjusted for income taxes as they relate to indefinite
investments in non-U.S. subsidiaries. Foreign currency transaction gains and
losses are included as a component of other income and expense and as of March
31, 1997, 1998 and 1999 the Company recognized (losses) gains of $(198,000),
$(80,000) and $432,000, respectively.
F-11
<PAGE>
VIRATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 2--Supplemental Cash Flow Information (in thousands):
<TABLE>
<CAPTION>
Year ended March Six Months
31, Ended
------------------- ------------------------
September 30, October 3,
1997 1998 1999 1998 1999
----- ------ ------ ------------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Supplemental cash flow
information:
Cash paid for income taxes...... $ 800 $ 800 $ 800
===== ====== ======
Cash paid for interest.......... $ 55 $ 197 $ 180
===== ====== ======
Supplemental noncash investing and
financing activity:
Issuance of preferred stock for
convertible loan............... $ -- $ -- $2,712 $ -- $ --
===== ====== ====== ===== =====
Issuance of stock and options in
connection
with acquisition............... $ -- $ -- $2,921 $ -- $ --
===== ====== ====== ===== =====
Unearned compensation in
connection with
issuance of stock options...... $ -- $1,958 $1,335 $ -- $ 98
===== ====== ====== ===== =====
Issuance of warrants in
connection with financing...... $ -- $ -- $ 949 $ -- $ --
===== ====== ====== ===== =====
Property and equipment purchased
with capital leases............ $ 754 $ 361 $ -- $ 257 $ 297
===== ====== ====== ===== =====
</TABLE>
Note 3--Balance Sheet Components (in thousands):
<TABLE>
<CAPTION>
March 31
----------------
1998 1999
------- -------
<S> <C> <C>
Other current assets:
Prepaid expenses......................................... $ 293 $ 564
Deposits................................................. 346 113
Other current assets..................................... 713 555
------- -------
$ 1,352 $ 1,232
======= =======
Property and equipment, net:
Office equipment......................................... $ 2,156 $ 2,856
Furniture and fixtures................................... 206 247
Leasehold improvements................................... 136 429
Research and development equipment....................... 1,881 3,039
------- -------
4,379 6,571
Less: Accumulated depreciation and amortization.......... (3,073) (4,092)
------- -------
$ 1,306 $ 2,479
======= =======
</TABLE>
Property and equipment includes $2,200,000 and $3,485,000 of computer
equipment and internal-use software under capital leases at March 31, 1998, and
1999, respectively. Accumulated amortization of assets under capital leases
totaled $1,319,000 and $2,015,000 at March 31, 1998 and 1999, respectively.
F-12
<PAGE>
VIRATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
March 31
-------------
1998 1999
------ ------
<S> <C> <C>
Intangible assets:
Goodwill.................................................... $ -- $3,877
Less: Accumulated amortization.............................. -- (549)
------ ------
$ -- $3,328
====== ======
Accrued liabilities:
Compensation accrual........................................ $ 821 $ 869
Royalty obligation ......................................... 532 --
Contract accrual............................................ 422 --
Other....................................................... 866 1,018
------ ------
$2,641 $1,887
====== ======
</TABLE>
In fiscal year 1998, the Company recorded an accrual for $422,000 related to
an obligation of the Company to reimburse suppliers for cancelled purchase
orders related to systems products.
Note 4--Acquisition of RSA Communications:
The Company completed its acquisition of RSA Communications on July 17,
1998. RSA Communications was privately-held and based in Raleigh, North
Carolina, specializing in analog modem software development. The Company's
acquisition of RSA Communications was accounted for as a purchase business
combination.
The Company's allocation of RSA Communications' aggregate purchase price to
the tangible and identifiable intangible assets acquired in connection with
this acquisition were based on fair values as determined by independent
appraisers. The allocation is summarized below (in thousands):
<TABLE>
<S> <C>
In-process research and development.................................. $5,260
Goodwill............................................................. 3,877
Net assets........................................................... 138
------
Total purchase price................................................. $9,275
======
</TABLE>
The total purchase price of $9,275,000 million consisted of 1,540,000 shares
of the Company's common stock valued at $1,417,000 million, 606,500 series D
convertible preferred stock valued at $668,000, options to purchase 1,993,000
shares of common stock valued at $1,505,000 million, cash of $5,332,000 million
and acquisition related expenses of approximately $353,000 consisting primarily
of legal and other professional fees. The Company valued the options using the
Black-Scholes option pricing model, applying expected life of four years, a
weighted average risk-free rate of 5.47%, an expected dividend yield of zero
percent, a volatility of 70% and a deemed fair value of common stock of $0.92
per share.
The core technologies acquired in the RSA acquisition were the ADSL PHY
software and voiceband modem protocol software. The significant in-process
research and development projects include V.90 Modem Software and two software
algorithms, the Modem Modulation Software Algorithm and the ADSL Software
Algorithm.
The valuation of the acquired in-process research and development of
$5,260,000 was based on the result of an independent appraisal which was
determined using the income-based approach for V.90 Modem Software and the
replacement cost method for software algorithms. The acquired in-process
technology was not
F-13
<PAGE>
VIRATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
considered to have reached technological feasibility at the time it was
acquired and had no alternative future use. Accordingly, the amount was
charged to operations upon acquisition.
The V.90 Modem Software project was completed subsequent to its acquisition
in 1998 and has been licensed to a customer. At the time of the acquisition
this project was approximately 90% complete, and the fair value assigned to
this project was $2.435 million.
The Modem Modulation Software Algorithm includes certain software that
provides modulation/demodulation functions of a voiceband modem, and certain
software for a voiceband modem that provides functions such as control, error
correction and data compression. At the time of the acquisition, this project
was approximately 90% complete, and the fair value assigned to this project
was $2.4 million. This project was subsequently terminated.
The ADSL Software Algorithm is a complete software stack that is compliant
to the ITU G.992.2 standard. The fair value assigned to this project was
$425,000 at the time of the acquisition when this project was approximately
35% complete. The project is currently 85% complete and has a remaining
expected development cost of $375,000. The remaining risks affecting the
timely completion and commercialization of this project are minimal. The
remaining uncertainties that might affect the outcome of this project are
related to the size of the developing ADSL market.
The income method of valuation for the V.90 Modem Software was determined
using a modified version of the relief from royalty avoided by the Company
upon the purchase of RSA Communications. Royalty rates were estimated based on
past contracts and unit sales were estimated based on the size of the total
market from industry analysis. The avoided royalty payments by the Company
were then calculated for the life of the product. The net cash flow was
discounted back to the present value at a risk-adjusted discount rate of 40%.
The algorithms which require a special skill set for their development were
valued using the replacement cost method which considered costs incurred
through the valuation date.
The goodwill is being amortized on a straight line basis over the estimated
period of benefit of five years.
The following unaudited pro forma financial information presents the
consolidated results of the Company as if the acquisition had occurred at the
beginning of each period, and includes adjustments for amortization of
goodwill. This pro forma financial information is not intended to be
indicative of future results. Unaudited pro forma consolidated results of
operations are as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Year Ended March
31,
------------------
1998 1999
-------- --------
(unaudited)
<S> <C> <C>
Revenues................................................. $ 13,251 $ 10,075
Net loss................................................. (11,931) (19,224)
Basic and diluted net loss per share..................... (0.92) (1.44)
</TABLE>
Note 5--Restructuring:
In September 1997, the Company implemented a new business strategy focusing
on semiconductors and reduced the resources allocated to its systems line of
business. A restructuring plan was implemented in the second half of the
fiscal year ended March 31, 1998, which resulted in one time charges of
$1,871,000 in the fiscal year ended March 31, 1998. Approximately, $900,000 of
the restructuring charge represents employee costs, $900,000 represent asset
write downs and $71,000 related to other restructuring costs. As of March 31,
F-14
<PAGE>
1998 the Company had reduced the operations of the systems business including
reducing headcount from the prior years level by approximately 33%. The Company
continues to sell its systems products to one principal customer and systems
revenues for the six months ended October 3, 1999 were $848,000.
The following table lists the components of the restructuring accrual for
the year ended March 31, 1999 (in thousands).
<TABLE>
<CAPTION>
Employee Asset
Costs Write down Other Total
-------- ---------- ----- ------
<S> <C> <C> <C> <C>
Reserve provided as at April 1, 1997......... $ 900 $ 900 $ 71 $1,871
Reserve utilized........................... (783) (900) (25) (1,708)
----- ----- ---- ------
Balance at March 31, 1998.................... 117 -- 46 163
Reserve utilized........................... (117) -- (46) (163)
----- ----- ---- ------
Balance at March 31, 1999.................... $ -- $ -- $-- $ --
===== ===== ==== ======
</TABLE>
Note 6--Income Taxes:
No income tax provision was recorded for the three years ended March 31,
1999 and the six months ended September 30, 1998 and October 3, 1999 because
the Company incurred net losses in such periods.
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
March 31,
-----------------
1998 1999
------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................... $ 9,011 $ 12,647
Temporary differences...................................... 751 1,764
Other...................................................... -- 67
------- --------
9,762 14,478
------- --------
Valuation allowance.......................................... (9,762) (14,478)
------- --------
$ -- $ --
======= ========
</TABLE>
The deferred tax asset has been fully reserved due to the uncertainty of the
Company's ability to realize this asset in the future.
At March 31, 1999, the Company has approximately $14.2 million, $11.7
million and $23.2 million in federal, state and foreign net operating loss
carryforwards, respectively, to reduce future taxable income. The net operating
loss carryforwards expire between 2002 and 2019 for both federal and state
purposes, if not utilized.
Note 7--Borrowings:
A convertible loan in the amount of $2,712,000 was converted to 2,402,710
shares of series D convertible preferred stock valued at $1.10 per share on
June 4, 1998. The value of the stock was determined by the series D convertible
preferred stock offering price of $1.10, also on June 4, 1998. The loan was
drawn in December 1997 bearing interest at the rate of 10% per annum and was
due to related parties.
Short term borrowings represent the Company's overdraft facility which is
collaterized by the assets of the Company.
In connection with a loan and security agreement, the Company issued a
warrant to purchase 35,294 shares of series D convertible preferred stock at an
exercise price of $1.70 per share. This warrant is outstanding at
F-15
<PAGE>
VIRATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
March 31, 1999 and expires December 12, 2002. The Company valued the warrant
using the Black-Scholes option pricing model, applying an expected life of 5
years, a weighted average risk free rate of 5.77%, an expected dividend yield
of zero percent, a volatility of 70% and a deemed fair value of common stock of
$0.95. The Company determined that the fair value of the warrant was not
significant at the date of grant.
Note 8--Commitments:
Leases
The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through March 2005. The
Company also subleased to third parties a certain property under a
noncancelable operating lease which expired in July 1999. Net rent expense for
the three years ended March 31, 1999 was $281,000, $372,000 and $536,000,
respectively. The terms of the facility lease provide for rental payments on a
graduated scale. The Company recognizes rent expense on a straight-line basis
over the lease period, and has accrued for rent expense incurred but not paid.
Future minimum lease payments under noncancelable operating and capital
leases are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ending Capital Operating Sublease
March 31, Leases Leases Income
----------- ------- --------- --------
<S> <C> <C> <C>
2000............................................ $ 987 $ 708 $ 43
2001............................................ 638 718 --
2002............................................ 455 555 --
2003............................................ 111 438 --
2004............................................ -- 327 --
2005............................................ -- 55 --
------ ------ ----
Total minimum lease payments and sublease
income......................................... 2,191 $2,801 $ 43
====== ====
Less: Amount representing interest.............. (211)
------
Present value of capital lease obligations...... 1,980
Less: Current portion........................... (850)
------
Long-term portion of capital lease
obligations.................................. $1,130
======
</TABLE>
Note 9--Convertible Preferred Stock:
Convertible preferred stock at March 31, 1999 consists of the following:
<TABLE>
<CAPTION>
Shares Issued and
Outstanding
---------------------
March 31,
---------------------
Shares Liquidation
Series Authorized 1998 1999 Amount
------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
A............................... 3,100,000 1,798,720 1,798,720 $ 1,438,976
B............................... 25,000,000 13,854,556 1,394,406 1,561,735
C............................... 8,000,000 6,666,667 4,666,667 7,000,000
D............................... 50,000,000 -- 43,571,386 47,928,525
---------- ---------- ---------- -----------
86,100,000 22,319,943 51,431,179 $57,929,236
========== ========== ========== ===========
</TABLE>
On June 4, 1998, existing investors were given the opportunity to convert
their shares of series A, B and C convertible preferred stock into series D
convertible preferred stock and new investors were given the
F-16
<PAGE>
VIRATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
opportunity to purchase series D convertible preferred stock. The Company
issued 24,780,934 shares of series D convertible preferred stock for $1.10 per
share resulting in net proceeds after issuance costs of $24,390,000. The
Company also issued 15,123,062 shares of series D convertible preferred stock
as a result of existing stockholders opting to convert their shares of series B
and C convertible preferred stock into series D convertible preferred stock. In
June 1999, the series D convertible preferred stock conversion price was
reduced to $0.70 from $1.10 based on the Company's revenues for the year ended
March 31, 1999.
In connection with investment banking services provided during the June 1998
offering, the Company issued warrants to purchase an aggregate of 1,595,054
shares of series D convertible preferred stock at an exercise price of $1.10
per share. The warrants may be exercised at any time within five years after
issuance. The Company valued the warrants using the Black-Scholes option
pricing model, applying expected life of five years, a weighted average risk-
free rate of 5.52%, an expected dividend yield of zero percent, a volatility of
70% and a deemed fair value of common stock of $0.99. The fair market value of
the warrants of $949,000 has been netted against the proceeds from the
offering.
The holders of convertible preferred stock have various rights and
preferences as follows:
Voting
Each share of series A, B, C and D convertible preferred stock has voting
rights equal to an equivalent number of shares of common stock into which it is
convertible and votes together as one class with the common stock.
As long as at least 1,000,000 shares of series B, C and D convertible
preferred stock remain outstanding, the Company must obtain approval from 66
2/3% of the holders of convertible preferred stock in order to alter the
articles of incorporation as related to convertible preferred stock, or change
the authorized number of shares of convertible preferred stock. The Company
must obtain approval from 66 2/3% of the owners of issued shares of the Company
to create a new class of stock or effect a merger, consolidation or sale of
assets where the existing shareholders retain less than 50% of the voting stock
of the surviving entity.
Dividends
Holders of series A, B C and D convertible preferred stock are entitled to
participate in dividends on a pro-rata basis irrespective of the class of
stock. No dividends on convertible preferred stock or common stock have been
declared by the Board of Directors from inception through October 3, 1999.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners
of the Company's common stock and convertible preferred stock own less than 51%
of the resulting voting power of the surviving entity, the holders of series A,
B, C and D convertible preferred stock are entitled to receive an amount of
$0.80, $1.12, $1.50 and $1.10 per share, respectively, plus any declared but
unpaid dividends prior to and in preference to any distribution to the holders
of common stock. The remaining assets, if any, shall be distributed pro-rata
amongst all stockholders on an as converted basis. Should the Company's legally
available assets be insufficient to satisfy the liquidation preferences, the
funds will be distributed first to the series D convertible preferred
stockholders, plus any unpaid dividends and the remainder to the other
convertible preferred stockholders.
F-17
<PAGE>
VIRATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Conversion
Each share of series A, B, C and D convertible preferred stock is
convertible, at the option of the holder, according to a conversion ratio,
subject to adjustment for dilution. Each share of series A, B, C and D
convertible preferred stock automatically converts into the number of shares of
common stock into which such shares are convertible at the then effective
conversion ratio upon the closing of a public offering of common stock at a per
share price of at least $3.00 per share with gross proceeds of at least
$7,500,000 or the Company completes a public offering in the United Kingdom of
common stock at a per share price of at least 50 pence per share. Shares of
series B, C and D convertible preferred stock also convert automatically upon
the consent of the respective holders of the majority of convertible preferred
stock.
At October 3, 1999, the Company reserved 1,799,000, 1,394,000, 5,600,000 and
68,469,000 shares of common stock for the conversion of series A, B, C and D
convertible preferred stock, respectively.
Warrants for Convertible Preferred Stock
In connection with a lease agreement, the Company issued warrants to
purchase 69,705 shares of series C and 109,091 shares of series D convertible
preferred stock for $1.50 and $1.10 per share, respectively, in the period
September 1996 to September 1998. Such warrants are outstanding at March 31,
1999 and expire in the period September 2001 to September 2008. The Company
valued the warrants using the Black-Scholes option pricing model, applying
expected life of five years, a weighted average risk-free rate of 6.6% and
4.81%, an expected dividend yield of zero percent, a volatility of 70% and a
deemed fair value of common stock of $0.74 and $0.85, respectively. The Company
determined that the fair value of the warrants was not significant at the date
of grant.
Note 10--Stock Option Plans:
In April 1998, the Company adopted the 1998 Stock Option Plan (the "Plan").
The Plan provides for the granting of stock options to employees and
consultants of the Company. Options granted under the Plan may be either
incentive stock options or nonqualified stock options. Incentive stock options
("ISO") may be granted only to Company employees (including officers and
directors who are also employees). Nonqualified stock options ("NSO") may be
granted to Company employees and consultants.
Options under the Plan may be granted for periods of up to seven years and
at prices no less than 85% of the estimated fair value of the shares on the
date of grant as determined by the Board of Directors, provided, however, that
(i) the exercise price of an ISO and NSO shall not be less than 100% and 85% of
the estimated fair value of the shares on the date of grant, respectively, and
(ii) the exercise price of an ISO and NSO granted to a 10% shareholder shall
not be less than 110% of the estimated fair value of the shares on the date of
grant, respectively. To date, options granted generally vest over four years.
Options expire at the earlier of 90 days after the employee ceases employment
or seven years after the effective date of the grant of the options.
During the period from April 1, 1996 through March 31, 1999, the Company
recorded $3,293,000 of deferred stock compensation for the excess of the deemed
fair market value over the exercise price at the date of grant related to
options granted in 1998 and 1999. The compensation expense is being recognized
over the option vesting period of four years. The Company amortized $399,000,
$1,394,000 and $505,000 (unaudited) for the years ended March 31, 1998 and
1999, and the six months ended October 3, 1999, respectively.
F-18
<PAGE>
VIRATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes activity under the Company's Plan from March
31, 1996 through October 3, 1999:
<TABLE>
<CAPTION>
Outstanding Options
---------------------
Weighted-
Shares Average
Available Number of Exercise
for Grant Shares Price
----------- ---------- ---------
<S> <C> <C> <C>
Balance, March 31, 1996...................... 2,898,208 2,101,792 $0.07
Shares reserved for grant.................. -- -- --
Options granted............................ (2,136,000) 2,136,000 0.20
Options exercised.......................... -- (337,254) 0.07
Options canceled........................... 1,123,731 (1,123,731) 0.22
----------- ----------
Balance, March 31, 1997...................... 1,885,939 2,776,807 0.11
Shares reserved for grant.................. 2,012,143 -- --
Options granted............................ (6,082,500) 6,082,500 0.24
Options exercised.......................... -- (815,161) 0.06
Options canceled........................... 3,248,208 (3,248,208) 0.24
----------- ----------
Balance, March 31, 1998...................... 1,063,790 4,795,938 0.20
Shares reserved for grant.................. 10,038,221 -- --
Options granted............................ (10,380,194) 10,380,194 0.61
Options exercised.......................... -- (48,229) 0.10
Options canceled........................... 612,208 (612,208) 0.70
----------- ----------
Balance, March 31, 1999...................... 1,334,025 14,515,695 0.47
Shares reserved for grant (unaudited)...... 9,938,969 -- --
Options granted (unaudited)................ (7,759,500) 7,759,500 1.27
Options exercised (unaudited).............. -- (131,955) 0.23
Options canceled (unaudited)............... 439,190 (439,190) 0.44
----------- ----------
Balance, October 3, 1999 (unaudited)......... 3,952,684 21,704,050 0.76
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding at March 31, Options Exercisable
1999 at March 31, 1999
------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Outstanding Price
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.02 -
$0.08 730,000 2.5 $0.05 721,111 $0.05
$0.16 869,792 3.9 0.16 633,822 0.16
$0.24 -
$0.25 5,065,694 5.4 0.24 3,141,139 0.24
$0.70 7,850,209 6.3 0.70 -- 0.70
---------- ---------
14,515,695 4,496,072
========== =========
</TABLE>
The total number of options exercisable at March 31, 1997 and 1998 was
612,589 and 1,361,552, respectively.
F-19
<PAGE>
VIRATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fair value disclosures
If compensation cost for the Company's stock-based compensation plan had
been determined based on the fair value at the grant dates for the awards under
a method prescribed by SFAS No. 123, the Company's net loss would have been
increased to the pro forma amounts indicated below (in thousands, except per
share data):
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Net loss:
As reported..................................... $(8,540) $(10,278) $(17,157)
Pro forma....................................... (8,777) (10,974) (19,707)
Basic and diluted net loss per share:
As reported..................................... $ (0.80) $ (0.90) $ (1.33)
Pro forma....................................... (0.82) (0.96) (1.53)
</TABLE>
The Company calculated the fair value of each option grant on the date of
grant using the Black-Scholes pricing method with the following assumptions:
expected dividend yield of zero percent; weighted average expected option term
of four years; risk free interest rates of 6.1% to 6.7%, 5.6% to 6.6% and 4.5%
to 5.8% and a volatility of 70% for the three years ended March 31, 1999. The
weighted average fair value of options granted during 1997, 1998 and 1999 was
$0.72, $0.93 and $0.88, respectively.
Warrants for Common Stock
In connection with a consulting agreement, the Company issued a warrant to
purchase 75,000 shares of common stock for $0.08 per share in July 1997. This
warrant is outstanding at March 31, 1999 and expires in July 2007. The Company
valued the warrant using the Black-Scholes option pricing model, applying
expected life of five years, a weighted average risk-free rate of 6.62%, an
expected dividend yield of zero percent, a volatility of 70% and a deemed fair
value of common stock of $0.89. Using the Black-Scholes pricing model, the
Company determined that the fair value of the warrant was not significant at
the date of grant. The warrant was exercised and converted into 75,000 shares
of the Company's common stock in September 1999.
Note 11--Employee Benefit Plans
The Company has two benefit plans, one in the United Kingdom, and a separate
plan in the United States. The United Kingdom plan includes private health
care, permanent health insurance, death in service coverage and a pension
arrangement. In addition, under the United Kingdom Plan, the Company matches
pension contributions of up to 5% of an employee's salary. Contributions for
the years ended March 31, 1997, 1998 and 1999 were $105,500, $109,400, and
$112,600, respectively.
The United States plan includes a medical plan, life insurance, accidental
death and dismemberment insurance, long-term disability, IRC Section 125
premium payment plan, COBRA and a 401 (k) retirement plan. Under the United
States plan, effective with the acquisition of RSA in July 1998, the Company
also provides 50% matching contribution to the retirement plan of up to $2,000
per calendar year per employee. Contributions for the year ended March 31, 1999
amounted to $58,000.
Note 12--Related Party Transactions:
In fiscal year 1999, related parties converted $1,454,000 of a 10%
convertible loan into 1,279,205 shares of series D convertible preferred stock.
F-20
<PAGE>
VIRATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company had sales of $921,000, $82,000 and $549,000 for the three years
ended March 31, 1999, respectively, to related parties. At March 31, 1997, 1998
and 1999, there were accounts receivable from related parties in the amounts of
$148,000, $5,000 and $154,000, respectively, included in the balance sheets.
Note 13--Subsequent Events:
Initial Public Offering
In June 1999, the Board of Directors of Virata Limited authorized management
to file a registration statement with the Securities and Exchange Commission to
permit the Company to sell shares of its common stock to the public. In
association with the offering, the Board of Directors authorized soliciting the
shareholders for their approval of: (i) the cancellation of all outstanding
convertible preferred and common stock and all other securities convertible
into preferred or common stock of Virata Limited, (ii) the issuance of new
common shares of Virata Limited to Virata Corporation and the issuance of
shares of common stock of Virata Corporation to the former shareholders of
Virata Limited, and (iii) a reverse stock split. These events are to occur
immediately prior to the offering.
Borrowing Agreement
On August 29, 1999, the Company entered into a loan and security agreement
with Venture Banking Group, an entity of Greater Bay Bancorp that provides for
borrowings up to $3.0 million. The agreement bears interest at prime rate plus
one-half percent, and all outstanding advances are due in August 2000.
Borrowings are secured by the Company's property, equipment, intellectual
property, inventory, and receivables and require the Company to comply with
certain financial covenants including the maintenance of specific minimum
ratios. As of October 3, 1999, the Company had $483,000 outstanding debt under
this agreement, bearing interest of 8.75%.
Series E Convertible Preferred Stock
On October 12, 1999 the Company issued 6,153,846 shares of series E
convertible preferred stock at a purchase price of $1.30 per share in exchange
for $8.0 million.
Warrants for Convertible Preferred Stock
In May 1999, in connection with a lease agreement, the Company issued a
warrant to purchase 54,545 shares of series D convertible preferred stock for
$1.10 per share. The warrant expires in May 2009. The Company valued the
warrant using the Black-Scholes option pricing model, applying an expected life
of ten years, a weighted average risk free rate of 5.26%, an expected dividend
yield of zero percent, a volatility of 70% and a deemed fair value of common
stock of $1.03 per share.
F-21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Virata Raleigh Corporation
In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholder's equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of RSA
Communications, Inc. at March 31, 1997 and 1998, and the results of its
operations and its cash flows for the year ended March 31, 1997, the period
from April 1, 1997 through June 5, 1997 and the period from June 6, 1997
through March 31, 1998, 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.
/s/ PricewaterhouseCoopers LLP
Raleigh, North Carolina
August 19, 1999
F-22
<PAGE>
RSA COMMUNICATIONS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
March 31,
------------------------
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 6,384 $ 822,482
Accounts receivable, net of allowance for doubtful
accounts of $0 and $10,000 at March 31, 1997 and
1998, respectively................................ 262,139 1,063,100
Prepaid and other assets........................... 79,384 19,041
----------- -----------
Total current assets............................. 347,907 1,904,623
Receivable from parent ............................ 639,362 --
Deferred income taxes.............................. -- 481,795
Property and equipment, net........................ 1,065,550 110,303
----------- -----------
Total assets..................................... $ 2,052,819 $ 2,496,721
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................... $ 198,649 $ 236,413
Accrued liabilities................................ 475,464 764,731
Deferred revenue................................... 11,512 12,000
Stock appreciation rights ......................... -- 1,870,866
----------- -----------
Total current liabilities........................ 685,625 2,884,010
Negative goodwill.................................. -- 252,305
Commitments (Note 5)............................... -- --
Stockholder's equity (deficit):
Common stock, 10,000 shares authorized, 10,000
shares and 6,000 shares issued and outstanding at
March 31, 1997 and 1998, respectively............. 2,000,000 6
Accumulated deficit................................ (632,806) (639,600)
----------- -----------
Total stockholder's equity (deficit)............. 1,367,194 (639,594)
----------- -----------
Total liabilities and stockholder's equity
(deficit)....................................... $ 2,052,819 $ 2,496,721
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
RSA COMMUNICATIONS, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Period from Period from
April 1, 1997 June 6, 1997
Year ended through through
March 31, 1997 June 5, 1997 March 31, 1998
-------------- ------------- --------------
<S> <C> <C> <C>
Revenues:
Software products................ $ 1,087,703 $ 1,197 $1,938,877
Consulting services.............. 544,760 3,024 2,376,936
----------- --------- ----------
Total revenues................. 1,632,463 4,221 4,315,813
----------- --------- ----------
Operating expenses:
Research and development and cost
of consulting services.......... 1,301,607 308,557 2,157,842
Selling, general and
administrative.................. 1,036,908 203,907 893,560
Compensation from stock
appreciation rights............. -- -- 1,870,866
----------- --------- ----------
Total operating expenses....... 2,338,515 512,464 4,922,268
----------- --------- ----------
Loss from operations........... (706,052) (508,243) (606,455)
Other income (expense), net........ (6,250) -- 57,217
----------- --------- ----------
Loss before income taxes....... (712,302) (508,243) (549,238)
Income tax provision............... 126,500 -- 90,362
----------- --------- ----------
Net loss....................... $ (838,802) $(508,243) $ (639,600)
=========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
RSA COMMUNICATIONS, INC.
STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
For the year ended March 31, 1997, the period from April 1, 1997 through
June 5, 1997 and the period from June 6, 1997 through March 31, 1998
<TABLE>
<CAPTION>
Common Stock
-----------------
Accumulated
Shares Amount Deficit Total
------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Balance, March 31, 1996............. 10,000 $2,000,000 $ 205,996 $2,205,996
Net loss for the year ended March
31, 1997......................... -- -- (838,802) (838,802)
------ ---------- ----------- ----------
Balance, March 31, 1997............. 10,000 2,000,000 (632,806) 1,367,194
Net loss for the period from April
1, 1997 through June 5, 1997....... -- -- (508,243) (508,243)
------ ---------- ----------- ----------
Balance, June 5, 1997............... 10,000 $2,000,000 $(1,141,049) $ 858,951
------ ---------- ----------- ----------
- -------------------------------------------------------------------------------
Issuance of common stock on June 6,
1997 in conjunction with
acquisition (see Note 2)........... 6,000 $ 6 $ -- $ 6
Net loss for the period from June
6, 1997 through March 31, 1998... -- -- (639,600) (639,600)
------ ---------- ----------- ----------
Balance, March 31, 1998............. 6,000 $ 6 $ (639,600) $ (639,594)
====== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
RSA COMMUNICATIONS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Period from Period from
April 1, 1997 June 6, 1997
Year Ended through through
March 31, 1997 June 5, 1997 March 31, 1998
-------------- ------------- --------------
<S> <C> <C> <C>
Cash flows from operations:
Net loss.......................... $ (838,802) $(508,243) $ (639,600)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation..................... 285,215 65,243 23,241
Amortization of negative
goodwill........................ -- -- (50,458)
Provision for doubtful accounts.. -- -- 10,000
Compensation related to stock
appreciation rights............. -- -- 1,870,866
Change in assets and liabilities:
Accounts receivable............. 2,693,111 221,239 (1,032,200)
Prepaids and other current
assets......................... 47,747 64,061 (3,719)
Receivable from parent.......... (1,757,186) 867,495 --
Deferred income taxes........... -- -- (481,795)
Accounts payable................ 180,727 (188,144) 225,906
Accrued liabilities............. 234,019 16,250 693,792
Deferred revenue................ 7,502 (11,512) 12,000
----------- --------- -----------
Net cash provided by operating
activities.................... 852,333 526,389 628,033
Cash flows from investing
activities:
Acquisition of property and
equipment........................ (626,728) (204,786) (133,544)
Repayment of notes payable........ (500,000) -- --
----------- --------- -----------
Net cash used by investing
activities.................... (1,126,728) (204,786) (133,544)
Cash flows from financing
activities:
Issuance of common stock.......... -- -- 6
----------- --------- -----------
Net increase (decrease) in cash and
cash equivalents.................. (274,395) 321,603 494,495
Cash and cash equivalents,
beginning of period............... 280,779 6,384 327,987
----------- --------- -----------
Cash and cash equivalents, end of
period............................ $ 6,384 $ 327,987 $ 822,482
=========== ========= ===========
Supplemental cash flow information:
Cash paid for income taxes........ $ 126,500 $ -- $ 572,157
=========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
RSA COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Description of Business and Summary of Significant Accounting Policies
RSA Communications, Inc. ("RSA") develops software applications and provides
custom engineering services to the communications industry by providing
systems-level design expertise for applications requiring embedded modem
technology. The Company utilizes proprietary firmware code modules for a wide
range of traditional, controllerless, and soft modem implementations from
single modem designs to complex, multiple-modem network applications.
Basis of Presentation
Prior to June 6, 1997, RSA was a wholly-owned subsidiary of Pacific
Communications Sciences, Inc. ("PCSI"), which was a wholly-owned subsidiary of
Cirrus Logic, Inc. Effective June 6, 1997, RSA was acquired from PCSI by
Raleigh Communications, Inc., which was created for the sole purpose of
acquiring RSA. Immediately following the acquisition, Raleigh Communications,
Inc. was merged into RSA.
The financial statements of RSA for the fiscal year ended March 31, 1997 and
the period from April 1, 1997 to June 5, 1997, represent the results of
operations and financial position of RSA based on the carrying values of its
assets and liabilities prior to the acquisition by Raleigh Communications . The
financial statements of RSA for the period subsequent to the acquisition by
Raleigh Communications, Inc. (June 6, 1997 to March 31, 1998) reflect the
impact on RSA's financial position and results of operations of the purchase
accounting adjustments discussed in Note 2.
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.
Cash and Cash Equivalents
RSA considers all highly liquid investments with a maturity of three months
or less at the time of purchase to be cash equivalents.
Significant Customers and Concentration of Credit Risk
RSA operates in a very competitive industry that has been characterized by
rapid technological change, short product life cycles, cyclical market patterns
and heightened foreign and domestic competition. Significant technological
changes in the industry could affect operating results adversely.
RSA markets and sells its software and consulting services to a narrow base
of customers. Sales to one customer comprised 69% of total revenues for the
fiscal year ended March 31, 1997. Sales to two customers comprised 54% and 18%
of total revenues for the period from June 6, 1997 to March 31, 1998. RSA
performs ongoing credit evaluations of its customers' financial condition and
generally does not require collateral. RSA maintains allowances for potential
losses, and such losses have been within management's expectations. At March
31, 1997 one customer accounted for 27% of total accounts receivable and a
second customer accounted for 22% of total accounts receivable. At March 31,
1998, one customer accounted for 65% of total accounts receivable and a second
customer accounted for 31% of total accounts receivable.
F-27
<PAGE>
RSA COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
RSA's cash and cash equivalents as of March 31, 1997 and 1998 are primarily
on deposit with one U.S. financial institution and may, at times, exceed
federal insured amounts.
Fair Value of Financial Instruments
Carrying amounts of certain of RSA's financial instruments including cash
and cash equivalents, accounts receivable, accounts payable, accrued expenses
and other liabilities approximate fair value due to their short maturities.
Property and Equipment
Property and equipment are stated at cost and depreciated on a straight-line
basis over the estimated useful lives of the related assets, generally two to
five years. Gains and losses upon asset disposal are taken into income in the
year of disposition.
Revenue Recognition
Software license revenue is recognized upon delivery of the product if
collection is considered probable and remaining vendor obligations are
insignificant and do not exceed one year. An accrual for the estimated costs of
warranty and post-sale customer support is recorded upon delivery of the
related products. RSA does not offer extended support and maintenance services.
RSA has adopted the requirements of Statement of Position ("SOP") 97-2,
"Software Revenue Recognition," for all contracts entered into after March 31,
1998. The adoption of SOP 97-2 is not expected to materially impact the
financial position or results of operations of RSA.
RSA recognizes revenue from its consulting services using the completed
contract method of accounting. Provisions for anticipated losses are made in
the period in which they first become determinable.
Software Development Costs
Software development costs are included in consulting and research and
development costs and are expensed as incurred. After technological feasibility
is established, software development costs are capitalized until the related
software products are available for general release. The capitalized cost is
then amortized on a straight-line basis over the estimated product life. RSA
has defined technological feasibility as the establishment of a working model
that typically occurs when beta testing commences. To date, RSA has not
capitalized any software development costs as the date at which technological
feasibility is achieved and the availability of the software products for
general release have substantially coincided.
Income Taxes
RSA accounts for income taxes using the liability method whereby deferred
tax assets and liabilities are determined based on the differences between
financial reporting and tax bases of assets and liabilities, measured at tax
rates that will be in effect when the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.
Negative Goodwill
Negative goodwill of $302,763 was recorded upon the acquisition of RSA by
Raleigh Communications, Inc. on June 6, 1997 (see Note 2). Negative goodwill is
amortized using the straight-line method over a period of five years.
Accumulated amortization of negative goodwill as of March 31, 1998 was $50,458.
F-28
<PAGE>
RSA COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. Acquisition
Effective June 6, 1997, all the outstanding common stock of RSA was acquired
from PCSI by Raleigh Communications, Inc. Raleigh Communications, Inc., which
was a holding company established for the purpose of acquiring RSA, was merged
into RSA simultaneously with the acquisition. The acquisition was accounted for
using the purchase method of accounting with the result that the beginning
values of tangible and intangible assets and liabilities of RSA were recorded
based on their respective estimated fair values at the date of purchase.
However, as the entire purchase price of RSA was contingent upon certain future
events, the value of all intangible and long term assets were reduced to zero
and negative goodwill was recognized in the amount necessary to reduce net
assets to zero. The purchase price for RSA was as follows:
(a) 50% of the gross proceeds from (i) the subsequent sale of all or
substantially all of the stock or assets of RSA to a third party or
(ii) a subsequent merger or other transfer of RSA with or into a third
party, not to exceed $2,000,000.
(b) 3% of the annual gross revenues of RSA in excess of $3,000,000. This
section (b) does not apply after the payments called for in (a) are
made to PCSI, or the promissory note (described below) is paid in full.
In conjunction with this transaction, RSA entered into a promissory note
with PCSI with the principal sum being the amount determined in (a) above. The
principal amount will not exceed $2,000,000, bears no interest and is payable
in full at the time of closing of a sale or merger. The promissory note can
also be settled at any time prior to a sale or merger by payment of $2,000,000.
For financial reporting purposes this promissory note was not recorded at the
date of the acquisition due to the contingent nature of the sales price.
A summary of the purchase accounting entry made on June 6, 1997 to record
assets and liabilities of RSA based on the purchase price paid by Raleigh
Communications, Inc. was as follows:
<TABLE>
<S> <C>
Cash and cash equivalents......................................... $ 327,987
Accounts receivable............................................... 40,900
Prepaids and other current assets................................. 15,322
Accounts payable.................................................. (10,507)
Accrued liabilities............................................... (70,939)
Negative goodwill................................................. (302,763)
---------
$ --
=========
</TABLE>
3. Accounts Receivable
Accounts receivable consisted of the following at March 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
--------- -----------
<S> <C> <C>
Trade accounts receivable................................ $ 221,339 $ 1,073,100
Unbilled receivables..................................... 40,800 --
--------- -----------
262,139 1,073,100
Less: Allowance for doubtful accounts.................... -- (10,000)
--------- -----------
$ 262,139 $ 1,063,100
========= ===========
</TABLE>
F-29
<PAGE>
RSA COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Property and Equipment
Property and equipment consisted of the following at March 31, 1997 and
1998:
<TABLE>
<CAPTION>
1997 1998
----------- ---------
<S> <C> <C>
Office furniture and equipment.......................... $ 1,267,008 $ 4,228
Computer software and equipment......................... 4,464,804 129,316
----------- ---------
5,731,812 133,544
Less: Accumulated depreciation.......................... (4,666,262) (23,241)
----------- ---------
$ 1,065,550 $ 110,303
=========== =========
</TABLE>
5. Commitments
RSA leases its office facilities and certain equipment under noncancelable
operating leases expiring through June 2000. Future minimum lease payments
under the noncancelable operating leases at March 31, 1998 were as follows:
<TABLE>
<S> <C>
1999............................... $ 121,500
2000............................... 124,730
2001............................... 21,044
---------
$ 267,274
=========
</TABLE>
Rent expense for the fiscal year ended March 31, 1997 and for the period
from April 1, 1997 through June 5, 1997 was $566,599 and $118,286,
respectively.
Rent expense for the period from June 6, 1997 through March 31, 1998 was
$89,261.
6. Stockholder's Equity
Stock Appreciation Rights
The stock appreciation rights relate to RSA's phantom stock option plan
which was established in November 1997, to provide benefits to its employees
and consultants. At the commencement of the plan RSA authorized the issuance of
up to 6,000 phantom stock units ("PSU") under the plan. Each PSU consists of a
right to receive from RSA, upon the occurrence of a payment event, the same net
consideration as is received (1) for one share of common stock of RSA in a
merger with or into another corporation, (2) for one share of stock in a sale
of substantially all of the stock or assets of RSA, or (3) per share proceeds
from the liquidation of RSA. No payments will be made under the PSUs until a
payment event (described above) occurs. However, in the event of an initial
public offering, each PSU will immediately convert into one share of common
stock. In the event of termination of employment, either voluntarily or
involuntarily, prior to a payment event, the participant forfeits all rights
under the PSUs.
During the period that the PSU is outstanding, the ultimate amount of
compensation inherent in the award is not determinable. APB No. 25, "Accounting
for Stock Issued to Employees" and FASB Interpretation No. 28 require interim
calculations of the amount of compensation inherent in the award (variable
accounting) if it is probable that the payment event will occur. This amount is
equal to the increase in the fair value of the stock since the date of the
award, multiplied by the total number of shares or units outstanding,
regardless of the exercisable status of the awards. At March 31, 1998, 3,875
PSUs, had been issued and were outstanding.
F-30
<PAGE>
RSA COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Estimated compensation expense recorded related to these PSUs was $1,870,866
for the period from June 6, 1997 through March 31, 1998 based on the estimated
purchase price of RSA by Virata Limited (see Note 9).
7. Income Taxes
RSA's provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
Period from Period from
April 1, 1997 June 6, 1997
Year ended through through
March 31, June 5, March 31,
1997 1997 1998
---------- ------------- ------------
<S> <C> <C> <C>
Current:
Federal................................. $ -- $-- $ 481,795
State................................... -- -- 90,362
Foreign Taxes........................... 126,500 -- --
-------- ---- ---------
126,500 -- 572,157
-------- ---- ---------
Deferred:
Federal................................. -- -- (481,795)
-------- ---- ---------
Income tax provision.................... $126,500 $-- $ 90,362
======== ==== =========
</TABLE>
RSA's effective tax differs from the statutory federal income tax as shown
in the following table:
<TABLE>
<CAPTION>
Period from
Year Period from June 6, 1997
ended April 1, 1997 through
March 31, through March 31,
1997 June 5, 1997 1998
--------- ------------- ------------
<S> <C> <C> <C>
Statutory federal income tax benefit.... $(242,183) $(176,803) $(186,739)
State taxes, net of federal benefit..... (21,512) (12,846) (28,335)
Goodwill................................ 2,038 1,081 (17,157)
Nondeductible expenses.................. 316,528 175,722 26,733
Change in valuation allowance........... 71,629 12,846 423,205
Research and development credit
utilized............................... -- -- (53,345)
Foreign tax credit utilized............. -- -- (74,000)
--------- --------- ---------
Income tax provision.................... $ 126,500 $ -- $ 90,362
========= ========= =========
</TABLE>
Temporary differences which give rise to significant portions of the
deferred tax assets were as follows at March 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
Deferred tax assets: ------- --------
<S> <C> <C>
Accrued compensation....................................... $ -- $901,500
Net operating loss carryforwards........................... 14,215 --
Accrued expenses........................................... 57,414 3,500
------- --------
Total deferred tax assets.................................. 71,629 905,000
Valuation allowance........................................ (71,629) (423,205)
======= ========
Net deferred tax assets.................................... $ -- $481,795
======= ========
</TABLE>
F-31
<PAGE>
RSA COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The deferred asset of $481,795 at March 31, 1998 was realized subsequent to
March 31, 1998 in the form of a net operating loss carryback from the
subsequent period. RSA has provided a valuation allowance against the remaining
deferred tax asset due to the uncertainty regarding realizability.
8. Related Party Transactions
During the year ended March 31, 1997 and the period from April 1, 1997
through June 5, 1997, while owned by PCSI, RSA performed work for PCSI. The
expenses incurred for such work have been charged back to PCSI through
intercompany accounts. The amounts charged back are shown as a reduction of
expense in the accompanying statements of operations. For the year ended March
31, 1997 and the period from April 1, 1997 through June 5, 1997, engineering
and research and development have been reduced by $2,739,121 and $321,503,
respectively, for amounts charged back to PCSI. Selling, general and
administrative expenses include $841,974 and $124,734 of charge backs for the
year ended March 31, 1997 and the period from April 1, 1997 through June 5,
1997, respectively.
9. Subsequent Event
In March 1998, RSA entered into an agreement to be acquired by Virata
Limited. The acquisition was consummated on July 17, 1998, on which date RSA
paid PCSI $2,039,191. This amount represented the $2,000,000 due under the
promissory note (see Note 2) and 3% of annual gross revenues in excess of
$3,000,000 for the period from June 6, 1997 through March 31, 1998 (see Note
2).
On August 18, 1999 RSA changed its name from RSA Communications, Inc. to
Virata Raleigh Corporation.
F-32
<PAGE>
VIRATA CORPORATION
PRO FORMA COMBINED FINANCIAL INFORMATION
(Unaudited)
On July 17, 1998, the Company completed its acquisition of RSA in a
transaction accounted for as a purchase business combination. Under the
purchase method of accounting, the aggregate purchase price is required to be
allocated to the tangible and identifiable intangible assets acquired and
liabilities assumed on the basis of their fair values on the acquisition date.
The unaudited pro forma combined statement of operations is based on the
individual statement of operations of the Company for the fiscal year ended
March 31, 1999 and RSA for the period from April 1, 1998 to July 16, 1998.
RSA's operating results for the period from July 17, 1998 to March 31, 1999
are included in the Company's historical consolidated statement of operations
for the fiscal year ended March 31, 1999. Adjustments have been made to such
information to give effect to the acquisition of RSA, as if the acquisition had
occurred on April 1, 1998.
The information has been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission and is provided for
comparative purposes only. The pro forma information does not purport to be
indicative of the results that actually would have occurred had the combination
been effected at the beginning of the periods presented.
F-33
<PAGE>
VIRATA CORPORATION
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION>
Year Ended March 31, 1999
-------------------------------------------
Virata RSA Adjustments Pro Forma
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues......................... $ 9,256 $ 819 $ -- $ 10,075
Cost of revenues................. 3,997 486 -- 4,483
-------- -------- ------ ---------
Gross profit..................... 5,259 333 -- 5,592
Operating expenses:
Research and development....... 8,323 1,353 -- 9,676
Sales and marketing............ 2,917 371 -- 3,288
General and administrative..... 5,567 459 -- 6,026
Amortization of intangible
assets........................ 549 -- 226 (A) 775
Amortization of stock
compensation.................. 1,394 -- -- 1,394
Acquired in-process research
and development............... 5,260 -- -- 5,260
-------- -------- ------ ---------
Total operating expenses..... 24,010 2,183 226 26,419
-------- -------- ------ ---------
Loss from operations............. (18,751) (1,850) (226) (20,827)
Interest expense................. (155) -- -- (155)
Interest and other income........ 1,749 9 -- 1,758
-------- -------- ------ ---------
Net loss......................... $(17,157) $ (1,841) $ (226) $ (19,224)
======== ======== ====== =========
Basic and diluted net loss per
share........................... $ (1.33) $ (1.44)
======== =========
Weighted average common shares--
basic and diluted............... 12,881 13,321
======== =========
Unaudited pro forma basic and
diluted net loss per share
(Note 3)........................ $ (1.42) $ (1.58)
======== =========
Pro forma weighted average
shares--basic and diluted....... 12,075 12,181
======== =========
</TABLE>
F-34
<PAGE>
VIRATA CORPORATION
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
(Unaudited)
Note 1--Basis of Presentation:
In July 1998, the Company acquired RSA, a privately held company
specializing in analog modem software development.
The unaudited combined pro forma information presented is not necessarily
indicative of the future consolidated results of operations of the Company or
the consolidated results of operations that would have resulted had the
acquisition taken place on April 1, 1998. The unaudited pro forma combined
statement of operations for the fiscal year ended March 31, 1999 reflects the
effects of the acquisition, assuming the related events occurred as of April
1, 1998 for the purposes of the unaudited pro forma statement of operations.
Note 2--Purchase Price Allocation:
The unaudited pro forma combined financial statements reflect a total
purchase price of $9,275,000 consisting of 1,540,000 shares of the Company's
common stock valued at $1,417,000, 606,500 shares of Series D preferred
convertible stock valued at $668,000, 1,993,000 stock options valued at
$1,505,000, cash of $5,332,000 and acquisition related expenses of
approximately $353,000 consisting primarily of legal and other professional
fees. The company valued the options using the Black-Scholes option pricing
model, applying expected life of four years, a weighted average risk free rate
of 5.47%, an expected dividend yield of zero percent, a volatility of 70% and
a deemed fair value of common stock of $0.92.
The valuation of the purchased in-process research and development of
$5,260,000 was based on the result of an independent appraisal which was
determined using the income-based approach for modem chips and replacement
cost method for software algorithm. The purchased in-process technology was
not considered to have reached technological feasibility and had no
alternative future use. Accordingly, the amount was charged to operations at
the date of acquisition.
The goodwill is being amortized on a straight-line basis over the estimated
period of benefit of five years.
The Company's allocation of RSA's aggregate purchase price to the tangible
and identifiable intangible assets acquired in connection with this
acquisition were based on fair values as determined by independent appraisers.
The allocation is summarized below (in thousands):
<TABLE>
<S> <C>
In-process research and development.................................. $5,260
Goodwill............................................................. 3,877
Net assets........................................................... 138
------
Total purchase price............................................... $9,275
======
</TABLE>
Note 3--Unaudited Pro Forma Combined Net Loss Per Share:
The net loss per share and shares used in computing the net loss per share
for the fiscal year ended March 31, 1999 is based upon the historical weighted
average common shares outstanding. The Virata common stock issuable upon the
exercise of the stock options and warrants have been excluded as the effect
would be anti-dilutive. In addition to the shares used in computing the net
loss per share above, pro forma net loss per share is calculated to effect:
(i) the cancellation of all outstanding convertible preferred and common stock
and all other securities convertible into preferred or common stock of Virata
Limited, (ii) the issuance of new common shares of Virata Limited to Virata
Corporation and the issuance of shares of common stock of Virata Corporation
to the former shareholders of Virata Limited, and (iii) a one for 6.7 reverse
common stock split. These events are to occur immediately prior to the initial
public offering.
F-35
<PAGE>
VIRATA CORPORATION
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION--(Continued)
(Unaudited)
The 1,540,000 shares of common stock and the 606,500 shares of Series D
convertible preferred stock issued in connection with the purchase price of RSA
have been included in the calculation of pro forma basic and diluted net loss
per share for the fiscal year ended March 31, 1999 as follows in thousands:
<TABLE>
<S> <C>
Shares used in computing basic and diluted net loss per share...... 12,881
Adjustment to reflect the assumed conversion of common stock issued
in connection with the purchase of RSA............................ 440
-------
Shares used in computing basic and diluted net loss per share...... 13,321
-------
Adjustment to reflect the 1 for 6.7 reverse common stock split..... (11,332)
Adjustment to reflect events to occur upon the initial public
offering.......................................................... 10,152
Adjustment to reflect the issuance of the series D convertible
preferred stock in connection with the acquisition and the events
to occur upon the initial public offering......................... 40
-------
Shares used in computing pro forma basic and diluted net loss per
share............................................................. 12,181
=======
</TABLE>
Note 4--Purchase Adjustments:
The following adjustment was applied to the Company's historical financial
statements and those of RSA to arrive at the pro forma consolidated Statement
of Operations.
(A) To record annual amortization of goodwill that is being amortized over
the estimated period of benefit of five years.
F-36
<PAGE>
[LOGO OF VIRATA]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following costs and expenses, other than underwriting discounts and
commissions, payable by the Registrant in connection with this offering. All
amounts are estimates except the SEC registration fee, the NASD filing fee and
the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC registration fee.......................................... $ 16,000
NASD fee...................................................... 6,250
Nasdaq National Market listing fee............................ 95,000
Printing and engraving costs.................................. 250,000
Legal fees and expenses....................................... 500,000
Accounting fees and expenses.................................. 350,000
Blue Sky fees and expenses.................................... 3,000
Transfer agent and registrar fees and expenses................ 3,500
Miscellaneous................................................. 26,250
----------
Total....................................................... $1,250,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of the State of Delaware
provides for the indemnification of officers and directors under certain
circumstances against expenses incurred in successfully defending against a
claim and authorizes Delaware corporations to indemnify their officers and
directors under certain circumstances against expenses and liabilities
incurred in legal proceedings involving such persons because of their being or
having been an officer or director. Article VIII of the Registrant's
Certificate of Incorporation and the Registrant's By-laws provide that all
persons who the Registrant is empowered to indemnify pursuant to the
provisions of Section 145 of the Delaware General Corporation Law (or any
similar provision or provisions of applicable law at the time in effect),
shall be indemnified by the Registrant to the full extent permitted thereby
except that no person shall be indemnified for any expenses or amounts paid
with respect to any action to recover short swing profits under Section 16(b)
of the Securities Exchange Act of 1934, as amended. The foregoing right of
indemnification shall not be deemed to be exclusive of any other rights to
which those seeking indemnification may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors, or otherwise. In
addition, the Registrant has entered into Indemnity Agreements with its
directors and certain of its officers.
Section 102(b) of the Delaware General Corporation Law permits a
corporation, by so providing in its certificate of incorporation, to eliminate
or limit director's liability to the corporation and its stockholders for
monetary damages arising out of certain alleged breaches of their fiduciary
duty. Section 102(b)(7) provides that no such limitation of liability may
affect a director's liability with respect to any of the following: (i)
breaches of the director's duty of loyalty to the corporation or its
stockholders; (ii) acts or omissions not made in good faith or which involve
intentional misconduct of knowing violations of law; (iii) liability for
dividends paid or stock repurchased or redeemed in violation of the Delaware
General Corporation law; or (iv) any transaction from which the director
derived an improper personal benefit. Section 102(b)(7) does not authorize any
limitation on the ability of the corporation or its stockholders to obtain
injunction relief, specific performance or other equitable relief against
directors.
Reference is made to the Underwriting Agreement, the proposed form of which
is filed as Exhibit 1.1, pursuant to which the underwriters agree to indemnify
the directors and certain officers of the Registrant and certain other persons
in certain circumstances.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
During the past three fiscal years and the six months ended October 3,
1999, we have issued securities of Virata Limited as follows:
Issuances of Ordinary Shares.
. In July 1997, we issued a warrant to purchase 75,000 ordinary shares in
a private placement to Dr. Robert W. Wilmott at an exercise price per
share of $0.08 in exchange for consulting services valued at $18,000 by
our board which were provided to us by Dr. Wilmott; this warrant was
exercised in full by Dr. Wilmott in September 1999; and
. In July 1998, we issued 1,540,000 ordinary shares in a private placement
at a purchase price of $1.01 per share and aggregate proceeds of
$1,555,400 to Munther Qubain in connection with the acquisition of RSA
Communications, Inc.; and
. We have issued an aggregate of 1,332,599 ordinary shares in connection
with the exercise of options by our employees.
Issuances of Preferred Stock.
. in June 1996 and October 1996, we issued 2,713,670 series B preference
shares in a private placement at a purchase price of (Pounds)0.70 per
share and aggregate proceeds of (Pounds)1,899,569 to 3i Group plc, New
Enterprise Associates, Oak Investment Partners VI and Oak VI Affiliates
Fund;
. in June 1996, we issued 6,666,667 series C preference shares in a
private placement at a purchase price of $1.50 per share and aggregate
proceeds of $10,000,000 to Oracle Corporation;
. in October 1996, we issued a warrant to purchase 61,705 series C
preference shares in a private placement to Comdisco Ventures at an
exercise price per share of $1.50 in connection with an equipment
financing pursuant to the terms of a master equipment financing
agreement; no specific value was attributed to the issuance of the
warrant, however, we believe that by agreeing in the master agreement to
issue warrants as part of future financing, we were able to negotiate
financing terms more favorable to us then would otherwise be available;
. in September 1997, we issued a warrant to purchase 8,000 series C
preference shares in a private placement to Comdisco Ventures at an
exercise price per share of $1.50 in connection with an equipment
financing pursuant to the terms of a master equipment financing
agreement; no specific value was attributed to the issuance of the
warrant, however, we believe that by agreeing in the master agreement to
issue warrants as part of future financing, we were able to negotiate
financing terms more favorable to us then would otherwise be available;
. in December 1997, we issued a warrant to purchase 35,294 series C
preference shares in a private placement to Venture Banking Group, an
entity of Greater Bay Bancorp, at an exercise price per share of $1.70
in connection with the extension of a loan and security agreement; no
specific value was attributed to the issuance of the warrant, however,
we believe that by agreeing to issue the warrant, we were able to
negotiate terms more favorable to us than would otherwise be available;
in June 1998, this warrant automatically converted into a warrant to
purchase 35,294 series D preference shares at an exercise price per
share of $1.70;
. in December 1997 and January 1998, we issued bridge notes in the
aggregate amount of $2,642,980 in a private placement to 3i Group plc,
New Enterprise Associates, Oak Investment Partners VI, Oak VI Affiliates
Fund, Oracle Corporation, Olivetti Telemedia Investments B.V., Professor
Hopper and Elserino Piol that were convertible into our series D
preference shares;
. in March 1998, we issued a bridge note in the amount of $700,000 in a
private placement to The Index Special Situations Fund Ltd. that was
convertible into our series D preference shares;
. in June 1998, we sold 24,780,934 series D preference shares in a private
placement at a purchase price of $1.10 per share and aggregate proceeds
of $27,259,027 to Oak Investment Partners VI,
II-2
<PAGE>
Financiere et Industrielle Gaz et Eaux, New Enterprise Associates,
Oracle Corporation, 3i Group plc, The British Bank of the Middle East,
Moore Global Investments Ltd, Lombard Odier & Cie, Olivetti Telemedia
Investments B.V., Elara Ltd, The Index Special Situations Fund, Ltd.,
Bank Morgan Stanley AG ZH, Societe Financiere Mirelis S.A., Pharos
Genesis Fund Ltd., Pharos Fund Ltd., Pictet & Cie Banquiers, Remington
Investment Strategies LP, Lighthouse Partners USA, LP, Faisal Finance
(Jersey) Ltd., Banque SCS Alliance S.A., Crescent International Ltd.,
Denmore Investments Ltd., 4C Ventures LP, Galba Anstalt, L.B. Finance
S.A., Jordana-Gerhardt Family Trust u/d/t 3/21/97, Oak VI Affiliates
Fund, ppon Pictet & Cie, Societe Financiere Mirelis S.A., Marcuard Cook
& Cie S.A., Banca Del Gottardo, Bank Julius Baes Zurich, Banque Privee
ed. De Rothschild, Algonquin Trust S.A., Manpower S.A., Bank Julius Bar
& CO AG, Rex A. Sherry & Lori Kargionis-Sherry, Trustees of the Sherry
Family Trust, Lighthouse Genesis Partners USA, LP, Credit Suisse Private
Banking, Archery Capital, Fondation de Prevoyance Manpower, Ayers-Plant
Family Trust, Messrs. D. Bertholet, T. Thornhill, M. Bertholet, R.
Bishop, T. Saint-Loup, J. Metzger, T Bungener, M. Sullivan, T. Keegen,
D. Castagna, P. Harvey, and G. Guthrie, in which Index Securities S.A.
acted as placement agent and received a fee of 7% of the aggregate
proceeds and warrants;
. in June 1998, in connection with the conversion of bridge notes in the
aggregate amount of $3,342,980, we issued 3,039,073 series D preference
shares in a private placement to 3i Group plc, New Enterprise
Associates, Oak Investment Partners VI, Oak VI Affiliates Fund, Oracle
Corporation, Olivetti Telemedia Investments B.V., The Index Special
Situations Fund Ltd., Professor Hopper and Elserino Piol;
. in June 1998, in connection with conversion of 12,460,150 series B
preference shares and 2,000,000 series C preference shares with an
aggregate value of $16,635,368, we issued 15,123,062 series D preference
shares in a private placement to 3i Group plc, 4C Ventures LP, New
Enterprise Associates, Oak Investment Partners VI, and Oak VI Affiliates
Fund and Oracle Corporation;
. in June 1998, we issued a warrant to Messrs. G. Rimer, N. Rimer, D.
Rimer, G. Zocco, B. Dalle, H. Lebret, J. Peterschmitt, and Genevest S.A.
to purchase, 1,595,054 series D preference shares in a private placement
at an exercise price of $1.10 in connection with Index Securities S.A.
acting as placement agent in our series D preference share financing;
. in June 1998, we issued a 21,818 series D preference shares in a private
placement to Professor Hopper for aggregate consideration of $24,000,
representing the amount of the fee Professor Hopper would have received
for serving on our technology advisory board;
. in July 1998, we issued 606,500 series D preference shares in a private
placement for aggregate consideration of $667,150 to Munther Qubain in
connection with the acquisition of RSA Communications;
. in September 1998, we issued a warrant to purchase 109,091 series D
preference shares in a private placement to Comdisco Ventures at an
exercise price per share of $1.10 in connection with an equipment
financing pursuant to the terms of a master equipment financing
agreement; no specific value was attributed to the issuance of the
warrant, however, we believe that by agreeing in the master agreement to
issue warrants as part of future financing, we were able to negotiate
financing terms more favorable to us then would otherwise be available;
. in May 1999, we issued a warrant to purchase 54,545 series D preference
shares in a private placement to Comdisco Ventures at an exercise price
per share of $1.10 in connection with an equipment financing pursuant to
the terms of a master equipment financing agreement; no specific value
was attributed to the issuance of the warrant, however, we believe that
by agreeing in the master agreement to issue warrants as part of future
financing, we were able to negotiate financing terms more favorable to
us then would otherwise be available; and
. in October 1999, we issued 6,153,846 series E preference shares in a
private placement at a purchase price of $1.30 per share and aggregate
proceeds of $8,000,000 to Siemens Information and Communication
Networks, Inc., Olivetti Telemedia Investments B.V. and LSI Logic Inc.
II-3
<PAGE>
The issuance and sale of the above securities were exempt from registration
under the Securities Act in reliance upon Section 4(2) of the Securities Act
or Regulation D or Regulation S promulgated thereunder. The recipients of
securities in each such transaction represented their intentions to acquire
the securities for investment only and now with a view to or for sale in
connection with any distribution thereof, and appropriate legends were affixed
to the share certificates issued in such transactions. All recipients had
adequate access to information about the Registrant.
Immediately prior to the consummation of this offering, all of the
outstanding ordinary and preference shares of Virata Limited will be
cancelled, new ordinary shares of Virata Limited will be issued to Virata
Corporation and shares of common stock of Virata Corporation will be issued to
the former shareholders of Virata Limited. These transactions will take place
immediately prior to the consummation of this offering and will be effected
pursuant to a share reconstruction under Section 425 of the United Kingdom
Companies Act of 1985. Any securities that are convertible or exercisable into
ordinary shares or preference shares of Virata Limited will become convertible
or exercisable into shares of one common stock upon consummation of the share
reconstruction.
Item 16. Exhibits
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description Page
------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement**................................
2.1 Agreement and Plan of Merger among Virata Limited, Virata
Acquisition Sub, Inc., a Delaware corporation, RSA
Communications, Inc., a Delaware corporation, and Munther
Qubain, an individual, dated as of June 1, 1998+................
2.2 Amendment No. 1 to Agreement and Plan of Merger among Virata
Limited, Virata Acquisition Sub, Inc., a Delaware corporation,
RSA Communications, Inc., a Delaware corporation, and Munther
Qubain, an individual, dated as of June 25, 1998**..............
3.1 Certificate of Incorporation of the Registrant**................
3.2 Bylaws of the Registrant**......................................
4.1 Specimen form of Registrant's Common Stock Certificate*.........
5.1 Opinion of Gibson, Dunn & Crutcher LLP*.........................
10.1 Agreement with Gaz et Eaux and Board with respect to Board of
Directors and other shareholder rights..........................
10.4 Form 1 of 1998 Stock Incentive Plan Agreement of Virata
Limited**.......................................................
10.5 Form 2 of 1998 Stock Incentive Plan Agreement of Virata
Limited.........................................................
10.6 Form of 1998 Nonqualified Stock Option Plan Agreement of Virata
Limited**.......................................................
10.7 Warrant Agreement between Virata Limited and Index Securities,
S.A., dated as of June 4, 1998..................................
10.8 Form of Warrant between Virata Limited and Comdisco, Inc........
10.9 Lease between WHC-SIX Real Estate Limited Partnership and
Advanced Telecommunications Modules, Inc., a California
corporation, dated June 26, 1996................................
10.10 Lease Agreement between Lake Partners, L.L.C. and RSA
Communications, Inc., dated as of July 1, 1998..................
10.11 Lease between Universities Superannuation Scheme Limited and
Advanced Telecommunications Modules Limited, dated 1994.........
10.12 License to Subunderlet among Universities Superannuation Scheme
Limited, Royal Insurance (U.K.) Limited, Hill Samuel Investment
Services Group Limited, and Advanced Telecommunications Modules
Limited, dated 1995**...........................................
10.13 Lease between Virata Limited and Comdisco, Inc., dated September
30, 1996........................................................
10.14 Loan and Security Agreement among Venture Banking Group, Virata
Santa Clara Corporation and Virata Raleigh Corporation, dated as
of August 27, 1999**............................................
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Page
------- ----------- ----
<C> <S> <C>
10.15 Collateral Assignment, Patent Mortgage and Security Agreement
between Virata Ltd. and Venture Banking Group, dated as of
August 27, 1999**...............................................
10.16 Agreement between ARM Limited and Virata Ltd., dated June 2,
1999++..........................................................
10.17 Amendment No. 1 to License and Technical Co-Operation Agreement
for ATM Technology between Ing. C. Olivetti & C., S.p.A. and
Advanced Telecommunications Modules Limited, dated September 19,
1994**..........................................................
10.18 License and Technical Co-Operation Agreement for ATM Technology
between Ing. C. Olivetti & C., S.p.A. and Advanced
Telecommunications Modules Limited, dated December 3, 1993**....
10.19 Settlement Agreement between Virata Limited and Cirrus Logic,
Inc., a California corporation, dated as of June 19, 1998.......
10.20 Development, Production, Supply and License Agreement between
Advanced Telecommunications Modules Limited and Symbios
Incorporated, a Delaware corporation, dated as of August 16,
1997............................................................
10.21 Form of 1999 Stock Incentive Plan**.............................
10.22 1999 Employee Stock Purchase Plan*..............................
10.23 Form of Indemnity Agreement**...................................
10.24 Employment Agreement--Charles Cotton............................
10.25 Employment Agreement--Michael Gulett............................
10.26 Employment Agreement--Andrew Vought.............................
10.27 Employment Agreement--Martin Jackson**..........................
10.28 Employment Agreement--Thomas Cooper**...........................
10.29 Form of Registration Rights Agreement...........................
10.30 Form of Non-Employee Director Plan*.............................
21.1 List of Subsidiaries of Virata Corporation**....................
23.1 Independent Accountants' Consent from PricewaterhouseCoopers LLP
regarding Virata Corporation....................................
23.2 Independent Accountants' Consent from PricewaterhouseCoopers LLP
regarding RSA Communications, Inc...............................
23.3 Consent of Gibson, Dunn & Crutcher LLP (to be included in their
opinion filed as Exhibit 5.1)*..................................
24.1 Power of Attorney (see signature page)..........................
27.1 Financial Data Schedule.........................................
</TABLE>
- --------
* To be filed by amendment.
+ To be filed without schedules.
++ Confidential treatment has been requested for selected sections of this
exhibit.
** Filed previously.
(b) Financial Statement Schedule
The following financial statement schedule is filed with Part II of this
Registration Statement:
Schedule of valuation and qualifying accounts and reserves
Schedules not listed above for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under applicable instructions or are inapplicable and therefore have
been omitted.
II-5
<PAGE>
Item 17. Undertakings.
The Registrant hereby undertakes to the underwriters at the closing
specified in the underwriting agreement to provide 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, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the Delaware
General Corporation Law, the Registrant's Amended Certificate of
Incorporation, the Registrant's Bylaws, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act,
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act is part of this Registration Statement as of the time
it was declared effective.
(ii) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement for 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-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Palo Alto, State of California, on the 14th day of October, 1999.
VIRATA CORPORATION
By: /s/ Charles Cotton
-----------------------------------
Charles Cotton
Chief Executive Officer and Director
KNOWN ALL PERSONS BY THESE PRESENTS, that each of Marco De Benedetti, Gary
Bloom, Andrew Hopper, Martin Jackson, Patrick Sayer and Giuseppe Zocco whose
signature appears below, constitutes and appoints Charles Cotton and Andrew
Vought, each of whom may act without joinder of the other, as their true and
lawful attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and any and all Registration
Statements filed pursuant to Section 462 of the Securities Act of 1933, as
amended, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents 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 said attorneys-in-fact
and agents, or their substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement on Form S-1 has been signed
below by the following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
Chief Executive Officer October 14, 1999
/s/ Charles Cotton and Director
___________________________________ (Principal Executive
Charles Cotton Officer)
/s/ Charles Cotton* Senior Vice President, October 14, 1999
___________________________________ Chief Financial Officer
Andrew Vought and Secretary
(Principal Financial
Officer and Principal
Accounting Officer)
/s/ Charles Cotton* Chairman of the Board October 14, 1999
___________________________________
Dr. Hermann Hauser
/s/ Marco De Benedetti Director October 14, 1999
___________________________________
Marco De Benedetti
/s/ Gary Bloom Director October 14, 1999
___________________________________
Gary Bloom
/s/ Charles Cotton* Director October 14, 1999
___________________________________
Bandel Carano
/s/ Andrew Hopper Director October 14, 1999
___________________________________
Andrew Hopper
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Martin Jackson Director October 14, 1999
___________________________________
Martin Jackson
/s/ Charles Cotton* Director October 14, 1999
___________________________________
Peter Morris
/s/ Patrick Sayer Director October 14, 1999
___________________________________
Patrick Sayer
/s/ Giuseppe Zocco Director October 14, 1999
___________________________________
Giuseppe Zocco
/s/ Charles Cotton
*By: _______________________________
Charles Cotton
As attorney-in-fact
pursuant to power of attorney
previously filed
with the Securities and Exchange
Commission
</TABLE>
II-8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTSON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and
Stockholders of Virata Corporation
In connection with our audits of the financial statements of Virata
Corporation as of March 31, 1998 and 1999, and for each of the three years in
the period ended March 31, 1999, which financial statements are included in the
Prospectus, we have also audited the financial statement schedule listed in
Item 16(b) herein. In our opinion, this financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included herein.
/s/ PricewaterhouseCoopers LLP
San Jose, California
August 20, 1999
<PAGE>
SCHEDULE II
VIRATA CORPORATION
VALUATION AND QUALIFYING ACCOUNT
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Deductions Period
- ----------- ---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended March 31, 1997........ $ 602 $ 111 $ -- $ 713
Year ended March 31, 1998........ 713 1,075 221 1,567
Year ended March 31, 1999........ 1,567 1,458 283 2,742
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page
------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement**................................
2.1 Agreement and Plan of Merger among Virata Limited, Virata
Acquisition Sub, Inc., a Delaware corporation, RSA
Communications, Inc., a Delaware corporation, and Munther
Qubain, an individual, dated as of June 1, 1998+................
2.2 Amendment No. 1 to Agreement and Plan of Merger among Virata
Limited, Virata Acquisition Sub, Inc., a Delaware corporation,
RSA Communications, Inc., a Delaware corporation, and Munther
Qubain, an individual, dated as of June 25, 1998**..............
3.1 Certificate of Incorporation of the Registrant**................
3.2 Bylaws of the Registrant**......................................
4.1 Specimen form of Registrant's Common Stock Certificate*.........
5.1 Opinion of Gibson, Dunn & Crutcher LLP*.........................
10.1 Agreement with Gaz et Eaux and Board with respect to Board of
Directors and other shareholder rights..........................
10.4 Form 1 of 1998 Stock Incentive Plan Agreement of Virata
Limited**.......................................................
10.5 Form 2 of 1998 Stock Incentive Plan Agreement of Virata
Limited.........................................................
10.6 Form of 1998 Nonqualified Stock Option Plan Agreement of Virata
Limited**.......................................................
10.7 Warrant Agreement between Virata Limited and Index Securities,
S.A., dated as of June 4, 1998..................................
10.8 Form of Warrant between Virata Limited and Comdisco, Inc........
10.9 Lease between WHC-SIX Real Estate Limited Partnership and
Advanced Telecommunications Modules, Inc., a California
corporation, dated June 26, 1996................................
10.10 Lease Agreement between Lake Partners, L.L.C. and RSA
Communications, Inc., dated as of July 1, 1998..................
10.11 Lease between Universities Superannuation Scheme Limited and
Advanced Telecommunications Modules Limited, dated 1994.........
10.12 License to Subunderlet among Universities Superannuation Scheme
Limited, Royal Insurance (U.K.) Limited, Hill Samuel Investment
Services Group Limited, and Advanced Telecommunications Modules
Limited, dated 1995**...........................................
10.13 Lease between Virata Limited and Comdisco, Inc., dated September
30, 1996........................................................
10.14 Loan and Security Agreement among Venture Banking Group, Virata
Santa Clara Corporation and Virata Raleigh Corporation, dated as
of August 27, 1999**............................................
10.15 Collateral Assignment, Patent Mortgage and Security Agreement
between Virata Ltd. and Venture Banking Group, dated as of
August 27, 1999**...............................................
10.16 Agreement between ARM Limited and Virata Ltd., dated June 2,
1999++..........................................................
10.17 Amendment No. 1 to License and Technical Co-Operation Agreement
for ATM Technology between Ing. C. Olivetti & C., S.p.A. and
Advanced Telecommunications Modules Limited, dated September 19,
1994**..........................................................
10.18 License and Technical Co-Operation Agreement for ATM Technology
between Ing. C. Olivetti & C., S.p.A. and Advanced
Telecommunications Modules Limited, dated December 3, 1993**....
10.19 Settlement Agreement between Virata Limited and Cirrus Logic,
Inc., a California corporation, dated as of June 19, 1998.......
10.20 Development, Production, Supply and License Agreement between
Advanced Telecommunications Modules Limited and Symbios
Incorporated, a Delaware corporation, dated as of August 16,
1997............................................................
10.21 Form of 1999 Stock Incentive Plan**.............................
10.22 1999 Employee Stock Purchase Plan*..............................
10.23 Form of Indemnity Agreement**...................................
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page
------- ----------- ----
<C> <S> <C>
10.24 Employment Agreement--Charles Cotton...........................
10.25 Employment Agreement--Michael Gulett...........................
10.26 Employment Agreement--Andrew Vought............................
10.27 Employment Agreement--Martin Jackson**.........................
10.28 Employment Agreement--Thomas Cooper**..........................
10.29 Form of Registration Rights Agreement..........................
10.30 Form of Non-Employee Director Plan*............................
21.1 List of Subsidiaries of Virata Corporation**...................
23.1 Independent Accountants' Consent from PricewaterhouseCoopers
LLP regarding Virata Corporation...............................
23.2 Independent Accountants' Consent from PricewaterhouseCoopers
LLP regarding RSA Communications, Inc..........................
23.3 Consent of Gibson, Dunn & Crutcher LLP (to be included in their
opinion filed as Exhibit 5.1)*.................................
24.1 Power of Attorney (see signature page).........................
27.1 Financial Data Schedule........................................
</TABLE>
- --------
* To be filed by amendment.
+ To be filed without schedules.
++ Confidential treatment has been requested for selected sections of this
exhibit.
** Filed previously.
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of June 1, 1998, by and among Virata Limited, a corporation organized in
the United Kingdom ("Virata"), Virata Acquisition Sub, Inc., a Delaware
corporation ("Acquisition Sub"), RSA Communications, Inc., a Delaware
corporation ("RSA Communications"), and Munther Qubain, an individual
("Stockholder").
W I T N E S S E T H
-------------------
WHEREAS, the Boards of Directors of Virata, Acquisition Sub and RSA
Communications and Stockholder deem it to be desirable and in the best interests
of such parties that RSA Communications merge with and into Acquisition Sub (the
"Merger") in accordance with the terms and conditions set forth in this
Agreement and the Delaware General Corporation Law (the "DGCL").
WHEREAS, the Board of Directors of Virata, Acquisition Sub and RSA
Communications and Stockholder have approved this Agreement and the transactions
contemplated hereby.
WHEREAS, the Merger is intended to qualify as a tax free reorganization
under Sections 368(a)(1)(A) and (a)(2)(D) of the Internal Revenue Code of 1986,
as amended (the "Code") and will be accounted for as a purchase.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing premises and of the
respective representations, warranties and covenants contained herein, the
parties hereto hereby agree as follows.
ARTICLE I
THE MERGER
1.1 Merger and Effect. Subject to the terms and conditions set forth in
this Agreement and the DGCL, at the Effective Time (as defined below), RSA
Communications shall merge with and into Acquisition Sub, the separate corporate
existence of RSA Communications shall cease and Acquisition Sub shall continue
its corporate existence under the laws of the State of Delaware as the surviving
corporation (the "Surviving Corporation") of the Merger. The Merger Shall have
the legal effect provided in Section 259(a) of the DGCL.
1.2 Effective Time. The Merger shall become effective at the time of the
filing (the "Effective Time") of the Certificate of Merger of RSA Communications
into Acquisition Sub (the "Certificate of Merger"), substantially in the form
attached hereto as Exhibit A, with the Delaware Secretary of State. Subject to
---------
the terms and conditions set forth in this Agreement, on
<PAGE>
the Closing Date (as defined below), RSA Communications and Acquisition Sub
shall execute and file the Certificate of Merger with the Delaware Secretary of
State.
1.3 Certificate of Incorporation and Bylaws. The Certificate of
Incorporation and Bylaws of Acquisition Sub prior to the Effective Time shall be
the Certificate of Incorporation and Bylaws of the Surviving Corporation
following the Effective Time until amended in accordance with the provisions
thereof and the DGCL. Acquisition Sub shall change its name to RSA
Communications, Inc. promptly following the Effective Time.
1.4 Directors and Officers. The directors of Acquisition Sub prior to the
Effective Time shall be the directors of the Surviving Corporation following the
Effective Time until their respective successors are duly elected by the
stockholders in accordance with the provisions of the Bylaws of the Surviving
Corporation and the DGCL. The officers of Acquisition Sub prior to the
Effective Time shall resign effective as of the Effective Time and Stockholder
shall become President, Andrew Vought shall become Secretary, and Carol Palmer
shall become Assistant Secretary until their respective successors are duly
elected in accordance with the provisions of the Bylaws of the Surviving
Corporation and the DGCL.
1.5 Consideration. Subject to the terms and conditions set forth in this
Agreement, at the Effective Time, by virtue of the Merger and without any
further action on the part of Stockholder or the employees of RSA Communications
(the "RSA Employees"):
(a) Conversion of RSA Shares into Cash and Virata Ordinary Shares.
All of the issued and outstanding shares (the "RSA Shares") of common stock (the
"RSA Common Stock") of RSA Communications shall be canceled and converted into
the right to receive: (i) $1,332,850 (of which, $250,000 shall be delivered to
the Escrow Agent for application pursuant to the Escrow Agreement); (ii)
1,540,000 ordinary shares (the "Virata Ordinary Shares") of Virata; and (iii)
606,500 Series D Preference Shares (the "Series D Shares") of Virata;
(b) Conversion of RSA Units into Cash and Virata Acquisition Options.
All of the outstanding phantom stock units (the "RSA Units") of RSA
Communications shall be canceled and converted into the right to receive: (i)
$2,000,000 (less all withholdings for taxes and other governmental charges, of
which, $250,000 of the balance shall be delivered to the Escrow Agent for
application pursuant to the Escrow Agreement); and (ii) options to purchase
1,992,944 Virata Ordinary Shares (the "Virata Acquisition Options") under
Acquisition Sub's 1998 Non-Qualified Stock Plan (the "Virata Plan") at an
exercise price of $0.25 per share, and on substantially the other terms and
conditions set forth in the form of Nonqualified Stock Option Agreement (the
"Virata Nonqualified Stock Option Agreement") attached hereto as Exhibit B-1;
-----------
such consideration shall be delivered to the holders of the RSA Units in respect
of, and pro rata in accordance with their ownership of, the RSA Units; and
(c) Escrow. Virata shall deliver the sum of $500,000, representing
$250,000 of the merger consideration payable to Stockholder and $250,000 from
the cash consideration for conversion of the RSA Units payable to the RSA Unit
holders (the "Escrow Account"), to Greater Bay Trust Company, as escrow agent
--------------------------
(the "Escrow Agent"), to be held in escrow in
2
<PAGE>
accordance with the terms of this Agreement and that certain Escrow Agreement to
be entered into among Virata, Acquisition Sub and Stockholder, individually and
as representative of the holders of the RSA Units (the "Escrow Agreement"),
substantially in the form attached hereto as Exhibit C.
---------
1.6 Procedure. The consideration payable to Stockholder and the holders
of the RSA Units pursuant to Section 1.5 above shall be paid upon surrender of
the certificates evidencing the RSA Shares. Neither Stockholder nor any holder
of the RSA Units shall be entitled to receive any fractional Virata Ordinary
Share or any option to acquire a fractional Virata Ordinary Share, as the case
may be, and, in lieu thereof, any fractional amount shall be paid in cash. All
consideration paid upon surrender of such certificates shall be deemed to have
been delivered in full satisfaction of all rights pertaining to the RSA Shares
and the RSA Units. If, after the Effective Time, certificates representing any
shares of capital stock of RSA Communications or any securities or rights
convertible into or related to the capital stock of RSA Communications are
presented for any reason, they will be canceled and null and void, and the
holder thereof shall not be entitled to any consideration in respect thereof.
Such shares of capital stock of RSA Communications, any phantom stock units of
RSA Communications or any securities or rights convertible into or related to
the capital stock of RSA Communications shall not be entitled to any
consideration other than as provided in this Agreement.
1.7 Virata Employment Options. Subject to the terms and conditions set
forth in this Agreement, simultaneously with the Merger, Virata shall grant to
Stockholder and to employees of RSA Communications selected by Virata after
consultation with Stockholder prior to the Closing, options to purchase an
aggregate of 1,220,000 Virata Ordinary Shares (the "Virata Employment Options")
under Virata Corp.'s 1998 Stock Incentive Plan (the "Virata Stock Incentive
Plan") at an exercise price of $0.70 per share, and on substantially the other
terms and conditions set forth in the form of Incentive Stock Option Agreement
(the "Virata Incentive Stock Option Agreement") attached hereto as Exhibit B-2.
-----------
In addition to the above, Virata shall grant to Stockholder and the holders of
RSA Units options to purchase an aggregate of 780,000 Virata Ordinary Shares (of
which, Stockholder shall receive options to purchase 390,000 Virata Ordinary
Shares, and the holders of the RSA Units shall receive options to purchase an
aggregate of 390,000 shares on a pro rata basis in proportion to the RSA Units
held by such holder) (the "Virata Additional Options") under the Virata Stock
Incentive Plan at an exercise price of $0.70 per share, and on substantially the
other terms and conditions set forth in the Virata Incentive Stock Option
Agreement, except that: (1) the vesting rate shall be 33% of the shares on the
first anniversary of the date of grant and one-thirty sixth (1/36) of the shares
each month thereafter until 100% vested and (2) such options shall become fully
vested upon the death, Permanent Disability, Constructive Discharge or
termination of the optionholder's employment by the Company for reasons other
than for Cause (as such terms are defined in the form of Employment Agreement
attached hereto as Exhibit E-1).
1.8 Repayment of PCSI Note. Subject to the terms and conditions set forth
in this Agreement, simultaneously with and as a condition concurrent to the
consummation of the Merger, Acquisition Sub shall pay the sum of $2,000,000 to
Pacific Communications Sciences, Inc. ("PCSI") by wire transfer of immediately
available funds in full satisfaction of the principal
3
<PAGE>
balance and all amounts owed by RSA Communications to PCSI under that certain
promissory note dated June 6, 1997 (the "PCSI Note").
1.9 Closing. The closing of the transactions contemplated hereby (the
"Closing") shall take place at the offices of Hunton & Williams, One Hannover
Square, Fayetteville Street Mall, Raleigh, North Carolina 27602, on June 30,
1998, or at such other place and on such other date as each of the parties
hereto may mutually agree (the "Closing Date").
1.10 Financial Statements. RSA Communications and Stockholder have
delivered the Financial Statements (as defined in Section 5.4) to Virata.
Virata shall have the Financial Statements audited by Coopers & Lybrand LLP (the
"Accountants") as promptly as possible following the execution and delivery of
this Agreement and prior to the Closing Date (the "Audited Financial
Statements"). The cost of the audit by the Accountants shall be borne by
Virata. Virata shall deliver the Audited Financial Statements to RSA
Communications and Stockholder promptly following such audit. The amounts
reflected in the Audited Financial Statements shall be conclusive and binding on
Virata, Acquisition Sub, RSA Communications and Stockholder. In the event that
either net revenue or net assets shown in the Audited Financial Statements are
less than the corresponding amounts shown in the Financial Statements by greater
than 5%, then Virata and Acquisition Sub shall have the right to terminate this
Agreement pursuant to Article X.
1.11 Amendment to RSA Units Agreement. Prior to or on the Closing Date,
each holder of RSA Units shall execute and deliver an amendment to the agreement
governing his or her RSA Units (the "RSA Unit Amendment"), substantially in the
form attached hereto as Exhibit D, pursuant to which such holder shall: (a)
---------
agree to the conversion of such holder's RSA Units into the right to receive the
consideration set forth in Section 1.5 above and (b) appoint Stockholder as such
holder's representative with respect to any claim for indemnification pursuant
to Article IX.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
RSA Communications and Stockholder, jointly and severally, represent and
warrant to Virata and Acquisition Sub as follows:
2.1 Organization and Existence. RSA Communications is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. RSA Communications has the requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted. RSA Communications is duly qualified or licensed to do business and
is in good standing in each jurisdiction in which the character or location of
the properties owned, leased or operated by RSA Communications or the nature of
the business conducted by RSA Communications makes such qualification or license
necessary, except where the failure to be so duly qualified or licensed would
not have a material adverse effect on the business, operations, financial
condition, results of operations or prospects of RSA Communications (a "Material
Adverse Effect"). Schedule 2.1 to this Agreement (a "Schedule" or the
------------
"Schedules") lists each jurisdiction in which RSA Communications is duly
4
<PAGE>
qualified or licensed to do business and the jurisdictions in which tangible
assets owned or used by RSA Communications are located.
2.2 Capital Stock, Etc.
(a) RSA Communications has an authorized capitalization and
outstanding shares as reflected in Schedule 2.2(a). All shares of RSA Common
---------------
Stock have been duly authorized and validly issued, are fully paid and
nonassessable, and were issued by RSA Communications in compliance with all
applicable securities laws, rules and regulations, the Certificate of
Incorporation, Bylaws or other governing documents or the terms of any
stockholders agreement to which RSA Communications is a party or by which any of
its stockholders is bound. The RSA Shares constitute all of the issued and
outstanding shares of RSA Common Stock.
(b) Except as set forth in Schedule 2.2(b), there are no outstanding
---------------
authorized, issued or effective subscriptions, options, warrants, rights, calls,
commitments, conversion rights, rights of exchange, plans, phantom stock units
or other agreements of any character providing for the purchase, issuance or
sale of, or otherwise related to, any issued or unissued shares of capital stock
of RSA Communications.
(c) There are no voting trusts, stockholder agreements, proxies
coupled with interests, pooling agreements or other forms of agreement
restricting or controlling the voting of shares in RSA Communications, and no
Person (as defined below), whether a stockholder of RSA Communications or
otherwise, has by contract or any method other than the voting of shares any
veto power or other control over the activities of RSA Communications.
2.3 Authorization and Validity of Agreements. RSA Communications and
Stockholder each have full power, legal capacity and authority to execute and
deliver this Agreement and the other agreements contemplated by this Agreement,
to perform their respective obligations hereunder and thereunder and to complete
the transactions contemplated by or referenced in this Agreement. All corporate
actions necessary on the part of RSA Communications and its directors and
stockholders for the execution and delivery of this Agreement and the other
agreements contemplated by this Agreement, and the performance by RSA
Communications of its obligations under this Agreement and the other agreements
contemplated by this Agreement, have been taken. This Agreement and each of the
other agreements contemplated by this Agreement have been or will be duly
executed and delivered by RSA Communications and Stockholder on or prior to the
Closing Date and, assuming due execution of this Agreement and the other
agreements contemplated by this Agreement by Virata and Acquisition Sub, each is
(or upon execution and delivery will be) a valid and binding obligation of RSA
Communications and Stockholder enforceable against them in accordance with their
respective terms, except to the extent that its enforceability may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles. No other actions or proceedings on the part of RSA
Communications or Stockholder are necessary to authorize this Agreement or the
other agreements contemplated by this Agreement.
5
<PAGE>
2.4 Subsidiaries and Investments. RSA Communications does not own,
directly or indirectly, any capital stock or other ownership or proprietary
interest in any corporation, company, partnership, limited liability company,
business, association, trust, joint venture or other entity and has no
obligation to make any investments in or loans to any Person.
2.5 Financial Statements.
(a) Except as set forth in Schedule 2.5, the Financial Statements (as
------------
defined in Section 5.4): (i) are correct and complete in all material respects
and have been prepared in accordance with the books and records of RSA
Communications; (ii) have been prepared in accordance with GAAP consistently
applied throughout the periods covered; (iii) reflect and provide adequate
reserves in respect of all known liabilities of RSA Communications, including
all known contingent liabilities, as of their respective dates, each in
conformity with GAAP; and (iv) present fairly the financial condition of RSA
Communications at such dates and the results of its operations for the fiscal
periods then ended.
(b) RSA Communications: (i) keeps books, records and accounts that,
in reasonable detail, accurately and fairly reflect in all material respects the
transactions and dispositions of assets of RSA Communications; and (ii)
maintains a system of internal accounting controls sufficient to provide
reasonable assurance that (A) transactions are executed in accordance with
management's general or specific authorization, (B) transactions are recorded as
necessary to permit preparation of financial statements in conformity with GAAP
and to maintain accountability for assets, (C) access to assets is permitted
only in accordance with management's general or specific authorizations and (D)
the recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. None of RSA Communications nor any employee or agent of RSA
Communications, directly or indirectly, has made any payment of funds of RSA
Communications or received or retained any funds in violation of any applicable
law, rule or regulation.
2.6 Accounts Receivable. The accounts receivable, book debts and other
debts owing to RSA Communications reflected in the Financial Statements and all
accounts receivable of RSA Communications arising since the dates of the
Financial Statements arose from bona fide transactions in the ordinary course of
business and are valid, enforceable and fully collectible accounts. Such
accounts receivable are not subject to any defense, set-off or counterclaim.
2.7 Absence of Liabilities. Except as set forth on Schedule 2.7, RSA
------------
Communications does not have, and as a result of the transactions contemplated
hereby will not have, any indebtedness, liabilities or obligations of any nature
(whether known or unknown, absolute, accrued, fixed, contingent, liquidated,
unliquidated or otherwise and whether or not required to be shown on a balance
sheet in accordance with GAAP), other than (i) the liabilities reflected on the
Financial Statements, (ii) incurred in the ordinary course of business
consistent with past practice since the dates of the Financial Statements and
(iii) Taxes (as defined below) which are to be prorated in accordance with the
terms of this Agreement.
6
<PAGE>
2.8 Books and Records. Except as set forth on Schedule 2.8, the minute
------------
books and other records of RSA Communications, as previously made available to
Virata and its representatives, contain accurate records of all resolutions,
written consents, meetings of, and actions taken by (including action taken by
written consent) the Board of Directors or other governing body of RSA
Communications and Stockholder. All such meetings were duly called and held,
all such corporate actions and written consents were duly taken or validly
given, and all such resolutions were duly passed. The stock certificate books,
register of stockholders, register of transfers, register of directors and
similar corporate records are complete, accurate and current in all material
respects. Concurrently with the consummation of the transactions contemplated
by this Agreement, all of the books and records of RSA Communications will be
delivered to Virata or its counsel.
2.9 No Material Changes. Except as set forth on Schedule 2.9, since the
------------
date of the Financial Statements, there has been no:
(a) material adverse change in the business, operations, financial
condition or results of operations of RSA Communications;
(b) material damage, destruction or loss to any asset or property,
tangible or intangible, of RSA Communications which materially adversely affects
the ability of RSA Communications to conduct its business;
(c) any sale, distribution, transfer or subjection to any lien or
encumbrance of any material assets of RSA Communications, except in the ordinary
and usual course of business;
(d) any increase in the salary or other direct or indirect
compensation or benefit payable or to become payable to any officer, director or
employee of RSA Communications, or the declaration, payment, commitment or
obligation of any kind for the payment of a bonus or other additional salary,
compensation or benefit, other than wage increases of non-officer employees in
accordance with past practices;
(e) declaration or payment of any dividends or other distributions to
stockholders in respect of RSA Common Stock or any redemption or repurchase of
RSA Common Stock, except as may have been agreed to in writing by Virata;
(f) any transaction by RSA Communications not in the ordinary and
usual course of business;
(g) any alteration in the manner in which RSA Communications keeps its
books, accounts or records or in the accounting practices therein reflected,
including the recognition and computation of revenues or expenses; or
(h) any capital expenditures or commitments for additions to property,
plant or equipment constituting capital assets outside the ordinary course of
business, consistent with past practice.
7
<PAGE>
2.10 Title to Properties; Encumbrances. RSA Communications does not own
any real property. Except as set forth on Schedule 2.10, and except for such
-------------
properties and assets which have been sold or otherwise disposed of in the
ordinary course of business, RSA Communications has good and marketable title to
its material properties and assets, including, without limitation, the material
properties and assets reflected in the Financial Statements, subject to no
Liens, except for (i) Liens reflected in the Financial Statements, (ii) Liens
for current taxes, assessments or governmental charges or levies on property not
yet due or delinquent, and (iii) Liens described on Schedule 2.10 (Liens of the
-------------
type described in clauses (i), (ii) and (iii) above are hereinafter sometimes
referred to as "Permitted Liens"). Except as set forth on Schedule 2.10, all
-------------
equipment and other tangible personal property leased or owned by RSA
Communications are used, usable by or useful to RSA Communications in the
ordinary course of business and are in good operating condition and in a state
of good maintenance and repair, normal wear and tear excepted, comparable for
items of their type, usage and age. Except as disclosed on Schedule 2.10, no
-------------
Person other than RSA Communications owns any tangible assets which are being
used in the ordinary course of RSA Communications' business. RSA Communications
owns all tangible and intangible assets which are materially necessary,
individually or in the aggregate, to operate its business.
2.11 Intellectual Property.
(a) Set forth on Schedule 2.11(a) is a list and description of all
----------------
patents, patent applications, trademarks, trademark applications, service marks,
service mark applications, trade names, tradename applications, copyrights,
copyright applications, computer software (other than "shrink-wrap licenses")
and other proprietary rights owned, licensed or used by RSA Communications. The
items listed on Schedule 2.11(a) and all research data, market reports,
----------------
distribution methods, industrial designs, processes, supplier lists, customer
lists, trade secrets and other proprietary rights that RSA Communications owns,
licenses or uses are referred to as "Intellectual Property."
(b) (i) Except for the computer software listed in Schedule 2.11(b), RSA
Communications owns all right, title and interest in all of the computer
software listed in Schedule 2.11(a) and has not created a restriction on any of
its rights in such software.
(ii) With respect to all computer software listed in Schedule 2.11(b),
RSA Communications has licenses or other valid and enforceable rights to use
such computer software, with only those contractual restrictions on its ability
to assign, license or sub-license such licenses, or other rights to use
contained in the license agreements listed in Schedule 2.11(b).
(iii) With respect to all other Intellectual Property, RSA Communications
either owns or has adequate licenses or other valid and enforceable rights to
use such Intellectual Property in the manner in which it is currently used.
(iv) RSA Communications has taken adequate steps to protect any
Intellectual Property that it owns. Except for the implementation of any
function relating to V.42, V.42bis, MNP Class 5, Improved Escape Sequence
("Heatherington Patent") technology or any Industry
8
<PAGE>
Standard Function into RSA Communications software products, neither the
operations of RSA Communications nor the ownership, license, or use of the
Intellectual Property by RSA Communications infringes upon or conflicts with the
proprietary rights of any other Person (as defined below) in respect of the
Intellectual Property or otherwise and there is no pending or, to the knowledge
of RSA Communications or Stockholder, threatened claim to that effect or basis
for such claim. To the knowledge of RSA Communications or Stockholder, no Person
is infringing upon or conflicting with the rights of RSA Communications with
respect to the Intellectual Property and there is no pending or threatened claim
by RSA Communications against any Person to such effect. "Industry Standard
Function" means any function the implementation of which, either actual or
announced, has occurred with respect to a majority of the commercial
communication products in the served markets.
(c) Set forth on Schedule 2.11(c) are lists of (i) any agreement or
----------------
arrangement pursuant to which RSA Communications licenses any Intellectual
Property to or shares any Intellectual Property with third parties and (ii) any
agreement or arrangement pursuant to which any third party licenses any
Intellectual Property to or shares any Intellectual Property with RSA
Communications (other than computer software identified on Schedule 2.11(b)).
RSA Communications, and to the knowledge of Stockholder and RSA Communications,
all third parties are in compliance in all material respects with the applicable
provisions of such agreements or arrangements.
(d) No information, records, systems or data required for the
administration or operation of RSA Communications' business are recorded on,
stored or maintained by any computerized system or program that is not
exclusively and beneficially owned by RSA Communications.
(e) No Person (as defined below) has, to the knowledge of RSA
Communications and Stockholder, asserted that RSA Communications' use of the
name "RSA Communications" infringes upon the rights of such Person.
2.12 Leases. Schedule 2.12 attached hereto contains a list of all leases
-------------
for real or personal property to which RSA Communications is a party. Except as
otherwise set forth in Schedule 2.12, each lease set forth in Schedule 2.12 is
------------- -------------
in full force and effect; all rents and additional rents due to date from RSA
Communications on each such lease have been paid; RSA Communications is not in
default under any such lease; and, except as set forth on Schedule 2.12, there
-------------
exists no event, occurrence, condition or act (including the consummation of the
transactions contemplated by this Agreement) which, with the giving of notice,
the lapse of time or the happening of any further event or condition, would
become a default by RSA Communications under such lease. To the knowledge of
RSA Communications or Stockholder, no other party to any of the leases is in
default thereunder. RSA Communications has not entered into any sublease or
assignment related to any of such leases.
2.13 Contracts. Except as set forth on Schedule 2.13 or any other
-------------
Schedule attached hereto, RSA Communications is not bound by any of the
following:
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(a) any agreement, license, contract or commitment that involves the
performance of services or the purchase or delivery of goods and/or materials or
services by it of an amount or value in excess of $25,000;
(b) any agreement, other than this Agreement and the agreements
contemplated hereby, not made in the ordinary course of business, for the sale
of goods or the performance of services for or by RSA Communications that is not
terminable upon notice of 30 days or less without cost or liability to RSA
Communications or any successor thereof;
(c) any agreement, indenture or other instrument which contains
restrictions with respect to payment of dividends or any other distribution in
respect of its shares;
(d) any agreement, contract or commitment relating to capital expenditures
outside the ordinary course of business, consistent with past practice;
(e) any loan or advance to, or investment in, any individual, partnership,
joint venture, corporation, limited liability company, trust, unincorporated
organization, government or other entity (each a "Person"), any agreement,
contract or commitment relating to the making of any such loan, advance or
investment or any agreement, contract or commitment involving a sharing of
profits;
(f) any agreement, guarantee or other contingent liability in respect of
any indebtedness or obligation of any Person;
(g) any consulting or employment agreement or contract for the employment
or retention of any officer, employee, consultant, independent contractor or
other Person on a full-time, part-time, project or consulting basis that is not
terminable upon notice of 30 days or less without cost or other liability to RSA
Communications or any successor thereof except for accrued vacation pay, in each
case not to exceed the value of vacation pay accrued in one year;
(h) any agreement, contract or commitment limiting the ability of RSA
Communications to engage in any line of business or to compete with any Person;
(i) any warranty, guaranty or other similar undertaking with respect to a
contractual performance extended by RSA Communications other than in the
ordinary course of business;
(j) any agreement pursuant to which RSA Communications has been appointed
or any Person has been appointed by RSA Communications as an agent, distributor,
licensee or franchisee;
(k) any bonus, pension, profit-sharing, retirement, stock purchase, stock
option, deferred compensation, incentive compensation, hospitalization,
insurance or similar plan, contract or understanding providing for employee
benefits (other than those expressly described in the Schedules hereto);
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(l) any contract for the purchase or sale of real property or capital or
fixed assets that involves obligations of more than $10,000 in the aggregate
during any fiscal year;
(m) any insurance contract naming RSA Communications as loss payee that is
not listed in the Schedules hereto;
(n) any agreement, mortgage, indenture, loan or credit agreement, security
agreement or other agreement or instrument relating to the borrowing or lending
of money or extension of credit or providing for the mortgaging or pledging of,
or otherwise placing a lien or security interest on, any assets or properties of
RSA Communications;
(o) option, warrant or other contract for the purchase of any debt or
equity security of any corporation, or for the issuance of any debt or equity
security, or the conversion of any obligation, instrument or security into debt
or equity securities, of RSA Communications;
(p) any settlement agreement of any administrative or judicial proceedings
within the past five years;
(q) any agreement relating to any Intellectual Property; or
(r) any agreement, contract or commitment which might reasonably be
expected to have a Material Adverse Effect.
Except as otherwise set forth on Schedule 2.13, each contract or agreement
-------------
set forth on Schedule 2.13 or any other Schedule is in full force and effect and
-------------
there exists no default or event of default by any party thereto or event,
occurrence, condition or act (including the consummation of the sale
contemplated hereby) which, with the giving of notice, the lapse of time or the
happening of any other event or condition, would become a default or event of
default thereunder by any party thereto. Complete and correct copies of each of
the contracts and agreements set forth on Schedule 2.13 or any other Schedule,
-------------
including any amendments or supplements to such contracts and agreements, have
been made available to Virata.
2.14 Consents and Approvals; No Violations. Except as set forth in
Schedule 2.14, the execution and delivery of this Agreement by RSA
- -------------
Communications and Stockholder and the consummation of the transactions
contemplated hereby (a) will not violate or contravene any provision of the
Certificate of Incorporation or Bylaws of RSA Communications, (b) will not
violate or contravene any statute, rule, regulation, order or decree of any
government body or authority by which RSA Communications or Stockholder is
subject or by which any of their respective properties or assets are bound, (c)
will not require any filing with, or permit, consent or approval of, or the
giving of any notice to, any governmental or regulatory body, agency or
authority, or any other Person and (d) will not result in a violation or breach
of, conflict with, constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation, payment
or acceleration) under, or result in the creation of any Lien upon any of the
properties or assets of RSA Communications or Stockholder under, any of the
terms, conditions or provisions of any agreement to which RSA Communications or
Stockholder
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is a party, or by which either of them or any of their respective
properties or assets may be bound.
2.15 Litigation.
(a) Except as set forth on Schedule 2.15, there is no action, suit,
-------------
claim, proceeding, inquiry or investigation pending or, to the knowledge of RSA
Communications or Stockholder, threatened, against or affecting RSA
Communications, or the assets, properties, business or business prospects of RSA
Communications, at law or in equity, or before or by any arbitrator or any
Federal, state, local or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, and neither RSA
Communications nor Stockholder knows of any basis for any of the foregoing. RSA
Communications is not in default with respect to any order, writ, injunction or
decree known to or served upon RSA Communications of or by any court or of or by
any arbitrator or any Federal, state, local or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign.
Except as set forth on Schedule 2.15, there is no pending action or suit brought
-------------
by RSA Communications against any third party.
(b) There is no action, suit, claim, proceeding, inquiry or
investigation pending or, to the knowledge of RSA Communications or Stockholder,
threatened, at law or in equity, or before or by any arbitrator or any Federal,
state, local or other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, relating to or involving the
transactions contemplated by this Agreement.
2.16 Taxes.
(a) Tax Returns. RSA Communications has timely filed or caused to be
timely filed, or will timely file or cause to be timely filed, with the
appropriate taxing authorities all returns, statements, forms and reports for
Taxes ("Returns") that are required to be filed by, or with respect to, RSA
Communications on or prior to the date of this Agreement. The Returns have
accurately reflected and will accurately reflect all liability for Taxes of RSA
Communications for the periods covered thereby. None of such Returns contains,
or will contain, a disclosure statement under Section 6662 of the Internal
Revenue Code of 1986, as amended (the "Code"), or any similar provision of
state, local or foreign tax law. "Taxes" means all taxes, assessments, charges,
duties, fees, levies or other governmental charges, including, without
limitation, all Federal, state, local, foreign and other income, franchise,
profits, capital gains, capital stock, transfer, sales, use, occupation,
property, excise, severance, windfall profits, stamp, license, payroll,
withholding, and other taxes, assessments, charges, duties, fees, levies or
other governmental charges of any kind whatsoever (whether payable directly or
by withholding and whether or not requiring the filing of a Return), all
estimated taxes, deficiency assessments, additions to tax, penalties and
interest and shall include any liability for such amounts as a result either of
being a member of a combined, consolidated, unitary or affiliated group or of a
contractual obligation to indemnify any person or other entity.
(b) Payment of Taxes. Except as described in Schedule 2.16 with
respect to underpayments of estimated taxes for fiscal 1998, all Taxes and Tax
liabilities of RSA
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Communications (whether or not shown on any Return) for all
taxable years or periods that end on or before the Closing Date and, with
respect to any taxable year or period beginning before and ending after the
Closing Date ("Straddle Periods"), the portion of such taxable year or period
ending on and including the Closing Date, have been timely paid or adequately
provided for on the Financial Statements. For purposes of this representation,
all Taxes and Tax liabilities with respect to the income, property or operations
of RSA Communications that relate to a Straddle Period shall be apportioned
between the period prior to the Closing Date and the period following the
Closing Date as follows: (A) in the case of Taxes other than income Taxes and
sales and use Taxes, on a per diem basis, and (B) in the case of income Taxes
and sales and use Taxes, as determined from the books and records of RSA
Communications, to the portion of such period ending on the date Closing Date as
though the taxable year of RSA Communications terminated at the close of
business on the Closing Date, and based on accounting methods, elections and
conventions that do not have the effect of distorting income and expenses.
(c) Other Tax Matters.
(i) Schedule 2.16 sets forth (A) each taxable year or other taxable
-------------
period of RSA Communications for which an audit or other examination of Taxes by
the appropriate tax authorities of any nation, state or locality is currently in
progress (or scheduled as of the date of this Agreement to be conducted),
together with the names of the respective tax authorities conducting (or
scheduled to conduct) such audits or examinations and a description of the
subject matter of such audits or examinations, (B) the most recent taxable year
or other taxable period for which an audit or other examination relating to
Federal income taxes of RSA Communications has been finally completed and the
disposition of such audits or examinations, (C) the taxable years or other
taxable periods of RSA Communications for which a consent or waiver of the
applicable statute of limitations for applicable Taxes is outstanding, (D) the
amount of any proposed adjustments (and the principal reason therefor) relating
to any Returns for Tax liability of RSA Communications which have been proposed
or assessed by any taxing authority and (E) a list of all notices received by
RSA Communications from any taxing authority relating to any issue which could
affect the Tax liability of RSA Communications, which issue has not been finally
determined and which, if determined adversely to RSA Communications could result
in a Tax liability.
(ii) Except as set forth on Schedule 2.16, RSA Communications has
-------------
not been included in any "consolidated," "unitary" or "combined" Return provided
for under the laws of the United States, any foreign jurisdiction or any state
or locality with respect to Taxes for any taxable period for which the statute
of limitations has not expired. RSA Communications does not have any liability
for the Taxes of any person as defined in Section 7701(a)(1) of the Code or
under Treasury Regulation Section 1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or otherwise;
(iii) Except as set forth on Schedule 2.16, all Taxes which RSA
-------------
Communications is, or was, required by law to withhold or collect have been duly
withheld or collected and have been timely paid over to the proper authorities
to the extent due and payable.
13
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(iv) Except as disclosed on Schedule 2.16, there are no tax
-------------
sharing, allocation, indemnification or similar agreements or arrangements in
effect as between RSA Communications or any predecessor thereof and any other
party (including any predecessor thereof) under which Acquisition Sub or RSA
Communications could be liable for any Taxes or other claims of any party.
(v) RSA Communications is not a party to any agreement, contract,
arrangement or plan that would result in the payment by RSA Communications of
any "excess parachute payment" within the meaning of Section 280G of the Code.
(vi) No consent has been filed under Section 341(f) of the Code
with respect to RSA Communications.
(vii) Except as disclosed on Schedule 2.16, RSA Communications was
not acquired in a "qualified stock purchase" under Section 338(d)(3) of the
Code, and RSA Communications is not subject to any constructive elections under
Code Section 338 or the regulations thereunder.
(viii) RSA Communications is not required to include in income any
adjustment pursuant to Section 481(a) of the Code (or similar provisions of
other law or regulations) by reason of a change in accounting method.
(ix) None of the assets of RSA Communications is property that is
required to be treated as owned by any other person pursuant to the "safe harbor
lease" provisions of former Section 168(f)(8) of the Internal Revenue Code of
1954, as amended, and in effect immediately prior to the enactment of the Tax
Reform Act of 1986, none of the assets of RSA Communications is "tax exempt use
property" within the meaning of Section 168(h) of the Code and none of the
assets of RSA Communications secures any debt the interest on which is tax
exempt under Section 103 of the Code.
(x) No indebtedness of RSA Communications consists of "corporate
acquisition indebtedness" within the meaning of Section 279 of the Code.
(xi) RSA Communications is not a "United States real property
holding company" within the meaning of Section 897 of the Code.
(xii) There currently are no excess loss accounts, deferred
intercompany gains or losses or other like items pertaining to RSA
Communications that could result in any Tax liability for RSA Communications.
(xiii) RSA Communications is not engaged in business in any tax
jurisdiction in which it does not file Returns for sales and use, income or
other Taxes.
(xiv) Neither RSA Communications nor Stockholder has asserted any
claim for indemnification under the Tax Indemnity Agreement, dated June 6, 1997,
by and
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<PAGE>
among Stockholder, RSA Communications and Cirrus Logic, nor, to the knowledge of
RSA Communications or Stockholder, is there any reasonable basis for any such
claim.
(xv) On the Closing Date, RSA Communications will hold
sufficient assets to satisfy the "substantially all" test of Section
368(a)(2)(D) of the Code.
2.17 Insurance. Schedule 2.17 contains an accurate and complete summary
-------------
description of all policies of property, fire and casualty, product liability,
workers compensation and other forms of insurance owned or held by RSA
Communications. RSA Communications has not received (i) any notice of
cancellation of any policy described in such Schedule or refusal of coverage
thereunder or (ii) any other indication that such policies are no longer in full
force or effect or that the issuer of any such policy is no longer willing or
able to perform its obligations thereunder. Since the date of the Financial
Statements, there has not been any material adverse change in the relationship
of RSA Communications with its insurers or in the premiums payable pursuant to
such policies.
2.18 Compliance with Laws; Permits. RSA Communications is in compliance
with all applicable laws, regulations, orders, judgments and decrees, except
where the failure to so comply would not have a Material Adverse Effect. RSA
Communications has all franchises, licenses, permits, certificates and other
authorizations from Federal, state, local or foreign governments or governmental
agencies, departments or bodies that are necessary for the conduct of its
business and which, if not obtained, would, individually or in the aggregate,
have a Material Adverse Effect. To the knowledge of RSA Communications or
Stockholder, there is no fact, error or omission relevant to any such franchise,
license, permit, certificate or other authorization that would permit the
revocation or withdrawal thereof. Subject to the receipt of any necessary
consents or filings, RSA Communications will continue to have the use and
benefit thereof and the rights granted thereby after the transactions
contemplated hereby have occurred.
2.19 Compensation of Employees. Schedule 2.19 is an accurate and complete
-------------
list showing the name, job title, duration of employment, salary, bonus and
fringe benefits of all persons employed by RSA Communications.
2.20 Employee Relations.
(a) Except as set forth on Schedule 2.20, RSA Communications is in
-------------
compliance in all material respects with all Federal, state or other applicable
laws, domestic or foreign, respecting employment and employment practices, terms
and conditions of employment and wages and hours and has not, and is not,
engaged in any unfair labor practice;
(b) no unfair labor practice complaint against RSA Communications is
pending before the National Labor Relations Board;
(c) there is no labor strike, dispute, slowdown or stoppage actually
pending or threatened against or involving RSA Communications which might
reasonably be expected to have a Material Adverse Effect;
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<PAGE>
(d) RSA Communications is not a party to a collective bargaining
agreement, and no collective bargaining agreement is currently being negotiated
by RSA Communications, and, to the knowledge of RSA Communications or
Stockholder, no labor organization is seeking to represent any employees of RSA
Communications; and
(e) no claim in respect of the employment of any employee has been
asserted in writing or asserted orally or overtly threatened against RSA
Communications which might reasonably be expected to have a Material Adverse
Effect.
(f) each employee of RSA Communications has entered into RSA
Communications' standard form of Employee Agreement attached hereto as Exhibit
-------
E-2, and such agreement is binding and enforceable against such employee in
- ---
accordance with its terms.
2.21. Employee Benefit Plans.
(a) Schedule 2.21 is an accurate and complete list of each employee
-------------
pension benefit plan, as defined in Section 3(2) of ERISA (the "Pension Plans"),
each employee welfare benefit plan, as defined in Section 3(1) of ERISA (the
"Welfare Plans", together with the Pension Plans, referred to as the "ERISA
Plans"), and each other employee benefit plan or arrangement not subject to
ERISA (the "Benefit Arrangements") currently (or during the five years preceding
the Closing Date) established, maintained or contributed to by RSA
Communications or any ERISA Affiliate. As used herein, the term "ERISA" means
the Employee Retirement Income Security Act of 1974, as amended, and any
regulations issued thereunder. As used herein, the term "ERISA Affiliate" means
a corporation which is a member of a controlled group of corporations with RSA
Communications within the meaning of Section 414(b) of the Code, a trade or
business (including a sole proprietorship, partnership, trust, estate or
corporation) which is under common control with RSA Communications within the
meaning of Section 414(c) of the Code, or a member of an affiliated service
group with RSA Communications within the meaning of Section 414(m) or Section
414(o) of the Code. Each ERISA Plan listed on Schedule 2.21 shall be correctly
-------------
categorized as either a Pension Plan, or a Welfare Plan, or a Benefit
Arrangement.
(b) RSA Communications has delivered or made available to Virata
true and correct copies of all ERISA Plans and Benefit Arrangements (and all
trust agreements, annuity contracts or other funding instruments relating
thereto and any relevant amendments) listed on Schedule 2.21 and all applicable
-------------
filings relating to the ERISA Plans and Benefit Arrangements listed on Schedule
--------
2.21 for the past two years, including Form 5500 filings, and, if the ERISA Plan
- ----
is intended to qualify under Section 401(a) of the Code, the most recent
determination letter received from the Internal Revenue Service (the "IRS"), the
most recent actuarial valuation reports, and any other relevant correspondence
from the IRS or Department of Labor.
(c) Except as disclosed in Schedule 2.21, (i) for each Pension Plan
-------------
that is intended to qualify under Section 401(a) of the Code, a favorable
determination letter has been received from the IRS addressing the tax-qualified
status of such plan and, to the knowledge of Stockholder and RSA Communications,
no event has occurred that would adversely affect such tax qualified status;
(ii) each ERISA Plan and Benefit Arrangement has been administered in all
16
<PAGE>
material respects in compliance with its terms and with the applicable
provisions of ERISA, the Code and other laws; (iii) with respect to each ERISA
Plan and Benefit Arrangement, to the knowledge of Stockholder and RSA
Communications, no event has occurred, and there exists no condition or set of
circumstances in connection therewith, for which RSA Communications or its ERISA
Affiliates could, directly or indirectly, be subject to any liability under
ERISA, the Code or any other applicable law, except liability for benefit claims
and funding obligations in the ordinary course, (iv) all required employer
contributions to each ERISA Plan or Benefit Arrangement have been made when due
(or, in the case of employer contributions not yet due, have been accrued on RSA
Communications' financial statements and records); (v) there are not pending or,
to the knowledge or Stockholder and RSA Communications, threatened termination
proceedings, claims, suits, investigations or other proceedings against or
involving any ERISA Plan or Benefit Arrangement or asserting any rights to or
claims for benefits under any ERISA Plan or Benefit Arrangement for which RSA
Communications could, directly or indirectly, be subject to any liability; and
(vi) except to the extent required by Section 4980B of the Code or any similar
provision of state law, RSA Communications does not provide, and is not
obligated to provide, any health or welfare benefits to any retired or former
employees or to any active employee following such employee's retirement or
termination of service.
2.22 Interests in Customers, Suppliers, etc. Except as set forth on
Schedule 2.22, neither any officer or director of RSA Communications nor
- -------------
Stockholder possesses, directly or indirectly, any financial interest in, or is
a director, officer or employee of, any Person which is a supplier, customer,
lessor, lessee, licensor, developer, competitor or potential competitor of RSA
Communications.
2.23 Environmental Laws and Regulations. Except as set forth on Schedule
--------
2.23:
- ----
(a) RSA Communications has not generated, used, treated or stored
any Hazardous Materials (as hereinafter defined) on any RSA Communications
Property (as hereinafter defined), and no Hazardous Materials have been
generated, used, treated or stored on or released or disposed on any RSA
Communications Property in each case in violation of any Environmental Law.
(b) RSA Communications is in compliance in all material respects
with Environmental Laws (as hereinafter defined) and the requirements of any RSA
Communications permits issued under such Environmental Laws with respect to any
RSA Communications Property.
(c) There are no pending or, to the knowledge of RSA Communications
or Stockholder, threatened Environmental Claims (as hereinafter defined) against
RSA Communications Property.
(d) For purposes of this Section 2.23, the following definitions
shall apply:
"Environmental Claims" means administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, notices of non-
compliance, remediation or violation, investigations or proceedings relating in
any way to any Hazardous Materials,
17
<PAGE>
Environmental Law or any permit issued to RSA Communications under any such
Environmental Law.
"Environmental Law" means any Federal, state or local statute, law,
rule, regulation, ordinance, code, policy or rule of common law in effect and in
each case as amended as of the date of this Agreement, and any judicial or
administrative interpretation thereof as of the date of this Agreement,
including any judicial or administrative order, consent decree or judgment,
relating to the environment, health, safety or Hazardous Materials.
"Hazardous Materials" means any chemicals, materials or substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," or words of similar
import, under any applicable Environmental Law.
"RSA Communications Property" means any real property and
improvements previously or currently owned, leased, used, operated or occupied
by RSA Communications.
2.24 Bank Accounts; Powers of Attorney. Set forth on Schedule 2.24 is an
-------------
accurate and complete list showing (a) the name and address of each bank in
which RSA Communications has an account or safe deposit box, the number of any
such account or any such box and the names of all persons authorized to draw
thereon or to have access thereto and (b) the names of all persons, if any,
holding powers of attorney from RSA Communications.
2.25 Broker's or Finder's Fees. No agent, broker, Person or firm acting
on behalf of RSA Communications or Stockholder is, or will be, entitled to any
commission or broker's or finder's fees from any of the parties hereto, or from
any Person controlling, controlled by or under common control with any of the
parties hereto, in connection with any of the transactions contemplated by this
Agreement.
2.26 Customers. No material customer of RSA Communications has indicated
to RSA Communications any intention to terminate or materially reduce its
existing contractual relationship with RSA Communications prior to the
completion of the projects in progress as of the date hereof between such
customer and RSA Communications.
2.27 Status of RSA Communications Real Property. To the knowledge of RSA
Communications or Stockholder, the use by RSA Communications of RSA
Communications Property (as defined in Section 2.23) is not in breach of any
building, zoning or other statute, bylaw, ordinance, regulation, covenant,
restriction or official plan, and RSA Communications has adequate rights of
ingress and egress for the operation of its business in the ordinary course.
There are no outstanding work orders, non-compliance orders, deficiency notices
or other such notices relative to RSA Communications Property, the other
properties and assets of RSA Communications or its business which have been
issued by any regulatory authority, police or fire department, sanitation,
environment, labor, health or other governmental authorities or agencies.
Except as disclosed on Schedule 2.27, to the knowledge of RSA Communications or
-------------
Stockholder, the buildings and structures comprising RSA Communications Property
are free of any structural defect. To the knowledge of RSA Communications or
Stockholder, the heating,
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ventilating, plumbing, drainage, electrical and air conditioning systems and all
other systems used in RSA Communications Property are in good working order,
fully operational and free of any defect, except for normal wear and tear.
2.28 Non-Arm's Length Matters. Except as set forth in the Financial
Statements or in Schedule 2.22 or Schedule 2.28, RSA Communications is not bound
------------------------------
by any agreement with, is not indebted to, and no amount is owing to RSA
Communications from, Stockholder or any of RSA Communications' or Stockholder's
Affiliates (as defined in Section 501(b) of the Securities Act of 1933, as
amended (the "Securities Act")) or any officers, former officers, directors,
former directors, former stockholders, employees or former employees of RSA
Communications or any other Person not dealing at arm's length with RSA
Communications. Except as set forth on Schedule 2.28, since the respective
-------------
dates of the Financial Statements, RSA Communications has not made or authorized
any payments to Stockholder or any of RSA Communications' or Stockholder's
Affiliates, or any officers, former officers, directors, former directors,
former stockholders, employees or former employees of RSA Communications or to
any other Person not dealing at arm's length with RSA Communications, except for
salaries and other employment compensation payable to employees of RSA
Communications in the ordinary course of the routine daily affairs of its
business and at the regular rates payable to them.
2.29 Material Disclosures. No statement, representation or warranty made
by RSA Communications or Stockholder in this Agreement or in any certificate,
statement, list, schedule or other document furnished or to be furnished to
Virata or Acquisition Sub hereunder contains, or when so furnished will contain,
any untrue statement of a material fact, or fails to state, or when so furnished
will fail to state, a material fact necessary to make the statements contained
herein or therein, in light of the circumstances in which they are made, not
misleading.
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ARTICLE III
INVESTMENT REPRESENTATIONS AND WARRANTIES
Stockholder represents and warrants to Virata as follows: (a) Stockholder
is acquiring the Virata Ordinary Shares and the Series D Shares for his own
account for investment purposes only and not with a view to, or for resale in
connection with, any distribution thereof in violation of the Securities Act
(except that Stockholder intends to sell the Series D Shares in connection with
the Closing to one or more accredited investors (as defined below) acceptable to
Virata, and which sale Virata acknowledges shall not constitute a breach of the
representations and warranties of Stockholder in this Article III)); (b) by
reason of his business or financial experience, Stockholder has the capacity to
protect his own interests in connection with the transactions contemplated by
this Agreement and is able to bear the economic risks of an investment in the
Virata Ordinary Shares and the Series D Shares; (c) Stockholder understands that
no public market now exists for the Virata Ordinary Shares or the Series D
Shares and that no public market may ever exist for the Virata Ordinary Shares
or the Series D Shares; (d) Stockholder has been advised that the Virata
Ordinary Shares and the Series D Shares are deemed "restricted securities" as
that term is defined in Rule 144 promulgated under the Securities Act, that the
exemption from registration under Rule 144 as currently in effect will not be
available in any event for at least one year from the date of issuance, and even
then will not be available unless a public trading market then exists for the
Virata Ordinary Shares or the Series D Shares, adequate information concerning
Virata is then available to the public, and other terms and conditions of Rule
144 are complied with, and that any sale of the Virata Ordinary Shares or the
Series D Shares may be made by the Stockholder only in accordance with such
terms and conditions; and (e) Stockholder is an "accredited investor" within the
meaning of Rule 501(a) of Regulation D promulgated under the Securities Act.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF VIRATA
Virata represents and warrants to RSA Communications and Stockholder as
follows:
4.1 Organization and Existence. Virata is a corporation duly organized,
validly existing and in good standing under the laws of the United Kingdom.
Virata has the requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now being conducted. Acquisition
Sub is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware.
4.2 Capital Stock, Etc. Virata has an authorized capitalization and
outstanding shares as reflected in Schedule 4.2. All shares of the capital
------------
stock of Virata have been duly authorized and validly issued and fully paid up.
Except as set forth in Schedule 4.2, there are no outstanding options, warrants
------------
or other rights to acquire shares of the capital stock of Virata. Virata is the
record holder of all of the issued and outstanding shares of capital stock of
Acquisition Sub.
4.3 Authorization and Validity of Agreements. Virata and Acquisition Sub
have full power, legal capacity and authority to execute and deliver this
Agreement and the other
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agreements contemplated by this Agreement, to perform their respective
obligations hereunder and thereunder and to complete the transactions
contemplated by or referenced in this Agreement. All corporate actions necessary
on the part of Virata, Acquisition Sub and their respective directors and
stockholders for the execution and delivery of this Agreement and the other
agreements contemplated by this Agreement, and the performance by Virata and
Acquisition Sub of their respective obligations under this Agreement and the
other agreements contemplated by this Agreement, have been taken. This Agreement
and each of the other agreements contemplated by this Agreement have been duly
executed and delivered by Virata and Acquisition Sub and, assuming due execution
of this Agreement and the other agreements contemplated by this Agreement by RSA
Communications and Stockholder, each is a valid and binding obligation of Virata
and Acquisition Sub enforceable against them in accordance with their respective
terms, except to the extent that its enforceability may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
the enforcement of creditors' rights generally and by general equitable
principles. Except for the approval of this Agreement by the stockholders of
Virata, no actions or proceedings on the part of Virata or Acquisition Sub are
necessary to authorize this Agreement or the other agreements contemplated by
this Agreement.
4.4 Virata Private Placement Memorandum. Virata has furnished to
Stockholder, and will furnish to the holders of the RSA Units prior to the
Closing, copies of a private placement memorandum dated March 3, 1998, including
the supplements thereto dated April 23, 1998 and June 1, 1998 (the "Virata
Private Placement Memorandum"), prepared in connection with recent sales of the
capital stock of Virata. The Virata Private Placement Memorandum contains,
among other things, summary financial information of Virata for the nine month
period ended December 31, 1997, including balance sheet data as of December 31,
1997 and a statement of operations data for the nine month period ended December
31, 1997. Such summary financial information presents fairly the financial
condition of Virata at such date and the results of its operations for the
fiscal period then ended. Virata has provided Stockholder and the RSA Employees
with an opportunity to meet with management of Virata and ask questions
regarding Virata's business, financial condition and results of operations. No
statement, representation or warranty made by Virata in the Virata Private
Placement Memorandum or in any certificate, statement, list, schedule or other
document furnished in connection thereto contains, or when so furnished will
contain, any untrue statement of a material fact, or fails to state, or when so
furnished will fail to state, a material fact necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading.
4.5 No Material Changes. Except as set forth in Schedule 4.5, since
------------
December 31, 1997, there has been no material adverse change in the business,
operations, financial condition, results of operations or prospects of Virata
(as used with respect to Virata, a "Material Adverse Effect").
4.6 Consents and Approvals; No Violations. Except as set forth in
Schedule 4.6, the execution and delivery of this Agreement by Virata and
- ------------
Acquisition Sub and the consummation of the transactions contemplated hereby (a)
will not violate or contravene any
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provision of the Certificate of Incorporation or Bylaws of Virata or Acquisition
Sub, (b) will not violate or contravene any statute, rule, regulation, order or
decree of any government body or authority by which Virata or Acquisition Sub is
subject or by which any of their respective properties or assets are bound, (c)
will not require any filing with, or permit, consent or approval of, or the
giving of any notice to, any governmental or regulatory body, agency or
authority, or any other Person and (d) will not result in a violation or breach
of, conflict with, constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation, payment
or acceleration) under, or result in the creation of any Lien upon any of the
properties or assets of Virata under, any of the terms, conditions or provisions
of any agreement to which Virata is a party, or by which it or any of its
properties or assets may be bound.
4.7 Compliance with Laws; Permits. Virata is in compliance with all
applicable laws, regulations, orders, judgments and decrees, except where the
failure to so comply would not have a Material Adverse Effect. Virata has all
franchises, licenses, permits, certificates and other authorizations from
Federal, state, local or foreign governments or governmental agencies,
departments or bodies that are necessary for the conduct of its business and
which, if not obtained, would, individually or in the aggregate, have a Material
Adverse Effect. To the knowledge of Virata, there is no fact, error or omission
relevant to any such franchise, license, permit, certificate or other
authorization that would permit the revocation or withdrawal thereof. Subject
to the receipt of any necessary consents or filings, Virata will continue to
have the use and benefit thereof and the rights granted thereby after the
transactions contemplated hereby have occurred.
4.8 Broker's or Finder's Fees. No agent, broker, Person or firm acting on
behalf of Virata is, or will be, entitled to any commission or broker's or
finder's fees from any of the parties hereto, or from any Person controlling,
controlled by or under common control with any of the parties hereto, in
connection with any of the transactions contemplated by this Agreement.
4.9 Valid Issuance of Shares. The Virata Ordinary Shares and the Series D
Shares, when issued, sold and delivered in accordance with the terms of this
Agreement for the consideration provided herein, and the Virata Ordinary Shares
issued upon exercise of the Virata Acquisition Options in accordance with the
terms and conditions of the Virata Plan, will be validly issued and fully paid
up.
4.10 Virata Tax Status. Virata or one or more of its "qualified
subsidiaries" (as defined in Treasury Regulation Section 1.367(a)-3(c)(5)(vii))
has been engaged in an active trade or business outside the United States,
within the meaning of Treasury Regulation Section 1.367(a)-2T(b)(2) and (3), for
the entire 36-month period immediately before the Merger, and neither Virata nor
any of its "qualified subsidiaries" has an intention to substantially dispose of
or discontinue such active trade or business.
ARTICLE V
MUTUAL COVENANTS
5.1 Due Diligence Reviews. Prior to the Closing Date, Virata, on the one
hand, and RSA Communications and Stockholder, on the other hand, directly or
through their respective
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representatives, will provide each other with an opportunity to review the
properties, books and records of the other party and its financial and legal
condition to the extent the reviewing party deems necessary or advisable to
familiarize itself with such properties and other matters; provided, however,
-------- -------
that such review shall not affect the accuracy of the representations and
warranties made in this Agreement or the remedies of any party for breaches of
those representations and warranties. All information obtained pursuant to such
due diligence examination shall be kept confidential and subject to the terms of
this Agreement and the terms of the Mutual Nondisclosure Agreement, executed
February 24, 1998, previously executed by Virata, RSA Communications and
Stockholder.
5.2 PCSI Release. On the Closing Date, RSA Communications shall use its
best efforts to cause PCSI and Cirrus Logic, Inc. ("Cirrus Logic") to deliver to
RSA Communications and its successors by merger a full and unconditional release
(the "PCSI Release") of any and all liabilities or obligations that RSA
Communications or its successors may have to PCSI or Cirrus Logic, except for
any obligations RSA Communications may have to PCSI or Cirrus Logic under the
Technology Transfer and License Agreement, the Tax Indemnity Agreement, and the
Stock Purchase Agreement (including, without limitation, Section 1.1(b) of the
Stock Purchase Agreement, pursuant to which RSA Communications will pay 3% of
gross revenue in excess of $3 million for the fiscal year ended March 31, 1998),
between RSA Communications and Cirrus Logic, each dated as of June 6, 1997.
5.3 [Intentionally Omitted]
5.4 Audited Financial Statements. As soon as practicable after the date
hereof, RSA Communications shall furnish Virata with copies of: (i) the
financial statements for the fiscal year ended as of March 31, 1998, including a
balance sheet as of such date and a statement of operations and cash flows for
the fiscal year ended as of such date (the "1998 Financial Statements"); and
(ii) interim financial statements for each of the months of April 1998 and May
1998, including balance sheets as of the last day of each such month and
statements of operations and cash flows for each such month (the "Interim
Financial Statements") (collectively with the 1998 Financial Statements, the
"Financial Statements"). As promptly as possible following the execution and
delivery of this Agreement and prior to the Closing Date, Virata shall have the
Financial Statements audited by the Accountants and shall deliver the Audited
Financial Statements to RSA Communications and Stockholder promptly following
such audit.
5.5 Conduct of Business of RSA Communications. Prior to the Closing Date,
RSA Communications shall, and Stockholder shall cause RSA Communications to,
conduct its operations only according to its ordinary and usual course of
business; use its reasonable efforts to preserve intact its business
organization, keep available the services of its officers and employees and
maintain satisfactory relationships with licensors, suppliers, distributors,
customers, landlords, employees, agents and others having business relationships
with it; and confer with Virata concerning operational matters of a material
nature and report periodically to Virata concerning the business, operations and
finances of RSA Communications. Notwithstanding the immediately preceding
sentence, prior to the Closing Date, except as may be agreed to in writing by
Virata or as is otherwise permitted or required by this Agreement,
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RSA Communications shall (a) maintain its Certificate of Incorporation and
Bylaws in their respective forms on the date of this Agreement, (b) refrain from
paying or increasing any bonuses, salaries or other compensation to any
director, officer, employee or Stockholder or entering into any employment,
severance or similar agreement with any director, officer or employee, except in
the ordinary course of business consistent with past practice, (c) refrain from
adopting or increasing any profit sharing, bonus, deferred compensation,
savings, insurance, pension, retirement, or other employee benefit plan for or
with any of its employees, (d) refrain from entering into any material contract
or commitment except in the ordinary course of business, (e) refrain from
increasing its indebtedness for borrowed money, except current borrowings in the
ordinary course of business, (f) refrain from canceling or waiving any claim or
right of substantial value, (g) refrain from declaring or paying any dividends
or other distributions in respect of its capital stock or redeeming, purchasing
or otherwise acquiring any of its capital stock, (h) refrain from making any
material change in accounting methods or practices, except as required by law or
generally accepted accounting principles, (i) refrain from issuing or selling
any shares of capital stock or any other securities except pursuant to the
exercise of outstanding options, or issuing any securities convertible into, or
options, warrants or rights to purchase or subscribe to, or entering into any
arrangement or contract with respect to the issue and sale of, any shares of its
capital stock or any other securities, (j) refrain from selling, leasing or
otherwise disposing of any material asset or property, (k) refrain from making
any capital expenditure or commitment therefor, except in the ordinary course of
business or as permitted hereunder, (l) refrain from writing off as
uncollectable any notes or accounts receivable, except write-offs in the
ordinary course of business charged to applicable reserves, none of which
individually or in the aggregate is material, and (m) refrain from agreeing to
do any of the foregoing; except that RSA Communications may grant additional RSA
Units such that the total number of RSA Units will not exceed 6,000 at the
Effective Time.
5.6 Exclusive Dealing. Prior to the earlier of the Closing Date or, if
this Agreement is terminated pursuant to Section 10, the date of such
termination, neither RSA Communications, Stockholder, any director, officer,
employee, agent or representative of RSA Communications, nor any agent or
representative of Stockholder, will enter into any agreement, understanding or
arrangement, or engage in any discussion or negotiations, relating to any
Acquisition Proposal, or solicit or encourage the submission of any Acquisition
Proposal. RSA Communications and Stockholder shall promptly notify Virata in
writing of the receipt of any unsolicited Acquisition Proposal. The term
"Acquisition Proposal" refers to any proposal, plan, agreement, understanding or
arrangement contemplating (a) any merger, consolidation, reorganization,
recapitalization or similar transaction involving RSA Communications, (b) any
transfer or issuance of any capital stock or other securities of RSA
Communications, or (c) any transfer of any material asset of RSA Communications.
5.7 Commercially Reasonable Efforts. Prior to the Closing Date, Virata,
on the one hand, and RSA Communications and Stockholder, on the other hand,
shall cooperate and use their respective commercially reasonable efforts to
take, or cause to be taken, all appropriate actions and to make, or cause to be
made, all filings necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including, without limitation, their respective commercially
reasonable
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efforts to obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and parties as are
necessary for consummation of the transactions contemplated by the Agreement and
to fulfill the conditions to the sale contemplated hereby.
5.8 Taxes.
(a) (i) Virata shall have the exclusive authority and obligation
and shall be responsible for the correct and timely filing of all Tax Returns of
RSA Communications that relate to all Taxes for all periods ending on or prior
to the Closing Date ("Pre-Closing Tax Periods") and that are due after the
Closing Date. Virata shall provide Stockholder with drafts of any Tax Returns of
RSA Communications not filed by the Closing Date at least 20 days prior to the
due date for filing such Tax Returns, and such Tax Returns shall not be filed
without the prior written consent of Stockholder, which consent shall not be
unreasonably withheld or delayed.
(ii) Virata shall have the exclusive authority and obligation
and shall be responsible for the correct and timely filing of all Tax Returns of
the Surviving Corporation for all periods beginning after the Closing Date
("Post-Closing Tax Periods").
(b) (i) If there is an adjustment for any Pre-Closing Tax Period or
any portion of any Straddle Period that ends on or before the date of this
Agreement, which adjustment results in an increase in Taxes for such period
above the amount of Taxes reflected in a reserve for Tax liabilities (rather
than any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) shown on the most recent balance sheet of RSA
Communications for periods prior to the date of this Agreement, then such
increase shall be subject to a claim for indemnification by Virata under Article
IX of this Agreement. However, notwithstanding the foregoing, Virata shall not
be entitled to make any claim for any increase in Taxes to the extent such
increase (above any reserve) arises from underpayment of estimated taxes for
fiscal year 1998 due to an inability of RSA to deduct in tax returns for such
period compensation payments accrued but not paid as of March 31, 1998, provided
that such accrued compensation payments are deductible in the next succeeding
tax year. Virata shall be responsible and liable for the timely payment of all
Taxes imposed on or with respect to the properties, income and operations of the
Surviving Corporation for all Post-Closing Tax Periods and those portions of any
Straddle Period beginning after the date of this Agreement.
(ii) If there is an adjustment for any Pre-Closing Period or any
portion of any Straddle Period that ends on or before the date of this
Agreement, which adjustment results in a decrease in Taxes for such period, then
such decrease, together with any interest payable thereon, shall reduce and
offset dollar for dollar any liability, whether or not yet paid, of the
Stockholder and the holders of the RSA Units for indemnification under Article
IX of this Agreement.
(c) (i) Stockholder, at its sole expense, shall have the exclusive
authority to represent the Surviving Corporation before any taxing authority or
any court regarding the Tax consequences of the operations of RSA Communications
for all Pre-Closing Tax Periods, including initiating any claim for refund for
any Tax, and Virata shall give Stockholder timely
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notice of the pendency of any such proceeding and shall give Stockholder or
Stockholder's designated representatives all necessary and appropriate powers of
attorney to represent the Surviving Corporation in such proceedings; provided,
--------
however, that Stockholder shall not enter into any settlement of any contest or
- -------
otherwise compromise any issue that affects or may affect the Tax liability of
the Surviving Corporation for any Straddle Period or Post-Closing Tax Period
without the prior written consent of Virata. Stockholder shall keep Virata fully
and timely informed with respect to the commencement, status and nature of any
administrative or judicial proceedings involving any Tax liability of the
Surviving Corporation for all Pre-Closing Tax Periods.
(ii) Except as provided in the foregoing paragraph (i), Virata
shall have the sole right to control any audit or examination by any taxing
authority, initiate any claim for refund or amend any Tax Return, and contest,
resolve and defend against any assessment for additional Taxes, notice of Tax
deficiency or other adjustment of Taxes of, or relating to, the Surviving
Corporation.
(d) Virata and the Surviving Corporation will cooperate with
Stockholder in complying with the reporting requirements contained in Treasury
Regulation Section 1.367(a)-3(c)(6).
5.9 Compliance with Rule 144. If Virata or Acquisition Sub shall become
subject to Sections 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, Virata or Acquisition Sub, as the case may be, shall use its reasonable
efforts to comply with the provisions of Rule 144 such that Stockholder can sell
his Virata Ordinary Shares under Rule 144 prior to the expiration of the holding
period described in Rule 144(k).
5.10 Further Assurances; Supplementary Action. Virata, on the one hand,
and RSA Communications and Stockholder, on the other hand, at their sole cost
and expense, will do such further acts and execute and deliver such further
documents as the other parties may reasonably require solely for the purpose of
assuring and confirming unto each party (i) the rights created hereby or
intended now or hereafter so to be created by this Agreement or (ii) the
validity of any documents of conveyance to be delivered hereunder.
5.11 Registration Rights. In the event that any holder of the Ordinary
Shares acquired upon exercise of the Virata Acquisition Options ( the
"Registrable Shares") is not permitted to sell his or her Registrable Shares
under Rule 701 promulgated under the Securities Act, Virata shall be required to
register the Registrable Shares on Form S-8 concurrently with the registration
on Form S-8 of the Virata Stock Incentive Plan.
ARTICLE VI
CONDITIONS TO VIRATA'S AND ACQUISITION SUB'S OBLIGATIONS
The obligation of Virata and Acquisition Sub to consummate the transactions
contemplated by this Agreement is conditioned upon satisfaction by RSA
Communications and Stockholder, prior to or on the Closing Date, of the
following conditions precedent and concurrent:
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6.1 [Intentionally Omitted]
6.2 [Intentionally Omitted]
6.3 Virata Option Agreement and RSA Unit Amendment. Each holder of RSA
Units shall execute and deliver a Virata Nonqualified Stock Option Agreement
representing his or her Virata Acquisition Option and an RSA Unit Amendment.
6.4 Escrow Agreement. Stockholder, individually and in his capacity as
the representative of the holders of the RSA Units, shall execute and deliver
the Escrow Agreement.
6.5 Employment Agreements. Each of Munther Qubain, Raymond Chen, Karen
Quidley and Wayne Whitlock shall execute and deliver an employment agreement
with Acquisition Sub substantially in the form attached hereto as Exhibit E-1
-----------
(the "Employment Agreements").
6.6 Proceedings. All corporate and other proceedings in connection with
the transactions contemplated hereby shall have been taken by RSA Communications
and Stockholder and shall be satisfactory to Virata in its sole discretion.
6.7 PCSI Release. Each of PCSI and Cirrus Logic shall execute and deliver
to Virata, Acquisition Sub and RSA Communications the PCSI Release.
6.8 [Intentionally Omitted]
6.9 Stockholders, Third Party and Governmental Consents. The stockholders
of Virata shall approve this Agreement. Any consents, approvals or waivers
disclosed on any Schedule attached hereto or required in connection with the
consummation of the transactions contemplated by this Agreement, including,
without limitation, all consents, approvals, authorizations, exemptions and
waivers from governmental agencies, shall be obtained by Virata, RSA
Communications and Stockholder.
6.10 Opinion of Counsel. Virata and Acquisition Sub shall receive an
opinion of Hunton & Williams, counsel to RSA Communications and Stockholder,
dated as of the date of the Closing Date, substantially in the form attached
hereto as Exhibit F.
---------
6.11 No Litigation Threatened. No action or proceedings shall have been
instituted or, to the knowledge of Virata, RSA Communications or Stockholder,
threatened before a court or other government body or by any public authority to
restrain or prohibit any of the transactions contemplated hereby.
6.12 Certificate; Good Standings; Secretary's Certificate. Virata and
Acquisition Sub shall receive (a) copies of the Certificate of Incorporation of
RSA Communications, including all amendments thereto, certified by the Secretary
of State of Delaware, (b) a certificate from the Secretary of State of Delaware
to the effect that RSA Communications is in good standing, has paid all
franchise taxes assessed to date and listing all charter documents of RSA
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Communications on file, (c) a certificate from the Secretary of State or other
appropriate official of North Carolina and each other State in which RSA
Communications is qualified to do business to the effect that RSA Communications
is in good standing in such State and has paid all applicable taxes assessed to
date, (d) a copy of the Bylaws of RSA Communications, certified by the Secretary
of RSA Communications as being true and correct and in effect, and (e) copies of
the resolutions of the Board of Directors and Stockholder of RSA Communications
approving this Agreement, certified by the Secretary of RSA Communications as
being true and correct and in effect.
6.13 Stockholder's and Officers' Certificate. The representations and
warranties of RSA Communications and Stockholder contained in this Agreement
(including the Schedules and Exhibits) and any agreement, document or other
instrument delivered to Virata or Acquisition Sub in connection herewith shall
be true and correct in all respects on the Closing Date as if they had been made
on the Closing Date. RSA Communications and Stockholder shall perform and
comply with each agreement, covenant and obligation required to be performed or
complied with by RSA Communications or Stockholder under this Agreement prior to
or on the Closing Date. Virata and Acquisition Sub shall receive a certificate
executed by the President and Treasurer of RSA Communications and a certificate
executed by Stockholder to the effect of the immediately foregoing sentences.
6.14 Financial Statements. Virata shall not have exercised its right to
terminate this agreement under Section 1.10(a).
ARTICLE VII
CONDITIONS TO RSA COMMUNICATIONS'
AND STOCKHOLDER'S OBLIGATIONS
The obligations of RSA Communications and Stockholder to consummate the
transactions contemplated by this Agreement are conditioned upon satisfaction by
Virata, prior to or on the Closing Date, of the following conditions precedent
and concurrent:
7.1 Audited Financial Statements. Virata shall have the Financial
Statements audited by the Accountants and shall deliver the Audited Financial
Statements to Stockholder.
7.2 Proceedings. All corporate and other proceedings in connection with
the transactions contemplated hereby shall have been taken by Virata and
Acquisition Sub and shall be satisfactory to RSA Communications and Stockholder
in their sole discretion.
7.3 Third Party and Governmental Consents. Any consents, approvals or
waivers disclosed on any Schedule attached hereto or required in connection with
the consummation of the transactions contemplated by this Agreement, including,
without limitation, all consents, approvals, authorizations, exemptions and
waivers from governmental agencies, shall be obtained by Virata, RSA
Communications and Stockholder.
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7.4 Opinion of Counsel. RSA Communications and Stockholder shall receive
an opinion of Gibson, Dunn & Crutcher LLP, counsel to Virata and Acquisition
Sub, dated as of the date of the Closing Date, substantially in the form
attached hereto as Exhibit G.
---------
7.5 No Litigation Threatened. No action or proceedings shall have been
instituted or, to the knowledge of Virata, Stockholder or RSA Communications,
threatened before a court or other government body or by any public authority to
restrain or prohibit any of the transactions contemplated hereby.
7.6 Certificate; Good Standings; Secretary's Certificate. RSA
Communications and Stockholder shall receive (a) copies of the Certificate of
Incorporation of Virata, including all amendments thereto, certified by the
appropriate governmental agency of the United Kingdom, (b) a copy of the Bylaws
of Virata, certified by the Secretary of Virata as being true and correct and in
effect, and (c) copies of the resolutions of the Boards of Directors and
stockholders of Virata and Acquisition Sub approving this Agreement, certified
by the Secretary of Virata as being true and correct and in effect.
7.8 Officers' Certificate. The representations and warranties of Virata
contained in this Agreement (including the Schedules and Exhibits) and any
agreement, document or other instrument delivered to Virata in connection
herewith shall be true and correct in all respects on the Closing Date as if
they had been made on the Closing Date. Virata shall perform and comply with
each agreement, covenant and obligation required to be performed or complied
with by Virata under this Agreement prior to or on the Closing Date. RSA
Communications and Stockholder shall receive a certificate executed by the Chief
Executive Officer and Chief Financial Officer of Virata to the effect of the
immediately foregoing sentences.
7.9 Agreement to Sell Stockholder's Series D Shares. Stockholder shall
have entered into agreement(s) ("Series D Agreement(s)") to sell the Series D
Shares received by Stockholder pursuant to Section 1.5(a), which Series D
Agreement(s) shall contain no substantial conditions other than (1) the Closing
of the transactions contemplated by this Agreement and (2) the closing of the
transactions contemplated by the Series D Agreement(s) to take place
concurrently with the Closing. The Closing of the transactions contemplated by
the Series D Agreement(s) shall take place concurrently with the Closing. The
purchaser(s) of the Series D Shares pursuant to the Series D Agreement(s) shall
be subject to Virata's approval (evidenced by acknowledgment at the Closing),
and Virata shall indemnify and hold Stockholder harmless for any cost, expense
or liability to such purchaser(s) arising from such sale(s), such as claims
arising under federal or state securities laws, other than claims resulting from
Stockholder's breach of any representation regarding Stockholder's execution and
delivery of the Series D Agreement(s), his title and right to sell the Series D
Shares and the absence of encumbrances on such shares created by or through
Stockholder, or Stockholder's failure to deliver the Series D Shares as required
by the Series D Agreement(s). Any representations to be made by Stockholder in
a Series D Agreement that would be within the scope of Virata's indemnification
obligation are subject to Virata's consent to inclusion, which consent will not
be unreasonably withheld.
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7.10 Virata Option Agreement. Acquisition Sub shall execute and deliver a
Virata Nonqualified Stock Option Agreement to each holder of RSA Units.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS
The respective representations and warranties of RSA Communications and
Stockholder, on the one hand, and Virata, on the other hand, contained in
Article II and Article IV, respectively, of this Agreement shall survive the
Closing for a period of one year from the Closing Date; provided, however, that
-------- -------
the representations and warranties of RSA Communications and Stockholder
contained in Section 2.16 with respect to Taxes shall survive until 30 days
after the expiration of the applicable statute of limitations period. The
representations and warranties of Stockholder contained in Article III of this
Agreement shall survive the Closing for an indefinite period.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification.
(a) Stockholder, individually and in his capacity as the
representative of the holders of the RSA Units, jointly and severally subject to
the allocation provisions set forth herein, hereby agrees to indemnify and hold
Virata, Acquisition Sub and their respective officers, directors, employees,
subsidiaries, Affiliates, successors, representatives and agents harmless from:
(i) Damages, losses, costs or expenses (including, without
limitation, reasonable attorneys' fees and expenses) ("Damages") incurred or
suffered as a result of or arising out of the failure of any representation or
warranty made by RSA Communications and Stockholder pursuant to this Agreement
to be true and correct;
(ii) Damages arising out of or related to the breach of any
covenant of RSA Communications or Stockholder in this Agreement; and
(iii) Damages arising out of or related to any Taxes
attributable to Pre-Closing Tax Periods in excess of any provision for Taxes set
forth in the Financial Statements, or except as otherwise provided in Section
5.8(b) ("Pre-Closing Taxes").
(b) Virata hereby agrees to indemnify and hold RSA Communications
and Stockholder and their officers, directors, employees, subsidiaries,
Affiliates, successors, representatives and agents harmless from:
(i) Damages incurred or suffered as a result of or arising
out of the failure of any representation or warranty made by Virata pursuant to
this Agreement to be true and correct;
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(ii) Damages arising out of or related to the breach of any
covenant of Virata in this Agreement;
(iii) Damages arising out of or related to any Taxes
attributable to Post-Closing Tax Periods ("Post-Closing Taxes"); and
(iv) Claims for broker's or selling agent's commissions with
respect to transactions for the sale of Stockholder's Series D Shares under
Section 7.9.
9.2 Indemnification Procedure.
(a) Notice. Any party seeking indemnification (the "Indemnified
Party") from another party or parties (individually or collectively, the
"Indemnifying Party") with respect to any claim, demand, action, proceeding or
other matter pursuant to this Agreement (the "Claim") shall promptly notify the
Indemnifying Party in writing of the existence of the Claim, setting forth in
reasonable detail the facts and circumstances pertaining thereto, an estimate of
the amount then reasonably ascertainable of the alleged loss, expense or
liability against which the party is indemnified and the basis for the
Indemnified Party's right to indemnification.
(b) Third Party Claims. If any third party shall notify an
Indemnified Party with respect to any matter which may give rise to a Claim for
indemnification against the Indemnifying Party under this Agreement, then the
Indemnified Party shall promptly notify the Indemnifying Party thereof pursuant
to Section 9.2(a); provided, however, that no delay on the part of the
-------- -------
Indemnified Party in notifying any Indemnifying Party shall relieve the
Indemnifying Party from any liability or obligation hereunder unless (and then
solely to the extent) the Indemnifying Party thereby is materially prejudiced by
such failure to give notice. If the Indemnifying Party notifies the Indemnified
Party within 30 days that it will assume the defense thereof:
(i) the Indemnifying Party shall defend the Indemnified Party
against the matter with counsel of its choice reasonably satisfactory to the
Indemnified Party;
(ii) the Indemnified Party may retain separate counsel at its
sole cost and expense (except that the Indemnifying Party will be responsible
for the fees and expenses of the separate counsel to the extent the Indemnified
Party concludes based upon advice of counsel that a conflict of interest exists
between the Indemnified Party and Indemnifying Party that there may be one or
more legal defenses available to the Indemnified Party which are not available
to the Indemnifying Party, or available to the Indemnifying Party, but the
assertion of which would be adverse to the interest of the Indemnified Party);
(iii) the Indemnified Party will not consent to the entry of any
judgment or enter into any settlement with respect to the matter if such
judgment or settlement involves injunctive relief against, or an admission of
wrongdoing affecting, or any economic detriment to, the Indemnifying Party
without the written consent of the Indemnifying Party (not to be withheld
unreasonably); and
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(iv) the Indemnifying Party will not consent to the entry of
any judgment or enter into any settlement which does not include a provision
whereby the plaintiff or claimant in the matter releases the Indemnified Party
from all liability with respect thereto, without the written consent of the
Indemnified Party (not to be withheld unreasonably).
If the Indemnifying Party does not notify the Indemnified Party within 30 days
that it will assume the defense thereof, then the Indemnified Party may defend
against, or enter into any settlement with respect to, the matter in any manner
it reasonably may deem appropriate, without prejudice to any of its rights
hereunder. The Indemnified Party shall be entitled to reimbursement of
reasonable expenses included in Damages with respect to any Claim (including,
without limitation, the cost of defense, preparation and investigation relating
to such Claim) as such expenses are incurred by the Indemnified Party.
(c) Indemnified Party Claims. Claims asserted directly by the
Indemnified Party, rather than indirectly as a result of a claim against the
Indemnified Party by a third party, shall be resolved as follows:
(i) In the event that Indemnifying Party does not contest in
writing the Claim asserted in any notice delivered by the Indemnified Party to
the Indemnifying Party within 30 days of receipt of such notice, then such Claim
shall be deemed accepted and the amount of such Claim shall be paid to the
Indemnified Party within 30 days of the date of deemed acceptance; and
(ii) In the event that the Indemnifying Party contests in
writing the Claims asserted in any notice delivered by the Indemnified Party to
the Indemnifying Party within 30 days of receipt of such notice, then such Claim
shall be deemed contested and the parties, acting in good faith, shall attempt
to reach an agreement with respect to such Claim within 30 days of the date of
the deemed contest; if the parties cannot reach an agreement with respect to
such Claim within such 30-day period, then the Indemnified Party may seek any
remedy available its at law or in equity.
9.3 Limitations on Indemnification. No claim for indemnification may be
made after the Closing by the Indemnified Party unless the aggregate amount of
all losses resulting from Claims incurred by the Indemnified Party and otherwise
indemnified against hereunder exceeds $75,000, in which case the Indemnified
Party shall indemnify the Indemnified Party only to the extent such losses
exceed $75,000. All claims against the Escrow Account shall be allocable one-
half to Stockholder individually and one-half to the holders of the RSA Units
(as a group). The provisions for indemnification set forth in this Article IX
shall be the sole right and remedy of the parties for any and all Claims that
the parties hereto may have against one another hereunder or otherwise arising
under this Agreement or any agreement, document or instrument delivered
hereunder. The obligation of the Stockholder, individually and in his capacity
as representative of the holders of the RSA Units, to indemnify an Indemnified
Party hereunder in respect of any Claim shall be satisfied first from the Escrow
Account, to the extent that there are sufficient funds in the Escrow Account to
satisfy such Claim, and second directly by Stockholder (in which case,
Stockholder shall be obligated to pay
32
<PAGE>
at least 55% of such Claim in cash, and the remainder may be satisfied by
returning the number of Virata Ordinary Shares (valued at the lesser of $0.70
per share or the fair market value of such Virata Ordinary Shares as determined
in good faith by Virata's Board of Directors) owned by Stockholder necessary to
satisfy the remainder of such Claim). Notwithstanding anything to the contrary
contained herein, the liability of Stockholder, individually and in his capacity
as representative of the holders of the RSA units, to any Indemnified Party in
respect of any and all Claims shall not exceed the sum of the entire amount of
Stockholder's consideration deposited into the Escrow Account and the other
consideration paid to Stockholder pursuant to Section 1.5(a) above, and the
liability of the holders of the RSA Units to any Indemnified Party in respect of
any and all Claims shall not exceed the entire amount of the RSA Unit holders'
consideration deposited into the Escrow Account. Notwithstanding anything to the
contrary contained herein, the liability of Virata to any Indemnified Party in
respect of any Claims shall not exceed the value (measured as of the Closing
Date) of the Virata Shares or Virata Acquisition Options received by such
Indemnified Party pursuant to Section 1.5 above, and the liability of Virata to
all Indemnified Parties in respect of all Claims shall not exceed the value
(measured as of the Closing Date) of the Virata Shares and Virata Acquisition
Options delivered by Virata pursuant to Section 1.5 above.
ARTICLE X
TERMINATION
This Agreement may be terminated at any time prior to the Closing only as
follows:
10.1 Mutual Consent. By the mutual consent of the Boards of Directors of
Virata, Acquisition Sub and RSA Communications and Stockholder.
10.2 Failure to Close. By any of the Boards of Directors of Virata,
Acquisition Sub, or RSA Communications or Stockholder if the Closing shall not
have occurred by the close of business on July 15, 1998; provided, however, that
-------- -------
no party shall be permitted to terminate this Agreement under this Section 10.2
if the Closing shall not have occurred by such date as a result of such party's
breach of any representation, warranty, agreement or covenant contained herein.
10.3 By Virata and Acquisition Sub. By the Boards of Directors of Virata
and Acquisition Sub (a) at any time prior to June 12, 1998, if the results of
its due diligence examination of RSA Communications are not satisfactory to
Virata in its sole discretion, (b) upon the failure of any representation or
warranty made by RSA Communications and Stockholder pursuant to this Agreement,
(c) upon the breach of any covenant of RSA Communications or Stockholder in this
Agreement, (d) upon the default by RSA Communications or Stockholder in the
performance of any of their respective obligations hereunder or (e) upon the
fulfillment of the conditions set forth in Sections 1.10(a).
10.4 By RSA Communications and Stockholder. By the Board of Directors of
RSA Communications and Stockholder (a) at any time prior to June 15, 1998, if
the results of their due diligence examination of Virata are not satisfactory to
RSA Communications and Stockholder in their sole discretion, (b) upon the
failure of any representation or warranty made by Virata
33
<PAGE>
pursuant to this Agreement, (c) upon the breach of any covenant of Virata in
this Agreement or (d) upon the default by Virata in the performance of any of
its obligations hereunder.
No termination of this Agreement under this Article X for any reason or in any
manner shall release any party hereto from its obligations pursuant to Section
11.13 hereof or from any liability or damage to the other parties hereto arising
out of or otherwise relating to any failure, breach or default by such party of
its representations and warranties, covenants or obligations hereunder, which
shall be limited to the non-breaching party's out of pocket expenses, including
reasonable attorneys' fees.
ARTICLE XI
MISCELLANEOUS
11.1 Knowledge. "To the knowledge of" a party and similar phrases means
to the knowledge of the party, after due inquiry of appropriate authorities and
of officers, directors, employees and other representatives of the party and
each of its predecessors and each of the subsidiaries and Affiliates of such
party and its predecessors.
11.2 Expenses. Each party shall bear its own expenses (including without
limitation its attorneys fees) in connection with the transactions contemplated
hereby regardless of whether such transactions are consummated; provided,
--------
however, that the fees and expenses of the Escrow Agent shall be borne by
- -------
Virata, and that Stockholder, not the Surviving Corporation, agrees that
Stockholder shall be liable for any expenses of RSA Communications (including
without limitation its attorneys fees) in connection with the transactions
contemplated hereby; and provided, further, that Virata shall pay the first
-------- -------
$50,000 in legal expenses of Stockholder and RSA Communications relating to the
transactions contemplated hereby and Stockholder shall pay such legal expenses
of Stockholder and RSA Communications exceeding such amount. Notwithstanding
the above sentence, in the event that there are sufficient claims by Virata such
that any payments are made to Virata from the Escrow Account, then all fees and
expenses of the Escrow Agent shall be borne equally by Stockholder and the
holders of the RSA Units in accordance with the terms of the Escrow Agreement.
11.3 Governing Law. The interpretation and construction of this Agreement
and all matters relating hereto shall be governed by the laws of the State of
Delaware applicable to agreements executed and to be performed solely within
such State.
11.4 Captions. The Article and Section captions used herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
11.5 Notices. Any notice or other communication required or permitted
under this Agreement shall be sufficiently given if delivered in person or sent
by telecopy or by registered or certified mail; postage prepaid, addressed as
follows:
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if to Virata or: Virata Limited
Acquisition Sub Mount Pleasant House
2 Mount Pleasant
Huntingdon Road
Cambridge CB3 0BL
Facsimile Number 44-1223-516-810
with a copy to: Gibson, Dunn & Crutcher LLP
3100 Telesis Tower
One Montgomery Street
San Francisco, CA 94104-4505
Facsimile Number 415-986-5309
Attention: Douglas D. Smith
if to RSA Communications: RSA Communication, Inc.
or Stockholder 110 Horizon Drive, Suite 200
Raleigh, NC 27615
Facsimile Number 919-846-4737
Attention: Munther Qubain
with a copy to: Hunton & Williams
One Hannover Square
Fayetteville Street Mall
Raleigh, NC 27602
Facsimile Number 919-899-3160
Attention: Timothy Goettel
or such other address or number as shall be furnished in writing by any such
party, and such notice or communication shall be deemed to have been given as of
the date so delivered or sent by facsimile or on the fourth business day after
deposit in the U.S. mail.
11.7 Parties in Interest. This Agreement may not be transferred,
assigned, pledged or hypothecated by any party hereto, other than by operation
of law. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, executors, administrators,
successors and permitted assigns.
11.8 Counterparts. This Agreement may be executed in counterparts, all of
which taken together shall constitute one instrument.
11.9 Entire Agreement. This Agreement, including the other documents
referred to herein and therein which form a part hereof and thereof, contain the
entire understanding of the parties hereto with respect to the subject matter
contained herein and therein. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
35
<PAGE>
11.10 Amendments. This Agreement may not be changed orally, but only by
an agreement in writing signed by Virata, Acquisition Sub, RSA Communications
and Stockholder.
11.11 Severability. In case any provision in this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions hereof will not in any way be affected or impaired
thereby.
11.12 Third Party Beneficiaries. Except as specifically set forth in
Section 9.1, each party hereto intends that this Agreement shall not benefit or
create any right or cause of action in or on behalf of any Person other than the
parties hereto.
11.13. Confidentiality. Confidential, financial or proprietary
information disclosed by any party under this Agreement, as well as the
existence and terms of this Agreement, shall be considered confidential
information (the "Confidential Information") and shall not be disclosed by any
party hereto to any third party. Any party shall immediately notify the
affected party of any information that comes to its attention which might
indicate that there has been a loss of confidentiality with respect to the
Confidential Information. In the event that a party is requested or becomes
legally compelled (by statute, regulation or court order) to disclose any
Confidential Information, such party (the "Disclosing Party") shall provide the
affected party (the "Non-Disclosing Party") with prompt written notice of that
fact so that the other party may seek (with the cooperation and reasonable
efforts of the Disclosing Party) a protective order, confidential treatment or
other appropriate remedy. In such event, the Disclosing Party shall furnish
only that portion of the Confidential Information which is legally required and
shall exercise reasonable efforts to obtain reliable assurance that confidential
treatment will be accorded the Confidential Information to the extent reasonably
requested by the Non-Disclosing Party. The provisions of this Section 11.13
shall be in addition to, and not in substitution for, the provisions of any
separate confidentiality agreement executed by the parties hereto with respect
to the transaction contemplated hereby. Notwithstanding the provisions of this
Section 11.13 above, the parties may disclose their investment in Virata or the
Surviving Corporation, as the case may be, solely to their investors, lenders,
accountants, legal counsel or similar persons, in each case only where such
persons or entities have executed appropriate nondisclosure agreements. None of
the parties hereto shall issue or authorize the issuance of any press release or
make any other public announcement as to this Agreement or the transactions
contemplated hereby without obtaining the prior approval of the other parties
hereto and affording such parties the prior opportunity to review such release
or announcement.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by each of the
parties hereto as of the day and year first above written.
VIRATA LIMITED
By: /s/
--------------------------------------
Name: Charles Cotton
------------------------------------
Title: President and CEO
-----------------------------------
By: /s/
--------------------------------------
Name: Andrew M. Vought
------------------------------------
Title: Chief Financial Officer
-----------------------------------
VIRATA ACQUISITION SUB, INC.
By: /s/
--------------------------------------
Name: Charles Cotton
------------------------------------
Title: President and CEO
-----------------------------------
By: /s/
--------------------------------------
Name: Andrew M. Vought
------------------------------------
Title: Chief Financial Officer
-----------------------------------
RSA COMMUNICATIONS, INC.
By: /s/
--------------------------------------
Name: Munther Qubain
Title: President
By: /s/
--------------------------------------
Name: Carol Palmer
Title: Treasurer and Secretary
MUNTHER QUBAIN
/s/
-----------------------------------------
37
<PAGE>
LIST OF EXHIBITS
----------------
EXHIBIT A
Certificate of Merger
EXHIBIT B-1
Virata Option Agreement
EXHIBIT B-2
Virata Incentive Stock Option Agreement
EXHIBIT C
Escrow Agreement
EXHIBIT D
RSA Unit Amendment
EXHIBIT E-1
Form of Employment Agreement
EXHIBIT E-2
RSA Communications' Standard Form of Employee Agreement
EXHIBIT F
Hunton & Williams Opinion
EXHIBIT G
Gibson, Dunn & Crutcher Opinion
<PAGE>
EXHIBIT 10.1
May 27, 1998
Financiere et Industrielle Gaz et Eaux
3, rue Jaques Bingen
75017, Paris (France)
Attention: Stephane Boissel
Re: Virata Limited - Agreement with respect to Board of Directors and
other shareholder rights
Gentlemen:
In connection with the private placement offering ("Offering") of Series D
Preference Shares of Virata Limited, a corporation organized in the United
Kingdom (the Company"), which are convertible into Ordinary Shares of the
Company ("Ordinary Shares"), and the purchase by Financiere et Industrielle Gaz
et Eaux, a company incorporated in France with its registered office as
described above ("Gaz et Eaux") of 7,348,111 Series D Preference Shares (the
"Gaz et Eaux Shares") in the Offering, representing 10.0% and 11.6% of both the
voting rights and the equity capital (fully diluted and outstanding,
respectively) of the Company, as shown on the attached exhibit set forth below
is our mutual understanding as to (i) the representation of Gaz et Eaux on the
Company's Board of Directors and (ii) certain other rights relating to the
capital of the Company it being understood that the basis of Gaz et Eaux's
decision to purchase the Gaz et Eaux Shares is that following such purchase, Gaz
et Eaux will hold more than 10% of the voting rights and equity capital of the
Company.
1. BOARD REPRESENTATION. As long as Gaz et Eaux shall continue to hold 5%
--------------------
of the outstanding voting rights of the Company, on an as-converted basis, each
of the undersigned (including Gaz et Eaux) hereby agrees to (A) in their
capacities as shareholders of the Company, vote their respective shares in
favour of and approve, and (B) cause their respective representative on the
Company's Board of Directors to approve, the election and appointment of a
person nominated by Gaz et Eaux to the Company's Board of Directors.
2. If, from time to time during the term of this letter agreement there is
(i) a dividend in the form of any security, stock split or other change in the
character or amount of any of the outstanding securities of the Company; or (ii)
any consolidation or merger immediately following which shareholders of the
Company hold more than fifty percent (50%) of the voting equity securities of
the surviving corporation, then, in such event, any and all new, substituted or
additional securities or other property to which any of the Insiders are
entitled by reason of their ownership of the Insider Shares shall be immediately
subject to the provisions of this letter agreement and be included in the term
"Insider Shares" for all purposes of this letter agreement with the same force
and effect as the Insider Shares presently subjected to this letter agreement
and with respect to which such securities or property were distributed. In the
event that any of the Insiders are issued or otherwise acquire any Company
securities, then such securities shall be immediately subject to all the
provisions of this letter agreement and also be included in the term
Page 1 of 7
<PAGE>
"Insider Shares" for all purposes of this letter agreement with the same force
and effect as the Insider Shares then subject to this letter agreement.
3. CO-SALE RIGHTS. As long as Gaz et Eaux shall continue to hold 5% of
--------------
the outstanding voting rights of the Company, on an as-converted basis each of
the undersigned (including Gaz et Eaux) hereby agrees to the following terms:
(A) In the event one or more of the undersigned, including Gaz et Eaux
(each an "Insider"), propose to sell, assign, transfer or otherwise convey
shares representing fifty percent (50%) or more of the aggregate voting rights
exercisable at a general meeting of shareholders of the Company or 50% or more
of the share capital of the Company (the "Insider Shares"), in a single
transaction or a series of related transactions (collectively, a "Sale"), and
such 50% or more being determined after the other stockholders of the Company
have exercised their respective rights of first refusal in accordance with the
provisions of the Company's Articles of Association, then the Insiders proposing
such a Sale (each a "Selling Insider") shall offer in writing (the "Notice") to
the remaining Insiders (each a "Non-Selling Insider") the right to participate
in such Sale on the same terms and conditions available to such Selling
Insiders. The Notice shall describe in reasonable detail the proposed Sale,
including, without limitation, the number of Insider Shares to be sold or
transferred, the nature of such Sale, the consideration to be paid and the name
and address of each prospective purchaser or transferee.
(B) Upon written notice to the Selling Insiders within fifteen (15)
business days of receipt by Non-Selling Insiders of the Notice, each Non-Selling
Insider may elect to sell up to all the shares then held by it. To the extent a
Non-Selling Insider exercises such right of co-sale, the number of Insider
Shares that the Selling Insiders may sell in the Sale may be correspondingly
reduced.
(C) If a Non-Selling Insider elects to exercise its co-sale rights, such
Non-Selling Insider shall effect its participation in the Sale by promptly
delivering to the Selling Insiders one or more certificates, properly endorsed
for transfer, which represent the number of Insider Shares which such Non-
Selling Insider elects and has the right to sell. The stock certificate or
certificates delivered to the Selling Insiders pursuant to this paragraph (C)
shall be transferred to the prospective purchaser or transferee upon
consummation of the Sale pursuant to the teens and conditions specified in the
Notice, and the Selling Insiders shall, concurrently therewith, remit to each
Non-Selling Insider that portion of the Sale proceeds to which such Non-Selling
Insider is entitled by reason of its participation in such Sale. To the extent
that any prospective purchaser or transferee prohibits such assignment or
otherwise refuses to purchase stock or other securities from a Non-Selling
Insider exercising its right of co-sale hereunder, the Selling Insiders shall
not sell any Insider Shares to such prospective purchaser or transferee unless
and until, simultaneously with such Sale, the Selling Insiders purchase such
stock or other securities from such Non-Selling Insider.
(D) The exercise or non-exercise of the co-sale right of a Non-Selling
Insider hereunder to participate in any Sale of Insider Shares by the Selling
Insiders shall not adversely affect its right to participate in any subsequent
Sale pursuant to this letter agreement. If a Non-
Page 2 of 7
<PAGE>
Selling Insider does not elect to participate in the Sale subject to the Notice,
the Selling Insiders may, not later than sixty (60) days after delivery of the
Notice to the Non-Selling Insiders, conclude a transfer of the Insider Shares
covered by the Notice on terms and conditions not more favourable to the Selling
Insiders than those described in the Notice. Any proposed Sale on terms and
conditions more favourable than those described in the Notice or more than sixty
(60) days after delivery thereof shall again be subject to the co-sale rights of
the Non-Selling Insiders contained in this letter agreement.
(E) Notwithstanding the above, such co-sale rights shall not apply to a
Sale or other conveyance of Insider Shares by the Selling Insiders which is:
(i) to a Selling Insider's spouse, parents, or children or other
members of the Selling Insider's family (including relatives by marriage),
or to a custodian, trustee or other fiduciary for the account of the
Selling Insider or members of his or her family in connection with a bona
----
fide estate planing transaction;
----
(ii) by way of bequest or inheritance upon death;
(iii) to a subsidiary, parent or subsidiary of a parent of a Selling
Insider;
(iv) to one or more of the Insiders;
(v) by way of any pledge of Insider Shares made by the Selling
Insider pursuant to a bona fide loan transaction that creates a mere
---------
security interest;
provided, however, that any transferees pursuant to this paragraph (E)
-----------------
shall receive and hold such Insider Shares subject in all respects to the
provisions of this letter agreement, and that there shall be no further transfer
of such shares except in accordance herewith.
(F) In the event a Selling Insider sells or transfers any Insider Shares in
contravention of the co-sale rights of Non-Selling Insiders under this letter
agreement, such sale or transfer shall be null and void and each of the Insiders
agrees that the Company will not transfer on its books any certificate
representing shares sold or transferred in violation of this letter agreement.
4. FUTURE SHARE ISSUES. Each of the undersigned (including Gaz et Eaux)
-------------------
agrees not to vote in favour of any resolution to disapply section 89 of the
Companies Act 1985, as amended, or such provision as may replace it or to
disapply or amend Article 5.1 of the Articles of Association of the Company or
such provision as may replace it (whether in a general meeting of shareholders
or a class meeting) ("Resolution") unless each of the undersigned is given an
opportunity by the Company to purchase (on terms which are no less favourable
than those offered to any other person and in any event in accordance with
sections 89 to 95 of the Companies Act 1985, as amended and with the said
Article 5) such number of the shares referred to in the Resolution as is
necessary to maintain their then percentage shareholding in the Company, or
their percentage voting rights exercisable at a general meeting of the Company,
PROVIDED THAT this letter agreement shall not apply in respect of any resolution
which is proposed in respect of any issue of shares:
Page 3 of 7
<PAGE>
(i) to employees or future employees of the Company or any members
of its group; and
(ii) pursuant to any acquisition by the Company or any member of its
group whereby such shares are issued as consideration or part consideration
for such acquisition.
5. PARTICIPATION IN FUTURE CONVERSIONS. Without prejudice to Clause 4
-----------------------------------
above, each of the undersigned shall not vote in favour of any resolution, or
take any action which it is otherwise able to take, which relates to the
conversion of any issued shares into a class of shares with rights, preferences
or privileges ranking in priority to those of the "D" preference shares without
giving Gaz et Eaux the opportunity (in accordance with the procedure set out in
Article 90 of the Companies Act 1985, as amended, mutatis mutandis) to convert
up to such number of the "D" preference shares then held by it into shares of
the class to be created as is equal to the number of shares to be so converted.
6. AMENDMENT OF THE ARTICLES OF ASSOCIATION. Each of the undersigned
----------------------------------------
(including Gaz et Eaux) undertakes to vote in favour of a resolution (whether in
a general meeting of shareholders or a class meeting) to amend the Articles of
Association of the Company by the insertion of a new article 9.16 as follows:
"9.16 Notwithstanding any other provisions of these Articles a transfer of
any shares in the Company held by any "D" preferred shareholder may
be made to any other member in its Group without restriction as to
price or otherwise and any such transfer shall be registered by the
directors provided that the transferee remains a member of the
Group. For the avoidance of doubt, the benefit of this Article 9.16
shall apply to (i) distribution by holders of "D" preference shares
which are partnerships to their partners and (ii) distribution by
holders of "D" preference shares which are unit or investment trusts
to their trustees or beneficiaries. For the purposes of this Article
9.16 in respect of any member "Group" means any entity controlled
by, controlling or under common control with such member and
"control" means to own, directly or indirectly a majority of the
voting securities of such entity or such member."
and the undersigned shall undertake to table such a resolution at the next
general meeting of shareholders of the Company and Gaz et Eaux for such time as
it has a nominated representative on the Board of Directors shall cooperate in
that regard.
7. TERMINATION. This letter agreement shall terminate and be of no further
-----------
force and effect immediately upon the earlier of (i) the closing of an initial
public offering of securities of the Company, or (ii) the closing of the
acquisition of all or substantially all the assets or stock of the Company or
the consolidation or merger of the Company with or into any corporation or
corporations, unless the shareholders of the Company immediately prior to such
transaction are holders of a majority of the voting securities of the surviving
or acquiring corporation immediately thereafter (disregarding, for purposes of
this calculation, equity securities which any
Page 4 of 7
<PAGE>
shareholder of the Company owned immediately prior to such merger or
consolidation as a shareholder of another party to the transaction).
8. GOVERNING LAW. This letter agreement shall be governed in all respects
-------------
by the laws of England and Wales.
9. SHAREHOLDINGS. Each of the undersigned, excluding Gaz et Eaux confirm
-------------
that they are currently the legal and beneficial owners of the numbers and
classes of shares in the capital of the Company set opposite their respective
names in the attached Schedule.
10. FURTHER ADHERENCE. In the event that any of the undersigned
-----------------
(including Gaz et Eaux) wish to transfer any of their shares in the Company such
transfer shall be subject to the condition that the transferee shall first have
entered into an agreement with other parties to this Agreement whereby it agrees
to be bound (on terms satisfactory to such other parties) by provisions
corresponding to the provisions of this Agreement binding upon the transferor
(and the transferor is at the same time released from such provisions) and in
the event of such agreement not being so signed the transferor shall remain
bound by the terms of this Agreement as though it remained the holder of the
shares in question.
11. ENTIRE AGREEMENT; AMENDMENT. This letter agreement and the documents
---------------------------
referred to in it constitute the full and entire understanding and agreement
among the parties with regard to the subjects hereof. This letter agreement, or
any provision hereof, may be amended or waived only in writing signed by each of
the Insiders and the Company.
12. NOTICES, ETC. All notices and other communications required or
-------------
permitted hereunder shall be in writing and shall be mailed by recognized
overnight courier, by registered or certified mail, postage prepaid, return
receipt requested, or otherwise delivered by hand or by messenger, addressed (a)
if to any of the Insiders, to the Company, or at such other address as an
Insider have furnished to the Company in writing, (b) if to Gaz et Eaux, at 3,
rue Jaques Bingen, 75017, Paris (France), Attention: Stephane Boissel, or at
such address as Gaz et Eaux shall have furnished the Company in writing, or (c)
if to the Company, at Mount Pleasant House, 2 Mount Pleasant, Huntingdon Road,
Cambridge CB3 0BL United Kingdom, or at such other address as the Company shall
have furnished to each of the Insiders and Gaz et Eaux. If notice is provided
by mail or overnight courier, notice shall be deemed to be given upon actual
delivery.
13. COUNTERPARTS. This letter agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one instrument.
14. SEVERABILITY. In the event that any provision of this letter
------------
agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this letter agreement will continue in full
force and effect without said provision and the parties agree to replace such
provision with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business and other purposes of such provisions;
provided that no such severability will be effective against a party if it
materially and adversely changes the economic benefits of this letter agreement
to such party.
Page 5 of 7
<PAGE>
SCHEDULE
<TABLE>
<CAPTION>
Name of Shareholder Class of Shares Number of Shares Number of Shares Percentage of total Percentage of total
Held Outstanding Fully Diluted voting rights and equity voting rights and
capital outstanding equity capital fully
diluted
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Oracle Corporation Preference C & D 9,794,421 9,794,421 15.4% 13.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Olivetti Telemedia Ordinary, 8,370,238 8,370,238 13.2% 11.4%
Investments B.V. Preference A and
Preference D
- ------------------------------------------------------------------------------------------------------------------------------------
Oak Investment Partners Preference D 7,945,331 7,945,331 11.8% 10.8%
- ------------------------------------------------------------------------------------------------------------------------------------
New Enterprise Preference D 5,582,979 5,582,979 8.6% 7.2%
Associates
- ------------------------------------------------------------------------------------------------------------------------------------
Providence Investment Ordinary, 1,589,152 1,589,152 2.5% 2.2%
Company Ltd. Preference A and
Preference D
- ------------------------------------------------------------------------------------------------------------------------------------
Prof. Andrew Hopper Ordinary and 1,540,000 1,540,000 2.4% 2.1%
Preference D
- ------------------------------------------------------------------------------------------------------------------------------------
Gaz et Eaux Preference D 7,348,111 7,348,111 11.6% 10.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Subtotal for all 42,170,232 42,170,232 62.9% 57.4%
signatories
- ------------------------------------------------------------------------------------------------------------------------------------
Others 22,890,197 31,310,879 37.1% 42.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Total 65,060,429 73,481,111 100.0% 100.0%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 6 of 7
<PAGE>
Virata Limited - Agreement with respect to Board of Directors and other
shareholder rights
IN WITNESS WHEREOF, each of the undersigned has caused this letter agreement to
be executed by its respective authorized represe as of the date first written
above.
Very truly yours,
ORACLE CORPORATION
By:
--------------------------
Name:
------------------------
Title:
-----------------------
OLIVETTI TELEMEDIA INVESTMENTS B.V.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
OAK INVESTMENT PARTNERS VI, LP & OAK VI
AFFILIATE FUND, LP
By:
--------------------------
Name:
------------------------
Title:
-----------------------
NEW ENTERPRISE ASSOCIATES
By:
--------------------------
Name:
------------------------
Title:
-----------------------
PROVIDENCE INVESTMENT COMPANY LTD.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
-----------------------------
PROF. ANDREW HOPPER
The undersigned hereby agrees to be bound by
and accepts the agreement set forth above as of
the ___ day of May, 1998
GAZ ET EAUX
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Page 7 of 7
<PAGE>
Shareholder List
<TABLE>
<CAPTION>
'C'
'A' 'B' Preference 'D'
Ordinary Preference Preference as-converted Preference Fully
Shares Shares of Shares of Shares of Shares of Post Holding Diluted
of 1p 50p 1p 1p 1p Conversion % %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Societe Financiere Mirelis SA - - 500,000 500,000 0.8% 0.7%
Pharos Genesis Fund Limited - - 454,546 454,546 0.7% 0.6%
Pharos Fund Limited - - 454,545 454,545 0.7% 0.6%
Pictet & Cie Geneva - - 450,000 450,000 0.7% 0.6%
Lighthouse Partners USA, LP - - 295,455 295,455 0.5% 0.4%
Faisal Finance (Jersey) Ltd. - - 272,727 272,727 0.4% 0.4%
Banque SCS Alliance S.A. - - 250,000 250,000 0.4% 0.3%
Faisal Finance (Switzerland) SA - - 250,000 250,000 0.4% 0.3%
Denmore Investments Limited - - 250,000 250,000 0.4% 0.3%
4 C Ventures L.P. - 0 239,920 239,920 0.4% 0.3%
GLG Finance SA - - 210,000 210,000 0.3% 0.3%
Galba Anstalt - - 201,200 201,200 0.3% 0.3%
L.B. Finance S.A. - - 200,000 200,000 0.3% 0.3%
Jordana-Gerhardt Family Trust - - 181,818 181,818 0.3% 0.2%
u/d/t 3/21/97 Clar
Oak VI Affiliates Fund Ltd - - 181,137 181,137 0.3% 0.2%
Thomas A. Thornhill III - - 180,000 180,000 0.3% 0.2%
LLOYDS BANK PLC NOMINEES - - 160,000 160,000 0.3% 0.2%
GLG Finance SA - - 150,000 150,000 0.2% 0.2%
Marcuard Cook & Cie S.A. - - 150,000 150,000 0.2% 0.2%
Banca Del Gottardo - - 150,000 150,000 0.2% 0.2%
Bank Julius Baes Zurich - - 140,000 140,000 0.2% 0.2%
BANQUE PRIVEE ED. DE ROTHSCHILD - - 136,360 136,360 0.2% 0.2%
Algonquin Trust SA - - 100,000 100,000 0.2% 0.1%
Manpower SA. - - 100,000 100,000 0.2% 0.1%
Bank Julius Bar & CO AG - - 100,000 100,000 0.2% 0.1%
Thierry Saint-Loup - - 100,000 100,000 0.2% 0.1%
James B. Metzger - - 100,000 100,000 0.2% 0.1%
Rex A. Sherry & Lon Kargionis-Sherry, - - 100,000 100,000 0.2% 0.1%
Trustees
Thierry Bungener - - 90,910 90,910 0.1% 0.1%
Lighthouse Genesis Partners USA, LP - - 68,182 68,182 0.1% 0.1%
Credit Suisse London Nominees Ltd. - - 60,000 60,000 0.1% 0.1%
Thomas J. Keegan - - 45,454 45,454 0.1% 0.1%
Michael J. Sullivan - - 45,454 45,454 0.1% 0.1%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
'C'
'A' 'B' Preference 'D'
Ordinary Preference Preference as-converted Preference Fully
Shares Shares of Shares of Shares of Shares of Post Holding Diluted
of 1p 50p 1p 1p 1p Conversion % %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Andrew Hopper 1,500,000 - - 40,000 1,540,000 2.4% 2.1%
Foundation de prevoyance Manpower - - 30,000 30,000 0.0% 0.0%
George G. Guthrie - - 22,727 22,727 0.0% 0.0%
Patrick O'Hearn 380,208 - - 380,208 0.6% 0.5%
Ernie Woodruft 109,375 - - 109,375 0.2% 0.1%
RHM & RHR Trust Co Ltd 100,000 - - 100,000 0.2% 0.1%
Chris Turner 100,000 - - 100,000 0.2% 0.1%
Steve Schlumberger 81,250 - - 81,250 0.1% 0.1%
Stanley Ooi 53,750 - - 53,750 0.1% 0.1%
Brian Knight 51,250 - - 51,250 0.1% 0.1%
Fred Sammartino 45,833 - - 45,833 0.1% 0.1%
Geoff Jones 43,750 - - 43,750 0.1% 0.1%
Stuart Wray 38,541 - - 38,541 0.1% 0.1%
David Milway 30,000 - - 30,000 0.0% 0.0%
Stefan Knight 28,958 - - 28,958 0.0% 0.0%
Andrew Haley 24,170 - - 24,170 0.0% 0.0%
William Stoye 20,000 - - 20,000 0.0% 0.0%
David Wright 16,250 - - 16,250 0.0% 0.0%
John Whistlecraft 14,580 - - 14,580 0.0% 0.0%
Pauline Diggins 12,708 - - 12,708 0.0% 0.0%
Graham Biss 11,667 - - 11,667 0.0% 0.0%
Ian Stacey 8,750 - - 8,750 0.0% 0.0%
Mike Kryss 7,917 - - 7,917 0.0% 0.0%
David Bray 6,771 - - 6,771 0.0% 0.0%
Lee Runion 6,250 - - 6,250 0.0% 0.0%
Phil Velella 6,250 - - 6,250 0.0% 0.0%
Thomas Bleier 5,833 - - 5,833 0.0% 0.0%
Rob McColloch 3,958 - - 3,958 0.0% 0.0%
Diana Bray 2,708 - - 2,708 0.0% 0.0%
Joe Bowen 2,500 - - 2,500 0.0% 0.0%
Gerlof Klimp 2,500 - - 2,500 0.0% 0.0%
Jane Campbell 2,062 - - 2,062 0.0% 0.0%
Tony Thompson 1,417 - - 1,417 0.0% 0.0%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
'C'
'A' 'B' Preference 'D'
Ordinary Preference Preference as-converted Preference Fully
Shares Shares of Shares of Shares of Shares of Post Holding Diluted
of 1p 50p 1p 1p 1p Conversion % %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David Martin 1,167 - - - 1,167 0.0% 0.0%
Destanie Clark 1,125 - - - 1,125 0.0% 0.0%
Martina Hortsman 1,042 - - - 1,042 0.0% 0.0%
Josh Benveniste 500 - - - 500 0.0% 0.0%
Total Issued Share Capital 11,752,415 1,798,720 1,394,406 5,600,000 42,889,503 63,435,045 100.0% 86.3%
Employee Grants (Vested) 1,835,233 - - - - 1,835,233 2.5%
Equip Lease Vendor Warrant - - - 74,046 - 74,046 0.1%
Equip Lease Vendor Warrant - - - 14,400 - 14,400 0.0%
Wilmott Option 75,000 - - - - 75,000 0.1%
Bank Warrant - - - 42,353 - 42,353 2.2%
Index Warrant - - - - 1,589,777 1,589,777 2.2%
Fully diluted @ 25 May 98 13,662,648 1,798,720 1,394,406 5,730,799 44,479,280 67,065,854 91.3%
Employee Grants (Unvested) 6,415,257 - - 6,415,257 8.7%
Fd w/ Unvest. Options @ 25 May 20,077,905 1,798,720 1,394,406 5,730,799 44,479,280 73,481,111 100.0%
</TABLE>
<PAGE>
EXHIBIT 10.5
RSA COMMUNICATIONS, INC.
1998 STOCK INCENTIVE PLAN
INCENTIVE STOCK OPTION AGREEMENT
--------------------------------
This Incentive Stock Option Agreement ("Agreement") is made and
entered into as of the Date of Grant indicated below among Virata Limited, a
corporation organized in the United Kingdom ("Virata"), RSA Communications,
Inc., a Delaware corporation (the "Company") and a wholly-owned subsidiary of
Virata, and the person named below as Employee.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS
OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS REGISTERED UNDER THAT ACT AND UNDER APPLICABLE STATE SECURITIES LAW
OR VIRATA LIMITED SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT
REGISTRATION OF SUCH SECURITIES UNDER THAT ACT AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
WHEREAS, Employee is an employee of the Company and/or one or more of
its subsidiaries; and
WHEREAS, pursuant to the Company's 1998 Stock Incentive Plan (as
amended from time to time, the "Plan"), the Compensation Committee of the Board
of Directors of Virata administering the Plan (the "Committee") has approved the
grant to Employee of an option to purchase Ordinary Shares, par value Great
Britain Pounds Sterling 0.01 per share, of Virata or any stock into which such
Ordinary Shares shall have been changed or any stock resulting from any
reclassification of such Ordinary Shares, on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants set forth herein, the parties hereto hereby agree as follows:
1. Grant of Option; Certain Terms and Conditions. Virata and the
---------------------------------------------
Company hereby grant to Employee, and Employee hereby accepts, as of the Date of
Grant, an option (the "Option") to purchase the number of Ordinary Shares
indicated below (the "Option Shares") at the Exercise Price per share indicated
below, which option shall expire at 5:00 o'clock p.m., California time, on the
Expiration Date indicated below and shall be subject to all of the terms and
conditions set forth in this Agreement (the "Option"). The Option shall become
exercisable to purchase upon vesting, and shall vest with respect to that number
of Option Shares (rounded to the nearest whole share) equal to the total number
of Option Shares multiplied by the Vesting Rate indicated below (the "Options
Subject to Vesting").
<PAGE>
(a) Employee: ((Employee Name))
--------
(b) Date of Grant: July ___, 1998
-------------
(c) Number of shares purchasable: ((Options))
----------------------------
(d) Exercise Price per share: $0.70
------------------------
(e) Expiration Date: The Option shall lapse and expire on the
---------------
seventh anniversary of the Date of Grant. The Period from Date
of Grant to the Expiration Date is referred to as the "Term."
(f) Vesting Rate: 25% of the Option Shares on the first anniversary
------------
of the date of grant and one-forty eighth (1/48) of the Option
Shares each month thereafter until 100% vested.
The Option is intended to qualify as an incentive stock option
under Section 422 of the Internal Revenue Code.
2. Termination of Employment.
-------------------------
(a) Termination for Any Reason. If Employee ceases to be an
--------------------------
employee of the Company or any of its subsidiaries (a "Termination of
Employment") for any reason whatsoever including for cause as defined the
in the Plan, other than death or Permanent Disability, then (A) the portion
of the Option that has not vested on or prior to the date of such
Termination of Employment shall terminate on such date and (B) the
remaining vested portion of the Option shall terminate on the date that is
three months after the date of such Termination of Employment or the
Expiration Date, whichever is earlier.
(b) Death or Permanent Disability. If Employee's Employment is
-----------------------------
terminated by reason of the death or Permanent Disability (as hereinafter
defined) of Employee, then (A) the portion of the Option that has not
vested on or prior to the date of such Termination of Employment shall
terminate on such date and (B) the remaining vested portion of the Option
shall terminate upon the earlier of the Expiration Date or the date that is
six months after the date of such Termination of Employment. "Permanent
Disability" shall mean the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment that can be expected to result in death or that has lasted or
can be expected to last for a continuous period of not less than 12 months.
Employee shall not be deemed to have a Permanent Disability until proof of
the existence thereof shall have been furnished in writing to the Board by
two (2) independent physicians mutually acceptable to the Company and
Employee.
2
<PAGE>
3. Adjustments. In the event that the outstanding securities of the
------------
class then subject to the Option are increased, decreased or exchanged for or
converted into cash, property and/or a different number or kind of securities,
or cash, property and/or securities are distributed in respect of such
outstanding securities, in either case as a result of a reorganization, merger,
consolidation, recapitalization, reclassification, dividend (other than a
regular, quarterly cash dividend) or other distribution, stock split, reverse
stock split or the like, or in the event that substantially all of the property
and assets of the Company are sold, then, unless the terms of such transaction
provide otherwise, the Committee shall make appropriate and proportionate
adjustments in the number, exercise price and type of shares or other securities
or cash or other property, as applicable, that may thereafter be acquired upon
the exercise of the Option; provided, however, that any such adjustments in the
-------- -------
Option shall be made without changing the aggregate Exercise Price of the then
unexercised portion of the Option.
4. Exercise of Option. The Option shall be exercisable during
-------------------
Employee's lifetime only by Employee or by his or her guardian or legal
representative, and after Employee's death only by the person or entity entitled
to do so under Employee's last will and testament or applicable intestate law.
The Option may be exercised in whole or in part on not more than three occasions
during the Term and only by the delivery to the Company of a written notice of
such exercise, which notice shall specify the number of Option Shares to be
purchased and the aggregate Exercise Price for such shares (the "Exercise
Notice"), together with payment in full of such aggregate Exercise Price in cash
or by check payable to the Company; provided, however, that payment of such
-------- -------
aggregate Exercise Price may instead be made, in whole or in part, by (i) the
delivery to the Company of a certificate or certificates representing shares of
Ordinary Shares or other securities of the Company, duly endorsed or accompanied
by a duly executed stock power, which delivery effectively transfers to the
Company good and valid title to such shares, free and clear of any pledge,
commitment, lien, claim or other encumbrance (such shares to be valued on the
basis of the aggregate Fair Market Value (as defined in the Plan) thereof on the
date of such exercise), or (ii) by a reduction in the amount of Ordinary Shares
or other property otherwise issuable pursuant to such Option (such reduction to
be valued on the basis of the aggregate Fair Market Value, on the date of
exercise, of the additional Ordinary Shares that would have been delivered to
the Employee upon exercise of the Option), provided that the Company is not then
prohibited from purchasing or acquiring Ordinary Shares.
5. Payment of Withholding Taxes. If the Company becomes obligated to
----------------------------
withhold an amount on account of any tax imposed as a result of the exercise of
the Option, including, without limitation, any federal, state, local or other
income tax, or any F.I.C.A., state disability insurance tax or other employment
tax, then Employee shall, as a condition to exercising the option, pay such
amount to the Company in cash or by check payable to the Company; provided,
--------
however, that payment of such tax withholding obligations may instead be made,
- -------
in whole or in part, by (i) the delivery to the Company of a certificate or
certificates representing Ordinary Shares or other securities of the Company,
duly endorsed or accompanied by a duly executed stock power, which delivery
effectively transfers to the Company good and valid title to such shares, free
and clear of any pledge, commitment, lien,
3
<PAGE>
claim or other encumbrance (such shares to be valued on the basis of the
aggregate Fair Market Value (as defined in the Plan) thereof on the date of the
Exercise giving rise to the tax withholding obligation), or (ii) by a reduction
in the amount of Ordinary Shares or other property otherwise issuable pursuant
to the Exercise of the Option giving rise to the tax withholding obligation
(such reduction to be valued on the basis of the aggregate Fair Market Value, on
the date of such Exercise, of the additional Ordinary Shares that would have
been delivered to the Employee upon such Exercise of the Option), provided that
the Company is not then prohibited from purchasing or acquiring such Ordinary
Shares.
6. Notices. All notices and other communications required or
-------
permitted to be given pursuant to this Agreement shall be in writing and shall
be deemed given if delivered personally or five days after mailing by certified
or registered mail, postage prepaid, return receipt requested, to the Company at
2933 Bunker Hill Lane, Suite 201, Santa Clara, California 95054, telephone
number: (408) 566-1000, or to Employee at the address set forth beneath his or
her signature on the signature page hereto, or at such other addresses as they
may designate by written notice in the manner aforesaid.
7. Stock Exchange Requirements; Applicable Laws. Notwithstanding
--------------------------------------------
anything to the contrary in this Agreement, no shares of stock purchased upon
exercise of the Option, and no certificate representing all or any part of such
shares, shall be issued or delivered if (a) such shares have not been admitted
to listing upon official notice of issuance on each stock exchange upon which
shares of that class are then listed or (b) in the opinion of counsel to the
Company, such issuance or delivery would cause the Company to be in violation of
or to incur liability under any federal, state or other securities law, or any
requirement of any stock exchange listing agreement to which the Company is a
party, or any other requirement of law or of any administrative or regulatory
body having jurisdiction over the Company.
8. Nontransferability. Neither the Option nor any interest therein
------------------
may be Transferred in any manner, including any sale, exchange, assignment,
transfer, pledge, mortgage, hypothecation, gift, grant, encumbrance or other
disposition of any kind, whether voluntary, involuntary or by operation of law
and whether direct or indirect, other than by will or the laws of descent and
distribution.
9. Plan. The Option is granted pursuant to the Plan, as in effect on
----
the Date of Grant, and is subject to all the terms and conditions of the Plan,
as the same may be amended from time to time; provided, however, that no such
-------- -------
amendment shall deprive Employee, without his or her consent, of the Option or
of any of Employee's rights under this Agreement. The interpretation and
construction by the Committee of the Plan, this Agreement, the Option and such
rules and regulations as may be adopted by the Committee for the purpose of
administering the Plan shall be final and binding upon Employee. Until the
Option shall expire, terminate or be exercised in full, the Company shall, upon
written request therefor, send a copy of the Plan, in its then-current form, to
Employee or any other person or entity then entitled to exercise the Option.
4
<PAGE>
10. Stockholder Rights. No person or entity shall be entitled to
------------------
vote, receive dividends or be deemed for any purpose the holder of any Option
Shares until the Option shall have been duly exercised to purchase such Option
Shares in accordance with the provisions of this Agreement and the certificate
of such shares shall have been issued.
11. Employment Rights. No provision of this Agreement or of the
-----------------
Option granted hereunder shall (a) confer upon Employee any right to continue in
the employ of the Company or any of its subsidiaries, (b) affect the right of
the Company and any of its subsidiaries to terminate the employment of Employee,
with or without cause, or (c) confer upon Employee any right to participate in
any employee welfare or benefit plan or other program of the Company or any of
its subsidiaries other than the Plan. Employee hereby acknowledges and agrees
that the Company and each of its subsidiaries may terminate the employment of
Employee at any time and for any reason, or for no reason, unless Employee and
the Company or such subsidiary are parties to a written employment agreement
that expressly provides otherwise.
12. Governing Law. This Agreement and the Option granted hereunder
-------------
shall be governed by and construed and enforced in accordance with the laws of
the State of California without reference to choice or conflict of law
principles.
13. Financial Information. The Company shall provide summary
---------------------
financial statements to Employee on an annual basis.
14. Options and Shares Issuable Upon Exercise Not Registered.
--------------------------------------------------------
Employee, by accepting the Options, acknowledges that the Options are not, and
Ordinary Shares and other securities issuable upon exercise of the Options may
not be, registered under the Securities Act, and represents that he or she has
acquired the Options for his or her own account and not with a present view to,
or in connection with, any distribution thereof in violation of the Securities
Act. Unless and until registered under the Securities Act, each stock
certificate representing Ordinary Shares and other securities purchased upon
exercise of one or more Options shall be stamped or otherwise imprinted with the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS
OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS REGISTERED UNDER THAT ACT AND UNDER APPLICABLE STATE SECURITIES LAW
OR VIRATA LIMITED SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT
REGISTRATION OF SUCH SECURITIES UNDER THAT ACT AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED."
15. Shareholder Approval. Any Option granted pursuant to his
--------------------
Agreement shall not be effective until the Plan has been approved by the
affirmative votes of the holders of a majority of the securities of Virata and
the Company.
5
<PAGE>
IN WITNESS WHEREOF, the Company and Employee have duly executed this
Agreement as of the Date of Grant.
RSA Communications, Inc., a Delaware corporation
By________________________________
Title:
__________________________________
Signature
__________________________________
Street Address
__________________________________
City, State and Zip Code
__________________________________
Social Security Number
6
<PAGE>
EXHIBIT 10.7
EXECUTION COPY
WARRANT AGREEMENT
THIS WARRANT AGREEMENT is made as of the 4th day of June, 1998 between:
1. VIRATA LIMITED (Company Registration No. 2798338), the registered
office of which is situated at Mount Pleasant House, 2 Mount
Pleasant, Huntingdon Road, Cambridge CB3 0BL ("Grantor"); and
2. INDEX SECURITIES S.A., the principal office of which is situated
at 2, rue de Jargonnant, 1207 Geneva, Switzerland ("Grantee").
RECITALS
A. By a letter of engagement dated 23 January 1998 ("Engagement
Letter"), the Grantor appointed the Grantee to act as its
placement agent in connection with the private placing by the
Grantor of securities of the Grantor to private, corporate,
venture capital and institutional investors pursuant to a private
placement memorandum ("Offering").
B. By a resolution of the board of directors of the Grantor passed on
28 April 1998 the Grantor resolved to issue warrants conferring
the right on holders thereof to subscribe for up to [One Million,
Five Hundred Ninety-Five Thousand, Fifty-Four (1,595,054)] "D"
Preference Shares (as defined below) in the capital of the Grantor
on the terms and conditions contained in this Agreement.
C. The Grantor has agreed to grant to the Grantee, in consideration
for the services of the Grantee in connection with the Offering as
set out in the Engagement Letter, the right to subscribe for "D"
Preference Shares in the capital of the Grantor on the terms and
subject to the conditions herein contained.
AGREED TERMS
1. DEFINITIONS AND INTERPRETATION
1.1. In this Agreement the following words and expressions shall have the
following meanings unless the context requires otherwise:
"Articles" means the Articles of Association of the
Grantor from time to time;
"Business Day" means any weekday (Saturdays, Sundays and
public holidays excluded) upon which banks are
open for business in the City of London;
"Companies Act" means the Companies Act 1985 as amended;
<PAGE>
"Consents" means the consents, waivers and resolutions
obtained or to be obtained by the Grantor
pursuant to Clause 5;
"'D' Preference Shares" means "D" preference shares of 1 pence each in
the capital of the Grantor having the rights
and privileges attached thereto as set out in
the Articles;
"Effective Date of Issue" means the date of allotment of "D" Preference
Shares in accordance with clause 4.2 following
the exercise of any Warrant;
"Final Date" means the last date on which the Warrants can
be exercised in accordance with Clause 3;
"Financial Services Act" means the Financial Services Act 1986;
"Holders" means the Grantee together with any other
person who is registered as the holder of a
Warrant pursuant to the terms hereof from time
to time, and "Holder" shall mean any one of
them;
"Listing" means the inclusion of any part of the
Grantor's loan or share capital in the
Official List or on the Alternative Investment
Market or the London Stock Exchange or on any
recognized investment exchange (within the
meaning of the Financial Services Act)
including any Overseas Investment Exchange or
in or on any exchange or market replacing the
same;
"Listing Date" means the date of publication of listing
particulars (as defined in Section 144(2) of
the Financial Services Act) or of a prospectus
(as that term is used in the Companies Act and
the Public Offers of Securities Regulations
1995) published in connection with the
admission to dealings on a recognized
investment exchange (within the meaning of the
Financial Services Act) or of an equivalent
public offering document published in
connection with the admission to dealings on
any Overseas Investment Exchange which, in any
such case, is published in connection with a
Listing;
"London Stock Exchange" means London Stock Exchange Limited;
"Memorandum" means the Private Placement Memorandum of the
Grantor dated March 3, 1998;
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"1933 Act" means the Securities Act of 1933, as amended,
having effect in the United States of America;
"Merger Event" has the meaning given thereto in sub-clause
10.1.1;
"Notice of Exercise" means a notice substantially in the form set
out in the Second Schedule hereto and
delivered to the Grantor in accordance with
Clause 4.1;
"Ordinary Shares" means ordinary shares in the capital of the
Grantor having the rights and privileges
attached thereto as set out in the Articles;
"Overseas Investment
Exchange" means an investment exchange (or the successor
body to such exchange) listed in either
Schedule 1 or Schedule 2 to the Financial
Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1995, or any statutory
instrument substantially re enacting the same;
"Person" means any body corporate, partnership, firm,
trust, association or other unincorporated
body of persons;
"Record Date" means in respect of any rights attached, or
benefits or entitlements accruing, to any
class of share or security in the capital of
the Grantor, the date by which holders of such
shares or securities are required to be
registered in the books of the Grantor as such
in order to qualify for such rights, benefits
or entitlements;
"Register" means the register of Holders to be maintained
by the Grantor pursuant to Clause 9;
"Transferee" has the meaning given thereto in the Transfer
Notice;
"Transfer Notice" means a notice of transfer of Warrants in the
form of the Third Schedule hereto served on
the Grantor in accordance with Clause 14;
"Warrants" means the rights created by this Agreement
entitling the Holder to subscribe for "D"
Preference Shares subject to the provisions of
this Agreement;
"Warrant Certificate" means a certificate representing the Warrant
or Warrants held by a Holder from time to time
to be issued pursuant to the terms of this
Agreement and to be in the form set out in the
First Schedule hereto;
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"Warrant Exercise Date" means the date on which one or more Warrants
are exercised in accordance with Clause 4;
"Warrant Exercise Period" means the period during which the Warrants may
be exercised as set out in Clause 3; and
"Warrant Exercise Price" means US$1.10 for each "D" Preference Share
for which the Holder subscribes under this
Agreement.
1.2. Save where the context otherwise requires, terms defined in the Articles
shall have the same meanings when used in this Agreement.
1.3. References to Clauses and Schedules are references to, respectively,
Clauses of, and Schedules to, this Agreement.
1.4. The expressions "subsidiary" and "holding company" shall have the
meanings ascribed to them in Section 736 of the Companies Act.
1.5. The Clause headings in this Agreement are inserted for convenience only
and shall be ignored in construing this Agreement.
1.6. Save as expressly provided herein, references to any statute, order or
regulation shall be construed as references to such statute, order or
regulation as re-enacted, amended, modified, replaced or consolidated
from time to time.
1.7. The singular includes the plural and vice versa.
2. GRANT OF THE RIGHT TO SUBSCRIBE FOR "D" PREFERENCE SHARES
2.1. In consideration of the Grantee providing its services as placement
agent pursuant to the Engagement Letter, the Grantor hereby grants to
the Grantee, upon the terms and subject to the conditions contained in
this Agreement, the right to subscribe at any time and from time to time
during the Warrant Exercise Period for up to an aggregate of [One
Million, Five Hundred Ninety-Five Thousand, Fifty-Four (1,595,054)] "D"
Preference Shares at the Warrant Exercise Price (subject always to the
provisions of Clause 10).
2.2. The right to subscribe for "D" Preference Shares hereby granted shall be
evidenced by Warrant Certificates and title to the Warrants represented
thereby and Warrants represented by all subsequently issued Warrant
Certificates shall be conclusively evidenced by entry of the Grantee or
the relevant Holder, as the case may be, as Holder thereof in the
Register in accordance with Clause 9. Such original Warrant Certificates
shall be issued and such entry with respect thereto effected forthwith
upon the execution and delivery of this Agreement on behalf of the
Grantee. All Warrants shall be held subject to the provisions of the
Memorandum and Articles and on the terms of this Agreement, which are
binding upon the Grantee and each of the Holders and all persons
claiming through or under them respectively.
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3. WARRANT EXERCISE PERIOD
Except as otherwise provided for herein, the period during which Warrants may be
exercised shall commence on the date of this Agreement and shall terminate at
5.00 p.m. on the date falling five (5) years thereafter.
4. EXERCISE OF WARRANTS
4.1. Warrants may be exercised, in whole or in part, at any time, or from
time to time, on or prior to the Final Date by tendering to the Grantor
at its registered office:
4.1.1. a Notice of Exercise duly completed and executed by or on behalf
of the Holder concerned;
4.1.2. the Warrant Certificate relating to the Warrants being
exercised; and
4.1.3. payment in full in respect of the aggregate Warrant Exercise
Price in accordance with clause 4.4.
Once lodged in the manner provided above, any such Notice of Exercise
shall be irrevocable, save with the consent of the Grantor.
4.2. "D" Preference Shares issued pursuant to the exercise of Warrants shall
be allotted subject to the provisions of the Articles and in compliance
with any applicable law, regulatory requirement, judgment, order or
decree, promptly after the date of full compliance with clause 4.1.
4.3. Promptly after the Effective Date of Issue, the Grantor shall execute
under its common seal (or otherwise as a deed), in accordance with the
Articles, and issue to the relevant Holder a share certificate for the
number of "D" Preference Shares subscribed and shall at the same time,
where all the Warrants comprised in the Warrant Certificate delivered to
the Grantor pursuant to clause 4.1.2 have not been exercised in full,
execute under its common seal (or otherwise as a deed) and issue to such
Holder a fresh Warrant Certificate indicating the number of Warrants in
respect of which the Holder is thereafter entitled to exercise. Share
certificates for the "D" Preference Shares shall be endorsed with the
warranty contained in the penultimate paragraph of the first page of the
Warrant Certificates. Any Warrant Certificate tendered pursuant to
Clause 4.1 will be canceled and destroyed by the Grantor.
4.4. The aggregate Warrant Exercise Price may be paid at the Holder's
election either by:
4.4.1. cheque or banker's draft or wire transfer; or
4.4.2. to the extent permitted by law, the surrender of Warrant
Certificates representing Warrants with a value equal to the
aggregate Warrant Exercise Price on the applicable Warrant
Exercise Date, as determined in accordance with clause 4.5; or
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4.4.3. to the extent permitted by law, a combination of the methods set
forth in sub-clauses 4.4.1. and 4.4.2 above.
4.5. The value of the Warrants surrendered by a Holder shall be determined by
multiplying (a) the number of Warrants surrendered by (b) the difference
between (1) the value of a "D" Preference Share on the Warrant Exercise
Date and (2) the Warrant Exercise Price. The value of a "D" Preference
Share shall be determined in good faith by the directors of the Grantor
if at the relevant time there has been no Listing of Ordinary Shares or
"D" Preference Shares.
4.6. To the extent a Holder surrenders Warrants in payment of the aggregate
Warrant Exercise Price pursuant to clause 4.4 and only a portion of the
Warrants comprised in the Warrant Certificate(s) delivered to the
Grantor are applied to such payment (and the remainder of the Warrants
are not otherwise exercised or surrendered), Grantor shall execute under
its common seal (or otherwise as a deed) and issue to such Holder a
fresh Warrant Certificate indicating the number of Warrants in respect
of which the Holder is thereafter entitled to exercise. Any Warrant
Certificate surrendered pursuant to clause 4.4. shall be canceled and
destroyed by the Grantor.
5. CONSENSUS
5.1. The Grantor hereby warrants that it has obtained all necessary Consents
of its bankers, shareholders or other persons from whom Consents are
required for the grant of the Warrants herein contained, the
subscription of "D" Preference Shares by the Grantee, and the full
implementation of this Agreement in accordance with its terms.
5.2. The Grantor undertakes that it shall use all reasonable commercial
endeavours throughout the Warrant Exercise Period to ensure the prompt
obtaining of any necessary Consents of its bankers, shareholders or
other persons from whom Consents are required for the exercise of the
Warrants, the subscription of "D" Preference Shares by the Holders and
the full implementation of this Agreement in accordance with its terms.
5.3. In particular, the Consents shall include such consents, waivers or
resolutions as are required to:
5.3.1. increase the authorized share capital of the Grantor to enable
it to issue up to the aggregate maximum of "D" Preference Shares
referred to in Clause 2.1;
5.3.2. give general and unconditional authority to the directors of the
Grantor pursuant to Section 80 of the Companies Act to exercise
all powers of the Grantor to allot and issue the "D" Preference
Shares to the Holders;
5.3.3. give general and unconditional authority to the directors of the
Grantor pursuant to Section 95 of the Companies Act to allot and
issue the "D" Preference Shares to the Holders as if Section
89(1) of the Companies Act did not apply to such allotment and
issue;
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5.3.4. fully and effectively waive all rights of pre-emption of any
person (whether such rights are contained in the Articles or
otherwise) to enable this Agreement to become effective and to
enable the "D" Preference Shares to be allotted and issued to
the Holders free of any such rights; and
5.3.5. attach to the "D" Preference Shares to be issued pursuant to the
exercise of Warrants at least the same rights and privileges
attaching to the existing issued "D" Preference Shares of 1
pence each in the capital of the Grantor as at the date of this
Agreement so that the "D" Preference Shares to be issued rank
pari passu in all respects with such existing issued "D"
Preference Shares.
6. RESERVATION OF SHARES
During the Warrant Exercise Period the Grantor will keep available for issue
sufficient authorized and unissued "D" Preference Shares, free of pre-emptive,
option or other prior contractual rights, to satisfy in full all Warrants as and
when they may be exercised.
7. NO FRACTIONAL SHARES
No fractional shares or rights to shares shall be issued upon the exercise of
any Warrant. The number of "D" Preference Shares being issued shall be rounded
down to the nearest whole number, and the Grantor shall make a cash payment to
the Holder in lieu of the fractional share entitlement, such cash payment to be
calculated on the basis of the then current fair market value of a "D"
Preference Share (as estimated in good faith by the directors of the Grantor if
at the relevant time there has been no Listing of Ordinary Shares or "D"
Preference Shares).
8. NO RIGHTS AS SHAREHOLDERS
Save as provided by this Agreement, nothing herein contained shall entitle any
Holder to any voting rights or other rights as a shareholder of the Grantor
prior to the exercise of a Warrant.
9. REGISTER OF HOLDERS OF WARRANTS
9.1. The Grantor shall maintain a Register showing the names and addresses of
Holders and enter therein details of the issue and any permitted
transfer or change of ownership of Warrants. The Holders of any of the
Warrants may inspect the Register at reasonable times and on reasonable
notice during normal office hours.
9.2. The Grantor shall be entitled to treat the Holder of each Warrant as the
sole and absolute beneficial owner thereof. Accordingly, the Grantor
shall not be affected by notice (actual or constructive) of, and shall
not, except as ordered by a court of competent jurisdiction or as
required by applicable law, be bound to recognize, or record in the
Register any note or evidence of, any trust or any other right, title,
claim or interest in respect of a Warrant in favour, or for the benefit,
of any person other than the Holder.
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10. ADJUSTMENT RIGHTS
10.1. The number of "D" Preference Shares that may be subscribed pursuant to
the exercise of any Warrant is subject to adjustment as follows:
10.1.1. Reconstruction and Take-over. If, while any Warrant remains
----------------------------
exercisable, in whole or in part, there shall be a
reconstruction in respect of the Grantor's share capital (other
than as referred to in the following provisions of this Clause
10), or the shares in the Grantor shall be transferred to a
company so that such company becomes the holding company of the
Grantor ("Merger Event"), then, as a condition of and at the
same time as such Merger Event, the Grantor shall (subject to
sub-clause 10.1.7) procure that the Holder of each Warrant is
granted by the reconstructed or transferee Person a substituted
Warrant to subscribe for securities in the capital of such
Person of a value (having regard to the rights and privileges
attaching to such securities) equivalent to the value of the
Warrants granted hereunder immediately prior to the Merger Event
(as certified in good faith by the Grantor's auditors on such
basis as they shall certify to be fair and reasonable having
regard to the terms upon which the holders of existing issued
"D" Preference Shares in the Grantor receive shares in such
reconstructed or transferee Person following such Merger Event).
The auditors' decision shall be final and binding and not
subject to review under Clause 10.1.10. If, however, the
auditors fail or decline to act, the provisions of sub-clause
10.1.10 shall take effect. The Grantee hereby expressly agrees
and acknowledges that the substitute Warrants may be in respect
of only one class of share, namely ordinary shares carrying the
unrestricted right to vote at general meetings. The Grantor
shall so far as it is able procure that such substitute Warrants
shall be granted by such Person so that the rights of the
Holders thereof (including adjustments of the Warrant Exercise
Price and the number of shares which may be subscribed) shall
correspond with the rights of Holders under this Agreement. The
Warrants granted hereunder shall cease to be capable of being
exercised immediately upon the grant of such substitute
Warrants. The board of directors of the Grantor shall in good
faith determine whether any adjustment to the provisions of this
Agreement is necessary or appropriate following the Merger Event
in order to preserve the rights and entitlements of the Holders
under this Agreement.
10.1.2. Reclassification of Shares. If, while any Warrant remains
--------------------------
exercisable, in whole or in part, the Grantor at any time shall,
by consolidation, reclassification, exchange or subdivision or
otherwise, reclassify its "D" Preference Share capital to the
same or a different number of securities of any other class or
classes (which the Grantor undertakes to do solely in compliance
with, and to the extent permitted by, the Articles), then each
Warrant shall thereafter represent the right to subscribe for
such number and kind of securities as would have been issuable
as the result of such consolidation, reclassification, exchange
or subdivision with respect to the "D" Preference Shares which
would have been subscribed
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had such Warrant been exercised immediately prior to the date of
such consolidation, reclassification, exchange, subdivision or
other change.
10.1.3. Subdivision or Consolidation. If, while any Warrant remains
----------------------------
exercisable, in whole or in part, the Grantor at any time shall
consolidate or subdivide its "D" Preference Share capital, the
Warrant Exercise Price shall be proportionately decreased in the
case of a subdivision, or proportionately increased in the case
of a consolidation (as certified in good faith by the Grantor's
auditors on such basis as they shall certify to be fair and
reasonable).
10.1.4. Rights Issues and Related Offers. If, while any Warrant remains
--------------------------------
exercisable, in whole or in part, the Grantor at any time makes
any offer or invitation (whether pursuant to the terms of pre-
emption rights or otherwise) to the holders of any of its "D"
Preference Share capital for subscription of any share or loan
capital of the Grantor, including an offer or invitation in
relation to any rights issue, the Grantor shall procure that at
the same time as such offer or invitation is made, a similar
offer or invitation (including an offer or invitation in
relation to any rights issue) is made to Holders as if each
Holder's rights to subscribe for "D" Preference Shares pursuant
to exercise of Warrants had been exercised immediately prior to
the Record Date applicable to such offer or invitation.
10.1.5. Winding-up of Grantor. If an order is made or an effective
---------------------
resolution is passed on or before the Final Date for the
voluntary winding-up of the Grantor (except for the purpose of
reconstruction in which case the provisions of sub-clause 10.1.1
shall apply) each Holder shall be entitled for the purpose of
ascertaining such Holder's rights in such winding-up to be
treated as if such Holder had, immediately before the date of
the making of the order or the passing of the resolution,
exercised its rights to subscribe for the maximum number of "D"
Preference Shares pursuant to exercise of the Warrants and in
that event such Holder shall be entitled to receive out of the
assets available in the liquidation pari passu with the holders
of the existing issued "D" Preference Shares such a sum as such
Holder would have received had such Holder been the holder of
the "D" Preference Shares to which such Holder would have become
entitled by virtue of such exercise, after deducting a sum equal
to the sum which would have been payable in respect of the
relevant Warrant Exercise Price. Subject to this sub-clause
10.1.5 all Warrants shall lapse on liquidation of the Grantor.
10.1.6. Schemes of Arrangement. The Grantor will procure that, while any
----------------------
Warrant remains exercisable, in whole or in part, there shall be
no compromise or scheme of arrangement (within the meaning of
Section 425 of the Companies Act) affecting the "D" Preference
Share capital of the Grantor unless either:
10.1.6.1. the Holders shall be granted substitute Warrants
pursuant to sub-clause 10.1.1; or
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10.1.6.2. the Holders shall be treated as members of the Grantor
to the extent of the maximum number of "D" Preference
Shares for which they shall be entitled to subscribe
pursuant to the exercise of Warrants and shall be a
party to such scheme.
The decision as to which of the above alternatives will apply shall be
that of the Grantor.
10.1.7. Take-over Bids. If, while any Warrant remains exercisable, in
--------------
whole or in part, an offer is made or proposed to be made to
shareholders of the Grantor to acquire the whole or any part of
the issued share capital of the Grantor and the Grantor becomes
aware that, as a result of such offer, the right to cast a
majority of the votes which may ordinarily be cast at a General
Meeting of the Grantor may become vested in the offeror the
Grantor shall give notice thereof to the Holders as soon as
practicable and in any event within ten (10) Business Days of
its becoming so aware. For the avoidance of doubt, the
publication of a scheme of arrangement under the Companies Act
providing for the acquisition by any Person of the whole or any
part of the share capital of the Grantor and an agreement for
the purchase of shares by private treaty shall be deemed to be
the making of an offer for these purposes. The Grantor shall in
any such case procure either.
10.1.7.1. that the Holders shall be granted substitute Warrants
pursuant to Clause 10.1.1 or
10.1.7.2 that the benefit of such an offer is extended to each
of the Holders in respect of such number of "D"
Preference Shares as such Holder may specify (up to
its maximum entitlement to subscribe pursuant to the
exercise of its Warrant) subject only to payment of
the Warrant Exercise Price.
The decision as to which of the above alternatives will apply
shall be that of the Grantor.
10.1.8. Capitalization and Bonus Rights. If, while any Warrant remains
-------------------------------
exercisable, in whole or in part, the Grantor at any time shall
(a) capitalize any profits or reserves (including share premium
account and capital redemption reserve or (b) make any issue of
shares to its "D" Preference Shareholders by way of rights or
bonus, then the number of "D" Preference Shares referred to in
Clause 2.1 shall be increased by a number of additional "D"
Preference Shares to be calculated by dividing (1) the aggregate
number of shares which would be issued to the Holders under (a)
or (b) if the Holders had exercised their right to subscribe for
the maximum number of "D" Preference Shares on the Record Date
("Bonus Shares") by (2) the amount credited as fully paid up on
each Bonus Share.
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10.1.9. Notification. The Grantor undertakes that, without prejudice to
------------
its other obligations to notify the Grantee pursuant to this
Agreement, it shall notify the Holders by way of a copy of the
notice of Annual or Extraordinary General Meeting of the
Grantor (at the same time as such notice is issued to the
members of the Grantor) of any proposed amendment or
modification to the Memorandum or the Articles.
10.1.10. Resolution of Disputes as to Entitlements. If any question
-----------------------------------------
shall arise in regard to the number of "D" Preference Shares
that may be subscribed pursuant to the exercise of any Warrant
following the coming into effect of any adjustment referred to
in the provisions of this Clause 10, the same shall be referred
for determination to [the Grantor's Chartered Accountants] [a
Person nominated jointly for such purpose by the Grantor and
the relevant Holder or, failing agreement on such joint
nomination, by the firm of chartered accountants to be
nominated at the request of the Grantor or the relevant Holder
by the President for the time being of the Institute of
Chartered Accountants in England and Wales] and that any Person
so nominated shall be deemed to be acting as an expert or
experts and not as an arbitrator or arbitrators and his or
their decision shall accordingly be conclusive and binding on
all concerned.
10.1.11. Notice.
------
10.1.11.1. The Grantor shall send to Holders:
10.1.11.1.1. prior written notice of the Record
Date applicable to any dividend,
distribution, issue or subscription
rights or the effective date of any
such capitalization referred to above
or the date set for determining
rights to vote in respect of any such
Merger Event, liquidation or winding-
up (as the context requires); and
10.1.11.1.2. in the case of any such Merger Event,
liquidation or winding-up, the
required notice, as prescribed by the
Articles, of the date when the same
shall take place (and specifying the
date on which the holders of
preference shares in the capital of
the Grantor shall be entitled to
exchange their shares for securities
or other property deliverable upon
such Merger Event, liquidation or
winding-up).
10.1.11.1.3 in the case of a Listing, not less
than ten (10) days' written notice
prior to the Listing Date applicable
thereto.
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10.1.11.2. Each such written notice to Holders shall
contain, in reasonable detail:
10.1.11.2.1. the event requiring the adjustment
10.1.11.2.2. the amount of the adjustment;
10.1.11.2.3. the method by which such adjustment
was calculated; and
10.1.11.2.4. the number of "D" Preference Shares
(or the number and class of the
securities for which the Warrants will
represent the right to subscribe
pursuant to this Clause 10 following
the relevant adjustment) to which such
Holder's Warrant enables the Holder to
subscribe after giving effect to such
adjustment.
10.1.11.3. For the avoidance of doubt, the Grantor shall not
require Holders' consent in any of the events
detailed above requiring prior written notice.
10.2. Replacement Warrant Certificates. The Grantor shall, forthwith upon any
--------------------------------
adjustment as is referred to above becoming effective, and at no charge
to each Holder:
10.2.1. issue to such Holder a replacement Warrant Certificate,
executed under the Grantor's common seal (or otherwise executed
as a deed), showing the Warrant Exercise Price and number of
"D" Preference Shares (or the securities for which the Warrants
represent the right to subscribe pursuant to this Clause 10
following such adjustment) that may be subscribed pursuant to
exercise of such Warrant following such adjustment becoming
effective, upon either:
10.2.1.1. the surrender of the existing Warrant Certificate;
or
10.2.1.2. an indemnity from the Holder in a form reasonably
satisfactory to the Grantor where the existing
Warrant Certificate has been lost, stolen, defaced,
mutilated or destroyed; and
10.2.2. upon such issue and surrender or indemnity, procure that an
appropriate record thereof is made in the Register.
Any Warrant Certificate surrendered pursuant to sub-clause 10.2.1 shall be
canceled and destroyed by the Grantor.
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11. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE GRANTOR
11.1. The Grantor hereby represents, warrants and covenants in favour of the
Grantee and each of the Holders as follows:
11.1.1. The Grantor is and shall (until it is dissolved) remain a
corporation duly incorporated and validly existing under the
laws of England and Wales and has all requisite corporate power
and authority to carry on its business as now conducted and as
proposed to be conducted.
11.1.2. The "D" Preference Shares to be issued upon valid exercise of
Warrants, when issued, will be validly issued, fully paid, not
subject to any calls for the payment of further capital, free
of any taxes, liens, charges or encumbrances of any nature
whatsoever and, based in part upon the representations of the
Grantee contained in this Agreement, will be issued in
compliance with applicable law, including, without limitation
the Companies Act. The Ordinary Shares into which the "D"
Preference Shares may be converted in accordance with the terms
of the Articles shall, upon such conversion, be duly and
validly issued, fully paid and not subject to any call for the
payment of further capital and issued in compliance with
applicable laws as aforesaid.
11.1.3. The existing issued shares in the capital of the Grantor were
duly and validly authorized allotted and issued, fully paid,
are not subject to any call for the payment of further capital
and were issued in compliance with applicable law, including,
without limitation, the Companies Act and all US federal and
state securities laws applicable at the relevant time to the
Grantor.
11.1.4. The Grantor has made available to the Grantee on the date of
this Agreement true, correct and complete copies of the
Memorandum and Articles, and the Grantor shall supply to each
Holder, within thirty (30) days of the relevant resolution
being passed, a copy of any resolution amending either the
Memorandum or the Articles.
11.1.5. The issue of the share certificates for "D" Preference Shares
upon exercise of Warrants shall be made without charge to the
Holder for any cost incurred by the Grantor in connection with
such exercise and the related issue of such "D" Preference
Shares.
11.1.6. The execution and delivery by the Grantor of this Agreement and
the performance of all its obligations hereunder, including
(but not limited to) the issue of the Warrants, have been duly
authorized by all necessary action on the part of the Grantor
and the entry by the Grantor into the Engagement Letter and
this Agreement does not conflict with, or contravene any
provision of the Memorandum or the Articles and does not
contravene any United Kingdom law or governmental rule,
regulation or order applicable to it, does not and will not
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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 or any of its assets is bound, and
the Warrants and this Agreement constitute the legal and valid
obligations of the Grantor, enforceable against it in
accordance with their respective terms;
11.1.7. No consent or approval of, giving of notice to, registration
with, or taking of any other action in respect of any United
Kingdom governmental authority or agency is required with
respect to the execution, delivery and performance by the
Grantor of its obligations under the Warrants or/of this
Agreement, except for the filing of documents with the
Companies' Registry for England and Wales. Any such filings
shall be effected promptly and in any event within the period
permitted by Statute.
11.1.8. As the date of this Agreement the authorized share capital of
the Grantor is (Pounds)3,330,000 divided into 3,100,000 "A"
preference shares of 50 pence each, 25,000,000 "B" preference
shares of 1 pence each, 8,000,000 "C" preference shares of 1
pence each, 50,000,000 "D" preference shares of 1 pence each
and 95,000,000 Ordinary Shares of 1 pence each.
11.1.9. There are no other options, warrants, conversion rights or
other rights at the date of this Agreement to subscribe,
purchase or otherwise acquire any authorized but unissued
shares in the Grantor's capital or other securities of the
Grantor save pursuant to
11.1.9.1. the Warrants and this Agreement;
11.1.9.2. the conversion rights detailed in the Articles;
11.1.9.3. any options in force which have been granted to
employees or former employees or the Grantor; and
11.1.9.4. otherwise detailed in the Private Placement
Memorandum dated 3 March 1998 (as amended).
11.1.10. The Grantor is not, pursuant to the terms of any agreement,
under any obligation to secure any Listing or make any offer to
the public in respect of any of its issued loan or share
capital.
11.2. In the event of any breach of any of the representations, warranties and
covenants set out in Clause 11.1, the Grantor shall have no liability in
respect of such breach unless written notice of claim in relation to
such breach is given by the relevant Holder no later than 12 months
following the date that such Holder became aware, or ought reasonably to
have become aware, of such breach.
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12. HOLDERS' UNDERTAKINGS
12.1. Each Holder hereby undertakes and covenants to and in favour of the
Grantor:
12.1.1. not to create or permit to subsist any mortgage, charge,
assignation by way of security or other interest, agreement or
arrangement having the effect of conferring security on the
whole or any part of the Warrants; and
12.1.2. not to make any transfer or disposition of any Warrant or all
or any portion of the "D" Preference Shares in the United
States or to a United States person unless and until:
12.1.2.1. there is then in effect a registration statement
under the 1933 Act covering such proposed
disposition and such disposition is made in
accordance with such registration statement and all
applicable federal and state securities laws; or
12.1.2.2. such Holder shall have notified the Grantor of the
proposed disposition and shall have furnished the
Grantor with (a) a statement of the circumstances
surrounding the proposed disposition, (b) an
opinion of counsel (which counsel shall be external
to the Holder) addressed to the Grantor and in a
form reasonably acceptable to the Grantor, that
such disposition will not require registration of
such securities under the 1933 Act and that all
requisite action has been taken under any
applicable securities laws in connection with such
disposition; and (c) an undertaking that any
requisite action required in the future under any
applicable securities laws will be taken in a
timely manner.
12.2. Effective upon any Warrant Exercise Date, the Holder shall become a
party to the Grantor's Registration Rights Agreement.
13. GRANTEE'S UNDERTAKINGS
13.1. The Grantee hereby acknowledges that, in reliance upon the
representations and warranties of the Grantee set forth herein, the
Warrants are, and the "D" Preference Shares shall be, issued without
registration under the 1933 Act or any other federal or state securities
laws and consequently none of the Warrants or the "D" Preference Shares
(collectively, "Securities") may be sold, transferred or otherwise
disposed of without registration under the 1933 Act and any such other
applicable federal or state securities laws or in exception therefrom.
13.2. The Grantee hereby represents, warrants and covenants in favour of the
Grantor:
13.2.1. that the Securities are or will be acquired for investment and
not with a view to the sale or distribution of any part
thereof, and the Grantee has no present intention of selling or
engaging in any public distribution of the same;
15
<PAGE>
13.2.2. that the Grantee has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits
and risk of its investment, and has the ability to bear the
economic risks of its investment;
13.2.3. that the Grantee understands that if the Grantor does not
register with the Securities and Exchange Commission pursuant
to Section 12 of the 1933 Act, or file reports pursuant to
Section 15(d) of the Securities Exchange Act of 1934, or if a
registration statement covering the securities under the 1933
Act is not in effect when Grantee desires to sell the Warrants
or the "D" Preference Shares issuable upon exercise of the
Warrants, Grantee may be required to hold such securities for
an indefinite period;
13.2.4. that the Grantee understands that any sale of the securities
which might be made by it in reliance upon Rule 144 under the
1933 Act may be only in accordance with the terms and
conditions of the that Rule; and
13.2.5. that the Grantee is an "accredited investor" within the meaning
of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
14. TRANSFERS
14.1. Subject to clause 12 and sub-clause 14.3, a Holder may transfer the
Warrants held by it or any part thereof, provided:
14.1.1. that the Holder shall deliver to the Grantor at least thirty
(30) days prior to any proposed transfer, a Notice of Transfer,
which shall include the identity of the proposed transferee;
14.1.2. that the Holder will not transfer the Warrants or any interest
therein to any party determined by the board of directors of
the Grantor to be a competitor of the Grantor;
14.1.3. the transferee agrees in writing to be subject to the terms
hereof to the same extent as if such transferee were an
original Holder hereunder, and only if such transfer is not in
violation of any federal or state securities laws; and
14.1.4. that in no event shall the aggregate number of transfers of
Warrants by all Holders exceed eight (8).
14.2. There shall not be included in any transfer any warrants other than the
Warrants constituted by this Agreement.
14.3. Upon compliance with clause 14.1, Grantor shall:
14.3.1. issue to the Holder, in the event the Holder transfers only a
portion of the Warrants comprised in a Warrant Certificate, and
the transferee new Warrant Certificates, upon either:
16
<PAGE>
14.3.1.1. the surrender of the existing Warrant Certificate;
or
14.3.1.2. an indemnity from the Holder in a form reasonably
satisfactory to the Grantor where the existing
Warrant Certificate has been lost, stolen, defaced,
mutilated or destroyed; and
14.3.2. upon such issue and surrender or indemnity, procure that an
appropriate record of the transfer is made in the Register.
Any Warrant Certificate surrendered pursuant to sub-clause 14.3.1 shall be
canceled and destroyed by the Grantor.
15. NOTICES
15.1. Any notice or other written communication given under or in connection
with this Agreement may be delivered personally or sent by registered,
prepaid first class post, (airmail if overseas), recognized overnight
courier or by telex or facsimile.
15.2. The address for delivery of any notice to the Grantor shall be its
registered office marked for the attention of the Managing Director or,
if any other address for service has previously been notified to the
server, to the address so notified. The address for delivery of any
notice to any Holder shall be the address of such Holder set forth in
the Register or, if any other address for service has previously been
notified to the Grantor, to the address so notified.
15.3. Any such notice or other written communication shall be deemed to have
been served:
15.3.1. if delivered personally, at the time of delivery;
15.3.2. if posted, three (3) Business Days, or in the case of airmail,
five (5) Business days, after it was posted;
15.3.3. if sent through an overnight delivery service under
circumstances by which such service guarantees next day
service, the date following the date so sent; and
15.3.3. if sent by telex or facsimile message, at the time of
transmission and receipt of appropriate telephonic
confirmation, if sent during business hours (that is 9.30 a.m.
to 5.30 p.m. local time) in the place to which it was sent or,
if not sent during such normal business hours, at the beginning
of the next Business Day in the place to which it was sent.
15.4. In providing such service it shall be sufficient to prove that personal
delivery was made, or that such notice or other written communication
was properly addressed, stamped and posted or in the case of telex that
the intended recipient's answerback code is shown on the copy retained
by the sender at the beginning and end of the message or in the case of
a facsimile message that an activity or other report from the sender's
facsimile machine
17
<PAGE>
can be produced in respect of the notice or other written communication
showing the recipient's facsimile number and the pages transmitted.
16. MISCELLANEOUS
16.1. This Agreement and the Warrants shall be governed by, and construed in
all respects in accordance with, the laws of England and Wales. Each of
the parties agrees that the courts of England shall have jurisdiction to
hear and settle any disputes or proceedings arising out of this
Agreement (other than any dispute arising under Clause 10.1 hereof, in
which event the provisions of sub-clause 10.1.2 shall apply).
16.2. In the event of any default hereunder, the non-defaulting party may
proceed to protect and enforce its rights 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
the non-defaulting party will not have an adequate remedy at law and
where damages will not be readily ascertainable.
16.3. The Grantor will not recommended the amendment of the Memorandum or
Articles in any manner which would have the effect of avoiding the
observance or performance of any of the terms of this Agreement or the
Warrants, or avoid or seek to avoid the observance or performance of any
of the terms of this Agreement or the Warrants by any other means, 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 Grantee and/or any
Holder under this Agreement.
16.4. The representations, warranties, covenants and conditions of the
respective parties contained herein are made or deemed made pursuant to
this Agreement shall survive the execution and delivery of this
Agreement.
16.5. In the event that any one or more of the provisions of this Agreement
shall for any reason be held invalid, illegal or unenforceable, the
remaining provisions of this Agreement shall remain in full force and
effect, and the invalid, illegal or unenforceable provision shall be
replaced by a valid, legal and enforceable provision, which comes
closest to the intention of the parties underlying the invalid, illegal
or unenforceable provision.
16.6. Any provision of this Agreement may be amended by a written instrument,
signed by each Holder and by the Grantor.
18
<PAGE>
IN WITNESS whereof these presents are executed as follows:
EXECUTED as a DEED and DELIVERED
as a Deed by
VIRATA LIMITED
By:
-------------------------------
Name:
Director
By:
-------------------------------
Name:
Director/Secretary
INDEX SECURITIES S.A.
By:
-------------------------------
Name:
Title:
19
<PAGE>
THE FIRST SCHEDULE
FORM OF WARRANT CERTIFICATE ("D" PREFERENCE SHARES)
VIRATA LIMITED
(Registered No. 2798338)
("Company")
(Incorporated under the Companies Act 1985)
WARRANT TO SUBSCRIBE FOR "D" PREFERENCE SHARES OF 1 PENCE EACH
CERTIFICATE NO. ____. Date of Issue: As of ______________, 1998
THIS IS TO CERTIFY that ____________________ ("Holder") is entitled to
subscribe for up to ________________________ "D" Preference Shares of 1 pence
each in the capital of the Company pursuant to this Warrant on the terms and
subject to the conditions set forth in the Warrant Agreement dated
__________________ 1998 between the Company and Index Securities S.A. ("Warrant
Agreement") and pursuant to a Resolution of the Board of Directors of the
Company dated 28 April 1998.
The Holder is deemed to have notice of, and to be bound by, the terms set
forth in the Warrant Agreement and shall hold this Warrant subject to the
Memorandum and Articles of Association of the Company.
UNITED STATES LAW: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY OTHER
FEDERAL OR STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE UNITED STATES OR TO ANY UNITED STATES
PERSON IF SUCH TRANSFER WOULD VIOLATE ANY FEDERAL OR STATE SECURITIES LAW OR IN
THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES
UNDER SUCH ACT OR A VALID EXEMPTION THEREFROM.
The securities represented by this certificate are subject to the
provisions of the Warrant Agreement, a copy of which is on file at the
registered office of the Company.
Executed as a Deed and delivered as a Deed by Virata Limited as of this
_____ day of ________ 1998.
VIRATA LIMITED
By:
-------------------------------
Name:
Director
By:
-------------------------------
Name:
Director/Secretary
<PAGE>
IMPORTANT NOTICE
1. This Warrant shall be exercisable only in accordance with Clause 4 of
the Warrant Agreement by completion of the Notice of Exercise in the form set
out in the Second Schedule to the Warrant Agreement and lodgement of such Notice
of Exercise and this Warrant at the then registered office of the Company,
together with the appropriate payment (if any) in respect of the relevant
Warrant Exercise Price. AT 5.00 P.M. (LONDON TIME) ON THE FINAL DATE (AS
DEFINED IN THE WARRANT AGREEMENT), THIS WARRANT WILL CEASE TO HAVE ANY VALUE OR
EFFECT, AND SHALL THEREAFTER BECOME VOID.
2. No transfer of this Warrant (or part thereof) will be registered unless
it is effected in accordance with the provisions of the Warrant Agreement and
those provisions (if any) of the Articles of Association of the Company as are
in force from time to time and expressed to be applicable to the Warrants.
3. The Holder of this Warrant will be entitled severally to enforce the
covenants and obligations on the part of the Company contained in the Warrant
Agreement without the need to join the original allottee or any intervening or
other Holder in the proceedings for such enforcement.
4. This Warrant shall (subject as provided in the Warrant Agreement) be
divisible and transferable, and new certificates in respect of Warrants shall be
issued in respect of the right to subscribe for any whole number of "D"
Preference Shares. New certificates in respect of Warrants shall be issued
following any adjustment of the entitlement of the Holder to subscribe for "D"
Preference Shares pursuant to Clause 10 of the Warrant Agreement.
5. Terms used herein and not otherwise herein defined shall have the same
meanings as are respectively ascribed thereto in the Warrant Agreement.
<PAGE>
THE SECOND SCHEDULE
NOTICE OF EXERCISE ("D" PREFERENCE SHARES)
THIS NOTICE IS IRREVOCABLE EXCEPT WITH THE
CONSENT OF THE DIRECTORS OF THE COMPANY
To: The Directors
Virata Limited
("Company")
Date: As of ________________ 1998
1. I/We hereby exercise my/our entitlement, evidenced by the Warrant
Certificate attached hereto for an aggregate of _____________ Warrants, to
subscribe for ________________ "D" Preference Shares of 1 pence each in the
capital of the Company for which I/we [am] [are] entitled. We elect to pay the
Warrant Exercise Price of $______________, as required pursuant to Clause 4 of
the Warrant Agreement dated _____________ 1998 between the Company as Grantor
and Index Securities S.A. as Grantee ("Warrant Agreement"), as follows:
a. I/We attach a cheque in the amount of $______________.
b. I/We attach and surrender Warrant Certificate No. ___ with
respect to ____________ Warrants.
2. I/We hereby request that duly sealed Share Certificates for such "D"
Preference Shares be issued to me/us and sent by post at my/our risk to my/our
address being _________________.
3. I/We hereby agree that such "D" Preference Shares shall be accepted
subject to the Memorandum and Articles of Association of the Company.
4. I/We hereby warrant and undertake to the Company that this Warrant is
not charged or encumbered or subject to any other lien or security interest.
By: By:
----------------------------- -----------------------------
Name: Name:
--------------------------- ---------------------------
Title: Title:
-------------------------- --------------------------
Address: Address:
------------------------ ------------------------
<PAGE>
THE THIRD SCHEDULE
NOTICE OF TRANSFER OF WARRANTS ("D" PREFERENCE SHARES)
To:. The Directors
Virata Limited
("Company")
Date:_______________________ 1998
By this notice ("Notice"), I/we, ______________________ ("Transferor"), and
I/we, __________________ ("Transferee"), hereby give you notice of the proposed
transfer of Warrants to subscribe for ________________________ "D" Preference
Shares of in the capital of the Company pursuant to the Warrant Agreement dated
________________________ 1998 between the Company as Grantor and Index
Securities S.A., as Grantee ("Warrant Agreement").
For this purpose, we attach the Warrant Certificate issued on
________________ 1998 to the Transferor (Certificate No. _____]) entitling the
Transferor to subscribe up to ____________ "D" Preference Shares aforesaid.
Further, in consideration of the covenants on the part of the Company
contained in the Warrant Agreement, the Transferee hereby (i) confirms to the
Company that it has received an executed copy of the Warrant Agreement, and
understands its contents, (ii) undertakes to each of the Transferor and the
Company on the date of this Notice to accept and assume and be bound by in all
respects the terms of the Warrant Agreement as if originally named therein as
the Grantee and so that where this Notice relates to a transfer of part of the
Transferor's entitlement to subscribe "D" Preference Shares pursuant to the
exercise of Warrants, such terms shall be so accepted and assumed by the
Transferee severally with the Transferor, mutatis mutandis.
The Company is hereby requested to accept this Notice and to effect the
transfer of Warrants above referred to in the Register pursuant to the Warrant
Agreement. [A] Warrant Certificate[s] should be dispatched, at the risk of the
Transferee [and the Transferor] as follows:
Rights to Subscribe "D" ADDRESS
Preference Shares
Transferee: ___________ ________________________
________________________
________________________
[TRANSFEROR] ___________ ________________________
________________________
________________________
Yours faithfully
FOR AND ON BEHALF OF THE TRANSFEREE FOR AND ON BEHALF OF THE TRANSFEROR
By: By:
-------------------------------- --------------------------------
Name: Name:
--------------------------- ---------------------------
Title: Title:
-------------------------- --------------------------
<PAGE>
EXHIBIT 10.8
THIS WARRANT AGREEMENT is made the ___ day of ________________
BETWEEN:
(1) VIRATA LIMITED (company number 2798338) the registered office of which is
situated at Mount Pleasant House, 2 Mount Pleasant, Huntingdon Road,
Cambridge CB3 0BL (the "Grantor"); and
(2) COMDISCO, INC., the principal office of which is situated at 6111 North
River Road, Rosemont, Illinois 60018, USA (the "Grantee").
RECITALS
(A) The Grantor and the Grantee have entered into a Global Master Rental
Agreement dated _____________, ______ (the "Rental Facility Agreement")
pursuant to which the Grantor and its affiliates have been granted certain
facilities to lease from the Grantee and its affiliates certain equipment.
(B) By a resolution of the board of directors of the Grantor passed on
____________, _____ the Grantor resolved to issue warrants conferring the
right on holders thereof to subscribe for up to _____________ D Preference
Shares (as defined below) in the capital of the Grantor on the terms and
conditions contained in this agreement.
(C) The Grantor has agreed to grant to the Grantee, in consideration for the
entry by the Grantee into the Rental Facility Agreement, the right to
subscribe for D Preference Shares (as defined below) in the capital of the
Grantor on the terms and subject to the conditions herein contained.
AGREED TERMS
DEFINITIONS
In this agreement the following words and expressions shall unless the
context otherwise requires bear the following meanings:
"the ARTICLES" means the Articles of Association of the Grantor from time to
time;
"BUSINESS DAY" means any week day (Saturdays, Sundays and public holidays
excluded) upon which banks are open for business in the City of London;
"COMPANIES ACT" means the Companies Act 1985 as amended;
"CONSENTS" means the consents, waivers and resolutions obtained or to be
obtained by the Grantor pursuant to clause 5;
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<PAGE>
"D PREFERENCE SHARES" means D Preference shares of 1 pence each in the
capital of the Grantor having the rights and privileges attached thereto as
set out in the Articles;
"EFFECTIVE DATE OF ISSUE" means the date of allotment of D Preference Shares
in accordance with clause 4.2(a) following the exercise of any Warrant;
"the FINAL DATE" means the last date on which the Warrants can be exercised
in accordance with Clause 3;
"FINANCIAL SERVICES ACT" means the Financial Services Act 1986;
"HOLDERS" means the Grantee together with any other person who is registered
as the holder of a Warrant pursuant to the terms hereof from time to time,
and "Holder" shall mean any one of them;
"LISTING" means the inclusion of any part of the Grantor's loan or share
capital in the Official List or on the Alternative Investment Market of the
London Stock Exchange or on any recognised investment exchange (within the
meaning of the Financial Services Act) including any Overseas Investment
Exchange or in or on any exchange or market replacing the same;
"LISTING DATE" means the date of publication of listing particulars (as
defined in Section 144(2) of the Financial Services Act) or of a prospectus
(as that term is used in the Companies Act and the Public Offers of
Securities Regulations 1995) published in connection with the admission to
dealings on a recognised investment exchange (within the meaning of the
Financial Services Act) or of an equivalent public offering document
published in connection with the admission to dealings on any Overseas
Investment Exchange which, in any such case, is published in connection with
a Listing;
"LONDON STOCK EXCHANGE" means London Stock Exchange Limited;
"MEMORANDUM" means the Memorandum of Association of the Grantor from time to
time;
"1933 ACT" means the Securities Act of 1933 as amended having effect in the
United States of America;
"MERGER EVENT" has the meaning given thereto in clause 10.1(a);
"NOTICE OF EXERCISE" means a notice substantially in the form set out in the
Second Schedule hereto and delivered to the Grantor in accordance with
clause 4.1;
"ORDINARY SHARES" means ordinary shares in the capital of the Grantor having
the rights and privileges attached thereto as set out in the Articles;
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<PAGE>
"OVERSEAS INVESTMENT EXCHANGE" means an investment exchange (or the
successor body to such exchange) listed in either Schedule 1 or Schedule 2
to the Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1995, or any statutory instrument substantially re-enacting the same;
"PERSON" means any body corporate, partnership, firm, trust, association or
other unincorporated body of persons;
"RECORD DATE" means, in respect of any rights attached, or benefits or
entitlements accruing, to any class of share or security in the capital of
the Grantor, the date by which holders of such shares or securities are
required to be registered in the books of the Grantor as such in order to
qualify for such rights, benefits or entitlements;
"REGISTER" means the register of Holders to be maintained by the Grantor
pursuant to clause 9;
"TRANSFEREE" has the meaning given thereto in the Transfer Notice;
"TRANSFER NOTICE" means a notice of transfer of Warrants in the form of the
third schedule served on the Grantor in accordance with clause 14;
"WARRANTS" means the rights created by this agreement entitling the Holder
to subscribe for D Preference Shares subject to the provisions of this
agreement;
"WARRANT CERTIFICATE" means a certificate representing the Warrant or
Warrants held by a Holder from time to time to be issued pursuant to the
terms of this agreement and to be in the form set out in the First Schedule
hereto;
"WARRANT EXERCISE DATE" means the date on which one or more Warrants are
exercised in accordance with clause 4;
"WARRANT EXERCISE PERIOD" means the period during which the Warrants may be
exercised as set out in clause 3; and
"WARRANT EXERCISE PRICE" means US$1.10 for each D Preference Share for which
the Holder subscribes under this agreement.
Save where the context otherwise requires, terms defined in the Articles
shall have the same meanings when used in this agreement;
references to clauses and Schedules are references to, respectively, clauses
of, and Schedules to, this agreement;
the expressions "subsidiary" and "holding company" shall have the meanings
ascribed to them in Section 736 of the Companies Act;
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<PAGE>
the clause headings in this agreement are inserted for convenience only and
shall be ignored in construing this agreement;
save as expressly provided herein, references to any statute, order or
regulation shall be construed as references to such statute, order or
regulation as re-enacted, amended, modified, replaced or consolidated from
time to time; and
the singular includes the plural and vice versa.
AGREED TERMS
GRANT OF THE RIGHT TO SUBSCRIBE FOR D PREFERENCE SHARES
In consideration of the Grantee entering into the Rental Facility Agreement,
the Grantor hereby grants to the Grantee, upon the terms and subject to the
conditions contained in this agreement, the right to subscribe at any time
and from time to time during the Warrant Exercise Period for up to
_______________ D Preference Shares at the Warrant Exercise Price (subject
always to the provisions of clause 10).
The right to subscribe for Preference Shares hereby granted shall be
evidenced by Warrant Certificates and title to the Warrants represented
thereby and Warrants represented by all subsequently issued Warrant
Certificates shall be conclusively evidenced by entry of the Grantee or the
relevant Holder, as the case may be, as holder thereof in the Register in
accordance with clause 9. Such original Warrant Certificates shall be
issued and such entry with respect thereto effected forthwith upon the
execution and delivery of this agreement on behalf of the Grantee. All
Warrants shall be held subject to the provisions of the Memorandum and
Articles and on the terms of this agreement, which are binding upon the
Grantee and each of the Holders and all persons claiming through or under
them respectively.
The Grantor hereby covenants for the benefit of the Holders and each of them
duly to perform and observe the obligations herein contained and imposed
upon it, to the intent that this agreement shall enure for the benefit of
all Holders, each of whom may sue for the performance or observance of the
provisions hereof so far as its holding of Warrants is concerned.
WARRANT EXERCISE PERIOD
Except as otherwise provided for herein, the period during which Warrants
may be exercised shall commence on the date of this agreement and shall
terminate at 5pm on:
the date falling ten (10) years thereafter; or
if within the period of five (5) years prior to the date referred to in sub-
clause 3(a) above the Grantor has obtained a Listing, the date falling five (5)
years from the Listing Date connected with such Listing.
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<PAGE>
EXERCISE OF WARRANTS
Warrants may be exercised, in whole or in part, at any time, or from time to
time, on or prior to the Final Date by tendering to the Grantor at its
registered office:
a Notice of Exercise duly completed and executed by or on behalf of the
Holder concerned;
the Warrant Certificate relating to the Warrants being exercised; and
where applicable, a cash sum in respect of the Warrant Exercise Price.
Once lodged in the manner provided above, any such Notice of Exercise shall
be irrevocable, save with the consent of the Grantor.
D Preference Shares issued pursuant to the exercise of Warrants shall
be allotted subject to the provisions of the Articles and in compliance
with any applicable law, regulatory requirement, judgment, order or
decree, promptly and in any event by no later than 14 days after the
date of receipt of such Notice of Exercise, the relevant Warrant
Certificate, and (where applicable) a cash sum in respect of the
Warrant Exercise Price, or, 14 days after receipt of the valuation
referred to in clause 5.4, if later;
Promptly, and in no event later than 21 days, after the Effective Date
of Issue, the Grantor shall execute under its common seal (or otherwise
as a deed), in accordance with the Articles, and issue to the relevant
Holder a share certificate for the number of D Preference Shares
subscribed and shall at the same time, where all the Warrant rights
comprised in the Warrant Certificate delivered to the Grantor pursuant
to clause 4.1(b) have not been exercised in full, execute under its
common seal (or otherwise as a deed) and issue to such Holder a fresh
Warrant Certificate indicating the number of D Preference Shares in
respect of which the Holder is thereafter entitled to exercise such
Warrant;
Share certificates for the D Preference Shares shall be endorsed with
the warranty contained in the penultimate paragraph of the first page
of the Warrant Certificates;
Any Warrant Certificate tendered pursuant to Clause 4.1 will be
cancelled and destroyed by the Grantor.
The Warrant Exercise Price may be paid at the Holder's election either (i)
by cheque or banker's draft or wire transfer, or (ii) to the extent
permitted by law and providing that the current fair market value of one D
Preference Share to be issued on the exercise of a Warrant is not less than
$1.10 at the time of such exercise, by reducing the actual number of D
Preference Shares to be issued on the exercise of a Warrant by such number,
the then
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<PAGE>
current fair market value of which is equal to the Warrant Exercise Price.
If the Holder selects in the Notice of Exercise to pay the Warrant Exercise
Price pursuant to method (ii) above the Grantor will issue D Preference
Shares in accordance with the following formula:
Formula: X = Y (A+B)
-------
A
Where X = the number of D Preference Shares to be issued to the Holder;
Y = the number of D Preference Shares the subject of the Notice of
Exercise;
A = the then current fair market value of one (1) D Preference
Share;
B = the Warrant Exercise Price in respect of one (1) D Preference
Share.
For the purpose of this agreement, the "current fair market value" of a D
Preference Share from time to time means:
if the Warrant Exercise Date falls on or within three Business Days
following a Listing of Ordinary Shares involving an offer of Ordinary
Shares to the public by placing or otherwise, the price at which
Ordinary Shares are offered to members of the public under the terms of
such Listing multiplied by the number of Ordinary Shares into which
each D Preference Share is convertible under the Articles at the time
of such exercise;
if the Warrant Exercise Date falls outside the period provided for
under (a) above and the Ordinary Shares are as a result of a Listing
then traded, quoted or admitted to dealings on an exchange or market,
then such current fair market value shall be deemed to be the average
(i.e. the arithmetical mean) of the closing prices relating to the
Ordinary Shares announced by such exchange or market over a twenty-one
(21) day period (or such lesser period during which the Ordinary Shares
have actually been so traded, quoted or admitted to dealings) ending
three days before the Warrant Exercise Date multiplied by the number of
Ordinary Shares into which each D Preference Share is convertible under
the Articles at the time of such exercise; or
if, at the time such current fair market value falls to be determined,
the Ordinary Shares are not as a result of a Listing traded, quoted, or
admitted to dealings on an exchange or market, such current fair market
value shall be the highest price per Ordinary Share on the Warrant
Exercise Date which could be obtained from a willing buyer in the open
market for Ordinary Shares (as determined in good faith by the
Grantor's auditors on such basis as they shall certify to be fair and
reasonable), multiplied by the number of Ordinary Shares into which
each D Preference Share is convertible at the time of such exercise.
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<PAGE>
CONSENTS
The Grantor hereby warrants that it has obtained all necessary consents and
waivers from or resolutions of its bankers, shareholders or other persons
from whom consents, waivers or resolutions are required for the grant of
the Warrants herein contained, the subscription of D Preference Shares by
the Grantee, and the full implementation of this agreement in accordance
with its terms.
The Grantor undertakes that it shall use all reasonable commercial
endeavours throughout the Warrant Exercise Period to ensure the prompt
obtaining of any necessary consents or waivers from or resolutions of its
bankers, shareholders or other persons from whom consents, waivers or
resolutions are required for the exercise of the Warrants, the subscription
of D Preference Shares by the Holders, and the full implementation of this
agreement in accordance with its terms.
In particular, the Consents shall include such consents or resolutions as
are required to:
increase the authorised share capital of the Grantor to enable it to
issue up to the aggregate maximum of D Preference Shares referred to
in clause 2.1;
give general and unconditional authority to the directors of the
Grantor pursuant to Section 80 of the Companies Act to exercise all
powers of the Grantor to allot and issue the D Preference Shares to the
Holders;
give general and unconditional authority to the directors of the
Grantor pursuant to Section 95 of the Companies Act to allot and issue
the D Preference Shares to the Holders as if Section 89(1) of the
Companies Act did not apply to such allotment and issue;
fully and effectively waive all rights of pre-emption of any person
(whether such rights are contained in the Articles or otherwise) to
enable this agreement to become effective and to enable the D
Preference Shares to be allotted and issued to the Holders free of any
such rights; and
(e) attach to the D Preference Shares to be issued pursuant to the exercise
of Warrants at least the same rights and privileges attaching to the
existing issued D Preference Shares of 1 pence each in the capital of
the Grantor as at the date of this agreement so that the D Preference
Shares to be issued rank pari passu in all respects with such existing
issued D Preference Shares.
If the Holder elects to pay the Warrant Exercise Price in accordance with
method (ii) described in clause 4.3, and if the Grantor is a public company
at the time of the relevant
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<PAGE>
exercise of the Warrant, the Grantor shall, on such exercise, instruct its
auditors or other appropriate person to prepare a valuation in accordance
with Section 103 of the Companies Act 1985, as amended.
RESERVATION OF SHARES
During the Warrant Exercise Period the Grantor will keep available for issue
sufficient authorised and unissued D Preference Shares, free of pre-emptive,
option or other prior contractual rights, to satisfy in full all Warrants as
and when they may be exercised.
Where, at the time of issue of any D Preference Shares pursuant to the
exercise of any Warrant, the preference share capital of the Grantor is as a
result of a Listing traded, quoted or admitted to dealings on an exchange or
market, then the Grantor will (at no charge to the Holder) apply to the
relevant exchange or market, as the case may be, for permission to deal in,
or for the quotation of such shares or for permission for dealings therein,
as the case may be, on such exchange or market.
NO FRACTIONAL SHARES
No fractional shares or rights to shares shall be issued upon the exercise
of any Warrant. The number of D Preference Shares being issued shall be
rounded down to the nearest whole number, and the Grantor shall make a cash
payment to the Holder in lieu of the fractional share entitlement, such cash
payment to be calculated on the basis of the then current fair market value
of a D Preference Share (as estimated in good faith by the directors of the
Grantor if at the relevant time there has been no Listing of Ordinary Shares
or D Preference Shares).
NO RIGHTS AS SHAREHOLDER
Save as provided by this agreement, nothing herein contained shall entitle
any Holder to any voting rights or other rights as a shareholder of the
Grantor prior to the exercise of a Warrant.
REGISTER OF HOLDERS OF WARRANTS
The Grantor shall maintain a register showing the names and addresses of
Holders and enter therein details of the issue and any transfer or change of
ownership of Warrants. The Holders of any of the Warrants may inspect the
Register at reasonable times and on reasonable notice during normal office
hours.
The Grantor shall be entitled to treat the Holder of each Warrant as the
sole and absolute beneficial owner thereof. Accordingly, the Grantor shall
not be affected by notice (actual
-8-
<PAGE>
or constructive) of, and shall not, except as ordered by a court of
competent jurisdiction or as required by applicable law, be bound to
recognise, or record in the Register, any note or evidence of, any trust or
any other right, title, claim or interest in respect of a Warrant in favour,
or for the benefit, of any person other than the Holder.
ADJUSTMENT RIGHTS
The number of D Preference Shares that may be subscribed pursuant to the
exercise of any Warrant is subject to adjustment as follows:
RECONSTRUCTION AND TAKEOVER
If, while any Warrant remains exercisable, in whole or in part, there shall
be a reconstruction in respect of the Grantor's share capital (other than as
referred to in the following provisions of this clause 10), or the shares in
the Grantor shall be transferred to a company so that such company becomes
the holding company of the Grantor (hereinafter referred to as a "Merger
Event"), then, as a condition of and at the same time as such Merger Event,
the Grantor shall (subject to clause 10.1(g)) procure that the Holder of
each Warrant is granted by the reconstructed or transferee Person a
substituted warrant to subscribe for securities in the capital of such
Person of a value (having regard to the rights and privileges attaching to
such securities) equivalent to the value of the Warrants granted hereunder
immediately prior to the Merger Event (as certified in good faith by the
Grantor's auditors on such basis as they shall certify to be fair and
reasonable having regard to the terms upon which the holders of existing
issued D Preference Shares in the Grantor receive shares in such
reconstructed or transferee Person following such Merger Event). The
auditors' decision shall be final and binding and not subject to review
under paragraph (j) of this Clause 10.1. If however the auditors fail or
decline to act, the provisions of clause 10.1(j) shall take effect. The
Grantee hereby expressly agrees and acknowledges that the substitute
warrants may be in respect of only one class of share, namely ordinary
shares carrying the unrestricted right to vote at general meetings. The
Grantor shall so far as it is able procure that such substitute warrants
shall be granted by such Person so that the rights of the Holders thereof
(including adjustments of the Warrant Exercise Price and the number of
shares which may be subscribed) shall correspond with the rights of Holders
under this agreement. The Warrants granted hereunder shall cease to be
capable of being exercised immediately upon the grant of such substitute
Warrants. The board of directors of the Grantor shall in good faith
determine whether any adjustment to the provisions of this agreement is
necessary or appropriate following the Merger Event in order to preserve the
rights and entitlements of the Holders under this agreement.
RECLASSIFICATION OF SHARES
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<PAGE>
If, while any Warrant remains exercisable, in whole or in part, the
Grantor at any time shall, by consolidation, reclassification, exchange
or subdivision or otherwise, reclassify its D Preference Share capital
into the same or a different number of securities of any other class or
classes (which the Grantor undertakes to do solely in compliance with,
and to the extent permitted by, the Articles), then each Warrant shall
thereafter represent the right to subscribe for such number and kind of
securities as would have been issuable as the result of such
consolidation, reclassification, exchange or subdivision with respect
to the D Preference Shares which would have been subscribed had such
Warrant been exercised immediately prior to the date of such
consolidation, reclassification, exchange, subdivision or other change.
SUBDIVISION OR CONSOLIDATION
If, while any Warrant remains exercisable, in whole or in part, the Grantor
at any time shall consolidate or sub-divide its D Preference Share capital,
the Warrant Exercise Price shall be proportionately decreased in the case of
a sub-division, or proportionately increased in the case of a consolidation
(as certified in good faith by the Grantor's auditors on such basis as they
shall certify to be fair and reasonable).
RIGHTS ISSUES AND RELATED OFFERS
If, while any Warrant remains exercisable, in whole or in part, the Grantor
at any time makes any offer or invitation (whether pursuant to the terms of
pre-emption rights or otherwise) to the holders of any of its D Preference
Share capital for subscription of any share or loan capital of the Grantor,
including an offer or invitation in relation to any rights issue, the
Grantor shall procure that at the same time as such offer or invitation is
made, a similar offer or invitation (including an offer or invitation in
relation to any rights issue) is made to Holders as if each Holder's rights
to subscribe for D Preference Shares pursuant to exercise of Warrants had
been exercised immediately prior to the Record Date applicable to such offer
or invitation.
WINDING-UP OF GRANTOR
If an order is made or an effective resolution is passed on or before the
Final Date for the voluntary winding-up of the Grantor (except for the
purpose of reconstruction in which case the provisions of clause 10.1(a)
shall apply) each Holder shall be entitled for the purpose of ascertaining
such Holder's rights in such winding-up to be treated as if such Holder had,
immediately before the date of the making of the order or the passing of the
resolution, exercised its rights to subscribe for the maximum number of D
Preference Shares pursuant to exercise of the Warrants and in that event
such Holder shall be entitled to receive out of the assets available in the
liquidation pari passu with the holders of the existing issued D Preference
Shares such a sum as such Holder would have received had such Holder been
the holder of the D Preference Shares to which such Holder would have become
entitled by virtue of such exercise, after deducting a sum equal to the sum
which would have been
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<PAGE>
payable in respect of the relevant Warrant Exercise Price. Subject to this
clause 10.1(e), all Warrants shall lapse on liquidation of the Grantor.
SCHEMES OF ARRANGEMENT
The Grantor will procure that, while any Warrant remains exercisable, in
whole or in part, there shall be no compromise or scheme of arrangement
(within the meaning of Section 425 of the Companies Act) affecting the D
Preference Share capital of the Grantor unless either (i) the Holders shall
be granted substitute Warrants pursuant to clause 10.1(a) or (ii) the
Holders shall be treated as members of the Grantor to the extent of the
maximum number of D Preference Shares for which they shall be entitled to
subscribe pursuant to the exercise of Warrants and shall be a party to such
scheme. The decision as to which of the above alternatives will apply shall
be that of the Grantor.
TAKE-OVER BIDS
If, while any Warrant remains exercisable, in whole or in part, an
offer is made or proposed to be made to shareholders of the Grantor to
acquire the whole or any part of the issued share capital of the
Grantor and the Grantor becomes aware that, as a result of such offer,
the right to cast a majority of the votes which may ordinarily be cast
at a General Meeting of the Grantor may become vested in the offeror
the Grantor shall give notice thereof to the Holders as soon as
practicable and in any event within four Business Days of its becoming
so aware. For the avoidance of doubt, the publication of a scheme of
arrangement under the Companies Act providing for the acquisition by
any Person of the whole or any part of the share capital of the Grantor
and an agreement for the purchase of shares by private treaty shall be
deemed to be the making of an offer for these purposes. The Grantor
shall in any such case procure either (i) that the Holders shall be
granted substitute Warrants pursuant to clause 10.1(a) or (ii) that the
benefit of such an offer is extended to each of the Holders in respect
of such number of D Preference Shares as such Holder may specify (up to
its maximum entitlement to subscribe pursuant to the exercise of its
Warrant) subject only to payment of the Warrant Exercise Price. The
decision as to which of the above alternatives will apply shall be that
of the Grantor.
CAPITALISATION AND BONUS RIGHTS
If, while any Warrant remains exercisable, in whole or in part, the
Grantor at any time shall (i) capitalise any profits or reserves
(including share premium account and capital redemption reserve) or
(ii) make any issue of shares to its D Preference Shareholders by way
of rights or bonus, then the number of D Preference Shares referred to
in clause 2.1 shall be increased by a number of additional D Preference
Shares, such number to be calculated by dividing the aggregate number
of shares which would be issued to the Holders under (i) or (ii) of
this sub-clause (h) if the Holders had exercised their right to
subscribe for the maximum number of D Preference Shares on the Record
Date ("the Bonus Shares") by the amount credited as fully paid up on
each Bonus Share.
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<PAGE>
NOTIFICATION
The Grantor undertakes that, without prejudice to its other obligations
to notify the Grantee pursuant to this agreement, it shall notify the
Holders by way of a copy of the notice of Annual or Extraordinary
General Meeting of the Company (at the same time as such notice is
issued to the members of the Company) of any proposed amendment or
modification to the Memorandum or the Articles.
RESOLUTION OF DISPUTES AS TO ENTITLEMENTS
If any question shall arise in regard to the number of D Preference
Shares that may be subscribed pursuant to the exercise of any Warrant,
following the coming into effect of any adjustment referred to in the
provisions of this clause 10, the same shall be referred for
determination either by some person, firm or company nominated jointly
for such purpose by the Grantor and the relevant Holder or, failing
agreement on such joint nomination, by the firm of chartered
accountants to be nominated at the request of the Grantor or the
relevant Holder by the President for the time being of the Institute of
Chartered Accountants in England and Wales and so that any person, firm
or company so nominated shall be deemed to be acting as an expert or
experts and not as an arbitrator or arbitrators and his or their
decision shall accordingly be conclusive and binding on all concerned.
NOTICE OF ADJUSTMENT
The Grantor shall send to Holders: (a) prior written notice of the
Record Date applicable to any dividend, distribution, issue or
subscription rights or the effective date of any such capitalisation
referred to above or the date set for determining rights to vote in
respect of any such Merger Event, liquidation or winding-up (as the
context requires); and (b) in the case of any such Merger Event,
liquidation or winding-up, the required notice, as prescribed by the
Articles, of the date when the same shall take place (and specifying
the date on which the holders of preference shares in the capital of
the Grantee shall be entitled to exchange their shares for securities
or other property deliverable upon such Merger Event, liquidation or
winding-up). In the case of a Listing, the Grantor shall give Holders
not less than 45 clear days' written notice prior to the Listing Date
applicable thereto. In addition, each such written notice to Holders
shall contain, in reasonable detail, (i) the event requiring the
adjustment, (ii) the amount of the adjustment, (iii) the method by
which such adjustment was calculated, and (iv) the number of additional
D Preference Shares (or the number and class of the securities for
which the Warrants will represent the right to subscribe pursuant to
this clause 10 following the relevant adjustment) to which such
Holder's Warrant enables the Holder to subscribe after giving effect to
such adjustment. For the avoidance of doubt, the Grantor shall not
require Holders' consent in any of the events detailed above requiring
prior written notice.
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<PAGE>
REPLACEMENT WARRANT CERTIFICATES
The Grantor shall, forthwith upon any adjustment as is referred to above
becoming effective, and at no charge to each Holder:
issue to such Holder a replacement Warrant Certificate, executed under the
Grantor's common seal (or otherwise executed as a deed), showing the Warrant
Exercise Price and number of D Preference Shares (or the securities for
which the Warrants represent the right to subscribe pursuant to this clause
10 following such adjustment) that may be subscribed pursuant to exercise of
such Warrant following such adjustment becoming effective, against either
(i) the surrender of the existing Warrant Certificate, or (ii) an indemnity
from the Holder in a form reasonably satisfactory to the Grantor where the
existing Warrant Certificate has been lost, stolen, defaced, mutilated or
destroyed; and
upon such issue, procure that an appropriate record thereof is made in the
Register.
Any Warrant Certificate surrendered pursuant to Clause 10.2(a) shall be
cancelled and destroyed by the Grantor.
HOLDERS' UNDERTAKINGS
Each Holder hereby undertakes and covenants to and in favour of the Grantor:
not to create or permit to subsist any mortgage, charge, assignation by way
of security or other interest, agreement or arrangement having the effect
of conferring security on the whole or any part of the Warrants;
not to make any disposition of all or any portion of the D Preference Shares
in the United States or to a United States person unless and until:
there is then in effect a registration statement under the 1933 Act covering
such proposed disposition and such disposition is made in accordance with
such registration statement and all applicable state securities laws; or
(a) such Holder shall have notified the Grantor of the proposed disposition
and shall have furnished the Grantor with a statement of the circumstances
surrounding the proposed disposition; and (b) if reasonably requested by the
Grantor, such Holder shall have furnished the Grantor with an opinion of
counsel (which counsel shall be external to the Holder) addressed to the
Grantor and in a form reasonably acceptable to the Grantor, that such
disposition will not require registration of such securities under the 1933
Act and that all requisite action has been taken under any applicable
securities laws in connection with such disposition; and (c) if reasonably
requested by the Grantor, such Holder shall have
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furnished the Grantor with an undertaking that any requisite action required
in the future under any applicable securities laws will be taken in a timely
manner.
Notwithstanding the provisions of paragraphs (b)(i) and (ii) above, no such
registration statement or opinion of counsel shall be necessary for a
transfer by any Holder pursuant to Rule 144A or Rule 144(k) promulgated
under the 1933 Act or a transfer by a Holder to a subsidiary or affiliate of
such Holder, if the transferee agrees in writing to be subject to the terms
hereof to the same extent as if such transferee were an original Holder
hereunder, and if such transfer is not in violation of any federal or state
securities laws.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE GRANTOR
The Grantor hereby represents, warrants and covenants in favour of the
Grantee and each of the Holders as follows:
the Grantor is and shall (until it is dissolved) remain a corporation
duly incorporated and validly existing under the laws of England and
Wales and has all requisite corporate power and authority to carry on
its business as now conducted and as presently proposed to be
conducted;
the D Preference Shares to be issued upon valid exercise of Warrants,
when issued, will be validly issued, fully paid, not subject to any
call for the payment of further capital, free of any taxes, liens,
charges or encumbrances of any nature whatsoever and, based in part
upon the representations of the Grantee contained in this agreement,
will be issued in compliance with applicable law, including without
limitation the Companies Act. The Ordinary Shares into which the D
Preference Shares may be converted in accordance with the terms of the
Articles shall, upon such conversion, be duly and validly issued, fully
paid and not subject to any call for the payment of further capital and
issued in compliance with applicable laws as aforesaid;
the existing issued shares in the capital of the Grantor were duly and
validly authorised allotted and issued, fully paid, are not subject to
any call for the payment of further capital and were issued in
compliance with applicable law, including without limitation the
Companies Act and all US federal and state securities laws applicable
at the relevant time to the Grantor;
the Grantor has made available to the Grantee on the date of this
agreement true, correct and complete copies of the Memorandum and
Articles, and the Grantor shall supply to each Holder, within fourteen
days of the relevant resolution being passed, a copy of any resolution
amending either the Memorandum or the Articles;
the issue of share certificates for D Preference Shares upon exercise
of Warrants shall be made without charge to the Holder for any cost
incurred by the Grantor in connection with such exercise and the
related issue of such D Preference Shares;
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<PAGE>
the execution and delivery by the Grantor of this agreement and the
performance of all its obligations hereunder, including (but not
limited to) the issue of the Warrants, have been duly authorised by all
necessary action on the part of the Grantor and the entry by the
Grantor into the Rental Facility Agreement and this agreement does not
conflict with, or contravene any provision of the Memorandum or the
Articles and does not contravene any United Kingdom law or governmental
rule, regulation or order applicable to it, does 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 or any of its assets is bound, and the Warrants
and this agreement constitute the legal and valid obligations of the
Grantor, enforceable against it in accordance with their respective
terms;
no consent or approval of, giving of notice to, registration with, or
taking of any other action in respect of any United Kingdom
governmental authority or agency is required with respect to the
execution, delivery and performance by the Grantor of its obligations
under the Warrants or this agreement, except for the filing of
documents with the Companies' Registry for England and Wales. Any such
filings shall be effected promptly and in any event within the period
permitted by Statute;
the Grantor is not, pursuant to the terms of any agreement, under any
obligation to (i) secure any Listing in respect of, or (ii) make any
offer to the public in respect of, any of its issued loan or share
capital.
In the event of any breach of any of the representations, warranties and
covenants set out in clause 12.1, the Grantor shall have no liability in
respect of such breach unless written notice of a claim in relation to such
breach is given by the relevant Holder no later than twelve months following
the date that such Holder became aware, or ought reasonably to have become
aware, of such breach.
GRANTEE'S UNDERTAKINGS
The Grantee hereby acknowledges that, in reliance upon the
representations and warranties of the Grantor set forth herein, the
Warrants are, and the D Preference Shares shall be, issued without
registration under the 1933 Act or any state securities laws and
consequently none of the Warrants or the D Preference Shares
(collectively, the "Securities") may be sold, transferred or otherwise
disposed of without registration under the 1933 Act and any applicable
state securities laws or an exemption therefrom.
The Grantee hereby represents, warrants and covenants in favour of the
Grantor:
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that the Securities are or will be acquired for investment and not
with a view to the sale or distribution of any part thereof, and
the Grantee has no present intention of selling or engaging in any
public distribution of the same;
that the Grantee 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;
that the Grantee understands that if the Grantee does not register
with the Securities and Exchange Commission pursuant to Section 12
of the 1933 Act, or file reports pursuant to Section 15(d) of the
Securities Exchange Act of 1934, 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 D Preference Shares
pursuant to this Warrant Agreement, or (ii) the D Preference
Shares issuable upon exercise of the right to purchase, it may be
required to hold such securities for an indefinite period. The
Grantee also understands that any sale of the Securities 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;
that the Grantee is an "accredited investor" within the meaning of
the Securities and Exchange Rule 501 of Regulation D, as presently
in effect.
TRANSFERS
Subject to clause 11, every Holder shall be entitled to transfer the
Warrants held by him or any part thereof provided that in no event shall the
aggregate number of transfers of Warrants by all Holders exceed three (3),
and provided that the Holder shall inform the Grantor, at least ten (10)
days prior to any proposed transfer, of the identity of the proposed
transferee, and the Holder will not transfer the Warrants or any interest
therein to any party determined by the board of directors of the Grantor, in
good faith, and so communicated to the Holder prior to the expiration of
such ten (10) day period, to be a competitor of the Grantor. There shall not
be included in any transfer any warrants other than the Warrants constituted
by this agreement. Each transfer shall be recorded upon service on the
Grantor of a Transfer Notice. When a Holder transfers part only of the
Warrants comprised in a certificate the old certificate shall be cancelled
and a new certificate for the balance of such Warrants issued by the Grantor
without charge.
NOTICES
Any notice or other written communication given under or in connection with
this agreement may be delivered personally or sent by first class post
(airmail if overseas) or by telex or facsimile.
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The address for service of any party shall be its registered office marked
for the attention of the Managing Director or, if any other address for
service has previously been notified to the server, to the address so
notified.
Any such notice or other written communication shall be deemed to have been
served:
if delivered personally, at the time of delivery;
if posted, at the expiry of two Business Days or in the case of airmail
four Business days after it was posted;
if sent by telex or facsimile message, at the time of transmission (if
sent during normal business hours, that is 9.30 to 17.30 local time) in
the place to which it was sent or (if not sent during such normal
business hours) at the beginning of the next Business Day in the place
to which it was sent.
In proving such service it shall be sufficient to prove that personal
delivery was made, or that such notice or other written communication was
properly addressed stamped and posted or in the case of a telex that the
intended recipient's answerback code is shown on the copy retained by the
sender at the beginning and end of the message or in the case of a facsimile
message that an activity or other report from the sender's facsimile machine
can be produced in respect of the notice or other written communication
showing the recipient's facsimile number and the number of pages
transmitted.
MISCELLANEOUS
This agreement and the Warrants shall be governed by, and construed in all
respects in accordance with, the laws of England and Wales. Each of the
parties agrees that the courts of England shall have jurisdiction to hear
and settle any disputes or proceedings arising out of this agreement (other
than any dispute arising under Clause 10.1, in which event the provisions of
Clause 10.1(j) shall apply).
In the event of any default hereunder, the non-defaulting party may proceed
to protect and enforce its rights 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 the non-defaulting
party will not have an adequate remedy at law and where damages will not be
readily ascertainable.
The Grantor will not recommend the amendment of the Memorandum or Articles
in any manner which would have the effect of avoiding the observance or
performance of any of the terms of this agreement or the Warrants, or avoid
or seek to avoid the observance or performance of any of the terms of this
agreement or the Warrants by any other means, 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 Grantee and/or any Holder under this agreement.
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The representations, warranties, covenants and conditions of the respective
parties contained herein or made or deemed made pursuant to this agreement
shall survive the execution and delivery of this agreement.
In the event that any one or more of the provisions of this agreement shall
for any reason be held invalid, illegal or unenforceable, the remaining
provisions of this agreement shall remain in full force and effect, and the
invalid, illegal or unenforceable provision shall be replaced by a valid,
legal and enforceable provision, which comes closest to the intention of the
parties underlying the invalid, illegal or unenforceable provision.
Any provision of this agreement may be amended by a written instrument,
signed by each Holder and by the Grantor.
IN WITNESS whereof these presents are executed as follows:
EXECUTED and DELIVERED )
as a deed by VIRATA LIMITED )
)
acting by [ ] )
and [ ] )
Director
Director/Secretary
SIGNED by )
on behalf of COMDISCO, INC. )
in the presence of: )
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FIRST SCHEDULE
--------------
Form of Warrant Certificate (D Preference Shares)
-------------------------------------------------
VIRATA LIMITED
---------------
(Registered No. 2798338)
("the Company")
(Incorporated under the Companies Act 1985)
WARRANT TO SUBSCRIBE FOR D PREFERENCE SHARES OF 1 PENCE EACH
Certificate No: Date of Issue: ____________, _______
THIS IS TO CERTIFY that _______________________ of ____________________________
("the Holder") is entitled to subscribe for up to [number in words] "D"
Preference Shares of 1 pence each in the capital of the Company pursuant to this
Warrant on the terms and subject to the conditions set forth in the Warrant
Agreement dated ____________, ______between the Company and Comdisco, Inc. ("the
Warrant Agreement") and pursuant to a Resolution of the Board of Directors of
the Company dated ____________, ______.
The Holder is deemed to have notice of, and to be bound by, the terms set forth
in the Warrant Agreement and shall hold this Warrant subject to the Memorandum
and Articles of Association of the Company.
US LAW: The securities represented by this certificate 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 United States
or to any United States person if such transfer would violate any state
securities law or in the absence of a registration statement in effect with
respect to the securities under such Act or an opinion of Counsel that such
registration is not required, unless sold pursuant to Rule 144(k) of Rule 144A
of such Act.
The securities represented by this certificate are subject to the provisions of
the Warrant Agreement, a copy of which is on file at the registered office of
the Company.
Executed as a deed and delivered as a deed by Virata Limited this _________ day
of ____________ _______.
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<PAGE>
EXECUTED as a deed and
DELIVERED as a deed by
VIRATA LIMITED )
)
acting by )
)
Director
Director/Secretary
- - - - - - - - - - - - - - - - - - - - - - - -
[ON THE REVERSE]
-20-
<PAGE>
IMPORTANT NOTICE
----------------
1. This Warrant shall be exercisable in accordance with Clause 4 of the Warrant
Agreement by completion of the Notice of Exercise in the form set out in the
second schedule to the Warrant Agreement and lodgement of such Notice of
Exercise and this Warrant at the then registered office of the Company,
together with the appropriate payment (if any) in respect of the relevant
Warrant Exercise Price. AT 5.00 P.M. (LONDON TIME) ON THE FINAL DATE (AS
DEFINED IN THE WARRANT AGREEMENT), THIS WARRANT WILL CEASE TO HAVE ANY VALUE
OR EFFECT, AND SHALL THEREAFTER BECOME VOID.
2. No transfer of this Warrant (or part thereof) will be registered unless it
is effected in accordance with the provisions of the Warrant Agreement and
those provisions (if any) of the Articles of Association of the Company as
are in force from time to time and expressed to be applicable to the
Warrants.
3. The Holder of this Warrant will be entitled severally to enforce the
covenants and obligations on the part of the Company contained in the
Warrant Agreement without the need to join the original allottee or any
intervening or other Holder in the proceedings for such enforcement.
4. This Warrant shall (subject as provided in the Warrant Agreement) be
divisible and transferable, and new certificates in respect of Warrants
shall be issued in respect of the right to subscribe for any whole number of
D Preference Shares. New certificates in respect of Warrants shall be
issued following any adjustment of the entitlement of the Holder to
subscribe for D Preference Shares pursuant to Clause 10 of the Warrant
Agreement.
5. Terms used herein and not otherwise herein defined shall have the same
meanings as are respectively ascribed thereto in the Warrant Agreement.
-21-
<PAGE>
SECOND SCHEDULE
---------------
Notice of Exercise (D Preference Shares)
----------------------------------------
THIS NOTICE IS IRREVOCABLE EXCEPT WITH THE
CONSENT OF THE DIRECTORS OF THE COMPANY
Date:
To: The Directors
Virata Limited
("the Company")
1. I/We hereby exercise my/our entitlement evidenced by the Warrant Certificate
attached hereto to subscribe for the number of D Preference Shares of 1
pence each in the capital of the Company for which I/we [am] [are] entitled.
[I/we elect to pay the Warrant Exercise Price in accordance with method (i)
in clause 4.3 and attach a cheque for (Pounds)___________, in payment of the
applicable Warrant Exercise Price, as required pursuant to Clause 4 of the
Warrant Agreement dated ____________, _____ between the Company as Grantor
and Comdisco, Inc. as Grantee ("the Warrant Agreement")].[I/we elect to pay
the Warrant Exercise Price in accordance with method (ii) in clause 4.3 and
accordingly agree to forego a certain number of the shares to which I/we
have rights under the Warrant Certificate, such number to be calculated in
accordance with clause 4.3].
2. I/We hereby request that duly sealed Share Certificates for such D
Preference Shares be issued to me/us and sent by post at my/our risk to
my/our address being.
3. I/We hereby agree that such D Preference Shares shall be accepted subject to
the Memorandum and Articles of Association of the Company.
4. I/We hereby warrant and undertake to the Company that this Warrant is not
charged or encumbered or subject to any other lien or security interest.
SIGNED........................................
FULL NAME.....................................
ADDRESS.......................................
-22-
<PAGE>
THIRD SCHEDULE
--------------
NOTICE OF TRANSFER OF WARRANTS (D PREFERENCE SHARES)
----------------------------------------------------
THIS NOTICE IS IRREVOCABLE EXCEPT WITH THE
CONSENT OF THE DIRECTORS OF THE COMPANY
Date:
To: The Directors
Virata Limited
("the Company")
By this notice ("the Notice"), I/We ________________________ ("the Transferor")
and I/We _________________________________ ("the Transferee") hereby give you
notice of the proposed transfer of Warrants to subscribe for D Preference Shares
of each in the capital of the Company pursuant to the Warrant Agreement dated
_________, _____ between the Company as Grantor and Comdisco, Inc. as Grantee
("the Warrant Agreement").
For this purpose, we attach the Warrant Certificate issued on _________, ______
to the Transferor (Certificate No. ) entitling the Transferor to
subscribe up to D Preference Shares aforesaid.
Further, in consideration of the covenants on the part of the Company contained
in the Warrant Agreement, the Transferee hereby (i) confirms to the Company that
it has received an executed copy of the Warrant Agreement, and understands its
contents, (ii) undertakes to each of the Transferor and the Company on the date
of this Notice to accept and assume and be bound by in all respects the terms
of the Warrant Agreement as if originally named therein as the Grantee and so
that where this Notice relates to a transfer of part of the Transferor's
entitlement to subscribe D Preference Shares pursuant to the exercise of
Warrants, such terms shall be so accepted and assumed by the Transferee
severally with the Transferor, mutatis mutandis.
The Company is hereby requested to accept this Notice and to effect the transfer
of Warrants above referred to in the Register pursuant to the Warrant Agreement.
-23-
<PAGE>
[A] Warrant Certificate[s] should be despatched, at the risk of the Transferee
[and the Transferor]/1/ as follows:
RIGHTS TO SUBSCRIBE ADDRESS
------------------- -------
D PREFERENCE SHARES (ATTENTION)
------------------- -----------
Transferee:
[Transferor]/1/:
Yours faithfully,
for and on behalf offor and on behalf of
the Transfereethe Transferor
DATED
--------------------------------------------------------------------------
-24-
<PAGE>
EXHIBIT 10.9
BASIC LEASE INFORMATION
DATE: June 26, 1996
LANDLORD WHC-SIX REAL ESTATE LIMITED PARTNERSHIP
TENANT: ADVANCED TELECOMMUNICATIONS MODULES, INC., a
California corporation
PREMISES Suites 201/202, 2933 Bunker Hill Lane, Santa
Clara, CA
(approx. 12,873 rentable sq. ft.)
USE: Storage, distribution, office, marketing and
other legal use related thereto
TERM: Sixty (60) months
ESTIMATED COMMENCEMENT DATE September 1, 1996
BASE RENT: Months 01-30: $21,240.45 per month
Months 31-60: $23,364.50 per month
TENANT'S PERCENTAGE SHARE
OF OPERATING EXPENSES AND
REAL PROPERTY TAXES: Buildings: 5.65% Tenant's Building: 26.11%
BASE YEAR: 1996 calendar year
SECURITY DEPOSIT: $23,364.50
BROKER: LANDLORD: Cornish & Carey Commercial
TENANT: Cornish & Carey Commercial
CONTRACT MANAGER: Insignia Commercial Group, Inc.
ADDRESS FOR NOTICES: LANDLORD: c/o Insignia Commercial Group, Inc.
2201 Dupont Drive, Ste. 100
Irvine, CA 92715 Attn: J.R. Wetzel
CONTRACT
MANAGER: 160 W. Santa Clara St., Ste. 1350
San Jose, CA 95113
Attn: Mark Schmidt
<PAGE>
TENANT: Prior to Commencement Date:
1130 E. Arques Ave.
Sunnyvale, CA 94086
Attn: Sandi Kile
Following Commencement Date:
The Premises
TENANT IMPROVEMENTS Paint/recarpet Premises with project-standard materials
EXHIBITS: Exhibits A, B, C, D, E, F and G
INITIALS: _____________ _____________
LANDLORD TENANT
<PAGE>
THIS LEASE, which is effective as of the date set forth in the Basic
Lease Information, is entered into by Landlord and Tenant, as set forth in the
Basic Lease Information. Terms which are capitalized in this Lease shall have
the meanings set forth in the Basic Lease Information.
1. Premises. Landlord leases to Tenant, and Tenant leases from
--------
Landlord, the Premises described in the Basic Lease Information, together with
the right in common to use the Common Areas of Tenant's Building and the
Property (both as defined below). The Common Areas shall mean the areas and
facilities within Tenant's Building and the Property provided and designated by
Landlord for the general use, convenience or benefit of Tenant and other tenants
and occupants of the Buildings (e.g., common entrances and hallways; restrooms;
trash disposal facilities; janitorial, telephone and electrical closets; and
unreserved parking areas). For purposes of this Lease, the term 'Tenant's
Building' shall mean that certain building within which the Premises are located
(which building is commonly known as 2933 Bunker Hill Lane, Santa Clara,
California), the term 'Buildings' shall mean all buildings located on the
Property, and the term 'Property' shall mean all of the real property shown on
Exhibit 'A' attached hereto.
- ----------
2. Term.
----
(a) Lease Term. The Term of this Lease shall commence on the
----------
Commencement Date (as defined in Subsection 2(b)) and, unless terminated on an
earlier date in accordance with the terms of this Lease, shall extend for the
period (i.e., Term) specified in the Basic Lease Information.
(b) Commencement Date. The 'Commencement Date' of this Lease
-----------------
shall be the date that Landlord delivers possession of the Premises to Tenant
(which date is presently estimated to be the Estimated Commencement Date set
forth in the Basic Lease Information).
(c) Premises Not Delivered. If, for any reason, Landlord
----------------------
cannot deliver possession of the Premises to Tenant by the Estimated
Commencement Date, (i) Tenant shall not be obligated to pay Rent until the
Commencement Date; (ii) the length of the Term shall not be extended; (iii) the
failure shall not affect the validity of this Lease, or the obligations of
Tenant under this Lease; and (iv) Landlord shall not be subject to any
liability; provided, however, in the event Landlord has failed to deliver
possession of the Premises to Tenant on or before October 15, 1996 ('Outside
Possession Date'), Tenant shall have the right, as its sole and exclusive
remedy, to terminate this Lease by providing Landlord with written notice
thereof within five (5) days following the Outside Possession Date (provided,
however, in the event that Landlord's failure to deliver possession of the
Premises to Tenant on or before the Outside Possession Date is due, in whole or
in part, to any causes beyond the reasonable control of Landlord ('Force Majeure
Delay'), the Outside Possession Date shall be extended for the period of delay
attributable to the Force Majeure Delay in question). In the event of such
termination by Tenant, Tenant shall reimburse Landlord for all attorneys' fees
and costs incurred by Landlord in connection with the preparation of this Lease
(which reimbursement shall be made by Tenant concurrently with its notice of
termination). In the event Tenant fails to provide Landlord with a notice of
termination (and such reimbursement for attorneys' fees and costs) within such
five (5) day period, this Lease shall continue in full force and effect.
<PAGE>
(d) Commencement Date Memorandum. When the Commencement Date
----------------------------
is determined, the parties shall execute a Commencement Date Memorandum, in the
form attached hereto as Exhibit 'C', setting forth the Commencement Date and the
expiration date ('Expiration Date') of this Lease.
(e) Early Entry. If Tenant is permitted to enter the Premises
-----------
prior to the Commencement Date for the purposes of fixturing or any purpose
other than occupancy permitted by Landlord, the entry shall be subject to all
the terms and provisions of this Lease, except that the payment of Rent shall
commence as of the Commencement Date.
3. Rent.
----
(a) Rent. As used in this Lease, the term 'Rent' shall
----
include: (i) the Base Rent; (ii) Tenant's Percentage Share of the total dollar
increase, if any, in the Operating Expenses paid or incurred by Landlord during
the calendar year over the Operating Expenses paid or incurred by Landlord in
the Base Year ('Base Year') specified in the Basic Lease Information; (iii)
Tenant's Percentage Share of the total dollar increase, if any, in the Real
Property Taxes paid or incurred by Landlord during the calendar year over the
Real Property Taxes paid or incurred during the Base Year; and (iv) all other
amounts which Tenant is obligated to pay under the terms of this Lease.
(b) Unpaid Rent. Any amount of Rent which is not paid within
-----------
five (5) business days after the date when due shall bear interest from the date
due until the date paid at the rate ('Interest Rate') which is the lesser of
twelve percent (12%) per annum or the maximum rate permitted by law.
(c) Late Payment Charges. Tenant hereby acknowledges that late
--------------------
payment by Tenant to Landlord of Rent and any other sums to be paid to Landlord
hereunder after the expiration of any applicable grace period will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of
which will be extremely difficult to ascertain. Such costs include, but are not
limited to, processing and accounting charges and late charges which may be
imposed on Landlord by the terms of any trust deed covering the Premises.
Accordingly, if any installment of Rent of any other sums due from Tenant shall
not be received by Landlord within five (5) business days after the date when
due, Tenant shall pay to Landlord a late charge equal to six percent (6%) of
such overdue amount. The parties hereby agree that such late charges represents
a fair and reasonable estimate of the cost Landlord will incur by reason of late
payment by Tenant. Acceptance of such late charge by Landlord shall in no event
constitute a waiver of Tenant's default with respect to such overdue amount, nor
prevent Landlord from exercising any of the other rights and remedies granted
hereunder.
(d) Payments. All payments due from Tenant to Landlord shall
--------
be paid to Contract Manager (or such other entity designated by Landlord),
without prior demand or notice, deduction or off set, in lawful money of the
United States of America at Landlord's address for notices hereunder or to such
other person at such other place as Landlord may from time to time designate by
written notice to Tenant.
2
<PAGE>
(e) Proration of Rent. If the Commencement Date is not the
-----------------
first day of the month, or if the end of the Term is not the last day of the
month. Rent shall be prorated on a monthly basis (based upon a thirty (30) day
month) for the fractional month during the month which this Lease commences or
terminates. The termination of this Lease shall not affect the obligations of
Landlord and Tenant pursuant to Subsections 5(d) and 6(e) below which are to be
performed after the termination.
4. Base Rent. Tenant shall pay Base Rent and all other amounts owing
---------
under this Lease as Rent to Contract Manager (or other entity designated by
Landlord). in advance. on the first day of each calendar month of the Term, at
Contract Manager's address for notices (as set forth in the Basic Lease
Information) or at such other address as Landlord may designate. The Base Rent
shall be the amount set forth in the Basic Lease Information. Notwithstanding
- -the foregoing, Tenant shall pay the Base Rent for the first month of the Term
upon execution of this Lease, together with the Security Deposit.
5. Additional Rent - Annual Rent Adjustment/Operating Expenses.
-----------------------------------------------------------
(a) Increase in Operating Expenses. Tenant shall pay as Rent
------------------------------
Tenant's Percentage Share of the total dollar increase, if any, in the Operating
Expenses paid or incurred by Landlord during the calendar year over the
Operating Expenses paid or incurred by Landlord during the Base Year.
(b) Operating Expenses. The term 'Operating Expenses' shall
------------------
mean (i) all of Landlord's direct costs and expenses of operation, repair and
maintenance of the Buildings and the Property, including the Common Areas and
supporting facilities, as determined by Landlord in accordance with generally
accepted accounting principles or other recognized accounting principles,
consistently applied; (ii) costs, or a portion thereof, properly allocable to
the Buildings or Common Areas of any capital improvements made to the Buildings
or Common Areas by Landlord after the date of this Lease which comprise
labor-saving devises or other equipment intended to improve the operating
efficiency of any system within the Buildings or Common Areas (such as an energy
management computer system); and (iii) costs properly allocable to the Buildings
or Common Areas of any capital improvements made to the Buildings or Common
Areas by Landlord after the date of this Lease that are required under any
governmental law or regulation that was not applicable to the Buildings and
Common Areas at the time they were constructed, or that are reasonably required
for the health and safety of tenants in the Buildings, the costs, or allocable
portion thereof, to be amortized over the useful life of the capital
improvements in question (as determined by Landlord in its reasonable
discretion), together with interest upon the unamortized balance at the Interest
Rate or such higher rate as may have been paid by Landlord on funds borrowed for
the purpose of constructing the capital improvements. If Landlord elects to
self-insure or includes the Property under blanket insurance policies covering
multiple properties, then the term 'Operating Expenses' shall include the
portion of the cost of such self-insurance or blanket insurance allocated by
Landlord to this Property.
<PAGE>
The following shall not constitute Operating Expenses for purposes of
this Lease, and nothing contained herein shall be deemed to require Tenant to
pay for any of the following as Operating Expenses (but without relieving Tenant
of any obligation to pay for any of the same pursuant to any other provisions of
this Lease): (i) damage and repairs attributable to condemnation, fire or other
casualty (but not excluding the deductible portion of any insurance covering
such fire or other casualty (or, if Landlord elects to self-insure, an amount
equal to what would have been the deductible portion had Landlord maintained
such insurance)); (ii) damage and repairs covered under any warranty or
insurance policy carried by Landlord in connection with the Buildings or the
Property (including the Common Areas) (but not excluding the deductible portion
of any such warranty or insurance (or, if Landlord elects to self-insure, an
amount equal to what would have been the deductible portion had Landlord
maintained such insurance)); (iii) damage and repairs necessitated by the
negligence or willful misconduct of Landlord or Landlord's employees,
contractors or agents; (iv) corporate executive salaries of Landlord; (v)
Landlord's general overhead not related to the Buildings and the Property
(including the Common Areas); (vi) payments of principal or interest on any
mortgage or other encumbrance including ground lease payments and points,
commissions and legal fees associated with financing; (vii) depreciation; (viii)
any cost or expense related to the testing for, removal, transportation or
storage of hazardous materials from the Buildings or the Property (including the
Common Areas); (ix) interest, penalties or other costs arising out of Landlord's
failure to make timely payments of its obligations; or (x) repairs, alterations,
additions, improvements or replacements made to rectify or correct any defect in
the design, materials or workmanship of the Buildings or the Common Areas.
Landlord shall not collect in excess of one hundred percent (100%) of the
Operating Expenses or any item or cost more than once. Any Operating Expenses
charged Landlord by any of its affiliates for goods and services provided to the
Buildings or the Property shall not exceed the then-prevailing cost thereof that
would be charged to Landlord by non-affiliated parties.
(c) Estimates of Increases in Operating Expenses. During
--------------------------------------------
December of each calendar year during the Term (commencing with December, 1996),
or as soon thereafter as practicable, Landlord shall give Tenant written notice
of Landlord's estimate of any amount of Operating Expenses in excess of the
Operating Expenses incurred in the Base Year and the amount of the increase
which will be payable for the ensuing calendar year. On or before the first day
of each month during the ensuring calendar year, Tenant shall pay to Landlord
one-twelfth (1/12) of the estimated amount; provided, however, that if notice is
not given in December, Tenant shall continue to pay on the basis of the then
applicable Rent until the month after the notice is given. If at any time it
appears to Landlord that the increased amount payable for the current calendar
year will vary from Landlord's estimate by more than five percent (5%). Landlord
may give notice to Tenant of Landlord's revised estimate for the year, and
subsequent payments by Tenant for the year shall be based on the revised
estimate; provided, however, that Landlord shall not give notice of a revised
estimate for any year more frequently than once a calendar quarter.
(d) Annual Adjustment. Within one hundred twenty (120) days
-----------------
after the close of each calendar year of the Term, or as soon after the one
hundred twenty (120) day period as practicable, Landlord. shall deliver to
Tenant a statement of the adjustment to the Operating
4
<PAGE>
Expenses for the prior calendar year. If, on the basis of the statement, Tenant
owes an amount that is less than the estimated payments for the calendar year
previously made by Tenant, Landlord shall apply the excess to the next payment
of increased Operating Expenses due. If, on the basis of the statement, Tenant
owes an amount that is more than the estimated payments for the calendar year
previously made by the Tenant, Tenant shall pay the deficiency to Landlord
within thirty (30) days after delivery of the statement. The statement of
Operating Expenses shall be presumed correct and shall be deemed final and
binding upon Tenant unless (i) Tenant in good faith objects in writing thereto
within thirty (30) days after delivery of the statement to Tenant (which writing
shall state, in reasonable detail, all of the reasons for the objection); and
(ii) Tenant pays in full, within thirty (30) days after delivery of the
statement to Tenant, any amount owed by Tenant with respect to the statement
which is not in dispute. If Tenant objects to Landlord's allocation to this
Property of the cost of self-insurance or blanket insurance, such allocation
shall nonetheless be presumed correct and shall be deemed final and binding upon
Tenant unless Tenant's timely written objection includes credible evidence that
Landlord could have obtained substantially comparable insurance coverage for
this Property alone at lower cost.
(e) Audit. Landlord shall keep for a period of at least twelve
-----
(12) months after the expiration of each calendar year, full and accurate books,
records and supporting documents relating to the calculations reflected in
Landlord's annual statement of Operating Expenses and Real Property Taxes (as
defined below). Tenant shall have the right to challenge the accuracy of the
calculations set. forth in any annual statement provided by Landlord by
providing Landlord with notice thereof within the thirty (30) day period
referenced in subsection (i) of the fourth sentence of Section 5(d) above, and,
if Tenant timely provides such notice and makes the payment described in
subsection (ii) of the fourth sentence of Section 5(d) above, then Landlord
shall make its books and supporting documents relating to the annual statement
in question available to Tenant or an independent certified public accountant
(which accountant shall be subject to Landlord's prior approval, which approval
shall not be unreasonably withheld) at Landlord's designated office (which
inspection and/or audit shall be undertaken, if at all, within thirty (30) days
following Landlord's receipt of Tenant's notice of challenge). The Operating
Expenses and/or Real Property Taxes shall be appropriately adjusted on the basis
of such certified audit provided such audit was performed within such thirty
(30) day period by the independent certified public accountant approved by
Landlord. Tenant shall pay the cost and expense of such audit, unless such audit
shows an overpayment discrepancy of more than five percent (5%) of Operating
Expenses or Real Property Taxes, as the case may be, in which event Landlord
shall reimburse Tenant the reasonable costs and expenses of the independent
certified public accountant performing such audit.
6. Additional Rent - Annual Rent Adjustments/Real Property Taxes.
-------------------------------------------------------------
(a) Increase in Real Property Taxes. Tenant shall pay as Rent
-------------------------------
Tenant's Percentage Share of the total dollar increase, if any, in the Real
Property Taxes paid or incurred by Landlord in the calendar year over the Real
Property Taxes paid or incurred by Landlord during the Base Year.
5
<PAGE>
(b) Real Property Taxes. The term 'Real Property Taxes' shall
-------------------
mean any ordinary or extraordinary form of assessment or special assessment,
license fee, rent tax, levy, penalty (if a result of Tenant's delinquency), or
tax, other than net income, premium, estate, succession, inheritance, transfer
or franchise taxes, imposed by any authority having the direct or indirect power
to tax, or by any city, county, state or federal government for any maintenance
or improvement or other district or division thereof, relating to all or any
part of the Property, including the Buildings and Premises. The term shall
include all transit charges, housing fund assessments, real estate taxes and all
other taxes relating to the Premises, Buildings and/or Property, all other taxes
which may be levied in lieu of real estate taxes, all assessments, assessment
bonds, levies, fees, and other governmental charges (including, but not limited
to, charges for traffic facilities, improvements, child care, water services
studies and improvements, and fire services studies and improvements) for
amounts necessary to be expended because of governmental orders, whether general
or special, ordinary or extraordinary, unforeseen as well as foreseen, of any
kind and nature for public improvement, services, benefits or any other purposes
which are assessed, levied, confirmed, imposed or become a lien upon the
Premises, Buildings or Property or become payable during the Term.
(c) Acknowledgment of Parties. It is acknowledged by Landlord
-------------------------
and Tenant that Proposition 13 was adopted by the voters of the Sate of
California in the June, 1978 election, and that assessments, taxes, fees, levies
and charges may be imposed by governmental agencies for such purposes as fire
protection, street, sidewalk, road, utility construction and maintenance, refuse
removal and for other governmental services which formerly may have been
provided without charge to property owners or occupants. It is the intention of
the parties that all new and increased assessments, taxes, fees, levies and
charges due to Proposition 13 or any other cause are to be included within the
definition of Real Property Taxes for purposes of this Lease.
(d) Estimates of Increases in Real Property Taxes. During
---------------------------------------------
December of each calendar year during the Term (commencing with December, 1996),
or as soon thereafter as practicable, Landlord shall give Tenant written notice
if Landlord estimates that the Real Property Taxes will exceed the Real Property
Taxes incurred in the Base Year, and the amount of the increase which will be
payable for the ensuing calendar year. On or before the first day of each month
during the ensuring calendar year, Tenant shall pay to Landlord one-twelfth
(12th) of the estimated amount; provided, however, that if notice is not given
in December, Tenant shall continue to pay on the basis of the then applicable
Rent until the month after the notice is given. If at any time it appears to
Landlord that the increased amount payable for the current calendar year will
vary from Landlord's estimate by more than five percent (5%), Landlord may give
notice to Tenant of Landlord's revised estimate for the year, and subsequent
payments by Tenant for the year shall be based on the revised estimate;
provided, however, that Landlord shall not give notice of a revised estimate for
any year more frequently than once a calendar quarter.
(e) Annual Adjustment. Within one hundred twenty (120) days
-----------------
after the close of each calendar year of the Term, or as soon after the one
hundred twenty (120) day period as practicable, Landlord shall deliver to Tenant
a statement of the adjustment to the Real Property Taxes for the prior calendar
year; the statement shall be final and binding upon Landlord and Tenant. If, on
the basis of the statement, Tenant owes an amount that is less than the
estimated
6
<PAGE>
payments for the calendar year previously made by Tenant, Landlord shall apply
the excess to the next payment of increased Real Property Taxes due. If, on the
basis of the statement, Tenant owes an amount that is more than the estimated
payments for the calendar year previously made by the Tenant, Tenant shall pay
the deficiency to Landlord within thirty (30) days after delivery of the
statement.
(f) Taxes on Tenant Improvements and Personal Property.
--------------------------------------------------
Notwithstanding any other provision hereof, Tenant shall pay the full amount of
any increase in Real Property Taxes during the Term resulting from any and all
alterations and tenant improvements of any kind whatsoever placed in, on or
about the Premises for the benefit of, at the request of, or by Tenant. Tenant
shall pay, prior to delinquency, all taxes assessed or levied against Tenant's
personal property in, on or about the Premises. When possible, Tenant shall
cause its personal property to be assessed and billed separately from the real
or personal property of Landlord.
7. Tenant's Percentage Share.
-------------------------
(a) Calculation of Tenant's Percentage Share. Tenant's
----------------------------------------
Percentage Share of increases in Operating Expenses and Real Property Taxes may
be determined by Landlord as a function of the rentable square footage of
Tenant's Building or the rentable square footage of all the Buildings located on
the Property, depending on the nature of the item to be charged. Tenant
acknowledges that the total rentable square footage of the Buildings may change
from time to time, and that Tenant's percentage Share may vary accordingly.
(b) Tenant's Percentage Share. Tenant's Percentage Share of
-------------------------
increases in Operating Expenses and Real Property Taxes to be charged as a
function of the Buildings presently is 5.65%, and Tenant's Percentage Share of
increases in Operating Expenses and Real Property Taxes to be charged as a
function of Tenant's Building presently is 26.11%.
8. 'As-Is' Condition. Except as provided in this Section 8 below,
----------------
Tenant agrees to accept the Premises, the Common Areas and all of the areas
outside of the Premises in 'as-is' condition as of the Commencement Date, and
acknowledges and agrees that Landlord has made no representation or warranty
whatsoever to Tenant regarding the Premises or the suitability of the Premises,
Common Areas and any of the facilities associated with the Premises, for
Tenant's stated or intended use. Prior to the Commencement Date, Landlord shall,
at its sole cost and expense, cause (i) the interior walls of the Premises to be
painted with project-standard paint, and (ii) the carpeted areas of the Premises
to be recarpeted with project-standard carpeting.
9. Uses of Premises.
----------------
(a) Tenant shall use the Premises solely for the use set forth
in the Basic Lease Information, and Tenant shall not use the Premises for any
other purpose without obtaining the prior written consent of Landlord, which
consent shall be given or withheld in the sole and absolute discretion of
Landlord without any requirement of reasonableness in the exercise of that
discretion. Tenant shall, at its own cost and expense, comply with all laws,
rules, regulations, orders, permits, licenses and ordinances issued by any
governmental authority which relate to the condition, use or occupancy of the
Premises during the Term of this Lease; provided,
7
<PAGE>
however, Tenant shall not be required to make or pay for (except to the extent
the same is included as part of Operating Expenses pursuant to Section 5 above)
any capital improvements (including structural changes) required to be made to
the Buildings (including the Premises) or the Property (including the Common
Areas) in order to comply with such laws, rules, regulations, orders, permits,
licenses and ordinances unless the same is necessitated by reason of (i)
Tenant's particular use of the Premises, or (ii) any alterations, additions or
improvements made to the Premises by or under the direction of Tenant. Tenant
shall not use the Premises in any manner that will constitute waste, nuisance,
or unreasonable annoyance (including, without limitation, use of loudspeakers or
sound or light apparatus that can be heard or seen outside the Premises) to
other tenants in the Building.
(b) 'Hazardous Substance' shall mean the substances included
within the definitions of the term 'Hazardous Substance' under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section 9601 et seq., and the California Carpenter-Presley-Tanner
Hazardous Substance Account Act, California Health & Safety Code Section 25300
et seq., and regulations promulgated thereunder, as amended. 'Hazardous Waste'
shall mean (a) any waste listed as or meeting the identified characteristics of
a 'Hazardous Waste' under the Resource Conservation and Recovery Act of 1976, 42
U.S.C. Section 6901 et seq., and regulations promulgated pursuant thereto,
collectively 'RCRA', or (b) any waste meeting the identified characteristics of
'Hazardous Waste' under California Hazardous Waste Control Law, California
Health and Safety Code Section 25100 et seq., and regulations promulgated
pursuant thereto, collectively 'CHWCL'. 'Hazardous Waste Facility' shall mean a
hazardous waste facility as defined under CHWCL.
(c) Tenant covenants that, at its sole cost and expense, it
will comply with all applicable laws, rules, regulations, orders, permits,
licenses and operating plans of any governmental authority with respect to the
use, handling, generation, transportation, storage, treatment and/or disposal of
hazardous substances or wastes, and Tenant will provide Landlord with copies of
all permits, registrations or other similar documents that authorize Tenant to
conduct any such activities in connection with its authorized use of the
Premises. Additionally, Tenant agrees to comply with the Rules and Regulations
attached hereto as Exhibit 'E' (the 'Rules'), the requirements of the Board of
----------
Fire Underwriters or Landlord's insurance carrier, and to comply with covenants,
conditions and restrictions ('CC&Rs') applicable to the Building.
(d) Tenant agrees that it shall not operate on the Premises
any facility required to be permitted or licensed as a Hazardous Waste Facility
or for which interim status as such is required. Nor shall Tenant store any
Hazardous Wastes on the Premises for ninety (90) days or more.
(e) Tenant agrees to comply with all applicable laws, rules,
regulations, orders, and permits relating to underground storage tanks
(including any installation', monitoring, maintenance, closure and/or removal of
such tanks) as such tanks are defined in California Health and Safety Code,
Section 25281(u), including, without limitation, complying with California
Health and Safety Code Section 25280-25299.6 and the regulations promulgated
8
<PAGE>
thereunder. Tenant shall furnish to Landlord copies of all registrations and
permits for all underground storage tanks.
(f) If applicable, Tenant shall provide to Landlord in writing
the following information and/or documentation at the Commencement Date and
within sixty (60) days of any change in the required information and/or
documentation:
(i) A list of all hazardous substances and/or wastes that
Tenant uses, handles, generates, transports, stores, treats or disposes in
connection with its operations on the Premises.
(ii) Copies of all Material Safety Data Sheets ('MSDSs')
required to be completed with respect to operations of Tenant at the Premises in
accordance with Title 8, California Code of Regulations Section 5194 or 42
U.S.C. Section 11021, or any amendments thereto. In lieu of this requirement,
Tenant may provide a Hazardous Materials Inventory Sheet that details the MSDSs.
(iii) Copies of all hazardous waste manifests, as defined
in Title 22, California Code of Regulations Section 66481, that Tenant is
required to complete in all connections with its operations at the Premises.
(iv) A copy of any Hazardous Materials Management Plans
required with respect to Tenant's operations.
(v) Copies of any Contingency Plans and Emergency
Procedures required of Tenant due to its operations in accordance with Title 22,
Chapter 30, Article 20, of the California Code of Regulations, and any
amendments thereto.
(vi) Copies of any biennial reports to be furnished to
California Department of Health Services relating to hazardous substances or
wastes.
(vii) Copies of all industrial waste water discharge
permits.
(g) Tenant shall secure Landlord's prior written approval for
any proposed receipt, storage, possession, use, transfer or disposal of
'Radioactive Materials' or 'Radiation', as such materials are defined in Title
17, California Code of Regulations Section 30100(w) and (z) or possessing the
characteristics of the materials so defined which approval Landlord may withhold
in its sole and absolute discretion. The Tenant in connection with any
authorized receipt, storage, possession, use, transfer or disposal or
radioactive materials or radiation shall:
(i) Comply with all federal, state and local laws, rules,
regulations, orders, licenses and permits;
(ii) Furnish Landlord with a list of all radioactive
materials or radiation received, stored, possessed, used, transferred or
disposed; and
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(iii) Furnish Landlord with all licenses, registration
materials, inspection reports, orders and permits in connection with the
receipt, storage, possession, use, transfer or disposal or radioactive materials
or radiation.
(h) Tenant shall comply with any and all applicable laws,
rules, regulations, and orders with respect to the release into the environment
of any hazardous wastes or substances or radiation or radioactive materials.
Tenant shall notify Landlord in writing of any unauthorized release into the
environment within twenty-four (24) hours of the time at which Tenant becomes
aware of such release.
(i) Tenant shall indemnify, defend and hold Landlord harmless
from any and all claims, losses (including, but not limited to, loss of rental
income and loss due to business interruption), damages (including diminution in
value or loss of rental value following expiration or earlier termination of the
Term), liabilities, costs, legal fees, and expenses of any sort arising out of
or relating to any unauthorized release into the environment of Hazardous
Substances or Hazardous Wastes or Radioactive Materials by Tenant or any of
Tenant's agents, contractors or invitees, or Tenant's failure to comply with
Subparagraphs (a)-(h) of this section of the Lease.
(j) Tenant agrees to cooperate with Landlord in furnishing
Landlord with complete information regarding Tenant's receipt, handling, use,
storage, transportation, generation, treatment and/or disposal of hazardous
substances or wastes or radiation or radioactive materials. Upon request, Tenant
agrees to grant Landlord reasonable access at reasonable times to the Premises
to inspect Tenant's receipt, handling, use, storage, transportation, generation,
treatment and/or disposal of hazardous substances or wastes or radiation or
radioactive materials without being deemed guilty of any disturbance of Tenant's
use or possession and without being liable to Tenant in any manner.
(k) Notwithstanding Landlord's rights of inspection and review
under this paragraph, Landlord shall have no obligation or duty to so inspect or
review, and no third party shall be entitled to rely on Landlord to conduct any
sort of inspection or review by reason of the provisions of this paragraph.
(l) Tenant shall fully complete, execute and, concurrently
with Tenant's execution and delivery of this Lease to Landlord, deliver to
Landlord an Environmental Questionnaire and Disclosure Statement in the form
attached to this Lease as Exhibit 'F.' The completed Environmental Questionnaire
and Disclosure Statement shall be deemed incorporated into this Lease for all
purposes, and Landlord shall be entitled to fully rely on the information
contained therein.
(m) This Section 9 of the Lease shall survive termination of
the Lease.
10. Alterations.
-----------
(a) Permitted Alterations. Tenant shall give Landlord not less
than ten (10) days' notice of any alteration Tenant desires to make to the
Premises. Tenant shall not make any alteration in, or about the Premises without
the prior written consent of Landlord unless the
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alteration does not affect the Tenant's Building structure, the exterior
appearance of the Tenant's Building, the roof or the Tenant's Building systems
(e.g., electrical systems) and the total cost of any such alterations is not in
excess of Fifteen Thousand Dollars ($15,000) in any twelve (12) month period
during the Term. Tenant shall comply with all rules, laws, ordinances and
requirements at the time Tenant makes any alteration and shall deliver to
Landlord a complete set of 'as built' plans and specifications for each
alteration. Tenant shall be solely responsible for maintenance and repair of all
alterations made by Tenant. As used in this Section, the term 'alteration' shall
include any alteration, addition or improvement.
(b) Liens. If, because of any act or omission of Tenant or anyone
-----
claiming by, through, or under Tenant, any mechanics' lien or other lien is
filed against the Premises, the Tenant's Building, the Property or against other
property of Landlord (whether or not the lien is valid or enforceable), Tenant
shall, at its own expense, cause it to be discharged of record within a
reasonable time, not to exceed thirty (30) days, after the date of the filing.
In addition, Tenant shall defend and indemnify Landlord and hold it harmless
from any and all claims, losses, damages, judgments, settlements, costs and
expenses, including attorneys' fees, resulting from the lien.
(c) Ownership of Alterations. Any alteration made by Tenant shall
------------------------
immediately become Landlord's property. Except as provided in Subsection 10(d),
Landlord may require Tenant at Tenant's sole expense and by the end of the Term,
to remove any alterations made by Tenant and to restore the Premises to its
condition prior to the alteration.
(d) Request Regarding Removal Obligation. At the time that Tenant
------------------------------------
requests Landlord's consent to any alteration, Tenant may request that Landlord
notify Tenant if Landlord will require Tenant, at Tenant's sole expense to
remove any or all of the alteration by the end of the Term, and to restore the
premises to its condition prior to the alteration.
11. Repairs. Tenant, at all times during the Term and at Tenant's sole
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cost and expense, shall keep the Premises and every part thereof in good
condition and repair, ordinary wear and tear, damage thereto not caused by
Tenant, by fire, earthquake, acts of God or the elements excepted. Tenant hereby
waives all right to make repairs at the expense of Landlord or in lieu thereof
to vacate the Premises as provided in California Civil Code Section 1942 or any
other law, statute or ordinance now or hereafter in effect.
12. Damage or Destruction.
---------------------
(a) Landlord's Obligations to Rebuild. If the Premises are damaged or
---------------------------------
destroyed, Landlord shall promptly and diligently repair the Premises unless
Landlord has the option to terminate this Lease as provided herein, and Landlord
elects to terminate.
(b) Right to Terminate. Landlord and Tenant each shall have the
------------------
option to terminate this Lease if the Premises or the Tenant's Building is
destroyed or damaged by fire or other casualty, regardless of whether the
casualty is insured against under this Lease, if Landlord reasonably determines
that the repair of the Premises or the Tenant's Building cannot be completed
within two hundred seventy (270) days after the casualty. If a party desires to
11
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exercise the right to terminate this Lease as a result of a casualty, the party
shall exercise the right by giving the other party written notice of its
election to terminate within thirty (30) days after the damage or destruction,
in which event this Lease shall terminate five (5) days after the date of the
notice. If neither Landlord nor Tenant exercises the right to terminate this
Lease, Landlord shall promptly commence the process of obtaining necessary
permits and approvals, and shall commence repair of the Premises or the
Tenant's Building as soon as practicable and thereafter prosecute the repair
diligently to completion, in which event this Lease shall continue in full force
and effect.
(c) Limited Obligation to Repair. Landlord's obligation, should
----------------------------
Landlord elect or be obligated to repair or rebuild, shall be limited to the
Tenant's Building shell and any tenant improvements which are constructed and
paid for by Landlord pursuant to Section 8 above. Tenant, at its option and
expense, shall replace or fully repair all trade fixtures, equipment and other
improvements installed by Tenant and existing at the time of the damage or
destruction.
(d) Abatement of Rent. In the event of any damage or destruction to
-----------------
the Premises which does not result in termination of this Lease, the Base Rent
shall be temporarily abated proportionately to the degree the Premises are
untenantable as a result of the damage or destruction, commencing from the date
of the damage or destruction and continuing during the period required by
Landlord to substantially complete its repair and restoration of the premises;
provided, however, that nothing herein shall preclude Landlord from being
entitled to collect the full amount of any rent loss insurance proceeds. Tenant
shall not be entitled to any compensation or damages from Landlord for loss of
the use of the Premises, damage to Tenant's personal property or any
inconvenience occasioned by any damage, repair or restoration. Tenant hereby
waives the provisions of Section 1932, Subdivision 2, and Section 1933,
Subdivision 4, of the California Civil Code, and the provisions of any similar
law hereafter enacted.
(e) Damage Near End of Term and Extensive Damage. In addition to the
--------------------------------------------
rights to termination under Subsection 12 (b), either Landlord or Tenant shall
have the right to cancel and terminate this Lease as of the date of the
occurrence of destruction or damage if the Premises or the Tenant's Building is
substantially destroyed or damaged (i.e., there is damage or destruction which
Landlord determines would require more than six (6) months to repair) and made
untenantable during the last twelve (12) months of the Term. Landlord or Tenant
shall give notice of its election to terminate this Lease under this Subsection
12(e) within thirty (30) days after Landlord determines that the damage or
destruction would require more than six (6) months to repair. If neither
Landlord nor Tenant elects to terminate this Lease, the repair of the damage
shall be governed by Subsection 12(a) or 12(b) as the case may be.
(f) Insurance Proceeds. If this Lease is terminated, Landlord may keep
------------------
all the insurance proceeds resulting from the damage, except for those proceeds
which specifically insured Tenant's personal property and trade fixtures.
13. Eminent Domain. If all or any party of the Premises is taken for
--------------
public or quasi-public use by a governmental authority under the power of
eminent domain or is conveyed to a
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governmental authority in lieu of such taking, and if the taking or conveyance
causes the remaining part of the Premises to be untenantable and inadequate for
use by Tenant for the purpose for which they were leased, then Tenant, at its
option and by giving notice within fifteen (15) days after the taking, may
terminate this Lease as of the date Tenant is required to surrender possession
of the Premises. If a part of the Premises is taken or conveyed but the
remaining part is tenantable and adequate for Tenant's use, then this Lease
shall be terminated as to the part taken or conveyed as of the date Tenant
surrenders possession; Landlord shall make such repairs, alterations and
improvements as may be necessary to render the part not taken or conveyed
tenantable; and the Rent shall be reduced in proportion to the part of the
Premises taken or conveyed. All compensation awarded for the taking or
conveyance shall be the property of Landlord without any deduction therefrom for
any estate of Tenant, and Tenant hereby assigns to Landlord all its right, title
and interest in and to the award. Tenant shall have the right, however, to
recover from the governmental authority, but not from Landlord, such
compensation as may be awarded to Tenant on account of the interruption of
Tenant's business, moving and relocation expenses and removal of Tenant's trade
fixtures and personal property.
14. Indemnity and Insurance.
-----------------------
(a) Indemnity. Tenant shall be responsible for, shall insure against,
---------
and shall indemnify Landlord and its agents, employees, contractors, officers
and directors and hold them harmless from, any and all liability for any loss,
damage or injury to person or property occurring in, on or about the Premises
(except to the extent caused by the gross negligence or willful misconduct of
Landlord, its agents, employees, contractors, officers or directors), and Tenant
hereby releases Landlord and its agents, employees, contractors, officers and
directors from any and all liability for the same. Tenant's obligation to
indemnify Landlord and its agents, employees, contractors, officers and
directors hereunder shall include the duty to defend against any claims asserted
by reason of any loss, damage or injury, and to pay any judgments, settlements,
costs, fees and expenses, including attorneys' fees, incurred in connection
therewith.
(b) Insurance. At all times during the term of this Lease, Tenant
---------
shall carry, at its own expense, for the protection of Tenant, Landlord,
Landlord's constituent parts and Landlord's management agents, as their interest
may appear, one or more policies of comprehensive general public liability and
property damage insurance, issued by one or more insurance companies acceptable
to Landlord, with minimum coverages of One Million Dollars ($1,000,000) for
injury to one person in any one accident, One Million Dollars ($1,000,000) for
injuries to more than one person in any one accident and One Million Dollars
($1,000,000) in property damage per accident and insuring against any and all
liability for which Tenant is responsible under this Lease. The insurance policy
or policies shall name Landlord, Landlord's constituent parts and Landlord's
management agents (including, without limitation, JER Investment Management L.P.
and Insignia Commercial Group, Inc.) as additional insureds, and shall provide
that the policy or policies may not be canceled on less than thirty (30) days'
prior written notice to Landlord. Concurrently with Tenant's execution of this
Lease and thereafter upon the request of Landlord, Tenant shall furnish Landlord
with certificates evidencing the insurance. If Tenant fails to carry the
insurance and furnish Landlord with copies of all the
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policies after a request to do so, Landlord shall have the right to obtain the
insurance and collect the cost thereof from Tenant as additional Rent.
15. Assignment and Subletting.
-------------------------
(a) Landlord's Consent. Tenant shall not assign, sublet or otherwise
------------------
transfer all or any portion of Tenant's interest in this Lease (collectively
'sublet') without Landlord's prior written consent, which consent shall not be
unreasonably withheld. Consent by Landlord to one sublet shall not be deemed to
be a consent to any subsequent sublet.
(b) Effect of Sublet. Each sublet to which Landlord has consented
----------------
shall be by an instrument in writing, in a form satisfactory to Landlord as
evidenced by Landlord's written approval. Each sublessee shall agree in writing,
for the benefit of Landlord, to assume, to be bound by and to perform the terms,
conditions and covenants of this Lease to be performed by Tenant. Tenant shall
not be released from personal liability for the performance of each term,
condition and covenant of this Lease, and Landlord shall have the right to
proceed against Tenant without proceeding against the subtenant.
(c) Information to be Furnished. If Tenant desires at any time to
---------------------------
sublet the Premises, Tenant shall first notify Landlord of its desire to do so
and shall submit in writing to Landlord: (i) the name of the proposed subtenant;
(ii) the nature of the proposed subtenant's business to be carried on in the
Premises; (iii) the terms and provisions of the proposed sublease and a copy of
the proposed sublease form; and (iv) such financial information, including
financial statements, as Landlord may reasonably request concerning the proposed
subtenant.
(d) Landlord's Election. At any time within ten (10) business days
-------------------
after Landlord's receipt of the information specified in Subsection 15(c),
Landlord may, by written notice to Tenant, elect either (i) to consent to the
sublet by Tenant; or (ii) to refuse its consent to the sublet. If Landlord fails
to elect either of the alternatives within the ten (1:0) business day period, it
shall be deemed that Landlord has refused its consent to the sublet. If Landlord
refuses its consent, Landlord shall deliver to Tenant a statement of the basis
for its refusal. Any attempted sublet without Landlord's consent shall not be
effective.
(e) Payment Upon Sublet. If Landlord consents to the sublet, Tenant
-------------------
may thereafter enter into a valid sublet of the premises or portion thereof,
upon the terms and conditions set forth in the information furnished by Tenant
to Landlord pursuant to Subsection 15(c), subject to the condition that fifty
percent (50%) of any excess of the monies due to Tenant under the sublet
('subrent') over the Rent required to be paid by Tenant hereunder shall be paid
to Landlord, after first deducting out for Tenant's account the reasonable
marketing, tenant improvements and legal costs, if any, incurred by Tenant in
connection with the sublet in question. Any subrent to be paid to Landlord
pursuant hereto shall be payable to Landlord as and with the Base Rent payable
to Landlord hereunder pursuant to the terms of Section 4. The term 'subrent' as
used herein shall include any consideration of any kind received, or to be
received, by Tenant from the subtenant, if the sums are related to Tenant's
interest in this Lease or in the Premises, including, without limitation, bonus
money, and payments (in excess of fair market
14
<PAGE>
value thereof) for Tenant's assets, fixtures. inventory, accounts, goodwill,
equipment, furniture, general intangibles and any capital stock or other equity
ownership of Tenant.
(f) Executed Counterparts. No sublet shall be valid nor shall any
---------------------
subtenant take possession of the Premises until an executed counterpart of the
sublease has been delivered to Landlord and approved in writing by Landlord,
which approval shall be given or withheld by Landlord within ten (10) business
days following Landlord's receipt of such executed counterpart (and if Landlord
fails to give or withhold such approval within such ten (10) business day
period, Landlord shall be deemed to have withheld its approval of the sublease
in question).
(g) Transfer to Purchaser. A transfer of this Lease to one or more
---------------------
purchasers of a majority interest in Tenant shall be deemed a sublet under this
Lease.
(h) Transfer to Affiliates. Tenant may assign this Lease or sublet the
----------------------
Premises, without Landlord's consent, to any corporation which controls, is
controlled by or is under common control with Tenant, or to any corporation
resulting from the merger or consolidation with Tenant, or to any person or
entity which acquires all the assets of Tenant as going concern of the business
that is being conducted on the Premises, provided that the assignee assumes, in
full, the obligations of Tenant under this Lease.
16. Default.
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(a) Tenant's Default. At the option of Landlord, a material breach of
----------------
this Lease by Tenant shall exist if any of the following events (severally,
'Event of Default'; collectively, 'Events of Default') shall occur: (i) if
Tenant shall have failed to pay Rent, including Tenant's Percentage Share of
increased operating Expenses, Tenant's Percentage Share of increased Real
Property Taxes, or any other sum required to be paid hereunder within five (5)
business days after the date when due, together with interest at the Interest
Rate, from the date the amount became due through the date of payment,
inclusive; (ii) if Tenant shall have failed to perform any term, covenant or
condition of this Lease except those requiring the payment of money, and Tenant
shall have failed to cure the breach within fifteen (15) days after written
notice from Landlord if the breach could reasonably be cured within the -fifteen
(15) day period; provided, however, if the failure could not reasonably be cured
within the fifteen (15) day period, then Tenant shall not be in default unless
it has failed to promptly commence and thereafter continue to make diligent and
reasonable efforts to cure the failure as soon as practicable as reasonably
determined by Landlord; (iii) if Tenant shall have assigned its assets for the
benefit of its creditors; (iv) if the sequestrations of, attachment of, or
execution on, any material part of the property of Tenant or any property
essential to the conduct of Tenant's business shall have occurred, and Tenant
shall have failed to obtain a return or release of the property within thirty
(30) days thereafter, or prior to sale pursuant to any sequestration, attachment
or levy, whichever is earlier; (v) if Tenant shall have abandoned the Premises;
(vi) if a court shall have made or entered any decree or order adjudging Tenant
to be insolvent, or approving as property filed a petition seeking
reorganization of Tenant, or directing the winding up or liquidation of Tenant,
and the decree or order shall have continued for a period of thirty (30) days;
(vii) if Tenant shall make or suffer any transfer which constitutes a fraudulent
or otherwise avoidable transfer under
15
<PAGE>
any provision of the federal Bankruptcy Laws or any applicable state law; or
(viii) if Tenant shall have failed to comply with the provisions of Section 24
or 26. An Event of Default shall constitute a default under this Lease.
(b) Remedies Upon Tenant's Default. Upon an Event of Default, Landlord
------------------------------
shall have the following remedies, in addition to all other rights and remedies
provided by law, equity, statute or otherwise provided in this Lease, to which
Landlord may resort cumulatively or in the alternative:
(i) Landlord may continue this Lease in full force and effect,
and this Lease shall continue in full force and effect as long as Landlord does
not terminate Tenant's right to possession, and Landlord shall have the right to
collect Rent when due. During the period Tenant is in default, Landlord may
enter the Premises and relet it, or any part of it, to third parties for
Tenant's account, provided that any Rent in excess of the Rent due hereunder
shall be payable to Landlord. Tenant shall be liable to Landlord for all
reasonable costs Landlord incurs in reletting the Premises, including, without
limitation, brokers' commissions, expenses of cleaning and redecorating the
Premises required by the reletting and like costs. Reletting may be for a period
shorter or longer than the remaining Term of this Lease. Tenant shall pay to
Landlord the Rent and other sums due under this Lease on the dates the Rent is
due, less the Rent and other sums Landlord receives from any reletting. No act
by Landlord allowed by this Subsection (i) shall terminate this Lease unless
Landlord notifies Tenant in writing that Landlord elects to terminate this
Lease.
(ii) Landlord may terminate Tenant's right to possession of the
Premises at any time by giving written notice to that effect. No act by Landlord
other than giving written notice to Tenant shall terminate this Lease. Acts of
maintenance, efforts to relet the Premises or the appointment of a receiver on
Landlord's initiative to protect Landlord's interest under this Lease shall not
constitute a termination of Tenant's right to possession. On termination,
Landlord shall have the right to remove all personal property of Tenant and
store it at Tenant's costs and to recover from Tenant as damages: (a) the worth
at the time of award of unpaid Rent and other sums due and payable which had
been earned at the time of termination; plus (b) the worth at the time of award
of the amount by which the unpaid Rent and other sums due and payable which
would have been payable after termination until the time of award exceeds the
amount of the Rent loss that Tenant proves could have been reasonably avoided;
plus (c) the worth at the time of award of the amount by which the unpaid Rent
and other sums due and payable for the balance of the Term after the time of
award exceeds the amount of the Rent loss that Tenant proves could be reasonably
avoided; plus (d) any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under this Lease, or which, in the ordinary course of things, would be likely to
result therefrom, including, without limitation, any costs or expenses incurred
by Landlord: (1) in retaking possession of the Premises, including reasonable
attorneys' fees and costs therefor; (2) maintaining or preserving the Premises
for reletting to a new tenant, including repairs or alterations to the Premises
for the reletting; (3) leasing commissions; (4) any other costs necessary or
appropriate to relet the Premises; and (5) at Landlord's election, such other
amounts
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<PAGE>
in addition to or in lieu of the foregoing as may be permitted from time to time
by the laws of the State of California.
The "worth at the time of award" of the amounts referred to in Subsections
(ii) (a) and (ii) (b) is computed by allowing interest at the lesser of twelve
percent (12%) per annum or the maximum rate permitted by law, on the unpaid
Rent and other sums due and payable from the termination date through the date
of award. The "worth at the time of award" of the amount referred to in
Subsection (ii) (c) is computed by discounting the amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of award, plus one
percent (1%). Tenant waives redemption or relief from forfeiture under
California Code of Civil Procedure Sections 1174 and 1179, or under any other
present or future law, if Tenant is evicted or Landlord takes possession of the
Premises by reason of any default of Tenant hereunder.
(c) Landlord's Default. Landlord shall not be deemed to be in default
------------------
in the performance of any obligation required to be performed by Landlord
hereunder unless and until Landlord has failed to perform the obligation within
thirty (30) days after receipt of written notice by Tenant to Landlord
specifying wherein Landlord has failed to perform the obligation; provided,
however, that if the nature of Landlord obligation is such that more than thirty
(30) days are required for its performance, then Landlord, shall not be deemed
to be in default if Landlord shall commence the performance within the thirty
(30) day period and thereafter shall diligently prosecute the same to
completion.
17. Landlord's Right to Perform Tenant's Covenants. If Tenant shall at any
----------------------------------------------
time fail to make any payment or perform any other act on its part to be made or
performed under this Lease, Landlord may, but shall not be obligated to, make
the payment or perform any other act to the extent Landlord may deem desirable
and, in connection therewith, pay expenses and employ counsel. Any payment or
performance by Landlord shall not waive or release Tenant from any obligations
of Tenant under this Lease. All sums so paid by Landlord, and all penalties,
interest and costs in connection therewith, shall de due and payable by Tenant
within five (5) business days following Tenant's receipt of Landlord's written
demand therefor, together with interest thereon at the Interest Rate, from that
date to the date of payment thereof by Tenant to Landlord, plus collection costs
and attorneys' fees. Landlord shall have the same rights and remedies for the
nonpayment thereof as in the case of default in the payment of Rent.
18. Security Deposit. Tenant has deposited with Landlord the Security
----------------
Deposit, in the amount specified in the Basic Lease Information, as security for
the full and faithful performance of every provision of this Lease to be
performed by Tenant. If Tenant defaults with respect to any provision of this
Lease, Landlord may use, apply or retain all or any part of the Security Deposit
for the payment of any Rent or other sum in default, for the payment of any
amount which Landlord may expend or become obligated to expend by reason of
Tenant's default, or to compensate Landlord for any loss or damage which
Landlord may suffer by reason of Tenant's default. If any portion of the
Security Deposit is used or applied, Tenant shall deposit with Landlord, within
ten (10) days after written demand therefor, cash in an amount sufficient to
restore the Security Deposit to its original amount. Landlord shall not be
required to keep the
17
<PAGE>
Security Deposit separate from its general funds, and Tenant shall not be
entitled to interest on the Security Deposit.
19. Surrender of Premises. By taking possession of the Premises,
---------------------
Tenant shall be deemed to have accepted the Premises and the Property in good,
clean and completed condition and repair, subject to all applicable laws, codes
and ordinances. On the expiration or early termination of this Lease, Tenant
shall surrender the Premises to Landlord in its condition as of the
Commencement Date, normal wear and tear and any casualty covered by insurance
maintained by Landlord excepted. Tenant shall remove from the Premises all of
Tenant's personal property, trade fixtures and any alterations required to be
removed pursuant to Section 10. Tenant shall repair damage or perform any
restoration work required by the removal. If Tenant fails to remove any personal
property, trade fixtures or alterations after the end of the Term, Landlord may
remove the property and store it at Tenant's expense, including interest at the
Interest Rate. If the Premises are not so surrendered at the termination of this
Lease, Tenant shall indemnify Landlord against all loss or liability resulting
from delay by Tenant in so surrendering the Premises, including, without
limitation, any claims made by any succeeding tenant, losses to Landlord due to
lost opportunities to lease to succeeding tenants, and attorneys' fees and
costs.
20. Holding Over. If Tenant remains in possession of all or any part
------------
of the Premises after the expiration of the Term or the termination of this
Lease, the tenancy shall be month-to-month only and shall not constitute a
renewal or extension for any further term. In such event. Base Rent shall be
increased in an amount equal to one hundred and twenty-five percent (125%) of
the Base Rent during the last month of the Term (including any extensions), and
any other sums due under this Lease shall be payable in the amount, and at the
times, specified in this Lease. The month-to-month tenancy shall be subject to
every other term, condition, covenant and agreement contained in this Lease and
Tenant shall vacate the Premises immediately upon Landlord's request.
21. Access to Premises. Tenant shall permit Landlord and its agents to
------------------
enter the Premises at all reasonable times upon reasonable notice, except in the
case of an emergency (in which event no notice shall be necessary), to inspect
the Premises; to post Notices of Nonresponsibility and similar notices and to
show the Premises to interested parties such as prospective mortgagors,
purchasers and tenant (except that Landlord may show the Premises to prospective
tenants only during the last twelve (12) months of the term); to make necessary
alterations, additions, improvements or repairs either to the Premises, the
Tenant's Building, or other premises within the Tenant's Building; and to
discharge Tenant's obligations hereunder when Tenant has failed to do so within
a reasonable time after written notice from Landlord. The above rights are
subject to reasonable security regulations of Tenant, and to the requirement
that Landlord shall at all times act in a manner to cause the least possible
interference with Tenant's operations.
22. Signs.
-----
18
<PAGE>
(a) In General. The size, design, color, location and other physical
----------
aspects of any sign in or on the Buildings shall be subject to the CC&Rs, Rules
and Landlord's approval prior to installation, and to any appropriate municipal
or other governmental approvals. The costs of any permitted sign, and the costs
of its installation, maintenance and removal, shall be at Tenant's sole expense
and shall be paid within ten (10) days of Tenant's receipt of a bill from
Landlord for the costs. Landlord will provide initial directory and suite
signage at Landlord's expense
(b) Exterior Signs. Notwithstanding the foregoing, Tenant shall not be
--------------
entitled to any signs on the outside portions of the Property (including on the
exterior of the Buildings), except that, upon the request of Tenant, Landlord
shall cause Tenant's name to be placed on the monument sign presently located on
the Property. The size, design, color, location and other physical aspects of
the placement of Tenant's name on such monument sign shall be determined by
Landlord in its reasonable discretion (except that the size and location thereof
shall be comparable to that of the current tenant of the Premises (i.e.,
Minerva), and such placement shall be on a non-exclusive basis. The costs of
installing, maintaining and removing Tenant's name from the monument sign shall
be at Tenant's sole expense and shall be paid by Tenant to Landlord within ten
(10) days of Tenant's receipt of a bill from Landlord for the costs.
23. Waiver of Subrogation. Anything in this Lease to the contrary
---------------------
notwithstanding, Landlord and Tenant each hereby waives and releases the other
of and from any and all rights of recovery, claim, action or cause of action
against the other, its subsidiaries, directors, agents, officers and employees,
for any loss or damage that may occur in the Premises, the Buildings or the
property; to improvements to the Buildings or personal property (building
contents) within the Buildings; or to any furniture, equipment, machinery, goods
and supplies not covered by this Lease which Tenant may bring or obtain upon the
Premises or any additional improvements which Tenant may construct on the
Premises by reason of fire, the elements or any other cause which is required to
be insured against under this Lease, regardless of cause or origin, including
negligence of Landlord or Tenant and their agents, subsidiaries, directors,
officers and employees, to the extent insured against under the terms of any
insurance policies carried by Landlord or Tenant and in force at the time of any
such damage, but only if the insurance in question permits such a partial
release in connection with obtaining a waiver of subrogation from the insurer.
Because this Section will preclude the assignment of any claim mentioned in it
by way of subrogation or otherwise to an insurance company or any other person,
each party to this Lease agrees immediately to give to each insurance company
written notice of the terms of the mutual waivers contained in this Section and
to have the insurance policies properly endorsed, if necessary, to prevent the
invalidation of the insurance coverages by reason of the mutual waivers
contained in this Section.
24. Subordination.
-------------
(a) Subordinate Nature. Except as provided in Subsection (b), this
------------------
Lease is subject and subordinate to all ground and underlying leases, mortgages
and deeds of trust which now or may hereafter affect the Property, the Buildings
or the Premises, to the CC&Rs, and to all renewals, modifications,
consolidation, replacements and extensions thereof. Within ten (10)
19
<PAGE>
days after Landlord's written request thereof or, Tenant shall execute any and
all documents required by Landlord, the lessor under any ground or underlying
lease ("Lessor"), or the holder or holders of any mortgage or deed of trust
("Holder") to make this Lease subordinate to the lien of any lease, mortgage or
deed of trust, as the case may be.
(b) Possible Priority of Lease. If a Lessor or a Holder advises
--------------------------
Landlord that it desires or requires this Lease to be prior and superior to a
lease, mortgage or deed of trust, Landlord may notify Tenant. Within seven (7)
days of Landlord's notice, Tenant shall execute, have acknowledged and deliver
to Landlord any and all documents or instruments, in the form presented to
Tenant, which Landlord, Lessor or Holder deems necessary or desirable to make
this Lease prior and superior to the lease, mortgage or deed of trust.
(c) Recognition or Attornment Agreement. If Landlord or Holder
-----------------------------------
requests Tenant to execute a document subordinating this Lease, the document
shall provide that, so long as Tenant is not in default, Lessor or Holder shall
agree to enter into either a recognition or attornment agreement with Tenant, or
a new lease with Tenant upon the same terms and conditions as to possession of
the Premises, which shall provide that Tenant may continue to occupy the
Premises so long as Tenant shall pay the Rent and observe and perform all the
provisions of this Lease to be observed and performed by Tenant. Concurrently
with Tenant's execution of this Lease, Tenant shall execute, acknowledge and
deliver to Landlord a subordination, non-disturbance and attornment agreement in
the form of Exhibit "G" attached hereto.
25. Transfer of the Property. Upon transfer of the Property and assignment
------------------------
of this Lease, Landlord shall be entirely freed and relieved of all liability
under any and all of its covenants and obligations of Landlord contained in or
derived from this Lease occurring after the consummation of the transfer and
assignment (provided that the transferee in question assumes such obligations of
Landlord), and from all liability for the Security Deposit (provided that the
Security Deposit (or the then unapplied balance thereof) is transferred to the
transferee in question). Tenant shall attorn to any entity purchasing or
otherwise acquiring the Premises at any sale or other proceeding.
26. Estoppel Certificates. Within ten (10) days following written request
---------------------
by Landlord, Tenant shall execute and deliver to Landlord an estoppel
certificate, in the form prepared by Landlord. The certificate shall: (i)
certify that this Lease is unmodified and in full force and effect or, if
modified, state the nature of the modification and certify 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; (ii) acknowledge that there are not,
to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder,
or if there are uncured defaults on the part of the Landlord, state the nature
of the uncured default; and (iii) evidence the status of the Lease as may be
required either by a lender making a loan to Landlord to be secured by deed of
trust or mortgage covering the Premises or a purchaser of the Property from
Landlord.
27. Mortgagee Protection. In the event of any default on the part of
--------------------
Landlord, Tenant will give notice by registered or certified mail to any
beneficiary of a deed of trust or mortgagee
20
<PAGE>
of a mortgage covering the Property and shall offer the beneficiary or mortgagee
a reasonable opportunity to cure the default, including time to obtain
possession of the Property or the Premises by power of sale or a judicial
foreclosure, if such should provide necessary to effect a cure.
28. Attorneys' Fees. If either party shall bring any action or legal
---------------
proceeding for damages for an alleged breach of any provision of this Lease, to
recover rent or other sums due, to terminate the tenancy of the Premises or to
enforce, protect or establish any term, condition or covenant of this Lease or
right of either party, the prevailing party shall be entitled to recover, as a
part of the action or proceedings, or in a separate action brought for that
purpose, reasonable attorneys' fees and court costs as may be fixed by the court
or jury. The prevailing party shall be the party which secures a final judgment
in its favor.
29. Brokers. Landlord and Tenant each warrants and represents to the other
-------
that it has had no dealings with any real estate broker or agent in connection
with the negotiation of this Lease, except for any broker(s) specified in the
Basic Lease Information, and that it knows of no other real estate broker or
agent who is or might be entitled to a commission in connection with this Lease.
Landlord and Tenant shall each indemnify and hold harmless the other from and
against any and all liabilities or expenses arising out of claims made by any
other broker or individual for commissions or fees resulting from this Lease by
virtue of having dealt with the indemnifying party or its agents or
representatives
30. Parking. Tenant shall have the right to park in the Tenant's Building
-------
parking facilities, exclusive of covered or reserved parking areas, in common
with other tenants of the Tenant's Buildings, subject to the Rules. Tenant
agrees not to use in excess of its proportionate share of parking facilities and
agrees to cooperate with Landlord and other tenants in the use of the parking
facilities. Landlord reserves the right, in its absolute discretion, to
determine whether the parking facilities are becoming crowded. and to allocate
and assign parking spaces among Tenant and the other tenants provided any such
allocation or assignment is made by Landlord on a proportional basis (based on
the relative size of space leased by Tenant and such other tenants). Landlord
shall not be liable to Tenant, nor shall this Lease be affected, if any parking
is impaired by moratorium, initiative, referendum, law, ordinance, regulation or
order passed, issued or made by any governmental or quasi-governmental body.
31. Utilities and Services. Landlord agrees to furnish or cause to be
----------------------
furnished, to the Premises the utilities and services described in the standards
for Utilities and Services, set forth in Exhibit "D", subject to the conditions
----------
and in accordance with the standards set forth therein. Landlord shall not be
liable for, and Tenant shall not be entitled to any abatement or deduction of
Rent by reason of, no eviction of Tenant shall result from and, further, Tenant
shall not be relieved from the performance of any covenant or agreement in this
Lease because, of Landlord's failure to furnish any of the foregoing when the
failure is caused by accident, breakage, or repairs, strikes, lockouts or other
labor disturbance or labor dispute of any character, governmental regulation,
moratorium or other governmental action, inability despite the exercise of
reasonable diligence to obtain electricity, water or fuel, or by any other cause
beyond
21
<PAGE>
Landlord's reasonable control. In the event of any failure, stoppage or
interruption thereof, Landlord shall diligently attempt to resume service.
32. Building Planning. If Landlord requires the Premises for use in
-----------------
conjunction with another suite or for other reasons connected with its Building
planning program, upon notifying Tenant in writing ("Relocation Notice"),
Landlord shall have the right to move Tenant to other space in the Buildings of
a size and quality (including improvements and floor plan) comparable to the
Premises, to be reasonably determined by both Landlord and Tenant. If Landlord
moves Tenant, Landlord shall reimburse Tenant for its reasonable moving expenses
(including, without limitation, reasonable expenses incurred by Tenant in the
physical relocation of Tenant's personal property from the Premises to the new
space, in changing addresses on stationery and business cards, and in installing
Tenant's telephone and computer systems in the new space) and the terms and
conditions of this Lease shall remain in full force and effect, except that a
revised Exhibit "A" shall become part of this Lease and shall reflect the
----------
location of the new space, and the Basic Lease Information shall be amended to
include and state all correct data as to the new space. Neither Landlord nor its
subsidiaries, agents, directors or employees shall be liable for any
consequential damages of Tenant caused by a relocation.
33. Acceptance. Delivery of this Lease, duly executed by Tenant,
----------
constitutes an offer to lease the Premises as set forth herein, and under no
circumstances shall such delivery be deemed to create an option or reservation
to lease the Premises for the benefit of Tenant. This Lease shall become
effective and binding only upon execution hereof by Landlord and delivery of a
signed copy to Tenant. Upon acceptance of Tenant's offer to lease under the
terms hereof and receipt by Landlord of the Rent for the first month of the Term
and the Security Deposit in connection with Tenant's submission of the offer,
Landlord shall be entitled to retain the sums and apply them to damages, costs
and expenses incurred by Landlord if Tenant fails to occupy the Premises. If
Landlord reject the offer, the sums shall be returned to Tenant.
34. Use of Building Name. Tenant shall not employ the name of the Buildings
--------------------
nor the name of the business in which the Building is located in the name or
title of its business or occupation without Landlord's prior written consent,
which consent Landlord may withhold in its sole discretion. Landlord reserves
the right to change the name of the Building without Tenant's consent and
without any liability to Landlord.
35. Recording. Neither Landlord nor Tenant shall record this Lease, nor
---------
a short form memorandum of this Lease, without the prior written consent of the
other.
36. Quitclaim. Upon any termination of this Lease pursuant to its
---------
terms, Tenant, at Landlord's request, shall execute, have acknowledged and
deliver to Landlord a quitclaim deed of all Tenant's interest in the Premises,
Tenant's Building and Property created by this Lease, provided Landlord will
prepare said quitclaim deed at its own expense and shall bear al costs in
connection with the recording of he deed.
37. Notices. Any notice or demand required or desired to be given under
-------
this Lease shall be in writing and shall be given by hand delivery, electronic
mail (e.g., telecopy) or the United States mail. Notices which are sent by
electronic mail shall be deemed to have been given upon receipt. Notices which
are mailed shall be deemed to have been
22
<PAGE>
given upon receipt. Notices which are mailed shall be deemed to have been given
when seventy-two (72) hours have elapsed after the notice was deposited in the
United States mail, registered or certified, the postage prepaid, addressed to
the party to be served. As of the date of execution of this Lease, the addresses
of Landlord and Tenant are as specified in the Basic Lease Information. Either
party may change its address by giving notice of the change in accordance with
this Section.
38. Landlord's Exculpation. In the event of default, breach or violation
----------------------
by Landlord (which term includes Landlord's partners, co-venturers and co-
tenants, and officers, directors, employees, agents and representatives of
Landlord and Landlord's partners, co-venturers and co-tenants) of any of
Landlord's obligations under this Lease, Landlord's liability to Tenant shall be
limited to its ownership interest in the Building and Property or the proceeds
of a public sale of the ownership interest pursuant to the foreclosure of a
judgment against Landlord. Landlord shall not be personally liable, or liable in
any event, for any deficiency beyond its ownership interest in the Tenant's
Building.
39. Additional Structures. Any diminution or interference with light, air
---------------------
or view by any structure which may be erected on land adjacent to the Building
shall in no way alter this Lease or impose any liability on Landlord.
40. General.
-------
(a) Captions. The captions and headings used in this Lease are for
--------
the purpose of convenience only and shall not be construed to limit or extend
the meaning of any part of this Lease.
(b) Time. Time is of the essence for the performance of each term,
----
condition and covenant of this Lease.
(c) Severability. If any provision of this Lease is held to be
------------
invalid, illegal or unenforceable, the invalidity, illegality or
unenforceability shall not affect any other provision of this Lease, but this
Lease shall be construed as if the invalid, illegal or unenforceable provision
had not been contained herein.
(d) Choice of Law; Construction. This Lease shall be construed and
---------------------------
enforced in accordance with the laws of the State of California. The language in
all parts of this Lease shall in all cases be construed as a whole according to
its fair meaning and not strictly for or against either Landlord or Tenant.
(e) Gender; Singular; Plural. When the context of this Lease
------------------------
requires, the neuter gender includes the masculine, the feminine, a partnership
or corporation or joint venture, and the singular includes the plural.
(f) Binding Effect. The covenants and agreements contained in this
--------------
Lease shall be binding on the parties hereto and on their respective successors
and assigns (to the extent this Lease is assignable).
23
<PAGE>
(g) Waiver. The waiver of Landlord of any breach of any term,
------
condition or covenant of this Lease shall not be deemed to be a waiver of the
provision or any subsequent breach of the same or any other term, condition or
covenant of this Lease. The subsequent acceptance of Rent hereunder by Landlord
shall not be deemed to be a waiver of any preceding breach at the time of
acceptance of the payment. No covenant, term or condition of this Lease shall be
deemed to have been waived by Landlord unless the waiver is in writing signed by
Landlord.
(h) Entire Agreement. This Lease is the entire agreement between the
----------------
parties, and there are no agreements or representations between the parties
except as expressed herein. Except as otherwise provided herein, no subsequent
change or addition to this Lease shall be binding unless in writing and signed
by the parties hereto.
(i) [Intentionally deleted.]
------------------------
(j) Joint and Several Liability. If more than one party shall execute
---------------------------
this Lease as Tenant, the liability of each party executing this Lease on behalf
of Tenant for the obligations of Tenant hereunder shall be joint and several.
(k) Counterpart. This Lease may be executed in counterparts, each of
-----------
which shall be an original, but all counterparts shall constitute one (1)
instrument.
(1) Exhibits. The Basic Lease Information and all exhibits attached
--------
hereto are hereby incorporated herein and made an integral part hereof.
IN WITNESS WHEREOF, the parties have executed this Lease effective as
of the date first above written.
LANDLORD:
WHC-SIX REAL ESTATE LIMITED
PARTNERSHIP, a Delaware limited
partnership
By: JER WHC-SIX SERVICES
INC., a Virginia corporation,
its Managing General Partner
By: /s/
------------------------------
DERRICK McGAVIC
Vice President
TENANT:
ADVANCED TELECOMMUNICATIONS
MODULES, INC. a California corporation
24
<PAGE>
By: /s/ Andrew M. Vought
-------------------------------------
Name: Andrew M. Vought
-----------------------------------
Title: VO, CFO
----------------------------------
25
<PAGE>
EXHIBIT "A"
[DIAGRAM OF PROPERTY]
EXHIBIT "B"
[INTENTIONALLY OMITTED]
<PAGE>
EXHIBIT "C"
ACKNOWLEDGMENT OF COMMENCEMENT
------------------------------
This Acknowledgment is made as of __________, 19__ with reference to that
certain Lease Agreement (hereinafter referred to as the "Lease") dated
______________, 19__ by and between __________________________ as "Landlord"
therein, and __________________________ as "Tenant" therein, for the demised
premises situated at ____________________________________.
The undersigned hereby confirms the following:
1. That the Tenant accepted possession of the Premises (as described in
said Lease) on ______________, 19__, and acknowledges that the premises are as
represented by the Landlord and in good order, condition and repair, and that
the improvements, if any, required to be made by Landlord under this Lease have
been satisfactorily completed in all respects.
2. That all conditions of said Lease to be performed by Landlord
prerequisite to the full effectiveness of said Lease have been satisfied and
that Landlord has fulfilled all of its duties of an inducement nature.
3. That in accordance with the provisions of said Lease the commencement
date of the term is _______________, 19__, and that, unless sooner terminated,
the original term thereof expires on __________________, 19__.
4. That said Lease is in full force and effect and that the same represents
the entire agreement between Landlord and Tenant concerning said Lease.
5. That there are no existing defenses which Tenant has against the
enforcement of said Lease by Landlord and no offsets or credits against rentals.
6. That the minimum rental obligation of said Lease is presently in effect
and that all rentals, charges and other obligations on the part of Tenant under
said Lease commenced to accrue on ______________, 19__.
7. That the undersigned has not made any prior assignment, hypothecation or
pledge of said Lease or of the rents hereunder.
LANDLORD: TENANT:
By: ___________________________ By: _____________________________
By: ___________________________ By: _____________________________
Date: _____________ Date: _____________
<PAGE>
EXHIBIT "D"
UTILITIES AND SERVICES
----------------------
The standards set forth below for Utilities and Services are in effect.
Landlord reserves the right to adopt nondiscriminatory modifications and
additions hereto, which do not materially affect Tenant's rights. Landlord shall
give notice to Tenant, in accordance with provisions of this Lease, of material
modification and additions.
1. Provision By Landlord. As long as Tenant is not in default under any of
---------------------
the terms of this Lease, Landlord shall:
(a) Elevator. provide unattended automatic elevator facilities Monday
--------
through Friday, except holidays, from 7:00 a.m. to 6:00 p.m., and have at least
one elevator available at all other times.
(b) Ventilation. Ventilate the Premises and furnish air-conditioning or
-----------
heating Monday through Friday, except holidays, from 7:00 a.m. to 6:00 p.m. (and
at other times for the additional charges described in Paragraph 2) to the
extent required for the comfortable occupancy of the Premises, subject to
governmental regulation. The air-conditioning system achieves maximum cooling
when the window coverings and sliding glass doors are closed. Landlord shall not
be responsible for room temperatures if Tenant does not keep all sliding glass
doors in the Premises closed whenever the system is in operation. Tenant shall
cooperate to the best of its ability at all times with Landlord and shall abide
by all reasonable regulations and requirements which Landlord may prescribe for
the proper functioning and protection of the air-conditioning system. Tenant
shall not connect any apparatus, device, conduit or pipe to the Tenant's
Building's chilled and hot water air-conditioning supply lines. Tenant and
Tenant's servants, employees, agents, visitors, licensees or contractors shall
not enter at any time the mechanical installations or facilities of the Tenant's
Building, or adjust, tamper with, touch or otherwise in any manner affect the
installations or facilities. If any installation of partitions, equipment or
fixtures by Tenant necessitates the re-balancing of the climate control
equipment in the Premises, the re-balancing shall be performed by Landlord at
Tenant's expense.
(c) Electricity. Subject to the provisions of Paragraph 2, furnish to
-----------
the Premises electric current as required by the Tenant's Building standard
office lighting and fractional horsepower office business machines in an amount
equal to normal office consumption. If Tenant's electrical installation or
electrical consumption is in excess of the quantity described above, or extends
beyond normal business hours, Tenant shall
1
<PAGE>
reimburse Landlord monthly for the measured consumption. Tenant shall not
connect any apparatus or device with wires, conduits or pipes, or other means by
which the services are supplied, for the purpose of using additional or unusual
amounts of the services without the prior written consent of Landlord. At all
times Tenant's use of electric current shall not exceed the capacity of the
feeders to the Tenant's Building or the risers or wiring installation, except as
provided in working drawings approved by Landlord.
(d) Water. Make water available in public areas for drinking and
-----
lavatory purposes only.
(e) Janitorial Service. Provide building standard janitorial service to
------------------
the Premises, provided the Premises are used exclusively as offices, and are
kept reasonably in order by Tenant. Tenant shall pay to Landlord any cost
incurred by landlord for janitorial services in excess of those generally
provided for other tenants in the Tenant's Building. Tenant shall pay to
Landlord the cost of removal of any of Tenant's refuse and rubbish.
2. Operating Expenses; Additional Charges. The cost of utilities and
--------------------------------------
services shall be included as part of Operating Expenses under the Lease, except
that Landlord may impose a direct charge upon Tenant for any utilities and
services including air-conditioning, electric current, water and janitorial
service, required to be provided by Landlord by reason of (i) any use of the
Premises at any time other than between the hours of 7:00 a.m. and 6:00 p.m.
Monday through Friday, except holidays; (ii) any use beyond what Landlord agrees
to furnish as described above; or (iii) special electrical, cooling and
ventilating needs created in certain areas by hybrid telephone equipment,
computers and other similar equipment or uses.
3. Rules and Regulations. Tenant agrees to cooperate at all times with
---------------------
Landlord and to abide by all reasonable regulations and requirements which
Landlord may prescribe for the use of the utilities and services. Any failure to
pay any excess costs as described above with the next installment of Rent due
after receipt of a statement for such services shall constitute a breach of the
obligation to pay Rent under this Lease and shall entitle Landlord to the rights
granted in this Lease for a breach.
4. Stopping of Service. Landlord reserves the right to stop services of
-------------------
the elevator, plumbing, ventilation, air-conditioning and electric systems when
necessary by reason of accident or emergency, or for repairs, alterations or
improvements, in the judgment of Landlord desirable or necessary to be made,
until the repairs, alterations or improvements have been completed. Landlord
shall have no responsibility or
2
<PAGE>
liability for failure to supply elevator facilities, plumbing, ventilating,
air-conditioning or electric service when prevented by strike or accident or by
any cause beyond Landlord's reasonable control, or by laws, rules, orders,
ordinances, directions, regulations or requirements of any federal, state,
county or municipal authority or failure of gas, oil or other suitable fuel
supply or inability by exercise of reasonable diligence to obtain gas, oil or
other suitable fuel. It is expressly understood and agreed that any covenants on
Landlord's part to furnish any service pursuant to any of the terms, covenants,
conditions, provisions or agreements of this Lease, or to perform any act or
thing for the benefit of Tenant, shall not be deemed breached if Landlord is
unable to furnish or perform the same by virtue of a strike or labor trouble or
any other cause whatsoever beyond Landlord's reasonable control.
5. Notice. To the extent practical, Landlord shall attempt to give Tenant
------
notice of proposed shutdowns of services.
3
<PAGE>
EXHIBIT "E"
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
installed or displayed on any part of the outside or inside of the Tenant's
Building without the prior written consent of Landlord. Landlord shall have the
right to remove, at Tenant's expense and notice, any sign installed or displayed
in violation of this rule. All approved signs or lettering on doors and walls
shall be printed, painted, affixed or inscribed at the expense of Tenant by a
person chosen by Landlord.
2. The directory of the Tenant's Building will be provided exclusively
for the display of the name and location of tenants, and Landlord reserves the
right to exclude any other names therefrom. Landlord shall pay the cost of
Tenant's initial listing in the Building Directory, and Tenant shall pay the
cost of any changes by Tenant.
3. Except as consented to in writing by Landlord or in accordance with
Tenant's Building standard improvements, no draperies, curtains, blinds, shades,
screens or other devices shall be hung at or used in connection with any window
or exterior door or doors of the Premises. No awning shall be permitted on any
part of the Premises. Tenant shall not place anything against or near glass
partitions or doors or windows which may appear unsightly from outside the
Premises.
4. Tenant shall not obstruct any sidewalks, halls, lobbies, passages,
exits, entrances, elevators or stairways of the Tenant's Building. No tenant and
no employee or invitee of any tenant shall go upon the roof of the Tenant's
Building or make any roof or terrace penetrations. Tenant shall not allow
anything to be placed on the outside terraces or balconies without the prior
written consent of Landlord.
5. All cleaning and janitorial services for the Tenant's Building shall
be provided exclusively through Landlord, and, except with the written consent
of Landlord, no person or persons other than those approved by Landlord shall be
employed by Tenant or permitted to enter the Tenant's Building for the purpose
of cleaning. Tenant shall not cause any unnecessary labor by carelessness or
indifference to the good order and cleanliness of the Premises. Landlord shall
not in any way be responsible to any Tenant for any loss of property on the
Premises, however occurring, or any damage to any Tenant's property by the
janitor or any other employee or person.
6. Landlord will furnish Tenant, free of charge, with two keys to
Tenant's suite entrance. Landlord may make a reasonable
1
<PAGE>
charge for any additional keys and for having any locks changed. Tenant shall
not alter any lock or new additional lock or bolt on any door of its Premises
without Landlord's prior written consent. Tenant shall deliver to Landlord, upon
the termination of its tenancy, the keys to all locks for doors on the Premises,
and in the event of loss of any keys furnished by Landlord, shall pay Landlord
therefor.
7. If Tenant requires electronic door locks, telephonic, burglar alarm or
similar services, it shall first obtain, and comply with, Landlord's
instructions for their installation.
8. The elevators shall be available for use by all tenants in the
Tenant's Building, subject to reasonable scheduling as Landlord in its
discretion shall deem appropriate. No equipment, materials, furniture, packages,
supplies, merchandise or other property will be received in the Tenant's
Building or carried in the elevators except between the hours, in the manner and
in the elevators as may be designated by Landlord.
9. Tenant shall not place a load upon any floor of the Premises which
exceeds the maximum load per square foot which the floor was designed to carry
and which is allowed by law. Tenant's business machines and mechanical equipment
which cause noise or vibration which may be transmitted to the structure of the
Tenant's Building or to any space therein, and which is objectionable to
Landlord or to any tenants in the Tenant's Building, shall be placed and
maintained by Tenant, at Tenant's expense, on vibration eliminators or other
devices sufficient to eliminate noise or vibration.
10. Tenant shall not use or keep in the Premises any toxic or hazardous
materials or any kerosene, gasoline or inflammable or combustible fluid or
material other than those limited quantities necessary for the operation or
maintenance of office equipment. Tenant shall not use or permit to be used in
the Premises any foul or noxious gas or substance, or permit or allow the
premises to be occupied or used in a manner offensive or objectionable to
Landlord or other occupants of the tenant's Building by reason of noise, odors
or vibrations. No animal, except seeing eye dogs when in the company of their
masters, may be brought into or kept in the Tenant's Building.
11. Tenant shall not use any method of heating or air-conditioning other
than that supplied by Landlord, unless Tenant receives the prior written consent
of Landlord.
12. Tenant shall cooperate fully with the Landlord to assure the most
effective operation of the Tenant's Building's heating and air-conditioning and
to comply with any governmental energy-saving rules, laws or regulations of
which Tenant has actual notice.
2
<PAGE>
Tenant shall refrain from attempting to adjust controls other than room
thermostats installed for Tenant's use. Tenant shall keep corridor doors and
sliding glass doors closed, and shall close window coverings at the end of each
business day.
13. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Tenant's
Building.
14. Landlord reserves the right to exclude any person from the Tenant's
Building between the hours of 6:00 p.m. and 8:00 a.m., the following day, or any
other hours as may be established from time to time by Landlord, and on
Saturdays, Sundays and legal holidays, unless that person is known to the person
or employee in charge of the Tenant's Building and has a pass or is properly
identified. Tenant shall be responsible for all persons for whom it requests
passes and shall be liable to Landlord for all acts of those persons. Landlord
shall not be liable for damages for any error in admitting or excluding
any person from the Tenant's Building. Landlord reserves the right to prevent
access to the Tenant's Building by closing the doors or by other appropriate
action in case of invasion, mob, riot, public excitement or other commotion.
15. Tenant shall close and lock the doors of its Premises, shut off all
water faucets or other water apparatus and turn off all lights and other
equipment which is not required to be continuously run. Tenant shall be
responsible for any damage or injuries sustained by other tenants or occupants
of the Tenant's Building or Landlord for noncompliance with this Rule.
16. The toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed, and no foreign substance of any kind whatsoever shall be placed
therein. The expense of any breakage, stoppage or damage resulting from any
violation of this rule shall be borne by the tenant who, or whose employees
or invitees, shall have caused it.
17. Tenant shall not install any radio or television antenna, loudspeaker
or other device on the roof or exterior walls of the Tenant's Building. Tenant
shall not interfere with radio or television broadcasting or reception from or
in the Tenant's Building or elsewhere.
18. Tenant shall not cut or bore holes for wires in the partitions,
woodwork or plaster of the Premises. Tenant shall not affix any floor covering
to the floor of the Premises in any manner except as approved by Landlord.
Tenant shall repair, or be responsible for the cost of repair of, any damage
resulting from noncompliance with this Rule.
3
<PAGE>
19. Tenant shall not install, maintain or operate upon the Premises any
vending machine without the prior written consent of Landlord, which consent
shall not be unreasonably withheld.
20. Canvassing, soliciting and distributing handbills or any other
written material and peddling in the Buildings are prohibited, and each tenant
shall cooperate to prevent these activities.
21. Landlord reserves the right to exclude or expel from the Buildings
any person who, in Landlord's judgement, is intoxicated or under the influence
of liquor or drugs, or who is in violation of any of the Rules and Regulations
of the Buildings.
22. Tenant shall store all its trash and garbage within its Premises.
Tenant shall not place in any trash box or receptacle any material which cannot
be disposed of in the ordinary and customary manner of trash and garbage
disposal within the Buildings. All garbage and refuse disposal shall be made in
accordance with directions issued from time to time by Landlord.
23. Use by Tenant of Underwriters' Laboratory approved equipment for
brewing coffee, tea, hot chocolate and similar beverages and microwaving food
shall be permitted, provided that the equipment and use is in accordance with
all applicable federal, state, county and city laws, codes, ordinances, rules
and regulations.
24. Tenant shall not use the name of the Buildings in connection with or
in promoting or advertising the business of Tenant, except as Tenant's address,
without the written consent of Landlord.
25. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
Tenant shall be responsible for any increased insurance premiums attributable to
Tenant's use of the Premises, Buildings or Property.
26. Tenant assumes any and all responsibility for protecting its Premises
from theft and robbery, which responsibility includes keeping doors locked and
other means of entry to the Premises closed.
27. Tenant shall not use the Premises, or suffer or permit anything to be
done on, in or about the Premises, which may result in an increase to Landlord
in the cost of insurance maintained by landlord on the Building and Common
Areas.
4
<PAGE>
to only upon appropriate application to the office of the Building by an
authorized individual. Employees of Landlord shall not perform any work or do
anything outside of their regular duties unless under special instructions from
Landlord, and no employee of Landlord will admit any person (Tenant or
otherwise) to any office without specific instructions from Landlord.
29. Tenant shall not park its vehicles in any parking areas
designated by Landlord as areas for parking by visitors to the Building or other
reserved parking spaces. Tenant shall not leave vehicles in the Property's
parking areas overnight, nor park any vehicles in the Property's parking areas
other than automobiles, motorcycles, motor driven or non-motor driven bicycles
or four-wheeled trucks. Tenant, its agents, employees and invitees shall not
park any one (1) vehicle in more than one (1) parking space.
30. The scheduling and manner of all Tenant move-ins and move-outs
shall be subject to the discretion and approval of Landlord, and move-ins and
move-outs shall take place only after 6:00 p.m. on weekdays, on weekends, or at
other times as Landlord may designate. Landlord shall have the right to approve
or disapprove the movers or moving company employed by Tenant, and Tenant shall
cause the movers to use only the entry doors and elevators designated by
Landlord. If Tenant's movers damage the elevator or any other part of the
Property, Tenant shall pay to Landlord the amount required to repair the
damage.
31. Landlord may waive any one or more of these Rules and Regulations
for the benefit of Tenant or any other tenant, but no waiver by Landlord shall
be construed as a waiver of the Rules and Regulations in favor of Tenant or any
other tenant, nor prevent Landlord from thereafter enforcing the Rules and
Regulations against any or all of the Tenant's Building.
32. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of the premises in the
Tenant's Building.
33. Landlord reserves the right to make other reasonable Rules and
Regulations as, in its judgment, may from time to time be needed for safety and
security, for care and cleanliness of the Tenant's Building and for the
preservation of good order therein. Tenant agrees to abide by all Rules and
Regulations hereinabove stated and any additional rules and regulations which
are adopted.
34. Tenant shall be responsible for the observance of all of the
foregoing rules by Tenant's employees, agents, clients, customers, invitees and
guests.
5
<PAGE>
EXHIBIT "F"
-----------
ENVIRONMENTAL QUESTIONNAIRE AND DISCLOSURE STATEMENT
The purpose of this form is to obtain information regarding the use of
hazardous substances on the premises. Prospective tenants should answer the
questions in light of their proposed operations on the premises. Existing
tenants should answer the questions as they relate to on-going operations on the
premises and should update any information previously submitted. If additional
space is needed to answer the questions, you may attach separate sheets of paper
to this form.
Your cooperation in this matter is appreciated. Any questions should be
directed to, and when completed, the form should be mailed to:
Insignia Commercial Group, Inc.
------------------------------------
160 W. Santa Clara St., Ste. 1350
------------------------------------
San Jose, CA 95113
------------------------------------
Attn: Mr. Mark E. Schmidt
------------------------------------
Phone:(408) 288-2900
------------------------------------
1. GENERAL INFORMATION
Name of Responding Company:__________________________________________________
Check the Applicable Status:
Prospective Tenant [_] Existing Tenant [_]
Mailing Address:_____________________________________________________________
____________________________________________________________________________
Contact Person and Title:____________________________________________________
Telephone Number:( )_____________-________________
Address of Leased Premises:__________________________________________________
Length of Lease Term:________________________________________________________
Describe the proposed operations to take place on the property, including
principal products manufactured or services to be conducted. Existing tenants
should describe any proposed changes to on-going operations.
_____________________________________________________________________________
_____________________________________________________________________________
2. STORAGE OF HAZARDOUS MATERIALS
2.1 Will any hazardous materials be used or stored on-site?
Wastes Yes [_] No [_]
Chemical Products Yes [_] No [_]
2.2 Attach the list of any hazardous materials to be used or stored, the
quantities that will be on-site at any given time, and the location and
method of storage (e.g., 55 gallon drums on concrete pad).
3. STORAGE TANKS & SUMPS
3.1 Is any above or below ground storage of gasoline, diesel, or other
hazardous substances in tanks or sumps proposed or currently conducted on
the premises?
Yes [_] No [_]
If yes, describe the materials to be stored, and the type, size and
construction of the sump or tank. Attach copies of any permits obtained
for the storage of such substances.
-------------------------------------------------------------------------
-------------------------------------------------------------------------
3.2 Have any of the tanks or sumps been inspected or tested for leakage?
Yes [_] No [_]
If so, attach the results.
3.3 Have any spills or leaks occurred from such tanks or sumps?
Yes [_] No [_]
If so, describe.
-------------------------------------------------------------------------
-------------------------------------------------------------------------
3.4 Were any regulatory agencies notified of the spill or leak?
Yes [_] No [_]
If so, attach copies of any spill reports filed, any clearance letters or
other correspondence from regulatory agencies relating to the spill or
leak.
3.5 Have any underground storage tanks or sumps been taken out of service or
removed?
Yes [_] No [_]
If yes, attach copies of any closure permits and clearance obtained from
regulatory agencies relating to closure and removal of such tanks.
<PAGE>
4. SPILLS
4.1 During the past year, have any spills occurred on the premises?
Yes [_] No [_]
4.2 Were any agencies notified in connection with such spills?
Yes [_] No [_]
If so, attach copies of any spill reports or other correspondence with
regulatory agencies.
4.3 Were any clean-up actions undertaken. Attach copies of any clearance
letters obtained from any regulatory agencies involved and the results of
any final soil or groundwater sampling done upon completion of the clean-
up work.
-------------------------------------------------------------------------
-------------------------------------------------------------------------
5. WASTE MANAGEMENT
5.1 Has your company been issued an EPA Hazardous Waste Generator I.D.
Number?
Yes [_] No [_]
5.2 Has your company filed a biennial report as a hazardous waste generator?
Yes [_] No [_]
If so, attach a copy of the most recent report filed.
5.3 Attach the list of the hazardous waste, if any, generated or to be
generated at the premises, its hazard class and the quantity generated on
a monthly basis.
5.4 Describe the method(s) of disposal for each waste. Indicate where and how
often disposal will take place.
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
5.5 Indicate the name of the person(s) responsible for maintaining copies of
hazardous waste manifests completed for off-site shipments of hazardous
waste.
------------------------------------------------------------------------
5.6 Is any treatment or processing of hazardous wastes currently conducted or
proposed to be conducted at the premises:
Yes [_] No [_]
If yes, please describe any existing or proposed treatment methods.
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
5.7 Attach copies of any hazardous waste permits or licenses issued to your
company with respect to its operations on the premises.
6. WASTEWATER TREATMENT/DISCHARGE
6.1 Do you discharge wastewater to:
________storm drain? ________sewer?
________surface water? ________no industrial discharge
6.2 Is your wastewater treated before discharge?
Yes [_] No [_]
If yes, describe the type of treatment conducted.
_________________________________________________________________________
6.3 Attach copies of any wastewater discharge permits issued to your company
with respect to its operations on the premises.
7. AIR DISCHARGES
7.1 Do you have any air filtration systems or stacks that discharge into the
air?
Yes [_] No [_]
<PAGE>
7.2 Do you operate any of the following types of equipment, or any other
equipment requiring an air emissions permit?
______ Spray booth
______ Dip tank
______ Drying oven
______ Incinerator
______ Other (Please Describe)
______ No Equipment Requiring Air Permits
7.3 Are air emissions from your operations monitored?
Yes [_] No [_]
If so, indicate the frequency of monitoring and a description of the
monitoring results.
_______________________________________________________________________
7.4 Attach copies of any air emissions permits pertaining to your
operations on the premises.
8. HAZARDOUS MATERIALS DISCLOSURES
8.1 Does your company handle hazardous materials in a quantity equal to or
exceeding an aggregate of 500 pounds, 55 gallons, or 200 cubic feet?
Yes [_] No [_]
8.2 Has your company prepared a hazardous materials management plan
("business plan") pursuant to Orange County Fire Department
requirements?
Yes [_] No [_]
If so, attach a copy of the business plan.
8.3 Are any of the chemicals used in your operations regulated under
Proposition 65?
Yes [_] No [_]
If so, describe the actions taken, or proposed actions to be taken, to
comply with Proposition 65 requirements.
______________________________________________________________________
8.4 Describe the procedures followed to comply with OSHA Hazard
Communication Standard requirements.
______________________________________________________________________
9. ENFORCEMENT ACTIONS, COMPLAINTS
9.1 Has your company ever been subject to any agency enforcement actions,
administrative orders, or consent decrees?
Yes [_] No [_]
If so, describe the actions and any continuing compliance obligations
imposed as a result of these actions.
______________________________________________________________________
9.2 Has your company ever received requests for information, notice or
demand letters, or any other inquiries regarding its operations?
Yes [_] No [_]
9.3 Have there ever been, or are there now pending, any lawsuits against
the company regarding any environmental or health and safety concerns?
Yes [_] No [_]
9.4 Has an environmental audit ever been conducted at your company's
current facility?
Yes [_] No [_]
If so, discuss the results of the audit.
______________________________________________________________________
9.5 Have there ever been any problems or complaints from neighbors at the
company's current facility?
Yes [_] No [_]
____________________________________________
Company
By: [SIGNATURE ILLEGIBLE]
________________________________________
Title: VP, CFO
___________________________
Date: 26 July 1996
_______________
<PAGE>
EXHIBIT 10.10
LEASE AGREEMENT
BY AND BETWEEN
LAKE PARTNERS, L.L.C.
LESSOR
AND
RSA COMMUNICATIONS, INC.
LESSEE
Dated as of: July 1, 1998
<PAGE>
ARTICLE I - LEASED PREMISES
1.01 Leased Premises.
ARTICLE 2 - BASIC LEASE PROVISIONS
2.01 Basic Lease Provisions.
ARTICLE 3 - TERM AND POSSESSION
3.01 Term.
3.02 Commencement.
3.03 Lessee's Delay.
3.04 Lessee's Possession.
3.05 Confirmation of Dates.
3.06 Holdover.
ARTICLE 4 - RENT AND SECURITY DEPOSIT
4.01 Base Rent.
4.02 Payment of Rent.
4.03 Additional Rent.
4.04 Operating Expense Adjustment.
4.05 Cost of Living Adjustment.
4.06 Intentionally Deleted.
4.07 Late Charge.
ARTICLE 5 - SERVICES
5.01 Services.
2
<PAGE>
ARTICLE 6 - USE AND OCCUPANCY
6.01 Use.
6.02 Care of the Leased Premises.
6.03 Entry for Repairs and Inspection.
6.04 Compliance with Laws; Rules of Building.
6.05 Access to Building.
6.06 Peaceful Enjoyment.
ARTICLE 7 - CONSTRUCTION, ALTERATIONS AND REPAIRS
7.01 Construction.
7.02 Alterations.
7.03 Repairs by Lessor.
7.04 Repairs by Lessee.
ARTICLE 8 - CONDEMNATION, CASUALTY, INSURANCE AND INDEMNITY
8.01 Condemnation.
8.02 Damages from Certain Causes.
8.03 Fire Clause.
8.04 Insurance Policies.
8.05 Hold Harmless.
8.06 Waiver of Subrogation Rights.
8.07 Limitation of Lessor's Personal Liability.
3
<PAGE>
ARTICLE 9 - LESSOR'S LIEN, DEFAULT, REMEDIES AND SUBORDINATION
9.01 Intentionally Deleted.
9.02 Default by Lessee.
9.03 Non Waiver.
9.04 Attorney's Fees.
9.05 Subordination; Estoppel Certificate.
9.06 Attornment.
10.01 Assignment or Sublease.
10.02 Assignment by Lessor.
ARTICLE 11 - NOTICES AND MISCELLANEOUS
11.01 Notices.
11.02 Miscellaneous.
ARTICLE 12 - ENTIRE AGREEMENT AND LIMITATION OF WARRANTIES
12.01 ENTIRE AGREEMENT AND LIMITATION OF WARRANTIES.
4
<PAGE>
EXHIBITS
A-1 Floor Plan(s) of the Leased Premises [DIAGRAM]
A-2 The Land
B Acceptance of Leased Premises Memorandum
C Tenant Improvements
D Building Rules
E Form of Estoppel Certificate
F HVAC Schedule
C Renews I Option
H Intentionally Deleted
5
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT (this "Lease") is made and entered into on this
_____________ day of ____________________________ 1998, by and between Lake
Partners, L.L.C. a North Carolina limited liability company ("Lessor") and RSA
Communications Inc., a Delaware corporation ("Lessee"), on the terms and
conditions set forth below.
ARTICLE I - LEASED PREMISES
1.01 LEASED PREMISES.
Lessor leases to Lessee and Lessee leases from Lessor the space (the
"Leased Premises") set forth in Subsections (a) and (b)) of the Basic Lease
Provisions below and shown on the floor plan(s) attached hereto as Exhibit A-1
upon the terms and conditions set forth in this Lease. The office building in
which the Leased Premises are located, the land on which the office building is
located (described on Exhibit A-2 attached hereto), the parking facilities and
all improvements and appurtenances to the building are collectively referred to
as (the "Building". The Building and any larger complex of which the Building is
a part are collectively referred to as the "Project".
ARTICLE 2 - BASIC LEASE PROVISIONS
2.01 BASIC LEASE PROVISIONS.
The following provisions set forth various basic terms of this Lease and
are sometimes referred to as the "Basic Lease Provisions."
(a) Building Name: Lake Plaza West
Address: 700 Spring Forest Road
Raleigh, North Carolina 27609
(b) Floor(s): First
Suite #: 100
Square Feet Area: 12,944
(c) Total Area of Building: approximately 77,000 square feet
(d) Annual Base Rent: $239,463.96 ($18.50 per square foot)
Monthly Base Rent: months 1 through 3 = $0.00
months 4 through 63 = $19,955.33
6
<PAGE>
(e) Base Operating Expense
Factor: $5.50 per square foot
(f) Parking: 4 spaces per 1,000 square feet of space,
which shall include three (3) reserved,
covered parking spaces at no charge to
Lessee
Monthly Rent per Parking
Space: N/A
(g) Term: 5 Year(s) 3 Month(s) 0 Day(s)
(h) Target Commencement Date: August 15, l99-
Target Expiration Date: November 30, 2003
(See Exhibit B for confirmation of the actual Commencement Date and
Expiration Date of this Lease.)
(i) Security Deposit: Intentionally deleted
(j) Permitted Use: General business office and computer
laboratory for software development company
(k) Addresses for notices and other communications under this Lease:
Lessor
------
Lake Partners, L.L.C.
c/o Capital Associates
1100 Crescent Green, Suite 115
Cary, North Carolina 27511
Lessee
------
RSA Communications, Inc.
700 Spring Forest Road, Suite 100
Raleigh, North Carolina 27609
Attn: Munther Qubain, President
(l) Outside Broker(s): Thomas Commercial, Inc.
7
<PAGE>
ARTICLE 3 - TERM AND POSSESSION
3.01 TERM.
This Lease shall be and continue in full force and effect for the term set
forth in Subsection 2.01(g). Subject to the remaining provisions of this
Article, the Term shall commence on the Target Commencement Date shown in
Subsection 2.01(h) and shall expire, without notice to Lessee, on the Target
Expiration Date shown in Subsection 2.01(h), provided, however, that if the
Commencement Date is other than the first (1st) day of the month, the Expiration
Date shall nevertheless be the last day of the last month of the Term. Such
term, as it may be modified, renewed and extended as set forth in Exhibit G is
herein called the "Term".
3.02 COMMENCEMENT
Subject to Section 3.03 hereof, if on the Target Commencement Date any of
the work described in this Lease that is required to be performed by Lessor at
Lessor's expense to prepare the Leased Premises for occupancy has not been
substantially completed, or if Lessor is unable to tender possession of the
Leased Premises to Lessee on the specified date due to any other reason beyond
the reasonable control of Lessor, the hereinafter defined Commencement Date (and
commencement of installments of Base Rent) shall be postponed until the work to
be performed in the Leased Premises at Lessor's expense is substantially
completed, and the postponement shall operate to extend the Expiration Date in
order to give full effect to the stated duration of the Term. The deferment of
installments of Base Rent shall be Lessee's exclusive remedy for postponement of
the Commencement Date, and Lessee shall have no, and waives any, claim against
Lessor because of any such delay. Notwithstanding the foregoing, if Lessor is
unable to tender possession of the Leased Premises to Lessee on or before
October 21, 1998, due solely to delays cased by Lessor, then Lessor must provide
Lessee with written notice as to the cause(s) for the delay in possession of the
Leased Premises, and if Lessor is unable to tender possession of the Leased
Premises to Lessee on or before October 2 1,1998. due solely to delays caused by
Lessor, then Lessee may, with ten (10) days' written notice to Lessor, terminate
this Lease if the Leased Premises is not substantially completed during that ten
(10) day period. The Leased Premises shall be deemed to be substantially
completed upon the issuance by the City of Raleigh, North Carolina of a
certificate of occupancy.
3.03 LESSEE'S DELAY.
No delay in the completion of the Leased Premises resulting from delay or
failure on the part of Lessee in furnishing information or other matters
required in this Lease, and no delay resulting from the completion of work, if
any, that is to be performed at Lessee's expense pursuant to this Lease, shall
delay the Commencement Date, Expiration Date or commencement of payment of Rent
(as defined in Subsection 4.02 below.)
3.04 LESSEE'S POSSESSION.
If, prior to the Commencement Date, Lessee shall enter into possession of
all or any part of the Leased Premises, the Term, the payment of monthly
installments of Base Rent and all
8
<PAGE>
other obligations of Lessee to be performed during the Term shall commence on,
and the Commencement Date shall be deemed to be, the date of such entry,
provided, no such early entry shall operate to change the Expiration Date.
3.05 CONFIRMATION OF DATES.
The actual commencement date ("Commencement Date") and actual expiration
date ("Expiration Date") shall be confirmed by Lessee by execution of the
Acceptance of Leased Premises Memorandum attached hereto as Exhibit B. If the
Memorandum is not executed, the Commencement Date and Expiration Date shall be
conclusively deemed to be the Target Commencement Date and the Target Expiration
Date set forth in Subsection 2.01(h).
3.06 HOLDOVER.
If Lessee shall remain in possession of the Leased Premises after the
expiration or earlier termination of this Lease, without the execution of a new
lease or an amendment to this Lease, Lessee shall be deemed a tenant-at-
sufferance, and for a period of sixty (60) days after such termination or
expiration, as the case may be, and shall pay daily rent at one and one-half
(1-1/2) times the per day Rent payable with respect to the last full calendar
month immediately prior to the end of the Term or termination of this Lease, and
shall be subject to all of the terms, conditions, provisions and obligations of
this Lease and such tenancy may be terminated by Lessor as of the end of any
calendar month upon fifteen (15) days' prior written notice. After such sixty
(60) day period, Lessee shall continue to be a tenant-at-sufferance and shall
pay daily rent at double the per day Rent payable with respect to the last full
calendar month immediately prior to the end of the Term or termination of this
Lease, but otherwise shall be subject to all of the obligations of Lessee under
this Lease, and such tenancy shall be terminable at any time by Lessor on one
(1) days notice. Additionally, Lessee shall pay to Lessor all reasonable damages
sustained by Lessor as a result of the holding over by Lessee. The terms and
conditions of this Section 3.06 shall survive the expiration or other
termination of the terms of this Lease
ARTICLE 4 - RENT AND SECURITY DEPOSIT
4.01 BASE RENT.
Lessee agrees to pay to Lessor rent ("Base Rent") throughout the Term in
the amount of the Annual Base Rent set forth in Subsection 2.01(d), subject to
adjustment as provided in this Lease. Base Rent shall be payable in monthly
installments in the amount set forth in Subsection 2.01(d) ("Monthly Base Rent")
in advance and without demand, on the first day of each calendar month during
the Term. If the Commencement Date is not the first day of a month, Lessee shall
be required to pay on the Commencement Date a pro rata portion of the Monthly
Base Rent for the first partial month of the Term. Notwithstanding the
foregoing, the payment of Base Rent shall be waived for months one (1) through
three (3) of the Term, and Lessee shall thereafter commence paying Base Rent, in
month four (4) of the Term, in the amount and on the terms set forth in this
Lease.
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4.02 PAYMENT OF RENT.
As used in this Lease, "Rent" shall mean the Base Rent, Additional Rent
(defined below) and all other amounts required to be paid by Lessee in this
Lease. The Rent shall be paid at the times and in the amounts provided herein in
legal tender of the United States of America to Lessor at its address specified
in Subsection 2.01 (see above, or to such other person or at such other address
as Lessor may from time to time designate in writing. The Rent shall be paid
without notice, demand, abatement, deduction or offset except as may be
expressly set forth in this Lease.
4.03 ADDITIONAL RENT
The term "Additional Rent" shall mean the "Operating Expense Adjustment",
as such term is defined below, and any other amounts in addition to Base Rent
which Lessee is required to pay to Lessor under this Lease.
4.04 OPERATING EXPENSE ADJUSTMENT
If the Operating Expenses (defined below) for the Building for any calendar
year, expressed on a per square foot basis, exceed the Base Operating Expense
Factor specified in Subsection 2.01(e) Lessee shall pay to Lessor increased Rent
(an "Operating Expense Adjustment") in an amount equal to the product of such
excess times the square feet of the Leased Premises as stated in Subsection 2.01
(b)). The Operating Expense Adjustment shall be payable in monthly installments
on the first day of each calendar month based on Lessor's estimate of the
Operating Expenses for the then current year. Lessor may at any time give Lessee
written notice specifying Lessor's estimate of the Operating Expenses for the
then current calendar year or the subsequent calendar year and specifying the
Operating Expense Adjustment to be paid by Lessee for each such year. Within one
hundred twenty (120) days after the end of each calendar year, Lessor shall give
written notice to Lessee specifying the actual Operating Expenses for the prior
calendar year and any necessary adjustment to the Operating Expense Adjustment
paid by Lessee for that calendar year. Lessee shall pay any deficit amount to
Lessor within fifteen (15) days after receipt of Lessor's written notice. Any
excess payment by Lessee for the prior calendar year shall reduce the Operating
Expense Adjustment for the following calendar year. (For purposes herein, for
any calendar year, any such deficit amount Lessee is to pay Lessor, or any
excess payment Lessee may reduce its Operating Expense Adjustment for the
following calendar year by shall be deemed the "tru-up".) In the event the tru-
up for any calendar year is five percent (5%) of the Operating Expenses or less.
Lessee shall tru-up its Operating Expenses as set forth above; provided,
however, if the tru-up for any calendar year is greater than five percent (5%)
of the Operating Expenses, then Lessee may amortize such amount into its
Operating Expense payments for the following calendar year. The provisions of
this paragraph shall survive the cancellation or termination of this Lease
Lessee shall have the right, one (1) time per year. with written notice to
Lessor, to request Lessor to provide Lessee with a detailed itemization of the
Operating Expenses for any calendar year.
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The term "Operating Expenses" shall mean, except as otherwise specified in
this definition, all expenses, costs, and disbursements of every kind and
nature, computed on an accrual basis, which Lessor shall pay or become obligated
to pay because of or in connection with the ownership and operation of the
Building, including, without limitation: (1) wages and salaries of all employees
below and including the level of property manager, to an extent commensurate
with such employees' involvement in the operation, repair, replacement,
maintenance, and security of the Building, including, without limitation,
amounts attributable to the employer's Social Security Tax, unemployment taxes,
and insurance, and any other amount which may be levied on such wages and
salaries, and the cost (if all insurance and other employee benefits related
thereto: (2) all supplies and materials used in the operation, maintenance,
repair, replacement and security of the Building; (3) the rental costs of any
and all leased capital improvements and the annual costs of any and all capital
improvements made to the Building which, although capital in nature, can
reasonably be expected to reduce the normal operating costs of the Building, to
the extent of the lesser of such expected reduction in operating expenses or the
annual cost of such capital improvements, as well as all capital improvements
made in order to comply with any legal requirement hereafter promulgated by any
governmental authority relating to the environment, energy, conservation, public
safety, access for the disabled or security, as amortized over the useful life
of such improvements by Lessor for federal income tax purposes; (4) the cost of
all utilities, other than the cost of electricity supplied to tenants of the
Building which is separately metered and reimbursed to Lessor by such tenants:
(5) the cost of all maintenance and service agreements with respect to the
operation of the Building or any part thereof, including, without limitation,
alarm service, equipment, window cleaning, elevator maintenance, landscape
maintenance, and parking area maintenance and operation: (6) the cost of all
insurance relating to the Building, including, without limitation, casualty and
liability insurance applicable to the Building and Lessor's personal property
used in connection therewith: (7) all taxes and assessments and governmental
charges, whether federal, state, county, or municipal, and whether by taxing
districts or authorities presently taxing or by others, subsequently created or
otherwise, including all taxes levied or assessed against or for leasehold
improvements and any other taxes and assessments attributable to the Building
and/or the operation thereof, excluding, however, federal and state taxes on
Lessor's income, but including all rental, sales, use and occupancy taxes or
other similar taxes, if any, levied or imposed by any city, state, county, or
other governmental body having jurisdiction: and (8) the cost of all repairs.
replacements, removals and general maintenance with respect to the Building.
Specifically excluded from Operating Expenses are expenses for capital
improvements made to the Building, other than capital improvements described in
clause (3) of this definition and except for items which, though capital for
accounting purposes, are properly considered maintenance and repair items, such
as painting of common areas, replacement of carpet in elevator lobbies and like
items; expenses for repair, replacement and general maintenance paid by proceeds
of insurance or by Lessee or other third parties; alterations attributable
solely to tenants of the Building other than Lessee; depreciation of the
Building; leasing commissions; and federal and state income taxes imposed on
Lessor.
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If, during all or part of any calendar year, the Building is less than 95%
occupied, or if Lessor is providing less than 95% of the Building with any item
or items of work or service which would constitute an Operating Expense
hereunder, then the amount of the Operating Expenses for such period shall be
adjusted to include any and all items enumerated under the definition of
Operating Expenses set forth in this Subsection which Lessor reasonably
determines Lessor would have incurred if the Building had been at least 95%
leased and occupied with all tenant improvements constructed or if Lessor had
been providing such item or items of work or service to at least 95% of the
Building. If the actual occupancy of the Building is between 95% and 100%, then
the actual occupancy percentage shall be used for this computation.
4.05 COST OF LIVING ADJUSTMENT
At the end of each Lease year during the Term, the Monthly Base Rent for
the following Lease year shall be increased by three percent (3%) in accordance
with the following formula (and shown on the Rent chart set forth below):
(Annual Base Rent (net of the Base Operating Expense Factor set forth in
Subsection 2.01(e)1 for the current Lease year x 1.03) + twelve = Monthly Base
Rent for the following Lease year
ANNUAL MONTHLY
DATE(S) SQUARE FEET BASE RENT BASE RENT
- ---------------------------- ----------- ----------- ----------
8/15/98 to 11/14198 12,944 $ 0.00 $ 000
11/15/98 to 11/14/99 12,944 $239,463.96 $ 19,955.33
11/I5/99 to 11/14/00 12,944 $244,512.12 $ 20,376.01
11/15/00 to 11/14/01 12,944 $249,71I.72 $ 20,809.31
11115/01 to 11/14/02 12,944 $255,067.32 $ 21,255.61
11/15/02 to 11/30/03 12,944 $260,583.60 $ 21,715.30
The resulting figure will be the Monthly Base Rent for the following Lease
year, and Lessee shall adjust its payments of Monthly Base Rent accordingly
beginning on the first day of the first month in the following Lease year.
4.06 INTENTIONALLY DELETED.
4.07 LATE CHARGE.
If Lessee fails or refuses to pay any installment of Rent when due, Lessor.
at Lessor's option, shall be entitled to collect a late charge of five percent
(5%) of the amount of the late payment to compensate Lessor for the additional
expense involved in handling delinquent payments and not as interest; provided,
however, that Lessee shall be allowed one (1) late
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payment of Rent in each calendar year of the Term, which late payment shall not
be subject to a late charge hereunder so long as the Rent then due is paid
within five (5) days of the due date. If the payment of a late charge required
by this Section is found to constitute interest notwithstanding the contrary
intention of Lessor and Lessee, the late charge shall be limited to the maximum
amount of interest that lawfully may be collected by Lessor under applicable
law, and if any payment is determined to exceed such lawful amount, the excess
shall be applied to any unpaid Rent then due and payable hereunder and/or
credited against the next succeeding installment of Rent payable hereunder. If
all Rent payable hereunder has been paid in full, any excess shall be refunded
to Lessee, Lessee shall reimburse Lessor for any processing fees charged to
Lessor as a result of Lessee's checks having been returned for insufficient
finds.
ARTICLE 5 - SERVICES
5.01 SERVICES.
Lessor shall furnish Lessee while occupying the Leased Premises:
(a) Subject to curtailment as required by governmental laws, rules or
regulations, central heat and air conditioning in season, at such times as
Lessor normally furnishes these services to other tenants in the Building and at
such temperatures and in such amounts as are considered by Lessor to be
standard, but such service on Saturday afternoons, Sundays and holidays to be
furnished only upon request of Lessee, who shall bear the entire cost thereof as
provided in Exhibit F attached hereto; elevator service; and routine maintenance
and electric lighting service for all public areas and special service areas of
the Building in the manner and to the extent deemed by Lessor to be standard.
Lessor will furnish janitor service on a five (5) day week basis at no extra
charge. Failure by Lessor to any extent to furnish these services, or any
cessation thereof, resulting from causes beyond the control of Lessor shall not
render Lessor liable in any respect for damages to either person or property,
nor be construed as an eviction of Lessee, nor work an abatement of rent, nor
relieve Lessee from its obligation to fulfill any covenant or agreement hereof.
Should any of Lessor's equipment or machinery break down, or for any cause cease
to function properly, Lessor shall use reasonable diligence during normal
business hours to repair same promptly, but Lessee shall have no claim for
rebate of rent or damages on account of any interruptions in service occasioned
thereby or resulting therefrom.
(b) Proper electrical facilities to furnish sufficient power for personal
computers, fax machines, desktop computer printers, calculating machines and
other machines of similar low electrical consumption, but not including
electricity required for electronic data processing equipment which (singly)
consumes more than 0.25 kilowatts per hour at a rated capacity or requires a
voltage other than 120 volts single phase; provided, however, upon Lessee's
written request and at Lessee s sole cost and expense, Lessor can provide 220
volt electric service to the Leased Premises. Lessee shall pay to Lessor,
monthly as billed, such charges as may be separately metered or as Lessor's
engineer shall reasonably compute for any electrical service usage in excess of
that stated above. If Lessee uses any heat generating machines, equipment,
fixtures or other devices of any nature whatsoever in the Leased Premises which
affect the
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temperature otherwise maintained by the Building standard air conditioning,
Lessee shall pay the additional cost necessitated by Lessee's use of such
machines, equipment, fixtures or other devices, including the cost of
installation of any necessary additional air conditioning equipment and the cost
of operation and maintenance thereof.
ARTICLE 6 - USE AND OCCUPANCY
6.01 USL
The Leased Premises are to be used and occupied by Lessee (and its
permitted assignees, subtenants, invitees, customers, and guests) solely for the
purpose specified in Subsection 2.01(f)) with no more than one (1) person per
two hundred fifty (250) square feet of space; provided, however, that Lessee may
change such purpose upon Lessor's prior written agreement Lessee agrees not to
occupy or use, or permit any portion of the Leased Premises to be occupied or
used for any business or purpose which is unlawful, disreputable or deemed to be
extra-arduous on account of fire or exposure to or interference from
electromagnetic rays and/or fields, or permit anything to be done which would in
any way increase the rate of fire insurance coverage on the Building and/or its
contents. Lessee further agrees to conduct its business and control its agents,
employees, invitees and visitors in such manner as not to create any nuisance,
or interfere with, annoy or disturb any other tenant or Lessor in its operation
of the Building.
6.02 CARE OF THE LEASED PREMISES.
Lessee shall not commit or allow to be committed any waste or damage to any
portion of the Leased Premises or the Building and, at the termination of this
Lease, by lapse of time or otherwise. Lessee shall deliver up the Leased
Premises to Lessor in as a good condition as existed on the date of possession
by Lessee, ordinary wear and tear excepted. Upon such termination of this Lease,
Lessor shall have the right to re-enter and resume possession of the Leased
Premises.
6.03 ENTRY FOR REPAIRS AND INSPECTION.
Lessee shall, upon reasonable prior notice by Lessor, except in the case of
an emergency, permit Lessor and its contractors, agents and representatives to
enter into and upon any part of the Leased Premises at all reasonable hours to
inspect and clean the same, make repairs, alterations and additions thereto,
show the same to prospective tenants or purchasers. and for any other purpose as
Lessor may deem necessary or desirable. Lessee shall not be entitled to any
abatement or reduction of Rent by reason of any such entry. Any damage caused
by Lessor in entering the Leased Premises shall be repaired at Lessor's cost and
expense. Notwithstanding the foregoing, in the event of an emergency, when entry
to the Leased Premises shall be necessary, and if Lessee shall not be personally
present to open and permit entry into the Leased Premises, Lessor or Lessor's
agent may enter the same by master key, code, card or switch, or may forcibly
enter the same, without rendering Lessor or such agents liable therefor, and
without, in any manner, affecting the obligations and covenants of this Lease.
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6.04 COMPLIANCE WITH LAWS; RULES OF BUILDING.
Lessee shall comply with and Lessee shall cause its visitors, employees,
contractors, agents and invitees to comply with, all laws, ordinances, orders,
rules and regulations (state, federal, municipal and other agencies or bodies
having any jurisdiction thereof) relating to the use, condition or occupancy of
the Leased Premises, including, without limitation, all local, state and federal
environmental laws, and the rules of the Building reasonably adopted and altered
by Lessor from time to time, all of which Building rules will be sent by Lessor
to Lessee in writing and shall thereafter be carried out and observed by Lessee,
its employees, contractors, agents, invitees and visitors. The initial rules of
the Building are attached hereto as Exhibit D.
6.05 ACCESS TO BUILDING.
Subject to the terms and conditions set forth below and in this Lease,
Lessee and its employees shall have access to the Building and the Leased
Premises twenty-four (24) hours a day, three hundred sixty-five (365) days per
year. Lessor shall have the right to limit access to the Building after normal
business hours; provided, Lessor shall have no responsibility to prevent, and
shall not be liable to Lessee for, and shall be indemnified by Lessee against,
liability and loss to Lessee, its agents, employees and visitors, arising out of
losses due to theft, burglary and damage and injury to persons and property
caused by persons gaining access to the Building or Leased Premises, and Lessee
waives and releases Lessor from all liability relating thereto. Lessor expressly
reserves the right, in its sole discretion, to temporarily or permanently change
the location of, close, block and otherwise alter any entrances, corridors,
skywalks, tunnels, doorways and walkways leading to or providing access to the
Building or any part thereof and otherwise restrict the use of same provided
such activities do not unreasonably impair Lessee's access to the Leased
Premises. Lessor shall not incur any liability whatsoever to Lessee as a
consequence thereof. Such activities shall not be deemed to be a breach of any
of Lessor's obligations hereunder. Lessor agrees to exercise good faith in
notifying Lessee a reasonable time in advance of any alterations, modifications
or other actions of Lessor under this Section.
6.06 PEACEFUL ENJOYMENT.
Lessor covenants that Lessee shall and may peacefully have, hold and enjoy
the Leased Premises without interference from any party claiming by or through
Lessor, subject to the terms of this Lease, provided Lessee pays the Rent and
other sums required to be paid by Lessee and performs all of Lessee's covenants
and agreements herein contained. It is understood and agreed that this covenant
and any and all other covenants of Lessor contained in this Lease shall be
binding upon Lessor and its successors only with respect to breaches occurring
during its and their respective ownership of Lessor's interest in the Building.
Lessor shall not be responsible for the acts or omissions of any other lessee or
third party that may interfere with Lessee's use and enjoyment of the Leased
Premises; provided, however, that Lessor shall use its best efforts to enforce
the rules and regulations of the Building.
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ARTICLE 7 - CONSTRUCTION, ALTERATIONS AND REPAIRS
7.01 CONSTRUCTION.
Prior to the start of the Term, Lessor shall, using Lessor's contractors
and Building standard materials and finishes, make the alterations and complete
the work as shown on (i) Exhibit C, which is attached hereto and incorporated
herein by reference in its entirety, or (ii) the construction drawings to be
prepared by Lessor's designer and agreed to by the parties and made a part
hereof by reference (the "Tenant Improvements"). Any changes or modifications to
the approved plan and drawings for the Tenant Improvements shall be made and
accepted by written change order signed by Lessor and Lessee and shall
constitute an amendment to this Lease. Lessor shall provide Lessee with an
estimate of cost for any such change(s), and Lessee shall provide written notice
to Lessor within ten (10) days of receipt of Lessor's estimate, whether to
proceed with such change(s) or not. All additional costs necessitated by any
such change order, if any, shall be paid by Lessee within ten (10) days of
receipt of Lessor's invoice therefore.
7.02 ALTERATIONS.
Lessee shall make no alterations, installations, additions or improvements
in, on or to the Leased Premises without Lessor's prior written consent, which
consent shall not be unreasonably withheld, conditioned or delayed. All such
work shall be designed and made in a manner, and by architects, engineers.
workmen and contractors, satisfactory to Lessor. All alterations, installations,
additions and improvements (including, without limitation, paneling, partitions.
millwork and fixtures) made by or for Lessee to the Leased Premises shall remain
upon and be surrendered with the Leased Premises and become the property of
Lessor at the expiration or termination of this Lease or the termination of
Lessee's right to possession of the Leased Premises; provided, Lessor may
require Lessee to remove any or all of such items that are not Building standard
upon the expiration or termination of this Lease or the termination of Lessee's
right to possession of the Leased Premises; further provided, Lessor to notify
Lessee, in writing, at least thirty (30) days prior to the expiration of the
Lease of any such removal requirement, in order to restore the Leased Premises
to the condition existing at the time Lessee took possession. Lessee shall bear
the costs of removal of Lessee's property from the Building and of all resulting
repairs thereto. All work performed by Lessee with respect to the Leased
Premises shall: (a) not alter the exterior appearance of the Building or
adversely affect the structure, safety, systems or services of the Building; (b)
comply with all Building safety, fire and other codes and governmental and
insurance requirements; (c) not result in any usage in excess of Building
standard of water, electricity, gas, heating, ventilating or air conditioning,
(either during or after such work) unless prior written arrangements
satisfactory to Lessor are entered into; (d) be completed promptly and in a good
and workmanlike manner; (e) be performed in such a manner that does not cause
interference or disharmony with any labor used by Lessor, Lessor's contractors
or mechanics or by any other tenant or such other tenant's contractors or
mechanics; and (f) not cause any mechanic's, materialman's or other similar
liens to attach to Lessee's leasehold estate. Lessee shall not permit, or be
authorized to permit, any liens (valid or alleged) or other claims to be
asserted against Lessor or Lessor's rights, estates and interests with respect
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to the Building or this Lease in connection with any work done by or on behalf
of Lessee, and Lessee shall indemnify and hold Lessor harmless against any such
liens.
7.03 REPAIRS BY LESSOR.
Unless otherwise expressly stipulated herein, Lessor shall not be required
to make any improvements or repairs of any kind or character to the Leased
Premises during the Term, except such repairs to Building standard improvements
as may be deemed necessary by Lessor in the exercise of Lessor's good-faith
judgment for normal maintenance operations. Non-Building standard leasehold
improvements will, at Lessees written request, be maintained by Lessor at
Lessee's expense, at a cost or charge equal to the costs incurred in such
maintenance plus an additional charge of fifteen percent (15%). Notwithstanding
any provisions of this Lease to the contrary, all repairs, alterations or
additions to the base Building and its systems (as opposed to those involving
only Lessee's leasehold improvements), and all repairs, alterations and
additions to Lessee's non-Building standard leasehold improvements which affect
the Building's structural components or major mechanical, electrical or plumbing
systems, made by, for or on behalf of Lessee and any other tenants in the
Building shall be made by Lessor or its contractor only, and, if on behalf of
Lessee, shall be paid for by Lessee in an amount equal to Lessor's costs plus
fifteen percent (15%). Lessor shall not be liable to Lessee, except as
expressly provided in this Lease, for any damage or inconvenience, and Lessee
shall not be entitled to any abatement or reduction of rent by reason of any
repairs, alterations or additions made by Lessor under this Lease.
7.04 REPAIRS BY LESSEE.
Lessee shall, at its own cost and expense, repair or replace any damage or
injury done to its leasehold improvements or any other part thereof caused by
Lessee or Lessee's agents, contractors, employees, invitees, and visitors. If
Lessee fails to make such repairs or replacements to its leasehold improvements
promptly, Lessor may, at its option, make such repairs or replacements, and
Lessee shall repay the cost thereof plus a charge of fifteen percent (15%) to
the Lessor on demand. Any damage or injury to the Leased Premises or the base
Building and its systems (as opposed to those involving only Lessee's leasehold
improvements) and any damage or injury to Lessee's leasehold improvements which
affects the Building's structural components or major mechanical, electrical or
plumbing systems caused by Lessee, its agents, contractors, employees, invitees
and visitors, shall be repaired or replaced by Lessor, but at Lessee's expense
plus a charge of fifteen percent (15%).
ARTICLE S - CONDEMNATION, CASUALTY, INSURANCE AND INDEMNITY
8.01 CONDEMNATION.
If all or substantially all of the Leased Premises is taken by virtue of
eminent domain or far any public or quasi-public use or purpose, this Lease
shall terminate on the date the
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condemning authority takes possession. If only a part of the Leased Premises is
so taken, or if a portion of the Building not including the Leased Premises is
taken, this Lease shall, at the election of Lessor, either (i) terminate on the
date the condemning authority takes possession by giving notice thereof to
Lessee within thirty (30) days after the date of such taking of possession or
(ii) continue in lull force and effect as to that part of the Leased Premises
not so taken and Rent with respect to any portion of the Leased Premises taken
or condemned shall be reduced or abated on a square footage basis. All proceeds
payable from any taking or condemnation of all or any portion of the Leased
Premises and the Building shall belong to and be paid to Lessor, and Lessee
hereby expressly assigns to Lessor any and all right, title and interest of
Lessee now or hereafter arising in and to any such awards. Lessee shall have
no, and waives any, claim against Lessor and the Condemnor for the value of any
unexpired term.
8.02 DAMAGES FROM CERTAIN CAUSES.
Lessor and Lessee each shall not be liable or responsible to the other for
any loss or damage to any property or person occasioned by theft, fire, act of
God, public enemy, injunction, riot, strike, insurrection, war, court order,
requisition order of governmental body or authority, or any cause beyond such
party's control, and Lessor shall not be liable to Lessee for any damage or
inconvenience which may arise through repair or alteration of any part of the
Building.
8.03 FIRE CLAUSE
In the event of a fire or other casualty in the Leased Premises, Lessee
shall immediately give notice thereof to Lessor. If at least twenty-five percent
(25%) of the Leased Premises or the Building is destroyed by fire or other
casualty, Lessor shall have the right to terminate this Lease or to repair the
Leased Premises with reasonable dispatch, subject to delays resulting from
adjustment of the loss and any other cause beyond Lessor's reasonable control;
provided, Lessor shall not be required to repair or replace any furniture,
furnishings or other personal property which Lessee may be entitled to remove
from the Leased Premises or any installations in excess of Building standard.
Lessor shall provide written notice to Lessee within thirty (30) days after the
date of any casualty as to Lessor's election to terminate or repair. The notice
shall provide Lessor's reasonable estimate as to whether the repair or
restoration can be completed within ninety (90) days after the date of such
notice. In the event Lessor's notice provides that repair or restoration will
take more than ninety (90) days from the date of such notice, Lessee shall have
the right to terminate this Lease, provided that Lessee must deliver written
notice of its election to terminate within ten (10) days after receipt of
Lessor's notice thereof. If Lessee fails to deliver such notice in the time
period specified above, Lessee shall be deemed to have waived its right to
terminate. Until Lessor's repairs are completed the Rent shall be abated in
proportion to the portions of the Leased Premises, if any, which are
untenantable or unsuited for the conduct of Lessee's business, and Lessor will
use reasonable efforts to assist Lessee in securing a temporary space in the
event Lessee is forced to relocate from the Building during the time Lessor
completes its repairs to the Building. Notwithstanding anything contained in
this Section, Lessor shall only be obligated to restore or rebuild the Leased
Premises to a Building standard condition and Lessor shall not be required to
expend more funds than the amount received by Lessor from the proceeds of any
insurance carried by Lessor. Further notwithstanding, in the event the
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Building is untenantable as defined as condemned by the City of Raleigh, North
Carolina, either party may terminate this Lease.
8.04 INSURANCE POLICIES.
(a) Lessee shall, at its expense, maintain (i) standard fire and extended
coverage insurance on all of its personal property, including removable trade
fixtures, located in the Leased Premises and on its non-Building standard
leasehold improvements and all other additions and improvements (including
fixtures made by Lessee: and (ii) a policy or policies of comprehensive general
liability insurance, such insurance to afford minimum protection (which may be
effected by primary and/or excess coverage) of not less than $2,000,000.00 for
personal injury or death in any one occurrence and of not less than
$l,000,000.00 for property damage in any one occurrence. In the event Lessee
shall change the use of the Leased Premises from that set forth in Subsection
2.01(i), and such change warrants an increased level of insurance, then Lessor
shall have the right to request Lessee to carry such greater limits of liability
coverage as Lessor may reasonably deem necessary. All insurance policies
required to be maintained by Lessee shall (a) be issued by and binding upon
solvent insurance companies licensed to conduct business in the State of North
Carolina, (b) have all premiums fully paid on or before the due dates, (c) name
Lessor as an additional insured, and (d) provide that they shall not be
cancelable and/or the coverage thereunder shall not be reduced without at least
ten (10) days advance written notice to Lessor. Lessee shall deliver to Lessor
certified copies of all policies or certificates of insurance in a form
satisfactory to Lessor not less than thirty (30) days prior to the Commencement
Date or the expiration of current policies.
(b) Lessor shall obtain and keep in force during the Term of this Lease a
policy or policies of insurance covering loss or damage to the Leased Premises,
in the amount of the full replacement value thereof, providing standard property
protection against all perils included within the classifications of fire,
extended coverage, vandalism, and malicious mischief.
8.05 HOLD HARMLESS.
Subject to the provisions of Section 8.06, neither party shall be liable to
the other party or its respective agents, servants, employees, contractors,
customers or invitees, for any damage to person or property caused by any act,
omission or neglect of such party and its respective agents, servants,
employees, contractors, customers or invitees, including any claims which may be
made for compensation or damages based upon exposure to or interference from
electromagnetic rays and/or fields emanating from the Leased Premises, and each
party hereby agrees to indemnify and hold harmless the other party and its
partners, members, managers, agents, directors, officers, and employees from all
liability and claims for any such damage, including, without limitation, court
costs, attorneys' fees and costs of investigation. Any indemnification and
hold harmless obligation is expressly conditioned on the following: (i) that the
indemnifying party shall be notified in writing promptly of any such claim or
demand, and if said claim or demand is made by a third party; (ii) that the
indemnifying party shall have sole control of the defense of any action or
settlement or compromise; and (iii) that Lessor and Lessee shall
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cooperate with each other in a reasonable way to facilitate the settlement or
defense of such claim or demand.
8.06 WAIVER OF SUBROGATION RIGHTS.
Anything in this Lease to the contrary notwithstanding, Lessor and Lessee
each hereby waives to the extent that such waiver will not invalidate any
insurance policy maintained by Lessor or Lessee nor increase any premiums
thereon, any and all rights of recovery, claims, actions or causes of action,
against the other, its agents, members, managers, servants, partners,
shareholders, officers and employees, for any loss or damage that may occur to
the Leased Premises or the Building, or any improvements thereto, or any
personal property of such party therein, by reason of fire, the elements, and
any other cause which is insured against under the terms of the standard fire
and extended coverage insurance policies referred to in Section 8.04 hereof, to
the extent that such loss or damage is recovered under said insurance policies,
regardless of cause or origin, including negligence of the other party hereto,
its agents, members, managers, officers, partners, shareholders, servants or
employees, and covenants that no insurer shall hold any right of subrogation
against such other party. If the respective insurers of Lessor and Lessee do not
permit such a waiver without an appropriate endorsement to such party's
insurance policy, Lessor and Lessee covenant and agree to notify the insurers of
the waiver set forth herein and to secure from each such insurer an appropriate
endorsement to its respective insurance policy concerning such waiver.
8.07 LIMITATION OF LESSOR'S PERSONAL LIABILITY.
Lessee agrees to look solely to Lessor's interest in the Building and the
Land for the recovery of any judgment against Lessor, and Lessor, its partners,
members, managers, officers, directors and employees, shall never be personally
liable for any such judgment. The provisions contained in the foregoing sentence
are not intended to, and shall not, limit any right that Lessee might otherwise
have to obtain injunctive relief against Lessor or Lessor's successors in
interest or any suit or action in connection with enforcement or collection of
amounts which may become owing or payable under or on account of liability
insurance maintained by Lessor.
ARTICLE 9 - LESSOR'S LIEN, DEFAULT, REMEDIES AND SUBORDINATION
9.01 INTENTIONALLY DELETED.
9.02 DEFAULT BY LESSEE.
If Lessee shall default in the payment of any Rent or other sum to be paid
by Lessee under this Lease when due; provided, however that Lessor shall not
declare Lessee in default so long as any Rent due is paid within five (5) days
of the due date. Lessor's obligation to provide Lessee with such five (5) day
notice shall not affect Lessee's obligation to pay any late charges set forth in
Section 4.07. If Lessee shall default in the performance of any of the other
covenants
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or conditions which Lessee is required to observe and to perform under
this Lease and such default shall continue for thirty (30) days after written
notice to Lessee; or the interest of Lessee under this Lease shall be levied on
under execution or other legal process; or any petition shall be filed by or
against Lessee to declare Lessee a bankrupt or to delay, reduce or modify
Lessee's debts or obligations; or any petition shall be filed or other action
taken to reorganize or modify Lessee's debts or obligations: or any petition
shall be filed or other action taken to reorganize or modify Lessee's capital
structure; or Lessee is declared insolvent according to law; or any assignment
of Lessee's property shall be ioade for the benefit of creditors; or if a
receiver or trustee is appointed for Lessee or its property; or Lessee shall
vacate or abandon the Leased Premises or any part thereof at any time during the
Term for a period of fifteen (15) or more continuous days; or Lessee is a
corporation and Lessee shall cease to exist as a corporation in good standing in
the State of its incorporation; or Lessee is a partnership or other entity and
Lessee shall be dissolved or otherwise liquidated; then Lessor may treat the
occurrence of any one or more of the foregoing events as a breach of this Lease
(provided, no such levy, execution, legal process or petition filed against
Lessee shall constitute a breach of this Lease if Lessee shall vigorously
contest the same by appropriate proceedings and shall remove or vacate the same
within thirty (30) days from the date of its creation, service or filing).
Thereupon, at Lessor's option and in addition to all other rights and remedies
provided at law or in equity, Lessor may terminate this Lease and repossess the
Leased Premises and be entitled to recover as damages a sum of money equal to
the total of (a) the cost of recovering the Leased Premises (including
reasonable attorneys' fees and costs of suit), (b) the unpaid rent earned at the
time of termination, (c) the present value (discounted at the rate of eight
percent (18%) per annum) of the balance of the rent for the remainder of the
Term less the present value (discounted at the same rate of the fair market
rental value of the Leased Premises for said period, (d) the amount of any
unamortized leasing commissions or any allowances or concessions previously made
by Lessor to Lessee, (e) any other sum of money, and damages owed by Lessee to
Lessor and (f) interest on (a) (b) (c) (d) and (e) above at the rate of the
lesser of eighteen percent (18%) per annum or the highest rate allowed by
applicable law.
9.03 NON WAIVER.
Failure of Lessor to declare any default immediately upon occurrence
thereof, or delay in taking any action in connection therewith, shall not waive
such default and Lessor shall have the right to declare any such default at any
time and take such action as might be lawful or authorized hereunder, either in
law or in equity.
9.04 ATTORNEY'S FEES.
Should either party hereto institute any action or proceeding in court to
enforce any provision hereof or for damages by reason of any alleged breach of
any provisions of this Lease or for any other judicial remedy, the prevailing
party shall be entitled to receive from the non-prevailing party all actual
reasonable attorneys' fees and all court costs in connection with said
proceeding.
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9.05 SUBORDINATION; ESTOPPEL CERTIFICATE.
This Lease is and shall be subject and subordinate to any and all ground or
similar leases affecting the Building, and to all mortgages which may now or
hereafter encumber or affect the Building and to all renewals, modifications,
consolidations, replacements and extensions of any such leases and mortgages;
provided, at the option of any such lessor or mortgagee, this Lease shall be
superior to the lease or mortgage of such lessor or mortgagee. Consistent with
this Section, Lessee agrees, however, to execute and return any estoppel
certificate, consent subordination, non-disturbance and attornment agreement or
other agreement reasonably requested by any such lessor or mortgagee, or by
Lessor, within ten (10) days after receipt of same. The form of such estoppel
certificate is attached hereto as Exhibit E. Lessee shall, at the request of
Lessor or any mortgagee of Lessor secured by a lien on the Building or any
lessor to Lessor under a ground Lease of the Building, furnish such mortgagee
and/or lessor with written notice of any default or breach by Lessor at least
sixty (60) days prior to the exercise by Lessee of any rights and/or remedies of
Lessee hereunder arising out of such default or breach.
9.06 ATTORNMENT.
If any ground or similar lease or mortgage is terminated or foreclosed,
Lessee shall, upon request, attorn to the lessor under such lease or the
mortgagee or purchaser at such foreclosure sale, as the case may be, and execute
such reasonable instrument(s) requested by Lessor from time to time confirming
such attornment. In the event of such a termination or foreclosure and upon
Lessee's attornment as aforesaid, Lessee will automatically become the tenant of
the successor to Lessor's interest without change in the terms or provisions of
this Lease; provided, such successor to Lessor's interest shall not be bound by
(i) any payment of rent for more than one month in advance except prepayments
for security deposits, if any, or (ii) any amendments or modifications of this
Lease made without the prior written consent of such lessor or mortgagee.
ARTICLE 10 - ASSIGNMENT AND SUBLEASE
10.01 ASSIGNMENT OR SUBLEASE.
Lessee shall not, voluntarily, by operation of law, or otherwise, assign,
transfer, mortgage, pledge, or encumber this Lease or sublease the Leased
Premises or any plan thereof, or allow any person other than Lessee, its
employees, agents, servants and invitees, to occupy or use the Leased Premises
or any portion thereof, without the express prior written consent of Lessor,
such consent not to be unreasonably withheld, and any attempt to do any of the
foregoing without such written consent shall be null and void and shall
constitute a default under this Lease. Lessee agrees that it shall be deemed
reasonable for Lessor to deny consent to any proposed assignee or subtenant
based on the following criteria: (a) in the case of an assignment, current
financial statements indicate a net worth of less than five million dollars
($5.000.000) based on Generally Accepted Accounting Principals; (b) a proposed
assignee's or subtenant's business will impose a burden on the facilities,
common areas, parking or utilities that is greater
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than imposed by Lessee; (c) the use of the Leased Premises by the proposed
assignee or subtenant would be in conflict with Lessor's rights or obligations
to other tenants (existing or future) in the Building, (i): to a competitor of
Smith Barney Inc., or a discount stock brokerage firm, or a firm that is engaged
primarily in the securities brokerage business, or a competitor of Medical
Mutual Insurance Company of North Carolina, or a firm that is engaged primarily
in the insurance brokerage business), or will not be within the Permitted Use,
as defined in this Lease; and (d) Lessor has ever evicted or been involved in
litigation or has other past bad experiences with the proposed assignee or
subtenant. Notwithstanding the foregoing, in no event shall Lessee assign this
Lease or sublease the Leased Premises to any entity engaged in the commercial
real estate business, property management or the brokerage, ownership or
development of competitive properties. Lessor's consent to any assignment or
sublease hereunder does not constitute a waiver of its right to consent to any
further assignment or sublease. If Lessee desires to assign this Lease or sublet
the Leased Premises or any part thereof, Lessee shall serve Lessor written
notice of such desire at least thirty (30) days in advance of the date on which
Lessee desires to make such assignment or sublease. Lessor shall then have a
period of thirty (30) days following receipt of such notice within which to
notify Lessee in writing that Lessor rejects (a) to terminate this Lease as to
the space so affected as of the date so specified by Lessee, in which event
Lessee shall be relieved of all further obligations hereunder as to such space,
or (b) to permit Lessee to assign this Lease or sublet such space (provided,
however, if Lessor refuses to consent to an assignment to a particular entity
and subsequently consents to a sublease with such entity, and the rent agreed
upon between Lessee and sublessee is greater than the Monthly Base Rent that
Lessee is obligated to pay Lessor, Lessee is entitled to keep any such excess
amount), or (c) to refuse to consent to Lessee's assignment or subleasing such
space and to continue this Lease in full force and effect as to the entire
Leased Premises, such consent shall not be unreasonably withheld and shall be
based on the guidelines set forth in Section 10.01. Lessor shall notify Lessee
in writing of any such election within the thirty (30) day period. Lessee agrees
to pay Lessor's actual reasonable attorney's fees, not to exceed Five Hundred
Dollars ($500.00), associated with Lessor's review and documentation of any
requested assignment or sublease hereunder regardless of whether Lessor consents
to any such assignment or sublease. No subletting by Lessee shall relieve Lessee
of any oblations under this Lease, and Lessee shall remain fully liable
hereunder. If Lessee is not a public company that is registered on a national
stock exchange or that is required to register its stock with the Securities and
Exchange Commission under Section 12(g) of the Securities and Exchange Act of
1934, any change in a majority of the voting rights or other controlling rights
or interests of Lessee shall he deemed an assignment for the purposes hereof.
Lessee shall also have the right to assign the Lease, without giving rise to
Lessor's right to terminate the Lease, to (a) any entity resulting from a merger
or consolidation with Lessee; (b) any entity succeeding to the business and
assets of Lessee; and (c) any subsidiary or affiliate of Lessee with the same
net-worth value and credit-worthiness of Lessee. Notwithstanding the foregoing,
Lessor hereby gives its consent to the assignment of the Lease to Virata
Acquisition Sub., Inc. (to be renamed RSA Communications, Inc.), a newly formed.
wholly-owned subsidiary of Virata, Ltd., Inc., a United Kingdom corporation.
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10.02 ASSIGNMENT BY LESSOR.
Lessor shall have the right to transfer and assign, in whole or in part,
all its rights and obligations hereunder and in the Building and all other
property referred to herein, and in such event and upon such transfer (any such
transferee to have the benefit of, and be subject to, the provisions of Section
6.06 and Section 8.07 hereof) no further liability or obligation shall
thereafter accrue against Lessor under this Lease.
ARTICLE 11 - NOTICES AND MISCELLANEOUS
11.01 NOTICES.
Except as otherwise provided in this Lease, any statement, notice, or other
communication which Lessor or Lessee may desire or is required to give to the
other shall be in writing and shall be deemed sufficiently given or rendered if
hand delivered or if sent by registered or certified mail, postage prepaid,
return receipt requested, or Federal Express or similar overnight courier with
evidence of delivery, to the addresses for Lessor and Lessee set forth in
Subsection 2.01(k) or at such other address(es) as either party shall designate
from time to time by ten (10) days prior written notice to the other party.
11.02 MISCELLANEOUS.
(a) This Lease shall be binding upon and inure to the benefit of the legal
representatives, successors and assigns of Lessor, and shall be binding upon and
inure to the benefit of Lessee, its legal representatives and successors, and,
to the extent assignment may be approved by Lessor hereunder, Lessee's assigns.
Pronouns of any gender shall include the other genders, and either the singular
or the plural shall include the other.
(b) All rights and remedies of Lessor under this Lease shall be cumulative
and none shall exclude any other rights or remedies allowed by law. This Lease
is declared to be a North Carolina contract, and all of the terms thereof shall
be construed according to the laws of the State of North Carolina.
(c) This Lease may not be altered changed or amended, except by an
instrument in writing executed by all parties hereto. Further, the terms and
provisions of this Lease shall not be construed against or in favor of a party
hereto merely because such party is the "Lessor" or the "Lessee" hereunder or
such party or its counsel is the draftsman of this Lease.
(d) The terms and provisions of Exhibits A-1 described herein and attached
hereto are hereby made a part hereof for all purposes provided, however, that,
unless otherwise expressly stated, in the event of a conflict between the terms
of this Lease and the terms of any Exhibit attached hereto, the terms of this
Lease shall control.
(e) If Lessee is a corporation, partnership or other entity, Lessee
warrants that all consents and approvals required of third parties (including,
without limitation, its Board of Directors or partners) for the execution,
delivery and performance of this Lease have been
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obtained and that Lessee has the right and authority to enter into and perform
its covenants contained in this Lease.
(f) Whenever in this Lease there is imposed upon Lessor the obligation to
use its best efforts, reasonable efforts or diligence, Lessor shall be required
to do so only to the extent the same is economically feasible and otherwise will
not impose upon Lessor extreme financial or other business burdens.
(g) Any term or provision of this Lease, or the application thereof to any
person or circumstance, shall to any extent be invalid or unenforceable, the
remainder of this Lease, or the application of such provision to persons or
circumstances other than those as to which it is invalid or unenforceable, shall
not be affected thereby, and each provision of this Lease shall be valid and
shall be enforceable to the extent permitted by law.
(h) If applicable in the jurisdiction where the Leased Premises are
situated, Lessee shall pay and be liable for all rental, sales and use taxes or
other similar taxes, if any, levied or imposed by any city, state, county or
other governmental body having authority, such payments to be in addition to all
other payments required to be paid to Lessor by Lessee under the terms of this
Lease. Any such payment shall be paid concurrently with the payment of the rent
upon which the tax is based as set forth above.
(i) Lessor and Lessee each agrees not to handle, store or dispose of any
hazardous or toxic waste or substance at the Project which is prohibited by any
federal, state, or local statutes, ordinances or regulations. Lessor and Lessee
each hereby covenants to indemnify and hold the other party, its successors and
assigns, harmless from any loss, damage, claims, costs, liabilities or cleanup
costs arising out of Lessor's or Lessee's, as the case may be, use, handling,
storage or disposal of any such hazardous or toxic wastes or substances at the
Project.
(j) Lessee or Lessor may record this Lease or any memorandum thereof, in a
form attached hereto as Exhibit.
(k) Lessor agrees to provide Lessee with 4 parking spaces per 1,000 square
feet of space within the Leased Premises at no additional charge, which shall
include three (3) reserved, covered parking spaces at no charge to Lessee.
Lessee agrees to notify Lessor promptly of any additional parking needs which
shall be handled on a case-by-case basis.
(l) "Square feet" or "square foot" as used in this Lease includes the area
contained within the space occupied by Lessee (as measured by the June 7, 1996,
BOMA standard for measuring OFFICE AREA), multiplied by a common area percentage
factor.
(m) Lessor agrees to pay to the Broker(s) named in Subsection 2.01 (1), a
real estate brokerage commission only as set forth in separate listing and/or
commission agreement(s) between Lessor and the named Broker(s). Lessor and
Lessee each hereby represent and warrant to the other that they have not
employed any other agents, brokers or other parties in connection with this
Lease, and each agrees that it shall hold the other harmless from and against
any and all
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claims of all other agents, brokers or other parties claiming by, through or
under the respective indemnifying party.
(n) Lessee understands and agrees that the Property Manager for the
Building is the agent of Lessor and is acting at all times in the best interest
of Lessor. Any and all information pertaining to this Lease that is received by
the Property Manager shall be treated as though received directly by Lessor.
(o) This Lease may be executed in any number of counterparts, each of which
shall be an original, but all of which taken together shall constitute one and
the same instrument.
(p) Lessee shall have the right to have its name placed on a monument sign
to be erected at the main driveway to the Building, provided the City of
Raleigh, North Carolina permits Lessor to design, install and maintain such
monument sign, and further provided Lessee shall be responsible for all cost and
expense of having its name installed on any such monument sign.
ARTICLE 12 - ENTIRE AGREEMENT AND LIMITATION OF WARRANTIES
12.01 ENTIRE AGREEMENT AND LIMITATION OF WARRANTIES.
LESSEE AGREES THAT THIS LEASE AND THE EXHIBITS ATTACHED HERETO CONSTITUTE
THE ENTIRE AGREEMENT OF THE PARTIES AND ALL PRIOR CORRESPONDENCE, MEMORANDA,
AGREEMENTS AND UNDERSTANDINGS (WRITTEN AND ORAL) ARE MERGED INTO AND SUPERSEDED
BY THIS LEASE AND THERE ARE AND WERE NO VERBAL REPRESENTATIONS, WARRANTIES,
UNDERSTANDINGS, STIPULATIONS, AGREEMENTS OR PROMISES MADE BY LESSOR IN
CONNECTION WITH THIS LEASE, LESSEE FURTHER AGREES THAT THERE ARE NO, AND LESSEE
EXPRESSLY WAIVES ANY AND ALL WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET
FORTH IN THIS LEASE OR IMPLIED WARRANTIES OF MERCHANTABILITY, HABITABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING OUT OF THIS LEASE.
IN TESTIMONY WHEREOF, the parties hereto have executed this Lease as of the
date aforesaid.
LESSOR:
Lake Partners, L.L.C., a North Carolina limited
liability Company
(SEAL)
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By: Capital Associates Limited Partnership,
a North Carolina limited liability company
(SEAL)
By: /s/ Hugh D. Little (SEAL)
----------------------
Hugh D. Little. General Partner
LESSEE:
RSA Communications, Inc., a Delaware corporation.
By /s/ Munther Qubain
Name: Munther Qubain
Title: President
(Corporate Seal)
Attest:
By:
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EXHIBIT A-2
THE LAND
---------
Lying and being in the City of Raleigh, Wake County, North Carolina, and being
more particularly described as follows:
Beginning at a point located at the intersection of the southeastern right-
of-way line of Spring Forest Road and the southern right-of-way line of
Ridgefield Drive; runs thence with the southern right-of-way line of
Ridgefield Drive: South 59 degrees 00 minutes 00 seconds East 98.81 feet to
a point, South 62 degrees 24 minutes 35 seconds East 100.00 feet to a
point, and in a generally easterly direction along a curve to the left
(said curve having an exterior chord bearing and distance of South 72
degrees 21 minutes 05 seconds East 82.22 feet) having a radius of 380.00 an
arc distance of 82.38 feet to a point; runs thence leaving the southern
right-of-way line of Ridgefield Drive South 04 degrees 53 minutes 57
seconds East 176.85 feet to a point; runs thence South 49 degrees 53
minutes 57 seconds East 17.21 feet to a point; runs thence in a generally
southeasterly direction along a curve to the left (said curve having an
exterior chord bearing and distance of South 49 degrees 53 minutes 57
seconds East 110.00 feet) having a radius of 55.00 feet an arc distance of
172.79 feet to a point; runs thence South 27 degrees 36 minutes 36 seconds
East 215.64 feet to a point in the line of that property now or formerly
belonging to Northbend; runs thence with the northern line of that property
now or formerly belonging to Northbend, North 88 degrees 53 minutes 41
seconds West 818.63 feet to a point; runs thence North 01 degree 34
minutes 34 seconds West 6.67 feet to a point in the southeastern right-of-
way line of Spring Forest Road; runs thence with the Southeastern right-
of-way line of Spring Forest Road in a generally northeasterly direction
along a curve to the left (said curve having an exterior chord bearing and
distance of North 35 degrees 20 minutes 19 seconds East 275.53 feet) having
a radius of 1,821.07 feet an arc distance of 275.79 feet to a point;
continues thence with the southeastern right-of-way line of Spring Forest
Road North 31 degrees 00 minutes 00 seconds East 346.59 feet to a point,
and in a generally northeasterly direction along a curve to the right (said
curve having an interior chord bearing and distance of North 31 degrees 47
minutes 22 seconds East 31.83 feet) having a radius of 1, 155.00 feet an
arc distance of 31.83 feet to the point and piece of Beginning, containing
5.814 acres as shown on that plat entitled Plat of Survey for Linpro North
Carolina Offices II Limited, dated October 27, 1986, and prepared by Murphy
Yells Associates, Registered Land Surveyors.
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EXHIBIT B
ACCEPTANCE OF LEASED PREMISES MEMORANDUM
----------------------------------------
Lessor and Lessee hereby agree that:
1. Except for those items shown on the attached "punch list", which Lessor
shall use reasonable efforts to remedy within ______________ (___) days
after the date hereof, Lessor has fully completed the construction work
required of Lessor under the terms of the Lease.
2. The Leased Premises are tenantable, Lessor has no further obligation for
construction (except as specified above), and Lessee acknowledges that the
Leased Premises are satisfactory in all respects.
3. The Commencement Date of the Lease is hereby agreed to be _______________,
19__.
4. The Expiration Date of the Lease is hereby agreed to be _______________,
19__.
All other terms and conditions of the Lease are hereby ratified and
acknowledged to be unchanged.
Agreed and Executed this ____ day of __________________, 19__.
LESSEE:
RSA Communications, Inc., a Delaware corporation
By:_____________________________________________
(Corporate Seal)
Name: __________________________________________
Title: _________________________________________
Attest:
By: ____________________
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EXHIBIT C
TENANT IMPROVEMENTS
-------------------
700 Spring Forest Road, Suite 100
Raleigh, North Carolina 27609
Improvements by Lessor pursuant to the construction drawings dated 6/10/98, as
submitted by Lessee:
1. Install Building standard walls.
2. Install Building standard doors and hardware.
3. Install Building standard acoustical hung ceiling throughout.
4. Install Building standard recessed fluorescent light fixtures.
5. Install Building standard electrical switches, receptacles and voice data
jacks.
6. Install Building standard plumbing, sink, shelving, and cabinetry in break
room and file-fax-copy room.
7. Furnish and install projection screen in conference room.
8. Install Building standard carpet and vinyl composite tile throughout.
9. Paint walls with Building standard paint throughout.
10. All appliances to be furnished by Lessee.
Construction drawings for the Leased Premises dated 6/10/98 titled T-1, T-2, A-0
through A-7; P-1 and P-2, M-1 and M-2 and E-1, E-2 and E-3 are attached hereto.
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EXHIBIT D
BUILDING RULES
--------------
(1) The sidewalks, walks, plaza entries, corridors, concourses, ramps,
staircases, escalators and elevators shall not be obstructed or used by Lessee,
or the employees, agents, servants, visitors or licensees of Lessee, for any
purpose other than ingress and egress to and from the Leased Premises. No
bicycle or motorcycle shall be brought into the Building or kept on the Leased
Premises without the prior written consent of Lessor.
(2) No freight, furniture or bulky matter of any description shall be
received into the Building or carried into the elevators except in such a
manner, during such hours and using such elevators and passageways as may
be approved by Lessor, and then only upon having been scheduled in advance;
provided, however, Lessee may receive normal, daily deliveries from an overnight
courier (ie: Federal Express), without Lessor's prior approval.
(3) Lessor shall have the right to prescribe the weight, position and
manner of installation of safes, concentrated filing/storage systems or other
heavy equipment which shall, if considered necessary by Lessor, be installed in
a manner which shall insure satisfactory weight distribution. All damage done to
the Building by reason of a safe or any other article of Lessee's office
equipment being on the Leased Premises shall be repaired at the expense of
Lessee: provided, however, if Lessee follows Lessor's guidelines for the moving
and installation of safes, concentrated filing/storage systems or other heavy
equipment. Lessee shall not be responsible for any damage to the Building. The
time, routing and manner of moving safes or other heavy equipment shall be
subject to prior written approval by Lessor.
(4) Lessee shall use no other method of heating or cooling than that
supplied by Lessor.
(5) Lessee, and the employees, agents, servants, visitors, or licensees of
Lessee, shall not at any time place, leave or discard any rubbish, paper,
articles or objects of any kind whatsoever outside the doors of the Leased
Premises or in the corridors or passageways of the Building. No animals, except
for dogs trained to assist disabled persons, shall be brought or kept in or
about the Leased Premises or the Building without the prior written consent of
Lessor .
(6) Lessor shall have the right to prohibit any advertising by Lessee
which, in Lessor's opinion, tends to impair the reputation of the Building or
its desirability for offices, and, upon written notice from Lessor, Lessee shall
refrain from or discontinue such advertising. Lessor shall have the right to
use Lessee's name in advertising announcements.
(7) Lessee shall not place, or cause or allow to be placed, any sign or
lettering whatsoever, in or about the Leased Premises except in and at such
places as may be designated by Lessor and consented to by Lessor in writing. All
lettering and graphics on corridor doors and walls shall conform to the Building
standard prescribed by Lessor. No trademark shall be displayed on corridor
doors and walls in any event, except on any floor fully leased by Lessee. Lessee
may display trademarks on interior walls and doors of the Leased Premises.
Lessor shall provide and maintain an alphabetical directory board in the ground
floor lobby of the Building.
(8) Canvassing, soliciting or peddling in the Building is prohibited and
Lessee shall cooperate to prevent same.
(9) Subject to the provisions of Section 6.05, Lessor shall have the right
------------
to exclude any person from the Building other than during customary business
hours, and any person in the Building shall be subject to identification by
employees and agents of Lessor. All persons in or entering the Building shall
be required to comply with the security policies of the Building. If Lessee
desires any additional security services for the Leased Premises, Lessee shall
have the right (only with the advance written consent of Lessor) to obtain
such additional services at Lessee's sole cost and expense. Lessee shall keep
doors to unattended areas locked and shall otherwise exercise reasonable
precautions to protect property from theft, loss, or damage.
(10) Only workmen employed, designated or approved by Lessor may be
employed for repairs, installations, alterations, painting, moving company and
other similar work that may be done to the Leased Premises.
(11) Lessee shall not do any cooking or conduct any restaurant,
luncheonette, automat or cafeteria for the sale or service of food or beverage
to its employees or to others, nor shall Lessee provide any vending machines
without the prior written consent of Lessor. Lessee may, however, operate coffee
bars by and for its employees and invitees. Notwithstanding the foregoing,
Lessee shall be permitted to install the following in the breakroom of the
Leased Premises: a microwave oven and up to three (3) vending machines.
(12) Lessee shall not bring or permit to be brought or kept in or on the
Leased Premises any inflammable, combustible, corrosive, caustic, poisonous,
toxic or explosive substance or any substance deemed to be a hazardous substance
under applicable environmental laws, or cause or permit any odors to permeate or
emanate from the Leased Premises.
(13) Lessee shall not mark, paint, drill into or in any way deface any part
of the Building or the Leased Premises. No boring, driving of nails or screws,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Lessor, and as Lessor may direct. Lessee shall not install coat hooks
or identification plates on doors nor any resilient tile or similar floor
covering in the Leased Premises except with the prior written approval of
Lessor. The use of cement or other similar adhesive
<PAGE>
material is expressly prohibited.
(14) Lessee shall not place any additional locks or bolts of any kind on
any door in the Building or the Leased Premises or change or alter any lock on
any door therein in any respect. Lessor shall furnish Lessee with up to twenty-
five (25) keys, or more as requested by Lessee for additional employees, for
doors to and within the Leased Premises. Lessor shall also furnish Lessee with
as many access card keys to the Building as requested, at no additional charge;
provided however, there will be a charge to Lessee to replace lost or stolen
access card keys. Lessee shall not make any duplicate keys. Lessor shall, upon
request by Lessee, and at Lessor's sole cost and expense, provide Lessee with
additional, duplicate door keys to and within the Leased Premises. All keys
shall be returned to Lessor upon the termination of the Lease, and Lessee shall
give to Lessor the explanation of the combination of all safes, vaults and
combination locks in the Leased Premises. Lessor may at all times keep a pass
key to the Leased Premises. All entrance doors to the Leased Premises shall be
left locked when the Leased Premises are not in use.
(15) Lessee shall give immediate notice to Lessor in case of theft,
unauthorized solicitation or accident in the Leased Premises or in the Building
or of defects therein or in any fixtures or equipment, or of an known emergency
in the Building.
(16) Lessee shall place a water-proof tray under all plants in the Leased
Premises and shall be responsible for any damage to the floors and/or carpets by
over-watering such plants.
(17) Lessee shall not use the Leased Premises or permit the Leased
Premises to be used for photographic, multilith or multigraph reproductions,
except in connection with its own business and not as a service for others,
without Lessor's prior written permission.
(18) Lessee shall not use or permit any portion of the Leased Premises to
be used as an office for a public stenographer or typist, offset printing, the
sale of liquor or tobacco, a barber or manicure shop, an employment bureau, a
labor union office, a doctor's or dentist's office, a dance or music studio, any
type of school, or for any use other than those specifically granted in this
Lease .
(19) Lessee shall not advertise for laborers giving the Leased Premises
as an address, nor pay such laborers at a location in the Leased Premises.
(20) Employees of Lessor shall not perform any work or do anything
outside of their regular duties, unless under special instructions from the
management office in the Building.
(21) Lessee shall not place a load upon any floor of the Leased Premises
which exceeds the load per square foot which such floor was designed to carry
and which is allowed by law. Business machines and mechanical and electrical
equipment belonging to Lessee which cause noise, vibration, electrical or
magnetic interference, or any other nuisance that may be transmitted to the
structure or other portions of the Building or to the Leased Premises to such a
degree as to be objectionable to Lessor or which interfere with the use or
enjoyment by other tenants of their leased premises or the public portions of
the Building shall be placed and maintained by Lessee, at Lessee's expense, in
settings of cork, rubber, spring type or other vibration eliminators sufficient
to eliminate noise or vibration.
(22) Intentionally deleted.
(23) No solar screen materials, awnings, draperies, shutters or other
interior or exterior window coverings that are visible from the exterior of the
Building or from the exterior of the Leased Permises within the Building may be
installed be Lessee.
(24) Lessee shall not place, install or operate within the Leased
Premises or any other part of the Building any engine, stove or machinery, or
conduct mechanical operations therein, without the written consent of Lessor.
(25) No portion of the Leased Premises or any other part of the Building
shall at any time be used or occupied as sleeping or lodging quarters.
(26) For purposes of the Lease, holidays shall be deemd to mean and
include the following: (a) New Year's Day; (b) Good Friday; (c) Memorial Day;
(d) Independence Day; (f) Thanksgiving day and the Friday following; and (g)
Christmas Day.
(27) Lessee shall at all times keep the Leased Premises neat and orderly.
(28) Intentionally deleted.
(29) Lessor reserves the right to rescind, add to and amend any rules or
regulations, to add new rules or regulations, and to waive any rules or
regulations with respect to any tenant or tenants, provided such new rules or
requlations do not materially affect the operation of Lessee's business.
(30) Corridor doors, when not in use, shall be kept closed.
(31) All permitted alteratons and additions to the Leased Premises must
conform to applicable building and fire codes.
<PAGE>
Lessee shall obtain approval from the office of the Building with respect to any
such modifications and shall deliver "as-built" plans therefor to the office of
the Building on completion.
(32) It is the intent of both Lessor and Lessee that any portion of the
Leased Premises visible to the public hold a high quality professional image at
all times. If, at any time during the Term, Lessor or Lessor's agent deems such
visible area to hold less than a high quality professional image, Lessor will
advise Lessee of desired changes to be made to such area to conform to the
intent of this paragraph. Within three working days, Lessee will cause the
desired changes to be made, or present Lessor with a plan for accomplishing such
changes. Lessee shall have such additional time as is reasonably required to
implement the plan, not to exceed 2 months; provided, however, that if Lessee is
not diligently pursuing the plan for accomplishing such changes within ten
working days, Lessor will provide draperies or blinds for the glassed area at
Lessee's expense; Lessee will keep such draperies or blinds closed at all times.
The carpet and wall coverings, which are to be located in the
lobby of any Leased Premises that are visible to the public, must be consistent
in color and style with the carpet and wall coverings located in the lobby area
of the Building, and must be approved by Lessor prior to installation.
(33) The Building has been designated a "non-smoking" building. Lessee and
its employees, agents, servants, visitors and licensees are prohibited from
smoking in the common areas both inside and outside of the Building, except in
those areas designated as smoking areas. Lessee may designate the Leased
Premises a "non-smoking" area.
(34) Lessee shall not play nor permit the playing of loud music in the
Leased Premises or common areas.
(35) No firearms, whether concealed or otherwise, shall be allowed in the
Building at any time.
19
<PAGE>
EXHIBIT E
FORM OF ESTOPPEL CERTIFICATE
----------------------------
The undersigned ___________________________________________ ("Lessee"), in
consideration of One Dollar ($1.00) and other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, hereby certifies to
_______________________________________ ("Lessor"), (the holder or prospective
holder of any mortgage covering the property) (the "Mortgagee") and (the vendee
under any contract of sale with respect to the Property) (the "Purchaser") as
follows:
1. Lessee and Lessor executed a certain Lease Agreement (the "Lease"), dated
_________________, 19__, covering the ___________ floor(s) shown attached on the
plan annexed hereto as Exhibit A-1 (the "Leased Premises") in the building
-----------
located in the ___________________________ known as and by the street number
_______________________________ (the "Building"), for a term commencing on
__________________, 19__, and expiring on ______________________________.
2. The Lease is in full force and effect and has not been modified, changed,
altered or amended in any respect.
3. Lessee has accepted and is now in possession of the Leased Premises and is
paying the full Rent under the Lease.
4. The Base Rent payable under the Lease is $___________ per month. The Base
Rent and all Additional Rent and other charges required to be paid under the
Lease have been paid for the period up to and including ____________________.
5. Lessee had paid to Lessor the sum of $0.00 as security deposit under the
Lease.
6. No Rent under the Lease has been paid for more than thirty (30) days in
advance of its due date.
7. All work required under the Lease to be performed by Lessor has been
completed to the full satisfaction of Lessee.
8. There are no defaults existing under the Lease on the part of either Lessor
or Lessee.
9. There is no existing basis for Lessee to cancel or terminate the Lease.
10. As of the date hereof, there exist no valid defenses, offsets, credits,
deductions in rent or claims against the enforcement of any of the agreements,
terms, covenants or conditions of the Lease.
11. Lessee affirms that any dispute with Lessor giving rise to a claim against
Lessor is a claim under the Leased only and is subordinate to the rights of the
holder of all first lien mortgages on the Building and shall be subject to all
the terms, conditions and provisions thereof. Any such claims are not offsets to
or defenses against enforcement of the Lease.
12. Lessee affirms that any dispute with Lessor giving rise to a claim against
Lessor is a claim under the Lease only and is subordinate to the rights of the
Purchaser pursuant to any contract of sale. Any such claims are not offsets to
or defense against enforcement of the Lease.
13. Lessee affirms that any claims pertaining to matters in existence at the
time Lessee took possession and which are known to or which were then readily
ascertainable by Lessee shall be enforced solely by money judgment and/or
specific performance against the Lessor named in the Lease and may not be
enforced as an offset to or defense against enforcement of the Lease.
14. There are no actions, whether voluntary or otherwise, pending against or
contemplated by Lessee under the bankruptcy laws of the United States or any
state thereof.
15. There has been no material adverse change in Lessee's financial condition
between the date hereof and the date of the execution and delivery of the Lease.
16. Lessee acknowledges that Lessor has informed Lessee that an assignment of
Lessor's interest in the Lease has been or will be made to the Mortgagee and
that no modification, revision, or cancellation of the Lease or amendments
thereto shall be effective unless a written consent thereto of the Mortgagee is
first obtained, and that until further notice payments under the Lease may
continue as heretofore.
17. Lessee acknowledges that Lessor has informed Lessee that Lessor has entered
into a contract to sell the Property to Purchaser and that no modification,
revision or cancellation of the Lease or amendments thereto shall be effective
unless a written consent thereto of the Purchaser has been obtained.
20
<PAGE>
18. This certification is made to induce Purchaser to consummate a purchase
of the Property and to induce Mortgagee to make and maintain a mortgage loan
secured by the Property and/or to disburse additional funds to Lessor under
the terms of its agreement with Lessor, knowing that said Purchaser and
Mortgagee rely upon the truth of this certificate in making and/or maintaining
such purchase or mortgage or disbursing such funds, as applicable.
19. Except as modified herein, all other provisions of the Lease are hereby
ratified and confirmed.
LESSEE:
RSA Communications, Inc., a Delaware corporation
By:____________________________________________
(Corporate Seal)
Name:__________________________________________
Title:_________________________________________
Date:__________________________________________
Attest:
By: _______________________
<PAGE>
EXHIBIT F
HVAC SCHEDULE
---------------
Subject to the provisions of Section 5.01 of the Lease and excluding
------------
holidays, Lessor will furnish Building standard heating, ventilating and air
conditioning between 8:00 a.m. and 6:00 p.m. on weekdays (from Monday through
Friday, inclusive) and Saturdays beween 8:00 a.m. and 1:00 p.m. Upon request of
Lessee made in accordance with the rules and requlations for the Building,
Lessor will furnish air conditioning and heating at other times (that is, at
times other than the specified above), in which event Lessee shall reimburse
Lessor for furnishing such services on the following basis:
Lessee shall reimburse Lessor at the rate of Twenty and No/10 Dollars
($20.00) per hour which is activated to provide the requested air conditioning
or heating service; provided, such rate is based upon the "Kilowatt Hour
rate"(as hereinafter defined) for electricity as of January 1, 1995 (the "Base
Rate"), and if and when the Kilowatt Hour Rate increases over the Base Rate, the
aforesaid rate of Twenty and No/100 Dollars ($20.00) per hour thereof shall
automatically increase proportionately. For example, if the Kilowatt Hour Rate
increases by 10% over the Base Rate, said rate shall automatically increase by
10%. The "Kilowatt Hour Rate" shall mean the actual average cost per kilowatt
hour charged by the public utilities providing electricity to the Building, or
if said public utilities shall cease charging for electricity on the basis of a
kilowatt hour, the Kilowatt Hour Rate shall mean the actual average cost per
equivalent unit of measurement substituted therefor by said public utilities.
The Base Rate is hereby stipulated to be $.0600 per kilowatt hour.
<PAGE>
EXHIBIT G
RENEWAL OPTION
--------------
As long as Lessee is not in default in the performance of its covenants
under this Lease at the time of exercise of this renewal option or at the time
of commencement of the renewal, Lessee is granted the option to renew the Term
of this Lease for a period of five (5) additional years ("Renewal Term"), to
commence at the expiration of the initial Term of this Lease. Lessee shall
exercise its option to renew by delivering written notice of such election to
Lessor at least twelve (12) months prior to the expiration of the initial Term.
The renewal of this Lease shall be upon the same terms and conditions of this
Lease, except (a) the Base Rent during the Renewal Term shall be the prevailing
Market Base Rent Rate (defined below) for similar space in the Building at the
time the Renewal Term commences, but in no event less than the Base Rent plus
Additional Rent that Lessee is then paying under the terms of this Lease, (b)
Lessee shall have no option to renew this Lease beyond the expiration of the
Renewal Term, (c) Lessee shall not have the right to assign its renewal rights
to any sublessee of the Leased Premises, nor may any such sublessee exercise
such renewal rights, and (d) the leasehold improvements will be provided in
their then existing condition (on an "as is" basis) at the time the Renewal Term
commences.
As used in this Lease, the term "Market Base Rent Rate" shall mean the
annual rental rate then being charged in Raleigh, North Carolina for space
comparable to the space for which the Market Base Rent Rate is being determined
(taking into consideration use, location and/or floor level within the
applicable building, base rent, base operating expense factor, tenant
improvement allowance, definition of net rentable area, leasehold improvements
provided, quality and location of the applicable building, rental concessions
(such as abatements or Lease assumptions) and the time the particular rate under
consideration became effective). It is agreed that bona fide written offers to
lease the Leased Premises or comparable space made to Lessor by third parties
(at arm's-length) may be used by Lessor as an indication of Market Base Rent
Rate.
Whenever in this Lease a provision calls for a rental rate to be, or be
adjusted to, the Market Base Rent Rate, Lessee shall continue to pay Base Rent
and the Additional Rent as provided in this Lease.
<PAGE>
EXHIBIT H
Intentionally Deleted
24
<PAGE>
EXHIBIT I
MEMORANDUM OF LEASE
-------------------
WHEN RECORDED MAIL TO:
________________________
________________________
________________________
STATE OF NORTH CAROLINA
COUNTY OF WAKE
MEMORANDUM OF LEASE
-------------------
This Memorandum of Lease is by and between Lake Partners, L.L.C., a North
-------
Carolina limited liability company ("Lessor") and RSA Communications, Inc., a
- ----------------------------------
Delaware corporation ("Lessee"), pursuant to which Lessor, for consideration,
the receipt and sufficiency of which are hereby acknowledged, has demised to
Lessee, and Lessee has accepted such demise from Lessor, the Leased Premises
upon the following terms:
Date of Lease: _______________________, 1998
Description of Premises: approximately 12,944 square feet of space (as
shown on Exhibit A-I, which is attached hereto) located in Suite 100 in the
-----------
building known as Lake Plaza West and located at 700 Spring Forest Road,
Raleigh, North Carolina 27609 (this "Building").
Term: 5 years and 3 months
Target Commencement Date: August 15, 1998
Target Expiration Date: November 30, 2003
Renewal Option: One (1) five (5) year term.
The purpose of this Memorandum of Lease is to give record notice of the
Lease and of the rights created thereby, all of which are hereby confirmed and
all terms of which are incorporated into this Memorandum of Lease by reference.
IN WITNESS WHEREOF, the parties have executed this Memorandum of Lease as
of the dates set forth in their respective acknowledgments.
LESSOR:
Lake Partners, L.L.C., a North Carolina limited
liability company (SEAL)
By: Capital Associates Limited Partnership, a
North Carolina limited partnership, its
Manager (SEAL)
By:___________________________________(SEAL)
Hugh D. Little, General Partner
LESSEE:
RSA Communications, Inc., a Delaware corporation
By:_______________________________________________
(Corporate Seal)
Name: ____________________________________________
Title: ___________________________________________
Attest:
By: _________________
25
<PAGE>
Lessor:
STATE OF NORTH CAROLINA
COUNTY OF ___________________
I, _________________________, a Notary Public for said County and State, certify
that _______________________ personally came before me this day and acknowledged
the due execution of the foregoing instrument on behalf of said _______________.
Witness my hand and official seal, this _______ day of ________________, 19__.
My commission expires: _____________________, 19__.
_______________________________________ (Official Seal)
Notary Public
Lessee: (if a corporation)
STATE OF NORTH CAROLINA
COUNTY OF ___________________
I, ______________________, a Notary Public for said County and State, certify
that __________________, personally came before me this day and acknowledged
that he/she is __________________ Secretary of ______________________, and that
by authority duly given and as the act of the corporation the foregoing
instrument was signed in its name by its President, sealed with its corporate
seal, and attested by him/her as its _______________ Secretary.
Witness my hand and official seal, this __________ day of ______________, 19__.
My commission expires: ________________________, 19__.
__________________________________ (Official Seal)
Notary Public
26
<PAGE>
EXHIBIT 10.11
L E A S E dated and delivered 1994
- ---------
BETWEEN the Landlord and the Tenant and (if any) the Guarantor named in the
- -------
Particulars hereunder
WITNESSES as follows: -
- ---------
1. PARTICULARS
-----------
1.1 Landlord: UNIVERSITIES SUPERANNUATION SCHEME
----------------------------------
LIMITED whose registered office is at
-------
Richmond House Rumford Place Liverpool L3
9FD
1.2 Tenant: ADVANCED TELECOMMUNICATIONS MODULES
-----------------------------------
LIMITED (company number England) whose
-------
registered office is at Home Farm
Fowlmere Lane Heydon near Royston Herts
SG8 8PZ
1.3 Guarantor: None
1.4 Premises: the premises shortly known as part ground
floor Mount Pleasant House Huntingdon
Road Cambridge
1.5 Term: 10 years from and including 17th January
1994
1.6 Rent Commencement Date: 8th February 1994
1.7 Initial Rent: Twenty two thousand pounds
((Pounds)22,000) per annum (exclusive of
VAT)
-----------------------1.8 17th January in the year 1999
1.9 Permitted Use: use of the Premises as offices within
Class B1 of the Schedule to the Town and
Country Planning (Use Classes) Order 1987
(notwithstanding any amendment or
revocation of such Order whenever made)
<PAGE>
2.1.29 "VAT" means value added tax or any tax of a similar nature that
---
may be substituted for it or levied in addition to it
2.2 In this Lease unless there be something in the subject or context
inconsistent therewith:
2.2.1 Where the expressions "the Tenant" or "the Guarantor" (if any)
include two or more persons they shall include the plural number
and obligations expressed or implied to be made by or with any of
such persons shall be deemed to be made by or with such persons
jointly and severally
2.2.2 Any covenant by the Tenant not to do or omit to do an act or
thing shall be deemed to include an obligation not to permit or
suffer such act or thing to be done or omitted to be done as the
case may be
2.2.3 Any reference to parting with possession shall be deemed to
include sharing possession and any occupation whatsoever by a
licensee
2.2.4 Any reference in this Lease to the Landlord's consent shall
include where necessary the consent of both the Landlord and all
superior landlords (if any)
2.2.5 Any reference to a right exercisable by the Landlord shall
include where necessary the exercise of such right by all
superior landlords (if any) and all persons authorized by the
Landlord or any superior landlord
2.2.6 Any reference to a statute shall include any statutory extension
or modification or re-enactment of such statute and any order
instrument plan regulation permission or direction made or issued
thereunder or deriving validity therefrom
2.2.7 Words importing the singular meaning shall include the plural
meaning and vice versa and words importing the masculine feminine
and neuter genders shall include the other or others of such
genders
2.2.8 The clause and paragraph headings and the index are for
convenience only and shall not affect the construction of this
Lease
2.2.9 For the avoidance of any doubt expressions used in the
Particulars shall have the same meanings when used elsewhere in
this Lease
2.2.10 Any reference to a clause subclause paragraph or schedule shall
be a reference to the clause subclause or paragraph of or
schedule to this Lease so numbered
2
<PAGE>
3. DEMISE, RENT, RENT REVIEW AND BREAK
-----------------------------------
3.1 In consideration of the rents hereinafter reserved and of the
covenants and conditions hereinafter contained the Landlord HEREBY
------
DEMISES unto the Tenant ALL THAT the Premises TOGETHER WITH so far as
------- -------- -------------
the Landlord can grant the same the rights (if any) contained or
referred to in Part 2 of Schedule 1 EXCEPT AND RESERVING as provided
--------------------
in Part 3 thereof TO HOLD the same SUBJECT to and (insofar as the
------- -------
Landlord has the power to grant the same) with the benefit of the
provisions contained or referred to in the documents (if any) referred
to in Part 4 of that Schedule unto the Tenant for the Term YIELDING
--------
AND PAYING therefor unto the Landlord yearly during the Term and so in
----------
proportion for any less period than a year without any deduction FIRST
-----
the clear yearly rent (exclusive of VAT) ascertained in accordance
with Clause 3.2 such rent (if the Landlord so requires) to be paid by
banker's standing order direct debit or other accepted means for the
transmission of money which the Landlord may from time to time
reasonably nominate by equal quarterly payments in advance on the four
Rent Days in every year the first payment (for the period beginning on
the Rent commencement Date and ending on the day preceding the next
succeeding Rent Day and calculated by multiplying the said yearly rent
by the fraction of which the numerator is the number of days between
those dates (both included) and the denominator is 365) to be made on
the date hereof SECONDLY by way of additional rent all such monies as
--------
shall become payable in accordance with Clause 4.3 THIRDLY by way of
-------
additional rent all such monies as shall become payable in accordance
with Clause 4.1 and Schedule 2 FOURTHLY by way of additional rent on
--------
demand all such monies as shall become payable in accordance with
Clause 6.2.1 and FIFTHLY by way of additional rent all other amounts
-------
(including VAT) payable to the Landlord under this Lease
3.2 The yearly rent referred to in Clause 3.1 shall be ascertained as
follows:
3.2.1 (a) In respect of the first year of the Term such yearly
rent shall be the Initial Rent
(b) In respect of the second year of the Term such yearly
rent shall be Thirty three thousand pounds
((Pounds)33,000) per annum
(c) In respect of the third year of the Term such yearly
rent shall be Fifty thousand pounds ((Pounds)50,000)
per annum
(d) Thereafter until the Review Date such yearly rent shall
be Sixty eight thousand one hundred and fifty pounds
((Pounds)68,150) per annum
3.2.2 From and including the Review Date such yearly rent shall be
a rent equal to the rent previously payable hereunder
immediately prior to that
3
<PAGE>
Review Date or such revised rent ("Revised Rent") as may be
ascertained as hereinafter provided whichever be the greater
3.2.3 The Revised Rent payable from the Review Date may be agreed
at any time between the Landlord and the Tenant or (in the
absence of agreement) determined not earlier than the Review
Date at the option of the Landlord either by an arbitrator
or by an independent valuer (acting as an expert and not as
an arbitrator) such arbitrator or valuer to be a partner in
a principal firm of Chartered Surveyors who is experienced
in the Testing and valuation of premises comparable with the
Premises and to be nominated in the absence of agreement by
or on behalf of the President for the time being of the
Royal Institution of Chartered Surveyors on the application
of the Landlord or the Tenant made not earlier than six
months before the Review Date and so that in the case of
such arbitration or valuation the Revised Rent to be awarded
or determined by the arbitrator or valuer shall be such as
he shall decide should be the Open Market Rent at the Review
Date
3.2.4 For the purposes of this Clause 3.2 "Open Market Rent" means
the test yearly rent (exclusive of any VAT chargeable
thereon) at which the Premises might reasonably be expected
to be let on the Review Date in the open market by a willing
landlord to a willing tenant (which shall include the
Tenant) with vacant possession and without payment of a fine
or premium for a term commencing on the Review Date equal to
the then unexpired residue of the Term or ten years
(whichever shall be the longer) and in all other respects on
the terms and conditions of this Lease (other than the
amount of rent but including the provisions for rent review
at five yearly intervals) assuming (if not facts):
(a) that the Premises are than in existence are ready, fit
and available for immediate occupation and use fitted
out to the requirements of the willing tenant and ready
to trade and that if the Premises or any part thereof
shall have been destroyed or damaged the same have or
has been fully restored
(b) that rent commences to be payable on the Review Date
and that at such date the willing tenant has already
enjoyed the benefit of any rent free period or other
rental concession or incentive which on a new letting
with vacant possession might be granted to an incoming
tenant in respect of the carrying out by such incoming
tenant of fitting cut works to the Premises
(c) that the covenants herein contained on the part of the
Landlord and the Tenant have been fully performed and
observed
4
<PAGE>
(d) that no work has been carried out to the Premises
whether by the Tenant or any other person which has
reduced the lettable floor area of the Premises or has
otherwise diminished the rental value of the Premises
there being disregarded:
(e) the fact that the Tenant its sub-tenants or their
respective predecessors in title have been in
occupation of the Premises
(f) any goodwill attached to the Premises by reason of the
carrying on thereat of the business of the Tenant its
subtenants or their respective predecessors in title
(g) any effect on the rental value of the Premises
attributable to the existence at the Review Date of any
improvement to the Premises or any part thereof carried
out with consent where required otherwise than in
pursuance of an obligation to the Landlord or its
predecessors in title by and at the sole cost of the
Tenant its sub-tenants or their respective predecessors
in title during the term or during any period of
occupation prior thereto arising out of an agreement to
grant the Term being an improvement which is completed
not more than 10 years before the Review Date
(h) any effect on rental value of any obligation of the
Tenant to remove alterations or to restore or reinstate
the Premises
3.2.5 In case the Revised Rent is determined by arbitration the
arbitration shall be conducted in accordance with the
Arbitration Acts 1950 to 1979 or any statutory modification
or re-enactment thereof for the time being in force and it
is the intention of the parties that the arbitrator
appointed shall make a reasoned award
3.2.6 In case the Revised Rent is determined by a valuer as
aforesaid:
(a) the fees and expenses of the valuer including the cost
of his appointment shall be borne as the valuer shall
direct
(b) the valuer shall afford to each of the parties hereto
an opportunity to make representations in writing to
him and
(c) If the valuer shall die delay or become unwilling or
incapable of acting or if for any other reason the
President for the time being of the Royal Institute of
Chartered Surveyors or the person acting on his behalf
shall in his absolute discretion think fit he may by
writing discharge the valuer and appoint another in his
place
5
<PAGE>
3.2.7 When the amount of any rent to be ascertained as
hereinbefore provided shall have been so ascertained
memoranda thereof shall thereupon be signed by or on behalf
of the Landlord the Tenant and any Guarantor and annexed to
this Lease and the counterpart thereof
3.2.8 If the Revised Rent payable on and from the Review Date has
not been agreed by the Review Date rent shall continue to be
payable at the rate previously payable and forthwith upon
the Revised Rent being ascertained the Tenant shall
forthwith pay to the Landlord any additional amount payable
for the period commencing on the Review Date and ending on
the Rent Day immediately following such ascertainment
together with interest thereon at the rate four per cent
below the Stipulated Rate from the Review Date until actual
payment and for this purpose the Revised Rent shall be
deemed to have been ascertained on the date when the sane
has been agreed between the parties or as the case may be
the date of the award of the arbitrator or of the
determination by the valuer
3.2.9 If at the Review Date by reason or in consequence of any
legislation for the time being in force it shall not be
possible to review the rent payable hereunder in accordance
with the terms of this Lease or there shall be some
restriction on the right of the Landlord to demand or to
accept payment of the full amount of the rent for the time
being payable under this Lease then on each occasion that
such legislation is revoked relaxed or modified the Landlord
shall be entitled to give to the Tenant written notice
calling for a review of the rent payable hereunder as from
the date of service of such notice on the Tenant (or such
later date as may be specified therein) in the manner herein
before provided for and the provisions of this Clause 3.2
shall apply (mutatis mutandis) as if the date of service of
such notice on the Tenant (or such later date as may be
specified therein) is a Review Date hereunder save that the
Revised Rent shall be assessed as at the original Review
Date
3.2.10 For the avoidance of any doubt
(a) time shall not be of the essence for the purposes of
this Clause 3.2 and
(b) under no circumstances shall the rent payable from and
including the Review Date be less than the rent payable
hereunder immediately prior to such Review Date there
being disregarded for this purpose any such legislation
or restriction as is referred to in Clause 3.2.9 in
force at the Review Date
3.3 The Tenant (here meaning Advanced Telecommunications Modules Limited
only) shall be entitled to determine this Lease by not less than six
months notice in
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writing to the Landlord expiring at the end of the fifth year of the
Term (as to which time shall be of the essence) and provided that the
Tenant shall duly pay all monies due to the Landlord under this Lease
and otherwise observe and perform the covenants on the part of the
Tenant herein contained then this Lease shall forthwith cease and
determine on the expiry of such notice but without prejudice to any
right or remedy of either party in respect of any antecedent breach by
the other of the terms of this Lease
4. TENANT'S COVENANTS
------------------
The Tenant for itself and its successors in title and assigns to the intent
that the obligations shall continue throughout the Term HEREBY COVENANTS with
----------------
the Landlord as follows:
4.1 Rent To pay the several rents reserved by this Lease at the times and
----
in manner aforesaid together with any interim rent or rents at any
time agreed or ordered without any deductions and not to exercise or
seek to exercise any right or claim to withhold rent or any right or
claim to legal or equitable set off
4.2 Outgoings
---------
4.2.1 To bear pay and discharge and indemnify the Landlord against
all existing and future rates, taxes, duties, levies,
charges, assessments, impositions and outgoings whatsoever
whether parliamentary, parochial, local or of any other
description and whether or not of a capital or non-recurring
nature which are now or may at any time hereafter during the
Term be charged, levied, assessed or imposed upon or payable
in respect of the Premises or any part thereof or upon any
owner or occupier or other person interested in respect
thereof except only taxation (other than VAT) assessed upon
the Landlord in respect of its revenue derived from its
reversionary interest in the Premises or any dealing by it
therewith
4.2.2 If the Landlord shall suffer any loss of rating relief which
may be applicable to empty premises after the end of the
Term by reason of such relief being allowed to the Tenant in
respect of any period before the end of the Term to make
good such loss to the Landlord
4.2.3 To be solely responsible for and promptly to pay all costs
and charges for water, gas, electricity, telephone and any
other services used or consumed in the Premises including
all meter rents and standing charges but so that the
Landlord shall not be responsible for any interruption or
failure in the supply of any such services
4.3 Interest on arrears. If and whenever the Tenant shall fail to pay the
-------------------
rents or any other monies due under this Lease within 14 days of the
due date (whether formally demanded or not) or the Landlord shall with
good reason refuse to accept
7
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the same then (without prejudice to any other right or remedy of the
Landlord including the right of re-entry hereinafter contained) the
Tenant shall pay to the Landlord (whether formally demanded or not)
interest at the Stipulated Rate on such rents or other monies as the
case may be from the date when the same became due until payment
thereof (as well after as before judgment)
4.4 Service Charge
--------------
4.4.1 To pay to the Landlord the Service Charge in accordance with
Schedule 2
4.4.2 Insofar as the same are not recoverable by the Landlord by
way of the Service Charge to contribute and to pay to the
Landlord a rateable or due proportion according to floor
area of the costs and expenses of repairing, maintaining,
rebuilding and cleansing all ways roads, pavements, sewers,
drains, pipes, wires, gutters, watercourses, party walls,
structures fences or other conveniences which shall belong
to or be used by the Premises in common with any adjoining
or neighboring premises such proportion in case of
difference to be determined by the Landlord's Surveyor for
the time being whose decision shall be final and binding on
the parties hereto
4.5 Repairs
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4.5.1 At all times during the Term to keep and maintain the
Premises in good and substantial repair and condition and so
that the Tenant's liability shall not be limited by the age
or state thereof or by whether the same results from normal
wear and tear deterioration or otherwise (damage by the
Insured Risks excepted save to the extent that payment of my
insurance monies be withheld by reason of or arising out of
any act omission neglect or default of the Tenant or any
sub-tenant or their respective servants, agents, licensees
or invitees)
4.5.2 To keep in good and safe repair all Conduits exclusively
serving the Premises and to Indemnify the Landlord against
all liability howsoever arising from any failure to repair
or the misuse or overloading of any Conduits serving the
Premises
4.5.3 To maintain in good and serviceable repair and condition the
Landlord's fixtures and fittings and all plant machinery and
equipment in or upon and exclusively serving the Premises
and to replace such of them as may become worn out, lost,
unfit for use, or destroyed by substituting others of a like
or more modern nature and of good quality and if the
Landlord shall at any time so require to enter into
agreements upon terms first approved in writing by the
Landlord with the manufacturers thereof or
8
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with approved maintenance contractors for the regular
inspection and servicing of the same
4.5.4 To remedy any breach for covenant and to repair and make
good all defects, decays and wants of repair in respect of
the Premises of which notice in writing shall be given by
the Landlord to the Tenant and for which the Tenant may be
liable hereunder within one calendar month after the giving
of such notice provided that in the case of default by the
Tenant it shall be lawful for (but not obligatory upon) the
Landlord (but without prejudice to the right of re-entry
hereinafter contained or other rights of the Landlord with
regard thereto) to enter upon the Premises and remedy the
breach and/or make good such defects, decays and wants of
repair and the cost thereof and all expenses (including
Surveyors' and other professional fees) together with
interest thereon at the Stipulated Rate from the date of
expenditure by the Landlord until payment by the Tenant as
well after as before judgment shall be a debt due from the
Tenant to the Landlord and be forthwith recoverable by
action
4.5.5 To keep the Premises clean and in a neat and tidy condition
and keep all rubbish and waste in enclosed receptacles on
the Premises or where the Landlord directs and to empty the
same at least once a week
4.5.6 To clean as often as may be requisite the inside of the
window panes and frames of the Premises
4.5.7 To maintain any trees shrubs and landscaped areas on the
Premises
4.6 Decoration. In every fifth year of the Term and also in the last
----------
three months thereof howsoever determined and in such last three
months in a tint or colour to be approved by the Landlord's Surveyor
to Decorate the inside of the Premises
4.7 Alterations
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4.7.1 Not to cut injure maim remove or alter the Structure or any
part thereof nor to merge the Premises with any adjoining
premises
4.7.2 Not to make any alteration or addition (whether structural
or non-structural) to the exterior of the Premises or to the
external appearance of the Premises
4.7.3 Not to make or carry out any internal non-structural
alteration or addition whatsoever of in or to the Premises
except
(a) with the prior written consent of the Landlord (which
shall not be unreasonably withheld or delayed)
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(b) subject to such terms and conditions (including
provision for reinstatement at the Tenant's cost on the
expiration or sooner determination of the Term) as the
Landlord may require
(c) in accordance with drawings and specifications
previously submitted in triplicate to and approved in
writing by or on behalf of the Landlord (such approval
not to be unreasonably withheld or delayed) and
(d) after having obtained and supplied to the Landlord
copies of all requisite consents licenses and
permissions for the carrying out of such works from any
local public or other authority or body and after the
Landlord shall have notified the Tenant in writing that
the same are satisfactory to it (such notification not
to be unreasonably withheld or delayed)
4.7.4 Not to make or carry out any alteration addition or
extension to any of the Conduits within and exclusively
serving the Premises except with the prior written consent
of the Landlord (which shall not be unreasonably withheld or
delayed) and in accordance with the relevant codes of
practice of the statutory undertaker concerned and to supply
to the Landlord upon request an adequate drawing or drawings
showing the actual position of all Conduits within the
Premises installed amended or extended by the Tenant
4.7.5 In the event of the Tenant failing to observe this covenant
it shall be lawful for the Landlord and its agents or
surveyors with or without workmen and others and all person
authorised by the Landlord with any necessary materials and
appliances to enter upon the Premises and remove any
alterations or additions and execute such works as may be
necessary to restore the Premises to their former state and
the cost thereof and all expenses (including surveyor's and
other professional fees) together with interest thereon at
the Stipulated Rate from the date of expenditure by the
Landlord until payment by the Tenant as well after as before
judgment shall be a debt due from the Tenant to the Landlord
and be forthwith recoverable by action
4.8 Entry. To permit the Landlord and its agents and all person
-----
authorised by them with or without workmen and appliances at all
reasonable times on at least 24 hours prior notice (except in
emergency) to enter the Premises
4.8.1 to examine the state of repair and condition thereof
4.8.2 to check and take inventories of the Landlord's fixtures and
fittings and the plant machinery and equipment therein
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4.8.3 to repair and maintain the Premises
4.8.4 to repair and maintain or execute any work upon the Building
or any part thereof or any Landlord's fixtures and fittings
or the Apparatus therein (including the installation of
additional or the extension of existing plant machinery
equipment services utilities and systems) or to cleanse
empty repair or renew any Conduits or for the provision of
any of the Services referred to in Schedule 2 all physical
damage occasioned thereby to the Premises being made good as
soon as reasonably possible
4.8.5 to gain access to the Retained Parts or the Apparatus
4.8.6 for any other purpose (including measurement for rent
review) connected with the interest of the Landlord in the
Building or any dealing therewith or
4.8.7 to exercise the rights herein excepted and reserved
4.9 Use
---
4.9.1 Subject always to Clauses 4.9.2 to 4.9.11 (inclusive) not to
use the Premises otherwise than for the Permitted Use and in
accordance with the requirements and conditions of any
planning permission authorising such use from time to time
4.9.2 Not to do on the Premises anything which may be illegal or
immoral or a nuisance or annoyance or cause danger or injury
or damage to the Landlord or any tenant or any neighbouring
owner or occupier and to pay all costs charges and expenses
reasonably incurred by the Landlord in abating a nuisance
and in executing such works as may be required to abate a
nuisance in obedience to any notice served upon the Landlord
in respect of or incidental to the Premises or the use
thereof
4.9.3 Not to use the Premises for any noxious noisy or offensive
trade or business and not to hold any sale by auction or
public show nor keep any live animals or birds on the
Premises and not to allow on the Premises anything which is
or may become dangerous offensive combustible inflammable
radioactive or explosive
4.9.4 Not to trade or display goods outside the Premises nor to
cause any obstruction outside the Premises
4.9.5 Not to use on the Premises any machine (other than machinery
normally associated with the Permitted Use and which where
appropriate shall be mounted so as to minimize noise and
vibration) without the written consent of the Landlord and
not to use on the Premises any machinery or
11
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sound reproduction or amplifying equipment which shall be
noisy or cause vibration or be a nuisance disturbance or
annoyance to the Landlord or the owners and/or occupiers of
any adjoining or neighbouring premises
4.9.6 Not to do anything which imposes any excessive load or
strain on the Structure or the Apparatus or the working
thereof
4.9.7 Not to suffer or permit any person to reside or sleep on the
Premises
4.9.8 Not to discharge anything into the Conduits serving the
Premises which will be corrosive or harmful or which may
cause any obstruction or deposit therein
4.9.9 Not to commit any waste upon or to the Premises
4.9.10 Not to use the Premises as an office for a government agency
or other public authority which would involve the attendance
thereat of members of the public for the purpose of seeking
employment or enrolling for or collecting any statutory
social security health insurance or other benefit payment or
applying for or collecting any license passport certificate
or similar document
4.9.11 If the Premises are continually unoccupied for more than one
month to provide security and caretaking arrangements to
afford the Premises reasonable protection against vandalism
theft or unlawful occupation
4.9.12 Not to use the lifts in the Building for the movement of
materials or goods except by prior arrangement with the
Landlord
4.9.13 Not to park vehicles in the service areas of the Building
except whilst loading or unloading goods to or from the
Premises and in accordance with the directions of the
Landlord
4.9.14 No to obstruct others lawfully using the Common Parts and to
use the same in a reasonable manner and in accordance with
any reasonable regulations made by the Landlord from time to
time in regard thereto
4.10. Alienation
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4.10.1 Not to assign or charge part only of the Premises
4.10.2 Save for an underletting in accordance with the succeeding
provisions of this Clause not to underlet or part with
possession of or share occupation of the whole or any part
of the Premises nor to permit any person deriving title
under the Tenant by way of permitted underlease so to do in
respect of the Premises
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4.10.3 Not under any circumstances to create or permit the creation
of any interest derived out of this Lease whether mediate or
immediate and howsoever remote or inferior at a fine or
premium or other capital sum (and so that no such fine
premium or other capital sum shall be taken) nor except at a
rent which is not less than the open market rental value of
the Premises at the time of such underletting and not to
create or permit the creation of any derivative interest
except on terms which prohibit the commutation of rent nor
(unless such underletting shall include provisions approved
by the Landlord for rent reviews at the times and in
accordance with the terms of this Lease and the Tenant shall
covenant with the Landlord to operate and enforce the same
but not to agree the amount of any revised rent payable
pursuant to such underletting without the prior written
consent of the Landlord such consent not to be unreasonably
withheld) for a term which shall extend beyond a date on
which the rent payable hereunder is to be reviewed as herein
provided
4.10.4 Not to assign part with possession or charge the whole of
the Premises nor permit any person deriving title under the
Tenant so to do without the prior written consent of the
Landlord (which shall not be unreasonably withheld) and upon
any assignment to obtain a direct covenant from the assignee
with the Landlord to observe and perform the covenants and
provisions of this Lease for the remainder of the Term and
to pay the rent reserved by this Lease and to obtain on
behalf of any proposed assignee if the Landlord shall
reasonably require a guarantor or guarantors acceptable to
the Landlord who shall guarantee (if more than one jointly
and severally) the due performance and observance by the
assignee of the said covenants and provisions and undertake
to accept a new lease on the same terms as this Lease and
for the then remainder of the Term in the event that this
Lease is disclaimed by a liquidator of the assignee or
forfeited by the Landlord such guarantee and undertaking to
be given (mutatis mutandis) in the form of the provisions
contained in Part 1 of Schedule 3 and shall agree with the
Landlord in the form (mutatis mutandis) of the provisions
contained in Part 2 thereof
4.10.5 Subject as aforesaid not to underlet the whole of the
Premises without the prior written consent of the Landlord
(which shall not be unreasonably withheld) provided that in
the case of any permitted underletting of the Premises
(whether mediate or immediate) the Tenant shall procure
that:
(a) on or before the grant of the relevant underlease the
underlessee shall covenant with the Landlord to observe
and perform the Tenant's covenants and conditions in
this Lease (except the covenant to pay rent) and those
of the underlessee in the relevant underlease
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(b) on or before the grant of the relevant underlease if
the Landlord shall so require a guarantor or guarantors
acceptable to the Landlord shall covenant (if more than
one jointly and severally) with the Landlord to
guarantee the observance and performance by the
underlessee of its covenants to be contained in such
underlease such guarantee to be given (mutatis
mutandis) in the form of the provisions contained in
paragraph 1 of Part 1 of Schedule 3 and shall agree
with the Landlord in the form (mutatis mutandis) of the
provisions contained in Part 2 thereof
(c) any permitted immediate or mediate underlease contains:
(i) covenants by the underlessee with the
underlessor prohibiting the underlessee from
doing or allowing any act or thing on or in
relation to the premises devised by such
underlease inconsistent with or in breach of the
Tenant's obligations in this Lease
(ii) a condition for re-entry by the underlessor on
breach of any covenant by the underlessee
(iii) an absolute prohibition on any further
underletting or parting with possession or
sharing of occupation of the premises devised by
the underlease (save by way of assignment of the
whole thereof)
(iv) a prohibition on any assignment of the whole of
the premises demised by the underlease without
the consent of the Landlord
4.10.6 To enforce performance by every such underlessee of the
covenants and conditions in his underlease and not to
release or waive any such covenants or conditions
4.10.7 Upon every application for consent required by this clause
to disclose to the Landlord such information as to the terms
proposed as the Landlord may require
4.10.8 Not to enter into any variation of the terms of any
underlease nor to accept a surrender of the same in respect
of part only (as opposed to the whole) of the premises
underlet
4.10.9 Notwithstanding the foregoing provisions of this Clause 4.10
the Tenant (here meaning Advanced Telecommunications Modules
Limited only) shall be entitled to share occupation of the
Premises with Associated Organisations provided that:
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(a) no relationship of landlord and tenant is thereby
created;
(b) the occupier is not permitted to have exclusive use or
occupation of any part of the Premises;
(c) the Landlord is notified of the identity of each
occupier permitted to share occupation of the Premises
and the relationship of that occupier to the Tenant
within seven days of the occupier being permitted to
share occupation;
(d) each occupier shall vacate the Premises forthwith upon
either the Tenant assigning or underletting the
premises or the relationship between the Tenant and the
occupier changing so that the occupier ceases to be an
Associated Organisation
and for the purposes of this Clause 4.10.9 Associated
Organisation means:
(a) any company which is a member of the same group of
companies as the Tenant (as defined in Section 42 of
the Landlord and Tenant Act 1954);
(b) any company of which any director of the Tenant is a
director;
(c) any partnership in which any director of the Tenant is
a partner
4.11 Registration of documents
-------------------------
4.11.1 Within one month after any assignment or any transmission or
other devolution relating to the Premises or any part
thereof to give notice thereof to the Landlord's solicitor
and to furnish him with a certified copy of any document
relating thereto and to pay to the Landlord's solicitor a
reasonable fee (not being less than (Pounds)30| plus VAT
thereon
4.11.2 To supply to the Landlord on request the names and addresses
of any tenant deriving title from the Tenant (whether
mediately or immediately) together with details of the rent
payable by any such tenant and the other terms of such
tenancy
4.11.3 To supply to the Landlord any details required by the
Landlord pursuant to Section 40 of the Landlord and Tenant
Act 1954 and to supply the Landlord with full details of any
notices given pursuant to Section 25 of the Landlord and
Tenant Act 1954 by the Tenant to any sub-tenant and full
details of any notices received by the Tenant from any sub-
tenant pursuant to Section 26 of the Landlord and Tenant Act
1954
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4.12 Compliance with statutes. To comply in all respects with and in a
------------------------
proper and workmanlike manner to execute all works required under the
provisions of all statutes for the time being in force and the
directions of any competent authority relating to the Premises or any
part thereof or the use thereof or anything contained therein or the
employment therein of any person or persons and not to do or omit or
suffer to be done or omitted on or about the Premises any act or thing
by reason of which the Landlord may under any enactment incur or have
imposed upon it or become liable to pay any levy penalty damages
compensation costs charges or expenses and to indemnify and keep
indemnified the Landlord against all claims demands costs expenses and
liability in respect of the foregoing
4.13 Planning/environmental matters
------------------------------
4.13.1 Not to apply for planning permission in respect of the
Premises without the Landlord's prior written consent and if
the Landlord attaches conditions to any such consent not to
apply for any planning permission except in accordance with
those conditions
4.13.2 At all times during the Term to comply with the provisions
and requirements of the Planning Acts and of any planning
permissions (and the conditions thereof) relating to or
affecting the Premises or the use thereof or any operations
works acts or things carried out executed done or omitted
thereon and to keep the Landlord indemnified in respect
thereof
4.13.3 Subject to Clause 4.13.1 as often as occasion requires
during the Term at the Tenant's expense to obtain and if
appropriate renew all planning permissions and serve all
notices required under the Planning Acts for the carrying
out by the Tenant of any operations or the institution or
continuance by the Tenant of any use of the Premises or any
part thereof
4.13.4 To pay and satisfy any charge imposed under the Planning
Acts in respect of the carrying out or maintenance by the
Tenant of any such operation or the institution or
continuance by the Tenant of any such use as aforesaid
4.13.5 Notwithstanding any consent which may be granted by the
Landlord under this Lease not to carry out or make any
alternation or addition to the Premises or any change of use
of the Premises (being an alteration or addition or change
of use prohibited by or for which the Landlord's consent is
required under this Lease and for which a planning
permission is needed) before a planning permission for such
alteration addition or change of use has been produced to
and acknowledged by the Landlord as satisfactory provided
that the Landlord may refuse to express such satisfaction if
the period of such permission or anything contained in or
omitted from it will in the opinion of the Landlord's
Surveyor be likely
16
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to prejudice the Landlord's interest in the Premises either
during the Term or on or after the expiration or earlier
determination of the Term
4.13.6 Unless the Landlord otherwise directs in writing to carry
out and complete before the expiration or earlier
determination of the Term any work required to be carried
out to the Premises as a condition of any planning
permission granted during the Term whether or not the date
by which the planning permission requires such works to be
carried out is during the Term and any development begun on
the Premises in respect of which the Landlord shall or may
be or become liable for any charge or levy under the
Planning Acts
4.13.7 When called upon so to do to produce the Landlord and the
Landlord's Surveyor all plans documents and other evidence
reasonably required by the Landlord to satisfy itself that
the Tenant's obligations in this Clause have been complied
with
4.13.8 Not without the prior written consent of the Landlord to
enter into a planning obligation for the purposes of Section
106 of the Town and Country Planning Act 1990
4.13.9 Where any planning permission is granted subject to
conditions involving the carrying out of works upon or
change of use of the Premises the Landlord may as a
condition of its consent to the carrying out of such works
or change of use require the Tenant to provide security for
the due compliance with those conditions and no works shall
be commenced and no change of use shall be implemented until
such security has been provided to the Landlord's
satisfaction
4.13.10 As soon as practicable to notify the Landlord or any order
direction proposal or notice under the Planning Acts served
on or received by the Tenant or coming to the Tenant's
notice which relates to or affects the Premises and to
produce to the Landlord if required any such order direction
proposal or notice in the Tenant's possession and not to
take any action in respect or such order direction proposal
or notice without the Landlord's approval
4.13.13 In relation to any act the commission or omission of which
requires any consent license or other authority under the
Environmental Protection Act not to do or omit to do (as the
case may be) such act without obtaining such authority and
not to apply for such authority without he Landlord's prior
written consent
4.14 Easements. Not to obstruct any window light or way belonging to the
---------
Premises or to any adjoining or neighbouring premises nor acknowledge
that any easement or other right for the benefit of the Premises is
enjoyed by consent of any other
17
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person nor knowingly permit any new easement right or encroachment to
be made into against or on the Premises and to give immediate notice
to the Landlord upon becoming aware of any easement right or
encroachment against or affecting the Premises being made or attempted
and at the Landlord's request and the Tenant's cost to adopt such
means as may be reasonably required to prevent the same
4.15 Notifications. Forthwith on receipt of any permission notice order or
-------------
proposal relating to the Premises or the use or condition thereof
given or issued by any governmental local or other public or competent
authority to give full particulars thereof to the Landlord and if so
required by the Landlord to produce the same to the Landlord and to
take all necessary steps to comply therewith and also when requested
by the Landlord to make or join with the Landlord in making such
objections and representations against or in respect of the same as
the Landlord shall deem expedient
4.16 Defects. Forthwith upon becoming aware of the same to give notice in
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writing to the Landlord of any defect in the state or condition of the
Premises which would or might give rise to an obligation upon the
Landlord to do or refrain from doing any act or thing in order to
comply with any duty of care imposed upon the Landlord and to
indemnify the Landlord against or in respect of any losses claims
actions costs demands or liability arising out of any failure of the
Tenant to comply with its obligations under this Lease and at all
times to give such notice and display such signs as the Landlord
having regard to such duty of care requires to have displayed at the
Premises
4.17 Firefighting. To keep the Premises supplied and equipped with all
------------
fire fighting and extinguishing appliances from time to time required
by law or required by the insurers of the Premises or reasonably
required by the Landlord such appliances being kept open to inspection
and properly maintained and not to obstruct or permit or suffer to be
obstructed the access to or means of working such appliances or the
means of escape from the Premises in case of fire
4.18 Advertisements/aerials. Not without the prior written consent of the
----------------------
Landlord to affix or exhibit any advertisement placard notice or sign
either outside the Premises or inside the Premises so as to be seen
from the outside and if the Landlord so requires to remove at the end
or earlier determination of the Term any item so exhibited or
installed making good all damage caused thereby
4.19 Notice boards. To permit the Landlord or its agents during the last
-------------
six months of the Term to affix upon any suitable part of the Premises
a notice board or bill relating to any letting or reletting of the
Building or any part thereof or at any time during the Term to affix a
notice board or bill relating to any sale or other dealing with any
interest in reversion to this Lease and the Tenant will not remove or
obscure the same and will at all reasonable times and on reasonable
prior notice
18
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permit those authorised by the Landlord in connection with any such
reletting sale or other dealing to enter and view the Premises without
interruption
4.20 Expenses. To pay to the Landlord on demand and on an indemnity basis
--------
all costs charges expenses damages and losses (including but without
prejudice to the generality of the foregoing legal costs bailiff's
fees and surveyor's fees) incurred by the Landlord in relation to or
incidental to or in contemplation of:
4.20.1 the preparation and service of a notice under Section 146 of
the Law of Property Act 1925 and/or any proceedings relating
to the Premises whether under Sections 146 and/or 147 of the
Law of Property Act 1925 or otherwise (whether or not any
right of re-entry or forfeiture has been waived by the
Landlord or a notice served under the said Section 146 is
complied with by the Tenant or the Tenant has been relieved
under the provisions of the said Law of Property Act 1925
and notwithstanding forfeiture is avoided otherwise than by
relief granted by the Court) and to keep the Landlord fully
indemnified against all costs charges expenses claims and
demand whatsoever in respect of the sale proceeds and the
preparation and service of the said notices
4.20.2 (without prejudice to the generality of the foregoing) the
preparation and service of any notice or schedule relating
to the repair of the Premises whether served on the Tenant
during or after the expiration or earlier determination of
the Term and
4.20.3 procuring the remedying of any breach of covenant on the
part of the Tenant or any sub-tenant or their respective
predecessors in title contained in this Lease
4.20.4 every application made by the Tenant for a consent or
license required by the provisions of this Lease whether
such consent or license is granted or refused or proffered
subject to any qualification or condition or whether the
application is withdrawn
4.21 New guarantor. To notify the Landlord within twenty eight days of
-------------
any of the following events:
4.21.1 If any Guarantor being an Individual (or if individuals any
one of them) shall become bankrupt or shall make any
assignment for the benefit of or enter into any arrangement
with his creditors either by composition or otherwise or
have any distress or other execution levied on his goods or
have a receiver appointed under the Mental Health Act 1983
4.21.2 If any Guarantor being an individual (or if individuals any
one of them shall die
19
<PAGE>
4.21.3 If any Guarantor being a body corporate (or if bodies
corporate any one of them) has a winding up order made in
respect of it other than a members' voluntary winding up of
a solvent company for the purposes of amalgamation or
reconstruction approved by the Landlord (such approval not
to be unreasonably withheld) or has a received administrator
or an administrative receiver appointed of it or any of its
assets or has any distress or other execution levied on its
goods or is dissolved or struck off the Register of
Companies or (being a body corporate incorporated outside
the United Kingdom) is dissolved or ceases to exist under
the laws of its country or state of incorporation
and if the Landlord so requires then at the Tenant's expense within
twenty eight days of such requirement to procure that some other
person or persons or body or bodies corporate reasonably acceptable to
the Landlord shall execute a guarantee in the terms of Part 1 of
Schedule 2 and agree and declare with the Landlord in the terms of
Part 2 of Schedule 2 with in each case such amendments as the Landlord
shall reasonably require in the circumstances
4.22 Indemnity. To keep the Landlord indemnified from and against all loss
---------
damage actions proceedings claims demands costs and expenses of
whatsoever nature and whether in respect of any injury to or the death
of any person or damage to any property movable or immovable or
otherwise howsoever arising directly or indirectly from the repair or
the state of repair or condition of the Premises or from any breach of
covenant on the part of the Tenant herein contained or from the use of
the Premises or out of any works carried out at any time during the
Term to the Premises or out of anything now or during the Term
attached to or projecting from the Premises or as a result of any act
neglect or default by the Tenant or by any sub-tenant or by their
respective servants agents licensees or invites
4.23 Yield up. At the expiration or sooner determination of the Term
--------
quietly to yield up the Premises to the Landlord with vacant
possession in such state and condition as shall in all respects be
consistent with a full and due performance by the Tenant of the
covenants on its part herein contained (trade or tentant's fixtures
and fittings only excepted subject to the Tenant making good all
damage to the Premises occasioned by their removal) and upon such
yielding up the Tenant shall remove all signs and nameplates
indicating the connection or former connection of the Tenant with the
Premises and if reasonably required by the Landlord shall replace all
carpeting within the Premises with new carpets of a quality design and
colour similar to the quality design and colour of the carpeting
supplied by the Landlord at the commencement of the Term and first
approved in writing by the Landlord
20
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4.24 VAT
---
4.24.1 To pay to the Landlord by way of additional rent such VAT as
may be or become payable in respect of the rents reserved by
and other monies payable under and the consideration for all
taxable supplies received or deemed to be received by the
Tenant under or in connection with this Lease
4.24.2 In every case where the Tenant has agreed to reimburse or
indemnify the Landlord in respect of any payment made by the
Landlord under the terms of or in connection with this Lease
to reimburse in addition any VAT paid by the Landlord on
such payment
4.25 Regulations. To comply with all reasonable regulations and
-----------
directions as the Landlord may from time to time make or give for the
orderly, convenient and proper management of the Building or any part
or parts thereof provided that such regulations shall not conflict
with the terms hereof nor diminish the rights of the Tenant hereunder
5. LANDLORD'S COVENANTS
--------------------
The Landlord HEREBY COVENANTS with the Tenant as follows:
----------------
5.1 Quiet enjoyment. The Tenant paying the rents and other monies hereby
---------------
reserved and performing and observing the covenants, conditions and
agreements on the part of the Tenant hereinbefore contained may
peaceably hold and enjoy the Premises during the Term without any
interruption by the Landlord or any person lawfully claiming through
under or in trust for the Landlord
5.2 Services. Subject to the payment by the Tenant of the Service Charge
--------
and provided that the Landlord is not prevented by any Insured Risk,
accident, strike, combination or lockout of workmen or any other cause
beyond its control the Landlord will use its best endeavors to provide
or secure the provision of the Services referred to in Schedule 2
during the Permitted Hours in an efficient manner and in accordance
with the principles of good estate management provided that the
Landlord shall not be responsible for any temporary delay, stoppage or
omission in connection therewith due to any cause or circumstances
beyond the Landlord's control
5.3 VAT. To provide to the Tenant a proper receipted VAT invoice within
---
twenty-eight days of receipt by the Landlord of the rent and other
payments from time to time payable hereunder
21
<PAGE>
6. INSURANCE
---------
6.1 Landlord's obligations. The Landlord HEREBY COVENANTS with the
---------------------- ----------------
Tenant as follows:
6.1.1 Save to the extent that any insurance shall be vitiated by
any act, neglect, default or omission of the Tenant or any
sub-tenant or their respective servants, agents, licensees
or invitees, the Landlord will insure or cause to be insured
the Building against loss or damage by the Insured Risks in
a sum equal to the likely cost of completely rebuilding,
reinstating and replacing the same (taking into account
estimated increases in building costs) together with the
cost of demolition, shoring, boarding and removal of debris
and a proper provision for professional fees in respect of
rebuilding and reinstating together in each case with VAT
and against Loss of Rent
6.1.2 If so required by the Tenant (and upon payment of a
reasonable fee for dealing with each request other than the
first) to produce to the Tenant from time to time reasonable
evidence of the terms of the Landlord's policy of insurance
and the fact that the policy is subsisting and in effect
6.1.3 In case of damage or destruction to the Building by any of
the Insured Risks to expend when lawful so to do all monies
received by the Landlord (other than in respect of rent and
fees) under the Landlord's insurance in or towards
reinstating such damage or destruction so far as practicable
(to the extent that the same is not the responsibility of
other tenants in the Building) but if reinstatement as
aforesaid shall not be permitted or possible or shall be
frustrated the insurance monies shall belong to the Landlord
absolutely PROVIDED ALWAYS that in such circumstances the
---------------
Landlord may at its option replace the building or buildings
originally comprised within the Building by a building or
buildings generally similar in concept thereto and (having
regard to the then principles of good estate planning) of a
similar order and size and being in or about the same
position or positions as its or their predecessor or
predecessors
6.2 Tenant's obligations. The Tenant for itself and its successors in
--------------------
title and assigns to the intent that the obligations shall continue
throughout the Term HEREBY COVENANTS with the Landlord as follows:
----------------
6.2.1 To pay to the Landlord on demand:
(a) a fair and proper proportion attributable to the
Premises (as determined by the Landlord's Surveyor) of
all premiums from time to time paid by the Landlord for
insuring the Building
22
<PAGE>
(including the Premises) against loss or damage by the
Insured Risks in accordance with Clause 6.1 and
(b) all premiums from time to time paid by the Landlord for
insuring Loss of Rent and
(c) a fair and proper proportion attributable to the
Premises (as determined by the Landlord's Surveyor) of
any excess deducted by insurers in respect of any claim
relating to the Building and
(d) a fair and proper proportion attributable to the
Premises (as reasonably determined by the Landlord's
Surveyor) of the cost of any professional valuation of
the Building which may at any time or times be required
by the Landlord in connection with the insurance of the
Building provided that such contribution shall be
required in respect of only one such valuation carried
out in any three year period
6.2.2 Save as required by Clause 6.2.7 not to effect any separate
insurance of the Premises against loss or damage by any of
the Insured Risks but if the Tenant shall become entitled to
the benefit of any insurance on the Premises then the Tenant
shall apply all monies received by virtue of such insurance
in making good the loss or damage in respect of which the
same shall have been received
6.2.3 Not to carry on upon the Premises any trade business or
occupation in any manner or do any other thing which in the
reasonable opinion of the Landlord may make void or voidable
any policy for the insurance of the Premises or any
adjoining or neighbouring property against any risk for the
time being required by the Landlord to be covered or render
any increased or extra premium payable for such insurance
(without in the latter event first having paid every such
increased or extra premium) and to pay to the Landlord on
demand any increased premiums payable in respect of the
Premises or any adjoining or neighbouring premises arising
by reason of the Premises being unoccupied
6.2.4 To carry out in accordance with the directions of the
Landlord all such works as may reasonably be required by it
for the better protection of the Premises and to comply with
the requirements of the Landlord's insurers in respect of
the Premises
6.2.5 In the event of the Premises or any part thereof being
destroyed or damaged by any peril whatsoever to give notice
thereof to the Landlord as soon as such destruction or
damage shall come to the notice of the Tenant stating
whether and to what extent such destruction or damage was
brought about directly or indirectly by any of the Insured
Risks
23
<PAGE>
6.2.6 In the event of the Building or any part thereof or any
adjoining or neighbouring premises of the Landlord or any
part thereof being destroyed or damaged by any of the
Insured Risks and the insurance money under any insurance
against the same effected thereon by the Landlord being
wholly or partly irrecoverable by reason solely or in part
of any act or default of the Tenant or any sub-tenant or
their respective servants, agents, licensees or invites then
and in every such case the Tenant will forthwith pay to the
Landlord the whole or (as the case may be) the irrecoverable
portion of the cost (including professional and other fees
and VAT) of completely rebuilding the reinstating the same
6.2.7 To make up out of its own money any deduction in any
insurance monies paid by the Landlord's insurers made as a
result of the faulty repair or maintenance of the Premises
6.3 Abatement of rent. If the Premises or any part thereof shall be
-----------------
destroyed or damaged by any Insured Risk so as to render the Premises
unfit for occupation or use then save to the extent that the insurance
of the Building shall have been vitiated by any act, neglect, default
or omission of the Tenant or any sub-tenant or their respective
servants, agents, licensees or invitees the rent first hereinbefore
reserved or a fair and just proportion thereof according to the nature
and extent of the damage sustained (the amount of such proportion if
it cannot be agreed to be determined by a single arbitrator to be
appointed on the application of either party by the President for the
time being (or other next senior officer available) of the Royal
Institution of Chartered Surveyors whose decision shall be final and
binding) shall be suspended until the Premises shall have been made
fit for occupation and use or (if earlier) until the insurance
effected or caused to be effected by the Landlord in respect of the
Loss of Rent shall be exhausted
6.4 Commissions. All monies payable by the Tenant under Clause 6.2 shall
-----------
be paid without deduction of any agency or other commission paid or
allowed to the Landlord in respect thereof or otherwise which the
Landlord shall be entitled to retain for the Landlord's own benefit
free of any obligation to bring the same into account under this Lease
7. PROVISOS
--------
Provided always and it is hereby agreed and declared as follows:
7.1 Forfeiture. If and whenever:
----------
7.1.1 the rents hereby reserved or any part thereof shall be in
arrear or unpaid for the space of fourteen days after the
same shall have become due (whether formally demanded or
not); or
24
<PAGE>
7.1.2 there shall be any other breach, non-performance or non-
observance of any of the covenants and conditions herein
contained and on the part of the Tenant or the Guarantor to
be observed or performed; or
7.1.3 the Tenant or the Guarantor enters into an arrangement or
composition for the benefit of its creditors; or
7.1.4 the Tenant or the Guarantor has any distress or other
execution levied on its goods; or
7.1.5 the Tenant or the Guarantor (being in either case an
individual) commits an act of bankruptcy or has an
administration order made in respect of it or appears unable
to pay its debts within the meaning of Section 268 of the
Insolvency Act of 1986; or
7.1.6 the Tenant or the Guarantor (being in either case a body
corporate) has a winding up order made in respect of it
other than members voluntary winding up of a solvent company
for the purposes of amalgamation or reconstruction approved
by the Landlord (such approval not to be unreasonably
withheld) or has a receiver, administrator or an
administrative receiver appointed of it or any of its assets
or is dissolved or struck off the Register of Companies or
(being a body corporate incorporated outside the United
Kingdom) is dissolved or ceases to exist under the laws of
its country or state or incorporation or appears unable to
pay its debts within the meaning of Section 123 of the
Insolvency Act 1986
then and in any such case it shall be lawful for the Landlord or any
person authorised by the Landlord at any time thereafter to re-enter
upon the Premises or any part thereof in the name of the whole and
thereupon the Term shall absolutely determine without prejudice to any
right of action of the Landlord in respect of any breach of the
Tenant's or the Guarantor's covenants contained in this Lease
7.2 Exclusion of use warranty. Nothing in this Lease or in any consent
-------------------------
granted by the Landlord under this Lease shall imply or warrant that
the Premises may be used for any purpose whatsoever under the Planning
Acts now or from time to time in force (including the Permitted Use)
or that the Premises are or will remain otherwise fit for any such use
7.3 VAT
---
7.3.1 Except where otherwise expressly stated in this Lease all
rent money or other consideration in respect of supplies for
VAT purposes received or deemed to be received by the Tenant
under or in connection with this Lease is exclusive of VAT
25
<PAGE>
7.3.2 In any case where the Tenant is obliged to reimburse the
Landlord for any expenditure incurred by the Landlord such
reimbursement shall include all VAT payable by the Landlord
in respect of such expenditure
7.4 Service of notices. Any notice required to be served under this Lease
------------------
shall be in writing and shall be properly served if it complies with
the provisions of Section 196 of the Law of Property Act 1925 as
amended by the Recorded Delivery Service Act 1962 or Section 23 of the
Landlord and Tenant Act 1927 and in addition any notice shall be
sufficiently served if sent by facsimile transmission to the party to
be served and service shall be deemed to be made on the date of
transmission if transmitted before 4:00 p.m. on the date of
transmission but otherwise on the next day
7.5 Development of neighbouring premises. The Landlord shall be entitled
------------------------------------
to carry out or permit the development of any adjoining or
neighbouring premises (whether included in the Building or not) and to
build on or into any boundary wall of the Premises or to re-route any
services in the Premises without payment of compensation to the Tenant
for any damage or otherwise
7.6 Compensation. Any statutory right of the Tenant or any sub-tenant to
------------
claim compensation from the Landlord on vacating the Premises shall be
excluded as far as the law allows
7.7 Section 62 LPA. The operation of Section 62 of the Law of Property
--------------
Act 1925 shall be excluded from this Lease and the only rights granted
to the Tenant are those expressly set out in this Lease and the Tenant
shall not by virtue of this Lease be deemed to have acquired or be
entitled to and the Tenant shall not during the Term acquire or become
entitled by any means whatsoever to any easement from or over or
affecting any other land or premises now or at any time hereafter
belonging to the Landlord and not comprised in this Lease
7.8 Disputes with adjoining occupiers. Any dispute arising as between the
---------------------------------
Tenant and the lessees, tenants or occupiers of adjoining or
neighbouring premises belonging to the Landlord relating to any
easement right or privilege in connection with the demised premises or
relating to the party or other walls of the demised premises or as to
the amount of any contribution towards the expenses of works to
services or matters used in common shall be referred to the Landlord
whose decision shall be binding upon all parties to the dispute
7.9 Tenant's effects. The Tenant hereby irrevocably appoints the
----------------
Landlord to be its agent to store or dispose of any effects left by
the Tenant on the Premises for more than seven days after the
termination of this Lease (whether by effluxiom of time or otherwise)
on any terms that the Landlord thinks fit and without the Landlord
being liable to the Tenant save to account for the net proceeds of
sale less the cost of storage (if any) and any other expenses
reasonably incurred by the Landlord and hereby agrees to indemnify the
Landlord against any liability incurred by the
26
<PAGE>
Landlord to any third party whose property shall have been sold by the
Landlord in the mistaken belief held in good faith (which shall be
presumed unless the contrary be proved) that such property belonged to
the Tenant
7.10 Landlord's liability. In any case where the facts are or should
--------------------
reasonably be known to the Tenant the Landlord shall not be liable to
the Tenant in respect of any failure of the Landlord to perform any of
the Landlord's obligations to the Tenant under this Lease whether
express or implied unless and until the Tenant has notified the
Landlord of the facts giving rise to the failure and the Landlord has
failed within a reasonable time to remedy the same
7.11 Representations. The Tenant acknowledges that this Lease has not been
---------------
entered into in reliance wholly or partly upon any statement or
representation made by or on behalf of the Landlord except any such
statement or representation which is expressly set out in this Lease
7.12 No waiver. No demand for or receipt or acceptance of any part of the
---------
rents hereby reserved or any payment on account thereof shall operate
as a waiver by the Landlord of any right which the Landlord may have
to forfeit this Lease by reason of any breach of covenant by the
Tenant and the Tenant shall not in any proceedings for forfeiture be
entitled to rely on any such demand receipt or acceptance as aforesaid
as a defence
7.13 Damage from services
--------------------
7.13.1 The Landlord shall not be liable to the Tenant or any other
person claiming through the Tenant for any accident, loss or
damage which may be caused by reason of any breakdown,
stoppage, leakage or defect of or in any Apparatus or any of
the Conduits
7.13.2 Any services rendered to or for the Tenant on the Tenant's
request by any servant or agent of the Landlord shall be
deemed to have been rendered by that person as servant of
the Tenant
7.14 Party walls. Save as otherwise directed in writing by the Landlord
-----------
the non-structural walls separating the Premises from any adjoining
premises within the Building shall be party walls and structures and
maintainable accordingly
7.15 Jurisdiction. This Lease is and shall be governed by and construed
------------
in all respects in accordance with the laws of England
27
<PAGE>
SCHEDULE 1
----------
Part 1
------
(Premises)
ALL THOSE offices shortly described in the Particulars which are for the purpose
- ---------
of identification shown edged red on the Floor Plan and which include for the
purpose of obligation as well as of grant:
[DIAGRAM]
28
<PAGE>
(1) (a) the plaster or other rendering and decorative covering of the walls
thereof and (in the case of non structural walls only) the inner half
thereof severed medially
(b) the floor screed (but not the slab beneath the same)
(c) the ceiling thereof (but not the beams or slabs above the same)
(2) all doors and windows fitted in the walls bounding such offices and their
respective frames and fixings
(3) all light fittings and electrical circuits, sockets and switches and all
Conduits within or exclusively serving the Premises
(4) all carpets and floor coverings within and all other Landlord's fixtures
and fittings in, on or forming part of such offices and exclusively serving
the same
but there are excluded the Structure and all tenant's fixtures and fittings
Part 2
(Easements and rights granted)
The following rights are granted to the Tenant in connection with the use of the
Premises in accordance with and subject to the provisions of this Lease such
rights being exercisable in common with the Landlord and those authorised by the
Landlord including other tenants of the Building
1. Subject as hereinafter provided a free and uninterrupted right of way for
the purpose only of ingress and egress to and from the Building at all
times with or without vehicles over the service roads and footpaths serving
the Building and the Common Parts
PROVIDED ALWAYS AND IT IS HEREBY AGREED AND DECLARED:
----------------------------------------------------
1.1 If at any time during the Term the Landlord in its absolute discretion
shall desire to alter, stop up or re-route the said roads or footpaths
or any part or parts thereof the Landlord shall have full right and
liberty so to do but at its own expense and subject to the Landlord
leaving available for use at all times by the Tenant a reasonable
uninterrupted and adequate means of access to the Building from
Huntingdon Road or Mount Pleasant the position of such access being
notified in writing to the Tenant by the Landlord subject always to at
least one month's prior notice given by the Landlord of any such
desire (except in case of emergency)
1.2 the Landlord may from time to time issue directions for the regulation
and control or traffic on the roads serving the Building
2. The free and uninterrupted passage and running of water, air, soil,
electricity, telephone and other services (if any) to and from the Premises
over, through and along the Conduits
<PAGE>
now serving the Premises in common with other parts of the Building
PROVIDED ALWAYS AND IT IS HEREBY AGREED AND DECLARED that if at any time
----------------------------------------------------
during the Term the Landlord shall desire to alter, stop up or divert such
Conduits or any part or parts thereof the Landlord shall have full right
and liberty so to do but at its own expense and subject to the Landlord
leaving available for use at all times by the Tenant reasonable and
adequate alternative provision for the services hereinbefore mentioned
3. The use during the Permitted Hours of the entrances and exits to and from
the Building and the staircases, landings and corridors leading to the
Premises as a means of access thereto and egress therefrom
4. The use during the Permitted Hours so long as the same shall be working of
the lifts in the Building
5. The use of the male and female lavatories on the ground floor of the
Building
6. The use of 24 spaces in the car park used in connection with the Building
in such places as the Landlord's Surveyors may from time to time nominate
in writing
Part 3
(Exceptions and reservations)
EXCEPTING AND RESERVING in favour of the Landlord and its tenants, agents and
- -----------------------
licensees and those authorised by the Landlord find all other persons who now
have or may hereafter be granted similar rights:
(1) the full, free and uninterrupted passage and running of water, air, soil,
gas, telephone, electricity, telecommunication and all other services and
supplies of whatsoever nature from and to any other parts of the Building
through such of the Conduits which are now or may hereafter during the
Perpetuity Period be in, on, under or over the Premises and the right of
entry onto the Premises for the purpose of inspecting, repairing, renewing,
relaying, cleansing, maintaining and connecting up to any such existing or
future Conduits
(2) the full and free right and liberty to execute works and repairs and to
make erections upon or to erect, build, rebuild or alter or otherwise deal
with any adjoining or neighbouring land and buildings whether or not
forming part of the Building according to such plans and to such height
extent and otherwise and in such manner as the Landlord shall think fit
without obtaining consent or making any compensation to the Tenant and
notwithstanding that such buildings as so built, rebuilt or altered may
obstruct any lights, windows or other openings in or on the Premises or any
buildings now or hereafter to be erected thereon and upon not less than 24
hours prior notice (except in emergency) to enter upon the Premises at all
reasonable times where this is necessary for the purpose of carrying out
such works the person or persons exercising such right making good all
damage thereby occasioned to the Premises
2
<PAGE>
(3) the right to erect temporary scaffolding where this is necessary for the
purpose of repairing, cleaning, rebuilding, renewing or altering the
Building or any part thereof notwithstanding that such scaffolding may
restrict the access to or enjoyment and use of the Premises
(4) the right for the Landlord and those authorised by the Landlord to enter
the Premises for the purposes and in the manner mentioned in this Lease
(5) all rights of light, air, support, shelter and protection for the parts of
the Building not included in the Premises and all such rights (if any) as
shall now or hereafter belong to and be enjoyed by any land or premises
adjacent to the Building
(6) the right to affix and retain on the exterior of the Premises and to run
wires and cables thereto such lamps and other apparatus for illuminating
the service roads and footways or otherwise together with such ducts and
pipes for common services and directional or other signs as the Landlord
shall reasonably require and the right of access thereto for the purpose of
maintaining, repairing, renewing or otherwise dealing with the same the
person or persons exercising such right making good all damage thereby
occasioned to the Premises
(7) the right for the Landlord from time to time to make, add to or amend
regulations for the preservation or control of the amenities of the
Building or any part thereof or for the general convenience of occupiers of
the accommodation from time to time forming part thereof provided such
regulations shall not conflict with the express terms hereof or diminish
the Tenant's rights hereunder
Part 4
(Matters to which the premises are subject)
All rights, easements and quasi easements to which the Premises are subject at
the date hereof
3
<PAGE>
SCHEDULE 2
Part 1
("Service Charge")
1. In this schedule:
"Services" means the services referred to in part 2 of this Schedule or
such of them as shall from time to time be provided or undertaken by the
Landlord
"Service Charge Period" means a period of 12 months ending on 31st March in
any year or such other period as the Landlord may at its discretion from
time to time determine and notify in writing to the Tenant "Service Costs"
means the total costs in any Service Charge Period beginning or ending
during the Term of providing the Services and defraying the costs and
expenses relating and incidental thereto in accordance with this Schedule
"Service Charge" means the due proportion of the Service Costs which is
attributable from time to time to the Premises in accordance with this
Schedule
2. In calculating the due proportion of the Service Costs attributable to the
Premises the Landlord shall have regard to the relationship between the
total floor area of the Premises and the total floor area of the Building
let or capable of being let by the Landlord but the Landlord shall be
entitled to adopt such alternative fair and reasonable method of
computation as it may decide and if having regard to the nature of
expenditure incurred or to the nature of the premises in or forming part of
the Building benefitted thereby or otherwise it shall be inappropriate to
apportion the Service Costs or any item therein on such basis as aforesaid
the Landlord shall be at liberty in its discretion to adopt such other
method of calculation of the due proportion of the Service Costs to be
attributed to the Premises as shall be fair and reasonable in the
circumstances (including if appropriate attributing the whole of any such
expenditure or item of expenditure to the Premises)
3. The Service Charge shall be paid in manner following:
3.1 The Landlord shall be entitled to estimate the amount of the Service
Charge for any Service Charge period and it the Landlord so requires
the Tenant shall pay in advance on account of the Service Charge for
that Service Charge Period the amount provisionally so estimated by
the Landlord by equal advance payments on each of the Rent Days during
the Service Charge period the first such payment to be made on the
date of this Lease being an apportioned sum in respect of the period
from the commencement date of the Term until the day preceding the
Rent Day next following the date of this Lease
3.2 The Service Charge shall be deemed to accrue on a day to day basis in
order to ascertain the yearly rate thereof and for the purpose of
apportionment in respect of any periods of other than one year
4
<PAGE>
3.3 The Landlord shall as soon as practicable after the end of each
Service Charge Period prepare or cause to be prepared and submitted to
the Tenant a statement showing the Service Costs and the Service
Charge for the Service Charge Period then ended and upon such
statement being certified by the Landlord's Surveyors the same shall
be final and binding on the Tenant
3.4 If the amount of the Service Charge for the Service Charge Period
shall exceed the aggregate of the amounts paid on account thereof for
that period the amount of the excess shall be due forthwith on demand
from the Tenant but if it shall be less the amount of the overpayment
shall be credited to the Tenant against the next quarterly payment of
rent and/or Service Charge or (if the Term shall have come to an end)
shall be repaid to the Tenant
3.5 If the Landlord shall make any change to a Service Charge Period such
adjustments and apportionments shall be made as shall be fair and
reasonable for the purpose of computing the Service Charge
3.6 The provisions of this paragraph shall continue to apply
notwithstanding the expiry or sooner determination of this Lease in
respect of any Service Charge Period then current
3.7 If the Landlord shall incur expenditure forming part of the Service
Costs which either is in respect of a matter which has not been taken
into account in arriving at the provisional assessment of the Service
Charge for that period or is of an amount materially greater than has
been allowed in arriving at such provisional assessment the Landlord
shall be entitled to recover from the Tenant the due proportion of the
whole of such expenditure on the Rent Day next following such
expenditure being incurred by the Landlord
4. The Landlord shall be entitled (but not obliged) to include in the Service
Costs for any Service Charge Period an amount or amounts which the Landlord
reasonably considers appropriate to build up and maintain a sinking fund
and/or a reserve fund in accordance with the principles of good estate
management and so as to secure so far as may reasonably be practicable that
the Service Charge shall be of a regular rather than an irregular amount
and that the tenants for the time being of the Building bear a proper part
of the accumulating and future liabilities in respect of the matters for
which the Service Charge is intended to provide
5. The Landlord shall be entitled to include in the Service Costs a reasonable
fee for itself or the cost of employing managing agents for the carrying
out and provision of the Services in accordance with this Schedule
6. The Tenant shall not be entitled to object to the Service Charge or any
item comprised in the Service Costs or otherwise on any of the following
grounds
5
<PAGE>
6.1 the inclusion in a subsequent Service Charge Period of any item of
expenditure or liability omitted from the Service Costs for any
preceding Service Charge Period provided that such expenditure shall
have been incurred during the Term
6.2 that any item of the Service Costs might have been provided or
performed at a lower cost
6.3 disagreement with any estimate of future expenditure for which the
Landlord requires to make provision so long as the Landlord acts
reasonably and in good faith and in the absence of manifest error
6.4 the manner in which the Landlord exercises its discretion in providing
the Services so long as the Landlord acts in good faith and in
accordance with the principles of good estate management
6.5 the employment of managing agents or contractors to carry out and
provide on the Landlord's behalf the Services in accordance with this
Schedule
7. 7.1 The maximum liability of the Tenant in respect of Service Charge
in relation to each Service Charge Period shall not exceed
7.1.1 in respect of the first Service Charge Period during the
Term the sum of Twenty thousand five hundred and sixty-five
pounds ((Pounds)20,565) exclusive of VAT
7.1.2 in respect of each subsequent Service Charge Period a sum
(exclusive of VAT) equal to the greater of the maximum sum
in respect of the last preceding Service Charge Period and a
sum calculated by multiplying the maximum sum in respect of
the last preceding Service Charge Period by the last figure
of the Index published before the commencement of the
Service Charge Period in question and dividing the resultant
figure by the last figure of the Index published before the
commencement of the last preceding Service Charge period
7.2 For the purposes of paragraph 7.1
7.2.1 the "Index" means the Index of Retail Prices (All Items)
published by the Central Statistical Office or such other
body or government department as is from time to time
responsible for publication of such index
7.2.2 if the basis of computation of the Index is changed the
method of calculating the maximum liability shall be kept as
nearly consistent as possible by adopting any official
method of reconciliation between the two bases as may be
published from time to time or (if none is published) such
other method of reconciliation as the parties (acting
reasonably) may agree
6
<PAGE>
PART 2
("Services")
1. Maintaining, repairing and cleansing and when the Landlord in its
discretion thinks it appropriate so to do amending, altering, reinstating,
renewing and rebuilding the Structure and the Conduits save insofar as the
same are the responsibility of tenants in the Building
2. Maintaining, repairing, cleansing, paving, lighting and decorating to such
standard as the Landlord may from time to time consider appropriate the
Retained Parts and the Common Parts and all boundaries of the Building and
appurtenances thereto and when the Landlord in its discretion thinks it
appropriate so to do amending, altering, reinstating, renewing, and
rebuilding the same
3. Inspecting, servicing, maintaining, repairing, amending, overhauling and
replacing the Apparatus and all lighting columns, electric lamp standards
and associated time switches save insofar as the same are the
responsibility of tenants in the Building
4. Operating the Apparatus so as to provide during the Permitted Hours
(a) lift services in the Building via the lifts now in the Building or
such substituted lifts as the Landlord (in its absolute discretion)
may from time to time decide to install
(b) an adequate supply of hot and cold water to the outlets therefor
within the Building
(c) between l5th September in any year and 15th May in the following year
central heating to the Building so as to maintain the same to such
temperatures as the Landlord shall in its absolute discretion consider
adequate subject to compliance with statutory requirements
5. Supplying necessary washing and toilet requisites in the toilet
accommodation in the Building (other than that accommodation which is in
the exclusive occupation of any tenant of the Building)
6. Supplying, maintaining, upgrading and renewing any fire alarms, fire
prevention and fire fighting equipment for the common benefit of persons
resorting to the Building (other than that which exclusively serves the
Premises and other parts of the Building let or intended to be let to
tenants)
7. Cleaning as frequently as the Landlord shall in its absolute discretion
consider adequate the exterior of all windows and window frames of the
Building including those in the Retained Parts and the Common Parts
7
<PAGE>
8. (Save insofar as insured under other provisions of this Lease) insuring the
Apparatus, the Common Parts and the Retained Parts against the Insured
Risks and insuring the Landlord against property owners liability, third
party liability and employers liability in respect of the Building and such
other risks, perils and contingencies as the Landlord in its absolute
discretion shall from time to time deem necessary or expedient and
effecting and keeping on foot such maintenance contracts in respect of the
Apparatus as the Landlord may from time to time think fit
9. Discharging all charges, assessments and outgoings (including meter
charges) for water, electricity, fuel, telephone and public and other
statutory utilities consumed on the Retained Parts or used in connection
with the provision of any of the services referred to in this part of this
Schedule
10. Paying any existing or future taxes, rates, charges, duties, assessments,
impositions and outgoings whatsoever in respect of the Common Parts and/or
the Retained Parts
11. Collecting and disposing of normal refuse from the Building and the
provision, repair, maintenance and renewal of plant and equipment for the
collection, treatment, packaging or disposing of refuse
12. Providing, operating, maintaining, repairing, renewing and replacing such
security systems for the Building as the Landlord shall in its absolute
discretion from time to time determine
13. Providing, maintaining, replacing and renewing any notice boards or
direction signs and the like in the Common Parts
14. Providing and maintaining (at the Landlord's absolute discretion) plants,
shrubs, trees, garden or grassed areas or landscaped areas and floral
decorations in the Common Parts and keeping the same properly maintained
and cultivated
15. Controlling traffic on the roads within the Building
16. Preparing and supplying to tenants and occupiers in the Building copies of
regulations made by the Landlord from time to time in relation to the use
of the Building or any part of it
17. Employing such staff and personnel as the Landlord shall think fit for the
management of the Building (including without prejudice to the generality
of the foregoing, the provision of cleaning, security and horticultural
services) and so that the costs of such employment shall include not only
all such direct costs incurred but also the provision of uniforms, the
payment of national insurance contributions and other government levies by
reference to employment of personnel, the provision of pensions and payment
of training and industrial levies and redundancy payments and any other
expenses ancillary to the employment of personnel in connection with the
provision of these services
8
<PAGE>
18. Providing, repairing, maintaining, renewing and replacing such plant
machinery, equipment and materials as the Landlord in its absolute
discretion may consider to be desirable for the proper provision or supply
of the services from time to time provided or supplied in accordance with
this Schedule
19. Employing and paying the fees of any agents retained by the Landlord to
manage the Building and collect the rents thereof (including the
preparation of accounts in relation to the Service Charge) and the fees and
charges of any accountant, surveyor or other professional adviser employed
to certify any matter or thing requiring to be certified for the purpose of
any of the provisions of this Schedule
20. Such other services as the Landlord in its absolute discretion shall think
proper or beneficial for the better and more efficient management and use
of the Building and the comfort and convenience of the generality of the
tenants in the Building
And for the purpose of ascertaining the amount of any cost to be included in the
Service Costs in respect of any one or more of the Services there shall be
included all VAT at the applicable rate incurred or paid by the Landlord in
respect of any expenditure in connection with the Services or any of them and
the Service Costs may include all costs incurred in taking any steps deemed
desirable or expedient by the Landlord for complying with or making any
representations against or otherwise contesting the incidence of the provisions
of any legislation or orders or statutory requirements thereunder concerning
town planning, compulsory purchase, public health highways, streets, drainage or
other matters relating to or allegedly relating to the Building for which no
tenant of the Building is directly liable under any lease of any part of the
Building
9
<PAGE>
SCHEDULE 3
Guarantee Provisions
Part 1
Guarantor's Obligations
1. That the Tenant will at all times during the Term pay the rents reserved by
this Lease on the days and in manner provided for in this Lease and will
duly observe and perform all the covenants and conditions contained in this
Lease and on the part of the Tenant to be observed and performed and that
if the Tenant shall default in any respect to pay the said rents or any of
them in the manner aforesaid or to observe and perform the said covenants
and conditions or any of them the Guarantor will on demand fully observe,
perform and discharge the same or in respect of any judgment or order made
against the Tenant AND without prejudice to the generality of the foregoing
---
the Guarantor HEREBY FURTHER COVENANTS by way of primary obligation and not
------------------------
merely liability as a guarantor or merely collateral to that of the Tenant
to pay and make good to the Landlord forthwith on demand any losses, costs,
damages and expenses occasioned to the Landlord arising out of or by reason
of any default of the Tenant in respect of any of its obligations under the
terms and provisions of this Lease AND any neglect or forbearance on the
---
part of the Landlord in enforcing or giving time for or other indulgence in
respect of the observance or performance of any of the said agreements
provisions and conditions (other than a release given under seal) and any
variation of the terms of this Lease shall not release the Guarantor from
its liability under the agreement or guarantee on its part contained in
this Lease
2 That:
2.1 if the Tenant shall go into liquidation and the liquidator disclaims
this Lease or
2.2 If the Tenant is dissolved or struck off the register and the Crown
disclaims this Lease or
2.3 if the Tenant ceases for any reason to be or to remain liable under
this Lease or to maintain its corporate existence (otherwise than by
merger, consolidation or other similar corporate transaction in which
the surviving corporation assumes or takes over all the liabilities of
the Tenant under this Lease) or
2.4 if this Lease shall be forfeited the Landlord may within six months
following any such event by notice in writing require the Guarantor to
enter into a lease in the like form as this Lease for the residue of
the Term unexpired at the date of such event (or which but for any
such disclaimer, forfeiture or other event would have remained
unexpired) but with the Guarantor as tenant thereunder at the same
rents and subject to the like covenants, provisions and conditions as
are herein contained as a substitute in all respects for the Tenant
under this Lease and so that every Review Date thereunder shall occur
on the same date as every Review Date hereunder shall occur or would
but for any such disclaimer, forfeiture or other event have occurred
(the said new lease and the rights and liabilities thereunder to
10
<PAGE>
take effect as from the date of such disclaimer, forfeiture or other
event) and the Guarantor shall thereupon execute and deliver to the
Landlord a counterpart of the new lease in exchange for the relevant
lease executed by the Landlord and contemporaneously therewith the
Guarantor as tenant shall pay the first installments of the rents due
Part 2
Agreements
1. The Landlord shall not be obliged before enforcing any of its rights or
remedies against the Guarantor to take any proceedings or obtain any
judgment against the Tenant in any Court or to make or file any claim in
any bankruptcy or liquidation of the Tenant and the terms of this Clause
shall be a continuing guarantee and shall remain in full force and effect
until each and every part of the obligations and covenants on the part of
the Tenant shall have been discharged and performed in full (subject to any
release under seal as aforesaid and save as hereinafter provided)
2. The Guarantor shall rank in respect of any sums paid by the Guarantor under
this Lease and in respect of any other rights which accrue howsoever to the
Guarantor in respect of any sums so paid or liabilities incurred hereunder
or in the observance, performance or discharge of the obligations and
covenants on the part of the Tenant and be entitled to enforce the same
only after all obligations and covenants shall have been observed,
performed and discharged in full and the Guarantor shall not
2.1 seek to recover whether directly or by way of set-off lien
counterclaim or otherwise or accept any money or other property or
security or exercise any rights in respect of any sum which may be or
become due to the Guarantor on account of failure by the Tenant to
observe, perform or discharge the said obligations or covenants or the
obligations of the Guarantor hereunder from the Tenant or any third
party nor
2.2 claim, prove for or accept any payment in any composition or by
winding up or liquidation of the Tenant in competition with the
Landlord for any amount whatsoever owing to the Guarantor by the
Tenant on any account whatsoever nor
2.3 exercise any right or remedy in respect of any amount paid by the
Guarantor under this Lease or any liability incurred by the Guarantor
in observing, performing or discharging the said obligations and
covenants on the part of the Tenant and the Guarantor shall not be
entitled to any right of proof in the bankruptcy or liquidation of the
Tenant or any other right of a guarantor discharging his liability in
respect of the said obligations and covenants unless and until all of
the same shall first have been paid, observed, performed and
discharged in full
3. The liability of the Guarantor under this Lease shall not be released,
impaired, diminished or affected by the release of any one or more persons
from time to time comprised in the
11
<PAGE>
Guarantor nor by any variation in this Lease with or without the consent of
the Guarantor (and whether or not such variation shall increase the
liabilities of the Tenant or the Guarantor hereunder) and the obligations
on the part of the Guarantor contained in this Lease shall subsist in
relation and by reference to the obligations and covenants on the part of
the Tenant as from time to time varied
4. To the extent that the Guarantor is entitled to any right of immunity from
any judicial proceedings from the granting of any form of relief in any
proceedings from attachment of its property or assets or from execution of
judgment on the ground of sovereignty or otherwise in respect of any matter
arising out of or relating to its obligations under this Lease the
Guarantor does hereby and will irrevocably waive such right for the benefit
of the Landlord and agrees not to invoke such right against the Landlord
and consents to the giving of any such relief or the issue of any such
proceedings or process of attachment or execution by the Landlord
(EXECUTED (but not delivered until the date
--------
hereof) as a deed by Advanced Te1ecommunications
Modules Limited by the affixing of its Common Seal
in the presence of:
Director
Secretary
12
<PAGE>
EXHIBIT 10.13
COMDISCO, INC.
GLOBAL MASTER RENTAL AGREEMENT
GLOBAL MASTER RENTAL AGREEMENT (the "Agreement") dated as of September 30, 1996
by and between:
COMDISCO, INC. (HEREINAFTER REFERRED TO AS "COMDISCO"), 6111 NORTH RIVER ROAD,
ROSEMONT, ILLINOIS 60018, USA ACTING ON BEHALF OF ITSELF AND ITS AFFILIATES AS
HEREIN DESCRIBED
AND ADVANCED TELECOMMUNICATIONS MODULES LIMITED (HEREINAFTER REFERRED TO AS
THE "CUSTOMER"), ACTING ON BEHALF OF ITSELF AND ITS AFFILIATES AS HEREIN
DESCRIBED.
WHEREAS, Comdisco and its Affiliates are engaged in the rental of equipment in
various countries where Customer and its Affiliates may wish to rent such
equipment,
WHEREAS, to facilitate the transacting of rental operations between Comdisco
or an Affiliate of Comdisco and Customer or an Affiliate of the Customer on an
ongoing basis, Comdisco and the Customer wish to enter into the present
Agreement which, together the Equipment Schedule under which each individual
rental operation is concluded, will establish the terms and conditions
applicable to such rental operation.
THEREFORE, it is agreed as follows:
1. GLOBAL MASTER RENTAL AGREEMENT
------------------------------
1.1 DEFINITIONS. "Affiliates of Comdisco" shall mean those enterprises in
-----------
which Comdisco owns and/or shall own at any time after the date hereof, directly
or indirectly, the majority of the voting stock, including without limitation
all present Affiliates of Comdisco listed in Exhibit A hereto.
"Affiliates of the Customer" shall mean those enterprises in which the
Customer, or its parent company owns and/or shall own at any time after the date
hereof, directly or indirectly, the majority of the voting stock, or a
controlling interest, including without limitation all present Affiliates of the
Customer listed in Exhibit B hereto;
"Lessor" shall mean, with respect to any Equipment Schedule, the Affiliate of
Comdisco entering into such Equipment Schedule, or Comdisco, if Comdisco enters
into such Equipment Schedule.
"Lessee" shall mean, with respect to any Equipment Schedule, the Affiliate of
the Customer entering into such Equipment Schedule, or Customer, if Customer
enters into such Equipment Schedule.
"Rent Interval" shall mean the monthly, quarterly or such other billing period
set forth on an Equipment Schedule.
1.2 EQUIPMENT SCHEDULES. Lessor shall rent and Lessee shall take on rent the
-------------------
equipment described in an Equipment Schedule executed hereunder ("Equipment")
subject to the terms and conditions of this Agreement and such Equipment
Schedule. Each such Equipment Schedule shall be governed by all of the terms
and conditions of this Agreement and by such additional terms and conditions as
may be set forth in such Equipment Schedule.
Exhibit C hereto lists the countries for which Comdisco and Customer have
agreed upon the form of Equipment Schedule. Such Equipment Schedules shall be
substantially in the form attached to Exhibit C hereto. Further forms of
Equipment Schedules for use in transactions in other countries may be added by
agreement of Comdisco and Customer from time to time. The parties agree that
each local transaction will only be validly concluded if the relevant Equipment
Schedule is executed by signatories of Lessor and Lessee involved in such
transaction, and that any such Equipment Schedule may also be supplemented or
amended by special terms or conditions agreed upon by such Lessor or Lessee for
the particular transaction. The Customer shall, without notice, be jointly and
severally liable for the due performance of the obligations of its Affiliates
under all Equipment Schedules executed hereunder, including, without limitation,
all terms and conditions negotiated by its Affiliate.
2. TERM
----
2.1 The term of this Agreement shall commence on the date set forth above and
shall remain in force thereafter as long as any Equipment Schedule entered into
pursuant to this Agreement remains in effect.
2.2 The rental term and Lessee's rental obligations with respect to each item
of Equipment on an Equipment Schedule shall begin on the commencement date
("Commencement Date"). The Commencement Date with respect to the type of
Equipment defined below and indicated on the applicable Equipment Schedule shall
be as follows:
a) Equipment installed and accepted by Lessee prior to the date of the
applicable Equipment Schedule ("Installed Equipment"), shall be the date Lessor
tenders payment of the Equipment purchase price;
b) Equipment supplied from Lessor's inventory ("Inventory Equipment") shall
be the date the Equipment is installed and approved for maintenance by the
manufacturer, (or an approved third party pursuant to Subsection 5.2 hereof) or
the seventh day after delivery if (i) Lessee delays the installation and
approval or (ii) the Equipment is not so approved due to defects in the
Equipment which are remediable by the manufacturer under a manufacturer's
maintenance contract but which are not remedied because Lessee has arranged for
third party maintenance pursuant to Subsection 5.2 hereof.
<PAGE>
c) Equipment on-order ("On-Order Equipment"), shall be the date Lessee
accepts the Equipment from the Equipment vendor, which date shall be confirmed
by Lessee to Lessor as evidenced by Lessee forwarding an Acceptance Certificate
in the form provided by Lessor, within ten (10) days following such acceptance
and which date shall in no event be later than the date the Equipment is placed
in service by Lessee.
The rental term shall continue, unless renewed in accordance with the
provisions hereof, for at least the full number of months, calendar quarters or
other Rent Interval set forth in the Equipment Schedule ("Initial Term"). The
Initial Term shall commence on the first day of the Rent Interval set forth in
the Equipment Schedule next following (i) the Commencement Date for all items of
Installed Equipment and Inventory Equipment to be rented thereunder or (ii)
Lessor's receipt of Acceptance Certificates for all items of On-Order Equipment
to be rented thereunder. On the Commencement Date the Lessee will execute and
deliver to the Lessor a letter, in a form to be specified by the Lessor, which
confirms such Commencement Date. The rental term for each Equipment Schedule
shall continue until the Equipment is returned and the Equipment Schedule is
terminated by either party upon not more than twelve (12) months nor less than
six (6) months prior written notice to the other party, provided that no such
termination shall be effective prior to the expiration o the Initial Term.
2.3 If the applicable Equipment Schedule has a single Initial Term ("Single
Term"), Single Term shall be indicated on the applicable Equipment Schedule and
the terms of the following paragraph under this Subsection 2.3 shall apply to
such Equipment Schedule:
All Rental Rate Factors set forth in the applicable Equipment Schedule assume
that Acceptance Certificates for all items of On-Order Equipment to be rented
thereunder will be received by Lessor no later than the outside date set forth
on the applicable Equipment Schedule ("Outside Date"). If any Acceptance
Certificates are received by Lessor after the Outside Date, Lessor may, on or
before the start of the Initial Term for all items of Equipment, adjust the
Rental Rate Factors (and, therefore, rental rates) to maintain an assumed
economic yield which Lessor would have required for a similar transaction at
such time.
2.4 If the applicable Equipment Schedule has multiple Initial Terms
("Multiple Term"), Multiple Term shall be indicated on the applicable Equipment
Schedule and the terms of the following paragraphs under this Subsection 2.4
shall apply to such Equipment Schedule:
a) Summary Equipment Schedule
Lessor shall summarize all items of Equipment for which Acceptance
Certificates have been received in the same calendar quarter into a Summary
Equipment Schedule in the form of Exhibit 1 hereto and, notwithstanding anything
to the contrary set forth in Subsection 2.2 of the Agreement, the Initial Term
shall begin the first day of the calendar quarter thereafter. Lessee agrees to
execute and return three copies of the Summary Equipment Schedules within 10
days of receipt. Each Summary Equipment Schedule shall incorporate the terms
and conditions of the Agreement and this Equipment Schedule with respect to
those items of Equipment listed in the Summary Equipment Schedule. Upon
execution by Lessor and Lessee, the Summary Equipment Schedule shall be referred
to as an Equipment Schedule and shall constitute a separate Equipment Schedule
for purposes of the Agreement, including without limitation, Section 11 thereof.
The Initial Term for Equipment listed in Acceptance Certificates received more
than 10 days after the end of a calendar quarter and having an Acceptance Date
in the calendar quarter just ended, shall begin on the first day of the calendar
quarter following receipt of Acceptance Certificates.
b) If there is a default under the applicable Equipment Schedule or there is
an adverse change in Lessee's credit standing, Lessor, at its option and upon
prior written notice to Lessee, shall be relieved of its obligations to lease
Equipment under any Equipment Schedule with respect to Inventory Equipment and
Installed Equipment with a Commencement Date occurring after the date of such
notice and On-Order Equipment for which Lessor has not received an Acceptance
Certificate from Lessee prior to the date of such notice.
c) If prior to the Commencement Date for an item of Equipment the
manufacturer announces any change in comparable existing Equipment ("Comparable
Equipment") or announces the introduction of new or improved technology
("Replacement Technology Equipment"), Lessee may elect to lease the Replacement
Technology Equipment pursuant to the applicable Equipment Schedule in lieu of
the original Equipment described in such Equipment Schedule; provided, that
purchase documents with respect to the original Equipment and the Replacement
Technology Equipment are completed to Lessor's satisfaction. If Lessee elects
not to rent the Replacement Technology Equipment, then with respect to the
original Equipment with a Commencement Date occurring after the announced first
availability date stated in either of the aforementioned announcements, it is
agreed that Lessor may adjust the Rental Rate Factor in order to maintain an
assumed economic yield which Lessor would have expected had either such
announcement been made on the date of the applicable Equipment Schedule. This
paragraph 2.4(c) shall not apply to any Equipment having a Commencement Date
prior to the first availability date stated in either of the aforementioned
announcements.
3. RENT
----
3.1 Lessee shall pay to Lessor as rental for the Equipment the Rent in an
amount (i) as set forth in the applicable Equipment Schedule if the Equipment is
Inventory Equipment or (ii) equal to the Rental Rate Factor set forth in the
applicable Equipment Schedule multiplied by the "Lessor's Cost", as hereinafter
defined, if the Equipment is Installed Equipment or On-Order Equipment. The
Rent shall be paid in advance on the first day of the applicable Rent Interval
set forth in the applicable Equipment Schedule (in immediately available funds
in the local currency indicated on the Equipment Schedule) to Lessor at its bank
account, details of which are set forth in the Equipment Schedule, or to such
other person and/or at such other bank account as Lessor may from time to time
designate in writing. If the Commencement Date of any Equipment Schedule shall
be other than the first day of the applicable Rent Interval, Lessee shall make
rental payments equal to the daily prorata portion of the Rent set forth in the
Equipment Schedule for each day from and including the Commencement Date through
the last day of the applicable Rent Interval prior to the beginning of the
Initial Term ("Interim Rent"). The Rent, and Interim Rent, if any, shall be
payable without deduction or withholding on any account whatsoever and
regardless of whether an invoice has been supplied by Lessor. If Lessee is
required by law to make any such deduction or withholding, Lessee shall pay to
Lessor such additional amount as may be necessary to enable Lessor to receive a
net amount equal to the full amount which would otherwise have been payable
pursuant to any such Equipment Schedule, unless such deduction or withholding is
made by reference to Lessor's net income.
2
<PAGE>
3.2 All Rental Rate Factors set forth in the applicable Equipment Schedule
shall be calculated using an interest rate based on the prevailing rates for
similar transactions with lessees of similar credit standing as of the date of
the applicable Equipment Schedule. If, on or before the start of the Initial
Term for all items of Equipment to be leased under the applicable Equipment
Schedule, the comparable interest rate is greater, such Rental Rate Factors may
be adjusted accordingly.
3.3 Lessor's Cost shall be an amount equal to the purchase price which Lessee
would otherwise be responsible to pay for an item of Equipment if not for this
Agreement.
3.4 Lessee shall promptly pay and discharge all taxes or other charges of
whatever nature due with respect to the ownership or use of the Equipment or the
renting thereof by Lessee or the payment of Rent or other sums payable hereunder
but excluding any taxes payable by reference to Lessor's net income.
3.5 Should Lessee fail to pay any Rent herein reserved or any sum required to
be paid by Lessee or Lessor upon the due date for payment thereof, Lessee shall
pay to Lessor additional Rent equivalent to interest thereon from the due date
until the date of payment at the rate of 3% per annum above the then prevailing
interbank offering rate provided that in no event shall such additional Rent
exceed any legal limitation.
3.6 Equipment Procurement Charges. If indicated on the applicable Equipment
Schedule, Lessor and Lessee agree that this Subsection shall apply. It is
acknowledged that certain portions of the Equipment will be delivered to Lessee
prior to the Commencement Date and that progress payments will be required to be
paid to the Equipment manufacturer prior to the Commencement Date for any item
of equipment leased pursuant to the applicable Equipment Schedule ("Progress
Payments"). Lessee agrees that with respect to the portions of the Equipment
delivered prior to the Commencement Date, all terms and conditions of the
applicable Equipment Schedule shall be applicable except the Lessee's rental
obligations, provided, however, that Lessee agrees to pay Lessor "Equipment
Procurement Charges" equal to the daily rental rate factor set forth on the
applicable Equipment Schedule multiplied by the aggregate of the Progress
Payments paid by Lessor to the manufacturer or the Lessee relating to the
Equipment for each day from the date Progress Payments are made by Lessor until
the Commencement Date. Accrued Equipment Procurement Charges shall be payable
on the first day of each applicable Rent Interval. If Lessee rejects the
Equipment prior to the Commencement Date in accordance with the terms of the
purchase agreement with the Equipment vendor and such purchase agreement is
terminated as a result of such rejection, then the applicable Equipment Schedule
shall also terminate. In such event or if Lessee is in default of the
applicable Equipment Schedule for failure to timely pay Equipment Procurement
Charges, then Lessee shall (i) reimburse Lessor for any and all amounts paid by
Lessor to the manufacturer or to the Lessee relating to the purchase of the
Equipment and (ii) pay all Equipment Procurement Charges due through the date of
termination, whereupon Lessor shall transfer to Lessee all of Lessor's interest
in and to the Equipment and under any purchase agreement relating to the
applicable Equipment Schedule.
4. USE
---
Lessee shall:
4.1 keep the Equipment for its sole use and in its possession (except as
provided in 11.4 below) at the address where the Equipment has been installed or
at such other address within the country of original installation as Lessor may
from time to time be notified in writing and shall use the Equipment only for
the purposes for which it was designed in a proper manner and in accordance with
any applicable statutory regulations which may from time to time be in force and
shall take such steps as are necessary to ensure that the Equipment will be safe
and without risk to health when properly used by Lessee, its employees or other
authorized users;
4.2 ensure that the Equipment is only used by trained personnel in accordance
with the recommendations of the supplier and/or manufacturer;
4.3 allow such persons as Lessor may authorize to have access to the
Equipment at reasonable times in order to inspect its state and condition and,
if required, allow Lessor to fix and/or keep affixed upon the Equipment such
name or other plates in such place and manner as Lessor shall require to
indicate the ownership of the Equipment;
4.4 protect the Equipment against seizure and indemnify Lessor against all
losses, charges, damages and expenses suffered or incurred by Lessor by reason
thereof; and
4.5 protect Lessor's title or interest in the Equipment against all persons
claiming against or through Lessee and for this purpose take any necessary steps
to prevent title in the Equipment from passing to any freeholder or mortgagee of
the premises at which the Equipment is located.
5. INSTALLATION, MAINTENANCE AND ADDITIONS
---------------------------------------
5.1 Responsibility for all costs and risks of delivery, in-transit insurance
and installation shall be as indicated in the relevant Equipment Schedule.
Notwithstanding such indication, Lessee shall be responsible for all exceptional
costs of delivery and installation including, without limitation, the costs of
special lifting and handling equipment and building alterations. Lessee will,
at the request of Lessor or its assignees, certify the date of installation of
any Equipment rented hereunder. If Lessee should have the Equipment installed
by a third party maintenance or engineering company, Lessee assumes any and all
liability for defects in the Equipment which are remediable by manufacturer
under a manufacturer's maintenance contract but which are not so remedied
because Lessee has elected to use a third party to install the Equipment,
Lessor's approval of such third party notwithstanding (see 5.2). Lessee shall
have the manufacturer or authorized third party remedy all such defects at
Lessee's expense.
3
<PAGE>
5.2 Lessee shall at all times and at its own expense keep the Equipment in
good order, repair and condition (fair wear and tear excepted) and shall enter
into and maintain throughout the rental term, a contract for the maintenance of
the Equipment with the manufacturer of the Equipment, or with a third party
maintenance company as approved by Lessor provided that, if Lessee uses a third
party maintenance company, Lessee assumes any and all liability for defects in
the Equipment which are remediable by manufacturer under a manufacturer's
maintenance contract but which are not remedied because Lessee has arranged for
a third party to provide such maintenance. Upon termination of the renting,
Lessee shall provide Lessor with the manufacturer's maintenance qualification
letter and, if necessary, Lessee shall pay any costs necessary to have the
manufacturer re-certify the Equipment for maintenance eligibility.
5.3 No additions, improvements, variations, modifications or alterations of
whatsoever kind or nature shall be made to the Equipment without the consent in
writing of Lessor (such consent not to be unreasonably withheld). Subject to
such consent, any additions to the Equipment shall first be offered for renting
by Lessor upon the terms and conditions of this Agreement and of the relevant
Equipment Schedule. If any such additions, improvements, variations,
modifications or alterations are made to the Equipment without Lessor's written
consent, then the same shall be deemed to be Lessor's property.
6. ACCEPTANCE AND WARRANTIES
-------------------------
6.1 Lessor will use its reasonable endeavors at the expense and request of
Lessee to extend to Lessee the benefit of any guarantees, conditions, warranties
or representations which may be given to Lessor by the manufacturer or supplier
of the Equipment or otherwise implied in favor of Lessor, provided that such
benefit shall only be extended if Lessee shall fully indemnify Lessor against
all costs, claims and expenses incurred in connection with any claim relating to
such guarantee, warranty or representation.
6.2 The Equipment has been selected by Lessee with full knowledge of the
manufacturer's specifications and Lessee consequently assumes the entire
responsibility for its choice and Lessee's acceptance by certifying installation
shall be conclusive proof that the Equipment is satisfactory in every way to
Lessee.
7. LESSEE'S INDEMNITY
------------------
Throughout the rental term under any Equipment Schedule and until the
Equipment hereunder has been effectively re-delivered to Lessor, Lessee shall be
solely responsible for any loss, damage or injury to any party occasioned by the
use or possession of the Equipment or in any way relating to the Equipment.
Lessee shall indemnify and keep Lessor indemnified against all claims or
proceedings made or brought against Lessor, and all damages, losses, costs,
charges and expenses incurred by Lessor by reason of such claims or proceedings
arising out of the state, condition, presence or use of the Equipment or in any
way relating to the Equipment or arising out of the renting of the Equipment
hereunder provided that nothing in this clause shall restrict or exclude
Lessor's liability in respect of or shall entitle Lessor to be indemnified by
Lessee against any claims or proceedings in respect of any injury, death, loss
or damages caused by or resulting from the willful default or gross negligence
of Lessor.
8. RISK OF LOSS AND INSURANCE
--------------------------
Throughout the rental term, unless otherwise indicated in the relevant
Equipment Schedule, the Lessee shall insure and at all times keep the Equipment
insured with reputable insurers. Lessor and Lessee agree as follows:
a) Effective upon delivery of the Equipment to Lessee and until the
Equipment is returned to Lessor, Lessee relieves Lessor of responsibility for
all risks of physical damage to or loss or destruction of the Equipment, however
caused. During the continuance of the relevant Equipment Schedule, Lessee shall,
at its own expense, cause to be carried and maintained casualty insurance with
respect to each item of Equipment designated in this Equipment Schedule in an
amount at least equal at all times to the greater of (i) the replacement value
of the Equipment, or (ii) the aggregate unpaid Rent with respect to the
Equipment for the unexpired Initial Term. Lessee shall carry public liability
insurance, in each case in amounts and against risks customarily insured against
by the Lessee on similar equipment and, in any event, in amounts and against
risks comparable to those insured against by the Lessee on equipment owned by
it. All policies with respect to such insurance shall name the Lessor as
additional assured and (together with any Beneficiary) as loss payee, and shall
provide for at least 30 days' prior written notice by the underwriter or
insurance company to the Lessor in the event of cancellation or expiration.
Lessee shall furnish appropriate evidence of such insurance;
b) If any item of Equipment is lost or rendered unusable as a result of any
physical damage or destruction of such item of Equipment, Lessee shall give to
Lessor prompt notice thereof and the Agreement and the relevant Equipment
Schedule shall continue in effect without any abatement of Rent. Lessee shall
determine, within fifteen (15) days after the date of occurrence of such loss,
damage or destruction, whether such item of Equipment can be repaired. If
Lessee determines that such item of Equipment can be repaired, Lessee, at its
expense, shall cause such item of Equipment to be promptly repaired. If Lessee
determines that such item of Equipment is lost or cannot be repaired, Lessee
shall promptly notify Lessor and such Equipment shall be deemed to have suffered
a "Casualty Loss" for purposes of this Section as of the date of occurrence of
such loss. Within said 15 days, Lessee shall notify Lessor of the Equipment
which has suffered a Casualty Loss and Lessee shall, at the Lessor's option,
either (i) replace Equipment which has suffered a Casualty Loss with lien free
equipment of the same model, type and feature configuration in which case the
replacement equipment shall become the Equipment, the relevant Equipment
Schedule shall continue in full force and effect and marketable title in such
Equipment shall vest in Lessor or (ii) pay the aggregate unpaid Rent with
respect to such Equipment for the unexpired Initial Term for such Equipment
("Casualty Value"). If the Casualty Value is paid, any installment of Rent with
respect to such Equipment due prior to the date of the Casualty Loss shall
remain due and payable. After the payment of such Casualty Value and all other
amounts due and owing with respect to such Equipment, Lessee's obligation to pay
further Rent for such Equipment shall cease. Except in the case of loss or
total destruction, Lessor will be entitled to recover all Equipment for which a
Casualty Value has been paid; provided, however, that Lessee shall dispose of
such Equipment for the best price obtainable (on an "as-is, where-is," basis
without representation or warranty expressed or implied), and Lessee shall be
entitled to retain all amounts received for the Equipment up to the Casualty
Value and Lessee's reasonable costs of disposition attributable thereto, and
shall remit the excess, if any, to Lessor.
4
<PAGE>
9. DEFAULT
-------
9.1 If:
a) Lessee or Customer shall fail to pay any Rent or other sum payable
under this Agreement (and any Equipment Schedules entered into hereunder) within
fifteen (15) days of its becoming due or fail to observe or perform any of the
terms and conditions hereof or shall do or allow to be done any act or thing
which may jeopardize any of Lessor's rights in the Equipment;
b) any distress, execution or other legal process shall be levied on or
against the Equipment or any part thereof or any premises where the same may be
or Lessee shall permit any judgment against it to remain unsatisfied for
fourteen days (14); or
c) Lessee or Customer shall enter into any liquidation, shall be declared
bankrupt or otherwise enter bankruptcy, shall call any meeting of its creditors,
or shall have any receiver or administrative receiver of all or any of its
undertakings or assets appointed, or shall be deemed unable to pay its debts;
then, in each and every such case, Lessor may at any time thereafter and
notwithstanding any subsequent acceptance by Lessor of any Rent (but without
prejudice to any other rights which Lessor may have against Lessee hereunder or
any pre-existing liability of Lessee to Lessor) by notice in writing to Lessee
forthwith and for all purposes terminate renting the Equipment hereunder and
under any Equipment Schedule executed by the Lessee and thereafter Lessee shall
no longer be in possession of the Equipment with Lessor's consent.
9.2 Upon such default, Lessee shall pay to Lessor:
a) all arrears then due by way of Rent or otherwise;
b) the costs of all repairs required as at the date of termination to
render the Equipment in good order and condition (fair wear and tear excepted);
c) all costs, charges and expenses incurred by Lessor in locating and
taking possession of the Equipment including all legal fees, costs and expenses;
and
d) as agreed compensation for Lessor's full financial loss, an amount
equal to the aggregate unpaid Rent with respect of the Equipment for the
unexpired balance of the Initial Term less a discount at the lower of the debt
rate of the Beneficiary (as defined in Subsection 11.1) at which the applicable
Equipment Schedule was financed or the rate of 2% per annum below the then
prevailing interbank offering rate, compounded quarterly, for accelerated
payment. Lessee confirms that the nature of the arrangement between it and
Lessor is such that, in computing the amount payable in such circumstances,
Lessor shall not be obliged to mitigate its loss by applying the sale proceeds
of the Equipment in reduction of such amount.
10. RETURN OF THE EQUIPMENT
-----------------------
At the end of the rental term of each Equipment Schedule executed hereunder or
upon the termination of the renting of the Equipment for whatever reason, Lessee
will at its own expense forthwith deinstall and deliver the Equipment in good
order and condition (fair wear and tear excepted) to Lessor at such place as may
be appointed by Lessor within the country in which it is then installed if
Comdisco has an affiliate in that country, or to the nearest country with a
Comdisco affiliate, and, upon the failure of Lessee to return the Equipment as
contemplated herein, Lessor may, without waiving Lessee's obligations for the
aforementioned expenses, repossess the Equipment at any time and without notice
and for this purpose shall be entitled freely to enter into and upon any
premises where the Equipment may be and whether the same is occupied by or under
the control of Lessee or otherwise.
11. ASSIGNMENT
----------
11.1 Lessor shall be entitled to assign, sell or pledge in whole or in part
its rights related to any Equipment, to any Equipment Schedule and/or to any
amounts payable under any Equipment Schedule to one or more third parties
(collectively the "Beneficiary"). Lessee agrees that on receipt of written
notice from Lessor of such assignment, sale or pledge, if so instructed, Lessee
shall perform for the benefit of the Beneficiary those of its obligations under
any Equipment Schedule as are mentioned in such notice and, if so instructed,
Lessee shall pay all or part of the amounts payable under any Equipment Schedule
directly to the Beneficiary or its assignees. Lessee declares and certifies
that the Beneficiary shall be entitled to rely upon, and shall be considered a
third party beneficiary of, the following covenants and representations:
a) Lessee will not seek the performance by the Beneficiary of any of the
obligations of Lessor under this Agreement or any Equipment Schedule (unless
Lessor shall have assigned by the Beneficiary its obligations as lessor
hereunder or under any Equipment Schedule, in which case however Lessor shall
remain primarily liable for the performance of such obligations vis-a-vis
Lessee);
b) Lessee shall not agree to any modification or amendment of this Agreement
or of any Equipment Schedule assigned to the Beneficiary without the prior
written consent of the Beneficiary;
c) Lessee shall send to the Beneficiary a copy of any notice which is
required to be sent to Lessor; and
d) Lessee's obligations hereunder and under any assigned Equipment Schedule
shall not be subject to any abatement, reduction, defense, offset or
counterclaim available to Lessee for any reason whatsoever including, without
limitation, any defect in the Equipment or failure of Lessor to perform any of
its obligations hereunder or under any Equipment Schedule.
5
<PAGE>
11.2 Upon receipt of notice of any assignment, sale or pledge, Lessee agrees
to execute and deliver to Lessor any document which may be required by a
Beneficiary in order to certify the rights and obligations of the parties under
this Agreement and any assigned Equipment Schedule and in order to perfect such
assignment, sale or pledge, including, without limitation:
a) an acknowledgment of receipt of, or a declaration of consent to, such
assignment, sale or pledge;
b) a certificate of Lessee's counsel in which he opines that Lessee is
validly bound by the terms of this Agreement and of any assigned Equipment
Schedule; and
c) a certificate of the delivery and acceptance of the related Equipment.
11.3 Lessee acknowledges that Lessor may not itself be the owner of the
Equipment rented under any Equipment Schedule and that Lessor may have rented or
leased such Equipment from a third party.
11.4 Lessee shall not sell, offer for sale, mortgage or change the Equipment
or this Agreement or any Equipment Schedule executed hereunder nor hold itself
out as the owner of nor part with possession of the Equipment and shall not
create or allow to be created any lien or any encumbrance on the Equipment and
shall duly and punctually pay all rates and taxes, charges and impositions
payable in respect of the premises whereon any Equipment is situated. Upon not
less than sixty (60) days prior written notice to Lessor, Lessee may subrent the
Equipment to any party, or relocate the Equipment to any location, within the
country set forth in the respective Equipment Schedule, provided that (i) any
such sublessee's credit worthiness shall, in Lessor's reasonable judgment, be
equal to or better than Lessee's, and (ii) all costs of any nature whatsoever
resulting from such relocation or subrent shall be made for the sole account of
Lessee or its sublessee and any subrenting of the Equipment shall be expressly
subject and subordinate to the terms of this Agreement and the respective
Equipment Schedule. No subrenting of any Equipment shall operate to relieve
Lessee of its obligations hereunder. The Lessee hereby grants to the Lessor the
right and opportunity to submit or match the last proposal for (i) the
subrenting of the Equipment, and (ii) the financing of any equipment which is
replacing the Equipment leased pursuant to this Agreement and any Equipment
Schedule. Each of the foregoing shall be conducted in a commercially reasonable
time frame and manner.
11.5 Customer hereby agrees that its representations and obligations under
this Agreement may be assigned by Comdisco, without notice, to the Lessor under
any Equipment Schedule issued hereunder, and further assigned by such Lessor,
without notice, to the Beneficiary.
12. VALUE ADDED TAX ("VAT")
-----------------------
In addition to the Rent and other sums payable under this Agreement and any
Equipment Schedule, Lessee shall be responsible for and pay to Lessor any value
added tax, turnover tax, stamp tax, recording tax or similar tax thereon at the
rate in force on the due date of payment of any sums payable by Lessee under
this Agreement and any Equipment Schedule, and Lessee shall indemnify Lessor and
keep Lessor indemnified against any liability for such taxes which may be
incurred by Lessor in respect of the Equipment or its rental hereunder at the
location set forth in the Equipment Schedule. Lessee shall cooperate with
Lessor in obtaining any relevant documentation necessary to substantiate payment
of any such tax and in providing originals or certified copies thereof.
13. MISCELLANEOUS
-------------
13.1 Service of all notices under this Agreement or any Equipment Schedule
shall be sufficient if given personally or posted to the party to be served at
its address herein or in such Equipment Schedule or at such address as the party
to be served may from time to time by notice in writing inform the other to be
its address for service of notice hereunder or thereunder and, if sent by first
class post, shall be deemed to be delivered 48 hours after posting.
13.2 It is acknowledged by the parties that the manufacturer or supplier of
the Equipment is not the agent and has no authority to act as the agent of
Lessor and that Lessor shall under no circumstances be responsible for any
warranty or representation made by any manufacturer or supplier except as stated
in this Agreement or such Equipment Schedule.
13.3 Lessor hereby excludes any conditions, warranties or representations
relating to the Equipment whether express or implied and whether statutory or
otherwise.
13.4 This Agreement shall be governed and construed for all purposes in
accordance with the law agreed upon in the applicable Equipment Schedule by
Lessor and Lessee. Comdisco and Customer hereby consent to such law.
13.5 Any payment hereunder or under any Equipment Schedule by Lessee to
Lessor shall be treated as paid on the date of its receipt by Lessor.
13.6 Neither this Agreement nor any Equipment Schedule executed hereunder
shall be varied in its terms by any oral agreement or representation or
otherwise than by an instrument in writing either of even date or subsequent
hereto or thereto executed by the respective parties or by their duly authorized
representatives.
13.7 The terms and conditions of any Equipment Schedule will supersede those
of all previous agreements either written or oral between Lessor and Lessee
relating to the Equipment.
6
<PAGE>
13.8 No right or remedy herein conferred upon or reserved to Lessor is
exclusive of any other right or remedy herein or by law or equity provided or
permitted but each shall be cumulative of every right or remedy given hereunder
or hereafter existing and may be enforced currently therewith or from time to
time.
13.9 No forbearance or indulgence on the part of Lessor shown or granted to
Lessee shall in any way restrict or diminish the full rights and powers of
Lessor under this Agreement or any Equipment Schedule or shall operate as a
waiver of any breach by Lessee of any of the terms and conditions of this
Agreement.
13.10 No Equipment Schedule executed hereunder shall become binding until
accepted in writing by a representative authorized in writing on Lessor's
behalf.
13.11 The printed titles given to the clauses of this Agreement are inserted
for convenience only, do not form part of this Agreement and have no effect upon
its operation and interpretation.
13.12 Customer hereby submits to the jurisdiction of the court agreed upon in
the applicable Equipment Schedule by Lessor and Lessee regarding the enforcement
of Customer's representations and obligations hereunder with respect to such
Equipment Schedule and Customer hereby appoints the Lessee in the applicable
Equipment Schedule as the Customer's agent for service of process with regard to
the foregoing.
13.13 In the event any one or more of the provisions of this Agreement and/or
any Equipment Schedule executed hereunder shall for any reason be held invalid,
illegal or unenforceable, the remaining provisions of this Agreement and/or any
such Equipment Schedule executed hereunder 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.
13.14 Lessee shall obtain no title to any software or other licensed products
("products") attached to the Equipment delivered to Lessee, and such Products
shall at all times remain the property of the owner thereof. Prior to the legal
use of any such Products, Lessee shall be responsible to obtain or cause to be
obtained a license to use such Products from the owner thereof.
13.15 Customer will, upon execution of this Agreement, and as may be
requested thereafter, provide Lessor and/or Comdisco with a secretary's
certificate of incumbency and authority and any other documents which may be
requested by Lessor and/or Comdisco.
Done in three copies of this _________ day of __________, 1999.
COMDISCO, INC. ADVANCED TELECOMMUNICATIONS
MODULES LIMITED
By:__________________________________ By:__________________________________
Title:_______________________________ Title:_______________________________
7
<PAGE>
EXHIBIT A
---------
To the Global Master Rental Agreement dated as of _______________ between
Comdisco, Inc. ("Comdisco") and Advanced Telecommunication Modules Limited
("Customer")
AFFILIATES OF COMDISCO, INC.
Comdisco Asia Pte Ltd Comdisco Japan, Inc.
8 Shenton Way Hatchobori Building, 5th Floor
#44-01A 2-18-8, Hatchobori, Chuo-Ku
Treasury Building J-Tokyo 104
Singapore 0106 (Japan)
Comdisco Australia Pty Ltd Comdisco Nederland B.V.
(ACN 002 997-453) Plancetenbaan 25, Postbus 1681
Level 18, 111 Pacific Highway NL-3608 AK Maarssen
North Sydney (The Netherlands)
NSW-Australia 2050
Comdisco Handelsgesellschaft M.B.H. Computer Discount Corporation S.A.
Mahlerstrasse 7/22 c/o Key Iberboard S.A.
A-1010 Wien Santiago Bernabau 12
(Austria) E-28036 Madrid
(Spain)
Comdisco Belgium S.A. Comdisco Sweden AB
c/o KPMG c/o Advokatfirman Vinge
Rue Naerveld 101 - 103 Boite 3 Smalandsgatan 20, Box 1703
St Lambrechts - Woluwe S-11187 Stockholm
B-1200 Bruxelles (Sweden)
(Belgium)
Comdisco Canada Ltd. Comdisco (Switzerland) S.A.
Royal Bank Plaza, North Tower Postfach 4136
200 Bay Street, Suite 2075 Baarestrasse 20
P.O. Box 131 CH-6304 ZUG
CDN-Toronto, Ontario M5J 2J3 (Switzerland)
(Canada)
Comdisco France S.A. Comdisco United Kingdom Limited
176 avenue Charles de Gaulle One Centaurs Business Park
F-92200 Neuilly sur Seine Grant Way
(France) Isleworth
Middlesex TW7 5QD ENGLAND
Comdisco Deutschland GmbH Promodata S.A.
Oskar-Messler - Strasse 24 176 avenue Charles de Gaulle
D-85737 Ismaning/Munchen F-92200 Neuilly sur Seine
(Germany) (France)
<PAGE>
EXHIBIT B
---------
To the Global Master Rental Agreement dated as of ________________________
between Comdisco, Inc. ("Comdisco") and Advanced Telecommunications Modules
Limited ("Customer")
AFFILIATES OF CUSTOMER
Advanced Telecommunications Modules, Inc.
1130 East Arques Avenue
Sunnyvale, California 94086
9
<PAGE>
EXHIBIT C
---------
To the Global Master Rental Agreement ("Agreement")
dated as of _____________ between
Comdisco, Inc. ("Comdisco") and
Advanced Telecommunications Module Limited ("Customer").
Effective as of the date of the Agreement, Comdisco and Customer hereby
agree, pursuant to Subsection 1.2, "Equipment Schedules" of the Agreement that
-------------------
Equipment Schedules substantially in the forms attached hereto and identified by
country name shall be used In the countries listed below which match the country
name on the attached Equipment Schedules.
Australia Japan
Austria Netherlands
Canada Norway
Denmark Portugal
Finland Spain
France Sweden
Germany Switzerland
Hong Kong United Kingdom
Ireland United States
Italy
Initialed: Comdisco __________
Customer ___________
* Leases will be written with Comdisco United Kingdom, as Lessor
** Leases will be written with Comdisco Nederland B.V., as Lessor
10
<PAGE>
EXHIBIT 1
SUMMARY EQUIPMENT SCHEDULE
--------------------------
SUMMARY EQUIPMENT SCHEDULE NO. ____ for the Period beginning _______________ and
ending _______________ to the Global Master Rental Agreement dated as of
____________________ and Equipment Schedule No. __________ thereto between
Lessor and Lessee (the "Lease").
<TABLE>
<CAPTION>
LESSEE: LESSOR:
<S> <C> <C>
Address for Notices: Address for Notices: Address for Remittances:
Attention: Attention: Attention:
</TABLE>
1. EQUIPMENT: As set forth in the attached Acceptance Certificates which are
a part hereof (No. of Acceptance Certificates: _____)
2. INITIAL TERM START DATE:
3. INITIAL TERM:
4. LESSOR'S COST:
5. __________RENT:
6. LESSEE REPRESENTATIONS: The Lessee hereby represents and warrants that:
(a) It has accepted all items of Equipment listed on the attached
Acceptance Certificates as of the date set forth therein.
(b) No default or event which with the giving of notice or lapse of time,
or both, would become a default has occurred or iscontinuing.
GLOBAL MASTER RENTAL AGREEMENT: This Summary Equipment Schedule is issued
pursuant to the Global Master Rental Agreement and Equipment Schedule identified
above. All of the terms, conditions, representations and warranties of the
Global Master Rental Agreement and Equipment Schedule are hereby incorporated
herein and made a part hereof as if they were expressly set forth in the Summary
Equipment Schedule and this Summary Equipment Schedule constitutes a separate
lease with respect to the Equipment described herein.
as Lessee as Lessor
by: _____________________________ by: _____________________________
Title: ____________________________ Title: __________________________
Date: ____________________________ Date: ___________________________
11
<PAGE>
ATTACHMENT TO
SUMMARY EQUIPMENT SCHEDULE ______
RENTAL BREAKDOWN BY LOCATION
Location
Number Location Rent Tax on Rental Total Rent
- ---------------------- -------- ---- ------------- ----------
12
<PAGE>
UNITED STATES
EQUIPMENT SCHEDULE NO. U.S. - 2
(TO GLOBAL MASTER RENTAL AGREEMENT
DATED SEPTEMBER 30, 1996)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Between LESSOR: COMDISCO, INC. EQUIPMENT: RENTAL RATE FACTOR 2.731%
6111 North River Road
Rosemont, Illinois 60018 Installed
Attn: Operations Lease Inventory OUTSIDE DATE N/A
Administration (International) On-Order
DAILY RENTAL SINGLE
RATE FACTOR TERM N/A
and LESSEE: ADVANCED TELECOMMUNICATIONS
MODULES, INC. MULTIPLE
1130 East Arques Avenue TERM Quarterly
Sunnyvale, California 94086
Attn: Becky Rivera ADVANCE
RENT $6,827.50
</TABLE>
1. EQUIPMENT
---------
- -------------------------------------------------------------------------------
Item Nr. Qty. Manufacturer Type, Model, & Features Description Serial Nr.
- -------------------------------------------------------------------------------
Equipment specifically approved by Lessor, which shall be delivered to and
accepted by Lessee during the period September 30, 1996 through September 30,
1997 ("Equipment Delivery Period"), for which Lessor receives vendor invoices
approved for payment, up to an aggregate purchase price of $250,000 ("Commitment
Amount"); excluding custom use equipment, leasehold improvements, installation
costs and delivery costs, rolling stock, special tooling, hand held items, molds
and fungible items. In no event shall software costs exceed $25,000 hereunder.
2. EQUIPMENT LOCATION: Same as above.
------------------
3. ADDRESS FOR NOTICES
-------------------
LESSOR: Address for all notices (if different from that set forth above).
Attn:
Phone:
LESSEE: Address for invoices and administrative notices (if different
from that set forth above).
Attn:
Phone:
4. INITIAL TERM: 42 months.
------------
5. ADVANCE: $6827.50
-------
6. RENT
----
$__________ per month plus sales/use tax, if any, at the rate in existence
when such tax becomes due.
7. INSTALLED EQUIPMENT
-------------------
Any in-place Equipment installed at Lessee's site and to which Lessee has
clear title and ownership may be considered by Lessor for inclusion under
this Lease (the "Sale-Leaseback Transaction"). Any request for a Sale-
Leaseback Transaction must be submitted to Lessor in writing (along with
accompanying evidence of Lessee's Equipment ownership satisfactory to
Lessor for all Equipment submitted) no later than October 30, 1996*.
Lessor will not perform a Sale-Leaseback Transaction for any request or
accompanying Equipment ownership documents which arrive after the date
marked above by an asterisk (*). Further, any sale-leaseback Equipment
will be placed on lease subject to: (1) Lessor prior approval of the
Equipment; and (2) if approved, at Lessor's actual net appraised Equipment
value pursuant to the schedule below:
PERCENT OF ORIGINAL
ORIGINAL EQUIPMENT INVOICE MANUFACTURER'S NET EQUIPMENT
DATE COST PAID BY LESSOR
--------------------------------------------------------------------------
Between 08/01/96 and 10/30/96 100%
Between 06/01/96 and 07/31/96 80%
Between 03/02/96 and 05/31/96 70%
Between 12/02/95 and 03/01/96 65%
Between 09/02/95 and 12/01/95 60%
8. LESSOR'S BANK ACCOUNT
---------------------
13
<PAGE>
Unless otherwise directed in writing by Lessor, all Lessee payments
pursuant to Section 3 shall be paid to Lessor's account at:
Bank name : Continental Bank N.A., Chicago, Illinois 60697
Account No: 72-15606
9. DELIVERY AND INSTALLATION
-------------------------
Pursuant to Subsection 5.1 of the Agreement,
is responsible for the transportation, in-transit insurance and related
costs of delivery of the Equipment. is
-------------------------------
responsible for the costs of installation of the Equipment and related
costs.
It is understood by the parties hereto that Lessor shall not pay any
supplier of Equipment prior to Lessor receiving a signed Acceptance
Certificate from Lessee for such Equipment.
10. OPTION TO EXTEND
----------------
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later
than ninety (90) days prior to the expiration of the Initial Term of a
Summary Equipment Schedule, Lessee will have the right to extend the
Initial Term of such Summary Equipment Schedule for a period of one (1)
year. In such event, the rent to be paid during said extended time period
shall be mutually agreed upon and if the parties cannot mutually agree,
then the Summary Equipment Schedule shall continue in full force and effect
pursuant to the existing terms and conditions until terminated in
accordance with its terms. The Summary Equipment Schedule will continue in
effect following said extended period until terminated by either party upon
not less than ninety (90) days prior written notice, which notice shall be
effective as of the date of receipt.
11. SPECIAL CONDITIONS
------------------
The terms and conditions of the Agreement as they pertain to this Equipment
Schedule are hereby further modified and amended as indicated in Exhibit A
to this Equipment Schedule.
12. OTHER CONDITIONS
----------------
A. Section 2, "Term" of the Agreement shall be modified and amended as
follows:
At the end of Subsection 2.2(c) of the Agreement delete the period and
add "; and" and add the following as Subsection 2.2(d):
"Equipment on-order from IBM ("IBM On-Order Equipment"), shall be the
date the Equipment is installed.
In the second sentence of the last paragraph of Subsection 2.2 of the
Agreement and in the first sentence of Subsection 3.1 of the
Agreement, before the words, "Inventory Equipment" insert the words,
"IBM On-Order Equipment".
In Subsection 2.3 of the Agreement, after the words, "O-Order
Equipment" and in the first sentence of Subsection 2.4(a), after the
word, "Certificate" insert the words, (or installation Advice Forms in
case of IBM On-Order Equipment)".
At the end of Subsection 2 of the Agreement, add the following
paragraph as Subsection 2.5:
"2.5 Notwithstanding anything to the contrary contained in the
Agreement or this Equipment Schedule with respect to any IBM On-
Order Equipment to be delivered to Lessee if 'Capital Equipment'
and 'Multiple Term' are indicated on the applicable equipment
Schedule, Lessee's obligation to pay Rent shall begin on the date
Lessor receives the 'Installation Advice Form' from IBM (the
'Rent Commencement Date'), the Initial Term shall begin the first
day of the Rent Interval following the Rent Commencement Date)
and Rent shall be an amount equal to the Rental Rate Factor set
forth in the applicable Equipment Schedule multiplied by the
Lessor's Cost."
B. Revise the penultimate section of Subsection 3.1 of the Agreement to
read as follows:
"The Rent and Interim Rent, if any, shall be payable absolutely
and unconditionally without any abatement, deduction,
withholding, set-off, defense, counterclaim, interruption,
deferment or recoupment for any reason whatsoever and such
payments shall be and continue to be payable in events."
C. Pursuant to Subsection 3.4 of the Agreement, Lessor shall be
responsible for the filing of all personal property tax returns and
Lessee shall reimburse Lessor for all such taxes within ten (10) days
of receipt of the Lessor's invoice therefor.
D. Also in Subsection 3.5, after the words "payment at the rate of
"delete "3%" and replace with "the lessor of five percent (5%) of the
payment due or the maximum rate permitted by the law of the country
where the Equipment is located".
14
<PAGE>
E. For purposes of Subsections 3.5 and 9.2 of the Agreement, the "prime
rate of interest" or its successor method charged by Citibank N.A.
shall be considered the "prevailing interbank offering rate".
F. Add a new Subsection 6.3 to the Agreement as follows:
"Lessor warrants to Lessee that, so long as Lessee shall not be
in default of any of the provisions of the applicable Equipment
Schedule, neither owner, Lessor, nor any assignee, secured party
or Beneficiary of Lessor will disturb Lessee's quiet and peaceful
possession of the equipment and Lessee's unrestricted use thereof
for its intended purpose. LESSOR MAKES NO OTHER WARRANTY, EXPRESS
OR IMPLIED AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT
LIMITATION, THE DESIGN OR CONDITION OF THE EQUIPMENT, ITS
MERCHANTABILITY OR ITS FITNESS OR CAPACITY OR DURABILITY FOR ANY
PARTICULAR PURPOSE, THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF
THE EQUIPMENT TO THE PROVISIONS AND SPECIFICATIONS OF ANY
PURCHASE ORDER OR ORDERS RELATING THERETO AND, AS TO LESSOR,
LESSEE LEASES THE EQUIPMENT "AS IS"."
G. Section 8, "Risk of Loss and Insurance" of the Agreement shall be
modified and amended as follows:
After the fourth sentence in Subparagraph b), inse4rt the following:
"In either instance, Lessee shall pay Lessor an amount sufficient
to make Lessor whole on an after tax basis for any disallowance,
loss or recapture of Lessor's tax benefits as a result of such
Casualty Loss. Except in the case of loss or total destruction,
Lessor will be entitled to recover all Equipment for which a
Casualty Value has been paid; provided, however, that Lessee
shall dispose of such Equipment for the best price obtainable (on
an "as its, where-is" basis without representation or warranty
expressed or implied), and Lessee shall be entitled to retain all
amounts received for the Equipment up to the casualty Value and
Lessee's reasonable costs of disposition attributable thereto,
and shall remit the excess, if any, to Lessor."
H. Section 9, line 2 delete "fifteen (15)" and replace with "five (5)".
I. Delete Subsection 11.4 of the Agreement and replace with the
following.
"Assignment, Sublease or Relocation by Lessee. Upon at least
sixty (60) days prior written notice to Lessor, Lessee may assign
or sublease the Equipment to any party, or relocate the Equipment
to any location, within any state of the continental United
States which shall have in effect the Uniform Commercial Code,
provided that Lessor, any assignee, any secured party and any
Beneficiary, in such parties' sole discretion, shall have
approved such assignee, sublessee or location and provided (I)
that all costs of any nature whatsoever (including any additional
property taxes or other taxes and any additional expenses of
insurance coverage) resulting from any relocation, assignment or
sublease shall be promptly paid by Lessee upon presentation to
Lessee of evidence supporting such cost, and (ii) any assignment
or sublease shall be made expressly subject and subordinate to
the terms of this Lease and Lessee shall assign its rights under
said assignment or sublease to Lessor, any assignee, any secured
party and any Beneficiary as additional collateral and security
for Lessee's obligations hereunder. If Lessee fails to so notify
Lessor and as a result of such failure, Lessor has paid or is
required by the jurisdiction where the Equipment was originally
located to continue to pay taxes of the sort for which Lessee is
responsible under Section 3.4 of the Agreement, then Lessee shall
reimburse Lessor for such taxes, which payment (less Lessor's
reasonable costs and expenses) will be refunded to Lessee if and
when Lessor receives a corresponding refund from said
jurisdiction. In the event of a relocation, assignment or
sublease, Lessee, its assignee, or its sublessee, if any, shall
cooperate with Lessor in taking all reasonable measures to
protect the title of Lessor or any assignee or Beneficiary and
the interest of any secured party or Beneficiary to and in the
equipment. No relocation, assignment or sublease permitted
hereunder shall relieve Lessee from any of its obligations under
this Lease. Lessee hereby grants to Lessor the right and
opportunity to submit or match the last proposal for the sublease
or assignment of the Equipment, and to submit a proposal for the
financing of any Equipment which is replacing equipment leased
pursuant to this Agreement. Each of the foregoing shall be
conducted in a commercially reasonable time frame and manner.
J. Each Equipment Schedule shall be binding upon, and shall inure to the
benefit of the Lessor, Lessee and their respective successors, legal
representatives and assigns, except, in the case of any Beneficiary,
to the extent set forth in Subsection 11 of the Agreement.
K. All agreements, representations and warranties contained in the
Agreement, any Equipment Schedule or any document delivered pursuant
thereto or in connection therewith shall be for the benefit of Lessor
and any Beneficiary and shall survive the execution and delivery of
the Agreement and the expiration or other termination of the
Agreement.
L. In the event any one or more of the provisions of the Agreement
and/or any Equipment Schedule shall for any reason be held invalid,
illegal, or unenforceable, the remaining provisions of the Agreement
and/or any such Equipment Schedule 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.
15
<PAGE>
M. This Equipment Schedule may be executed in any number of counterparts,
each of which shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument. If Lessor
grants a security interest in all or any part of an Equipment
Schedule, the Equipment covered thereby and/or payable thereunder,
only that counterpart Equipment Schedule marked "Beneficiary's
Original" shall be effective to transfer Lessor's rights therein and
all other counterparts shall be marked "Duplicate" to indicate that
they are not the "Beneficiary's Original".
N. THE AGREEMENT AND THIS EQUIPMENT SCHEDULE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS AND THE
FEDERAL LAWS OF THE UNITED STATES OF AMERICA. THE STATE AND FEDERAL
COURTS OF ILLINOIS SHALL HAVE NON-EXCLUSIVE JURISDICTION OF ANY
DISPUTES ARISING HEREUNDER.
13. FORCE MAJEURE
-------------
In the event Lessor is responsible for delivery of the Equipment pursuant
to this Equipment Schedule and Lessor is unable to deliver the Equipment
because of an Act of God or any contingency, delay, failure or other cause
beyond its reasonable control, Lessor shall not be liable for such failure
during the period of and to the extent of such disability. Additionally,
Lessor cannot and will not deliver equipment without obtaining all
necessary governmental approvals. Such "approvals" may include U.S.
Department of Commerce re-export approval for certain equipment and
destinations. Provided Lessor has applied for said approvals in a
reasonably timely fashion, any such lack of approvals shall not be a
failure by Lessor to perform its obligations hereunder, and any such firm
delivery date and/or late delivery penalties are waived to the extent
governmental approvals are not received. Lessee agrees to supply Lessor
with the information necessary to obtain such governmental approvals.
14. GLOBAL MASTER RENTAL AGREEMENT
------------------------------
All of the terms and conditions of the Global Master Rental Agreement dated
September 30, 1996 between Comdisco, Inc. and Advanced Telecommunications
Modules, Inc. except as modified in this Equipment Schedule are
incorporated in and made a part of this Equipment Schedule along with the
additional terms and conditions set fourth in this Equipment Schedule, and
this Equipment Schedule constitutes a separate rental agreement with
respect to the Equipment described herein.
Done in three original copies this ________ day of ________________ 19_____.
LESSOR: COMDISCO, INC. LESSEE: ADVANCED TELECOMMUNICATIONS
MODULES, INC.
By: By:
------------------------- -------------------------
Title: Title:
---------------------- ----------------------
16
<PAGE>
ADDENDUM NO.1
TO GLOBAL MASTER RENTAL AGREEMENT
DATED AS OF SEPTEMBER 30, 1996.
BY AND BETWEEN COMDISCO, INC., AS LESSOR AND
ADVANCED TELECOMMUNICATIONS MODULES LIMITED AS LESSEE
The terms and conditions of the above-referenced Agreement as they
pertain to all Equipment Schedules hereunder are hereby modified and amended as
follows:
1. Section 1, "GLOBAL MASTER RENTAL AGREEMENT"
------------------------------
In line 3 of subsection 1.1, after the words "'Affiliate of the
Customer' shall mean/" /insert the words "the parent company of the Customer
and".
In line 1 of subsection 1.2, after "Equipment Schedule" insert "(in
form of Exhibit 1)".
Add the following to the end of the first paragraph of subsection 1.2:
"which shall, in the event of conflict, prevail".
In line 5 of the second paragraph of section 1.2, after the words "The
Customer" insert "and Comdisco".
2. Section 2, "TERM"
----
In line 1 of subsection 2.2, delete the word "term" and insert the
words "shall be payable during the term in accordance with and at the intervals
specified in the Equipment Schedule".
In the second line of subparagraph 2.2(c), delete the comma after the
word "Lessor", in the third line, add a comma after the word "acceptance".
In lines 1-2 of the last paragraph, delete "or other Rent Interval".
In line 4 of the last paragraph, after the word "will" insert ", if
requested by the Lessor".
In line 7 of the last paragraph, delete "six (6)" and replace with
"three (3)".
3. Section 3, "RENT"
----
In line 3 of subparagraph 3.2, delete "is greater' and insert "has
changed".
In line 1 of subparagraph 3.4, after "charges" insert "of the Lessee".
In line 4 of subparagraph 3.6, after "Lessee" insert "and Lessor".
4. Section 4, "USE"
---
Subparagraph 4.1
----------------
In the fourth line add "reasonable" before the word "steps"; delete
"necessary" and replace with the word "appropriate"; and add "reasonably" before
the word "ensure".
Subparagraph 4.4
----------------
Delete this section and replace with the following:
17
<PAGE>
"protect the Equipment against seizure and indemnify the Lessor against all
losses, charges, damages and expenses suffered by or incurred by the Lessor
by reason of the Customer's failure to comply with this clause, provided
always that this shall not apply where any loss, charge, damage or expense
results directly or indirectly from the actions or inactions of the Lessor
and subject to Lessor's covenant of quiet enjoyment."
5. Section 5, "INSTALLATION, MAINTENANCE AND ADDITIONS"
---------------------------------------
Subparagraph 5.3
----------------
Add the following in the first line after the word "nature":
"(other than repairs, maintenance and other actions necessary or
appropriate to keep the Equipment in working order)".
In line 2 of subparagraph 5.3, after "withheld" insert "or delayed".
6. Section 6, "ACCEPTANCE AND WARRANTIES"
-------------------------
In lines 2-3 of subparagraph 6.2, delete "is satisfactory in every way
to Lessee" and insert "installed to the satisfaction of the Lessee".
7. Section 7, "LESSEE'S INDEMNITY"
------------------
In line 1, delete "affirmatively re-delivered" and insert "returned".
In the last line of this section, delete the word "default' and
replace with "actions or inactions".
8. Section 8, "RISK OF LOSS AND INSURANCE"
--------------------------
Add the following to the end of subsection (a):
", upon request by Lessee".
In line 13 of subsection (b), after "Lessee shall" insert "be entitled
to".
9. Section 9.1, "DEFAULT"
-------
In subparagraph 9.2(c), after "expenses" insert "reasonably".
8. Section 11, "ASSIGNMENTS"
-----------
Subparagraph 11.1
-----------------
In the second line of subparagraph a), after the words "Equipment
Schedule", delete", in which case however" and replace with "), provided in any
case".
Subparagraph 11.2
-----------------
In the first line, before the word "document" insert the word
"reasonable",
9. Section 12, "VALUE ADDED TAX ("VAT")"
-----------------------
In the third line, after the words "such taxes", add "(excluding taxes
relating to Lessor's income)".
18
<PAGE>
10. Section 13, "MISCELLANEOUS"
-------------
In subparagraph 13.10, after "Lessor's" insert "and Lessee's".
In the second line of subparagraph 13.15, before the word "requested",
insert the word "reasonably".
In line 2 of subparagraph 13.15, after "authority" insert "or any
comparable document customarily issued in the local country".
ADVANCED TELECOMMUNICATIONS COMDISCO, INC.
MODULES LIMITED
By: By:
----------------------------- -----------------------------
Title: Title:
-------------------------- --------------------------
Date: Date:
--------------------------- ---------------------------
19
<PAGE>
ADDENDUM NO. 2
VENTURE LEASE MODIFICATIONS AND AMENDMENTS
TO THE GLOBAL MASTER RENTAL AGREEMENT
DATED AS OF SEPTEMBER 30, 1996
BETWEEN COMDISCO, INC., AS LESSOR
AND ADVANCED TELECOMMUNICATIONS
MODULES LIMITED, AS LESSEE
1. Section 1, "Global Master Rental Agreement"
------------------------------
Add the following paragraphs to the end of Subsection 1.2, "Equipment
---------
Schedules":
- ---------
"Upon Customer's execution of each Equipment Schedule, Customer will pay
Comdisco the Advance specified on the Equipment Schedule. The Advance will
be credited towards the final Rent payment if Customer is not then in
default. No interest will be paid on the Advance.
The Agreement and each Equipment Schedule constitute legal, valid and
binding agreements of the Customer, enforceable in accordance with their
terms, subject to the effect of applicable bankruptcy and other similar
laws affecting the rights of creditors generally and rules of law
concerning equitable remedies."
2. Section 5.1 "Installation, Maintenance and Additions"
---------------------------------------
a. In subsection 5.2, line 1, after "excepted) and," insert the
following:
"if commercially available and considered common business practice for
each item of Equipment,"
b. In line 6, after /"/eligibility" add the following:
"provided re-certification is available and is required by Comdisco."
3. Section 6, "Acceptance and Warranties"
-------------------------
Add the following to the end of this section:
"6.3 There are no actions, suits, proceedings or patent claims pending or,
to the knowledge of the Customer, threatened against or affecting the
Customer in any court or before any governmental commission, board or
authority which, if adversely determined, will have a material adverse
effect on the ability of the Customer to perform its obligations under the
Agreement and each Equipment Schedule or Summary Equipment Schedule.
6.4 The Equipment is personal property and when subjected to use by the
Customer will not be or become fixtures under applicable law.
6.5 The Customer has no material liabilities or obligations, absolute or
contingent (individually or in the aggregate), except the liabilities and
obligations of the Customer as set forth in the Financial Statements and
liabilities and obligations which have occurred in the ordinary course of
business, and which have not been in any case or in the aggregate,
materially adverse to Customer's ongoing business.
6.6 To the best of the Customer's knowledge, the Customer owns, possesses,
has access to, or can become licensed on reasonable terms under all
patents, patent applications, trademarks, trade names, inventions,
franchises, licenses, permits, computer software and copyrights necessary
for the operations of its business as now conducted, with known
infringement of, or conflict with, the rights of others.
20
<PAGE>
6.7 All material contracts, agreements and instruments to which the
Customer is a party are in full force and effect in all material respects,
and are valid, binding and enforceable by the Customer in accordance with
their respective terms, subject to the effect of applicable bankruptcy and
other similar laws affecting the rights of creditors generally, and rules
of law concerning equitable remedies."
4. Add the following as a new Section 14:
"Section 14, "Additional Provisions"
---------------------
14.1 Financial Statements. Customer will provide to Comdisco the same
information, financial or otherwise, which Customer provides to its
shareholders at the times and to the extent it is required to do so to its
shareholders.
14.2 Obligation to Lease Additional Equipment; Upon notice to Customer,
Comdisco will not be obligated to lease any Equipment which would have a
Commencement Date after said notice if: (i) Customer is in default under
this Agreement or any Schedule; (ii) Customer is in default under any loan
agreement, the result of which would allows the lender or any secured party
to demand immediate payment of any material indebtedness; (iii) there is a
material adverse change in Customer's credit standing; or (iv) Comdisco
determines (in reasonable good faith) that Customer will be unable to
perform its obligations under this Agreement, any Equipment Schedule or any
Summary Equipment Schedule.
14.3 Merger and Sale Provisions. Customer will notify Comdisco of any
proposed Merger at least sixty (60) days prior to the closing date.
Comdisco may, in its discretion, either (i) consent to the assignment of
the Agreement all relevant Schedules to the successor entity, or (ii)
terminate the Lease and all relevant Schedules. If Comdisco elects to
consent to the assignment(1) Customer and its successor will sign the
assignment documentation provided by Customer. If Comdisco elects to
terminate the Agreement and all relevant Schedules, then Customer will pay
Comdisco all amounts then due and owing and a termination fee equal to the
present value (discounted at 6%) of the remaining Rent for the balance of
the Initial Term(s) of all Schedules, and will return the Equipment in
accordance with Section 10. Comdisco hereby consents to any Merger in which
the acquiring entity has a Moody's Bond Rating of BA3 or better or a
commercially acceptable equivalent measure of creditworthiness as
reasonably determined by Comdisco.
14.4 Survival of Obligations. All agreements, obligations,
representations and warranties contained in this Agreement, any Equipment
Schedule Summary Equipment Schedule or in any document delivered in
connection with those agreements are for the benefit of Comdisco and any
Assignee or Secured Party and survive the execution, delivery, expiration
or termination of this Agreement.
14.5 Licensed Products. Customer will obtain no title to Licensed
Products which will at all times remain the property of the owner of the
Licensed Products. A license from the owner may be required and it is
Customer's responsibility to obtain any required license before the use of
the Licensed Products. Customer agrees to treat the Licensed Products as
confidential information of the owner, to observe all copyright
restrictions, and not to reproduce or sell the Licensed Products.
14.6 Additional Documents. Customer will, upon execution of this
Agreement, provide Comdisco with a certificate of authority.
14.7 Electronic Communications. Each of the parties may communicate with
the other by electronic means under mutually agreeable terms.
14.8 Landlord/Mortgage Waiver. Upon Comdisco's request, Customer agrees
to provide Comdisco with a Landlord/Mortgagee Waiver with respect to the
Equipment. Such waiver shall be in a form satisfactory to Comdisco.
21
<PAGE>
14.9 Equipment Procurement Charges/Progress Payments. Customer hereby
agrees that Comdisco shall not by virtue of entering into this Agreement,
be required to remit any payments to any manufacturer or other third party
until. Customer accepts the Equipment subject to this Agreement.
14.10 Labeling. Upon request, Customer will mark the Equipment indicating
Comdisco's interest with labels provided by Comdisco. Customer will keep
all Equipment free from any other marking or labeling which might be
interpreted as a claim of ownership."
ADVANCED TELECOMMUNICATIONS COMDISCO, INC.
MODULES LIMITED
By: By:
------------------------------- -------------------------------
Title: Title:
---------------------------- ----------------------------
Date: Date:
----------------------------- ----------------------------
22
<PAGE>
FEDERAL EXPRESS
January 10,1997
Mr. Andrew M. Vought
Chief Financial Officer
2933 Bunker Hill Lane
Suite 210
Santa Clara, CA 95054
Re: Global Master Rental Agreement dated as of September 30, 1996 by and between
Comdisco Inc. as "Comdisco" and Advanced Telecommunications Modules Limited As
"Customer" and Equipment Schedule No. U.S.-2 dated as of September 30, 1996 by
and between Comdisco, Inc. as "Lessor' and Advanced Telecommunications Modules,
Inc. as "Lessee" (the "U.S. Schedule") and United Kingdom Equipment Schedule No.
UK-1 dated as of September 30, 1996 by and between Comdisco, Inc. as "Lessor"
and Advanced Telecommunications Modules Limited as "Lessee" (the "UK
Schedule")(collectively the "Leases")
Dear Andy:
This letter is to confirm that Comdisco, Inc., as Lessor hereby agrees to
increase the US Schedule by an amount of $169,610.00 and concurrently decrease
the UK Schedule by 100,000 pounds.
Except as specifically set forth above all other terms and conditions of the
Leases shall remain in full force and effect.
COMDISCO, INC.
By: James P. Labe, President
-------------------------------
Signature: /s/ James P. Labe
-------------------------------
Title: Venture Lease Division
-------------------------------
AGREED AND ACCEPTED BY:
ADVANCED TELECOMMUNICATIONS MODULES, INC.
By: Andrew M. Vought
-------------------------------
Signature: /s/ Andrew M. Vought
-------------------------------
Title: CFO, Secretary
-------------------------------
23
<PAGE>
EXHIBIT 10.16
CONFIDENTIAL
This technology license agreement ("Agreement") is made the 2nd day of June
1999 ("Effective Date")
BETWEEN
ARM LIMITED whose registered office is situated at 90 Fulbourn Road,
Cambridge CB1 9JN, England ("ARM");
and
VIRATA LTD whose principal place of business is situated at Mount Pleasant
House, 2 Mount Pleasant, Huntingdon Road, Cambridge, CB3 0BL ("Virata")
hereunder procuring rights and accepting obligations for itself and its
Subsidiaries (as defined below).
WHEREAS
LICENSEE has requested ARM and ARM has agreed to license LICENSEE to
manufacture and distribute certain ARM Compliant Products (as defined
below) on the following terms and conditions.
Therefore, in consideration of the mutual representations, warranties,
covenants, and other terms and conditions contained herein, the parties
agree as follows:
1. Definitions
1.1 "ARM7TDMI-S" shall mean the ARM core as described and identified in the ARM
technical reference manual for ARM7TDMI-S (ARM-DDI-0084).
1.2 "ARM Core" shall mean the ARM7TDMI core as described and identified in the
ARM7TDMI datasheet (ARM-DDI-0029).
1.3 "ARM Compliant Product" shall mean any single silicon chip developed by
LICENSEE which contains at a minimum:
(i) an Implementation Compliant Core; and
(ii) additional LICENSEE or customer circuitry which adds significant
functionality.
1.4 "ARMv4T Instruction Sets" shall mean both the ARM instruction set and THUMB
instruction set as each are defined in the ARM Architecture Reference
Manual (ARM-DDI-0100).
Page 1
<PAGE>
1.5 "Authorised Device(s)" shall mean each or all, as the context admits, of
up to * Unique ARM Compliant Products.
1.6 "Authorised Distributor" shall mean those distributors appointed, in
writing, by LICENSEE.
1.7 "AVS" shall mean the ARM Architectural Validation Suite, in binary code
format, identified in Schedule 1 Part B Item B8.
1.8 "Confidential Information" shall mean; (i) any trade secrets relating to
the ARM Core, the PIV Card, the PID Card, the Models, and the Transfer
Materials; (ii) any information designated in writing by either party, by
appropriate legend, as confidential; and (iii) any information which is
first disclosed orally but designated as confidential at the time of
disclosure and is thereafter reduced to writing for confirmation and sent
to the other party within thirty (30) days after its oral disclosure and
designated, by appropriate legend, as confidential; and (iv) the terms and
conditions of this Agreement.
1.9 "Design Rules" shall mean the UMC 0.25um 2.5v/3.3v 2P5M Mixed Mode Process
Topological Layout Rules spec no. G-03-mixedmode25 2.5v/3.3/-2P5M-TLR
version 0.1 dated 03 October 1998, subject to any waivers thereto agreed
between the parties, and subject to the port being technically feasible
and receipt of reasonable notice and the agreement between the parties of
reasonable porting fees, the UMC 0.18 micron design rules.
1.10 "Design Win Event" shall mean when LICENSEE commences design work for the
development of any Unique ARM Compliant Product.
1.11 "End User License" shall mean a license agreement substantially conforming
to that agreement set forth in Schedule 8.
1.12 "Functional Test Vectors" shall mean one of the sets of test vectors
identified in Schedule 1 Part B items B6, B11 and B12.
1.13 "Implementation Compliant Core" shall mean an implementation of the ARM
Core which:
(i) executes each and every instruction in the ARMv4T Instruction Sets;
(ii) executes no additional instructions to those contained in the ARMv4T
Instruction Sets;
________________________
* Pursuant to a request for confidential treatment, selected information in this
document has been omitted and separately filed with the Securities and
Exchange Commission.
Page 2
<PAGE>
(iii) exhibits a Von Neumann Architecture;
(iv) exhibits a Pipeline Length of three (3);
(v) is Single Issue;
(vi) executes all instructions at an identical rate of cycles per
instruction ("CPI") to that specified in the ARM7TDMI datasheet
(ARM-DDI-0029);
(vii) implements the programmer's model as identified in the ARM
Architecture Reference Manual (ARM-DDI-0100);
(viii) passes the Functional Test Vectors; and
(ix) has been manufactured on a process on which a Test Chip has been
verified in accordance with the provisions of Clause 3.
1.14 "Intellectual Property" shall mean any patents, patent rights, trade
marks, service marks, registered designs, topography or semiconductor
maskwork rights, applications for any of the foregoing, copyright, know-
how, unregistered design right, trade secrets and know-how and any other
similar protected rights in any country, which are taken into use in the
design, use or production of the ARM Core, PID Card, PIV Card, the Models,
or Transfer Materials.
1.15 "LICENSEE" shall mean Virata and its Subsidiaries.
l.16 "Models" shall mean: (i) the source code of the programs identified in
Schedule I Part F Item Fl; (ii) the object code and such source code of
the programs identified in Schedule 3 part A as may be necessary (at ARM's
absolute discretion) to allow the support of multiple releases of the
specified simulator; and (iii) subject to the payment by LICENSEE of the
fee(s) set out in Clause 7.4, the object code and such source code of the
programs identified in Schedule 3 part B as may be necessary (at ARM's
absolute discretion) to allow the support of multiple releases of the
specified simulator; together with such Updates thereof, if any, as are
developed by or for ARM.
1.17 "Pipeline Length" shall mean the number of clocked stages through which
each single-cycle instruction must pass to complete the execution of such
instruction.
1.18 "PID Card" shall mean the hardware identified in Schedule l Part E item
E13.
1.19 "PIV Card" shall mean the hardware identified in Schedule I Part E item
El1.
Page 3
<PAGE>
1.20 "Quarter" shall mean each calendar quarter ending the 31st March, 30th
June, 30th September and 31st December of any year.
1.21 "Royalty Premium" shall mean * for each unit of ARM Compliant Product
distributed by Licensee as at the date of election in accordance with
Clause 10.1.
1.22 "Royalty Report" shall mean a report containing no less information than
set out in Schedule 6 Exhibit 1.
1.23 "Single Issue" shall mean that only one instruction is issued for
execution within the integer unit in any single clock cycle (where for the
purposes of this definition clock shall mean the clock that advances the
pipeline).
1.24 "Software Development Toolkit" shall mean the software development toolkit
version 2.5 with software process order reference number SD250-KT-00000.
1.25 "Subsidiary" means any company the majority of whose voting shares is now
or hereafter owned or controlled, directly or indirectly, by a party
hereto or any company a majority of whose voting shares is now or
hereafter owned or controlled, directly or indirectly, by any of the
aforementioned entities. A company shall be considered a Subsidiary only
so long as such control exists.
1.26 "Test Chip" shall mean a device which complies with the test chip
specification set forth in Schedule 1 Part E item El.
1.27 "Test Chip Functional Test Vectors" shall mean those test vectors
identified in Schedule 1 Part E item E4.
1.28 "Test Chip Device Characterization Vectors" shall mean those test vectors
identified in Schedule I Part E items E5.
1.29 "Trademarks" shall mean the trademarks, service marks and logos set forth
in Schedule 5.
1.30 "Transfer Materials" shall mean that technical information with respect to
the ARM Core as set forth in Schedule 1.
1.31 "Updates" shall mean any bug fixes or enhancements to the Models or
modifications to the Transfer Materials the incorporation of which ARM, in
its absolute discretion, decides does not cause to be created a new
product.
________________________
* Pursuant to a request for confidential treatment, selected information in this
document has been omitted and separately filed with the Securities and
Exchange Commission.
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1.32 "Unique ARM Compliant Product" shall mean an ARM Compliant Product which;
(i) is functionally different from any other ARM Compliant Product
manufactured by or for LICENSEE, except that any ARM Compliant Product
created only as a result of a bug fix (which means a change to an ARM
Compliant Product which causes it to operate in accordance with its
original specification) to an existing ARM Compliant Product shall not be
deemed to be functionally different notwithstanding that such bug fix has
resulted in a change in the functionality of the device; (ii) is
manufactured by or for LICENSEE; and (iii) has a part number which is
different from any other ARM Compliant Product manufactured by or for
LICENSEE. For the avoidance of doubt an optical shrink of an existing ARM
Compliant Product shall not be deemed to be a Unique ARM Compliant
Product.
1.33 "Use" shall mean the following limited acts in respect of the object code
of the Models;
(i) use of (including copying the object code of the Models to the
extent that such copying is incidental to such use) the object code
of the Models, or any part thereof; and
(ii) making one copy of the object code of the Models solely for backup
and archival purposes.
Use shall specifically exclude; (a) the translation, adaptation,
arrangement or other alteration of the object code of the Models except as
allowed by local legislation implementing Article 6 of the EC Directive on
the legal protection of computer programs (91/250/EEC) and then only to
the extent necessary to achieve interoperability of an independently
created program with other programs; and (b) the copying adapting or
reverse compiling of the object code of the Models for the purpose of
error correction.
1.34 "Von Neumann Architecture" shall mean a microprocessor architecture which
dictates that the instruction stream for the integer unit shares the same
port with the data stream for such integer unit.
2. Licence
2.1 ARM hereby grants to LICENSEE, under ARM's Intellectual Property rights
(including any intellectual property rights for which ARM has the right to
grant sub-licenses), a perpetual (subject to Clause 18.2), non-
transferable (subject to Clause 20.3), non-exclusive, world-wide right and
licence to:
(i) use the PIV Card, the PID Card and use and copy the Transfer
Materials and/or any Intellectual Property only for the purposes of
designing, having designed (subject to the provisions of Clause 2.2),
manufacturing and having manufactured (subject to the provisions of
Clause 2.4) the Authorised Devices;
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(ii) sell, supply and distribute the Authorised Devices manufactured in
accordance with Clause 2.1(i) only, and authorise LICENSEE's
Authorised Distributors to do the same; and
(iii) modify, copy, distribute and have distributed the documentation
identified in Schedule 1 Part A item Al.
2.2 LICENSEE may exercise its right to have developed Authorised Devices if
LICENSEE ensures that any third party developer ("Developer") subcontracted
by LICENSEE agrees;
(i) to be bound by obligations of confidentiality no less restrictive
than those contained in this Agreement; and
(ii) to supply the design of any Authorised Device solely to
LICENSEE.
2.3 If any Developer breaches the provisions of confidentiality referred to in
Clause 2.2(i) and LICENSEE fails to use its reasonable efforts to remedy
the breach and prevent further breaches by the Developer and such failure
has an adverse effect upon ARM, then LICENSEE agrees that such breach shall
be treated as a material breach of this Agreement by LICENSEE which is
incapable of remedy thus entitling ARM to summarily terminate this
Agreement in accordance with the provisions of Clause 18.2. LICENSEE shall
hold ARM harmless from and keep ARM indemnified against all and any loss,
liability, costs, damages, expenses (including the fees of lawyers and
other professionals), suffered, incurred or sustained as a result of or in
relation to such breach and ARM undertakes to LICENSEE that it shall use
its reasonable efforts to mitigate any such loss, liability, costs,
damages, expenses suffered, incurred or sustained by it.
2.4 LICENSEE may exercise its right to have the Authorised Devices manufactured
by a subcontracted manufacturer ("Manufacturer") in accordance with the
provisions of Clause 2.1(i) if:
(i) LICENSEE notifies ARM of the identity of such Manufacturer not less
than thirty (30) days prior to first prototype production by the
Manufacturer; and
(ii) LICENSEE ensures that each Manufacturer agrees (a) to be bound by
obligations of confidentiality no less restrictive than those
contained in this Agreement; and (b) to supply the Authorised Devices
solely to LICENSEE.
2.5 If any Manufacturer breaches the provisions of confidentiality referred to
in Clause 2.4(ii), and LICENSEE fails to use its reasonable efforts to
remedy the breach and prevent further breaches by the Manufacturer and such
failure has an adverse effect upon ARM, then LICENSEE agrees that such
breach shall be treated as a material breach of this Agreement by LICENSEE
which is incapable of remedy thus entitling ARM to summarily terminate this
Agreement in accordance with the provisions of Clause 18.2. LICENSEE shall
hold ARM harmless from and keep ARM indemnified against all and
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any loss, liability, costs, damages, expenses (including the fees of
lawyers and other professionals), suffered, incurred or sustained as a
result of or in relation to such breach and ARM undertakes to LICENSEE that
it shall use its reasonable efforts to mitigate any such loss, liability,
costs, damages, expenses suffered, incurred or sustained by it.
2.6 No right is granted to LICENSEE to:
(i) sub-license the rights licensed to LICENSEE pursuant to Clause 2.1;
or
(ii) distribute any ARM Compliant Product prior to verification in
accordance with Clause 3 except that in the event that it is the
intention of LICENSEE, and LICENSEE does proceed, to verify any ARM
Compliant Product in accordance with Clause 3, LICENSEE may
distribute a maximum of * prototype units of such device without
having verified such device provided that LICENSEE provides written
evidence to ARM that; (a) the recipient of such devices is aware
that such device has not passed the verification process; and (b)
the recipient has agreed to keep the recipient's use of the non
verified device confidential.
2.7 Save as licensed in Clause 2.1, LICENSEE acquires no right, title or
interest in and to the ARM Core, Transfer Materials and Intellectual
Property. In no event shall the licenses granted in Clause 2.1 be construed
as granting to LICENSEE, expressly or by implication, estoppel or
otherwise, a license to use any ARM technology except the PIV Card, the PID
Card and the Transfer Materials.
3. Verification of Implementation Compliant Core
3.1 Except where:
(i) the parties mutually agree otherwise; or
(ii) in respect of the processes used for volume manufacture of the first
* Unique ARM Compliant Products developed by LICENSEE; or
(iii) in respect of the process used for volume manufacture of the * Unique
ARM Compliant Product PROVIDED THAT the process used for volume
manufacture is the same as one of the processes used for the
manufacture of any one of the first * Unique ARM Compliant Products;
LICENSEE shall develop, manufacture (or have manufactured) a Test Chip on
each process used by or for LICENSEE for volume manufacture of ARM
Compliant Products.
________________________
* Pursuant to a request for confidential treatment, selected information in this
document has been omitted and separately filed with the Securities and
Exchange Commission.
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3.2 LICENSEE shall, in respect of each Test Chip developed and manufactured
pursuant to the provisions of Clause 3.1, run:
(i) the Test Chip Functional Test Vectors on each Test Chip and deliver
to ARM a copy of the log ("Log Results") generated by running the
Test Chip Functional Test Vectors together with five (5) samples of
the Test Chip; and
(ii) the AVS on each Test Chip (by means of a PIV Card) and deliver to ARM
a copy of the log ("AVS Results") generated by running the AVS.
ARM may, at ARM's discretion, exercise the right to run each or both of the
Test Chip Functional Test Vectors and the AVS on any Test Chip. An ARM Core
shall be verified upon;
(a) ARM's acceptance of either the Log Results; (a) delivered by
LICENSEE; or (b) generated by ARM. The Log Results shall be accepted
when they indicate that no errors have been detected or where any
errors detected have been jointly agreed, in good faith, and a waiver
agreed between the parties; and
(b) ARM's acceptance of either the AVS Results (a) delivered by LICENSEE
or (b) generated by ARM. The AVS Results shall be accepted when they
indicate that no differences have been detected between the AVS
Results and the AVS reference file supplied by ARM or where any
errors detected have been jointly agreed, in good faith, and a waiver
agreed between the parties.
ARM shall notify LICENSEE, in writing, within * days of delivery by
LICENSEE of the Log Results and Test Chip samples to ARM ("Verification
Period"), whether a Test Chip has been verified or has failed the
verification process. In the event that any Test Chip fails the
verification process, ARM shall provide details of the errors which cause
the failure to LICENSEE and LICENSEE shall endeavour to correct the errors.
The parties shall repeat the above process until either; (i) the Test Chip
is verified; or (ii) LICENSEE withdraws the Test Chip from the verification
process. In the event that ARM fails to confirm the result of the
verification process within the Verification Period, the Test Chip subject
to the verification process shall be deemed verified.
3.3 Provided that; (i) for a certain process a Test Chip has been verified in
accordance with the provisions of Clause 3.2; and (ii) the ARM Compliant
Product incorporating the ARM Core incorporated into such Test Chip and
manufactured on that certain process runs the Functional Test Vectors and
they indicate that no errors have been detected (or where any errors
detected have been jointly agreed, in good faith, and a waiver agreed
________________________
* Pursuant to a request for confidential treatment, selected information in this
document has been omitted and separately filed with the Securities and
Exchange Commission.
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between the parties), LICENSEE may distribute such ARM Compliant Product without
further verification.
3.4 LICENSEE shall provide to ARM, free of charge, within * days of
verification in accordance with Clause 3.2, * unmarked samples of each Test
Chip manufactured by or for LICENSEE used by or for LICENSEE for volume
manufacture of ARM Compliant Products. There shall be no restriction on
ARM's use of such samples provided that ARM shall not reverse engineer any
Test Chips provided by LICENSEE under this Clause 3.4.
4. Models License
4.1 ARM hereby grants to LICENSEE, a perpetual (subject to Clause 18.2), non-
transferable (subject to Clause 20.3), non-exclusive, world-wide licence
to;
(i) copy and use internally, the Models and related documentation; and
(ii) use, copy and distribute, and sub-license (provided that the end user
agrees to be bound by the End User Licence) the Use of the object
code of the Models identified in Schedule 3 Part A.
4.2 For the period ending * from the Effective Date, and thereafter subject to
availability, for the term of this Agreement LICENSEE may, upon payment of
a Model Option Fee (as defined in Clause 7.4) per additional Model, take
delivery of and extend the licence granted under Clause 4.1 to include any
of the Models specified in Schedule 3 Part B.
4.3 For the avoidance of doubt no right is granted to LICENSEE to sub-license
the right to sell, supply or otherwise distribute the Models.
5. Ownership of the Models
5.1 In no event shall the license grants set forth in Clauses 2.1, 4.1 and 4.2
be construed as granting LICENSEE, expressly or by implication, estoppel or
otherwise, a licence to any ARM technology other than the Models and
related documentation.
5.2 Except as licensed to LICENSEE in Clauses 2.1, 4.1, and 4.2 all right,
title and interest in and to the Models and related documentation shall
remain vested in ARM.
5.3 LICENSEE shall reproduce and not remove or obscure any notice incorporated
in the Models or related documentation by ARM to protect ARM's Intellectual
Property or to
________________________
* Pursuant to a request for confidential treatment, selected information in this
document has been omitted and separately filed with the Securities and
Exchange Commission.
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acknowledge the copyright and/or contribution of any third party developer.
LICENSEE shall incorporate corresponding notices and/or such other markings
and notifications as ARM may reasonably require on all copies of Models and
related documentation used or distributed by LICENSEE.
6. Trademark License
6.1 ARM hereby grants to LICENSEE a non-transferable (subject to Clause 20.3),
non-exclusive, royalty-free, world-wide license to use the Trademarks in
connection with the promotion and sale of ARM Compliant Products.
6.2 LICENSEE shall use the Trademarks, in accordance with ARM's guidelines as
set out in Schedule 5 ("Trademark Guidelines"). ARM shall have the right to
revise Schedule 5 and the Trademark Guidelines (including the right to add
further trademarks or modify the Trademarks) provided that such revisions
are made in respect of the Trademark Guidelines issued to all licensees of
the Trademarks. Any such revisions shall be effective upon printed
materials and products to be produced or manufactured after * from receipt
of ARM's written notice specifying the revisions to LICENSEE.
6.3 LICENSEE shall submit samples of documentation, packaging, and promotional
or advertising materials bearing the Trademarks to ARM from time to time in
order that ARM may verify compliance with the Trademark Guidelines. In the
event that any documentation, packaging, promotional or advertising
material fails to comply with the Trademark Guidelines, ARM shall notify
LICENSEE and LICENSEE shall rectify such documentation, packaging, and
promotional or advertising materials so as to comply with the Trademark
Guidelines and cease using any such non-compliant materials within * of the
date of ARM's notice. Any documentation, packaging, and promotional or
advertising materials not rejected for failing to comply with the Trademark
Guidelines by ARM within * after delivery to ARM shall be deemed approved.
6.4 LICENSEE agrees to assist ARM in maintaining the validity of the
Trademarks. Upon ARM's request, LICENSEE shall provide, free of charge, a
reasonable number of samples of the use of the Trademarks for the purpose
of trademark registration or renewal. LICENSEE shall provide reasonable
assistance to ARM in the application and maintenance of any registration
for the Trademarks in the name of ARM. Upon request, LICENSEE shall at
ARM's expense execute any documents required by the applicable laws of any
jurisdiction for the purpose of registering and/or maintaining the
Trademarks. LICENSEE shall have no additional financial responsibility
other than the foregoing with respect to assisting ARM in maintaining the
validity of the Trademarks, and LICENSEE
________________________
* Pursuant to a request for confidential treatment, selected information in this
document has been omitted and separately filed with the Securities and
Exchange Commission.
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shall not be obligated to incur any material expenses pursuant to its
obligations under this Clause 6.4. Any and all registrations for the
Trademarks shall be procured by and for ARM, at ARM's expense.
6.5 Except as provided by the terms of this Agreement, LICENSEE shall not use
or register any trademark, service mark, device or logo, any of the
Trademarks or any word or mark confusingly similar to any of the
Trademarks, in any jurisdiction.
7. Fees and Royalties
7.1 In consideration for the porting services provided under Clause 8.1,
LICENSEE shall pay, to ARM the fees ("Porting Fees") set out in Schedule 7
Part F. In the event that the LICENSEE elects to use an alternative set of
design rules from the Design Rules then the parties shall negotiate fees in
good faith for ARM to port the ARM Core to alternative design rules.
7.2 In consideration for the licences granted under Clause 2.1, LICENSEE shall
pay to ARM;
(i) until an election is made in accordance with the provisions of Clause
10.1, after which the obligation to pay the Technology Licence Fees
under this Clause 7.2 shall be waived in respect of ARM Compliant
Products developed by or for LICENSEE after the date of such
election, a fee (each a "Technology Licence Fee") for each Unique ARM
Compliant Product in accordance with the provisions of Schedule 7
Part A; and
(ii) until an election is made by LICENSEE in accordance with the
provisions of Clause 10.1 after which the provisions of Clause
7.3(ii) shall supersede the provisions of this Clause 7.2(ii), for
each unit of ARM Compliant Product sold, supplied or distributed by
LICENSEE or any Authorised Distributor, a royalty ("Running Royalty")
of * per unit.
7.3 Upon making an election in accordance with the provisions of Clause 10.1,
LICENSEE shall pay to ARM; (i) a fee ("Option Fee") as set out in Schedule
7 Part G; and (ii) for each unit of ARM Compliant Product sold, supplied or
distributed by LICENSEE or any Authorised Distributor after such election a
royalty ("Running Royalty") of * per unit.
7.4 In consideration for the licences granted under Clause 4.1, LICENSEE shall
pay the fee ("Model Fee") as set out in Schedule 7 Part B. If LICENSEE
elects to extend the licence to cover additional Models in accordance with
the provisions of Clause 4.2, then for each
________________________
* Pursuant to a request for confidential treatment, selected information in this
document has been omitted and separately filed with the Securities and
Exchange Commission.
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additional Model licensed by LICENSEE from ARM, LICENSEE shall pay an
additional fee ("Model Option Fee") as set out in Schedule 7 Part I.
7.5 In consideration of the Support (as defined in Clause 12), LICENSEE shall
pay, to ARM, the fee ("Support Fees") set out in Schedule 7 Part D.
7.6 In consideration of the Training (defined in Clause 13), LICENSEE shall
pay, to ARM, the fee ("Training Fee") set out in Schedule 7 Part C.
7.7 In consideration of the Maintenance provided under Clause 11 in respect of
each Model, LICENSEE shall pay, to ARM, the fee (each a "Maintenance Fee")
set out in Schedule 7 Part E.
7.8 For the avoidance of doubt, in no event shall the Technology Licence Fee
be construed as being an advance payment of Running Royalties and except
as provided in Schedule 7 Part G, no right of set off of Running Royalties
against fees shall exist.
7.9 Running Royalties due to ARM under this Agreement shall be paid in
accordance with the terms set forth in Schedule 6.
7.10 LICENSEE shall keep all records of account as are necessary to demonstrate
compliance with its obligations under this Clause 7 for a period of six
(6) years from the date of each Royalty Report.
7.11 ARM shall have the right for representatives of a firm of independent
Chartered Accountants to which LICENSEE shall not unreasonably object
("Auditors"), to make an examination and audit, by prior appointment
during normal business hours, not more frequently than once annually, of
all records and accounts as may under recognised accounting practices
contain information bearing upon (i) the number of units of ARM Compliant
Product sold or distributed by LICENSEE under this Agreement; (ii) the
amounts of Running Royalties payable to ARM under this Clause 7; and (iii)
the occurrence of any Design Win Event. The Auditors will report to ARM
only upon whether the Running Royalties paid to ARM by LICENSEE were or
were not correct, and if incorrect, what are the correct amounts for the
Running Royalties. LICENSEE shall be supplied with a copy of or sufficient
extracts from any report prepared by the Auditors. The Auditors report
shall (in the absence of clerical or manifest error) be final and binding
on the parties. Such audit shall be at ARM's expense unless it reveals an
underpayment or overpayment of Running Royalties of * or more, in which
case LICENSEE shall reimburse ARM for the costs of such audit. LICENSEE
shall make good any underpayment of royalties forthwith. If the audit
identifies that LICENSEE has
________________________
* Pursuant to a request for confidential treatment, selected information in this
document has been omitted and separately filed with the Securities and
Exchange Commission.
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made an overpayment, such overpayment will be credited to the next such
payment or payments to be made by LICENSEE.
7.12 Any income or other tax which LICENSEE is required by law to pay or
withhold on behalf of ARM with respect to any licence fees and/or
royalties payable to ARM under this Agreement shall be deducted from the
amount of such licence fees and/or royalties otherwise due, provided,
however, that in regard to any such deduction, LICENSEE shall give to ARM
such assistance as may be necessary to enable or assist ARM to claim
exemption therefrom, or credit therefor, and shall upon request furnish to
ARM such certificates and other evidence of deduction and payment thereof
as ARM may properly require.
7.13 LICENSEE shall pay all fees and royalties properly due to ARM under the
terms of this Agreement within receipt of ARM's pro-forma invoice therefor
(the "Due Date").
7.14 If any sum under this Agreement is not paid by the Due Date, then (without
prejudice to ARM's other rights and remedies) ARM reserves the right to
charge interest on such sum on a day to day basis (as well after as before
any judgment) from the Due Date to the date of payment at the rate of *
per annum above the base rate of Barclays Bank PLC from time to time in
force.
8. Technology Transfer, Delivery and Production Costs
8.1 The layout database in GDSII format (Item Cl Part C of Schedule 1) for the
ARM Core delivered to LICENSEE shall conform to the Design Rules.
8.2 ARM shall deliver the Transfer Materials and Models on the later of
payment of the pro forma invoices in accordance with Clause 7.13, and the
delivery dates set out in Schedule 2. ARM shall only be obliged to carry
out further ports of the ARM Core subject to the agreement between the
parties of additional porting fees.
8.3 Unless otherwise agreed in writing, delivery shall take place at Mount
Pleasant House, 2 Mount Pleasant, Huntingdon Road, Cambridge, CB3 0BL,
marked for the attention of Chris Turner.
8.4 Except as expressly set out in Clause 8.1, ARM shall not be responsible
for any recoverable or non-recoverable costs incurred, directly or
indirectly, by LICENSEE in the design translation, processing, or
manufacture of masks and prototypes, characterisation or manufacture of
production quality silicon in whatever quantity.
________________________
* Pursuant to a request for confidential treatment, selected information in this
document has been omitted and separately filed with the Securities and
Exchange Commission.
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9. Contract Administrators
9.1 The parties hereby appoint the following individuals as their respective
contract administrator between ARM and LICENSEE with respect to this
Agreement:
ARM: LICENSEE:
For legal notices:
-----------------
David N. MacKay Andrew Vought
ARM Limited Senior VP
90 Fulbourn Road Virata Ltd
Cambridge 2933 Bunker Hill Lane
CB1 9JN Suite 201
England Santa Clara, CA 95054
cc:
Philip David Chris Turner
Senior Corporate Counsel VP IP Licensing
At the Cambridge address above. At the address below.
For all other issues:
--------------------
Dave Rose Chris Turner
Liberty House Mount Pleasant House
Moorbridge Road 2 Mount Pleasant
Maidenhead Huntingdon Road
Berks Cambridge
SL6 8LT CB3 0BL
9.2 The contract administrators identified herein are appointed by the parties
for the receipt and dispatch on their behalf of all communications relating
to this Agreement. The contract administrators shall also be responsible
for the good progress of the parties' performance under this Agreement and
the timely resolution of all technical, administrative and commercial
issues which may arise from time to time during the execution of this
Agreement.
9.3 Each party reserves the right to change its appointment as above upon seven
(7) days written notice to the other party's then current corresponding
liaison.
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10. Core Option A
10.1 LICENSEE may, at any time during the period of * from the Effective Date
elect to convert the restricted use licence granted in Clause 2.1 into a
full (perpetual, subject to termination in accordance with the provisions
of Clause 18.2) license as set out in Clause 10.2. LICENSEE shall make any
such election by; (i) giving written notice to ARM referring to this
Clause 10.1; (ii) payment of a fee ("Option Fee") (as defined in Clause
7.3); (iii) a Royalty Report for the period from the beginning of the
Quarter in which the written notice of election is given to ARM to the
date of such election; (iv) an acknowledgement that the Royalty Rate shall
change in accordance with the provisions of Clause 7.3; and (v) an
acknowledgement that LICENSEE will renegotiate the Support Fees and
Maintenance Fees in good faith to reflect the additional Support that will
be required for a full licence. The date of any election made in
accordance with the provisions of this Clause shall be the date of receipt
by ARM of the notice of election submitted by LICENSEE hereunder.
10.2 If an election is made in accordance with the provisions of Clause 10.1,
then references to the Authorised Devices shall be deemed to refer to any
ARM Compliant Product (mutatis mutandis).
10.3 If an election is made in accordance with the provisions of Clause 10.1,
subsequent to the election in accordance with Clause 10A.1 then at the
date of the election by LICENSEE to convert to a full licence ARM shall no
longer be obligated to provide support and maintenance services (if any)
under the "foundry model" and any deliverables provided by ARM under the
"foundry model" shall be returned to ARM, within * of the date of such
election.
10.4 For the avoidance of doubt if LICENSEE elects to convert the restricted
use licence into a full licence in accordance with the provisions of
Clause 10.1 then such full licence shall continue in accordance with the
terms of this Agreement.
10A Core Option B
10A.1 LICENSEE may, at any time elect to convert the restricted use licence
granted in Clause 2.1 to the ARM7TDMI-S "foundry model" for future ARM
Compliant Products, the LICENSEE shall make any such election by giving
written notice to ARM referring to this Clause 10A.1. The date of any
election made in accordance with the provisions of this Clause shall be
the date of receipt by ARM of the notice of election submitted by LICENSEE
hereunder. If the LICENSEE elects to convert to the "foundry model" then
________________________
* Pursuant to a request for confidential treatment, selected information in
this document has been omitted and separately filed with the Securities and
Exchange Commission.
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the licence granted under Clause 2.1(i) to use and copy the Transfer
Materials and/or any Intellectual Property only for the purposes of
designing and having designed (subject to the provisions of Clause
2.2), the Authorised Devices shall automatically terminate on the date
of election.
10A.2 The parties recognise that the terms and conditions of the "foundry
model" are currently undefined and accordingly agree that in the event
that if either the "foundry model" is not in place (which shall include
where the "foundry model" is not supported by the foundry used by
LICENSEE to manufacture the Authorised Devices) when the LICENSEE
wishes to develop * Unique ARM Compliant Product, or if the terms in
respect of the royalty payments and license fees for each ARM Compliant
Product are less favourable than those contained in this Agreement then
the LICENSEE shall be entitled to elect to extend the definition of
Authorised Device to include additional ARM Compliant Products subject
to the payment of Technology Licence Fees upon the Design Win Event for
each Unique ARM Compliant Product. The LICENSEE shall make any such
election by giving written notice to ARM referring to this Clause
10A.2. The date of any election made in accordance with the provisions
of this Clause shall be the date of receipt by ARM of the notice of
election submitted by LICENSEE hereunder.
10A.3 If an election is made in accordance with the provisions of Clause
10A.1, then references to the Authorised Devices shall be deemed to
refer to any Unique ARM Compliant Product (mutatis mutandis).
10A.4 Any election by the LICENCEE to convert the restricted use licence in
accordance with Clause 10A.1 or extend the restricted use licence in
accordance with Clause 10A.2, shall be without prejudice to the
LICENSEE's right to convert to the full license in accordance with
Clause 10.1.
10A.5 Notwithstanding the provisions of Clause 10A.2 if at the date LICENSEE
wishes to develop * Unique ARM Compliant Product the "foundry model" is
not supported by the foundry used by LICENSEE to manufacture the
Authorised Devices, then the LICENSEE acknowledges that as soon as the
foundry used to manufacture Authorised Devices by LICENSEE under this
Agreement participates in the "foundry model" then, provided the
LICENSEE has not elected to upgrade to a full licence in accordance
with the provisions of Clause 10.1 then the LICENSEE shall convert to
the "foundry model".
____________________
* Pursuant to a request for confidential treatment, selected information in
this document has been omitted and separately filed with the Securities and
Exchange Commission.
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11. Models Maintenance
11.1 ARM shall provide to LICENSEE, in respect of the Models, through the
parties' applicable contract administrator, for the period of * from
the Effective Date the following maintenance services ("Maintenance");
(i) to correct, to the extent reasonably possible, any defects in the
Models which cause the Models not to operate in accordance with
the description of the Models' functionality in the applicable
documentation. If ARM determines that such defects are due to
errors in such description, ARM shall promptly issue corrections
to the documentation and shall not be required to alter the
Models provided that LICENSEE is not thereby prevented from
commercially exploiting the Models;
(ii) to provide as available Updates to the Models.
11.2 In notifying ARM of any defects or problems LICENSEE shall, unless
otherwise requested by ARM, use the format set out in Schedule 4 and
shall use such medium as shall from time to time be requested by ARM.
LICENSEE shall provide ARM promptly with any information or assistance
reasonably requested by ARM to enable ARM to provide the Maintenance
hereunder.
11.3 For the avoidance of doubt, ARM's obligation under this Clause 11 is
limited expressly to the provision of the Maintenance solely to
LICENSEE.
11.4 At the end of the period stated in Clause 11.1 fees for the provision
of any Maintenance for any subsequent period shall be determined in
good faith negotiations between the parties. After the expiry of this
initial period, LICENSEE shall be under no obligation to accept further
Maintenance, and ARM shall be under no obligation to provide
Maintenance to LICENSEE and in any event not until fees for any
Maintenance have been agreed and paid.
12. Support
12.1 Subject to LICENSEE's payment of the Support Fees (defined in Clause
7.5), for the period of three (3) years ("Initial Period") from the
Effective Date ARM shall provide to LICENSEE, reasonable telephone and
written consultation pertaining to the operation and application of the
Models, the ARM Core and the Transfer Materials ("Support"), through
the parties' contract administrator.
____________________
* Pursuant to a request for confidential treatment, selected information in
this document has been omitted and separately filed with the Securities and
Exchange Commission.
Page 17
<PAGE>
12.2 For the avoidance of doubt, ARM's obligation under this Clause 12 is
limited expressly to the provision of Support solely to LICENSEE.
12.3 The Support provided under this Clause 12 shall be limited to a total
of * person days per annum.
12.4 At the end of the Initial Period (defined in Clause 12.1), or on
election in accordance with Clause 10.1, fees for the provision of any
support for any subsequent period shall be determined in good faith
negotiations between the parties. After the expiry of the Initial
Period, LICENSEE shall be under no obligation to accept further
support, and ARM shall be under no obligation to provide support to
LICENSEE and in any event not until fees for any support have been
agreed and paid.
13. Training
13.1 Subject to availability and LICENSEE's payment of the Training Fee
(defined in Clause 7.6), for the term of this Agreement ARM shall
provide to LICENSEE a four (4)-day standard ARM training course to a
maximum of twelve (12) of LICENSEE's development, operations, customer
service and application engineering personnel ("Training"). LICENSEE
shall reimburse ARM for its out-of-pocket expenses and costs for the
instructor's travel, lodging and meal expenses for training held, at
LICENSEE's request, at LICENSEE's facilities.
13A Software Development Toolkit
13A.1 For the period of one (1) year after the Effective Date and thereafter
subject to availability from ARM, LICENSEE may, at any time during the
term of this Agreement purchase copies of the Software Development
Toolkit at the price stated in Schedule 7 Part H. If the LICENSEE
wishes to purchase any Software Development Toolkits, then the LICENSEE
shall place a purchase order for the number of seats that they wish to
purchase.
13A.2 ARM shall deliver the Software Development Toolkit to LICENSEE at Mount
Pleasant House, 2 Mount Pleasant, Huntingdon Road, Cambridge, CB3 0BL
on receipt of payment of the pro forma invoice in accordance with
Clause 7.13.
14. Confidentiality
14.1 Save as provided by Clause 14.3, each party shall maintain in
confidence the Confidential Information disclosed by the other party
and apply security measures no less stringent
____________________
* Pursuant to a request for confidential treatment, selected information in
this document has been omitted and separately filed with the Securities and
Exchange Commission.
Page 18
<PAGE>
than the measures that such party applies to protect its own like
information, but not less than a reasonable degree of care, to prevent
unauthorised disclosure and use of the Confidential Information. The
period of confidentiality shall be: (i) indefinite with respect to the
terms of this Agreement, pattern generation tapes and photomasks;
provided, however, that LICENSEE shall have the right to disclose
pertinent clauses of the Agreement to third parties which have entered
into confidentiality agreements with LICENSEE for the purposes of
having ARM Compliant Products designed and/or manufactured for LICENSEE
by such third party; (ii) twenty (20) years from the date of receipt by
LICENSEE with respect to all deliverables identified in the Schedules
hereto as confidential or having limited confidentiality, i.e. denoted
as such by the letters "C" or "L" in the "Status" column, together with
any comparable technical information supplied by ARM to LICENSEE during
the term of this Agreement; and (iii) five (5) years from the date of
receipt of the information by the receiving party with respect to all
other information.
14.2 LICENSEE acknowledges the importance to ARM and sensitivity of the
Confidential Information. In addition, LICENSEE agrees that it shall
not use any of ARM's Confidential Information other than for the sole
purpose of designing, having designed, manufacturing, having
manufactured and distributing ARM Compliant Products.
14.3 In the event that either party qualifies the confidentiality of any of
its Confidential Information in writing by marking such Confidential
Information with the words "Limited Confidentiality", such Confidential
Information may be disclosed to a third party who has entered into a
non-disclosure agreement ("NDA") with the recipient containing
substantially similar terms to this Clause 14. LICENSEE shall have the
right to disclose the layout database in GDSII format (Item Cl Part C
of Schedule 1) to a Manufacturer (defined in Clause 2.4) under an NDA
containing substantially similar terms to this Clause 14 for the
purposes of having ARM Compliant Products manufactured for LICENSEE by
such Manufacturer.
14.4 The provisions of this Clause shall not apply to information which:
(i) is known and has been reduced to tangible form by the receiving
party prior to disclosure by the other party; or
(ii) is published or otherwise made available to the public other
than by a breach of this Agreement by a party hereto; or
(iii) is disclosed to the receiving party by a third party having the
lawful right to make such disclosure; or
(iv) is independently conceived by the receiving party provided that
the receiving party is able to provide evidence of such
independent conception in the form of written records; or
Page 19
<PAGE>
(v) is released to the receiving party for disclosure to any third
party, other than on a confidential basis, by the disclosing
party in writing; or
(vi) is required by any court or other governmental body; or
(vii) is approved for release not under a NDA designating the
information as Confidential Information; or
(viii) released to a third party by the disclosing party and designated
as non-confidential.
14.5 For the avoidance of doubt, LICENSEE Royalty Reports may be disclosed
to, in confidence, ARM's financial and/or legal advisors. In addition,
ARM may disclose the total unit sales of ARM processor based products
on an quarterly basis provided that the unit sales of such products by
LICENSEE are not separately identifiable.
15. Warranties
15.1 ARM warrants that the Transfer Materials delivered to LICENSEE will be
sufficient for a competent semiconductor manufacturer to produce ARM
Cores which substantially meet the functionality specified in the
applicable datasheet. If the Transfer Materials are not sufficient for
a competent semiconductor manufacturer to produce ARM Cores which meet
the functionality specified in the applicable datasheet ARM shall
correct any errors in the Transfer Materials and deliver such corrected
Transfer Materials to LICENSEE or replace the Transfer Materials at
ARM's discretion. The foregoing sets out LICENSEE's sole and exclusive
remedy for any defect in the Transfer Materials.
15.2 LICENSEE acknowledges that the Models cannot be tested in every
possible operation, and accordingly ARM does not warrant that the
Models will be free from all defects or that there will be no
interruption in its use. However, ARM warrants that the Models will be
complete and comply with the description of its functionality as
specified in the documentation. LICENSEE's sole and exclusive remedy
for any breach of such warranty shall be for ARM, as soon as is
reasonably practicable, to correct any errors in the Models and deliver
such corrected Models to LICENSEE.
15.3 ARM further warrants that to ARM's knowledge and belief, but expressly
without having undertaken any searches for prior art, that:
(i) the ARM Core and Models do not infringe any third party
copyright, maskwork right or trade secret; and
(ii) there are no pending claims that have been made, or actions
commenced, against ARM for breach of any third party copyright,
maskwork right, patent or trade secret; and
Page 20
<PAGE>
(iii) ARM, or its applicable licensor, is the owner of the Transfer
Materials and Models to be delivered to LICENSEE; and
(iv) ARM has the right to enter into this Agreement.
15.4 Except as expressly provided in this Agreement, ARM makes no warranties
express, implied or statutory, including, without limitation, the
implied warranties or merchantability or fitness for a particular
purpose with respect to the ARM Core, Models, Intellectual Property and
Transfer Materials.
16. Infringement
16.1 In the event of a suit against LICENSEE based upon a claim that any
portion of the materials delivered by ARM to LICENSEE under this
Agreement (the "Delivered Materials"), when used in accordance with
this Agreement, infringe any patent, copyright, mask work, trademark,
trade secret, or other property right, ARM agrees to defend and
indemnify LICENSEE, at ARM's expense, and to pay costs and damages
finally awarded in any such suit subject to the limitations of this
Clause 16.1, provided that ARM is notified promptly in writing of the
suit and at ARM's request and at its expense is given control of the
suit and all requested reasonable assistance to defend the same. If the
use or sale of any product incorporating, embodying or based upon the
Delivered Materials is enjoined as a result of such suit, ARM, at its
sole option and at no expense to LICENSEE, shall (a) obtain for
LICENSEE the right to use and sell the Delivered Materials; or failing
that (b) shall make a modification of the Delivered Materials so that
the Delivered Materials are no longer subject to such injunction, or
failing that (c) replace the unmodified Delivered Materials, or
infringing portions thereof, with reasonably equivalent non-infringing
products which offer no less functionality. If (a), (b) and (c) are not
available or commercially practical, then ARM shall pay to LICENSEE
compensatory damages subject to the limitations of this Clause 16.1.
The provisions of this Clause 16.1 do not extend to any suit based upon
an infringement or alleged infringement of any patent, copyright, trade
secret, mask work, trademark or other property right by: (a) the
LICENSEE manufacturing process; (b) any modification of the Delivered
Materials not made by ARM; or (c) the use of the Delivered Materials in
combination with other equipment, technology or software not purchased
or licensed from ARM, provided that such claim would not have occurred
but for such combination, modification or enhancement. THE FOREGOING
STATES THE ENTIRE LIABILITY OF ARM WITH RESPECT TO INTELLECTUAL
PROPERTY INFRINGEMENT. IN NO EVENT SHALL ARM BE LIABLE TO LICENSEE FOR
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES RESULTING THEREFROM.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT,
ARM SHALL NOT BE LIABLE TO LICENSEE FOR ANY AMOUNTS IN EXCESS OF, THE
LESSER OF LICENSE FEES PAID UNDER THIS
Page 21
<PAGE>
AGREEMENT AND THE SUM OF * IN AGGREGATE FOR ALL CLAIMS ARISING OUT OF
OR IN CONNECTION WITH THE PROVISIONS OF THIS CLAUSE 16.1. THE EXISTENCE
OF MORE THAN ONE CLAIM OR SUIT WILL NOT ENLARGE OR EXTEND THE LIMIT.
LICENSEE RELEASES ARM FROM ALL OBLIGATIONS, LIABILITY, CLAIMS OR
DEMANDS IN EXCESS OF THIS LIMITATION.
16.2 In the event of a suit against ARM based in whole or in part upon a
claim that (a) the process used by or on behalf of LICENSEE in
manufacturing products incorporating, embodying or based upon the
Delivered Materials; (b) any ARM Core made by LICENSEE as a result of
modification of the Delivered Materials by or on behalf of LICENSEE; or
(c) the use of the Delivered Materials by LICENSEE in combination with
other equipment, technology or software not purchased or licensed from
ARM (provided that such claim would not have occurred but for such
combination, modification or enhancement), has infringed any patent,
copyright, mask work, trademark, trade secret or other property right,
LICENSEE agrees to defend and indemnify ARM, at LICENSEE expense, and
to pay costs and damages finally awarded in any such suit, provided
that LICENSEE is notified promptly in writing of the suit, and at
LICENSEE request and at its expense is given control of the suit and
all requested reasonable assistance to defend the same. THE FOREGOING
STATES THE ENTIRE LIABILITY OF LICENSEE WITH RESPECT TO INTELLECTUAL
PROPERTY INFRINGEMENT. IN NO EVENT SHALL LICENSEE BE LIABLE TO ARM FOR
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES RESULTING THEREFROM.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT,
LICENSEE SHALL NOT BE LIABLE TO ARM FOR ANY AMOUNTS IN EXCESS OF THE
LESSER OF LICENSE FEES PAID UNDER THIS AGREEMENT AND THE SUM OF * IN
AGGREGATE FOR ALL CLAIMS ARISING OUT OF OR IN CONNECTION WITH THE
PROVISIONS OF THIS CLAUSE 16.2. THE EXISTENCE OF MORE THAN ONE CLAIM OR
SUIT WILL NOT ENLARGE OR EXTEND THE LIMIT. ARM RELEASES LICENSEE FROM
ALL OBLIGATIONS, LIABILITY, CLAIMS OR DEMANDS IN EXCESS OF THIS
LIMITATION.
16.3 In the event that there is a final adjudication of infringement, the
liability of ARM for such infringement shall terminate with respect to
all damages regarding the infringing intellectual property arising
after the date of such final adjudication.
____________________
* Pursuant to a request for confidential treatment, selected information in
this document has been omitted and separately filed with the Securities and
Exchange Commission.
Page 22
<PAGE>
17. Disclaimer of Consequential Damages
17.1 EXCEPT IN RESPECT OF BREACHES OF CLAUSES 2.3, 2.5 AND 14, IN NO EVENT
SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES WHETHER SUCH DAMAGES ARE ALLEGED AS A RESULT OF
TORTIOUS CONDUCT OR BREACH OF CONTRACT OR OTHERWISE EVEN IF THE OTHER
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. SUCH DAMAGES
SHALL INCLUDE BUT SHALL NOT BE LIMITED TO THE COST OF REMOVAL AND
REINSTALLATION OF GOODS, LOSS OF GOODWILL, LOSS OF PROFITS, LOSS OF USE
OF DATA, INTERRUPTION OF BUSINESS OR OTHER ECONOMIC LOSS BUT NOTHING IN
THIS CLAUSE SHALL OPERATE TO EXCLUDE LIABILITY FOR DEATH OR PERSONAL
INJURY RESULTING FROM EITHER PARTY'S NEGLIGENCE.
18. Term and Termination
18.1 This Agreement shall commence on the Effective Date and continue in
force unless and until terminated in accordance with the provisions of
Clause 18.2.
18.2 Without prejudice to any other right or remedy which may be available
to it, either party shall be entitled summarily to terminate this
Agreement by giving written notice to the other, if the other party:
(i) has committed a material breach of any of its obligations
hereunder which is not capable of remedy; or
(ii) has committed a material breach of any of its obligations
hereunder which is capable of remedy but which has not been
remedied within a period of sixty (60) days following receipt of
written notice to do so; or
(iii) makes any voluntary arrangement with its creditors for the
general settlement of its debts or becomes subject to an
administration order; or
(iv) has an order made against it, or passes a resolution, for its
winding-up (except for the purposes of amalgamation or
reconstruction) or has an encumbrancer take possession or has a
receiver or similar officer appointed over all or substantially
all of its property or assets.
19. Effect of Termination
19.1 Upon termination of this Agreement by ARM pursuant to Clause 18.2, or
by LICENSEE pursuant to Clauses 18.2 (i) or (ii), LICENSEE will
immediately discontinue any use and distribution of all ARM Compliant
Products, Models, Intellectual Property, Transfer Materials and ARM
Confidential Information. LICENSEE shall, at ARM's option, either
destroy or return to ARM any Confidential Information, including any
copies thereof in
Page 23
<PAGE>
its possession, together with the Transfer Materials and all copies of
the Models in its possession. Within one month after termination of
this Agreement LICENSEE will furnish to ARM a certificate signed by a
duly authorised representative of LICENSEE that to the best of his or
her knowledge, information and belief, after due enquiry, LICENSEE has
complied with provisions of this Clause. For the avoidance of doubt,
any sub-licenses of the Models granted by LICENSEE prior to the
termination of this Agreement shall survive such termination.
19.2 Upon such termination the provisions of Clauses 1, 7 (to the extent
that any obligation under this Clause remains outstanding), 14, 15, 16,
17, 19 and 20 shall survive termination.
20. General
20.1 All communications between the parties including, but not limited to,
notices, royalty reports, error or bug reports, the exercise of
options, and support requests shall be in the English language.
20.2 All notices which are required to be given hereunder shall be in
writing and shall be sent to the address of the recipient set out in
this Agreement or such other address as the recipient may designate by
notice given in accordance with the provisions of this Clause. Any such
notice may be delivered personally, by commercial overnight courier or
facsimile transmission which shall be followed by a hard copy and shall
be deemed to have been served if by hand when delivered, if by
commercial overnight courier 48 hours after deposit with such courier,
and if by facsimile transmission when dispatched.
20.3 Neither party shall assign or otherwise transfer this Agreement or any
of its rights and obligations hereunder whether in whole or in part
without the prior written consent of the other.
20.4 Neither party shall be liable for any failure or delay in its
performance under this Agreement due to causes, including, but not
limited to, acts of God, acts of civil or military authority, fires,
epidemics, floods, earthquakes, riots, wars, sabotage, third party
industrial disputes and governments actions, which are beyond its
reasonable control; provided that the delayed party: (i) gives the
other party written notice of such cause promptly, and in any event
within fourteen (14) days of discovery thereof; and (ii) uses its
reasonable efforts to correct such failure or delay in its performance.
The delayed party's time for performance or cure under this Clause 20.4
shall be extended for a period equal to the duration of the cause.
20.5 ARM and LICENSEE are independent parties. Neither company nor their
employees, consultants, contractors or agents, are agents, employees or
joint venturers of the other party, nor do they have the authority to
bind the other party by contract or otherwise to any obligation.
Neither party will represent to the contrary, either expressly,
implicitly, by appearance or otherwise.
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<PAGE>
20.6 The parties agree that the terms and conditions of this Agreement shall
be treated as Confidential Information hereunder and shall not be
disclosed without the consent of both parties.
20.7 Failure by either party to enforce any provision of this Agreement
shall not be deemed a waiver of future enforcement of that or any other
provision.
20.8 If any provision of this Agreement, or portion thereof, is determined
to be invalid or unenforceable the same will be enforced to the maximum
extent permissible so as to effect the intent of the parties, and the
remainder of this Agreement will continue in full force and effect.
20.9 The headings to the Clauses of this Agreement are for ease of reference
only and shall not affect the interpretation or construction of this
Agreement.
20.10 This Agreement may be executed in one or more counterparts each of
which shall be deemed an original, but all of which shall constitute
one and the same instrument.
20.11 This Agreement, including all Schedules and documents referenced
herein, constitutes the entire agreement between the parties with
respect to the subject matter hereof, and supersedes and replaces all
prior or contemporaneous understandings or agreements, written or oral,
regarding the subject matter. Except in relation to the Trademark
Guidelines (as defined in Clause 6.2), which may be modified from time
to time by ARM, no amendment to, or modification of, this Agreement
shall be binding unless in writing and signed by a duly Authorised
representative of both parties.
20.12 This Agreement shall be governed by and construed in accordance with
the laws of England. The parties agree to submit to the jurisdiction of
the High Court of Justice, London, England, for the purpose of hearing
and determining any disputes arising out of this Agreement.
20.13 Neither party shall make any press release or similar public
announcement relating to the existence of this Agreement without
obtaining the other party's prior confirmation on the contents thereof,
which confirmation shall not be unreasonably withheld or delayed.
Except as required by law or to each parties respective professional
advisors, or other advisors for the purposes of raising finance and
always subject to a non-disclosure agreement neither party may disclose
the terms and conditions of the Agreement.
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<PAGE>
20.14 IN WITNESS WHEREOF the parties have caused this Agreement to be
executed by their duly Authorised representative:
ARM LIMITED: VIRATA LTD:
----------------------------------------------------------------------
SIGNED: /s/ J. Urquhart SIGNED: /s/ C. B. Turner
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
NAME: J. Urquhart NAME: C. B. Turner
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
TITLE: Chief Operating Officer TITLE: Vice President I. P.
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
DATE: June 2, 1999 DATE: June 2, 1999
----------------------------------------------------------------------
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<PAGE>
Schedule 1
ARM7TDMI Core Transfer Materials
<TABLE>
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Item Part Number Description Status
- --------------------------------------------------------------------------------------------------
</TABLE>
Note: The last column of the deliverable lists show the confidentiality status
of the deliverable. C - confidential, L - limited confidential and N -
non-confidential.
ARM7TDMI Core Transfer Materials
PART A
ARM7TDMI Core Product Specification
<TABLE>
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
A1 AT010-DA-00001 ARM7TDMI Core Data Sheet: DDI 0029E N
- --------------------------------------------------------------------------------------------------
A2 UA010-DA-01001 ARM Architecture Reference Manual DDI 0100B N
- -------------------------------------------------------------------------------------------------
</TABLE>
PART B
ARM7TDMI Core Product Information
<TABLE>
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
B1 AT010-DE-01004 ARM7TDMI Schematic Hierarchy Tree C
- --------------------------------------------------------------------------------------------------
B2 AT010-DE-01001 ARM7TDMI Core schematics in Compass ".la" format C
- --------------------------------------------------------------------------------------------------
B3 AT010-DE-01003 ARM7TDMI Core schematics in postscript format C
- --------------------------------------------------------------------------------------------------
B4 AT010-DE-02001 ARM7TDMI EDIF 2.00 Netlist C
- --------------------------------------------------------------------------------------------------
B5 AT010-DE-03001 ARM7TDMI Schematic Hspice Netlist C
- --------------------------------------------------------------------------------------------------
B6 AT010-VE-01001 Functional Test Vectors in parallel WGL format L
- --------------------------------------------------------------------------------------------------
B7 AT010-DE-04001 Full block specifications C
- --------------------------------------------------------------------------------------------------
B8 AT011-VA-03001 ARM7TDMI Core Test Chip validation disc C
- --------------------------------------------------------------------------------------------------
B9 AT010-DE-05003 ARM7TDMI Fault Grading Report DGR 001 L
- --------------------------------------------------------------------------------------------------
B10 AT010-DE-05004 ARM7TDMI Gate Level Netlist in Zycad Format C
- --------------------------------------------------------------------------------------------------
B11 AT010-VE-01004 Functional Test Vectors in parallel Zycad format L
- --------------------------------------------------------------------------------------------------
B12 AT010-VE-01002 Functional Test Vectors in serial WGL format L
- --------------------------------------------------------------------------------------------------
B13 AT010-VE-03001 Block level test vectors in BRF format C
- --------------------------------------------------------------------------------------------------
</TABLE>
PART C
ARM7DMI Process Dependent Core Product Information
<TABLE>
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
C1 AT010-LA-02xxx Layout database in GDSII format C
- --------------------------------------------------------------------------------------------------
C2 AT010-LA-03xxx Phantom Core Layout GDSII format L
- --------------------------------------------------------------------------------------------------
C3 AT010-LA-12xxx ARM7TDMI Compass Layout Export Tree C
- --------------------------------------------------------------------------------------------------
C4 AT010-LA-13xxx ARM7TDMI Compass Layout Design Tree C
- --------------------------------------------------------------------------------------------------
C5 AT010-LA-10xxx EPIC NTL Netlist and HSPICE netlist C
- --------------------------------------------------------------------------------------------------
C6 AT010-LA-14xxx CAD tool version number N
- --------------------------------------------------------------------------------------------------
C7 AT010-LA-11xxx Log file of the LVS checking results C
- --------------------------------------------------------------------------------------------------
C8 AT010-LA-18xxx Runtime simulation log files C
- --------------------------------------------------------------------------------------------------
C9 AT010-LA-16xxx Extract scripts and logs C
- --------------------------------------------------------------------------------------------------
C10 AT010-LA-17xxx DRC scripts and logs C
- --------------------------------------------------------------------------------------------------
C11 AT010-LA-19xxx Delivery documentation C
- --------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
PART D
ARM7TDMI Process Dependent Prefabrication Characterisation Results
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
D1 AT010-LA-05xxx Results of Prefabrication Characterisation Best and worst Case Timings L
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Licensee shall supply, to ARM, the following:
- Hspice Models for the target process
- Dracula extract information for the target process
- Simulation conditions (process, temperature and voltage)
- Load conditions for the ARM macrocell
PART E
ARM7TDMI Core Test Chip
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
E1 AT011-DA-00002 ARM7TDMI Core Test Chip Appendix. ARM Doc DXI 0028 N
- ------------------------------------------------------------------------------------------------------------------------
E2 AT011-DE-01001 ARM7TDMI Core Test Chip schematics in Compass export tree format C
- ------------------------------------------------------------------------------------------------------------------------
E3 AT011-DE-01002 ARM7TDMI Core Test Chip schematics in postscript format C
- ------------------------------------------------------------------------------------------------------------------------
E4 AT011-VE-01001 ARM7TDMI Core Test Chip functional test vectors in parallel CRF format L
- ------------------------------------------------------------------------------------------------------------------------
E5 AT011-VE-05001 ARM7TDMI Core Test Chip characterisation vectors in parallel CRF format L
- ------------------------------------------------------------------------------------------------------------------------
E6 AT011-VE-05002 ARM7TDMI Core Test Chip power characterisation vectors in parallel CRF format L
- ------------------------------------------------------------------------------------------------------------------------
E7 AT011-VE-06001 Parameter characterisation search procedure L
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Documentation
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
E8 AT010-DC-01001 Test features documentation C
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Test Programs
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
E9 AT011-VE-02001 ARM7TDMI Core Test Chip functional test programs in source form C
- ------------------------------------------------------------------------------------------------------------------------
E10 AT011-VE-07001 ARM7TDMI Core Test Chip Characterisation Programs in source form C
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
ARM7TDMI Core Test Chip Hardware
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
E11 KPI-0008A ARM7TDMI Core Test Chip validation card C
- ------------------------------------------------------------------------------------------------------------------------
E12 KPI-0013A ARM7TDMI Core Test Chip validation kit C
- ------------------------------------------------------------------------------------------------------------------------
E13 KPI-0011C Platform Independent Development Card N
- ------------------------------------------------------------------------------------------------------------------------
E14 KPI-0019A MultiICE Unit N
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 28
<PAGE>
Part F
ARM7TDMI Design Transfer Model
This is a full structural model of the core product, written in native
IEEE-1076 VHDL, developed with the Model Technology V-System simulator.
The model is pin, instruction, cycle and phase accurate and models the full
function of the ARM7TDMI Core.
The model has been validated against the appropriate validation suite and
the functional test vectors prior to release.
The model includes a test bench and a CRF vector tester to allow CRF test
vector files to be run on the model.
- --------------------------------------------------------------------------------
F1 AT010-MT-05001 Design Transfer Model of ARM7TDMI Core C
- --------------------------------------------------------------------------------
Page 29
<PAGE>
CONFIDENTIAL
Schedule 2
Delivery Schedule
- --------------------------------------------------------------------------------
Materials Delivery Date
- --------------------------------------------------------------------------------
Transfer Materials
- --------------------------------------------------------------------------------
Schedule 1 Part A, Within * of the Effective Date
Schedule 1 Part B,
Schedule 1 Part E,
Schedule 1 Part F
- --------------------------------------------------------------------------------
Schedule 3 Part A Within * of the Effective Date
- --------------------------------------------------------------------------------
Schedule 1 Part C Within * of the Effective Date
Schedule 1 Part D
- --------------------------------------------------------------------------------
________________
* Pursuant to a request for confidential treatment, selected information in
this document has been omitted and separately filed with the Securities and
Exchange Commission.
Page 30
<PAGE>
CONFIDENTIAL
Schedule 3
Models
Part A
Design Simulation Models: Cadence Verilog XL as a default model.
The following set of design simulation model are fully functional C models
interfaced to the specified HDL simulator. These models shall be pin,
instruction, cycle and phase accurate and model the full functionality of the
specified core. Each model shall be validated by running the validation suite
in the specified HDL simulator environment prior to release. Each model shall
also be delivered together with a test bench and a CRF vector tester for the
specified HDL simulator environment, and shall include documentation in an
electronic format sufficient to enable a competent person to use the model.
ARM7TDMI Models
C Timing Shell Models
- --------------------------------------------------------------------------------
A1 AT080-MS-22202 Verilog HDL wrapped ARM7TDMI Core Model Sun/Solaris L
- --------------------------------------------------------------------------------
A2 AT080-MS-22203 Verilog HDL wrapped ARM7TDMI Core Model HP-UX L
- --------------------------------------------------------------------------------
SDF Timing Shell Models
- --------------------------------------------------------------------------------
A3 AT010-MS-22502 Verilog HDL wrapped ARM7TDMI Core Model Sun/Solaris L
- --------------------------------------------------------------------------------
A4 AT010-MS-22503 Verilog HDL wrapped ARM7TDMI Core Model HP-UX L
- --------------------------------------------------------------------------------
Part B
ARM7TDMI Design Simulation Model Simulator Options
Multiple model options exist for the ARM7TDMI. Each option consists of a
simulator-specific model and timing veneer for each of the 3 supported operating
system platforms, SunOS, Solaris and HPUX. The current supported simulators are
Synopsys VSS, Model Technologies V-System and Vantage VHDL simulators plus the
Cadence Verilog XL and Leapfrog simulators. All the models support a simple C
language timing veneer, however, Standard Delay Formatted timing veneers are
also supported where the simulator allows.
Page 31
<PAGE>
CONFIDENTIAL
Schedule 4
Form of Error Report
Summary of Problem:
- ------------------
Information about reporter
- --------------------------
Name:
Organisation:
Location:
E-mail:
Fax:
Telephone:
Information about problem
-------------------------
Please enter details of the, including:
1. A full description of the problem
2. Example code demonstrating the problem. If this code is too large to
place in the body of an email, please feel free to send this as an
attachment (zipped and unencoded, maximum size around 300 Kbytes, or
to put it on the ARM partner FTP server).
3. Instructions on how to build the code and to replicate the problem.
4. Details of what output you obtained from the code, and how this
differs from what you expected.
5. Details of any workaround found.
Page 32
<PAGE>
Schedule 5
Trademark Guidelines
Trademarks
- ----------
----------------------------------------------------------
mark Registered/Unregistered
----------------------------------------------------------
Part A
---------------------------------------------------------
[logo] Exhibit A Unregistered
---------------------------------------------------------
Part B
---------------------------------------------------------
Powered [logo] Exhibit B Registered
---------------------------------------------------------
Part C
---------------------------------------------------------
[logo] Exhibit C Registered
---------------------------------------------------------
Part D
---------------------------------------------------------
ARM Registered
---------------------------------------------------------
Thumb Registered
---------------------------------------------------------
ARM7TDMI Unregistered
---------------------------------------------------------
Rules for Trademark Usage
-------------------------
1. On Die Encapsulation
----------------------
Where Licensee is distributing ARM Compliant Products Licensee shall apply
the Trademark identified in Part A of this Schedule to the die
encapsulation of each unit of ARM Compliant Product.
Except as agreed in writing by ARM, any application by Licensee of the
Trademark identified in Part A of this Schedule shall be in accordance with
the Trademark Use Guide set out in Exhibit A of this Schedule.
2. On Product Packaging Documentation and Copy
-------------------------------------------
ARM Powered Logo
----------------
Licensee shall apply the Trademark identified in Part B of this Schedule,
in a prominent place, to any product packaging, advertising material or
promotional, technical or other documentation for, or relating to, any
product distributed under licence from ARM.
Any use or application by Licensee of the Trademark identified in Part B of
this Schedule shall be in accordance with; (i) the Trademark Use Guide set
out in Exhibit B of this Schedule; and (ii) with accepted trademark use
standards.
Page 33
<PAGE>
ARM Logo (Exhibit C); Corporate Signature
-----------------------------------------
Licensee may apply the Trademark identified in Part C of this Schedule to
any product packaging, advertising material or promotional, technical or
other documentation for, or relating to, any product distributed under
licence from ARM.
Any application of the Trademark identified in Part C of this Schedule by
Licensee shall be in accordance with; (i) the Trademark Use Guide in
Exhibit C of this Schedule; and (ii) with accepted trademark use standards.
The Trademark identified in Part C of this Schedule may only be used
separately and only to identify ARM (including ARM Holdings plc, its
operating company ARM Limited, and the regional subsidiaries, ARM, Inc.;
ARM KK; and ARM Korea Limited) and may not be incorporated into a body of
text.
Other Trademarks
----------------
Licensee shall apply the appropriate Trademark from those identified in
Part D of this Schedule to any product packaging, advertising material or
promotional, technical or other documentation relating to the respective
product distributed under licence from ARM.
Any use of the Trademarks identified in Part D of this Schedule by Licensee
shall be in accordance with accepted trademark use standards including but
not limited to the following;
(a) use of the Trademarks only in conjunction with a generic term for the
respective product (e.g. ARM processor, where processor is the generic
term); and
(b) avoiding use of the Trademark, ARM, in the possessive (e.g. ARM's
processor).
3. Where any registered Trademark is applied to any product packaging,
advertising material or promotional, technical or other documentation
relating to any product distributed under licence from ARM, then for
each prominent use and the first use in any text of any such mark the
mark must appear with the symbol "" at the upper right corner of the
mark.
4. Where any unregistered Trademark is applied to any product packaging,
advertising material and promotional, technical or other documentation
relating to the any product distributed under licence from ARM, then
for each prominent use and the first use in any text of any such mark
the mark must appear with the symbol "TM" at the upper right comer of
the mark.
5. Licensee shall include appropriate notices in substantially the
following form on any product packaging, advertising material and
promotional, technical or other documentation relating to any product
distributed under licence from ARM;
Page 34
<PAGE>
For registered Trademarks
"[Cite Trademark(s)] is [are] the registered trademark(s) of ARM
Limited.
For unregistered Trademarks
"[Cite Trademark(s)] is [are] the trademark(s) of ARM Limited.
6. ARM will provide its Licensees with camera ready and electronic
artwork of the Trademarks together with specific Pantone colour
references. The Trademarks must not be altered or modified in any
way. The Trademarks may be used in black and white or the exact
colour reference identified in the relevant Exhibit.
7. In addition to the rules set out above ARM may provide Licensees with
additional instructions relating to the use of the Trademarks from
time to time which Licensee shall follow in its use of the Trademarks.
<PAGE>
Exhibit A
Trademark Use Guide
- -------------------
The mark must appear exactly as shown in this guide; the elements, proportions
and relationships must not change. The mark is available in stat repro form and
in .eps for Macintosh or .WMF for PC platforms. These formats ensure the highest
possible reproduction quality. However, should you need another format for a
specific project, please contact your local ARM office for advice.
When produced in colour, the mark should be printed in Pantone 314 blue. Process
colour reproduction may not match Pantone-identified solid colour standards.
When specifying the colour of the mark with process inks, the correct mix is:
Cyan 100
- ----------------------------------------------------------------------------
Magenta 0
- ----------------------------------------------------------------------------
Yellow 8.5
- ----------------------------------------------------------------------------
Black 34
- ----------------------------------------------------------------------------
. Do not alter or deform the shape of the mark.
. Do not replace the logotype with a different typeface or attempt to mimic the
logotype typeface.
. Do not place competing visual elements close to the mark.
. Do not set type near to the mark that could be construed as a corporate
slogan or motto.
Page 36
<PAGE>
Exhibit B
Trademark Use Guide
- -------------------
The mark must appear exactly as shown in this guide; the elements, proportions
and relationships must not change. The mark is available in stat repro form and
in .eps for Macintosh or .WMF for PC platforms. These formats ensure the highest
possible reproduction quality. However, should you need another format for a
specific project, please contact your local ARM office for advice.
When produced in colour, the mark should be printed in Pantone 314 blue. Process
colour reproduction may not match Pantone-identified solid colour standards.
When specifying the colour of the mark with process inks, the correct mix is:
Cyan 100
- ------------------------------------------------------------------------------
Magenta 0
- ------------------------------------------------------------------------------
Yellow 8.5
- ------------------------------------------------------------------------------
Black 34
- ------------------------------------------------------------------------------
. Do not alter or deform the shape of the mark.
. Do not replace the logotppe with a different typeface or attempt to mimic
the logotype typeface.
. Do not place competing visual elements close to the mark.
. Do not set type near to the mark that could be construed as a corporate
slogan or motto.
Page37
<PAGE>
Exhibit C
Trademark Use Guide
- -------------------
The mark must appear exactly as shown in this guide; the elements, proportions
and relationships must not change. The mark is available in stat repro form and
in .eps for Macintosh or .WMF for PC platforms. These formats ensure the highest
possible reproduction quality. However, should you need another format for a
specific project, please contact your local ARM office for advice.
When produced in colour, the mark should be printed in Pantone 314 blue. Process
colour reproduction may not match Pantone-identified solid colour standards.
When specifying the colour of the mark with process inks, the correct mix is:
Cyan 100
- -----------------------------------------------------------------------------
Magenta 0
- -----------------------------------------------------------------------------
Yellow 8.5
- -----------------------------------------------------------------------------
Black 34
- -----------------------------------------------------------------------------
. Do not alter or deform the shape of the mark.
. Do not replace the logotppe with a different typeface or attempt to mimic the
logotype typeface.
. Do not place competing visual elements close to the mark.
. Do not set type near to the mark that could be construed as a corporate
slogan or motto.
Page 38
<PAGE>
Schedule 6
Running Royalty Payment Terms
Currency: US Dollars
Frequency: During the term of this Agreement, at the end of each Quarter of
each year in which Royalties are payable.
When due: Within thirty (30) days after the end of each Quarter, LICENSEE
shall deliver the Royalty Report by first class mail or email and
pay the Royalties.
What is due: Payment by telegraphic transfer to Barclays Bank PLC, 15 Bene't
Street, Cambridge, England, Sort Code 20-17-19, Account No.
56139700.
Where sent: To the address for ARM set forth in this Agreement via first
class mail and to [email protected], [email protected] and pdavid@
arm.com via email.
Page 39
<PAGE>
Schedule 6
Exhibit 1
Form of Royalty Report
Part A
Cumulative Sales of ARM Compliant Product
----------------------------------------------------------------------------
Number of units of Number of units of ARM Royalty Due
Authorised Devices Compliant Product (excluding
Distributed in Quarter Authorised Devices)
Distributed in Quarter
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Part B
During the term of this Agreement, LICENSEE shall, upon ARM's request,
discuss with ARM details of LICENSEE's product lines and product plans
for the following Quarter. Such information shall be non-binding,
supplied in good faith and treated as Confidential Information.
Page 40
<PAGE>
Schedule 7
Payment Schedule
All sums due in accordance with the provisions of this Schedule shall be payable
on receipt by LICENSEE of ARM's pro-forma invoice therefor.
Part A
<TABLE>
<CAPTION>
__________________________________________________________________________________________________
Technology License Fee Price US$ Payment Due Date
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Fee for each Unique ARM * First Technology License fee due on receipt
Compliant Product of pro forma invoice, and any subsequent
Technology License Fee due on the happening
of each respective Design Win Event.
- --------------------------------------------------------------------------------------------------
</TABLE>
Part B
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Model Fee Price US$ Payment Due Date
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
For Model delivered under Part * On receipt of pro-forma invoice.
A of Schedule 3
- --------------------------------------------------------------------------------------------------
</TABLE>
Part C
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Training Fee Price Payment Due Date
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
In respect of 4 days training * On receipt of pro-forma invoice.
for 12 people taken during
the period ending one year
from the Effective Date.
- --------------------------------------------------------------------------------------------------
</TABLE>
Part D
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Support Fees Price Payment Due Date
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
In respect of * person days' * On receipt of pro-forma invoice.
support per annum.
- --------------------------------------------------------------------------------------------------
</TABLE>
________________________
* Pursuant to a request for confidential treatment, selected information in
this document has been omitted and separately filed with the Securities and
Exchange Commission.
Page 41
<PAGE>
Part E
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Maintenance Fee Price Payment Due Date
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
In respect of each * * On receipt of pro-forma invoice.
maintenance per model.
- --------------------------------------------------------------------------------------------------
</TABLE>
Part F
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Porting Fees Price US$ Payment Due Date
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Porting Fees in respect * On receipt of pro-forma invoice.
of the Pre-fabrication (subject to
characterisation review,
estimated value
pending receipt
of latest
version of
Design Rules)
- --------------------------------------------------------------------------------------------------
Porting Fees in respect * On receipt of pro-forma invoice.
of the Design Transfer (subject to
review,
estimated value
pending receipt
of latest
version of
Design Rules)
- --------------------------------------------------------------------------------------------------
</TABLE>
___________________________
* Pursuant to a request for confidential treatment, selected information in
this document has been omitted and separately filed with the Securities and
Exchange Commission.
Page 42
<PAGE>
Part G
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Option Fee Price US$ Payment Due Date
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
In respect of converting the See below On the date of election in accordance with
license into a full license the provisions of Clause 10.1.
- --------------------------------------------------------------------------------------------------
</TABLE>
The Option Fee shall be * less the aggregate of all Technology Licence Fees
paid to ARM at the date of election and * of the aggregate of the Royalty
Premiums that have been paid to ARM and Royalty Premiums that have accrued
but not been paid to ARM at the date of election in accordance with the
provisions of Clause 10.1. For the avoidance of doubt the LICENSEE shall be
entitled to set off against the Option Fee (as defined in Clause 7.3) the
aggregate of any licence fees paid under the "foundry model" and * of any
Royalty Premium that have been paid to ARM and Royalty Premiums that have
accrued but not been paid to ARM under the "foundry model" at the date of
election in accordance with the provisions of Clause 10.1. Any amount which
is set off against the Option Fee in accordance with this Clause shall be
subject to adjustment by the auditors in accordance with Clause 7.11.
Part H
Software Development Toolkit
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Number of Seats Price US$ Payment Due Date
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
1 to 5 * On receipt of pro-forma invoice
- --------------------------------------------------------------------------------------------------
6 to 20 * On receipt of pro-forma invoice
- --------------------------------------------------------------------------------------------------
21 to 50 * On receipt of pro-forma invoice
- --------------------------------------------------------------------------------------------------
Less than 50 * On receipt of pro-forma invoice
- --------------------------------------------------------------------------------------------------
</TABLE>
These prices shall be fixed for one (1) year from the Effective Date and
thereafter shall be charged at ARM's then current standard price for the
Software Development Toolkit.
______________________
* Pursuant to a request for confidential treatment, selected information in
this document has been omitted and separately filed with the Securities and
Exchange Commission.
Page 43
<PAGE>
Part I
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Model Option Fee Price US$ Payment Due Date
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
For Model delivered under * On receipt of pro-forma invoice following
Part A of Schedule 3 exercise of option in accordance with the
provisions of Clause 4.2.
- --------------------------------------------------------------------------------------------------
</TABLE>
__________________________
* Pursuant to a request for confidential treatment, selected information in
this document has been omitted and separately filed with the Securities and
Exchange Commission.
Page 44
<PAGE>
Schedule 8
End User Licence
Virata Limited ("LICENSE") hereby grants and the END USER hereby accepts a
non transferable and non-exclusive licence to use the Models under the
following terms and conditions:
1. Ownership. The Models is the property of LICENSEE and/or its licensors.
The END USER acquires no title, right or interest in the Models other than
the licence rights granted herein.
2. Use. The END USER may use the Models on any one computer at one time
except that the Models may be executed from a common disc shared by
multiple CPUs provided that one authorised copy of the Models has been
licensed from LICENSEE for each CPU executing the Models. END USER shall
not reverse engineer, decompile or disassemble the Models, in whole or in
part.
3. Copies. The END USER may make copies of the Models for back-up and
archival purposes only. All copies of the Models must bear the same
notice(s) contained on the original copies supplied by LICENSEE.
4. Models Limited Warranty. LICENSEE warrants that the disks containing the
Models shall be free from defects and workmanship under normal use and the
programs will perform in accordance with the accompanying documentation for
a period of ninety (90) days from the date of delivery. Any written or
oral information or advice given by LICENSEE distributors, agents or
employees will in no way increase the scope of this warranty. LICENSEE's
entire liability and the END USER's exclusive remedy will be, at LICENSEE's
sole option, to replace the disk or to use LICENSEE's reasonable efforts to
make the Models meet the warranty set forth above. Any replacement Models
will be warranted for the remainder of the original warranty period or
thirty (30) days, whichever is the longer. The END USER agrees that the
supply of the Models does not include updates and upgrades, which may be
available from LICENSEE under a separate support agreement.
THE ABOVE WARRANTIES ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES,
WHETHER EXPRESS OR IMPLIED INCLUDING, WITHOUT LIMITATION, THE IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
IN NO EVENT SHALL LICENSEE BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL
OR CONSEQUENTIAL DAMAGES RESULTING FROM ITS PERFORMANCE OR FAILURE TO
PERFORM UNDER THIS AGREEMENT OR THE FURNISHING, PERFORMANCE, OR USE OF ANY
SOFTWARE LICENSED HERETO, WHETHER DUE TO BREACH OF CONTRACT, BREACH OF
Page 45
<PAGE>
WARRANTY, OR NEGLIGENCE EVEN IF LICENSEE HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
THE MAXIMUM LIABILITY OF LICENSEE SHALL BE LIMITED TO REFUND TO THE END
USER THE FEE PAID BY THE END USER FOR THE SOFTWARE.
5. Assignment of the Agreement. This Agreement and any licence granted
hereunder to the END USER may not be assigned, sub-licensed or otherwise
transferred by the END USER to any third party without the prior written
consent of LICENSEE. Transfer to a U.S. government department or agency or
to a prime or lower tier contractor in connection with a U.S government
contract shall be made only upon the prior written agreement to terms
agreed by LICENSEE.
6. Terms and Termination. This Agreement and licences granted hereunder may
be terminated forthwith by LICENSEE by written notice to the END USER in
case of (i) breach by the END USER of any provisions of this Agreement, and
(ii) non-payment by the END USER in due time of any sum due from the END
USER in consideration of delivery and licence of this Models.
Upon termination of this Agreement and of the licence granted hereunder,
the END USER shall refrain from any further use of the Models, and LICENSEE
may request either the destruction of any copy of the Models, in any form,
in the possession of the END USER or the return of the same to LICENSEE.
7. Applicability. The limitations and exclusions above may not apply in
certain countries or states where they conflict with local law. In cases
where such a conflict exists the local law shall prevail and the remaining
provisions of the Agreement shall remain in full force and effect.
Page 46
<PAGE>
EXHIBIT 10.19
SETTLEMENT AGREEMENT
This Settlement Agreement is entered into as of the 19th day of June 1998 (the
"Effective Date") by Cirrus Logic, Inc. a California corporation with principal
offices at 3100 West Warren Ave., Fremont, CA, 94538 ("Cirrus"); and Virata
Limited (formerly known as Advanced Telecommunications Modules Ltd.), an English
corporation with principal offices at Mount Pleasant House, 2 Mount Pleasant,
Huntingdon Road, Cambridge, CB3 OBL, U.K. ("Virata").
WHEREAS Cirrus and Virata entered into a License Agreement dated September 18,
1995 (such agreement as it has been amended, the "Prior Agreement"), under which
the parties agreed to develop and market one or more ATM semiconductor products
using certain intellectual property from each party;
AND WHEREAS Cirrus and Virata wish to terminate the Prior Agreement, settle
various issues under the Prior Agreement, determine and settle the rights of the
respective parties to certain intellectual property developed under the Prior
Agreement, provide for the continued supply of products by Cirrus to Virata, and
provide for a license to certain intellectual property of Virata to Cirrus on
the terms and conditions set out herein.
NOW THEREFORE, in consideration of the mutual covenants and agreements contained
herein, the parties agree as follows:
1. DEFINITIONS
1.1 "CIRRUS TECHNOLOGY" means the technology further described in Exhibit A.
1.2 "HYDROGEN CHIP" means the product developed under the Prior Agreement for
which the current version is referred to as Virata part number (1C000082)
and Cirrus part number (CL-PS-7900-QC-AC).
1.3 "INTELLECTUAL PROPERTY RIGHTS" means patent rights (including patent
applications and disclosures), rights of priority, copyright rights, Moral
Rights, trade secret rights, know-how, and any other intellectual property
or proprietary rights recognized in any country or jurisdiction in the
world.
1.4 "JOINT TECHNOLOGY" means the technology further described in Exhibit E.
1.5 "LICENSE AGREEMENT" means the form of License Agreement attached hereto as
Exhibit C.
1.6 "VOLUME PURCHASE AGREEMENT" means the form of Volume Purchase Agreement
attached hereto as Exhibit D.
1.7 "MORAL RIGHTS" mean any rights to claim authorship of a work, to object to
or prevent any modification of a work, to withdraw from circulation or
control the publication or distribution of a work, and any similar right,
existing under judicial or statutory law of
<PAGE>
any country in the world, or under any treaty, regardless of whether or not
such right is called or generally referred to as a "moral right".
1.8 "VIRATA TECHNOLOGY" means the technology further described in Exhibit B.
2. TERMINATION OF PRIOR AGREEMENT
2.1 Termination. The parties hereby terminate the Prior Agreement as of the
-----------
Effective Date.
2.2 Release. Each party releases and discharges the other party from any and
-------
all claims, causes of action, liabilities or obligations of any kind or
nature arising under the terms of the Prior Agreement to the Effective
Date. The parties agree that purchase order number 3720 shall be
specifically excluded from this release and shall continue in full force
and effect under this Agreement.
2.3 Amounts paid under Prior Agreement. Virata hereby acknowledges receipt of
----------------------------------
five hundred thousand dollars ($500,000.00) from Cirrus for pre-paid
royalties under the Prior Agreement. The parties agree that the said five
hundred thousand dollars ($500,00.00) shall be treated as a one time
license fee under the Agreement for access to Virata Technology and any
software bug fixes under the warranty terms hereto, and the grant of
license under Sections 2.1 and 2.2 of the License Agreement as set forth in
Exhibit C.
2.4 Survival. Notwithstanding anything to the contrary in the Prior Agreement,
--------
including without limitation the provisions of Section 9.3, only Sections
8,10 and 11 of the Prior Agreement (copies of which are attached hereto as
Exhibit F) shall survive termination of the Prior Agreement and all other
provisions of the Prior Agreement, including without limitation the
licenses granted in Section 2, shall terminate as of the Effective Date.
2.4.1 Notice. Each party agrees not to file any litigation or similar
------
legal process against the other for breach of Section 8 of the Prior
Agreement or Section 3 of the License Agreement without providing
the other party with at least ten (10) days prior written notice of
its intent to file such a claim. This notice requirement shall not
prejudice in any way either party's right to seek an injunction with
respect to an alleged breach of Section 8 or Section 3 respectively.
2.5 Obligations. Cirrus is hereby released from any obligations and liability
-----------
under Section 7 of the Prior Agreement for any future payments and for any
payments which have accrued up to the Effective Date.
2.6 Return of Materials. Immediately following the Effective Date, each party
-------------------
shall make commercially reasonable best efforts to return to the other all
materials owned by the other party and all confidential or proprietary
information of the other party in their possession or control (other than
any materials or information reasonably required by such party to exercise
their rights under the License Agreement or the Volume Purchasing
Agreement).
2
<PAGE>
3. OWNERSHIP
3.1 Cirrus Technology. Cirrus shall own all right, title and interest in the
-----------------
Cirrus Technology, including all worldwide Intellectual Property Rights
therein. To the extent that Virata has any interest in the Cirrus
Technology, Virata hereby irrevocably transfers and assigns to Cirrus all
of its right, title and interest in the Cirrus Technology, including all
worldwide Intellectual Property Rights therein. At Cirrus' request and
expense, Virata will provide reasonable assistance and cooperation to
Cirrus, and will give testimony and execute documents, and take such
further acts reasonably requested by Cirrus to acquire, transfer, maintain,
perfect and enforce Cirrus' Intellectual Property Rights in the Cirrus
Technology. Virata hereby appoints the officers of Cirrus as Virata's
attorney-in-fact to execute documents on behalf of Virata and its employees
for this limited purpose.
3.2 Virata Technology. Virata shall own all right, title and interest in the
-----------------
Virata Technology, including all worldwide Intellectual Property Rights
therein. To the extent that Cirrus has any interest in the Virata
Technology, Cirrus hereby irrevocably transfers and assigns to Virata all
of its right, title and interest in the Virata Technology, including all
worldwide Intellectual Property Rights therein. At Virata's request and
expense, Cirrus will provide reasonable assistance and cooperation to
Virata, and will give testimony and execute documents, and take such
further acts reasonably requested by Virata to acquire, transfer, maintain,
perfect and enforce Virata's Intellectual Property Rights in the Virata
Technology. Cirrus hereby appoints the officers of Virata as Cirrus'
attorney-in-fact to execute documents on behalf of Cirrus and its employees
for this limited purpose.
3.3 Joint Technology. Virata and Cirrus shall jointly and equally own all
----------------
right, title and interest in the Joint Technology, including all worldwide
Intellectual Property Rights therein. Each party shall have total freedom
of action with respect to the Joint Technology, without accounting to the
other. All expenses incurred in obtaining and maintaining patent
protection in the Joint Technology shall be jointly shared, provided that,
where one party elects not to seek or maintain patent protection with
respect to any Joint Technology in any particular country or not to share
equally in the expenses thereof, the other party shall have the right to
seek or maintain such protection at its own expense and shall have full
control over the prosecution and maintenance thereof, even though title to
any patent issuing thereon shall be joint. Each party agrees to provide
reasonable assistance to the other in the registration of and protection of
Intellectual Property Rights in the Joint Technology. Subject to any
public disclosure necessary to be made in seeking patent protection, each
party agrees to maintain the confidentiality of the Joint Technology and
protect the confidential information and trade secrets included within the
Joint Technology using at least the same procedures and degree of care that
it uses to protect the disclosure of its other confidential and proprietary
information but no less than reasonable care.
3
<PAGE>
4. LICENSE
Virata and Cirrus shall enter into the License Agreement contemporaneous with
the execution of this Agreement for the license by Virata to Cirrus of certain
technology owned by Virata.
5. VOLUME PURCHASE
Virata -and Cirrus shall enter into the Volume Purchasing Agreement
contemporaneous with the execution of this Agreement for the supply by Cirrus of
the Hydrogen Chip to Virata.
6. DEVELOPMENT
Cirrus hereby covenants that it will make any and all commercially reasonable
best efforts in the completion of the development of the new version of the
Hydrogen Chip (code named "Rev. AE" as of the Effective Date and comprising
"Rev. AD" plus a functional PCI block, without any pin out changes) which
development is expected to be completed on or about September 1,1998.
7. GENERAL
7.1 Governing Law. This Agreement shall be governed by and interpreted in
-------------
accordance with the laws of the State of California, U.S.A., without
reference to conflict of laws principles.
7.2 Assignment. This Agreement shall inure to the benefit of, and shall be
----------
binding upon, the parties hereto and their respective successors and
assigns. Neither party may assign this Agreement, by operation of law or
otherwise, without the prior written consent of the other (which consent
shall not be unreasonably withheld) except to a person into which it has
merged or who has otherwise succeeded to all or substantially all of the
business and assets of the assignor, and who has assumed in writing or by
operation of law its obligations under this Agreement.
7.3 Notice. Notice by either party under this Agreement shall be in writing
------
and personally delivered or given by registered mail, overnight courier, or
facsimile confirmed by registered mail, addressed to the other party at its
address given herein (or such other address as may be communicated to the
other party in writing) and shall be deemed to have been served when
delivered or, if delivery is not accomplished by reason of some fault of
the addressee, when tendered.
7.4 No Waiver. The failure of either party to enforce at any time any of the
---------
provisions of this Agreement, or the failure to require at any time
performance by the other party of any of the provisions of this Agreement,
shall in no way be construed to be a present or future waiver of such
provisions, nor in any way affect the right of either party to enforce each
and every such provision thereafter. The express waiver by either party of
any provision, condition or requirement of this Agreement shall not
constitute a waiver of any future obligation to comply with such provision,
condition or requirement.
4
<PAGE>
7.5 Counterparts. This Agreement may be executed in two (2) or more
------------
counterparts or duplicate originals, all of which shall be regarded as one
and the same instrument, and which shall be the official and governing
version in the interpretation of this Agreement.
7.6 Severability. If any provision in this Agreement shall be found or be held
------------
to be invalid or unenforceable in any jurisdiction in which this Agreement
is being performed, then the meaning of said provision shall be construed,
to the extent feasible, so as to render the provision enforceable, and if
no feasible interpretation would save such provision, it shall be severed
from the remainder of this Agreement which shall remain in full force and
effect. In such event, the parties shall negotiate in good faith a
substitute, valid and enforceable provision which most nearly effects the
parties' intent in entering into this Agreement.
7.7 Publicity. The existence, general nature, and specific terms and
---------
conditions of this Agreement will be held in confidence and may not be
disclosed without the consent of both parties, except: as required by any
court or other governmental body; as otherwise required by law; to legal
counsel of the parties; in confidence, to accountants, banks, and financing
sources and their advisors; in confidence, in connection with the
enforcement of this Agreement or rights under this Agreement; or in
confidence, in connection with an actual or prospective merger, acquisition
or similar transaction.
7.8 Entire Agreement. The terms and conditions herein contained and the
----------------
provisions of the Settlement Agreement constitute the entire agreement
between the parties and supersede all previous agreements and
understandings, whether oral or written, between the parties with respect
to the subject matter hereof. No alteration, amendment, waiver,
cancellation or any other change in any term or condition of this Agreement
shall be valid or binding on either party unless the same shall have been
mutually assented to in writing by both parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
in duplicate by duly authorized officers or representatives as of the date first
written above.
Cirrus Logic, Inc. Virata Limited
By:/s/ By: /s/ Charles Cotton
-------------------------------- --------------------------------
5
<PAGE>
EXHIBIT A
Cirrus Technology
Al. PHYSICAL LAYOUT. The physical layout of each Hydrogen Chip produced under
this Agreement and the Prior Agreement shall be considered Cirrus Technology.
A2. FUNCTIONAL BLOCKS, TEST SPECIFICATIONS, TEST METHODOLOGY. Functional
blocks, test specifications and test methodology shall be considered Cirrus
Technology where so noted in the table below:
<TABLE>
<CAPTION>
====================================================================================================
FUNCTIONAL BLOCKS BLOCK TEST SPECIFICATION TEST
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AFE Cirrus Technology Virata Technology Virata Technology
- ----------------------------------------------------------------------------------------------------
Arbiter Virata Technology Virata Technology Virata Technology
- ----------------------------------------------------------------------------------------------------
ARM Block* Virata Technology Virata Technology Joint Technology
- ----------------------------------------------------------------------------------------------------
Clock Tree Cirrus Technology Cirrus Technology Cirrus Technology
- ----------------------------------------------------------------------------------------------------
GPIO Virata Technology Virata Technology Joint Technology
- ----------------------------------------------------------------------------------------------------
Interrupt Control Virata Technology Virata Technology Joint Technology
- ----------------------------------------------------------------------------------------------------
List Manager Virata Technology Virata Technology Joint Technology
- ----------------------------------------------------------------------------------------------------
Network Virata Technology Virata Technology Virata Technology
- ----------------------------------------------------------------------------------------------------
SRAM Cirrus Technology Cirrus Technology Cirrus Technology
- ----------------------------------------------------------------------------------------------------
DRAM Cirrus Technology Cirrus Technology Joint Technology
- ----------------------------------------------------------------------------------------------------
UART Cirrus Technology Cirrus Technology Cirrus Technology
- ----------------------------------------------------------------------------------------------------
PCI Cirrus Technology Cirrus Technology Cirrus Technology
- ----------------------------------------------------------------------------------------------------
</TABLE>
*The ARM Block contains an ARM Core licensed by Cirrus Logic from ARM Limited.
A3. PROCESS TECHNOLOGY. Process Technology shall be considered Cirrus
Technology as specified in the table below:
<TABLE>
<CAPTION>
======================================================================================================
PROCESS OWNER TOOL CONTENT OF OUTPUT
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gate Level Design Verilog Cirrus Gate Level System Design
- ------------------------------------------------------------------------------------------------------
Synthesize Gate Level Netlist Synopsis Cirrus Gate Level Netlist
- ------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
EXHIBIT B
Virata Technology
B1. ARCHITECTURE. The architecture and overall design specification of the
Hydrogen Chips shall be considered Virata Technology.
B2. FUNCTIONAL BLOCKS, TEST SPECIFICATIONS, TEST METHODOLOGY. Functional
blocks, test specifications and test methodology shall be considered Virata
Technology where so noted in the table below:
<TABLE>
<CAPTION>
====================================================================================================
FUNCTIONAL BLOCKS BLOCK TEST SPECIFICATION TEST
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AFE Cirrus Technology Virata Technology Virata Technology
- ----------------------------------------------------------------------------------------------------
Arbiter Virata Technology Virata Technology Virata Technology
- ----------------------------------------------------------------------------------------------------
ARM Block* Virata Technology Virata Technology Joint Technology
- ----------------------------------------------------------------------------------------------------
Clock Tree Cirrus Technology Cirrus Technology Cirrus Technology
- ----------------------------------------------------------------------------------------------------
GPIO Virata Technology Virata Technology Joint Technology
- ----------------------------------------------------------------------------------------------------
Interrupt Control Virata Technology Virata Technology Joint Technology
- ----------------------------------------------------------------------------------------------------
List Manager Virata Technology Virata Technology Joint Technology
- ----------------------------------------------------------------------------------------------------
Network Virata Technology Virata Technology Virata Technology
- ----------------------------------------------------------------------------------------------------
SRAM Cirrus Technology Cirrus Technology Cirrus Technology
- ----------------------------------------------------------------------------------------------------
DRAM Cirrus Technology Cirrus Technology Joint Technology
- ----------------------------------------------------------------------------------------------------
UART Cirrus Technology Cirrus Technology Cirrus Technology
- ----------------------------------------------------------------------------------------------------
PCI Cirrus Technology Cirrus Technology Cirrus Technology
- ----------------------------------------------------------------------------------------------------
</TABLE>
*The ARM Block contains an ARM Core licensed by Cirrus Logic from ARM Limited.
B3. PROCESS TECHNOLOGY. Process Technology shall be considered Virata
Technology as specified in the table below:
<TABLE>
<CAPTION>
======================================================================================================
PROCESS OWNER TOOL CONTENT OF OUTPUT
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
High Level Hydrogen Bones Virata Verification of Hydrogen
Simulation System Design
- ------------------------------------------------------------------------------------------------------
System Characterization Quickturn Virata Performance Model
- ------------------------------------------------------------------------------------------------------
</TABLE>
B4. VIRATA SOFTWARE
B4.1. SOFTWARE FUNCTIONS. The following shall be included in Virata Software:
Software functions that form the basis for licensees to develop drivers that are
compatible with Microsoft's latest operations systems.
7
<PAGE>
Software functions to boot Hydrogen's ARM processor.
Software functions to run device specific protocols.
Software functions to enable data transfer between the chip and the host
operating systems.
B4.2. SOFTWARE DELIVERABLES. The software deliverables shall contain the
following files:
atmos/source/asics:
asics.module
hydrogen.h
hydrogen.s
atmos/source/atm:
atm.h
atm.module
atm.s
atm_atmos.c
atm_driver.h
atm_eneric.h
atm_hcore.c
atm_hydrogen.c
atm_if.h
atm_standard.h
atmgeneric.h
atmshare.c
bytelib.h
debug.c
debug.h
fdl.h
fdlmeta.h
memory.h
msnl_fsm.fsm
msnllib.h
oam.c
oam.h
standalone_msnl.c
swcommon.h
switchlookup.h
atmos/source/atom:
atom.module
li2c.h
lnvs.c
lnvs.h
8
<PAGE>
atmos/source/colours:
blue.module
emeraldlib.h
green.module
greenlib.c
green lib.h
magnolia.module
magnolialib.c
magnolialib.h
netlib.c
netlib.h
roselib.h
white.module
whitelib.c
whitelib.h
atmos/source/console:
chips.c
chips.h
console.module
console_if.h
gen_cmds.c
multicons.c
rnulticons.h
multilib.c
atmos/source/hardware:
arm.arch
arm32.arch
arm32.hw
htype.hw
hydrogen.hw
piglet.hw
atmos/source/isfs:
flash.c
flash.h
flashfs.c
isfs.c
isfs.h
isfs.module
isfslib.c
isfslib.h
isfsroot.c
9
<PAGE>
atmos/source/kernel:
armatmos.s
armregisters.h
armregisters.s
armstatuscontrol.s
atmbrick.h
atomboot.c
atomboot.h
atypes.h
bcopy.h
errno.h
errno.s
kernel.c
kernel.h
kernel.module
kernel_if.h
kernelinit.h
kilib.c
mkarm32.s
mkhydrogen.s
pcb_offsets.h
rom.h
romcall_atom.c
timing.s
trap_arm.c
trap_atom.c
atmos/source/llibc:
assert.h
atmlutil.c*
atmlutil.h*
attribute.c
attribute.h
ccsupport.c
ctype.c
ctype.h
dirent.h
dirlib.c
errno.c
errtable.c
fsm.h
fsm_run.c
limits.h
llibc.module
llibc_internal.h
10
<PAGE>
lmain.c
lmaincc.c
lruntime.c
lsignal.c
lstdio.c
lstdlib.c
ltime.c
memops.s
moddiv.s
pmain.c
pool.c
pool.h
profile.c
profile.h
setjmp_arm.s
signal.h
sstdio.c
sstdlib.c
stat.h
statuslib.c
statuslib.h
stdarg.h
stddef.h
stdio.h
stdlib.h
string.c
string.h
time.c
time.h
vsprintf.c
vsscanf.c
atmos/source/software:
atm.pkg
colours.pkg
console.pkg
core.pkg
isfs.pkg
kernel.pkg
llibc.pkg
timer.pkg
uart.pkg
atmos/source/timer:
timelib.c
11
<PAGE>
timelib.h
timer.module
timer_gen.c
timer_hydrogen.c
timer_if.h
atmos/source/traffic:
commands.cc
conn.cc
lis.cc
main.cc
object.cc
patterns.cc
rx.cc
scwdebug.h
stats.cc
traffic.h
traffic.module
tx.cc
wiredata.cc
atmos/source/uart:
uart.module
uart_gen.c
uart_hydrogen.c
uart_if.h
atmos/system:
traffic_piglet
atomcon:
aim.c
aim.h
atmos.h
atom.c
atom.h
atomboot.c
atomboot.h
atomcon.c
atomnvs.c
build.bat
dpmilib.h
hydrogen.h
lnvs.c
12
<PAGE>
lnvs.h
mdebug.h
pci.c
pci.h
pcitest.c
setup.h
types.h
13
<PAGE>
EXHIBIT C
LICENSE AGREEMENT
This License Agreement is entered into as of the 19th day of June, 1998 by
Cirrus Logic, Inc. a California corporation with principal offices at 3100 West
Warren Ave., Fremont, CA, 94538 ("Cirrus"); and Virata Limited (formerly known
as Advanced Telecommunications Modules Ltd.), an English corporation with
principal offices at Mount Pleasant House, 2 Mount Pleasant, Huntingdon Road,
Cambridge, CB3 OBL, U.K. ("Virata").
WHEREAS Cirrus and Virata entered into a License Agreement dated September 18,
1995 (such agreement as it has been amended, the "Prior Agreement"), under which
the parties agreed to develop and market one or more ATM semiconductor products
using certain intellectual property from each party;
AND WHEREAS Cirrus and Virata have entered into a settlement agreement with
respect to the termination of the Prior Agreement; the determination of the
rights of the respective parties to certain intellectual property developed
under the Prior Agreement; the continued supply of products by Cirrus to Virata;
and a license to certain intellectual property of Virata to Cirrus (the
"Settlement Agreement").
AND WHEREAS as part of the Settlement Agreement the parties have agreed to enter
into a license agreement on the terms and conditions set out herein.
NOW THEREFORE, in consideration of the release by Cirrus of certain rights to
future developments of the intellectual property of Virata and other
consideration described in the Settlement Agreement, the receipt and sufficiency
of which are hereby acknowledged, and the mutual covenants contained in the
Settlement Agreement and contained herein, the parties agree as follows:
1. DEFINITIONS
1.1 "VIRATA LICENSED TECHNOLOGY" means certain designs, patents, mask work
rights, and all other intellectual property rights, copyrighted materials,
and confidential information further described in Exhibit A. Virata
Licensed Technology does not include any software.
1.2 "VIRATA SOFTWARE" means the source code and object code versions of the
software described in Exhibit B.
1.3 "LICENSED TECHNOLOGY" means the Virata Licensed Technology, and the Virata
Software.
1.4 "CONFIDENTIAL INFORMATION" shall have the meaning set forth in Section 3
below.
1.5 "AFFILIATE" of a company means any entity which controls, is controlled by,
or is under common control with that company, where "control" means
ownership or control, direct
14
<PAGE>
or indirect, of more than fifty percent (50%) of the stock or other equity
interest entitled to vote for the election of directors or equivalent
governing body of the entity.
1.6 "DERIVATIVE WORK" means any translation, adaptation, modification,
extension, upgrade, improvement, compilation, abridgment or other form in
which a work that incorporates or utilizes Licensed Technology in whole or
in part may be recast, transformed or adapted where such Derivative Work
would infringe any intellectual property rights in such work.
2. LICENSES
2.1 Virata Licensed Technology. Virata hereby grants to Cirrus and its
--------------------------
Affiliates a worldwide, non-exclusive, perpetual, irrevocable, non-
terminable, non-rescindable, royalty free license under Virata's
intellectual property rights (a) to use Licensed Technology to prepare
Derivative Works, and (b) make, have made, copy, publish, publicly display
and perform, transmit, modify, improve, market, distribute, lease and sell
Derivative Works, and (c ) subject to the terms of this Agreement,
sublicense any and all of the foregoing rights.
2.2 Virata Software. Virata hereby grants to Cirrus and its Affiliates (a) a
---------------
worldwide, non-exclusive, perpetual, irrevocable, non-terminable, non-
rescindable, royalty free license under Virata's intellectual property
rights to (a) use, copy, publish, publicly display and perform, transmit,
modify, improve, prepare Derivative Works based on the Virata Software, and
(b) market, distribute and sublicense to end users the Derivative Works in
object code only solely pursuant to a written software license agreement
between Cirrus Logic and an end user containing, at a minimum, the terms
and conditions set forth in Exhibit C. Cirrus shall only be entitled to
publicly display, transmit, market, distribute and sublicense the right to
use the Virata Software to third-parties in object code format.
2.2.1. Virata represents and warrants that it will deliver to Cirrus
within ten (10) working days of the date this Agreement shall be
executed by both parties the most current version of the source code
of Virata Software. Virata shall provide to Cirrus any bug fixes to
the Virata Software as soon as it makes such bug fixes available to
its licensees or other users of the Virata Software.
2.3 Patent Prosecution and Maintenance. Virata shall notify Cirrus of any
----------------------------------
significant decisions relating to the prosecution of any patents and patent
applications included in the Virata Licensed Technology, including any
decision to abandon or withdraw same from U.S. or foreign prosecution. If
Virata elects not to seek to prosecute any such patent or patent
applications in any country or to seek protection only in certain
countries, Cirrus shall have the right to seek such protection, at its
expense, on said patent and patent application in any and all nonelected
countries. Title to all applications filed on any invention included in
the Virata Licensed Technology and all patents issuing thereon will vest in
Virata subject to a license to Cirrus under said applications and patents
under the terms of Section 2.1. Virata will promptly provide Cirrus with a
copy of each application so filed and, upon request, copies of all official
papers relating thereto.
15
<PAGE>
2.4 Ownership. Subject to Virata's ownership of the Licensed Technology,
---------
Cirrus shall own all right, title and interest in and to any Derivative
Work of the Licensed Technology which is made by or for Cirrus.
2.5 Reservation of Rights. Except as set forth in this Section 2, Virata shall
---------------------
retain all right, title, and interest in and to the Licensed Technology.
Nothing herein shall be construed as granting by implication, estoppel, or
otherwise, any license or other right to any intellectual property right of
Virata other than the Licensed Technology or to grant Cirrus any right or
license other than those expressly granted in this Section 2.
2.6 Future Patents. Any patents obtained by either party after the date of the
--------------
Settlement Agreement relating to any Derivative Work of the Virata Licensed
Technology are hereby licensed to the other party under a nonexclusive,
perpetual, worldwide, non-transferable and fully paid up license to make,
have made, use, sell, offer for sale, export, import, and sublicense any
products covered by any claim of such patents.
2.7 Affiliates. To the extent that the licenses granted hereunder are
----------
applicable to Affiliates of Cirrus, Cirrus will ensure that its Affiliates
are bound by the provisions of this Agreement as if they were parties to it
and each party is deemed to be the appointed agent on behalf of its
Affiliates in signing of this Agreement and that party will be jointly and
severally liable with its Affiliates in respect of any breach of this
Agreement.
3. CONFIDENTIAL INFORMATION
3.1 Definition. The term "CONFIDENTIAL INFORMATION" shall mean any information
----------
disclosed by one party to the other pursuant to this Agreement, in each
case which is in written, graphic, machine readable or other form and is
marked "Confidential", "Proprietary" or is some other manner to indicate
its confidential nature. Confidential Information may also include oral
information disclosed by one party to the other pursuant to this Agreement,
provided that such information is designated as confidential at the time of
disclosure and reduced to a written summary by the disclosing party, within
thirty (30) days after its oral disclosure, which is marked in a manner to
indicate its confidential nature and delivered to the receiving party.
Confidential Information shall also include any "Confidential Information,"
as that term was defined in the Prior Agreement, which was disclosed under
the Prior Agreement.
3.2 Use of Confidential Information. Each party shall treat as confidential
-------------------------------
(as set forth herein) all Confidential Information of the other party and
shall not use such Confidential Information except as contemplated herein
or otherwise authorized in writing. Each party shall implement reasonable
procedures to prohibit the unauthorized disclosure or misuse of the other
party's Confidential Information and shall not intentionally disclose such
Confidential Information to any third party except as may be necessary or
useful in connection with the rights and obligations of such party under
this Agreement, and subject to confidentiality obligations similar to those
set forth herein. Each of the parties shall use at least the same
procedures and degree of care that it uses to prevent the
16
<PAGE>
disclosure of its own Confidential Information of like importance to
prevent the disclosure of Confidential Information disclosed by it by the
other party under this Agreement, but in no event less than reasonable
care. Each party's obligations pursuant to this section shall terminate,
with respect to each item of Confidential Information disclosed to it
hereunder by the other party, five (5) years after disclosure.
3.3 Exclusions. Notwithstanding the above, neither party shall have liability
----------
to the other with regard to any Confidential Information of the other
which: was publicly available at the time it was disclosed or becomes
publicly available through no fault of the receiving party; was known to
the receiving party, without similar confidentiality restriction, at the
time of disclosure; is disclosed by the receiving party with the prior
written approval of the disclosing party; was independently developed by
the receiving party without any use of the Confidential Information;
becomes known to the receiving party, without similar confidentiality
restriction, from a source other than the disclosing party without breach
of this Agreement by the receiving party; or is disclosed pursuant to the
order or requirement of a court, administrative agency, or other
governmental body, provided that the receiving party shall provide prompt,
advance notice thereof to enable the disclosing party to seek a protective
order or otherwise prevent such disclosure.
3.4 Residual Rights. Notwithstanding anything else in this Agreement, however,
---------------
but subject to the other party's patents, copyrights, and mask work rights,
each party's employees shall be entitled to use, without royalty
obligation, the other party's Confidential Information retained in such
employees' memory as a result of exposure to such Confidential Information
pursuant to this Agreement. Nothing in this Agreement will restrict each
party's rights to assign or reassign its employees, including without
limitation those who have had access to the other party's Confidential
Information, to any project in it discretion.
3.5 Virata Licensed Technology. Subject to any public disclosure necessary to
--------------------------
be made in seeking patent protection, Virata covenants that it will
maintain the confidentiality of the Virata Licensed Technology and protect
the Confidential Information included within the Virata Licensed Technology
using at least the same procedures and degree of care that it uses to
protect the disclosure of its other Confidential Information, but in no
event less than reasonable care.
4. REPRESENTATIONS AND WARRANTIES
4.1 Virata represents and warrants to Cirrus that:
(a) it owns or has sufficient rights to the Licensed Technology and that
it has the right, power, and authority to enter into and perform this
Agreement and to grant the rights and licenses granted to Cirrus
hereunder free of any restrictions not contained in this Agreement;
(b) it is not aware of any pending litigation or claim nor, the basis for
any claim that Virata does not own or have sufficient rights to the
Licensed Technology, or that
17
<PAGE>
the exercise by Cirrus of any right granted hereunder will infringe
any intellectual property right of any third party.
5. INFRINGEMENT INDEMNITY
5.1 Indemnity. Subject to Section 5.2 below, Virata shall indemnify and hold
---------
harmless Cirrus and its Affiliates against any costs, loss, liability, or
expense arising directly out of any actual or alleged infringement of any
patent issued as of the date hereof in U.S.A., Canada and E.U., or any
copyright, mask work right or trade secret right arising in the world
directly relating to the exercise by Cirrus Logic of any of the rights
expressly granted by Virata in Sections 2.1 and 2.2. This indemnity is
conditioned on Cirrus' (a) providing to Virata prompt and full disclosure
of any such claim, (b) subject to the remainder of this Section, providing
Virata with sole control over the defense and settlement of such claim, and
(c) providing at Virata's expense, reasonable assistance in connection with
the defense of the claim. Notwithstanding the foregoing, Virata's
liability pursuant to this Section shall be limited to damages finally
awarded against Cirrus, or settlements entered into, in connection with the
claim, together with litigation costs and expenses incurred by Cirrus, to
the extent provided in the next sentence. If Cirrus and Virata agree (such
agreement will not be unreasonably withheld or delayed) that Virata is not
financially capable of fully defending the claim, then Cirrus shall be
entitled to conduct the defense of the claim, at Virata's expense.
5.2 Exclusions. Virata shall have no liability pursuant to Section 5.1 above
----------
with respect to any actual or alleged infringement caused by (a) any
modifications to the Virata Licensed Technology made by Cirrus where the
actual or alleged infringement would not have arisen but for the use of the
Cirrus modification; or (b) the combination of the Virata Licensed
Technology with other items not provided by Virata where the actual or
alleged infringement would not have arisen by use of the Virata Licensed
Technology alone and not in combination with the other items.
6. INFRINGEMENT ACTIONS AGAINST THIRD PARTIES
If Virata does not, within ninety (90) days after receipt of a notice from
Cirrus of a suspected patent infringement within the scope of the Virata
Licensed Technology which infringement is having, or Cirrus reasonably
determines is likely to have, a material adverse effect on Cirrus, commence
action directed towards restraining or enjoining such patent infringement,
Cirrus shall be entitled to take such action as it deems necessary or
appropriate to enforce Virata's patent rights and restrain such infringement.
Virata agrees to cooperate reasonably in any such action initiated by Cirrus,
including without limitation supplying essential documentary evidence and making
essential witnesses then in Virata's employment available. If Virata initiates
and prosecutes any such an action under this Section, Virata shall be
responsible for all legal expense (including court costs and attorneys' fees),
and Virata shall be entitled to all amounts awarded by way of judgment,
settlement or compromise. Similarly, if Cirrus initiates and prosecutes such an
action, Cirrus shall be responsible for all legal expenses (including court
costs and attorneys'
18
<PAGE>
fees) and Cirrus shall be entitled to all amounts awarded by way of judgment,
settlement, or compromise.
7. LIMITATION OF LIABILITY
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL,
SPECIAL OR INDIRECT DAMAGES ARISING OUT OF THIS AGREEMENT. This shall not,
however, limit Virata's obligations pursuant to Section 5 above to pay a final
damage award obtained by a third party.
8. GENERAL
8.1 Governing Law. This Agreement shall be governed by and interpreted in
-------------
accordance with the laws of the State of California, U.S.A., without
reference to conflict of laws principles.
8.2 Assignment. This Agreement shall inure to the benefit of, and shall be
----------
binding upon, the parties hereto and their respective successors and
assigns. Except as provided for in Sections 2.1 and 2.2, neither party may
assign this Agreement, by operation of law or otherwise, without the prior
written consent of the other (which consent shall not be unreasonably
withheld) except to a person into which it has merged or who has otherwise
succeeded to all or substantially all of the business and assets of the
assignor, and who has assumed in writing or by operation of law its
obligations under this Agreement.
8.3 Notice. Notice by either party under this Agreement shall be in writing
------
and personally delivered or given by registered mail, overnight courier, or
facsimile confirmed by registered mail, addressed to the other party at its
address given herein (or such other address as may be communicated to the
other party in writing) and shall be deemed to have been served when
delivered or, if delivery is not accomplished by reason of some fault of
the addressee, when tendered.
8.4 Relationship. The parties hereto are independent contractors. Nothing
------------
contained herein or done in pursuance of this Agreement shall constitute
either party the agent of the other party for any purpose or in any sense
whatsoever, or constitute the parties as partners or joint venturers.
8.5 No Waiver. The failure of either party to enforce at any time any of the
---------
provisions of this Agreement, or the failure to require at any time
performance by the other party of any of the provisions of this Agreement,
shall in no way be construed to be a present or future waiver of such
provisions, nor in any way affect the right of either party to enforce each
and every such provision thereafter. The express waiver by either party of
any provision, condition or requirement of this Agreement shall not
constitute a waiver of any future obligation to comply with such provision,
condition or requirement.
19
<PAGE>
8.6 Counterparts. This Agreement may be executed in two (2) or more
------------
counterparts or duplicate originals, all of which shall be regarded as one
and the same instrument, and which shall be the official and governing
version in the interpretation of this Agreement.
8.7 Severability. If any provision in this Agreement shall be found or be held
------------
to be invalid or unenforceable in any jurisdiction in which this Agreement
is being performed, then the meaning of said provision shall be construed,
to the extent feasible, so as to render the provision enforceable, and if
no feasible interpretation would save such provision, it shall be severed
from the remainder of this Agreement which shall remain in full force and
effect. In such event, the parties shall negotiate in good faith a
substitute, valid and enforceable provision which most nearly effects the
parties' intent in entering into this Agreement.
8.8 Publicity. The existence, general nature, and specific terms and
---------
conditions of this Agreement will be held in confidence and may not be
disclosed without the consent of both parties, except: as required by any
court or other governmental body; as otherwise required by law; to legal
counsel of the parties; in confidence, to accountants, banks, and financing
sources and their advisors; in confidence, in connection with the
enforcement of this Agreement or rights under this Agreement; or in
confidence, in connection with an actual or prospective merger, acquisition
or similar transaction.
8.9 Entire Agreement. The terms and conditions herein contained and the
----------------
provisions of the Settlement Agreement constitute the entire agreement
between the parties and supersede all previous agreements and
understandings, whether oral or written, between the parties with respect
to the subject matter hereof. No alteration, amendment, waiver,
cancellation or any other change in any term or condition of this Agreement
shall be valid or binding on either party unless the same shall have been
mutually assented to in writing by both parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
in duplicate by duly authorized officers or representatives as of the date first
written above.
Cirrus Logic, Inc. Virata Limited
By: By:
-------------------------------- --------------------------------
20
<PAGE>
EXHIBIT A TO LICENSE AGREEMENT
END USER LICENSE TERMS
PLEASE READ THIS LICENSE CAREFULLY BEFORE OPENING THE PACKAGE OR USING THE
SOFTWARE. BY OPENING THE PACKAGE OR USING THE SOFTWARE, YOU ARE AGREEING TO BE
BOUND BY THE TERMS OF THIS LICENSE. IF YOU DO NOT AGREE TO THE TERMS OF THIS
LICENSE, PROMPTLY RETURN THE UNUSED SOFTWARE TO THE PLACE WHERE YOU OBTAINED IT
AND YOUR MONEY WILL BE REFUNDED. VIRATA LIMITED ("VIRATA") SOFTWARE IS LICENSED
NOT SOLD.
FOR THE LIMITED WARRANTY PERTAINING TO THIS PRODUCT, PLEASE REFER TO THE
WARRANTY LEAFLET INCLUDED IN THIS PACKAGE.
1. LICENSE. The application, demonstration, system and other software
accompanying this License, whether on disk, in read-only memory, or on any other
media (the "Virata Software"), and the related documentation are licensed to you
by Virata. You own the medium on which the Virata Software are recorded, but
Virata and/or Virata's licensor(s) retain title to the Virata Software and
related documentation. The License allows you to use the Virata Software on a
single Virata product and make one copy of the Virata Software in machine-
readable form only for backup purposes. You must reproduce, on such copy, the
Virata copyright notice and any other proprietary legends that were on the
original copy of the Virata Software. You may also transfer all your license
rights in the Virata Software, the backup copy of the Virata Software, the
related documentation, and a copy of this License to another party provided the
other party reads and agrees to accept the terms and conditions of this License.
2. RESTRICTIONS. The Virata Software contains copyrighted material, trade
secrets, and other proprietary material. In order to protect them, and except
as permitted by applicable legislation, you may not decompile, reverse engineer,
disassemble, or otherwise reduce the Virata Software to a human-perceivable
form: copy, modify, network, rent, lease, loan, or distribute the Virata
Software; or create derivative works based upon the Virata Software in whole or
in part. You may not electronically transmit the Virata Software from one
computer to another or over the network.
3. TERMINATION. This License is effective until terminated. You may terminate
the License at any time by destroying the Virata Software, related documentation
and all copies thereof. This License will terminate immediately without notice
from Virata if you fail to comply with any provision of this License. Upon
termination you must destroy the Virata Software, related documentation, and all
copies thereof. Upon termination you shall remain subject to the provisions,
restrictions and exclusions in this License Agreement and shall have no right to
any refund of any amount paid for the Virata Software. No termination shall
release you from liability for any breach of this License Agreement.
4. EXPORT LAW ASSURANCES. You agree and certify that neither the Virata
Software nor any other technical data received from Virata, nor the direct
product thereof will be shipped,
21
<PAGE>
transferred, or exported, directly or indirectly, to any county in violation of
any applicable law, including the United States Export Administration Act and
the regulations thereunder.
5. CONTROLLING LAW AND SEVERABILITY. This License shall be governed by and
construed in accordance with the laws of the State of California without regard
to its conflict of laws provisions. If for any reason a court of competent
jurisdiction finds any provision of this License, or portion thereof, to be
unenforceable, that provision of the License shall be enforced to the maximum
extent permissible so as to effect the intent of the parties, and the remainder
of this License shall continue in full force and effect.
6. ACKNOWLEDGMENT. You acknowledge that you have read this License Agreement,
understand it, and agree to be bound by its terms and conditions. You also
agree that the License agreement is the complete and exclusive statement of
agreement between the parties and supersedes all proposals or prior agreements,
oral or written, and any other communications between the parties relating to
the subject matter of the License Agreement. No amendment to or modification of
this License will be binding unless in writing and signed by a duly authorized
representative of Virata.
22
<PAGE>
EXHIBIT D
VOLUME PURCHASE AGREEMENT
This Volume Purchase Agreement ("Agreement") is entered into as of 19 June,
1998 between Cirrus Logic, Inc., a California corporation with principal offices
at 3100 West Warren Avenue, Fremont, California 94538 and Cirrus Logic
International, Ltd., a Bermuda corporation with principal offices at Harbour
Industrial Park, Building 6, Bridgetown, Barbados, West Indies (collectively
"Cirrus"), on the one hand, and Virata Limited, an English corporation with
principal offices at Mount Pleasant House, 2 Mount Pleasant, Huntingdon Road,
Cambridge, CB3 OBL, United Kingdom and Virata Corporation, a Delaware
corporation with principal offices at 2933 Bunker Hill Lane, Suite 201, Santa
Clara, California 95054 (collectively "BUYER"), on the other hand.
In consideration of the mutual promises contained herein, the parties agree
as follows:
1. Purchase and Sale of Products. BUYER agrees to purchase from Cirrus,
-----------------------------
and Cirrus agrees to sell to BUYER, on the terms and conditions set forth herein
the products set forth in Exhibit A ("Products"). Cirrus may unilaterally
modify the specifications of standard Products and substitute units manufactured
to such modified specifications, provided such modifications do not adversely
impact the Products' form, fit, function, interoperability or performance.
2. Terms and Conditions. The terms of sale contained herein apply to all
--------------------
quotations made by and purchase orders entered into by Cirrus for Products.
Except as expressly agreed in writing, the terms of this Agreement supersede and
replace all of the terms of BUYER's purchase order and Cirrus' acknowledgment
form and nothing contained in any such forms shall in any way modify the terms
of this Agreement or add any additional terms or conditions. All orders (or any
other contracts) must be accepted by Cirrus at its home office.
3. Purchase Commitment and Prices. Buyer agrees to purchase, and Cirrus
------------------------------
agrees to sell, the Products listed in the attached Exhibit A at the purchase
price ("Purchase Price") set forth in Exhibit A' in such amounts as may be set
forth in purchase orders submitted by BUYER from time to time pursuant to
Section 6 hereof. The parties agree that no more frequently than twice annually
and upon twenty (20) days notice by either party, the parties shall meet to
discuss and agree on new prices based on the then prevailing market conditions.
If the parties cannot agree on new pricing, then the existing prices as set
forth in Exhibit A shall continue in force.
4. Taxes. BUYER's Purchase Price does not include any excise, sales, use,
-----
value added, or other taxes, tariffs or duties that may be applicable to the
Products. When Cirrus has the legal obligation to collect such taxes or duties,
the appropriate amount shall be added to BUYER's invoice and paid by BUYER
unless BUYER provides Cirrus with a valid tax exemption certificate authorized
by the appropriate taxing authority.
5. Payment. Payment shall be in U.S. Dollars and shall be in an amount
-------
equal to BUYER's purchase price for the Products plus all applicable taxes,
shipping charges, and other
23
<PAGE>
charges to be borne by BUYER. All exchange, interest, banking, collection and
other charges shall be at BUYER's expense. Cirrus will extend credit to BUYER on
Net 30 Day terms up to a credit limit to be established from time to time by
Cirrus. BUYER will pay Cirrus a penalty equal to two percent (2%) per month for
amounts outstanding beyond thirty days. Cirrus is not required to deliver any
Products to BUYER if BUYER is not current on outstanding invoices. Further,
Cirrus only will accept from BUYER orders for Products up to BUYER's remaining
credit limit at the time Cirrus receives BUYER's orders.
6. Order and Acceptance. All orders for Products submitted by BUYER shall
--------------------
be initiated by written purchase orders sent to Cirrus and requesting a delivery
date during the term of this Agreement; provided, however, that an order may
initially be placed orally or by telecopy if a confirmational written purchase
order is received by Cirrus within five (5) days after said oral or telecopy
order. To facilitate Cirrus' production scheduling, BUYER shall submit purchase
orders to Cirrus at least in accordance with Cirrus' then current lead times.
No order shall be binding upon Cirrus until accepted by Cirrus in writing, and
Cirrus shall have no liability to BUYER with respect to purchase orders that are
not accepted, provided that Cirrus shall accept all orders submitted by BUYER in
accordance with the terms hereof. Cirrus shall use reasonable efforts to notify
BUYER of the acceptance or rejection of an order and of the assigned delivery
date for accepted orders. No partial shipment of an order shall constitute the
acceptance of the entire order, absent the written acceptance of such entire
order. Cirrus shall use reasonable efforts to deliver Products at the times
specified either in its quotation or in its written acceptance of BUYER's
purchase orders.
7. Forecasts. Within the first five (5) days of every month, BUYER shall
---------
provide Cirrus with a ninety (90) day rolling forecast showing prospective
orders by Product model and intended submittal date.
8. Initial Order. Upon execution of this Agreement, BUYER shall deliver
-------------
to Cirrus a written purchase order for the Products.
9. Change Orders. For orders that have been accepted by Cirrus but have
-------------
not yet been shipped, BUYER may utilize written change orders as follows:
(a) BUYER may, on notice to Cirrus, on one occasion reschedule (push
out only) delivery of units of Product scheduled for delivery
more than 30 days following such notice for a period up to 60
days from the date of original scheduled delivery date.
(b) BUYER may, on notice to Cirrus terminate an order for all units
of Product scheduled to be delivered more than 90 days following
such notice.
Except as provided in this section, orders may not be rescheduled or terminated
by BUYER.
10. Shipping. All domestic deliveries are F.C.A. point of shipment.
--------
Delivery occurs upon making the Product available to a carrier at the shipping
point. Cirrus' title (except for
24
<PAGE>
licensed software) passes to BUYER and Cirrus' liability as to delivery ceases
at that time. The carrier shall be deemed to be acting as BUYER's agent and all
claims for damage to Products must be filed by BUYER with the carrier.
All international deliveries are made C.I.P. named port of
destination. Cirrus's title and risk of loss passes to BUYER, and Cirrus's
liability as to delivery ceases upon arrival at named port of destination of
material purchased hereunder, carrier acting as Cirrus's agent. All claims for
damages will be filed by Cirrus with the carrier.
Unless specific shipping instructions otherwise have been agreed
between Cirrus and BUYER, Cirrus will follow the shipping instructions described
on the face of BUYER's purchase orders.
11. Delivery. All delivery dates are estimated only and deliveries may be
--------
made in installments, provided that Cirrus shall use its commercially reasonable
best efforts to meet all delivery dates specified in Cirrus's order
acknowledgment.
12. Force Majeure. Cirrus shall be excused from performance and not be
-------------
liable for delay in delivery or for non-delivery, in whole or in part, caused by
the occurrence of any contingency beyond the reasonable control of Cirrus,
including but not limited to, fire or explosion, flood, storm or other act of
God, war (whether an actual declaration thereof is made), sabotage,
insurrection, riot or other act of civil disobedience, act of public enemy, act
of any government or any agency or subdivision thereof affecting the terms of
the contract or otherwise, judicial action, labor dispute, accident, defaults or
delays of suppliers, failure or delay in transportation, shortage of labor,
fuel, raw material, or machinery or technical or yield failure where Cirrus has
exercised ordinary care in the prevention thereof.
13. Rejection of Products. BUYER shall accept or reject Product within
---------------------
thirty (30) days after receipt. Buyer may reject any Product that fails to
conform to specifications, subject to the last sentence of Section 1. If BUYER
fails to notify Cirrus in writing of its rejection and reasons therefor within
such period, BUYER will conclusively be deemed to have irrevocably accepted the
Products. Products rejected by BUYER will be held by BUYER and may be returned
only upon CIRRUS LOGIC's written authorization. Cirrus shall be entitled to
replace rejected Products in accordance with the Product replacement procedure
specified in Section 14. Notwithstanding the foregoing, the parties agree that
until such times as the PCI block is corrected to meet specification as defined
in Section 6 of the Settlement Agreement, Product shall continue to be purchased
by BUYER from Cirrus under waiver to specification.
14. Warranty. Cirrus warrants that the Products when delivered will be,
--------
(I) free from defects in material and workmanship under normal use and service;
and, (ii) conform to specifications, subject to the last sentence of Section 1.
Cirrus' liability and obligations under this warranty are limited to replacing
or repairing or giving credit for, at its option, any Products which are, within
one year after the date of delivery, returned to Cirrus' factory of origin in
accordance with Cirrus' RMA procedures, transportation charges prepaid, and
which are, after examination, determined to be in breach of this warranty. THIS
WARRANTY AND THE REMEDY HEREIN PROVIDED ARE IN LIEU OF ALL OTHER WARRANTIES,
25
<PAGE>
EXPRESS, STATUTORY, IMPLIED, OR OTHERWISE, INCLUDING THE IMPLIED WARRANTIES
OF MERCHANTABILITY, NONINFRINGEMENT, AND FITNESS FOR A PARTICULAR PURPOSE, AND
OF ALL OTHER OBLIGATIONS OR LIABILITIES ON THE CIRRUS'S PART WITH RESPECT TO THE
PRODUCT AND ITS PERFORMANCE. IN NO EVENT SHALL CIRRUS BE LIABLE FOR THE COST OF
PROCUREMENT OF SUBSTITUTE GOODS OR FOR ANY OTHER SPECIAL, INDIRECT,
CONSEQUENTIAL OR INCIDENTAL DAMAGES FOR BREACH OF WARRANTY. CIRRUS neither
assumes, nor authorizes any other person to assume for it, any other obligations
or liabilities in connection with the sale of Products. This warranty shall not
apply to any unit of a Product which was damaged after delivery due to misuse,
negligence, or accident. Repair or replacement of a unit of a Product shall not
extend the original warranty period for that unit, but the warranty shall only
continue for the duration, if any, of the original warranty period. IN FURTHER
LIMITATION OF THE FOREGOING LIMITED WARRANTY, BUYER AGREES THAT PRODUCTS WHICH
COMPRISE SEMICONDUCTOR DEVICES WHICH ARE NOT FINISHED AND FULLY ENCAPSULATED,
ARE SOLD "AS IS" AND "WHERE IS" WITHOUT WARRANTY OF ANY KIND, WHETHER EXPRESS OR
IMPLIED. Notwithstanding the foregoing, the parties agree that until such times
as the PCI block is corrected to meet specification as defined in Section 6 of
the Settlement Agreement, Product shall continue to be purchased by BUYER from
Cirrus under waiver to specification.
15. Term and Termination
--------------------
15.1 Term. This Agreement shall continue in force for a fixed term
----
of three years from the date hereof unless terminated earlier under the
provisions of this Section. At the end of the fixed term, this Agreement shall
automatically renew for a period of one year, unless either party provides the
other party with six month's written notice not to renew the Agreement.
15.2 Termination for Cause. If either party is in breach of its
---------------------
material obligations under this Agreement and fails to cure such breach within
30 days following notice thereof from the other party, then the non-breaching
party may, at its option, terminate this Agreement on notice to the other party.
15.3 Termination for Insolvency. This Agreement may be terminated,
--------------------------
on notice, (i) upon either party's insolvency, (ii) the institution by or
against either party of insolvency, receivership or bankruptcy proceedings or
any other proceedings for the settlement of that party's debts, (iii) upon
either party's making an assignment for the benefit of creditors, or (iv) upon
either party's dissolution or ceasing to do business in the normal course.
15.4 Fulfillment of Orders Upon Termination. Upon termination of
--------------------------------------
this Agreement for other than BUYER's breach, Cirrus shall continue to fulfill,
subject to the terms of this Agreement, all orders accepted by Cirrus prior to
the date of termination.
15.5 Survival of Certain Terms. The provisions of Sections 14, 16,17
-------------------------
and 19 shall survive the termination of this Agreement for any reason. All
other rights and obligations of the parties shall cease upon termination of this
Agreement.
26
<PAGE>
16. Limitation on Liability. EXCEPT FOR LIABILITY OF CIRRUS UNDER SECTION
-----------------------
18.1, CIRRUS' LIABILITY ARISING OUT OF THIS AGREEMENT AND/OR SALE OF THE
PRODUCTS SHALL BE LIMITED TO THE AMOUNT PAID BY THE BUYER FOR THE PRODUCTS
GIVING RISE TO THE LIABILITY. IN NO EVENT SHALL CIRRUS BE LIABLE FOR COSTS OF
PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES. IN NO EVENT SHALL CIRRUS BE LIABLE
TO BUYER FOR ANY OTHER SPECIAL, CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES,
HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, ARISING OUT OF THIS AGREEMENT.
THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE
OF ANY LIMITED REMEDY.
17. Confidentiality. Corporate Nondisclosure Agreement No. 1087 between
---------------
the parties is incorporated herein by this reference.
18. Indemnity.
---------
18.1 Indemnification of BUYER. Subject to the following paragraph,
------------------------
Cirrus shall indemnify and hold harmless BUYER and its Affiliates against any
costs, loss, liability, or expense arising directly out of any actual or alleged
infringement of any United States intellectual property or proprietary right by
the Products. This indemnity is conditioned on BUYER (a) providing to Cirrus
prompt and full disclosure of any such claim, (b) subject to the remainder of
this section, allowing Cirrus to conduct the defense of the claim, and (c)
providing at Cirrus' expense, reasonable assistance in connection with the
defense of the claim. Cirrus' liability pursuant to this Section shall be
limited to damages finally awarded against BUYER, or settlements entered into,
in connection with the claim, together with litigation costs and expenses
incurred by BUYER.
Cirrus shall have no liability under this section with respect to any
actual or alleged infringement caused by (a) any modifications to the Products
made by BUYER where the actual or alleged infringement would not have arisen but
for BUYER's modification; or (b) the combination of the Products with other
items not provided by Cirrus where the actual or alleged infringement would not
have arisen by use of the Products alone and not in combination with the other
items
18.2 Indemnification of Cirrus. BUYER shall defend and indemnify
-------------------------
Cirrus with respect to claims arising out of (i) modification of the Product
other than by Cirrus; (ii) combination of the Product with any other item
(including without limitation any claim for contributory infringement or
inducing infringement), or (iii) compliance with BUYER's specifications or
design.
18.3 EXCLUSIVE REMEDY. THE FOREGOING SECTION 18.1 STATES CIRRUS'S
----------------
SOLE LIABILITY AND OBLIGATION ARISING OUT OF ANY ACTUAL OR ALLEGED INTELLECTUAL
PROPERTY INFRINGEMENT OF ANY KIND THROUGHOUT THE WORLD.
27
<PAGE>
19. General Provisions.
------------------
19.1 Governing Law and Jurisdiction. This Agreement shall be
------------------------------
governed by and interpreted in accordance with the laws of the State of
California without giving effect to its provisions regarding conflicts of laws.
The application of the United Nations Convention on Contracts for the
International Sale of Goods is expressly excluded in its entirety from this
Agreement. Any proceeding brought by a party arising out of, under or relating
to this Agreement shall be brought in either the California State Courts of
Alameda County or United States District Court for the Northern District of
California, and each of the parties hereto hereby submits itself to the personal
and exclusive jurisdiction and venue of such courts for purposes of any such
action.
19.2 Language. This Agreement is in the English language only, which
--------
language shall be controlling in all respects, and all versions hereof in any
other language shall not be binding on the parties hereto. All communications
and notices to be made or given pursuant to this Agreement shall be in the
English language.
19.3 Dollars. All references to "dollars", "U.S. $" or "$" shall
-------
mean United States Dollars.
19.4 Currency Control. BUYER represents and warrants that no
----------------
currency control laws applicable in the jurisdiction in which BUYER is located
prevent the payment to Cirrus of any sums due under this Agreement. In the
event that any such laws come into effect and the local government of the
jurisdiction does not permit that payment be made in United States Dollars,
BUYER will notify Cirrus immediately, and if so instructed by Cirrus, deposit
all monies due Cirrus to the account of Cirrus in a local bank of Cirrus' choice
in the jurisdiction.
19.5 U.S. Export Control. BUYER understands and acknowledges that
-------------------
Cirrus is subject to regulation by agencies of the
U.S. Government, including, but not limited to, the U.S. Department of Commerce,
which prohibit export or diversion of certain products and technology to certain
countries. Any and all obligations of Cirrus to provide the Products,
documentation, or any media in which any of the foregoing is contained, as well
as any other technical assistance shall be subject in all respects to such
United States laws and regulations as shall from time to time govern the license
and delivery of technology and products abroad by persons subject to the
jurisdiction of the United States, including the Export Administration Act of
1979, as amended, any successor legislation, and the Export Administration
Regulations issued by the Department of Commerce, Bureau of Export
Administration. BUYER agrees to cooperate with Cirrus, including, without
limitation, providing required documentation, in order to obtain export licenses
or exemptions therefrom. BUYER warrants that it will comply with the Export
Administration Regulations and other United States laws and regulations
governing exports in effect from time to time.
19.6 Foreign Corrupt Practices Act. In conformity with the United
-----------------------------
States Foreign Corrupt Practices Act and with Cirrus' established corporate
policies regarding foreign business practices, BUYER and its employees and
agents shall not directly or indirectly make and offer, payment, promise to pay,
or authorize payment, or offer a gift, promise to give, or
28
<PAGE>
authorize the giving of anything of value for the purpose of influencing an act
or decision of an official of any government within the jurisdiction in which
BUYER is located or the United States Government (including a decision not to
act) or inducing such a person to use his influence to affect any such
governmental act or decision in order to assist Cirrus in obtaining, retaining
or directing any such business.
19.7 Government Approvals. BUYER hereby represents and warrants
---------------------
that no consent, approval or authorization of or designation, declaration or
filing with any governmental authority in the jurisdiction in which BUYER is
located is required in connection with the valid execution, delivery and
performance of this Agreement.
19.8 Enforceability. BUYER represents and warrants that the
--------------
provisions of this Agreement, and the rights and obligations of the parties
hereunder, are enforceable under the laws of the country in which BUYER is
located or to which BUYER is subject.
19.10 Limitation on BUYER's Rights to the Products. BUYER shall have
--------------------------------------------
no right to copy, re-mark, modify or remanufacture any Product or part thereof.
Ownership of all mask sets, design tapes, processing information and any other
intellectual property developed for or used in Cirrus' performance hereunder,
shall be as specified in the License Agreement attached hereto and incorporated
by reference.
19.11 No License. No license, express, implied, by estoppel, or
----------
otherwise, is granted under any patents with respect to the combination or use
of Products with any other device, software, or item. BUYER shall make its own
determination as to the need for a license under such patents.
19.12 No Waiver. No failure or delay on the part of either party in
---------
the exercise of any power, right or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude any other or further exercise thereof, or any other
right, power or privilege.
19.13 Notices. Any notice herein required or permitted to be given
-------
will be in writing and may be personally served, sent by telex or facsimile,
sent by an overnight delivery service, or sent by mail and such notice will be
deemed to have been given: (i) if personally given, or sent by a delivery
service, when served, (ii) if by telex or facsimile when sent by machine to the
proper address and telex or facsimile number with a confirmation copy deposited
in the mail within one (1) business day, or (iii) if mailed five (5) business
days after deposit in the mail with postage prepaid and properly addressed. For
purposes hereof the address of the parties hereto (until a notice of change
thereof is given as provided in this paragraph) will be as set forth on the face
hereof.
19.14 Nonassignability. BUYER may not assign this Agreement or any
----------------
order, or any interest or right herein, without the prior written consent of
Cirrus.
29
<PAGE>
19.15 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.
<TABLE>
<CAPTION>
CIRRUS, INC. VIRATA LIMITED
<S> <C>
By: By:
----------------------------------- ------------------------------------
sign sign
Name: Name:
----------------------------------- ------------------------------------
print print
Title: Title:
----------------------------------- ------------------------------------
CIRRUS INTERNATIONAL LTD VIRATA CORPORATION
By: By:
----------------------------------- ------------------------------------
sign sign
Name: Name:
----------------------------------- ------------------------------------
print print
Title: Title:
----------------------------------- ------------------------------------
</TABLE>
30
<PAGE>
EXHIBIT A TO VOLUME PURCHASE AGREEMENT
PRODUCTS AND PRICES
1. Products (part number)
1.1. CL-P57900-QC-Ax (where x represents the current revision level of
the product).
1.2. Other devices as agreed from time to time between the parties.
2. Prices
2.1. Pricing for the part number CL-P57900-QC-Ax shall be cumulative based
on the total quantity purchased by Virata from Cirrus as shown in the
following table:
<TABLE>
<CAPTION>
==================================================================================================
LOWER BOUNDARY UPPER BOUNDARY PRICE IN $US
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
1 4,999 21.85
- --------------------------------------------------------------------------------------------------
5,000 24,999 18.05
- --------------------------------------------------------------------------------------------------
25,000 49,999 15.20
- --------------------------------------------------------------------------------------------------
50,000 199,999 14.72
- --------------------------------------------------------------------------------------------------
200,000 399,999 14.25
- --------------------------------------------------------------------------------------------------
400,000 599,999 13.77
- --------------------------------------------------------------------------------------------------
600,000 799,999 13.30
- --------------------------------------------------------------------------------------------------
800,000 greater than 800,000 12.82
- --------------------------------------------------------------------------------------------------
</TABLE>
2.2. In addition to the above pricing, Cirrus agrees to give Virata; (a) one
dollar ($1.00) per unit for all sales made by Virata in the period through
December 31, 1999; and, (b) thereafter fifty cents ($0.50) per unit for all
sales made by Virata in the period January 1, 2000 through December 31, 2001, as
Cirrus' investment in Virata's efforts to create early market acceptance of ATM
chip technology in broadband local loop markets. These funds are to be paid
quarterly in arrears subject to Virata submitting claims and Cirrus reserves the
right in its sole discretion to make payment by the equivalent value in free
Hydrogen parts at the then prevailing cumulative unit price per the above table.
31
<PAGE>
EXHIBIT E
JOINT TECHNOLOGY
E1. FUNCTIONAL BLOCKS, TEST SPECIFICATIONS, TEST METHODOLOGY. Functional
blocks, test specifications and test methodology shall be considered Joint
Technology where so noted in the table below:
<TABLE>
<CAPTION>
====================================================================================================
FUNCTIONAL BLOCKS BLOCK TEST SPECIFICATION TEST
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AFE Cirrus Technology Virata Technology Virata Technology
- ----------------------------------------------------------------------------------------------------
Arbiter Virata Technology Virata Technology Virata Technology
- ----------------------------------------------------------------------------------------------------
ARM Block* Virata Technology Virata Technology Joint Technology
- ----------------------------------------------------------------------------------------------------
Clock Tree Cirrus Technology Cirrus Technology Cirrus Technology
- ----------------------------------------------------------------------------------------------------
GPIO Virata Technology Virata Technology Joint Technology
- ----------------------------------------------------------------------------------------------------
Interrupt Control Virata Technology Virata Technology Joint Technology
- ----------------------------------------------------------------------------------------------------
List Manager Virata Technology Virata Technology Joint Technology
- ----------------------------------------------------------------------------------------------------
Network Virata Technology Virata Technology Virata Technology
- ----------------------------------------------------------------------------------------------------
SRAM Cirrus Technology Cirrus Technology Cirrus Technology
- ----------------------------------------------------------------------------------------------------
DRAM Cirrus Technology Cirrus Technology Joint Technology
- ----------------------------------------------------------------------------------------------------
UART Cirrus Technology Cirrus Technology Cirrus Technology
- ----------------------------------------------------------------------------------------------------
PCI Cirrus Technology Cirrus Technology Cirrus Technology
- ----------------------------------------------------------------------------------------------------
</TABLE>
*The ARM Block contains an ARM Gore licensed by Cirrus Logic from ARM Limited.
32
<PAGE>
EXHIBIT F
SURVIVING TERMS
8.1 The term "CONFIDENTIAL INFORMATION" shall mean any information disclosed by
one party to the other (i) prior to the date of this Agreement but with
respect to the subject matter hereof, or (ii) pursuant to this Agreement,
in each case which is in written, graphic, machine readable or other
tangible form and is marked "Confidential," "Proprietary" or in some other
manner to indicate its confidential nature. CONFIDENTIAL INFORMATION may
also include oral information disclosed by one party to the other pursuant
to this Agreement, provided that such information is designated as
confidential at the time of disclosure and reduced to a written summary by
the disclosing party, within thirty (30) days after its oral disclosure
which is marked in a manner to indicate its confidential nature and
delivered to the receiving party.
8.2 Each party shall treat as confidential (as set forth herein) all
CONFIDENTIAL INFORMATION of the other party, and shall not use such
CONFIDENTIAL INFORMATION except as contemplated herein or otherwise
authorized in writing. Each party shall implement reasonable procedures to
prohibit the unauthorized disclosure or misuse of the other party's
CONFIDENTIAL INFORMATION and shall not intentionally disclose such
CONFIDENTIAL INFORMATION to any third party except as may be necessary or
useful in connection with the rights and obligations of such party under
this Agreement, and subject to confidentiality obligations similar to those
set forth herein. Each of the parties shall use at least the same
procedures and degree of care that it uses to prevent the disclosure of its
own CONFIDENTIAL INFORMATION of like importance to prevent the disclosure
of its own CONFIDENTIAL INFORMATION of like importance to prevent the
disclosure of CONFIDENTIAL INFORMATION disclosed to it by the other party
under this Agreement, but in no event less than reasonable care. Each
party's obligations pursuant to this Section shall terminate, with respect
to each item of CONFIDENTIAL INFORMATION disclosed to it hereunder by the
other party, five (5) years after such disclosure.
8.3 Notwithstanding the above, neither party shall have liability to the other
with regard to any CONFIDENTIAL INFORMATION of the other which: was
publicly available at the time it was disclosed or becomes publicly
available through no fault of the receiving party; was known to the
receiving party, without similar confidentiality restriction, at the time
of disclosure; is disclosed by the receiving party with the prior written
approval of the disclosing party; was independently developed by the
receiving party without use of the CONFIDENTIAL INFORMATION; becomes known
to the receiving party, without similar confidentiality restriction, from a
source other than the disclosing party without breach of this Agreement by
the receiving party; or is disclosed pursuant to the order or requirement
of a court, administrative agency, or other governmental body, provided,
that the receiving party shall provide prompt, advanced notice thereof to
enable the disclosing party to seek a protective order or otherwise prevent
such disclosure.
33
<PAGE>
8.4 Notwithstanding anything else in this Agreement, however, but subject to
the other party's patents, copyrights, and mask work rights, each party's
employees shall be entitled to use, for purposes other than implementation
of any asynchronous transfer mode chip and without royalty obligation, the
other party's CONFIDENTIAL INFORMATION retained in such employees' memory
as a result of exposure to such CONFIDENTIAL INFORMATION pursuant to this
Agreement. Nothing in this Agreement will restrict each party's rights to
assign or reassign its employees, including without limitation those who
have had access to the other party's CONFIDENTIAL INFORMATION, to any
project in its discretion.
10. REPRESENTATIONS AND WARRANTIES.
10.1 Each party represents and warrants its execution, delivery and performance
of this Agreement will not conflict with or result in any breach of, or
constitute a default under, any security agreement, commitment, contract
or other agreement, instrument, or undertaking to which it is a party or
by which any of its property is bound.
10.2 ATML represents and warrants that to the best of ATML's knowledge it owns
or has sufficient rights and will own or will have sufficient rights to
the ATML LICENSED TECHNOLOGY, ATML IMPROVEMENTS, and other items provided
to Cirrus Logic hereunder, and that ATML has and will have the right,
power, and the authority to enter into and perform this Agreement and to
grant the rights and licenses granted to Cirrus Logic hereunder free of
any restrictions not contained in this Agreement.
10.3 ATML represents and warrants to the best of ATML's knowledge that it is
under no obligation or restriction, now will it assume any obligation or
restriction or take any action, that does or would in way interfere or
conflict with, or that does present a conflict of interest, concerning
ATML's performance under this Agreement or would restrict any of the
rights and licenses granted to Cirrus Logic herein..
10.4 ATML represents and warrants to the best of ATML's knowledge, that there
is no pending litigation or claim nor, the basis for any claim (except as
explained in Exhibit-J), that ATML does not own or have sufficient rights
to the ATML LICENSED TECHNOLOGY, or that the exercise by Cirrus Logic of
any right granted hereunder will infringe any intellectual property right
of any third party.
10.5 Cirrus Logic represents and warrants to the best of Cirrus Logic's
knowledge, that there is no pending litigation or claim nor, any basis for
any claim that Cirrus Logic does not own or have sufficient rights to the
Cirrus Logic Modifications and Cirrus Logic Design Tools, or that the
exercise by ATML of any right granted hereunder will infringe any
intellectual property right of any third party.
10.6 Each party represents and warrants that, to the best of its knowledge and
belief, each item of software provided to one party by the other party
does not contain any code, programming instruction or set of instructions
that is intentionally designed or constructed with the ability to damage,
interfere with or otherwise adversely affect computer programming code,
data files, or hardware without the consent and intent of the
34
<PAGE>
computer user. Each party shall promptly notify other party of any
knowledge or suspicion of each party that any such materials have
incorporated in any such software.
11. INFRINGEMENT INDEMNITY.
11.1 Subject to Section 11.2 below, ATML shall indemnify and hold harmless
Cirrus Logic and its Affiliates against any costs, loss, liability, or
expense arising directly out of any actual or alleged infringement or any
intellectual property or proprietary rights as a result of activities
pursuant to this Agreement by any ATML LICENSED TECHNOLOGY or ATML
IMPROVEMENTS. This indemnity is conditioned on Cirrus Logic's (i)
providing to ATML prompt and full disclosure of any such claim, (ii)
subject to the remainder of this section, allowing ATML, at ATML's written
request, to conduct to defense of the claim, and (iii) providing, at
ATML's expense, reasonable assistance in connection with the defense of
the claim. ATML's liability pursuant to this section shall be limited to
damages finally awarded against Cirrus Logic, or settlements entered into,
in connection with the claim, together with litigation costs and expenses
incurred by Cirrus Logic, subject to the next sentence. If Cirrus Logic
and ATML agree (such agreement will not be unreasonably withheld or
delayed) that ATML is not financially capable of fully defending the
claim, then Cirrus Logic shall be entitled to conduct the defense of the
claim, at ATML's expense, including without limitation the right to set
off royalties or other payment obligations of Cirrus Logic pursuant to
this Agreement against amounts payable by ATML pursuant to this Agreement.
11.2 ATML shall have liability pursuant to Section 11.1 above with respect to
any actual or alleged infringement caused by (i) CIRRUS LOGIC
MODIFICATIONS, or other modifications to the ATML LICENSED TECHNOLOGY or
ATML IMPROVEMENT or other contributions to ATM CHIPS not provided by ATML,
where the actual or alleged infringement would not have arisen but for the
use of the CIRRUS LOGIC MODIFICATION or other non-ATML modification or
contribution, or (ii) the combination of ATML LICENSED TECHNOLOGY or ATML
IMPROVEMENT with other items not provided by ATML where the actual or
alleged infringement would not have arisen by use of the ATML LICENSED
TECHNOLOGY or ATML IMPROVEMENT alone and not in combination with the other
items.
11.3 Subject to Section 11.2 above, Cirrus Logic shall indemnify and hold
harmless ATML and its Affiliates against any costs, loss, liability, or
expense arising directly out of any actual or alleged infringement of any
intellectual property or proprietary right as a result of activities
pursuant to this Agreement by any CIRRUS LOGIC DESIGN TOOLS AND CIRRUS
LOGIC TECHNOLOGY. This indemnity is conditioned on ATML's providing Cirrus
Logic prompt and full disclosure of any such claim, (ii) allowing Cirrus
Logic, at Cirrus Logic's written request, to conduct the defense of the
claim, and (iii) providing, at Cirrus Logic's expense, reasonable
assistance in connection with the defense of the claim. Cirrus Logic's
liability pursuant to this section shall be limited to damages finally
awarded against ATML, or settlements entered into, in connection with the
claim, together with litigation costs and expenses incurred by ATML.
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11.4 Cirrus Logic shall have no liability pursuant to Section 11.3 above with
respect to any actual or alleged infringement caused by (i) modification
of any CIRRUS LOGIC DESIGN TOOLS or CIRRUS LOGIC TECHNOLOGY other than by
Cirrus Logic, where the actual or alleged infringement would not have
arisen by use of the unmodified CIRRUS LOGIC DESIGN TOOLS or CIRRUS LOGIC
TECHNOLOGY, (ii) the combination of any CIRRUS LOGIC DESIGN TOOLS or
CIRRUS LOGIC TECHNOLOGY with other items not provided by Cirrus Logic
where the actual or alleged infringement would not have arisen by use of
the CIRRUS LOGIC DESIGN TOOLS or CIRRUS LOGIC TECHNOLOGY alone and not in
combination with the other items.
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EXHIBIT 10.20
DEVELOPMENT, PRODUCTION, SUPPLY AND LICENSE
AGREEMENT
PREAMBLE
This Development, Production, Supply, License and Escrow Agreement
("Agreement") is entered as of August 11, 1997 ("Effective Date"), by and
between Advanced Telecommunications Modules Limited, an English corporation
with offices at Mount Pleasant House, 2 Mount Pleasant, Huntingdon Road,
Cambridge, England CB3 0BL ("ATML") and Symbios Incorporated, a Delaware
corporation with offices at 2001 Danfield Court, Fort Collins, Colorado, 80525,
USA ("Symbios"), each individually known as a "Party" and collectively as the
"Parties".
RECITALS
A. Symbios is experienced in the design, development, production and
supply of integrated circuits, and owns (or licenses from third parties with
rights to sub-license) certain intellectual property rights in functional blocks
that it licenses to its customers.
B. ATML is experienced in the design of ASICs which it sells (in
conjunction with licensing its ATM software stacks) to customers engaged in
developing solutions for the xDSL, CATV and loop refreshment markets.
C. ATML desires to engage Symbios to develop, produce and supply the
Helium ASIC incorporating certain Symbios functional blocks, and to make clear
the ownership of contributed intellectual property and resulting licensing
arrangements whereby the Helium ASIC shall be sold exclusively by ATML.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises and covenants set forth below, ATML and Symbios mutually agree as
follows:
ARTICLE 1. DEFINITIONS
1.1 "Affiliate" of a Party shall mean (a) any company owned or controlled
by such Party to the extent of at least fifty percent (50%) of its issued voting
capital and any other company so owned or controlled (directly or indirectly) by
any such company or the owner of any such company, or (b) any partnership, joint
venture or other entity directly or indirectly controlled by, controlling, or
under common control of such Party, to the extent of fifty percent (50%) or more
of its voting power (or otherwise having power to control its general
activities), but in each case only for so long as such ownership or control
shall continue.
1.2 "ATML Technology" shall mean the proprietary and confidential
technical information and data related to the Helium ASIC furnished to Symbios
by or on behalf of ATML, including but not limited to those specifications,
designs, software. techniques, processes and other technology identified in
Exhibit A as being owned by ATML.
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1.3 "Class 1 Defect" shall mean a defect in a Helium ASIC: (a) such that
the Helium ASIC fails to meet Specifications; or (b) that causes loss or
corruption of data continuously or in certain isolated instances, and for which
no workaround exists, or where a workaround exists such workaround provides
significant loss of performance; or (c) that causes loss of sales to a
significant portion of the customer and prospect base because of such defect.
1.4 "Class 2 Defect" shall mean a defect in a Helium ASIC: (a) such that
the Helium ASIC marginally fails to meet Specifications; or (b) that does not
cause significant loss or corruption of data, and for which a workaround
exists, which workaround provides negligible loss of performance; or (c) that
causes negligible impact on sales to the customer and prospect base because of
such defect.
1.5 "Delivery Date" shall mean a date for which delivery of Helium ASICs
has been properly committed to by Symbios.
1.6 "First Commercial Sale" shall mean the first commercial sale by ATML
or its Affiliates of a version of the Helium ASIC supplied by Symbios which
conforms to the Specifications.
1.7 "Helium ASIC" shall mean each version of the Helium ASIC supplied
hereunder to ATML by Symbios as described in Exhibit B hereto, as such exhibit
may be amended from time to time by mutual written agreement of the Parties.
1.8 "Pre-Production Samples" shall mean Helium ASICs supplied to ATML by
Symbios which Symbios has tested to the then current test program, for use by
ATML in preliminary testing or qualification. Pre-Production Samples are parts
which are ordered prior to receipt by Symbios of ATML's Prototype Approval.
1.9 "Production Version Chip" shall mean a version of the Helium ASIC, to
be developed under this Agreement, that conforms to the Specifications in all
material respects except that it may exhibit no more than two (2) Class 2
Defects as determined by ATML and is based on a Prototype Sample or Pre-
Production Sample for which Prototype Approval has been given by ATML.
1.10 "Prototype Approval" shall mean signature approval by ATML indicating
they have completed testing of any Prototype Samples or Pre-Production Samples
and have approved that version as the Production Version Chip.
1.11 "Prototype Delivery Date(s)" shall mean the dates specified in
Exhibit C for delivery of the required Prototype Samples and Pre-Production
Samples.
1.12 "Prototype Samples" shall mean Helium ASICs which are expedited
through the fabrication process to provide early samples of each version of the
Helium ASIC to ATML in order for ATML to evaluate the version for production
release and Prototype Approval.
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1.13 "Specifications" shall mean: (i) the descriptions of the technical
requirements, component blocks, features, functionality, performance criteria,
operating conditions, interfaces, data transfer, processing parameters and
protocols applicable to the Helium ASIC, as such descriptions are set forth in
the attached Exhibit B, from the beginning of the development until receipt by
Symbios of the netlist, (ii) the logical netlist, from the date of receipt by
Symbios of such netlist until post layout approval by ATML, (iii) the validated
physical layout, from post layout approval by ATML until signoff by ATML of the
completed test program and (iv) the mutually agreed upon test program, after
signoff by ATML of such test program.
1.14 "Symbios Technology"- Except that which is described as ATML
Technology, all technical and non-technical information, data, or software
related to design and manufacture of integrated circuits and the Helium ASIC,
including without limitation, the specifications, designs, software, techniques,
processes and other technology identified in Exhibit B as being owned by
Symbios, and
1.14.1 the layout, simulation, fabrication, packaging and testing of the
Helium ASIC,
1.14.2 the behavior level model of the Helium ASIC the net list,
1.14.3 the methods, processes, techniques, apparatus and software used or
useful in the layout, simulation, fabrication, packaging and testing of the
Helium ASIC
1.14.4 the design, fabrication and test tools used to produce Prototype
Samples and the Helium ASIC, including, without limitation, pattern generation
tapes, masks, cells and cell interiors, and all trade secrets, copyrights, mask
works, patents and other intellectual property rights therein.
ARTICLE 2. DESIGN AND DEVELOPMENT OBLIGATIONS
2.1 Development Obligations
2.1.1 The Parties shall jointly design and develop the Helium ASIC with
each of them contributing intellectual property, technology, tools and resources
as described in Exhibit A such that the Helium ASIC conforms to the
Specifications. Both Parties recognize that time is of the essence in the
performance of this activity and each Party shall apply reasonable efforts
required to meet commitments of the Development Schedule in Exhibit C. Changes
to Exhibits A, B and C shall be made only by written agreement between the
Parties.
2.1.2 The Parties shall jointly agree that the design of the Helium ASIC
is completed by signature acceptance of both the logical net list (Verilog RTL)
and the validated physical layout (place and route with SDF), following which
these files will supersede the logical definitions provided within the
Specifications.
2.1.3 As further described in Exhibit C, Symbios shall promptly provide
library design kits and other components to ATML to enable ATML to integrate
them with its ATM circuit design. ATML shall design the Helium ASIC using
Verilog and synthesize the design using
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Synopsys to RTL level taking account of post layout back annotation to ensure
correct functionality. Symbios shall be responsible for layout incorporating its
ARM cores, memory compilers, Universal Serial Bus and Ethernet interface and
Symbios shall produce a GDS II tape together with a test program for use in
production. Symbios shall use reasonable efforts to layout the Helium ASIC to
have the minimum die size. ATML shall maintain and Symbios shall assist in
developing the data sheet for the device. Symbios shall provide timing
information for the macrocells provided.
2.1.4 ATML shall pay Symbios for its non recurring engineering ("NRE")
costs associated with developing the Helium ASIC as set forth in Exhibit D. The
Parties agree that such payment incorporates any and all fees Symbios charges
for use of its intellectual property and technical contribution to the design
and development of the Helium ASIC as described in Exhibits A, B and C.
2.1.5 Symbios shall provide ATML with reasonable technical assistance and
information required for ATML to be able to publish an industry standard data
sheet to its customers for the Helium ASIC based upon the Specifications in
Exhibit B.
2.2 Prototype Samples and Evaluation
2.2.1 Symbios shall fabricate a lot of twelve (12) wafers of the Helium
ASIC developed as above of which six (6) wafers shall be finished for the
provision of Prototype Samples of the Helium ASIC. The other 6 wafers shall be
held pre-metal to provide for rapid correction and re-submission of the new
Prototype Samples in the event that a defect is identified which can be
corrected by a metal layer change. Symbios shall use reasonable efforts to
adjust its fabrication processes such that within the lots of six (6) wafers
there shall exist Helium ASICs representative of the extremes and nominal
characteristics to be anticipated in subsequent Helium ASIC production that
complies with the Specifications.
2.2.2 Symbios shall use reasonable efforts to deliver a quantity of twenty
five (25) Prototype Samples of the Helium ASIC to ATML no later than the
scheduled date for Prototype Samples shown in Exhibit C. Such Prototype Samples
shall be as fully tested as possible by Symbios prior to delivery within the
time allotted in Exhibit C. Ceramic packaging may be used for such Prototype
Samples.
2.2.3 ATML shall test and validate the Prototype Samples and provide
written Prototype Approval or rejection, if applicable, to Symbios within the
time allotted in Exhibit C.
2.3 Corrections. In the event that the Prototype Samples are found to
either not conform to the Specifications or to exhibit one or more Class 1
Defect or to exhibit more than two Class 2 Defects then ATML shall specify in
detail the reason that the Prototypes do not meet the Specifications. The Party
responsible for that part of the design identified as being incorrect shall use
reasonable efforts to correct the design, remove the defect and repeat those
phases of the development process necessary to re-supply new Prototype Samples.
The other Party shall provide reasonable assistance to the Party responsible for
correcting such defect. Each Party shall be responsible for its own costs in
this event; however, if the defect is caused by ATML
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then Symbios shall be entitled to claim from ATML the re-spin charges for
fabricating the new Prototype Samples per the prices in Exhibit D. From the date
of receipt by Symbios of ATML's Prototype Approval, Symbios shall warrant the
Helium ASICs it produces for ATML according to Article 10 herein.
2.4 Pre-Production Supplies. If ATML places an order for Pre-Production
Samples and signs the appropriate Pre-Production Agreement, Symbios shall
manufacture, package and test the Helium ASIC as available from the twelve (12)
wafers fabricated per 2.2.1 above in order to make available pre-production
quantities of the Helium ASIC for initial application by ATML and its customers.
Availability of pre-production quantities of the Helium ASIC shall be as
described in Exhibit C and units shall be charged to ATML at the prices set
forth in Exhibit D. At the time the order is placed Symbios will inform ATML of
its option to have pre-production Helium ASICs packaged off-shore or at the
Symbios manufacturing facility in which case prices will vary as set forth in
Exhibit D.
ARTICLE 3. OWNERSHIP; LICENSE
3.1 Ownership.
3.1.1 The Parties agree that, as between the Parties, Symbios shall own all
right, title and interest (including all patent rights, copyrights, trade secret
rights, mask works rights and all other intellectual property rights throughout
the world (collectively, "Proprietary Rights")) in all Symbios Technology
including but not limited to those items listed in Exhibit A.
3.1.2 The Parties agree that, as between the Parties, ATML shall own all
Proprietary Rights in all ATML Technology including but not limited to those
items listed in Exhibit A.
3.2 Grant of License.
3.2.1 License from Symbios to ATML. Without payment of additional
consideration, Symbios grants to ATML an irrevocable, non-exclusive, non-
cancelable, non-sub-licensable, perpetual, royalty free, personal, worldwide
license under its Proprietary Rights in the Symbios Technology solely for the
purpose of exclusive sale and distribution by ATML of the Helium ASIC.
3.2.2 License from ATML to Symbios. Without payment of additional
consideration, ATML grants to Symbios an irrevocable, non-exclusive, non-
cancelable, non-sub-licensable, perpetual, royalty free, personal, worldwide
license under its Proprietary Rights in the ATML Technology solely for the
purpose of making, having made or using the Helium ASIC for its exclusive supply
to ATML.
3.3 Third Party Rights. Symbios represents and warrants that it possesses
licenses sufficient to allow it to incorporate intellectual property and
technology originated by Sand Microelectronics Incorporated, Sican
Microelectronics Corp, Advanced RISC Machines Limited and any other entity from
which it procures such things within its contribution to the design and
manufacture of the Helium ASIC such that ATML may purchase, market and sell the
Helium
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ASIC world-wide and free of royalty other than as already included within the
NRE and Helium ASIC pricing stated in Exhibit D. Symbios agrees to maintain such
licenses in effect, at Symbios' sole expense, such that it will apply to all
Helium ASICs that Symbios sells to ATML under this Agreement.
3.4 Trademarks. Neither Party shall at any time use any trade name,
trademark, service mark, logo, company name or other designation of the other
Party without obtaining such Party's prior written consent (given or withheld in
its sole discretion), and then only as expressly and unambiguously permitted in
such consent.
ARTICLE 4. SALE AND PURCHASE OF HELIUM ASICS
4.1 Sale and Purchase. Symbios agrees to use reasonable efforts to
manufacture and sell exclusively to ATML such quantities of the Helium ASIC as
ATML may order in accordance herewith. It is understood that Symbios shall have
the right in connection with supply hereunder to contract with respect to
manufacture of the Helium ASIC either at its parent company, Hyundai Electronics
Incorporated, Ichon, Korea fabrication facility or another foundry qualified by
Symbios and approved by ATML as Symbios deems advisable, provided, however, that
Symbios shall remain fully responsible hereunder.
4.2 Quantity; Forecasts. Commencing on the Effective Date, ATML shall
provide Symbios with non-binding four (4) month rolling delivery forecast on the
twentieth (20th) day of each month.
Notwithstanding any forecast provided by ATML, ATML shall have the right to
order an unlimited quantity of Helium ASICs in accordance with this Article 4.
4.3 Orders; Delivery; Incidental Charges. All Orders for Helium ASICs
shall be submitted by ATML or its designated representative to Symbios in
writing at least twelve (12) weeks prior to ATML's requested Delivery Date.
Orders for Helium ASICs shall be in multiples of the Minimum Order Quantity
specified in Exhibit D. Symbios shall use reasonable efforts to deliver the
Helium ASICs within five (5) business days of the applicable Delivery Dates.
4.4 Delivery.
4.4.1 All Helium ASICs delivered to ATML shall be F.C.A. (Incoterms 1992)
at the origin designated on ATML's purchase order. Symbios shall use reasonable
efforts to deliver Helium ASICs via air freight within five (5) days of the
applicable Delivery Dates. Any customs or duties relating to such
transportation and delivery shall be at ATML's expense. All shipping charges,
insurance premiums, and other expenses relating to such transportation and
delivery shall be at Symbios' expense. Symbios shall notify ATML of each
delivery promptly and provide shipment details of air-way bill and flight number
where appropriate.
4.4.2 Product Marking. Symbios shall mark each Helium ASIC with Advanced
RISC Machines Limited's logo, ATML's name, logo, the model number, and the
revision level, if any. The Helium ASICs shall not be marked with Symbios'
name, nor shall they be marked with any
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Symbios mark or model number. The Helium ASICs shall be marked with a date code,
a lot number and Symbios' 10 digit part number.
4.4.3 The Helium ASICs shall be packed and shipped in accordance with the
specifications set forth in Exhibit E hereto.
4.5 Rescheduling. ATML may freely reschedule the delivery of Helium
ASICs, at no charge to ATML, for any delivery due ninety (90) days or more from
the date of the reschedule. Rescheduling of deliveries due in less than 90 days
but more than 30 days time is limited to the end of the month following the
month in which delivery was originally due. Deliveries due within 30 days may
be rescheduled to the end of the month in which they were originally due.
4.6 Cancellation ATML may cancel its orders at any time in which case
Symbios will be entitled to invoice for the costs of its work in progress as
follows:
No work in progress 0% cancellation charge
Wafer fabrication prior to poly photography 40% cancellation charge
Prior to interconnect 55% cancellation charge
Sorted die (md. die bank if any) 60% cancellation charge
Packaged product 10004 cancellation charge
4.7 Failure to Deliver. ATML may cancel any order not delivered by
Symbios within thirty (30) days of the Delivery Date, whether or not due to
force majeure, and shall in addition have all other rights and remedies
available hereunder, at law or in equity.
4.8 Sorted Die Orders. ATML may at its option order and Symbios shall
supply up to 25% of ATML's annualized requirements in the form of sorted die
which has not been assembled into a packaged product subject to a review of the
associated quality and warranty restrictions.
4.9 Die Bank.
4.9.1 Symbios shall maintain a segregated die bank inventory on receipt of
instruction to do so by a separate die-bank purchase order from ATML. All
production shall be cycled through this die bank thus ensuring that the material
in the die bank is freshly manufactured. On receipt of further instruction from
ATML to provide packaged product from this die bank the lead time from order to
delivery shall be three (3) weeks. ATML shall order, pay for and solely own the
die bank at a cost of 75% of the pricing for product quoted in Exhibit D.
4.9.2 If the die bank is held at inventory for more than 90 days with no
backlog or orders for product, or this Agreement is terminated, Symbios will
notify ATML of the quantity of product in the die bank. At that time, ATML will
either:
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(i) issue a purchase order to Symbios for 100% of the unit selling
price to have the inventory assembled to finished product and shipped to ATML,
or
(ii) pay Symbios the value of the die bank, as determined by the die
bank purchase order.
4.9.3 In the event that ATML chooses 4.9.2 (ii) above, Symbios may destroy
the material in the die bank thirty days after receiving payment from ATML.
4.9.4 If ATML fails to respond to Symbios' notice or fails to select one
of the above options within 30 days of the date of such notice, option described
in 4.9.2 (ii) above will be deemed to have been selected by the ATML.
4.9.5 Die Bank Early Life Charges. Prior to shipment of the first 900,000
units of the Production Version Chip or January 1, 1999 whichever event occurs
first, up to 50,000 die-bank units may be ordered at 50% of the finished product
cost. Units beyond 50,000 will be charged at 75% as above. The cancellation
schedule shown in section 4.6 applies to the die bank material as well.
ARTICLE 5. QUALITY CONTROL
5.1 ISO 9000 Quality Control System. Symbios shall at all times during
the term of this Agreement maintain a quality control system that meets the
requirements of ISO 9000 and shall at all times take such additional measures as
are necessary to maintain a quality control system designed to identify, correct
and prevent quality deficiencies in the Helium ASICs. Notwithstanding the
foregoing, failure to maintain an 150 9000 Quality Control System does not
constitute material breach of this Agreement.
5.2 Pre-shipment Testing. Prior to delivery, Symbios shall test all
Helium ASICs and shall not ship any Helium ASIC which fails to meet the
Specifications. Quarterly following Prototype Approval by ATML, Symbios will
send ATML a copy of our CBR (Customer Based Requirements Report) which includes
information regarding assembly, fabrication, semiconductor metrics, reliability
and test.
5.3 Inspection. ATML may at its option send its quality control
personnel to Symbios manufacturing facilities to observe the manufacturing and
testing of Helium ASICs, provided such inspections shall be properly noticed to
Symbios and shall be reasonable in scope and frequency.
5.4 Rejection of Helium ASICs in Case of Nonconformity
5.4.1 ATML may reject any portion of any shipment of Helium ASICs which
does not meet the Specifications. In order to reject a shipment, ATML must:
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(i) give notice to Symbios of ATML's intent to reject the
shipment within sixty (60) days of receipt together with a written indication of
the reasons for such possible rejection, and
(ii) as promptly as reasonably possible thereafter provide Symbios
with notice of final rejection and the full basis therefor.
Before returning any product to Symbios, ATML must contact Symbios for a
Returned Material Authorization number and other appropriate instructions. ATML
may then return the product to Symbios according to those instructions.
After notice of intent to reject is given, ATML shall cooperate with
Symbios in determining whether rejection is necessary or justified. If no such
notice of intent to reject is timely received, ATML shall be deemed to have
accepted such delivery of Helium ASICs.
5.4.2 Whether or not Symbios accepts ATML's basis for rejection, promptly
on receipt of a notice of rejection, Symbios shall use reasonable efforts, at
ATML's request, to provide replacement Helium ASICs which shall be purchased by
ATML as provided in this Agreement.
5.4.3 Upon confirmation by Symbios of defective product, Symbios will
instruct ATML to either return the rejected batch or destroy such batch promptly
and provide Symbios with certification of such destruction.
ARTICLE 6. PRICE AND PAYMENTS
6.1 Price. Pricing for non-recurring engineering charges, re-spins, pre-
production and production Helium ASICs is set forth in Exhibit D hereto.
6.2 Method of Payment. Subject to approval from Symbios' accounts
receivable department, all payments due hereunder to Symbios shall be paid in
United States dollars not later than thirty (30) days following the date of the
applicable invoice. In the absence of such approval, payments to Symbios will
be by a Standby Letter of Credit ("LOC"). All bank fees associated with the LOC
are the responsibility of ATM L.
6.3 Pricing Reviews. Price reduction shall be reviewed on each
anniversary of the date of first supply of production parts taking into
consideration volumes shipped during the previous twelve (12) months and cost
improvements over and above those forecast at the time of making the price
quotation shown in Exhibit D.
6.4 Interim Pricing Review. Within fifteen (15) days notice from ATML to
Symbios, Symbios agrees to meet with ATML and to enter into good faith
discussions regarding any proposed adjustment to pricing, provided such requests
are reasonable in frequency.
ARTICLE .7. CONFIDENTIALITY
7.1 Confidential Information means all information reasonably related to
information exchanged pursuant to this Agreement in the form of trade secrets
which one party ("Discloser")
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first discloses to the other party ("Recipient") during the term of this
Agreement: (i) in documents or other tangible materials clearly marked
CONFIDENTIAL or the like, or (ii) orally or in any other intangible form, if at
the time of first disclosure the Discloser tells the Recipient that the
information is confidential, and within 10 calendar days after that first
disclosure the Discloser delivers to the Recipient documents or other tangible
materials clearly marked CONFIDENTIAL or the like which disclose or describe
that information.
"Confidential Information" does not include information which: (a) is or
becomes publicly known or readily ascertainable by the public through no
wrongful act of the Recipient; (b) is independently developed by or for the
Recipient; (c) the Recipient receives from a third party, if the Recipient does
not know of any restrictions on the disclosure of that information; or (d) the
Discloser discloses to a third party without similar restrictions on disclosure.
7.2 Sole Obligations. For a period of 36 months from the date of
disclosure of the Confidential Information, the Recipient will use reasonable
efforts to prevent the disclosure of Confidential Information to any other
person, unless disclosure is required by law. Symbios may disclose ATML's
Confidential Information to Symbios/7 /affiliates (Symbios' parent company and
the companies its parent directly or indirectly owns or controls) and
subcontractors, if the Confidential Information so disclosed remains subject to
this Article 7 and Symbios remains liable for any unauthorized disclosures by
its affiliates. All materials containing Confidential Information delivered by
the Discloser under this Agreement are and will remain the Discloser's property;
at the Discloser's written request, the Recipient must promptly return to the
Discloser all those materials and any copies, except a single archival copy.
Symbios will use reasonable efforts to prevent the disclosure of Confidential
Information contained in masks and test programs under this Section 7.2 for a
period extending from the date of disclosure until 36 months following the
termination of this Agreement.
7.3 Product Development and Marketing. Subject to the intellectual
property rights of each Party, this Article 7 does not: (i) restrict either
party from developing new products, improving existing products, or marketing
any new, improved, or existing products; or (ii) commit either party to disclose
any particular information, or to develop, make, use, buy, sell, or otherwise
dispose of any existing or future product, or to favor or recommend any product
or service of the other party. To be binding, any such restriction or
commitment must be in writing and signed by both parties.
7.4 Other Information Not Confidential Unless Otherwise Agreed; No Patent
or Copyright Licenses Implied. This Article 7 does not enlarge, diminish, or
affect the rights and obligations that either party may have or come to have
under any other written agreement signed by both parties, or with respect to any
patent or copyright of either party. Except as this Article 7 or any such other
written agreement specifically provides, there are no restrictions on the use or
disclosure of any information exchanged at any time between the parties, in the
past or in the future, except restrictions that either party may independently
have a right to assert under the patent or copyright laws.
10
<PAGE>
7.5 Warranty Disclaimer; Limitation on Actions and Applicable Law.
Neither party makes any representations or warranties of any kind with respect
to its respective Confidential Information, which is provided to Recipient "AS
IS," and neither party shall have any liability of any kind to Recipient
resulting from Recipient's receipt or use of the Confidential Information.
ARTICLE 8. SECURITY OF SUPPLY; ALTERNATE ARRANGEMENTS
8.1 Last Time Buy. In the event that Symbios determines the production
of the Helium ASIC is to be discontinued then Symbios shall provide ATML notice
of such intent ("Notice"), and shall offer ATML a last time buy opportunity. The
Notice will contain the date for the last shipment of product ("EOL Date"),
which shall be no less than 12 months after the date of such Notice. At ATML's
request and with the appropriate purchase order, Symbios will hold in inventory
a quantity of product no greater than 20% of the shipments made during the
twelve (12) month period immediately proceeding the date of the Notice. Symbios
will hold this inventory for up to one year past the EOL Date at a cost to ATML
of 120% of the current finished unit price.
8.2 Second Source Fabrication Facility. At ATML's request Symbios will
attempt to setup production for the device at a second source facility for a
charge to ATML of sixty thousand dollars ($60,000). If, at the time of such
request, cumulative deliveries of the Helium ASIC have exceeded one million
units the second source shall be set up by Symbios at no cost to ATML. For the
avoidance of doubt, ATML cannot place orders directly with this Symbios second
source.
ARTICLE 9. TERMINATION, RIGHTS AND OBLIGATIONS UPON TERMINATION
9.1 Term. Unless terminated by either Party pursuant to the other
provisions of this Article 9, this Agreement shall continue in effect until six
(6) years from the date of First Commercial Sale of the first Production Version
Chip supplied hereunder (the "Initial Term"). Thereafter, this Agreement shall
automatically renew for additional one (1) year renewal terms unless either
Party gives written notice to the other Party of its intent not to renew this
Agreement at least one hundred and twenty (120) calendar days prior to the
expiration of the original term or renewal term, as the case may be, of this
Agreement.
9.2 Termination for Default. If either Party materially defaults in the
performance of any material agreement, condition or covenant of this Agreement
and such default or noncompliance shall not have been remedied within ninety
(90) days (or ten (10) days in the case of non-payment) after receipt by the
defaulting Party of a notice thereof from the other Party, the Party not in
default may terminate this Agreement.
9.3 Rights and Obligations on Expiration or Termination. Except to the
extent expressly provided to the contrary, the following provisions shall
survive the termination of this Agreement: all warranty, infringement,
confidentiality, arbitration, and liability obligations and limitations, and
those terms which by their nature are intended to survive, will survive. Any
rights of Symbios to payments accrued through termination as well as obligations
of the Parties
11
<PAGE>
under firm orders placed prior to termination, the terminating Party may elect
whether obligations under firm orders will remain in effect and except that
Symbios will have no obligation with respect to Delivery Dates more than six (6)
months after termination.
ARTICLE 10. WARRANTY; INDEMNIFICATION; EPIDEMIC FAILURE
10.1 Warranty of Title. Symbios warrants to ATML that ATML shall upon
shipment by Symbios acquire good and clear title to each Helium ASIC, free and
clear of all liens and encumbrances.
10.2 Helium ASIC Warranty. Symbios warrants to ATML and ATML's customers
that each Helium ASIC will, for a period of three (3) years from date it is
shipped by Symbios, have no Class 1 Defects, have no more than two (2) Class 2
Defects, and shall otherwise conform to the Specifications current at time of
shipment during the duration of such three (3) year period.
During the warranty period Symbios, at its sole option, shall either issue
a credit for the purchase price of the defective Helium ASICs or replace any
defective Helium ASIC, provided that the Helium ASIC is returned to Symbios
(which return shall be at Symbios' expense). This warranty shall survive
inspection and payment, provided that ATML promptly notified Symbios of any
defect covered by such warranty. All replaced Helium ASICs become the property
of Symbios. Any replacement Helium ASIC shall be covered by this warranty for
the remainder of the original warranty period or for six (6) months from the
date of shipment of the replaced Helium ASIC by Symbios, whichever is longer.
10.3 Sorted Die Warranty. In the case that deliveries of the Helium ASIC
are made in the form of sorted die then the warranty period in Article 10;2
above is reduced to 30 days from the date of shipment by Symbios.
EXCEPT AS EXPRESSLY STATED HEREIN, NO OTHER WARRANTIES ARE EXPRESSED OR
IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
10.4 Patent. Copyright and Trademark Claims Against the Parties.
10.4.1 "Indemnifying Party" shall mean:
(i) Symbios, with respect to third party claims that the Symbios
Technology used in the development or manufacture of the Helium ASIC infringes a
patent, copyright, trade secret or any other intellectual property right in the
countries of the United States, the European Community, Australia, Brazil,
Canada, Japan and South Korea,
(ii) ATML with respect to third party claims that ATML Technology
used in the development or manufacture of the Helium ASIC infringes a patent,
copyright, trade secret or any other intellectual property right in the
countries of the United States, the European Community, Australia, Brazil,
Canada, Japan and South Korea.
12
<PAGE>
10.4.2 If a Party to this Agreement (the "Indemnified Party") shall
receive a claim for which the other Party to this Agreement is the Indemnifying
Party, the Indemnified Party will notify the Indemnifying Party promptly in
writing and give the Indemnifying Party all necessary information and assistance
and the exclusive authority to evaluate, defend and settle such claim. The
Indemnifying Party, at its own expense, shall settle or defend against such
claim, and may then at its option:
(i) procure for the Indemnified Party the right to use the
allegedly infringing material or product (if the Indemnified Party would, absent
the claim, have a right to use such material or product under this Agreement),
or
(ii) replace or modify the allegedly infringing material or
products to avoid infringement, provided such replacements shall offer no less
functionality, or
(iii) request the Indemnified Party to halt its distribution and
sale of the allegedly infringing material or product and refund the purchase
price less a reasonable amount of depreciation for any product returned to the
Indemnifying Party, or
(iv) do any combination of the foregoing.
Provided that timely notice has been given by the Indemnified Party, should
any court of competent jurisdiction hold such material or product to be
infringing, the Indemnifying Party shall pay any final judgment against the
Indemnified Party arising from such infringement and, if the use of such
material or product by the Indemnified Party is enjoined, the Indemnifying Party
shall take at its option, one or more of the actions described in (i), (ii) or
(iii) above.
10.4.3 If a Party to this Agreement receives a claim for which it is the
Indemnifying Party, it may, at its own expense and option, replace or modify the
products or materials to avoid infringement.
10.4.4 The indemnity in this Section 10.4 will not apply (i) if the claim
is found to be based upon the manner in which a Helium ASIC is combined together
with other hardware or software components, or (ii) if the claim is found to be
based upon the negligence, recklessness or willful action or inaction of the
Indemnified Party, or (iii) if the Indemnified Party does not comply with the
provisions of this Section 10.4 and such failure materially prejudices the
Indemnifying Patty or (iv) to any infringement occurring after 'the Indemnified
Party has received notice alleging infringement, unless the Indemnifying Party
has given the Indemnified Party written permission to continue the alleged
infringement, or (v) to any settlement entered into in violation of this Section
10.4.
10.4.5 In no event shall a Party to this Agreement be entitled to settle
any claim for which it is the Indemnified Party without the consent of the
Indemnifying Party.
10.4.6 THE FOREGOING IS GIVEN TO EACH PARTY IN LIEU OF ALL WARRANTIES OF
NON-INFRINGEMENT WITH RESPECT TO THE HELIUM ASICS. THE FOREGOING STATES THE SOLE
AND EXCLUSIVE LIABILITY OF THE PARTIES
13
<PAGE>
FOR INFRINGEMENT OF ANY PATENT OR OTHER INTELLECTUAL PROPERTY RIGHTS.
10.4.7 The provisions of this Section 10.4 shall survive termination of
this Agreement.
10.5 Epidemic Failure. In the event of an Epidemic Failure (as defined
below) the Parties shall promptly meet to attempt to identify the cause of the
Epidemic Failure and the universe of effected Helium ASICs. Symbios will use
reasonable efforts to assist ATML with the replacement of the Helium ASICs that
are prone to failure. For the purposes of this Agreement "Epidemic Failure"
shall mean any thirty day period in which the failure rate expressed as a
percentage equals or exceeds one percent (1%), such percentage to be calculated
by multiplying one hundred by a fraction the numerator of which is the total
number of Helium ASIC failures in the field due to any one failure mechanism
during such thirty day period and the denominator of which is the total number
of Helium ASICs shipped by Symbios over the three (3) years prior to the last
day of such thirty day period. This provision shall not survive termination of
this Agreement.
ARTICLE 11. LIMITED LIABILITY
11.1 NEITHER PARTY SHALL BE LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF
THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY
FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES.
11.2. Except for personal injury caused by Symbios' negligence, Symbios'
cumulative liability under this Agreement will not exceed the aggregate amount
paid to Symbios under this Agreement, even if a term of this Agreement fails of
its essential purpose.
ARTICLE 12. MISCELLANEOUS
12.1 Entire Agreement. This Agreement contains the entire agreement of
the Parties regarding the subject matter hereof and supersedes all prior
agreements, understandings and negotiations regarding the same. This Agreement
may not be changed, modified, amended or supplemented except by a written
instrument signed by both Parties. Furthermore, it is the intention of the
Parties that this Agreement be controlling over additional or different terms of
any order, confirmation, invoice or similar document.
12.2 Assignability. This Agreement may not be assigned by either Patty
without the prior consent of the other Party; provided, however, (a) either
Party may assign this Agreement to any entity which acquires substantially all
of its stock, assets or business, and (b) ATML may assign this Agreement, in
whole or in part, to any Affiliate of ATML.
12.3 Severability. If any provision of this Agreement shall be held
illegal or unenforceable, that provision shall be limited or eliminated to the
minimum extent necessary so that this Agreement shall otherwise remain in full
force and effect and enforceable.
14
<PAGE>
12.4 Use of Party's Name. No right, express or implied, is granted by
this Agreement to either Party to use in any manner the name of the other or any
other trade name or trademark of the other in connection with the performance of
this Agreement.
12.5 Notice and Reports. All notices, consents or approvals required by
this Agreement shall be in writing sent by certified or registered air mail,
postage prepaid or by facsimile or cable (confirmed by such certified or
registered mail) to the Parties at the following addresses or such other
addresses as may be designated in writing by the respective Parties:
12.9.2 ATML and Symbios agree to settle by arbitration any controversy or
claim between them, including without limitation those related to this
Agreement, any order or any product to which this Agreement applies, whether
based on contract, tort, fraud, misrepresentation, or other legal theory. A
single arbitrator will conduct the arbitration in Denver, Colorado, if brought
by ATML and San Francisco, CA if brought by ATML, under the then current rules
and supervision of the American Arbitration Association. ATML and Symbios will
select an arbitrator from a panel of persons knowledgeable in semiconductor
marketing or design or manufacturing, as applicable. The arbitrator will have
the authority to award temporary and permanent injunctive relief, but may not
award punitive or exemplary damages to either party. The decision and award of
the arbitrator will be final and binding and may be entered in any court having
jurisdiction. ATML and Symbios will pay their own attorney's fees associated
with the arbitration, and will pay the other costs and expenses of the
arbitration as the rules of the American Arbitration Association provide.
12.9.3 Neither party may bring any action, regardless of form, related to
this Agreement, any order or any product to which this Agreement applies, more
than one year after the party bringing the action knew or should have known that
the cause of action accrued.
12.9.4 The duty to arbitrate under Section 12.9.2, above extends to any
director, officer, employee, agent, or affiliate making or defending any claim
which would otherwise be arbitrable.
12.10 Captions. Paragraph captions are inserted for convenience only and
in no way are to be construed to define, limit or affect the construction or
interpretation of this Agreement.
12.11 Force Majeure. A Party shall not be liable for nonperformance or
delay in performance (other 'than of obligations regarding confidentiality)
caused by any event reasonably beyond the control of such Party including, but
not limited to wars, hostilities, revolutions riots, civil commotion, national
emergency, strikes, lockouts, unavailability of supplies, epidemics, fire,
flood, earthquake, force of nature, explosion, embargo, or any other Act of God,
or any law, proclamation, regulation, ordinance, or other act or order of any
court, government or governmental agency.
12.12 BASIS OF BARGAIN. EACH PARTY RECOGNIZES AND AGREES THAT THE
WARRANTY DISCLAIMERS AND LIABILITY AND REMEDY LIMITATIONS IN THIS AGREEMENT ARE
MATERIAL, BARGAINED FOR BASES OF THIS AGREEMENT AND THAT THEY HAVE BEEN TAKEN
INTO ACCOUNT AND REFLECTED IN
15
<PAGE>
DETERMINING THE CONSIDERATION TO BE GIVEN BY EACH PARTY UNDER THIS AGREEMENT AND
IN THE DECISION BY EACH PARTY TO ENTER INTO THIS AGREEMENT.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement to be
effective as of the date first written above.
Symbios
By: /s/
Print: Randolph W. Zwetzig
Title: Vice President Asic and
Peripheral Solutions
ATML
By /s/
Print: Charles Cotton
Title: CEO
16
<PAGE>
Development, Production, Supply and License Agreement ATML & Symbios
- --------------------------------------------------------------------------------
EXHIBIT A. ATML TECHNOLOGY; SYMBIOS TECHNOLOGY
The architecture and overall design specification of the Helium ASIC shall be
considered ATML Technology.
Technology contributed in the form of functional blocks within Helium ASIC
produced under this Agreement is owned as follows:
Technology Owner
- ---------- -----
ARM Processor Cache Symbios
ARM7 TDMI Processor Cores Symbios
Asymmetric Digital Subscriber Loop Interface ATML
Cache Snooping Mechanism for SDRAM ATML
Clock Generator ATML
Clock Tree Symbios
CRC Generator ATML
Dual Port SRAMs Symbios
Ethernet Media Access Controller and Physical Interface Symbios
External Peripheral Interface ATML
Frequency Synthesizer Module Symbios
General Purpose Input/Output ATML
Helium ASIC Architecture and Specifications ATML
High level Data Link Controller ATML
Internal Peripheral Gateway ATML
Layout Tools Symbios
Network Byte Alignment and Hasher/Filter ATML
Oscillator Symbios
Phase Locked Loop Symbios
Process Libraries Symbios
ROM Symbios
Software to operate the Helium ASIC ATML
SDRAM Interface ATML
SRAMs Symbios
Timer, Mailbox, Lock and Configuration Registers ATML
Universal Asynchronous Receiver/Transmitter ATML
Universal Serial Bus Interface Symbios
UTOPIA Interface ATML
Watchdog ATML
Technology contributed in the form of process within the Helium ASIC produced
under this Agreement is owned as follows:
- --------------------------------------------------------------------------------
Signature Version Confidential Page 19
<PAGE>
Development, Production, Supply and License Agreement ATML & Symbios
________________________________________________________________________________
Technology Owner
- ---------- -----
Helium ASIC behavioral model ATML and Symbios
Gate level design ATML and Symbios
Net list ATML and Symbios
Physical layout Symbios
Simulation ATML
Masks Symbios
Test patterns ATML and Symbios
Software technology owned by ATML and provided to Symbios solely for the
purpose of testing the Helium ASIC is as follows:
(i) Software functions to boot the Helium ASIC's ARM processor.
(ii) Software functions to run device specific protocols.
(iii) Software functions to transfer data between the Helium ASIC and the host
operating system.
Symbios has no rights to any other software developed or licensed by ATML.
Below are the tools and software supported by Symbios for the Helium ASIC
development. Any tools not listed below are not supported by Symbios.
3rd Party Design Tools
Design Architect B.2+
HLD Design Planner 3.4
HLD Fasnet 3.4
memBIST-IC 1.0
Motive 5.0
Sunrise 2.3
Synopsys 1997.01 (Design Compiler, Design Power, Test Compiler)
Verilog-XL 2.4, 2.5
Zycad Xplus 7.2
Design Kits
Design Architect 2.1
DesignTest 2.4
Motive 3.1
SALSA 2.1
Sunrise 3.1
Synopsys/Verilog 6.1
Zycad 5.1
________________________________________________________________________________
Signature Version Confidential Page 20
<PAGE>
Development, Production, Supply and License Agreement ATML & Symbios
________________________________________________________________________________
Software Tools
BuildFPModels 1.1
CheckSetup 1.2
Gather 2.2
GenInit 1.1
HDR 2.10
IntAssessor 1.4
ioLib 2.4
NdrLib 4.2
NetChecker 3.1
ParMerge 1.1
PEACH 2.0
PlugDly 6.3
PowerCalc 1.6
PreSim 6.1
ScanTran 2.2
SimSetupLib 2.5
TreeSyn 2.7
Verify 1.2
VigenDPUX 1.2
Vit2Syn 6.1
WorkSheet 3.3
________________________________________________________________________________
Signature Version Confidential Page 21
<PAGE>
Development, Production, Supply and License Agreement ATML & Symbios
________________________________________________________________________________
EXHIBIT B. HELIUM ASIC SPECIFICATION
The Helium ASIC is a single chip bridge and routing device for low end
Ethernet/ATM/ADSL/USB applications. The Helium ASIC's specification offers the
following features:
In-built clock generation circuitry including selectable core clock frequency
Protocol Processor (PP) core consisting of:
ARM7TDMI RISC processor core
4K CACHE
Built in debug logic
I/O Processor (IOP) core consisting of:
ARM7TDMI RISC processor core
8K SRAM
Interface to external SDRAM from 2-32Mbytes
Utopia-1/2 (master/slave) interface
Ethernet interface
ADSL interface
HDLC interface
USB interface
Versatile proprietary 8/16-bit external peripheral bus.
Twin Interrupt controllers.
Built in support functions:
UART
General Purpose I/O
Timers
Watchdog
Operating conditions: 3.3V+10% 0 degrees C to 70 degrees C
-
Operating Frequency: 48MHz
Package: 208PQFP
All as fully described in version 1.8 of ATML's Helium ASIC Specification
which is deemed to be inserted and incorporated into this Agreement.
________________________________________________________________________________
Signature Version Confidential Page 22
<PAGE>
Development, Production, Supply and License Agreement ATML & Symbios
________________________________________________________________________________
EXHIBIT C. DEVELOPMENT SCHEDULE
This project schedule list covers the milestones to be completed by Symbios
Inc. and ATM Ltd. to create the Helium ASIC. The Helium ASIC will be built in
Symbios SYM9 (0.35um) library and process.
<TABLE>
<CAPTION>
Scheduled Items:
Item Owner Date
<S> <C> <C>
Supply SYM9 Synopsis/Verilog Version 6.1 Design Kit Symbios 14 Oct 97
Supply Helium ASIC Product Specification ATML 30 Sep 97
Supply SYM7TDMI in SYM9 for IOP and PP Symbios
Supply I/O Specification Symbios 15 Sep 97
Supply Verilog Behavioral Model Symbios 15 Sep 97
Supply ARM Micropack Components in SYM9 (Verilog RTL) Symbios 30 Sep 97
Supply 4K Byte Cache in SYM9 for 48 MHz Operation Symbios
Supply I/O Specification Symbios 30 Sep 97
Supply Verilog RTL Symbios 26 Nov 97
Supply "Worstcase" gate level netlist Symbios 25 Feb 98
Modify TB Symbios 31 Mar 98
Supply Verilog gate level netlist Symbios 31 Mar 98
Supply SYM7TDMI Samples: 4 minimum (VS350) Symbios 17 Sep 97
Supply 10/100 Ethernet FastMAC with MII in SYM9 Symbios
Supply I/O Specification Symbios 21 Nov 97
Supply WrapperModel Symbios 12 Dec 97
Supply Verilog gate level netlist Symbios 23 Feb 98
Supply MENDEC 10 base-T ethernet Transceiver in SYM9 Symbios
Supply I/O Specification Symbios 21 Nov 97
Supply Wrapper Model Symbios 12 Dec 97
Supply Analog area estimate Symbios 10 Feb 98
Supply Verilog gate level netlist Symbios 27 Feb 98
Supply External Filter Recommandation for 3.3v Symbios 17 Dec 97
Supply External Filter/Magnetics Vendor List Symbios 03 Dec 97
Supply configured USB peripheral w/full speed XCVR in SYM9 Symbios
Define USB Core configuration ATML 24 Sep 97
Supply I/O Specification Symbios 12 Dec 97
Supply Preliminary Verilog gate level netlist Symbios 16 Dec 97
Supply Final Verilog gate level netlist Symbios 12 Dec 97
Supply preliminary gate level netlist for floor planning exercise: ATML 12 Feb 98
Supply preliminary floor planning results Symbios 26 Feb 98
Supply SDF (standard delay format) timing file results Symbios 26 Feb 98
Supply Power Consumption Estimate Symbios 27 Feb 98
Supply 90% gate level netlist: ATML 04 Apr 98
</TABLE>
________________________________________________________________________________
Signature Version Confidential Page 23
<PAGE>
Development, Production, Supply and License Agreement ATML & Symbios
________________________________________________________________________________
<TABLE>
<S> <C> <C>
Supply final gate level netlist: ATML 21 Apr 98
Supply Package Specifications
Supply 208 PQFP Package + ThetaJa Specification Symbios 03 Dec 97
Supply Blank Marking Specification Symbios 03 Dec 97
Supply ATML Logo (Postscript) ATML 23 Apr 98
Supply Completed Marking Specification ATML 23 Apr 98
Design Review Symbios 23 Apr 98
Layout Helium ASIC in SYM9 Library Symbios 21 May 98
Provide Post layout timing information Symbios 21 May 98
Send Approval of Post layout timing ATML 28 May 98
Supply Test Vectors* ATML 28 May 98
PG Review Symbios 29 May 98
Photomasks Symbios 03 Jun 98
Wafer Fab Sample Wafers Symbios 17 Jul 98
Supply 25 Packaged Helium ASIC Prototypes Symbios 24 Jul 98
Approve Helium ASIC Prototypes ATML 21 Aug 98
First Release Production Test Program Symbios 16 Oct 98
Submit Pre-Production Order for 100 pcs. Assembled In-House ATML 16 Jul 98
Submit Pre-Production Order for 1,000 pcs. Assembled Off-Shore ATML 16 Jul 98
Ship 100 Pre-Production Units Assembled In-House** Symbios 31 Jul 98
Ship 1,000 Pre-Production Units Assembled Off-Shore*** Symbios 14 Aug 98
</TABLE>
* Fault grading to be performed by ATML for ATML's portion of the logic. 92%
fault coverage is recommended.
** This milestone is dependent on the following assumptions: (i) the above
stated quantity is available from the Prototype lot and (ii) the order is
submitted by the date shown above.
*** This milestone is also dependent on (i) and (ii) above. If the backup lot is
used to fill Pre-Production orders, assuming it is not used for a metal fix, the
lead-time from release of the banked backup lot to shipment of material
assembled off-shore is approximately 6 weeks.
Symbios' Ethernet cores are migrated using the same test benches as those used
for the previous generations' standard products. The migrated cores will be
verified against those same test benches.
________________________________________________________________________________
Signature Version Confidential Page 23
<PAGE>
Development, Production, Supply and License Agreement ATML and Symbios
- --------------------------------------------------------------------------------
EXHIBIT D. PRICING
Non-Recurring Engineering charges with Symbios' standard tools (shown in Exhibit
A) is $230,000
NRE payment schedule is: 40% on Agreement signature
40% on Tape-Out
20% on ATML Production sign-off
Re-Spin Charge for a metal layer fix: $40,000
or, for a full silicon and metal layer fix: $113,000
Later modification requiring full silicon and metal change: $150,000
Pre-Production Units packaged at Symbios facility: $28.30
Pre-Production Units packaged Off-Shore: $22.40
Production Units First 10,000 $17.90
Next 100k $16.90
Next 500k $15.00
next 750k $14.00
Thereafter $12.50
Minimum Order Quantity for Production Units: 5,000 units
Production pricing is based upon the Helium ASIC die size forecast at 6.58 by
6.58 mm. The Parties agree that if the resulting die area is more than 5%
different from the forecast size that pricing will be re-quoted within the
following guidelines:
6.3 by 6.3 mm First 10,000 $16.60
Next 100k $15.80
Next 500k $14.00
Next 750k $13.20
Thereafter $11.70
6.9 by 6.9 mm First 10,000 $18.90
Next 100k $18.00
Next 500k $16.00
Next 750k $15.00
Thereafter $13.30
Thereafter forecast pricing of Year 2000 on SYM 10 process is $10.90
- --------------------------------------------------------------------------------
Signature Version Confidential Page 25
<PAGE>
EXHIBIT E. PACKING SPECIFICATIONS
Each tray contains up to 24 Helium ASICs. The trays are banded together in a
stack of 5 trays plus one empty topper. There are three bands across the trays
and one band lengthwise. A humidity strip and pack of desiccant are placed
under one of the bands on the top of the stack. One sheet of bubble wrap goes
around the stack of trays, the humidity strip and desiccant. One band goes
around the width of the bubble wrap.
Each bag contains one stack of 5 banded trays. The bag is hermetically sealed
and labeled with moisture sensitivity instructions.
Each carton contains one bag. The carton is labeled with: Symbios part #, lot #,
quantity, ATML part #, date code and seal date.
Outer boxes are packed in quantities of 3, 4, 10, 15 or 20 cartoons. The outer
label contains: Country of origin, Symbois part #, ATML part #, P.O. #, Total
device quantity per box, box # out of total # of boxes and the packing list.
<PAGE>
EXHIBIT F. QUALITY GOALS
Below are some of Symbios' Quality metrics and goals as taken from our Customer
Based Requirements Report ("CBR Report")
ABQ Goals for 1998
- ------------------
Electrical: 25 DPM
Visual/Mechanical: 20 DPM (QFPs)
FITs Goals for 1998
- -------------------
CMOS 9:30
CMOS 7 and CMOS 8:25
<PAGE>
EXHIBIT 10.24
1 May, 1999
Mr C W A Cotton
25 Wordsworth Grove
Cambridge
CB3 9HH
Dear Charles
I am delighted to confirm the following changes to your terms and conditions of
employment.
1. Salary increase to (Pounds)155,875pa with effect from 1 May, 1999.
2. A bonus plan for FY2000 of $120,000 against objectives to be agreed with
myself.
All other terms and conditions remain unchanged, namely:
1. Title Chief Executive Officer.
2. Commencement date 16 September, 1997. During your term of employment with
Virata, you will devote you full time, skill and attention to your duties
and responsibilities, and shall perform them faithfully in order to
further the business goals of Virata and its affiliated entities.
3. Salary review annually in August with any related salary adjustments
effective 1 August.
4. In the event that the Company is acquired by or merges with another
company, and you are not offered a position of equal status and conditions
at Virata, by its parent company or the new merged company, your
employment will be deemed to have been terminated. Under such
circumstances you will be paid 18 months salary from the date of
termination. You will continue to receive all existing benefits and your
share options will continue to vest throughout this period. You will not
be required to work your notice period.
5. In the event of a successful sale of the Company during your employment with
the Company, you will be paid an additional cash bonus as follows:
Bonus Basis Bonus Payment Share Price
$55,000 $ 82,500 $1.50
$55,000 $109,450 $1.99
$80,000 $160,000 $2.00
$80,000 $239,200 $2.99
$100,000 $300,000 $3.00
$100,000 $399,000 $3.99
$125,000 $500,000 $4.00
The Bonus Basis is the cash amount per dollar of ordinary share price on the
assumption that the share capital of Virata is divided into ordinary shares of
1p each. In the event of the ordinary shares being consolidated or sub-divided
an appropriate adjustment will be made to the bonus payments.
<PAGE>
6. Annual holiday entitlement of 25 days.
7. Other than for termination for cause, your notice period from the Company
will be 18 months from the termination date. You will be required to give
the Company 6 months notice of your intention to leave. As a specific
change to the normal terms of the Company's Share Option Scheme, your
share options will continue to vest throughout the notice period.
8. Your normal place of work will be the Company's offices at Mount Pleasant
House, Cambridge. However, you are expected to visit the Company's offices
in Santa Clara and Raleigh on a regular basis and travel as required to
fulfill your duties.
9. Benefits remain in line with the Company's standard package.
Yours sincerely
/s/ Hermann Hauser
Hermann Hauser
Chairman
<PAGE>
EXHIBIT 10.25
Virata
2933 Bunker Hill Lane, Suite 201
Santa Clara, CA 95054
Phone: 408-666-1000
Fax: 408-960-8250
14 October 1998
Mr. Michael Gulett
300 Aleut Court
Fremont, CA 94639
Dear Michael,
We are pleased to offer you the position of Chief Operating Officer of
Virata. This offer will remain in effect until 16 October 1998, and can be
accepted by your signing this letter in the space indicated at the end of this
document. You will be an employee of Virata's Santa Clara-based subsidiary and
a Corporate Officer of the Cambridge-based Virata Limited parent company.
Your initial position with Virata will be Chief Operating Officer and you
will have functional responsibility for Engineering and Operations worldwide.
Further advancement will of course be a function of job performance as
interpreted by Charles Cotton and the Board of Directors of Virata.
During your term of employment with Virata, you shall devote your full
time, skill and attention to your duties and responsibilities, and shall perform
them faithfully in order to further the business goals of Virata and its
affiliated entities. In consideration of your services, you will be paid a base
salary of $225,000 per year ($18,750 per month, paid biweekly).
In addition to your salary compensation, you will participate in an annual
incentive bonus program from which you will be entitled to earn additional
annual compensation of up to $100,000 at 100% achievement. This bonus will be
based on objectives which you will agree with Charles Cotton. Half of the
annual incentive bonus will be guaranteed for the first year, you will be paid
$4,166,67 monthly as the guaranteed portion of your bonus. The non-guaranteed
potion of the bonus will be paid quarterly.
You will also be paid an initial "sign on bonus" compensation of $25,000
which will be paid in the first pay period following commencement of work.
In addition to your salary, sign on bonus and incentive bonus compensation,
subject to approval by the Board of Directors, you will receive a grant at 1.60
million ordinary share options in Virata Limited at an exercise price of $0.70.
At present, one percent of Virata on a fully diluted basis would represent
approximately 800,000 shares. The shares vest over a four year period, with one
quarter vesting 12 months after your start date. From the one year mark,
vesting will be 1/48th or 33,333 shares per month. The share options, will be
granted under the
<PAGE>
Virata Corporation Incentive Stock Option (ISO) plan to the extent allowed under
applicable regulations. Any additional options will be issued under the
"unapproved" share option plan.
Should you be asked to leave the company following a change in control,
through acquisition, merger or sale of all or substantially all of the assets,
or if you are terminated without cause, you will be entitled to salary
continuation for 12 months. In addition, your share options will continue to
vest through this 12 month period.
During this 12 month period Virata will provide you with continuation of
benefit coverage to the extent allowed by our benefit contractors based upon the
fact that you will no longer be an active Virata employee. Specifically,
company-paid life insurance could not be offered. Virata would continue to
provide medical and dental coverage, however this would initiate the 18 month
COBRA period and costs paid on your behalf would be taxable income to you.
In the event that Virata is acquired by or merged with another company, you
will be offered a position of equal status and conditions by Virata Inc. its
parent Company, or the newly merged company.
It is understood that during your initial several months with the company
you will be working extensively at our Cambridge, United Kingdom, facility.
During this period of work, temporary living expenses including housing in the
Cambridge area, and air travel for your wife between London and the Bay Area
will be paid for by Virata.
As a Virata employee you will be eligible for the following as part of our
comprehensive benefits program:
. Medical benefits: Virata offers a medical and dental program through
Aetna Vision coverage is provided by VSP. Employee co-payments for
premiums are deducted on a pre-tax basis as part of our Section 125
plan;
. Paid time off: You are eligible for three weeks (15 days) vacation and
additional paid time of for sick and personal time.
. Holidays: You are eligible for standard U.S. holidays, which total ten
(10) in 1998;
. 401(k): Virata offers employees a 401(k) savings plan. You will be
eligible to participate in this plan immediately upon joining Virata
providing all conditions of the Plan are completed with;
As an employee of Virata's Santa Clara-based subsidiary you should
recognize that some integration of benefits with the recently merged RSA
Communications until will occur and the benefits listed above could be altered
accordingly.
This offer of employment is contingent upon the following:
2
<PAGE>
. As an employee of Virata you will be expected to abide by Company
rules and regulations. You will also be expected to sign and comply
with a proprietary information and non-disclosure agreement which
requires, among other provisions, the assignment of parent rights to
any invention made during your employment of Virata and non-disclosure
of proprietary information;
. Employment with Virata is not a specific term and can be terminated by
yourself or Virata at any time for any reason, with or without cause.
Any contrary representations which may have been made or which may be
made to you are superseded by this offer.
. Your employment with Virata will be terminated for "cause" if
terminated due to your habitual neglect of duties, which neglect
continues uncorrected following written notice to you and a reasonable
opportunity for you to cure such neglect; excessive absenteeism;
violation of work rules or a policy set by the Board of Directors;
insubordination; or for misconduct or malfeasance;
Mike, we are excited about the possibility of having you join Virata as
Chief Operating Officer. We believe you will make an outstanding contribution
to Virata and are keen for you employment to begin as soon as possible. We are
confident that we can offer you the challenges, opportunities and rewards for
your contributions.
Please acknowledge your acceptance of the terms and conditions of this
letter by signing below and returning this letter by the end of this week.
We look forward to working with you in mutually beneficial relationship.
Sincerely,
/s/
Charles Cotton Andrew M. Vought
Chief Executive Officer Chief Financial Officer
Offer accepted: /s/
------------------------
Acceptance Date: ________________________
Anticipated start date:________________________
3
<PAGE>
EXHIBIT 10.26
1 May, 1999
Mr A Vought
1499 Edgewood Drive
Palo Alto
CA 94301
USA
Dear Andy
I am delighted to inform you that your FY2000 bonus program has been set at
$75,000 against objectives to be agreed with myself.
All other terms of employment remain unchanged, namely:
1. Title of Senior Vice President and Chief Financial Officer.
2. Commencement date, 16 September, 1997. During your term of employment with
Virata, you will devote your full time, skill and attention to your duties
and responsibilities, and shall perform them faithfully in order to
further the business goals of Virata and its affiliated entities.
3. Salary of $182,750pa.
4. Virata will give you 18 months notice (or pay in lieu of notice) if your
employment is terminated for any reason other than for cause. We would ask
that you give 6 months notice to the Company. As a specific change to the
normal terms of the Company's Share Option Scheme, your share options will
continue to vest throughout the notice period.
5. In the event that the Company is acquired by or merges with another
company, and you are not offered a position of equal status and conditions
at Virata, by its parent company or the new merged company, your
employment will be deemed to have been terminated. Under such
circumstances you will be paid 18 months salary from the date of
termination. You will continue to receive all existing benefits and your
share options will continue to vest throughout this period. You will not
be required to work your notice period.
6. In the event of a successful sale of the Company during your employment with
the Company, you will be paid an additional cash bonus as follows:
Bonus Basis Bonus Payment Share Price
$55,000 $ 82,500 $1.50
$55,000 $109,450 $1.99
$80,000 $160,000 $2.00
$80,000 $239,200 $2.99
$100,000 $300,000 $3.00
$100,000 $399,000 $3.99
$125,000 $500,000 $4.00
The Bonus Basis is the cash amount per dollar of ordinary share price on the
assumption that the share capital of Virata is divided into ordinary shares of
1p each. In the event of the
<PAGE>
ordinary shares being consolidated or sub-divided an appropriate adjustment will
be made to the bonus payments.
Other other terms remain as in your offer letter of 10 May, 1996.
Yours sincerely
/s/ Charles Cotton
Charles Cotton
Chief Executive Officer
<PAGE>
EXHIBIT 10.29
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made as of
November ____, 1999, by and among Virata Corporation, a Delaware corporation
(the "Company"), and the persons whose names and addresses are set forth in
Schedule 1 attached hereto (each an "Investor" and together the "Investors").
- ----------
RECITALS
WHEREAS, the Investors were holders of Series B Preference Shares, Series C
Preference Shares, Series D Preference Shares and/or Series E Preference Shares
(the "Preference Shares") of Virata Limited, a company organized in the United
Kingdom ("Virata Limited").
WHEREAS, the Investors were previously granted certain registration and
other rights by Virata Limited with respect to the Preference Shares (the
"Previous Rights") pursuant to a registration rights agreement dated as of
October ____, 1999 (the "Previous Agreement") between Virata Limited and the
Investors.
WHEREAS, Virata Limited has become a wholly-owned subsidiary of the
Company, all of the Preference Shares have been cancelled and the Investors have
become holders of shares of common stock of the Company ("Common Stock"),
pursuant to a reorganization under Section 425 of the United Kingdom Companies
Act of 1985 (the "Reorganization").
WHEREAS, in consideration of the Company agreeing to grant the Investors
the registration rights relating to the Common Stock set forth in this
Agreement, the Investors have, in accordance with Section 18 of the Previous
Agreement, consented to the cancellation of the Previous Rights, the termination
of the Previous Agreement and the replacement of the Previous Agreement with
this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
promises hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Definitions
The following terms, as used herein, shall have the following meanings:
"Commission" means the Securities and Exchange Commission, or any other
Federal agency at the time administering the Securities Act.
"Common Stock" means shares of common stock of the Company, par value
$0.001 per share.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
<PAGE>
"Rights Holders" means the Investors and any persons or entities to whom
the rights granted under this Agreement are transferred by any Rights Holders,
their successors or assigns pursuant to Section 14 hereof.
"Registrable Shares" means
(a) Common Stock issued in connection with the Reorganization in
respect of the Preference Shares;
(b) Common Stock issued or issuable in respect of warrants previously
exercisable for Preference Shares that had been granted the Previous Rights;
(c) Common Stock or other securities of the Company issued from time
to time after the date hereof with respect to which the Company has granted
the rights described herein in conformity with Section 10 hereof; and
(d) any other shares issued in respect of such shares or securities
(because of stock splits, stock dividends, reclassifications,
recapitalizations, or similar events);
provided, however, that shares which are Registrable Shares shall cease to be
Registrable Shares:
(1) upon any sale (i) pursuant to a Registration Statement or Rule
144 under the Securities Act (or any similar provision then in force) or
(ii) not subject to Rule 144 and exempt from registration; or
(2) if such shares are capable of being distributed pursuant to Rule
144(k) under the Securities Act ; or
(3) upon any sale in any manner to a person or entity which, by
virtue of Section 14 of this Agreement, is not entitled to the rights
provided by this Agreement.
Wherever reference is made in this Agreement to a request or consent of holders
of a certain percentage of Registrable Shares, the determination of such
percentage shall include Common Stock issuable upon exercise of such securities,
even if such exercise has not yet been effected.
"Registration Expenses" means the expenses described in Section 5.
"Registration Statement" means a registration statement filed by the
Company with the Commission for a public offering and sale of Common Stock
(other than a registration statement covering only securities proposed to be
issued in exchange for securities or assets of another corporation).
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission issued
under such Act, as they each may, from time to time, be in effect.
2
<PAGE>
2. Required Registrations
2.01 Demand Registration. At any time after the earlier of the second
-------------------
anniversary date of the date of this Agreement and the date which is six months
after the date of the closing of the Company's first underwritten public
offering of Common Stock pursuant to a Registration Statement, a Rights Holder
or Rights Holders holding in the aggregate at least 50% of the Registrable
Shares may request, in writing, that the Company effect the registration on Form
S-1 (or any successor form) of Registrable Shares representing at least 30% of
the Registrable Shares owned by such Rights Holder or Rights Holders having a
total aggregate offering price of at least $5,000,000 (based on the then current
market price or fair value and subject to adjustment in the event of stock
splits, stock dividends, reclassifications, recapitalizations, or similar
events). If the holders initiating the registration intend to distribute the
Registrable Shares by means of an underwriting, they shall so advise the Company
in their request. In the event such registration is underwritten, the right of
other Rights Holders to participate shall be conditional on such Rights Holders'
participation in such underwriting. Upon receipt of any such request, the
Company shall promptly give written notice of such proposed registration to all
Rights Holders. Such Rights Holders shall have the right, by giving written
notice to the Company within 30 days after the Company provides its notice, to
elect to have included in such registration such Registrable Shares as such
Rights Holders may request in such notice of election; provided that if the
underwriter (if any) managing the offering determines that, because of marketing
factors, all of the Registrable Shares requested to be registered by all Rights
Holders may not be included in the offering, then all Rights Holders who have
requested registration shall participate in the registration pro rata based upon
the number of Registrable Shares which they have requested to be so registered.
Thereupon, the Company shall, as expeditiously as reasonably practicable, use
its reasonable best efforts to effect the registration on Form S-1 (or any
successor form) of all Registrable Shares which the Company has been requested
to so register.
2.02 Form S-3 Registration. At any time after the Company becomes
---------------------
eligible to file a Registration Statement on Form S-3 (or any successor form), a
Rights Holder or Rights Holders holding in the aggregate at least 20% of the
Registrable Shares may request the Company, in writing, to effect the
registration on Form S-3 (or such successor form), of Registrable Shares having
an aggregate offering price of at least $500,000 (based on the then current
public market price and subject to adjustment in the event of stock splits,
stock dividends, reclassifications, recapitalizations, or similar events). Upon
receipt of any such request, the Company shall promptly give written notice of
such proposed registration to all Rights Holders. Such Rights Holders shall
have the right, by giving written notice to the Company within 30 days after the
Company provides its notice, to elect to have included in such registration such
of their Registrable Shares as such Rights Holders may request in such notice of
election; provided that if the underwriter (if any) managing the offering
determines that, because of marketing factors, all of the Registrable Shares
requested to be registered by all Rights Holders may not be included in the
offering, then all Rights Holders who have requested registration shall
participate in the registration pro rata based upon the number of Registrable
Shares which they have requested to be so registered. Thereupon, the Company
shall, as expeditiously as reasonably practicable, use its reasonable best
efforts to effect the registration on Form S-3 (or such successor form) of
Registrable Shares which the Company has been requested to so register.
3
<PAGE>
2.03 The Company shall not be required to effect more than two
registrations pursuant to Subsection 2.01 above or more than two registrations
per year pursuant to Subsection 2.02 above. In addition, the Company shall not
be required to effect any registration under Subsection 2.01 or Subsection 2.02
above within six months after the effective date of any other Registration
Statement of the Company.
2.04 If following the receipt of any request to register Registrable
Shares pursuant to this Section 2, the Company is engaged or has fixed plans to
engage within 90 days of the time of the request in a registered public offering
or is engaged in any other activity which, in the good faith determination of
the Company's Board of Directors, would be adversely affected by the requested
registration to the material detriment of the Company or an activity which would
make it impracticable or inadvisable to file a Registration Statement, then the
Company may at its option direct that such request be delayed for a period not
in excess of three months from the effective date of such offering or the date
of commencement of such other material activity, as the case may be, such right
to delay a request to be exercised by the Company not more than twice in any one
year period.
2.05 If a required registration pursuant to this Section 2 is an
underwritten offering, the Company may select a managing underwriter to
administer the offering as long as such underwriter is of recognized standing.
3. Incidental Registration
3.01 Whenever the Company proposes to file a Registration Statement (other
than pursuant to Section 2 and other than in connection with the Company's first
underwritten public offering of Common Stock) the Company will, prior to such
filing, give written notice to all eligible Rights Holders of its intention to
do so and, upon the written request of an eligible Rights Holder or Rights
Holders given within 20 days after the Company provides such notice (which
request shall state the intended method of disposition of such Registrable
Shares), the Company shall use its reasonable best efforts to cause all
Registrable Shares which the Company has been requested by such Rights Holder or
Rights Holders to register to be registered under the Securities Act to the
extent necessary to permit their sale or other disposition in accordance with
the intended methods of distribution specified in the request of such Rights
Holder or Rights Holders; provided that the Company shall have the right to
postpone or withdraw any registration effected pursuant to this Section 3
without obligation to any Rights Holder.
3.02 In connection with any registration under this Section 3 involving an
underwriting, the Company shall not be required to include any Registrable
Shares in such registration unless the holders thereof accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it (provided that such terms must be consistent with this Agreement). If in the
opinion of the managing underwriter it is appropriate because of marketing
factors to limit the number of Registrable Shares to be included in the
offering, then the Company shall be required to include in the registration only
that number of Registrable Shares, if any, which the managing underwriter
believes should be included therein; provided that no persons or entities other
than the Company, the Rights Holders and persons or entities holding
registration rights granted in accordance with Section 10 hereof shall be
permitted to include securities in the offering. If the number of Registrable
Shares to be included in the offering in accordance with the foregoing is less
4
<PAGE>
than the total number of shares which the holders of Registrable Shares have
requested to be included, then the holders of Registrable Shares who have
requested registration and other holders of securities entitled to include them
in such registration shall participate in the registration pro rata based upon
their total ownership of Common Stock (giving effect to the conversion into
Common Stock of all securities convertible thereinto). If any holder would thus
be entitled to include more securities than such holder requested to be
registered, the excess shall be allocated among other requesting holders pro
rata in the manner described in the preceding sentence.
4. Registration Procedures
4.01 If and whenever the Company is required by the provisions of this
Agreement to use its reasonable best efforts to effect the registration of any
of the Registrable Shares under the Securities Act, the Company shall:
(a) file with the Commission a Registration Statement with respect
to such Registrable Shares and use its reasonable best efforts to cause that
Registration Statement to become effective;
(b) as expeditiously as reasonably practicable prepare and file with
the Commission any amendments and supplements to the Registration Statement
and the prospectus included in the Registration Statement as may be
necessary to keep the Registration Statement effective, in the case of a
firm commitment underwritten public offering, until each underwriter has
completed the distribution of all securities purchased by it and, in the
case of any other offering, until the earlier of the sale of all Registrable
Shares covered thereby or 120 days after the effective date thereof;
(c) as expeditiously as reasonably practicable furnish to each
selling Rights Holder such reasonable numbers of copies of the prospectus,
including a preliminary prospectus, in conformity with the requirements of
the Securities Act, and such other documents, as the selling Rights Holder
may reasonably request in order to facilitate the public sale or other
disposition of the Registrable Shares owned by the selling Rights Holder;
and
(d) as expeditiously as reasonably practicable use its best
reasonable efforts to register or qualify the Registrable Shares covered by
the Registration Statement under the securities or Blue Sky laws of such
states as the selling Rights Holders shall reasonably request, and do any
and all other acts and things that may be necessary or desirable to enable
the selling Rights Holders to consummate the public sale or other
disposition in such states of the Registrable Shares owned by the selling
Rights Holder; provided, however, that the Company shall not be required in
connection with this Subsection 4.01(d) to qualify as a foreign corporation
or execute a general consent to service of process in any jurisdiction.
4.02 If the Company has delivered preliminary or final prospectuses to the
selling Rights Holders and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, the Company shall promptly
notify the selling Rights Holders and, if requested, the selling Rights Holders
shall immediately cease making offers of Registrable Shares and return all
prospectuses to the Company. The Company shall promptly provide the selling
Rights Holders
5
<PAGE>
with revised prospectuses and, following receipt of the revised prospectuses,
the selling Rights Holders shall be free to resume making offers of the
Registrable Shares.
4.03 Following the effectiveness of a Registration Statement (and the
making of any required filings with any state securities commissions), the
Company may direct the selling Rights Holders to suspend sales of the
Registrable Securities, as provided herein, if one or more of the following
events (a "Suspension Event") occurs:
(a) an underwritten primary offering by the Company where the
Company is advised by the underwriters for such offering that sale of
Registrable Shares under the Registration Statement would have a material
adverse effect on the primary offering; or
(b) pending negotiations relating to, or consummation of, a
transaction or the occurrence of an event:
(i) that would require additional disclosure of material
information by the Company in the Registration Statement (or such
filings);
(ii) as to which the Company has a bona fide business purpose
for preserving confidentiality; or
(iii) which renders the Company unable to comply with
Commission requirements;
in each case under circumstances that would make it impractical or inadvisable
(i) to take any action with respect to the Registration Statement (or such
filings), the effectiveness or continued effectiveness thereof, or (ii) to
promptly amend or supplement the Registration Statement on a post-effective
basis, as applicable.
4.04 In the case of a Suspension Event, the Company shall give written
notice (a "Suspension Notice") to the selling Rights Holders to suspend sales of
the Registrable Shares so that the Company may correct or update the
Registration Statement (or such filings); provided, however, that such
suspension shall continue only for so long as the Suspension Event or its effect
is continuing, and in no event will any suspension exceed 90 days. The selling
Rights Holders agree that they will not effect any sales of the Registrable
Shares pursuant to such Registration Statement (or such filings) at any time
after they have received a Suspension Notice from the Company. If so directed
by the Company, selling Rights Holders will deliver to the Company all copies of
the prospectus covering the Registrable Shares held by them at the time of
receipt of the Suspension Notice. The selling Rights Holders may recommence
effecting sales of the Registrable Shares pursuant to the Registration Statement
(or such filings) following further written notice to such effect (an "End of
Suspension Notice") from the Company, which End of Suspension Notice shall be
accompanied by copies of the supplemented or amended prospectus necessary to
resume such sales.
5. Allocation Of Expenses
The Company will pay all Registration Expenses of all registrations under
this Agreement; provided, however, that if a registration under Section 2 is
withdrawn at the request of the Rights
6
<PAGE>
Holders requesting such registration (other than as a result of information
concerning the business or financial condition of the Company which is made
known to the Rights Holders after the date on which such registration was
requested) and if the requesting Rights Holders elect not to have such
registration counted as a registration requested under Section 2, the requesting
Rights Holders shall pay the Registration Expenses of such registration pro rata
in accordance with the number of their Registrable Shares included in such
registration. For the purposes of this Section 5, the term "Registration
Expenses" shall mean all expenses incurred by the Company in complying with this
Agreement, including, without limitation, all registration and filing fees,
exchange listing fees, printing expenses, fees and expenses of counsel for the
Company and the reasonable fees and expenses of one counsel selected by the
selling Rights Holders to represent the selling Rights Holders, state Blue Sky
fees and expenses, and the expense of any special audits incidental to or
required by any such registration, but excluding underwriting discounts, selling
commissions and the fees and expenses of selling, Rights Holders' own counsel,
or other out-of-pocket expenses of the Rights Holders or their agents (other
than the counsel selected to represent all selling Rights Holders).
6. Indemnification And Contribution
6.01 In the event of any registration of any Registrable Shares under the
Securities Act pursuant to this Agreement, the Company will indemnify and hold
harmless the seller of such Registrable Shares, each underwriter of such
Registrable Shares, and each other person, if any, who controls such seller or
underwriter within the meaning of the Securities Act or the Exchange Act against
any losses, claims, damages or liabilities, joint or several, to which such
seller, underwriter or controlling person may become subject under the
Securities Act, the Exchange Act, state securities or Blue Sky laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to such Registration Statement, or
arise out of or are based upon the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and the Company will reimburse such seller, underwriter
and each such controlling person for any legal or any other expenses reasonably
incurred by such seller, underwriter or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any untrue statement or omission made in such Registration Statement,
preliminary prospectus or final prospectus, or any such amendment or supplement,
in reliance upon and in conformity with information furnished to the Company, in
writing, by or on behalf of such seller, underwriter or controlling person
specifically for use in the preparation thereof (provided that the foregoing
indemnity agreement with respect to any registration statement or prospectus
relating to the Registrable Securities shall not inure to the benefit of any
seller in such offering, its officers, directors or agents, or controlling
persons:
(a) if a copy of a prospectus (as then amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) for
such offering was not sent or given by or on behalf of such selling
shareholder to the person ("Asserting Person")
7
<PAGE>
asserting any losses, claims, damages or liabilities as a result of an
untrue statement of a material fact contained in any registration statement
or prospectus relating to the Registrable Securities (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto) or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading and if such prospectus (as so amended
or supplemented) would have cured the defect giving rise to such losses,
claims, damages or liabilities; or
(b) if such selling shareholder sold Registrable Securities to the
Asserting Person during the period between the date of a Suspension Notice
and the date of a End of Suspension Notice.
6.02 In the event of any registration of any of the Registrable Shares
under the Securities Act pursuant to this Agreement, each seller of Registrable
Shares, severally and not jointly, will indemnify and hold harmless the Company,
each of its directors and officers and each underwriter (if any) and each
person, if any, who controls the Company or any such underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages or liabilities, joint or several, to which the Company, such directors
and officers, underwriter or controlling person may become subject under the
Securities Act, Exchange Act, state securities or Blue Sky laws or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement under which
such Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if the statement or omission was made in reliance upon
and in conformity with information relating to such seller furnished in writing
to the Company by or on behalf of such seller specifically for use in connection
with the preparation of such Registration Statement, prospectus, amendment or
supplement, provided, however, that the obligations of such Rights Holders
hereunder shall be limited to an amount equal to the proceeds to each Rights
Holder of Registrable Shares sold in connection with such registration. The
terms of any underwriting agreement entered into by the Company to effect a
registration of the Registrable Securities shall require the underwriter to
indemnify and hold harmless the Company, its officers, directors, controlling
persons and agents on substantially the same basis as that of the
indemnification of the Company by each selling holder as provided in this
Section 6.
6.03 Each party entitled to indemnification under this Section 6
("Indemnified Party") shall give notice to the party required to provide
indemnification ("Indemnifying Party") promptly after such Indemnified Party has
actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and, provided, further, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 6 (except to the extent such failure to give
notice has resulted in increased losses,
8
<PAGE>
damages or liabilities for the Indemnifying Party). The Indemnified Party may
participate in such defense at such party's expense unless:
(a) the Indemnifying Party and the Indemnified Party shall have
mutually agreed to the retention of such counsel, or
(b) the named parties to any such proceeding (including any impleaded
parties) include both the Indemnified Party and the Indemnifying Party and
representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them.
No Indemnifying Party, in the defense of any such claim or litigation shall,
except with the consent of each Indemnified Party, consent to entry of any
judgement or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim or
litigation, and no Indemnified Party shall consent to entry of any judgement or
settle such claim or litigation without the prior written consent of the
Indemnifying Party.
6.04 In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either:
(a) any holder of Registrable Shares exercising rights under this
Agreement, or any controlling person of any such holder, makes a claim for
indemnification pursuant to this Section 6 but it is judicially determined
(by the entry of a final judgement or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 6 provides for indemnification in
such case; or
(b) contribution under the Securities Act may be required on the part
of any such selling Rights Holder or any such controlling person in
circumstances for which indemnification is provided under this Section 6,
then, in each such case, the Company and such Rights Holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportions as is appropriate
to reflect the relative fault of the Indemnifying Party and Indemnified Parties
in connection with the actions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations;
provided, however, that, in any such case:
(a) no such holder will be required to contribute any amount in excess
of the proceeds to it of all Registrable Shares sold by it pursuant to such
Registration Statement; and
(b) no person or entity guilty of fraudulent misrepresentation, within
the meaning of Section 11(f) of the Securities Act, shall be entitled to
contribution from any person or entity who is not guilty of such fraudulent
misrepresentation.
9
<PAGE>
7. Indemnification With Respect To Underwritten Offering
In the event that Registrable Shares are sold pursuant to a Registration
Statement in an underwritten offering pursuant to Section 2, the Company agrees
to enter into an underwriting agreement containing customary representations and
warranties with respect to the business and operations of an issuer of the
securities being registered and customary covenants and agreements to be
performed by such issuer, including, without limitation, customary provisions
with respect to indemnification by the Company of the underwriters of such
offering.
8. Information By Rights Holder
Each Rights Holder including Registrable Shares in any registration shall
furnish to the Company such information regarding such Rights Holder and the
distribution proposed by such Rights Holder as the Company may reasonably
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Agreement.
9. "Stand-Off" Agreement
Each Rights Holder, if requested by the Company and the managing
underwriter of an offering by the Company of Common Stock or other securities of
the Company pursuant to a Registration Statement, shall agree not to sell
publicly or otherwise transfer or dispose of any Registrable Shares or other
securities of the Company held by such Rights Holder for a specified period of
time (not to exceed 180 days) following the effective date of such Registration
Statement; provided, that:
(a) such agreement shall only apply to the first Registration Statement
covering Common Stock to be sold on its behalf to the public in an
underwritten offering; and
(b) all officers and directors of the Company enter into similar
agreements.
10. Limitations On Subsequent Registration Rights
The Company shall not, without the prior written consent of Rights Holders
holding at least 50% of the Registrable Shares, enter into any agreement (other
than this Agreement) with any holder or prospective holder of any securities of
the Company which would allow such holder or prospective holder to include
securities of the Company in any Registration Statement, unless under the terms
of such agreement, such holder or prospective holder may include such securities
in any such registration only on terms substantially similar to the terms on
which holders of Registrable Shares may include shares in such registration.
11. Rule 144 Requirements
After the earliest to occur of (x) the closing of the sale of securities of
the Company pursuant to a Registration Statement, (y) the registration by the
Company of a class of securities under Section 12 of the Exchange Act, or (z)
the issuance by the Company of an offering circular pursuant to Regulation A
under the Securities Act, the Company agrees to:
10
<PAGE>
(a) comply with the requirements of Rule 144(c) under the Securities
Act with respect to current public information about the Company;
(b) use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the Securities
Act and the Exchange Act (at any time after it has become subject to such
reporting requirements); and
(c) furnish to any holder of Registrable Shares upon request:
(i) a written statement by the Company as to its compliance
with the requirements of Rule 144(c) under the Securities Act, and the
reporting, requirements of the Securities Act and the Exchange Act (at
any time after it has become subject to such reporting requirements);
(ii) a copy of the most recent annual or quarterly report of
the Company; and
(iii) such other reports and documents of the Company as such
holder may reasonably request to avail itself of any similar rule or
regulation of the Commission allowing it to sell any such securities
without registration.
12. Mergers, Etc.
The Company shall not, directly or indirectly, enter into any merger,
consolidation or reorganization in which the Company shall not be the surviving
corporation unless the proposed surviving corporation shall, prior to such
merger, consolidation or reorganization, agree in writing to assume the
obligations of the Company under this Agreement; and for such purpose,
references hereunder to "Registrable Shares" shall be deemed to be references to
the securities which the Rights Holders would be entitled to receive in exchange
for Registrable Shares under any such merger, consolidation or reorganization;
provided, however, that the provisions of this Section 12 shall not apply in the
event of any merger, consolidation or reorganization in which the Company is not
the surviving corporation if all shareholders are entitled to receive in
exchange for their Registrable Shares consideration consisting solely of:
(a) cash;
(b) securities of the acquiring corporation which may be immediately
sold to the public without registration under the Securities Act; or
(c) securities of the acquiring corporation which the acquiring
corporation has agreed to register within 120 days of completion of the
transaction for resale to the public pursuant to the Securities Act.
13. Termination
All of the Company's obligations to register Registrable Shares under this
Agreement shall terminate on the seventh anniversary of this Agreement.
11
<PAGE>
14. Transfers Of Rights
This Agreement, and the rights and obligations of each Rights Holder
hereunder, may be assigned by such Rights Holder to:
(a) any partner or retired partner of the Rights Holder, if the Rights
Holder is a partnership;
(b) any family member or trust for the benefit of the Rights Holder, if
the Rights Holder is an individual;
(c) any entity controlled by, controlling or under common control with
the Rights Holder; and
(d) any transferee who acquires at least 500,000 Registrable Shares
(subject to adjustment in the event of stock splits, stock dividends,
reclassifications, recapitalizations, or similar events);
provided that the transferee provides written notice of such assignment to the
Company.
15. Other Public Offerings
This Agreement is not intended to and shall not preclude the Company from
listing its Common Stock on any reputable non-United States exchange.
16. Notices
All notices, requests, consents, and other communications under this
Agreement shall be in writing and shall be delivered by hand or mailed by first-
class certified or registered mail, return receipt requested, postage prepaid:
(a) if to the Company, to 2933 Bunker Hill Lane, Suite 201, Santa
Clara, California, USA 95054, Attention: Company Secretary, or to such
other address or addresses as may from time to time be furnished in writing
by the Company to the Rights Holders, with a copy to Douglas D. Smith,
Gibson, Dunn & Crutcher LLP, One Montgomery Street, Suite 3100, San
Francisco, California, USA 94104; or
(b) if to an Investor, to its address set forth on Schedule 1 attached
----------
hereto, or to such other address or addresses as may from time to time be
furnished to the Company in writing by such Investor.
Notices provided in accordance with this Section 16 shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
17. Entire Agreement
This Agreement embodies the entire agreement and understanding between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings relating to such subject matter.
12
<PAGE>
18. 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 at least 50% of the Registrable Shares; provided,
that this Agreement may be amended with the consent of the holders of less than
all Registrable Shares only in a manner which affects the rights of all
Registrable Shares in the same fashion. No waivers of or exceptions to any
term, condition or provision of this Agreement, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver of any
such term, condition or provision.
19. Counterparts
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original, but all of which shall be one and the same
instrument.
20. Severability
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement.
21. Governing Law
This Agreement shall be governed by and construed in accordance with the
internal laws of the State of Delaware without reference to conflict of laws
principles thereof.
22. Section Headings
The headings of each Section, Subsection or other subdivision of this
Agreement are for reference purposes only and shall not limit or control the
meaning thereof.
[SIGNATURE PAGE FOLLOWS]
13
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed on its behalf as of the day and year first above written.
COMPANY:
VIRATA CORPORATION
By:___________________________________
Name:______________________________
Title:_____________________________
INVESTORS:
See Schedule 1
[SIGNATURE PAGE TO VIRATA CORPORATION REGISTRATION RIGHTS AGREEMENT]
14
<PAGE>
SCHEDULE 1
INVESTORS
<TABLE>
<CAPTION>
Name Address
- ------------------------------------------------------------------------------------------------------
<S> <C>
LSI Logic Inc.
Olivetti Telemedia Investments B.V.
Siemens Information and Communications Networks, Inc. 900 Broken Sound Parkway
Boca Raton, Florida 33487 USA
Attention: President
With Copies to:
Siemens Information and Communication Networks, Inc.
4900 Old Ironsides Drive
Santa Clara, California 95054
Attention: Bjoern Christensen
Fax: 408-492-3614
Siemens Corporation
1301 Avenue of the Americas
New York, New York 10019
Attention: General Counsel
Fax: 212-258-4490
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 1 to the Registration
Statement on Form S-1 (No. 333-86591) of our reports dated August 20, 1999,
relating to the financial statements and financial statement schedule of
Virata Corporation, which appear in such Registration Statement. We also
consent to the reference to us under the heading "Experts" in such
Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
October 13, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 1 to the Registration
Statement on Form S-1 (No. 333-86591) of our report dated August 19, 1999,
relating to the financial statements of RSA Communications, Inc. which appear
in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Raleigh, North Carolina
October 13, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-2000
<PERIOD-START> APR-01-1998 APR-01-1999
<PERIOD-END> SEP-30-1998 OCT-03-1999
<CASH> $16,401 $4,137
<SECURITIES> 0 0
<RECEIVABLES> 4,598 1,810
<ALLOWANCES> (3,256) (630)
<INVENTORY> 361 705
<CURRENT-ASSETS> 912 1,392
<PP&E> 5,581 7,048
<DEPRECIATION> (3,638) (4,850)
<TOTAL-ASSETS> 24,881 12,562
<CURRENT-LIABILITIES> 5,713 5,694
<BONDS> 970 986
0 0
801 801
<COMMON> 211 215
<OTHER-SE> 17,186 4,866
<TOTAL-LIABILITY-AND-EQUITY> 24,881 12,562
<SALES> 5,121 5,677
<TOTAL-REVENUES> 5,121 5,677
<CGS> 2,263 2,770
<TOTAL-COSTS> 14,146 10,204
<OTHER-EXPENSES> 305 183
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 102 92
<INCOME-PRETAX> (11,695) (7,572)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (11,695) (7,572)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (11,695) (7,572)
<EPS-BASIC> (0.91) (0.57)
<EPS-DILUTED> (0.91) (0.57)
</TABLE>
