VIRATA CORP, S-1/A, 1999-10-26

VIRATA CORP
S-1/A, 1999-10-26
SEMICONDUCTORS & RELATED DEVICES

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<PAGE>

As filed with the Securities and Exchange Commission on October 26, 1999.
Registration No. 333-86591
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

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FORM S-1

AMENDMENT NO. 2
to
REGISTRATION STATEMENT
Under
The Securities Act of 1933

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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>

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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)

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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)

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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>

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Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after the Registration Statement becomes effective.

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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. [_]

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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Maximum
Title of Each Class of Aggregate Amount Of
Securities to be Registered Offering Price(1) Registration Fee(2)
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<S> <C> <C>
Common Stock, $.001 par value.................. $57,500,000 $16,000
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</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) This amount was previously paid.

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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.
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<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 26, 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>

Inside Front Cover

On the left-hand side of the upper third of the page is a large stylized "V"
being the first letter of Virata, the Company's name.
To the right of this are the words "the elements of speed."

In the middle third of the page and with the first letter of each line aligned
with the left hand of the stylized V mentioned above is the Company's
positioning statement:

Virata delivers highly-integrated semiconductors

with a comprehensive suite of communications

software to broadband Internet access equipment

suppliers. Virata's systems expertise, products

and support services simplify development, maxi-

mize opportunity for differentiation and speed

time to market.

Below this positioning statement is the Company's logo "Virata" which is also
aligned such that the left hand edge of the initial V is on the same diagonal as
the text above.
<PAGE>

Fold out Two-Page Spread

The title of the two-page spread is "Virata Integrated Software on Silicon." The
words "on Silicon" are in italics. This is aligned left and stretches three-
quarters of the way across the two pages.

The graphic is divided into three zones which are elliptical in shape and in
which the two outer zones overlap the central one.

The central zone is identified on its front edge as "Telephone Company" and
depicts a telephone company central office and features a tall stylized office
building with a pond in front and two adjoining pieces of equipment which are
labeled Digital Loop Carrier and Digital Subscriber Line Access Multiplexer.
Next to each of these pieces of equipment is a semiconductor graphic on which is
shown the Company's logo "Virata." Dotted lines connect these pieces of
equipment to the office building. Additional dotted lines extend from the
building's left-hand side and go to two clouds, one of which contains the word
"Internet" and the other contains the words "Public Switched Telephone
Network."

The left-hand zone is identified on its front edge as "Residential" and shows
two groups of stylized houses and apartment blocks. A portable computer and an
ADSL Modem are depicted next to one group of residences and a PC, telephone and
Digital Subscriber Line Gateway are depicted next to the lower group. The Modem
and Gateway are linked by dotted lines to the Digital Loop Carrier and Digital
Subscriber Line Access Multiplexer respectively. Next to each of the Modem and
the Gateway is a semiconductor graphic on which is shown the Company's logo
"Virata."

The right hand zone is identified on its front edge as "Corporate Offices" and
shows a group of tall stylized offices with three computers. To the left of
these are drawings of a Branch Office Router and a Corporate Router, labeled
accordingly. The Branch Office Router and the Corporate Router are each linked
by a dotted line to the Digital Subscriber Line Access Multiplexer. On the
computer displays is the Company's stylized letter V and next to each of the
Branch Office Router and Corporate Router are a semiconductor graphic on which
is shown the Company's logo "Virata."

Above the right hand zone is a semiconductor graphic on which is shown the
Company's logo "Virata" and next to this the following text - "Shows where
Virata integrated software on silicon is applied."

At the bottom right hand side of the two-page spread is the Company's logo -
"Virata."
<PAGE>

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TABLE OF CONTENTS

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Page
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<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>
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Page
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<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>

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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

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 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 improvement;

. 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.

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 instead
required to forecast expenses based 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 could be greater than expected. In addition, our
ability to forecast accurately our quarterly revenue is limited, 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 expect to continue to incur net losses, which may have a negative impact on
the price of our stock and our ability to implement our business strategy

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.
Accordingly, our ability to continue to operate our business and implement our
business strategy may be hampered and the value of our stock may decline.

We may not be able to achieve or sustain profitability or positive cash flow,
which may cause the price of our stock to decline

Due to our 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.
We cannot be sure that we will be able to generate such revenues or achieve
profitability or positive 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 ability to continue to operate
our business and implement our business strategy may thus be hampered and the
value of our stock may decline.

Fluctuations in our operating results from quarter to quarter may result in a
decrease in the price of our stock

Our revenues, expenses and operating results have fluctuated in the past and
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 have been negatively affected 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; and

. the timing and size of expenses, including expenses of developing new
products and product improvements.

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. Such fluctuations may make
our stock unattractive to investors and result in a decline in the price of our
stock.

Our business is dependent upon the broad deployment of DSL services by
telecommunications service providers, and we may not be able to generate
substantial sales of our products if such deployment does not occur

Our products are incorporated in equipment that is targeted at end-users of
DSL technologies. Consequently, 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;

. 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

Our products are not sold directly to the end-user, rather they are
components of other products. As a result, 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 and maintain
relationships with manufacturers of DSL equipment could result in a decrease
in the sales of our products and we may be unable to recoup expenses. This
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 manufacturers
of DSL equipment, 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 if we experience delays in receiving semiconductor devices,
sales of our products may decline

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 occasionally
experienced delays in receiving semiconductor devices from foundries due to
foundry scheduling and process problems. To date, such delays have not had a
material affect on our results of operations. However, we may experience
delays in the future and 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. 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 and may result in
a decrease in sales of products.

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 manufacturing capacity to meet our requirements, which
could result in a decline in the sales of our products

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. This could ultimately lead to a loss of
sales of our products and have a negative impact on our results of operations.

In order to secure foundry capacity, we may be required to enter into
financial and other arrangements with foundries, and such agreements may
result in dilution of our earnings or the ownership of our stockholders

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 prospects and
results of operations could be negatively affected

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 could suffer. This could ultimately
lead to a loss of sales of our products and have a negative impact on our
results of operations.

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. In addition, ARM is
only required to indemnify us against intellectual property infringement
claims up to a specified dollar amount.

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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 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, sales
of our products may decline. 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 manufacturers of DSL equipment, we may
be unable to secure sales from these customers in the future

Once a manufacturer of DSL equipment has designed a supplier's
semiconductor into its products, the 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 manufacturers of DSL equipment which have chosen a competitor's
semiconductor could create barriers to future sales opportunities with these
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 have a negative impact on our financial
condition and results of operations.

Our customers may cancel orders and we may not be able to recoup expenses

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 have a negative impact on our 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 have a negative impact on our revenues and results of operations

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. The failure of our products
to achieve broad market acceptance could result in a decrease in our revenues,
which would have a negative impact on our results of operations 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

If we deliver products with defects, our credibility will be harmed, and the
sales and market acceptance of our products may 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, which could result in increased expenses and have a negative impact
on our results of operations

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 would have a negative impact on our
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.

Uncertainties associated with international operations could increase our
operating expenses and have a negative impact on our results of operations

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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<PAGE>

a significant downturn in the political, economic or financial condition of
these countries could cause demand for and revenue from our products to
decrease, cause our costs of doing business to increase or subject us to
increased regulation including future import and export restrictions.

We may not be able to manage our expanding operations and growth, which could
result in the loss of business opportunities

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, which could result in a decrease in sales of 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. This may result in a decline in the sales of our
products and have a negative impact on our results of operations.

Our executive officers and key personnel are critical to our business, and
our inability to attract and retain qualified personnel may have a negative
impact on our results of operations

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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<PAGE>

Our software and hardware products and our internal systems may not be Year
2000 compliant, and the costs and problems associated with the Year 2000
issue could have a negative impact on our customer relationships 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. 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 costs and problems
associated with correcting errors caused by the Year 2000 issue could have a
negative impact on our customer relationships, financial condition 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 would
have a negative impact on our 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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<PAGE>

Competitive forces may cause the average selling price of our products to
decline, which may have a negative impact on our results of operations

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 improvements 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. Improvements 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 improvement 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

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
have a negative impact on our operating results.

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<PAGE>

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.

If we are unable to adequately protect our intellectual property rights,
sales of our products and our results of operations may be negatively
affected

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. This may have a negative impact on
sales of our products and our results of operations.

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, which would have a negative impact on our results of operations

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;

. to 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 for us to comply with the International Telecommunications Union
V.34, V.90 and 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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<PAGE>

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 could cause
sales of our products to decline

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. This may cause sales of our products to
decline. 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 have a
negative impact on 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

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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<PAGE>

Securities litigation could result in substantial costs and divert
management's attention and resources from our operations and sales of our
products, which would have a negative impact on our 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 may 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, may 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 working capital and 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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<PAGE>

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.

20
<PAGE>

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.

21
<PAGE>

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 ADSL standards. 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,
Inc. .................. 3.0 Siemens is a leading worldwide
telecommunications company and has been 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 were in compliance with or had obtained waivers for such financial
covenants, and 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 months. Therefore,
if cash generated from operations is insufficient to satisfy our long-term
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

38
<PAGE>

issuance of 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.

39
<PAGE>

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

40
<PAGE>

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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<PAGE>

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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<PAGE>

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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<PAGE>

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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<PAGE>

. 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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<PAGE>

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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<PAGE>

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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<PAGE>

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

48
<PAGE>

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 ADSL standards. 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.

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<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 ADSL 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. Among other provisions, our ARM license requires ARM to indemnify
us, up to a specified dollar amount, in the event of third party claims of
intellectual property infringement. 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, Inverness 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.

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<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 two patents 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.

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<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.

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<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 Secretary
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 &
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 &
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.

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<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

58
<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.

60
<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

61
<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 $0.92 per share and aggregate proceeds of
$1,416,800 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 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;

63
<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 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.

64
<PAGE>

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 Group plc............ 517,257(2) -- 3,836,628(9) -- 245,356
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.......... -- -- 374,108 -- 374,108(16)
All of our directors and
executive officers as a
group (15 persons)..... 3,684,168 6,666,667 30,226,968 2,307,692 2,712,270
</TABLE>
- --------

(1) Except as noted, represents bridge notes denominated in the number of
series D preference shares into which they were convertible. 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 245,356 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

66
<PAGE>

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. Among other provisions, such license requires ARM to
indemnify us, up to a specific dollar amount, in the event of intellectual
property infringement claims by third parties. 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. The
calculation of the number and percent of shares beneficially owned after this
offering assumes that no shares are purchased in this offering by the persons
or group listed below.

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 1.7 243,569 1.3
Marco De Benedetti............... 1,667,941 11.5 1,667,941 8.6
Gary Bloom(3).................... 1,819,586 12.6 1,819,586 9.3
Bandel Carano(4)................. 1,863,510 12.9 1,863,510 9.6
Professor Andrew Hopper.......... 233,262 1.6 233,262 1.2
Peter Morris(5).................. 1,309,440 9.0 1,309,440 6.7
Patrick Sayer(6)................. 1,723,437 11.9 1,723,437 8.9
Giuseppe Zocco(7)................ 55,837 * 55,837 *
All of our directors and
executive officers as a group
(15 persons).................... 9,433,322 62.7 9,433,322 47.1
</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.

76
<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 laws.

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 20, 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 $667,000, 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 $354,000 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
with the ITU ADSL standards. 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 $1,719,000 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 after the registration statement becomes effective.

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 was in compliance with or had
obtained waivers for such financial covenants, and 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:

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 $667,000, 1,993,000 stock options valued at
$1,505,000, cash of $5,332,000 and acquisition related expenses of
approximately $354,000 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):

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...................................................... 6,825
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................................................. 26,695
----------
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 (the following
information does not give effect to the 1 for 6.7 reverse stock split):

Issuances of Ordinary Shares.

. 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.

. 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; in exchange for the warrant, we were able to negotiate more
favorable terms for the master agreement than would otherwise be
available, and our board determined that the value of such "more
favorable terms" was approximately $28,656;

. 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; in exchange for the warrant, we were able to negotiate more
favorable terms for the master agreement than would otherwise be
available, and our board determined that the value of such "more
favorable terms" was approximately $6,806;

. 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; in
exchange for the warrant, we were able to negotiate more favorable terms
for the loan and security agreement than would otherwise be available,
and our board determined that the value of such "more favorable terms"
was approximately $31,613; 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 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, 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 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; in exchange for the warrant, we were able to negotiate more
favorable terms for the master agreement than would otherwise be
available, and our board determined that the value of such "more
favorable terms" was approximately $118,457;

. 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; in exchange for the
warrant, we were able to negotiate more favorable terms for the master
agreement than would otherwise be available, and our board determined
that the value of such "more favorable terms" was approximately $73,885;
and

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 not 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

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**.............................................
27.1 Financial Data Schedule**.......................................
</TABLE>
- --------
* To be filed by amendment.

+ 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 undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act 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, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-6
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 2 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 26th day of October, 1999.

VIRATA CORPORATION

By: /s/ Charles Cotton
-----------------------------------
Charles Cotton
Chief Executive Officer and Director

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 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 26, 1999
/s/ Charles Cotton and Director
___________________________________ (Principal Executive
Charles Cotton Officer)

* Senior Vice President, October 26, 1999
___________________________________ Chief Financial Officer
Andrew Vought and Secretary (Principal
Financial Officer and
Principal Accounting
Officer)

* Chairman of the Board October 26, 1999
___________________________________
Dr. Hermann Hauser

* Director October 26, 1999
___________________________________
Marco De Benedetti

* Director October 26, 1999
___________________________________
Gary Bloom

* Director October 26, 1999
___________________________________
Bandel Carano

* Director October 26, 1999
___________________________________
Andrew Hopper

* Director October 26, 1999
___________________________________
Martin Jackson

* Director October 26, 1999
___________________________________
Peter Morris

* Director October 26, 1999
___________________________________
Patrick Sayer

* Director October 26, 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-7
<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, except as to Note 13

which is as of October 12, 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**..............
Form of Amended and Restated Certificate of Incorporation of
3.1 Virata Corporation..............................................
3.2 Amended and Restated Bylaws of Virata Corporation...............
Specimen form of Virata Corporation's Common Stock
4.1 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**............................................
27.1 Financial Data Schedule**......................................
</TABLE>
- --------
* To be filed by amendment.

+ Filed without schedules.
++ Confidential treatment has been requested for selected sections of this
exhibit.
** Filed previously.

<PAGE>

EXHIBIT 3.1

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
VIRATA CORPORATION

Virata Corporation, a Delaware corporation (the "Corporation"), does hereby
certify that:

FIRST: The name of the Corporation is Virata Corporation and that the
Corporation was originally incorporated on August 31, 1999, pursuant to the
General Corporation Law, under the name Virata Corporation.

SECOND: The Certificate of Incorporation of the Corporation shall be
amended and restated to read in full as follows:

ARTICLE I
NAME OF CORPORATION

The name of this corporation is Virata Corporation.

ARTICLE II
REGISTERED OFFICE

The address of the registered office of the corporation in the State of
Delaware is 9 East Loockerman Street, in the City of Dover 19901, County of
Kent, and the name of its registered agent at that address is National
Registered Agents, Inc.

ARTICLE III
PURPOSE

The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.

ARTICLE IV
AUTHORIZED CAPITAL STOCK

The total number of shares of stock which the corporation shall have
authority to issue is Forty-Five Million (45,000,000), Forty Million
(40,000,000) of which shall be designated shares of Common Stock, par value of
one-tenth of one cent ($0.001) per share (the "Common Stock"), and Five Million
(5,000,000) of which shall be designated shares of Preferred Stock, par value of
one-tenth of one cent ($0.001) per share (the "Preferred Stock"). Effective
immediately upon the filing of this Restated and Amended Certificate of
Incorporation, every share of Common Stock
<PAGE>

outstanding prior to such effective date shall be deemed to be converted into
and reconstituted as 0.1492537 shares of Common Stock.

Authority is hereby expressly granted to the Board of Directors from time
to time to create one or more series of Preferred Stock and to issue Preferred
Stock in series, and in connection with the designation of any such series, by
resolution or resolutions providing for the issue of shares of such series, to
determine and fix such voting powers, full or limited, or lack of voting powers,
and such designations, powers, preferences and rights of the shares of each such
series and the qualifications, limitations or restrictions thereof including,
without limitation, dividend rights, conversion rights, redemption privileges
and liquidation preferences, all to the full extent now or hereafter permitted
by law. Without limiting the generality of the foregoing, the resolutions
providing for issuance of any series of Preferred Stock may provide that such
series shall be superior or rank equally or be junior to the Preferred Stock of
any other series to the extent permitted by law. No vote of the holders of the
Preferred Stock or Common Stock shall be a prerequisite to the issuance of any
shares of any series of Preferred Stock authorized by and complying with the
conditions of the Certificate of Incorporation, unless provided in the
Certificate of Incorporation or in any designation creating any series.

ARTICLE V
BOARD POWER REGARDING BYLAWS

In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, repeal, alter, amend and
rescind the bylaws of the corporation.

ARTICLE VI
NUMBER OF DIRECTORS; ELECTION OF DIRECTORS

The number of directors which will constitute the whole Board of Directors
of the corporation shall be specified in the bylaws of the corporation.
Elections of directors need not be by written ballot unless the bylaws of the
corporation shall so provide.

ARTICLE VII
LIMITATION OF DIRECTOR LIABILITY

To the fullest extent permitted by the Delaware General Corporation Law as
the same exists or may hereafter be amended, a director of the corporation shall
not be liable to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director. If the Delaware General Corporation Law
is amended after the date of the filing of this Certificate of Incorporation to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended from time to time. No repeal or
modification of this Article VIII by the stockholders

2
<PAGE>

shall adversely affect any right or protection of a director of the
corporation existing by virtue of this Article VIII at the time of such repeal
or modification. In furtherance of this Article VIII, the Board of Directors
is authorized to enter into indemnification agreements with its directors or
officers.

ARTICLE VIII
CORPORATE POWER

The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred on stockholders herein
are granted subject to this reservation.

ARTICLE IX
CREDITOR COMPROMISE OR ARRANGEMENT

Whenever a compromise or arrangement is proposed between this corporation
and its creditors or any class of them and/or between this corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this corporation under
the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting
of the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing three-
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.

* * *

THIRD: The foregoing Amended and Restated Certificate of Incorporation was
duly adopted by this Corporation's Board of Directors and stockholders in
accordance with the provisions of Sections 228, 242 and 245 of the General
Corporation Law.

[Remainder of page intentionally left blank.]

3
<PAGE>

IN WITNESS WHEREOF, the undersigned have executed this Amended and Restated
Certificate of Incorporation on November ___, 1999.

____________________________
Charles Cotton
Chief Executive Officer

____________________________
Andrew Vought
Chief Financial Officer, Vice President, Finance
and Secretary

<PAGE>
EXHIBIT 3.2

VIRATA CORPORATION
a Delaware corporation

AMENDED AND RESTATED BYLAWS

ARTICLE I
OFFICES

1.01 Registered Office. The registered office of Virata Corporation
------------------
(hereinafter called the "Corporation") in the State of Delaware shall be at 9
East Loockerman Street, City of Dover, County of Kent, and the name of the
registered agent in charge thereof shall be National Registered Agents, Inc.

1.02 Other Offices. The Corporation may also have an office or offices at
--------------
such other place or places, either within or without the State of Delaware, as
the Board of Directors (hereinafter called the "Board") may from time to time
determine or as the business of the Corporation may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

2.01 Annual Meetings. Annual meetings of the stockholders of the
----------------
Corporation for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings may be held at such
time, date and place as the Board shall determine by resolution.

2.02 Special Meetings. A special meeting of the stockholders for the
----------------
transaction of any proper business may be called at any time by the Board, or by
the Chairman of the Board, or by the Chief Executive Officer. No other person
or persons are permitted to call a special meeting.

2.03 Place of Meetings. All meetings of the stockholders shall be held at
------------------
such places, within or without the State of Delaware, as may from time to time
be designated by the person or persons calling the respective meeting and
specified in the respective notices or waivers of notice thereof.

2.04 Notice of Meetings. Except as otherwise required by law, notice of
-------------------
each meeting of the stockholders, whether annual or special, shall be given not
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder of record entitled to vote at such meeting by delivering a
typewritten or printed notice thereof to him personally, or by depositing such
notice in the United States mail, in a postage prepaid envelope, directed to him
at his post office address furnished by him to the Secretary of the Corporation
for such purpose or, if he shall not have furnished to the Secretary his address
for such purpose, then at his post office address last known to the Secretary.
Except as otherwise expressly required by law, no
<PAGE>

publication of any notice of a meeting of the stockholders shall be required.
Every notice of a meeting of the stockholders shall state the place, date and
hour of the meeting, and, in the case of a special meeting, shall also state the
purpose or purposes for which the meeting is called. Notice of any meeting of
stockholders shall not be required to be given to any stockholder who shall have
waived such notice and such notice shall be deemed waived by any stockholder who
shall attend such meeting in person or by proxy, except as a stockholder who
shall attend such meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Except as otherwise expressly required by law,
notice of any adjourned meeting of the stockholders need not be given if the
time and place thereof are announced at the meeting at which the adjournment is
taken.

2.05 Quorum. Except in the case of any meeting for the election of
-------
directors summarily ordered as provided by law, the holders of record of a
majority in voting interest of the shares of stock of the Corporation entitled
to be voted thereat, present in person or by proxy, shall constitute a quorum
for the transaction of business at any meeting of the stockholders of the
Corporation or any adjournment thereof. In the absence of a quorum at any
meeting or any adjournment thereof, a majority in voting interest of the
stockholders present in person or by proxy and entitled to vote thereat or, in
the absence therefrom of all the stockholders, any officer entitled to preside
at, or to act as secretary of, such meeting may adjourn such meeting from time
to time. At any such adjourned meeting at which a quorum is present, any
business may be transacted which might have been transacted at the meeting as
originally called.

2.06 Voting.
-------

(a) Each stockholder shall, at each meeting of the stockholders, be
entitled to vote in person or by proxy each share or fractional share of the
stock of the Corporation having voting rights on the matter in question and
which shall have been held by him and registered in his name on the books of the
Corporation:

(i) on the date fixed pursuant to Section 6.05 of these Bylaws as
the record date for the determination of stockholders entitled to notice of
and to vote at such meeting, or

(ii) if no such record date shall have been so fixed, then at the
close of business on the day next preceding the day on which notice of the
meeting shall be given or, if notice of the meeting shall be waived, at the
close of business on the day next preceding the day on which the meeting
shall be held.

(b) Shares of its own stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors in such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Persons holding stock of the Corporation in a fiduciary capacity
shall be entitled to vote such stock. Persons whose stock is pledged shall be
entitled to vote, unless in the transfer by the pledgor on the books of the
Corporation he shall have expressly empowered the pledgee to vote thereon, in
which case only the pledgee, or his proxy, may represent such stock and vote
thereon. Stock having voting power standing of record in the

2
<PAGE>

names of two or more persons, whether fiduciaries, members of a partnership,
joint tenants in common, tenants by entirety or otherwise, or with respect to
which two or more persons have the same fiduciary relationship, shall be voted
in accordance with the provisions of the General Corporation Law of the State of
Delaware.

(c) Any such voting rights may be exercised by the stockholder
entitled thereto in person or by his proxy appointed by an instrument in
writing, subscribed by such stockholder or by his attorney thereunto authorized
and delivered to the secretary of the meeting; provided, however, that no proxy
shall be voted or acted upon after three years from its date unless said proxy
shall provide for a longer period. The attendance at any meeting of a
stockholder who may theretofore have given a proxy shall not have the effect of
revoking the same unless he shall in writing so notify the secretary of the
meeting prior to the voting of the proxy. At any meeting of the stockholders
all matters, except as otherwise provided in the Certificate of Incorporation,
in these Bylaws or by law, shall be decided by the vote of a majority in voting
interest of the stockholders present in person or by proxy and entitled to vote
thereat and thereon, a quorum being present. The vote at any meeting of the
stockholders on any question need not be by ballot, unless so directed by the
chairman of the meeting. On a vote by ballot each ballot shall be signed by the
stockholder voting, or by his proxy, if there be such proxy, and it shall state
the number of shares voted.

2.07 List of Stockholders. The Secretary of the Corporation shall prepare
--------------------
and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.

2.08 Judges. If at any meeting of the stockholders a vote by written
-------
ballot shall be taken on any question, the chairman of such meeting may appoint
a judge or judges to act with respect to such vote. Each judge so appointed
shall first subscribe an oath faithfully to execute the duties of a judge at
such meeting with strict impartiality and according to the best of his ability.
Such judges shall decide upon the qualification of the voters and shall report
the number of shares represented at the meeting and entitled to vote on such
question, shall conduct and accept the votes, and, when the voting is completed,
shall ascertain and report the number of shares voted respectively for and
against the question. Reports of judges shall be in writing and subscribed and
delivered by them to the Secretary of the Corporation. The judges need not be
stockholders of the Corporation, and any officer of the Corporation may be a
judge on any question other than a vote for or against a proposal in which he
shall have a material interest.

2.09 Action Without Meeting. Any action required to be taken at any
----------------------
annual or special meeting of stockholders of the Corporation, or any action that
may be taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice

3
<PAGE>

and without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. Notwithstanding the foregoing, after the closing
of the Corporation's first underwritten public offering ("Initial Public
Offering") pursuant to which the Corporation shall have a class of stock
registered pursuant to the provisions of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and for so long as such class is so registered, any
action by the stockholders of such class must be taken at an annual or special
meeting of stockholders and may not be taken by written consent.

2.10 Advance Notice of Stockholder Business. At any meeting of the
---------------------------------------
stockholders, only such business shall be conducted as shall have been brought
before the meeting (i) by or at the direction of the Board or (ii) by any
stockholder of the Corporation who complies with the notice procedures set forth
in this Section 2.10 and Section 2.11 of Article II. For business to be
properly brought before any meeting of the stockholders by a stockholder, the
stockholder must have given notice thereof in writing to the Secretary of the
Corporation not less than 90 days in advance of such meeting or, if later, the
tenth day following the first public announcement of the date of such meeting,
and such business must be a proper matter for stockholder action under the
General Corporation Law of the State of Delaware. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the meeting (1) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting,
(2) the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business, (3) the class and number of shares of the
Corporation that are beneficially owned by the stockholder, and (4) any material
interest of the stockholder in such business. In addition, the stockholder
making such proposal shall promptly provide any other information reasonably
requested by the Corporation. The chairman of any such meeting shall have the
power and the duty to determine whether any business proposed to be brought
before the meeting has been made in accordance with the procedure set forth in
these Bylaws and shall direct that any business not properly brought before the
meeting shall not be considered. Notwithstanding anything in these Bylaws to
the contrary, no business shall be conducted at any meeting of the stockholders
except in accordance with the procedures set forth in this Section 2.10 and
Section 2.11 of Article II. For purposes of this Section 2.10 and Section 2.11
of Article II, "public announcement" shall mean disclosure in a press release
reported by the Dow Jones News Service, Associated Press or a comparable
national news service or in a document publicly filed by the Corporation with
the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of
the Securities Exchange Act of 1934, as amended, or any successor provision.

2.11 Advance Notice of Stockholder Nominees. Nominations for the election
--------------------------------------
of directors may be made by the Board or by any stockholder entitled to vote in
the election of directors; provided, however, that a stockholder may nominate a
person for election as a director at a meeting only if written notice of such
stockholder's intent to make such nomination has been given to the Secretary of
the Corporation not later than 90 days in advance of such meeting or, if later,
the tenth day following the first public announcement of the date of such
meeting. Each

4
<PAGE>

such notice shall set forth: (i) the name and address of the stockholder who
intends to make the nomination and of the person or persons to be nominated;
(ii) a representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting and nominate the person or persons specified in the
notice; (iii) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the stockholder, (iv) such other information regarding each nominee proposed by
such stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission had the
nominee been nominated, or intended to be nominated, by the Board; and (v) the
consent of each nominee to serve as a director of the Corporation if so elected.
In addition, the stockholder making such nomination shall promptly provide any
other information reasonably requested by the Corporation. Notwithstanding the
foregoing provisions of this Section 2.11 of Article II, in the event that the
number of directors to be elected to the Board is increased and there is no
public announcement naming either all of the nominees for director or specifying
the size of the increased Board made by the Corporation at least 100 days in
advance of such meeting, a stockholder's notice required by this Section 2.11 of
Article II shall be considered timely, but only with respect to nominees for any
new positions created by such increase, if it shall be delivered to the
Secretary of the Corporation not later than the tenth day following the day on
which such public announcement is first made by the Corporation. No person shall
be eligible for election as a director of the Corporation unless nominated in
accordance with the procedures set forth in this Section 2.11 of Article II. The
chairman of any meeting of stockholders shall have the power and the duty to
determine whether a nomination has been made in accordance with the procedure
set forth in this Section 2.11 of Article II and shall direct that any
nomination not made in accordance with these procedures be disregarded.

ARTICLE III

BOARD OF DIRECTORS

3.01 General Powers. The property, business and affairs of the
---------------
Corporation shall be managed by the Board.

3.02 Number and Term of Office. The number of directors which shall
-------------------------
constitute the whole board shall not be less than three nor more than fourteen.
The first board shall consist of four directors. Thereafter, within the limits
specified, the number of directors shall be determined by resolution of the
board of directors. Directors need not be stockholders. Each of the directors
of the Corporation shall hold office until his successor shall have been duly
elected and shall qualify or until he shall resign or shall have been removed in
the manner hereinafter provided.

3.03 Election of Directors. Subject to the provisions of the Certificate
----------------------
of Incorporation, the Board of Directors shall be classified into three classes
and the members of each class shall serve for a term of three years. At the
first annual meeting of stockholders, one-third of the directors shall be
elected for a term of three years, one-third of the directors shall be elected
for a term of two years and one-third of the directors shall be elected for a
term of one

5
<PAGE>

year. If the number of directors is not divisible by three, the first extra
director shall be elected for a term of three years and the second extra
director, if any, shall be elected for a term of two years. At any subsequent
annual meeting of stockholders, a number of directors shall be elected equal to
the number of directors with terms expiring at that annual meeting. Directors
elected at each such annual meeting shall be elected for a term expiring with
the annual meeting of stockholders three years thereafter. There shall be no
right with respect to the shares of stock of the Corporation to cumulate votes
in the election of directors.

3.04 Resignations. Any director of the Corporation may resign at any time
-------------
by giving written notice to the Board or to the Secretary of the Corporation.
Any such resignation shall take effect at the time specified therein, or, if the
time be not specified, it shall take effect immediately upon its receipt; and
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.

3.05 Vacancies. Except as otherwise provided in the Certificate of
---------
Incorporation, any vacancy in the Board, whether because of death, resignation,
disqualification, an increase in the number of directors, or any other cause,
may be filled by vote of the majority of the remaining directors, although less
than a quorum. Each director so chosen to fill a vacancy shall hold office
until his successor shall have been elected and shall qualify or until he shall
resign or shall have been removed in the manner hereinafter provided. If at any
time the corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
may call a special meeting of stockholders in accordance with the provisions of
the certificate of incorporation and these bylaws, or may apply to the Court of
Chancery for a decree summarily ordering an election as provided in Section 211
of the General Corporation Law of Delaware.

3.06 Place of Meeting, Etc. The Board may hold any of its meetings at
----------------------
such place or places within or without the State of Delaware as the Board may
from time to time by resolution designate or as shall be designated by the
person or persons calling the meeting or in the notice or a waiver of notice of
any such meeting. Directors may participate in any regular or special meeting
of the Board by means of conference telephone or similar communications
equipment pursuant to which all persons participating in the meeting of the
Board can hear each other, and such participation shall constitute presence in
person at such meeting.

3.07 First Meeting. The Board shall meet as soon as practicable after
--------------
each annual election of directors and notice of such first meeting shall not be
required.

3.08 Regular Meetings. Regular meetings of the Board may be held at such
-----------------
times as the Board shall from time to time by resolution determine. If any day
fixed for a regular meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting shall be held at the same hour and place
on the next succeeding business day not a legal holiday. Except as provided by
law, notice of regular meetings need not be given.

3.09 Special Meetings. Special meetings of the Board shall be held
-----------------
whenever called by the Chief Executive Officer, the Chairman of the Board or a
majority of the authorized number of directors. Except as otherwise provided by
law or by these Bylaws, notice of the time

6
<PAGE>

and place of each such special meeting shall be mailed to each director,
addressed to him at his residence or usual place of business, at least five (5)
days before the day on which the meeting is to be held, or shall be sent to him
or her at such place via facsimile or be delivered personally or by telephone
not less than forty-eight (48) hours before the time at which the meeting is to
be held. Except where otherwise required by law or by these Bylaws, notice of
the purpose of a special meeting need not be given. Notice of any meeting of the
Board shall not be required to be given to any director who shall have waived
such notice and such notice shall be deemed waived by any director who shall
attend such meeting, except a director who shall attend such meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.

3.10 Quorum and Manner of Acting. Except as otherwise provided in these
----------------------------
Bylaws, the presence of a majority of the authorized number of directors shall
be required to constitute a quorum for the transaction of business at any
meeting of the Board, and all matters shall be decided at any such meeting, a
quorum being present, by the affirmative votes of a majority of the directors
present. In the absence of a quorum, a majority of directors present at any
meeting may adjourn the same from time to time until a quorum shall be present.
Notice of any adjourned meeting need not be given. The directors shall act only
as a Board, and the individual directors shall have no power as such.

3.11 Action by Consent. Any action required or permitted to be taken at
------------------
any meeting of the Board or of any committee thereof may be taken without a
meeting if a written consent thereto is signed by all members of the Board or of
such committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the Board or committee.

3.12 Removal of Directors. Subject to the provisions of the Certificate
---------------------
of Incorporation, any director may be removed at any time, but only for cause
and only by the affirmative vote of the stockholders having 80% of the total
number of shares of the Corporation entitled to vote thereon, but only if notice
of such proposal was contained in the notice of the stockholders' meeting.

3.13 Compensation. The directors shall receive only such compensation for
------------
their services as directors as may be allowed by resolution of the Board. The
Board may also provide that the Corporation shall reimburse each such director
for any expense incurred by him because of his attendance at any meetings of the
Board or Committees of the Board. Neither the payment of such compensation nor
the reimbursement of such expenses shall be construed to preclude any director
from serving the Corporation or its subsidiaries in any other capacity and
receiving compensation therefor.

3.14 Committees. The Board may, by resolution passed by a majority of the
-----------
whole Board, designate one or more committees, each committee to consist of one
or more of the directors of the Corporation. Any such committee, to the extent
provided in the resolution of the Board and except as otherwise limited by law,
shall have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers that may require it. Any
such committee shall keep written minutes of its meetings and report the same to
the Board at the next

7
<PAGE>

regular meeting of the Board. In the absence or disqualification of a member of
a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in the
place of any such absent or disqualified member.

ARTICLE IV

OFFICERS

4.01 Number. The officers of the Corporation shall be a President, one
-------
or more Vice Presidents (the number thereof and their respective titles to be
determined by the Board), a Secretary and a Chief Financial Officer. There may
also be other officers, including a Chief Executive Officer or a Chairman of the
Board of Directors, or both, as specified in these Bylaws or designated by the
Board. The Chief Executive Officer and the President shall be elected by the
Board and the Board may elect such other officers as the Board deems necessary
to the Corporation.

4.02 Election, Term of Office and Qualifications. The officers of the
--------------------------------------------
Corporation, except such officers as may be appointed in accordance with Section
4.03, shall be elected by the Board. Each officer shall hold office until his
successor shall have been duly chosen and shall qualify or until his resignation
or removal in the manner hereinafter provided.

4.03 Assistants, Agents and Employees, Etc. In addition to the officers
-------------------------------------
specified in Section 4.01, the Board may appoint other assistants, agents and
employees as it may deem necessary or advisable, including one or more Assistant
Secretaries, and one or more Assistant Treasurers, each of whom shall hold
office for such period, have such authority, and perform such duties as the
Board may from time to time determine. The Board may delegate to any officer of
the Corporation or any committee of the Board the power to appoint, remove and
prescribe the duties of any such assistants, agents or employees.

4.04 Removal. Any officer, assistant, agent or employee of the
--------
Corporation may be removed, with or without cause, at any time: (i) in the case
of an officer, assistant, agent or employee appointed by the Board, only by
resolution of the Board; and (ii) in the case of an officer, assistant, agent or
employee, by any officer of the Corporation or committee of the Board upon whom
or which such power of removal may be conferred by the Board.

4.05 Resignations. Any officer or assistant may resign at any time by
-------------
giving written notice of his resignation to the Board or the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time be not specified, upon receipt thereof by the Board or
the Secretary, as the case may be; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.

4.06 Vacancies. A vacancy in any office because of death, resignation,
---------
removal, disqualification, or other cause, may be filled for the unexpired
portion of the term thereof in the manner prescribed in these Bylaws for regular
appointments or elections to such office.

8
<PAGE>

4.07 The Chief Executive Officer. The Chief Executive Officer of the
----------------------------
Corporation shall have, subject to the control of the Board, general and active
supervision and management over the business of the Corporation and over its
several officers, assistants, agents and employees. The Chief Executive Officer
shall have the general powers and duties of management usually vested in the
office of chief executive officer of a corporation and shall have such other
powers and duties as may be prescribed by the Board or these bylaws.

4.08 The President. The President of the Corporation shall have, subject
--------------
to the control of the Board and the Chief Executive Officer, the general powers
and duties of management usually vested in the office of president of a
corporation and shall have such other powers and duties as may be prescribed by
the Board, the Chief Executive Officer or these bylaws. At the request of the
Chief Executive Officer, or in case of the Chief Executive Officer's absence or
inability to act upon the request of the Board, the President shall perform the
duties of the Chief Executive Officer and when so acting, shall have all the
powers of, and be subject to all the restrictions upon, the Chief Executive
Officer.

4.09 The Vice Presidents. Each Vice President shall have such powers and
--------------------
perform such duties as the Board may from time to time prescribe. At the
request of the President, or in case of the President's absence or inability to
act upon the request of the Board, a Vice President shall perform the duties of
the President and when so acting, shall have all the powers of, and be subject
to all the restrictions upon, the President.

4.10 The Secretary. The Secretary shall, if present, record the
--------------
proceedings of all meetings of the Board, of the stockholders, and of all
committees of which a secretary shall not have been appointed in one or more
books provided for that purpose; he shall see that all notices are duly given in
accordance with these Bylaws and as required by law; he shall be custodian of
the seal of the Corporation and shall affix and attest the seal to all documents
to be executed on behalf of the Corporation under its seal; and, in general, he
shall perform all the duties incident to the office of Secretary and such other
duties as may from time to time be assigned to him by the Board.

4.11 The Chief Financial Officer. The Chief Financial Officer shall have
---------------------------
the general care and custody of the funds and securities of the Corporation, and
shall deposit all such funds in the name of the Corporation in such banks, trust
companies or other depositories as shall be selected by the Board. He shall
receive, and give receipts for, moneys due and payable to the Corporation from
any source whatsoever. He shall exercise general supervision over expenditures
and disbursements made by officers, agents and employees of the Corporation and
the preparation of such records and reports in connection therewith as may be
necessary or desirable. He shall, in general, perform all other duties incident
to the office of Chief Financial Officer and such other duties as from time to
time may be assigned to him by the Board.

4.12 Representation of Shares of Other Corporations. The Chairman of the
----------------------------------------------
Board, the Chief Executive Officer, the President, any Vice President, the Chief
Financial Officer or any other person authorized by the Board or the Chief
Executive Officer, is authorized to vote, represent and exercise on behalf of
this Corporation all rights incident to any and all shares of any other
corporation or corporations standing in the name of this Corporation. The
authority

9
<PAGE>

granted herein may be exercised either by such person directly or by any other
person authorized to do so by proxy or power of attorney duly executed by such
person having the authority.

4.13 Compensation. The compensation of the officers of the Corporation
-------------
shall be fixed from time to time by the Board or a committee thereof authorized
by the Board. None of such officers shall be prevented from receiving such
compensation by reason of the fact that he is also a director of the
Corporation. Nothing contained herein shall preclude any officer from serving
the Corporation, or any subsidiary corporation, in any other capacity and
receiving such compensation by reason of the fact that he is also a director of
the Corporation. Nothing contained herein shall preclude any officer from
serving the Corporation, or any subsidiary corporation, in any other capacity
and receiving proper compensation therefor.

ARTICLE V

CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.

5.01 Execution of Contracts. The Board, except as in these Bylaws
-----------------------
otherwise provided, may authorize any officer or officers, agent or agents, to
enter into any contract or execute any instrument in the name of and on behalf
of the Corporation, and such authority may be general or confined to specific
instances; and unless so authorized by the Board or by these Bylaws, no officer,
agent or employee shall have any power or authority to bind the Corporation by
any contract or engagement or to pledge its credit or to render it liable for
any purpose or in any amount.

5.02 Checks, Drafts, Etc. All checks, drafts or other orders for payment
-------------------
of money, notes or other evidence of indebtedness, issued in the name of or
payable to the Corporation, shall be signed or endorsed by such person or
persons and in such manner as, from time to time, shall be determined by
resolution of the Board. Each such officer, assistant, agent or attorney shall
give such bond, if any, as the Board may require.

5.03 Deposits. All funds of the Corporation not otherwise employed shall
--------
be deposited from time to time to the credit of the Corporation in such banks,
trust companies or other depositories as the Board may select, or as may be
selected by any officer or officers, assistant or assistants, agent or agents,
or attorney or attorneys of the Corporation to whom such power shall have been
delegated by the Board. For the purpose of deposit and for the purpose of
collection for the account of the Corporation, the Chief Executive Officer, the
President, any Vice President or the Chief Financial Officer (or any other
officer or officers, assistant or assistants, agent or agents, or attorney or
attorneys of the Corporation who shall from time to time be determined by the
Board) may endorse, assign and deliver checks, drafts and other orders for the
payment of money which are payable to the order of the Corporation.

5.04 General and Special Bank Accounts. The Board may from time to time
----------------------------------
authorize the opening and keeping of general and special bank accounts with such
banks, trust companies or other depositories as the Board may select or as may
be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. The Board may make such special

10
<PAGE>

rules and regulations with respect to such bank accounts, not inconsistent with
the provisions of these Bylaws, as it may deem expedient.

ARTICLE VI

SHARES AND THEIR TRANSFER

6.01 Certificates for Stock. Every owner of stock of the Corporation
-----------------------
shall be entitled to have a certificate or certificates, to be in such form as
the Board shall prescribe, certifying the number and class of shares of the
stock of the Corporation owned by him. The certificates representing shares of
such stock shall be numbered in the order in which they shall be issued and
shall be signed in the name of the Corporation by the Chairman of the Board, the
President or a Vice President, and by the Secretary or an Assistant Secretary or
by the Chief Financial Officer or the Treasurer or an Assistant Treasurer. Any
of or all of the signatures on the certificates may be a facsimile. In case any
officer, transfer agent or registrar who has signed, or whose facsimile
signature has been placed upon, any such certificate, shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued,
such certificate may nevertheless be issued by the Corporation with the same
effect as though the person who signed such certificate, or whose facsimile
signature shall have been placed thereupon, were such officer, transfer agent or
registrar at the date of issue. A record shall be kept of the respective names
of the persons, firms or corporations owning the stock represented by such
certificates, the number and class of shares represented by such certificates,
respectively, and the respective dates thereof, and in case of cancellation, the
respective dates of cancellation. Every certificate surrendered to the
Corporation for exchange or transfer shall be cancelled, and no new certificate
or certificates shall be issued in exchange for any existing certificate until
such existing certificate shall have been so cancelled, except in cases provided
for in Section 6.04.

6.02 Transfers of Stock. Transfers of shares of stock of the Corporation
-------------------
shall be made only on the books of the Corporation by the registered holder
thereof, or by his attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary, or with a transfer clerk or a transfer
agent appointed as provided in Section 6.03, and upon surrender of the
certificate or certificates for such shares properly endorsed and the payment of
all taxes thereon. The person in whose name shares of stock stand on the books
of the Corporation shall be deemed the owner thereof for all purposes as regards
the Corporation. Whenever any transfer of shares shall be made for collateral
security, and not absolutely, such fact shall be so expressed in the entry of
transfer if, when the certificate or certificates shall be presented to the
Corporation for transfer, both the transferor and the transferee request the
Corporation to do so.

6.03 Regulations. The Board may make such rules and regulations as it
------------
may deem expedient, not inconsistent with these Bylaws, concerning the issue,
transfer and registration of certificates for shares of the stock of the
Corporation. It may appoint, or authorize any officer or officers to appoint,
one or more transfer clerks or one or more transfer agents and one or more
registrars, and may require all certificates for stock to bear the signature or
signatures of any of them.

11
<PAGE>

6.04 Lost, Stolen, Destroyed, and Mutilated Certificates. In any case of
----------------------------------------------------
loss, theft, destruction, or mutilation of any certificate of stock, another may
be issued in its place upon proof of such loss, theft, destruction, or
mutilation and upon the giving of a bond of indemnity to the Corporation in such
form and in such sum as the Board may direct; provided, however, that a new
certificate may be issued without requiring any bond when, in the judgment of
the Board, it is proper so to do.

6.05 Fixing Date for Determination of Stockholders of Record. In order
--------------------------------------------------------
that the Corporation may determine the stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, or to express
consent to corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any other change, conversion or
exchange of stock or for the purpose of any other lawful action, the Board may
fix, in advance, a record date, which shall not be more than 60 nor less than 10
days before the date of such meeting, nor more than 60 days prior to any other
action. If in any case involving the determination of stockholders for any
purpose other than notice of or voting at a meeting of stockholders or
expressing consent to corporate action without a meeting the Board shall not fix
such a record date, the record date for determining stockholders for such
purpose shall be the close of business on the day on which the Board shall adopt
the resolution relating thereto. A determination of stockholders entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of such meeting; provided, however, that the Board may fix a new record date for
the adjourned meeting.

6.06 Restrictions on Transfer.
-------------------------

(a) Notwithstanding Section 6.02, (i) all of the shares of
Corporation's common stock, par value $0.001 (the "Common Stock"), outstanding
immediately prior to the time at which the Corporation shall have a class of
stock registered pursuant to the provisions of the 1934 Act (the "Effective
Date") and (ii) any shares of the Common Stock issued after the Effective Date
pursuant to options and warrants of the Corporation outstanding immediately
prior to the Effective Date, 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, except to a transferee permitted (a "Permitted Transferee") under
Sub-section (b) of this Section 6.06, provided that any such Permitted
Transferee shall agree in writing to be bound by the provisions of this Section
6.06.

(b) For purposes of this Section 6.06, a Permitted Transferee shall
mean: (i) the spouse or child of a transferor; (ii) a trust for the sole benefit
of a transferor or a transferor's spouse or child, if the transferor is an
individual; (iii) the estate of a deceased transferor; (iv) a partner, general
partner, limited partner or retired partner of a transferor that is a
partnership; (v) an entity controlled by, controlling or under common control
with a transferor that is not an individual; or (vi) the Corporation or any of
its subsidiaries.

12
<PAGE>

(c) A legend denoting the transfer restrictions set forth in this
Section 6.06 substantially similar to the following form will be stamped or
otherwise imprinted on the certificates representing such shares:

"THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE MAY NOT BE
TRANSFERRED, OFFERED, SOLD, PLEDGED OR OTHERWISE DISPOSED OF, DIRECTLY OR
INDIRECTLY, NOR MAY THE HOLDERS OF THE SHARES PUBLICLY DISCLOSE THE
INTENTION TO MAKE ANY SUCH OFFER, SALE PLEDGE OR DISPOSAL, FOR UP TO 180
DAYS AFTER THE EFFECTIVE DATE OF THE CORPORATION'S REGISTRATION STATEMENT
ON FORM 8-A, WHICH WAS FILED WITH THE U.S. SECURITIES AND EXCHANGE
COMMISSION ON _________________, 1999, WITHOUT THE PRIOR WRITTEN CONSENT OF
THE CORPORATION, EXCEPT TO A TRANSFEREE PERMITTED UNDER SECTION 6.06 OF THE
CORPORATION'S BYLAWS. NO TRANSFEREE WHO RECEIVES THE SHARES REPRESENTED BY
THIS CERTIFICATE IN CONNECTION WITH A TRANSFER THAT DOES NOT MEET THE
QUALIFICATIONS PRESCRIBED SECTION 6.06 OF THE CORPORATION'S BYLAWS IS
ENTITLED TO OWN OR TO BE REGISTERED AS THE RECORD HOLDER OF THE SHARES OF
COMMON STOCK REPRESENTED BY THIS CERTIFICATE."

(d) In furtherance of the foregoing, the Corporation and its transfer
agent and registrar, if any, will not make any transfer of the Corporation's
Common Stock if such a transfer would constitute a violation or breach of this
Section 6.06.

ARTICLE VII

INDEMNIFICATION

7.01 Action, Etc. Other Than by or in the Right of the Corporation. The
--------------------------------------------------------------
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, that he had
reasonable cause to believe that his conduct was unlawful.

13
<PAGE>

7.02 Actions, Etc., by or in the Right of the Corporation. The
-----------------------------------------------------
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.

7.03 Determination of Right of Indemnification. Unless otherwise ordered
------------------------------------------
by a court of competent jurisdiction, any indemnification under Sections 7.01 or
7.02 of this Article VII shall be made by the Corporation to any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, unless a determination is reasonably and promptly made, either (i)
by the Board of Directors acting by a majority vote of a quorum consisting of
directors who were not a party to such action, suit or proceeding, or (ii) if
such a quorum is not obtainable, or, if obtainable, such quorum so directs, by
independent legal counsel in a written opinion, or (iii) by the stockholders,
that such person acted in bad faith and in a manner that such person did not
believe to be in or not opposed to the best interests of the Corporation or,
with respect to any criminal proceeding, that such person believed or had
reasonable cause to believe, that his or her conduct was unlawful.

7.04 Indemnification Against Expenses of Successful Party.
-----------------------------------------------------
Notwithstanding the other provisions of this Article, to the extent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Section 7.01 or 7.02, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.

7.05 Prepaid Expenses. Expenses incurred by an officer or director in
-----------------
defending a civil or criminal action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board in the specific case upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount
unless it shall ultimately be determined that he is entitled to be indemnified
by the Corporation as authorized in this Article. Such expenses incurred by
other employees and agents may be so paid upon such terms and conditions, if
any, as the Board deems appropriate.

14
<PAGE>

7.06 Other Rights and Remedies. The indemnification provided by this
--------------------------
Article shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any Bylaws, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.

7.07 Insurance. Upon resolution passed by the Board, the Corporation may
----------
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this Article.

7.08 Constituent Corporations. For the purposes of this Article,
-------------------------
references to "the Corporation" include all constituent corporations absorbed in
a consolidation or merger as well as the resulting or surviving corporation, so
that any person who is or was a director, officer, employee or agent of such a
constituent corporation or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise shall stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation as he would if he had served the resulting or surviving
corporation in the same capacity.

7.09 Other Enterprises, Fines, and Serving at Corporation's Request. For
---------------------------------------------------------------
purposes of this Article, references to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to any employee benefit plan; and references
to "serving at the request of the Corporation" shall include any service as a
director, officer, employee or agent of the Corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this Article.

ARTICLE VIII

MISCELLANEOUS

8.01 Seal. The Board may provide a corporate seal, which shall be in the
-----
form of a circle and shall bear the name of the Corporation and words and
figures showing that the Corporation was incorporated in the State of Delaware
and the year of incorporation.

8.02 Waiver of Notices. Whenever notice is required to be given by these
------------------
Bylaws or the Certificate of Incorporation or by law, the person entitled to
said notice may waive such

15
<PAGE>

notice in writing, either before or after the time stated therein, and such
waiver shall be deemed equivalent to notice.

8.03 Amendments. These Bylaws, or any of them, may be altered, amended
-----------
or repealed, and new Bylaws may be made, (i) by the Board, by vote of a majority
of the number of directors then in office as directors, acting at any meeting of
the Board, or (ii) by the stockholders, by a vote of a majority of the shares
entitled to vote thereon, provided that notice of such proposed amendment,
modification, repeal or adoption is given in the notice of the stockholders'
meeting. Any Bylaws made or altered by the stockholders may be altered or
repealed by either the Board or the stockholders. Notwithstanding the
foregoing, the affirmative vote of 80% of the total number of the then
outstanding shares of capital stock of this Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to amend or repeal, or adopt any provision inconsistent with the
purpose or intent of, the following sections of these Bylaws: Sections 2.02
(Special Meeting), 2.09 (Action without Meeting), 2.10 (Advance Notice of
Stockholder Business), 2.11 (Advance Notice of Stockholder Nominees), 3.12
(Removal of Directors) and 8.03 (Amendments).

16
<PAGE>

CERTIFICATE OF SECRETARY

The undersigned, being the duly elected Secretary of Virata Corporation, a
Delaware corporation, hereby certifies that the Bylaws to which this Certificate
is attached were duly adopted by the Board of Directors of said Corporation as
of the _____ day of __________, 1999.

-----------------------------------
Andrew M. Vought, Secretary

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Amendment No. 2 to the Registration
Statement on Form S-1 (No. 333-86591) of our reports dated August 20, 1999
except as to note 13 which is as of October 12, 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 26, 1999

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Amendment No. 2 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 26, 1999