<PAGE>
As filed with the Securities and Exchange Commission on September 3, 1999.
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
VIRATA CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware No. 3674 77-0521696
(State of Incorporation) (Primary Standard Industrial (IRS employer
Classification Code Number) identification number)
</TABLE>
---------------
2933 Bunker Hill Lane, Suite 201
Santa Clara, California 95054
(408) 566-1000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
Andrew Vought
Chief Financial Officer
2933 Bunker Hill Lane, Suite 201
Santa Clara, California 95054
(408) 566-1000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
Douglas D. Smith Nora L. Gibson
Gibson, Dunn & Crutcher LLP Brobeck, Phleger & Harrison LLP
One Montgomery Street, Telesis Tower One Market, Spear Street Tower
San Francisco, California 94104 San Francisco, California 94105
(415) 393-8200 (415) 442-0900
</TABLE>
---------------
Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after the Registration Statement becomes effective.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement of the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
<CAPTION>
Proposed Maximum
Title of Each Class of Aggregate Amount Of
Securities to be Registered Offering Price(1) Registration Fee
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value................... $50,000,000 $13,900
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</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.
---------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically state that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this prospectus is not complete and may be +
+changed. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+prospectus is not an offer to sell these securities and it is not soliciting +
+an offer to buy these securities in any state where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 3, 1999
Shares
[VIRATA LOGO]
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 $ and $ per
share. We intend to apply 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 additional
shares to cover over-allotments shares.
Investing in our common stock involves risks. See "Risk Factors" on page 8.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Virata
------------- ------------- -------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
Warburg Dillon Read LLC
Thomas Weisel Partners LLC
The date of this prospectus is , 1999.
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 8
Special Note Regarding Forward Looking Statements........................ 24
Use Of Proceeds.......................................................... 24
Dividend Policy.......................................................... 24
Capitalization........................................................... 25
Dilution................................................................. 27
Selected Consolidated Financial Data..................................... 29
Management's Discussion And Analysis Of Financial Condition And Results
Of Operations........................................................... 31
Business................................................................. 45
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management................................................................. 58
Certain Transactions....................................................... 66
Principal Stockholders..................................................... 70
Description Of Capital Stock............................................... 72
Certain Provisions In Our Certificate Of Incorporation And Bylaws.......... 75
Shares Eligible For Future Sale............................................ 77
Underwriting............................................................... 78
Notice To Canadian Residents............................................... 81
Legal Matters.............................................................. 82
Experts.................................................................... 82
Additional Information..................................................... 82
Index To Consolidated Financial Statements................................. F-1
</TABLE>
------------
You should rely only on the information contained in this document. We have
not authorized anyone to provide you with information that is different. This
document may only be used where it is legal to sell these securities. The
information in this document may only be accurate on the date of this document.
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.
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 underwriter's over-allotment option will not be exercised;
. the cancellation of all of the outstanding ordinary and preference
shares of Virata Limited, a company organized in the United Kingdom, the
issuance of new ordinary shares of Virata Limited to Virata Corporation,
a Delaware corporation, and the issuance of shares of common stock of
Virata Corporation to the former shareholders of Virata Limited, each
immediately prior to the consummation of this offering; and
. a for 1 reverse stock split of our common stock, immediately prior to
the consummation of this offering.
Unless the context otherwise requires, the terms "Virata," "RSA," "we," "us"
or "our" refer to Virata Limited and its subsidiaries Virata Santa Clara
Corporation, a Delaware corporation, and Virata Raleigh Corporation, a Delaware
corporation, prior to this offering and the share exchange, and Virata
Corporation, a Delaware corporation, and its direct and indirect subsidiaries,
Virata Limited, Virata Santa Clara Corporation and Virata Raleigh Corporation,
after this offering and the share exchange. The term "you" refers to
prospective investors in our common stock.
Virata(R), ATMOS(R) and ATOM(R) are registered trademarks of Virata.
ISOS(TM), Proton(TM), Helium(TM), Hydrogen(TM), Lithium(TM) and Beryillium(TM)
are our trademarks and may be subject of pending trademark applications. This
prospectus also makes reference to trademarks of other companies.
Dealer Prospectus Delivery Obligation
Until , 1999 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
3
<PAGE>
PROSPECTUS SUMMARY
This following summary highlights basic information about us and this
offering contained more fully elsewhere in this prospectus. Because it is a
summary, it does not contain all of the information that you should consider
before investing. You should read this entire prospectus carefully, including
the section entitled "Risk Factors" and the financial statements and the
related notes to those statements included in this prospectus. This prospectus
contains forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from those anticipated in the forward-
looking statements as a result of factors described under the heading "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" as well as discussions elsewhere in this
prospectus.
Virata Corporation
Virata provides communications processors which are combined with a
comprehensive suite of software for digital subscriber line equipment
manufacturers. These tightly integrated products enable our customers to
develop a diverse range of digital subscriber line, or DSL, equipment including
modems, gateways and routers targeted at the broadband access market. We
believe our systems expertise, products and support services enable DSL
equipment manufacturers to simplify product development, speed time-to-market
and focus resources on product differentiation.
Significant growth in demand for broadband access is being driven by
consumers and business users who find current dial-up Internet access too slow
and faster frame relay or T1/E1 services too expensive. Digital subscriber
line, technologies enable service providers to offer a range of affordable
broadband access services using the existing copper wire telephone
infrastructure.
To meet the demands of the rapidly growing DSL market, original equipment
manufacturers, or OEMs, encounter a number of challenges. These include
evolving technical standards, an expanding range of feature expectations and
shorter product life cycles. In response to these challenges, OEMs are
increasingly relying upon third party specialists to supply key technology
components including semiconductors and software. However, integration of these
individual elements can be a complex, costly and time-consuming task.
The combination of our communications processors and software replaces
numerous software elements and semiconductors which would otherwise have to be
sourced from multiple vendors and then integrated and tested. Our standards
compliant products are based on a flexible architecture that:
. simplifies the addition of features;
. can be used with a range of third party DSL physical layer transceivers;
and
. offers compelling price/performance.
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;
. 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 broadband access OEMs. We intend to achieve this
objective by:
. initially focusing on DSL markets;
. leveraging our flexible semiconductor and software architectures 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, 74 designs of which 28 are currently shipping.
Leading DSL customers include Netopia, Orckit Communications 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............ shares
Common stock to be outstanding after
the offering......................... 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 August 31, 1999, after giving effect to:
. the cancellation of all of the outstanding ordinary and preference
shares of Virata Limited, the issuance of new ordinary 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
. a for 1 reverse stock split of our common stock.
These transactions will take place immediately prior to the consummation of
this offering and, except for the reverse stock split, 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 common stock outstanding after this offering excludes 21,996,978 shares
of our common stock which may be issued upon exercise of currently outstanding
stock options and warrants outstanding as of August 31, 1999, with a weighted
average exercise price of $0.66 per share; and 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."
6
<PAGE>
Summary Consolidated Financial Information
(in thousands, except for per share data)
<TABLE>
<CAPTION>
Three Months
Year Ended March 31, Ended June 30,
--------------------------- ----------------
1997 1998 1999 1998 1999
------- -------- -------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues:
Semiconductors ............... $ 2,105 $ 3,281 $ 6,779 $ 2,010 $ 2,066
Systems, license, services and
royalty...................... 4,848 5,650 2,477 754 599
------- -------- -------- ------- -------
Total revenues............... 6,953 8,931 9,256 2,764 2,665
Total cost of revenues....... 3,939 3,787 3,997 918 1,273
------- -------- -------- ------- -------
Gross profit.................... 3,014 5,144 5,259 1,846 1,392
------- -------- -------- ------- -------
Operating expenses:
Research and development...... 3,518 3,987 8,323 1,202 2,549
Sales and marketing........... 4,753 4,076 2,917 532 923
General and administrative.... 3,410 4,917 5,567 759 903
Non-recurring charges,
amortization of intangibles
and stock compensation....... -- 2,270 7,203 306 460
------- -------- -------- ------- -------
Total operating expenses........ 11,681 15,250 24,010 2,799 4,835
------- -------- -------- ------- -------
Loss from operations............ (8,667) (10,106) (18,751) (953) (3,443)
Interest and other income
(expense), net................. 127 (172) 1594 10 428
------- -------- -------- ------- -------
Net loss........................ $(8,540) $(10,278) $(17,157) $ (943) $(3,015)
======= ======== ======== ======= =======
Net loss per share:
Basic and diluted............. $ (0.80) $ (0.90) $ (1.33) $ (0.08) $ (0.23)
======= ======== ======== ======= =======
Weighted average shares....... 10,676 11,482 12,881 11,765 13,346
======= ======== ======== ======= =======
Pro forma net loss per share:
Basic and diluted............. $ (0.21) $ (0.04)
======== =======
Weighted average shares....... 80,900 84,646
======== =======
</TABLE>
<TABLE>
<CAPTION>
As of June 30, 1999
-------------------------
Pro Pro Forma
Actual Forma As Adjusted
------- ----- -----------
(unaudited)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents............................. $ 6,509
Working capital....................................... 5,180
Total assets.......................................... 16,311
Total long term liabilities........................... 995
Total stockholders' equity ........................... 9,611
</TABLE>
See notes 1 and 12 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 following:
. the cancellation of all of the outstanding ordinary and preference
shares of Virata Limited, the issuance of new ordinary 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
. a for 1 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 shares of common stock offered in
this offering at an assumed initial public offering price of $ 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.
Because we have a limited operating history selling semiconductors to the
digital subscriber line, or DSL, market, we cannot be sure that we can
successfully implement our business strategy
We were incorporated in June 1993 and 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 systems-level products 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-level products and focused
exclusively on expanding our software offering and developing additional
semiconductors for the broadband marketplace with a focus on the DSL market.
Accordingly, we have not had a long history of selling semiconductors to the
DSL market or generating significant revenues and many of our semiconductors
have only recently been introduced. Furthermore, we have limited historical
financial data that can be used in evaluating our business and our prospects
and in projecting future operating results. For example, we cannot forecast
operating expenses based on our historical results because they are limited,
and we are required to forecast expenses in part on future revenue projections.
Most of our expenses are fixed in the short term and we may not be able to
quickly reduce spending if our revenue is lower than we had projected,
therefore net losses in a given quarter would be greater than expected. In
addition, our ability to forecast accurately our quarterly revenue is limited
due to a number of factors described in detail below, making it difficult to
predict the quarter in which sales will occur. You must consider our prospects
in light of the risks, expenses and difficulties we might encounter because we
are at an early stage of development in a new and rapidly evolving market. Many
of these risks are described under the sub-headings below. We may not
successfully address any or all of these risks and our business strategy may
not be successful.
We have not reported an operating profit since our incorporation and expect
future losses; accordingly, we may not be able to achieve profitability, and
even if we do become profitable, we may not be able to sustain profitability
We have not reported an operating profit for any fiscal year since our
incorporation and experienced net losses of approximately $3.0 million, $17.2
million, $10.3 million, and $8.5 million for the three months ended June 30,
1999 and the fiscal years ended March 31, 1999, 1998, and 1997, respectively.
We expect to incur net losses for the foreseeable future, and these losses may
be substantial. Further, we expect to incur substantial negative cash flow in
the future. Because of continuing substantial capital expenditures and product
development, sales, marketing and administrative expenses, we will need to
generate significant revenues to achieve profitability and positive cash flow.
Even if we 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 DSL broadband access;
. the rate of market acceptance of our products and the demand for DSL
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 or how quickly DSL equipment
manufacturers will select our products for use in their systems. In view of
these factors, we may not be able to achieve or sustain profitability or
positive cash flow.
Our operating results in one or more future periods are likely to fluctuate
significantly and may fail to meet or exceed the expectations of securities
analysts or investors, which may cause our stock price to decline
Our revenues and operating results are likely to fluctuate significantly in
the future on a quarterly and an annual basis due to a number of factors, many
of which are outside our control. If our operating results do not meet the
expectations of securities analysts or investors, our stock price may decline.
We cannot be sure that this will not occur because of the numerous factors that
could cause our revenues and costs to fluctuate. These factors include the
following:
. the timing and size of expenses, including expenses of developing new
products and product enhancements;
. the timing and size of semiconductor orders from, and shipments to, our
existing and new customers;
. loss of or decrease in sales to a major customer or failure to complete
significant transactions;
. unexpected delays in introducing new or enhanced products, including
manufacturing delays;
. the volume and average cost of products manufactured;
. loss or reduction in the availability of foundry capacity;
. the average selling prices of our products;
. our ability to attract and retain key personnel;
. commencement of or involvement in litigation, including litigation
relating to the use or ownership of intellectual property;
. costs or other non-recurring charges in connection with the acquisition
of companies, products or technologies;
. foreign currency and exchange rate fluctuations, which may make our
dollar-denominated products more expensive in foreign markets or could
expose us to currency rate fluctuation risks if our sales become
denominated in foreign currencies; and
. general market and global economic conditions.
Variations will also be caused by factors related to the development of the
DSL market and the competition we face from other DSL semiconductor suppliers,
including:
. the timing and rate of deployment of DSL services by telecommunications
service providers;
. the timing and rate of deployment of alternative high-speed data
transmission technologies, such as cable modems and high-speed wireless
data transmission;
. anticipated decreases in per unit prices as competition among DSL
semiconductor suppliers increases;
. announcements of new products, design wins and product enhancements by
competitors and the entry of new competitors into our market; and
. the level of market penetration of our semiconductors relative to those
of our competitors.
The amount and timing of our operating expenses generally will vary from
quarter to quarter depending on the level of our actual and anticipated
business activities. Research and development expenses will vary as we
9
<PAGE>
develop new products. 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. Due to these and other
factors, 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.
The markets in which we compete are highly competitive, and we may not be able
to compete effectively, especially against companies with greater resources
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. 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. Given the highly competitive environment
in which we operate, we cannot be sure that any competitive advantages enjoyed
by our products would be sufficient to establish and sustain our products in
the market. Any increase in price or other competition could result in erosion
of our market share, to the extent we have obtained market share, and could
harm our business, financial condition and results of operations. We cannot be
sure that we will have the financial resources, technical expertise or
marketing and support capabilities to continue to compete successfully.
We believe our principal competitors include Alcatel Microelectronics,
Analog Devices, Centillium Technology, Conexant Systems, 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. Further, many of our customers face
competition from companies that design their own semiconductors. Because these
companies do not purchase all of their semiconductors from suppliers such as
us, if these competitors displace our customers in the DSL equipment market,
our customers would no longer need our products.
Rapid changes in the market for DSL semiconductors may render our
semiconductors obsolete or unmarketable; failure to enhance our existing
products or to develop and introduce new products that meet changing customer
requirements and emerging industry standards would adversely impact our ability
to sell our products and harm our business
The markets for our products and services are characterized by rapidly
changing technology, short product life cycles, evolving industry standards,
changes in customer needs, growing competition and new product introductions.
If our product development and enhancements take longer than planned, the
availability of our products would be delayed. Any such delay would harm our
ability to sell our products and our results of operations and financial
condition would be adversely affected. Factors that may affect the market
acceptance of our products include the growth and acceptance of broadband
access equipment, the price, functionality and availability of competing
products and technologies, and the success of our sales efforts and our
customers. Our success may depend, in part, on our ability to:
. effectively use and offer leading technologies;
. continue to develop our technical expertise;
10
<PAGE>
. successfully develop, introduce and market new and enhanced products at
competitive prices in order to meet changing customer needs;
. anticipate and address evolving feature and service requirements;
. respond effectively to new technological changes or new product
announcements by others;
. maintain close working relationships with our key customers; and
. influence and respond to changing market and industry standards and
other technological changes on a timely and cost-effective basis.
We must address these requirements in a timely and cost-effective manner. 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 would cause serious harm to our business,
financial condition and results of operations.
The pursuit of necessary technological advances and the development of new
products require substantial time and expense. In addition, enhancements to
existing products or the introduction of new products by us or our competitors
have the potential to replace or provide lower cost alternatives to our
existing products or render these products obsolete, unmarketable or
inoperable. The mere announcement of any enhancement or new product could cause
potential customers to defer or cancel purchases of existing products and
services. Therefore, we cannot be sure that we will be able to recover the
costs of the development of our products or succeed in adapting our business to
advancements.
Other broadband data transmission technologies may compete effectively with DSL
services, which may cause sales of our products to decline and harm our
business
DSL services are competing with a variety of different broadband data
transmission technologies, including cable modems, satellite and other wireless
technologies. If any technology that is competing with DSL technology is more
reliable, faster, less expensive, reaches more customers or has other
advantages over DSL technology, then the demand for our semiconductors may
decrease, which would harm our business and operating results.
Substantial sales of our semiconductors will not occur unless
telecommunications service providers initiate broad deployment of DSL services
The success of our products may depend upon the decision by
telecommunications service providers to broadly deploy DSL technologies and the
timing of the deployment. Factors that will impact this deployment include:
. a prolonged approval process, including laboratory tests, technical
trials, marketing trials, initial commercial deployment and full
commercial deployment;
. the development of a viable business model for DSL services, including
the capability to market, sell, install and maintain DSL services;
. cost constraints, such as installation costs and space and power
requirements at the telecommunications service provider's central
office;
. varying and uncertain conditions of the local loop, including the size
and length of the copper wire, electrical interference and interference
with existing voice and data telecommunications services;
. challenges of interoperability among DSL equipment manufacturers'
products;
. evolving industry standards for DSL technologies; and
. government regulation.
11
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Although a number of telecommunications service providers have commenced
commercial deployment of DSL services using DSL products that incorporate our
semiconductors, if these telecommunications service providers do not expand
their deployment of DSL services, if additional telecommunications service
providers do not offer DSL services on a timely basis or if there are technical
difficulties with the deployment of DSL services, then our business, financial
condition and results of operations will be seriously harmed.
Substantial sales of our semiconductors will not occur unless DSL equipment
manufacturers incorporate our semiconductors in their products
We rely upon DSL equipment manufacturers to design our semiconductors and
software into their DSL products. We further rely on these products to be
successful, and if they are not, we will not sell our semiconductors in volume
quantities. Accordingly, we must anticipate the price, performance and
functionality requirements of these DSL equipment manufacturers. We must also
successfully develop products that meet these requirements and make these
products available on a timely basis and in sufficient quantities. Further, if
there is consolidation in the DSL equipment manufacturing industry, or if a
small number of DSL equipment manufacturers otherwise dominate the market for
DSL equipment, then our success will depend upon our ability to establish and
maintain relationships with these market leaders. If we do not anticipate
trends in the DSL market and meet the requirements of DSL equipment
manufacturers, or if we do not successfully establish and maintain
relationships with leading DSL equipment manufacturers, then our business,
financial condition and results of operations will be seriously harmed.
Our success depends on our ability to maintain and cultivate relationships with
DSL equipment manufacturers
We believe that our success in penetrating markets for our products depends
on our ability to maintain and cultivate relationships with DSL equipment
manufacturers that are leaders in the DSL equipment market or that are
designing our products into their network systems. We must anticipate market
trends and the price, performance and functionality requirements of these
vendors and must successfully develop and manufacture products that meet these
requirements. In addition, we must meet the timing requirements of these DSL
equipment manufacturers and must make products available to them in sufficient
quantities. Accordingly, in selling to DSL equipment manufacturers, we often
incur significant expenditures prior to volume sales of new products. Our
inability to develop relationships with additional DSL equipment manufacturers
would seriously harm our business, financial condition and results of
operations.
We depend on third party foundries to manufacture, assemble and test our
products; if we are unable to obtain sufficient yields or product reliability,
our customer relationships, business, financial condition and results of
operations could be adversely affected
We do not own or operate a semiconductor fabrication facility. Generally our
semiconductor devices are single sourced at a different foundry. We intend to
continue to rely on these foundries and other specialist suppliers for all of
our manufacturing, assembly and testing requirements for the foreseeable
future. 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. We have experienced delays and may in the future experience delays in
receiving semiconductor devices from these foundries, and we cannot be sure
that we will be able to obtain semiconductor devices within the time frames and
in the volumes required by us at an affordable cost or at all. Any disruption
in availability of our products would significantly harm our business. If we
are required for any reason to seek a new manufacturer of our semiconductors, a
new manufacturer of our semiconductors may not be available. Furthermore,
switching to a new manufacturer would require six months or more and would
involve significant expense and disruption to our business.
From time to time there are shortages in worldwide foundry capacity. In
addition, increases in semiconductor demand may limit available foundry
capacity worldwide. These shortages, if they occur, could
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make it more difficult for us to obtain sufficient allocation of manufacturing
capacity to meet our manufacturing needs. In addition, these shortages could
lengthen our products' manufacturing cycle and cause a delay in the shipments
of our products to our customers. 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.
The manufacture of our products is a highly complex and precise process,
requiring production in a highly controlled environment. Changes in the
manufacturing processes or the inadvertent use of defective or contaminated
materials by a foundry could adversely affect such a foundry's ability to
achieve acceptable manufacturing yields and product reliability. If the
foundries we currently use do not achieve the necessary yields or product
reliability, our customer relationships, business, financial condition and
results of operations could be adversely affected.
Our products are fabricated, assembled and tested by third-party
subcontractors. This assembly and testing is conducted on a purchase order
basis rather than under a long-term agreement. As a result of our reliance on
third-party subcontractors to fabricate assemble and test our products, we
cannot directly control product delivery schedules, which could lead to product
shortages or quality assurance problems that could increase the costs of
manufacturing or assembly of our products. Qualification of fabrication,
assembly and test subcontractors normally requires a significant investment of
time. If the foundries we currently use are unable to provide us with their
products on a turnkey basis or if 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 fabrication assembly and
testing of our products could seriously harm our business, financial condition
and results of operations.
We depend on a license from Advanced RISC Machines, or ARM, 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, 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.
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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 for the foreseeable future.
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 three months
ended June 30, 1999, Orckit Communications, Com21 and Netopia accounted for
39.8%, 17.2% and 10.2%, 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 DSL equipment
manufacturers may design and develop internally, or acquire, their own
semiconductor technology, rather than continue to purchase semiconductors from
third parties like us. If we are not successful in maintaining relationships
with key customers, and winning new customers, our business would be harmed. In
addition, because a significant portion of our business has been and is
expected to continue to be derived from orders placed by a limited number of
large customers, variations in the timing of these orders can cause significant
fluctuations in our operating results.
If we do not achieve design wins with DSL equipment manufacturers, we may be
unable to secure sales from these customers in the future
Once a DSL equipment manufacturer has designed a supplier's semiconductor
into its products, the DSL equipment manufacturer may be reluctant to change
its source of semiconductors due to the significant costs associated with
qualifying a new supplier. Accordingly, our failure to achieve design wins with
DSL equipment manufacturers which have chosen a competitor's semiconductor
could create barriers to future sales opportunities with these DSL equipment
manufacturers.
Our customers are not subject to any binding agreements and, therefore, may not
purchase any of our products, which may harm our business
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. Therefore, we cannot be sure that any design win will result in
purchase orders for our products, or that these purchase orders will not be
later canceled. Our inability to convert design wins into actual sales and any
cancellation of a purchase order could harm our business, financial condition
and results of operations. Reasons that a design win may not result in a
purchase order may include:
. product development delays;
. pricing issues;
. changes in customer product lines;
. availability of competing products;
. inability to deliver products in volume;
. technological obsolescence;
. changes in market needs or preferences; and
. changing standards.
We incur expenses based upon projected product needs of our customers, but
these customers are not subject to any minimum purchase requirements
We work closely with our customers to determine their future product needs
and receive a rolling forecast for products. We have incurred and expect to
continue to incur expenses based upon these sales forecasts. However, our
customer purchase agreements generally contain no minimum purchase requirements
and
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customers typically purchase our products pursuant to short-term purchase
orders that may be canceled without charge if notice is given within an agreed-
upon period. Therefore, we cannot be sure that the actual product revenues
which we will receive will be commensurate with the level of expenses that we
will incur based on forecasts we receive from our customers in any future
period. As a result, cancellations, deferrals or reductions in pending purchase
orders could harm our business, financial condition and results of operations.
Most of our revenues have been and, for the foreseeable future, will be derived
from a limited number of products, and the failure of any of these products to
gain market acceptance may harm our business
For the fiscal year ended March 31, 1999, approximately 21.6% and 10.7%,
respectively, of our total revenues were generated from sales of our Hydrogen
product and Proton family of products. For the three months ended June 30,
1999, approximately 26.0%, 23.8% and 6.1%, respectively, of our total revenues
were generated from sales of our Proton family and Hydrogen and Helium
products. We expect that our Proton family will represent a diminishing
proportion of our total revenues while a substantial portion of our total
revenues will be derived from our Hydrogen, Helium and Lithium products in the
foreseeable future. Therefore, broad market acceptance of the Hydrogen, Helium
and Lithium products is critical to our success. We cannot be sure that our
products will attain broad market acceptance. Any failure to achieve broad
market acceptance will harm our business, operating results and financial
condition.
We expect that price competition among DSL semiconductor suppliers and volume
purchases by large customers will have a negative impact on our gross margins
in the future
We expect that price competition among DSL semiconductor suppliers and
volume purchases of our semiconductors 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 semiconductors 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 gross
margins for these products.
Because our products typically have lengthy sales cycles, we may experience
substantial delays between incurring expenses related to research and
development and the generation of sales revenue and may not ultimately sell a
large volume of our products
It usually takes more than one year, occasionally more than two years, for
us to realize volume shipments of our semiconductor products after we first
contact a customer. We first work with customers to achieve a design win, which
may take six months or longer, at which time we sell a source code license. Our
customers then complete the design, testing and evaluation of their systems and
begin the marketing process, a period which typically lasts an additional three
to six months or longer. As a result, a significant period of time may elapse
between our sales efforts and our realization of revenues, if any, from volume
purchasing of our products by our customers. 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.
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. 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.
While we have a strategy of licensing and partnering with as many key
participants in our markets as possible, some customers will be more successful
than others in developing and marketing their products that incorporate our
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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 equipment.
If we deliver products with defects, our credibility will be harmed, and the
sales and market acceptance of our products will decrease
Our products are complex and may contain errors, defects and bugs when
introduced. If we deliver products with errors, defects or bugs, our
credibility and the market acceptance and sales of our products could be
significantly harmed. Further, 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 adversely affect our ability to attract or retain
customers.
We may be subject to product returns and product liability claims resulting
from defects in our products; product returns and product liability claims
could result in the failure of our products to attain market acceptance and
could harm our business
The occurrence of any defects, errors or failures in our products could lead
to product liability claims as a result of product liability lawsuits against
us or against our customers. 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 seriously harm our
business, financial condition and results of operations. Although we have not
experienced any product liability claims to date, the sale and support of our
products entail the risk of these claims. A successful product liability claim
brought against us could be expensive, divert the attention of management from
ordinary business activities and, correspondingly, harm our business.
A substantial portion of our sales are generated outside the United States, and
difficulties associated with international operations could harm our business
One of our principal subsidiaries is incorporated under the laws of, and its
principal offices are located in, the United Kingdom. Thus, we are influenced
by the political, economic and other conditions affecting the United Kingdom.
For the fiscal year ended March 31, 1999, we generated approximately 40.3% of
our revenues from sources outside the United States, including Israel, Europe
and Asia. For the fiscal year ended March 31, 1999, 16.5% and 9.8%,
respectively, of our total revenues were derived from customers based in Israel
and Europe. In the three months ended June 30, 1999, 40.0% of our total
revenues were 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 the foreseeable future. Accordingly, we are
subject to risks inherent in our international business activities, including:
. tariffs and other trade barriers, including current and future import
and export restrictions;
. potentially adverse tax consequences, including restrictions on the
repatriation of earnings;
. risks that changes in foreign currency exchange rates will make our
products comparatively more expensive;
. risks related to international political instability and economic
turbulence;
. delays or difficulties in collecting accounts receivables;
. difficulties in staffing and managing international operations;
. burdens of complying with a wide variety of foreign laws, particularly
with respect to intellectual property, and license requirements;
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. delays or difficulties obtaining approvals for products from foreign
governmental agencies which regulate our industry;
. unexpected changes in regulatory requirements;
. difficulties in protecting intellectual property rights in certain
foreign countries; and
. limited ability to enforce agreements and other rights in certain
foreign countries.
Any interruption or curtailment of trade between the countries in which we
operate and their present trading partners or a significant downturn in the
economic or financial condition of these countries could seriously harm our
business, financial condition and results of operations.
We continue to rapidly and significantly expand our operations, and our failure
to manage growth could harm our business and adversely affect our results of
operations and financial condition
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. Any
failure to manage growth effectively could harm our business and adversely
affect our operating results and financial condition. We cannot be sure that we
will be able to do any of the following, which we believe are essential to
successfully manage the anticipated growth of our operations:
. 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.
In the future, we may also experience difficulties meeting the demand for
our products. The development of equipment using our products requires
training. If we are unable to provide 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 will be adequate to support the anticipated
growth in our operations.
Our future success will depend in part on our ability to protect our
proprietary rights and the technologies used in our principal products, and if
we do not enforce and protect our intellectual property or if others bring
infringement claims against us, our business would be harmed
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 our
safeguards will protect our intellectual property and other valuable
competitive information. Our failure to adequately protect our proprietary
rights may harm our business. 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 means of protecting our proprietary rights in the United Kingdom, the
United States or elsewhere may not be adequate, and competitors may
independently develop similar technologies. In addition, the laws of some
countries do not protect our proprietary rights as fully as do the laws of the
United Kingdom or the United States. Issued patents may not preserve our
proprietary position. Even if they do, competitors or others may develop
technologies similar to or superior to our own.
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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 become involved in litigation over proprietary rights. In the event
of an adverse result in any future litigation with third parties relating to
proprietary rights, we could be required:
. to pay substantial damages, including treble damages if we are held to
have willfully infringed;
. to halt the manufacture, use and sale of infringing products;
. to expend significant resources to develop non-infringing technology; or
. to obtain licenses to the infringing technology.
Licenses may not be available from any third party that asserts intellectual
property claims against us, on commercially reasonable terms, or at all. In
addition, litigation frequently involves substantial expenditures and can
require significant management attention, even if we ultimately prevail.
However, we cannot be sure that we would be able to successfully resolve such
disputes in the future.
In addition, 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 costs and diverting significant resources away from our operations.
Furthermore, if a claim is decided against us, we may be required to pay
monetary damages, to cease the use of the infringing technology, lose a
competitive advantage or expend significant resources to develop non-infringing
technology or obtain licenses to the infringing technology. Such an outcome
could harm our business, financial condition and results of operations.
We are not currently aware of any potential infringement of a third party's
intellectual property rights on our part arising from the design of the
hardware portion of our products. We believe, however, that in order to comply
with standards such as the International Telecommunications Union V.34 and V.90
standards or the Universal ADSL Working Group G.lite standard, the software
embedded in our current and planned future products may use the proprietary
technology of the various parties advancing or promoting these standards. Where
this is the case, the owner of such intellectual property must provide a
license upon a reasonable terms which may include the payment of a reasonable
royalty. The cumulative effect of those royalties could harm our results of
operations or financial condition.
Our executive officers and key personnel are critical to our business, and
these officers and personnel may not remain with us in the future; our success
will depend on the continued performance of our key personnel and our ability
to attract and retain additional qualified personnel
Our success depends to a significant degree upon the continued contributions
of our executive management team, and our technical, marketing, sales customer
support and product development personnel. The loss of personnel could
significantly harm our business, financial condition and results of operations.
Because DSL technology is 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.
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We may engage in future acquisitions that could dilute our stockholders' equity
and harm our business, results of operations and financial condition
As part of our business strategy, we expect to review opportunities to
acquire other businesses or products that would complement our existing product
offerings, augment our market coverage or enhance our technological
capabilities. Although we have no current agreements or negotiations underway
with respect to any material acquisitions, we may make acquisitions of
businesses, products or technologies in the future. However, we cannot be sure
that we will be able to locate suitable acquisition opportunities. Future
acquisitions by us could result in:
. issuances of equity securities that would dilute our current
stockholder's percentages ownership;
. large one-time write-offs;
. the incurrence of debt and contingent liabilities;
. difficulties in the assimilation of operations, personnel, technologies,
products and the information systems of the acquired companies;
. diversion of management's attention from other business concerns;
. contractual disputes;
. risks of entering geographic and business markets in which we have no or
limited prior experience; and
. potential loss of key employees of acquired organizations.
Any of the above could seriously harm our results of operations or the price
of our stock. We cannot be sure that we will be able to successfully integrate
any businesses, products, technologies or personnel that might be acquired in
the future. Our failure to do so could seriously harm our business, financial
condition and results of operations.
If our software and hardware products or our internal systems are not Year 2000
compliant, the Year 2000 issue could seriously harm our business, financial
condition, liquidity and results of operations
The term "Year 2000 issue" is a general term used to describe the various
problems that may result from the improper processing of dates and date-
sensitive calculations by computers and other machinery as the Year 2000 is
approached and reached. 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.
As a result of the Year 2000 issue, we may experience serious unanticipated
problems and costs caused by undetected errors or defects in the technology
used in our software and hardware products and internal systems. In addition,
we may be required to defend our products or services in legal proceedings, and
we cannot guarantee that we will remain free of Year 2000 related disputes. If
our software and hardware products or our internal systems are not Year 2000
compliant, the Year 2000 issue could seriously harm our business, financial
condition, liquidity and results of operations. Until the Year 2000 occurs, we
cannot be sure that we will not be affected by the Year 2000 issue.
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Our products and those of our customers are subject to government regulations,
and changes in current or future laws or regulations that negatively impact our
products and technologies could harm our business
The jurisdiction of the Federal Communications Commission, or the FCC,
extends to the entire U.S. communications industry, including our customers and
their products and services that incorporate our products. Future FCC
regulations affecting the U.S. broadband access services industry, our
customers or our products may harm our business. For example, FCC regulatory
policies that affect the availability of data and Internet services may impede
our customers' penetration into certain markets or affect the prices that they
are able to charge. In addition, international regulatory bodies have
introduced new regulations for the communications industry. Delays caused by
our compliance with regulatory requirements may result in order cancellations
or postponements of product purchases by our customers, which would harm our
business and adversely affect our results of operations and financial
condition.
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. An active trading market for our common stock may not develop or
be sustained after this offering. The initial public offering price 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. The market price of our shares of common stock is likely to be
highly volatile and could be subject to wide fluctuations in response to
various factors, some of which are beyond our control, including:
. actual or anticipated variations in our results of operations;
. changes in financial estimates of our revenues and operating results by
securities analysts;
. changes in conditions and trends in the communications computer
industries and in the market valuations of integrated circuit companies;
. fluctuations in the valuation of companies perceived by investors to be
comparable to us;
. unexpected delays in introducing new or enhanced products, including
manufacturing delays;
. announcements of new products, design wins and product enhancements by
competitors and the entry of new competitors into our market;
. loss of or decrease in sales to a major customer or failure to complete
significant transactions;
. loss or reduction in the availability of foundry capacity;
. our ability to attract and retain key personnel;
. future sales of our common stock;
. inconsistent trading volume levels of our stock;
. commencement of or involvement in litigation, including litigation
relating to the use or ownership of intellectual property; and
. general market and global economic conditions.
Furthermore, 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. 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.
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We could be subject to class action litigation due to stock price volatility,
which, if it occurs, will distract management and result in substantial costs,
and could result in judgments against us
In the past, securities class action litigation has often been brought
against companies following periods of volatility in the market price of their
securities. We may be the target of similar litigation in the future.
Securities litigation could result in substantial costs and divert management's
attention and resources, which could cause serious harm to our business,
financial condition and results of operations.
Our current stockholders will benefit from this offering, and you will
experience immediate dilution
The initial public offering price is expected to be substantially higher
than the current book value per share of our outstanding common stock.
Stockholders existing as of June 30, 1999 have paid an average price of $0.68
per share for their common stock, and the pro forma net tangible book value as
of that date was per share, after giving effect to:
. the cancellation of all of the outstanding ordinary and preference
shares of Virata Limited, the issuance of new ordinary 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
. a for 1 reverse stock split of our common stock.
After giving effect to the sale of shares of our common
stock in this offering at an offering price of $ per share, our pro forma
as adjusted net tangible book value as of June 30, 1999, would have been $
per share. As a result, investors purchasing our common stock will incur
immediate dilution of approximately $ 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.
Our principal stockholders and management have the ability to control
stockholder votes, and this control could adversely affect our stock price or
lessen any premium over market price that an acquiror might otherwise pay
Immediately following the offering, our officers and directors and their
affiliates will own or control approximately % of our common stock (after
giving effect to the exercise of any outstanding options). Accordingly, our
officers, directors and their affiliates, as a group, have the ability to
control the election of a majority of the members of our board of directors and
the outcome of corporate actions requiring stockholder approval. This
concentration of ownership may have the effect of delaying, deferring or
preventing a change in control of us, or may impede a merger, consolidation,
takeover or other business combination involving us. This concentration of
ownership could also adversely affect our stock's market price or lessen any
premium over market price that an acquiror might otherwise pay.
Provisions of our charter documents and Delaware law could prevent or delay a
change in control of us and may reduce the market price of our common stock
Certain provisions of our certificate of incorporation and bylaws and the
provisions of Delaware law could have the effect of delaying, deferring or
preventing our acquisition. For example, we have authorized but unissued shares
of preferred stock which could be used to fend off a takeover attempt, our
stockholders may not take actions by written consent, our stockholders are
limited in their ability to make proposals at stockholder meetings and our
directors may be removed only for cause and upon the affirmative vote of at
least 80% of our outstanding voting shares.
21
<PAGE>
We have broad discretion to use the offering proceeds, and how we invest these
proceeds may not increase our profits or market value
The principal purposes of this offering are to increase our equity capital,
to create a public market for our shares, to facilitate our future access to
public equity markets and to provide increased visibility and credibility for
us in a marketplace in which many of our current and potential competitors are
or are expected to be publicly held companies. As of the date of this
prospectus, we have no specific plans to use the net proceeds from this
offering other than for general corporate purposes. 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. We may also apply the net proceeds in ways which may
not increase our profitability or our market value. Pending application of the
net proceeds, they may be placed in short-term, investment-grade, interest-
bearing securities that do not produce income or that lose value. Accordingly,
our management will have considerable discretion in the application of the net
proceeds, and you will not have the opportunity, as part of your investment
decision, to assess whether the proceeds are being used appropriately.
There are substantial shares of common stock eligible for future sale, and
sales of shares of our common stock may depress our stock price
Upon completion of the offering, we will have approximately
shares of common stock outstanding and 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, as that term is defined in Rule 144
of the Securities Act of 1933.
Our stockholders are generally limited by lock-up agreements restricting
their ability to sell shares of our common stock. Under these agreements, these
security holders cannot sell or otherwise dispose of any shares of our common
stock for a period of at least 180 days after the date of this prospectus
without the prior written consent of Credit Suisse First Boston. When these
lock-up agreements expire, these shares will be eligible for sale without
restriction, provided that shares held by 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 701
under the Securities Act.
In addition, as of August 31, 1999 there were outstanding options to
purchase 21,996,978 shares of our common stock. Our option holders are also
subject to lock-up agreements restricting their ability to sell shares of our
common stock underlying the options. Under these agreements, these security
holders cannot sell or otherwise dispose of any shares of our common stock for
a period of at least 180 days after the date of this prospectus without the
written consent of Credit Suisse First Boston. When these lock-up agreements
expire, the shares underlying the options will be eligible for sale in
accordance with their vesting schedules and in compliance with an applicable
exemption as provided in Rule 144 or Rule 701 of the Securities Act.
Furthermore, some of our stockholders, which hold approximately 75,463,729
shares of common stock, have been granted registration rights with respect to
their shares of common stock. In connection with any registered offering, such
shareholders have agreed not to transfer any shares, or any other securities
convertible into or exercisable into shares, for a period of up to 180 days
from the date of such offering, provided that we and our officers and directors
will also be bound by a similar agreement. In the event of a public offering of
shares, the 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.
22
<PAGE>
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
We expect the net proceeds from this offering, our current cash and cash
equivalents and cash from commercial borrowing availability under our credit
facility will meet our working capital and capital expenditure needs for at
least the next twelve months. 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, to develop new
products or to otherwise respond to competitive pressures. This inability would
harm our business. In addition, we expect from time to time to review potential
acquisitions that would complement our existing product offerings or enhance
our technical capabilities. While we have no current agreements or negotiations
underway with respect to any potential acquisition, any future transaction of
this nature could require potentially significant amounts of capital. Funds may
not be available at the time or times needed, or available on terms acceptable
to us.
Further, if we issue equity securities, the ownership percentage of our
stockholders would be reduced, and the new equity securities may have rights,
preferences or privileges senior to those of existing holders of our common
stock. If we cannot raise needed funds on acceptable terms, we may not be able
to develop or enhance our products, take advantage of future opportunities or
respond to competitive pressures or unanticipated requirements, which could
seriously harm our business, operating results and financial condition.
23
<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 of common stock offered by us
are estimated to be approximately $ , based on an assumed initial public
offering price per share of $ , 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 $ . 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.
24
<PAGE>
CAPITALIZATION
The table below sets forth the following information:
. our capitalization as of June 30, 1999, after giving effect to the
cancellation of all of the outstanding ordinary and preference shares of
Virata Limited, the issuance of new ordinary 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;
. our capitalization as of June 30, 1999, after giving pro forma effect to
a for 1 reverse stock split of our common stock immediately prior
to the consummation of this offering.
. our pro forma capitalization as of June 30, 1999, as adjusted to give
effect to the sale of shares of common stock offered in
this offering at an assumed offering price of $ 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 June 30, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except per
share data)
(unaudited)
<S> <C> <C> <C>
Capital lease obligations, long-term........... $ 995 $ 995 $995
Stockholders' equity (deficit):
Common Stock, $0.02 par value per share,
95,000,000 shares authorized; 13,348,644
shares issued and outstanding actual;
shares issued and outstanding pro
forma; shares issued and outstanding
pro forma as adjusted....................... 211 -- --
Convertible Preferred Stock, $0.02 par value
per share, 86,100,000 shares authorized;
51,431,179 shares issued and outstanding
actual, no shares issued and outstanding pro
forma and pro forma as adjusted............. 811 -- --
Additional paid-in capital..................... 63,611 63,611
Accumulated other comprehensive income loss.... (47) (47)
Unearned stock compensation.................... (1,332) (1,332)
Accumulated deficit............................ (53,643) (53,643)
-------- -------- ----
Total stockholders' equity................. 9,611 9,611
-------- -------- ----
Total Capitalization..................... $ 10,606 $ 10,606 $
======== ======== ====
</TABLE>
25
<PAGE>
The common stock outstanding after this offering is based on the number of
shares outstanding on June 30, 1999, after giving effect to:
. the cancellation of all of the outstanding ordinary and preference
shares of Virata Limited, the issuance of new ordinary 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
. a for 1 reverse stock split of our common stock.
These transactions will take place immediately prior to the consummation of
this offering and, except for the reverse stock split, 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 common stock outstanding after this offering excludes 22,442,583 shares
of our common stock which may be issued upon exercise of currently outstanding
stock options and warrants outstanding as of June 30, 1999, with a weighted
average exercise price of $0.66 per share; and 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."
26
<PAGE>
DILUTION
As of June 30, 1999, our pro forma net tangible book value was approximately
$6.5 million, or $ 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 June 30, 1999
is calculated after giving effect to:
. the cancellation of all of the outstanding ordinary and preference
shares of Virata Limited, the issuance of new ordinary 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
. a for 1 reverse stock split of our common stock.
Our pro forma as adjusted net tangible book value as of June 30, 1999 was
approximately million, or per share of our common stock, after giving
effect to the receipt of the net proceeds from the sale of the
shares of common stock offered by us, assuming an initial public offering price
of $ 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 $ per share to the existing stockholders and an immediate
dilution of $ 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.................... $
Pro forma net tangible book value per share as of June 30, 1999.. $
Increase in net tangible book value per share attributable to new
investors.......................................................
-----
Pro forma as adjusted net tangible book value per share after the
offering..........................................................
-----
Dilution in net tangible book value per share to new investors..... $
=====
</TABLE>
The following table summarizes, as of June 30, 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 $
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.................. 90,611 % $61,242 % $0.68
New investors..........................
------ --- ------- ----
Total................................ 100% $100%
====== === ======= ====
</TABLE>
The foregoing computations are based on the number of shares of common stock
outstanding on June 30, 1999, after giving effect to:
. the cancellation of all of the outstanding ordinary and preference
shares of Virata Limited, the issuance of new ordinary 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
. a for 1 reverse stock split of our common stock.
27
<PAGE>
These transactions will take place immediately prior to the consummation of
this offering and, except for the reverse stock split, 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 common stock outstanding after this offering excludes 22,442,583 shares
which may be issued upon exercise of currently outstanding stock options and
warrants outstanding as of June 30, 1999, with a weighted average exercise
price of $0.66 per share; and 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."
28
<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 31 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.
The selected consolidated statement of operations data for the three months
ended June 30, 1998 and 1999 and the selected consolidated balance sheet data
as of June 30, 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>
Three Months
Year Ended March 31, Ended June 30,
--------------------------------------------- ----------------
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 $ 675 $ 1,419
License................ -- 85 971 1,570 1,628 994 274
Services and royalty... 226 333 1,134 1,206 2,367 341 373
Systems................ -- 2,424 4,848 5,650 2,477 754 599
------- ------- ------- -------- -------- ------- -------
Total revenues....... 226 2,842 6,953 8,931 9,256 2,764 2,665
------- ------- ------- -------- -------- ------- -------
Cost of revenues:
Semiconductors......... -- -- -- 325 2,421 419 811
License................ -- -- -- -- -- -- --
Services and royalty
...................... 100 55 185 192 528 55 138
Systems................ -- 1,854 3,754 3,270 1,048 444 324
------- ------- ------- -------- -------- ------- -------
Total cost of
revenues............ 100 1,909 3,939 3,787 3,997 918 1,273
------- ------- ------- -------- -------- ------- -------
Gross profit......... 126 933 3,014 5,144 5,259 1,846 1,392
Operating expenses:
Research and
development........... 3,587 4,402 3,518 3,987 8,323 1,202 2,549
Sales and marketing.... 365 4,037 4,753 4,076 2,917 532 923
General and
administrative........ 1,278 2,096 3,410 4,917 5,567 759 903
Restructuring costs.... -- -- -- 1,871 -- -- --
Amortization of
intangible assets..... -- -- -- -- 549 -- 194
Amortization of stock
compensation.......... -- -- -- 399 1,394 306 266
Acquired in-process
research and
development........... -- -- -- -- 5,260 -- --
------- ------- ------- -------- -------- ------- -------
Total operating
expenses............ 5,230 10,535 11,681 15,250 24,010 2,799 4,835
------- ------- ------- -------- -------- ------- -------
Loss from operations.... (5,104) (9,602) (8,667) (10,106) (18,751) (953) (3,443)
Interest and other
income (expense), net.. 4 264 127 (172) 1,594 10 428
------- ------- ------- -------- -------- ------- -------
Net loss................ $(5,100) $(9,338) $(8,540) $(10,278) $(17,157) $ (943) $(3,015)
======= ======= ======= ======== ======== ======= =======
Net loss per share:
Basic and diluted...... $ (0.48) $ (0.49) $ (0.80) $ (0.90) $ (1.33) $ (0.08) $ (0.23)
======= ======= ======= ======== ======== ======= =======
Weighted average
shares................ 10,669 19,140 10,676 11,482 12,881 11,765 13,346
======= ======= ======= ======== ======== ======= =======
Pro forma net loss per
share:
Basic and diluted...... $ (0.21) $ (0.04)
======== =======
Weighted average
shares................ 80,900 84,646
======== =======
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
March 31,
---------------------------------------- June 30,
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 $ 6,509
Working capital.......... (3,206) 451 6,346 (3,653) 8,042 5,180
Total assets............. 2,086 4,422 12,066 5,950 19,183 16,311
Total long term
liabilities............. -- 48 875 738 1,130 995
Total stockholders'
equity (deficit)........ (2,129) 1,850 6,857 (3,085) 12,715 9,611
</TABLE>
30
<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.
31
<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 G.lite market, and we are just beginning to work with potential customers
for this product. Our future success will depend, in part, on our successful
entry into the G.lite market. 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 foreseeable future.
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
three months ended June 30, 1999, Orckit Communications, Com21 and Netopia
accounted for 39.8%, 17.2% and 10.2%, 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.
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 three months ended June 30, 1999 were $599,000.
32
<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 valuation was determined using the income-based approach
for modem chips and replacement cost method for 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 June 30, 1999, we
had an accumulated deficit of $53.6 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.
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>
Three Months
Year Ended March 31, Ended June 30,
------------------------ ----------------
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% 24.4% 53.2%
License........................ 14.0 17.6 17.6 36.0 10.3
Services and royalty........... 16.3 13.4 25.5 12.3 14.0
Systems........................ 69.7 63.3 26.8 27.3 22.5
------ ------ ------ ------ -------
Total revenues............... 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ -------
Cost of revenues:
Semiconductors................. -- 3.6 26.2 15.1 30.4
License........................ -- -- -- -- --
Services and royalty........... 2.7 2.2 5.7 2.0 5.2
Systems........................ 54.0 36.6 11.3 16.1 12.1
------ ------ ------ ------ -------
Total cost of revenues....... 56.7 42.4 43.2 33.2 47.7
------ ------ ------ ------ -------
Gross profit.................... 43.3 57.6 56.8 66.8 52.3
Operating expenses:
Research and development....... 50.6 44.6 89.9 43.5 95.7
Sales and marketing............ 68.4 45.6 31.5 19.2 34.6
General and administrative..... 49.0 55.1 60.2 27.5 33.9
Restructuring costs............ -- 20.9 -- -- --
Amortization of intangible
assets........................ -- -- 5.9 -- 7.2
Amortization of stock
compensation.................. -- 4.5 15.1 11.1 10.0
Acquired in-process research
and development............... -- -- 56.8 -- --
------ ------ ------ ------ -------
Total operating expenses..... 168.0 170.7 259.4 101.3 181.4
------ ------ ------ ------ -------
Loss from operations............ (124.7) (113.1) (202.6) (34.5) (129.1)
Interest and other income
(expense), net................. 1.9 (2.0) 17.2 0.4 16.0
------ ------ ------ ------ -------
Net loss........................ (122.8)% (115.1)% (185.4)% (34.1)% (113.1)%
====== ====== ====== ====== =======
</TABLE>
33
<PAGE>
Three Months Ended June 30, 1998 and 1999
Total Revenues
Total revenues decreased 3.6% from $2.8 million for the three months ended
June 30, 1998 to $2.7 million for the three months ended June 30, 1999. While
total revenues were largely unchanged, semiconductor revenues increased while
license and systems revenues decreased significantly.
Semiconductor revenues increased 110.2% from $675,000 for the three months
ended June 30, 1998 to $1.4 million for the three months ended June 30, 1999.
The increase in semiconductor revenues, from 24.4% of total revenues for the
three months ended June 30, 1998 to 53.2% of total revenues for the three
months ended June 30, 1999, was due primarily to a substantial increase in
shipments of semiconductors to Orckit Communications. Sales to this customer
totaled $1.0 million in the three months ended June 30, 1999.
License revenues decreased 72.4% from $994,000 for the three months ended
June 30, 1998 to $274,000 for the three months ended June 30, 1999. The
decrease in services and royalty revenues, from 36.0% of total revenues for the
three months ended June 30, 1998 to 10.3% of total revenues for the three
months ended June 30, 1999, was largely due to a decrease in the average
selling price for software licenses.
Services and royalty revenues increased 9.5% from $341,000 for the three
months ended June 30, 1998 to $373,000 for the three months ended June 30,
1999. The increase in services and royalty revenues, from 12.3% of total
revenues for the three months ended June 30, 1998 to 14.0% of total revenues
for the three months ended June 30, 1999, was due primarily to the introduction
of our design and consulting services, offset by a decrease in royalty
revenues.
Systems revenues decreased 20.6% from $754,000 for the three months ended
June 30, 1998 to $599,000 for the three months ended June 30, 1999. The
decrease in systems revenues, from 27.3% of total revenues for the three months
ended June 30, 1998 to 22.5% of total revenues for the three months ended June
30, 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 38.6% from $918,000 for the three months ended June 30, 1998
to $1.3 million for the three months ended June 30, 1999. The increase in total
cost of revenues, from 33.2% of total revenues for the three months ended June
30, 1998 to 47.7% of total revenues for the three months ended June 30, 1999,
was primarily due to the increase in cost associated with higher semiconductor
unit sales. License revenues decreased 72.4% from $994,000 for the three months
ended June 30, 1998 to $274,000 for the three months ended June 30, 1999. The
decrease negatively impacted gross margin.
Semiconductor cost of revenues increased 93.3% from $419,000 for the three
months ended June 30, 1998 to $811,000 for the three months ended June 30,
1999. The increase in semiconductor gross margin, from 37.8% for the three
months ended June 30, 1998 to 42.8% for the three months ended June 30, 1999,
was primarily due to an increase in sales volume during the three months ended
June 30, 1999.
There are no costs of revenues associated with our software license
revenues.
Services and royalty cost of revenues increased 152.8% from $55,000 for the
three months ended June 30, 1998 to $138,000 for the three months ended June
30, 1999. The decrease in gross margin associated with services and royalty
revenues, from 83.8% for the three months ended June 30, 1998 to 63.1% for the
three months ended June 30, 1999, was primarily the result of costs incurred
for design services and expenses associated with royalty revenues.
34
<PAGE>
Systems cost of revenues decreased 27.2% from $444,000 for the three months
ended June 30, 1998 to $324,000 for the three months ended June 30, 1999. The
increase in systems gross margin, from 41.1% for the three months ended June
30, 1998 to 46.0% for the three months ended June 30, 1999, was primarily due
to a decrease in the level of operations support for systems products.
Research and Development Expenses
Research and development expenses consist primarily of engineering staffing
costs and technology license fees. Research and development expenses increased
112.1% from $1.2 million, or 43.5% of total revenues, for the three months
ended June 30, 1998 to $2.5 million, or 95.7% of total revenues, for the three
months ended June 30, 1999. The increase was primarily due to the addition of
research and development personnel, which grew from 43 to 79 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 expenses
increased 73.5% from $532,000, or 19.2% of total revenues, for the three months
ended June 30, 1998 to $923,000, or 34.6% of total revenues, for the three
months ended June 30, 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 Expenses
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 increased
18.9% from $759,000, or 27.5% of total revenues, for the three months ended
June 30, 1998 to $903,000, or 33.9% of total revenues, for the three months
ended June 30, 1999. The increase was primarily due to the addition of
executive, accounting and administrative personnel. In addition, bad debt
provisions increased from $26,000 for the three months ended June 30, 1998 to
$87,000 for the three months ended June 30, 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.
Goodwill Amortization Expense
Goodwill amortization expense is related to the acquisition of RSA
Communications, which occurred in July 1998. For the three months ended June
30, 1999, goodwill amortization expense was $194,000. We are amortizing the
goodwill on a straight-line basis over 60 months beginning in the quarter ended
September 30, 1998.
Amortization of Stock Compensation
Through June 30, 1999, we had recorded a total of $3.4 million of unearned
stock compensation. We recognized amortization of stock compensation of
$306,000 for the three months ended June 30, 1998 and $266,000 for the three
months ended June 30, 1999.
35
<PAGE>
Interest and Other Income, Net
Interest and other income, net consists primarily of interest earned on cash
and cash equivalents and short-term investments, interest expense related to
obligations under capital leases and our bank line of credit and unrecognized
foreign currency translation adjustments. Net interest income increased from
$10,000 for the three months ended June 30, 1998 to $428,000 for the three
months ended June 30, 1999. The increase in interest and other income was
primarily due to additional cash balances as a result of our private placement
financing completed in June 1998 and the elimination of interest expense due to
the repayment of a bank line of credit in May 1998. This increase was partially
offset by an increase in interest expense associated with capital equipment
under our lease facility. In addition, we recorded an income of $30,000 for
unrecognized foreign currency translation for the three months ended June 30,
1998 and income of $386,000 for unrecognized foreign currency translation for
the three months ended June 30, 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.
Fiscal Years Ended March 31, 1997, 1998 and 1999
Total Revenues
Total revenues increased 28.5% 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.
36
<PAGE>
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 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 $4.0 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.
37
<PAGE>
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 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 and Other Income, Net
Interest and other income, net decreased from income of $127,000 for the
fiscal year ended March 31, 1997 to an expense of $172,000 for the fiscal year
ended March 31, 1998. The decrease in interest and other income was primarily
due to a $276,000 decrease in interest income and a $142,000 increase in
interest expense associated with capital equipment under our lease facility,
partially offset by a $118,000 decrease in unrecognized foreign currency
translation expense. For the fiscal year ended March 31, 1999, net interest and
other income increased to net income of $1.6 million. The increase was
primarily attributable to a $666,000 increase in interest income from
additional cash balances as a result of our private placement financing
completed in June 1998, a $531,000 US federal tax refund and the increase in
unrealized foreign currency translation from an expense of $80,000 in the
fiscal year ended March 31, 1998 to income of $432,000 in the fiscal year ended
March 31, 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. As of March 31,
1998, we had approximately $26.9 million net operating loss carryforwards for
US federal, California and United Kingdom income tax purposes that will begin
to expire in three years.
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.
38
<PAGE>
Quarterly Results of Operations
The following table sets forth our consolidated operating results for each
of the five quarters ended June 30, 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,
1998 1998 1998 1999 1999
-------- -------- ------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues:
Semiconductors............. $ 675 $ 1,022 $ 425 $ 662 $ 1,419
License.................... 994 15 175 444 274
Services and royalty....... 341 734 700 592 373
Systems.................... 754 586 417 720 599
------ -------- ------- ------- -------
Total revenues........... 2,764 2,357 1,717 2,418 2,665
------ -------- ------- ------- -------
Cost of revenues:
Semiconductors............. 419 914 246 842 811
License.................... -- -- -- -- --
Services and royalty....... 55 174 138 161 138
Systems.................... 444 257 374 (27) 324
------ -------- ------- ------- -------
Total cost of revenues... 918 1,345 758 976 1,273
------ -------- ------- ------- -------
Gross profit................ 1,846 1,012 959 1,442 1,392
Operating expenses:
Research and development... 1,202 2,384 2,553 2,184 2,549
Sales and marketing........ 532 849 710 826 923
General and
administrative............ 759 2,340 965 1,503 903
Amortization of intangible
assets.................... -- 137 206 206 194
Amortization of stock
compensation.............. 306 377 363 348 266
Acquired in-process
research and
development............... -- 5,260 -- -- --
------ -------- ------- ------- -------
Total operating
expenses................ 2,799 11,347 4,797 5,067 4,835
------ -------- ------- ------- -------
Loss from operations........ (953) (10,335) (3,838) (3,625) (3,443)
Interest and other income
(expense), net............. 10 (417) 648 1,353 428
------ -------- ------- ------- -------
Net loss.................... $ (943) $(10,752) $(3,190) $(2,272) $(3,015)
====== ======== ======= ======= =======
As a Percentage of Total
Revenues
Revenues:
Semiconductors............. 24.4% 43.4% 24.7% 27.4% 53.2%
License.................... 36.0 0.6 10.2 18.3 10.3
Services and royalty....... 12.3 31.1 40.8 24.5 14.0
Systems.................... 27.3 24.9 24.3 29.8 22.5
------ -------- ------- ------- -------
Total revenues........... 100.0 100.0 100.0 100.0 100.0
------ -------- ------- ------- -------
Cost of revenues:
Semiconductors............. 15.1 38.8 14.3 34.8 30.4
License.................... -- -- -- -- --
Services and royalty....... 2.0 7.4 8.0 6.6 5.2
Systems.................... 16.1 10.9 21.8 (1.1) 12.1
------ -------- ------- ------- -------
Total cost of revenues... 33.2 57.1 44.1 40.3 47.7
------ -------- ------- ------- -------
Gross profit................ 66.8 42.9 55.9 59.7 52.3
Operating expenses:
Research and development... 43.5 101.1 148.7 90.3 95.7
Sales and marketing........ 19.2 36.0 41.4 34.2 34.6
General and
administrative............ 27.5 99.3 56.2 62.2 33.9
Amortization of intangible
assets.................... -- 5.8 12.0 8.5 7.2
Amortization of stock
compensation.............. 11.1 16.0 21.1 14.4 10.0
Acquired in-process
research and
development............... -- 223.2 -- -- --
------ -------- ------- ------- -------
Total operating
expenses................ 101.3 481.4 279.4 209.6 181.4
------ -------- ------- ------- -------
Loss from operations........ (34.5) (438.5) (223.5) (149.9) (129.1)
Interest and other income
(expense), net............. 0.4 (17.7) 37.7 56.0 16.0
------ -------- ------- ------- -------
Net loss.................... (34.1)% (456.2)% (185.8)% (93.9)% (113.1)%
====== ======== ======= ======= =======
</TABLE>
39
<PAGE>
Semiconductor revenues increased 51.4% to $1.0 million for the three months
ended September 30, 1998 as compared to 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 five quarters
ended June 30, 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 each
quarter 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 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 $66.1 million in aggregate net proceeds through June 30, 1999. We have
also financed our operations through equipment lease financing, which totaled
$1.9 million in principal amount outstanding at June 30, 1999.
As of June 30, 1999, we had $6.5 million of cash and cash equivalents,
working capital of $5.2 million and $1.9 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 of $797,000, offset
40
<PAGE>
by increases in accounts payable and accrued liabilities of $1.0 million and
$818,000, respectively. Cash used in operating activities for the fiscal year
ended March 31, 1998 of $9.3 million was primarily due to net operating losses
of $10.3 million and an increase in accounts receivable of $1.7 million, offset
by a provision for doubtful accounts of $1.1 million. Cash used in operating
activities for the fiscal year ended March 31, 1999 of $9.6 million was
primarily due to net operating losses of $17.2 million and a decrease in
accounts payable of $1.2 million, offset by a write off of in-process research
and development of $5.2 million, amortization of stock compensation of $1.6
million and a provision for doubtful accounts of $1.5 million.
Net cash used in operating activities for the three months ended June 30,
1998 of $759,000 was due primarily to net operating losses of $943,000 and
decreases in accounts payable of $668,000, offset by decreases in other current
assets of $579,000. Cash used in operating activities for the three months
ended June 30, 1999 of $2.4 million was due primarily to net operating losses
of $3.1 million and increases in current assets of $624,000, offset by
increases in accrued liabilities of $485,000.
Net cash used for investing activities was $1.4 million, $193,000 and $8.2
million for the fiscal years ended March 31, 1997, 1998 and 1999, respectively,
which primarily reflected purchases of property and equipment. For the three
months ended June 30, 1999, net cash provided by investing activities was
$948,000, primarily due to sales of short-term investments. For the fiscal year
ended March 31, 1999, we completed the acquisition of RSA Communications. Net
cash used for the acquisition was $5.1 million.
Net cash provided by financing activities was $14.6 million, $3.3 million
and $25.5 million for the fiscal years ended March 31, 1997, 1998 and 1999,
respectively. Net cash used by financing activities was $50,000 for the three
months ended June 30, 1999. Cash provided by financing activities in each of
these periods was attributable primarily to proceeds from the issuance of
convertible preferred stock, equipment lease financing and, for the fiscal year
ended March 31, 1998, a revolving credit facility.
On August 27, 1999 we entered into a borrowing agreement for up to $3.0
million under which $483,000 was outstanding as of August 31, 1999.
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 at least the next twelve
months. If cash generated from operations is insufficient to satisfy our
liquidity requirements, we may seek to sell additional equity or debt
securities or to obtain an additional credit facility. If additional funds are
raised through the issuance of 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.
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<PAGE>
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.
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
42
<PAGE>
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.
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 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.
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<PAGE>
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 June 30, 1999, all of our investments were in
money market funds, certificates of deposits or high quality commercial paper.
See note 1 of the notes to the consolidated financial statements.
We develop products in both the United Kingdom and the United States and
sell in North America, Asia, Israel and Europe. As a result, our financial
results could be affected by factors such as changes in foreign currency
exchange rates or weak economic conditions. A strengthening of the dollar could
make our products less competitive in foreign markets, since all of our sales
are currently made in U.S. dollars.
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BUSINESS
This prospectus contains, in addition to historical information, forward-
looking statements that involve risks and uncertainties. Our actual results
could differ significantly from the results discussed in the forward-looking
statements. Factors that could contribute to such differences include those
discussed in "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," as well as those discussed
elsewhere in this prospectus.
Introduction
Virata provides communications processors which are combined with a
comprehensive suite of software for DSL equipment manufacturers. These tightly
integrated products enable our customers to develop a diverse range of digital
subscriber line equipment including modems, gateways and routers targeted at
the broadband access market. We believe our systems expertise, products and
support services enable DSL equipment manufacturers to simplify product
development, speed time-to-market and focus resources on product
differentiation. 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, 74 designs of which 28 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 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, or ILECs, 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 NetConnections
and Sprint, are now deploying high-speed services using DSL technologies over
the copper infrastructure owned by the ILECs. In addition, AT&T has announced
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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, ILECs 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
access 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.
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 time-to-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:
[GRAPHIC DEPICTION OF DSL CUSTOMER PREMISES EQUIPMENT]
The front end circuitry which is comprised of integrated circuits 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.
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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 integrates communications processors with a
comprehensive suite of software for DSL equipment manufacturers. Our systems
expertise, products and support services enable our customers to simplify
product development, speed time-to-market and focus resources on product
differentiation. 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 architecture. Our products are based on a flexible architecture
that simplifies the addition of features. This architecture enables new
services such as voice, video, security to be added incrementally as
broadband solutions evolve.
. PHY-independent. Our devices use generic, industry standard interfaces
to attach to any third party DSL physical layer semiconductor. 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 architecture is 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 broadband access
equipment suppliers. 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
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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 architecture. 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.
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.
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Semiconductor Products
We offer two families of semiconductor products: the Proton family of
application specific integrated circuits, or ASICS, and the ATOM family of
application specific standard products, or ASSPs. The Proton ASICs are used in
various combinations to enable different applications including switching
fabrics for small to mid-sized DSLAMs. Proton products enabled customers to
quickly develop their products prior to the establishment of widely accepted
broadband access standards. The following is a list of our Proton family
products:
<TABLE>
<CAPTION>
Product Function Target Applications Introduction Date
<C> <S> <C> <C>
Boson ISA bus interface ATM adapter cards April 1995
- -----------------------------------------------------------------------------------
Quark ATM cell buffer and April 1995
processor for switch or
adapter network ports
- ------------------------------------------------------------
--------------------
Gluon ATM Forum CRC generator A combination of these April 1995
and ARM RISC products creates a switching
microprocessor support fabric for DSLAMs or cable
head-ends
- ------------------------------------------------------------
--------------------
Hadron ATM cell address hasher January 1996
for switching
applications
- ------------------------------------------------------------
--------------------
TBX ATM traffic shaping August 1997
controller and buffer
for switching
applications
</TABLE>
The establishment of broadband access standards and our experience with the
Proton ASIC family has enabled us to design the ATOM family of ASSPs for OEMs
focusing on the DSL market. These communications processors combine the
relevant elements of the Proton ASICs with at least one embedded ARM RISC
microprocessor. ATOM devices also provide Ethernet, PCI or USB network
interfaces as well as Utopia for connection to physical layer devices and other
semiconductors. While Hydrogen features a single embedded ARM RISC
microprocessor, Helium and Lithium contain two ARM RISC microprocessors to
separate protocol and network processing. The Hydrogen, Helium and Lithium
ASSPs support physical layer devices from a broad range of vendors. The
following is a list of our PHY-independent ATOM family products:
<TABLE>
<CAPTION>
Product Interfaces Target Applications Introduction Date
<C> <S> <C> <C>
Hydrogen PCI, Utopia 1 and ATM25 DSL internal and external August 1997
PHY modems and set-top boxes
- -------------------------------------------------------------------------------------
Helium USB, Utopia 1/2, ADSL DSL external modems, June 1999
T1.432, HDLC and 10BaseT gateways, routers, DSLAMs
Ethernet and DLC line cards
- -------------------------------------------------------------------------------------
Lithium PCI, Utopia 1/2 and ADSL DSL internal and external October 1999
T1.432 modems, gateways and set-top
boxes
</TABLE>
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We are developing a new generation of ATOM products to support the
transition from analog access equipment to next-generation DSL equipment. These
products leverage our extensible architecture to combine PHY layer processing
for both analog and digital technologies along with the layer 2 and layer 3
functionality of Helium and Lithium into a single highly integrated device. The
first PHY-integrated product we are developing for this market is Beryllium,
which is described below:
<TABLE>
<CAPTION>
Product Interfaces Target Applications Introduction Date
<C> <S> <C> <C>
Beryllium G.lite, V.90, PCI and G.lite/V.90 internal and March 2000
USB interfaces (for external modems and gateways
Ethernet 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 G.lite DSL
networks. G.lite is a form of DSL which operates at speeds up to 1.5 Mbps and
is expected to support consumer and small office / home office applications.
Because of its dual V.90 and G.lite character, Beryllium will allow the
consumer to buy a "G.lite-ready" modem and subsequently upgrade from V.90 to
G.lite DSL network access without any changes to their modem equipment once
G.lite services are available from the consumer's service provider. We cannot
be sure that if new products or product enhancements are developed, any such
new products or product enhancements will be developed in time to capture
market opportunities or achieve a significant or substantial level of
acceptance in new and existing markets.
Software
Our software is key to providing flexible, off-the-shelf processing
solutions. Multiple software modules deliver management and support for
functions at the link, protocol and physical layer. These modules operate on
top of ATMOS, our real-time operating system, which is optimized for
communications applications that run on ARM RISC microprocessors. The software
provides our customers a ready-to-deploy menu of over 50 modules to meet their
specific product requirements. Together, the modules complete a customized,
sophisticated system which supports multiple functions including quality of
service, system management, bridging, tunneling, address translation, signaling
and routing. We also offer customers a full set of software development tools
including compilers, linkers and other special-purpose tools.
Design and Support Services
We offer a number of design and support services which we believe add
substantial value to our product offerings. Our key services are detailed
below:
Custom Design Services
Our Customer Services and Solutions group specializes in product development
engagements for customers that require additional resources or particular
technical skills during the development stage. A typical project will take
three to six months to complete and comprises development and delivery of
system hardware, software and all supporting documentation enabling the
customer to rapidly commence production. We believe these services provide a
critical advantage in winning business.
Technical Support Services
Once customers have purchased a license for our software, they desire to
quickly and efficiently commence product development. We assist our customers
by providing five days of comprehensive training in the use of our
semiconductors and software development systems. Through our extranet site,
which is accessible to all of our customers, we deliver new software and
documentation and take action on bug reports. Our support engineers assist our
customers throughout the product development cycle which can include formal and
informal design reviews.
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Evaluation Systems
We help our customers accelerate their product development programs by
designing a board-level evaluation system for each ATOM product. Typically each
time a new ATOM ASSP is introduced, an evaluation system featuring the new
product is made available to our customers simultaneously with the first
release to customers of the new semiconductor. This approach provides an
effective way for our customers to evaluate the new semiconductor and its
software while enabling designers to add their own functionality.
Technology
A key element of our success is our technology expertise which spans
physical, networking and protocol layer processing and systems-level knowledge.
Our semiconductor and software architectures are designed to enable the rapid,
flexible development of new products to meet the evolving feature, performance
and standards compliance demands of the broadband access market. A single-chip,
multi-processor architecture was chosen as the most flexible and cost-efficient
approach to the complex challenge of satisfying the requirements of:
. layer 2 and 3 processing for broad application across the different DSL
technologies when used in conjunction with physical layer transceivers
from third party vendors;
. integration of analog processing with DSL processing on a single
communications processor;
. processing support for an evolving range of services and applications
such as high speed Internet access, corporate routing, voice services,
security and encryption for Virtual Private Networks, or VPNs, and video
distribution; and
. broad application of our solutions whether used in modems close-coupled
to PCs, Internet appliances, remote gateways and routers, DSLAMs or
DLCs.
We believe the core of our technology expertise is delivered to our
customers through our ASSP architecture, software architecture, communications
algorithms, digital signal processing, ATM, Frame and Internet protocol
processing and systems-level expertise.
ASSP Architecture
Our current ASSP architecture is specifically designed to meet the
performance and feature demands for broadband access equipment. This
architecture provides the flexibility for application in a wide range of
customer premises equipment without the need for additional processing support.
For example, when used inside or close coupled to a PC, our ASSPs and software
place minimal demands on the host PC processor freeing it to focus on its own
operating system and application software support. We believe this approach
results in improved user satisfaction through enhanced PC reliability and
better performance, and minimized support costs for PC suppliers and service
providers.
The architecture is based on a dual bus structure. One bus connects the
embedded ARM RISC processors used for protocol processing, network processing
and other control functions with a wide range of physical interfaces. These
physical interfaces support connection of our communications processors to
other semiconductors and memory systems as well as to external devices such as
PCs and Ethernet hubs. The second bus supports DSPs and other specialized
processors. Both buses access common resources such as an SDRAM controller, an
interprocessor gateway, processor registers and debugging facilities.
This architecture makes it possible for us to quickly develop new ASSPs to
meet evolving standards and the application demands of the market.
Software Architecture
By simultaneously developing the software and semiconductor architectures,
we have achieved tight software/semiconductor integration. This results in
better system performance, smaller chip size, fewer lines of code and lower
memory requirements than is possible by the complex alternative of assembling,
integrating and
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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 G.lite standard. PHY layer
code is executed in our Beryllium communications processor using a compact, low
power DSP supported by fixed function processors.
ATM, Frame and Internet Protocol Processing
The ATM processing software manages, channels, buffers and shapes ATM cells
and utilizes the custom hardware filters in the semiconductors to achieve the
optimum trade-off between software flexibility and hardware performance. To
support transmission of frame encapsulated data, our software supplies drivers
for Ethernet and HDLC as well as a variety of methods for encapsulating frames
over ATM. The software management capabilities for layer 3 processing include
TCP/IP, IP routing, network address translation, IP configuration and
tunneling.
Systems-Level Expertise
We have accumulated experience designing systems-level products that meet
the technical challenges of the local loop environment and of interoperability
with products from other suppliers. This know-how is embedded in our products.
Our customers additionally benefit from this experience during their product
architecture and design milestone reviews.
Partner Reference Design Programs
We develop and deliver board-level DSL products with providers of PHY level
communications processors. These products, or partner reference designs,
include our layer 2 and 3 communications processors and software modules and
our partner's PHY layer hardware. These programs allow us to benefit from the
expanded reach of the partner's sales organization. Our customers also benefit
from a more complete solution which allows faster time-to-market. Two partner
reference designs are currently offered through our joint development programs
with Advanced Micro Devices and 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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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 Cable
</TABLE>
These customers have developed or are developing 74 equipment designs based
on our semiconductors and software. Of these 74 designs, 28 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 three months ended June 30, 1999, Orckit
Communications, Com21 and Netopia accounted for 39.8%, 17.2% and 10.2%,
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.
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 US and Europe. The sales team is supported by development
engineers that work directly with customers on their new product developments.
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<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 June 30, 1999 we had 79 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 G.lite/V.90 market. We believe that we must continue to
innovate, extend the range and enhance our products and services to maintain
our leadership position. We cannot be sure that our research and development
efforts will result in the introduction of a new product or product
enhancements or that any new product will achieve market acceptance. We will
invest further to expand our research and development head-count and
capabilities. Our research and development expenditures were $4.0 million and
$8.3 million in the fiscal years ended March 31, 1998 and 1999, respectively.
Manufacturing
We outsource the manufacturing, assembly and testing of all our
semiconductors. This fabless semiconductor model allows us to focus our
resources on the design, development and marketing of our products. Our Proton
semiconductors and current ATOM communications processors have all been sourced
from suppliers that deliver fully assembled and tested products on a turnkey
basis.
The current ATOM products incorporate embedded ARM RISC microprocessors and
are supplied by companies that have an ARM license. In June 1999, we entered
into a per semiconductor design license agreement with ARM which allows us to
select foundry suppliers that best meet our quality, delivery and cost
objectives. We have also expanded our operations team so that we will be able
to assume more of the manufacturing and quality control responsibilities,
including contracting for wafer processing, assembly and testing from separate
suppliers. Further benefits will include accelerating the transition of our
devices into progressively smaller die size, providing important advantages,
including lower cost, defect rates and power consumption / heat dissipation and
higher speed, all of which are important to the commercial success of our
semiconductor products.
Because we rely on third party foundries for substantially all of our
manufacturing, assembly and testing requirements, we cannot be sure that we
will be able to obtain semiconductors within the time frames and in the volumes
required by us at an affordable cost or at all. These third party foundries are
not obligated to supply products to us for any specific period, in any specific
quantity or at any specific price, except as may be provided in a particular
purchase order that has been accepted by one of them. We have experienced
delays and may in the future experience delays in receiving semiconductors from
these foundries. If the foundries we currently use are unable to provide us
with their products on a turnkey basis or we are otherwise required to find
alternative subcontractors, product shipments could be delayed significantly.
Any problems associated with the delivery, quality or cost of the assembly and
testing of our products could seriously harm our business, financial condition
and results of operations.
54
<PAGE>
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 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, G.lite/V.90 product: devices from
Alcatel Microelectronics, Analog Devices, Centillium Technology,
Conexant Systems, Lucent Technologies and Texas Instruments; and
. Software: operating systems and software stacks from Wind River Systems
and Integrated Systems; and networking and protocol layer software from
Harris & Jeffries, Iverness Systems, Microsoft and Trillium.
In addition, there have been a number of announcements by other
semiconductor companies including IBM and Intel and smaller emerging companies
that they intend to enter the market segments adjacent to or addressed by our
products.
Many of the companies that compete, or may compete against us in the future,
have longer operating histories, greater name recognition, larger installed
customer bases and significantly greater financial, technical and / or
marketing resources. As a result, they may be able to respond more quickly to
changing customer circumstances or to devote greater resources to the
development, promotion and sale of their products than we can. We cannot be
sure that our current or future competitors will not develop and introduce new
products that will be priced lower, provide superior performance or achieve
greater market acceptance than our products. Furthermore, current or potential
competitors have established, or may establish, cooperative relationships among
themselves or with third parties to increase the ability of their products to
address the needs of our prospective customers. Accordingly, it is possible
that new alliances among our competitors will emerge and rapidly acquire market
share, which would harm our business.
In addition, many of our customers and potential customers have substantial
technological capabilities and financial resources. Some customers have already
developed, or in the future may develop, technologies that will compete
directly with our products and services. Because these companies do not
purchase all of their semiconductors from suppliers such as us, if they
displace our customers in the equipment market, our customers would no longer
need our products, and our business, financial condition and results of
operations would be seriously harmed.
Given the highly competitive environment in which we operate, we cannot be
sure that any current competitive advantages enjoyed by our products will be
sufficient to establish or sustain our position in the market. Any increase in
price from our suppliers or other competition could result in erosion of our
market share and could harm our business, financial condition and results of
operations. We cannot be sure that we will have the financial resources,
technical expertise or marketing and support capabilities to continue to
compete successfully.
55
<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 August 31, 1999, we have been granted one patent in the United States,
with three counterpart patents in other countries. Our patents have expiration
dates ranging from 2016 to 2017. In addition, we have nine patent applications
pending in the United Kingdom and four pending in the United States. We also
have 24 patent applications pending in various countries other than the United
Kingdom and the United States. These patents may never be issued. Even if these
patents are issued, taken together with our existing patents, they may not
provide sufficiently broad protection to protect our proprietary rights, or
they may prove to be unenforceable. We also utilize unpatented proprietary
know-how and trade secrets and employ various methods to protect our trade
secrets and know-how.
From time to time, we may desire or be required to renew or to obtain
licenses from others in order to further develop and market commercially viable
products effectively. We cannot be sure that any necessary licenses will be
available or will be available on reasonable terms.
We have registered the trademarks "Virata," "ATMOS" and "ATOM." "ISOS,"
"Proton," "Helium," "Hydrogen," "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 June 30, 1999, we had 113 full-time employees in our worldwide
operations. Of that total, 79 were primarily engaged in engineering, 13 were
engaged in sales and marketing and the remainder were engaged in operational,
financial and administrative functions. As of June 30, 1999, 12 of our
employees were located at our facilities in Santa Clara, California, 65 of our
employees were located at our facilities in Cambridge, England, and 36 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 in Santa Clara, California,
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 foreseeable future.
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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
Daniel Karr............. 39 Vice President, Worldwide Sales
Martin Jackson.......... 40 Chief Technology Officer and Director
Thomas Cooper........... 50 Senior Vice President, Corporate Development
Duncan Greatwood........ 32 Vice President, Marketing
Bernard Glasauer........ 38 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.............. 38 Director
Bandel Carano........... 38 Director
Prof. Andrew Hopper..... 46 Director
Peter Morris............ 43 Director
Patrick Sayer........... 41 Director
Giuseppe Zocco.......... 33 Director
</TABLE>
Charles Cotton has been our Chief Executive Officer since September 1997.
Mr. Cotton joined us in January 1995, first as a consultant, and then in August
1995 as our General Manager, Europe, and was subsequently promoted to Chief
Operating Officer in July 1996. From January 1991 to December 1995, Mr. Cotton
was an independent consultant. In 1990, he served as Chief Executive Officer of
Shandwick Europe, a public relations consulting firm. From 1988 to 1989, Mr.
Cotton served as President of Thermal Scientific and as a Director of its
parent company, Thermal Scientific plc. From 1983 to 1986, he served in a
variety of international marketing and operations functions for Sinclair
Research. Mr. Cotton holds an honors degree in Physics from Oxford University.
Michael Gulett joined us in November 1998 as Chief Operating Officer and was
promoted to President and Chief Operating Officer in June 1999. Prior to
joining us, Mr. Gulett was President and Chief Executive Officer at Paradigm
Technology, a developer of fast, static memory solutions, in Milpitas,
California, from February 1993 to June 1998. Mr. Gulett has also held
management positions at VLSI Technology, California Devices, Intel Corporation
and NCR. Mr. Gulett holds a B.S.E.E. from the University of Dayton.
Andrew Vought joined us in May 1996 as Chief Financial Officer and was named
Senior Vice President of Finance and Operations 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. From July 1985 to May 1990, Mr. Vought held
senior finance and manufacturing management positions with Diasonics. Prior to
joining Diasonics, Mr. Vought spent several years in the European semiconductor
operations of Texas Instruments. Mr. Vought currently 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.
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<PAGE>
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, since April 1996. 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.
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 Director and Vice President of Technology of EO (formerly
Active Book Company), a company involved in the development of pen-based
computers, from 1988 to April 1994. 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 from the University of Cambridge and a M.A. Engineering from the
University of Cambridge.
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
Ohio, Toledo 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-Information
Processing 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 August 1988 to May 1999. Mr. Glasauer holds a B.S.
degree in Electrical Engineering/Computer Science and Materials Science
Engineering from the University of California, as well as a B.A. in Economics.
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 a Program Manager with the
Wireless Mobile Data Division for IBM from July 1981 to October 1994,
developing PCMCIA wireless WAN devices for portable PCs. Mr. Whitlock holds a
B.S. degree 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. In this role he was
responsible for the development and delivery of network planning and network
management systems to Ionica's network operations and recruited a team of 30 to
work with him. 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
Telephony over 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
59
<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, Mr. De Benedetti was
chairman of Infostrada S.p.A., a company controlled by Telecom Italia operating
as an alternative fixed line carrier in Italy. Prior to joining Infostrada in
1990, Mr. De Benedetti worked for the investment bank Wasserstein, Parella &
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 the System Products Division of
Oracle Corporation and has been employed by Oracle since September 1986. Mr.
Bloom received a B.S. degree 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 directors of Metaware Communications Corp., Polycom and Pulse Point
Communications, as well as 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 Professor of Communications within the Department of
Engineering at Cambridge University and since 1986, Managing Director of the
Olivetti Research Laboratory, now AT&T Research, 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. and a B.Sc. 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 Accelerated Networks, AUNET, Gadzoox,
LoanCity.com, LuxN, Mayan Networks, NanoSpace, Packetcom, Packeteer and Tiara
Networks. Before joining New Enterprise Associates, Mr. Morris served in
various capacities with Telebit from 1987 to 1991. Prior to that he was with
Montgomery Securities, an investment bank, from 1985 to 1987, and Bain and
Company, a management consultancy, from 1980 to 1982. Mr. Morris holds an
M.B.A. and a B.S. in Electrical Engineering from Stanford University.
Patrick Sayer is a General Partner of Lazard Freres et Cie, a French
investment bank, where he oversees the technology, telecommunications and media
sectors. Mr. Sayer has worked within the Lazard Freres Group throughout his
career, first joining its international advisory group, which advises foreign
governments, then spending six years in the corporate finance department and
then joining the mergers and acquisitions department in 1992. In addition, Mr.
Sayer is the Chairman of the Investment Committee of Eurafrance and Gaz et
Eaux, two French listed holding companies that are ultimately controlled by the
Lazard Freres Group. Mr. Sayer is a graduate of Ecole Polytechnique and Ecole
des Mines de Paris.
Giuseppe Zocco is a General Partner of Index Ventures, a private venture
capital firm based in Geneva, Switzerland, which he joined in 1996. Prior to
joining Index Ventures, Mr. Zocco was a management consultant with McKinsey and
Company from 1988 to 1996, working in several of its European offices and its
EuroCenter, a special consulting unit focused on Pan-European clients. During
his career at McKinsey, Mr. Zocco advised several major corporations on a
number of strategic and organizational matters. Mr. Zocco
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<PAGE>
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.
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. Cotton, Hauser, Carano and Morris. The
executive committee will be authorized to act with respect to all matters
arising before the board, except for matters which require stockholder approval
or where prohibited by Delaware law, including a sale of our company.
Compensation Committee. The compensation committee will review and 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 and 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
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. Bloom, Morris 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 director stock
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 stock
compensation plan for our non-employee directors, commensurate with plans
offered by companies in our industry or related industries.
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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 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 60,000 725,000 24,000(1)
Chief Executive
Officer and Director
Michael Gulett(2)....... 1999 82,372 54,167 1,600,000 1,827(3)
President and Chief
Operating Officer
Andrew Vought........... 1999 184,875 40,000 375,000 1,230(4)
Senior Vice President,
Finance,
Chief Financial
Officer and Secretary
Martin Jackson.......... 1999 128,099 -- 300,000 8,392(5)
Chief Technology
Officer and Director
Thomas Cooper........... 1999 153,606 30,250 550,000 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.
62
<PAGE>
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.......... 725,000 7.0 0.70 4/28/05 206,603 481,474
Michael Gulett.......... 1,600,000 15.4 0.70 11/13/05 455,952 1,062,563
Andrew Vought........... 375,000 3.6 0.70 4/28/05 106,864 249,038
Martin Jackson.......... 300,000 2.9 0.70 4/28/05 85,491 199,231
Thomas Cooper........... 550,000 5.3 0.70 4/28/05 156,734 365,256
</TABLE>
- --------
(1) Based on a total of 10,380,194 options to purchase 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
as determined by our board of directors on the date of grant.
(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.............. 635,625 1,364,375 696,696 1,119,805
Michael Gulett.............. -- 1,600,000 -- 960,000
Andrew Vought............... 482,500 767,500 529,867 648,633
Martin Jackson.............. 383,750 466,250 458,108 356,492
Thomas Cooper............... 306,667 693,333 355,467 481,933
</TABLE>
- --------
(1) Based on a fair market value of our common stock as of June 15, 1999 equal
to $1.30 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 the participate
in our stock incentive plans. As of August 31, 1999, Mr. Cotton had received
options to purchase an aggregate of
63
<PAGE>
2,660,000 shares of our common stock at a weighted average exercise price of
$0.62 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.
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 August 31, 1999, Mr. Gulett had received options to purchase an aggregate
of 2,260,000 shares of our common stock at a weighted average exercise price of
$0.88 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 August 31, 1999, Mr. Vought had received options to
purchase an aggregate of 1,650,000 shares of our common stock at a weighted
average exercise price of $0.59 per share. In general, these options vest
equally over four years. Mr. Vought is also entitled to a bonus of up to $
in the event we are sold during the term of his employment agreement. The
employment agreement may be terminated by Mr. Vought or us at any time, with or
without cause. 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 August 31, 1999,
Mr. Jackson had received options to purchase an aggregate of 1,025,000 shares
of our common stock at a weighted average exercise price of $0.51 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
August 31, 1999, Mr. Cooper had received options to purchase an aggregate of
1,200,000 shares of our common stock at a weighted average exercise price of
$0.60 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
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
64
<PAGE>
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
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 on , 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 August 31, 1999 there were options outstanding to purchase
19,019,214 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 $0.02 and $1.30 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 contributions
of up to 5% of an employee's salary to the Standard Life Personal Pension
Arrangement.
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, we also provide a 50% matching contribution to the retirement plan
of up to $2,000 per calendar year per employee.
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.
65
<PAGE>
CERTAIN TRANSACTIONS
The following is a description of transactions during our last three fiscal
years 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, we have issued ordinary shares of Virata
Limited as follows:
. In July 1998, we sold 1,540,000 ordinary shares in a private placement
at a purchase price of $1.01 per share in connection with the
acquisition of RSA Communications; and
. We have issued an aggregate of 1,200,644 ordinary shares in connection
with the exercise of options by our employees.
Issuances of Preferred Stock
During the past three fiscal years, we have issued preference shares and
warrants for preference shares of Virata Limited as follows:
. In May 1996, we sold 5,127,485 Series B preference shares in a private
placement at a purchase price of (Pounds)0.70 per share;
. In June 1996, we sold 6,666,667 Series C preference shares in a private
placement at a purchase price of $1.50 per share;
. In December 1997 and January 1998, we issued an aggregate amount of
$2,642,980 of bridge notes that were convertible into our Series D
preference shares.
. In March 1998, we issued a bridge note to Index Securities S.A. in the
amount of $700,000 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;
. In June 1998, we issued 3,039,073 Series D preference shares in a
private placement at a purchase price of $1.10 per share in connection
with the conversion of bridge notes held by certain of our stockholders;
. In June 1998, we issued 15,123,062 Series D preference shares in a
private placement at a purchase price of $1.10 per share in connection
with the conversion of 12,460,150 Series B preference shares and
2,000,000 Series C preference shares,
. In June 1998, we sold 606,500 Series D preference shares in a private
placement at a purchase price of $1.10 per share in connection with the
acquisition of RSA Communications;
. In June 1998, we issued warrants to purchase an aggregate of 1,595,054
Series D Preference Shares for $1.10 per share to Index Securities S.A.
in connection with its acting as placement agent in our Series D
preference share financing; and
. In June 1998, we sold 21,818 Series D preference shares to Andrew Hopper
in a private placement in exchange for Mr. Hopper serving on our
technology advisory board.
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<PAGE>
Our officers, directors and 5% stockholders participated in the foregoing
transactions as follows:
<TABLE>
<CAPTION>
Number of Number of Number of Bridge Notes
Series B Series C Series D and
Name of Purchaser Shares Shares Shares Warrants(1)
- ----------------- --------- --------- ---------- ------------
<S> <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)............. 1,429,530(2) -- 7,945,331(5) 488,508
Olivetti Telemedia
Investments B.V. ...... -- -- 870,239(6) 627,814
Oracle Corporation...... -- 6,667,667(7) 4,194,421(8) 558,057
3i plc.................. 2,931,072(2) -- 3,836,628(9) 245,355
Charles Cotton.......... -- -- -- --
Michael Gulett.......... -- -- -- --
Andrew Vought........... -- -- -- --
Martin Jackson.......... -- -- -- --
Thomas Cooper........... -- -- -- --
Dr. Hermann Hauser...... -- -- 75,152(10) 75,152
Marco De Benedetti...... -- -- -- --
Gary Bloom(11).......... -- 6,667,667 4,194,421 558,057
Bandel Carano(12)....... 1,429,530 -- 7,945,331 488,508
Prof. Andrew Hopper..... -- -- 40,000(13) 18,182
Peter Morris(14)........ 766,883 -- 5,582,978 343,275
Patrick Sayer(15)....... -- -- 7,348,111 --
Giuseppe Zocco(16)...... -- -- 1,290,920 2,231,418
All of our directors and
executive officers as a
group (14 persons)..... 5,127,485 6,666,667 31,183,780 4,587,761
</TABLE>
- --------
(1) All of the bridge notes were subsequently converted into Series D
preference shares in June 1998.
(2) Such shares were converted into Series D preference shares in June 1998.
(3) Includes 343,275 Series D preference shares issued upon conversion of
bridge notes in June 1998.
(4) Includes shares beneficially owned by Oak VI Affiliated Fund Limited.
(5) Includes 488,508 Series D preference shares issued upon conversion of
bridge notes in June 1998.
(6) Includes 627,814 Series D preference shares issued upon conversion of
bridge notes in June 1998.
(7) 2,000,000 of such shares were converted into Series D preference shares in
June 1998 in June 1998.
(8) Includes 558,057 Series D preference shares issued upon conversion of
bridge notes in June 1998.
(9) Includes 245,355 Series D preference shares issued upon conversion of
bridge notes in June 1998.
(10) Represents Series D preference shares issued upon conversion of bridge
notes in June 1998 held by Providence Investment Company Ltd, a Company
wholly owned by Providence Trust, of which Mr. Hauser may be a
beneficiary.
(11) Represents shares of our common stock beneficially owned by Oracle
Corporation, of which Mr. Bloom is an Executive Vice President. Mr. Bloom
disclaims all beneficial ownership of these shares.
(12) Represents shares of our common stock beneficially owned by Oak Investment
Partners, of which Mr. Carano is the General Partner. Mr. Carano disclaims
all beneficial ownership of these shares.
(13) Includes 18,182 Series D preference shares issued upon conversion of
bridge notes in June 1998 and 21,818 Series D preference shares issued in
exchange for Mr. 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) Includes 636,364 Series D preference shares issued upon conversion of
bridge notes in June 1998 and 1,595,054 Series D preference shares
issuable upon the exercise of a warrant. Represents shares of our common
stock beneficially owned by Index Securities, S.A., and its affiliates
Societe Financiere Mirelis S.A. and The Index Special Situations Fund, of
which Mr. Zocco is the General Partner. Mr. Zocco disclaims all beneficial
ownership of these shares.
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<PAGE>
Immediately prior to the consummation of this offering, 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 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 our common stock upon consummation of the share
reconstruction.
Acorn Computer
We entered into a technology license, manufacturing license and supply
agreement with Acorn Computer Group plc, 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
Computer Group changed its name to Element 14 and the license was subsequently
transferred to Pace Electronics. For the three year period ended August 31,
1999, we had sales to Acorn of approximately $674,000 and purchases from Acorn
of approximately $7,500. Dr. Hauser, Prof. Hopper and Mr. De Benedetti are
directors of Element 14. Messrs. Hauser, Hopper and Dr. Benedetti have no
affiliation with Pace Electronics.
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 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 August 31, 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., a United Kingdom corporation. Under the agreement Advanced RISC
Machines provided us with services relating to the development of the Lithium
integrated circuit. We entered into a per semiconductor design license
agreement in June 1999 under which we are able to design, have manufactured and
sell integrated circuits incorporating the ARM RISC microprocessor core. We
also entered into a limited use software agreement in June 1999, which provides
us with a six month evaluation license for certain software. Acorn Computer
Group plc, of which Dr. Hauser, Prof. Hopper and Mr. De Benedetti are
directors, owned approximately 40% of Advanced RISC Machines Ltd. at the time
the foregoing agreements were entered into. We have paid approximately $954,000
in fees to ARM under these agreements as of August 31, 1999 and currently have
an outstanding balance owed of approximately $226,000.
Olivetti
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 August 31, 1999,
we had sales to Olivetti Telemedia and its affiliates of approximately $209,000
and purchases from Olivetti Telemedia and its affiliates of approximately
$10,000. As of August 31, 1999, Olivetti Telemedia held approximately 9.8% of
our common stock.
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<PAGE>
Telemedia Systems Limited
We occasionally buy products from and sell products to Telemedia Systems
Limited, a United Kingdom corporation, on terms similar to terms we negotiate
with unaffiliated third parties. For the three year period ended August 31,
1999, we had sales to Telemedia Systems of approximately $226,000 and purchases
from Telemedia Systems of approximately $293,000. Dr. Hauser, Prof. Hopper and
Mr. De Benedetti serve as directors of Telemedia Systems.
69
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our outstanding shares of common stock as of August 31, 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.
The number of shares of our common stock outstanding as of August 31, 1999
was calculated after giving effect to:
. the cancellation of all of the outstanding ordinary and preference
shares of Virata Limited, the issuance of new ordinary 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
. a for 1 reverse stock split of our common stock.
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.
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.
<TABLE>
<CAPTION>
Shares
Beneficially Owned Shares Beneficially
Prior to Owned After the
Offering(1) Offering(1)
------------------ ----------------------
Name Number Percent Number Percent
- ---- ---------- ------- --------- ----------
<S> <C> <C> <C> <C>
Gaz et Eaux(2)................... 11,547,032 12.7%
New Enterprise Associates(3)..... 8,773,252 9.7
Oak Investment Partners
Limited(4)...................... 12,485,519 13.8
Olivetti Telemedia Investments
B.V.(5)......................... 8,867,517 9.8
Oracle Corporation(6)............ 12,191,232 13.4
3i plc(7)........................ 6,028,987 6.7
Charles Cotton(8)................ 1,082,813 1.2
Michael Gulett(9)................ -- 0.0
Andrew Vought(10)................ 743,437 0.8
Martin Jackson(11)............... 537,083 0.6
Thomas Cooper(12)................ 550,833 0.6
Dr. Hermann Hauser(13)........... 1,632,096 1.8
Marco De Benedetti............... -- 0.0
Gary Bloom(14)................... 12,191,232 13.4
Bandel Carano(15)................ 12,485,519 13.8
Prof. Andrew Hopper.............. 1,562,857 1.7
Peter Morris(16)................. 8,773,252 9.7
Patrick Sayer(17)................ 11,547,032 12.7
Giuseppe Zocco(18)............... 2,885,974 3.1
All of our directors and
executive officers as a group
(14 persons).................... 54,044,003 56.2
</TABLE>
70
<PAGE>
- --------
(1) 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 the date of this prospectus 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 August 31, 1999, an aggregate of 90,642,635 shares of
common stock were outstanding.
(2) Gaz et Eaux's address is 3, rue Jacques Bingen, Paris, 75017, France.
(3) New Enterprise Associates' address is 1119 St. Paul Street, Baltimore, MD
21202.
(4) Oak Investment Partners Limited's address is 525 University Avenue, Suite
1300, Palo Alto, CA 94301.
(5) Olivetti Telemedia Investment's address is Herengracht, 548 Amsterdam, The
Netherlands.
(6) Oracles Corporation's address is 500 Oracle Parkway, M/S 1OP836, Redwood
Shores, CA 94065.
(7) 3i plc's address is 91 Waterloo Road, London SE1 8XP, United Kingdom.
(8) Represents shares of our common stock underlying options that are vested or
will vest within 60 days of August 31, 1999.
(9) Represents shares of our common stock underlying options that are vested or
will vest within 60 days of August 31, 1999.
(10) Represents shares of our common stock underlying options that are vested
or will vest within 60 days of August 31, 1999.
(11) Represents shares of our common stock underlying options that are vested
or will vest within 60 days of August 31, 1999.
(12) Represents shares of our common stock underlying options that are vested
or will vest within 60 days of August 31, 1999.
(13) 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.
(14) Represents shares held by Oracle Corporation. Mr. Bloom was nominated to
our board of directors by Oracle. Mr. Bloom disclaims all beneficial
ownership of these shares.
(15) 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.
(16) 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.
(17) 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.
(18) Includes 2,506,513 shares issuable upon the exercise of a currently
exercisable warrant. Represents shares of our common stock beneficially
owned by Index Securities S.A., and its affiliates Societe Financiere
Mirelis S.A. and The Index Special Situations Fund, of which Mr. Zocco is
the General Partner. Mr. Zocco disclaims all beneficial ownership of these
shares.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, our authorized capital stock will consist
of shares of common stock, $.00l par value, and
shares of preferred stock, $.00l 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. The
information below gives effect to:
. the cancellation of all of the outstanding ordinary and preference
shares of Virata Limited, the issuance of new ordinary 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
. a for 1 reverse stock split of our common stock.
These transactions will take place immediately prior to the consummation of
this offering and, except for the reverse stock split, 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.
Common Stock
As of August 31, 1999, there were 90,642,635 shares of common stock
outstanding. Upon completion of this offering, there will be
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 prior to the consummation of this offering, all of the
outstanding preference shares of Virata Limited will be cancelled and new
shares of our common stock issued. The following illustrates the conversion of
the preference shares of Virata Limited into shares of our common stock:
<TABLE>
<CAPTION>
Number of Common
Number of Preference Shares received Upon
Series of Preference Shares Outstanding as of the Exchange of the
Shares August 31, 1999 Conversion Rate Ordinary Shares
- -------------------- ------------------------ --------------- --------------------
<S> <C> <C> <C>
Series A Preference
Shares................. 1,798,720 1 for 1 1,798,720
Series B Preference
Shares................. 1,394,406 1 for 1 1,394,406
Series C Preference
Shares................. 4,666,667 1 for 1.2(1) 5,600,000
Series D Preference
Shares................. 43,571,387 1 for 1.57(2) 68,469,323
</TABLE>
- --------
(1) 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 1 to 1 for 1.2.
(2) Pursuant to their terms, the conversion rate of the Series D preference
shares was increased from 1 for 1 to 1 for 1.57.
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<PAGE>
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
We intend to select a transfer agent and registrar for our common stock
prior to the closing of this offering.
Listing
We intend to apply to have our common stock approved for quotation on the
Nasdaq National Market under symbol "VRTA"
Registration Rights
We have entered into a registration rights agreement dated as of
, 1999 with holders of 75,463,729 shares of our common stock or
warrants to purchase shares of our common stock (the "Registrable Securities").
The agreement grants certain registration rights with respect to these 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 the earlier of (1) six months after the closing date of this
offering and (2) , 2001, holders of at least 50% of the Registerable
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 Registerable 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
Registerable 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 Registerable Securities
are entitled to two such S-3 registrations in any twelve-month period.
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<PAGE>
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 Registerable 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 Registerable 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 Registerable 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.
74
<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, the chief executive officer or our
president, 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.
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
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<PAGE>
. 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.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of our common stock in the public market
could adversely affect prevailing market prices.
Upon completion of this offering, there will be 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 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 about 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."
There are no restrictions on resale with respect to any of our securities,
other than restrictions imposed by lock-up agreements 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. Sales of
our common stock by these stockholders could have a material adverse effect on
the trading price of our common stock.
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<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.............................................................
====
</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 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>
Total
-----------------------------
Per Without With
Share Over-allotment Over-allotment
----- -------------- --------------
<S> <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, announce our intention 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 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 shares of common stock for employees, directors and
other persons associated with us who have expressed an interest in
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<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 intend to apply to list our shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "VRTA."
Prior to the offering, there has been no public market for the common stock.
The initial public offering price for the common stock will be determined by
negotiation between us and the representatives, and may not reflect the market
price for the common stock following this offering. The principal factors
considered in determining the initial public offering price of our common stock
will be:
. the information in this prospectus and otherwise available to the
representatives;
. market conditions for initial public offerings;
. the history of and prospects for the industry in which we will compete;
. the ability of our management;
. our prospects for future earnings, the present state of our development
and our current financial condition;
. the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies; and
. the general condition of the securities markets at the time of this
offering.
We cannot be sure that the initial public offering price will correspond to
the price at which common stock will trade in the public market following this
offering or that an active trading market for the common stock will develop and
continue after this offering.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934, as amended.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
. Stabilizing transactions permit bids to purchase shares of the common
stock so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq Stock Market's National Market or otherwise and, if
commenced, may be discontinued at any time.
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<PAGE>
Each underwriter has represented and agreed that:
. it and each of its affiliates has 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 has 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 has 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 been named as a lead or co-manager on
61 filed public offerings or equity securities, of which 33 have been
completed, and has acted as a syndicate member in an additional 32 public
offerings of equity securities. 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.
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<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (1) the purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under the securities laws, (2) where required
by law, that the purchaser is purchasing as principal and not as agent, and (3)
the purchaser has reviewed the text above under "Resale Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U. S. federal securities.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or these
persons in Canada or to enforce a judgment obtained in Canadian courts against
such issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser in this offering. This report must be
in the form attached to British Columbia Securities Commission Blanket Order
BOR #95/17, a copy of which may be obtained from us. Only one report must be
filed in respect of common stock acquired on the same date and under the same
prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult with their own legal and
tax advisors with respect to the tax consequences of an investment in the
common stock in their particular circumstances and with respect to the
eligibility of the common stock for investment by the purchaser under relevant
Canadian legislation.
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<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.
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<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-21
Balance Sheet.............................................................. F-22
Statement of Operations.................................................... F-23
Statement of Stockholder's Equity (Deficit)................................ F-24
Statement of Cash Flows.................................................... F-25
Notes to Financial Statements.............................................. F-26
Pro Forma Combined Financial Information (unaudited)
Overview................................................................... F-32
Pro Forma Combined Statement of Operations (unaudited)..................... F-33
Notes to Pro Forma Combined Financial Information (unaudited).............. F-34
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Virata Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity (deficit) and
of cash flows present fairly, in all material respects, the financial position
of Virata Corporation and its subsidiaries (the "Company") at March 31, 1998
and 1999, and the results of their operations and their cash flows for each of
the three years in the period ended March 31, 1999, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
San Jose, California
August 31, 1999
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
------------------ June 30, June 30,
1998 1999 1999 1999
-------- -------- ----------- ------------
(unaudited) (unaudited)
(Note 12)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....... $ 767 $ 8,616 $ 6,509
Short-term investments.......... -- 1,001 --
Accounts receivables, net of
allowance for doubtful accounts
and returns of $1,567, $2,742
and $370, respectively......... 2,091 2,267 2,116
Inventories..................... 434 264 381
Other current assets............ 1,352 1,232 1,879
-------- -------- --------
Total current assets........... 4,644 13,380 10,885
Property and equipment, net....... 1,306 2,479 2,296
Intangible assets................. -- 3,324 3,130
-------- -------- --------
Total assets................... $ 5,950 $ 19,183 $ 16,311
======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current Liabilities:
Accounts payable................ $ 1,727 $ 2,112 $ 1,959
Accrued liabilities............. 2,641 1,887 2,408
Deferred revenue................ 317 489 433
Convertible loan from related
parties........................ 2,712 -- --
Short-term borrowings........... 417 -- --
Capital lease obligations,
current........................ 483 850 905
-------- -------- --------
Total current liabilities...... 8,297 5,338 5,705
Capital lease obligations, long-
term............................. 738 1,130 995
-------- -------- --------
9,035 6,468 6,700
-------- -------- --------
Commitments (Note 8)
Stockholders' Equity (Deficit)
Convertible Preferred Stock,
$0.02 par value; 36,100,000,
86,100,000 and 86,100,000
(unaudited) shares authorized
at March 31, 1998 and 1999 and
June 30, 1999, respectively;
22,319,943, 51,431,179 and
51,431,179 (unaudited) shares
issued and outstanding at
March 31, 1998 and 1999 and
June 30, 1999, respectively
(liquidation preference $57,929
(unaudited) at June 30, 1999).. 1,719 811 811
Common Stock, $0.02 par value;
45,000,000, 95,000,000 and
95,000,000 (unaudited) shares
authorized at March 31, 1998
and 1999, and June 30, 1999,
respectively; 11,752,415,
13,340,644, and 13,348,644
(unaudited) shares issued and
outstanding at March 31, 1998
and 1999, and June 30, 1999,
respectively................... 185 211 211
Additional paid-in capital...... 29,985 63,513 63,611
Accumulated other comprehensive
income (loss).................. 56 308 (47)
Unearned stock compensation..... (1,559) (1,500) (1,332)
Accumulated deficit............. (33,471) (50,628) (53,643)
-------- -------- --------
Total stockholders' equity
(deficit)..................... (3,085) 12,715 9,611
-------- -------- --------
Total liabilities and
stockholders' equity
(deficit)..................... $ 5,950 $ 19,183 $ 16,311
======== ======== ========
</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>
Three months
Year Ended March 31, Ended June 30,
------------------------------ -----------------
1997 1998 1999 1998 1999
-------- --------- --------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Semiconductors........... $ -- $ 505 $ 2,784 $ 675 $ 1,419
License.................. 971 1,570 1,628 994 274
Services and royalty..... 1,134 1,206 2,367 341 373
Systems.................. 4,848 5,650 2,477 754 599
-------- --------- --------- ------- --------
Total revenues......... 6,953 8,931 9,256 2,764 2,665
-------- --------- --------- ------- --------
Cost of revenues:
Semiconductors........... -- 325 2,421 419 811
License.................. -- -- -- -- --
Services and royalty..... 185 192 528 55 138
Systems.................. 3,754 3,270 1,048 444 324
-------- --------- --------- ------- --------
Total cost of
revenues.............. 3,939 3,787 3,997 918 1,273
-------- --------- --------- ------- --------
Gross profit............... 3,014 5,144 5,259 1,846 1,392
-------- --------- --------- ------- --------
Operating expenses:
Research and
development............. 3,518 3,987 8,323 1,202 2,549
Sales and marketing...... 4,753 4,076 2,917 532 923
General and
administrative.......... 3,410 4,917 5,567 759 903
Restructuring costs...... -- 1,871 -- -- --
Amortization of
intangible assets....... -- -- 549 -- 194
Amortization of stock
compensation............ -- 399 1,394 306 266
Acquired in-process
research and
development............. -- -- 5,260 -- --
-------- --------- --------- ------- --------
Total operating
expenses.............. 11,681 15,250 24,010 2,799 4,835
-------- --------- --------- ------- --------
Loss from operations....... (8,667) (10,106) (18,751) (953) (3,443)
Interest expense........... (72) (214) (155) (58) (49)
Interest income and other
income (expense), net..... 199 42 1,749 68 477
-------- --------- --------- ------- --------
Net loss................... $ (8,540) $ (10,278) $ (17,157) $ (943) $ (3,015)
======== ========= ========= ======= ========
Basic and diluted net loss
per share................. $ (0.80) $ (0.90) $ (1.33) $ (0.08) $ (0.23)
======== ========= ========= ======= ========
Weighted average common
shares--basic
and diluted............... 10,676 11,482 12,881 11,765 13,346
======== ========= ========= ======= ========
Unaudited pro forma basic
and diluted net loss per
share (Note 1)............ $ (0.21) $ (0.04)
========= ========
Pro forma weighted average
shares--basic and diluted 80,900 84,646
========= ========
</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 Number 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........... 6,667 110 -- -- 10,453 -- -- -- 10,563 --
Issuance of
common stock for
cash............ -- -- 337 6 19 -- -- -- 25 --
Net loss........ -- -- -- -- -- -- -- (8,540) (8,540) (8,540)
Currency
translation
adjustment...... -- -- -- -- -- (172) -- -- (172) (172)
------- -------- ------ ------ -------- ----- -------- --------- ------- --------
Balance, March
31, 1997......... 22,320 1,719 10,937 171 27,989 166 -- (23,193) 6,852 (8,712)
========
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 1,719 11,752 185 29,985 56 (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..... 25,417 410 -- -- 24,672 -- -- -- 25,082 --
Issuance of
Series D
convertible
preferred stock,
common stock and
options for
acquisition...... 606 10 1,540 25 3,549 -- -- -- 3,584 --
Issuance of
Series D
convertible
preferred stock
upon conversion
of debt.......... 2,403 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......... 51,431 811 13,341 211 63,513 308 (1,500) (50,628) 12,715 (16,905)
========
Issuance of
common stock for
cash
(unaudited)...... -- -- 8 -- -- -- -- -- -- --
Unearned stock
compensation
(unaudited)...... -- -- -- -- 98 -- (98) -- -- --
Amortization of
unearned stock
compensation
(unaudited)...... -- -- -- -- -- -- 266 -- 266 --
Net loss
(unaudited)...... -- -- -- -- -- -- -- (3,015) (3,015) (3,015)
Currency
translation
adjustment
(unaudited)...... -- -- -- -- -- (355) -- -- (355) (355)
------- -------- ------ ------ -------- ----- -------- --------- ------- --------
Balance, June 30,
1999
(unaudited)...... 51,431 $ 811 13,349 $ 211 $ 63,611 $ (47) $ (1,332) $ (53,643) $ 9,611 $ (3,370)
======= ======== ====== ====== ======== ===== ======== ========= ======= ========
</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>
Three Months
Year Ended March 31, Ended June 30,
------------------------------ ------------------
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) $ (943) $ (3,015)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Provision for doubtful
accounts and returns.... 111 1,075 1,458 26 189
Acquired in-process
research and
development............. -- -- 5,260 -- --
Depreciation and
amortization............ 1,085 1,149 1,677 225 643
Amortization of stock
compensation............ -- 399 1,394 306 266
Changes in current assets
and liabilities:
Accounts receivable..... (797) (1,665) (708) (420) (26)
Inventories............. (129) 387 176 311 (108)
Other current assets.... (615) (479) 133 579 (624)
Accounts payable........ 1,027 (313) (1,187) (668) (187)
Accrued liabilities..... 818 95 (772) (132) 485
Deferred revenue........ -- 317 167 (43) (30)
-------- --------- --------- -------- --------
Net cash used in
operating activities.. (7,040) (9,313) (9,559) (759) (2,407)
-------- --------- --------- -------- --------
Cash flows from investing
activities:
Sale of short-term
investments.............. -- -- -- -- 1,001
Purchase of short-term
investment............... -- -- (1,000) -- --
Purchase of property and
equipment, net........... (1,376) (193) (2,088) (687) (53)
Cash paid in connection
with acquisition, net of
cash acquired............ -- -- (5,149) -- --
-------- --------- --------- -------- --------
Net cash (used in)
provided by investing
activities............ (1,376) (193) (8,237) (687) 948
-------- --------- --------- -------- --------
Cash flows from financing
activities:
Proceeds from issuance of
convertible preferred
stock, net of issuance
costs.................... 13,688 -- 25,106 24,957 --
Proceeds from issuance of
common stock............. 25 52 7 3 --
Proceeds from capital
leases................... 981 372 1,116 673 31
Repayments of capital
lease obligations........ (122) (282) (318) (144) (81)
Proceeds from convertible
loan..................... -- 2,739 -- -- --
Proceeds from (repayment
of) bank borrowings...... -- 417 (417) (395) --
-------- --------- --------- -------- --------
Net cash provided by
(used in) financing
activities............ 14,572 3,298 25,494 25,094 (50)
-------- --------- --------- -------- --------
Effect of exchange rate
changes on cash........... (183) (314) 151 78 (598)
-------- --------- --------- -------- --------
Net increase (decrease) in
cash and cash
equivalents............... 5,973 (6,522) 7,849 23,726 (2,107)
-------- --------- --------- -------- --------
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 $ 24,493 $ 6,509
======== ========= ========= ======== ========
</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"), a corporation
organized in North Carolina (see Note 4). RSA was subsequently renamed to
Virata Raleigh Corporation.
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 June 30,
1999 and for the three months ended June 30, 1998 and 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 June 30, 1999 and the results of operations and cash flows for the
three months ended June 30, 1998 and 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, 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.
F-7
<PAGE>
VIRATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, $717,000 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 Three Months
March 31, Ended
---------------- June 30,
1997 1998 1999 1999
---- ---- ---- ------------
(unaudited)
<S> <C> <C> <C> <C>
Revenues
- --------
Customer A.......................................... -- 10% 16% 40%
Customer B.......................................... 21% 17% 22% 17%
Customer C.......................................... -- 10% 3% --
Customer D.......................................... -- -- -- 10%
</TABLE>
Revenues from customers located outside the United States were 47% in 1997,
44% in 1998 and 40% in 1999, respectively. The Company has $974,000 and
$1,800,000 invested in identifiable tangible assets in Europe as of March 31,
1998 and 1999. The remaining identifiable tangible assets are located in the
United States.
<TABLE>
<CAPTION>
March 31,
---------- June 30,
1998 1999 1999
---- ---- -----------
(unaudited)
<S> <C> <C> <C>
Accounts Receivable
- -------------------
Customer A................................................ 23% 54% 50%
Customer B................................................ 11% 11% 9%
Customer C................................................ 28% -- --
Customer E................................................ 18% -- --
</TABLE>
Inventories
Inventories include raw materials and 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.
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.
F-9
<PAGE>
VIRATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, Series B, Series C and Series 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, June 30,
-------------------- -------------
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 67,516 68,469
Convertible preferred stock warrants........ 74 139 2,892 2,646 2,903
Common stock warrants....................... -- 75 75 75 75
Common stock options........................ 2,777 4,796 14,516 7,855 19,465
------ ------ ------ ------ ------
26,505 28,664 94,745 86,885 99,705
====== ====== ====== ====== ======
</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 the automatic conversion of the Company's
Series A, B, C and D convertible preferred stock and preferred stock warrants
into shares of the Company's common stock effective upon the closing of the
Company's initial public offering as if such conversion occurred on April 1,
1998, or at the date of original issuance, if later. The resulting pro forma
adjustment includes an increase in the weighted average shares used to compute
basic net loss per share for the year ended March 31, 1999. The calculation of
diluted net loss per share excludes potential shares of common stock as their
effect would be anti-dilutive.
F-10
<PAGE>
VIRATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 year-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.
Note 2--Supplemental Cash Flow Information (in thousands):
<TABLE>
<CAPTION>
Year ended March Three Months
31, Ended June 30,
------------------- ---------------
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 $ -- $ --
===== ====== ====== ======= =======
</TABLE>
F-11
<PAGE>
VIRATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3--Balance Sheet Components (in thousands):
<TABLE>
<CAPTION>
March 31
---------------- June 30,
1998 1999 1999
------- ------- -----------
(unaudited)
<S> <C> <C> <C>
Inventories:
Finished goods................................. $ 394 $ 26 $376
Raw materials.................................. 40 238 5
------- ------- ----
$ 434 $ 264 $381
======= ======= ====
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.
<TABLE>
<CAPTION>
March 31
-------------
1998 1999
------ ------
<S> <C> <C>
Intangible assets:
Goodwill.................................................... $ -- $3,873
Less: Accumulated amortization.............................. -- (549)
------ ------
$ -- $3,324
====== ======
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.
F-12
<PAGE>
VIRATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 4--Acquisition of RSA:
The Company completed its acquisition of RSA on July 17, 1998. RSA was
privately-held and based in Raleigh, North Carolina, specializing in analog
modem software development. The Company's acquisition of RSA was accounted for
as a purchase business combination.
The Company's allocation of RSA's aggregate purchase price to the tangible
and identifiable intangible assets acquired in connection with this
acquisition were based on fair values as determined by independent appraisers.
The allocation is summarized below (in thousands):
<TABLE>
<S> <C>
In-process research and development.................................. $5,260
Goodwill............................................................. 3,873
Net assets........................................................... 142
------
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 Preferred Convertible Stock valued at $668,000, 1,993,000 stock
options valued at $1,505,000 million, cash of $5,332,000 million and
acquisition related expenses of approximately $353,000 consisting primarily of
legal and other professional fees. The Company valued the options using the
Black-Scholes option pricing model, applying expected life of four years, a
weighted average risk-free rate of 5.47%, an expected dividend yield of zero
percent, a volatility of 70% and a deemed fair value of common stock of $0.92.
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 modem chips and replacement
cost method for 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.
The income method of valuation for the modem chips was determined using a
modified version of the relief from royalty avoided by the Company upon the
purchase of RSA. 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 algorithm which requires a special skill set for its development was
valued using the replacement cost method which considered cost 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>
F-13
<PAGE>
VIRATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, 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 three months ended June 30, 1999 were $599,000.
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 ending March 31,
1999 and the three months ended June 30, 1998 and 1999 because the Company
incurred net losses in such periods.
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
March 31,
---------------
1999 1998
------- ------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............................. $12,647 $9,011
Temporary differences........................................ 1,764 751
Other........................................................ 67 --
------- ------
14,478 9,762
------- ------
Valuation allowance............................................ (14,478) (9,762)
------- ------
$-- $--
======= ======
</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 2004 and 2019 for both federal and state
purposes, if not utilized.
F-14
<PAGE>
VIRATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 7--Borrowings:
A convertible loan in the amount of $2,712,000 was converted to 2,402,710
shares of Series D 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 borrowing 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 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 Ended 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>
F-15
<PAGE>
VIRATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 1,798,720 1,798,720 $ 1,438,976
B............................... 25,000 13,854,556 1,394,406 1,561,735
C............................... 8,000 6,666,667 4,666,667 7,000,000
D............................... 50,000 -- 43,571,386 47,928,525
------ ---------- ---------- -----------
86,100 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 opportunity to
purchase Series D convertible preferred stock. The Company issued 25,417,296
shares of Series D convertible preferred stock for $1.10 per share resulting in
net proceeds after issuance costs of $25,082,000. 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 a warrant to purchase an aggregate of 1,592,054
shares of Series D convertible preferred stock at an exercise price of $1.10
per share. The warrant may be exercised at any time within five years after
issuance. 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 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
warrant of $949,000 has been netted against the proceeds from the offering.
The holders of convertible preferred stock have various rights and
preferences as follows:
Voting
Each share of Series A, B, C and D convertible preferred stock have 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 from inception through June 30, 1999.
F-16
<PAGE>
VIRATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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 March 31, 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 $1.10 and $1.50 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 warrant 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 warrant 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. The Company has reserved
26,989,333 shares of common stock for issuance under the Plan.
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.
F-17
<PAGE>
VIRATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During the period from April 1, 1996 through March 31, 1999, the Company
recorded $3,391,000 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 $266,000 (unaudited) for the years ended March 31, 1998 and
1999, and the three months ended June 30, 1999, respectively.
The following table summarizes activity under the Company's Plan from March
31, 1996 through June 30, 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.................. 9,938,969 -- --
Options granted (unaudited)................ (4,971,625) 4,971,625 1.26
Options exercised (unaudited).............. -- (8,000) 0.06
Options canceled (unaudited)............... 14,500 (14,500) 1.30
----------- ----------
Balance, June 30, 1999 (unaudited)........... 6,315,869 19,464,820 0.67
=========== ==========
</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-18
<PAGE>
VIRATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fair value disclosures
If compensation cost for the Company's stock-based compensation plan 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) (.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 an employee 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.
Note 11--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.
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 12--Subsequent Events:
Initial public offering
In June 1999, the Board of Directors of Virata Limited authorized management
to file a registration statement with the Securities and Exchange Commission to
permit the Company to sell shares of its common stock to the public. In
association with the offering, the Board of Directors authorized soliciting the
shareholders for their approval of: (i) the cancellation of all outstanding
convertible preferred and common stock and all other securities convertible
into preferred or common stock of Virata Limited, (ii) the issuance of new
common shares of Virata Limited to Virata Corporation and the issuance of
shares of common stock of Virata Corporation to the former shareholders of
Virata Limited, and (iii) a reverse stock split. These events are to occur
immediately prior to the offering.
F-19
<PAGE>
VIRATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Borrowing Agreement
In August 1999, the Company entered into a borrowing agreement with a
financial institution for $3,000,000 of the Company's borrowing base, as
determined by the agreement. The agreement bears interest at prime rate plus
one half percent and all outstanding advances are due in August 2000. The
agreement is collateralized by the Company's property, equipment, intellectual
property, inventory, and receivables and requires compliance with certain debt
covenants.
F-20
<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-21
<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-22
<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-23
<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-24
<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-25
<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 on the historical cost basis of
accounting. 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-26
<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-27
<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. 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-28
<PAGE>
RSA COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Property and Equipment
Property and equipment consisted of the following at March 31, 1997 and
1998:
<TABLE>
<CAPTION>
1997 1998
----------- ---------
<S> <C> <C>
Office furniture and equipment.......................... $ 1,267,008 $ 4,228
Computer software and equipment......................... 4,464,804 129,316
----------- ---------
5,731,812 133,544
Less: Accumulated depreciation.......................... (4,666,262) (23,241)
----------- ---------
$ 1,065,550 $ 110,303
=========== =========
</TABLE>
5. Commitments
RSA leases its office facilities and certain equipment under noncancelable
operating leases expiring through June 2000. Future minimum lease payments
under the noncancelable operating leases at March 31, 1998 were as follows:
<TABLE>
<S> <C>
1999............................... $ 121,500
2000............................... 124,730
2001............................... 21,044
---------
$ 267,274
=========
</TABLE>
Rent expense for the fiscal year ended March 31, 1997 and for the period
from April 1, 1997 through June 5, 1997 was $566,599 and $118,286,
respectively.
Rent expense for the period from June 6, 1997 through March 31, 1998 was
$89,261.
6. Stockholder's Equity
Stock Appreciation Rights
The stock appreciation rights relate to RSA's phantom stock option plan
which was established in November 1997, to provide benefits to its employees
and consultants. At the commencement of the plan RSA authorized the issuance of
up to 6,000 phantom stock units ("PSU") under the plan. Each PSU consists of a
right to receive from RSA, upon the occurrence of a payment event, the same net
consideration as is received (1) for one share of common stock of RSA in a
merger with or into another corporation, (2) for one share of stock in a sale
of substantially all of the stock or assets of RSA, or (3) per share proceeds
from the liquidation of RSA. No payments will be made under the PSUs until a
payment event (described above) occurs. However, in the event of an initial
public offering, each PSU will immediately convert into one share of common
stock. In the event of termination of employment, either voluntarily or
involuntarily, prior to a payment event, the participant forfeits all rights
under the PSUs.
During the period that the PSU is outstanding, the ultimate amount of
compensation inherent in the award is not determinable. APB No. 25, "Accounting
for Stock Issued to Employees" and FASB Interpretation No. 28 require interim
calculations of the amount of compensation inherent in the award (variable
accounting) if it is probable that the payment event will occur. This amount is
equal to the increase in the fair value of the stock since the date of the
award, multiplied by the total number of shares or units outstanding,
regardless of the exercisable status of the awards. At March 31, 1998, 3,875
PSUs, had been issued and were outstanding.
F-29
<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-30
<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-31
<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-32
<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).............................. $ (0.21) $ (0.24)
======== =========
Pro forma weighted average
shares--basic and diluted....... 80,900 81,612
======== =========
</TABLE>
F-33
<PAGE>
VIRATA CORPORATION
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
(Unaudited)
Note 1--Basis of Presentation
In July 1998, the Company acquired RSA, a privately held company
specializing in analog modem software development.
The unaudited combined pro forma information presented is not necessarily
indicative of the future consolidated results of operations of the Company or
the consolidated results of operations that would have resulted had the
acquisition taken place on April 1, 1998. The unaudited pro forma combined
statement of operations for the fiscal year ended March 31, 1999 reflects the
effects of the acquisition, assuming the related events occurred as of April
1, 1998 for the purposes of the unaudited pro forma statement of operations.
Note 2--Purchase Price Allocation:
The unaudited pro forma combined financial statements reflect a total
purchase price of $9,275,000 consisting of 1,540,000 shares of the Company's
common stock valued at $1,417,000, 606,500 shares of Series D preferred
convertible stock valued at $668,000, 1,993,000 stock options valued at
$1,505,000, cash of $5,332,000 and acquisition related expenses of
approximately $353,000 consisting primarily of legal and other professional
fees. The company valued the options using the Black-Scholes option pricing
model, applying expected life of four years, a weighted average risk free rate
of 5.47%, an expected dividend yield of zero percent, a volatility of 70% and
a deemed fair value of common stock of $0.92.
The valuation of the purchased in-process research and development of
$5,260,000 was based on the result of an independent appraisal which was
determined using the income-based approach for modem chips and replacement
cost method for software algorithm. The purchased in-process technology was
not considered to have reached technological feasibility and had no
alternative future use. Accordingly, the amount was charged to operations at
the date of acquisition.
The goodwill is being amortized on a straight-line basis over the estimated
period of benefit of five years.
The Company's allocation of RSA's aggregate purchase price to the tangible
and identifiable intangible assets acquired in connection with this
acquisition were based on fair values as determined by independent appraisers.
The allocation is summarized below (in thousands):
<TABLE>
<S> <C>
In-process research and development.................................. $5,260
Goodwill............................................................. 3,873
Net assets........................................................... 142
------
Total purchase price............................................... $9,275
======
</TABLE>
Note 3--Unaudited Pro Forma Combined Net Loss Per Share
The net loss per share and shares used in computing the net loss per share
for the fiscal year ended March 31, 1999 is based upon the historical weighted
average common shares outstanding. The Virata common stock issuable upon the
exercise of the stock options and warrants have been excluded as the effect
would be anti-dilutive. In addition to the shares used in computing the net
loss per share above, pro forma net loss per share is calculated using the
convertible preferred stock outstanding as if such shares were converted to
common stock at the time of issuance.
F-34
<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 preferred stock..... 68,019
Adjustment to reflect the assumed conversion of common stock issued
in connection with the purchase of RSA............................. 440
Adjustment to reflect the assumed conversion of Series D convertible
preferred stock.................................................... 272
------
Shares used in computing pro forma basic and diluted net loss per
share.............................................................. 81,612
======
</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-35
<PAGE>
[VIRATA LOGO]
<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............................................. $13,900
NASD fee......................................................... 5,500
Nasdaq National Market listing fee............................... *
Printing and engraving costs..................................... *
Legal fees and expenses.......................................... *
Accounting fees and expenses..................................... *
Blue Sky fees and expenses....................................... 3,000
Transfer agent and registrar fees and expenses................... *
Miscellaneous.................................................... *
-------
Total.......................................................... $ *
=======
</TABLE>
- --------
* To be provided by amendment.
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, we have issued securities of Virata
Limited as follows:
Issuances of Ordinary Shares.
. In July 1997, we issued a warrant to purchase 75,000 ordinary shares in
a private placement to Dr. Robert W. Wilmott at an exercise price per
share of $0.08 in connection with consulting services provided to us;
and
. In July 1998, we sold 1,540,000 ordinary shares in a private placement
at a purchase price of $1.01 per share in connection with the
acquisition of RSA Communications, Inc.; and
. We have issued an aggregate of 1,200,644 ordinary shares in connection
with the exercise of options by our employees.
Issuances of Preferred Stock.
. In May 1996, we sold 5,127,485 Series B preference shares in a private
placement at a purchase price of (Pounds)0.70 per share;
. In June 1996, we sold 6,666,667 Series C preference shares in a private
placement at a purchase price of $1.50 per share;
. In October 1996, we issued a warrant to purchase 61,705 Series C
preference shares in a private placement to Comdisco Ventures at an
exercise price per share of $1.50 in connection with an equipment
financing;
. In September 1997, we issued a warrant to purchase 8,000 Series C
preference shares in a private placement to Comdisco Ventures at an
exercise price per share of $1.50 in connection with an equipment
financing;
. In December 1997, we issued a warrant to purchase 35,294 Series C
preference shares in a private placement to Venture Lending, a division
of Cupertino National Bank and Trust, at an exercise price per share of
$1.70 in connection with a bank facility; 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 an aggregate amount of
$2,642,980 of bridge notes that were convertible into our Series D
preference shares.
. In March 1998 we issued a bridge note to Index Securities S.A. in the
amount of $700,000 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;
. In June 1998, we issued 3,039,073 Series D preference shares in a
private placement at a purchase price of $1.10 per share in connection
with the conversion of bridge notes held by certain of our stockholders;
. In June 1998, we issued 15,123,062 Series D preference shares in a
private placement at a purchase price of $1.10 per share in connection
with the conversion of 12,460,150 Series B preference shares and
2,000,000 Series C preference shares,
. In June 1998, we sold 606,500 Series D preference shares in a private
placement at a purchase price of $1.10 per share in connection with the
acquisition of RSA Communications, Inc.;
. In June 1998, we issued warrants to purchase an aggregate of 1,595,054
Series D Preference Shares for $1.10 per share to Index Securities S.A.
in connection with its acting as placement agent in our Series D
preference share financing;
II-2
<PAGE>
. In June 1998, we sold 18,182 Series D preference shares to Andrew Hopper
in a private placement in exchange for Mr. Hopper serving on our
technology advisory board;
. 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; and
. 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.
The issuance and sale of the above securities were exempt from registration
under the Securities Act in reliance upon Section 4(2) of the Securities Act
or Regulation D or Regulation S promulgated thereunder. The recipients of
securities in each such transaction represented their intentions to acquire
the securities for investment only and now with a view to or for sale in
connection with any distribution thereof, and appropriate legends were affixed
to the share certificates issued in such transactions. All recipients had
adequate access to information about the Registrant.
Immediately prior to the consummation of this offering, all of the
outstanding ordinary and preference shares of Virata Limited will be
cancelled, new ordinary shares of Virata Limited will be issued to Virata
Corporation and shares of common stock of Virata Corporation will be issued to
the former shareholders of Virata Limited. These transactions will take place
immediately prior to the consummation of this offering and will be effected
pursuant to a share reconstruction under Section 425 of the United Kingdom
Companies Act of 1985. Any securities that are convertible or exercisable into
ordinary shares or preference shares of Virata Limited will become convertible
or exercisable into shares of one common stock upon consummation of the share
reconstruction.
Item 16. Exhibits
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description Page
------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement..................................
3.1 Certificate of Incorporation of the Registrant..................
3.2 Bylaws of the Registrant........................................
4.1 Specimen form of Registrant's Common Stock Certificate*.........
5.1 Opinion of Gibson, Dunn & Crutcher LLP*.........................
10.1 Agreement with Gaz et Eaux and Board with respect to Board of
Directors and other shareholder rights+.........................
10.2 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+................
10.3 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................
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+...............................
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Page
------- ----------- ----
<C> <S> <C>
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 Telecommunication 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 Auditors' Consent from PricewaterhouseCoopers LLP
regarding Virata Corporation....................................
23.2 Independent Auditors' Consent from PricewaterhouseCoopers LLP
regarding RSA Communications, Inc...............................
23.3 Consent of Gibson, Dunn & Crutcher LLP (to be included in their
opinion filed as Exhibit 5.1)*..................................
24.1 Power of Attorney (see signature page)..........................
27.1 Financial Data Schedule.........................................
</TABLE>
- --------
* To be filed by amendment.
+ To be filed without Schedules.
++ Confidential treatment has been requested for selected sections of this
exhibit.
II-4
<PAGE>
(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.
Item 17. Undertakings.
The Registrant hereby undertakes to the underwriters at the closing
specified in the underwriting agreement to provide certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the Delaware
General Corporation Law, the Registrant's Amended Certificate of
Incorporation, the Registrant's Bylaws, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act,
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act is part of this Registration Statement as of the time
it was declared effective.
(ii) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement for the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this 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 3rd day of September, 1999.
VIRATA CORPORATION
By: ___________________________
/s/ Charles Cotton
Charles Cotton
Chief Executive Officer and Director
KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Charles Cotton and Andrew Vought, each
of whom may act without joinder of the other, as their true and lawful
attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and any and all Registration
Statements filed pursuant to Section 462 of the Securities Act of 1933, as
amended, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or their substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this 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
--------- ----- ----
<S> <C> <C>
/s/ Charles Cotton September 3, 1999
___________________________________ Chief Executive Officer and Director
Charles Cotton (Principal Executive Officer)
/s/ Andrew Vought Senior Vice President, Finance and September 3, 1999
___________________________________ Operations (Principal Financial Officer
Andrew Vought and Principal Accounting Officer)
/s/ Dr. Hermann Hauser Chairman of the Board September 3, 1999
___________________________________
Dr. Hermann Hauser
/s/ Bandel Carano Director September 3, 1999
___________________________________
Bandel Carano
/s/ Peter Morris Director September 3, 1999
___________________________________
</TABLE> Peter Morris
II-6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTSON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and
Stockholders of Virata Corporation
In connection with our audits of the financial statements of Virata
Corporation as of March 31, 1998 and 1999, and for each of the three years in
the period ended March 31, 1999, which financial statements are included in the
Prospectus, we have also audited the financial statement schedule listed in
Item 16(b) herein. In our opinion, this financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included herein.
/s/ PricewaterhouseCoopers LLP
San Jose, California
August 20, 1999
<PAGE>
SCHEDULE II
VIRATA CORPORATION
VALUATION AND QUALIFYING ACCOUNT
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Deductions Period
- ----------- ---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended March 31, 1997........ $ 602 $ 111 $ -- $ 713
Year ended March 31, 1998........ 713 1,075 221 1,567
Year ended March 31, 1999........ 1,567 1,458 283 2,742
</TABLE>
S-2
<PAGE>
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
S-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page
------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement..................................
3.1 Certificate of Incorporation of the Registrant..................
3.2 Bylaws of the Registrant........................................
4.1 Specimen form of Registrant's Common Stock Certificate*.........
5.1 Opinion of Gibson, Dunn & Crutcher LLP*.........................
10.1 Agreement with Gaz et Eaux and Board with respect to Board of
Directors and other shareholder rights+.........................
10.2 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+................
10.3 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................
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 Auditors' Consent from PricewaterhouseCoopers LLP
regarding Virata Corporation...................................
23.2 Independent Auditors' Consent from PricewaterhouseCoopers LLP
regarding RSA Communications, Inc..............................
23.3 Consent of Gibson, Dunn & Crutcher LLP (to be included in their
opinion filed as Exhibit 5.1)*.................................
24.1 Power of Attorney (see signature page).........................
27.1 Financial Data Schedule........................................
</TABLE>
- --------
* To be filed by amendment.
+ To be filed without Schedules.
++ Confidential treatment has been requested for selected sections of this
exhibit.
<PAGE>
EXHIBIT 1.1
____________ shares
VIRATA, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
_________, 1999
Credit Suisse First Boston Corporation
Warburg Dillon Read LLC
Thomas Weisel Partners LLC,
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. Virata, Inc., a Delaware corporation ("Company"),
proposes to issue and sell to the Underwriters shares ("Firm Securities") of its
Common Stock ("Securities") and also proposes to issue and sell to the
Underwriters, at the option of the Underwriters, an aggregate of not more than
$______________ additional shares ("Optional Securities") of its Securities as
set forth below. The Firm Securities and the Optional Securities are herein
collectively called the "Offered Securities". As part of the offering
contemplated by this Agreement, Credit Suisse First Boston Corporation ("CSFBC")
(the "Designated Underwriter") has agreed to reserve out of the Firm Securities
purchased by it under this Agreement, up to __________________________ shares,
for sale to the Company's directors, officers, employees and other parties
associated with the Company (collectively, "Participants"), as set forth in the
Prospectus (as defined herein) under the heading "Underwriters" (the "Directed
Share Program"). The Firm Securities to be sold by the Designated Underwriter
pursuant to the Directed Share Program (the "Directed Shares") will be sold by
the Designated Underwriter pursuant to this Agreement at the public offering
price. Any Directed Shares not orally confirmed for purchase by a Participant by
the end of the business day on which this Agreement is executed will be offered
to the public by the Underwriters as set forth in the Prospectus. The Company
hereby agrees with the several Underwriters named in Schedule A hereto
("Underwriters") as follows:
2. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with, the several
Underwriters that:
(a) A registration statement (No. 333-_______) relating to the
Offered Securities, including a form of prospectus, has been filed
with the Securities and Exchange Commission ("Commission") and either
(i) has been declared effective under the Securities Act of 1933
("Act") and is not proposed to be amended or (ii) is proposed
1
<PAGE>
to be amended by amendment or post-effective amendment. If such
registration statement ("initial registration statement") has been
declared effective, either (i) an additional registration statement
("additional registration statement") relating to the Offered
Securities may have been filed with the Commission pursuant to Rule
462(b) ("Rule 462(b)") under the Act and, if so filed, has become
effective upon filing pursuant to such Rule and the Offered Securities
all have been duly registered under the Act pursuant to the initial
registration statement and, if applicable, the additional registration
statement or (ii) such an additional registration statement is
proposed to be filed with the Commission pursuant to Rule 462(b) and
will become effective upon filing pursuant to such Rule and upon such
filing the Offered Securities will all have been duly registered under
the Act pursuant to the initial registration statement and such
additional registration statement. If the Company does not propose to
amend the initial registration statement or if an additional
registration statement has been filed and the Company does not propose
to amend it, and if any post-effective amendment to either such
registration statement has been filed with the Commission prior to the
execution and delivery of this Agreement, the most recent amendment
(if any) to each such registration statement has been declared
effective by the Commission or has become effective upon filing
pursuant to Rule 462(c) ("Rule 462(c)") under the Act or, in the case
of the additional registration statement, Rule 462(b). For purposes of
this Agreement, "Effective Time" with respect to the initial
registration statement or, if filed prior to the execution and
delivery of this Agreement, the additional registration statement
means (i) if the Company has advised the Representatives that it does
not propose to amend such registration statement, the date and time as
of which such registration statement, or the most recent post-
effective amendment thereto (if any) filed prior to the execution and
delivery of this Agreement, was declared effective by the Commission
or has become effective upon filing pursuant to Rule 462(c), or (ii)
if the Company has advised the Representatives that it proposes to
file an amendment or post-effective amendment to such registration
statement, the date and time as of which such registration statement,
as amended by such amendment or post-effective amendment, as the case
may be, is declared effective by the Commission. If an additional
registration statement has not been filed prior to the execution and
delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "Effective Time" with
respect to such additional registration statement means the date and
time as of which such registration statement is filed and becomes
effective pursuant to Rule 462(b). "Effective Date" with respect to
the initial registration statement or the additional registration
statement (if any) means the date of the Effective Time thereof. The
initial registration statement, as amended at its Effective Time,
including all information contained in the additional registration
statement (if any) and deemed to be a part of the initial registration
statement as of the Effective Time of the additional registration
statement pursuant to the General Instructions of the Form on which it
is filed and including all information (if any) deemed to be a part of
the initial registration statement as of its Effective Time pursuant
to Rule 430A(b) ("Rule 430A(b)") under the Act, is hereinafter
referred to as the "Initial Registration Statement". The additional
registration statement, as amended at its Effective Time, including
the contents of the initial registration statement incorporated by
reference therein and including all information (if any) deemed to be
a part of the additional registration statement as of its Effective
Time pursuant to Rule 430A(b), is hereinafter referred to as the
"Additional Registration Statement". The Initial Registration
Statement and the Additional Registration Statement are herein
referred to collectively as the "Registration Statements" and
individually as a "Registration Statement". The form of prospectus
relating to the Offered Securities, as first filed with the Commission
2
<PAGE>
pursuant to and in accordance with Rule 424(b) ("Rule 424(b)") under
the Act or (if no such filing is required) as included in a
Registration Statement, is hereinafter referred to as the
"Prospectus". No document has been or will be prepared or distributed
in reliance on Rule 434 under the Act.
(b) If the Effective Time of the Initial Registration Statement
is prior to the execution and delivery of this Agreement: (i) on the
Effective Date of the Initial Registration Statement, the Initial
Registration Statement conformed in all material respects to the
requirements of the Act and the rules and regulations of the
Commission ("Rules and Regulations") and did not include any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, (ii) on the Effective Date of the Additional
Registration Statement (if any), each Registration Statement
conformed, or will conform, in all material respects to the
requirements of the Act and the Rules and Regulations and did not
include, or will not include, any untrue statement of a material fact
and did not omit, or will not omit, to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading and (iii) on the date of this Agreement, the
Initial Registration Statement and, if the Effective Time of the
Additional Registration Statement is prior to the execution and
delivery of this Agreement, the Additional Registration Statement each
conforms, and at the time of filing of the Prospectus pursuant to Rule
424(b) or (if no such filing is required) at the Effective Date of the
Additional Registration Statement in which the Prospectus is included,
each Registration Statement and the Prospectus will conform, in all
material respects to the requirements of the Act and the Rules and
Regulations, and neither of such documents includes, or will include,
any untrue statement of a material fact or omits, or will omit, to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading. If the Effective Time of
the Initial Registration Statement is subsequent to the execution and
delivery of this Agreement: on the Effective Date of the Initial
Registration Statement, the Initial Registration Statement and the
Prospectus will conform in all material respects to the requirements
of the Act and the Rules and Regulations, neither of such documents
will include any untrue statement of a material fact or will omit to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and no Additional
Registration Statement has been or will be filed. The two preceding
sentences do not apply to statements in or omissions from a
Registration Statement or the Prospectus based upon written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and
agreed that the only such information is that described as such in
Section 7(b) hereof.
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties
and conduct its business as described in the Prospectus; and the
Company is duly qualified to do business as a foreign corporation in
good standing in all other jurisdictions in which its ownership or
lease of property or the conduct of its business requires such
qualification.
(d) Each subsidiary of the Company has been duly incorporated
and is an existing corporation in good standing under the laws of the
jurisdiction of its incorporation, with power and authority (corporate
and other) to own its properties and conduct its business as described
in the Prospectus; and each subsidiary of the Company
3
<PAGE>
is duly qualified to do business as a foreign corporation in good
standing in all other jurisdictions in which its ownership or lease of
property or the conduct of its business requires such qualification,
except where the failure to so qualify would not have a Material
Adverse Effect; all of the issued and outstanding capital stock of
each subsidiary of the Company has been duly authorized and validly
issued and is fully paid and nonassessable; and the capital stock of
each subsidiary owned by the Company, directly or through
subsidiaries, is owned free from liens, encumbrances and defects.
(e) The Offered Securities and all other outstanding shares of
capital stock of the Company have been duly authorized; all
outstanding shares of capital stock of the Company are, and, when the
Offered Securities have been delivered and paid for in accordance with
this Agreement on each Closing Date (as defined below), such Offered
Securities will have been, validly issued, fully paid and
nonassessable and will conform to the description thereof contained in
the Prospectus; and the stockholders of the Company have no preemptive
rights with respect to the Securities.
(f) On or prior to the Closing Date (as defined below), Virata
Limited., a company organized under the laws of the United Kingdom and
its subsidiaries Virata Santa Clara Corporation, a Delaware
Corporation, and Virata Raleigh Corporation, a Delaware corporation,
will have been reorganized into subsidiaries of a newly-formed United
States holding company, Virata, Corporation., a Delaware corporation
(the "Reorganization").
(g) There are no contracts, agreements or understandings between
the Company and any person granting such person the right to require
the Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the
securities registered pursuant to a Registration Statement or in any
securities being registered pursuant to any other registration
statement filed by the Company under the Act other than those rights
that have either been waived or satisfied.
(h) The Offered Securities have been approved for listing on the
Nasdaq Stock Market's National Market subject to notice of issuance.
(i) No consent, approval, authorization, or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance and sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and
such as may be required under state securities laws, and such as have
been made in connection with the Reorganization.
(j) The execution, delivery and performance of this Agreement,
and the issuance and sale of the Offered Securities will not result in
a breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any rule, regulation or order
of any governmental agency or body or any court, domestic or foreign,
having jurisdiction over the Company or any subsidiary of the Company
or any of their properties or the charter or by-laws of the Company or
any such subsidiary, and the Company has full power and authority to
authorize, issue and sell the Offered Securities as contemplated by
this Agreement.
4
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(k) The execution, delivery and performance of this Agreement,
and the issuance and sale of the Offered Securities will not result in
a breach or violation of any of the terms of, or constitute a default
under any agreement or instrument to which the Company or any
subsidiary is a party or by which the Company or any such subsidiary
is bound or to which any of the properties of the Company or any such
subsidiary is subject which would have a Material Adverse Effect.
(l) This Agreement has been duly authorized, executed and
delivered by the Company.
(m) Except as disclosed in the Prospectus, the Company and its
subsidiaries have good and marketable title to all real properties and
all other properties and assets owned by them, in each case free from
liens, encumbrances and defects that would materially affect the value
thereof or materially interfere with the use made or to be made
thereof by them; and except as disclosed in the Prospectus, the
Company and its subsidiaries hold any leased real or personal property
under valid and enforceable leases with no exceptions that would
materially interfere with the use made or to be made thereof by them.
(n) The Company and its subsidiaries possess adequate
certificates, authorities or permits issued by appropriate
governmental agencies or bodies necessary to conduct the business now
operated by them and have not received any notice of proceedings
relating to the revocation or modification of any such certificate,
authority or permit that, if determined adversely to the Company or
any of its subsidiaries, would individually or in the aggregate have a
material adverse effect on the condition (financial or other),
business, properties or results of operations of the Company and its
subsidiaries taken as a whole ("Material Adverse Effect").
(o) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent
that might have a Material Adverse Effect.
(p) The Company and its subsidiaries own, possess or can acquire
on reasonable terms, adequate trademarks, trade names and other rights
to inventions, know-how, patents, copyrights, confidential information
and other intellectual property (collectively, "intellectual property
rights") necessary to conduct the business now operated by them, or
presently employed by them, and have not received any notice of
infringement of or conflict with asserted rights of others with
respect to any intellectual property rights that, if determined
adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a Material Adverse Effect.
(q) Except as disclosed in the Prospectus, neither the Company
nor any of its subsidiaries is in violation of any statute, any rule,
regulation, decision or order of any governmental agency or body or
any court, domestic or foreign, relating to the use, disposal or
release of hazardous or toxic substances or relating to the protection
or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, "environmental laws"), owns or
operates any real property contaminated with any substance that is
subject to any environmental laws, is liable for any off-site disposal
or contamination pursuant to any environmental laws, or is subject to
any claim relating to any environmental laws, which violation,
contamination, liability or claim
5
<PAGE>
would individually or in the aggregate have a Material Adverse Effect;
and the Company is not aware of any pending investigation which might
lead to such a claim.
(r) Except as disclosed in the Prospectus, there are no pending
actions, suits or proceedings against or affecting the Company, any of
its subsidiaries or any of their respective properties that, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a Material Adverse Effect, or
would materially and adversely affect the ability of the Company to
perform its obligations under this Agreement, or which are otherwise
material in the context of the sale of the Offered Securities; and no
such actions, suits or proceedings are threatened or, to the Company's
knowledge, contemplated.
(s) The financial statements included in each Registration
Statement and the Prospectus present fairly the financial position of
the Company and its consolidated subsidiaries as of the dates shown
and their results of operations and cash flows for the periods shown,
and such financial statements have been prepared in conformity with
the generally accepted accounting principles in the United States
applied on a consistent basis.
(t) Except as disclosed in the Prospectus, since the date of the
latest audited financial statements included in the Prospectus there
has been no material adverse change, nor any development or event
involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of
the Company and its subsidiaries taken as a whole, and, except as
disclosed in or contemplated by the Prospectus, there has been no
dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(u) The Company is not and, after giving effect to the offering
and sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as defined in the Investment Company Act of 1940.
(v) Furthermore, the Company represents and warrants to the
Underwriters that (i) the Registration Statement, the Prospectus and
any preliminary prospectus comply, and any further amendments or
supplements thereto will comply, with any applicable laws or
regulations of foreign jurisdictions in which the Prospectus or any
preliminary prospectus, as amended or supplemented, if applicable, are
distributed in connection with the Directed Share Program, and that
(ii) no authorization, approval, consent, license, order, registration
or qualification of or with any government, governmental
instrumentality or court, other than such as have been obtained, is
necessary under the securities law and regulations of foreign
jurisdictions in which the Directed Shares are offered outside the
United States.
(w) The Company has not offered, or caused the Underwriters to
offer, any offered Securities to any person pursuant to the Directed
Share Program with the specific intent to unlawfully influence (i) a
customer or supplier of the Company to alter the customer's or
supplier's level or type of business with the Company or (ii) a trade
journalist or publication to write or publish favorable information
about the Company or its products.
6
<PAGE>
3. Purchase, Sale and Delivery of Offered Securities. On the basis
of the representations, warranties and agreements herein contained, but subject
to the terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $__________ per share, the respective
numbers of shares of Firm Securities set forth opposite the names of the
Underwriters in Schedule A hereto.
----------
The Company will deliver the Firm Securities to the Representatives
for the accounts of the Underwriters, against payment of the purchase price in
Federal (same day) funds by official bank check or checks or wire transfer to an
account at a bank acceptable to CSFBC drawn to the order of _________________ at
the office of _____________________, at ____ A.M., New York time, on
___________, 1999, or at such other time not later than seven full business days
thereafter as CSFBC and the Company determine, such time being herein referred
to as the "First Closing Date". For purposes of Rule 15c6-1 under the Securities
Exchange Act of 1934, the First Closing Date (if later than the otherwise
applicable settlement date) shall be the settlement date for payment of funds
and delivery of securities for all the Offered Securities sold pursuant to the
offering. The certificates for the Firm Securities so to be delivered will be in
definitive form, in such denominations and registered in such names as CSFBC
requests and will be made available for checking and packaging at the office of
___________________ at least 24 hours prior to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company from
time to time not more than 30 days subsequent to the date of the Prospectus, the
Underwriters may purchase all or less than all of the Optional Securities at the
purchase price per Security to be paid for the Firm Securities. The Company
agrees to sell to the Underwriters the number of shares of Optional Securities
specified in such notice and the Underwriters agree, severally and not jointly,
to purchase such Optional Securities. Such Optional Securities shall be
purchased for the account of each Underwriter in the same proportion as the
number of shares of Firm Securities set forth opposite such Underwriter's name
bears to the total number of shares of Firm Securities (subject to adjustment by
CSFBC to eliminate fractions) and may be purchased by the Underwriters only for
the purpose of covering over-allotments made in connection with the offer and
sale of the Firm Securities. No Optional Securities shall be sold or delivered
unless the Firm Securities previously have been, or simultaneously are, sold and
delivered. The right to purchase the Optional Securities or any portion thereof
may be exercised from time to time and to the extent not previously exercised
may be surrendered and terminated at any time upon notice by CSFBC to the
Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CSFBC
but shall be not later than five full business days nor less than two full
business days after written notice of election to purchase Optional Securities
is given. The Company will deliver the Optional Securities being purchased on
each Optional Closing Date to the Representatives for the accounts of the
several Underwriters, against payment of the purchase price therefor in Federal
(same day) funds by official bank check or checks or wire transfer to an account
at a bank acceptable to CSFBC drawn to the order of ________________, at the
office of ______________. The certificates for the Optional Securities being
purchased on each Optional Closing Date will be in definitive form, in such
denominations and registered in such names as CSFBC requests upon reasonable
notice prior to such Optional Closing Date and will be made available for
checking and packaging at the office ______________________ at a reasonable time
in advance of such Optional Closing Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
7
<PAGE>
5. Certain Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) If the Effective Time of the Initial Registration Statement
is prior to the execution and delivery of this Agreement, the Company
will file the Prospectus with the Commission pursuant to and in
accordance with subparagraph (1) (or, if applicable and if consented
to by CSFBC, subparagraph (4)) of Rule 424(b) not later than the
earlier of (A) the second business day following the execution and
delivery of this Agreement or (B) the fifteenth business day after the
Effective Date of the Initial Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement and
an additional registration statement is necessary to register a
portion of the Offered Securities under the Act but the Effective Time
thereof has not occurred as of such execution and delivery, the
Company will file the additional registration statement or, if filed,
will file a post-effective amendment thereto with the Commission
pursuant to and in accordance with Rule 462(b) on or prior to 10:00
P.M., New York time, on the date of this Agreement or, if earlier, on
or prior to the time the Prospectus is printed and distributed to any
Underwriter, or will make such filing at such later date as shall have
been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to
amend or supplement the initial or any additional registration
statement as filed or the related prospectus or the Initial
Registration Statement, the Additional Registration Statement (if any)
or the Prospectus and will not effect such amendment or
supplementation without CSFBC's consent; and the Company will also
advise CSFBC promptly of the effectiveness of each Registration
Statement (if its Effective Time is subsequent to the execution and
delivery of this Agreement) and of any amendment or supplementation of
a Registration Statement or the Prospectus and of the institution by
the Commission of any stop order proceedings in respect of a
Registration Statement and will use its best efforts to prevent the
issuance of any such stop order and to obtain as soon as possible its
lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection
with sales by any Underwriter or dealer, any event occurs as a result
of which the Prospectus as then amended or supplemented would include
an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time to amend the Prospectus to comply with the Act,
the Company will promptly notify CSFBC of such event and will promptly
prepare and file with the Commission, at its own expense, an amendment
or supplement which will correct such statement or omission or an
amendment which will effect such compliance. Neither CSFBC's consent
to, nor the Underwriters' delivery of, any such amendment or
supplement shall constitute a waiver of any of the conditions set
forth in Section 6.
(d) As soon as practicable, but not later than the Availability
Date (as defined below), the Company will make generally available to
its securityholders an earnings statement covering a period of at
least 12 months beginning after the Effective
8
<PAGE>
Date of the Initial Registration Statement (or, if later, the
Effective Date of the Additional Registration Statement) which will
satisfy the provisions of Section 11(a) of the Act including Rule 158
adopted thereunder. For the purpose of the preceding sentence,
"Availability Date" means the 45th day after the end of the fourth
fiscal quarter following the fiscal quarter that includes such
Effective Date, except that, if such fourth fiscal quarter is the last
quarter of the Company's fiscal year, "Availability Date" means the
90th day after the end of such fourth fiscal quarter.
(e) The Company will furnish to the Representatives copies of
each Registration Statement (four (4) of which will be signed and will
include all exhibits), each related preliminary prospectus, and, so
long as a prospectus relating to the Offered Securities is required to
be delivered under the Act in connection with sales by any Underwriter
or dealer, the Prospectus and all amendments and supplements to such
documents, in each case in such quantities as CSFBC requests. The
Prospectus shall be so furnished on or prior to 3:00 P.M., New York
time, on the business day following the later of the execution and
delivery of this Agreement or the Effective Time of the Initial
Registration Statement. All other documents shall be so furnished as
soon as available. The Company will pay the expenses of printing and
distributing to the Underwriters all such documents.
(f) The Company will arrange for the qualification of the
Offered Securities for sale under the laws of such jurisdictions as
CSFBC designates and will continue such qualifications in effect so
long as required for the distribution.
(g) During the period of five (5) years hereafter, the Company
will furnish to the Representatives and, upon request, to each of the
other Underwriters, as soon as practicable after the end of each
fiscal year, a copy of its annual report to stockholders for such
year; and the Company will furnish to the Representatives (i) as soon
as available, a copy of each report and any definitive proxy statement
of the Company filed with the Commission under the Securities Exchange
Act of 1934 or mailed to stockholders, and (ii) from time to time,
such other information concerning the Company as CSFBC may reasonably
request.
(h) The Company will pay all expenses incident to the
performance of its obligations under this Agreement, for any filing
fees and other expenses (including fees and disbursements of counsel)
incurred in connection with qualification of the Offered Securities
for sale under the laws of such jurisdictions as CSFBC designates and
the printing of memoranda relating thereto, for the filing fee
incident to, and the reasonable fees and disbursements of counsel to
the Underwriters in connection with, the review by the National
Association of Securities Dealers, Inc. of the Offered Securities],
for any travel expenses of the Company's officers and employees and
any other expenses of the Company in connection with attending or
hosting meetings with prospective purchasers of the Offered Securities
and for expenses incurred in distributing preliminary prospectuses and
the Prospectus (including any amendments and supplements thereto) to
the Underwriters.
(i) For a period of 180 days after the date of the initial
public offering of the Offered Securities, the Company will not offer,
sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Commission a registration statement under
the Act relating to, any additional shares of its Securities or
securities
9
<PAGE>
convertible into or exchangeable or exercisable for any shares of its
Securities, or publicly disclose the intention to make any such offer,
sale, pledge, disposition or filing, without the prior written consent
of CSFBC, except issuances of Securities pursuant to the conversion or
exchange of convertible or exchangeable securities or the exercise of
warrants or options, in each case outstanding on the date hereof,
grants of employee stock options pursuant to the terms of a plan in
effect on the date hereof, and issuances of Securities pursuant to the
exercise of such options.
(j) In connection with the Directed Share Program, the Company
will ensure that the Directed Shares will be restricted to the extent
required by the National Association of Securities Dealers, Inc. (the
"NASD") or the NASD rules from sale, transfer, assignment, pledge or
hypothecation for a period of three months following the date of the
effectiveness of the Registration Statement. The Designated
Underwriter will notify the Company as to which Participants will need
to be so restricted. The Company will direct the transfer agent to
place stop transfer restrictions upon such securities for such period
of time.
(k) The Company will pay all fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Shares
Program and stamp duties, similar taxes or duties or other taxes, if
any, incurred by the underwriters in connection with the Directed
Share Program.
Furthermore, the company covenants with the Underwriters that the
company will comply with all applicable securities and other
applicable laws, rules and regulations in each foreign jurisdiction in
which the Directed Shares are offered in connection with the Directed
Share Program.
6. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Firm
Securities on the First Closing Date and the Optional Securities to be purchased
on each Optional Closing Date will be subject to the accuracy of the
representations and warranties on the part of the Company herein, to the
accuracy of the statements of Company officers made pursuant to the provisions
hereof, to the performance by the Company of its obligations hereunder and to
the following additional conditions precedent:
(a) The Representatives shall have received a letter, dated the
date of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if
the Effective Time of the Initial Registration Statement is subsequent
to the execution and delivery of this Agreement, shall be prior to the
filing of the amendment or post-effective amendment to the
registration statement to be filed shortly prior to such Effective
Time), of PriceWaterhouseCoopers LLP confirming that they are
independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating to
the effect that:
(i) in their opinion the financial statements, summary of
earnings and schedules examined by them and included or
incorporated by reference in the Registration Statements comply
as to form in all material respects with the applicable
accounting requirements of the Act and the related published
Rules and Regulations;
10
<PAGE>
(ii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review
of interim financial information as described in Statement of
Auditing Standards No. 71, Interim Financial Information, on the
unaudited financial statements included in the Registration
Statements;
(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial
statements of the Company, inquiries of officials of the Company
who have responsibility for financial and accounting matters and
other specified procedures, nothing came to their attention that
caused them to believe that:
(A) the unaudited financial statements included in
the Registration Statements do not comply as to form in all
material respects with the applicable accounting
requirements of the Act and the related published Rules and
Regulations or any material modifications should be made to
such unaudited financial statements for them to be in
conformity with generally accepted accounting principles;
(B) at the date of the latest available balance
sheet read by such accountants, or at a subsequent specified
date not more than three business days prior to the date of
such letter, there was any change in the capital stock or
any increase in short-term indebtedness or long-term debt of
the Company and its consolidated subsidiaries or, at the
date of the latest available balance sheet read by such
accountants, there was any decrease in consolidated net
current assets or net assets, as compared with amounts shown
on the latest balance sheet included in the Prospectus; or
(C) for the period from the closing date of the
latest income statement included in the Prospectus to the
closing date of the latest available income statement read
by such accountants there were any decreases, as compared
with the corresponding period of the previous year and with
the period of corresponding length ended the date of the
latest income statement included in the Prospectus, in net
operating income, in the total or per share amounts of
consolidated net income
except in all cases set forth in clauses (A), (B) and (C) above
for changes, increases or decreases which the Prospectus
discloses have occurred or may occur or which are described in
such letter; and
(iv) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial
information contained in the Registration Statements (in each
case to the extent that such dollar amounts, percentages and
other financial information are derived from the general
accounting records of the Company and its subsidiaries subject to
the internal controls of the Company's accounting system or are
derived directly from such records by analysis or computation)
with the results obtained from inquiries, a reading of such
general accounting records or other procedures specified in such
letter and have found such dollar amounts,
11
<PAGE>
percentages and other financial information to be in agreement
with such results, except as otherwise specified in such letter.
For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, "Registration Statements" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective amendment
to be filed shortly prior to its Effective Time, (ii) if the Effective Time of
the Initial Registration Statement is prior to the execution and delivery of
this Agreement but the Effective Time of the Additional Registration is
subsequent to such execution and delivery, "Registration Statements" shall mean
the Initial Registration Statement and the additional registration statement as
proposed to be filed or as proposed to be amended by the post-effective
amendment to be filed shortly prior to its Effective Time, and (iii)
"Prospectus" shall mean the prospectus included in the Registration Statements.
(b) If the Effective Time of the Initial Registration Statement
is not prior to the execution and delivery of this Agreement, such
Effective Time shall have occurred not later than 10:00 P.M., New York
time, on the date of this Agreement or such later date as shall have
been consented to by CSFBC. If the Effective Time of the Additional
Registration Statement (if any) is not prior to the execution and
delivery of this Agreement, such Effective Time shall have occurred
not later than 10:00 P.M., New York time, on the date of this
Agreement or, if earlier, the time the Prospectus is printed and
distributed to any Underwriter, or shall have occurred at such later
date as shall have been consented to by CSFBC. If the Effective Time
of the Initial Registration Statement is prior to the execution and
delivery of this Agreement, the Prospectus shall have been filed with
the Commission in accordance with the Rules and Regulations and
Section 5(a) of this Agreement. Prior to such Closing Date, no stop
order suspending the effectiveness of a Registration Statement shall
have been issued and no proceedings for that purpose shall have been
instituted or, to the knowledge of the Company or the Representatives,
shall be contemplated by the Commission.
(c) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred (i) any change, or any development or
event involving a prospective change, in the condition (financial or
other), business, properties or results of operations of the Company
and its subsidiaries taken as one enterprise which, in the judgment of
a majority in interest of the Underwriters including the
Representatives, is material and adverse and makes it impractical or
inadvisable to proceed with completion of the public offering or the
sale of and payment for the Offered Securities; (ii) any material
suspension or material limitation of trading in securities generally
on the New York Stock Exchange, or any setting of minimum prices for
trading on such exchange, or any suspension of trading of any
securities of the Company on any exchange or in the over-the-counter
market; (iii) any banking moratorium declared by U.S. Federal or New
York authorities; or (iv) any outbreak or escalation of major
hostilities in which the United States is involved, any declaration of
war by Congress or any other substantial national or international
calamity or emergency if, in the judgment of a majority in interest of
the Underwriters including the Representatives, the effect of any such
outbreak, escalation, declaration, calamity or emergency makes it
impractical or inadvisable to proceed with completion of the public
offering or the sale of and payment for the Offered Securities.
(d) The Representatives shall have received an opinion, dated
such Closing Date, of Gibson, Dunn & Crutcher LLP, counsel for the
Company, to the effect that:
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(i) The Company has been duly incorporated and is an
existing corporation in good standing under the laws of the State
of Delaware, with corporate power and authority to own its
properties and conduct its business as described in the
Prospectus; and the Company is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions
in which its ownership or lease of property or the conduct of its
business requires such qualification;
(ii) The offer and sale of the Series E Preference Shares
to certain qualified institutional buyers pursuant to the terms
of a Stock Purchase Agreement dated as of September [ ], 1999,
are exempt from the registration requirements of Section 5 of the
Act, by virtue of Section 4(2) thereof and [from the
qualification requirements of the California Corporate Securities
Law of 1968, as amended, by virtue of Section 25102(f) thereof
and from the registration requirements of the applicable
securities laws of the states of ________, _______ and _______]
[insert states or countries where the sales will occur], and the
applicable securities laws of the United Kingdom;
(iii) The Offered Securities delivered on such Closing
Date and all other outstanding shares of the Common Stock of the
Company have been duly authorized and validly issued, are fully
paid and nonassessable and conform to the description thereof
contained in the Prospectus; and the stockholders of the Company
have no preemptive rights with respect to the Securities;
(iv) Virata Raleigh Corporation and Virata Santa Clara
Corporation have each been duly incorporated and are validly
existing as corporations in good standing under the laws of the
jurisdiction in which each is chartered or organized, with full
corporate power and authority to own or lease, as the case may
be, and to operate their respective properties and conduct their
respective businesses as described in the Prospectus, and are
duly qualified to do business as foreign corporations and are in
good standing under the laws of each jurisdiction which requires
such qualification;
(v) All the outstanding shares of capital stock of
Virata Raleigh Corporation and Virata Santa Clara Corporation
have been duly and validly authorized and issued and are fully
paid and nonassessable, and, except as otherwise set forth in the
Prospectus, all outstanding shares of capital stock of Virata
Raleigh Corporation and Virata Santa Clara Corporation are owned
by the Company either directly or through wholly owned
subsidiaries free and clear of any perfected security interest
and, to the knowledge of such counsel, after due inquiry, any
other security interest, claim, lien or encumbrance;
(vi) There are no contracts, agreements or understandings
known to such counsel between the Company and any person granting
such person the right to require the Company to file a
registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person or
to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or
in any securities being registered pursuant to any other
registration statement filed by the Company
13
<PAGE>
under the Act other than those rights that have been waived or
satisfied;
(vii) The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the application
of the proceeds thereof as described in the Prospectus, will not
be an "investment company" as defined in the Investment Company
Act of 1940.
(viii) No consent, approval, authorization or order of, or
filing with, any governmental agency or body or any court is
required for the consummation of the transactions contemplated by
this Agreement in connection with the issuance or sale of the
Offered Securities by the Company, except such as have been
obtained and made under the Act and such as may be required under
state securities laws and such as have been made and obtained in
connection with the Reorganization;
(ix) The execution, delivery and performance of this
Agreement and the issuance and sale of the Offered Securities
will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any statute, any
rule, regulation or order of any governmental agency or body or
any court having jurisdiction over the Company or any subsidiary
of the Company or any of their properties, or any agreement or
instrument to which the Company or any such subsidiary is a party
or by which the Company or any such subsidiary is bound or to
which any of the properties of the Company or any such subsidiary
is subject known to such counsel and which would result in a
Material Adverse Effect, or the charter or by-laws of the Company
or any such subsidiary, and the Company has full power and
authority to authorize, issue and sell the Offered Securities as
contemplated by this Agreement;
(x) The Initial Registration Statement was declared
effective under the Act as of the date and time specified in such
opinion, the Additional Registration Statement (if any) was filed
and became effective under the Act as of the date and time (if
determinable) specified in such opinion, the Prospectus either
was filed with the Commission pursuant to the subparagraph of
Rule 424(b) specified in such opinion on the date specified
therein or was included in the Initial Registration Statement or
the Additional Registration Statement (as the case may be), and,
to the best of the knowledge of such counsel, no stop order
suspending the effectiveness of a Registration Statement or any
part thereof has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated under the
Act, and each Registration Statement and the Prospectus, and each
amendment or supplement thereto, as of their respective effective
or issue dates, complied as to form in all material respects with
the requirements of the Act and the Rules and Regulations; such
counsel have no reason to believe that any part of a Registration
Statement or any amendment thereto, as of its effective date or
as of such Closing Date, contained any untrue statement of a
material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any amendment or supplement
thereto, as of its issue date or as of such Closing Date,
contained any untrue statement of a material fact or omitted to
state any
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<PAGE>
material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading; the descriptions in the Registration Statements and
Prospectus of statutes, legal and governmental proceedings and
contracts and other documents are accurate and fairly present the
information required to be shown; and such counsel do not know of
any legal or governmental proceedings required to be described in
a Registration Statement or the Prospectus which are not
described as required or of any contracts or documents of a
character required to be described in a Registration Statement or
the Prospectus or to be filed as exhibits to a Registration
Statement which are not described and filed as required; it being
understood that such counsel need express no opinion or belief as
to the financial statements or other financial or statistical
data contained in the Registration Statements or the Prospectus;
(xi) This Agreement has been duly authorized, executed
and delivered by the Company, and
(xii) [The Reorganization was duly and properly
effectuated in accordance with the laws of the United Kingdom and
the State of Delaware.]
(e) The Representatives shall have received an opinion, dated
such Closing Date, of [Mathys & Squire or Pennie & Edmonds], patent
counsel for the Company, to the effect that:
(i) The Company is listed in the records of the United
States Patent and Trademark Office as the holder of record of the
patents listed on a schedule to such opinion (the "Patents") and
each of the applications listed on a schedule to such opinion
(the "Applications"). To the knowledge of such counsel, there are
no claims of third parties to any ownership interest or lien with
respect to any of the Patents or Applications. Such counsel is
not aware of any material defect in form in the preparation or
filing of the Applications on behalf of the Company. To the
knowledge of such counsel, the Applications are being pursued by
the Company. To the knowledge of such counsel, the Company owns
as its sole property the Patents and pending Applications;
(ii) The Company is listed in the records of the
appropriate foreign offices as the sole holder of record of the
foreign patents listed on a schedule to such opinion (the
"Foreign Patents") and each of the applications listed on a
schedule to such opinion (the "Foreign Applications"). Such
counsel knows of no claims of third parties to any ownership
interest or lien with respect to the Foreign Patents or Foreign
Applications. Such counsel is not aware of any material defect of
form in the preparation or filing of the Foreign Applications on
behalf of the Company. To the knowledge of such counsel, the
Foreign Applications are being pursued by the Company. To the
knowledge of such counsel, the Company owns as its sole property
the Foreign Patents and pending Foreign Applications;
(iii) Such counsel knows of no reason why the Patents or
Foreign Patents are not valid as issued. Such counsel has no
knowledge of any reason
15
<PAGE>
why any patent to be issued as a result of any Application or
Foreign Application would not be valid or would not afford the
Company useful patent protection with respect thereto;
(iv) As to the statements under the captions "Risk
Factors -- Our future success will depend in part on our ability
to protect our proprietary rights and the technologies used in
our principal products, and if we do not enforce and protect our
intellectual property or if others bring infringement claims
against us, our business would be harmed" and "Business --
Intellectual Property," nothing has come to the attention of such
counsel which caused them to believe that the above-mentioned
sections of the Registration Statement and any amendment or
supplement thereto made available and reviewed by such counsel,
at the time the Registration Statement became effective and at
all times subsequent thereto up to and on the Closing Date and on
any later date on which Option Stock are to be purchased,
contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances
under which they were made, not misleading; and
(v) Such counsel knows of no material action, suit,
claim or proceeding relating to patents, patent rights or
licenses, trademarks or trademark rights, copyrights,
collaborative research, licenses or royalty arrangements or
agreements or trade secrets, know-how or proprietary techniques,
including processes and substances, owned by or affecting the
business or operations of the Company which are pending or
threatened against the Company or any of its officers or
directors.
(f) The Representatives shall have received an opinion, dated
such Closing Date, of Olswang, counsel for Virata Limited, to the
effect that:
(i) Virata Limited has been duly incorporated and is
validly existing as a corporation in good standing under the laws
of the jurisdiction in which it is chartered or organized, with
full corporate power and authority to own or lease, as the case
may be, and to operate its properties and conduct its business as
described in the Prospectus, and has all necessary authorizations
in the United Kingdom to enable it to do business as a foreign
corporation in those jurisdictions in which it conducts business
and which are described in the Prospectus; and
(ii) all the outstanding shares of capital stock of
Virata Limited have been duly and validly authorized and issued
and are fully paid and nonassessable, and, except as otherwise
set forth in the Prospectus, all outstanding shares of capital
stock of Virata Limited are owned by the Company either directly
or through wholly owned subsidiaries free and clear of any
perfected security interest and, to the knowledge of such
counsel, after due inquiry, any other security interest, claim,
lien or encumbrance.
(g) The Representatives shall have received from Brobeck,
Phleger & Harrison LLP, counsel for the Underwriters, such opinion or
opinions, dated such Closing Date, with respect to the incorporation
of the Company, the validity of the
16
<PAGE>
Offered Securities delivered on such Closing Date, the Registration
Statements, the Prospectus and other related matters as the
Representatives may require, and the Company shall have furnished to
such counsel such documents as they request for the purpose of
enabling them to pass upon such matters.
(h) The Representatives shall have received a certificate, dated
such Closing Date, of the Chief Executive Officer, President or any
Vice President and a principal financial or accounting officer of the
Company in which such officers, to the best of their knowledge after
reasonable investigation, shall state that: the representations and
warranties of the Company in this Agreement are true and correct; the
Company has complied with all agreements and satisfied all conditions
on its part to be performed or satisfied hereunder at or prior to such
Closing Date; no stop order suspending the effectiveness of any
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are contemplated by the Commission;
the Additional Registration Statement (if any) satisfying the
requirements of subparagraphs (1) and (3) of Rule 462(b) was filed
pursuant to Rule 462(b), including payment of the applicable filing
fee in accordance with Rule 111(a) or (b) under the Act, prior to the
time the Prospectus was printed and distributed to any Underwriter;
and, subsequent to the date of the most recent financial statements in
the Prospectus, there has been no material adverse change, nor any
development or event involving a prospective material adverse change,
in the condition (financial or other), business, properties or results
of operations of the Company and its subsidiaries taken as a whole
except as set forth in or contemplated by the Prospectus or as
described in such certificate.
(i) The Representatives shall have received a letter, dated such
Closing Date, of PriceWaterhouseCoopers, LLP which meets the
requirements of subsection (a) of this Section, except that the
specified date referred to in such subsection will be a date not more
than three days prior to such Closing Date for the purposes of this
subsection.
The Company will furnish the Representatives with such conformed copies of such
opinions, certificates, letters and documents as the Representatives reasonably
requests. CSFBC may in its sole discretion waive on behalf of the Underwriters
compliance with any conditions to the obligations of the Underwriters hereunder,
whether in respect of an Optional Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company will
indemnify and hold harmless each Underwriter, its partners, directors and
officers and each person, if any, who controls such Underwriter within the
meaning of Section 15 of the Act, against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement in or omission or alleged
omission from any of such documents in reliance upon and in conformity with
written information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and agreed
that the only such information furnished by any Underwriter
17
<PAGE>
consists of the information described as such in subsection (b) below; and
provided, further, that with respect to any untrue statement or alleged untrue
statement in or omission or alleged omission from any preliminary prospectus the
indemnity agreement contained in this subsection (a) shall not inure to the
benefit of any Underwriter from whom the person asserting any such losses,
claims, damages or liabilities purchased the Offered Securities concerned, to
the extent that a prospectus relating to such Offered Securities was required to
be delivered by such Underwriter under the Act in connection with such purchase
and any such loss, claim, damage or liability of such Underwriter results from
the fact that there was not sent or given to such person, at or prior to the
written confirmation of the sale of such Offered Securities to such person, a
copy of the Prospectus if the Company had previously furnished copies thereof to
such Underwriter.
(a) The Company agrees to indemnify and hold harmless the
Designated Underwriter and each person, if any, who controls the
Designated Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act (the "Designated
Entities"), from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or
investigating any such action or claim) (i) caused by any untrue
statement or alleged untrue statement of a material fact contained in
any material prepared by or with the consent of the Company for
distribution to Participants in connection with the Directed Share
Program or caused by any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading; (ii) caused by the failure of any
Participant to pay for and accept delivery of Directed Shares that the
Participant agreed to purchase; or (iii) related to, arising out of,
or in connection with the Directed Share Program, other than losses,
claims, damages or liabilities (or expenses relating thereto) that are
finally judicially determined to have resulted from the bad faith or
gross negligence of the Designated Entities.
(b) Each Underwriter will severally and not jointly indemnify
and hold harmless the Company, its directors and officers and each
person, if any who controls the Company within the meaning of Section
15 of the Act, against any losses, claims, damages or liabilities to
which the Company may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any
Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are
based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon
and in conformity with written information furnished to the Company by
such Underwriter through the Representatives specifically for use
therein, and will reimburse any legal or other expenses reasonably
incurred by the Company in connection with investigating or defending
any such loss, claim, damage, liability or action as such expenses are
incurred, it being understood and agreed that the only such
information furnished by any Underwriter consists of the following
information in the Prospectus furnished on behalf of each Underwriter:
the concession and reallowance figures appearing in the paragraph
under the caption "Underwriting," and the fifth and the (eleventh)
paragraphs under the caption "Underwriting".
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<PAGE>
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under subsection (a) or (b) above, notify the
indemnifying party of the commencement thereof; but the omission so to
notify the indemnifying party will not relieve it from any liability
which it may have to any indemnified party otherwise than under
subsection (a) or (b) above. In case any such action is brought
against any indemnified party and it notifies the indemnifying party
of the commencement thereof, the indemnifying party will be entitled
to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party
(who shall not, except with the consent of the indemnified party, be
counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable
to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation.
Notwithstanding anything contained herein to the contrary, if
indemnity may be sought pursuant to the last paragraph in Section 7
(a) hereof in respect of such action or proceeding, then in addition
to such separate firm for the indemnified parties, the indemnifying
party shall be liable for the reasonable fees and expenses of not more
than one separate firm (in addition to any local counsel) for the
Designated Underwriter for the defense of any losses, claims, damages
and liabilities arising out of the Directed Share Program, and all
persons, if any, who control the Designated Underwriter within the
meaning of either Section 15 of the Act of Section 20 of the Exchange
Act. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or
threatened action in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder
by such indemnified party unless such settlement (i) includes an
unconditional release of such indemnified party from all liability on
any claims that are the subject matter of such action and (ii) does
not include a statement as to, or an admission of, fault, culpability
or a failure to act by or on behalf of an indemnified party.
(d) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party
under subsection (a) or (b) above, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as
a result of the losses, claims, damages or liabilities referred to in
subsection (a) or (b) above (i) in such proportion as is appropriate
to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other from the offering of the
Securities or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and
the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters. The relative
fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied
19
<PAGE>
by the Company or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The amount paid by an indemnified
party as a result of the losses, claims, damages or liabilities
referred to in the first sentence of this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending
any action or claim which is the subject of this subsection (d).
Notwithstanding the provisions of this subsection (d), no Underwriter
shall be required to contribute any amount in excess of the amount by
which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the
amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement
or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their
respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section shall be
in addition to any liability which the Company may otherwise have and
shall extend, upon the same terms and conditions, to each person, if
any, who controls any Underwriter within the meaning of the Act; and
the obligations of the Underwriters under this Section shall be in
addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions,
to each director of the Company, to each officer of the Company who
has signed a Registration Statement and to each person, if any, who
controls the Company within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters
default in their obligations to purchase Offered Securities hereunder on either
the First or any Optional Closing Date and the aggregate number of shares of
Offered Securities that such defaulting Underwriter or Underwriters agreed but
failed to purchase does not exceed 10% of the total number of shares that the
Underwriters are obligated to purchase on such Closing Date, CSFBC may make
arrangements satisfactory to the Company for the purchase of such Offered
Securities by other persons, including any of the Underwriters, but if no such
arrangements are made by such Closing Date, the non-defaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Offered Securities that such defaulting Underwriters
agreed but failed to purchase on such Closing Date. If any Underwriter or
Underwriters so default and the aggregate number of shares of Offered Securities
with respect to which such default or defaults occur exceeds 10% of the total
number of shares of Offered Securities that the Underwriters are obligated to
purchase on such Closing Date and arrangements satisfactory to CSFBC and the
Company for the purchase of such Offered Securities by other persons are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company, except
as provided in Section 9 (provided that if such default occurs with respect to
Optional Securities after the First Closing Date, this Agreement will not
terminate as to the Firm Securities or any Optional Securities purchased prior
to such termination). As used in this Agreement, the term "Underwriter" includes
any person substituted for an Underwriter under this Section. Nothing herein
will relieve a defaulting Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The
respective indemnities, agreements, representations, warranties and other
statements of the Company or its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation, or statement as to the results thereof,
made by or on behalf of
20
<PAGE>
any Underwriter, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If this Agreement is terminated pursuant
to Section 8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Company shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 5 and the respective
obligations of the Company and the Underwriters pursuant to Section 7 shall
remain in effect, and if any Offered Securities have been purchased hereunder
the representations and warranties in Section 2 and all obligations under
Section 5 shall also remain in effect; provided, however, nothing contained in
this Section 9 shall prohibit the Company from seeking damages against a
defaulting underwriter causing a termination pursuant to Section 8 hereof. If
the purchase of the Offered Securities by the Underwriters is not consummated
for any reason other than solely because of the termination of this Agreement
pursuant to Section 8 or the occurrence of any event specified in clause (iii),
(iv) or (v) of Section 6(c), the Company will reimburse the Underwriters for all
out-of-pocket expenses (including fees and disbursements of counsel) reasonably
incurred by them in connection with the offering of the Offered Securities.
10. Notices. All communications hereunder will be in writing and, if
sent to the Underwriters, will be mailed, delivered, sent by facsimile or
telegraphed and confirmed to the Representatives at c/o Credit Suisse First
Boston Corporation, Eleven Madison Avenue, New York, N.Y. 10010-3629, Attention:
Investment Banking Department--Transactions Advisory Group, or, if sent to the
Company, will be mailed, delivered, sent by facsimile and confirmed to it at
Virata, Inc., 2933 Bunker Hill Lane, Suite 201, Santa Clara, California 95054,
Attention: Andrew M. Vought; provided, however, that any notice to an
Underwriter pursuant to Section 7 will be mailed, delivered, sent by facsimile
or telegraphed and confirmed to such Underwriter.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 7, and no other
person will have any right or obligation hereunder.
12. Representation of Underwriters. The Representatives will act for
the several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC will be binding
upon all the Underwriters.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. Applicable Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, without regard
to principles of conflicts of laws.
The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
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<PAGE>
If the foregoing is in accordance with the Representatives' understanding of our
agreement, kindly sign and return to the Company one of the counterparts hereof,
whereupon it will become a binding agreement between the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
Virata, Inc.
By________________________________
Charles Cotton
Chief Executive Officer
The foregoing Underwriting Agreement is hereby
confirmed and accepted as of the date first above
written.
Credit Suisse First Boston Corporation
Warburg Dillon Read LLC
Thomas Weisel Partners LLC
Acting on behalf of themselves and as the
Representatives of the several
Underwriters
By Credit Suisse First Boston Corporation
By___________________________________
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EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
VIRATA CORPORATION
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 Eleven Thousand (11,000), Ten Thousand (10,000) 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 One Thousand (1,000) of which shall
be designated shares of Preferred Stock, par value of one-tenth of one cent
($0.001) per share (the "Preferred Stock").
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
<PAGE>
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
INCORPORATOR
The name and mailing address of the incorporator of the corporation is:
Jeanne Carnahan
c/o National Corporate Research, Ltd.
9 East Loockerman Street
Dover, Delaware 19901
ARTICLE VI
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 VII
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 VIII
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
2
<PAGE>
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 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 IX
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 X
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.
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THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose
of forming a corporation to do business both within and without the State of
Delaware, and in pursuance of the Delaware General Corporation Law, does make
and file this Certificate.
Dated: August 31, 1999
/s/ Jeanne Carnahan
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Jeanne Carnahan, Incorporator
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EXHIBIT 3.2
VIRATA CORPORATION
a Delaware corporation
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 President. 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 publication of any notice of a
meeting of the stockholders shall be required. Every notice of a
<PAGE>
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.
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(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 names of two or more persons,
whether fiduciaries, members of a partnership, joint tenants in
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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
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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
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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 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, 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
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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
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<PAGE>
elected for a term of two years and one-third of the directors shall be elected
for a term of one 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 President, the Chairman of the Board or a majority of the
authorized number of directors.
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Except as otherwise provided by law or by these Bylaws, notice of the time 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
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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 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.
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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.
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.
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4.12 Representation of Shares of Other Corporations. The chairman of the
----------------------------------------------
Board, the President, any Vice President, the Chief Financial Officer or any
other person authorized by the Board or the President or Vice President, 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 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 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.
10
<PAGE>
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 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 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
11
<PAGE>
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.
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.
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
12
<PAGE>
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.
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
13
<PAGE>
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.
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.
14
<PAGE>
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 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).
15
<PAGE>
EXHIBIT 10.1
May 27, 1998
Financiere et Industrielle Gaz et Eaux
3, rue Jaques Bingen
75017, Paris (France)
Attention: Stephane Boissel
Re: Virata Limited - Agreement with respect to Board of Directors and
other shareholder rights
Gentlemen:
In connection with the private placement offering ("Offering") of
Series D Preference Shares of Virata Limited, a corporation organized in the
United Kingdom (the "Company"), which are convertible into Ordinary Shares of
the Company ("Ordinary Shares"), and the purchase by Financiere et Industrielle
Gaz et Eaux, a company incorporated in France with its registered office as
described above ("Gaz et Eaux") of 7,348,111 Series D Preference Shares (the
"Gaz et Eaux Shares") in the Offering, representing 10.0% and 11.6% of both the
voting rights and the equity capital (fully diluted and outstanding,
respectively) of the Company, as shown on the attached exhibit set forth below
is our mutual understanding as to (i) the representation of Gaz et Eaux on the
Company's Board of Directors and (ii) certain other rights relating to the
capital of the Company it being understood that the basis of Gaz et Eaux's
decision to purchase the Gaz et Eaux Shares is that following such purchase, Gaz
et Eaux will hold more than 10% of the voting rights and equity capital of the
Company.
1. Board Representation. As long as Gaz et Eaux shall continue to
--------------------
hold 5% of the outstanding voting rights of the Company, on an as-converted
basis, each of the undersigned (including Gaz et Eaux) hereby agrees to (A) in
their capacities as shareholders of the Company, vote their respective shares in
favour of and approve, and (B) cause their respective representative on the
Company's Board of Directors to approve, the election and appointment of a
person nominated by Gaz et Eaux to the Company's Board of Directors.
2. If, from time to time during the term of this letter agreement
there is (i) a dividend in the form of any security, stock split or other change
in the character or amount of any of the outstanding securities of the Company;
or (ii) any consolidation or merger immediately following which shareholders of
the Company hold more than fifty percent (50%) of the voting equity securities
of the surviving corporation, then, in such event, any and all new, substituted
or additional securities or other property to which any of the Insiders are
entitled by reason of their ownership of the Insider Shares shall be immediately
subject to the provisions of this letter agreement and be included in the term
"Insider Shares" for all purposes of this letter agreement with the same force
and effect as the Insider Shares presently subjected to this letter agreement
and with respect to which such securities or property were distributed. In the
event that any of the Insiders are issued or otherwise acquire any Company
securities, then such securities shall be immediately subject to all the
provisions of this letter agreement and also be included in the term
<PAGE>
"Insider Shares" for all purposes of this letter agreement with the same force
and effect as the Insider Shares then subject to this letter agreement.
3. Co-Sale Rights. As long as Gaz et Eaux shall continue to hold 5%
--------------
of the outstanding voting rights of the Company, on an as-converted basis each
of the undersigned (including Gaz et Eaux) hereby agrees to the following terms:
(A) In the event one or more of the undersigned, including Gaz et Eaux
(each an "Insider"), propose to sell, assign, transfer or otherwise convey
shares representing fifty percent (50%) or more of the aggregate voting rights
exercisable at a general meeting of shareholders of the Company or 50% or more
of the share capital of the Company (the "Insider Shares"), in a single
transaction or a series of related transactions (collectively, a "Sale"), and
such 50% or more being determined after the other stockholders of the Company
have exercised their respective rights of first refusal in accordance with the
provisions of the Company's Articles of Association, then the Insiders proposing
such a Sale (each a "Selling Insider") shall offer in writing (the "Notice") to
the remaining Insiders (each a "Non-Selling Insider") the right to participate
in such Sale on the same terms and conditions available to such Selling
Insiders. The Notice shall describe in reasonable detail the proposed Sale,
including, without limitation, the number of Insider Shares to be sold or
transferred, the nature of such Sale, the consideration to be paid and the name
and address of each prospective purchaser or transferee.
(B) Upon written notice to the Selling Insiders within fifteen (15)
business days of receipt by Non-Selling Insiders of the Notice, each Non-Selling
Insider may elect to sell up to all the shares then held by it. To the extent a
Non-Selling Insider exercises such right of co-sale, the number of Insider
Shares that the Selling Insiders may sell in the Sale may be correspondingly
reduced.
(C) If a Non-Selling Insider elects to exercise its co-sale rights,
such Non-Selling Insider shall effect its participation in the Sale by promptly
delivering to the Selling Insiders one or more certificates, properly endorsed
for transfer, which represent the number of Insider Shares which such Non-
Selling Insider elects and has the right to sell. The stock certificate or
certificates delivered to the Selling Insiders pursuant to this paragraph (C)
shall be transferred to the prospective purchaser or transferee upon
consummation of the Sale pursuant to the teens and conditions specified in the
Notice, and the Selling Insiders shall, concurrently therewith, remit to each
Non-Selling Insider that portion of the Sale proceeds to which such Non-Selling
Insider is entitled by reason of its participation in such Sale. To the extent
that any prospective purchaser or transferee prohibits such assignment or
otherwise refuses to purchase stock or other securities from a Non-Selling
Insider exercising its right of co-sale hereunder, the Selling Insiders shall
not sell any Insider Shares to such prospective purchaser or transferee unless
and until, simultaneously with such Sale, the Selling Insiders purchase such
stock or other securities from such Non-Selling Insider.
(D) The exercise or non-exercise of the co-sale right of a Non-Selling
Insider hereunder to participate in any Sale of Insider Shares by the Selling
Insiders shall not adversely affect its right to participate in any subsequent
Sale pursuant to this letter agreement. If a Non-
<PAGE>
Selling Insider does not elect to participate in the Sale subject to the Notice,
the Selling Insiders may, not later than sixty (60) days after delivery of the
Notice to the Non-Selling Insiders, conclude a transfer of the Insider Shares
covered by the Notice on terms and conditions not more favourable to the Selling
Insiders than those described in the Notice. Any proposed Sale on terms and
conditions more favourable than those described in the Notice or more than sixty
(60) days after delivery thereof shall again be subject to the co-sale rights of
the Non-Selling Insiders contained in this letter agreement.
(E) Notwithstanding the above, such co-sale rights shall not apply to a
Sale or other conveyance of Insider Shares by the Selling Insiders which is:
(i) to a Selling Insider's spouse, parents, or children or other
members of the Selling Insider's family (including relatives by marriage),
or to a custodian, trustee or other fiduciary for the account of the
Selling Insider or members of his or her family in connection with a
bona fide estate planing transaction;
---------
(ii) by way of bequest or inheritance upon death;
(iii) to a subsidiary, parent or subsidiary of a parent of a Selling
Insider;
(iv) to one or more of the Insiders;
(v) by way of any pledge of Insider Shares made by the Selling
Insider pursuant to a bona fide loan transaction that creates a mere
---------
security interest;
provided, however, that any transferees pursuant to this paragraph (E)
-----------------
shall receive and hold such Insider Shares subject in all respects to the
provisions of this letter agreement, and that there shall be no further transfer
of such shares except in accordance herewith.
(F) In the event a Selling Insider sells or transfers any Insider Shares
in contravention of the co-sale rights of Non-Selling Insiders under this letter
agreement, such sale or transfer shall be null and void and each of the Insiders
agrees that the Company will not transfer on its books any certificate
representing shares sold or transferred in violation of this letter agreement.
4. Future Share Issues. Each of the undersigned (including Gaz et Eaux)
-------------------
agrees not to vote in favour of any resolution to disapply section 89 of the
Companies Act 1985, as amended, or such provision as may replace it or to
disapply or amend Article 5.1 of the Articles of Association of the Company or
such provision as may replace it (whether in a general meeting of shareholders
or a class meeting) ("Resolution") unless each of the undersigned is given an
opportunity by the Company to purchase (on terms which are no less favourable
than those offered to any other person and in any event in accordance with
sections 89 to 95 of the Companies Act 1985, as amended and with the said
Article 5) such number of the shares referred to in the Resolution as is
necessary to maintain their then percentage shareholding in the Company, or
their percentage voting rights exercisable at a general meeting of the Company,
PROVIDED THAT this letter agreement shall not apply in respect of any resolution
which is proposed in respect of any issue of shares:
<PAGE>
(i) to employees or future employees of the Company or any members
of its group; and
(ii) pursuant to any acquisition by the Company or any member of its
group whereby such shares are issued as consideration or part consideration
for such acquisition.
5. Participation in Future Conversions. Without prejudice to Clause
-----------------------------------
4 above, each of the undersigned shall not vote in favour of any resolution, or
take any action which it is otherwise able to take, which relates to the
conversion of any issued shares into a class of shares with rights, preferences
or privileges ranking in priority to those of the "D" preference shares without
giving Gaz et Eaux the opportunity (in accordance with the procedure set out in
Article 90 of the Companies Act 1985, as amended, mutatis mutandis) to convert
up to such number of the "D" preference shares then held by it into shares of
the class to be created as is equal to the number of shares to be so converted.
6. Amendment of The Articles of Association. Each of the undersigned
----------------------------------------
(including Gaz et Eaux) undertakes to vote in favour of a resolution (whether in
a general meeting of shareholders or a class meeting) to amend the Articles of
Association of the Company by the insertion of a new article 9.16 as follows:
"9.16 Notwithstanding any other provisions of these Articles a transfer of
any shares in the Company held by any "D" preferred shareholder may
be made to any other member in its Group without restriction as to
price or otherwise and any such transfer shall be registered by the
directors provided that the transferee remains a member of the
Group. For the avoidance of doubt, the benefit of this Article 9.16
shall apply to (i) distribution by holders of "D" preference shares
which are partnerships to their partners and (ii) distribution by
holders of "D" preference shares which are unit or investment trusts
to their trustees or beneficiaries. For the purposes of this Article
9.16 in respect of any member "Group" means any entity controlled
by, controlling or under common control with such member and
"control" means to own, directly or indirectly a majority of the
voting securities of such entity or such member."
and the undersigned shall undertake to table such a resolution at the next
general meeting of shareholders of the Company and Gaz et Eaux for such time as
it has a nominated representative on the Board of Directors shall cooperate in
that regard.
7 Termination. This letter agreement shall terminate and be of no
-----------
further force and effect immediately upon the earlier of (i) the closing of an
initial public offering of securities of the Company, or (ii) the closing of the
acquisition of all or substantially all the assets or stock of the Company or
the consolidation or merger of the Company with or into any corporation or
corporations, unless the shareholders of the Company immediately prior to such
transaction are holders of a majority of the voting securities of the surviving
or acquiring corporation immediately thereafter (disregarding, for purposes of
this calculation, equity securities which any
<PAGE>
shareholder of the Company owned immediately prior to such merger or
consolidation as a shareholder of another party to the transaction).
8. Governing Law. This letter agreement shall be governed in all
-------------
respects by the laws of England and Wales.
9. Shareholdings. Each of the undersigned, excluding Gaz et Eaux
-------------
confirm that they are currently the legal and beneficial owners of the numbers
and classes of shares in the capital of the Company set opposite their
respective names in the attached Schedule.
10. Further Adherence. In the event that any of the undersigned
-----------------
(including Gaz et Eaux) wish to transfer any of their shares in the Company such
transfer shall be subject to the condition that the transferee shall first have
entered into an agreement with other parties to this Agreement whereby it agrees
to be bound (on terms satisfactory to such other parties) by provisions
corresponding to the provisions of this Agreement binding upon the transferor
(and the transferor is at the same time released from such provisions) and in
the event of such agreement not being so signed the transferor shall remain
bound by the terms of this Agreement as though it remained the holder of the
shares in question.
11. Entire Agreement; Amendment. This letter agreement and the
---------------------------
documents referred to in it constitute the full and entire understanding and
agreement among the parties with regard to the subjects hereof. This letter
agreement, or any provision hereof, may be amended or waived only in writing
signed by each of the Insiders and the Company.
12. Notices, Etc. All notices and other communications required or
-------------
permitted hereunder shall be in writing and shall be mailed by recognized
overnight courier, by registered or certified mail, postage prepaid, return
receipt requested, or otherwise delivered by hand or by messenger, addressed (a)
if to any of the Insiders, to the Company, or at such other address as an
Insider have furnished to the Company in writing, (b) if to Gaz et Eaux, at 3,
rue Jaques Bingen, 75017, Paris (France), Attention: Stephane Boissel, or at
such address as Gaz et Eaux shall have furnished the Company in writing, or (c)
if to the Company, at Mount Pleasant House, 2 Mount Pleasant, Huntingdon Road,
Cambridge CB3 0BL United Kingdom, or at such other address as the Company shall
have furnished to each of the Insiders and Gaz et Eaux. If notice is provided
by mail or overnight courier, notice shall be deemed to be given upon actual
delivery.
13. Counterparts. This letter agreement may be executed in any
------------
number of counterparts, each of which shall be deemed an original, and all of
which together shall constitute one instrument.
14. Severability. In the event that any provision of this letter
------------
agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this letter agreement will continue in full
force and effect without said provision and the parties agree to replace such
provision with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business and other purposes of such provisions;
provided that no such severability will be effective against a party if it
materially and adversely changes the economic benefits of this letter agreement
to such party.
<PAGE>
SCHEDULE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Name of Shareholder Class of Shares Number of Shares Number of Shares Percentage of total Percentage of total
Held Outstanding Fully Diluted voting rights and voting rights and
equity capital equity capital fully
outstanding diluted
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Oracle Corporation Preference C & D 9,794,421 9,794,421 15.4% 13.3%
- -----------------------------------------------------------------------------------------------------------------------------------
Olivetti Telemedia Ordinary, 8,370,238 8,370,238 13.2% 11.4%
Investments B.V. Preference A and
Preference D
- -----------------------------------------------------------------------------------------------------------------------------------
Oak Investment Partners Preference D 7,945,331 7,945,331 11.8% 10.8%
- -----------------------------------------------------------------------------------------------------------------------------------
New Enterprise Preference D 5,582,979 5,582,979 8.6% 7.2%
Associates
- -----------------------------------------------------------------------------------------------------------------------------------
Providence Investment Ordinary, 1,589,152 1,589,152 2.5% 2.2%
Company Ltd. Preference A and
Preference D
- -----------------------------------------------------------------------------------------------------------------------------------
Prof. Andrew Hopper Ordinary and 1,540,000 1,540,000 2.4% 2.1%
Preference D
- -----------------------------------------------------------------------------------------------------------------------------------
Gaz et Eaux Preference D 7,348,111 7,348,111 11.6% 10.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Subtotal for all 42,170,232 42,170,232 62.9% 57.4%
signatories
- -----------------------------------------------------------------------------------------------------------------------------------
Others 22,890,197 31,310,879 37.1% 42.2%
- -----------------------------------------------------------------------------------------------------------------------------------
Total 65,060,429 73,481,111 100.0% 100.0%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
In WITNESS WHEREOF, each of the undersigned has caused this letter agreement to
be executed by its respective authorized representative as of the date first
written above.
Very truly yours,
Oracle Corporation
By: /s/
Name: David J. Roux
Title: Exec. Vice President
Olivetti Telemedia Investments B.V.
By: /s/
Name: Marco De Benedetti
Title: Director
Oak Investment Partners VI, LP & Oak VI Affiliate
Fund, LP
By: /s/
Name:
Title:
New Enterprise Associates
By: /s/
Name: Peter T. Morris
Title: General Partner
Providence Investment Company Ltd.
By: /s/
Name: G. W. Fisher
Title: Director
/s/
----------------------------
Prof. Andrew Hopper
The undersigned hereby agrees to be bound by
and accepts the agreement set forth above as of
the 29 day of May, 1998
Gaz Et Eaux
By: /s/
Name: Bruno Keller
Title: Directeur Financier
<PAGE>
EXHIBIT 10.2
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of June 1, 1998, by and among Virata Limited, a corporation organized in
the United Kingdom ("Virata"), Virata Acquisition Sub, Inc., a Delaware
corporation ("Acquisition Sub"), RSA Communications, Inc., a Delaware
corporation ("RSA Communications"), and Munther Qubain, an individual
("Stockholder").
W I T N E S S E T H
-------------------
WHEREAS, the Boards of Directors of Virata, Acquisition Sub and RSA
Communications and Stockholder deem it to be desirable and in the best interests
of such parties that RSA Communications merge with and into Acquisition Sub (the
"Merger") in accordance with the terms and conditions set forth in this
Agreement and the Delaware General Corporation Law (the "DGCL").
WHEREAS, the Board of Directors of Virata, Acquisition Sub and RSA
Communications and Stockholder have approved this Agreement and the transactions
contemplated hereby.
WHEREAS, the Merger is intended to qualify as a tax free reorganization
under Sections 368(a)(1)(A) and (a)(2)(D) of the Internal Revenue Code of 1986,
as amended (the "Code") and will be accounted for as a purchase.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing premises and of the
respective representations, warranties and covenants contained herein, the
parties hereto hereby agree as follows.
ARTICLE I
THE MERGER
1.1 Merger and Effect. Subject to the terms and conditions set forth in
this Agreement and the DGCL, at the Effective Time (as defined below), RSA
Communications shall merge with and into Acquisition Sub, the separate corporate
existence of RSA Communications shall cease and Acquisition Sub shall continue
its corporate existence under the laws of the State of Delaware as the surviving
corporation (the "Surviving Corporation") of the Merger. The Merger Shall have
the legal effect provided in Section 259(a) of the DGCL.
1.2 Effective Time. The Merger shall become effective at the time of the
filing (the "Effective Time") of the Certificate of Merger of RSA Communications
into Acquisition Sub (the "Certificate of Merger"), substantially in the form
attached hereto as Exhibit A, with the Delaware Secretary of State. Subject to
---------
the terms and conditions set forth in this Agreement, on
<PAGE>
the Closing Date (as defined below), RSA Communications and Acquisition Sub
shall execute and file the Certificate of Merger with the Delaware Secretary of
State.
1.3 Certificate of Incorporation and Bylaws. The Certificate of
Incorporation and Bylaws of Acquisition Sub prior to the Effective Time shall be
the Certificate of Incorporation and Bylaws of the Surviving Corporation
following the Effective Time until amended in accordance with the provisions
thereof and the DGCL. Acquisition Sub shall change its name to RSA
Communications, Inc. promptly following the Effective Time.
1.4 Directors and Officers. The directors of Acquisition Sub prior to the
Effective Time shall be the directors of the Surviving Corporation following the
Effective Time until their respective successors are duly elected by the
stockholders in accordance with the provisions of the Bylaws of the Surviving
Corporation and the DGCL. The officers of Acquisition Sub prior to the
Effective Time shall resign effective as of the Effective Time and Stockholder
shall become President, Andrew Vought shall become Secretary, and Carol Palmer
shall become Assistant Secretary until their respective successors are duly
elected in accordance with the provisions of the Bylaws of the Surviving
Corporation and the DGCL.
1.5 Consideration. Subject to the terms and conditions set forth in this
Agreement, at the Effective Time, by virtue of the Merger and without any
further action on the part of Stockholder or the employees of RSA Communications
(the "RSA Employees"):
(a) Conversion of RSA Shares into Cash and Virata Ordinary Shares.
All of the issued and outstanding shares (the "RSA Shares") of common stock (the
"RSA Common Stock") of RSA Communications shall be canceled and converted into
the right to receive: (i) $1,332,850 (of which, $250,000 shall be delivered to
the Escrow Agent for application pursuant to the Escrow Agreement); (ii)
1,540,000 ordinary shares (the "Virata Ordinary Shares") of Virata; and (iii)
606,500 Series D Preference Shares (the "Series D Shares") of Virata;
(b) Conversion of RSA Units into Cash and Virata Acquisition Options.
All of the outstanding phantom stock units (the "RSA Units") of RSA
Communications shall be canceled and converted into the right to receive: (i)
$2,000,000 (less all withholdings for taxes and other governmental charges, of
which, $250,000 of the balance shall be delivered to the Escrow Agent for
application pursuant to the Escrow Agreement); and (ii) options to purchase
1,992,944 Virata Ordinary Shares (the "Virata Acquisition Options") under
Acquisition Sub's 1998 Non-Qualified Stock Plan (the "Virata Plan") at an
exercise price of $0.25 per share, and on substantially the other terms and
conditions set forth in the form of Nonqualified Stock Option Agreement (the
"Virata Nonqualified Stock Option Agreement") attached hereto as Exhibit B-1;
-----------
such consideration shall be delivered to the holders of the RSA Units in respect
of, and pro rata in accordance with their ownership of, the RSA Units; and
(c) Escrow. Virata shall deliver the sum of $500,000, representing
$250,000 of the merger consideration payable to Stockholder and $250,000 from
the cash consideration for conversion of the RSA Units payable to the RSA Unit
holders (the "Escrow Account"), to Greater Bay Trust Company, as escrow agent
--------------------------
(the "Escrow Agent"), to be held in escrow in
2
<PAGE>
accordance with the terms of this Agreement and that certain Escrow Agreement to
be entered into among Virata, Acquisition Sub and Stockholder, individually and
as representative of the holders of the RSA Units (the "Escrow Agreement"),
substantially in the form attached hereto as Exhibit C.
---------
1.6 Procedure. The consideration payable to Stockholder and the holders
of the RSA Units pursuant to Section 1.5 above shall be paid upon surrender of
the certificates evidencing the RSA Shares. Neither Stockholder nor any holder
of the RSA Units shall be entitled to receive any fractional Virata Ordinary
Share or any option to acquire a fractional Virata Ordinary Share, as the case
may be, and, in lieu thereof, any fractional amount shall be paid in cash. All
consideration paid upon surrender of such certificates shall be deemed to have
been delivered in full satisfaction of all rights pertaining to the RSA Shares
and the RSA Units. If, after the Effective Time, certificates representing any
shares of capital stock of RSA Communications or any securities or rights
convertible into or related to the capital stock of RSA Communications are
presented for any reason, they will be canceled and null and void, and the
holder thereof shall not be entitled to any consideration in respect thereof.
Such shares of capital stock of RSA Communications, any phantom stock units of
RSA Communications or any securities or rights convertible into or related to
the capital stock of RSA Communications shall not be entitled to any
consideration other than as provided in this Agreement.
1.7 Virata Employment Options. Subject to the terms and conditions set
forth in this Agreement, simultaneously with the Merger, Virata shall grant to
Stockholder and to employees of RSA Communications selected by Virata after
consultation with Stockholder prior to the Closing, options to purchase an
aggregate of 1,220,000 Virata Ordinary Shares (the "Virata Employment Options")
under Virata Corp.'s 1998 Stock Incentive Plan (the "Virata Stock Incentive
Plan") at an exercise price of $0.70 per share, and on substantially the other
terms and conditions set forth in the form of Incentive Stock Option Agreement
(the "Virata Incentive Stock Option Agreement") attached hereto as Exhibit B-2.
-----------
In addition to the above, Virata shall grant to Stockholder and the holders of
RSA Units options to purchase an aggregate of 780,000 Virata Ordinary Shares (of
which, Stockholder shall receive options to purchase 390,000 Virata Ordinary
Shares, and the holders of the RSA Units shall receive options to purchase an
aggregate of 390,000 shares on a pro rata basis in proportion to the RSA Units
held by such holder) (the "Virata Additional Options") under the Virata Stock
Incentive Plan at an exercise price of $0.70 per share, and on substantially the
other terms and conditions set forth in the Virata Incentive Stock Option
Agreement, except that: (1) the vesting rate shall be 33% of the shares on the
first anniversary of the date of grant and one-thirty sixth (1/36) of the shares
each month thereafter until 100% vested and (2) such options shall become fully
vested upon the death, Permanent Disability, Constructive Discharge or
termination of the optionholder's employment by the Company for reasons other
than for Cause (as such terms are defined in the form of Employment Agreement
attached hereto as Exhibit E-1).
1.8 Repayment of PCSI Note. Subject to the terms and conditions set forth
in this Agreement, simultaneously with and as a condition concurrent to the
consummation of the Merger, Acquisition Sub shall pay the sum of $2,000,000 to
Pacific Communications Sciences, Inc. ("PCSI") by wire transfer of immediately
available funds in full satisfaction of the principal
3
<PAGE>
balance and all amounts owed by RSA Communications to PCSI under that certain
promissory note dated June 6, 1997 (the "PCSI Note").
1.9 Closing. The closing of the transactions contemplated hereby (the
"Closing") shall take place at the offices of Hunton & Williams, One Hannover
Square, Fayetteville Street Mall, Raleigh, North Carolina 27602, on June 30,
1998, or at such other place and on such other date as each of the parties
hereto may mutually agree (the "Closing Date").
1.10 Financial Statements. RSA Communications and Stockholder have
delivered the Financial Statements (as defined in Section 5.4) to Virata.
Virata shall have the Financial Statements audited by Coopers & Lybrand LLP (the
"Accountants") as promptly as possible following the execution and delivery of
this Agreement and prior to the Closing Date (the "Audited Financial
Statements"). The cost of the audit by the Accountants shall be borne by
Virata. Virata shall deliver the Audited Financial Statements to RSA
Communications and Stockholder promptly following such audit. The amounts
reflected in the Audited Financial Statements shall be conclusive and binding on
Virata, Acquisition Sub, RSA Communications and Stockholder. In the event that
either net revenue or net assets shown in the Audited Financial Statements are
less than the corresponding amounts shown in the Financial Statements by greater
than 5%, then Virata and Acquisition Sub shall have the right to terminate this
Agreement pursuant to Article X.
1.11 Amendment to RSA Units Agreement. Prior to or on the Closing Date,
each holder of RSA Units shall execute and deliver an amendment to the agreement
governing his or her RSA Units (the "RSA Unit Amendment"), substantially in the
form attached hereto as Exhibit D, pursuant to which such holder shall: (a)
---------
agree to the conversion of such holder's RSA Units into the right to receive the
consideration set forth in Section 1.5 above and (b) appoint Stockholder as such
holder's representative with respect to any claim for indemnification pursuant
to Article IX.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
RSA Communications and Stockholder, jointly and severally, represent and
warrant to Virata and Acquisition Sub as follows:
2.1 Organization and Existence. RSA Communications is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. RSA Communications has the requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted. RSA Communications is duly qualified or licensed to do business and
is in good standing in each jurisdiction in which the character or location of
the properties owned, leased or operated by RSA Communications or the nature of
the business conducted by RSA Communications makes such qualification or license
necessary, except where the failure to be so duly qualified or licensed would
not have a material adverse effect on the business, operations, financial
condition, results of operations or prospects of RSA Communications (a "Material
Adverse Effect"). Schedule 2.1 to this Agreement (a "Schedule" or the
------------
"Schedules") lists each jurisdiction in which RSA Communications is duly
4
<PAGE>
qualified or licensed to do business and the jurisdictions in which tangible
assets owned or used by RSA Communications are located.
2.2 Capital Stock, Etc.
(a) RSA Communications has an authorized capitalization and
outstanding shares as reflected in Schedule 2.2(a). All shares of RSA Common
---------------
Stock have been duly authorized and validly issued, are fully paid and
nonassessable, and were issued by RSA Communications in compliance with all
applicable securities laws, rules and regulations, the Certificate of
Incorporation, Bylaws or other governing documents or the terms of any
stockholders agreement to which RSA Communications is a party or by which any of
its stockholders is bound. The RSA Shares constitute all of the issued and
outstanding shares of RSA Common Stock.
(b) Except as set forth in Schedule 2.2(b), there are no outstanding
---------------
authorized, issued or effective subscriptions, options, warrants, rights, calls,
commitments, conversion rights, rights of exchange, plans, phantom stock units
or other agreements of any character providing for the purchase, issuance or
sale of, or otherwise related to, any issued or unissued shares of capital stock
of RSA Communications.
(c) There are no voting trusts, stockholder agreements, proxies
coupled with interests, pooling agreements or other forms of agreement
restricting or controlling the voting of shares in RSA Communications, and no
Person (as defined below), whether a stockholder of RSA Communications or
otherwise, has by contract or any method other than the voting of shares any
veto power or other control over the activities of RSA Communications.
2.3 Authorization and Validity of Agreements. RSA Communications and
Stockholder each have full power, legal capacity and authority to execute and
deliver this Agreement and the other agreements contemplated by this Agreement,
to perform their respective obligations hereunder and thereunder and to complete
the transactions contemplated by or referenced in this Agreement. All corporate
actions necessary on the part of RSA Communications and its directors and
stockholders for the execution and delivery of this Agreement and the other
agreements contemplated by this Agreement, and the performance by RSA
Communications of its obligations under this Agreement and the other agreements
contemplated by this Agreement, have been taken. This Agreement and each of the
other agreements contemplated by this Agreement have been or will be duly
executed and delivered by RSA Communications and Stockholder on or prior to the
Closing Date and, assuming due execution of this Agreement and the other
agreements contemplated by this Agreement by Virata and Acquisition Sub, each is
(or upon execution and delivery will be) a valid and binding obligation of RSA
Communications and Stockholder enforceable against them in accordance with their
respective terms, except to the extent that its enforceability may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles. No other actions or proceedings on the part of RSA
Communications or Stockholder are necessary to authorize this Agreement or the
other agreements contemplated by this Agreement.
5
<PAGE>
2.4 Subsidiaries and Investments. RSA Communications does not own,
directly or indirectly, any capital stock or other ownership or proprietary
interest in any corporation, company, partnership, limited liability company,
business, association, trust, joint venture or other entity and has no
obligation to make any investments in or loans to any Person.
2.5 Financial Statements.
(a) Except as set forth in Schedule 2.5, the Financial Statements (as
------------
defined in Section 5.4): (i) are correct and complete in all material respects
and have been prepared in accordance with the books and records of RSA
Communications; (ii) have been prepared in accordance with GAAP consistently
applied throughout the periods covered; (iii) reflect and provide adequate
reserves in respect of all known liabilities of RSA Communications, including
all known contingent liabilities, as of their respective dates, each in
conformity with GAAP; and (iv) present fairly the financial condition of RSA
Communications at such dates and the results of its operations for the fiscal
periods then ended.
(b) RSA Communications: (i) keeps books, records and accounts that,
in reasonable detail, accurately and fairly reflect in all material respects the
transactions and dispositions of assets of RSA Communications; and (ii)
maintains a system of internal accounting controls sufficient to provide
reasonable assurance that (A) transactions are executed in accordance with
management's general or specific authorization, (B) transactions are recorded as
necessary to permit preparation of financial statements in conformity with GAAP
and to maintain accountability for assets, (C) access to assets is permitted
only in accordance with management's general or specific authorizations and (D)
the recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. None of RSA Communications nor any employee or agent of RSA
Communications, directly or indirectly, has made any payment of funds of RSA
Communications or received or retained any funds in violation of any applicable
law, rule or regulation.
2.6 Accounts Receivable. The accounts receivable, book debts and other
debts owing to RSA Communications reflected in the Financial Statements and all
accounts receivable of RSA Communications arising since the dates of the
Financial Statements arose from bona fide transactions in the ordinary course of
business and are valid, enforceable and fully collectible accounts. Such
accounts receivable are not subject to any defense, set-off or counterclaim.
2.7 Absence of Liabilities. Except as set forth on Schedule 2.7, RSA
------------
Communications does not have, and as a result of the transactions contemplated
hereby will not have, any indebtedness, liabilities or obligations of any nature
(whether known or unknown, absolute, accrued, fixed, contingent, liquidated,
unliquidated or otherwise and whether or not required to be shown on a balance
sheet in accordance with GAAP), other than (i) the liabilities reflected on the
Financial Statements, (ii) incurred in the ordinary course of business
consistent with past practice since the dates of the Financial Statements and
(iii) Taxes (as defined below) which are to be prorated in accordance with the
terms of this Agreement.
6
<PAGE>
2.8 Books and Records. Except as set forth on Schedule 2.8, the minute
------------
books and other records of RSA Communications, as previously made available to
Virata and its representatives, contain accurate records of all resolutions,
written consents, meetings of, and actions taken by (including action taken by
written consent) the Board of Directors or other governing body of RSA
Communications and Stockholder. All such meetings were duly called and held,
all such corporate actions and written consents were duly taken or validly
given, and all such resolutions were duly passed. The stock certificate books,
register of stockholders, register of transfers, register of directors and
similar corporate records are complete, accurate and current in all material
respects. Concurrently with the consummation of the transactions contemplated
by this Agreement, all of the books and records of RSA Communications will be
delivered to Virata or its counsel.
2.9 No Material Changes. Except as set forth on Schedule 2.9, since the
------------
date of the Financial Statements, there has been no:
(a) material adverse change in the business, operations, financial
condition or results of operations of RSA Communications;
(b) material damage, destruction or loss to any asset or property,
tangible or intangible, of RSA Communications which materially adversely affects
the ability of RSA Communications to conduct its business;
(c) any sale, distribution, transfer or subjection to any lien or
encumbrance of any material assets of RSA Communications, except in the ordinary
and usual course of business;
(d) any increase in the salary or other direct or indirect
compensation or benefit payable or to become payable to any officer, director or
employee of RSA Communications, or the declaration, payment, commitment or
obligation of any kind for the payment of a bonus or other additional salary,
compensation or benefit, other than wage increases of non-officer employees in
accordance with past practices;
(e) declaration or payment of any dividends or other distributions to
stockholders in respect of RSA Common Stock or any redemption or repurchase of
RSA Common Stock, except as may have been agreed to in writing by Virata;
(f) any transaction by RSA Communications not in the ordinary and
usual course of business;
(g) any alteration in the manner in which RSA Communications keeps its
books, accounts or records or in the accounting practices therein reflected,
including the recognition and computation of revenues or expenses; or
(h) any capital expenditures or commitments for additions to property,
plant or equipment constituting capital assets outside the ordinary course of
business, consistent with past practice.
7
<PAGE>
2.10 Title to Properties; Encumbrances. RSA Communications does not own
any real property. Except as set forth on Schedule 2.10, and except for such
-------------
properties and assets which have been sold or otherwise disposed of in the
ordinary course of business, RSA Communications has good and marketable title to
its material properties and assets, including, without limitation, the material
properties and assets reflected in the Financial Statements, subject to no
Liens, except for (i) Liens reflected in the Financial Statements, (ii) Liens
for current taxes, assessments or governmental charges or levies on property not
yet due or delinquent, and (iii) Liens described on Schedule 2.10 (Liens of the
-------------
type described in clauses (i), (ii) and (iii) above are hereinafter sometimes
referred to as "Permitted Liens"). Except as set forth on Schedule 2.10, all
-------------
equipment and other tangible personal property leased or owned by RSA
Communications are used, usable by or useful to RSA Communications in the
ordinary course of business and are in good operating condition and in a state
of good maintenance and repair, normal wear and tear excepted, comparable for
items of their type, usage and age. Except as disclosed on Schedule 2.10, no
-------------
Person other than RSA Communications owns any tangible assets which are being
used in the ordinary course of RSA Communications' business. RSA Communications
owns all tangible and intangible assets which are materially necessary,
individually or in the aggregate, to operate its business.
2.11 Intellectual Property.
(a) Set forth on Schedule 2.11(a) is a list and description of all
----------------
patents, patent applications, trademarks, trademark applications, service marks,
service mark applications, trade names, tradename applications, copyrights,
copyright applications, computer software (other than "shrink-wrap licenses")
and other proprietary rights owned, licensed or used by RSA Communications. The
items listed on Schedule 2.11(a) and all research data, market reports,
----------------
distribution methods, industrial designs, processes, supplier lists, customer
lists, trade secrets and other proprietary rights that RSA Communications owns,
licenses or uses are referred to as "Intellectual Property."
(b) (i) Except for the computer software listed in Schedule 2.11(b), RSA
Communications owns all right, title and interest in all of the computer
software listed in Schedule 2.11(a) and has not created a restriction on any of
its rights in such software.
(ii) With respect to all computer software listed in Schedule 2.11(b),
RSA Communications has licenses or other valid and enforceable rights to use
such computer software, with only those contractual restrictions on its ability
to assign, license or sub-license such licenses, or other rights to use
contained in the license agreements listed in Schedule 2.11(b).
(iii) With respect to all other Intellectual Property, RSA Communications
either owns or has adequate licenses or other valid and enforceable rights to
use such Intellectual Property in the manner in which it is currently used.
(iv) RSA Communications has taken adequate steps to protect any
Intellectual Property that it owns. Except for the implementation of any
function relating to V.42, V.42bis, MNP Class 5, Improved Escape Sequence
("Heatherington Patent") technology or any Industry
8
<PAGE>
Standard Function into RSA Communications software products, neither the
operations of RSA Communications nor the ownership, license, or use of the
Intellectual Property by RSA Communications infringes upon or conflicts with the
proprietary rights of any other Person (as defined below) in respect of the
Intellectual Property or otherwise and there is no pending or, to the knowledge
of RSA Communications or Stockholder, threatened claim to that effect or basis
for such claim. To the knowledge of RSA Communications or Stockholder, no Person
is infringing upon or conflicting with the rights of RSA Communications with
respect to the Intellectual Property and there is no pending or threatened claim
by RSA Communications against any Person to such effect. "Industry Standard
Function" means any function the implementation of which, either actual or
announced, has occurred with respect to a majority of the commercial
communication products in the served markets.
(c) Set forth on Schedule 2.11(c) are lists of (i) any agreement or
----------------
arrangement pursuant to which RSA Communications licenses any Intellectual
Property to or shares any Intellectual Property with third parties and (ii) any
agreement or arrangement pursuant to which any third party licenses any
Intellectual Property to or shares any Intellectual Property with RSA
Communications (other than computer software identified on Schedule 2.11(b)).
RSA Communications, and to the knowledge of Stockholder and RSA Communications,
all third parties are in compliance in all material respects with the applicable
provisions of such agreements or arrangements.
(d) No information, records, systems or data required for the
administration or operation of RSA Communications' business are recorded on,
stored or maintained by any computerized system or program that is not
exclusively and beneficially owned by RSA Communications.
(e) No Person (as defined below) has, to the knowledge of RSA
Communications and Stockholder, asserted that RSA Communications' use of the
name "RSA Communications" infringes upon the rights of such Person.
2.12 Leases. Schedule 2.12 attached hereto contains a list of all leases
-------------
for real or personal property to which RSA Communications is a party. Except as
otherwise set forth in Schedule 2.12, each lease set forth in Schedule 2.12 is
------------- -------------
in full force and effect; all rents and additional rents due to date from RSA
Communications on each such lease have been paid; RSA Communications is not in
default under any such lease; and, except as set forth on Schedule 2.12, there
-------------
exists no event, occurrence, condition or act (including the consummation of the
transactions contemplated by this Agreement) which, with the giving of notice,
the lapse of time or the happening of any further event or condition, would
become a default by RSA Communications under such lease. To the knowledge of
RSA Communications or Stockholder, no other party to any of the leases is in
default thereunder. RSA Communications has not entered into any sublease or
assignment related to any of such leases.
2.13 Contracts. Except as set forth on Schedule 2.13 or any other
-------------
Schedule attached hereto, RSA Communications is not bound by any of the
following:
9
<PAGE>
(a) any agreement, license, contract or commitment that involves the
performance of services or the purchase or delivery of goods and/or materials or
services by it of an amount or value in excess of $25,000;
(b) any agreement, other than this Agreement and the agreements
contemplated hereby, not made in the ordinary course of business, for the sale
of goods or the performance of services for or by RSA Communications that is not
terminable upon notice of 30 days or less without cost or liability to RSA
Communications or any successor thereof;
(c) any agreement, indenture or other instrument which contains
restrictions with respect to payment of dividends or any other distribution in
respect of its shares;
(d) any agreement, contract or commitment relating to capital expenditures
outside the ordinary course of business, consistent with past practice;
(e) any loan or advance to, or investment in, any individual, partnership,
joint venture, corporation, limited liability company, trust, unincorporated
organization, government or other entity (each a "Person"), any agreement,
contract or commitment relating to the making of any such loan, advance or
investment or any agreement, contract or commitment involving a sharing of
profits;
(f) any agreement, guarantee or other contingent liability in respect of
any indebtedness or obligation of any Person;
(g) any consulting or employment agreement or contract for the employment
or retention of any officer, employee, consultant, independent contractor or
other Person on a full-time, part-time, project or consulting basis that is not
terminable upon notice of 30 days or less without cost or other liability to RSA
Communications or any successor thereof except for accrued vacation pay, in each
case not to exceed the value of vacation pay accrued in one year;
(h) any agreement, contract or commitment limiting the ability of RSA
Communications to engage in any line of business or to compete with any Person;
(i) any warranty, guaranty or other similar undertaking with respect to a
contractual performance extended by RSA Communications other than in the
ordinary course of business;
(j) any agreement pursuant to which RSA Communications has been appointed
or any Person has been appointed by RSA Communications as an agent, distributor,
licensee or franchisee;
(k) any bonus, pension, profit-sharing, retirement, stock purchase, stock
option, deferred compensation, incentive compensation, hospitalization,
insurance or similar plan, contract or understanding providing for employee
benefits (other than those expressly described in the Schedules hereto);
10
<PAGE>
(l) any contract for the purchase or sale of real property or capital or
fixed assets that involves obligations of more than $10,000 in the aggregate
during any fiscal year;
(m) any insurance contract naming RSA Communications as loss payee that is
not listed in the Schedules hereto;
(n) any agreement, mortgage, indenture, loan or credit agreement, security
agreement or other agreement or instrument relating to the borrowing or lending
of money or extension of credit or providing for the mortgaging or pledging of,
or otherwise placing a lien or security interest on, any assets or properties of
RSA Communications;
(o) option, warrant or other contract for the purchase of any debt or
equity security of any corporation, or for the issuance of any debt or equity
security, or the conversion of any obligation, instrument or security into debt
or equity securities, of RSA Communications;
(p) any settlement agreement of any administrative or judicial proceedings
within the past five years;
(q) any agreement relating to any Intellectual Property; or
(r) any agreement, contract or commitment which might reasonably be
expected to have a Material Adverse Effect.
Except as otherwise set forth on Schedule 2.13, each contract or agreement
-------------
set forth on Schedule 2.13 or any other Schedule is in full force and effect and
-------------
there exists no default or event of default by any party thereto or event,
occurrence, condition or act (including the consummation of the sale
contemplated hereby) which, with the giving of notice, the lapse of time or the
happening of any other event or condition, would become a default or event of
default thereunder by any party thereto. Complete and correct copies of each of
the contracts and agreements set forth on Schedule 2.13 or any other Schedule,
-------------
including any amendments or supplements to such contracts and agreements, have
been made available to Virata.
2.14 Consents and Approvals; No Violations. Except as set forth in
Schedule 2.14, the execution and delivery of this Agreement by RSA
- -------------
Communications and Stockholder and the consummation of the transactions
contemplated hereby (a) will not violate or contravene any provision of the
Certificate of Incorporation or Bylaws of RSA Communications, (b) will not
violate or contravene any statute, rule, regulation, order or decree of any
government body or authority by which RSA Communications or Stockholder is
subject or by which any of their respective properties or assets are bound, (c)
will not require any filing with, or permit, consent or approval of, or the
giving of any notice to, any governmental or regulatory body, agency or
authority, or any other Person and (d) will not result in a violation or breach
of, conflict with, constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation, payment
or acceleration) under, or result in the creation of any Lien upon any of the
properties or assets of RSA Communications or Stockholder under, any of the
terms, conditions or provisions of any agreement to which RSA Communications or
Stockholder
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is a party, or by which either of them or any of their respective
properties or assets may be bound.
2.15 Litigation.
(a) Except as set forth on Schedule 2.15, there is no action, suit,
-------------
claim, proceeding, inquiry or investigation pending or, to the knowledge of RSA
Communications or Stockholder, threatened, against or affecting RSA
Communications, or the assets, properties, business or business prospects of RSA
Communications, at law or in equity, or before or by any arbitrator or any
Federal, state, local or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, and neither RSA
Communications nor Stockholder knows of any basis for any of the foregoing. RSA
Communications is not in default with respect to any order, writ, injunction or
decree known to or served upon RSA Communications of or by any court or of or by
any arbitrator or any Federal, state, local or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign.
Except as set forth on Schedule 2.15, there is no pending action or suit brought
-------------
by RSA Communications against any third party.
(b) There is no action, suit, claim, proceeding, inquiry or
investigation pending or, to the knowledge of RSA Communications or Stockholder,
threatened, at law or in equity, or before or by any arbitrator or any Federal,
state, local or other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, relating to or involving the
transactions contemplated by this Agreement.
2.16 Taxes.
(a) Tax Returns. RSA Communications has timely filed or caused to be
timely filed, or will timely file or cause to be timely filed, with the
appropriate taxing authorities all returns, statements, forms and reports for
Taxes ("Returns") that are required to be filed by, or with respect to, RSA
Communications on or prior to the date of this Agreement. The Returns have
accurately reflected and will accurately reflect all liability for Taxes of RSA
Communications for the periods covered thereby. None of such Returns contains,
or will contain, a disclosure statement under Section 6662 of the Internal
Revenue Code of 1986, as amended (the "Code"), or any similar provision of
state, local or foreign tax law. "Taxes" means all taxes, assessments, charges,
duties, fees, levies or other governmental charges, including, without
limitation, all Federal, state, local, foreign and other income, franchise,
profits, capital gains, capital stock, transfer, sales, use, occupation,
property, excise, severance, windfall profits, stamp, license, payroll,
withholding, and other taxes, assessments, charges, duties, fees, levies or
other governmental charges of any kind whatsoever (whether payable directly or
by withholding and whether or not requiring the filing of a Return), all
estimated taxes, deficiency assessments, additions to tax, penalties and
interest and shall include any liability for such amounts as a result either of
being a member of a combined, consolidated, unitary or affiliated group or of a
contractual obligation to indemnify any person or other entity.
(b) Payment of Taxes. Except as described in Schedule 2.16 with
respect to underpayments of estimated taxes for fiscal 1998, all Taxes and Tax
liabilities of RSA
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Communications (whether or not shown on any Return) for all
taxable years or periods that end on or before the Closing Date and, with
respect to any taxable year or period beginning before and ending after the
Closing Date ("Straddle Periods"), the portion of such taxable year or period
ending on and including the Closing Date, have been timely paid or adequately
provided for on the Financial Statements. For purposes of this representation,
all Taxes and Tax liabilities with respect to the income, property or operations
of RSA Communications that relate to a Straddle Period shall be apportioned
between the period prior to the Closing Date and the period following the
Closing Date as follows: (A) in the case of Taxes other than income Taxes and
sales and use Taxes, on a per diem basis, and (B) in the case of income Taxes
and sales and use Taxes, as determined from the books and records of RSA
Communications, to the portion of such period ending on the date Closing Date as
though the taxable year of RSA Communications terminated at the close of
business on the Closing Date, and based on accounting methods, elections and
conventions that do not have the effect of distorting income and expenses.
(c) Other Tax Matters.
(i) Schedule 2.16 sets forth (A) each taxable year or other taxable
-------------
period of RSA Communications for which an audit or other examination of Taxes by
the appropriate tax authorities of any nation, state or locality is currently in
progress (or scheduled as of the date of this Agreement to be conducted),
together with the names of the respective tax authorities conducting (or
scheduled to conduct) such audits or examinations and a description of the
subject matter of such audits or examinations, (B) the most recent taxable year
or other taxable period for which an audit or other examination relating to
Federal income taxes of RSA Communications has been finally completed and the
disposition of such audits or examinations, (C) the taxable years or other
taxable periods of RSA Communications for which a consent or waiver of the
applicable statute of limitations for applicable Taxes is outstanding, (D) the
amount of any proposed adjustments (and the principal reason therefor) relating
to any Returns for Tax liability of RSA Communications which have been proposed
or assessed by any taxing authority and (E) a list of all notices received by
RSA Communications from any taxing authority relating to any issue which could
affect the Tax liability of RSA Communications, which issue has not been finally
determined and which, if determined adversely to RSA Communications could result
in a Tax liability.
(ii) Except as set forth on Schedule 2.16, RSA Communications has
-------------
not been included in any "consolidated," "unitary" or "combined" Return provided
for under the laws of the United States, any foreign jurisdiction or any state
or locality with respect to Taxes for any taxable period for which the statute
of limitations has not expired. RSA Communications does not have any liability
for the Taxes of any person as defined in Section 7701(a)(1) of the Code or
under Treasury Regulation Section 1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or otherwise;
(iii) Except as set forth on Schedule 2.16, all Taxes which RSA
-------------
Communications is, or was, required by law to withhold or collect have been duly
withheld or collected and have been timely paid over to the proper authorities
to the extent due and payable.
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(iv) Except as disclosed on Schedule 2.16, there are no tax
-------------
sharing, allocation, indemnification or similar agreements or arrangements in
effect as between RSA Communications or any predecessor thereof and any other
party (including any predecessor thereof) under which Acquisition Sub or RSA
Communications could be liable for any Taxes or other claims of any party.
(v) RSA Communications is not a party to any agreement, contract,
arrangement or plan that would result in the payment by RSA Communications of
any "excess parachute payment" within the meaning of Section 280G of the Code.
(vi) No consent has been filed under Section 341(f) of the Code
with respect to RSA Communications.
(vii) Except as disclosed on Schedule 2.16, RSA Communications was
not acquired in a "qualified stock purchase" under Section 338(d)(3) of the
Code, and RSA Communications is not subject to any constructive elections under
Code Section 338 or the regulations thereunder.
(viii) RSA Communications is not required to include in income any
adjustment pursuant to Section 481(a) of the Code (or similar provisions of
other law or regulations) by reason of a change in accounting method.
(ix) None of the assets of RSA Communications is property that is
required to be treated as owned by any other person pursuant to the "safe harbor
lease" provisions of former Section 168(f)(8) of the Internal Revenue Code of
1954, as amended, and in effect immediately prior to the enactment of the Tax
Reform Act of 1986, none of the assets of RSA Communications is "tax exempt use
property" within the meaning of Section 168(h) of the Code and none of the
assets of RSA Communications secures any debt the interest on which is tax
exempt under Section 103 of the Code.
(x) No indebtedness of RSA Communications consists of "corporate
acquisition indebtedness" within the meaning of Section 279 of the Code.
(xi) RSA Communications is not a "United States real property
holding company" within the meaning of Section 897 of the Code.
(xii) There currently are no excess loss accounts, deferred
intercompany gains or losses or other like items pertaining to RSA
Communications that could result in any Tax liability for RSA Communications.
(xiii) RSA Communications is not engaged in business in any tax
jurisdiction in which it does not file Returns for sales and use, income or
other Taxes.
(xiv) Neither RSA Communications nor Stockholder has asserted any
claim for indemnification under the Tax Indemnity Agreement, dated June 6, 1997,
by and
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among Stockholder, RSA Communications and Cirrus Logic, nor, to the knowledge of
RSA Communications or Stockholder, is there any reasonable basis for any such
claim.
(xv) On the Closing Date, RSA Communications will hold
sufficient assets to satisfy the "substantially all" test of Section
368(a)(2)(D) of the Code.
2.17 Insurance. Schedule 2.17 contains an accurate and complete summary
-------------
description of all policies of property, fire and casualty, product liability,
workers compensation and other forms of insurance owned or held by RSA
Communications. RSA Communications has not received (i) any notice of
cancellation of any policy described in such Schedule or refusal of coverage
thereunder or (ii) any other indication that such policies are no longer in full
force or effect or that the issuer of any such policy is no longer willing or
able to perform its obligations thereunder. Since the date of the Financial
Statements, there has not been any material adverse change in the relationship
of RSA Communications with its insurers or in the premiums payable pursuant to
such policies.
2.18 Compliance with Laws; Permits. RSA Communications is in compliance
with all applicable laws, regulations, orders, judgments and decrees, except
where the failure to so comply would not have a Material Adverse Effect. RSA
Communications has all franchises, licenses, permits, certificates and other
authorizations from Federal, state, local or foreign governments or governmental
agencies, departments or bodies that are necessary for the conduct of its
business and which, if not obtained, would, individually or in the aggregate,
have a Material Adverse Effect. To the knowledge of RSA Communications or
Stockholder, there is no fact, error or omission relevant to any such franchise,
license, permit, certificate or other authorization that would permit the
revocation or withdrawal thereof. Subject to the receipt of any necessary
consents or filings, RSA Communications will continue to have the use and
benefit thereof and the rights granted thereby after the transactions
contemplated hereby have occurred.
2.19 Compensation of Employees. Schedule 2.19 is an accurate and complete
-------------
list showing the name, job title, duration of employment, salary, bonus and
fringe benefits of all persons employed by RSA Communications.
2.20 Employee Relations.
(a) Except as set forth on Schedule 2.20, RSA Communications is in
-------------
compliance in all material respects with all Federal, state or other applicable
laws, domestic or foreign, respecting employment and employment practices, terms
and conditions of employment and wages and hours and has not, and is not,
engaged in any unfair labor practice;
(b) no unfair labor practice complaint against RSA Communications is
pending before the National Labor Relations Board;
(c) there is no labor strike, dispute, slowdown or stoppage actually
pending or threatened against or involving RSA Communications which might
reasonably be expected to have a Material Adverse Effect;
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<PAGE>
(d) RSA Communications is not a party to a collective bargaining
agreement, and no collective bargaining agreement is currently being negotiated
by RSA Communications, and, to the knowledge of RSA Communications or
Stockholder, no labor organization is seeking to represent any employees of RSA
Communications; and
(e) no claim in respect of the employment of any employee has been
asserted in writing or asserted orally or overtly threatened against RSA
Communications which might reasonably be expected to have a Material Adverse
Effect.
(f) each employee of RSA Communications has entered into RSA
Communications' standard form of Employee Agreement attached hereto as Exhibit
-------
E-2, and such agreement is binding and enforceable against such employee in
- ---
accordance with its terms.
2.21. Employee Benefit Plans.
(a) Schedule 2.21 is an accurate and complete list of each employee
-------------
pension benefit plan, as defined in Section 3(2) of ERISA (the "Pension Plans"),
each employee welfare benefit plan, as defined in Section 3(1) of ERISA (the
"Welfare Plans", together with the Pension Plans, referred to as the "ERISA
Plans"), and each other employee benefit plan or arrangement not subject to
ERISA (the "Benefit Arrangements") currently (or during the five years preceding
the Closing Date) established, maintained or contributed to by RSA
Communications or any ERISA Affiliate. As used herein, the term "ERISA" means
the Employee Retirement Income Security Act of 1974, as amended, and any
regulations issued thereunder. As used herein, the term "ERISA Affiliate" means
a corporation which is a member of a controlled group of corporations with RSA
Communications within the meaning of Section 414(b) of the Code, a trade or
business (including a sole proprietorship, partnership, trust, estate or
corporation) which is under common control with RSA Communications within the
meaning of Section 414(c) of the Code, or a member of an affiliated service
group with RSA Communications within the meaning of Section 414(m) or Section
414(o) of the Code. Each ERISA Plan listed on Schedule 2.21 shall be correctly
-------------
categorized as either a Pension Plan, or a Welfare Plan, or a Benefit
Arrangement.
(b) RSA Communications has delivered or made available to Virata
true and correct copies of all ERISA Plans and Benefit Arrangements (and all
trust agreements, annuity contracts or other funding instruments relating
thereto and any relevant amendments) listed on Schedule 2.21 and all applicable
-------------
filings relating to the ERISA Plans and Benefit Arrangements listed on Schedule
--------
2.21 for the past two years, including Form 5500 filings, and, if the ERISA Plan
- ----
is intended to qualify under Section 401(a) of the Code, the most recent
determination letter received from the Internal Revenue Service (the "IRS"), the
most recent actuarial valuation reports, and any other relevant correspondence
from the IRS or Department of Labor.
(c) Except as disclosed in Schedule 2.21, (i) for each Pension Plan
-------------
that is intended to qualify under Section 401(a) of the Code, a favorable
determination letter has been received from the IRS addressing the tax-qualified
status of such plan and, to the knowledge of Stockholder and RSA Communications,
no event has occurred that would adversely affect such tax qualified status;
(ii) each ERISA Plan and Benefit Arrangement has been administered in all
16
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material respects in compliance with its terms and with the applicable
provisions of ERISA, the Code and other laws; (iii) with respect to each ERISA
Plan and Benefit Arrangement, to the knowledge of Stockholder and RSA
Communications, no event has occurred, and there exists no condition or set of
circumstances in connection therewith, for which RSA Communications or its ERISA
Affiliates could, directly or indirectly, be subject to any liability under
ERISA, the Code or any other applicable law, except liability for benefit claims
and funding obligations in the ordinary course, (iv) all required employer
contributions to each ERISA Plan or Benefit Arrangement have been made when due
(or, in the case of employer contributions not yet due, have been accrued on RSA
Communications' financial statements and records); (v) there are not pending or,
to the knowledge or Stockholder and RSA Communications, threatened termination
proceedings, claims, suits, investigations or other proceedings against or
involving any ERISA Plan or Benefit Arrangement or asserting any rights to or
claims for benefits under any ERISA Plan or Benefit Arrangement for which RSA
Communications could, directly or indirectly, be subject to any liability; and
(vi) except to the extent required by Section 4980B of the Code or any similar
provision of state law, RSA Communications does not provide, and is not
obligated to provide, any health or welfare benefits to any retired or former
employees or to any active employee following such employee's retirement or
termination of service.
2.22 Interests in Customers, Suppliers, etc. Except as set forth on
Schedule 2.22, neither any officer or director of RSA Communications nor
- -------------
Stockholder possesses, directly or indirectly, any financial interest in, or is
a director, officer or employee of, any Person which is a supplier, customer,
lessor, lessee, licensor, developer, competitor or potential competitor of RSA
Communications.
2.23 Environmental Laws and Regulations. Except as set forth on Schedule
--------
2.23:
- ----
(a) RSA Communications has not generated, used, treated or stored
any Hazardous Materials (as hereinafter defined) on any RSA Communications
Property (as hereinafter defined), and no Hazardous Materials have been
generated, used, treated or stored on or released or disposed on any RSA
Communications Property in each case in violation of any Environmental Law.
(b) RSA Communications is in compliance in all material respects
with Environmental Laws (as hereinafter defined) and the requirements of any RSA
Communications permits issued under such Environmental Laws with respect to any
RSA Communications Property.
(c) There are no pending or, to the knowledge of RSA Communications
or Stockholder, threatened Environmental Claims (as hereinafter defined) against
RSA Communications Property.
(d) For purposes of this Section 2.23, the following definitions
shall apply:
"Environmental Claims" means administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, notices of non-
compliance, remediation or violation, investigations or proceedings relating in
any way to any Hazardous Materials,
17
<PAGE>
Environmental Law or any permit issued to RSA Communications under any such
Environmental Law.
"Environmental Law" means any Federal, state or local statute, law,
rule, regulation, ordinance, code, policy or rule of common law in effect and in
each case as amended as of the date of this Agreement, and any judicial or
administrative interpretation thereof as of the date of this Agreement,
including any judicial or administrative order, consent decree or judgment,
relating to the environment, health, safety or Hazardous Materials.
"Hazardous Materials" means any chemicals, materials or substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," or words of similar
import, under any applicable Environmental Law.
"RSA Communications Property" means any real property and
improvements previously or currently owned, leased, used, operated or occupied
by RSA Communications.
2.24 Bank Accounts; Powers of Attorney. Set forth on Schedule 2.24 is an
-------------
accurate and complete list showing (a) the name and address of each bank in
which RSA Communications has an account or safe deposit box, the number of any
such account or any such box and the names of all persons authorized to draw
thereon or to have access thereto and (b) the names of all persons, if any,
holding powers of attorney from RSA Communications.
2.25 Broker's or Finder's Fees. No agent, broker, Person or firm acting
on behalf of RSA Communications or Stockholder is, or will be, entitled to any
commission or broker's or finder's fees from any of the parties hereto, or from
any Person controlling, controlled by or under common control with any of the
parties hereto, in connection with any of the transactions contemplated by this
Agreement.
2.26 Customers. No material customer of RSA Communications has indicated
to RSA Communications any intention to terminate or materially reduce its
existing contractual relationship with RSA Communications prior to the
completion of the projects in progress as of the date hereof between such
customer and RSA Communications.
2.27 Status of RSA Communications Real Property. To the knowledge of RSA
Communications or Stockholder, the use by RSA Communications of RSA
Communications Property (as defined in Section 2.23) is not in breach of any
building, zoning or other statute, bylaw, ordinance, regulation, covenant,
restriction or official plan, and RSA Communications has adequate rights of
ingress and egress for the operation of its business in the ordinary course.
There are no outstanding work orders, non-compliance orders, deficiency notices
or other such notices relative to RSA Communications Property, the other
properties and assets of RSA Communications or its business which have been
issued by any regulatory authority, police or fire department, sanitation,
environment, labor, health or other governmental authorities or agencies.
Except as disclosed on Schedule 2.27, to the knowledge of RSA Communications or
-------------
Stockholder, the buildings and structures comprising RSA Communications Property
are free of any structural defect. To the knowledge of RSA Communications or
Stockholder, the heating,
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<PAGE>
ventilating, plumbing, drainage, electrical and air conditioning systems and all
other systems used in RSA Communications Property are in good working order,
fully operational and free of any defect, except for normal wear and tear.
2.28 Non-Arm's Length Matters. Except as set forth in the Financial
Statements or in Schedule 2.22 or Schedule 2.28, RSA Communications is not bound
------------------------------
by any agreement with, is not indebted to, and no amount is owing to RSA
Communications from, Stockholder or any of RSA Communications' or Stockholder's
Affiliates (as defined in Section 501(b) of the Securities Act of 1933, as
amended (the "Securities Act")) or any officers, former officers, directors,
former directors, former stockholders, employees or former employees of RSA
Communications or any other Person not dealing at arm's length with RSA
Communications. Except as set forth on Schedule 2.28, since the respective
-------------
dates of the Financial Statements, RSA Communications has not made or authorized
any payments to Stockholder or any of RSA Communications' or Stockholder's
Affiliates, or any officers, former officers, directors, former directors,
former stockholders, employees or former employees of RSA Communications or to
any other Person not dealing at arm's length with RSA Communications, except for
salaries and other employment compensation payable to employees of RSA
Communications in the ordinary course of the routine daily affairs of its
business and at the regular rates payable to them.
2.29 Material Disclosures. No statement, representation or warranty made
by RSA Communications or Stockholder in this Agreement or in any certificate,
statement, list, schedule or other document furnished or to be furnished to
Virata or Acquisition Sub hereunder contains, or when so furnished will contain,
any untrue statement of a material fact, or fails to state, or when so furnished
will fail to state, a material fact necessary to make the statements contained
herein or therein, in light of the circumstances in which they are made, not
misleading.
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ARTICLE III
INVESTMENT REPRESENTATIONS AND WARRANTIES
Stockholder represents and warrants to Virata as follows: (a) Stockholder
is acquiring the Virata Ordinary Shares and the Series D Shares for his own
account for investment purposes only and not with a view to, or for resale in
connection with, any distribution thereof in violation of the Securities Act
(except that Stockholder intends to sell the Series D Shares in connection with
the Closing to one or more accredited investors (as defined below) acceptable to
Virata, and which sale Virata acknowledges shall not constitute a breach of the
representations and warranties of Stockholder in this Article III)); (b) by
reason of his business or financial experience, Stockholder has the capacity to
protect his own interests in connection with the transactions contemplated by
this Agreement and is able to bear the economic risks of an investment in the
Virata Ordinary Shares and the Series D Shares; (c) Stockholder understands that
no public market now exists for the Virata Ordinary Shares or the Series D
Shares and that no public market may ever exist for the Virata Ordinary Shares
or the Series D Shares; (d) Stockholder has been advised that the Virata
Ordinary Shares and the Series D Shares are deemed "restricted securities" as
that term is defined in Rule 144 promulgated under the Securities Act, that the
exemption from registration under Rule 144 as currently in effect will not be
available in any event for at least one year from the date of issuance, and even
then will not be available unless a public trading market then exists for the
Virata Ordinary Shares or the Series D Shares, adequate information concerning
Virata is then available to the public, and other terms and conditions of Rule
144 are complied with, and that any sale of the Virata Ordinary Shares or the
Series D Shares may be made by the Stockholder only in accordance with such
terms and conditions; and (e) Stockholder is an "accredited investor" within the
meaning of Rule 501(a) of Regulation D promulgated under the Securities Act.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF VIRATA
Virata represents and warrants to RSA Communications and Stockholder as
follows:
4.1 Organization and Existence. Virata is a corporation duly organized,
validly existing and in good standing under the laws of the United Kingdom.
Virata has the requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now being conducted. Acquisition
Sub is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware.
4.2 Capital Stock, Etc. Virata has an authorized capitalization and
outstanding shares as reflected in Schedule 4.2. All shares of the capital
------------
stock of Virata have been duly authorized and validly issued and fully paid up.
Except as set forth in Schedule 4.2, there are no outstanding options, warrants
------------
or other rights to acquire shares of the capital stock of Virata. Virata is the
record holder of all of the issued and outstanding shares of capital stock of
Acquisition Sub.
4.3 Authorization and Validity of Agreements. Virata and Acquisition Sub
have full power, legal capacity and authority to execute and deliver this
Agreement and the other
20
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agreements contemplated by this Agreement, to perform their respective
obligations hereunder and thereunder and to complete the transactions
contemplated by or referenced in this Agreement. All corporate actions necessary
on the part of Virata, Acquisition Sub and their respective directors and
stockholders for the execution and delivery of this Agreement and the other
agreements contemplated by this Agreement, and the performance by Virata and
Acquisition Sub of their respective obligations under this Agreement and the
other agreements contemplated by this Agreement, have been taken. This Agreement
and each of the other agreements contemplated by this Agreement have been duly
executed and delivered by Virata and Acquisition Sub and, assuming due execution
of this Agreement and the other agreements contemplated by this Agreement by RSA
Communications and Stockholder, each is a valid and binding obligation of Virata
and Acquisition Sub enforceable against them in accordance with their respective
terms, except to the extent that its enforceability may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
the enforcement of creditors' rights generally and by general equitable
principles. Except for the approval of this Agreement by the stockholders of
Virata, no actions or proceedings on the part of Virata or Acquisition Sub are
necessary to authorize this Agreement or the other agreements contemplated by
this Agreement.
4.4 Virata Private Placement Memorandum. Virata has furnished to
Stockholder, and will furnish to the holders of the RSA Units prior to the
Closing, copies of a private placement memorandum dated March 3, 1998, including
the supplements thereto dated April 23, 1998 and June 1, 1998 (the "Virata
Private Placement Memorandum"), prepared in connection with recent sales of the
capital stock of Virata. The Virata Private Placement Memorandum contains,
among other things, summary financial information of Virata for the nine month
period ended December 31, 1997, including balance sheet data as of December 31,
1997 and a statement of operations data for the nine month period ended December
31, 1997. Such summary financial information presents fairly the financial
condition of Virata at such date and the results of its operations for the
fiscal period then ended. Virata has provided Stockholder and the RSA Employees
with an opportunity to meet with management of Virata and ask questions
regarding Virata's business, financial condition and results of operations. No
statement, representation or warranty made by Virata in the Virata Private
Placement Memorandum or in any certificate, statement, list, schedule or other
document furnished in connection thereto contains, or when so furnished will
contain, any untrue statement of a material fact, or fails to state, or when so
furnished will fail to state, a material fact necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading.
4.5 No Material Changes. Except as set forth in Schedule 4.5, since
------------
December 31, 1997, there has been no material adverse change in the business,
operations, financial condition, results of operations or prospects of Virata
(as used with respect to Virata, a "Material Adverse Effect").
4.6 Consents and Approvals; No Violations. Except as set forth in
Schedule 4.6, the execution and delivery of this Agreement by Virata and
- ------------
Acquisition Sub and the consummation of the transactions contemplated hereby (a)
will not violate or contravene any
21
<PAGE>
provision of the Certificate of Incorporation or Bylaws of Virata or Acquisition
Sub, (b) will not violate or contravene any statute, rule, regulation, order or
decree of any government body or authority by which Virata or Acquisition Sub is
subject or by which any of their respective properties or assets are bound, (c)
will not require any filing with, or permit, consent or approval of, or the
giving of any notice to, any governmental or regulatory body, agency or
authority, or any other Person and (d) will not result in a violation or breach
of, conflict with, constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation, payment
or acceleration) under, or result in the creation of any Lien upon any of the
properties or assets of Virata under, any of the terms, conditions or provisions
of any agreement to which Virata is a party, or by which it or any of its
properties or assets may be bound.
4.7 Compliance with Laws; Permits. Virata is in compliance with all
applicable laws, regulations, orders, judgments and decrees, except where the
failure to so comply would not have a Material Adverse Effect. Virata has all
franchises, licenses, permits, certificates and other authorizations from
Federal, state, local or foreign governments or governmental agencies,
departments or bodies that are necessary for the conduct of its business and
which, if not obtained, would, individually or in the aggregate, have a Material
Adverse Effect. To the knowledge of Virata, there is no fact, error or omission
relevant to any such franchise, license, permit, certificate or other
authorization that would permit the revocation or withdrawal thereof. Subject
to the receipt of any necessary consents or filings, Virata will continue to
have the use and benefit thereof and the rights granted thereby after the
transactions contemplated hereby have occurred.
4.8 Broker's or Finder's Fees. No agent, broker, Person or firm acting on
behalf of Virata is, or will be, entitled to any commission or broker's or
finder's fees from any of the parties hereto, or from any Person controlling,
controlled by or under common control with any of the parties hereto, in
connection with any of the transactions contemplated by this Agreement.
4.9 Valid Issuance of Shares. The Virata Ordinary Shares and the Series D
Shares, when issued, sold and delivered in accordance with the terms of this
Agreement for the consideration provided herein, and the Virata Ordinary Shares
issued upon exercise of the Virata Acquisition Options in accordance with the
terms and conditions of the Virata Plan, will be validly issued and fully paid
up.
4.10 Virata Tax Status. Virata or one or more of its "qualified
subsidiaries" (as defined in Treasury Regulation Section 1.367(a)-3(c)(5)(vii))
has been engaged in an active trade or business outside the United States,
within the meaning of Treasury Regulation Section 1.367(a)-2T(b)(2) and (3), for
the entire 36-month period immediately before the Merger, and neither Virata nor
any of its "qualified subsidiaries" has an intention to substantially dispose of
or discontinue such active trade or business.
ARTICLE V
MUTUAL COVENANTS
5.1 Due Diligence Reviews. Prior to the Closing Date, Virata, on the one
hand, and RSA Communications and Stockholder, on the other hand, directly or
through their respective
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representatives, will provide each other with an opportunity to review the
properties, books and records of the other party and its financial and legal
condition to the extent the reviewing party deems necessary or advisable to
familiarize itself with such properties and other matters; provided, however,
-------- -------
that such review shall not affect the accuracy of the representations and
warranties made in this Agreement or the remedies of any party for breaches of
those representations and warranties. All information obtained pursuant to such
due diligence examination shall be kept confidential and subject to the terms of
this Agreement and the terms of the Mutual Nondisclosure Agreement, executed
February 24, 1998, previously executed by Virata, RSA Communications and
Stockholder.
5.2 PCSI Release. On the Closing Date, RSA Communications shall use its
best efforts to cause PCSI and Cirrus Logic, Inc. ("Cirrus Logic") to deliver to
RSA Communications and its successors by merger a full and unconditional release
(the "PCSI Release") of any and all liabilities or obligations that RSA
Communications or its successors may have to PCSI or Cirrus Logic, except for
any obligations RSA Communications may have to PCSI or Cirrus Logic under the
Technology Transfer and License Agreement, the Tax Indemnity Agreement, and the
Stock Purchase Agreement (including, without limitation, Section 1.1(b) of the
Stock Purchase Agreement, pursuant to which RSA Communications will pay 3% of
gross revenue in excess of $3 million for the fiscal year ended March 31, 1998),
between RSA Communications and Cirrus Logic, each dated as of June 6, 1997.
5.3 [Intentionally Omitted]
5.4 Audited Financial Statements. As soon as practicable after the date
hereof, RSA Communications shall furnish Virata with copies of: (i) the
financial statements for the fiscal year ended as of March 31, 1998, including a
balance sheet as of such date and a statement of operations and cash flows for
the fiscal year ended as of such date (the "1998 Financial Statements"); and
(ii) interim financial statements for each of the months of April 1998 and May
1998, including balance sheets as of the last day of each such month and
statements of operations and cash flows for each such month (the "Interim
Financial Statements") (collectively with the 1998 Financial Statements, the
"Financial Statements"). As promptly as possible following the execution and
delivery of this Agreement and prior to the Closing Date, Virata shall have the
Financial Statements audited by the Accountants and shall deliver the Audited
Financial Statements to RSA Communications and Stockholder promptly following
such audit.
5.5 Conduct of Business of RSA Communications. Prior to the Closing Date,
RSA Communications shall, and Stockholder shall cause RSA Communications to,
conduct its operations only according to its ordinary and usual course of
business; use its reasonable efforts to preserve intact its business
organization, keep available the services of its officers and employees and
maintain satisfactory relationships with licensors, suppliers, distributors,
customers, landlords, employees, agents and others having business relationships
with it; and confer with Virata concerning operational matters of a material
nature and report periodically to Virata concerning the business, operations and
finances of RSA Communications. Notwithstanding the immediately preceding
sentence, prior to the Closing Date, except as may be agreed to in writing by
Virata or as is otherwise permitted or required by this Agreement,
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RSA Communications shall (a) maintain its Certificate of Incorporation and
Bylaws in their respective forms on the date of this Agreement, (b) refrain from
paying or increasing any bonuses, salaries or other compensation to any
director, officer, employee or Stockholder or entering into any employment,
severance or similar agreement with any director, officer or employee, except in
the ordinary course of business consistent with past practice, (c) refrain from
adopting or increasing any profit sharing, bonus, deferred compensation,
savings, insurance, pension, retirement, or other employee benefit plan for or
with any of its employees, (d) refrain from entering into any material contract
or commitment except in the ordinary course of business, (e) refrain from
increasing its indebtedness for borrowed money, except current borrowings in the
ordinary course of business, (f) refrain from canceling or waiving any claim or
right of substantial value, (g) refrain from declaring or paying any dividends
or other distributions in respect of its capital stock or redeeming, purchasing
or otherwise acquiring any of its capital stock, (h) refrain from making any
material change in accounting methods or practices, except as required by law or
generally accepted accounting principles, (i) refrain from issuing or selling
any shares of capital stock or any other securities except pursuant to the
exercise of outstanding options, or issuing any securities convertible into, or
options, warrants or rights to purchase or subscribe to, or entering into any
arrangement or contract with respect to the issue and sale of, any shares of its
capital stock or any other securities, (j) refrain from selling, leasing or
otherwise disposing of any material asset or property, (k) refrain from making
any capital expenditure or commitment therefor, except in the ordinary course of
business or as permitted hereunder, (l) refrain from writing off as
uncollectable any notes or accounts receivable, except write-offs in the
ordinary course of business charged to applicable reserves, none of which
individually or in the aggregate is material, and (m) refrain from agreeing to
do any of the foregoing; except that RSA Communications may grant additional RSA
Units such that the total number of RSA Units will not exceed 6,000 at the
Effective Time.
5.6 Exclusive Dealing. Prior to the earlier of the Closing Date or, if
this Agreement is terminated pursuant to Section 10, the date of such
termination, neither RSA Communications, Stockholder, any director, officer,
employee, agent or representative of RSA Communications, nor any agent or
representative of Stockholder, will enter into any agreement, understanding or
arrangement, or engage in any discussion or negotiations, relating to any
Acquisition Proposal, or solicit or encourage the submission of any Acquisition
Proposal. RSA Communications and Stockholder shall promptly notify Virata in
writing of the receipt of any unsolicited Acquisition Proposal. The term
"Acquisition Proposal" refers to any proposal, plan, agreement, understanding or
arrangement contemplating (a) any merger, consolidation, reorganization,
recapitalization or similar transaction involving RSA Communications, (b) any
transfer or issuance of any capital stock or other securities of RSA
Communications, or (c) any transfer of any material asset of RSA Communications.
5.7 Commercially Reasonable Efforts. Prior to the Closing Date, Virata,
on the one hand, and RSA Communications and Stockholder, on the other hand,
shall cooperate and use their respective commercially reasonable efforts to
take, or cause to be taken, all appropriate actions and to make, or cause to be
made, all filings necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including, without limitation, their respective commercially
reasonable
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efforts to obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and parties as are
necessary for consummation of the transactions contemplated by the Agreement and
to fulfill the conditions to the sale contemplated hereby.
5.8 Taxes.
(a) (i) Virata shall have the exclusive authority and obligation
and shall be responsible for the correct and timely filing of all Tax Returns of
RSA Communications that relate to all Taxes for all periods ending on or prior
to the Closing Date ("Pre-Closing Tax Periods") and that are due after the
Closing Date. Virata shall provide Stockholder with drafts of any Tax Returns of
RSA Communications not filed by the Closing Date at least 20 days prior to the
due date for filing such Tax Returns, and such Tax Returns shall not be filed
without the prior written consent of Stockholder, which consent shall not be
unreasonably withheld or delayed.
(ii) Virata shall have the exclusive authority and obligation
and shall be responsible for the correct and timely filing of all Tax Returns of
the Surviving Corporation for all periods beginning after the Closing Date
("Post-Closing Tax Periods").
(b) (i) If there is an adjustment for any Pre-Closing Tax Period or
any portion of any Straddle Period that ends on or before the date of this
Agreement, which adjustment results in an increase in Taxes for such period
above the amount of Taxes reflected in a reserve for Tax liabilities (rather
than any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) shown on the most recent balance sheet of RSA
Communications for periods prior to the date of this Agreement, then such
increase shall be subject to a claim for indemnification by Virata under Article
IX of this Agreement. However, notwithstanding the foregoing, Virata shall not
be entitled to make any claim for any increase in Taxes to the extent such
increase (above any reserve) arises from underpayment of estimated taxes for
fiscal year 1998 due to an inability of RSA to deduct in tax returns for such
period compensation payments accrued but not paid as of March 31, 1998, provided
that such accrued compensation payments are deductible in the next succeeding
tax year. Virata shall be responsible and liable for the timely payment of all
Taxes imposed on or with respect to the properties, income and operations of the
Surviving Corporation for all Post-Closing Tax Periods and those portions of any
Straddle Period beginning after the date of this Agreement.
(ii) If there is an adjustment for any Pre-Closing Period or any
portion of any Straddle Period that ends on or before the date of this
Agreement, which adjustment results in a decrease in Taxes for such period, then
such decrease, together with any interest payable thereon, shall reduce and
offset dollar for dollar any liability, whether or not yet paid, of the
Stockholder and the holders of the RSA Units for indemnification under Article
IX of this Agreement.
(c) (i) Stockholder, at its sole expense, shall have the exclusive
authority to represent the Surviving Corporation before any taxing authority or
any court regarding the Tax consequences of the operations of RSA Communications
for all Pre-Closing Tax Periods, including initiating any claim for refund for
any Tax, and Virata shall give Stockholder timely
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notice of the pendency of any such proceeding and shall give Stockholder or
Stockholder's designated representatives all necessary and appropriate powers of
attorney to represent the Surviving Corporation in such proceedings; provided,
--------
however, that Stockholder shall not enter into any settlement of any contest or
- -------
otherwise compromise any issue that affects or may affect the Tax liability of
the Surviving Corporation for any Straddle Period or Post-Closing Tax Period
without the prior written consent of Virata. Stockholder shall keep Virata fully
and timely informed with respect to the commencement, status and nature of any
administrative or judicial proceedings involving any Tax liability of the
Surviving Corporation for all Pre-Closing Tax Periods.
(ii) Except as provided in the foregoing paragraph (i), Virata
shall have the sole right to control any audit or examination by any taxing
authority, initiate any claim for refund or amend any Tax Return, and contest,
resolve and defend against any assessment for additional Taxes, notice of Tax
deficiency or other adjustment of Taxes of, or relating to, the Surviving
Corporation.
(d) Virata and the Surviving Corporation will cooperate with
Stockholder in complying with the reporting requirements contained in Treasury
Regulation Section 1.367(a)-3(c)(6).
5.9 Compliance with Rule 144. If Virata or Acquisition Sub shall become
subject to Sections 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, Virata or Acquisition Sub, as the case may be, shall use its reasonable
efforts to comply with the provisions of Rule 144 such that Stockholder can sell
his Virata Ordinary Shares under Rule 144 prior to the expiration of the holding
period described in Rule 144(k).
5.10 Further Assurances; Supplementary Action. Virata, on the one hand,
and RSA Communications and Stockholder, on the other hand, at their sole cost
and expense, will do such further acts and execute and deliver such further
documents as the other parties may reasonably require solely for the purpose of
assuring and confirming unto each party (i) the rights created hereby or
intended now or hereafter so to be created by this Agreement or (ii) the
validity of any documents of conveyance to be delivered hereunder.
5.11 Registration Rights. In the event that any holder of the Ordinary
Shares acquired upon exercise of the Virata Acquisition Options ( the
"Registrable Shares") is not permitted to sell his or her Registrable Shares
under Rule 701 promulgated under the Securities Act, Virata shall be required to
register the Registrable Shares on Form S-8 concurrently with the registration
on Form S-8 of the Virata Stock Incentive Plan.
ARTICLE VI
CONDITIONS TO VIRATA'S AND ACQUISITION SUB'S OBLIGATIONS
The obligation of Virata and Acquisition Sub to consummate the transactions
contemplated by this Agreement is conditioned upon satisfaction by RSA
Communications and Stockholder, prior to or on the Closing Date, of the
following conditions precedent and concurrent:
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6.1 [Intentionally Omitted]
6.2 [Intentionally Omitted]
6.3 Virata Option Agreement and RSA Unit Amendment. Each holder of RSA
Units shall execute and deliver a Virata Nonqualified Stock Option Agreement
representing his or her Virata Acquisition Option and an RSA Unit Amendment.
6.4 Escrow Agreement. Stockholder, individually and in his capacity as
the representative of the holders of the RSA Units, shall execute and deliver
the Escrow Agreement.
6.5 Employment Agreements. Each of Munther Qubain, Raymond Chen, Karen
Quidley and Wayne Whitlock shall execute and deliver an employment agreement
with Acquisition Sub substantially in the form attached hereto as Exhibit E-1
-----------
(the "Employment Agreements").
6.6 Proceedings. All corporate and other proceedings in connection with
the transactions contemplated hereby shall have been taken by RSA Communications
and Stockholder and shall be satisfactory to Virata in its sole discretion.
6.7 PCSI Release. Each of PCSI and Cirrus Logic shall execute and deliver
to Virata, Acquisition Sub and RSA Communications the PCSI Release.
6.8 [Intentionally Omitted]
6.9 Stockholders, Third Party and Governmental Consents. The stockholders
of Virata shall approve this Agreement. Any consents, approvals or waivers
disclosed on any Schedule attached hereto or required in connection with the
consummation of the transactions contemplated by this Agreement, including,
without limitation, all consents, approvals, authorizations, exemptions and
waivers from governmental agencies, shall be obtained by Virata, RSA
Communications and Stockholder.
6.10 Opinion of Counsel. Virata and Acquisition Sub shall receive an
opinion of Hunton & Williams, counsel to RSA Communications and Stockholder,
dated as of the date of the Closing Date, substantially in the form attached
hereto as Exhibit F.
---------
6.11 No Litigation Threatened. No action or proceedings shall have been
instituted or, to the knowledge of Virata, RSA Communications or Stockholder,
threatened before a court or other government body or by any public authority to
restrain or prohibit any of the transactions contemplated hereby.
6.12 Certificate; Good Standings; Secretary's Certificate. Virata and
Acquisition Sub shall receive (a) copies of the Certificate of Incorporation of
RSA Communications, including all amendments thereto, certified by the Secretary
of State of Delaware, (b) a certificate from the Secretary of State of Delaware
to the effect that RSA Communications is in good standing, has paid all
franchise taxes assessed to date and listing all charter documents of RSA
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Communications on file, (c) a certificate from the Secretary of State or other
appropriate official of North Carolina and each other State in which RSA
Communications is qualified to do business to the effect that RSA Communications
is in good standing in such State and has paid all applicable taxes assessed to
date, (d) a copy of the Bylaws of RSA Communications, certified by the Secretary
of RSA Communications as being true and correct and in effect, and (e) copies of
the resolutions of the Board of Directors and Stockholder of RSA Communications
approving this Agreement, certified by the Secretary of RSA Communications as
being true and correct and in effect.
6.13 Stockholder's and Officers' Certificate. The representations and
warranties of RSA Communications and Stockholder contained in this Agreement
(including the Schedules and Exhibits) and any agreement, document or other
instrument delivered to Virata or Acquisition Sub in connection herewith shall
be true and correct in all respects on the Closing Date as if they had been made
on the Closing Date. RSA Communications and Stockholder shall perform and
comply with each agreement, covenant and obligation required to be performed or
complied with by RSA Communications or Stockholder under this Agreement prior to
or on the Closing Date. Virata and Acquisition Sub shall receive a certificate
executed by the President and Treasurer of RSA Communications and a certificate
executed by Stockholder to the effect of the immediately foregoing sentences.
6.14 Financial Statements. Virata shall not have exercised its right to
terminate this agreement under Section 1.10(a).
ARTICLE VII
CONDITIONS TO RSA COMMUNICATIONS'
AND STOCKHOLDER'S OBLIGATIONS
The obligations of RSA Communications and Stockholder to consummate the
transactions contemplated by this Agreement are conditioned upon satisfaction by
Virata, prior to or on the Closing Date, of the following conditions precedent
and concurrent:
7.1 Audited Financial Statements. Virata shall have the Financial
Statements audited by the Accountants and shall deliver the Audited Financial
Statements to Stockholder.
7.2 Proceedings. All corporate and other proceedings in connection with
the transactions contemplated hereby shall have been taken by Virata and
Acquisition Sub and shall be satisfactory to RSA Communications and Stockholder
in their sole discretion.
7.3 Third Party and Governmental Consents. Any consents, approvals or
waivers disclosed on any Schedule attached hereto or required in connection with
the consummation of the transactions contemplated by this Agreement, including,
without limitation, all consents, approvals, authorizations, exemptions and
waivers from governmental agencies, shall be obtained by Virata, RSA
Communications and Stockholder.
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7.4 Opinion of Counsel. RSA Communications and Stockholder shall receive
an opinion of Gibson, Dunn & Crutcher LLP, counsel to Virata and Acquisition
Sub, dated as of the date of the Closing Date, substantially in the form
attached hereto as Exhibit G.
---------
7.5 No Litigation Threatened. No action or proceedings shall have been
instituted or, to the knowledge of Virata, Stockholder or RSA Communications,
threatened before a court or other government body or by any public authority to
restrain or prohibit any of the transactions contemplated hereby.
7.6 Certificate; Good Standings; Secretary's Certificate. RSA
Communications and Stockholder shall receive (a) copies of the Certificate of
Incorporation of Virata, including all amendments thereto, certified by the
appropriate governmental agency of the United Kingdom, (b) a copy of the Bylaws
of Virata, certified by the Secretary of Virata as being true and correct and in
effect, and (c) copies of the resolutions of the Boards of Directors and
stockholders of Virata and Acquisition Sub approving this Agreement, certified
by the Secretary of Virata as being true and correct and in effect.
7.8 Officers' Certificate. The representations and warranties of Virata
contained in this Agreement (including the Schedules and Exhibits) and any
agreement, document or other instrument delivered to Virata in connection
herewith shall be true and correct in all respects on the Closing Date as if
they had been made on the Closing Date. Virata shall perform and comply with
each agreement, covenant and obligation required to be performed or complied
with by Virata under this Agreement prior to or on the Closing Date. RSA
Communications and Stockholder shall receive a certificate executed by the Chief
Executive Officer and Chief Financial Officer of Virata to the effect of the
immediately foregoing sentences.
7.9 Agreement to Sell Stockholder's Series D Shares. Stockholder shall
have entered into agreement(s) ("Series D Agreement(s)") to sell the Series D
Shares received by Stockholder pursuant to Section 1.5(a), which Series D
Agreement(s) shall contain no substantial conditions other than (1) the Closing
of the transactions contemplated by this Agreement and (2) the closing of the
transactions contemplated by the Series D Agreement(s) to take place
concurrently with the Closing. The Closing of the transactions contemplated by
the Series D Agreement(s) shall take place concurrently with the Closing. The
purchaser(s) of the Series D Shares pursuant to the Series D Agreement(s) shall
be subject to Virata's approval (evidenced by acknowledgment at the Closing),
and Virata shall indemnify and hold Stockholder harmless for any cost, expense
or liability to such purchaser(s) arising from such sale(s), such as claims
arising under federal or state securities laws, other than claims resulting from
Stockholder's breach of any representation regarding Stockholder's execution and
delivery of the Series D Agreement(s), his title and right to sell the Series D
Shares and the absence of encumbrances on such shares created by or through
Stockholder, or Stockholder's failure to deliver the Series D Shares as required
by the Series D Agreement(s). Any representations to be made by Stockholder in
a Series D Agreement that would be within the scope of Virata's indemnification
obligation are subject to Virata's consent to inclusion, which consent will not
be unreasonably withheld.
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7.10 Virata Option Agreement. Acquisition Sub shall execute and deliver a
Virata Nonqualified Stock Option Agreement to each holder of RSA Units.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS
The respective representations and warranties of RSA Communications and
Stockholder, on the one hand, and Virata, on the other hand, contained in
Article II and Article IV, respectively, of this Agreement shall survive the
Closing for a period of one year from the Closing Date; provided, however, that
-------- -------
the representations and warranties of RSA Communications and Stockholder
contained in Section 2.16 with respect to Taxes shall survive until 30 days
after the expiration of the applicable statute of limitations period. The
representations and warranties of Stockholder contained in Article III of this
Agreement shall survive the Closing for an indefinite period.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification.
(a) Stockholder, individually and in his capacity as the
representative of the holders of the RSA Units, jointly and severally subject to
the allocation provisions set forth herein, hereby agrees to indemnify and hold
Virata, Acquisition Sub and their respective officers, directors, employees,
subsidiaries, Affiliates, successors, representatives and agents harmless from:
(i) Damages, losses, costs or expenses (including, without
limitation, reasonable attorneys' fees and expenses) ("Damages") incurred or
suffered as a result of or arising out of the failure of any representation or
warranty made by RSA Communications and Stockholder pursuant to this Agreement
to be true and correct;
(ii) Damages arising out of or related to the breach of any
covenant of RSA Communications or Stockholder in this Agreement; and
(iii) Damages arising out of or related to any Taxes
attributable to Pre-Closing Tax Periods in excess of any provision for Taxes set
forth in the Financial Statements, or except as otherwise provided in Section
5.8(b) ("Pre-Closing Taxes").
(b) Virata hereby agrees to indemnify and hold RSA Communications
and Stockholder and their officers, directors, employees, subsidiaries,
Affiliates, successors, representatives and agents harmless from:
(i) Damages incurred or suffered as a result of or arising
out of the failure of any representation or warranty made by Virata pursuant to
this Agreement to be true and correct;
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(ii) Damages arising out of or related to the breach of any
covenant of Virata in this Agreement;
(iii) Damages arising out of or related to any Taxes
attributable to Post-Closing Tax Periods ("Post-Closing Taxes"); and
(iv) Claims for broker's or selling agent's commissions with
respect to transactions for the sale of Stockholder's Series D Shares under
Section 7.9.
9.2 Indemnification Procedure.
(a) Notice. Any party seeking indemnification (the "Indemnified
Party") from another party or parties (individually or collectively, the
"Indemnifying Party") with respect to any claim, demand, action, proceeding or
other matter pursuant to this Agreement (the "Claim") shall promptly notify the
Indemnifying Party in writing of the existence of the Claim, setting forth in
reasonable detail the facts and circumstances pertaining thereto, an estimate of
the amount then reasonably ascertainable of the alleged loss, expense or
liability against which the party is indemnified and the basis for the
Indemnified Party's right to indemnification.
(b) Third Party Claims. If any third party shall notify an
Indemnified Party with respect to any matter which may give rise to a Claim for
indemnification against the Indemnifying Party under this Agreement, then the
Indemnified Party shall promptly notify the Indemnifying Party thereof pursuant
to Section 9.2(a); provided, however, that no delay on the part of the
-------- -------
Indemnified Party in notifying any Indemnifying Party shall relieve the
Indemnifying Party from any liability or obligation hereunder unless (and then
solely to the extent) the Indemnifying Party thereby is materially prejudiced by
such failure to give notice. If the Indemnifying Party notifies the Indemnified
Party within 30 days that it will assume the defense thereof:
(i) the Indemnifying Party shall defend the Indemnified Party
against the matter with counsel of its choice reasonably satisfactory to the
Indemnified Party;
(ii) the Indemnified Party may retain separate counsel at its
sole cost and expense (except that the Indemnifying Party will be responsible
for the fees and expenses of the separate counsel to the extent the Indemnified
Party concludes based upon advice of counsel that a conflict of interest exists
between the Indemnified Party and Indemnifying Party that there may be one or
more legal defenses available to the Indemnified Party which are not available
to the Indemnifying Party, or available to the Indemnifying Party, but the
assertion of which would be adverse to the interest of the Indemnified Party);
(iii) the Indemnified Party will not consent to the entry of any
judgment or enter into any settlement with respect to the matter if such
judgment or settlement involves injunctive relief against, or an admission of
wrongdoing affecting, or any economic detriment to, the Indemnifying Party
without the written consent of the Indemnifying Party (not to be withheld
unreasonably); and
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(iv) the Indemnifying Party will not consent to the entry of
any judgment or enter into any settlement which does not include a provision
whereby the plaintiff or claimant in the matter releases the Indemnified Party
from all liability with respect thereto, without the written consent of the
Indemnified Party (not to be withheld unreasonably).
If the Indemnifying Party does not notify the Indemnified Party within 30 days
that it will assume the defense thereof, then the Indemnified Party may defend
against, or enter into any settlement with respect to, the matter in any manner
it reasonably may deem appropriate, without prejudice to any of its rights
hereunder. The Indemnified Party shall be entitled to reimbursement of
reasonable expenses included in Damages with respect to any Claim (including,
without limitation, the cost of defense, preparation and investigation relating
to such Claim) as such expenses are incurred by the Indemnified Party.
(c) Indemnified Party Claims. Claims asserted directly by the
Indemnified Party, rather than indirectly as a result of a claim against the
Indemnified Party by a third party, shall be resolved as follows:
(i) In the event that Indemnifying Party does not contest in
writing the Claim asserted in any notice delivered by the Indemnified Party to
the Indemnifying Party within 30 days of receipt of such notice, then such Claim
shall be deemed accepted and the amount of such Claim shall be paid to the
Indemnified Party within 30 days of the date of deemed acceptance; and
(ii) In the event that the Indemnifying Party contests in
writing the Claims asserted in any notice delivered by the Indemnified Party to
the Indemnifying Party within 30 days of receipt of such notice, then such Claim
shall be deemed contested and the parties, acting in good faith, shall attempt
to reach an agreement with respect to such Claim within 30 days of the date of
the deemed contest; if the parties cannot reach an agreement with respect to
such Claim within such 30-day period, then the Indemnified Party may seek any
remedy available its at law or in equity.
9.3 Limitations on Indemnification. No claim for indemnification may be
made after the Closing by the Indemnified Party unless the aggregate amount of
all losses resulting from Claims incurred by the Indemnified Party and otherwise
indemnified against hereunder exceeds $75,000, in which case the Indemnified
Party shall indemnify the Indemnified Party only to the extent such losses
exceed $75,000. All claims against the Escrow Account shall be allocable one-
half to Stockholder individually and one-half to the holders of the RSA Units
(as a group). The provisions for indemnification set forth in this Article IX
shall be the sole right and remedy of the parties for any and all Claims that
the parties hereto may have against one another hereunder or otherwise arising
under this Agreement or any agreement, document or instrument delivered
hereunder. The obligation of the Stockholder, individually and in his capacity
as representative of the holders of the RSA Units, to indemnify an Indemnified
Party hereunder in respect of any Claim shall be satisfied first from the Escrow
Account, to the extent that there are sufficient funds in the Escrow Account to
satisfy such Claim, and second directly by Stockholder (in which case,
Stockholder shall be obligated to pay
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at least 55% of such Claim in cash, and the remainder may be satisfied by
returning the number of Virata Ordinary Shares (valued at the lesser of $0.70
per share or the fair market value of such Virata Ordinary Shares as determined
in good faith by Virata's Board of Directors) owned by Stockholder necessary to
satisfy the remainder of such Claim). Notwithstanding anything to the contrary
contained herein, the liability of Stockholder, individually and in his capacity
as representative of the holders of the RSA units, to any Indemnified Party in
respect of any and all Claims shall not exceed the sum of the entire amount of
Stockholder's consideration deposited into the Escrow Account and the other
consideration paid to Stockholder pursuant to Section 1.5(a) above, and the
liability of the holders of the RSA Units to any Indemnified Party in respect of
any and all Claims shall not exceed the entire amount of the RSA Unit holders'
consideration deposited into the Escrow Account. Notwithstanding anything to the
contrary contained herein, the liability of Virata to any Indemnified Party in
respect of any Claims shall not exceed the value (measured as of the Closing
Date) of the Virata Shares or Virata Acquisition Options received by such
Indemnified Party pursuant to Section 1.5 above, and the liability of Virata to
all Indemnified Parties in respect of all Claims shall not exceed the value
(measured as of the Closing Date) of the Virata Shares and Virata Acquisition
Options delivered by Virata pursuant to Section 1.5 above.
ARTICLE X
TERMINATION
This Agreement may be terminated at any time prior to the Closing only as
follows:
10.1 Mutual Consent. By the mutual consent of the Boards of Directors of
Virata, Acquisition Sub and RSA Communications and Stockholder.
10.2 Failure to Close. By any of the Boards of Directors of Virata,
Acquisition Sub, or RSA Communications or Stockholder if the Closing shall not
have occurred by the close of business on July 15, 1998; provided, however, that
-------- -------
no party shall be permitted to terminate this Agreement under this Section 10.2
if the Closing shall not have occurred by such date as a result of such party's
breach of any representation, warranty, agreement or covenant contained herein.
10.3 By Virata and Acquisition Sub. By the Boards of Directors of Virata
and Acquisition Sub (a) at any time prior to June 12, 1998, if the results of
its due diligence examination of RSA Communications are not satisfactory to
Virata in its sole discretion, (b) upon the failure of any representation or
warranty made by RSA Communications and Stockholder pursuant to this Agreement,
(c) upon the breach of any covenant of RSA Communications or Stockholder in this
Agreement, (d) upon the default by RSA Communications or Stockholder in the
performance of any of their respective obligations hereunder or (e) upon the
fulfillment of the conditions set forth in Sections 1.10(a).
10.4 By RSA Communications and Stockholder. By the Board of Directors of
RSA Communications and Stockholder (a) at any time prior to June 15, 1998, if
the results of their due diligence examination of Virata are not satisfactory to
RSA Communications and Stockholder in their sole discretion, (b) upon the
failure of any representation or warranty made by Virata
33
<PAGE>
pursuant to this Agreement, (c) upon the breach of any covenant of Virata in
this Agreement or (d) upon the default by Virata in the performance of any of
its obligations hereunder.
No termination of this Agreement under this Article X for any reason or in any
manner shall release any party hereto from its obligations pursuant to Section
11.13 hereof or from any liability or damage to the other parties hereto arising
out of or otherwise relating to any failure, breach or default by such party of
its representations and warranties, covenants or obligations hereunder, which
shall be limited to the non-breaching party's out of pocket expenses, including
reasonable attorneys' fees.
ARTICLE XI
MISCELLANEOUS
11.1 Knowledge. "To the knowledge of" a party and similar phrases means
to the knowledge of the party, after due inquiry of appropriate authorities and
of officers, directors, employees and other representatives of the party and
each of its predecessors and each of the subsidiaries and Affiliates of such
party and its predecessors.
11.2 Expenses. Each party shall bear its own expenses (including without
limitation its attorneys fees) in connection with the transactions contemplated
hereby regardless of whether such transactions are consummated; provided,
--------
however, that the fees and expenses of the Escrow Agent shall be borne by
- -------
Virata, and that Stockholder, not the Surviving Corporation, agrees that
Stockholder shall be liable for any expenses of RSA Communications (including
without limitation its attorneys fees) in connection with the transactions
contemplated hereby; and provided, further, that Virata shall pay the first
-------- -------
$50,000 in legal expenses of Stockholder and RSA Communications relating to the
transactions contemplated hereby and Stockholder shall pay such legal expenses
of Stockholder and RSA Communications exceeding such amount. Notwithstanding
the above sentence, in the event that there are sufficient claims by Virata such
that any payments are made to Virata from the Escrow Account, then all fees and
expenses of the Escrow Agent shall be borne equally by Stockholder and the
holders of the RSA Units in accordance with the terms of the Escrow Agreement.
11.3 Governing Law. The interpretation and construction of this Agreement
and all matters relating hereto shall be governed by the laws of the State of
Delaware applicable to agreements executed and to be performed solely within
such State.
11.4 Captions. The Article and Section captions used herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
11.5 Notices. Any notice or other communication required or permitted
under this Agreement shall be sufficiently given if delivered in person or sent
by telecopy or by registered or certified mail; postage prepaid, addressed as
follows:
34
<PAGE>
if to Virata or: Virata Limited
Acquisition Sub Mount Pleasant House
2 Mount Pleasant
Huntingdon Road
Cambridge CB3 0BL
Facsimile Number 44-1223-516-810
with a copy to: Gibson, Dunn & Crutcher LLP
3100 Telesis Tower
One Montgomery Street
San Francisco, CA 94104-4505
Facsimile Number 415-986-5309
Attention: Douglas D. Smith
if to RSA Communications: RSA Communication, Inc.
or Stockholder 110 Horizon Drive, Suite 200
Raleigh, NC 27615
Facsimile Number 919-846-4737
Attention: Munther Qubain
with a copy to: Hunton & Williams
One Hannover Square
Fayetteville Street Mall
Raleigh, NC 27602
Facsimile Number 919-899-3160
Attention: Timothy Goettel
or such other address or number as shall be furnished in writing by any such
party, and such notice or communication shall be deemed to have been given as of
the date so delivered or sent by facsimile or on the fourth business day after
deposit in the U.S. mail.
11.7 Parties in Interest. This Agreement may not be transferred,
assigned, pledged or hypothecated by any party hereto, other than by operation
of law. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, executors, administrators,
successors and permitted assigns.
11.8 Counterparts. This Agreement may be executed in counterparts, all of
which taken together shall constitute one instrument.
11.9 Entire Agreement. This Agreement, including the other documents
referred to herein and therein which form a part hereof and thereof, contain the
entire understanding of the parties hereto with respect to the subject matter
contained herein and therein. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
35
<PAGE>
11.10 Amendments. This Agreement may not be changed orally, but only by
an agreement in writing signed by Virata, Acquisition Sub, RSA Communications
and Stockholder.
11.11 Severability. In case any provision in this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions hereof will not in any way be affected or impaired
thereby.
11.12 Third Party Beneficiaries. Except as specifically set forth in
Section 9.1, each party hereto intends that this Agreement shall not benefit or
create any right or cause of action in or on behalf of any Person other than the
parties hereto.
11.13. Confidentiality. Confidential, financial or proprietary
information disclosed by any party under this Agreement, as well as the
existence and terms of this Agreement, shall be considered confidential
information (the "Confidential Information") and shall not be disclosed by any
party hereto to any third party. Any party shall immediately notify the
affected party of any information that comes to its attention which might
indicate that there has been a loss of confidentiality with respect to the
Confidential Information. In the event that a party is requested or becomes
legally compelled (by statute, regulation or court order) to disclose any
Confidential Information, such party (the "Disclosing Party") shall provide the
affected party (the "Non-Disclosing Party") with prompt written notice of that
fact so that the other party may seek (with the cooperation and reasonable
efforts of the Disclosing Party) a protective order, confidential treatment or
other appropriate remedy. In such event, the Disclosing Party shall furnish
only that portion of the Confidential Information which is legally required and
shall exercise reasonable efforts to obtain reliable assurance that confidential
treatment will be accorded the Confidential Information to the extent reasonably
requested by the Non-Disclosing Party. The provisions of this Section 11.13
shall be in addition to, and not in substitution for, the provisions of any
separate confidentiality agreement executed by the parties hereto with respect
to the transaction contemplated hereby. Notwithstanding the provisions of this
Section 11.13 above, the parties may disclose their investment in Virata or the
Surviving Corporation, as the case may be, solely to their investors, lenders,
accountants, legal counsel or similar persons, in each case only where such
persons or entities have executed appropriate nondisclosure agreements. None of
the parties hereto shall issue or authorize the issuance of any press release or
make any other public announcement as to this Agreement or the transactions
contemplated hereby without obtaining the prior approval of the other parties
hereto and affording such parties the prior opportunity to review such release
or announcement.
36
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by each of the
parties hereto as of the day and year first above written.
VIRATA LIMITED
By: /s/
--------------------------------------
Name: Charles Cotton
------------------------------------
Title: President and CEO
-----------------------------------
By: /s/
--------------------------------------
Name: Andrew M. Vought
------------------------------------
Title: Chief Financial Officer
-----------------------------------
VIRATA ACQUISITION SUB, INC.
By: /s/
--------------------------------------
Name: Charles Cotton
------------------------------------
Title: President and CEO
-----------------------------------
By: /s/
--------------------------------------
Name: Andrew M. Vought
------------------------------------
Title: Chief Financial Officer
-----------------------------------
RSA COMMUNICATIONS, INC.
By: /s/
--------------------------------------
Name: Munther Qubain
Title: President
By: /s/
--------------------------------------
Name: Carol Palmer
Title: Treasurer and Secretary
MUNTHER QUBAIN
/s/
-----------------------------------------
37
<PAGE>
EXHIBIT 10.3
AMENDMENT NO. 1
TO
AGREEMENT AND PLAN OP MERGER
This AMENDMENT NO. 1 TO THE AGREEMENT AND PLAN OF MERGER (this
"Amendment"), dated as of June 25, 1998, is made by and among Virata Limited, a
corporation organized in the United Kingdom ("Virata"), Virata Acquisition Sub,
Inc., a Delaware corporation ("Acquisition Sub"), USA Communications, Inc., a
Delaware corporation ("RSA Communications"), and Munther Qubain, an individual
("Stockholder").
RECITALS
WHEREAS, the parties hereto entered into that certain Agreement and Plan of
Merger, dated as of June 1,1998 (the "Merger Agreement"), pursuant to which RSA
Communications will merge with and into Acquisition Sub, with Acquisition Sub as
the surviving corporation, on the terms and conditions set forth in the Merger
Agreement; and
WHEREAS, the parties desire to amend the Merger Agreement to reflect
certain agreed upon changes thereto;
NOW, THEREFORE, in consideration of the mutual promises, covenants,
representations and warranties made herein and of the mutual benefits to be
derived herefrom, the parties hereto agree as follows:
AGREEMENT
1. Initially capitalized terms used but not defined herein shall have the
meanings assigned to them in the Merger Agreement.
2. The Merger Agreement is hereby amended as follows:
Amendment to Section 10.2. Section 10.2 of the Merger Agreement is hereby
-------------------------
amended to read in its entirety as follows:
10.2 Failure to Close. By any of the Boards of Directors of Virata,
Acquisition Sub or RSA Communications or Stockholder if the Closing shall not
have occurred by the close of business on July 22, 1998; provided, however, that
-------- -------
no party shall be permitted to terminate this Agreement under this Section 10.2
if the Closing shall not have occurred by such date as a result of such party's
breach of any representation, warranty, agreement or covenant contained herein.
3. This Amendment is, and is to be construed as, an integral part of the
Merger Agreement. Except as expressly amended by this Amendment, all other
terms and provisions of the Merger Agreement remain unmodified and in full force
and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as
of the date first written above.
VIRATA LIMITED
By: /s/
----------------------------------------
Charles Cotton, President and Chief
Executive Officer
By: /s/
----------------------------------------
Andrew Vought, Chief Financial Officer
VIRATA ACQUISITION SUB, INC.
By: /s/
----------------------------------------
Charles Cotton, Chief Executive Officer
By: /s/
----------------------------------------
Andrew Vought, Secretary
RSA COMMUNICATIONS, INC.
By: /s/
----------------------------------------
Munther Qubain, President
By: /s/
----------------------------------------
Carol Palmer, Treasurer and Secretary
/s/
--------------------------------------------
Munther Qubain
2
<PAGE>
EXHIBIT 10.4
RSA COMMUNICATIONS, INC.
1998 STOCK INCENTIVE PLAN
INCENTIVE STOCK OPTION AGREEMENT
--------------------------------
This Incentive Stock Option Agreement ("Agreement") is made and
entered into as of the Date of Grant indicated below among Virata Limited, a
corporation organized in the United Kingdom ("Virata"), RSA Communications,
Inc., a Delaware corporation (the "Company") and a wholly-owned subsidiary of
Virata, and the person named below as Employee.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER
THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THAT
ACT AND UNDER APPLICABLE STATE SECURITIES LAW OR VIRATA LIMITED
SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION
OF SUCH SECURITIES UNDER THAT ACT AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
WHEREAS, Employee is an employee of the Company and/or one or more of
its subsidiaries; and
WHEREAS, pursuant to the Company's 1998 Stock Incentive Plan (as
amended from time to time, the "Plan"), the Compensation Committee of the Board
of Directors of Virata administering the Plan (the "Committee") has approved the
grant to Employee of an option to purchase Ordinary Shares, par value Great
Britain Pounds Sterling 0.01 per share, of Virata or any stock into which such
Ordinary Shares shall have been changed or any stock resulting from any
reclassification of such Ordinary Shares, on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants set forth herein, the parties hereto hereby agree as follows:
1. Grant of Option; Certain Terms and Conditions. Virata and the
---------------------------------------------
Company hereby grant to Employee, and Employee hereby accepts, as of the Date of
Grant, an option (the "Option") to purchase the number of Ordinary Shares
indicated below (the "Option Shares") at the Exercise Price per share indicated
below, which option shall expire at 5:00 o'clock p.m., California time, on the
Expiration Date indicated below and shall be subject to all of the terms and
conditions set forth in this Agreement (the "Option"). The Option shall become
exercisable to purchase upon vesting, and shall vest with respect to that number
of Option Shares (rounded to the nearest whole share) equal to the total number
of Option Shares multiplied by the Vesting Rate indicated below (the "Options
Subject to Vesting").
<PAGE>
(a) Employee: (EmployeeName)
--------
(b) Date of Grant: July ____, 1998
-------------
(c) Number of shares purchasable: (Options)
----------------------------
(d) Exercise Price per share: $0.70
------------------------
(e) Expiration Date: The Option shall lapse and expire on the
---------------
seventh anniversary of the Date of Grant. The Period from Date
of Grant to the Expiration Date is referred to as the "Term."
(f) Vesting Rate: 33% of the Option Shares on the first anniversary
------------
of the date of grant and one-thirty sixth (1/36) of the Option
Shares each month thereafter until 100% vested.
The Option is intended to qualify as an incentive stock option
under Section 422 of the Internal Revenue Code.
2. Termination of Employment.
-------------------------
(a) Termination for Any Reason. If Employee ceases to be an
--------------------------
employee of the Company or any of its subsidiaries (a "Termination of
Employment") for any reason whatsoever including for Cause (as defined in
the Plan), other than death or Permanent Disability (as herein defined),
then (A) the portion of the Option that has not vested on or prior to the
date of such Termination of Employment shall terminate on such date;
provided, however, that if the Termination of Employment occurred as a
-------- -------
result of a Constructive Discharge (as herein defined) or because the
Company terminated Employee for reasons other than for Cause, then the
portion of the Option that has not vested shall immediately vest as of the
date of such Termination of Employment, and (B) the vested portion of the
Option shall terminate on the date that is three months after the date of
such Termination of Employment or the Expiration Date, whichever is
earlier. "Constructive Discharge" is defined as Employee's termination of
employment within six months of any of the following without Employee's
express written consent (i) a reduction by the Company in Employee's cash
compensation as in effect on the day after the closing of the transactions
contemplated by the Merger Agreement; (ii) a relocation to a place more
than 50 miles from the office regularly occupied by Employee, except for
required travel by Employee on the Company's business to an extent
substantially consistent with Employee's duties; provided, however, this
-------- -------
provision shall not apply if substantially all of the Company's operations
moves to a different location greater than 50 miles from its old location,
or (iii) a material diminution by the Company in Employee's title at the
Company on the date hereof.
2
<PAGE>
(b) Death or Permanent Disability. If Employee's Employment is
-----------------------------
terminated by reason of the death or Permanent Disability (as hereinafter
defined), then (A) the portion of the Option that has not vested on or
prior to the date of such Termination of Employment shall immediately vest
as of the date of such Termination of Employment and (B) the Option shall
terminate upon the earlier of the Expiration Date or the date that is six
months after the date of such Termination of Employment. "Permanent
Disability" shall mean the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment that can be expected to result in death or that has lasted or
can be expected to last for a continuous period of not less than 12 months.
Employee shall not be deemed to have a Permanent Disability until proof of
the existence thereof shall have been furnished in writing to the Board by
two (2) independent physicians mutually acceptable to the Company and
Employee.
3. Adjustments. In the event that the outstanding securities of the
-----------
class then subject to the Option are increased, decreased or exchanged for or
converted into cash, property and/or a different number or kind of securities,
or cash, property and/or securities are distributed in respect of such
outstanding securities, in either case as a result of a reorganization, merger,
consolidation, recapitalization, reclassification, dividend (other than a
regular, quarterly cash dividend) or other distribution, stock split, reverse
stock split or the like, or in the event that substantially all of the property
and assets of the Company are sold, then, unless the terms of such transaction
provide otherwise, the Committee shall make appropriate and proportionate
adjustments in the number, exercise price and type of shares or other securities
or cash or other property, as applicable, that may thereafter be acquired upon
the exercise of the Option; provided, however, that any such adjustments in the
-------- -------
Option shall be made without changing the aggregate Exercise Price of the then
unexercised portion of the Option.
4. Exercise of Option. The Option shall be exercisable during
------------------
Employee's lifetime only by Employee or by his or her guardian or legal
representative, and after Employee's death only by the person or entity entitled
to do so under Employee's last will and testament or applicable intestate law.
The Option may be exercised in whole or in part on not more than three occasions
during the Term and only by the delivery to the Company of a written notice of
such exercise, which notice shall specify the number of Option Shares to be
purchased and the aggregate Exercise Price for such shares (the "Exercise
Notice"), together with payment in full of such aggregate Exercise Price in cash
or by check payable to the Company; provided, however, that payment of such
-------- -------
aggregate Exercise Price may instead be made, in whole or in part, by (i) the
delivery to the Company of a certificate or certificates representing shares of
Ordinary Shares or other securities of the Company, duly endorsed or accompanied
by a duly executed stock power, which delivery effectively transfers to the
Company good and valid title to such shares, free and clear of any pledge,
commitment, lien, claim or other encumbrance (such shares to be valued on the
basis of the aggregate Fair Market Value (as defined in the Plan) thereof on the
date of such exercise), or (ii) by a reduction in the amount of Ordinary Shares
or other property otherwise issuable pursuant to such Option (such reduction to
be valued on the basis of the aggregate Fair Market Value, on
3
<PAGE>
the date of exercise, of the additional Ordinary Shares that would have been
delivered to the Employee upon exercise of the Option), provided that the
Company is not then prohibited from purchasing or acquiring Ordinary Shares.
5. Payment of Withholding Taxes. If the Company becomes obligated to
----------------------------
withhold an amount on account of any tax imposed as a result of the exercise of
the Option, including, without limitation, any federal, state, local or other
income tax, or any F.I.C.A., state disability insurance tax or other employment
tax, then Employee shall, as a condition to exercising the option, pay such
amount to the Company in cash or by check payable to the Company; provided,
--------
however, that payment of such tax withholding obligations may instead be made,
- -------
in whole or in part, by (i) the delivery to the Company of a certificate or
certificates representing Ordinary Shares or other securities of the Company,
duly endorsed or accompanied by a duly executed stock power, which delivery
effectively transfers to the Company good and valid title to such shares, free
and clear of any pledge, commitment, lien, claim or other encumbrance (such
shares to be valued on the basis of the aggregate Fair Market Value (as defined
in the Plan) thereof on the date of the Exercise giving rise to the tax
withholding obligation), or (ii) by a reduction in the amount of Ordinary Shares
or other property otherwise issuable pursuant to the Exercise of the Option
giving rise to the tax withholding obligation (such reduction to be valued on
the basis of the aggregate Fair Market Value, on the date of such Exercise, of
the additional Ordinary Shares that would have been delivered to the Employee
upon such Exercise of the Option), provided that the Company is not then
prohibited from purchasing or acquiring such Ordinary Shares.
6. Notices. All notices and other communications required or
-------
permitted to be given pursuant to this Agreement shall be in writing and shall
be deemed given if delivered personally or five days after mailing by certified
or registered mail, postage prepaid, return receipt requested, to the Company at
2933 Bunker Hill Lane, Suite 201, Santa Clara, California 95054, telephone
number: (408) 566-1000, or to Employee at the address set forth beneath his or
her signature on the signature page hereto, or at such other addresses as they
may designate by written notice in the manner aforesaid.
7. Stock Exchange Requirements; Applicable Laws. Notwithstanding
--------------------------------------------
anything to the contrary in this Agreement, no shares of stock purchased upon
exercise of the Option, and no certificate representing all or any part of such
shares, shall be issued or delivered if (a) such shares have not been admitted
to listing upon official notice of issuance on each stock exchange upon which
shares of that class are then listed or (b) in the opinion of counsel to the
Company, such issuance or delivery would cause the Company to be in violation of
or to incur liability under any federal, state or other securities law, or any
requirement of any stock exchange listing agreement to which the Company is a
party, or any other requirement of law or of any administrative or regulatory
body having jurisdiction over the Company.
8. Nontransferability. Neither the Option nor any interest therein
------------------
may be Transferred in any manner, including any sale, exchange, assignment,
transfer, pledge, mortgage, hypothecation, gift, grant, encumbrance or other
disposition of any kind, whether
4
<PAGE>
voluntary, involuntary or by operation of law and whether direct or indirect,
other than by will or the laws of descent and distribution.
9. Plan. The Option is granted pursuant to the Plan, as in effect on
----
the Date of Grant, and is subject to all the terms and conditions of the Plan,
as the same may be amended from time to time; provided, however, that no such
-------- -------
amendment shall deprive Employee, without his or her consent, of the Option or
of any of Employee's rights under this Agreement. The interpretation and
construction by the Committee of the Plan, this Agreement, the Option and such
rules and regulations as may be adopted by the Committee for the purpose of
administering the Plan shall be final and binding upon Employee. Until the
Option shall expire, terminate or be exercised in full, the Company shall, upon
written request therefor, send a copy of the Plan, in its then-current form, to
Employee or any other person or entity then entitled to exercise the Option.
10. Stockholder Rights. No person or entity shall be entitled to
------------------
vote, receive dividends or be deemed for any purpose the holder of any Option
Shares until the Option shall have been duly exercised to purchase such Option
Shares in accordance with the provisions of this Agreement and the certificate
of such shares shall have been issued.
11. Employment Rights. No provision of this Agreement or of the
-----------------
Option granted hereunder shall (a) confer upon Employee any right to continue in
the employ of the Company or any of its subsidiaries, (b) affect the right of
the Company and any of its subsidiaries to terminate the employment of Employee,
with or without cause, or (c) confer upon Employee any right to participate in
any employee welfare or benefit plan or other program of the Company or any of
its subsidiaries other than the Plan. Employee hereby acknowledges and agrees
that the Company and each of its subsidiaries may terminate the employment of
Employee at any time and for any reason, or for no reason, unless employee and
the Company or such subsidiary are parties to a written employment agreement
that expressly provides otherwise.
12. Governing Law. This Agreement and the Option granted hereunder
-------------
shall be governed by and construed and enforced in accordance with the laws of
the State of California without reference to choice or conflict of law
principles.
13. Financial Information. The Company shall provide summary
---------------------
financial statements to Employee on an annual basis.
14. Options and Shares Issuable Upon Exercise Not Registered.
--------------------------------------------------------
Employee, by accepting the Options, acknowledges that the Options are not, and
Ordinary Shares and other securities issuable upon exercise of the Options may
not be, registered under the Securities Act, and represents that he or she has
acquired the Options for his or her own account and not with a present view to,
or in connection with, any distribution thereof in violation of the Securities
Act. Unless and until registered under the Securities Act, each stock
certificate representing Ordinary Shares and other securities purchased upon
exercise of one or more Options shall be stamped or otherwise imprinted with the
following legend:
5
<PAGE>
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER
THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THAT
ACT AND UNDER APPLICABLE STATE SECURITIES LAW OR VIRATA LIMITED
SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION
OF SUCH SECURITIES UNDER THAT ACT AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED."
15. Shareholder Approval. Any Option granted pursuant to his
--------------------
Agreement shall not be effective until the Plan has been approved by the
affirmative votes of the holders of a majority of the securities of Virata and
the Company.
IN WITNESS WHEREOF, the Company and Employee have duly executed this
Agreement as of the Date of Grant.
RSA Communications, Inc., a Delaware corporation
By________________________________
Title:
__________________________________
Signature
__________________________________
Street Address
__________________________________
City, State and Zip Code
__________________________________
Social Security Number
6
<PAGE>
EXHIBIT 10.5
RSA COMMUNICATIONS, INC.
1998 STOCK INCENTIVE PLAN
INCENTIVE STOCK OPTION AGREEMENT
--------------------------------
This Incentive Stock Option Agreement ("Agreement") is made and
entered into as of the Date of Grant indicated below among Virata Limited, a
corporation organized in the United Kingdom ("Virata"), RSA Communications,
Inc., a Delaware corporation (the "Company") and a wholly-owned subsidiary of
Virata, and the person named below as Employee.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS
OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS REGISTERED UNDER THAT ACT AND UNDER APPLICABLE STATE SECURITIES LAW
OR VIRATA LIMITED SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT
REGISTRATION OF SUCH SECURITIES UNDER THAT ACT AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
WHEREAS, Employee is an employee of the Company and/or one or more of
its subsidiaries; and
WHEREAS, pursuant to the Company's 1998 Stock Incentive Plan (as
amended from time to time, the "Plan"), the Compensation Committee of the Board
of Directors of Virata administering the Plan (the "Committee") has approved the
grant to Employee of an option to purchase Ordinary Shares, par value Great
Britain Pounds Sterling 0.01 per share, of Virata or any stock into which such
Ordinary Shares shall have been changed or any stock resulting from any
reclassification of such Ordinary Shares, on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants set forth herein, the parties hereto hereby agree as follows:
1. Grant of Option; Certain Terms and Conditions. Virata and the
---------------------------------------------
Company hereby grant to Employee, and Employee hereby accepts, as of the Date of
Grant, an option (the "Option") to purchase the number of Ordinary Shares
indicated below (the "Option Shares") at the Exercise Price per share indicated
below, which option shall expire at 5:00 o'clock p.m., California time, on the
Expiration Date indicated below and shall be subject to all of the terms and
conditions set forth in this Agreement (the "Option"). The Option shall become
exercisable to purchase upon vesting, and shall vest with respect to that number
of Option Shares (rounded to the nearest whole share) equal to the total number
of Option Shares multiplied by the Vesting Rate indicated below (the "Options
Subject to Vesting").
<PAGE>
(a) Employee: <<Employee Name>>
--------
(b) Date of Grant: July ___, 1998
-------------
(c) Number of shares purchasable: <<Options>>
----------------------------
(d) Exercise Price per share: $0.70
------------------------
(e) Expiration Date: The Option shall lapse and expire on the
---------------
seventh anniversary of the Date of Grant. The Period from Date
of Grant to the Expiration Date is referred to as the "Term."
(f) Vesting Rate: 25% of the Option Shares on the first anniversary
------------
of the date of grant and one-forty eighth (1/48) of the Option
Shares each month thereafter until 100% vested.
The Option is intended to qualify as an incentive stock option
under Section 422 of the Internal Revenue Code.
2. Termination of Employment.
-------------------------
(a) Termination for Any Reason. If Employee ceases to be an
--------------------------
employee of the Company or any of its subsidiaries (a "Termination of
Employment") for any reason whatsoever including for cause as defined the
in the Plan, other than death or Permanent Disability, then (A) the portion
of the Option that has not vested on or prior to the date of such
Termination of Employment shall terminate on such date and (B) the
remaining vested portion of the Option shall terminate on the date that is
three months after the date of such Termination of Employment or the
Expiration Date, whichever is earlier.
(b) Death or Permanent Disability. If Employee's Employment is
-----------------------------
terminated by reason of the death or Permanent Disability (as hereinafter
defined) of Employee, then (A) the portion of the Option that has not
vested on or prior to the date of such Termination of Employment shall
terminate on such date and (B) the remaining vested portion of the Option
shall terminate upon the earlier of the Expiration Date or the date that is
six months after the date of such Termination of Employment. "Permanent
Disability" shall mean the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment that can be expected to result in death or that has lasted or
can be expected to last for a continuous period of not less than 12 months.
Employee shall not be deemed to have a Permanent Disability until proof of
the existence thereof shall have been furnished in writing to the Board by
two (2) independent physicians mutually acceptable to the Company and
Employee.
2
<PAGE>
3. Adjustments. In the event that the outstanding securities of the
------------
class then subject to the Option are increased, decreased or exchanged for or
converted into cash, property and/or a different number or kind of securities,
or cash, property and/or securities are distributed in respect of such
outstanding securities, in either case as a result of a reorganization, merger,
consolidation, recapitalization, reclassification, dividend (other than a
regular, quarterly cash dividend) or other distribution, stock split, reverse
stock split or the like, or in the event that substantially all of the property
and assets of the Company are sold, then, unless the terms of such transaction
provide otherwise, the Committee shall make appropriate and proportionate
adjustments in the number, exercise price and type of shares or other securities
or cash or other property, as applicable, that may thereafter be acquired upon
the exercise of the Option; provided, however, that any such adjustments in the
-------- -------
Option shall be made without changing the aggregate Exercise Price of the then
unexercised portion of the Option.
4. Exercise of Option. The Option shall be exercisable during
-------------------
Employee's lifetime only by Employee or by his or her guardian or legal
representative, and after Employee's death only by the person or entity entitled
to do so under Employee's last will and testament or applicable intestate law.
The Option may be exercised in whole or in part on not more than three occasions
during the Term and only by the delivery to the Company of a written notice of
such exercise, which notice shall specify the number of Option Shares to be
purchased and the aggregate Exercise Price for such shares (the "Exercise
Notice"), together with payment in full of such aggregate Exercise Price in cash
or by check payable to the Company; provided, however, that payment of such
-------- -------
aggregate Exercise Price may instead be made, in whole or in part, by (i) the
delivery to the Company of a certificate or certificates representing shares of
Ordinary Shares or other securities of the Company, duly endorsed or accompanied
by a duly executed stock power, which delivery effectively transfers to the
Company good and valid title to such shares, free and clear of any pledge,
commitment, lien, claim or other encumbrance (such shares to be valued on the
basis of the aggregate Fair Market Value (as defined in the Plan) thereof on the
date of such exercise), or (ii) by a reduction in the amount of Ordinary Shares
or other property otherwise issuable pursuant to such Option (such reduction to
be valued on the basis of the aggregate Fair Market Value, on the date of
exercise, of the additional Ordinary Shares that would have been delivered to
the Employee upon exercise of the Option), provided that the Company is not then
prohibited from purchasing or acquiring Ordinary Shares.
5. Payment of Withholding Taxes. If the Company becomes obligated to
----------------------------
withhold an amount on account of any tax imposed as a result of the exercise of
the Option, including, without limitation, any federal, state, local or other
income tax, or any F.I.C.A., state disability insurance tax or other employment
tax, then Employee shall, as a condition to exercising the option, pay such
amount to the Company in cash or by check payable to the Company; provided,
--------
however, that payment of such tax withholding obligations may instead be made,
- -------
in whole or in part, by (i) the delivery to the Company of a certificate or
certificates representing Ordinary Shares or other securities of the Company,
duly endorsed or accompanied by a duly executed stock power, which delivery
effectively transfers to the Company good and valid title to such shares, free
and clear of any pledge, commitment, lien,
3
<PAGE>
claim or other encumbrance (such shares to be valued on the basis of the
aggregate Fair Market Value (as defined in the Plan) thereof on the date of the
Exercise giving rise to the tax withholding obligation), or (ii) by a reduction
in the amount of Ordinary Shares or other property otherwise issuable pursuant
to the Exercise of the Option giving rise to the tax withholding obligation
(such reduction to be valued on the basis of the aggregate Fair Market Value, on
the date of such Exercise, of the additional Ordinary Shares that would have
been delivered to the Employee upon such Exercise of the Option), provided that
the Company is not then prohibited from purchasing or acquiring such Ordinary
Shares.
6. Notices. All notices and other communications required or
-------
permitted to be given pursuant to this Agreement shall be in writing and shall
be deemed given if delivered personally or five days after mailing by certified
or registered mail, postage prepaid, return receipt requested, to the Company at
2933 Bunker Hill Lane, Suite 201, Santa Clara, California 95054, telephone
number: (408) 566-1000, or to Employee at the address set forth beneath his or
her signature on the signature page hereto, or at such other addresses as they
may designate by written notice in the manner aforesaid.
7. Stock Exchange Requirements; Applicable Laws. Notwithstanding
--------------------------------------------
anything to the contrary in this Agreement, no shares of stock purchased upon
exercise of the Option, and no certificate representing all or any part of such
shares, shall be issued or delivered if (a) such shares have not been admitted
to listing upon official notice of issuance on each stock exchange upon which
shares of that class are then listed or (b) in the opinion of counsel to the
Company, such issuance or delivery would cause the Company to be in violation of
or to incur liability under any federal, state or other securities law, or any
requirement of any stock exchange listing agreement to which the Company is a
party, or any other requirement of law or of any administrative or regulatory
body having jurisdiction over the Company.
8. Nontransferability. Neither the Option nor any interest therein
------------------
may be Transferred in any manner, including any sale, exchange, assignment,
transfer, pledge, mortgage, hypothecation, gift, grant, encumbrance or other
disposition of any kind, whether voluntary, involuntary or by operation of law
and whether direct or indirect, other than by will or the laws of descent and
distribution.
9. Plan. The Option is granted pursuant to the Plan, as in effect on
----
the Date of Grant, and is subject to all the terms and conditions of the Plan,
as the same may be amended from time to time; provided, however, that no such
-------- -------
amendment shall deprive Employee, without his or her consent, of the Option or
of any of Employee's rights under this Agreement. The interpretation and
construction by the Committee of the Plan, this Agreement, the Option and such
rules and regulations as may be adopted by the Committee for the purpose of
administering the Plan shall be final and binding upon Employee. Until the
Option shall expire, terminate or be exercised in full, the Company shall, upon
written request therefor, send a copy of the Plan, in its then-current form, to
Employee or any other person or entity then entitled to exercise the Option.
4
<PAGE>
10. Stockholder Rights. No person or entity shall be entitled to
------------------
vote, receive dividends or be deemed for any purpose the holder of any Option
Shares until the Option shall have been duly exercised to purchase such Option
Shares in accordance with the provisions of this Agreement and the certificate
of such shares shall have been issued.
11. Employment Rights. No provision of this Agreement or of the
-----------------
Option granted hereunder shall (a) confer upon Employee any right to continue in
the employ of the Company or any of its subsidiaries, (b) affect the right of
the Company and any of its subsidiaries to terminate the employment of Employee,
with or without cause, or (c) confer upon Employee any right to participate in
any employee welfare or benefit plan or other program of the Company or any of
its subsidiaries other than the Plan. Employee hereby acknowledges and agrees
that the Company and each of its subsidiaries may terminate the employment of
Employee at any time and for any reason, or for no reason, unless Employee and
the Company or such subsidiary are parties to a written employment agreement
that expressly provides otherwise.
12. Governing Law. This Agreement and the Option granted hereunder
-------------
shall be governed by and construed and enforced in accordance with the laws of
the State of California without reference to choice or conflict of law
principles.
13. Financial Information. The Company shall provide summary
---------------------
financial statements to Employee on an annual basis.
14. Options and Shares Issuable Upon Exercise Not Registered.
--------------------------------------------------------
Employee, by accepting the Options, acknowledges that the Options are not, and
Ordinary Shares and other securities issuable upon exercise of the Options may
not be, registered under the Securities Act, and represents that he or she has
acquired the Options for his or her own account and not with a present view to,
or in connection with, any distribution thereof in violation of the Securities
Act. Unless and until registered under the Securities Act, each stock
certificate representing Ordinary Shares and other securities purchased upon
exercise of one or more Options shall be stamped or otherwise imprinted with the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS
OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS REGISTERED UNDER THAT ACT AND UNDER APPLICABLE STATE SECURITIES LAW
OR VIRATA LIMITED SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT
REGISTRATION OF SUCH SECURITIES UNDER THAT ACT AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED."
15. Shareholder Approval. Any Option granted pursuant to his
--------------------
Agreement shall not be effective until the Plan has been approved by the
affirmative votes of the holders of a majority of the securities of Virata and
the Company.
5
<PAGE>
IN WITNESS WHEREOF, the Company and Employee have duly executed this
Agreement as of the Date of Grant.
RSA Communications, Inc., a Delaware corporation
By________________________________
Title:
__________________________________
Signature
__________________________________
Street Address
__________________________________
City, State and Zip Code
__________________________________
Social Security Number
6
<PAGE>
EXHIBIT 10.6
RSA COMMUNICATIONS, INC.
1998 NON-QUALIFIED STOCK PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
-----------------------------------
This Nonqualified Stock Option Agreement ("Agreement") is made and
entered into as of the Date of Grant indicated below by and between RSA
Communications, Inc., a Delaware corporation (the "Company"), and the person
named below as Employee.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS
OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS REGISTERED UNDER THAT ACT AND UNDER APPLICABLE STATE SECURITIES LAW
OR VIRATA LIMITED SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT
REGISTRATION OF SUCH SECURITIES UNDER THAT ACT AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
WHEREAS, Employee is an employee of the Company and/or one or more of
its subsidiaries;
WHEREAS, the Company is an indirect subsidiary of Virata Limited, a
corporation organized in the United Kingdom ("Virata"); and
WHEREAS, pursuant to the Company's 1998 Non-Qualified Stock Plan (as
amended from time to time, the "Plan"), the committee of the Board of Directors
of Virata administering the Plan (the "Committee") has approved the grant to
Employee of an option to purchase Ordinary Shares, par value Great Britain
Pounds Sterling 0.01 per share, of Virata or any stock into which such Ordinary
Shares shall have been changed or any stock resulting from the reclassification
of such Ordinary Shares (the "Common Stock"), on the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants set forth herein, the parties hereto hereby agree as follows:
1. Grant of Option; Certain Terms and Conditions. The Company hereby
---------------------------------------------
grants to Employee, and Employee hereby accepts, as of the Date of Grant, an
option (the "Option") to purchase the number of shares of Common Stock indicated
below (the "Option Shares") at the Exercise Price per share indicated below,
which option shall expire at 5:00 o'clock p.m., California time, on the
Expiration Date indicated below and shall be subject to all of the terms and
conditions set forth in this Agreement (the "Option"). The Option shall become
exercisable to purchase immediately.
<PAGE>
(a) Employee: (Employee Name)
(b) Date of Grant: July____,1998
(c) Number of shares purchasable: (Options)
(d) Exercise Price per share: $0.25
(e) Expiration Date: The Option shall lapse and expire on the
seventh anniversary of the Date of Grant. The period from Date
of Grant to the Expiration Date is referred to as the "Term."
The Option is not intended to qualify as an incentive stock option
under Section 422 of the Internal Revenue Code.
2. Termination of Employment.
-------------------------
(a) Termination for Any Reason. If Employee ceases to be an
employee the Company or any of its subsidiaries or affiliates (a "Termination of
Employment") for any reason whatsoever, other than death or Permanent
Disability, then the Option shall terminate on the date that is 90 days after
the date of such Termination of Employment.
(b) Death or Permanent Disability. If Employee's Employment is
-----------------------------
terminated by reason of the death or Permanent Disability (as hereinafter
defined) of Employee, then the Option shall terminate upon the earlier of the
Expiration Date or the date that is six months after the date of such
Termination of Employment. "Permanent Disability" shall mean the inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to result in
death or that has lasted or can be expected to last for a continuous period of
not less than 12 months. Employee shall not be deemed to have a Permanent
Disability until proof of the existence thereof shall have been furnished in
writing to the Board by two (2) independent physicians mutually acceptable to
the Company and Stockholder.
3. Adjustments. In the event that the outstanding securities of the
-----------
class then subject to the Option are increased, decreased or exchanged for or
converted into cash, property and/or a different number or kind of securities,
or cash, property and/or securities are distributed in respect of such
outstanding securities, in either case as a result of a reorganization, merger,
consolidation, recapitalization, reclassification, dividend (other than a
regular, quarterly cash dividend) or other distribution, stock split, reverse
stock split or the like, or in the event that substantially all of the property
and assets of the Company are sold, then, unless the terms of such transaction
provide otherwise, the Committee shall make appropriate and proportionate
adjustments in the number, exercise price and type of shares or other securities
or cash or other property, as applicable, that may thereafter be acquired upon
the exercise of the Option; provided, however, that any such adjustments in the
Option shall be
2
<PAGE>
made without changing the aggregate Exercise Price of the then unexercised
portion of the Option.
4. Exercise of Option. The Option shall be exercisable during
------------------
Employee's lifetime only by Employee or by his or her guardian or legal
representative, and after Employee's death only by the person or entity entitled
to do so under Employee's last will and testament or applicable intestate law.
The Option may be exercised in whole or in part on not more than three occasions
during the Term and only by the delivery to the Company of a written notice of
such exercise, which notice shall specify the number of Option Shares to be
purchased (the "Purchased Shares") and the aggregate Exercise Price for such
shares (the "Exercise Notice"), together with payment in full of such aggregate
Exercise Price in cash or by check payable to the Company; provided, however,
that payment of such aggregate Exercise Price may instead be made, in whole or
in part, by (i) the delivery to the Company of a certificate or certificates
representing shares of Common Stock or other securities of the Company, duly
endorsed or accompanied by a duly executed stock power, which delivery
effectively Transfers to the Company good and valid title to such shares, free
and clear of any pledge, commitment, lien, claim or other encumbrance (such
shares to be valued on the basis of the aggregate Fair Market Value (as defined
in the Plan) thereof on the date of such exercise), or (ii) by a reduction in
the amount of Purchased Shares or other property otherwise issuable pursuant to
such Option (such reduction to be valued on the basis of the aggregate Fair
Market Value, on the date of exercise, of the additional Purchased Shares that
would have been delivered to the Employee upon exercise of the Option), provided
that the Company is not then prohibited from purchasing or acquiring such shares
of Common Stock.
5. Payment of Withholding Taxes. If the Company becomes obligated to
----------------------------
withhold an amount on account of any tax imposed as a result of the exercise of
the Option, including, without limitation, any federal, state, local or other
income tax, or any F.I.C.A., state disability insurance tax or other employment
tax, then Employee shall, on the first day upon which the Company becomes
obligated to pay such amount to the appropriate taxing authority, pay such
amount to the Company in cash or by check payable to the Company; provided,
however, that payment of such tax withholding obligations may instead be made,
in whole or in part, by (i) the delivery to the Company of a certificate or
certificates representing shares of Common Stock or other securities of the
Company, duly endorsed or accompanied by a duly executed stock power, which
delivery effectively Transfers to the Company good and valid title to such
shares, free and clear of any pledge, commitment, lien, claim or other
encumbrance (such shares to be valued on the basis of the aggregate Fair Market
Value (as defined in the Plan) thereof on the date of the exercise giving rise
to the tax withholding obligation), or (ii) by a reduction in the amount of
Purchased Shares or other property otherwise issuable pursuant to the exercise
of the Option giving rise to the tax withholding obligation (such reduction to
be valued on the basis of the aggregate Fair Market Value, on the date of such
exercise, of the additional Purchased Shares that would have been del ivered to
the Employee upon such exercise of the Option), provided that the Company is not
then prohibited from purchasing or acquiring such shares of Common Stock.
3
<PAGE>
6. Notices. All notices and other communications required or
-------
permitted to be given pursuant to this Agreement shall be in writing and shall
be deemed given if delivered personally or five days after mailing by certified
or registered mail, postage prepaid, return receipt requested, to the Company at
2933 Bunker Hill Lane, Suite 201, Santa Clara, California 95054, telephone
number (408) 566-1000, or to Employee at the address set forth beneath his or
her signature on the signature page hereto, or at such other addresses as they
may designate by written notice in the manner aforesaid.
7. Nontransferability. Neither the Option nor any interest therein
------------------
may be Transferred in any manner, including any sale, exchange, assignment,
transfer, pledge, mortgage, hypothecation, gift, grant, encumbrance or other
disposition of any kind, whether voluntary, involuntary or by operation of law
and whether indirect or indirect, other than by will or the laws of descent and
distribution.
8. Plan. The Option is granted pursuant to the Plan, as in effect on
----
the Date of Grant, and is subject to all the terms and conditions of the Plan,
as the same may be amended from time to time; provided, however, that no such
-------- -------
amendment shall deprive Employee, without his or her consent, of the Option or
of any of Employee's rights under this Agreement. The interpretation and
construction by the Committee of the Plan, this Agreement, the Option and such
rules and regulations as may be adopted by the Committee for the purpose of
administering the Plan shall be final and binding upon Employee. Until the
Option shall expire, terminate or be exercised in full, the Company shall, upon
written request therefor, send a copy of the Plan, in its then-current form, to
Employee or any other person or entity then entitled to exercise the Option.
9. Stockholder Rights. No person or entity shall be entitled to
------------------
vote, receive dividends or be deemed for any purpose the holder of any Option
Shares until the Option shall have been duly exercised to purchase such Option
Shares in accordance with the provisions of this Agreement.
10. Employment Rights. No provision of this Agreement or of the
-----------------
Option granted hereunder shall (a) confer upon Employee any right to continue in
the employ of the Company or any of its subsidiaries, (b) affect the right of
the Company and each of its subsidiaries to terminate the employment of
Employee, with or without cause, or (c) confer upon Employee any right to
participate in any employee welfare or benefit plan or other program of the
Company or any of its subsidiaries other than the Plan. Employee hereby
acknowledges and agrees that the Company and each of its subsidiaries may
terminate the employment of Employee at any time and for any reason, or for no
reason, unless Employee and the Company or such subsidiary are parties to a
written employment agreement that expressly provides otherwise.
11. Governing Law. This Agreement and the Option granted hereunder
-------------
shall be governed by and construed and enforced in accordance with the laws of
the State of California without reference to choice or conflict of law
principles.
4
<PAGE>
12. No Stockholder Rights. The Options are not considered to be
---------------------
equity securities of the Company or Virata and will not have any rights to vote
or receive dividends.
13. Options and Shares Issuable Upon Exercise Not Registered.
--------------------------------------------------------
Employee, by accepting the Options, acknowledges that the Options are not, and
the Common Stock and other securities issuable upon exercise of the Options may
not be, registered under the Securities Act, and represents that he or she has
acquired the Options for his or her own account and not with a present view to,
or in connection with, any distribution thereof in violation of the Securities
Act. Unless and until registered under the Securities Act, each stock
certificate representing the Common Stock and other securities purchased upon
exercise of one or more Options shall be stamped or otherwise imprinted with the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS
OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS REGISTERED UNDER THAT ACT AND UNDER APPLICABLE STATE SECURITIES LAW
OR VIRATA LIMITED SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT
REGISTRATION OF SUCH SECURITIES UNDER THAT ACT AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED."
5
<PAGE>
IN WITNESS WHEREOF, the Company and Employee have duly executed this
Agreement as of the Date of Grant.
RSA Communications, Inc., a Delaware corporation
By________________________________
Title:
__________________________________
Signature
__________________________________
Street Address
__________________________________
City, State and Zip Code
__________________________________
Social Security Number
6
<PAGE>
EXHIBIT 10.7
WARRANT AGREEMENT
THIS WARRANT AGREEMENT is made as of the 4th day of June, 1998 between:
1. VIRATA LIMITED (Company Registration No. 2798338), the registered
office of which is situated at Mount Pleasant House, 2 Mount
Pleasant, Huntingdon Road, Cambridge CB3 0BL ("Grantor"); and
2. INDEX SECURITIES S.A., the principal office of which is situated at
2, rue de Jargonnant, 1207 Geneva, Switzerland ("Grantee").
RECITALS
A. By a letter of engagement dated 23 January 1998 ("Engagement
Letter"), the Grantor appointed the Grantee to act as its placement
agent in connection with the private placing by the Grantor of
securities of the Grantor to private, corporate, venture capital and
institutional investors pursuant to a private placement memorandum
("Offering").
B. By a resolution of the board of directors of the Grantor passed on 28
April 1998 the Grantor resolved to issue warrants conferring the
right on holders thereof to subscribe for up to [One Million, Five
Hundred Ninety-Five Thousand, Fifty-Four (1,595,054)] "D" Preference
Shares (as defined below) in the capital of the Grantor on the terms
and conditions contained in this Agreement.
C. The Grantor has agreed to grant to the Grantee, in consideration for
the services of the Grantee in connection with the Offering as set
out in the Engagement Letter, the right to subscribe for "D"
Preference Shares in the capital of the Grantor on the terms and
subject to the conditions herein contained.
AGREED TERMS
1. DEFINITIONS AND INTERPRETATION
1.1. In this Agreement the following words and expressions shall have the
following meanings unless the context requires otherwise:
"Articles" means the Articles of Association of the Grantor from
time to time;
"Business Day" means any weekday (Saturdays, Sundays and public
holidays excluded) upon which banks are open for
business in the City of London;
"Companies Act" means the Companies Act 1985 as amended;
<PAGE>
"Consents" means the consents, waivers and resolutions
obtained or to be obtained by the Grantor
pursuant to Clause 5;
"'D' Preference Shares" means "D" preference shares of 1 pence each
in the capital of the Grantor having the
rights and privileges attached thereto as set
out in the Articles;
"Effective Date of Issue" means the date of allotment of "D" Preference
Shares in accordance with clause 4.2
following the exercise of any Warrant;
"Final Date" means the last date on which the Warrants can
be exercised in accordance with Clause 3;
"Financial Services Act" means the Financial Services Act 1986;
"Holders" means the Grantee together with any other
person who is registered as the holder of a
Warrant pursuant to the terms hereof from
time to time, and "Holder" shall mean any one
of them;
"Listing" means the inclusion of any part of the
Grantor's loan or share capital in the
Official List or on the Alternative
Investment Market or the London Stock
Exchange or on any recognized investment
exchange (within the meaning of the Financial
Services Act) including any Overseas
Investment Exchange or in or on any exchange
or market replacing the same;
"Listing Date" means the date of publication of listing
particulars (as defined in Section 144(2) of
the Financial Services Act) or of a
prospectus (as that term is used in the
Companies Act and the Public Offers of
Securities Regulations 1995) published in
connection with the admission to dealings on
a recognized investment exchange (within the
meaning of the Financial Services Act) or of
an equivalent public offering document
published in connection with the admission to
dealings on any Overseas Investment Exchange
which, in any such case, is published in
connection with a Listing;
"London Stock Exchange" means London Stock Exchange Limited;
"Memorandum" means the Private Placement Memorandum of the
Grantor dated March 3, 1998;
2
<PAGE>
"1933 Act" means the Securities Act of 1933, as
amended, having effect in the United States
of America;
"Merger Event" has the meaning given thereto in sub-clause
10.1.1;
"Notice of Exercise" means a notice substantially in the form set
out in the Second Schedule hereto and
delivered to the Grantor in accordance with
Clause 4.1;
"Ordinary Shares" means ordinary shares in the capital of the
Grantor having the rights and privileges
attached thereto as set out in the Articles;
"Overseas Investment Exchange" means an investment exchange (or the
successor body to such exchange) listed in
either Schedule 1 or Schedule 2 to the
Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1995, or
any statutory instrument substantially re
enacting the same;
"Person" means any body corporate, partnership, firm,
trust, association or other unincorporated
body of persons;
"Record Date" means in respect of any rights attached, or
benefits or entitlements accruing, to any
class of share or security in the capital of
the Grantor, the date by which holders of
such shares or securities are required to be
registered in the books of the Grantor as
such in order to qualify for such rights,
benefits or entitlements;
"Register" means the register of Holders to be
maintained by the Grantor pursuant to Clause
9;
"Transferee" has the meaning given thereto in the
Transfer Notice;
"Transfer Notice" means a notice of transfer of Warrants in
the form of the Third Schedule hereto served
on the Grantor in accordance with Clause 14;
"Warrants" means the rights created by this Agreement
entitling the Holder to subscribe for "D"
Preference Shares subject to the provisions
of this Agreement;
"Warrant Certificate" means a certificate representing the Warrant
or Warrants held by a Holder from time to
time to be issued pursuant to the terms of
this Agreement and to be in the form set out
in the First Schedule hereto;
3
<PAGE>
"Warrant Exercise Date" means the date on which one or more Warrants
are exercised in accordance with Clause 4;
"Warrant Exercise Period" means the period during which the Warrants
may be exercised as set out in Clause 3; and
"Warrant Exercise Price" means US$1.10 for each "D" Preference Share
for which the Holder subscribes under this
Agreement.
1.2. Save where the context otherwise requires, terms defined in the Articles
shall have the same meanings when used in this Agreement.
1.3. References to Clauses and Schedules are references to, respectively,
Clauses of, and Schedules to, this Agreement.
1.4. The expressions "subsidiary" and "holding company" shall have the meanings
ascribed to them in Section 736 of the Companies Act.
1.5. The Clause headings in this Agreement are inserted for convenience only
and shall be ignored in construing this Agreement.
1.6. Save as expressly provided herein, references to any statute, order or
regulation shall be construed as references to such statute, order or
regulation as re-enacted, amended, modified, replaced or consolidated from
time to time.
1.7. The singular includes the plural and vice versa.
2. GRANT OF THE RIGHT TO SUBSCRIBE FOR "D" PREFERENCE SHARES
2.1. In consideration of the Grantee providing its services as placement agent
pursuant to the Engagement Letter, the Grantor hereby grants to the
Grantee, upon the terms and subject to the conditions contained in this
Agreement, the right to subscribe at any time and from time to time during
the Warrant Exercise Period for up to an aggregate of [One Million, Five
Hundred Ninety-Five Thousand, Fifty-Four (1,595,054)] "D" Preference Shares
at the Warrant Exercise Price (subject always to the provisions of Clause
10).
2.2. The right to subscribe for "D" Preference Shares hereby granted shall be
evidenced by Warrant Certificates and title to the Warrants represented
thereby and Warrants represented by all subsequently issued Warrant
Certificates shall be conclusively evidenced by entry of the Grantee or the
relevant Holder, as the case may be, as Holder thereof in the Register in
accordance with Clause 9. Such original Warrant Certificates shall be
issued and such entry with respect thereto effected forthwith upon the
execution and delivery of this Agreement on behalf of the Grantee. All
Warrants shall be held subject to the provisions of the Memorandum and
Articles and on the terms of this Agreement, which are binding upon the
Grantee and each of the Holders and all persons claiming through or under
them respectively.
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3. WARRANT EXERCISE PERIOD
Except as otherwise provided for herein, the period during which Warrants may be
exercised shall commence on the date of this Agreement and shall terminate at
5.00 p.m. on the date falling five (5) years thereafter.
4. EXERCISE OF WARRANTS
4.1. Warrants may be exercised, in whole or in part, at any time, or from time
to time, on or prior to the Final Date by tendering to the Grantor at its
registered office:
4.1.1. a Notice of Exercise duly completed and executed by or on behalf of
the Holder concerned;
4.1.2. the Warrant Certificate relating to the Warrants being exercised;
and
4.1.3. payment in full in respect of the aggregate Warrant Exercise Price
in accordance with clause 4.4.
Once lodged in the manner provided above, any such Notice of Exercise shall
be irrevocable, save with the consent of the Grantor.
4.2. "D" Preference Shares issued pursuant to the exercise of Warrants shall be
allotted subject to the provisions of the Articles and in compliance with
any applicable law, regulatory requirement, judgment, order or decree,
promptly after the date of full compliance with clause 4.1.
4.3. Promptly after the Effective Date of Issue, the Grantor shall execute
under its common seal (or otherwise as a deed), in accordance with the
Articles, and issue to the relevant Holder a share certificate for the
number of "D" Preference Shares subscribed and shall at the same time,
where all the Warrants comprised in the Warrant Certificate delivered to
the Grantor pursuant to clause 4.1.2 have not been exercised in full,
execute under its common seal (or otherwise as a deed) and issue to such
Holder a fresh Warrant Certificate indicating the number of Warrants in
respect of which the Holder is thereafter entitled to exercise. Share
certificates for the "D" Preference Shares shall be endorsed with the
warranty contained in the penultimate paragraph of the first page of the
Warrant Certificates. Any Warrant Certificate tendered pursuant to Clause
4.1 will be canceled and destroyed by the Grantor.
4.4. The aggregate Warrant Exercise Price may be paid at the Holder's election
either by:
4.4.1. cheque or banker's draft or wire transfer; or
4.4.2. to the extent permitted by law, the surrender of Warrant
Certificates representing Warrants with a value equal to the
aggregate Warrant Exercise Price on the applicable Warrant Exercise
Date, as determined in accordance with clause 4.5; or
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4.4.3. to the extent permitted by law, a combination of the methods set
forth in sub-clauses 4.4.1. and 4.4.2 above.
4.5. The value of the Warrants surrendered by a Holder shall be determined by
multiplying (a) the number of Warrants surrendered by (b) the difference
between (1) the value of a "D" Preference Share on the Warrant Exercise
Date and (2) the Warrant Exercise Price. The value of a "D" Preference
Share shall be determined in good faith by the directors of the Grantor if
at the relevant time there has been no Listing of Ordinary Shares or "D"
Preference Shares.
4.6. To the extent a Holder surrenders Warrants in payment of the aggregate
Warrant Exercise Price pursuant to clause 4.4 and only a portion of the
Warrants comprised in the Warrant Certificate(s) delivered to the Grantor
are applied to such payment (and the remainder of the Warrants are not
otherwise exercised or surrendered), Grantor shall execute under its common
seal (or otherwise as a deed) and issue to such Holder a fresh Warrant
Certificate indicating the number of Warrants in respect of which the
Holder is thereafter entitled to exercise. Any Warrant Certificate
surrendered pursuant to clause 4.4. shall be canceled and destroyed by the
Grantor.
5. CONSENSUS
5.1. The Grantor hereby warrants that it has obtained all necessary Consents of
its bankers, shareholders or other persons from whom Consents are required
for the grant of the Warrants herein contained, the subscription of "D"
Preference Shares by the Grantee, and the full implementation of this
Agreement in accordance with its terms.
5.2. The Grantor undertakes that it shall use all reasonable commercial
endeavours throughout the Warrant Exercise Period to ensure the prompt
obtaining of any necessary Consents of its bankers, shareholders or other
persons from whom Consents are required for the exercise of the Warrants,
the subscription of "D" Preference Shares by the Holders and the full
implementation of this Agreement in accordance with its terms.
5.3. In particular, the Consents shall include such consents, waivers or
resolutions as are required to:
5.3.1. increase the authorized share capital of the Grantor to enable it
to issue up to the aggregate maximum of "D" Preference Shares
referred to in Clause 2.1;
5.3.2. give general and unconditional authority to the directors of the
Grantor pursuant to Section 80 of the Companies Act to exercise all
powers of the Grantor to allot and issue the "D" Preference Shares
to the Holders;
5.3.3. give general and unconditional authority to the directors of the
Grantor pursuant to Section 95 of the Companies Act to allot and
issue the "D" Preference Shares to the Holders as if Section 89(1)
of the Companies Act did not apply to such allotment and issue;
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5.3.4. fully and effectively waive all rights of pre-emption of any person
(whether such rights are contained in the Articles or otherwise) to
enable this Agreement to become effective and to enable the "D"
Preference Shares to be allotted and issued to the Holders free of
any such rights; and
5.3.5. attach to the "D" Preference Shares to be issued pursuant to the
exercise of Warrants at least the same rights and privileges
attaching to the existing issued "D" Preference Shares of 1 pence
each in the capital of the Grantor as at the date of this Agreement
so that the "D" Preference Shares to be issued rank pari passu in
all respects with such existing issued "D" Preference Shares.
6. RESERVATION OF SHARES
During the Warrant Exercise Period the Grantor will keep available for issue
sufficient authorized and unissued "D" Preference Shares, free of pre-emptive,
option or other prior contractual rights, to satisfy in full all Warrants as and
when they may be exercised.
7. NO FRACTIONAL SHARES
No fractional shares or rights to shares shall be issued upon the exercise of
any Warrant. The number of "D" Preference Shares being issued shall be rounded
down to the nearest whole number, and the Grantor shall make a cash payment to
the Holder in lieu of the fractional share entitlement, such cash payment to be
calculated on the basis of the then current fair market value of a "D"
Preference Share (as estimated in good faith by the directors of the Grantor if
at the relevant time there has been no Listing of Ordinary Shares or "D"
Preference Shares).
8. NO RIGHTS AS SHAREHOLDERS
Save as provided by this Agreement, nothing herein contained shall entitle any
Holder to any voting rights or other rights as a shareholder of the Grantor
prior to the exercise of a Warrant.
9. REGISTER OF HOLDERS OF WARRANTS
9.1. The Grantor shall maintain a Register showing the names and addresses of
Holders and enter therein details of the issue and any permitted transfer
or change of ownership of Warrants. The Holders of any of the Warrants may
inspect the Register at reasonable times and on reasonable notice during
normal office hours.
9.2. The Grantor shall be entitled to treat the Holder of each Warrant as the
sole and absolute beneficial owner thereof. Accordingly, the Grantor shall
not be affected by notice (actual or constructive) of, and shall not,
except as ordered by a court of competent jurisdiction or as required by
applicable law, be bound to recognize, or record in the Register any note
or evidence of, any trust or any other right, title, claim or interest in
respect of a Warrant in favour, or for the benefit, of any person other
than the Holder.
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10. ADJUSTMENT RIGHTS
10.1. The number of "D" Preference Shares that may be subscribed pursuant to
the exercise of any Warrant is subject to adjustment as follows:
10.1.1. Reconstruction and Take-over. If, while any Warrant remains
----------------------------
exercisable, in whole or in part, there shall be a
reconstruction in respect of the Grantor's share capital (other
than as referred to in the following provisions of this Clause
10), or the shares in the Grantor shall be transferred to a
company so that such company becomes the holding company of the
Grantor ("Merger Event"), then, as a condition of and at the
same time as such Merger Event, the Grantor shall (subject to
sub-clause 10.1.7) procure that the Holder of each Warrant is
granted by the reconstructed or transferee Person a substituted
Warrant to subscribe for securities in the capital of such
Person of a value (having regard to the rights and privileges
attaching to such securities) equivalent to the value of the
Warrants granted hereunder immediately prior to the Merger Event
(as certified in good faith by the Grantor's auditors on such
basis as they shall certify to be fair and reasonable having
regard to the terms upon which the holders of existing issued
"D" Preference Shares in the Grantor receive shares in such
reconstructed or transferee Person following such Merger Event).
The auditors' decision shall be final and binding and not
subject to review under Clause 10.1.10. If, however, the
auditors fail or decline to act, the provisions of sub-clause
10.1.10 shall take effect. The Grantee hereby expressly agrees
and acknowledges that the substitute Warrants may be in respect
of only one class of share, namely ordinary shares carrying the
unrestricted right to vote at general meetings. The Grantor
shall so far as it is able procure that such substitute Warrants
shall be granted by such Person so that the rights of the
Holders thereof (including adjustments of the Warrant Exercise
Price and the number of shares which may be subscribed) shall
correspond with the rights of Holders under this Agreement. The
Warrants granted hereunder shall cease to be capable of being
exercised immediately upon the grant of such substitute
Warrants. The board of directors of the Grantor shall in good
faith determine whether any adjustment to the provisions of this
Agreement is necessary or appropriate following the Merger Event
in order to preserve the rights and entitlements of the Holders
under this Agreement.
10.1.2. Reclassification of Shares. If, while any Warrant remains
--------------------------
exercisable, in whole or in part, the Grantor at any time shall,
by consolidation, reclassification, exchange or subdivision or
otherwise, reclassify its "D" Preference Share capital to the
same or a different number of securities of any other class or
classes (which the Grantor undertakes to do solely in compliance
with, and to the extent permitted by, the Articles), then each
Warrant shall thereafter represent the right to subscribe for
such number and kind of securities as would have been issuable
as the result of such consolidation, reclassification, exchange
or subdivision with respect to the "D" Preference Shares which
would have been subscribed
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had such Warrant been exercised immediately prior to the date of
such consolidation, reclassification, exchange, subdivision or
other change.
10.1.3. Subdivision or Consolidation. If, while any Warrant remains
----------------------------
exercisable, in whole or in part, the Grantor at any time shall
consolidate or subdivide its "D" Preference Share capital, the
Warrant Exercise Price shall be proportionately decreased in the
case of a subdivision, or proportionately increased in the case
of a consolidation (as certified in good faith by the Grantor's
auditors on such basis as they shall certify to be fair and
reasonable).
10.1.4. Rights Issues and Related Offers. If, while any Warrant remains
--------------------------------
exercisable, in whole or in part, the Grantor at any time makes
any offer or invitation (whether pursuant to the terms of pre-
emption rights or otherwise) to the holders of any of its "D"
Preference Share capital for subscription of any share or loan
capital of the Grantor, including an offer or invitation in
relation to any rights issue, the Grantor shall procure that at
the same time as such offer or invitation is made, a similar
offer or invitation (including an offer or invitation in
relation to any rights issue) is made to Holders as if each
Holder's rights to subscribe for "D" Preference Shares pursuant
to exercise of Warrants had been exercised immediately prior to
the Record Date applicable to such offer or invitation.
10.1.5. Winding-up of Grantor. If an order is made or an effective
---------------------
resolution is passed on or before the Final Date for the
voluntary winding-up of the Grantor (except for the purpose of
reconstruction in which case the provisions of sub-clause 10.1.1
shall apply) each Holder shall be entitled for the purpose of
ascertaining such Holder's rights in such winding-up to be
treated as if such Holder had, immediately before the date of
the making of the order or the passing of the resolution,
exercised its rights to subscribe for the maximum number of "D"
Preference Shares pursuant to exercise of the Warrants and in
that event such Holder shall be entitled to receive out of the
assets available in the liquidation pari passu with the holders
of the existing issued "D" Preference Shares such a sum as such
Holder would have received had such Holder been the holder of
the "D" Preference Shares to which such Holder would have become
entitled by virtue of such exercise, after deducting a sum equal
to the sum which would have been payable in respect of the
relevant Warrant Exercise Price. Subject to this sub-clause
10.1.5 all Warrants shall lapse on liquidation of the Grantor.
10.1.6. Schemes of Arrangement. The Grantor will procure that, while
----------------------
any Warrant remains exercisable, in whole or in part, there
shall be no compromise or scheme of arrangement (within the
meaning of Section 425 of the Companies Act) affecting the "D"
Preference Share capital of the Grantor unless either:
10.1.6.1. the Holders shall be granted substitute Warrants
pursuant to sub-clause 10.1.1; or
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10.1.6.2. the Holders shall be treated as members of the
Grantor to the extent of the maximum number of "D"
Preference Shares for which they shall be entitled to
subscribe pursuant to the exercise of Warrants and
shall be a party to such scheme.
The decision as to which of the above alternatives will apply
shall be that of the Grantor.
10.1.7. Take-over Bids. If, while any Warrant remains exercisable, in
--------------
whole or in part, an offer is made or proposed to be made to
shareholders of the Grantor to acquire the whole or any part of
the issued share capital of the Grantor and the Grantor becomes
aware that, as a result of such offer, the right to cast a
majority of the votes which may ordinarily be cast at a General
Meeting of the Grantor may become vested in the offeror the
Grantor shall give notice thereof to the Holders as soon as
practicable and in any event within ten (10) Business Days of
its becoming so aware. For the avoidance of doubt, the
publication of a scheme of arrangement under the Companies Act
providing for the acquisition by any Person of the whole or any
part of the share capital of the Grantor and an agreement for
the purchase of shares by private treaty shall be deemed to be
the making of an offer for these purposes. The Grantor shall in
any such case procure either.
10.1.7.1. that the Holders shall be granted substitute Warrants
pursuant to Clause 10.1.1 or
10.1.7.2 that the benefit of such an offer is extended to each
of the Holders in respect of such number of "D"
Preference Shares as such Holder may specify (up to
its maximum entitlement to subscribe pursuant to the
exercise of its Warrant) subject only to payment of
the Warrant Exercise Price.
The decision as to which of the above alternatives will apply
shall be that of the Grantor.
10.1.8. Capitalization and Bonus Rights. If, while any Warrant remains
-------------------------------
exercisable, in whole or in part, the Grantor at any time shall
(a) capitalize any profits or reserves (including share premium
account and capital redemption reserve or (b) make any issue of
shares to its "D" Preference Shareholders by way of rights or
bonus, then the number of "D" Preference Shares referred to in
Clause 2.1 shall be increased by a number of additional "D"
Preference Shares to be calculated by dividing (1) the aggregate
number of shares which would be issued to the Holders under (a)
or (b) if the Holders had exercised their right to subscribe for
the maximum number of "D" Preference Shares on the Record Date
("Bonus Shares") by (2) the amount credited as fully paid up on
each Bonus Share.
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10.1.9. Notification. The Grantor undertakes that, without prejudice to
------------
its other obligations to notify the Grantee pursuant to this
Agreement, it shall notify the Holders by way of a copy of the
notice of Annual or Extraordinary General Meeting of the Grantor
(at the same time as such notice is issued to the members of the
Grantor) of any proposed amendment or modification to the
Memorandum or the Articles.
10.1.10. Resolution of Disputes as to Entitlements. If any question
-----------------------------------------
shall arise in regard to the number of "D" Preference Shares
that may be subscribed pursuant to the exercise of any Warrant
following the coming into effect of any adjustment referred to
in the provisions of this Clause 10, the same shall be referred
for determination to [the Grantor's Chartered Accountants] [a
Person nominated jointly for such purpose by the Grantor and the
relevant Holder or, failing agreement on such joint nomination,
by the firm of chartered accountants to be nominated at the
request of the Grantor or the relevant Holder by the President
for the time being of the Institute of Chartered Accountants in
England and Wales] and that any Person so nominated shall be
deemed to be acting as an expert or experts and not as an
arbitrator or arbitrators and his or their decision shall
accordingly be conclusive and binding on all concerned.
10.1.11. Notice.
------
10.1.11.1. The Grantor shall send to Holders:
10.1.11.1.1. prior written notice of the Record
Date applicable to any dividend,
distribution, issue or subscription
rights or the effective date of any
such capitalization referred to above
or the date set for determining rights
to vote in respect of any such Merger
Event, liquidation or winding-up (as
the context requires); and
10.1.11.1.2. in the case of any such Merger Event,
liquidation or winding-up, the
required notice, as prescribed by the
Articles, of the date when the same
shall take place (and specifying the
date on which the holders of
preference shares in the capital of
the Grantor shall be entitled to
exchange their shares for securities
or other property deliverable upon
such Merger Event, liquidation or
winding-up).
10.1.11.1.3 in the case of a Listing, not less
than ten (10) days' written notice
prior to the Listing Date applicable
thereto.
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10.1.11.2. Each such written notice to Holders shall contain,
in reasonable detail:
10.1.11.2.1. the event requiring the adjustment
10.1.11.2.2. the amount of the adjustment;
10.1.11.2.3. the method by which such adjustment
was calculated; and
10.1.11.2.4. the number of "D" Preference Shares
(or the number and class of the
securities for which the Warrants will
represent the right to subscribe
pursuant to this Clause 10 following
the relevant adjustment) to which such
Holder's Warrant enables the Holder to
subscribe after giving effect to such
adjustment.
10.1.11.3. For the avoidance of doubt, the Grantor shall not
require Holders' consent in any of the events
detailed above requiring prior written notice.
10.2. Replacement Warrant Certificates. The Grantor shall, forthwith upon any
--------------------------------
adjustment as is referred to above becoming effective, and at no charge
to each Holder:
10.2.1. issue to such Holder a replacement Warrant Certificate, executed
under the Grantor's common seal (or otherwise executed as a
deed), showing the Warrant Exercise Price and number of "D"
Preference Shares (or the securities for which the Warrants
represent the right to subscribe pursuant to this Clause 10
following such adjustment) that may be subscribed pursuant to
exercise of such Warrant following such adjustment becoming
effective, upon either:
10.2.1.1. the surrender of the existing Warrant Certificate; or
10.2.1.2. an indemnity from the Holder in a form reasonably
satisfactory to the Grantor where the existing
Warrant Certificate has been lost, stolen, defaced,
mutilated or destroyed; and
10.2.2. upon such issue and surrender or indemnity, procure that an
appropriate record thereof is made in the Register.
Any Warrant Certificate surrendered pursuant to sub-clause 10.2.1 shall be
canceled and destroyed by the Grantor.
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11. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE GRANTOR
11.1. The Grantor hereby represents, warrants and covenants in favour of
the Grantee and each of the Holders as follows:
11.1.1. The Grantor is and shall (until it is dissolved) remain a
corporation duly incorporated and validly existing under the laws
of England and Wales and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed
to be conducted.
11.1.2. The "D" Preference Shares to be issued upon valid exercise of
Warrants, when issued, will be validly issued, fully paid, not
subject to any calls for the payment of further capital, free of
any taxes, liens, charges or encumbrances of any nature whatsoever
and, based in part upon the representations of the Grantee
contained in this Agreement, will be issued in compliance with
applicable law, including, without limitation the Companies Act.
The Ordinary Shares into which the "D" Preference Shares may be
converted in accordance with the terms of the Articles shall, upon
such conversion, be duly and validly issued, fully paid and not
subject to any call for the payment of further capital and issued
in compliance with applicable laws as aforesaid.
11.1.3. The existing issued shares in the capital of the Grantor were duly
and validly authorized allotted and issued, fully paid, are not
subject to any call for the payment of further capital and were
issued in compliance with applicable law, including, without
limitation, the Companies Act and all US federal and state
securities laws applicable at the relevant time to the Grantor.
11.1.4. The Grantor has made available to the Grantee on the date of this
Agreement true, correct and complete copies of the Memorandum and
Articles, and the Grantor shall supply to each Holder, within
thirty (30) days of the relevant resolution being passed, a copy of
any resolution amending either the Memorandum or the Articles.
11.1.5. The issue of the share certificates for "D" Preference Shares upon
exercise of Warrants shall be made without charge to the Holder for
any cost incurred by the Grantor in connection with such exercise
and the related issue of such "D" Preference Shares.
11.1.6. The execution and delivery by the Grantor of this Agreement and the
performance of all its obligations hereunder, including (but not
limited to) the issue of the Warrants, have been duly authorized by
all necessary action on the part of the Grantor and the entry by
the Grantor into the Engagement Letter and this Agreement does not
conflict with, or contravene any provision of the Memorandum or the
Articles and does not contravene any United Kingdom law or
governmental rule, regulation or order applicable to it, does not
and will not
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contravene any provision of, or constitute a default under, any
indenture, mortgage, contract or other instrument to which it is
a party or by which it or any of its assets is bound, and the
Warrants and this Agreement constitute the legal and valid
obligations of the Grantor, enforceable against it in accordance
with their respective terms;
11.1.7. No consent or approval of, giving of notice to, registration
with, or taking of any other action in respect of any United
Kingdom governmental authority or agency is required with
respect to the execution, delivery and performance by the
Grantor of its obligations under the Warrants or/of this
Agreement, except for the filing of documents with the
Companies' Registry for England and Wales. Any such filings
shall be effected promptly and in any event within the period
permitted by Statute.
11.1.8. As the date of this Agreement the authorized share capital of
the Grantor is (Pounds)3,330,000 divided into 3,100,000 "A"
preference shares of 50 pence each, 25,000,000 "B" preference
shares of 1 pence each, 8,000,000 "C" preference shares of 1
pence each, 50,000,000 "D" preference shares of 1 pence each and
95,000,000 Ordinary Shares of 1 pence each.
11.1.9. There are no other options, warrants, conversion rights or other
rights at the date of this Agreement to subscribe, purchase or
otherwise acquire any authorized but unissued shares in the
Grantor's capital or other securities of the Grantor save
pursuant to
11.1.9.1. the Warrants and this Agreement;
11.1.9.2. the conversion rights detailed in the Articles;
11.1.9.3. any options in force which have been granted to
employees or former employees or the Grantor; and
11.1.9.4. otherwise detailed in the Private Placement Memorandum
dated 3 March 1998 (as amended).
11.1.10. The Grantor is not, pursuant to the terms of any agreement,
under any obligation to secure any Listing or make any offer to
the public in respect of any of its issued loan or share
capital.
11.2. In the event of any breach of any of the representations, warranties and
covenants set out in Clause 11.1, the Grantor shall have no liability in
respect of such breach unless written notice of claim in relation to such
breach is given by the relevant Holder no later than 12 months following
the date that such Holder became aware, or ought reasonably to have
become aware, of such breach.
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12. HOLDERS' UNDERTAKINGS
12.1. Each Holder hereby undertakes and covenants to and in favour of the
Grantor:
12.1.1. not to create or permit to subsist any mortgage, charge,
assignation by way of security or other interest, agreement or
arrangement having the effect of conferring security on the
whole or any part of the Warrants; and
12.1.2. not to make any transfer or disposition of any Warrant or all or
any portion of the "D" Preference Shares in the United States or
to a United States person unless and until:
12.1.2.1. there is then in effect a registration statement
under the 1933 Act covering such proposed disposition
and such disposition is made in accordance with such
registration statement and all applicable federal and
state securities laws; or
12.1.2.2. such Holder shall have notified the Grantor of the
proposed disposition and shall have furnished the
Grantor with (a) a statement of the circumstances
surrounding the proposed disposition, (b) an opinion
of counsel (which counsel shall be external to the
Holder) addressed to the Grantor and in a form
reasonably acceptable to the Grantor, that such
disposition will not require registration of such
securities under the 1933 Act and that all requisite
action has been taken under any applicable securities
laws in connection with such disposition; and (c) an
undertaking that any requisite action required in the
future under any applicable securities laws will be
taken in a timely manner.
12.2. Effective upon any Warrant Exercise Date, the Holder shall become a party
to the Grantor's Registration Rights Agreement.
13. GRANTEE'S UNDERTAKINGS
---------
13.1. The Grantee hereby acknowledges that, in reliance upon the
representations and warranties of the Grantee set forth herein, the
Warrants are, and the "D" Preference Shares shall be, issued without
registration under the 1933 Act or any other federal or state securities
laws and consequently none of the Warrants or the "D" Preference Shares
(collectively, "Securities") may be sold, transferred or otherwise
disposed of without registration under the 1933 Act and any such other
applicable federal or state securities laws or in exception therefrom.
13.2. The Grantee hereby represents, warrants and covenants in favour of the
Grantor:
13.2.1. that the Securities are or will be acquired for investment and
not with a view to the sale or distribution of any part thereof,
and the Grantee has no present intention of selling or engaging
in any public distribution of the same;
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13.2.2. that the Grantee has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits
and risk of its investment, and has the ability to bear the
economic risks of its investment;
13.2.3. that the Grantee understands that if the Grantor does not
register with the Securities and Exchange Commission pursuant to
Section 12 of the 1933 Act, or file reports pursuant to Section
15(d) of the Securities Exchange Act of 1934, or if a
registration statement covering the securities under the 1933
Act is not in effect when Grantee desires to sell the Warrants
or the "D" Preference Shares issuable upon exercise of the
Warrants, Grantee may be required to hold such securities for an
indefinite period;
13.2.4. that the Grantee understands that any sale of the securities
which might be made by it in reliance upon Rule 144 under the
1933 Act may be only in accordance with the terms and conditions
of the that Rule; and
13.2.5. that the Grantee is an "accredited investor" within the meaning
of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
14. TRANSFERS
14.1. Subject to clause 12 and sub-clause 14.3, a Holder may transfer the
Warrants held by it or any part thereof, provided:
14.1.1. that the Holder shall deliver to the Grantor at least thirty
(30) days prior to any proposed transfer, a Notice of Transfer,
which shall include the identity of the proposed transferee;
14.1.2. that the Holder will not transfer the Warrants or any interest
therein to any party determined by the board of directors of the
Grantor to be a competitor of the Grantor;
14.1.3. the transferee agrees in writing to be subject to the terms
hereof to the same extent as if such transferee were an original
Holder hereunder, and only if such transfer is not in violation
of any federal or state securities laws; and
14.1.4. that in no event shall the aggregate number of transfers of
Warrants by all Holders exceed eight (8).
14.2. There shall not be included in any transfer any warrants other than the
Warrants constituted by this Agreement.
14.3. Upon compliance with clause 14.1, Grantor shall:
14.3.1. issue to the Holder, in the event the Holder transfers only a
portion of the Warrants comprised in a Warrant Certificate, and
the transferee new Warrant Certificates, upon either:
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14.3.1.1. the surrender of the existing Warrant Certificate; or
14.3.1.2. an indemnity from the Holder in a form reasonably
satisfactory to the Grantor where the existing
Warrant Certificate has been lost, stolen, defaced,
mutilated or destroyed; and
14.3.2. upon such issue and surrender or indemnity, procure that an
appropriate record of the transfer is made in the Register.
Any Warrant Certificate surrendered pursuant to sub-clause 14.3.1 shall be
canceled and destroyed by the Grantor.
15. NOTICES
15.1. Any notice or other written communication given under or in connection
with this Agreement may be delivered personally or sent by registered,
prepaid first class post, (airmail if overseas), recognized overnight
courier or by telex or facsimile.
15.2. The address for delivery of any notice to the Grantor shall be its
registered office marked for the attention of the Managing Director or,
if any other address for service has previously been notified to the
server, to the address so notified. The address for delivery of any
notice to any Holder shall be the address of such Holder set forth in the
Register or, if any other address for service has previously been
notified to the Grantor, to the address so notified.
15.3. Any such notice or other written communication shall be deemed to have
been served:
15.3.1. if delivered personally, at the time of delivery;
15.3.2. if posted, three (3) Business Days, or in the case of airmail,
five (5) Business days, after it was posted;
15.3.3. if sent through an overnight delivery service under
circumstances by which such service guarantees next day service,
the date following the date so sent; and
15.3.3. if sent by telex or facsimile message, at the time of
transmission and receipt of appropriate telephonic confirmation,
if sent during business hours (that is 9.30 a.m. to 5.30 p.m.
local time) in the place to which it was sent or, if not sent
during such normal business hours, at the beginning of the next
Business Day in the place to which it was sent.
15.4. In providing such service it shall be sufficient to prove that personal
delivery was made, or that such notice or other written communication was
properly addressed, stamped and posted or in the case of telex that the
intended recipient's answerback code is shown on the copy retained by the
sender at the beginning and end of the message or in the case of a
facsimile message that an activity or other report from the sender's
facsimile machine can
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be produced in respect of the notice or other written communication
showing the recipient's facsimile number and the pages transmitted.
16. MISCELLANEOUS
16.1. This Agreement and the Warrants shall be governed by, and construed in
all respects in accordance with, the laws of England and Wales. Each of
the parties agrees that the courts of England shall have jurisdiction to
hear and settle any disputes or proceedings arising out of this Agreement
(other than any dispute arising under Clause 10.1 hereof, in which event
the provisions of sub-clause 10.1.2 shall apply).
16.2. In the event of any default hereunder, the non-defaulting party may
proceed to protect and enforce its rights by action at law, including,
but not limited to, an action for damages as a result of any such
default, and/or an action for specific performance for any default where
the non-defaulting party will not have an adequate remedy at law and
where damages will not be readily ascertainable.
16.3. The Grantor will not recommended the amendment of the Memorandum or
Articles in any manner which would have the effect of avoiding the
observance or performance of any of the terms of this Agreement or the
Warrants, or avoid or seek to avoid the observance or performance of any
of the terms of this Agreement or the Warrants by any other means, but
will at all times in good faith assist in the carrying out of all such
terms and in the taking of all such actions as may be necessary or
appropriate in order to protect the rights of the Grantee and/or any
Holder under this Agreement.
16.4. The representations, warranties, covenants and conditions of the
respective parties contained herein are made or deemed made pursuant to
this Agreement shall survive the execution and delivery of this
Agreement.
16.5. In the event that any one or more of the provisions of this Agreement
shall for any reason be held invalid, illegal or unenforceable, the
remaining provisions of this Agreement shall remain in full force and
effect, and the invalid, illegal or unenforceable provision shall be
replaced by a valid, legal and enforceable provision, which comes closest
to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
16.6. Any provision of this Agreement may be amended by a written instrument,
signed by each Holder and by the Grantor.
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IN WITNESS whereof these presents are executed as follows:
EXECUTED as a DEED and DELIVERED
as a Deed by
VIRATA LIMITED
By: /s/
------------------------------
Name: Charles Cotton
Director
By: /s/
------------------------------
Name: Andrew M. Vought
Director/Secretary
INDEX SECURITIES S.A.
By: /s/
------------------------------
Name: Gerald Rimer
Title: President
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EXHIBIT 10.8
THIS WARRANT AGREEMENT is made the ___ day of __________ ______
BETWEEN:
(1) VIRATA LIMITED (company number 2798338) the registered office of which is
situated at Mount Pleasant House, 2 Mount Pleasant, Huntingdon Road,
Cambridge CB3 0BL (the "Grantor"); and
(2) COMDISCO, INC., the principal office of which is situated at 6111 North
River Road, Rosemont, Illinois 60018, USA (the "Grantee").
RECITALS
(A) The Grantor and the Grantee have entered into a Global Master Rental
Agreement dated _____________, ______ (the "Rental Facility Agreement")
pursuant to which the Grantor and its affiliates have been granted certain
facilities to lease from the Grantee and its affiliates certain equipment.
(B) By a resolution of the board of directors of the Grantor passed on
____________, _____ the Grantor resolved to issue warrants conferring the
right on holders thereof to subscribe for up to _____________ D Preference
Shares (as defined below) in the capital of the Grantor on the terms and
conditions contained in this agreement.
(C) The Grantor has agreed to grant to the Grantee, in consideration for the
entry by the Grantee into the Rental Facility Agreement, the right to
subscribe for D Preference Shares (as defined below) in the capital of the
Grantor on the terms and subject to the conditions herein contained.
AGREED TERMS
Definitions
In this agreement the following words and expressions shall unless the
context otherwise requires bear the following meanings:
"the Articles" means the Articles of Association of the Grantor from time to
time;
"Business Day" means any week day (Saturdays, Sundays and public holidays
excluded) upon which banks are open for business in the City of London;
"Companies Act" means the Companies Act 1985 as amended;
"Consents" means the consents, waivers and resolutions obtained or to be
obtained by the Grantor pursuant to clause 5;
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"D Preference Shares" means D Preference shares of 1 pence each in the
capital of the Grantor having the rights and privileges attached thereto as
set out in the Articles;
"Effective Date of Issue" means the date of allotment of D Preference Shares
in accordance with clause 4.2(a) following the exercise of any Warrant;
"the Final Date" means the last date on which the Warrants can be exercised
in accordance with Clause 3;
"Financial Services Act" means the Financial Services Act 1986;
"Holders" means the Grantee together with any other person who is registered
as the holder of a Warrant pursuant to the terms hereof from time to time,
and "Holder" shall mean any one of them;
"Listing" means the inclusion of any part of the Grantor's loan or share
capital in the Official List or on the Alternative Investment Market of the
London Stock Exchange or on any recognised investment exchange (within the
meaning of the Financial Services Act) including any Overseas Investment
Exchange or in or on any exchange or market replacing the same;
"Listing Date" means the date of publication of listing particulars (as
defined in Section 144(2) of the Financial Services Act) or of a prospectus
(as that term is used in the Companies Act and the Public Offers of
Securities Regulations 1995) published in connection with the admission to
dealings on a recognised investment exchange (within the meaning of the
Financial Services Act) or of an equivalent public offering document
published in connection with the admission to dealings on any Overseas
Investment Exchange which, in any such case, is published in connection with
a Listing;
"London Stock Exchange" means London Stock Exchange Limited;
"Memorandum" means the Memorandum of Association of the Grantor from time to
time;
"1933 Act" means the Securities Act of 1933 as amended having effect in the
United States of America;
"Merger Event" has the meaning given thereto in clause 10.1(a);
"Notice of Exercise" means a notice substantially in the form set out in the
Second Schedule hereto and delivered to the Grantor in accordance with
clause 4.1;
"Ordinary Shares" means ordinary shares in the capital of the Grantor having
the rights and privileges attached thereto as set out in the Articles;
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"Overseas Investment Exchange" means an investment exchange (or the
successor body to such exchange) listed in either Schedule 1 or Schedule 2
to the Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1995, or any statutory instrument substantially re-enacting the same;
"Person" means any body corporate, partnership, firm, trust, association or
other unincorporated body of persons;
"Record Date" means, in respect of any rights attached, or benefits or
entitlements accruing, to any class of share or security in the capital of
the Grantor, the date by which holders of such shares or securities are
required to be registered in the books of the Grantor as such in order to
qualify for such rights, benefits or entitlements;
"Register" means the register of Holders to be maintained by the Grantor
pursuant to clause 9;
"Transferee" has the meaning given thereto in the Transfer Notice;
"Transfer Notice" means a notice of transfer of Warrants in the form of the
third schedule served on the Grantor in accordance with clause 14;
"Warrants" means the rights created by this agreement entitling the Holder
to subscribe for D Preference Shares subject to the provisions of this
agreement;
"Warrant Certificate" means a certificate representing the Warrant or
Warrants held by a Holder from time to time to be issued pursuant to the
terms of this agreement and to be in the form set out in the First Schedule
hereto;
"Warrant Exercise Date" means the date on which one or more Warrants are
exercised in accordance with clause 4;
"Warrant Exercise Period" means the period during which the Warrants may be
exercised as set out in clause 3; and
"Warrant Exercise Price" means US$1.10 for each D Preference Share for which
the Holder subscribes under this agreement.
Save where the context otherwise requires, terms defined in the Articles
shall have the same meanings when used in this agreement;
references to clauses and Schedules are references to, respectively, clauses
of, and Schedules to, this agreement;
the expressions "subsidiary" and "holding company" shall have the meanings
ascribed to them in Section 736 of the Companies Act;
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the clause headings in this agreement are inserted for convenience only and
shall be ignored in construing this agreement;
save as expressly provided herein, references to any statute, order or
regulation shall be construed as references to such statute, order or
regulation as re-enacted, amended, modified, replaced or consolidated from
time to time; and
the singular includes the plural and vice versa.
AGREED TERMS
Grant of the Right to Subscribe for D Preference Shares
In consideration of the Grantee entering into the Rental Facility Agreement,
the Grantor hereby grants to the Grantee, upon the terms and subject to the
conditions contained in this agreement, the right to subscribe at any time
and from time to time during the Warrant Exercise Period for up to
_______________ D Preference Shares at the Warrant Exercise Price (subject
always to the provisions of clause 10).
The right to subscribe for Preference Shares hereby granted shall be
evidenced by Warrant Certificates and title to the Warrants represented
thereby and Warrants represented by all subsequently issued Warrant
Certificates shall be conclusively evidenced by entry of the Grantee or the
relevant Holder, as the case may be, as holder thereof in the Register in
accordance with clause 9. Such original Warrant Certificates shall be
issued and such entry with respect thereto effected forthwith upon the
execution and delivery of this agreement on behalf of the Grantee. All
Warrants shall be held subject to the provisions of the Memorandum and
Articles and on the terms of this agreement, which are binding upon the
Grantee and each of the Holders and all persons claiming through or under
them respectively.
The Grantor hereby covenants for the benefit of the Holders and each of them
duly to perform and observe the obligations herein contained and imposed
upon it, to the intent that this agreement shall enure for the benefit of
all Holders, each of whom may sue for the performance or observance of the
provisions hereof so far as its holding of Warrants is concerned.
Warrant Exercise Period
Except as otherwise provided for herein, the period during which Warrants
may be exercised shall commence on the date of this agreement and shall
terminate at 5pm on:
the date falling ten (10) years thereafter; or
if within the period of five (5) years prior to the date referred to in sub-
clause 3(a) above the Grantor has obtained a Listing, the date falling five (5)
years from the Listing Date connected with such Listing.
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Exercise of Warrants
Warrants may be exercised, in whole or in part, at any time, or from time to
time, on or prior to the Final Date by tendering to the Grantor at its
registered office:
a Notice of Exercise duly completed and executed by or on behalf of the
Holder concerned;
the Warrant Certificate relating to the Warrants being exercised; and
where applicable, a cash sum in respect of the Warrant Exercise Price.
Once lodged in the manner provided above, any such Notice of Exercise shall
be irrevocable, save with the consent of the Grantor.
D Preference Shares issued pursuant to the exercise of Warrants shall
be allotted subject to the provisions of the Articles and in compliance
with any applicable law, regulatory requirement, judgment, order or
decree, promptly and in any event by no later than 14 days after the
date of receipt of such Notice of Exercise, the relevant Warrant
Certificate, and (where applicable) a cash sum in respect of the
Warrant Exercise Price, or, 14 days after receipt of the valuation
referred to in clause 5.4, if later;
Promptly, and in no event later than 21 days, after the Effective Date
of Issue, the Grantor shall execute under its common seal (or otherwise
as a deed), in accordance with the Articles, and issue to the relevant
Holder a share certificate for the number of D Preference Shares
subscribed and shall at the same time, where all the Warrant rights
comprised in the Warrant Certificate delivered to the Grantor pursuant
to clause 4.1(b) have not been exercised in full, execute under its
common seal (or otherwise as a deed) and issue to such Holder a fresh
Warrant Certificate indicating the number of D Preference Shares in
respect of which the Holder is thereafter entitled to exercise such
Warrant;
Share certificates for the D Preference Shares shall be endorsed with
the warranty contained in the penultimate paragraph of the first page
of the Warrant Certificates;
Any Warrant Certificate tendered pursuant to Clause 4.1 will be
cancelled and destroyed by the Grantor.
The Warrant Exercise Price may be paid at the Holder's election either (i)
by cheque or banker's draft or wire transfer, or (ii) to the extent
permitted by law and providing that the current fair market value of one D
Preference Share to be issued on the exercise of a Warrant is not less than
$1.10 at the time of such exercise, by reducing the actual number of D
Preference Shares to be issued on the exercise of a Warrant by such number,
the then
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current fair market value of which is equal to the Warrant Exercise Price.
If the Holder selects in the Notice of Exercise to pay the Warrant Exercise
Price pursuant to method (ii) above the Grantor will issue D Preference
Shares in accordance with the following formula:
Formula: X = Y (A+B)
-------
A
Where X = the number of D Preference Shares to be issued to the Holder;
Y = the number of D Preference Shares the subject of the Notice
of Exercise;
A = the then current fair market value of one (1) D Preference
Share;
B = the Warrant Exercise Price in respect of one (1) D
Preference Share.
For the purpose of this agreement, the "current fair market value" of a D
Preference Share from time to time means:
if the Warrant Exercise Date falls on or within three Business Days
following a Listing of Ordinary Shares involving an offer of Ordinary
Shares to the public by placing or otherwise, the price at which
Ordinary Shares are offered to members of the public under the terms of
such Listing multiplied by the number of Ordinary Shares into which
each D Preference Share is convertible under the Articles at the time
of such exercise;
if the Warrant Exercise Date falls outside the period provided for
under (a) above and the Ordinary Shares are as a result of a Listing
then traded, quoted or admitted to dealings on an exchange or market,
then such current fair market value shall be deemed to be the average
(i.e. the arithmetical mean) of the closing prices relating to the
Ordinary Shares announced by such exchange or market over a twenty-one
(21) day period (or such lesser period during which the Ordinary Shares
have actually been so traded, quoted or admitted to dealings) ending
three days before the Warrant Exercise Date multiplied by the number of
Ordinary Shares into which each D Preference Share is convertible under
the Articles at the time of such exercise; or
if, at the time such current fair market value falls to be determined,
the Ordinary Shares are not as a result of a Listing traded, quoted, or
admitted to dealings on an exchange or market, such current fair market
value shall be the highest price per Ordinary Share on the Warrant
Exercise Date which could be obtained from a willing buyer in the open
market for Ordinary Shares (as determined in good faith by the
Grantor's auditors on such basis as they shall certify to be fair and
reasonable), multiplied by the number of Ordinary Shares into which
each D Preference Share is convertible at the time of such exercise.
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Consents
The Grantor hereby warrants that it has obtained all necessary consents and
waivers from or resolutions of its bankers, shareholders or other persons
from whom consents, waivers or resolutions are required for the grant of
the Warrants herein contained, the subscription of D Preference Shares by
the Grantee, and the full implementation of this agreement in accordance
with its terms.
The Grantor undertakes that it shall use all reasonable commercial
endeavours throughout the Warrant Exercise Period to ensure the prompt
obtaining of any necessary consents or waivers from or resolutions of its
bankers, shareholders or other persons from whom consents, waivers or
resolutions are required for the exercise of the Warrants, the subscription
of D Preference Shares by the Holders, and the full implementation of this
agreement in accordance with its terms.
In particular, the Consents shall include such consents or resolutions as
are required to:
increase the authorised share capital of the Grantor to enable it to
issue up to the aggregate maximum of D Preference Shares referred to
in clause 2.1;
give general and unconditional authority to the directors of the
Grantor pursuant to Section 80 of the Companies Act to exercise all
powers of the Grantor to allot and issue the D Preference Shares to the
Holders;
give general and unconditional authority to the directors of the
Grantor pursuant to Section 95 of the Companies Act to allot and issue
the D Preference Shares to the Holders as if Section 89(1) of the
Companies Act did not apply to such allotment and issue;
fully and effectively waive all rights of pre-emption of any person
(whether such rights are contained in the Articles or otherwise) to
enable this agreement to become effective and to enable the D
Preference Shares to be allotted and issued to the Holders free of any
such rights; and
(e) attach to the D Preference Shares to be issued pursuant to the exercise
of Warrants at least the same rights and privileges attaching to the
existing issued D Preference Shares of 1 pence each in the capital of
the Grantor as at the date of this agreement so that the D Preference
Shares to be issued rank pari passu in all respects with such existing
issued D Preference Shares.
If the Holder elects to pay the Warrant Exercise Price in accordance with
method (ii) described in clause 4.3, and if the Grantor is a public company
at the time of the relevant
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exercise of the Warrant, the Grantor shall, on such exercise, instruct its
auditors or other appropriate person to prepare a valuation in accordance with
Section 103 of the Companies Act 1985, as amended.
Reservation of Shares
During the Warrant Exercise Period the Grantor will keep available for issue
sufficient authorised and unissued D Preference Shares, free of pre-emptive,
option or other prior contractual rights, to satisfy in full all Warrants as
and when they may be exercised.
Where, at the time of issue of any D Preference Shares pursuant to the
exercise of any Warrant, the preference share capital of the Grantor is as a
result of a Listing traded, quoted or admitted to dealings on an exchange or
market, then the Grantor will (at no charge to the Holder) apply to the
relevant exchange or market, as the case may be, for permission to deal in,
or for the quotation of such shares or for permission for dealings therein,
as the case may be, on such exchange or market.
No Fractional Shares
No fractional shares or rights to shares shall be issued upon the exercise
of any Warrant. The number of D Preference Shares being issued shall be
rounded down to the nearest whole number, and the Grantor shall make a cash
payment to the Holder in lieu of the fractional share entitlement, such cash
payment to be calculated on the basis of the then current fair market value
of a D Preference Share (as estimated in good faith by the directors of the
Grantor if at the relevant time there has been no Listing of Ordinary Shares
or D Preference Shares).
No Rights as Shareholder
Save as provided by this agreement, nothing herein contained shall entitle
any Holder to any voting rights or other rights as a shareholder of the
Grantor prior to the exercise of a Warrant.
Register of Holders of Warrants
The Grantor shall maintain a register showing the names and addresses of
Holders and enter therein details of the issue and any transfer or change
of ownership of Warrants. The Holders of any of the Warrants may inspect
the Register at reasonable times and on reasonable notice during normal
office hours.
The Grantor shall be entitled to treat the Holder of each Warrant as the
sole and absolute beneficial owner thereof. Accordingly, the Grantor shall
not be affected by notice (actual
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or constructive) of, and shall not, except as ordered by a court of competent
jurisdiction or as required by applicable law, be bound to recognise, or record
in the Register, any note or evidence of, any trust or any other right, title,
claim or interest in respect of a Warrant in favour, or for the benefit, of any
person other than the Holder.
Adjustment Rights
The number of D Preference Shares that may be subscribed pursuant to the
exercise of any Warrant is subject to adjustment as follows:
Reconstruction and Takeover
If, while any Warrant remains exercisable, in whole or in part, there shall
be a reconstruction in respect of the Grantor's share capital (other than
as referred to in the following provisions of this clause 10), or the
shares in the Grantor shall be transferred to a company so that such
company becomes the holding company of the Grantor (hereinafter referred to
as a "Merger Event"), then, as a condition of and at the same time as such
Merger Event, the Grantor shall (subject to clause 10.1(g)) procure that
the Holder of each Warrant is granted by the reconstructed or transferee
Person a substituted warrant to subscribe for securities in the capital of
such Person of a value (having regard to the rights and privileges
attaching to such securities) equivalent to the value of the Warrants
granted hereunder immediately prior to the Merger Event (as certified in
good faith by the Grantor's auditors on such basis as they shall certify to
be fair and reasonable having regard to the terms upon which the holders of
existing issued D Preference Shares in the Grantor receive shares in such
reconstructed or transferee Person following such Merger Event). The
auditors' decision shall be final and binding and not subject to review
under paragraph (j) of this Clause 10.1. If however the auditors fail or
decline to act, the provisions of clause 10.1(j) shall take effect. The
Grantee hereby expressly agrees and acknowledges that the substitute
warrants may be in respect of only one class of share, namely ordinary
shares carrying the unrestricted right to vote at general meetings. The
Grantor shall so far as it is able procure that such substitute warrants
shall be granted by such Person so that the rights of the Holders thereof
(including adjustments of the Warrant Exercise Price and the number of
shares which may be subscribed) shall correspond with the rights of Holders
under this agreement. The Warrants granted hereunder shall cease to be
capable of being exercised immediately upon the grant of such substitute
Warrants. The board of directors of the Grantor shall in good faith
determine whether any adjustment to the provisions of this agreement is
necessary or appropriate following the Merger Event in order to preserve
the rights and entitlements of the Holders under this agreement.
Reclassification of Shares
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If, while any Warrant remains exercisable, in whole or in part, the
Grantor at any time shall, by consolidation, reclassification,
exchange or subdivision or otherwise, reclassify its D Preference
Share capital into the same or a different number of securities of any
other class or classes (which the Grantor undertakes to do solely in
compliance with, and to the extent permitted by, the Articles), then
each Warrant shall thereafter represent the right to subscribe for
such number and kind of securities as would have been issuable as the
result of such consolidation, reclassification, exchange or
subdivision with respect to the D Preference Shares which would have
been subscribed had such Warrant been exercised immediately prior to
the date of such consolidation, reclassification, exchange,
subdivision or other change.
Subdivision or Consolidation
If, while any Warrant remains exercisable, in whole or in part, the Grantor
at any time shall consolidate or sub-divide its D Preference Share capital,
the Warrant Exercise Price shall be proportionately decreased in the case
of a sub-division, or proportionately increased in the case of a
consolidation (as certified in good faith by the Grantor's auditors on such
basis as they shall certify to be fair and reasonable).
Rights Issues and Related Offers
If, while any Warrant remains exercisable, in whole or in part, the Grantor
at any time makes any offer or invitation (whether pursuant to the terms of
pre-emption rights or otherwise) to the holders of any of its D Preference
Share capital for subscription of any share or loan capital of the Grantor,
including an offer or invitation in relation to any rights issue, the
Grantor shall procure that at the same time as such offer or invitation is
made, a similar offer or invitation (including an offer or invitation in
relation to any rights issue) is made to Holders as if each Holder's rights
to subscribe for D Preference Shares pursuant to exercise of Warrants had
been exercised immediately prior to the Record Date applicable to such
offer or invitation.
Winding-Up of Grantor
If an order is made or an effective resolution is passed on or before the
Final Date for the voluntary winding-up of the Grantor (except for the
purpose of reconstruction in which case the provisions of clause 10.1(a)
shall apply) each Holder shall be entitled for the purpose of ascertaining
such Holder's rights in such winding-up to be treated as if such Holder
had, immediately before the date of the making of the order or the passing
of the resolution, exercised its rights to subscribe for the maximum number
of D Preference Shares pursuant to exercise of the Warrants and in that
event such Holder shall be entitled to receive out of the assets available
in the liquidation pari passu with the holders of the existing issued D
Preference Shares such a sum as such Holder would have received had such
Holder been the holder of the D Preference Shares to which such Holder
would have become entitled by virtue of such exercise, after deducting a
sum equal to the sum which would have been
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payable in respect of the relevant Warrant Exercise Price. Subject to this
clause 10.1(e), all Warrants shall lapse on liquidation of the Grantor.
Schemes of Arrangement
The Grantor will procure that, while any Warrant remains exercisable, in
whole or in part, there shall be no compromise or scheme of arrangement
(within the meaning of Section 425 of the Companies Act) affecting the D
Preference Share capital of the Grantor unless either (i) the Holders shall
be granted substitute Warrants pursuant to clause 10.1(a) or (ii) the
Holders shall be treated as members of the Grantor to the extent of the
maximum number of D Preference Shares for which they shall be entitled to
subscribe pursuant to the exercise of Warrants and shall be a party to such
scheme. The decision as to which of the above alternatives will apply shall
be that of the Grantor.
Take-over Bids
If, while any Warrant remains exercisable, in whole or in part, an
offer is made or proposed to be made to shareholders of the Grantor to
acquire the whole or any part of the issued share capital of the
Grantor and the Grantor becomes aware that, as a result of such offer,
the right to cast a majority of the votes which may ordinarily be cast
at a General Meeting of the Grantor may become vested in the offeror
the Grantor shall give notice thereof to the Holders as soon as
practicable and in any event within four Business Days of its becoming
so aware. For the avoidance of doubt, the publication of a scheme of
arrangement under the Companies Act providing for the acquisition by
any Person of the whole or any part of the share capital of the
Grantor and an agreement for the purchase of shares by private treaty
shall be deemed to be the making of an offer for these purposes. The
Grantor shall in any such case procure either (i) that the Holders
shall be granted substitute Warrants pursuant to clause 10.1(a) or
(ii) that the benefit of such an offer is extended to each of the
Holders in respect of such number of D Preference Shares as such
Holder may specify (up to its maximum entitlement to subscribe
pursuant to the exercise of its Warrant) subject only to payment of
the Warrant Exercise Price. The decision as to which of the above
alternatives will apply shall be that of the Grantor.
Capitalisation and Bonus Rights
If, while any Warrant remains exercisable, in whole or in part, the
Grantor at any time shall (i) capitalise any profits or reserves
(including share premium account and capital redemption reserve) or
(ii) make any issue of shares to its D Preference Shareholders by way
of rights or bonus, then the number of D Preference Shares referred to
in clause 2.1 shall be increased by a number of additional D
Preference Shares, such number to be calculated by dividing the
aggregate number of shares which would be issued to the Holders under
(i) or (ii) of this sub-clause (h) if the Holders had exercised their
right to subscribe for the maximum number of D Preference Shares on
the Record Date ("the Bonus Shares") by the amount credited as fully
paid up on each Bonus Share.
-11-
<PAGE>
Notification
The Grantor undertakes that, without prejudice to its other
obligations to notify the Grantee pursuant to this agreement, it shall
notify the Holders by way of a copy of the notice of Annual or
Extraordinary General Meeting of the Company (at the same time as such
notice is issued to the members of the Company) of any proposed
amendment or modification to the Memorandum or the Articles.
Resolution of Disputes as to Entitlements
If any question shall arise in regard to the number of D Preference
Shares that may be subscribed pursuant to the exercise of any Warrant,
following the coming into effect of any adjustment referred to in the
provisions of this clause 10, the same shall be referred for
determination either by some person, firm or company nominated jointly
for such purpose by the Grantor and the relevant Holder or, failing
agreement on such joint nomination, by the firm of chartered
accountants to be nominated at the request of the Grantor or the
relevant Holder by the President for the time being of the Institute
of Chartered Accountants in England and Wales and so that any person,
firm or company so nominated shall be deemed to be acting as an expert
or experts and not as an arbitrator or arbitrators and his or their
decision shall accordingly be conclusive and binding on all concerned.
Notice of Adjustment
The Grantor shall send to Holders: (a) prior written notice of the
Record Date applicable to any dividend, distribution, issue or
subscription rights or the effective date of any such capitalisation
referred to above or the date set for determining rights to vote in
respect of any such Merger Event, liquidation or winding-up (as the
context requires); and (b) in the case of any such Merger Event,
liquidation or winding-up, the required notice, as prescribed by the
Articles, of the date when the same shall take place (and specifying
the date on which the holders of preference shares in the capital of
the Grantee shall be entitled to exchange their shares for securities
or other property deliverable upon such Merger Event, liquidation or
winding-up). In the case of a Listing, the Grantor shall give Holders
not less than 45 clear days' written notice prior to the Listing Date
applicable thereto. In addition, each such written notice to Holders
shall contain, in reasonable detail, (i) the event requiring the
adjustment, (ii) the amount of the adjustment, (iii) the method by
which such adjustment was calculated, and (iv) the number of
additional D Preference Shares (or the number and class of the
securities for which the Warrants will represent the right to
subscribe pursuant to this clause 10 following the relevant
adjustment) to which such Holder's Warrant enables the Holder to
subscribe after giving effect to such adjustment. For the avoidance of
doubt, the Grantor shall not require Holders' consent in any of the
events detailed above requiring prior written notice.
-12-
<PAGE>
Replacement Warrant Certificates
The Grantor shall, forthwith upon any adjustment as is referred to above
becoming effective, and at no charge to each Holder:
issue to such Holder a replacement Warrant Certificate, executed under the
Grantor's common seal (or otherwise executed as a deed), showing the
Warrant Exercise Price and number of D Preference Shares (or the securities
for which the Warrants represent the right to subscribe pursuant to this
clause 10 following such adjustment) that may be subscribed pursuant to
exercise of such Warrant following such adjustment becoming effective,
against either (i) the surrender of the existing Warrant Certificate, or
(ii) an indemnity from the Holder in a form reasonably satisfactory to the
Grantor where the existing Warrant Certificate has been lost, stolen,
defaced, mutilated or destroyed; and
upon such issue, procure that an appropriate record thereof is made in the
Register.
Any Warrant Certificate surrendered pursuant to Clause 10.2(a) shall be
cancelled and destroyed by the Grantor.
Holders' Undertakings
Each Holder hereby undertakes and covenants to and in favour of the
Grantor:
not to create or permit to subsist any mortgage, charge, assignation by way
of security or other interest, agreement or arrangement having the effect
of conferring security on the whole or any part of the Warrants;
not to make any disposition of all or any portion of the D Preference
Shares in the United States or to a United States person unless and until:
there is then in effect a registration statement under the 1933 Act
covering such proposed disposition and such disposition is made in
accordance with such registration statement and all applicable state
securities laws; or
(a) such Holder shall have notified the Grantor of the proposed disposition
and shall have furnished the Grantor with a statement of the circumstances
surrounding the proposed disposition; and (b) if reasonably requested by
the Grantor, such Holder shall have furnished the Grantor with an opinion
of counsel (which counsel shall be external to the Holder) addressed to the
Grantor and in a form reasonably acceptable to the Grantor, that such
disposition will not require registration of such securities under the 1933
Act and that all requisite action has been taken under any applicable
securities laws in connection with such disposition; and (c) if reasonably
requested by the Grantor, such Holder shall have
-13-
<PAGE>
furnished the Grantor with an undertaking that any requisite action
required in the future under any applicable securities laws will be taken
in a timely manner.
Notwithstanding the provisions of paragraphs (b)(i) and (ii) above, no such
registration statement or opinion of counsel shall be necessary for a
transfer by any Holder pursuant to Rule 144A or Rule 144(k) promulgated
under the 1933 Act or a transfer by a Holder to a subsidiary or affiliate
of such Holder, if the transferee agrees in writing to be subject to the
terms hereof to the same extent as if such transferee were an original
Holder hereunder, and if such transfer is not in violation of any federal
or state securities laws.
Representations, Warranties and Covenants of the Grantor
The Grantor hereby represents, warrants and covenants in favour of the
Grantee and each of the Holders as follows:
the Grantor is and shall (until it is dissolved) remain a corporation
duly incorporated and validly existing under the laws of England and
Wales and has all requisite corporate power and authority to carry on
its business as now conducted and as presently proposed to be
conducted;
the D Preference Shares to be issued upon valid exercise of Warrants,
when issued, will be validly issued, fully paid, not subject to any
call for the payment of further capital, free of any taxes, liens,
charges or encumbrances of any nature whatsoever and, based in part
upon the representations of the Grantee contained in this agreement,
will be issued in compliance with applicable law, including without
limitation the Companies Act. The Ordinary Shares into which the D
Preference Shares may be converted in accordance with the terms of the
Articles shall, upon such conversion, be duly and validly issued,
fully paid and not subject to any call for the payment of further
capital and issued in compliance with applicable laws as aforesaid;
the existing issued shares in the capital of the Grantor were duly and
validly authorised allotted and issued, fully paid, are not subject to
any call for the payment of further capital and were issued in
compliance with applicable law, including without limitation the
Companies Act and all US federal and state securities laws applicable
at the relevant time to the Grantor;
the Grantor has made available to the Grantee on the date of this
agreement true, correct and complete copies of the Memorandum and
Articles, and the Grantor shall supply to each Holder, within fourteen
days of the relevant resolution being passed, a copy of any resolution
amending either the Memorandum or the Articles;
the issue of share certificates for D Preference Shares upon exercise
of Warrants shall be made without charge to the Holder for any cost
incurred by the Grantor in connection with such exercise and the
related issue of such D Preference Shares;
-14-
<PAGE>
the execution and delivery by the Grantor of this agreement and the
performance of all its obligations hereunder, including (but not
limited to) the issue of the Warrants, have been duly authorised by
all necessary action on the part of the Grantor and the entry by the
Grantor into the Rental Facility Agreement and this agreement does not
conflict with, or contravene any provision of the Memorandum or the
Articles and does not contravene any United Kingdom law or
governmental rule, regulation or order applicable to it, does not and
will not contravene any provision of, or constitute a default under,
any indenture, mortgage, contract or other instrument to which it is a
party or by which it or any of its assets is bound, and the Warrants
and this agreement constitute the legal and valid obligations of the
Grantor, enforceable against it in accordance with their respective
terms;
no consent or approval of, giving of notice to, registration with, or
taking of any other action in respect of any United Kingdom
governmental authority or agency is required with respect to the
execution, delivery and performance by the Grantor of its obligations
under the Warrants or this agreement, except for the filing of
documents with the Companies' Registry for England and Wales. Any such
filings shall be effected promptly and in any event within the period
permitted by Statute;
the Grantor is not, pursuant to the terms of any agreement, under any
obligation to (i) secure any Listing in respect of, or (ii) make any
offer to the public in respect of, any of its issued loan or share
capital.
In the event of any breach of any of the representations, warranties and
covenants set out in clause 12.1, the Grantor shall have no liability in
respect of such breach unless written notice of a claim in relation to such
breach is given by the relevant Holder no later than twelve months
following the date that such Holder became aware, or ought reasonably to
have become aware, of such breach.
Grantee's Undertakings
The Grantee hereby acknowledges that, in reliance upon the
representations and warranties of the Grantor set forth herein, the
Warrants are, and the D Preference Shares shall be, issued without
registration under the 1933 Act or any state securities laws and
consequently none of the Warrants or the D Preference Shares
(collectively, the "Securities") may be sold, transferred or otherwise
disposed of without registration under the 1933 Act and any applicable
state securities laws or an exemption therefrom.
The Grantee hereby represents, warrants and covenants in favour of the
Grantor:
-15-
<PAGE>
that the Securities are or will be acquired for investment and not
with a view to the sale or distribution of any part thereof, and the
Grantee has no present intention of selling or engaging in any public
distribution of the same;
that the Grantee has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks
of its investment, and has the ability to bear the economic risks of
its investment;
that the Grantee understands that if the Grantee does not register
with the Securities and Exchange Commission pursuant to Section 12 of
the 1933 Act, or file reports pursuant to Section 15(d) of the
Securities Exchange Act of 1934, or if a registration statement
covering the securities under the 1933 Act is not in effect when it
desires to sell (i) the rights to purchase D Preference Shares
pursuant to this Warrant Agreement, or (ii) the D Preference Shares
issuable upon exercise of the right to purchase, it may be required to
hold such securities for an indefinite period. The Grantee also
understands that any sale of the Securities which might be made by it
in reliance upon Rule 144 under the 1933 Act may be made only in
accordance with the terms and conditions of that Rule;
that the Grantee is an "accredited investor" within the meaning of the
Securities and Exchange Rule 501 of Regulation D, as presently in
effect.
Transfers
Subject to clause 11, every Holder shall be entitled to transfer the
Warrants held by him or any part thereof provided that in no event shall
the aggregate number of transfers of Warrants by all Holders exceed three
(3), and provided that the Holder shall inform the Grantor, at least ten
(10) days prior to any proposed transfer, of the identity of the proposed
transferee, and the Holder will not transfer the Warrants or any interest
therein to any party determined by the board of directors of the Grantor,
in good faith, and so communicated to the Holder prior to the expiration of
such ten (10) day period, to be a competitor of the Grantor. There shall
not be included in any transfer any warrants other than the Warrants
constituted by this agreement. Each transfer shall be recorded upon service
on the Grantor of a Transfer Notice. When a Holder transfers part only of
the Warrants comprised in a certificate the old certificate shall be
cancelled and a new certificate for the balance of such Warrants issued by
the Grantor without charge.
Notices
Any notice or other written communication given under or in connection with
this agreement may be delivered personally or sent by first class post
(airmail if overseas) or by telex or facsimile.
-16-
<PAGE>
The address for service of any party shall be its registered office marked
for the attention of the Managing Director or, if any other address for
service has previously been notified to the server, to the address so
notified.
Any such notice or other written communication shall be deemed to have been
served:
if delivered personally, at the time of delivery;
if posted, at the expiry of two Business Days or in the case of
airmail four Business days after it was posted;
if sent by telex or facsimile message, at the time of transmission (if
sent during normal business hours, that is 9.30 to 17.30 local time)
in the place to which it was sent or (if not sent during such normal
business hours) at the beginning of the next Business Day in the place
to which it was sent.
In proving such service it shall be sufficient to prove that personal
delivery was made, or that such notice or other written communication was
properly addressed stamped and posted or in the case of a telex that the
intended recipient's answerback code is shown on the copy retained by the
sender at the beginning and end of the message or in the case of a
facsimile message that an activity or other report from the sender's
facsimile machine can be produced in respect of the notice or other written
communication showing the recipient's facsimile number and the number of
pages transmitted.
Miscellaneous
This agreement and the Warrants shall be governed by, and construed in all
respects in accordance with, the laws of England and Wales. Each of the
parties agrees that the courts of England shall have jurisdiction to hear
and settle any disputes or proceedings arising out of this agreement (other
than any dispute arising under Clause 10.1, in which event the provisions
of Clause 10.1(j) shall apply).
In the event of any default hereunder, the non-defaulting party may proceed
to protect and enforce its rights by action at law, including but not
limited to an action for damages as a result of any such default, and/or an
action for specific performance for any default where the non-defaulting
party will not have an adequate remedy at law and where damages will not be
readily ascertainable.
The Grantor will not recommend the amendment of the Memorandum or Articles
in any manner which would have the effect of avoiding the observance or
performance of any of the terms of this agreement or the Warrants, or avoid
or seek to avoid the observance or performance of any of the terms of this
agreement or the Warrants by any other means, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate in order to protect the
rights of the Grantee and/or any Holder under this agreement.
-17-
<PAGE>
The representations, warranties, covenants and conditions of the respective
parties contained herein or made or deemed made pursuant to this agreement
shall survive the execution and delivery of this agreement.
In the event that any one or more of the provisions of this agreement shall
for any reason be held invalid, illegal or unenforceable, the remaining
provisions of this agreement shall remain in full force and effect, and the
invalid, illegal or unenforceable provision shall be replaced by a valid,
legal and enforceable provision, which comes closest to the intention of
the parties underlying the invalid, illegal or unenforceable provision.
Any provision of this agreement may be amended by a written instrument,
signed by each Holder and by the Grantor.
IN WITNESS whereof these presents are executed as follows:
EXECUTED and DELIVERED )
as a deed by VIRATA LIMITED )
)
acting by [ ] )
and [ ] )
Director
Director/Secretary
SIGNED by )
on behalf of COMDISCO, INC. )
in the presence of: )
-18-
<PAGE>
EXHIBIT 10.9
BASIC LEASE INFORMATION
DATE: June 26, 1996
LANDLORD WHC-SIX REAL ESTATE LIMITED PARTNERSHIP
TENANT: ADVANCED TELECOMMUNICATIONS MODULES, INC., a
California corporation
PREMISES Suites 201/202, 2933 Bunker Hill Lane, Santa
Clara, CA
(approx. 12,873 rentable sq. ft.)
USE: Storage, distribution, office, marketing and
other legal use related thereto
TERM: Sixty (60) months
ESTIMATED COMMENCEMENT DATE September 1, 1996
BASE RENT: Months 01-30: $21,240.45 per month
Months 31-60: $23,364.50 per month
TENANT'S PERCENTAGE SHARE
OF OPERATING EXPENSES AND
REAL PROPERTY TAXES: Buildings: 5.65% Tenant's Building: 26.11%
BASE YEAR: 1996 calendar year
SECURITY DEPOSIT: $23,364.50
BROKER: LANDLORD: Cornish & Carey Commercial
TENANT: Cornish & Carey Commercial
CONTRACT MANAGER: Insignia Commercial Group, Inc.
ADDRESS FOR NOTICES: LANDLORD: c/o Insignia Commercial Group, Inc.
2201 Dupont Drive, Ste. 100
Irvine, CA 92715 Attn: J.R. Wetzel
CONTRACT
MANAGER: 160 W. Santa Clara St., Ste. 1350
San Jose, CA 95113
Attn: Mark Schmidt
<PAGE>
TENANT: Prior to Commencement Date:
1130 E. Arques Ave.
Sunnyvale, CA 94086
Attn: Sandi Kile
Following Commencement Date:
The Premises
TENANT IMPROVEMENTS Paint/recarpet Premises with project-standard materials
EXHIBITS: Exhibits A, B, C, D, E, F and G
INITIALS: _____________ _____________
LANDLORD TENANT
<PAGE>
THIS LEASE, which is effective as of the date set forth in the Basic
Lease Information, is entered into by Landlord and Tenant, as set forth in the
Basic Lease Information. Terms which are capitalized in this Lease shall have
the meanings set forth in the Basic Lease Information.
1. Premises. Landlord leases to Tenant, and Tenant leases from
--------
Landlord, the Premises described in the Basic Lease Information, together with
the right in common to use the Common Areas of Tenant's Building and the
Property (both as defined below). The Common Areas shall mean the areas and
facilities within Tenant's Building and the Property provided and designated by
Landlord for the general use, convenience or benefit of Tenant and other tenants
and occupants of the Buildings (e.g., common entrances and hallways; restrooms;
trash disposal facilities; janitorial, telephone and electrical closets; and
unreserved parking areas). For purposes of this Lease, the term 'Tenant's
Building' shall mean that certain building within which the Premises are located
(which building is commonly known as 2933 Bunker Hill Lane, Santa Clara,
California), the term 'Buildings' shall mean all buildings located on the
Property, and the term 'Property' shall mean all of the real property shown on
Exhibit 'A' attached hereto.
- ----------
2. Term.
----
(a) Lease Term. The Term of this Lease shall commence on the
----------
Commencement Date (as defined in Subsection 2(b)) and, unless terminated on an
earlier date in accordance with the terms of this Lease, shall extend for the
period (i.e., Term) specified in the Basic Lease Information.
(b) Commencement Date. The 'Commencement Date' of this Lease
-----------------
shall be the date that Landlord delivers possession of the Premises to Tenant
(which date is presently estimated to be the Estimated Commencement Date set
forth in the Basic Lease Information).
(c) Premises Not Delivered. If, for any reason, Landlord
----------------------
cannot deliver possession of the Premises to Tenant by the Estimated
Commencement Date, (i) Tenant shall not be obligated to pay Rent until the
Commencement Date; (ii) the length of the Term shall not be extended; (iii) the
failure shall not affect the validity of this Lease, or the obligations of
Tenant under this Lease; and (iv) Landlord shall not be subject to any
liability; provided, however, in the event Landlord has failed to deliver
possession of the Premises to Tenant on or before October 15, 1996 ('Outside
Possession Date'), Tenant shall have the right, as its sole and exclusive
remedy, to terminate this Lease by providing Landlord with written notice
thereof within five (5) days following the Outside Possession Date (provided,
however, in the event that Landlord's failure to deliver possession of the
Premises to Tenant on or before the Outside Possession Date is due, in whole or
in part, to any causes beyond the reasonable control of Landlord ('Force Majeure
Delay'), the Outside Possession Date shall be extended for the period of delay
attributable to the Force Majeure Delay in question). In the event of such
termination by Tenant, Tenant shall reimburse Landlord for all attorneys' fees
and costs incurred by Landlord in connection with the preparation of this Lease
(which reimbursement shall be made by Tenant concurrently with its notice of
termination). In the event Tenant fails to provide Landlord with a notice of
termination (and such reimbursement for attorneys' fees and costs) within such
five (5) day period, this Lease shall continue in full force and effect.
<PAGE>
(d) Commencement Date Memorandum. When the Commencement Date
----------------------------
is determined, the parties shall execute a Commencement Date Memorandum, in the
form attached hereto as Exhibit 'C', setting forth the Commencement Date and the
expiration date ('Expiration Date') of this Lease.
(e) Early Entry. If Tenant is permitted to enter the Premises
-----------
prior to the Commencement Date for the purposes of fixturing or any purpose
other than occupancy permitted by Landlord, the entry shall be subject to all
the terms and provisions of this Lease, except that the payment of Rent shall
commence as of the Commencement Date.
3. Rent.
----
(a) Rent. As used in this Lease, the term 'Rent' shall
----
include: (i) the Base Rent; (ii) Tenant's Percentage Share of the total dollar
increase, if any, in the Operating Expenses paid or incurred by Landlord during
the calendar year over the Operating Expenses paid or incurred by Landlord in
the Base Year ('Base Year') specified in the Basic Lease Information; (iii)
Tenant's Percentage Share of the total dollar increase, if any, in the Real
Property Taxes paid or incurred by Landlord during the calendar year over the
Real Property Taxes paid or incurred during the Base Year; and (iv) all other
amounts which Tenant is obligated to pay under the terms of this Lease.
(b) Unpaid Rent. Any amount of Rent which is not paid within
-----------
five (5) business days after the date when due shall bear interest from the date
due until the date paid at the rate ('Interest Rate') which is the lesser of
twelve percent (12%) per annum or the maximum rate permitted by law.
(c) Late Payment Charges. Tenant hereby acknowledges that late
--------------------
payment by Tenant to Landlord of Rent and any other sums to be paid to Landlord
hereunder after the expiration of any applicable grace period will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of
which will be extremely difficult to ascertain. Such costs include, but are not
limited to, processing and accounting charges and late charges which may be
imposed on Landlord by the terms of any trust deed covering the Premises.
Accordingly, if any installment of Rent of any other sums due from Tenant shall
not be received by Landlord within five (5) business days after the date when
due, Tenant shall pay to Landlord a late charge equal to six percent (6%) of
such overdue amount. The parties hereby agree that such late charges represents
a fair and reasonable estimate of the cost Landlord will incur by reason of late
payment by Tenant. Acceptance of such late charge by Landlord shall in no event
constitute a waiver of Tenant's default with respect to such overdue amount, nor
prevent Landlord from exercising any of the other rights and remedies granted
hereunder.
(d) Payments. All payments due from Tenant to Landlord shall
--------
be paid to Contract Manager (or such other entity designated by Landlord),
without prior demand or notice, deduction or off set, in lawful money of the
United States of America at Landlord's address for notices hereunder or to such
other person at such other place as Landlord may from time to time designate by
written notice to Tenant.
2
<PAGE>
(e) Proration of Rent. If the Commencement Date is not the
-----------------
first day of the month, or if the end of the Term is not the last day of the
month. Rent shall be prorated on a monthly basis (based upon a thirty (30) day
month) for the fractional month during the month which this Lease commences or
terminates. The termination of this Lease shall not affect the obligations of
Landlord and Tenant pursuant to Subsections 5(d) and 6(e) below which are to be
performed after the termination.
4. Base Rent. Tenant shall pay Base Rent and all other amounts owing
---------
under this Lease as Rent to Contract Manager (or other entity designated by
Landlord). in advance. on the first day of each calendar month of the Term, at
Contract Manager's address for notices (as set forth in the Basic Lease
Information) or at such other address as Landlord may designate. The Base Rent
shall be the amount set forth in the Basic Lease Information. Notwithstanding
- -the foregoing, Tenant shall pay the Base Rent for the first month of the Term
upon execution of this Lease, together with the Security Deposit.
5. Additional Rent - Annual Rent Adjustment/Operating Expenses.
-----------------------------------------------------------
(a) Increase in Operating Expenses. Tenant shall pay as Rent
------------------------------
Tenant's Percentage Share of the total dollar increase, if any, in the Operating
Expenses paid or incurred by Landlord during the calendar year over the
Operating Expenses paid or incurred by Landlord during the Base Year.
(b) Operating Expenses. The term 'Operating Expenses' shall
------------------
mean (i) all of Landlord's direct costs and expenses of operation, repair and
maintenance of the Buildings and the Property, including the Common Areas and
supporting facilities, as determined by Landlord in accordance with generally
accepted accounting principles or other recognized accounting principles,
consistently applied; (ii) costs, or a portion thereof, properly allocable to
the Buildings or Common Areas of any capital improvements made to the Buildings
or Common Areas by Landlord after the date of this Lease which comprise
labor-saving devises or other equipment intended to improve the operating
efficiency of any system within the Buildings or Common Areas (such as an energy
management computer system); and (iii) costs properly allocable to the Buildings
or Common Areas of any capital improvements made to the Buildings or Common
Areas by Landlord after the date of this Lease that are required under any
governmental law or regulation that was not applicable to the Buildings and
Common Areas at the time they were constructed, or that are reasonably required
for the health and safety of tenants in the Buildings, the costs, or allocable
portion thereof, to be amortized over the useful life of the capital
improvements in question (as determined by Landlord in its reasonable
discretion), together with interest upon the unamortized balance at the Interest
Rate or such higher rate as may have been paid by Landlord on funds borrowed for
the purpose of constructing the capital improvements. If Landlord elects to
self-insure or includes the Property under blanket insurance policies covering
multiple properties, then the term 'Operating Expenses' shall include the
portion of the cost of such self-insurance or blanket insurance allocated by
Landlord to this Property.
<PAGE>
The following shall not constitute Operating Expenses for purposes of
this Lease, and nothing contained herein shall be deemed to require Tenant to
pay for any of the following as Operating Expenses (but without relieving Tenant
of any obligation to pay for any of the same pursuant to any other provisions of
this Lease): (i) damage and repairs attributable to condemnation, fire or other
casualty (but not excluding the deductible portion of any insurance covering
such fire or other casualty (or, if Landlord elects to self-insure, an amount
equal to what would have been the deductible portion had Landlord maintained
such insurance)); (ii) damage and repairs covered under any warranty or
insurance policy carried by Landlord in connection with the Buildings or the
Property (including the Common Areas) (but not excluding the deductible portion
of any such warranty or insurance (or, if Landlord elects to self-insure, an
amount equal to what would have been the deductible portion had Landlord
maintained such insurance)); (iii) damage and repairs necessitated by the
negligence or willful misconduct of Landlord or Landlord's employees,
contractors or agents; (iv) corporate executive salaries of Landlord; (v)
Landlord's general overhead not related to the Buildings and the Property
(including the Common Areas); (vi) payments of principal or interest on any
mortgage or other encumbrance including ground lease payments and points,
commissions and legal fees associated with financing; (vii) depreciation; (viii)
any cost or expense related to the testing for, removal, transportation or
storage of hazardous materials from the Buildings or the Property (including the
Common Areas); (ix) interest, penalties or other costs arising out of Landlord's
failure to make timely payments of its obligations; or (x) repairs, alterations,
additions, improvements or replacements made to rectify or correct any defect in
the design, materials or workmanship of the Buildings or the Common Areas.
Landlord shall not collect in excess of one hundred percent (100%) of the
Operating Expenses or any item or cost more than once. Any Operating Expenses
charged Landlord by any of its affiliates for goods and services provided to the
Buildings or the Property shall not exceed the then-prevailing cost thereof that
would be charged to Landlord by non-affiliated parties.
(c) Estimates of Increases in Operating Expenses. During
--------------------------------------------
December of each calendar year during the Term (commencing with December, 1996),
or as soon thereafter as practicable, Landlord shall give Tenant written notice
of Landlord's estimate of any amount of Operating Expenses in excess of the
Operating Expenses incurred in the Base Year and the amount of the increase
which will be payable for the ensuing calendar year. On or before the first day
of each month during the ensuring calendar year, Tenant shall pay to Landlord
one-twelfth (1/12) of the estimated amount; provided, however, that if notice is
not given in December, Tenant shall continue to pay on the basis of the then
applicable Rent until the month after the notice is given. If at any time it
appears to Landlord that the increased amount payable for the current calendar
year will vary from Landlord's estimate by more than five percent (5%). Landlord
may give notice to Tenant of Landlord's revised estimate for the year, and
subsequent payments by Tenant for the year shall be based on the revised
estimate; provided, however, that Landlord shall not give notice of a revised
estimate for any year more frequently than once a calendar quarter.
(d) Annual Adjustment. Within one hundred twenty (120) days
-----------------
after the close of each calendar year of the Term, or as soon after the one
hundred twenty (120) day period as practicable, Landlord. shall deliver to
Tenant a statement of the adjustment to the Operating
4
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Expenses for the prior calendar year. If, on the basis of the statement, Tenant
owes an amount that is less than the estimated payments for the calendar year
previously made by Tenant, Landlord shall apply the excess to the next payment
of increased Operating Expenses due. If, on the basis of the statement, Tenant
owes an amount that is more than the estimated payments for the calendar year
previously made by the Tenant, Tenant shall pay the deficiency to Landlord
within thirty (30) days after delivery of the statement. The statement of
Operating Expenses shall be presumed correct and shall be deemed final and
binding upon Tenant unless (i) Tenant in good faith objects in writing thereto
within thirty (30) days after delivery of the statement to Tenant (which writing
shall state, in reasonable detail, all of the reasons for the objection); and
(ii) Tenant pays in full, within thirty (30) days after delivery of the
statement to Tenant, any amount owed by Tenant with respect to the statement
which is not in dispute. If Tenant objects to Landlord's allocation to this
Property of the cost of self-insurance or blanket insurance, such allocation
shall nonetheless be presumed correct and shall be deemed final and binding upon
Tenant unless Tenant's timely written objection includes credible evidence that
Landlord could have obtained substantially comparable insurance coverage for
this Property alone at lower cost.
(e) Audit. Landlord shall keep for a period of at least twelve
-----
(12) months after the expiration of each calendar year, full and accurate books,
records and supporting documents relating to the calculations reflected in
Landlord's annual statement of Operating Expenses and Real Property Taxes (as
defined below). Tenant shall have the right to challenge the accuracy of the
calculations set. forth in any annual statement provided by Landlord by
providing Landlord with notice thereof within the thirty (30) day period
referenced in subsection (i) of the fourth sentence of Section 5(d) above, and,
if Tenant timely provides such notice and makes the payment described in
subsection (ii) of the fourth sentence of Section 5(d) above, then Landlord
shall make its books and supporting documents relating to the annual statement
in question available to Tenant or an independent certified public accountant
(which accountant shall be subject to Landlord's prior approval, which approval
shall not be unreasonably withheld) at Landlord's designated office (which
inspection and/or audit shall be undertaken, if at all, within thirty (30) days
following Landlord's receipt of Tenant's notice of challenge). The Operating
Expenses and/or Real Property Taxes shall be appropriately adjusted on the basis
of such certified audit provided such audit was performed within such thirty
(30) day period by the independent certified public accountant approved by
Landlord. Tenant shall pay the cost and expense of such audit, unless such audit
shows an overpayment discrepancy of more than five percent (5%) of Operating
Expenses or Real Property Taxes, as the case may be, in which event Landlord
shall reimburse Tenant the reasonable costs and expenses of the independent
certified public accountant performing such audit.
6. Additional Rent - Annual Rent Adjustments/Real Property Taxes.
-------------------------------------------------------------
(a) Increase in Real Property Taxes. Tenant shall pay as Rent
-------------------------------
Tenant's Percentage Share of the total dollar increase, if any, in the Real
Property Taxes paid or incurred by Landlord in the calendar year over the Real
Property Taxes paid or incurred by Landlord during the Base Year.
5
<PAGE>
(b) Real Property Taxes. The term 'Real Property Taxes' shall
-------------------
mean any ordinary or extraordinary form of assessment or special assessment,
license fee, rent tax, levy, penalty (if a result of Tenant's delinquency), or
tax, other than net income, premium, estate, succession, inheritance, transfer
or franchise taxes, imposed by any authority having the direct or indirect power
to tax, or by any city, county, state or federal government for any maintenance
or improvement or other district or division thereof, relating to all or any
part of the Property, including the Buildings and Premises. The term shall
include all transit charges, housing fund assessments, real estate taxes and all
other taxes relating to the Premises, Buildings and/or Property, all other taxes
which may be levied in lieu of real estate taxes, all assessments, assessment
bonds, levies, fees, and other governmental charges (including, but not limited
to, charges for traffic facilities, improvements, child care, water services
studies and improvements, and fire services studies and improvements) for
amounts necessary to be expended because of governmental orders, whether general
or special, ordinary or extraordinary, unforeseen as well as foreseen, of any
kind and nature for public improvement, services, benefits or any other purposes
which are assessed, levied, confirmed, imposed or become a lien upon the
Premises, Buildings or Property or become payable during the Term.
(c) Acknowledgment of Parties. It is acknowledged by Landlord
-------------------------
and Tenant that Proposition 13 was adopted by the voters of the Sate of
California in the June, 1978 election, and that assessments, taxes, fees, levies
and charges may be imposed by governmental agencies for such purposes as fire
protection, street, sidewalk, road, utility construction and maintenance, refuse
removal and for other governmental services which formerly may have been
provided without charge to property owners or occupants. It is the intention of
the parties that all new and increased assessments, taxes, fees, levies and
charges due to Proposition 13 or any other cause are to be included within the
definition of Real Property Taxes for purposes of this Lease.
(d) Estimates of Increases in Real Property Taxes. During
---------------------------------------------
December of each calendar year during the Term (commencing with December, 1996),
or as soon thereafter as practicable, Landlord shall give Tenant written notice
if Landlord estimates that the Real Property Taxes will exceed the Real Property
Taxes incurred in the Base Year, and the amount of the increase which will be
payable for the ensuing calendar year. On or before the first day of each month
during the ensuring calendar year, Tenant shall pay to Landlord one-twelfth
(12th) of the estimated amount; provided, however, that if notice is not given
in December, Tenant shall continue to pay on the basis of the then applicable
Rent until the month after the notice is given. If at any time it appears to
Landlord that the increased amount payable for the current calendar year will
vary from Landlord's estimate by more than five percent (5%), Landlord may give
notice to Tenant of Landlord's revised estimate for the year, and subsequent
payments by Tenant for the year shall be based on the revised estimate;
provided, however, that Landlord shall not give notice of a revised estimate for
any year more frequently than once a calendar quarter.
(e) Annual Adjustment. Within one hundred twenty (120) days
-----------------
after the close of each calendar year of the Term, or as soon after the one
hundred twenty (120) day period as practicable, Landlord shall deliver to Tenant
a statement of the adjustment to the Real Property Taxes for the prior calendar
year; the statement shall be final and binding upon Landlord and Tenant. If, on
the basis of the statement, Tenant owes an amount that is less than the
estimated
6
<PAGE>
payments for the calendar year previously made by Tenant, Landlord shall apply
the excess to the next payment of increased Real Property Taxes due. If, on the
basis of the statement, Tenant owes an amount that is more than the estimated
payments for the calendar year previously made by the Tenant, Tenant shall pay
the deficiency to Landlord within thirty (30) days after delivery of the
statement.
(f) Taxes on Tenant Improvements and Personal Property.
--------------------------------------------------
Notwithstanding any other provision hereof, Tenant shall pay the full amount of
any increase in Real Property Taxes during the Term resulting from any and all
alterations and tenant improvements of any kind whatsoever placed in, on or
about the Premises for the benefit of, at the request of, or by Tenant. Tenant
shall pay, prior to delinquency, all taxes assessed or levied against Tenant's
personal property in, on or about the Premises. When possible, Tenant shall
cause its personal property to be assessed and billed separately from the real
or personal property of Landlord.
7. Tenant's Percentage Share.
-------------------------
(a) Calculation of Tenant's Percentage Share. Tenant's
----------------------------------------
Percentage Share of increases in Operating Expenses and Real Property Taxes may
be determined by Landlord as a function of the rentable square footage of
Tenant's Building or the rentable square footage of all the Buildings located on
the Property, depending on the nature of the item to be charged. Tenant
acknowledges that the total rentable square footage of the Buildings may change
from time to time, and that Tenant's percentage Share may vary accordingly.
(b) Tenant's Percentage Share. Tenant's Percentage Share of
-------------------------
increases in Operating Expenses and Real Property Taxes to be charged as a
function of the Buildings presently is 5.65%, and Tenant's Percentage Share of
increases in Operating Expenses and Real Property Taxes to be charged as a
function of Tenant's Building presently is 26.11%.
8. 'As-Is' Condition. Except as provided in this Section 8 below,
----------------
Tenant agrees to accept the Premises, the Common Areas and all of the areas
outside of the Premises in 'as-is' condition as of the Commencement Date, and
acknowledges and agrees that Landlord has made no representation or warranty
whatsoever to Tenant regarding the Premises or the suitability of the Premises,
Common Areas and any of the facilities associated with the Premises, for
Tenant's stated or intended use. Prior to the Commencement Date, Landlord shall,
at its sole cost and expense, cause (i) the interior walls of the Premises to be
painted with project-standard paint, and (ii) the carpeted areas of the Premises
to be recarpeted with project-standard carpeting.
9. Uses of Premises.
----------------
(a) Tenant shall use the Premises solely for the use set forth
in the Basic Lease Information, and Tenant shall not use the Premises for any
other purpose without obtaining the prior written consent of Landlord, which
consent shall be given or withheld in the sole and absolute discretion of
Landlord without any requirement of reasonableness in the exercise of that
discretion. Tenant shall, at its own cost and expense, comply with all laws,
rules, regulations, orders, permits, licenses and ordinances issued by any
governmental authority which relate to the condition, use or occupancy of the
Premises during the Term of this Lease; provided,
7
<PAGE>
however, Tenant shall not be required to make or pay for (except to the extent
the same is included as part of Operating Expenses pursuant to Section 5 above)
any capital improvements (including structural changes) required to be made to
the Buildings (including the Premises) or the Property (including the Common
Areas) in order to comply with such laws, rules, regulations, orders, permits,
licenses and ordinances unless the same is necessitated by reason of (i)
Tenant's particular use of the Premises, or (ii) any alterations, additions or
improvements made to the Premises by or under the direction of Tenant. Tenant
shall not use the Premises in any manner that will constitute waste, nuisance,
or unreasonable annoyance (including, without limitation, use of loudspeakers or
sound or light apparatus that can be heard or seen outside the Premises) to
other tenants in the Building.
(b) 'Hazardous Substance' shall mean the substances included
within the definitions of the term 'Hazardous Substance' under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section 9601 et seq., and the California Carpenter-Presley-Tanner
Hazardous Substance Account Act, California Health & Safety Code Section 25300
et seq., and regulations promulgated thereunder, as amended. 'Hazardous Waste'
shall mean (a) any waste listed as or meeting the identified characteristics of
a 'Hazardous Waste' under the Resource Conservation and Recovery Act of 1976, 42
U.S.C. Section 6901 et seq., and regulations promulgated pursuant thereto,
collectively 'RCRA', or (b) any waste meeting the identified characteristics of
'Hazardous Waste' under California Hazardous Waste Control Law, California
Health and Safety Code Section 25100 et seq., and regulations promulgated
pursuant thereto, collectively 'CHWCL'. 'Hazardous Waste Facility' shall mean a
hazardous waste facility as defined under CHWCL.
(c) Tenant covenants that, at its sole cost and expense, it
will comply with all applicable laws, rules, regulations, orders, permits,
licenses and operating plans of any governmental authority with respect to the
use, handling, generation, transportation, storage, treatment and/or disposal of
hazardous substances or wastes, and Tenant will provide Landlord with copies of
all permits, registrations or other similar documents that authorize Tenant to
conduct any such activities in connection with its authorized use of the
Premises. Additionally, Tenant agrees to comply with the Rules and Regulations
attached hereto as Exhibit 'E' (the 'Rules'), the requirements of the Board of
----------
Fire Underwriters or Landlord's insurance carrier, and to comply with covenants,
conditions and restrictions ('CC&Rs') applicable to the Building.
(d) Tenant agrees that it shall not operate on the Premises
any facility required to be permitted or licensed as a Hazardous Waste Facility
or for which interim status as such is required. Nor shall Tenant store any
Hazardous Wastes on the Premises for ninety (90) days or more.
(e) Tenant agrees to comply with all applicable laws, rules,
regulations, orders, and permits relating to underground storage tanks
(including any installation', monitoring, maintenance, closure and/or removal of
such tanks) as such tanks are defined in California Health and Safety Code,
Section 25281(u), including, without limitation, complying with California
Health and Safety Code Section 25280-25299.6 and the regulations promulgated
8
<PAGE>
thereunder. Tenant shall furnish to Landlord copies of all registrations and
permits for all underground storage tanks.
(f) If applicable, Tenant shall provide to Landlord in writing
the following information and/or documentation at the Commencement Date and
within sixty (60) days of any change in the required information and/or
documentation:
(i) A list of all hazardous substances and/or wastes that
Tenant uses, handles, generates, transports, stores, treats or disposes in
connection with its operations on the Premises.
(ii) Copies of all Material Safety Data Sheets ('MSDSs')
required to be completed with respect to operations of Tenant at the Premises in
accordance with Title 8, California Code of Regulations Section 5194 or 42
U.S.C. Section 11021, or any amendments thereto. In lieu of this requirement,
Tenant may provide a Hazardous Materials Inventory Sheet that details the MSDSs.
(iii) Copies of all hazardous waste manifests, as defined
in Title 22, California Code of Regulations Section 66481, that Tenant is
required to complete in all connections with its operations at the Premises.
(iv) A copy of any Hazardous Materials Management Plans
required with respect to Tenant's operations.
(v) Copies of any Contingency Plans and Emergency
Procedures required of Tenant due to its operations in accordance with Title 22,
Chapter 30, Article 20, of the California Code of Regulations, and any
amendments thereto.
(vi) Copies of any biennial reports to be furnished to
California Department of Health Services relating to hazardous substances or
wastes.
(vii) Copies of all industrial waste water discharge
permits.
(g) Tenant shall secure Landlord's prior written approval for
any proposed receipt, storage, possession, use, transfer or disposal of
'Radioactive Materials' or 'Radiation', as such materials are defined in Title
17, California Code of Regulations Section 30100(w) and (z) or possessing the
characteristics of the materials so defined which approval Landlord may withhold
in its sole and absolute discretion. The Tenant in connection with any
authorized receipt, storage, possession, use, transfer or disposal or
radioactive materials or radiation shall:
(i) Comply with all federal, state and local laws, rules,
regulations, orders, licenses and permits;
(ii) Furnish Landlord with a list of all radioactive
materials or radiation received, stored, possessed, used, transferred or
disposed; and
9
<PAGE>
(iii) Furnish Landlord with all licenses, registration
materials, inspection reports, orders and permits in connection with the
receipt, storage, possession, use, transfer or disposal or radioactive materials
or radiation.
(h) Tenant shall comply with any and all applicable laws,
rules, regulations, and orders with respect to the release into the environment
of any hazardous wastes or substances or radiation or radioactive materials.
Tenant shall notify Landlord in writing of any unauthorized release into the
environment within twenty-four (24) hours of the time at which Tenant becomes
aware of such release.
(i) Tenant shall indemnify, defend and hold Landlord harmless
from any and all claims, losses (including, but not limited to, loss of rental
income and loss due to business interruption), damages (including diminution in
value or loss of rental value following expiration or earlier termination of the
Term), liabilities, costs, legal fees, and expenses of any sort arising out of
or relating to any unauthorized release into the environment of Hazardous
Substances or Hazardous Wastes or Radioactive Materials by Tenant or any of
Tenant's agents, contractors or invitees, or Tenant's failure to comply with
Subparagraphs (a)-(h) of this section of the Lease.
(j) Tenant agrees to cooperate with Landlord in furnishing
Landlord with complete information regarding Tenant's receipt, handling, use,
storage, transportation, generation, treatment and/or disposal of hazardous
substances or wastes or radiation or radioactive materials. Upon request, Tenant
agrees to grant Landlord reasonable access at reasonable times to the Premises
to inspect Tenant's receipt, handling, use, storage, transportation, generation,
treatment and/or disposal of hazardous substances or wastes or radiation or
radioactive materials without being deemed guilty of any disturbance of Tenant's
use or possession and without being liable to Tenant in any manner.
(k) Notwithstanding Landlord's rights of inspection and review
under this paragraph, Landlord shall have no obligation or duty to so inspect or
review, and no third party shall be entitled to rely on Landlord to conduct any
sort of inspection or review by reason of the provisions of this paragraph.
(l) Tenant shall fully complete, execute and, concurrently
with Tenant's execution and delivery of this Lease to Landlord, deliver to
Landlord an Environmental Questionnaire and Disclosure Statement in the form
attached to this Lease as Exhibit 'F.' The completed Environmental Questionnaire
and Disclosure Statement shall be deemed incorporated into this Lease for all
purposes, and Landlord shall be entitled to fully rely on the information
contained therein.
(m) This Section 9 of the Lease shall survive termination of
the Lease.
10. Alterations.
-----------
(a) Permitted Alterations. Tenant shall give Landlord not less
than ten (10) days' notice of any alteration Tenant desires to make to the
Premises. Tenant shall not make any alteration in, or about the Premises without
the prior written consent of Landlord unless the
10
<PAGE>
alteration does not affect the Tenant's Building structure, the exterior
appearance of the Tenant's Building, the roof or the Tenant's Building systems
(e.g., electrical systems) and the total cost of any such alterations is not in
excess of Fifteen Thousand Dollars ($15,000) in any twelve (12) month period
during the Term. Tenant shall comply with all rules, laws, ordinances and
requirements at the time Tenant makes any alteration and shall deliver to
Landlord a complete set of 'as built' plans and specifications for each
alteration. Tenant shall be solely responsible for maintenance and repair of all
alterations made by Tenant. As used in this Section, the term 'alteration' shall
include any alteration, addition or improvement.
(b) Liens. If, because of any act or omission of Tenant or anyone
-----
claiming by, through, or under Tenant, any mechanics' lien or other lien is
filed against the Premises, the Tenant's Building, the Property or against other
property of Landlord (whether or not the lien is valid or enforceable), Tenant
shall, at its own expense, cause it to be discharged of record within a
reasonable time, not to exceed thirty (30) days, after the date of the filing.
In addition, Tenant shall defend and indemnify Landlord and hold it harmless
from any and all claims, losses, damages, judgments, settlements, costs and
expenses, including attorneys' fees, resulting from the lien.
(c) Ownership of Alterations. Any alteration made by Tenant shall
------------------------
immediately become Landlord's property. Except as provided in Subsection 10(d),
Landlord may require Tenant at Tenant's sole expense and by the end of the Term,
to remove any alterations made by Tenant and to restore the Premises to its
condition prior to the alteration.
(d) Request Regarding Removal Obligation. At the time that Tenant
------------------------------------
requests Landlord's consent to any alteration, Tenant may request that Landlord
notify Tenant if Landlord will require Tenant, at Tenant's sole expense to
remove any or all of the alteration by the end of the Term, and to restore the
premises to its condition prior to the alteration.
11. Repairs. Tenant, at all times during the Term and at Tenant's sole
-------
cost and expense, shall keep the Premises and every part thereof in good
condition and repair, ordinary wear and tear, damage thereto not caused by
Tenant, by fire, earthquake, acts of God or the elements excepted. Tenant hereby
waives all right to make repairs at the expense of Landlord or in lieu thereof
to vacate the Premises as provided in California Civil Code Section 1942 or any
other law, statute or ordinance now or hereafter in effect.
12. Damage or Destruction.
---------------------
(a) Landlord's Obligations to Rebuild. If the Premises are damaged or
---------------------------------
destroyed, Landlord shall promptly and diligently repair the Premises unless
Landlord has the option to terminate this Lease as provided herein, and Landlord
elects to terminate.
(b) Right to Terminate. Landlord and Tenant each shall have the
------------------
option to terminate this Lease if the Premises or the Tenant's Building is
destroyed or damaged by fire or other casualty, regardless of whether the
casualty is insured against under this Lease, if Landlord reasonably determines
that the repair of the Premises or the Tenant's Building cannot be completed
within two hundred seventy (270) days after the casualty. If a party desires to
11
<PAGE>
exercise the right to terminate this Lease as a result of a casualty, the party
shall exercise the right by giving the other party written notice of its
election to terminate within thirty (30) days after the damage or destruction,
in which event this Lease shall terminate five (5) days after the date of the
notice. If neither Landlord nor Tenant exercises the right to terminate this
Lease, Landlord shall promptly commence the process of obtaining necessary
permits and approvals, and shall commence repair of the Premises or the
Tenant's Building as soon as practicable and thereafter prosecute the repair
diligently to completion, in which event this Lease shall continue in full force
and effect.
(c) Limited Obligation to Repair. Landlord's obligation, should
----------------------------
Landlord elect or be obligated to repair or rebuild, shall be limited to the
Tenant's Building shell and any tenant improvements which are constructed and
paid for by Landlord pursuant to Section 8 above. Tenant, at its option and
expense, shall replace or fully repair all trade fixtures, equipment and other
improvements installed by Tenant and existing at the time of the damage or
destruction.
(d) Abatement of Rent. In the event of any damage or destruction to
-----------------
the Premises which does not result in termination of this Lease, the Base Rent
shall be temporarily abated proportionately to the degree the Premises are
untenantable as a result of the damage or destruction, commencing from the date
of the damage or destruction and continuing during the period required by
Landlord to substantially complete its repair and restoration of the premises;
provided, however, that nothing herein shall preclude Landlord from being
entitled to collect the full amount of any rent loss insurance proceeds. Tenant
shall not be entitled to any compensation or damages from Landlord for loss of
the use of the Premises, damage to Tenant's personal property or any
inconvenience occasioned by any damage, repair or restoration. Tenant hereby
waives the provisions of Section 1932, Subdivision 2, and Section 1933,
Subdivision 4, of the California Civil Code, and the provisions of any similar
law hereafter enacted.
(e) Damage Near End of Term and Extensive Damage. In addition to the
--------------------------------------------
rights to termination under Subsection 12 (b), either Landlord or Tenant shall
have the right to cancel and terminate this Lease as of the date of the
occurrence of destruction or damage if the Premises or the Tenant's Building is
substantially destroyed or damaged (i.e., there is damage or destruction which
Landlord determines would require more than six (6) months to repair) and made
untenantable during the last twelve (12) months of the Term. Landlord or Tenant
shall give notice of its election to terminate this Lease under this Subsection
12(e) within thirty (30) days after Landlord determines that the damage or
destruction would require more than six (6) months to repair. If neither
Landlord nor Tenant elects to terminate this Lease, the repair of the damage
shall be governed by Subsection 12(a) or 12(b) as the case may be.
(f) Insurance Proceeds. If this Lease is terminated, Landlord may keep
------------------
all the insurance proceeds resulting from the damage, except for those proceeds
which specifically insured Tenant's personal property and trade fixtures.
13. Eminent Domain. If all or any party of the Premises is taken for
--------------
public or quasi-public use by a governmental authority under the power of
eminent domain or is conveyed to a
12
<PAGE>
governmental authority in lieu of such taking, and if the taking or conveyance
causes the remaining part of the Premises to be untenantable and inadequate for
use by Tenant for the purpose for which they were leased, then Tenant, at its
option and by giving notice within fifteen (15) days after the taking, may
terminate this Lease as of the date Tenant is required to surrender possession
of the Premises. If a part of the Premises is taken or conveyed but the
remaining part is tenantable and adequate for Tenant's use, then this Lease
shall be terminated as to the part taken or conveyed as of the date Tenant
surrenders possession; Landlord shall make such repairs, alterations and
improvements as may be necessary to render the part not taken or conveyed
tenantable; and the Rent shall be reduced in proportion to the part of the
Premises taken or conveyed. All compensation awarded for the taking or
conveyance shall be the property of Landlord without any deduction therefrom for
any estate of Tenant, and Tenant hereby assigns to Landlord all its right, title
and interest in and to the award. Tenant shall have the right, however, to
recover from the governmental authority, but not from Landlord, such
compensation as may be awarded to Tenant on account of the interruption of
Tenant's business, moving and relocation expenses and removal of Tenant's trade
fixtures and personal property.
14. Indemnity and Insurance.
-----------------------
(a) Indemnity. Tenant shall be responsible for, shall insure against,
---------
and shall indemnify Landlord and its agents, employees, contractors, officers
and directors and hold them harmless from, any and all liability for any loss,
damage or injury to person or property occurring in, on or about the Premises
(except to the extent caused by the gross negligence or willful misconduct of
Landlord, its agents, employees, contractors, officers or directors), and Tenant
hereby releases Landlord and its agents, employees, contractors, officers and
directors from any and all liability for the same. Tenant's obligation to
indemnify Landlord and its agents, employees, contractors, officers and
directors hereunder shall include the duty to defend against any claims asserted
by reason of any loss, damage or injury, and to pay any judgments, settlements,
costs, fees and expenses, including attorneys' fees, incurred in connection
therewith.
(b) Insurance. At all times during the term of this Lease, Tenant
---------
shall carry, at its own expense, for the protection of Tenant, Landlord,
Landlord's constituent parts and Landlord's management agents, as their interest
may appear, one or more policies of comprehensive general public liability and
property damage insurance, issued by one or more insurance companies acceptable
to Landlord, with minimum coverages of One Million Dollars ($1,000,000) for
injury to one person in any one accident, One Million Dollars ($1,000,000) for
injuries to more than one person in any one accident and One Million Dollars
($1,000,000) in property damage per accident and insuring against any and all
liability for which Tenant is responsible under this Lease. The insurance policy
or policies shall name Landlord, Landlord's constituent parts and Landlord's
management agents (including, without limitation, JER Investment Management L.P.
and Insignia Commercial Group, Inc.) as additional insureds, and shall provide
that the policy or policies may not be canceled on less than thirty (30) days'
prior written notice to Landlord. Concurrently with Tenant's execution of this
Lease and thereafter upon the request of Landlord, Tenant shall furnish Landlord
with certificates evidencing the insurance. If Tenant fails to carry the
insurance and furnish Landlord with copies of all the
13
<PAGE>
policies after a request to do so, Landlord shall have the right to obtain the
insurance and collect the cost thereof from Tenant as additional Rent.
15. Assignment and Subletting.
-------------------------
(a) Landlord's Consent. Tenant shall not assign, sublet or otherwise
------------------
transfer all or any portion of Tenant's interest in this Lease (collectively
'sublet') without Landlord's prior written consent, which consent shall not be
unreasonably withheld. Consent by Landlord to one sublet shall not be deemed to
be a consent to any subsequent sublet.
(b) Effect of Sublet. Each sublet to which Landlord has consented
----------------
shall be by an instrument in writing, in a form satisfactory to Landlord as
evidenced by Landlord's written approval. Each sublessee shall agree in writing,
for the benefit of Landlord, to assume, to be bound by and to perform the terms,
conditions and covenants of this Lease to be performed by Tenant. Tenant shall
not be released from personal liability for the performance of each term,
condition and covenant of this Lease, and Landlord shall have the right to
proceed against Tenant without proceeding against the subtenant.
(c) Information to be Furnished. If Tenant desires at any time to
---------------------------
sublet the Premises, Tenant shall first notify Landlord of its desire to do so
and shall submit in writing to Landlord: (i) the name of the proposed subtenant;
(ii) the nature of the proposed subtenant's business to be carried on in the
Premises; (iii) the terms and provisions of the proposed sublease and a copy of
the proposed sublease form; and (iv) such financial information, including
financial statements, as Landlord may reasonably request concerning the proposed
subtenant.
(d) Landlord's Election. At any time within ten (10) business days
-------------------
after Landlord's receipt of the information specified in Subsection 15(c),
Landlord may, by written notice to Tenant, elect either (i) to consent to the
sublet by Tenant; or (ii) to refuse its consent to the sublet. If Landlord fails
to elect either of the alternatives within the ten (1:0) business day period, it
shall be deemed that Landlord has refused its consent to the sublet. If Landlord
refuses its consent, Landlord shall deliver to Tenant a statement of the basis
for its refusal. Any attempted sublet without Landlord's consent shall not be
effective.
(e) Payment Upon Sublet. If Landlord consents to the sublet, Tenant
-------------------
may thereafter enter into a valid sublet of the premises or portion thereof,
upon the terms and conditions set forth in the information furnished by Tenant
to Landlord pursuant to Subsection 15(c), subject to the condition that fifty
percent (50%) of any excess of the monies due to Tenant under the sublet
('subrent') over the Rent required to be paid by Tenant hereunder shall be paid
to Landlord, after first deducting out for Tenant's account the reasonable
marketing, tenant improvements and legal costs, if any, incurred by Tenant in
connection with the sublet in question. Any subrent to be paid to Landlord
pursuant hereto shall be payable to Landlord as and with the Base Rent payable
to Landlord hereunder pursuant to the terms of Section 4. The term 'subrent' as
used herein shall include any consideration of any kind received, or to be
received, by Tenant from the subtenant, if the sums are related to Tenant's
interest in this Lease or in the Premises, including, without limitation, bonus
money, and payments (in excess of fair market
14
<PAGE>
value thereof) for Tenant's assets, fixtures. inventory, accounts, goodwill,
equipment, furniture, general intangibles and any capital stock or other equity
ownership of Tenant.
(f) Executed Counterparts. No sublet shall be valid nor shall any
---------------------
subtenant take possession of the Premises until an executed counterpart of the
sublease has been delivered to Landlord and approved in writing by Landlord,
which approval shall be given or withheld by Landlord within ten (10) business
days following Landlord's receipt of such executed counterpart (and if Landlord
fails to give or withhold such approval within such ten (10) business day
period, Landlord shall be deemed to have withheld its approval of the sublease
in question).
(g) Transfer to Purchaser. A transfer of this Lease to one or more
---------------------
purchasers of a majority interest in Tenant shall be deemed a sublet under this
Lease.
(h) Transfer to Affiliates. Tenant may assign this Lease or sublet the
----------------------
Premises, without Landlord's consent, to any corporation which controls, is
controlled by or is under common control with Tenant, or to any corporation
resulting from the merger or consolidation with Tenant, or to any person or
entity which acquires all the assets of Tenant as going concern of the business
that is being conducted on the Premises, provided that the assignee assumes, in
full, the obligations of Tenant under this Lease.
16. Default.
-------
(a) Tenant's Default. At the option of Landlord, a material breach of
----------------
this Lease by Tenant shall exist if any of the following events (severally,
'Event of Default'; collectively, 'Events of Default') shall occur: (i) if
Tenant shall have failed to pay Rent, including Tenant's Percentage Share of
increased operating Expenses, Tenant's Percentage Share of increased Real
Property Taxes, or any other sum required to be paid hereunder within five (5)
business days after the date when due, together with interest at the Interest
Rate, from the date the amount became due through the date of payment,
inclusive; (ii) if Tenant shall have failed to perform any term, covenant or
condition of this Lease except those requiring the payment of money, and Tenant
shall have failed to cure the breach within fifteen (15) days after written
notice from Landlord if the breach could reasonably be cured within the -fifteen
(15) day period; provided, however, if the failure could not reasonably be cured
within the fifteen (15) day period, then Tenant shall not be in default unless
it has failed to promptly commence and thereafter continue to make diligent and
reasonable efforts to cure the failure as soon as practicable as reasonably
determined by Landlord; (iii) if Tenant shall have assigned its assets for the
benefit of its creditors; (iv) if the sequestrations of, attachment of, or
execution on, any material part of the property of Tenant or any property
essential to the conduct of Tenant's business shall have occurred, and Tenant
shall have failed to obtain a return or release of the property within thirty
(30) days thereafter, or prior to sale pursuant to any sequestration, attachment
or levy, whichever is earlier; (v) if Tenant shall have abandoned the Premises;
(vi) if a court shall have made or entered any decree or order adjudging Tenant
to be insolvent, or approving as property filed a petition seeking
reorganization of Tenant, or directing the winding up or liquidation of Tenant,
and the decree or order shall have continued for a period of thirty (30) days;
(vii) if Tenant shall make or suffer any transfer which constitutes a fraudulent
or otherwise avoidable transfer under
15
<PAGE>
any provision of the federal Bankruptcy Laws or any applicable state law; or
(viii) if Tenant shall have failed to comply with the provisions of Section 24
or 26. An Event of Default shall constitute a default under this Lease.
(b) Remedies Upon Tenant's Default. Upon an Event of Default, Landlord
------------------------------
shall have the following remedies, in addition to all other rights and remedies
provided by law, equity, statute or otherwise provided in this Lease, to which
Landlord may resort cumulatively or in the alternative:
(i) Landlord may continue this Lease in full force and effect,
and this Lease shall continue in full force and effect as long as Landlord does
not terminate Tenant's right to possession, and Landlord shall have the right to
collect Rent when due. During the period Tenant is in default, Landlord may
enter the Premises and relet it, or any part of it, to third parties for
Tenant's account, provided that any Rent in excess of the Rent due hereunder
shall be payable to Landlord. Tenant shall be liable to Landlord for all
reasonable costs Landlord incurs in reletting the Premises, including, without
limitation, brokers' commissions, expenses of cleaning and redecorating the
Premises required by the reletting and like costs. Reletting may be for a period
shorter or longer than the remaining Term of this Lease. Tenant shall pay to
Landlord the Rent and other sums due under this Lease on the dates the Rent is
due, less the Rent and other sums Landlord receives from any reletting. No act
by Landlord allowed by this Subsection (i) shall terminate this Lease unless
Landlord notifies Tenant in writing that Landlord elects to terminate this
Lease.
(ii) Landlord may terminate Tenant's right to possession of the
Premises at any time by giving written notice to that effect. No act by Landlord
other than giving written notice to Tenant shall terminate this Lease. Acts of
maintenance, efforts to relet the Premises or the appointment of a receiver on
Landlord's initiative to protect Landlord's interest under this Lease shall not
constitute a termination of Tenant's right to possession. On termination,
Landlord shall have the right to remove all personal property of Tenant and
store it at Tenant's costs and to recover from Tenant as damages: (a) the worth
at the time of award of unpaid Rent and other sums due and payable which had
been earned at the time of termination; plus (b) the worth at the time of award
of the amount by which the unpaid Rent and other sums due and payable which
would have been payable after termination until the time of award exceeds the
amount of the Rent loss that Tenant proves could have been reasonably avoided;
plus (c) the worth at the time of award of the amount by which the unpaid Rent
and other sums due and payable for the balance of the Term after the time of
award exceeds the amount of the Rent loss that Tenant proves could be reasonably
avoided; plus (d) any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under this Lease, or which, in the ordinary course of things, would be likely to
result therefrom, including, without limitation, any costs or expenses incurred
by Landlord: (1) in retaking possession of the Premises, including reasonable
attorneys' fees and costs therefor; (2) maintaining or preserving the Premises
for reletting to a new tenant, including repairs or alterations to the Premises
for the reletting; (3) leasing commissions; (4) any other costs necessary or
appropriate to relet the Premises; and (5) at Landlord's election, such other
amounts
16
<PAGE>
in addition to or in lieu of the foregoing as may be permitted from time to time
by the laws of the State of California.
The "worth at the time of award" of the amounts referred to in Subsections
(ii) (a) and (ii) (b) is computed by allowing interest at the lesser of twelve
percent (12%) per annum or the maximum rate permitted by law, on the unpaid
Rent and other sums due and payable from the termination date through the date
of award. The "worth at the time of award" of the amount referred to in
Subsection (ii) (c) is computed by discounting the amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of award, plus one
percent (1%). Tenant waives redemption or relief from forfeiture under
California Code of Civil Procedure Sections 1174 and 1179, or under any other
present or future law, if Tenant is evicted or Landlord takes possession of the
Premises by reason of any default of Tenant hereunder.
(c) Landlord's Default. Landlord shall not be deemed to be in default
------------------
in the performance of any obligation required to be performed by Landlord
hereunder unless and until Landlord has failed to perform the obligation within
thirty (30) days after receipt of written notice by Tenant to Landlord
specifying wherein Landlord has failed to perform the obligation; provided,
however, that if the nature of Landlord obligation is such that more than thirty
(30) days are required for its performance, then Landlord, shall not be deemed
to be in default if Landlord shall commence the performance within the thirty
(30) day period and thereafter shall diligently prosecute the same to
completion.
17. Landlord's Right to Perform Tenant's Covenants. If Tenant shall at any
----------------------------------------------
time fail to make any payment or perform any other act on its part to be made or
performed under this Lease, Landlord may, but shall not be obligated to, make
the payment or perform any other act to the extent Landlord may deem desirable
and, in connection therewith, pay expenses and employ counsel. Any payment or
performance by Landlord shall not waive or release Tenant from any obligations
of Tenant under this Lease. All sums so paid by Landlord, and all penalties,
interest and costs in connection therewith, shall de due and payable by Tenant
within five (5) business days following Tenant's receipt of Landlord's written
demand therefor, together with interest thereon at the Interest Rate, from that
date to the date of payment thereof by Tenant to Landlord, plus collection costs
and attorneys' fees. Landlord shall have the same rights and remedies for the
nonpayment thereof as in the case of default in the payment of Rent.
18. Security Deposit. Tenant has deposited with Landlord the Security
----------------
Deposit, in the amount specified in the Basic Lease Information, as security for
the full and faithful performance of every provision of this Lease to be
performed by Tenant. If Tenant defaults with respect to any provision of this
Lease, Landlord may use, apply or retain all or any part of the Security Deposit
for the payment of any Rent or other sum in default, for the payment of any
amount which Landlord may expend or become obligated to expend by reason of
Tenant's default, or to compensate Landlord for any loss or damage which
Landlord may suffer by reason of Tenant's default. If any portion of the
Security Deposit is used or applied, Tenant shall deposit with Landlord, within
ten (10) days after written demand therefor, cash in an amount sufficient to
restore the Security Deposit to its original amount. Landlord shall not be
required to keep the
17
<PAGE>
Security Deposit separate from its general funds, and Tenant shall not be
entitled to interest on the Security Deposit.
19. Surrender of Premises. By taking possession of the Premises,
---------------------
Tenant shall be deemed to have accepted the Premises and the Property in good,
clean and completed condition and repair, subject to all applicable laws, codes
and ordinances. On the expiration or early termination of this Lease, Tenant
shall surrender the Premises to Landlord in its condition as of the
Commencement Date, normal wear and tear and any casualty covered by insurance
maintained by Landlord excepted. Tenant shall remove from the Premises all of
Tenant's personal property, trade fixtures and any alterations required to be
removed pursuant to Section 10. Tenant shall repair damage or perform any
restoration work required by the removal. If Tenant fails to remove any personal
property, trade fixtures or alterations after the end of the Term, Landlord may
remove the property and store it at Tenant's expense, including interest at the
Interest Rate. If the Premises are not so surrendered at the termination of this
Lease, Tenant shall indemnify Landlord against all loss or liability resulting
from delay by Tenant in so surrendering the Premises, including, without
limitation, any claims made by any succeeding tenant, losses to Landlord due to
lost opportunities to lease to succeeding tenants, and attorneys' fees and
costs.
20. Holding Over. If Tenant remains in possession of all or any part
------------
of the Premises after the expiration of the Term or the termination of this
Lease, the tenancy shall be month-to-month only and shall not constitute a
renewal or extension for any further term. In such event. Base Rent shall be
increased in an amount equal to one hundred and twenty-five percent (125%) of
the Base Rent during the last month of the Term (including any extensions), and
any other sums due under this Lease shall be payable in the amount, and at the
times, specified in this Lease. The month-to-month tenancy shall be subject to
every other term, condition, covenant and agreement contained in this Lease and
Tenant shall vacate the Premises immediately upon Landlord's request.
21. Access to Premises. Tenant shall permit Landlord and its agents to
------------------
enter the Premises at all reasonable times upon reasonable notice, except in the
case of an emergency (in which event no notice shall be necessary), to inspect
the Premises; to post Notices of Nonresponsibility and similar notices and to
show the Premises to interested parties such as prospective mortgagors,
purchasers and tenant (except that Landlord may show the Premises to prospective
tenants only during the last twelve (12) months of the term); to make necessary
alterations, additions, improvements or repairs either to the Premises, the
Tenant's Building, or other premises within the Tenant's Building; and to
discharge Tenant's obligations hereunder when Tenant has failed to do so within
a reasonable time after written notice from Landlord. The above rights are
subject to reasonable security regulations of Tenant, and to the requirement
that Landlord shall at all times act in a manner to cause the least possible
interference with Tenant's operations.
22. Signs.
-----
18
<PAGE>
(a) In General. The size, design, color, location and other physical
----------
aspects of any sign in or on the Buildings shall be subject to the CC&Rs, Rules
and Landlord's approval prior to installation, and to any appropriate municipal
or other governmental approvals. The costs of any permitted sign, and the costs
of its installation, maintenance and removal, shall be at Tenant's sole expense
and shall be paid within ten (10) days of Tenant's receipt of a bill from
Landlord for the costs. Landlord will provide initial directory and suite
signage at Landlord's expense
(b) Exterior Signs. Notwithstanding the foregoing, Tenant shall not be
--------------
entitled to any signs on the outside portions of the Property (including on the
exterior of the Buildings), except that, upon the request of Tenant, Landlord
shall cause Tenant's name to be placed on the monument sign presently located on
the Property. The size, design, color, location and other physical aspects of
the placement of Tenant's name on such monument sign shall be determined by
Landlord in its reasonable discretion (except that the size and location thereof
shall be comparable to that of the current tenant of the Premises (i.e.,
Minerva), and such placement shall be on a non-exclusive basis. The costs of
installing, maintaining and removing Tenant's name from the monument sign shall
be at Tenant's sole expense and shall be paid by Tenant to Landlord within ten
(10) days of Tenant's receipt of a bill from Landlord for the costs.
23. Waiver of Subrogation. Anything in this Lease to the contrary
---------------------
notwithstanding, Landlord and Tenant each hereby waives and releases the other
of and from any and all rights of recovery, claim, action or cause of action
against the other, its subsidiaries, directors, agents, officers and employees,
for any loss or damage that may occur in the Premises, the Buildings or the
property; to improvements to the Buildings or personal property (building
contents) within the Buildings; or to any furniture, equipment, machinery, goods
and supplies not covered by this Lease which Tenant may bring or obtain upon the
Premises or any additional improvements which Tenant may construct on the
Premises by reason of fire, the elements or any other cause which is required to
be insured against under this Lease, regardless of cause or origin, including
negligence of Landlord or Tenant and their agents, subsidiaries, directors,
officers and employees, to the extent insured against under the terms of any
insurance policies carried by Landlord or Tenant and in force at the time of any
such damage, but only if the insurance in question permits such a partial
release in connection with obtaining a waiver of subrogation from the insurer.
Because this Section will preclude the assignment of any claim mentioned in it
by way of subrogation or otherwise to an insurance company or any other person,
each party to this Lease agrees immediately to give to each insurance company
written notice of the terms of the mutual waivers contained in this Section and
to have the insurance policies properly endorsed, if necessary, to prevent the
invalidation of the insurance coverages by reason of the mutual waivers
contained in this Section.
24. Subordination.
-------------
(a) Subordinate Nature. Except as provided in Subsection (b), this
------------------
Lease is subject and subordinate to all ground and underlying leases, mortgages
and deeds of trust which now or may hereafter affect the Property, the Buildings
or the Premises, to the CC&Rs, and to all renewals, modifications,
consolidation, replacements and extensions thereof. Within ten (10)
19
<PAGE>
days after Landlord's written request thereof or, Tenant shall execute any and
all documents required by Landlord, the lessor under any ground or underlying
lease ("Lessor"), or the holder or holders of any mortgage or deed of trust
("Holder") to make this Lease subordinate to the lien of any lease, mortgage or
deed of trust, as the case may be.
(b) Possible Priority of Lease. If a Lessor or a Holder advises
--------------------------
Landlord that it desires or requires this Lease to be prior and superior to a
lease, mortgage or deed of trust, Landlord may notify Tenant. Within seven (7)
days of Landlord's notice, Tenant shall execute, have acknowledged and deliver
to Landlord any and all documents or instruments, in the form presented to
Tenant, which Landlord, Lessor or Holder deems necessary or desirable to make
this Lease prior and superior to the lease, mortgage or deed of trust.
(c) Recognition or Attornment Agreement. If Landlord or Holder
-----------------------------------
requests Tenant to execute a document subordinating this Lease, the document
shall provide that, so long as Tenant is not in default, Lessor or Holder shall
agree to enter into either a recognition or attornment agreement with Tenant, or
a new lease with Tenant upon the same terms and conditions as to possession of
the Premises, which shall provide that Tenant may continue to occupy the
Premises so long as Tenant shall pay the Rent and observe and perform all the
provisions of this Lease to be observed and performed by Tenant. Concurrently
with Tenant's execution of this Lease, Tenant shall execute, acknowledge and
deliver to Landlord a subordination, non-disturbance and attornment agreement in
the form of Exhibit "G" attached hereto.
25. Transfer of the Property. Upon transfer of the Property and assignment
------------------------
of this Lease, Landlord shall be entirely freed and relieved of all liability
under any and all of its covenants and obligations of Landlord contained in or
derived from this Lease occurring after the consummation of the transfer and
assignment (provided that the transferee in question assumes such obligations of
Landlord), and from all liability for the Security Deposit (provided that the
Security Deposit (or the then unapplied balance thereof) is transferred to the
transferee in question). Tenant shall attorn to any entity purchasing or
otherwise acquiring the Premises at any sale or other proceeding.
26. Estoppel Certificates. Within ten (10) days following written request
---------------------
by Landlord, Tenant shall execute and deliver to Landlord an estoppel
certificate, in the form prepared by Landlord. The certificate shall: (i)
certify that this Lease is unmodified and in full force and effect or, if
modified, state the nature of the modification and certify that this Lease, as
so modified, is in full force and effect, and the date to which the Rent and
other charges are paid in advance, if any; (ii) acknowledge that there are not,
to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder,
or if there are uncured defaults on the part of the Landlord, state the nature
of the uncured default; and (iii) evidence the status of the Lease as may be
required either by a lender making a loan to Landlord to be secured by deed of
trust or mortgage covering the Premises or a purchaser of the Property from
Landlord.
27. Mortgagee Protection. In the event of any default on the part of
--------------------
Landlord, Tenant will give notice by registered or certified mail to any
beneficiary of a deed of trust or mortgagee
20
<PAGE>
of a mortgage covering the Property and shall offer the beneficiary or mortgagee
a reasonable opportunity to cure the default, including time to obtain
possession of the Property or the Premises by power of sale or a judicial
foreclosure, if such should provide necessary to effect a cure.
28. Attorneys' Fees. If either party shall bring any action or legal
---------------
proceeding for damages for an alleged breach of any provision of this Lease, to
recover rent or other sums due, to terminate the tenancy of the Premises or to
enforce, protect or establish any term, condition or covenant of this Lease or
right of either party, the prevailing party shall be entitled to recover, as a
part of the action or proceedings, or in a separate action brought for that
purpose, reasonable attorneys' fees and court costs as may be fixed by the court
or jury. The prevailing party shall be the party which secures a final judgment
in its favor.
29. Brokers. Landlord and Tenant each warrants and represents to the other
-------
that it has had no dealings with any real estate broker or agent in connection
with the negotiation of this Lease, except for any broker(s) specified in the
Basic Lease Information, and that it knows of no other real estate broker or
agent who is or might be entitled to a commission in connection with this Lease.
Landlord and Tenant shall each indemnify and hold harmless the other from and
against any and all liabilities or expenses arising out of claims made by any
other broker or individual for commissions or fees resulting from this Lease by
virtue of having dealt with the indemnifying party or its agents or
representatives
30. Parking. Tenant shall have the right to park in the Tenant's Building
-------
parking facilities, exclusive of covered or reserved parking areas, in common
with other tenants of the Tenant's Buildings, subject to the Rules. Tenant
agrees not to use in excess of its proportionate share of parking facilities and
agrees to cooperate with Landlord and other tenants in the use of the parking
facilities. Landlord reserves the right, in its absolute discretion, to
determine whether the parking facilities are becoming crowded. and to allocate
and assign parking spaces among Tenant and the other tenants provided any such
allocation or assignment is made by Landlord on a proportional basis (based on
the relative size of space leased by Tenant and such other tenants). Landlord
shall not be liable to Tenant, nor shall this Lease be affected, if any parking
is impaired by moratorium, initiative, referendum, law, ordinance, regulation or
order passed, issued or made by any governmental or quasi-governmental body.
31. Utilities and Services. Landlord agrees to furnish or cause to be
----------------------
furnished, to the Premises the utilities and services described in the standards
for Utilities and Services, set forth in Exhibit "D", subject to the conditions
----------
and in accordance with the standards set forth therein. Landlord shall not be
liable for, and Tenant shall not be entitled to any abatement or deduction of
Rent by reason of, no eviction of Tenant shall result from and, further, Tenant
shall not be relieved from the performance of any covenant or agreement in this
Lease because, of Landlord's failure to furnish any of the foregoing when the
failure is caused by accident, breakage, or repairs, strikes, lockouts or other
labor disturbance or labor dispute of any character, governmental regulation,
moratorium or other governmental action, inability despite the exercise of
reasonable diligence to obtain electricity, water or fuel, or by any other cause
beyond
21
<PAGE>
Landlord's reasonable control. In the event of any failure, stoppage or
interruption thereof, Landlord shall diligently attempt to resume service.
32. Building Planning. If Landlord requires the Premises for use in
-----------------
conjunction with another suite or for other reasons connected with its Building
planning program, upon notifying Tenant in writing ("Relocation Notice"),
Landlord shall have the right to move Tenant to other space in the Buildings of
a size and quality (including improvements and floor plan) comparable to the
Premises, to be reasonably determined by both Landlord and Tenant. If Landlord
moves Tenant, Landlord shall reimburse Tenant for its reasonable moving expenses
(including, without limitation, reasonable expenses incurred by Tenant in the
physical relocation of Tenant's personal property from the Premises to the new
space, in changing addresses on stationery and business cards, and in installing
Tenant's telephone and computer systems in the new space) and the terms and
conditions of this Lease shall remain in full force and effect, except that a
revised Exhibit "A" shall become part of this Lease and shall reflect the
----------
location of the new space, and the Basic Lease Information shall be amended to
include and state all correct data as to the new space. Neither Landlord nor its
subsidiaries, agents, directors or employees shall be liable for any
consequential damages of Tenant caused by a relocation.
33. Acceptance. Delivery of this Lease, duly executed by Tenant,
----------
constitutes an offer to lease the Premises as set forth herein, and under no
circumstances shall such delivery be deemed to create an option or reservation
to lease the Premises for the benefit of Tenant. This Lease shall become
effective and binding only upon execution hereof by Landlord and delivery of a
signed copy to Tenant. Upon acceptance of Tenant's offer to lease under the
terms hereof and receipt by Landlord of the Rent for the first month of the Term
and the Security Deposit in connection with Tenant's submission of the offer,
Landlord shall be entitled to retain the sums and apply them to damages, costs
and expenses incurred by Landlord if Tenant fails to occupy the Premises. If
Landlord reject the offer, the sums shall be returned to Tenant.
34. Use of Building Name. Tenant shall not employ the name of the Buildings
--------------------
nor the name of the business in which the Building is located in the name or
title of its business or occupation without Landlord's prior written consent,
which consent Landlord may withhold in its sole discretion. Landlord reserves
the right to change the name of the Building without Tenant's consent and
without any liability to Landlord.
35. Recording. Neither Landlord nor Tenant shall record this Lease, nor
---------
a short form memorandum of this Lease, without the prior written consent of the
other.
36. Quitclaim. Upon any termination of this Lease pursuant to its
---------
terms, Tenant, at Landlord's request, shall execute, have acknowledged and
deliver to Landlord a quitclaim deed of all Tenant's interest in the Premises,
Tenant's Building and Property created by this Lease, provided Landlord will
prepare said quitclaim deed at its own expense and shall bear al costs in
connection with the recording of he deed.
37. Notices. Any notice or demand required or desired to be given under
-------
this Lease shall be in writing and shall be given by hand delivery, electronic
mail (e.g., telecopy) or the United States mail. Notices which are sent by
electronic mail shall be deemed to have been given upon receipt. Notices which
are mailed shall be deemed to have been
22
<PAGE>
given upon receipt. Notices which are mailed shall be deemed to have been given
when seventy-two (72) hours have elapsed after the notice was deposited in the
United States mail, registered or certified, the postage prepaid, addressed to
the party to be served. As of the date of execution of this Lease, the addresses
of Landlord and Tenant are as specified in the Basic Lease Information. Either
party may change its address by giving notice of the change in accordance with
this Section.
38. Landlord's Exculpation. In the event of default, breach or violation
----------------------
by Landlord (which term includes Landlord's partners, co-venturers and co-
tenants, and officers, directors, employees, agents and representatives of
Landlord and Landlord's partners, co-venturers and co-tenants) of any of
Landlord's obligations under this Lease, Landlord's liability to Tenant shall be
limited to its ownership interest in the Building and Property or the proceeds
of a public sale of the ownership interest pursuant to the foreclosure of a
judgment against Landlord. Landlord shall not be personally liable, or liable in
any event, for any deficiency beyond its ownership interest in the Tenant's
Building.
39. Additional Structures. Any diminution or interference with light, air
---------------------
or view by any structure which may be erected on land adjacent to the Building
shall in no way alter this Lease or impose any liability on Landlord.
40. General.
-------
(a) Captions. The captions and headings used in this Lease are for
--------
the purpose of convenience only and shall not be construed to limit or extend
the meaning of any part of this Lease.
(b) Time. Time is of the essence for the performance of each term,
----
condition and covenant of this Lease.
(c) Severability. If any provision of this Lease is held to be
------------
invalid, illegal or unenforceable, the invalidity, illegality or
unenforceability shall not affect any other provision of this Lease, but this
Lease shall be construed as if the invalid, illegal or unenforceable provision
had not been contained herein.
(d) Choice of Law; Construction. This Lease shall be construed and
---------------------------
enforced in accordance with the laws of the State of California. The language in
all parts of this Lease shall in all cases be construed as a whole according to
its fair meaning and not strictly for or against either Landlord or Tenant.
(e) Gender; Singular; Plural. When the context of this Lease
------------------------
requires, the neuter gender includes the masculine, the feminine, a partnership
or corporation or joint venture, and the singular includes the plural.
(f) Binding Effect. The covenants and agreements contained in this
--------------
Lease shall be binding on the parties hereto and on their respective successors
and assigns (to the extent this Lease is assignable).
23
<PAGE>
(g) Waiver. The waiver of Landlord of any breach of any term,
------
condition or covenant of this Lease shall not be deemed to be a waiver of the
provision or any subsequent breach of the same or any other term, condition or
covenant of this Lease. The subsequent acceptance of Rent hereunder by Landlord
shall not be deemed to be a waiver of any preceding breach at the time of
acceptance of the payment. No covenant, term or condition of this Lease shall be
deemed to have been waived by Landlord unless the waiver is in writing signed by
Landlord.
(h) Entire Agreement. This Lease is the entire agreement between the
----------------
parties, and there are no agreements or representations between the parties
except as expressed herein. Except as otherwise provided herein, no subsequent
change or addition to this Lease shall be binding unless in writing and signed
by the parties hereto.
(i) [Intentionally deleted.]
------------------------
(j) Joint and Several Liability. If more than one party shall execute
---------------------------
this Lease as Tenant, the liability of each party executing this Lease on behalf
of Tenant for the obligations of Tenant hereunder shall be joint and several.
(k) Counterpart. This Lease may be executed in counterparts, each of
-----------
which shall be an original, but all counterparts shall constitute one (1)
instrument.
(1) Exhibits. The Basic Lease Information and all exhibits attached
--------
hereto are hereby incorporated herein and made an integral part hereof.
IN WITNESS WHEREOF, the parties have executed this Lease effective as
of the date first above written.
LANDLORD:
WHC-SIX REAL ESTATE LIMITED
PARTNERSHIP, a Delaware limited
partnership
By: JER WHC-SIX SERVICES
INC., a Virginia corporation,
its Managing General Partner
By: /s/
------------------------------
DERRICK McGAVIC
Vice President
TENANT:
ADVANCED TELECOMMUNICATIONS
MODULES, INC. a California corporation
24
<PAGE>
By: /s/ Andrew M. Vought
-------------------------------------
Name: Andrew M. Vought
-----------------------------------
Title: VO, CFO
----------------------------------
25
<PAGE>
Exhibit 10.12
-------------------------------------------------------
Dated ____________________ 1995
-------------------------------------------------------
-------------------------------------------------------
(1) UNIVERSITIES SUPERANNUATION SCHEME LIMITED
(2) ROYAL INSURANCE (U.K.) LIMITED
(3) HILL SAMUEL INVESTMENT SERVICES GROUP LIMITED
(4) ADVANCED TELECOMMUNICATIONS MODULES LIMITED
-------------------------------------------------------
-------------------------------------------------------
Counterpart/
LICENCE TO SUBUNDERLET
re: first floor office premises at
Mount Pleasant House
Huntington Road
Cambridge
-------------------------------------------------------
-------------------------------------------------------
ALSOP WILKINSON
India Buildings
Liverpool L2 0NH
Ref: PR/IKW
-------------------------------------------------------
<PAGE>
LICENCE dated and delivered __________________ 1995 BETWEEN the Landlord the
- ------- -------
Tenant the Undertenant the Subundertenant and the Guarantor (if any) named in
the particulars hereunder SUPPLEMENTAL to the Lease and the Underlease specified
------------
in the said particulars WITNESSES as follows:
---------
1. PARTICULARS
-----------
Landlord: UNIVERSITIES SUPERANUATION SCHEME LIMITED whose
-----------------------------------------
registered office is at Richmond House Rumford
Place Liverpool L3 9FD in whom is now vested the
reversion immediately expectant on the
determination of the term created by the Lease
(and the expression includes the person for the
time being entitled thereto)
Tenant: ROYAL INSURANCE (U.K.) LIMITED whose registered
------------------------------
office is at New Hall Place Liverpool L69 3EN in
whom is now vested the term Created by he Lease
being the reversion immediately expectant upon the
determination of the term created by the
Underlease (and the expression includes the person
for the time being entitled to such reversion)
Undertenant: HILL SAMUEL INVESTMENT SERVICES GROUP LIMITED
---------------------------------------------
whose registered office is at NLA Tower 12/16
Addiscombe Road Croydon CR9 6BP (and the
expression includes its successors in title)
Subundertenant: ADVANCED TELECOMMUNICATIONS MODULES LIMITED whose
-------------------------------------------
registered office is at Mount Pleasant, , 2 Mount
Pleasant Huntington Road, Cambridge CB3 0B2 (and
the expression includes its successors in title)
Guarantor: None
Premises: first floor Mount Pleasant House Huntington Road
Cambridge more particularly described in the Lease
<PAGE>
Lease: the Lease dated 5th September 1980 made between
(1) the Landlord and (2) Royal Insurance Company
limited whereby the Premises were demised for the
term of 25 years from 14th August 1980 as varied
by a Deed of Variation dated 17th April 1991 and
made between (1) the Landlord and (2) the Tenant
Underlease Premises: 4,120 square feet a thereabouts of the Premises
shown edged red on the attached plan being the
part of the Premises more particularly described
in the Underlease
Underlease: the lease dated 28th June 1994 made between (1)
Royal insurance (U.K.) Limited and (2) Hill Samuel
Investment Services Group Limited whereby the
Underlease Premises are demised for the term of
years commencing on 24th June 1993 and terminating
on 11th August 2005
Subunderlease a lease of the whole of the Underlease Premises
proposed to be granted by the Undertenant to the
Subundertenant for a term of years terminating on
10th August 2005 at an initial rent of forty one
thousand two hundred pounds ((Pounds)41,200) per
annum (exclusive a value added tax) reviewable
upwards only on 14th August in each of the years
1995 and 2000
2. DEFINITIONS AND INTERPRETATION
------------------------------
2.1 In this deed wherever the context so admits the expressions defined in
the particulars in clause 1 shall have effect
3
<PAGE>
2.2 Where two or more persons comprise any party obligations expressed or
Implied to be made by or with such party shall be deemed to be made by or with
such persons jointly and severally
2.3 Words importing the singular meaning shall include the plural meaning
and vice versa and words importing the masculine feminine and neuter genders
shall Include the other or others of such genders
2.4 Clause and paragraph headings are for convenience only and shall not
affect the construction of this deed
3. Grant of Consent
----------------
In consideration of the covenants hereinafter contained the Landlord HEREBY
------
GRANTS to the Tenant and the Tenant HEREBY GRANTS to the Undertenant licence to
- ------ -------------
the grant by the Undertenant to the Subundertenant of the Subunderlease subject
as hereinafter appears
4. UNDERTENANT'S COVENANTS
-----------------------
The Undertenant for itself and its successors in title HEREBY COVENANTS with the
----------------
Landlord and (as a separate covenant) with the Tenant that the Subunderlease
will contain:
4.1 such covenants and conditions as are necessary to ensure that it is
consistent with the terms of the Lease and the Underlease
4.2 an absolute covenant on the part of the Subundertenant not to assign
underlet part with possession or share occupation of part only of the premises
demised by the Subunderlease nor to part with possession or share occupation of
the whole thereof
4.3 a covenant on the part of the Subundertenant not without the prior
written consent of the Landlord and the Tenant which consent will not be
unreasonably withheld or delayed to assign or underlet the whole of the premises
demised by the Subunderlease
5. SUBUNDERTENAT'S COVENANTS
-------------------------
The Subundertenant for itself and its successors in title HEREBY COVENANTS with
----------------
the Landlord and (as a separate covenant) with the Tenant that as from the grant
of the Subunderlease and throughout the term created thereby:
5.1 the Subundertenant will observe and perform the covenants on the part
of the tenant contained in the Lease and the Underlease (other than the
covenants
4
<PAGE>
therein contained as to payment of rent service charge and insurance premium)
insofar as the same relate to the premises demised by the Subunderlease
5.2 (without prejudice to the generality of the foregoing) the
Subundertenant will not
5.2.1 in any circumstances assign underlet part with possession or
share occupation of part only of the premises demised by the Subunderlease nor
part with possession or share occupation of the whole thereof or
5.2.2 assign or underlet the whole of the premises demised by the
Subunderlease without the prior written consent of the Landlord
6. TENANT'S COVENANTS
------------------
The Tenant HERERY COVENANTS with the Landlord to indemnify and keep
----------------
indemnified the Landlord from and against all damage loss costs claims demands
and liability whatsoever suffered or incurred by the Landlord in any way
whatsoever as a result of the non observance or non performance by the
Undertenant of the covenants on the part of the Undertenant herein contained
7. COSTS
-----
The Undertenant HERERY COVENANTS with the Landlord to pay the proper costs
----------------
of the Landlord's solicitors and the Landlord's surveyor and with the Tenant to
pay the proper costs of the Tenant's solicitors and the Tenant's surveyor of and
in connection with the preparation and completion of this deed and the grant of
the licences hereinbefore contained together with any value added tax payable in
connection therewith
8. GENERAL
-------
Provided always and it is hereby agreed and declared as follows:
8.1 the condition for re-entry contained in the Lease shall be exercisable
as well in the event of a breach of the covenants on the part of the Tenant or
the Undertenant herein contained as on the happening of any of the events
mentioned in the said condition contained in the Lease
8.2 the condition for re-entry contained in the Underlease shall be
exercisable as well in the event of a breach of the covenants on the part of the
Undertenant herein contained as on the happening of any of the events mentioned
in the said condition contained in the Underlease
8.3 nothing herein contained shall release the Tenant or the Undertenant
from or in any way affect the liability of the Tenant or the Undertenant under
the covenants and conditions contained respectively in the Lease and the
Underlease and on the part
5
<PAGE>
of the Tenant and the Undertenant respectively to be observed and performed
which shall remain in full force and effect
8.4 this licence is restricted to the grant of the Subunderlease only and
nothing herein contained shall be deemed to authorise any further or other
assignment underletting or parting with possession or sharing of occupation of
the Premises or any part thereof and this consent shall be void and cease to
have effect if the Subunderlease Is not granted within one month of the date
hereof
EXECUTED (but not delivered until the date )
- --------
hereof) as a deed by the Tenant by the )
affixing of its Common Seal in the presence )
of: )
Director
[SEAL]
Secretary
EXECUTED (but not delivered until the date )
- --------
hereof) as a deed by the Undertenant by the )
affixing of its Common Seal in the presence )
of: )
Director
[SEAL]
Secretary
EXECUTED (but not delivered until the date )
- --------
hereof) as a deed by the Subundertenant by )
the affixing of its Common Seal in the )
presence of: )
Director
[SEAL]
Secretary /s/
6
<PAGE>
EXHIBIT 10.13
COMDISCO, INC.
GLOBAL MASTER RENTAL AGREEMENT
GLOBAL MASTER RENTAL AGREEMENT (the "Agreement") dated as of September 30, 1996
by and between:
Comdisco, Inc. (hereinafter referred to as "Comdisco"), 6111 North River Road,
Rosemont, Illinois 60018, USA acting on behalf of itself and its Affiliates as
herein described and Advanced Telecommunications Modules Limited (hereinafter
referred to as the "Customer"), acting on behalf of itself and its Affiliates
as herein described.
WHEREAS, Comdisco and its Affiliates are engaged in the rental of equipment in
various countries where Customer and its Affiliates may wish to rent such
equipment,
WHEREAS, to facilitate the transacting of rental operations between Comdisco
or an Affiliate of Comdisco and Customer or an Affiliate of the Customer on an
ongoing basis, Comdisco and the Customer wish to enter into the present
Agreement which, together the Equipment Schedule under which each individual
rental operation is concluded, will establish the terms and conditions
applicable to such rental operation.
THEREFORE, it is agreed as follows:
1. GLOBAL MASTER RENTAL AGREEMENT
------------------------------
1.1 Definitions. "Affiliates of Comdisco" shall mean those enterprises in
-----------
which Comdisco owns and/or shall own at any time after the date hereof, directly
or indirectly, the majority of the voting stock, including without limitation
all present Affiliates of Comdisco listed in Exhibit A hereto.
"Affiliates of the Customer" shall mean those enterprises in which the
Customer, or its parent company owns and/or shall own at any time after the date
hereof, directly or indirectly, the majority of the voting stock, or a
controlling interest, including without limitation all present Affiliates of the
Customer listed in Exhibit B hereto;
"Lessor" shall mean, with respect to any Equipment Schedule, the Affiliate of
Comdisco entering into such Equipment Schedule, or Comdisco, if Comdisco enters
into such Equipment Schedule.
"Lessee" shall mean, with respect to any Equipment Schedule, the Affiliate of
the Customer entering into such Equipment Schedule, or Customer, if Customer
enters into such Equipment Schedule.
"Rent Interval" shall mean the monthly, quarterly or such other billing period
set forth on an Equipment Schedule.
1.2 Equipment Schedules. Lessor shall rent and Lessee shall take on rent the
-------------------
equipment described in an Equipment Schedule executed hereunder ("Equipment")
subject to the terms and conditions of this Agreement and such Equipment
Schedule. Each such Equipment Schedule shall be governed by all of the terms
and conditions of this Agreement and by such additional terms and conditions as
may be set forth in such Equipment Schedule.
Exhibit C hereto lists the countries for which Comdisco and Customer have
agreed upon the form of Equipment Schedule. Such Equipment Schedules shall be
substantially in the form attached to Exhibit C hereto. Further forms of
Equipment Schedules for use in transactions in other countries may be added by
agreement of Comdisco and Customer from time to time. The parties agree that
each local transaction will only be validly concluded if the relevant Equipment
Schedule is executed by signatories of Lessor and Lessee involved in such
transaction, and that any such Equipment Schedule may also be supplemented or
amended by special terms or conditions agreed upon by such Lessor or Lessee for
the particular transaction. The Customer shall, without notice, be jointly and
severally liable for the due performance of the obligations of its Affiliates
under all Equipment Schedules executed hereunder, including, without limitation,
all terms and conditions negotiated by its Affiliate.
2. TERM
----
2.1 The term of this Agreement shall commence on the date set forth above and
shall remain in force thereafter as long as any Equipment Schedule entered into
pursuant to this Agreement remains in effect.
2.2 The rental term and Lessee's rental obligations with respect to each item
of Equipment on an Equipment Schedule shall begin on the commencement date
("Commencement Date"). The Commencement Date with respect to the type of
Equipment defined below and indicated on the applicable Equipment Schedule shall
be as follows:
a) Equipment installed and accepted by Lessee prior to the date of the
applicable Equipment Schedule ("Installed Equipment"), shall be the date Lessor
tenders payment of the Equipment purchase price;
b) Equipment supplied from Lessor's inventory ("Inventory Equipment") shall
be the date the Equipment is installed and approved for maintenance by the
manufacturer, (or an approved third party pursuant to Subsection 5.2 hereof) or
the seventh day after delivery if (i) Lessee delays the installation and
approval or (ii) the Equipment is not so approved due to defects in the
Equipment which are remediable by the manufacturer under a manufacturer's
maintenance contract but which are not remedied because Lessee has arranged for
third party maintenance pursuant to Subsection 5.2 hereof.
<PAGE>
c) Equipment on-order ("On-Order Equipment"), shall be the date Lessee
accepts the Equipment from the Equipment vendor, which date shall be confirmed
by Lessee to Lessor as evidenced by Lessee forwarding an Acceptance Certificate
in the form provided by Lessor, within ten (10) days following such acceptance
and which date shall in no event be later than the date the Equipment is placed
in service by Lessee.
The rental term shall continue, unless renewed in accordance with the
provisions hereof, for at least the full number of months, calendar quarters or
other Rent Interval set forth in the Equipment Schedule ("Initial Term"). The
Initial Term shall commence on the first day of the Rent Interval set forth in
the Equipment Schedule next following (i) the Commencement Date for all items of
Installed Equipment and Inventory Equipment to be rented thereunder or (ii)
Lessor's receipt of Acceptance Certificates for all items of On-Order Equipment
to be rented thereunder. On the Commencement Date the Lessee will execute and
deliver to the Lessor a letter, in a form to be specified by the Lessor, which
confirms such Commencement Date. The rental term for each Equipment Schedule
shall continue until the Equipment is returned and the Equipment Schedule is
terminated by either party upon not more than twelve (12) months nor less than
six (6) months prior written notice to the other party, provided that no such
termination shall be effective prior to the expiration o the Initial Term.
2.3 If the applicable Equipment Schedule has a single Initial Term ("Single
Term"), Single Term shall be indicated on the applicable Equipment Schedule and
the terms of the following paragraph under this Subsection 2.3 shall apply to
such Equipment Schedule:
All Rental Rate Factors set forth in the applicable Equipment Schedule assume
that Acceptance Certificates for all items of On-Order Equipment to be rented
thereunder will be received by Lessor no later than the outside date set forth
on the applicable Equipment Schedule ("Outside Date"). If any Acceptance
Certificates are received by Lessor after the Outside Date, Lessor may, on or
before the start of the Initial Term for all items of Equipment, adjust the
Rental Rate Factors (and, therefore, rental rates) to maintain an assumed
economic yield which Lessor would have required for a similar transaction at
such time.
2.4 If the applicable Equipment Schedule has multiple Initial Terms
("Multiple Term"), Multiple Term shall be indicated on the applicable Equipment
Schedule and the terms of the following paragraphs under this Subsection 2.4
shall apply to such Equipment Schedule:
a) Summary Equipment Schedule
Lessor shall summarize all items of Equipment for which Acceptance
Certificates have been received in the same calendar quarter into a Summary
Equipment Schedule in the form of Exhibit 1 hereto and, notwithstanding anything
to the contrary set forth in Subsection 2.2 of the Agreement, the Initial Term
shall begin the first day of the calendar quarter thereafter. Lessee agrees to
execute and return three copies of the Summary Equipment Schedules within 10
days of receipt. Each Summary Equipment Schedule shall incorporate the terms
and conditions of the Agreement and this Equipment Schedule with respect to
those items of Equipment listed in the Summary Equipment Schedule. Upon
execution by Lessor and Lessee, the Summary Equipment Schedule shall be referred
to as an Equipment Schedule and shall constitute a separate Equipment Schedule
for purposes of the Agreement, including without limitation, Section 11 thereof.
The Initial Term for Equipment listed in Acceptance Certificates received more
than 10 days after the end of a calendar quarter and having an Acceptance Date
in the calendar quarter just ended, shall begin on the first day of the calendar
quarter following receipt of Acceptance Certificates.
b) If there is a default under the applicable Equipment Schedule or there is
an adverse change in Lessee's credit standing, Lessor, at its option and upon
prior written notice to Lessee, shall be relieved of its obligations to lease
Equipment under any Equipment Schedule with respect to Inventory Equipment and
Installed Equipment with a Commencement Date occurring after the date of such
notice and On-Order Equipment for which Lessor has not received an Acceptance
Certificate from Lessee prior to the date of such notice.
c) If prior to the Commencement Date for an item of Equipment the
manufacturer announces any change in comparable existing Equipment ("Comparable
Equipment") or announces the introduction of new or improved technology
("Replacement Technology Equipment"), Lessee may elect to lease the Replacement
Technology Equipment pursuant to the applicable Equipment Schedule in lieu of
the original Equipment described in such Equipment Schedule; provided, that
purchase documents with respect to the original Equipment and the Replacement
Technology Equipment are completed to Lessor's satisfaction. If Lessee elects
not to rent the Replacement Technology Equipment, then with respect to the
original Equipment with a Commencement Date occurring after the announced first
availability date stated in either of the aforementioned announcements, it is
agreed that Lessor may adjust the Rental Rate Factor in order to maintain an
assumed economic yield which Lessor would have expected had either such
announcement been made on the date of the applicable Equipment Schedule. This
paragraph 2.4(c) shall not apply to any Equipment having a Commencement Date
prior to the first availability date stated in either of the aforementioned
announcements.
3. RENT
----
3.1 Lessee shall pay to Lessor as rental for the Equipment the Rent in an
amount (i) as set forth in the applicable Equipment Schedule if the Equipment is
Inventory Equipment or (ii) equal to the Rental Rate Factor set forth in the
applicable Equipment Schedule multiplied by the "Lessor's Cost", as hereinafter
defined, if the Equipment is Installed Equipment or On-Order Equipment. The
Rent shall be paid in advance on the first day of the applicable Rent Interval
set forth in the applicable Equipment Schedule (in immediately available funds
in the local currency indicated on the Equipment Schedule) to Lessor at its bank
account, details of which are set forth in the Equipment Schedule, or to such
other person and/or at such other bank account as Lessor may from time to time
designate in writing. If the Commencement Date of any Equipment Schedule shall
be other than the first day of the applicable Rent Interval, Lessee shall make
rental payments equal to the daily prorata portion of the Rent set forth in the
Equipment Schedule for each day from and including the Commencement Date through
the last day of the applicable Rent Interval prior to the beginning of the
Initial Term ("Interim Rent"). The Rent, and Interim Rent, if any, shall be
payable without deduction or withholding on any account whatsoever and
regardless of whether an invoice has been supplied by Lessor. If Lessee is
required by law to make any such deduction or withholding, Lessee shall pay to
Lessor such additional amount as may be necessary to enable Lessor to receive a
net amount equal to the full amount which would otherwise have been payable
pursuant to any such Equipment Schedule, unless such deduction or withholding is
made by reference to Lessor's net income.
2
<PAGE>
3.2 All Rental Rate Factors set forth in the applicable Equipment Schedule
shall be calculated using an interest rate based on the prevailing rates for
similar transactions with lessees of similar credit standing as of the date of
the applicable Equipment Schedule. If, on or before the start of the Initial
Term for all items of Equipment to be leased under the applicable Equipment
Schedule, the comparable interest rate is greater, such Rental Rate Factors may
be adjusted accordingly.
3.3 Lessor's Cost shall be an amount equal to the purchase price which Lessee
would otherwise be responsible to pay for an item of Equipment if not for this
Agreement.
3.4 Lessee shall promptly pay and discharge all taxes or other charges of
whatever nature due with respect to the ownership or use of the Equipment or the
renting thereof by Lessee or the payment of Rent or other sums payable hereunder
but excluding any taxes payable by reference to Lessor's net income.
3.5 Should Lessee fail to pay any Rent herein reserved or any sum required to
be paid by Lessee or Lessor upon the due date for payment thereof, Lessee shall
pay to Lessor additional Rent equivalent to interest thereon from the due date
until the date of payment at the rate of 3% per annum above the then prevailing
interbank offering rate provided that in no event shall such additional Rent
exceed any legal limitation.
3.6 Equipment Procurement Charges. If indicated on the applicable Equipment
Schedule, Lessor and Lessee agree that this Subsection shall apply. It is
acknowledged that certain portions of the Equipment will be delivered to Lessee
prior to the Commencement Date and that progress payments will be required to be
paid to the Equipment manufacturer prior to the Commencement Date for any item
of equipment leased pursuant to the applicable Equipment Schedule ("Progress
Payments"). Lessee agrees that with respect to the portions of the Equipment
delivered prior to the Commencement Date, all terms and conditions of the
applicable Equipment Schedule shall be applicable except the Lessee's rental
obligations, provided, however, that Lessee agrees to pay Lessor "Equipment
Procurement Charges" equal to the daily rental rate factor set forth on the
applicable Equipment Schedule multiplied by the aggregate of the Progress
Payments paid by Lessor to the manufacturer or the Lessee relating to the
Equipment for each day from the date Progress Payments are made by Lessor until
the Commencement Date. Accrued Equipment Procurement Charges shall be payable
on the first day of each applicable Rent Interval. If Lessee rejects the
Equipment prior to the Commencement Date in accordance with the terms of the
purchase agreement with the Equipment vendor and such purchase agreement is
terminated as a result of such rejection, then the applicable Equipment Schedule
shall also terminate. In such event or if Lessee is in default of the
applicable Equipment Schedule for failure to timely pay Equipment Procurement
Charges, then Lessee shall (i) reimburse Lessor for any and all amounts paid by
Lessor to the manufacturer or to the Lessee relating to the purchase of the
Equipment and (ii) pay all Equipment Procurement Charges due through the date of
termination, whereupon Lessor shall transfer to Lessee all of Lessor's interest
in and to the Equipment and under any purchase agreement relating to the
applicable Equipment Schedule.
4. USE
---
Lessee shall:
4.1 keep the Equipment for its sole use and in its possession (except as
provided in 11.4 below) at the address where the Equipment has been installed or
at such other address within the country of original installation as Lessor may
from time to time be notified in writing and shall use the Equipment only for
the purposes for which it was designed in a proper manner and in accordance with
any applicable statutory regulations which may from time to time be in force and
shall take such steps as are necessary to ensure that the Equipment will be safe
and without risk to health when properly used by Lessee, its employees or other
authorized users;
4.2 ensure that the Equipment is only used by trained personnel in accordance
with the recommendations of the supplier and/or manufacturer;
4.3 allow such persons as Lessor may authorize to have access to the
Equipment at reasonable times in order to inspect its state and condition and,
if required, allow Lessor to fix and/or keep affixed upon the Equipment such
name or other plates in such place and manner as Lessor shall require to
indicate the ownership of the Equipment;
4.4 protect the Equipment against seizure and indemnify Lessor against all
losses, charges, damages and expenses suffered or incurred by Lessor by reason
thereof; and
4.5 protect Lessor's title or interest in the Equipment against all persons
claiming against or through Lessee and for this purpose take any necessary steps
to prevent title in the Equipment from passing to any freeholder or mortgagee of
the premises at which the Equipment is located.
5. INSTALLATION, MAINTENANCE AND ADDITIONS
---------------------------------------
5.1 Responsibility for all costs and risks of delivery, in-transit insurance
and installation shall be as indicated in the relevant Equipment Schedule.
Notwithstanding such indication, Lessee shall be responsible for all exceptional
costs of delivery and installation including, without limitation, the costs of
special lifting and handling equipment and building alterations. Lessee will,
at the request of Lessor or its assignees, certify the date of installation of
any Equipment rented hereunder. If Lessee should have the Equipment installed
by a third party maintenance or engineering company, Lessee assumes any and all
liability for defects in the Equipment which are remediable by manufacturer
under a manufacturer's maintenance contract but which are not so remedied
because Lessee has elected to use a third party to install the Equipment,
Lessor's approval of such third party notwithstanding (see 5.2). Lessee shall
have the manufacturer or authorized third party remedy all such defects at
Lessee's expense.
3
<PAGE>
5.2 Lessee shall at all times and at its own expense keep the Equipment in
good order, repair and condition (fair wear and tear excepted) and shall enter
into and maintain throughout the rental term, a contract for the maintenance of
the Equipment with the manufacturer of the Equipment, or with a third party
maintenance company as approved by Lessor provided that, if Lessee uses a third
party maintenance company, Lessee assumes any and all liability for defects in
the Equipment which are remediable by manufacturer under a manufacturer's
maintenance contract but which are not remedied because Lessee has arranged for
a third party to provide such maintenance. Upon termination of the renting,
Lessee shall provide Lessor with the manufacturer's maintenance qualification
letter and, if necessary, Lessee shall pay any costs necessary to have the
manufacturer re-certify the Equipment for maintenance eligibility.
5.3 No additions, improvements, variations, modifications or alterations of
whatsoever kind or nature shall be made to the Equipment without the consent in
writing of Lessor (such consent not to be unreasonably withheld). Subject to
such consent, any additions to the Equipment shall first be offered for renting
by Lessor upon the terms and conditions of this Agreement and of the relevant
Equipment Schedule. If any such additions, improvements, variations,
modifications or alterations are made to the Equipment without Lessor's written
consent, then the same shall be deemed to be Lessor's property.
6. ACCEPTANCE AND WARRANTIES
-------------------------
6.1 Lessor will use its reasonable endeavors at the expense and request of
Lessee to extend to Lessee the benefit of any guarantees, conditions, warranties
or representations which may be given to Lessor by the manufacturer or supplier
of the Equipment or otherwise implied in favor of Lessor, provided that such
benefit shall only be extended if Lessee shall fully indemnify Lessor against
all costs, claims and expenses incurred in connection with any claim relating to
such guarantee, warranty or representation.
6.2 The Equipment has been selected by Lessee with full knowledge of the
manufacturer's specifications and Lessee consequently assumes the entire
responsibility for its choice and Lessee's acceptance by certifying installation
shall be conclusive proof that the Equipment is satisfactory in every way to
Lessee.
7. LESSEE'S INDEMNITY
------------------
Throughout the rental term under any Equipment Schedule and until the
Equipment hereunder has been effectively re-delivered to Lessor, Lessee shall be
solely responsible for any loss, damage or injury to any party occasioned by the
use or possession of the Equipment or in any way relating to the Equipment.
Lessee shall indemnify and keep Lessor indemnified against all claims or
proceedings made or brought against Lessor, and all damages, losses, costs,
charges and expenses incurred by Lessor by reason of such claims or proceedings
arising out of the state, condition, presence or use of the Equipment or in any
way relating to the Equipment or arising out of the renting of the Equipment
hereunder provided that nothing in this clause shall restrict or exclude
Lessor's liability in respect of or shall entitle Lessor to be indemnified by
Lessee against any claims or proceedings in respect of any injury, death, loss
or damages caused by or resulting from the willful default or gross negligence
of Lessor.
8. RISK OF LOSS AND INSURANCE
--------------------------
Throughout the rental term, unless otherwise indicated in the relevant
Equipment Schedule, the Lessee shall insure and at all times keep the Equipment
insured with reputable insurers. Lessor and Lessee agree as follows:
a) Effective upon delivery of the Equipment to Lessee and until the Equipment
is returned to Lessor, Lessee relieves Lessor of responsibility for all risks of
physical damage to or loss or destruction of the Equipment, however caused.
During the continuance of the relevant Equipment Schedule, Lessee shall, at its
own expense, cause to be carried and maintained casualty insurance with respect
to each item of Equipment designated in this Equipment Schedule in an amount at
least equal at all times to the greater of (i) the replacement value of the
Equipment, or (ii) the aggregate unpaid Rent with respect to the Equipment for
the unexpired Initial Term. Lessee shall carry public liability insurance, in
each case in amounts and against risks customarily insured against by the Lessee
on similar equipment and, in any event, in amounts and against risks comparable
to those insured against by the Lessee on equipment owned by it. All policies
with respect to such insurance shall name the Lessor as additional assured and
(together with any Beneficiary) as loss payee, and shall provide for at least 30
days' prior written notice by the underwriter or insurance company to the Lessor
in the event of cancellation or expiration. Lessee shall furnish appropriate
evidence of such insurance;
b) If any item of Equipment is lost or rendered unusable as a result of any
physical damage or destruction of such item of Equipment, Lessee shall give to
Lessor prompt notice thereof and the Agreement and the relevant Equipment
Schedule shall continue in effect without any abatement of Rent. Lessee shall
determine, within fifteen (15) days after the date of occurrence of such loss,
damage or destruction, whether such item of Equipment can be repaired. If
Lessee determines that such item of Equipment can be repaired, Lessee, at its
expense, shall cause such item of Equipment to be promptly repaired. If Lessee
determines that such item of Equipment is lost or cannot be repaired, Lessee
shall promptly notify Lessor and such Equipment shall be deemed to have suffered
a "Casualty Loss" for purposes of this Section as of the date of occurrence of
such loss. Within said 15 days, Lessee shall notify Lessor of the Equipment
which has suffered a Casualty Loss and Lessee shall, at the Lessor's option,
either (i) replace Equipment which has suffered a Casualty Loss with lien free
equipment of the same model, type and feature configuration in which case the
replacement equipment shall become the Equipment, the relevant Equipment
Schedule shall continue in full force and effect and marketable title in such
Equipment shall vest in Lessor or (ii) pay the aggregate unpaid Rent with
respect to such Equipment for the unexpired Initial Term for such Equipment
("Casualty Value"). If the Casualty Value is paid, any installment of Rent with
respect to such Equipment due prior to the date of the Casualty Loss shall
remain due and payable. After the payment of such Casualty Value and all other
amounts due and owing with respect to such Equipment, Lessee's obligation to pay
further Rent for such Equipment shall cease. Except in the case of loss or
total destruction, Lessor will be entitled to recover all Equipment for which a
Casualty Value has been paid; provided, however, that Lessee shall dispose of
such Equipment for the best price obtainable (on an "as-is, where-is," basis
without representation or warranty expressed or implied), and Lessee shall be
entitled to retain all amounts received for the Equipment up to the Casualty
Value and Lessee's reasonable costs of disposition attributable thereto, and
shall remit the excess, if any, to Lessor.
4
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9. DEFAULT
-------
9.1 If:
a) Lessee or Customer shall fail to pay any Rent or other sum payable under
this Agreement (and any Equipment Schedules entered into hereunder) within
fifteen (15) days of its becoming due or fail to observe or perform any of the
terms and conditions hereof or shall do or allow to be done any act or thing
which may jeopardize any of Lessor's rights in the Equipment;
b) any distress, execution or other legal process shall be levied on or
against the Equipment or any part thereof or any premises where the same may be
or Lessee shall permit any judgment against it to remain unsatisfied for
fourteen days (14); or
c) Lessee or Customer shall enter into any liquidation, shall be declared
bankrupt or otherwise enter bankruptcy, shall call any meeting of its creditors,
or shall have any receiver or administrative receiver of all or any of its
undertakings or assets appointed, or shall be deemed unable to pay its debts;
then, in each and every such case, Lessor may at any time thereafter and
notwithstanding any subsequent acceptance by Lessor of any Rent (but without
prejudice to any other rights which Lessor may have against Lessee hereunder or
any pre-existing liability of Lessee to Lessor) by notice in writing to Lessee
forthwith and for all purposes terminate renting the Equipment hereunder and
under any Equipment Schedule executed by the Lessee and thereafter Lessee shall
no longer be in possession of the Equipment with Lessor's consent.
9.2 Upon such default, Lessee shall pay to Lessor:
a) all arrears then due by way of Rent or otherwise;
b) the costs of all repairs required as at the date of termination to
render the Equipment in good order and condition (fair wear and tear excepted);
c) all costs, charges and expenses incurred by Lessor in locating and
taking possession of the Equipment including all legal fees, costs and expenses;
and
d) as agreed compensation for Lessor's full financial loss, an amount equal
to the aggregate unpaid Rent with respect of the Equipment for the unexpired
balance of the Initial Term less a discount at the lower of the debt rate of the
Beneficiary (as defined in Subsection 11.1) at which the applicable Equipment
Schedule was financed or the rate of 2% per annum below the then prevailing
interbank offering rate, compounded quarterly, for accelerated payment. Lessee
confirms that the nature of the arrangement between it and Lessor is such that,
in computing the amount payable in such circumstances, Lessor shall not be
obliged to mitigate its loss by applying the sale proceeds of the Equipment in
reduction of such amount.
10. RETURN OF THE EQUIPMENT
-----------------------
At the end of the rental term of each Equipment Schedule executed hereunder or
upon the termination of the renting of the Equipment for whatever reason, Lessee
will at its own expense forthwith deinstall and deliver the Equipment in good
order and condition (fair wear and tear excepted) to Lessor at such place as may
be appointed by Lessor within the country in which it is then installed if
Comdisco has an affiliate in that country, or to the nearest country with a
Comdisco affiliate, and, upon the failure of Lessee to return the Equipment as
contemplated herein, Lessor may, without waiving Lessee's obligations for the
aforementioned expenses, repossess the Equipment at any time and without notice
and for this purpose shall be entitled freely to enter into and upon any
premises where the Equipment may be and whether the same is occupied by or under
the control of Lessee or otherwise.
11. ASSIGNMENT
----------
11.1 Lessor shall be entitled to assign, sell or pledge in whole or in part
its rights related to any Equipment, to any Equipment Schedule and/or to any
amounts payable under any Equipment Schedule to one or more third parties
(collectively the "Beneficiary"). Lessee agrees that on receipt of written
notice from Lessor of such assignment, sale or pledge, if so instructed, Lessee
shall perform for the benefit of the Beneficiary those of its obligations under
any Equipment Schedule as are mentioned in such notice and, if so instructed,
Lessee shall pay all or part of the amounts payable under any Equipment Schedule
directly to the Beneficiary or its assignees. Lessee declares and certifies
that the Beneficiary shall be entitled to rely upon, and shall be considered a
third party beneficiary of, the following covenants and representations:
a) Lessee will not seek the performance by the Beneficiary of any of the
obligations of Lessor under this Agreement or any Equipment Schedule (unless
Lessor shall have assigned by the Beneficiary its obligations as lessor
hereunder or under any Equipment Schedule, in which case however Lessor shall
remain primarily liable for the performance of such obligations vis-a-vis
Lessee);
b) Lessee shall not agree to any modification or amendment of this
Agreement or of any Equipment Schedule assigned to the Beneficiary without the
prior written consent of the Beneficiary;
c) Lessee shall send to the Beneficiary a copy of any notice which is
required to be sent to Lessor; and
d) Lessee's obligations hereunder and under any assigned Equipment Schedule
shall not be subject to any abatement, reduction, defense, offset or
counterclaim available to Lessee for any reason whatsoever including, without
limitation, any defect in the Equipment or failure of Lessor to perform any of
its obligations hereunder or under any Equipment Schedule.
5
<PAGE>
11.2 Upon receipt of notice of any assignment, sale or pledge, Lessee agrees
to execute and deliver to Lessor any document which may be required by a
Beneficiary in order to certify the rights and obligations of the parties under
this Agreement and any assigned Equipment Schedule and in order to perfect such
assignment, sale or pledge, including, without limitation:
a) an acknowledgment of receipt of, or a declaration of consent to, such
assignment, sale or pledge;
b) a certificate of Lessee's counsel in which he opines that Lessee is
validly bound by the terms of this Agreement and of any assigned Equipment
Schedule; and
c) a certificate of the delivery and acceptance of the related Equipment.
11.3 Lessee acknowledges that Lessor may not itself be the owner of the
Equipment rented under any Equipment Schedule and that Lessor may have rented or
leased such Equipment from a third party.
11.4 Lessee shall not sell, offer for sale, mortgage or change the Equipment
or this Agreement or any Equipment Schedule executed hereunder nor hold itself
out as the owner of nor part with possession of the Equipment and shall not
create or allow to be created any lien or any encumbrance on the Equipment and
shall duly and punctually pay all rates and taxes, charges and impositions
payable in respect of the premises whereon any Equipment is situated. Upon not
less than sixty (60) days prior written notice to Lessor, Lessee may subrent the
Equipment to any party, or relocate the Equipment to any location, within the
country set forth in the respective Equipment Schedule, provided that (i) any
such sublessee's credit worthiness shall, in Lessor's reasonable judgment, be
equal to or better than Lessee's, and (ii) all costs of any nature whatsoever
resulting from such relocation or subrent shall be made for the sole account of
Lessee or its sublessee and any subrenting of the Equipment shall be expressly
subject and subordinate to the terms of this Agreement and the respective
Equipment Schedule. No subrenting of any Equipment shall operate to relieve
Lessee of its obligations hereunder. The Lessee hereby grants to the Lessor the
right and opportunity to submit or match the last proposal for (i) the
subrenting of the Equipment, and (ii) the financing of any equipment which is
replacing the Equipment leased pursuant to this Agreement and any Equipment
Schedule. Each of the foregoing shall be conducted in a commercially reasonable
time frame and manner.
11.5 Customer hereby agrees that its representations and obligations under
this Agreement may be assigned by Comdisco, without notice, to the Lessor under
any Equipment Schedule issued hereunder, and further assigned by such Lessor,
without notice, to the Beneficiary.
12. VALUE ADDED TAX ("VAT")
-----------------------
In addition to the Rent and other sums payable under this Agreement and any
Equipment Schedule, Lessee shall be responsible for and pay to Lessor any value
added tax, turnover tax, stamp tax, recording tax or similar tax thereon at the
rate in force on the due date of payment of any sums payable by Lessee under
this Agreement and any Equipment Schedule, and Lessee shall indemnify Lessor and
keep Lessor indemnified against any liability for such taxes which may be
incurred by Lessor in respect of the Equipment or its rental hereunder at the
location set forth in the Equipment Schedule. Lessee shall cooperate with
Lessor in obtaining any relevant documentation necessary to substantiate payment
of any such tax and in providing originals or certified copies thereof.
13. MISCELLANEOUS
-------------
13.1 Service of all notices under this Agreement or any Equipment Schedule
shall be sufficient if given personally or posted to the party to be served at
its address herein or in such Equipment Schedule or at such address as the party
to be served may from time to time by notice in writing inform the other to be
its address for service of notice hereunder or thereunder and, if sent by first
class post, shall be deemed to be delivered 48 hours after posting.
13.2 It is acknowledged by the parties that the manufacturer or supplier of
the Equipment is not the agent and has no authority to act as the agent of
Lessor and that Lessor shall under no circumstances be responsible for any
warranty or representation made by any manufacturer or supplier except as stated
in this Agreement or such Equipment Schedule.
13.3 Lessor hereby excludes any conditions, warranties or representations
relating to the Equipment whether express or implied and whether statutory or
otherwise.
13.4 This Agreement shall be governed and construed for all purposes in
accordance with the law agreed upon in the applicable Equipment Schedule by
Lessor and Lessee. Comdisco and Customer hereby consent to such law.
13.5 Any payment hereunder or under any Equipment Schedule by Lessee to
Lessor shall be treated as paid on the date of its receipt by Lessor.
13.6 Neither this Agreement nor any Equipment Schedule executed hereunder
shall be varied in its terms by any oral agreement or representation or
otherwise than by an instrument in writing either of even date or subsequent
hereto or thereto executed by the respective parties or by their duly authorized
representatives.
13.7 The terms and conditions of any Equipment Schedule will supersede those
of all previous agreements either written or oral between Lessor and Lessee
relating to the Equipment.
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<PAGE>
13.8 No right or remedy herein conferred upon or reserved to Lessor is
exclusive of any other right or remedy herein or by law or equity provided or
permitted but each shall be cumulative of every right or remedy given hereunder
or hereafter existing and may be enforced currently therewith or from time to
time.
13.9 No forbearance or indulgence on the part of Lessor shown or granted to
Lessee shall in any way restrict or diminish the full rights and powers of
Lessor under this Agreement or any Equipment Schedule or shall operate as a
waiver of any breach by Lessee of any of the terms and conditions of this
Agreement.
13.10 No Equipment Schedule executed hereunder shall become binding until
accepted in writing by a representative authorized in writing on Lessor's
behalf.
13.11 The printed titles given to the clauses of this Agreement are inserted
for convenience only, do not form part of this Agreement and have no effect upon
its operation and interpretation.
13.12 Customer hereby submits to the jurisdiction of the court agreed upon in
the applicable Equipment Schedule by Lessor and Lessee regarding the enforcement
of Customer's representations and obligations hereunder with respect to such
Equipment Schedule and Customer hereby appoints the Lessee in the applicable
Equipment Schedule as the Customer's agent for service of process with regard to
the foregoing.
13.13 In the event any one or more of the provisions of this Agreement and/or
any Equipment Schedule executed hereunder shall for any reason be held invalid,
illegal or unenforceable, the remaining provisions of this Agreement and/or any
such Equipment Schedule executed hereunder shall be unimpaired, and the invalid,
illegal or unenforceable provision shall be replaced by a mutually acceptable
valid, legal and enforceable provision, which comes closest to the intention of
the parties underlying the invalid, illegal or unenforceable provision.
13.14 Lessee shall obtain no title to any software or other licensed products
("products") attached to the Equipment delivered to Lessee, and such Products
shall at all times remain the property of the owner thereof. Prior to the legal
use of any such Products, Lessee shall be responsible to obtain or cause to be
obtained a license to use such Products from the owner thereof.
13.15 Customer will, upon execution of this Agreement, and as may be
requested thereafter, provide Lessor and/or Comdisco with a secretary's
certificate of incumbency and authority and any other documents which may be
requested by Lessor and/or Comdisco.
Done in three copies of this _________ day of __________, 1999.
COMDISCO, INC. ADVANCED TELECOMMUNICATIONS MODULES LIMITED
By:_________________________ By:_________________________
Title:______________________ Title:______________________
7
<PAGE>
EXHIBIT 10.14
VENTURE BANKING GROUP
VIRATA CORPORATION AND VIRATA RALEIGH CORP., AS CO-BORROWERS
LOAN AND SECURITY AGREEMENT
DATED AS OF AUGUST 27,1999
<PAGE>
AGREEMENT
This Loan and Security Agreement ("Agreement") is made and entered into as
of August 27, 1999, by and among VENTURE BANKING GROUP, A DIVISION OF CUPERTINO
NATIONAL BANK ("Bank"), VIRATA CORPORATION, a Delaware corporation ("Virata")
and VIRATA RALEIGH CORP., a Delaware corporation ("Virata Raleigh"), (each of
Virata and Virata Raleigh, a "Borrower", and together, "Borrowers").
RECITALS
Borrowers wish to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrowers. This Agreement sets forth the terms on
which Bank will advance credit to Borrowers, and Borrowers will repay the
amounts owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the following terms
shall have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrowers
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by any
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrowers and Borrowers' Books relating to any of
the foregoing.
"Advance" or "Advances" means an Advance under the Revolving Facility.
"Affiliate" means, with respect to any Person, any Person that owns or
controls directly or indirectly such Person, any Person that controls or is
controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, and partners.
"Bank Expenses" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan Documents;
and Bank's reasonable attorneys' fees and expenses incurred in amending,
enforcing or defending the Loan Documents, whether or not suit is brought.
"Borrowers" Books" means all of Borrowers' books and records including
ledgers; records concerning each Borrower's assets or liabilities, the
Collateral, business
<PAGE>
operations or financial condition; and all computer programs, or tape files, and
the equipment containing such information.
"Borrowing Base" has the meaning set forth in Section 2.1 hereof.
"Business Day" means any day that is not a Saturday, Sunday, or other
day on which banks in the State of California are authorized or required to
close.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit A attached
hereto.
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to (i)
any indebtedness, lease, dividend, letter of credit or other obligation of
another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or
indirectly liable; (ii) any obligations with respect to undrawn letters of
credit issued for the account of that Person; and (iii) all obligations arising
under any interest rate, currency or commodity swap agreement, interest rate cap
agreement, interest rate collar agreement, or other agreement or arrangement
designated to protect a Person against fluctuation in interest rates, currency
exchange rates or commodity prices; provided, however, that the term "Contingent
Obligation" shall not include endorsements for collection or deposit in the
ordinary course of business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determined amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith; provided, however, that such
amount shall not in any event exceed the maximum amount of the obligations under
the guarantee or other support arrangement.
"Current Liabilities" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current liabilities on the
consolidated balance sheet of Parent and its Subsidiaries, as at such date,
plus, to the extent not already included therein, all outstanding Advances made
under this Agreement, including all Indebtedness that is payable upon demand or
within one year from the date of determination thereof unless such Indebtedness
is renewable or extendable at the option of Parent or any Subsidiary to a date
more than one year from the date of determination, but excluding Subordinated
Debt.
"Daily Balance" means the amount of the Obligations owed at the end of
a given day.
"Eligible Accounts" means those Accounts that arise in the ordinary
course of Borrowers' business that comply with all of Borrowers' representations
and warranties to Bank set forth in Section 5.4; provided, that standards of
eligibility may be fixed and revised from
3
<PAGE>
time to time by Bank in Bank's reasonable judgment and upon notification thereof
to Borrowers in accordance with the provisions hereof. Unless otherwise agreed
to by Bank, Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty percent
(50%) of whose Accounts the account debtor has failed to pay within ninety (90)
days of invoice date;
(c) Accounts with respect to which the account debtor is an
officer, employee, or agent of a Borrower;
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the account debtor may be
conditional;
(e) Accounts with respect to which the account debtor is an
Affiliate of a Borrower;
(f) Accounts with respect to which the account debtor does not
have its principal place of business in the United States, except for Eligible
Foreign Accounts;
(g) Accounts with respect to which the account debtor is a
federal, state, or local governmental entity or any department, agency, or
instrumentality thereof.
(h) Accounts with respect to which a Borrower is liable to the
account debtor for goods sold or services rendered by the account debtor to such
Borrower, but only to the extent of any amounts owing to the account debtor
against amounts owed to such Borrower;
(i) Accounts with respect to an account debtor, including
Subsidiaries and Affiliates, whose total obligations to Borrowers exceed thirty
percent (30%) of all Accounts, to the extent such obligations exceed the
aforementioned percentage, except as approved in writing by Bank;
(j) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its sole discretion, that there may be a basis for dispute (but only to the
extent of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business;
(k) Accounts which represent progress billings, where services
have not yet been rendered;
(l) Accounts with respect to which the account debtor is a
distributor, unless pre-approved by Bank in writing; and
4
<PAGE>
(m) Accounts the collection of which Bank reasonably determines
to be doubtful.
"Eligible Foreign Accounts" means Accounts with respect to which the
account debtor does not have its principal place of business in the United
States and that are: (1) covered by credit insurance in form and amount, and by
an insurer satisfactory to Bank less the amount of any deductible(s) which may
be or become owing thereon; or (2) supported by one or more letters of credit in
favor of Bank as beneficiary, in an amount and of a tenor, and issued by a
financial institution, acceptable to Bank; or (3) owed by Orckit Communications,
Ltd. to the extent that such Accounts do not exceed (i) forty percent (40%) of
all Accounts of [Virata/Borrowers] both prior to the Equity Event and at any
time after October 31, 1999, or (ii) sixty-five percent (65%) of all Accounts of
[Virata/Borrowers] following the Equity Event but not later than October 31,
1999; or (4) that Bank approves on a case-by-case basis; and that are not
excluded by any of clauses (a) through (m) (except for clause (f)) under the
defined term, "Eligible Accounts."
"Equipment" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrowers have any interest.
"Equity Event" means the receipt by Parent of cash proceeds of at
least $5,000,000 (or $7,000,000 for purposes of Section 6.12 hereof) from the
sale of capital stock of the Company or issuance of Subordinated Debt, other
than in a nonfinancing transaction to employees, officers, directors or
consultants of the Company.
"ERISA" means the Employment Retirement Income Security Act of 1974,
as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in effect
from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against
any person or entity under any provision of the United States Bankruptcy Code,
as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Inventory" means all present and future inventory in which a Borrower
has any interest, including merchandise, raw materials, parts, supplies, packing
and shipping materials, work in process and finished products intended for sale
or lease or to be furnished under a
5
<PAGE>
contract of service, of every kind and description now or at any time hereafter
owned by or in the custody or possession, actual or constructive, of Borrowers,
including such inventory as is temporarily out of its custody or possession or
in transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any of
the foregoing and any documents of title representing any of the above.
"In vestment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrowers, and any other agreement entered into between
Borrowers and Bank in connection with this Agreement, all as amended or extended
from time to time.
"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of any Borrower and
its Subsidiaries taken as a whole or (ii) the ability of a Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Negotiable Collateral" means all of Borrowers' present and future
letters of credit of which any Borrower is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper.
"Obligations" means all debt, principal, interest, Bank Expenses and
other amounts owed to Bank by Borrowers pursuant to this Agreement or any other
agreement whether absolute or contingent, due or to become due, now existing or
hereafter arising, including any interest that accrues after the commencement of
an Insolvency Proceeding and including any debt, liability, or obligation owing
from Borrowers to others that Bank may have obtained by assignment or otherwise.
"Parent" means Virata Ltd., a United Kingdom company.
"Payment Date" means the [fourth] calendar day of each month.
"Periodic Payments" means all installments or similar recurring
payments that Borrowers may now or hereafter become obligated to pay to Bank
pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between Borrowers and Bank.
"Permitted Indebtedness" means:
6
<PAGE>
(a) Indebtedness of Borrowers in favor of Bank arising under
this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Indebtedness to leasing companies or purchase money lenders
incurred for the acquisition of new capital equipment provided such Indebtedness
is secured solely by such equipment and the amount of such Indebtedness does not
exceed the cost of such equipment;
(d) Subordinated Debt; and
(e) Indebtedness to trade creditors incurred in the ordinary
course of business.
"Permitted Investment" means;
(a) Investments existing on the Closing Date disclosed in the
Schedule; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poor's Corporation or Moody's Investors Service, Inc., and (iii) certificates
of deposit maturing no more than one (1) year from the date of investment
therein issued by Bank.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings, provided the same have no priority over any of Bank's
security interests;
(c) Liens (i) upon or in any equipment acquired or held by
Borrowers or any of their Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment;
(d) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) and (c) above, provided that any extension, renewal or replacement
Lien shall be limited to the property
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encumbered by the existing Lien and the principal amount or committed amount of
the indebtedness being extended, renewed or refinanced does not increase.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently published in the Money Rate Section of the West Coast Edition of the
Wall Street Journal, as the "prime rate," whether or not such published rate is
the lowest rate available from Bank. When a range of rates is published, the
higher of the rates shall apply at the time the rate is changed.
"Quick Assets" means, at any date as of which the amount thereof shall
be determined, the consolidated cash, cash-equivalents, accounts receivable and
investments, with maturities not to exceed 90 days, of Parent on a consolidated
basis determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer and
the Chief Financial Officer of each Borrower.
"Revolving Facility" means Three Million Dollars ($3,000,000).
"Revolving Maturity Date" means August __, 2000.
"Schedule" means the schedule of exceptions attached hereto, if any.
"Subordinated Debt" means any debt incurred by Borrowers that is
subordinated to the debt owing by Borrowers to Bank on terms acceptable to Bank
(and identified as being such by Borrowers and Bank) and shall include, in any
event, the "Subordinated Indebtedness" as defined in the Subordination Agreement
entered into as of the date hereof by and between Parent and Bank.
"Subsidiary" means any corporation or partnership in which (i) any
general partnership interest or (ii) more than 50% of the stock of which by the
terms thereof ordinary voting power to elect the Board of Directors, managers or
trustees of the entity shall, at the time as of which any determination is being
made, be owned by Borrowers, either directly or through an Affiliate.
"Tangible Net Worth" means at any date as of which the amount thereof
shall be determined, the consolidated total assets of Virata and its
Subsidiaries minus, without duplication, (i) the sum of any amounts attributable
to (a) goodwill, (b) intangible items such as unamortized debt discount and
expense, patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, and (c) all reserves not already
deducted from assets, and (ii) Total Liabilities.
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"Total Liabilities" means at any date as of which the amount thereof
shall be determined, all obligations that should, in accordance with GAAP be
classified as liabilities on the consolidated balance sheet of Borrowers,
including in any event all Indebtedness, but specifically excluding Subordinated
Debt.
"Year 2000 Compliant" means the ability of the software and other
information processing capabilities of a Person to correctly interpret and
manipulate all data, in whatever form including printed form, screen displays,
financial records, calculations and loan-related data, so as to avoid errors in
processing that may otherwise occur because of the inability of the software or
other information processing capabilities to recognize accurately the year 2000
or subsequent dates.
1.2 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP and all calculations made
hereunder shall be made in accordance with GAAP. When used herein, the terms
"financial statements" shall include the notes and schedules thereto.
2. Loan and Terms of Payment
2.1 Advances. Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrowers in an aggregate amount not
to exceed (i) the Revolving Facility or the Borrowing Base, whichever is less,
minus (ii) the face amount of all outstanding Letters of Credit (including drawn
but unreimbursed Letters of Credit). For purposes of this Agreement, "Borrowing
Base" shall mean an amount equal to (i) seventy-five percent (75%) of Eligible
Accounts (but not more than $250,000 with respect to Eligible Accounts of Virata
Raleigh) plus (ii) fifty percent (50%) of the value of Eligible Foreign
Accounts. Subject to the terms and conditions of this Agreement, amounts
borrowed pursuant to this Section 2.1 may be repaid and reborrowed at any time
during the term of this Agreement.
Whenever Borrowers desire an Advance, Borrowers will notify Bank by
facsimile transmission or telephone no later than 3:00 p.m. Pacific time, on
the Business Day that the Advance is to be made. Each such notification shall
be promptly confirmed by a Payment/Advance Form in substantially the form of
Exhibit B hereto. Bank is authorized to make Advances under this Agreement,
based upon instructions received from a Responsible Officer, or without
instructions if in Bank's discretion such Advances are necessary to meet
Obligations which have become due and remain unpaid. Bank shall be entitled to
rely on any telephonic notice given by a person who Bank reasonably believes to
be a Responsible Officer, and Borrowers shall indemnify and hold Bank harmless
for any damages or loss suffered by Bank as a result of such reliance. Bank
will credit the amount of Advances made under this Section 2.1 to Borrowers'
deposit account.
The Revolving Facility shall terminate on the Revolving Maturity Date,
at which time all Advances under this Section 2.1 and other amounts due under
this Agreement (except as otherwise expressly specified herein) shall be
immediately due and payable.
2.2 Letters of Credit.
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(a) Subject to the terms and conditions of this Agreement, Bank
agrees to issue or cause to be issued letters of credit ("Letters of Credit")
for the account of Borrowers in an aggregate face amount not to exceed (i) the
lesser of the Revolving Facility or the Borrowing Base minus (ii) the then
outstanding principal balance of the Advances provided that the face amount of
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit) shall not in any case exceed One Million Dollars ($1,000,000). Each such
Letter of Credit shall have an expiry date no later than the Revolving Maturity
Date. All such letters of credit shall be, in form and substance, acceptable to
Bank in its sole discretion and shall be subject to the terms and conditions of
Bank's form of application and letter of credit agreement.
(b) All amounts actually paid by Bank in respect to a Letter of
Credit shall, when paid, constitute an Advance under this Agreement. The
obligation of Borrowers to immediately reimburse Bank for drawings made under
Letters of Credit shall be joint and several, absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement and such Letters of Credit, under all circumstances whatsoever.
Borrowers shall indemnify, defend and hold Bank harmless from any loss, cost,
expense or liability, including, without limitation, reasonable attorneys' fees,
arising out of or in connection with any Letters of Credit.
2.3 Overadvances. If, at any time or for any reason, the sum of
Advances owed by Borrowers plus the face amount of undrawn Letters of Credit
exceeds the lesser of (i) the Revolving Facility or (ii) the Borrowing Base,
Borrowers shall immediately pay to Bank, in cash, the amount of such excess.
2.4 Interest Rates, Payments, and Calculations.
(a) Interest Rate. Except as set forth in Section 2.4(b), any
Advances shall bear interest, on the average Daily Balance, at a rate equal to
one-half (.50) percentage point per annum above the Prime Rate.
(b) Default Rate. All Obligations shall bear interest, from and
after the occurrence and during the continuance of an Event of Default, at a
rate equal to five (5) percentage points above the interest rate applicable
immediately prior to the occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and payable in
arrears on the Payment Date of each month during the term hereof. Bank shall, at
its option, charge such interest, all Bank Expenses, and all Periodic Payments
against any of Borrowers' accounts with Bank or against the Committed Line, in
which case those amounts shall thereafter accrue interest at the rate then
applicable hereunder. Borrowers hereby authorize Bank to debit any accounts with
Bank, including; without limitation, Account Number 3105407 for payments of
principal and interest due on the Obligations and any other amounts owing by
Borrowers to Bank. Bank will notify Borrowers of all debits which Bank makes
against Borrowers' accounts. Any such debits against Borrowers' accounts in no
way shall be deemed a set-off. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
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(d) Computation. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.5 Crediting Payments. Prior to the occurrence of an Event of
Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrowers specify. After the
occurrence and during the continuance of an Event of Default, the receipt by
Bank of any wire transfer of funds, check, or other item of payment shall be
immediately applied to conditionally reduce Obligations, but shall not be
considered a payment on account unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is honored
when presented for payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by Bank after 12:00 noon Pacific
time shall be deemed to have been received by Bank as of the opening of business
on the immediately following Business Day. Whenever any payment to Bank under
the Loan Documents would otherwise be due (except by reason of acceleration) on
a date that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.6 Fees. Borrowers shall pay to Bank the following:
(a) Commitment Fee. A commitment fee equal to Five Thousand
Dollars ($5,000.00), which fee shall be due on or before the Closing Date and
upon the Closing Date shall be fully earned and non-refundable;
(b) Facility Fee. A facility fee equal to one-half percent
(.50%) per annum of the average daily difference between the Revolving Facility
and the Daily Balance, due and payable quarterly in arrears on the last day of
each calendar quarter commencing September 30, 1999, with the final such payment
due and payable on the Revolving Maturity Date.
(c) Financial Examination and Appraisal Fees. Bank's customary
fees and out-of-pocket expenses for Bank's audits of Borrowers' Accounts, and
for each appraisal of Collateral and financial analysis and examination of
Borrowers performed no more often than every six (6) months unless an Event of
Default has occurred and is continuing by Bank or its agents;
(d) Bank Expenses. Upon the date hereof all Bank Expenses
incurred through the Closing Date, including reasonable attorneys' fees and
expenses, invoiced prior to the date hereof and, after the date hereof all Bank
Expenses, including reasonable attorneys' fees and expenses as and when they
become due.
2.7 Additional Costs. In case any law, regulation, treaty or
official directive or the interpretation or application thereof by any court or
any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central
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bank or other governmental authority (whether or not having the force of law),
in each case after the date of this Agreement:
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrowers or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
(d) and the result of any of the foregoing is to increase the
cost to Bank, reduce the income receivable by Bank or impose any expense upon
Bank with respect to any loans to Borrowers, Bank shall notify Borrowers
thereof. Borrowers jointly and severally agree to pay to Bank the amount of such
increase in cost, reduction in income or additional expense as and when such
cost, reduction or expense is incurred or determined, upon presentation by Bank
of a statement of the amount and setting forth Bank's calculation thereof all in
reasonable detail, which statement shall be deemed true and correct absent
manifest error.
2.8 Term. Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for a term ending on the Revolving Maturity
Date. Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Advances under this Agreement immediately and without notice
upon the occurrence and during the continuance of an Event of Default.
Notwithstanding termination, Bank's Lien on the Collateral shall remain in
effect for so long as any Obligations are outstanding.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Advance. The obligation of Bank
to make the initial Advance or issue the initial Letter of Credit is subject to
the condition precedent that Bank shall have received, in form and substance
satisfactory to Bank, the following:
(a) this Agreement;
(b) a Revolving Promissory Note made by Borrowers in favor of
Bank in the form attached hereto as Exhibit E;
(c) a certificate of the Secretary of each Borrower with respect
to incumbency and resolutions authorizing the execution and delivery of this
Agreement;
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(d) a certificate of the Secretary of State of Delaware with
respect to each Borrower's standing and qualification to do business;
(e) certified copies of each Borrower's certificate of
incorporation and bylaws;
(f) a collateral assignment, patent mortgage and security
agreement from Parent;
(g) a subordination agreement with respect to notes issued by
Virata to Parent;
(h) financing statements (Forms UCC- 1 and/or UCC-2);
(i) insurance certificate;
(j) completion of an audit of Virata's (and Virata Raleigh in
the event Accounts of Virata Raleigh are to be included in the Borrowing Base)
Accounts with results satisfactory to Bank;
(k) payment of the fees and Bank Expenses then due specified in
Section 2.6 hereof; and
(l) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to All Advances. The obligation of Bank to
make each Advance, including the initial Advance, and to issue Letters of Credit
is further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and
(b) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Advance as though made at
and as of each such date, and no Event of Default shall have occurred and be
continuing, or would result from such Advance. The making of each Advance shall
be deemed to be a representation and warranty by Borrowers on the date of such
Advance as to the accuracy of the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Each Borrower grants and pledges to
Bank a continuing security interest in all presently existing and hereafter
acquired or arising Collateral in order to secure prompt repayment of any and
all Obligations and in order to secure prompt performance by each Borrower of
each of its covenants and duties under the Loan Documents. Except as set forth
in the Schedule, such security interest constitutes a valid, first priority
security
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interest in the presently existing Collateral, and will constitute a
valid, first priority security interest in Collateral acquired after the date
hereof. Borrowers acknowledge that Bank may place a "hold" on any deposit
account pledged as Collateral to secure the Obligations.
4.2 Delivery of Additional Documentation Required. Borrowers shall
from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers, employees,
or agents) shall have the right, upon reasonable prior notice, no more often
than every six (6) months unless an Event of Default has occurred and is
continuing, during Borrowers' usual business hours, to inspect Borrowers' Books
and to make copies thereof and to check, test, and appraise the Collateral in
order to verify Borrowers' financial condition or the amount, condition of; or
any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Each Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary
is a corporation duly existing and in good standing under the laws of its state
of incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified.
5.2 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Certificate of Incorporation or Bylaws, nor
will they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound. Borrower is not in default
under any agreement to which it is a party or by which it is bound, which
default could reasonably have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible title
to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona fide
existing obligations. The property giving rise to such Eligible Accounts has
been delivered to the account debtor or to the account debtor's agent for
immediate shipment to and unconditional acceptance by the account debtor.
Borrower has not received notice of actual or imminent Insolvency Proceeding of
any account debtor that is included in any Borrowing Base Certificate as an
Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all material
respects of good and marketable quality, free from all material defects.
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5.6 Name; Location of Chief Executive Office. Except as disclosed in
the Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof The chief executive office of Borrower is
located at the address indicated in Section 10 hereof.
5.7 Litigation. Except as set forth in the Schedule, there are no
actions or proceedings pending by or against Borrower or any Subsidiary before
any court or administrative agency in which an adverse decision could reasonably
be expected to have a Material Adverse Effect or a material adverse effect on
Borrower's interest or Bank's security interest in the Collateral. Borrower
does not have knowledge of any such pending or threatened actions or
proceedings.
5.8 No Material Adverse Change in Financial Statements. All
consolidated financial statements related to Borrowers, Parent and any
Subsidiary that have been delivered by Borrower to Bank fairly present in all
material respects Borrower's consolidated financial condition as of the date
thereof and Borrower's consolidated results of operations for the period then
ended. There has not been a material adverse change in the consolidated
financial condition of Borrower since the date of the most recent of such
financial statements submitted to Bank.
5.9 Solvency. Borrower is solvent and able to pay its debts
(including trade debts) as they mature.
5.10 Regulatory Compliance. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could reasonably be expected to have a Material Adverse
Effect. Borrower is not an "investment company" or a company "controlled" by an
investment company" within the meaning of the Investment Company Act of 1940.
Borrower is not engaged principally, or as one of the important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulations T, U and X of the Board of
Governors of the Federal Reserve System). Borrower has complied with all the
provisions of the Federal Fair Labor Standards Act. Borrower has not violated
any statutes, laws, ordinances or rules applicable to it, violation of which
could have a Material Adverse Effect.
5.11 Environmental Condition. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of; or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property
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owned by Borrower or any Subsidiary; and neither Borrower nor any Subsidiary has
received a summons, citation, notice, or directive from the Environmental
Protection Agency or any other federal, state or other governmental agency
concerning any action or omission by Borrower or any Subsidiary resulting in the
releasing, or otherwise disposing of hazardous waste or hazardous substances
into the environment.
5.12 Taxes. Borrower and each Subsidiary has filed or caused to be
filed all tax returns required to be filed, and has paid, or has made adequate
provision for the payment of all taxes reflected therein.
5.13 Subsidiaries. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
5.14 Government Consents. Borrower and each Subsidiary has obtained
all consents, approvals and authorizations of made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
5.15 Full Disclosure. No representation, warranty or other statement
made by Borrower in any certificate or written statement furnished to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates or
statements not misleading as of the date of such certificate or written
statement.
6. AFFIRMATIVE COVENANTS
Each Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
an Advance hereunder, such Borrower shall d9 all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could reasonably be expected to have a Material Adverse
Effect. Borrower shall maintain, and shall cause each of its Subsidiaries to
maintain, to the extent consistent with prudent management of Borrower's
business, in force all licenses, approvals and agreements, the loss of which
could reasonably be expected to have a Material Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could reasonably be expected to have a Material Adverse Effect or a
material adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral.
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6.3 Financial Statements, Reports, Certificates. Borrower shall
deliver to Bank: (a) as soon as available, but in any event within fifteen (15)
days after the end of each month, (i) a company prepared consolidated balance
sheet and income statement covering each Borrower's consolidated operations
during such period, certified by an officer of each Borrower reasonably
acceptable to Bank and (ii) a company prepared consolidated and consolidating
balance sheet and income statement covering Parent's consolidated operations
during such period; (b) (i) as soon as available, but in any event within ninety
(90) days after the end of Parent's fiscal year, audited consolidated and
consolidating financial statements of Parent prepared in accordance with United
Kingdom accounting standards, consistently applied, denominated in British
pounds sterling together with an unqualified opinion on such financial statement
of an independent certified public accounting firm reasonably acceptable to
Banks, and (ii) as soon as available, but in any event within one hundred twenty
(120) days after the end of Parent's fiscal year, audited consolidated financial
statements of Parent prepared in accordance with United Kingdom accounting
standards, consistently applied, denominated in U.S. dollars, together with an
unqualified opinion on such financial statements of an independent certified
public accounting firm reasonably acceptable to Bank; (c) within five (5) days
of filing, copies of all statements, reports and notices sent or made available
generally by Borrowers to security holders or to any holders of Subordinated
Debt (except for those statements, reports or notices sent or made available
solely to Parent) and all reports on Form 10-K, I 0-Q and 8-K filed with the
Securities and Exchange Commission; (d) promptly upon receipt of notice thereof,
a report of any legal actions pending or threatened against Borrowers or any
Subsidiary that Borrowers' management reasonably believes could result in
damages or costs to Borrowers or any Subsidiary of One Hundred Thousand Dollars
($100,000) or more; and (e) such budgets, sales projections, operating plans or
other financial information as Bank may reasonably request from time to time.
Within fifteen (15) days after the last day of each month, Borrowers
shall deliver to Bank a Borrowing Base Certificate signed by a Responsible
Officer in substantially the form of Exhibit C hereto, together with aged
listings of accounts receivable and accounts payable.
Borrowers shall deliver to Bank with the monthly financial statements
a Compliance Certificate signed by a Responsible Officer of each Borrower in
substantially the form of Exhibit D hereto.
Bank shall have a right from time to time hereafter to audit
Borrowers' Accounts at Borrowers' expense, provided that such audits will be
conducted prior to making the initial Advance or issuing the initial Letter of
Credit pursuant to Section 2 and thereafter no more often than every six (6)
months unless an Event of Default has occurred and is continuing.
6.4 Inventory; Returns. Borrower shall keep all Inventory in good
and marketable condition, free from all material defects. Returns and
allowances, if any, as between Borrower and its account debtors shall be on the
same basis and in accordance with the usual customary practices of Borrower, as
they exist at the time of the execution and delivery of this Agreement.
Borrower shall promptly notify Bank of all returns and recoveries and of all
disputes
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and claims, where the return, recovery, dispute or claim involves more than
Fifty Thousand Dollars ($50,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment is contested in good faith by
appropriate proceedings and is reserved against (to the extent required by GAAP)
by Borrower.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain
insurance relating to Borrower's ownership and use of the Collateral in amounts
and of a type that are customary to businesses similar to Borrower 5.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. Borrower
shall deliver to Bank certified copies of such policies of insurance and
evidence of the payments of all premiums therefor. All proceeds payable under
any such policy shall, at the option of Bank, be payable to Bank to be applied
on account of the Obligations.
6.7 Principal Depository. Borrower shall maintain its principal
depository and operating accounts with Bank.
6.8 Quick Ratio. Parent shall maintain, on a consolidated basis as
of the last day of each calendar month, a ratio of Quick Assets to Current
Liabilities of at least 1.0 to 1.0.
6.9 Debt-Net Worth Ratio. Virata shall maintain, as of the last day
of each calendar month, a ratio of Total Liabilities to Tangible Net Worth plus
Subordinated Debt and accounts payable due to Parent of not more than 1.5 to
1.0.
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6.10 Tangible Net Worth. Virata shall maintain, as of the last day
of each calendar month, a Tangible Net Worth plus Subordinated Debt and accounts
payable due to Parent of not less than Two Million Dollars ($2,000,000).
6.11 Minimum Debt Coverage. Virata shall maintain, as of the last
day of each calendar month, a ratio of (a) cash and cash equivalents plus
Accounts less than ninety days from invoice date to (0) outstanding principal
hereunder plus the face amount of undrawn Letters of Credit of not less than 1.5
to 1.0.
6.12 Additional Equity. An Equity Event shall occur no later than
October 31, 1999. In the event such Equity Event does not so occur, it shall be
an Event of Default hereunder, and Borrowers shall immediately proceed to cure
such Event of Default by (a) repaying all Obligations hereunder, or (b) causing
Parent to issue to Bank a warrant, in form and substance satisfactory to Bank in
its sole discretion, to purchase that number of shares of stock of Parent having
a value (at an exercise price of $_______________________) equal to five percent
(5%) of the Advances then outstanding, for each month beyond October 31, 1999
until an Equity Event occurs.
6.13 Year 2000 Compliance. Borrower and each Subsidiary is currently
Year 2000 Compliant, and to the best of Borrower's knowledge after due inquiry,
each of its material vendors and suppliers are also Year 2000 Compliant.
6.14 Registration of Intellectual Property Rights. Borrower shall
register or cause to be registered (to the extent not already registered) with
the United States Patent and Trademark Office or the United States Copyright
Office, as applicable, those intellectual property rights listed on Exhibits A,
B and C to the Collateral Assignment, Patent Mortgage and Security Agreement
delivered to Bank by Borrower in connection with this Agreement within thirty
(30) days of the date of this Agreement. Borrower shall register or cause to be
registered with the United States Patent and Trademark Office or the United
States Copyright Office, as applicable, those additional intellectual property
rights developed or acquired by Borrower from time to time in connection with
any product prior to the sale or licensing of such product to any third party,
including without limitation revisions or additions to the intellectual property
rights listed on such Exhibits A, B and C. Borrower shall execute and deliver
such additional instruments and documents from time to time as Bank shall
reasonably request to perfect Bank's security interest in such additional
intellectual property rights.
6.15 Use of Proceeds. Borrower shall use the Advances for working
capital and operating expenses only.
6.16 Further Assurances. At any time and from time to time Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
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Each Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until payment in full of the outstanding Obligations or
for so long as Bank may have any commitment to make any Advances, Borrower will
not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose
of collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, other than: (i) Transfers of
Inventory in the ordinary course of business; (ii) transfers of non-exclusive
licenses and similar arrangements for the use of the property of borrowers or
its Subsidiaries; or (iii) Transfers of worn-out or obsolete Equipment.
7.2 Change in Business. Engage in any business, or permit any of its
Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrowers and any business substantially similar or related
thereto (or incidental thereto), or suffer a material change in Borrowers'
ownership, management or directors. Neither Borrower will, without thirty (30)
days prior written notification to Bank, relocate its chief executive office or
change its name or do business under any other name than is set forth on the
signature page hereof.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of
its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person.
7.4 Indebtedness. Create, incur, assume or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien
with respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any cash dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock.
7.7 Intercompany Transfers. Make any payments, including any
Transfer of cash, cash equivalents or assets, to Parent or to Virata Raleigh
without Bank's prior written consent, such consent not to be unreasonably
withheld so long as no Event of Default has occurred and is continuing or would
result from such payment.
7.8 Investments. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.9 Transactions with Affiliates. Directly or indirectly enter into
or permit to exist any material transaction with any Affiliate of Borrowers
except for transactions that are in the ordinary course of Borrowers' business,
upon fair and reasonable terms that are no less
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favorable to Borrowers than would be obtained in an arm's length transaction
with a nonaffiliated Person.
7.10 Subordinated Debt. Except as provided in any applicable
subordination agreement executed by Bank, make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
or amend any provision contained in any documentation relating to the
Subordinated Debt without Bank's prior written consent.
7.11 Inventory. Store the Inventory with a bailee, warehouseman, or
similar party unless Bank has received a pledge of the warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrowers shall keep the Inventory only at the location set forth in Section 10
hereof and such other locations of which Borrowers gives Bank prior written
notice and as to which Borrowers signs and files a financing statement where
needed to perfect Bank's security interest.
7.12 Compliance. Become an investment company" controlled by an
investment company," within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose.
Fail to meet the minimum funding requirements of ERISA, permit a Reportable
Event or Prohibited Transaction, as defined in ERISA, to occur, fail to comply
with the Federal Fair Labor Standards Act or violate any law or regulation,
which violation could reasonably be expected to have a Material Adverse Effect
or a material adverse effect on the Collateral or the priority of Bank's Lien on
the Collateral, or permit any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrowers under this Agreement:
8.1 Payment Default. If Borrowers fail to pay the principal of, or
any interest on, any Advances when due and payable; or fails to pay upon demand
any portion of any other Obligations not constituting such principal or
interest, including without limitation Bank Expenses.
8.2 Covenant Default.
(a) If Borrowers fail to perform any obligation under Sections
6.7, 6.8, 6.9, 6.10, 6.11, 6.12 or 6.13 or violates any of the covenants
contained in Section 7 of this Agreement, or
(b) If Borrowers fails or neglects to perform, keep, or observe
any other material term, provision, condition, covenant, or agreement contained
in this Agreement, in any of the Loan Documents, or in any other present or
future agreement between Borrowers and
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Bank and as to any default under such other term, provision, condition, covenant
or agreement that can be cured, has failed to cure such default within ten (10)
days after Borrowers receives notice thereof or any officer of Borrowers becomes
aware thereof; provided, however, that if the default cannot by its nature be
cured within the ten (10) day period or cannot after diligent attempts by
Borrowers be cured within such ten (10) day period, and such default is likely
to be cured within a reasonable time, then Borrowers shall have an additional
reasonable period (which shall not in any case exceed thirty (30) days) to
attempt to cure such default, and within such reasonable time period the failure
to have cured such default shall not be deemed an Event of Default provided that
no Advances will be required to be made during such cure period);
8.3 Material Adverse Effect. If an event occurs that (i) has a
Material Adverse Effect or (ii) result in a material impairment of the value or
priority of Bank's security interests in the Collateral;
8.4 Attachment. If any material portion of Borrowers' assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if any Borrower
is enjoined, restrained, or in any way prevented by court order from continuing
to conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrowers' assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrowers' assets by the United States Government,
or any department, agency, or instrumentality thereof; or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrowers receives notice thereof; provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrowers provided
that no Advances will be required to be made during such cure period);
8.5 Insolvency. If any Borrower becomes insolvent, or if an
Insolvency Proceeding is commenced by any Borrower, or if an Insolvency
Proceeding is commenced against any Borrower and is not dismissed or stayed
within ten (10) days provided that no Advances will be made prior to the
dismissal of such Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any agreement to
which a Borrower is a party with a third party or parties resulting in a right
by such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of One Hundred Thousand
Dollars ($100,000) or that could reasonable be expected to have a Material
Adverse Effect;
8.7 Subordinated Debt. If Borrowers make any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of money
in an amount, individually or in the aggregate, of at least Fifty Thousand
Dollars ($50,000) shall be
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rendered against Borrowers and shall remain unsatisfied and unstayed for a
period of ten (10) days ("provided that no Advances will be made prior to the
satisfaction or stay of such judgment); or
8.9 Misrepresentations. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate delivered to Bank by any Responsible
Officer pursuant to this Agreement or to induce Bank to enter into this
Agreement or any other Loan Document determined as of the time such
representation or warranty was made.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrowers:
(a) Declare all Obligations, whether evidenced by this Agreement,
by any of the other Loan Documents, or otherwise, immediately due and payable
provided that upon the occurrence of an Event of Default described in Section
8.5 all Obligations shall become immediately due and payable without any action
by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrowers under this Agreement or under any other agreement between
any Borrower and Bank;
(c) Demand that Borrowers (i) deposit cash with Bank in an amount
equal to the amount of any Letters of Credit remaining undrawn, as collateral
security for the repayment of any future drawings under such Letters of Credit,
and Borrowers shall forthwith deposit and pay such amounts, and (ii) pay in
advance all Letters of Credit fees scheduled to be paid or payable over the
remaining term of the Letters of Credit;
(d) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(e) Without notice to or demand upon Borrowers, make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrowers agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank as
Bank may designate. Borrowers authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank's determination appears to be prior or superior to
its security interest and to pay all expenses incurred in connection therewith.
With respect to any of Borrowers' owned premises, Borrowers hereby grants Bank a
license to enter into possession of such premises and to occupy the same,
without charge, for up to one hundred twenty (120) days in order to exercise any
of Bank's rights or remedies provided herein, at law, in equity, or otherwise;
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(f) Without notice to Borrowers set off and apply to the
Obligations any and all (i) balances and deposits of Borrowers held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrowers held by Bank;
(g) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a license or other right, solely
pursuant to the provisions of this Section 9.1, to use, without charge,
Borrowers' labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section 9.1, Borrowers'
rights under all licenses and all franchise agreements shall inure to Bank's
benefit;
(h) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including any Borrower's premises) as Bank
determines is commercially reasonable;
(i) Bank may credit bid and purchase at any public sale; and
(j) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrowers.
9.2 Power of Attorney. Effective only upon the occurrence and during
the continuance of an Event of Default, each Borrower hereby irrevocably
appoints Bank (and any of Bank's designated officers, or employees) as
Borrower's true and lawful attorney to: (a) send requests for verification of
Accounts or notify account debtors of Bank's security interest in the Accounts;
(b) endorse a Borrower's name on any checks or other forms of payment or
security that may come into Bank's possession; (c) sign a Borrower's name on any
invoice or bill of lading relating to any Account, drafts against account
debtors, schedules and assignments of Accounts, verifications of Accounts, and
notices to account debtors; (d) make, settle, and adjust all claims under and
decisions with respect to Borrowers' policies of insurance; and (e) settle and
adjust disputes and claims respecting the accounts directly with account
debtors, for amounts and upon terms which Bank determines to be reasonable;
provided Bank may exercise such power of attorney to sign the name of Borrowers
on any of the documents described in Section 4.2 regardless of whether an Event
of Default has occurred. The appointment of Bank as Borrowers' attorney in
fact, and each and every one of Bank's rights and powers, being coupled with an
interest, is irrevocable until all of the Obligations have been fully repaid and
performed and Bank's obligation to provide advances hereunder is terminated.
9.3 Accounts Collection. At any time from the date of this
Agreement, Bank may notify any Person owing funds to Borrowers of Bank's
security interest in such funds and verify the amount of such Account.
Borrowers shall collect all amounts owing to Borrowers for Bank, receive in
trust all payments as Bank's trustee, and immediately deliver such payments to
Bank in their original form as received from the account debtor, with proper
endorsements for deposit.
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9.4 Bank Expenses. If Borrowers fail to pay any amounts or furnish
any required proof of payment due to third persons or entities, as required
under the terms of this Agreement, then Bank may do any or all of the following:
(a) make payment of the same or any part thereof, (b) set up such reserves under
the Revolving Facility as Bank deems necessary to protect Bank from the exposure
created by such failure; or (c) obtain and maintain insurance policies of the
type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or
deposited by Bank shall constitute Bank Expenses, shall be immediately due and
payable, and shall bear interest at the then applicable rate hereinabove
provided, and shall be secured by the Collateral. Any payments made by Bank
shall not constitute an agreement by Bank to make similar payments in the future
or a waiver by Bank of any Event of Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof, or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk
of loss, damage or destruction of the Collateral shall be borne by Borrowers.
9.6 Remedies Cumulative. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrowers' part shall be deemed a continuing waiver. No delay by
Bank shall constitute a waiver, election, or acquiescence by it. No waiver by
Bank shall be effective unless made in a written document signed on behalf of
Bank and then shall be effective only in the specific instance and for the
specific purpose for which it was given.
9.7 Demand; Protest. Each Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrowers may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, certified mail, postage prepaid, return receipt requested, or
by telefacsimile to Borrowers or to Bank, as the case may be, at its addresses
set forth below:
If to Borrowers Virata Corporation
2933 Bunker Hill Lane, Suite 201
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Santa Clara, CA 95054
Attn: Andy Vought
Fax: (408) 980-8250
Virata Raleigh Corp.
2933 Bunker Hill Lane, Suite 201
Santa Clara, CA 95054
Attn: Andy Vought
Fax: (408) 980-8250
If to Bank Venture Banking Group
Three Palo Alto Square, Suite 150
Palo Alto, CA 94306
Attn: Jennifer Schellenberg
Fax: 650/843-6969
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
This Agreement shall be governed by, and construed in accordance with, the
internal laws of the State of California, without regard to principles of
conflicts of law. Each Borrower and Bank hereby submits to the exclusive
jurisdiction of the state and Federal courts located in the County of Santa
Clara, State of California. BORROWERS AND BANK EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement shall bind and inure to
the benefit of the respective successors and permitted assigns of each of the
parties; provided however, that neither this Agreement nor any rights hereunder
may be assigned by Borrowers without Bank's prior written consent, which consent
may be granted or withheld iii Bank's sole discretion. Bank shall have the
right without the consent of or notice to Borrowers to sell,
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transfer, negotiate, or grant participation in all or any part of, or any
interest in, Bank's obligations, rights and benefits hereunder.
12.2 Indemnification. Borrowers shall defend, indemnify and hold
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement; and
(b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank
as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrowers whether under this Agreement, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the performance of
all obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement cannot be
amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made in
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrowers to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run.
12.8 Suretyship Waivers. Each Borrower hereby expressly waives (a)
diligence, presentment, demand for payment, protest, benefit of any statute of
limitations affecting any other Borrower's liability under, or the enforcement
of, this Agreement or any of the other Loan Documents; (b) discharge due to any
disability of any other Borrower or any other guarantor of the Obligations; (c)
any defenses of any other Borrower to Obligations not arising under the express
terms of the Loan Documents or from a material breach thereof by the Bank which
under applicable law has the effect of discharging such other Borrower from the
Obligations; (d) the benefit of any act or omission by the Bank which directly
or indirectly results in or aids the discharge of any Borrower from any of the
Obligations by operation of law or otherwise; (e) all notices whatsoever,
including, without limitation, notice of acceptance of this Agreement or any of
the other Loan Documents and the incurring of the Obligations; and (f) any
requirement that
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the Bank exhaust any right, power or remedy or proceed against any other
Borrower or any other collateral security for, or any other guarantor of, or any
other party liable for, any of the Obligations, or any portion thereof. Each
Borrower specifically agrees that it shall not be necessary or required, and
each Borrower shall not be entitled to require, that Bank (i) file suit or
proceed to assert or obtain a claim for personal judgment against any other
Borrower, for all or any part of the Obligations; (ii) make any effort at
collection or enforcement of all or any part of the Obligations from any other
Borrower; (iii) foreclose against or seek to realize upon the collateral pledged
under any guaranty or any other collateral security now or hereafter existing
for all or any part of the Obligations; (iv) file suit or proceed to obtain or
assert a claim for personal judgment against any other Borrower or any other
guarantor or other party liable for all or any part of the Obligations; (v)
exercise or assert any other right or remedy to which the Bank is or may be
entitled in connection with the Obligations or any collateral security or
guaranty relating thereto to assert; or (vi) file any claim against assets of
any other Borrower before or as a condition of enforcing the liability of any
Borrower under this Agreement or any of the other Loan Documents. Without
limiting the generality of the foregoing, each Borrower expressly waives, to the
extent permitted by law, the benefit of California Civil Code Sections 2809,
2810, 2819, 2839, 2845, 2848, 2849, 2850, 2899 and 1432.
12.9 Confidentiality. In handling any confidential information Bank shall
exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (i) to the subsidiaries
or affiliates of Bank in connection with their present or prospective business
relations with Borrowers, (ii) to prospective transferees or purchasers of any
interest in the Loans, provided that they have entered into a comparable
confidentiality agreement in favor of Borrowers and have delivered a copy to
Borrowers, (iii) as required by law, regulations, rule or order, subpoena,
judicial order or similar order and (iv) as may be required in connection with
the examination, audit or similar investigation of Bank. Confidential
information hereunder shall not include information that either: (a) is in the
public domain or in the knowledge or possession of Bank when disclosed to Bank,
or becomes part of the public domain after disclosure to Bank through no fault
of Bank; or (b) is disclosed to Bank by a third party, provided Bank does not
have actual knowledge that such third party is prohibited from disclosing such
information.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
VENTURE BANKING GROUP VIRATA CORPORATION
By: /s/ J. Schulenby By: /s/ Andrew M. Vought
--------------------------- --------------------------------
Title: AVP Title: Chief Financial Officer
------------------------ -----------------------------
VIRATA RALEIGH CORP.
By: /s/ Andrew M. Vought
--------------------------------
Title: Cheif Financial Officer
-----------------------------
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EXHIBIT A
The Collateral shall consist of all right, title and interest of Borrowers
in and to the following:
(a) All goods and equipment now owned or hereafter acquired,
including, without limitation, all machinery, fixtures, vehicles (including
motor vehicles and trailers), and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrowers' custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrowers' Books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrowers
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrowers, whether or not earned by performance, and
any and all credit insurance, guaranties, and other security therefor, as well
as all merchandise returned to or reclaimed by Borrowers and Borrowers' Books
relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, investment
property, letters of credit, certificates of deposit, instruments and chattel
paper now owned or hereafter acquired and Borrowers' Books relating to the
foregoing;
(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished, now owned or hereafter acquired;
all trade secret rights, including all rights to unpatented inventions, know-
how, operating manuals, license rights and agreements and confidential
information, now owned or hereafter acquired; all mask work or similar rights
available for the protection of semiconductor chips, now owned or hereafter
acquired; all claims for damages by way of any past, present and future
infringement of any of the foregoing; and
30
<PAGE>
(g) Any and all claims, rights and interests in any of the above and
all substitutions for, additions and accessions to and proceeds thereof.
31
<PAGE>
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: VENTURE BANKING GROUP DATE: _____________________________
FAX: (650) 843-6969 TIME: _____________________________
- --------------------------------------------------------------------------------
FROM: ____________________________________________________________________
CLIENT NAME (BORROWERS)
REQUESTED BY: ____________________________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE _____________________________________________________
PHONE NUMBER: ____________________________________________________________
FROM ACCOUNT: _______________ TO ACCOUNT#:_________________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
PRINCIPAL INCREASE ADVANCE $__________________________
PRINCIPAL PAYMENT (ONLY) $__________________________
INTEREST PAYMENT (ONLY) $__________________________
PRINCIPAL & INTEREST (PAYMENT) $__________________________
OTHER INSTRUCTIONS: ______________________________________________________
__________________________________________________________________________
- --------------------------------------------------------------------------------
All representations and warranties of Borrowers stated in the Loan Agreement are
true, correct and complete in material respect as of the date of the telephone
request for and Advance confirmed by this Borrowing Certificate; provided,
however, that those representations and warranties expressly referring to
another date shall be true, correct and complete in all material respects as of
such date.
- --------------------------------------------------------------------------------
BANK USE ONLY
TELEPHONE REQUEST
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated _______________ and is known to me.
_______________________________ Phone #: ______________________________
Authorized Requestor
_______________________________ Phone #: ______________________________
Received by (Bank)
_______________________________
Authorized signature (Bank)
- --------------------------------------------------------------------------------
32
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrowers: Virata Corporation Bank: Venture Banking Group
Virata Raleigh Corp.
Commitment Amount: $3,000,000
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of______ $____________
2. Additions (please explain on reverse) $____________
3. TOTAL ACCOUNTS RECEIVABLE $____________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $____________
5. Balance of 50% over 90 day accounts $____________
6. Employee/Officer/Agent accounts $____________
7. Conditional (i.e. accounts for goods place on
consignment, guaranteed sale, sale or return, sale on
approval, bill and hold, etc.)
8. Affiliate accounts $____________
9. Foreign Accounts $____________
10. Government Accounts or its Agencies $____________
11. Contra Accounts $____________
12. Accounts greater than 30% of total AIR amount (except as
approved in
writing by Bank); that amount which exceeds 30% is
excluded from the base $____________
13. Disputed or Insolvent accounts $____________
14. Distributor accounts, unless approved in writing by Bank $____________
15. Doubtful accounts $____________
16. Other (please explain on reverse) $____________
17. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $____________
18. Eligible Accounts (#3 minus #17) $____________
19. LOAN VALUE OF ACCOUNTS (75% of #18) $____________
20. Eligible Foreign Accounts $____________
21. Loan Value of Eligible Foreign Accounts (50% of #20) $____________
22. Total Loan Value (#19 plus #21, but not to include more
than $250,000
in respect of Virata Raleigh Accounts) $____________
BALANCES
23. Maximum Loan Amount $____________
24. Total Funds Available (Line #22) $____________
33
<PAGE>
25. Present balance owing on Line of Credit $____________
26. Outstanding under Sublimits (Letters of Credit) $____________
27. Reserve Position (Lesser of #23 or #24 minus #25 and #26) $____________
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Venture Banking Group.
COMMENTS:
Virata Corporation Virata Raleigh Corporation
By: __________________________________ By: ________________________________
34
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: VENTURE BANKING GROUP
FROM: VIRATA CORPORATION /VIRATA RALEIGH CORPORATION
The undersigned authorized officer of Borrower hereby certifies that in
accordance with the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the "Agreement"), (I) Borrower is in complete
compliance for the period ending ________________ with all required covenants
except as noted below and (ii) all representations and warranties of Borrower
stated in the Agreement are true and correct in all material respects as of the
date hereof. Attached herewith are the required documents supporting the above
certification. The Officer further certifies that these are prepared in
accordance with Generally Accepted Accounting Principles (GAAP) or United
Kingdom accounting standards, as applicable, and are consistently applied from
one period to the next except as explained in an accompanying letter or
footnotes.
Please indicate compliance status by circling Yes/No under "Complies" column.
<TABLE>
<CAPTION>
Reporting Covenant Required Complies
<S> <C> <C>
Monthly financial statements
and Compliance Certificate Monthly within 15 days from
Parent and each Borrower Yes No
Annual Parent financial
statements (CPA Audited) FYE within 90 days (pounds)
FYE within 120 days (dollars) Yes No
Statements, reports, notices of Borrower
and all 10-K, 1O-Q, and 8-K reports Within 5 days of filing Yes No
AIR & AIP Agings with Borrowing
Base Certificate Monthly within 15 days Yes No
Auditing of Borrowers' Accounts No more than every six months
while letters of credit are
outstanding or to be issued,
unless an Event of Default has
occurred and is continuing. Yes No
<CAPTION>
Financial Covenant Required Actual Complies
<S> <C> <C> <C>
Maintain on a Monthly Basis:
Minimum Quick Ratio* 1.00:1.00 __________:1.0 Yes No
Maximum Debt/Tangible Net Worth** 1.50:1.00 __________:1.0 Yes No
Minimum Tangible Net Worth** $2,000,000 $______ Yes No
Minimum debt coverage** 1.5 :1.0 _______ Yes No
Equity Event* $7,000,000 by
10/31/99 _______ Yes No
</TABLE>
35
<PAGE>
Refer to the Agreement for calculation details.
*Virata Ltd. on a consolidated basis
**Virata Corporation
Comments Regarding Exceptions: See Attached
Sincerely,
___________________________________
SIGNATURE
___________________________________
TITLE
___________________________________
DATE
36
<PAGE>
EXHIBIT E
Revolving Facility Promissory Note
$3,000,000 Palo Alto, California
August __, 1999
FOR VALUE RECEIVED, the undersigned, Virata Corporation and Virata Raleigh Corp.
(the "Borrowers"), jointly and severally promise to pay to the order of Venture
Banking Group, a division of Cupertino National Bank & Trust ("Bank"), at such
place as the holder hereof may designate, in lawful money of the United States
of America, the aggregate unpaid principal amount of all Advances made by Bank
to Borrowers under Section 2.1 of that certain Loan and Security Agreement
between Borrowers and Bank of even date herewith, as amended from time to time
(the "Loan Agreement"), up to a maximum principal amount of Three Million
Dollars ($3,000,000). Borrowers shall also pay interest on the aggregate unpaid
principal amount of such Advances at the rates and in accordance with the terms
of the Loan Agreement. The entire principal amount and all accrued but unpaid
interest thereon shall be due and payable on the Revolving Maturity Date. All
capitalized terms used herein but not defined herein shall have the same meaning
as given to them in the Loan Agreement.
Bank is hereby authorized by Borrowers to endorse on Bank's books and records
each Advance made by Bank under this Note and the amount of each payment or
prepayment of principal of each such Advance received by Bank; it being
understood, however, that failure to make any such endorsement (or any errors in
notation) shall not affect the obligations of Borrowers with respect to Advances
made hereunder, and payments of principal by Borrowers shall be credited to
Borrowers notwithstanding the failure to make a notation (or any errors in
notation) thereof on such books and records.
Borrowers jointly and severally promise to pay Bank all costs and expenses of
collection of this Note and to pay all reasonable attorneys' fees incurred in
such collection or in any suit or action to collect this Note or in any appeal
thereof. Each Borrower waives presentment, demand, protest, notice of protest,
notice of dishonor, notice of nonpayment, and any and all other notices and
demands in connection with the delivery, acceptance, performance, default or
enforcement of this Note, as well as any applicable statute of limitations. No
delay by Bank in exercising any power or right hereunder shall operate as a
waiver of any power or right. Time is of the essence as to all obligations
hereunder.
This Note is issued pursuant to the Loan Agreement, which shall govern the
rights and obligations of Borrowers with respect to all obligations hereunder.
EACH BORROWER AND BANK HEREBY WAIVE THEIR RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS NOTE, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. This Note shall be deemed
37
<PAGE>
to be made under, and shall be construed in accordance with and governed by the
laws of the State of California, excluding conflicts of laws principles.
VIRATA CORPORATION
By:___________________________________
Printed Name:_________________________
Title:________________________________
VIRATA RALEIGH CORP.
By:___________________________________
Printed Name:_________________________
Title:________________________________
38
<PAGE>
EXHIBIT 10.15
COLLATERAL ASSIGNMENT, PATENT MORTGAGE
AND SECURITY AGREEMENT
This Collateral Assignment, Patent Mortgage and Security Agreement is made
as of the 27th day of August, 1999, by and between VIRATA, LTD. ("Assignor"), a
United Kingdom corporation, and VENTURE BANKING GROUP, a division of Cupertino
National Bank & Trust ("Assignee").
RECITALS
A. Assignee has agreed to lend to Virata Corporation and Virata Raleigh
Corp., wholly-owned subsidiaries of Assignor, certain funds (the "Loan") and
Assignor desires that its subsidiaries borrow such funds from Assignee pursuant
to the terms of that certain Loan and Security Agreement dated even date
herewith (the "Loan Agreement"). The Loan will be evidenced by one or more
promissory notes (a "Note" or, collectively, the "Notes").
B. In order to induce Assignee to make the Loan, Assignor has agreed to
assign certain intangible property to Assignee for purposes of securing the
obligations of the Borrowers under the Loan Agreement to Assignee.
NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
1. Assignment, Patent Mortgage and Grant of Security Interest. As
collateral security for the prompt and complete payment and performance of all
of Borrowers' present or future indebtedness, obligations and liabilities to
Assignee, Assignor hereby assigns, transfers, conveys and grants a security
interest and mortgage to Assignee, as security, but not as an ownership interest
in and to Assignor's entire right, title and interest in, to and under the
following (all of which shall collectively be called the "Collateral"):
(a) Any and all copyright rights, copyright applications, copyright
registrations and like protections in each work or authorship and derivative
work thereof, whether published or unpublished and whether or not the same also
constitutes a trade secret, now or hereafter existing, created, acquired or
held, including without limitation those set forth on Exhibit A attached hereto
(collectively, the "Copyrights");
(b) Any and all trade secrets, and any and all intellectual property
rights in computer software and computer software products now or hereafter
existing, created, acquired or held;
(c) Any and all design rights which may be available to Assignor now
or hereafter existing, created, acquired or held;
(d) All patents, patent applications and like protections including,
without limitation, improvements, divisions, continuations, renewals, reissues,
extensions and
<PAGE>
continuations-in-part of the same, including without limitation the patents and
patent applications set forth on Exhibit B attached hereto (collectively, the
"Patents");
(e) Any trademark and servicemark rights, whether registered or not,
applications to register and registrations of the same and like protections, and
the entire goodwill of the business of Assignor connected with and symbolized by
such trademarks, including without limitation those set forth on Exhibit C
attached hereto (collectively, the "Trademarks");
(f) Any and all claims for damages by way of past, present and future
infringements of any of the rights included above, with the right, but not the
obligation, to sue for and collect such damages for said use or infringement of
the intellectual property rights identified above;
(g) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such use
to the extent permitted by such license or rights;
(h) All amendments, extensions, renewals and extensions of any of the
Copyrights, Trademarks or Patents;
(i) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing; and
(j) The Collateral shall not include Assignor's interest in any
licenses that would be breached by Assignor's grant of a security interest in
its rights thereunder, unless the provision that would otherwise be breached
would be rendered ineffective by Section 9-318 of the California Uniform
Commercial Code.
THE INTEREST IN THE COLLATERAL BEING ASSIGNED HEREUNDER SHALL NOT BE CONSTRUED
AS A CURRENT ASSIGNMENT, BUT AS A CONTINGENT ASSIGNMENT TO SECURE ASSIGNOR'S
OBLIGATIONS TO ASSIGNEE UNDER THE NOTE AND THE LOAN AGREEMENT.
2. Authorization and Request. Assignor authorizes and requests that the
Register of Copyrights and the Commissioner of Patents and Trademarks record
this conditional assignment.
3. Covenants and Warranties. Assignor represents, warrants, covenants and
agrees as follows:
(a) Assignor is now the sole owner of the Collateral, except for non-
exclusive licenses granted by Assignor to its customers in the ordinary course
of business;
(b) Performance of this Assignment does not conflict with or result
in a breach of any agreement to which Assignor is bound;
2
<PAGE>
(c) During the term of this Agreement, Assignor will not transfer or
otherwise encumber any interest in the Collateral, except for non-exclusive
licenses granted by Assignor in the ordinary course of business or as set forth
in this Assignment;
(d) To its knowledge, each of the Patents is valid and enforceable,
and no part of the Collateral has been judged invalid or unenforceable, in whole
or in part, and no claim has been made that any part of the Collateral violates
the rights of any third party;
(e) Assignor shall promptly advise Assignee of any material adverse
change in the composition of the Collateral, including but not limited to any
subsequent ownership right of the Assignor in or to any Trademark, Patent or
Copyright not specified in this Assignment;
(f) Assignor shall (i) protect, defend and maintain the validity and
enforceability of the Trademarks, Patents and Copyrights, (ii) use its best
efforts to detect infringements of the Trademarks, Patents and Copyrights and
promptly advise Assignee in writing of material infringements detected and (iii)
not allow any Trademarks, Patents, or Copyrights to be abandoned, forfeited or
dedicated to the public without the written consent of Assignee, which shall not
be unreasonably withheld, unless Assignor determines that reasonable business
practices suggest that abandonment is appropriate;
(g) Assignor shall promptly register the most recent version of any
of Assignor's Copyrights, if not so already registered, and shall, from time to
time, execute and file such other instruments, and take such further actions as
Assignee may reasonably request from time to time to perfect or continue the
perfection of Assignee's interest in the Collateral;
(h) This Assignment creates, and in the case of after acquired
Collateral, this Assignment will create at the time Assignor first has rights in
such after acquired Collateral, in favor of Assignee a valid and perfected first
priority security interest in the Collateral in the United States securing the
payment and performance of the Borrowers' obligations under the Loan Agreement
or evidenced by the Note upon making the filings referred to in clause (i)
below;
(i) To its knowledge, except for, and upon, the filing with the
United States Patent and Trademark office with respect to the Patents and
Trademarks and the Register of Copyrights with respect to the Copyrights
necessary to perfect the security interests and assignment created hereunder and
except as has been already made or obtained, no authorization, approval or other
action by, and no notice to or filing with, any U.S. governmental authority of
U.S. regulatory body is required either (i) for the grant by Assignor of the
security interest granted hereby or for the execution, delivery or performance
of this Assignment by Assignor in the U.S. or (ii) for the perfection in the
United States or the exercise by Assignee of its rights and remedies thereunder;
(j) All information heretofore, herein or hereafter supplied to
Assignee by or on behalf of Assignor with respect to the Collateral is accurate
and complete in all material respects;
3
<PAGE>
(k) Assignor shall not enter into any agreement that would materially
impair or conflict with Assignor's obligations hereunder without Assignee's
prior written consent, which consent shall not be unreasonably withheld.
Assignor shall not permit the inclusion in any material contract to which its
becomes a party of any provisions that could or might in any way prevent the
creation of a security interest in Assignor's rights and interest in any
property included within the definition of the Collateral acquired under such
contracts;
(l) Upon any executive officer of Assignor obtaining actual knowledge
thereof, Assignor will promptly notify Assignee in writing of any event that
materially adversely affects the value of any Collateral, the ability of
Assignor to dispose of any Collateral or the rights and remedies of Assignee in
relation thereto, including the levy of any legal process against any of the
Collateral.
4. Assignee's Rights. Assignee shall have the right, but not the
obligation, to take, at Assignor's sole expense, any actions that Assignor is
required under this Assignment to take but which Assignor fails to take, after
fifteen (15) days' notice to Assignor. Assignor shall reimburse and indemnify
Assignee for all reasonable costs and reasonable expenses incurred in the
reasonable exercise of its rights under this section 4.
5. Inspection Rights. Assignor hereby grants to Assignee and its
employees, representatives and agents the right to visit, during reasonable
hours upon prior reasonable written notice to Assignor, and any of Assignor's
plants and facilities that manufacture, install or store products (or that have
done so during the prior six-month period) that are sold utilizing any of the
Collateral, and to inspect the products and quality control records relating
thereto upon reasonable written notice to Assignor and as often as may be
reasonably requested (it being understood that any information obtained in such
inspection shall be subject to the confidentiality provisions of Section 16
hereof).
6. Further Assurances; Attorney in Fact.
(a) On a continuing basis, Assignor will, subject to any prior
licenses, encumbrances and restrictions and prospective licenses, make, execute,
acknowledge and deliver, and file and record in the proper filing and recording
places in the United States, all such instruments, including, appropriate
financing and continuation statements and collateral agreements and filings with
the United States Patent and Trademarks Office and the Register of Copyrights,
and take all such action as may reasonably be deemed necessary or advisable, or
as requested by Assignee, to perfect Assignee's security interest in all
Copyrights, Patents and Trademarks and otherwise to carry out the intent and
purposes of this Collateral Assignment, or for assuring and confirming to
Assignee the grant or perfection of a security interest in all Collateral.
(b) Assignor hereby irrevocably appoints Assignee as Assignor's
attorney-in-fact, with full authority in the place and stead of Assignor and in
the name of Assignor, Assignee or otherwise, from time to time in Assignee's
discretion, upon Assignor's failure or inability to do so, to take any action
and to execute any instrument which Assignee may deem necessary or advisable to
accomplish the purposes of this Collateral Assignment, including:
4
<PAGE>
(i) To modify, in its sole discretion, this Collateral
Assignment without first obtaining Assignor's approval of or signature to such
modification by amending Exhibit A, Exhibit B and Exhibit C, thereof, as
appropriate, to include reference to any right, title or interest in any
Copyrights, Patents or Trademarks acquired by Assignor after the execution
hereof or to delete any reference to any right, title or interest in any
Copyrights, Patents or Trademarks in which Assignor no longer has or claims any
right, title or interest; and
(ii) To file, in its sole discretion, one or more financing or
continuation statements and amendments thereto, relative to any of the
Collateral without the signature of Assignor where permitted by law.
7. Events of Default. The occurrence of any of the following shall
constitute an Event of Default under the Assignment:
(a) An Event of Default occurs under the Loan Agreement or any Note;
or
(b) Assignor breaches any warranty or agreement made by Assignor in
this Assignment.
8. Remedies. Upon the occurrence and continuance of an Event of Default,
Assignee shall have the right to exercise all the remedies of a secured party
under the California Uniform Commercial Code, including without limitation the
right to require Assignor to assemble the Collateral and any tangible property
in which Assignee has a security interest and to make it available to Assignee
at a place designated by Assignee. Assignee shall have a nonexclusive, royalty
free license to use the Copyrights, Patents and Trademarks to the extent
reasonably necessary to permit Assignee to exercise its rights and remedies upon
the occurrence of an Event of Default. Assignor will pay any expenses (including
reasonable attorney's fees) incurred by Assignee in connection with the exercise
of any of Assignee's rights hereunder, including without limitation any expense
incurred in disposing of the Collateral. All of Assignee's rights and remedies
with respect to the Collateral shall be cumulative.
9. Indemnity. Assignor agrees to defend, indemnify and hold harmless
Assignee and its officers, employees, and agents against: (a) all obligations,
demands, claims, and liabilities claimed or asserted by any other party in
connection with the transactions contemplated by this Agreement, and (b) all
losses or expenses in any way suffered, incurred, or paid by Assignee as a
result of or in any way arising out Of, following or consequential to
transactions between Assignee and Assignor, whether under this Assignment or
otherwise (including without limitation, reasonable attorneys fees and
reasonable expenses), except for losses arising form or out of Assignee's gross
negligence or willful misconduct.
10. Reassignment. At such time as Assignor shall completely satisfy all
of the obligations secured hereunder, Assignee shall execute and deliver to
Assignor all deed, assignments, and other instruments as may necessary or proper
to reinvest in Assignor full title to the property assigned hereunder, subject
to any disposition thereof which may have been made by Assignee pursuant hereto.
5
<PAGE>
11. Course of Dealing. No course of dealing, nor any failure to exercise,
nor any delay in exercising any right, power or privilege hereunder shall
operate as a waiver thereof.
12. Attorneys' Fees. If any action relating to this Assignment is brought
by either party hereto against the other party, the prevailing party shall be
entitled to recover reasonable attorneys fees, costs and disbursements.
13. Amendments. This Assignment may be amended only by a written
instrument signed by both parties hereto.
14. Counterparts. This Assignment may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute the same instrument.
15. California Law and Jurisdiction. This Assignment shall be governed by
the laws of the State of California, without regard for choice of law
provisions. Assignor and Assignee consent to the nonexclusive jurisdiction of
any state or federal court located in Santa Clara County, California.
16. Confidentiality. In handling any confidential information, Assignee
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Assignment
except that the disclosure of this information may be made (i) to the affiliates
of the Assignee, (ii) to prospective transferee or purchasers of an interest in
the obligations secured hereby, provided that they have entered into comparable
confidentiality agreement in favor of Assignor and have deliver a copy to
Assignor, (iii) as required by law, regulation, rule or order, subpoena judicial
order or similar order and (iv) as may be required in connection with the
examination, audit or similar investigation of Assignee.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Assignment on the
day and year first above written.
Address of Assignor: ASSIGNOR:
2933 Bunker Hill Lane VIRATA LTD.
Santa Clara, CA 95054
By: /s/ Andrew Vought
-------------------------------
Title: Chief Financial Officer
----------------------------
Address of Assignee: ASSIGNEE:
3 Palo Alto Square, Suite 150 VENTURE BANKING GROUP, A
Palo Alto, California 94306 DIVISION OF CUPERTINO NATIONAL
BANK & TRUST
By: /s/ J. Schulenby
-------------------------------
Title: AVP
----------------------------
7
<PAGE>
EXHIBIT 10.16
CONFIDENTIAL
This technology license agreement ("Agreement") is made the 2nd day of June
1999 ("Effective Date")
BETWEEN
ARM LIMITED whose registered office is situated at 90 Fulbourn Road,
Cambridge CB1 9JN, England ("ARM");
and
VIRATA LTD whose principal place of business is situated at Mount Pleasant
House, 2 Mount Pleasant, Huntingdon Road, Cambridge, CB3 0BL ("Virata")
hereunder procuring rights and accepting obligations for itself and its
Subsidiaries (as defined below).
WHEREAS
LICENSEE has requested ARM and ARM has agreed to license LICENSEE to
manufacture and distribute certain ARM Compliant Products (as defined
below) on the following terms and conditions.
Therefore, in consideration of the mutual representations, warranties,
covenants, and other terms and conditions contained herein, the parties
agree as follows:
1. Definitions
1.1 "ARM7TDMI-S" shall mean the ARM core as described and identified in the ARM
technical reference manual for ARM7TDMI-S (ARM-DDI-0084).
1.2 "ARM Core" shall mean the ARM7TDMI core as described and identified in the
ARM7TDMI datasheet (ARM-DDI-0029).
1.3 "ARM Compliant Product" shall mean any single silicon chip developed by
LICENSEE which contains at a minimum:
(i) an Implementation Compliant Core; and
(ii) additional LICENSEE or customer circuitry which adds significant
functionality.
1.4 "ARMv4T Instruction Sets" shall mean both the ARM instruction set and THUMB
instruction set as each are defined in the ARM Architecture Reference
Manual (ARM-DDI-0100).
Page 1
<PAGE>
1.5 "Authorised Device(s)" shall mean each or all, as the context admits, of
up to * Unique ARM Compliant Products.
1.6 "Authorised Distributor" shall mean those distributors appointed, in
writing, by LICENSEE.
1.7 "AVS" shall mean the ARM Architectural Validation Suite, in binary code
format, identified in Schedule 1 Part B Item B8.
1.8 "Confidential Information" shall mean; (i) any trade secrets relating to
the ARM Core, the PIV Card, the PID Card, the Models, and the Transfer
Materials; (ii) any information designated in writing by either party, by
appropriate legend, as confidential; and (iii) any information which is
first disclosed orally but designated as confidential at the time of
disclosure and is thereafter reduced to writing for confirmation and sent
to the other party within thirty (30) days after its oral disclosure and
designated, by appropriate legend, as confidential; and (iv) the terms and
conditions of this Agreement.
1.9 "Design Rules" shall mean the UMC 0.25um 2.5v/3.3v 2P5M Mixed Mode Process
Topological Layout Rules spec no. G-03-mixedmode25 2.5v/3.3/-2P5M-TLR
version 0.1 dated 03 October 1998, subject to any waivers thereto agreed
between the parties, and subject to the port being technically feasible
and receipt of reasonable notice and the agreement between the parties of
reasonable porting fees, the UMC 0.18 micron design rules.
1.10 "Design Win Event" shall mean when LICENSEE commences design work for the
development of any Unique ARM Compliant Product.
1.11 "End User License" shall mean a license agreement substantially conforming
to that agreement set forth in Schedule 8.
1.12 "Functional Test Vectors" shall mean one of the sets of test vectors
identified in Schedule 1 Part B items B6, B11 and B12.
1.13 "Implementation Compliant Core" shall mean an implementation of the ARM
Core which:
(i) executes each and every instruction in the ARMv4T Instruction Sets;
(ii) executes no additional instructions to those contained in the ARMv4T
Instruction Sets;
________________________
* Pursuant to a request for confidential treatment, selected information in this
document has been omitted and separately filed with the Securities and
Exchange Commission.
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(iii) exhibits a Von Neumann Architecture;
(iv) exhibits a Pipeline Length of three (3);
(v) is Single Issue;
(vi) executes all instructions at an identical rate of cycles per
instruction ("CPI") to that specified in the ARM7TDMI datasheet
(ARM-DDI-0029);
(vii) implements the programmer's model as identified in the ARM
Architecture Reference Manual (ARM-DDI-0100);
(viii) passes the Functional Test Vectors; and
(ix) has been manufactured on a process on which a Test Chip has been
verified in accordance with the provisions of Clause 3.
1.14 "Intellectual Property" shall mean any patents, patent rights, trade
marks, service marks, registered designs, topography or semiconductor
maskwork rights, applications for any of the foregoing, copyright, know-
how, unregistered design right, trade secrets and know-how and any other
similar protected rights in any country, which are taken into use in the
design, use or production of the ARM Core, PID Card, PIV Card, the Models,
or Transfer Materials.
1.15 "LICENSEE" shall mean Virata and its Subsidiaries.
l.16 "Models" shall mean: (i) the source code of the programs identified in
Schedule I Part F Item Fl; (ii) the object code and such source code of
the programs identified in Schedule 3 part A as may be necessary (at ARM's
absolute discretion) to allow the support of multiple releases of the
specified simulator; and (iii) subject to the payment by LICENSEE of the
fee(s) set out in Clause 7.4, the object code and such source code of the
programs identified in Schedule 3 part B as may be necessary (at ARM's
absolute discretion) to allow the support of multiple releases of the
specified simulator; together with such Updates thereof, if any, as are
developed by or for ARM.
1.17 "Pipeline Length" shall mean the number of clocked stages through which
each single-cycle instruction must pass to complete the execution of such
instruction.
1.18 "PID Card" shall mean the hardware identified in Schedule l Part E item
E13.
1.19 "PIV Card" shall mean the hardware identified in Schedule I Part E item
El1.
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1.20 "Quarter" shall mean each calendar quarter ending the 31st March, 30th
June, 30th September and 31st December of any year.
1.21 "Royalty Premium" shall mean * for each unit of ARM Compliant Product
distributed by Licensee as at the date of election in accordance with
Clause 10.1.
1.22 "Royalty Report" shall mean a report containing no less information than
set out in Schedule 6 Exhibit 1.
1.23 "Single Issue" shall mean that only one instruction is issued for
execution within the integer unit in any single clock cycle (where for the
purposes of this definition clock shall mean the clock that advances the
pipeline).
1.24 "Software Development Toolkit" shall mean the software development toolkit
version 2.5 with software process order reference number SD250-KT-00000.
1.25 "Subsidiary" means any company the majority of whose voting shares is now
or hereafter owned or controlled, directly or indirectly, by a party
hereto or any company a majority of whose voting shares is now or
hereafter owned or controlled, directly or indirectly, by any of the
aforementioned entities. A company shall be considered a Subsidiary only
so long as such control exists.
1.26 "Test Chip" shall mean a device which complies with the test chip
specification set forth in Schedule 1 Part E item El.
1.27 "Test Chip Functional Test Vectors" shall mean those test vectors
identified in Schedule 1 Part E item E4.
1.28 "Test Chip Device Characterization Vectors" shall mean those test vectors
identified in Schedule I Part E items E5.
1.29 "Trademarks" shall mean the trademarks, service marks and logos set forth
in Schedule 5.
1.30 "Transfer Materials" shall mean that technical information with respect to
the ARM Core as set forth in Schedule 1.
1.31 "Updates" shall mean any bug fixes or enhancements to the Models or
modifications to the Transfer Materials the incorporation of which ARM, in
its absolute discretion, decides does not cause to be created a new
product.
________________________
* Pursuant to a request for confidential treatment, selected information in this
document has been omitted and separately filed with the Securities and
Exchange Commission.
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1.32 "Unique ARM Compliant Product" shall mean an ARM Compliant Product which;
(i) is functionally different from any other ARM Compliant Product
manufactured by or for LICENSEE, except that any ARM Compliant Product
created only as a result of a bug fix (which means a change to an ARM
Compliant Product which causes it to operate in accordance with its
original specification) to an existing ARM Compliant Product shall not be
deemed to be functionally different notwithstanding that such bug fix has
resulted in a change in the functionality of the device; (ii) is
manufactured by or for LICENSEE; and (iii) has a part number which is
different from any other ARM Compliant Product manufactured by or for
LICENSEE. For the avoidance of doubt an optical shrink of an existing ARM
Compliant Product shall not be deemed to be a Unique ARM Compliant
Product.
1.33 "Use" shall mean the following limited acts in respect of the object code
of the Models;
(i) use of (including copying the object code of the Models to the
extent that such copying is incidental to such use) the object code
of the Models, or any part thereof; and
(ii) making one copy of the object code of the Models solely for backup
and archival purposes.
Use shall specifically exclude; (a) the translation, adaptation,
arrangement or other alteration of the object code of the Models except as
allowed by local legislation implementing Article 6 of the EC Directive on
the legal protection of computer programs (91/250/EEC) and then only to
the extent necessary to achieve interoperability of an independently
created program with other programs; and (b) the copying adapting or
reverse compiling of the object code of the Models for the purpose of
error correction.
1.34 "Von Neumann Architecture" shall mean a microprocessor architecture which
dictates that the instruction stream for the integer unit shares the same
port with the data stream for such integer unit.
2. Licence
2.1 ARM hereby grants to LICENSEE, under ARM's Intellectual Property rights
(including any intellectual property rights for which ARM has the right to
grant sub-licenses), a perpetual (subject to Clause 18.2), non-
transferable (subject to Clause 20.3), non-exclusive, world-wide right and
licence to:
(i) use the PIV Card, the PID Card and use and copy the Transfer
Materials and/or any Intellectual Property only for the purposes of
designing, having designed (subject to the provisions of Clause 2.2),
manufacturing and having manufactured (subject to the provisions of
Clause 2.4) the Authorised Devices;
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(ii) sell, supply and distribute the Authorised Devices manufactured in
accordance with Clause 2.1(i) only, and authorise LICENSEE's
Authorised Distributors to do the same; and
(iii) modify, copy, distribute and have distributed the documentation
identified in Schedule 1 Part A item Al.
2.2 LICENSEE may exercise its right to have developed Authorised Devices if
LICENSEE ensures that any third party developer ("Developer") subcontracted
by LICENSEE agrees;
(i) to be bound by obligations of confidentiality no less restrictive
than those contained in this Agreement; and
(ii) to supply the design of any Authorised Device solely to
LICENSEE.
2.3 If any Developer breaches the provisions of confidentiality referred to in
Clause 2.2(i) and LICENSEE fails to use its reasonable efforts to remedy
the breach and prevent further breaches by the Developer and such failure
has an adverse effect upon ARM, then LICENSEE agrees that such breach shall
be treated as a material breach of this Agreement by LICENSEE which is
incapable of remedy thus entitling ARM to summarily terminate this
Agreement in accordance with the provisions of Clause 18.2. LICENSEE shall
hold ARM harmless from and keep ARM indemnified against all and any loss,
liability, costs, damages, expenses (including the fees of lawyers and
other professionals), suffered, incurred or sustained as a result of or in
relation to such breach and ARM undertakes to LICENSEE that it shall use
its reasonable efforts to mitigate any such loss, liability, costs,
damages, expenses suffered, incurred or sustained by it.
2.4 LICENSEE may exercise its right to have the Authorised Devices manufactured
by a subcontracted manufacturer ("Manufacturer") in accordance with the
provisions of Clause 2.1(i) if:
(i) LICENSEE notifies ARM of the identity of such Manufacturer not less
than thirty (30) days prior to first prototype production by the
Manufacturer; and
(ii) LICENSEE ensures that each Manufacturer agrees (a) to be bound by
obligations of confidentiality no less restrictive than those
contained in this Agreement; and (b) to supply the Authorised Devices
solely to LICENSEE.
2.5 If any Manufacturer breaches the provisions of confidentiality referred to
in Clause 2.4(ii), and LICENSEE fails to use its reasonable efforts to
remedy the breach and prevent further breaches by the Manufacturer and such
failure has an adverse effect upon ARM, then LICENSEE agrees that such
breach shall be treated as a material breach of this Agreement by LICENSEE
which is incapable of remedy thus entitling ARM to summarily terminate this
Agreement in accordance with the provisions of Clause 18.2. LICENSEE shall
hold ARM harmless from and keep ARM indemnified against all and
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any loss, liability, costs, damages, expenses (including the fees of
lawyers and other professionals), suffered, incurred or sustained as a
result of or in relation to such breach and ARM undertakes to LICENSEE that
it shall use its reasonable efforts to mitigate any such loss, liability,
costs, damages, expenses suffered, incurred or sustained by it.
2.6 No right is granted to LICENSEE to:
(i) sub-license the rights licensed to LICENSEE pursuant to Clause 2.1;
or
(ii) distribute any ARM Compliant Product prior to verification in
accordance with Clause 3 except that in the event that it is the
intention of LICENSEE, and LICENSEE does proceed, to verify any ARM
Compliant Product in accordance with Clause 3, LICENSEE may
distribute a maximum of * prototype units of such device without
having verified such device provided that LICENSEE provides written
evidence to ARM that; (a) the recipient of such devices is aware
that such device has not passed the verification process; and (b)
the recipient has agreed to keep the recipient's use of the non
verified device confidential.
2.7 Save as licensed in Clause 2.1, LICENSEE acquires no right, title or
interest in and to the ARM Core, Transfer Materials and Intellectual
Property. In no event shall the licenses granted in Clause 2.1 be construed
as granting to LICENSEE, expressly or by implication, estoppel or
otherwise, a license to use any ARM technology except the PIV Card, the PID
Card and the Transfer Materials.
3. Verification of Implementation Compliant Core
3.1 Except where:
(i) the parties mutually agree otherwise; or
(ii) in respect of the processes used for volume manufacture of the first
* Unique ARM Compliant Products developed by LICENSEE; or
(iii) in respect of the process used for volume manufacture of the * Unique
ARM Compliant Product PROVIDED THAT the process used for volume
manufacture is the same as one of the processes used for the
manufacture of any one of the first * Unique ARM Compliant Products;
LICENSEE shall develop, manufacture (or have manufactured) a Test Chip on
each process used by or for LICENSEE for volume manufacture of ARM
Compliant Products.
________________________
* Pursuant to a request for confidential treatment, selected information in this
document has been omitted and separately filed with the Securities and
Exchange Commission.
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3.2 LICENSEE shall, in respect of each Test Chip developed and manufactured
pursuant to the provisions of Clause 3.1, run:
(i) the Test Chip Functional Test Vectors on each Test Chip and deliver
to ARM a copy of the log ("Log Results") generated by running the
Test Chip Functional Test Vectors together with five (5) samples of
the Test Chip; and
(ii) the AVS on each Test Chip (by means of a PIV Card) and deliver to ARM
a copy of the log ("AVS Results") generated by running the AVS.
ARM may, at ARM's discretion, exercise the right to run each or both of the
Test Chip Functional Test Vectors and the AVS on any Test Chip. An ARM Core
shall be verified upon;
(a) ARM's acceptance of either the Log Results; (a) delivered by
LICENSEE; or (b) generated by ARM. The Log Results shall be accepted
when they indicate that no errors have been detected or where any
errors detected have been jointly agreed, in good faith, and a waiver
agreed between the parties; and
(b) ARM's acceptance of either the AVS Results (a) delivered by LICENSEE
or (b) generated by ARM. The AVS Results shall be accepted when they
indicate that no differences have been detected between the AVS
Results and the AVS reference file supplied by ARM or where any
errors detected have been jointly agreed, in good faith, and a waiver
agreed between the parties.
ARM shall notify LICENSEE, in writing, within * days of delivery by
LICENSEE of the Log Results and Test Chip samples to ARM ("Verification
Period"), whether a Test Chip has been verified or has failed the
verification process. In the event that any Test Chip fails the
verification process, ARM shall provide details of the errors which cause
the failure to LICENSEE and LICENSEE shall endeavour to correct the errors.
The parties shall repeat the above process until either; (i) the Test Chip
is verified; or (ii) LICENSEE withdraws the Test Chip from the verification
process. In the event that ARM fails to confirm the result of the
verification process within the Verification Period, the Test Chip subject
to the verification process shall be deemed verified.
3.3 Provided that; (i) for a certain process a Test Chip has been verified in
accordance with the provisions of Clause 3.2; and (ii) the ARM Compliant
Product incorporating the ARM Core incorporated into such Test Chip and
manufactured on that certain process runs the Functional Test Vectors and
they indicate that no errors have been detected (or where any errors
detected have been jointly agreed, in good faith, and a waiver agreed
________________________
* Pursuant to a request for confidential treatment, selected information in this
document has been omitted and separately filed with the Securities and
Exchange Commission.
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between the parties), LICENSEE may distribute such ARM Compliant Product without
further verification.
3.4 LICENSEE shall provide to ARM, free of charge, within * days of
verification in accordance with Clause 3.2, * unmarked samples of each Test
Chip manufactured by or for LICENSEE used by or for LICENSEE for volume
manufacture of ARM Compliant Products. There shall be no restriction on
ARM's use of such samples provided that ARM shall not reverse engineer any
Test Chips provided by LICENSEE under this Clause 3.4.
4. Models License
4.1 ARM hereby grants to LICENSEE, a perpetual (subject to Clause 18.2), non-
transferable (subject to Clause 20.3), non-exclusive, world-wide licence
to;
(i) copy and use internally, the Models and related documentation; and
(ii) use, copy and distribute, and sub-license (provided that the end user
agrees to be bound by the End User Licence) the Use of the object
code of the Models identified in Schedule 3 Part A.
4.2 For the period ending * from the Effective Date, and thereafter subject to
availability, for the term of this Agreement LICENSEE may, upon payment of
a Model Option Fee (as defined in Clause 7.4) per additional Model, take
delivery of and extend the licence granted under Clause 4.1 to include any
of the Models specified in Schedule 3 Part B.
4.3 For the avoidance of doubt no right is granted to LICENSEE to sub-license
the right to sell, supply or otherwise distribute the Models.
5. Ownership of the Models
5.1 In no event shall the license grants set forth in Clauses 2.1, 4.1 and 4.2
be construed as granting LICENSEE, expressly or by implication, estoppel or
otherwise, a licence to any ARM technology other than the Models and
related documentation.
5.2 Except as licensed to LICENSEE in Clauses 2.1, 4.1, and 4.2 all right,
title and interest in and to the Models and related documentation shall
remain vested in ARM.
5.3 LICENSEE shall reproduce and not remove or obscure any notice incorporated
in the Models or related documentation by ARM to protect ARM's Intellectual
Property or to
________________________
* Pursuant to a request for confidential treatment, selected information in this
document has been omitted and separately filed with the Securities and
Exchange Commission.
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acknowledge the copyright and/or contribution of any third party developer.
LICENSEE shall incorporate corresponding notices and/or such other markings
and notifications as ARM may reasonably require on all copies of Models and
related documentation used or distributed by LICENSEE.
6. Trademark License
6.1 ARM hereby grants to LICENSEE a non-transferable (subject to Clause 20.3),
non-exclusive, royalty-free, world-wide license to use the Trademarks in
connection with the promotion and sale of ARM Compliant Products.
6.2 LICENSEE shall use the Trademarks, in accordance with ARM's guidelines as
set out in Schedule 5 ("Trademark Guidelines"). ARM shall have the right to
revise Schedule 5 and the Trademark Guidelines (including the right to add
further trademarks or modify the Trademarks) provided that such revisions
are made in respect of the Trademark Guidelines issued to all licensees of
the Trademarks. Any such revisions shall be effective upon printed
materials and products to be produced or manufactured after * from receipt
of ARM's written notice specifying the revisions to LICENSEE.
6.3 LICENSEE shall submit samples of documentation, packaging, and promotional
or advertising materials bearing the Trademarks to ARM from time to time in
order that ARM may verify compliance with the Trademark Guidelines. In the
event that any documentation, packaging, promotional or advertising
material fails to comply with the Trademark Guidelines, ARM shall notify
LICENSEE and LICENSEE shall rectify such documentation, packaging, and
promotional or advertising materials so as to comply with the Trademark
Guidelines and cease using any such non-compliant materials within * of the
date of ARM's notice. Any documentation, packaging, and promotional or
advertising materials not rejected for failing to comply with the Trademark
Guidelines by ARM within * after delivery to ARM shall be deemed approved.
6.4 LICENSEE agrees to assist ARM in maintaining the validity of the
Trademarks. Upon ARM's request, LICENSEE shall provide, free of charge, a
reasonable number of samples of the use of the Trademarks for the purpose
of trademark registration or renewal. LICENSEE shall provide reasonable
assistance to ARM in the application and maintenance of any registration
for the Trademarks in the name of ARM. Upon request, LICENSEE shall at
ARM's expense execute any documents required by the applicable laws of any
jurisdiction for the purpose of registering and/or maintaining the
Trademarks. LICENSEE shall have no additional financial responsibility
other than the foregoing with respect to assisting ARM in maintaining the
validity of the Trademarks, and LICENSEE
________________________
* Pursuant to a request for confidential treatment, selected information in this
document has been omitted and separately filed with the Securities and
Exchange Commission.
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shall not be obligated to incur any material expenses pursuant to its
obligations under this Clause 6.4. Any and all registrations for the
Trademarks shall be procured by and for ARM, at ARM's expense.
6.5 Except as provided by the terms of this Agreement, LICENSEE shall not use
or register any trademark, service mark, device or logo, any of the
Trademarks or any word or mark confusingly similar to any of the
Trademarks, in any jurisdiction.
7. Fees and Royalties
7.1 In consideration for the porting services provided under Clause 8.1,
LICENSEE shall pay, to ARM the fees ("Porting Fees") set out in Schedule 7
Part F. In the event that the LICENSEE elects to use an alternative set of
design rules from the Design Rules then the parties shall negotiate fees in
good faith for ARM to port the ARM Core to alternative design rules.
7.2 In consideration for the licences granted under Clause 2.1, LICENSEE shall
pay to ARM;
(i) until an election is made in accordance with the provisions of Clause
10.1, after which the obligation to pay the Technology Licence Fees
under this Clause 7.2 shall be waived in respect of ARM Compliant
Products developed by or for LICENSEE after the date of such
election, a fee (each a "Technology Licence Fee") for each Unique ARM
Compliant Product in accordance with the provisions of Schedule 7
Part A; and
(ii) until an election is made by LICENSEE in accordance with the
provisions of Clause 10.1 after which the provisions of Clause
7.3(ii) shall supersede the provisions of this Clause 7.2(ii), for
each unit of ARM Compliant Product sold, supplied or distributed by
LICENSEE or any Authorised Distributor, a royalty ("Running Royalty")
of * per unit.
7.3 Upon making an election in accordance with the provisions of Clause 10.1,
LICENSEE shall pay to ARM; (i) a fee ("Option Fee") as set out in Schedule
7 Part G; and (ii) for each unit of ARM Compliant Product sold, supplied or
distributed by LICENSEE or any Authorised Distributor after such election a
royalty ("Running Royalty") of * per unit.
7.4 In consideration for the licences granted under Clause 4.1, LICENSEE shall
pay the fee ("Model Fee") as set out in Schedule 7 Part B. If LICENSEE
elects to extend the licence to cover additional Models in accordance with
the provisions of Clause 4.2, then for each
________________________
* Pursuant to a request for confidential treatment, selected information in this
document has been omitted and separately filed with the Securities and
Exchange Commission.
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additional Model licensed by LICENSEE from ARM, LICENSEE shall pay an
additional fee ("Model Option Fee") as set out in Schedule 7 Part I.
7.5 In consideration of the Support (as defined in Clause 12), LICENSEE shall
pay, to ARM, the fee ("Support Fees") set out in Schedule 7 Part D.
7.6 In consideration of the Training (defined in Clause 13), LICENSEE shall
pay, to ARM, the fee ("Training Fee") set out in Schedule 7 Part C.
7.7 In consideration of the Maintenance provided under Clause 11 in respect of
each Model, LICENSEE shall pay, to ARM, the fee (each a "Maintenance Fee")
set out in Schedule 7 Part E.
7.8 For the avoidance of doubt, in no event shall the Technology Licence Fee
be construed as being an advance payment of Running Royalties and except
as provided in Schedule 7 Part G, no right of set off of Running Royalties
against fees shall exist.
7.9 Running Royalties due to ARM under this Agreement shall be paid in
accordance with the terms set forth in Schedule 6.
7.10 LICENSEE shall keep all records of account as are necessary to demonstrate
compliance with its obligations under this Clause 7 for a period of six
(6) years from the date of each Royalty Report.
7.11 ARM shall have the right for representatives of a firm of independent
Chartered Accountants to which LICENSEE shall not unreasonably object
("Auditors"), to make an examination and audit, by prior appointment
during normal business hours, not more frequently than once annually, of
all records and accounts as may under recognised accounting practices
contain information bearing upon (i) the number of units of ARM Compliant
Product sold or distributed by LICENSEE under this Agreement; (ii) the
amounts of Running Royalties payable to ARM under this Clause 7; and (iii)
the occurrence of any Design Win Event. The Auditors will report to ARM
only upon whether the Running Royalties paid to ARM by LICENSEE were or
were not correct, and if incorrect, what are the correct amounts for the
Running Royalties. LICENSEE shall be supplied with a copy of or sufficient
extracts from any report prepared by the Auditors. The Auditors report
shall (in the absence of clerical or manifest error) be final and binding
on the parties. Such audit shall be at ARM's expense unless it reveals an
underpayment or overpayment of Running Royalties of * or more, in which
case LICENSEE shall reimburse ARM for the costs of such audit. LICENSEE
shall make good any underpayment of royalties forthwith. If the audit
identifies that LICENSEE has
________________________
* Pursuant to a request for confidential treatment, selected information in this
document has been omitted and separately filed with the Securities and
Exchange Commission.
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made an overpayment, such overpayment will be credited to the next such
payment or payments to be made by LICENSEE.
7.12 Any income or other tax which LICENSEE is required by law to pay or
withhold on behalf of ARM with respect to any licence fees and/or
royalties payable to ARM under this Agreement shall be deducted from the
amount of such licence fees and/or royalties otherwise due, provided,
however, that in regard to any such deduction, LICENSEE shall give to ARM
such assistance as may be necessary to enable or assist ARM to claim
exemption therefrom, or credit therefor, and shall upon request furnish to
ARM such certificates and other evidence of deduction and payment thereof
as ARM may properly require.
7.13 LICENSEE shall pay all fees and royalties properly due to ARM under the
terms of this Agreement within receipt of ARM's pro-forma invoice therefor
(the "Due Date").
7.14 If any sum under this Agreement is not paid by the Due Date, then (without
prejudice to ARM's other rights and remedies) ARM reserves the right to
charge interest on such sum on a day to day basis (as well after as before
any judgment) from the Due Date to the date of payment at the rate of *
per annum above the base rate of Barclays Bank PLC from time to time in
force.
8. Technology Transfer, Delivery and Production Costs
8.1 The layout database in GDSII format (Item Cl Part C of Schedule 1) for the
ARM Core delivered to LICENSEE shall conform to the Design Rules.
8.2 ARM shall deliver the Transfer Materials and Models on the later of
payment of the pro forma invoices in accordance with Clause 7.13, and the
delivery dates set out in Schedule 2. ARM shall only be obliged to carry
out further ports of the ARM Core subject to the agreement between the
parties of additional porting fees.
8.3 Unless otherwise agreed in writing, delivery shall take place at Mount
Pleasant House, 2 Mount Pleasant, Huntingdon Road, Cambridge, CB3 0BL,
marked for the attention of Chris Turner.
8.4 Except as expressly set out in Clause 8.1, ARM shall not be responsible
for any recoverable or non-recoverable costs incurred, directly or
indirectly, by LICENSEE in the design translation, processing, or
manufacture of masks and prototypes, characterisation or manufacture of
production quality silicon in whatever quantity.
________________________
* Pursuant to a request for confidential treatment, selected information in this
document has been omitted and separately filed with the Securities and
Exchange Commission.
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9. Contract Administrators
9.1 The parties hereby appoint the following individuals as their respective
contract administrator between ARM and LICENSEE with respect to this
Agreement:
ARM: LICENSEE:
For legal notices:
-----------------
David N. MacKay Andrew Vought
ARM Limited Senior VP
90 Fulbourn Road Virata Ltd
Cambridge 2933 Bunker Hill Lane
CB1 9JN Suite 201
England Santa Clara, CA 95054
cc:
Philip David Chris Turner
Senior Corporate Counsel VP IP Licensing
At the Cambridge address above. At the address below.
For all other issues:
--------------------
Dave Rose Chris Turner
Liberty House Mount Pleasant House
Moorbridge Road 2 Mount Pleasant
Maidenhead Huntingdon Road
Berks Cambridge
SL6 8LT CB3 0BL
9.2 The contract administrators identified herein are appointed by the parties
for the receipt and dispatch on their behalf of all communications relating
to this Agreement. The contract administrators shall also be responsible
for the good progress of the parties' performance under this Agreement and
the timely resolution of all technical, administrative and commercial
issues which may arise from time to time during the execution of this
Agreement.
9.3 Each party reserves the right to change its appointment as above upon seven
(7) days written notice to the other party's then current corresponding
liaison.
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10. Core Option A
10.1 LICENSEE may, at any time during the period of * from the Effective Date
elect to convert the restricted use licence granted in Clause 2.1 into a
full (perpetual, subject to termination in accordance with the provisions
of Clause 18.2) license as set out in Clause 10.2. LICENSEE shall make any
such election by; (i) giving written notice to ARM referring to this
Clause 10.1; (ii) payment of a fee ("Option Fee") (as defined in Clause
7.3); (iii) a Royalty Report for the period from the beginning of the
Quarter in which the written notice of election is given to ARM to the
date of such election; (iv) an acknowledgement that the Royalty Rate shall
change in accordance with the provisions of Clause 7.3; and (v) an
acknowledgement that LICENSEE will renegotiate the Support Fees and
Maintenance Fees in good faith to reflect the additional Support that will
be required for a full licence. The date of any election made in
accordance with the provisions of this Clause shall be the date of receipt
by ARM of the notice of election submitted by LICENSEE hereunder.
10.2 If an election is made in accordance with the provisions of Clause 10.1,
then references to the Authorised Devices shall be deemed to refer to any
ARM Compliant Product (mutatis mutandis).
10.3 If an election is made in accordance with the provisions of Clause 10.1,
subsequent to the election in accordance with Clause 10A.1 then at the
date of the election by LICENSEE to convert to a full licence ARM shall no
longer be obligated to provide support and maintenance services (if any)
under the "foundry model" and any deliverables provided by ARM under the
"foundry model" shall be returned to ARM, within * of the date of such
election.
10.4 For the avoidance of doubt if LICENSEE elects to convert the restricted
use licence into a full licence in accordance with the provisions of
Clause 10.1 then such full licence shall continue in accordance with the
terms of this Agreement.
10A Core Option B
10A.1 LICENSEE may, at any time elect to convert the restricted use licence
granted in Clause 2.1 to the ARM7TDMI-S "foundry model" for future ARM
Compliant Products, the LICENSEE shall make any such election by giving
written notice to ARM referring to this Clause 10A.1. The date of any
election made in accordance with the provisions of this Clause shall be
the date of receipt by ARM of the notice of election submitted by LICENSEE
hereunder. If the LICENSEE elects to convert to the "foundry model" then
________________________
* Pursuant to a request for confidential treatment, selected information in
this document has been omitted and separately filed with the Securities and
Exchange Commission.
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the licence granted under Clause 2.1(i) to use and copy the Transfer
Materials and/or any Intellectual Property only for the purposes of
designing and having designed (subject to the provisions of Clause
2.2), the Authorised Devices shall automatically terminate on the date
of election.
10A.2 The parties recognise that the terms and conditions of the "foundry
model" are currently undefined and accordingly agree that in the event
that if either the "foundry model" is not in place (which shall include
where the "foundry model" is not supported by the foundry used by
LICENSEE to manufacture the Authorised Devices) when the LICENSEE
wishes to develop * Unique ARM Compliant Product, or if the terms in
respect of the royalty payments and license fees for each ARM Compliant
Product are less favourable than those contained in this Agreement then
the LICENSEE shall be entitled to elect to extend the definition of
Authorised Device to include additional ARM Compliant Products subject
to the payment of Technology Licence Fees upon the Design Win Event for
each Unique ARM Compliant Product. The LICENSEE shall make any such
election by giving written notice to ARM referring to this Clause
10A.2. The date of any election made in accordance with the provisions
of this Clause shall be the date of receipt by ARM of the notice of
election submitted by LICENSEE hereunder.
10A.3 If an election is made in accordance with the provisions of Clause
10A.1, then references to the Authorised Devices shall be deemed to
refer to any Unique ARM Compliant Product (mutatis mutandis).
10A.4 Any election by the LICENCEE to convert the restricted use licence in
accordance with Clause 10A.1 or extend the restricted use licence in
accordance with Clause 10A.2, shall be without prejudice to the
LICENSEE's right to convert to the full license in accordance with
Clause 10.1.
10A.5 Notwithstanding the provisions of Clause 10A.2 if at the date LICENSEE
wishes to develop * Unique ARM Compliant Product the "foundry model" is
not supported by the foundry used by LICENSEE to manufacture the
Authorised Devices, then the LICENSEE acknowledges that as soon as the
foundry used to manufacture Authorised Devices by LICENSEE under this
Agreement participates in the "foundry model" then, provided the
LICENSEE has not elected to upgrade to a full licence in accordance
with the provisions of Clause 10.1 then the LICENSEE shall convert to
the "foundry model".
____________________
* Pursuant to a request for confidential treatment, selected information in
this document has been omitted and separately filed with the Securities and
Exchange Commission.
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<PAGE>
11. Models Maintenance
11.1 ARM shall provide to LICENSEE, in respect of the Models, through the
parties' applicable contract administrator, for the period of * from
the Effective Date the following maintenance services ("Maintenance");
(i) to correct, to the extent reasonably possible, any defects in the
Models which cause the Models not to operate in accordance with
the description of the Models' functionality in the applicable
documentation. If ARM determines that such defects are due to
errors in such description, ARM shall promptly issue corrections
to the documentation and shall not be required to alter the
Models provided that LICENSEE is not thereby prevented from
commercially exploiting the Models;
(ii) to provide as available Updates to the Models.
11.2 In notifying ARM of any defects or problems LICENSEE shall, unless
otherwise requested by ARM, use the format set out in Schedule 4 and
shall use such medium as shall from time to time be requested by ARM.
LICENSEE shall provide ARM promptly with any information or assistance
reasonably requested by ARM to enable ARM to provide the Maintenance
hereunder.
11.3 For the avoidance of doubt, ARM's obligation under this Clause 11 is
limited expressly to the provision of the Maintenance solely to
LICENSEE.
11.4 At the end of the period stated in Clause 11.1 fees for the provision
of any Maintenance for any subsequent period shall be determined in
good faith negotiations between the parties. After the expiry of this
initial period, LICENSEE shall be under no obligation to accept further
Maintenance, and ARM shall be under no obligation to provide
Maintenance to LICENSEE and in any event not until fees for any
Maintenance have been agreed and paid.
12. Support
12.1 Subject to LICENSEE's payment of the Support Fees (defined in Clause
7.5), for the period of three (3) years ("Initial Period") from the
Effective Date ARM shall provide to LICENSEE, reasonable telephone and
written consultation pertaining to the operation and application of the
Models, the ARM Core and the Transfer Materials ("Support"), through
the parties' contract administrator.
____________________
* Pursuant to a request for confidential treatment, selected information in
this document has been omitted and separately filed with the Securities and
Exchange Commission.
Page 17
<PAGE>
12.2 For the avoidance of doubt, ARM's obligation under this Clause 12 is
limited expressly to the provision of Support solely to LICENSEE.
12.3 The Support provided under this Clause 12 shall be limited to a total
of * person days per annum.
12.4 At the end of the Initial Period (defined in Clause 12.1), or on
election in accordance with Clause 10.1, fees for the provision of any
support for any subsequent period shall be determined in good faith
negotiations between the parties. After the expiry of the Initial
Period, LICENSEE shall be under no obligation to accept further
support, and ARM shall be under no obligation to provide support to
LICENSEE and in any event not until fees for any support have been
agreed and paid.
13. Training
13.1 Subject to availability and LICENSEE's payment of the Training Fee
(defined in Clause 7.6), for the term of this Agreement ARM shall
provide to LICENSEE a four (4)-day standard ARM training course to a
maximum of twelve (12) of LICENSEE's development, operations, customer
service and application engineering personnel ("Training"). LICENSEE
shall reimburse ARM for its out-of-pocket expenses and costs for the
instructor's travel, lodging and meal expenses for training held, at
LICENSEE's request, at LICENSEE's facilities.
13A Software Development Toolkit
13A.1 For the period of one (1) year after the Effective Date and thereafter
subject to availability from ARM, LICENSEE may, at any time during the
term of this Agreement purchase copies of the Software Development
Toolkit at the price stated in Schedule 7 Part H. If the LICENSEE
wishes to purchase any Software Development Toolkits, then the LICENSEE
shall place a purchase order for the number of seats that they wish to
purchase.
13A.2 ARM shall deliver the Software Development Toolkit to LICENSEE at Mount
Pleasant House, 2 Mount Pleasant, Huntingdon Road, Cambridge, CB3 0BL
on receipt of payment of the pro forma invoice in accordance with
Clause 7.13.
14. Confidentiality
14.1 Save as provided by Clause 14.3, each party shall maintain in
confidence the Confidential Information disclosed by the other party
and apply security measures no less stringent
____________________
* Pursuant to a request for confidential treatment, selected information in
this document has been omitted and separately filed with the Securities and
Exchange Commission.
Page 18
<PAGE>
than the measures that such party applies to protect its own like
information, but not less than a reasonable degree of care, to prevent
unauthorised disclosure and use of the Confidential Information. The
period of confidentiality shall be: (i) indefinite with respect to the
terms of this Agreement, pattern generation tapes and photomasks;
provided, however, that LICENSEE shall have the right to disclose
pertinent clauses of the Agreement to third parties which have entered
into confidentiality agreements with LICENSEE for the purposes of
having ARM Compliant Products designed and/or manufactured for LICENSEE
by such third party; (ii) twenty (20) years from the date of receipt by
LICENSEE with respect to all deliverables identified in the Schedules
hereto as confidential or having limited confidentiality, i.e. denoted
as such by the letters "C" or "L" in the "Status" column, together with
any comparable technical information supplied by ARM to LICENSEE during
the term of this Agreement; and (iii) five (5) years from the date of
receipt of the information by the receiving party with respect to all
other information.
14.2 LICENSEE acknowledges the importance to ARM and sensitivity of the
Confidential Information. In addition, LICENSEE agrees that it shall
not use any of ARM's Confidential Information other than for the sole
purpose of designing, having designed, manufacturing, having
manufactured and distributing ARM Compliant Products.
14.3 In the event that either party qualifies the confidentiality of any of
its Confidential Information in writing by marking such Confidential
Information with the words "Limited Confidentiality", such Confidential
Information may be disclosed to a third party who has entered into a
non-disclosure agreement ("NDA") with the recipient containing
substantially similar terms to this Clause 14. LICENSEE shall have the
right to disclose the layout database in GDSII format (Item Cl Part C
of Schedule 1) to a Manufacturer (defined in Clause 2.4) under an NDA
containing substantially similar terms to this Clause 14 for the
purposes of having ARM Compliant Products manufactured for LICENSEE by
such Manufacturer.
14.4 The provisions of this Clause shall not apply to information which:
(i) is known and has been reduced to tangible form by the receiving
party prior to disclosure by the other party; or
(ii) is published or otherwise made available to the public other
than by a breach of this Agreement by a party hereto; or
(iii) is disclosed to the receiving party by a third party having the
lawful right to make such disclosure; or
(iv) is independently conceived by the receiving party provided that
the receiving party is able to provide evidence of such
independent conception in the form of written records; or
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<PAGE>
(v) is released to the receiving party for disclosure to any third
party, other than on a confidential basis, by the disclosing
party in writing; or
(vi) is required by any court or other governmental body; or
(vii) is approved for release not under a NDA designating the
information as Confidential Information; or
(viii) released to a third party by the disclosing party and designated
as non-confidential.
14.5 For the avoidance of doubt, LICENSEE Royalty Reports may be disclosed
to, in confidence, ARM's financial and/or legal advisors. In addition,
ARM may disclose the total unit sales of ARM processor based products
on an quarterly basis provided that the unit sales of such products by
LICENSEE are not separately identifiable.
15. Warranties
15.1 ARM warrants that the Transfer Materials delivered to LICENSEE will be
sufficient for a competent semiconductor manufacturer to produce ARM
Cores which substantially meet the functionality specified in the
applicable datasheet. If the Transfer Materials are not sufficient for
a competent semiconductor manufacturer to produce ARM Cores which meet
the functionality specified in the applicable datasheet ARM shall
correct any errors in the Transfer Materials and deliver such corrected
Transfer Materials to LICENSEE or replace the Transfer Materials at
ARM's discretion. The foregoing sets out LICENSEE's sole and exclusive
remedy for any defect in the Transfer Materials.
15.2 LICENSEE acknowledges that the Models cannot be tested in every
possible operation, and accordingly ARM does not warrant that the
Models will be free from all defects or that there will be no
interruption in its use. However, ARM warrants that the Models will be
complete and comply with the description of its functionality as
specified in the documentation. LICENSEE's sole and exclusive remedy
for any breach of such warranty shall be for ARM, as soon as is
reasonably practicable, to correct any errors in the Models and deliver
such corrected Models to LICENSEE.
15.3 ARM further warrants that to ARM's knowledge and belief, but expressly
without having undertaken any searches for prior art, that:
(i) the ARM Core and Models do not infringe any third party
copyright, maskwork right or trade secret; and
(ii) there are no pending claims that have been made, or actions
commenced, against ARM for breach of any third party copyright,
maskwork right, patent or trade secret; and
Page 20
<PAGE>
(iii) ARM, or its applicable licensor, is the owner of the Transfer
Materials and Models to be delivered to LICENSEE; and
(iv) ARM has the right to enter into this Agreement.
15.4 Except as expressly provided in this Agreement, ARM makes no warranties
express, implied or statutory, including, without limitation, the
implied warranties or merchantability or fitness for a particular
purpose with respect to the ARM Core, Models, Intellectual Property and
Transfer Materials.
16. Infringement
16.1 In the event of a suit against LICENSEE based upon a claim that any
portion of the materials delivered by ARM to LICENSEE under this
Agreement (the "Delivered Materials"), when used in accordance with
this Agreement, infringe any patent, copyright, mask work, trademark,
trade secret, or other property right, ARM agrees to defend and
indemnify LICENSEE, at ARM's expense, and to pay costs and damages
finally awarded in any such suit subject to the limitations of this
Clause 16.1, provided that ARM is notified promptly in writing of the
suit and at ARM's request and at its expense is given control of the
suit and all requested reasonable assistance to defend the same. If the
use or sale of any product incorporating, embodying or based upon the
Delivered Materials is enjoined as a result of such suit, ARM, at its
sole option and at no expense to LICENSEE, shall (a) obtain for
LICENSEE the right to use and sell the Delivered Materials; or failing
that (b) shall make a modification of the Delivered Materials so that
the Delivered Materials are no longer subject to such injunction, or
failing that (c) replace the unmodified Delivered Materials, or
infringing portions thereof, with reasonably equivalent non-infringing
products which offer no less functionality. If (a), (b) and (c) are not
available or commercially practical, then ARM shall pay to LICENSEE
compensatory damages subject to the limitations of this Clause 16.1.
The provisions of this Clause 16.1 do not extend to any suit based upon
an infringement or alleged infringement of any patent, copyright, trade
secret, mask work, trademark or other property right by: (a) the
LICENSEE manufacturing process; (b) any modification of the Delivered
Materials not made by ARM; or (c) the use of the Delivered Materials in
combination with other equipment, technology or software not purchased
or licensed from ARM, provided that such claim would not have occurred
but for such combination, modification or enhancement. THE FOREGOING
STATES THE ENTIRE LIABILITY OF ARM WITH RESPECT TO INTELLECTUAL
PROPERTY INFRINGEMENT. IN NO EVENT SHALL ARM BE LIABLE TO LICENSEE FOR
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES RESULTING THEREFROM.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT,
ARM SHALL NOT BE LIABLE TO LICENSEE FOR ANY AMOUNTS IN EXCESS OF, THE
LESSER OF LICENSE FEES PAID UNDER THIS
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<PAGE>
AGREEMENT AND THE SUM OF * IN AGGREGATE FOR ALL CLAIMS ARISING OUT OF
OR IN CONNECTION WITH THE PROVISIONS OF THIS CLAUSE 16.1. THE EXISTENCE
OF MORE THAN ONE CLAIM OR SUIT WILL NOT ENLARGE OR EXTEND THE LIMIT.
LICENSEE RELEASES ARM FROM ALL OBLIGATIONS, LIABILITY, CLAIMS OR
DEMANDS IN EXCESS OF THIS LIMITATION.
16.2 In the event of a suit against ARM based in whole or in part upon a
claim that (a) the process used by or on behalf of LICENSEE in
manufacturing products incorporating, embodying or based upon the
Delivered Materials; (b) any ARM Core made by LICENSEE as a result of
modification of the Delivered Materials by or on behalf of LICENSEE; or
(c) the use of the Delivered Materials by LICENSEE in combination with
other equipment, technology or software not purchased or licensed from
ARM (provided that such claim would not have occurred but for such
combination, modification or enhancement), has infringed any patent,
copyright, mask work, trademark, trade secret or other property right,
LICENSEE agrees to defend and indemnify ARM, at LICENSEE expense, and
to pay costs and damages finally awarded in any such suit, provided
that LICENSEE is notified promptly in writing of the suit, and at
LICENSEE request and at its expense is given control of the suit and
all requested reasonable assistance to defend the same. THE FOREGOING
STATES THE ENTIRE LIABILITY OF LICENSEE WITH RESPECT TO INTELLECTUAL
PROPERTY INFRINGEMENT. IN NO EVENT SHALL LICENSEE BE LIABLE TO ARM FOR
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES RESULTING THEREFROM.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT,
LICENSEE SHALL NOT BE LIABLE TO ARM FOR ANY AMOUNTS IN EXCESS OF THE
LESSER OF LICENSE FEES PAID UNDER THIS AGREEMENT AND THE SUM OF * IN
AGGREGATE FOR ALL CLAIMS ARISING OUT OF OR IN CONNECTION WITH THE
PROVISIONS OF THIS CLAUSE 16.2. THE EXISTENCE OF MORE THAN ONE CLAIM OR
SUIT WILL NOT ENLARGE OR EXTEND THE LIMIT. ARM RELEASES LICENSEE FROM
ALL OBLIGATIONS, LIABILITY, CLAIMS OR DEMANDS IN EXCESS OF THIS
LIMITATION.
16.3 In the event that there is a final adjudication of infringement, the
liability of ARM for such infringement shall terminate with respect to
all damages regarding the infringing intellectual property arising
after the date of such final adjudication.
____________________
* Pursuant to a request for confidential treatment, selected information in
this document has been omitted and separately filed with the Securities and
Exchange Commission.
Page 22
<PAGE>
17. Disclaimer of Consequential Damages
17.1 EXCEPT IN RESPECT OF BREACHES OF CLAUSES 2.3, 2.5 AND 14, IN NO EVENT
SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES WHETHER SUCH DAMAGES ARE ALLEGED AS A RESULT OF
TORTIOUS CONDUCT OR BREACH OF CONTRACT OR OTHERWISE EVEN IF THE OTHER
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. SUCH DAMAGES
SHALL INCLUDE BUT SHALL NOT BE LIMITED TO THE COST OF REMOVAL AND
REINSTALLATION OF GOODS, LOSS OF GOODWILL, LOSS OF PROFITS, LOSS OF USE
OF DATA, INTERRUPTION OF BUSINESS OR OTHER ECONOMIC LOSS BUT NOTHING IN
THIS CLAUSE SHALL OPERATE TO EXCLUDE LIABILITY FOR DEATH OR PERSONAL
INJURY RESULTING FROM EITHER PARTY'S NEGLIGENCE.
18. Term and Termination
18.1 This Agreement shall commence on the Effective Date and continue in
force unless and until terminated in accordance with the provisions of
Clause 18.2.
18.2 Without prejudice to any other right or remedy which may be available
to it, either party shall be entitled summarily to terminate this
Agreement by giving written notice to the other, if the other party:
(i) has committed a material breach of any of its obligations
hereunder which is not capable of remedy; or
(ii) has committed a material breach of any of its obligations
hereunder which is capable of remedy but which has not been
remedied within a period of sixty (60) days following receipt of
written notice to do so; or
(iii) makes any voluntary arrangement with its creditors for the
general settlement of its debts or becomes subject to an
administration order; or
(iv) has an order made against it, or passes a resolution, for its
winding-up (except for the purposes of amalgamation or
reconstruction) or has an encumbrancer take possession or has a
receiver or similar officer appointed over all or substantially
all of its property or assets.
19. Effect of Termination
19.1 Upon termination of this Agreement by ARM pursuant to Clause 18.2, or
by LICENSEE pursuant to Clauses 18.2 (i) or (ii), LICENSEE will
immediately discontinue any use and distribution of all ARM Compliant
Products, Models, Intellectual Property, Transfer Materials and ARM
Confidential Information. LICENSEE shall, at ARM's option, either
destroy or return to ARM any Confidential Information, including any
copies thereof in
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<PAGE>
its possession, together with the Transfer Materials and all copies of
the Models in its possession. Within one month after termination of
this Agreement LICENSEE will furnish to ARM a certificate signed by a
duly authorised representative of LICENSEE that to the best of his or
her knowledge, information and belief, after due enquiry, LICENSEE has
complied with provisions of this Clause. For the avoidance of doubt,
any sub-licenses of the Models granted by LICENSEE prior to the
termination of this Agreement shall survive such termination.
19.2 Upon such termination the provisions of Clauses 1, 7 (to the extent
that any obligation under this Clause remains outstanding), 14, 15, 16,
17, 19 and 20 shall survive termination.
20. General
20.1 All communications between the parties including, but not limited to,
notices, royalty reports, error or bug reports, the exercise of
options, and support requests shall be in the English language.
20.2 All notices which are required to be given hereunder shall be in
writing and shall be sent to the address of the recipient set out in
this Agreement or such other address as the recipient may designate by
notice given in accordance with the provisions of this Clause. Any such
notice may be delivered personally, by commercial overnight courier or
facsimile transmission which shall be followed by a hard copy and shall
be deemed to have been served if by hand when delivered, if by
commercial overnight courier 48 hours after deposit with such courier,
and if by facsimile transmission when dispatched.
20.3 Neither party shall assign or otherwise transfer this Agreement or any
of its rights and obligations hereunder whether in whole or in part
without the prior written consent of the other.
20.4 Neither party shall be liable for any failure or delay in its
performance under this Agreement due to causes, including, but not
limited to, acts of God, acts of civil or military authority, fires,
epidemics, floods, earthquakes, riots, wars, sabotage, third party
industrial disputes and governments actions, which are beyond its
reasonable control; provided that the delayed party: (i) gives the
other party written notice of such cause promptly, and in any event
within fourteen (14) days of discovery thereof; and (ii) uses its
reasonable efforts to correct such failure or delay in its performance.
The delayed party's time for performance or cure under this Clause 20.4
shall be extended for a period equal to the duration of the cause.
20.5 ARM and LICENSEE are independent parties. Neither company nor their
employees, consultants, contractors or agents, are agents, employees or
joint venturers of the other party, nor do they have the authority to
bind the other party by contract or otherwise to any obligation.
Neither party will represent to the contrary, either expressly,
implicitly, by appearance or otherwise.
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<PAGE>
20.6 The parties agree that the terms and conditions of this Agreement shall
be treated as Confidential Information hereunder and shall not be
disclosed without the consent of both parties.
20.7 Failure by either party to enforce any provision of this Agreement
shall not be deemed a waiver of future enforcement of that or any other
provision.
20.8 If any provision of this Agreement, or portion thereof, is determined
to be invalid or unenforceable the same will be enforced to the maximum
extent permissible so as to effect the intent of the parties, and the
remainder of this Agreement will continue in full force and effect.
20.9 The headings to the Clauses of this Agreement are for ease of reference
only and shall not affect the interpretation or construction of this
Agreement.
20.10 This Agreement may be executed in one or more counterparts each of
which shall be deemed an original, but all of which shall constitute
one and the same instrument.
20.11 This Agreement, including all Schedules and documents referenced
herein, constitutes the entire agreement between the parties with
respect to the subject matter hereof, and supersedes and replaces all
prior or contemporaneous understandings or agreements, written or oral,
regarding the subject matter. Except in relation to the Trademark
Guidelines (as defined in Clause 6.2), which may be modified from time
to time by ARM, no amendment to, or modification of, this Agreement
shall be binding unless in writing and signed by a duly Authorised
representative of both parties.
20.12 This Agreement shall be governed by and construed in accordance with
the laws of England. The parties agree to submit to the jurisdiction of
the High Court of Justice, London, England, for the purpose of hearing
and determining any disputes arising out of this Agreement.
20.13 Neither party shall make any press release or similar public
announcement relating to the existence of this Agreement without
obtaining the other party's prior confirmation on the contents thereof,
which confirmation shall not be unreasonably withheld or delayed.
Except as required by law or to each parties respective professional
advisors, or other advisors for the purposes of raising finance and
always subject to a non-disclosure agreement neither party may disclose
the terms and conditions of the Agreement.
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<PAGE>
20.14 IN WITNESS WHEREOF the parties have caused this Agreement to be
executed by their duly Authorised representative:
ARM LIMITED: VIRATA LTD:
----------------------------------------------------------------------
SIGNED: /s/ SIGNED: /s/
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
NAME: J. Urquhart NAME: C. B. Turner
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
TITLE: Chief Operating Officer TITLE: Vice President I. P.
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
DATE: June 2, 1999 DATE: June 2, 1999
----------------------------------------------------------------------
Page 26
<PAGE>
EXHIBIT 10.17
AMENDMENT No. 1
TO LICENSE AND TECHNICAL CO-OPERATION AGREEMENT
FOR ATM TECHNOLOGY
THIS AMENDMENT No. 1 is made on September 19, 1994 ("Effective Date") by and
between the following parties (hereinafter "the Parties"):
(1) ING. C. OLIVETTI & C., S.p.A., whose registered office is at Via Jervis 77,
10015 Ivrea, Italy ("Olivetti"), acting together with its controlled
company OLIVETTI RESEARCH LIMITED, whose registered office is at 24A
Trumpington Street, Cambridge CB2 1QA, England ("ORL"), and
(2) ADVANCED TELECOMMUNICATIONS MODULES LIMITED whose registered office is at
Mount Pleasant House, 2 Mount Pleasant, Huntingdon Road, Cambridge, CB3
("the Company").
RECITALS
WHEREAS, the Parties entered into a License and Technical Co-operation Agreement
for ATM Technology dated December 3, 1993 (the "ATM License Agreement");
AND WHEREAS, the Parties wish to amend the ATM License Agreement;
NOW, in consideration of the premises and the mutual covenants contained herein,
the Parties agree to amend the ATM License Agreement as follows:
1. Section 2.1 of the ATM License Agreement is hereby amended to read as
follows:
"In consideration of the rights granted to Olivetti by Company pursuant to
the Subscription Agreement and Section 3.2 and of other consideration the
receipt of which is hereby acknowledged, Olivetti hereby grants to the
Company an exclusive, worldwide license to use, make, have made, sell,
lease and otherwise exploit without limitation (including the grant of sub-
licenses) and without limit in time any hardware and/or software product
based upon the Licensed Technology and the Licensed IPRs."
2. Section 2.3 of the ATM License Agreement is hereby amended to read as
follows:
"Olivetti intends to fulfill its own and its Subsidiaries' requirement for
products and equipment based on the Licensed Technology and Licensed IPRs
by placing procurement orders on the Company. However, notwithstanding
Section 2.1 above, in the event that the Company for any reason does not
fulfill the reasonable requirements of Olivetti and Olivetti's Affiliates
for any specific product or equipment in accordance with Olivetti's
specifications, quality, delivery time and other material terms and
conditions and is not
<PAGE>
competitive with any other external source available to Olivetti for such
product or equipment after having been given a reasonable opportunity to
meet such specifications, quality, delivery time and other material terms,
Olivetti and its Affiliates shall then, and only then, retain the right to
make, have made, use, sell, lease and otherwise exploit such specific
products or equipment based upon the Licensed Technology and the Licensed
IPRs."
3. The following new Section 2.4 is added in the ATM License Agreement:
"In the event of a dispute between Olivetti and the Company regarding
Olivetti's exercise of its rights under clause 2.3 above, then such dispute
shall, at the request of either party, be referred to a panel of three
experts, one of which appointed by each party and the third of which
appointed by mutual agreement by the first two or, in the absence of an
agreement, by the President for the time being of the Institute of
Chartered Accountants in England and Wales. The experts shall act as
experts and not as arbitrators, shall decide by majority and their decision
shall be final and unappealable. The parties shall provide the experts with
copies of the relevant documents and the cost of the experts shall be borne
by the party against which the experts decide."
4. All provisions of the ATM License Agreement that are not amended herein
remain unaffected.
IN WITNESS WHEREOF the Parties have executed this Amendment No. 1 on the date
first set out above.
ING. C. OLIVETTI & C., S.P.A.
/s/
--------------------------------------------
OLIVETTI RESEARCH LIMITED
/s/
--------------------------------------------
ADVANCED TELECOMMUNICATIONS MODULES LIMITED
/s/ H. Hauser
--------------------------------------------
2
<PAGE>
EXHIBIT 10.18
LICENSE AND TECHNICAL CO-OPERATION AGREEMENT
FOR ATM TECHNOLOGY
THIS AGREEMENT is made on 3 Dec., 1993 ("Effective Date") by and between
(1) ING. C. OLIVETTI & C., S.p.A., whose registered office is at Via Jervis 77,
10015 Ivrea, Italy ("Olivetti"), acting together with its controlled
company OLIVETTI RESEARCH LIMITED, whose registered office is at 24A
Trumpington Street, Cambridge CB2 1QA, England ("ORL"), and
(2) ADVANCED TELECOMMUNICATIONS MODULES LIMITED whose registered office is at
Home Farm, Fowlmere Road, Heydon, Nr Royston, Herts, SG8 8PZ ("the
Company")
RECITALS
--------
(A) The Asynchronous Transfer Mode ("ATM") has recently become the prevailing
technological choice for high speed communication in telephony and for
computer local area networks.
(B) Olivetti through its controlled company ORL has developed hardware and
software for use in connecting computers and telephony using the ATM
technology, and owns extensive know-how and technical knowledge in the
field of ATM technology.
(C) The Company has been established to develop and market a range of products
and services using the ATM technology for home and office use.
(D) Olivetti and the Company have agreed to co-operate in the development of
ATM technology on the terms of this Agreement.
<PAGE>
(E) Olivetti and the other subscribers of the Company are parties to the
Subscription Agreement, as hereinafter defined.
NOW IT IS AGREED as follows:
1. Definitions
-----------
In this Agreement the following expressions bear the meanings set out below:
1.1 "ATM Technology" means the technology of the Asynchronous Transfer Mode, a
description of which is provided in Exhibit A attached hereto.
1.2 "ATMos" means the real time operating software on which the Company intends
to base its ATM Technology.
1.3 "Licensed Technology" means the technical information available to ORL on
the Effective Date which pertains to the ATM Technology and which is either
(i) fully owned by Olivetti or its Subsidiaries, or
(ii) licensed to Olivetti or its Subsidiaries and sub-licensable to the
Company hereunder without any further payment by Olivetti to any third
party.
1.4 "Licensed IPRs" means patents and patent applications (including utility
models but excluding registered or unregistered designs), unpatented
inventions, copyrights and topography rights which underly the Licensed
Technology and are
(i) fully owned by Olivetti or its Subsidiaries, or
(ii) licensed to Olivetti or its Subsidiaries and sub-licensable to the
Company hereunder without any further payment by Olivetti to any third
party.
1.5 "Subsidiary" of any party means any corporation or other business entity
now or hereafter controlled by such party, where "to control" an entity
means to own, directly or indirectly, the majority of the shares or
ownership quotas in such entity entitled to vote
2
<PAGE>
for the election of the Board of Directors or other similar managing body,
or otherwise to own a number of shares representing the right to nominate
the majority of the members of the Board of Directors.
1.6 "Subscription Agreement" means the agreement dated November 30, 1993 among
the Company, Olivetti and the other subscribers of the Company regarding
among other things subscription of the Company's shares.
1.7 "Option Exercise Date" means the date on which Olivetti exercises the
Option defined in Section 8(1) of the Subscription Agreement.
2. License Grant
-------------
2.1 In consideration of the rights granted to Olivetti by Company pursuant to
the Subscription Agreement and Section 3.2 and of other consideration the
receipt of which Olivetti hereby grants to the Company a non-exclusive,
worldwide license to use, make, have made, sell, lease and otherwise
exploit without limitation (including the grant of sub-licenses) and
without limit in time any hardware and/or software product based upon the
Licensed Technology and the Licensed IPRs.
2.2 Olivetti will cause ORL to transmit, and ORL will transmit, promptly upon
execution of this Agreement, the Licensed Technology to the Company in the
form in which it is currently available to ORL.
2.3 Olivetti retains the right to make, have made, use, sell, lease and
otherwise exploit (including the grant of licenses to Olivetti's
Affiliates) equipment based on the Licensed Technology and the Licensed
IPRs as an integral part of Olivetti's products. Notwithstanding the
foregoing, Olivetti and its Affiliates shall not exercise the right to make
or have made equipment based upon the Licensed Technology and the Licensed
3
<PAGE>
IPRs as long as the Company fills the requirements of Olivetti and
Olivetti's Affiliates for such equipment in accordance with Olivetti's
specifications, quality, delivery time and other material purchasing terms
and conditions and is competitive with any other external or internal
source available to Olivetti for such equipment.
3. The Co-operation
----------------
3.1 During the term of this Agreement, Olivetti will cause ORL to co-operate,
and ORL will co-operate, with the Company by assisting it upon the latter's
request in the development of the ATM Technology. The costs incurred by ORL
for such assistance shall be charged to the Company on a monthly basis.
Reciprocally, in the event that Olivetti requests, pursuant to a written
purchase order, any support from the Company, Olivetti will pay for the
costs of such assistance on a monthly basis.
3.2 Subject to the second sentence of Section 2.3, each party hereby grants to
the other party, for itself and its Subsidiaries, a non-exclusive,
worldwide, royalty-free license to use (and to sub-license) on the
respective products without limit in time any improvement made by such
party to the Licensed Technology and the Licensed IPRs prior to the Option
Exercise Date.
4. Infringement of Rights
----------------------
4.1 In the event that either Olivetti or the Company becomes aware of or
suspects any infringement problem relating to the products of the Company,
then the party so discovering or suspecting infringement shall inform the
other party and cooperate at Company's expense in studying possible
resolutions of the problem.
5. Disclaimer of Warranties
------------------------
4
<PAGE>
5.1 The Licensed Technology transmitted to the Company hereunder is furnished
"as is" and neither Olivetti nor ORL makes any warranties, expressly or
impliedly, written or oral, statutory or otherwise, with respect thereto.
By way of example but not of limitation, neither Olivetti nor ORL makes any
representation or warranty as to merchantability, fitness for purpose,
absence of errors or defects, or absence of infringement of third party
intellectual property rights. The Company will indemnify Olivetti in
connection with any claim made by any third party alleging that any product
or service of Company infringes any IPR of a third party. In no event shall
Olivetti or ORL be liable to the Company for damages of any kind.
6. Duration
--------
6.1 This Agreement shall continue in force until 31st December 1998 or until
the Option Exercise Date, whichever comes first. The licenses granted by
each part to the other party hereunder shall continue on a fee-free basis
after expiration hereof.
7. Termination
-----------
7.1 This agreement may be terminated by Olivetti by written notice to the
Company in case of a material default of the payment obligations hereunder
or of any other material obligations of Company hereunder, if such breach
is not cured within sixty (60) days after Olivetti's written notice of
default to the Company. Either party shall have the right to terminate this
Agreement if the other has a receiver or administrative receiver over the
whole or any part of its assets or if an order is made or a resolution
passed for winding up of the other party or if the other party shall enter
into a voluntary arrangement with its creditors or suffer an administration
order to be made against it but termination shall not
5
<PAGE>
affect any rights granted to that other party hereunder which are either
expressly or by implication irrevocable.
8. Notices
-------
8.1 All notices or other communications which are required to be given
hereunder shall be in writing and shall be sent to the address of the
recipient set out in this Agreement or such other address and/or for the
attention of such other person as the recipient may designate by notice
given in accordance with the provisions of this clause. Any such notice or
communication may be delivered personally or sent by first class prepaid
registration letter or by facsimile transmission and shall be deemed to
have been served if by personal delivery when delivered, if by first class
post 48 hours after posting and if by facsimile transmission at the time of
dispatch. If a notice or other communication shall otherwise become
effective on a day which is not a business day such notice or other
communication shall become effective at 9:00 a.m. GMT upon the next
following business day.
9. Law
---
9.1 This Agreement shall be governed by and construed in all respects in
accordance with English law and the parties hereto irrevocably submit to
the exclusive jurisdiction of the English Courts.
10. Invalidity
----------
10.1 If any term or provision in this Agreement shall in whole or in part be
held to any extent to be illegal or unenforceable under any enactment or
rule of law that term or provision or part shall to that extent be deemed
not to form part of this Agreement and the enforceability of the remainder
of this Agreement shall not be affected.
6
<PAGE>
11. Assignment
----------
11.1 None of the rights and obligations of the parties under this Agreement
shall be capable of assignment without the prior written consent of each of
the parties hereto to such assignment and provided that if such consent is
given such assignee shall be first obliged to adhere to the terms of this
Agreement as though an original party hereto in place of the assignor. For
the avoidance of doubt any permitted transfer as aforesaid shall not in the
absence of such prior written consent result in any transfer of rights or
obligations hereunder. Any person bound to adhere to the terms of this
Agreement shall be required by the parties hereto to execute such deed of
adherence or other deed as shall be requisite.
IN WITNESS WHEREOF the parties have executed this Agreement as a Deed on the
date first set out above.
Executed and delivered as a deed by ING.
C. OLIVETTI & C., S.P.A. in the presence
of: /s/
/s/
--------------------------------------
______________________________________
Executed and delivered as a deed by
OLIVETTI RESEARCH LIMITED in the presence
of: /s/ C. B. Turner
/s/
--------------------------------------
______________________________________
7
<PAGE>
Executed and delivered as a deed by
ADVANCED
TELECOMMUNICATIONS MODULES
LIMITED in the presence of:
/s/ C. B. Turner /s/ H. Hauser
--------------------------------------
______________________________________
8
<PAGE>
EXHIBIT 10.19
SETTLEMENT AGREEMENT
This Settlement Agreement is entered into as of the 19th day of June 1998 (the
"Effective Date") by Cirrus Logic, Inc. a California corporation with principal
offices at 3100 West Warren Ave., Fremont, CA, 94538 ("Cirrus"); and Virata
Limited (formerly known as Advanced Telecommunications Modules Ltd.), an English
corporation with principal offices at Mount Pleasant House, 2 Mount Pleasant,
Huntingdon Road, Cambridge, CB3 OBL, U.K. ("Virata").
WHEREAS Cirrus and Virata entered into a License Agreement dated September 18,
1995 (such agreement as it has been amended, the "Prior Agreement"), under which
the parties agreed to develop and market one or more ATM semiconductor products
using certain intellectual property from each party;
AND WHEREAS Cirrus and Virata wish to terminate the Prior Agreement, settle
various issues under the Prior Agreement, determine and settle the rights of the
respective parties to certain intellectual property developed under the Prior
Agreement, provide for the continued supply of products by Cirrus to Virata, and
provide for a license to certain intellectual property of Virata to Cirrus on
the terms and conditions set out herein.
NOW THEREFORE, in consideration of the mutual covenants and agreements contained
herein, the parties agree as follows:
1. Definitions
1.1 "Cirrus Technology" means the technology further described in Exhibit A.
1.2 "Hydrogen Chip" means the product developed under the Prior Agreement for
which the current version is referred to as Virata part number (1C000082)
and Cirrus part number (CL-PS-7900-QC-AC).
1.3 "Intellectual Property Rights" means patent rights (including patent
applications and disclosures), rights of priority, copyright rights, Moral
Rights, trade secret rights, know-how, and any other intellectual property
or proprietary rights recognized in any country or jurisdiction in the
world.
1.4 "Joint Technology" means the technology further described in Exhibit E.
1.5 "License Agreement" means the form of License Agreement attached hereto as
Exhibit C.
1.6 "Volume Purchase Agreement" means the form of Volume Purchase Agreement
attached hereto as Exhibit D.
1.7 "Moral Rights" mean any rights to claim authorship of a work, to object to
or prevent any modification of a work, to withdraw from circulation or
control the publication or distribution of a work, and any similar right,
existing under judicial or statutory law of
<PAGE>
any country in the world, or under any treaty, regardless of whether or not
such right is called or generally referred to as a "moral right".
1.8 "Virata Technology" means the technology further described in Exhibit B.
2. Termination of Prior Agreement
2.1 Termination. The parties hereby terminate the Prior Agreement as of the
-----------
Effective Date.
2.2 Release. Each party releases and discharges the other party from any and
-------
all claims, causes of action, liabilities or obligations of any kind or
nature arising under the terms of the Prior Agreement to the Effective
Date. The parties agree that purchase order number 3720 shall be
specifically excluded from this release and shall continue in full force
and effect under this Agreement.
2.3 Amounts paid under Prior Agreement. Virata hereby acknowledges receipt of
----------------------------------
five hundred thousand dollars ($500,000.00) from Cirrus for pre-paid
royalties under the Prior Agreement. The parties agree that the said five
hundred thousand dollars ($500,00.00) shall be treated as a one time
license fee under the Agreement for access to Virata Technology and any
software bug fixes under the warranty terms hereto, and the grant of
license under Sections 2.1 and 2.2 of the License Agreement as set forth in
Exhibit C.
2.4 Survival. Notwithstanding anything to the contrary in the Prior Agreement,
--------
including without limitation the provisions of Section 9.3, only Sections
8,10 and 11 of the Prior Agreement (copies of which are attached hereto as
Exhibit F) shall survive termination of the Prior Agreement and all other
provisions of the Prior Agreement, including without limitation the
licenses granted in Section 2, shall terminate as of the Effective Date.
2.4.1 Notice. Each party agrees not to file any litigation or similar
------
legal process against the other for breach of Section 8 of the Prior
Agreement or Section 3 of the License Agreement without providing
the other party with at least ten (10) days prior written notice of
its intent to file such a claim. This notice requirement shall not
prejudice in any way either party's right to seek an injunction with
respect to an alleged breach of Section 8 or Section 3 respectively.
2.5 Obligations. Cirrus is hereby released from any obligations and liability
-----------
under Section 7 of the Prior Agreement for any future payments and for any
payments which have accrued up to the Effective Date.
2.6 Return of Materials. Immediately following the Effective Date, each party
-------------------
shall make commercially reasonable best efforts to return to the other all
materials owned by the other party and all confidential or proprietary
information of the other party in their possession or control (other than
any materials or information reasonably required by such party to exercise
their rights under the License Agreement or the Volume Purchasing
Agreement).
2
<PAGE>
3. Ownership
3.1 Cirrus Technology. Cirrus shall own all right, title and interest in the
-----------------
Cirrus Technology, including all worldwide Intellectual Property Rights
therein. To the extent that Virata has any interest in the Cirrus
Technology, Virata hereby irrevocably transfers and assigns to Cirrus all
of its right, title and interest in the Cirrus Technology, including all
worldwide Intellectual Property Rights therein. At Cirrus' request and
expense, Virata will provide reasonable assistance and cooperation to
Cirrus, and will give testimony and execute documents, and take such
further acts reasonably requested by Cirrus to acquire, transfer, maintain,
perfect and enforce Cirrus' Intellectual Property Rights in the Cirrus
Technology. Virata hereby appoints the officers of Cirrus as Virata's
attorney-in-fact to execute documents on behalf of Virata and its employees
for this limited purpose.
3.2 Virata Technology. Virata shall own all right, title and interest in the
-----------------
Virata Technology, including all worldwide Intellectual Property Rights
therein. To the extent that Cirrus has any interest in the Virata
Technology, Cirrus hereby irrevocably transfers and assigns to Virata all
of its right, title and interest in the Virata Technology, including all
worldwide Intellectual Property Rights therein. At Virata's request and
expense, Cirrus will provide reasonable assistance and cooperation to
Virata, and will give testimony and execute documents, and take such
further acts reasonably requested by Virata to acquire, transfer, maintain,
perfect and enforce Virata's Intellectual Property Rights in the Virata
Technology. Cirrus hereby appoints the officers of Virata as Cirrus'
attorney-in-fact to execute documents on behalf of Cirrus and its employees
for this limited purpose.
3.3 Joint Technology. Virata and Cirrus shall jointly and equally own all
----------------
right, title and interest in the Joint Technology, including all worldwide
Intellectual Property Rights therein. Each party shall have total freedom
of action with respect to the Joint Technology, without accounting to the
other. All expenses incurred in obtaining and maintaining patent
protection in the Joint Technology shall be jointly shared, provided that,
where one party elects not to seek or maintain patent protection with
respect to any Joint Technology in any particular country or not to share
equally in the expenses thereof, the other party shall have the right to
seek or maintain such protection at its own expense and shall have full
control over the prosecution and maintenance thereof, even though title to
any patent issuing thereon shall be joint. Each party agrees to provide
reasonable assistance to the other in the registration of and protection of
Intellectual Property Rights in the Joint Technology. Subject to any
public disclosure necessary to be made in seeking patent protection, each
party agrees to maintain the confidentiality of the Joint Technology and
protect the confidential information and trade secrets included within the
Joint Technology using at least the same procedures and degree of care that
it uses to protect the disclosure of its other confidential and proprietary
information but no less than reasonable care.
3
<PAGE>
4. License
Virata and Cirrus shall enter into the License Agreement contemporaneous with
the execution of this Agreement for the license by Virata to Cirrus of certain
technology owned by Virata.
5. Volume Purchase
Virata -and Cirrus shall enter into the Volume Purchasing Agreement
contemporaneous with the execution of this Agreement for the supply by Cirrus of
the Hydrogen Chip to Virata.
6. Development
Cirrus hereby covenants that it will make any and all commercially reasonable
best efforts in the completion of the development of the new version of the
Hydrogen Chip (code named "Rev. AE" as of the Effective Date and comprising
"Rev. AD" plus a functional PCI block, without any pin out changes) which
development is expected to be completed on or about September 1,1998.
7. General
7.1 Governing Law. This Agreement shall be governed by and interpreted in
-------------
accordance with the laws of the State of California, U.S.A., without
reference to conflict of laws principles.
7.2 Assignment. This Agreement shall inure to the benefit of, and shall be
----------
binding upon, the parties hereto and their respective successors and
assigns. Neither party may assign this Agreement, by operation of law or
otherwise, without the prior written consent of the other (which consent
shall not be unreasonably withheld) except to a person into which it has
merged or who has otherwise succeeded to all or substantially all of the
business and assets of the assignor, and who has assumed in writing or by
operation of law its obligations under this Agreement.
7.3 Notice. Notice by either party under this Agreement shall be in writing
------
and personally delivered or given by registered mail, overnight courier, or
facsimile confirmed by registered mail, addressed to the other party at its
address given herein (or such other address as may be communicated to the
other party in writing) and shall be deemed to have been served when
delivered or, if delivery is not accomplished by reason of some fault of
the addressee, when tendered.
7.4 No Waiver. The failure of either party to enforce at any time any of the
---------
provisions of this Agreement, or the failure to require at any time
performance by the other party of any of the provisions of this Agreement,
shall in no way be construed to be a present or future waiver of such
provisions, nor in any way affect the right of either party to enforce each
and every such provision thereafter. The express waiver by either party of
any provision, condition or requirement of this Agreement shall not
constitute a waiver of any future obligation to comply with such provision,
condition or requirement.
4
<PAGE>
7.5 Counterparts. This Agreement may be executed in two (2) or more
------------
counterparts or duplicate originals, all of which shall be regarded as one
and the same instrument, and which shall be the official and governing
version in the interpretation of this Agreement.
7.6 Severability. If any provision in this Agreement shall be found or be held
------------
to be invalid or unenforceable in any jurisdiction in which this Agreement
is being performed, then the meaning of said provision shall be construed,
to the extent feasible, so as to render the provision enforceable, and if
no feasible interpretation would save such provision, it shall be severed
from the remainder of this Agreement which shall remain in full force and
effect. In such event, the parties shall negotiate in good faith a
substitute, valid and enforceable provision which most nearly effects the
parties' intent in entering into this Agreement.
7.7 Publicity. The existence, general nature, and specific terms and
---------
conditions of this Agreement will be held in confidence and may not be
disclosed without the consent of both parties, except: as required by any
court or other governmental body; as otherwise required by law; to legal
counsel of the parties; in confidence, to accountants, banks, and financing
sources and their advisors; in confidence, in connection with the
enforcement of this Agreement or rights under this Agreement; or in
confidence, in connection with an actual or prospective merger, acquisition
or similar transaction.
7.8 Entire Agreement. The terms and conditions herein contained and the
----------------
provisions of the Settlement Agreement constitute the entire agreement
between the parties and supersede all previous agreements and
understandings, whether oral or written, between the parties with respect
to the subject matter hereof. No alteration, amendment, waiver,
cancellation or any other change in any term or condition of this Agreement
shall be valid or binding on either party unless the same shall have been
mutually assented to in writing by both parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
in duplicate by duly authorized officers or representatives as of the date first
written above.
Cirrus Logic, Inc. Virata Limited
By:/s/ By: /s/ Charles Cotton
--------------------------- ----------------------
5
<PAGE>
EXHIBIT 10.20
DEVELOPMENT, PRODUCTION, SUPPLY AND LICENSE
AGREEMENT
PREAMBLE
This Development, Production, Supply, License and Escrow Agreement
("Agreement") is entered as of August 11, 1997 ("Effective Date"), by and
between Advanced Telecommunications Modules Limited, an English corporation
with offices at Mount Pleasant House, 2 Mount Pleasant, Huntingdon Road,
Cambridge, England CB3 0BL ("ATML") and Symbios Incorporated, a Delaware
corporation with offices at 2001 Danfield Court, Fort Collins, Colorado, 80525,
USA ("Symbios"), each individually known as a "Party" and collectively as the
"Parties".
RECITALS
A. Symbios is experienced in the design, development, production and
supply of integrated circuits, and owns (or licenses from third parties with
rights to sub-license) certain intellectual property rights in functional blocks
that it licenses to its customers.
B. ATML is experienced in the design of ASICs which it sells (in
conjunction with licensing its ATM software stacks) to customers engaged in
developing solutions for the xDSL, CATV and loop refreshment markets.
C. ATML desires to engage Symbios to develop, produce and supply the
Helium ASIC incorporating certain Symbios functional blocks, and to make clear
the ownership of contributed intellectual property and resulting licensing
arrangements whereby the Helium ASIC shall be sold exclusively by ATML.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises and covenants set forth below, ATML and Symbios mutually agree as
follows:
ARTICLE 1. DEFINITIONS
1.1 "Affiliate" of a Party shall mean (a) any company owned or controlled
by such Party to the extent of at least fifty percent (50%) of its issued voting
capital and any other company so owned or controlled (directly or indirectly) by
any such company or the owner of any such company, or (b) any partnership, joint
venture or other entity directly or indirectly controlled by, controlling, or
under common control of such Party, to the extent of fifty percent (50%) or more
of its voting power (or otherwise having power to control its general
activities), but in each case only for so long as such ownership or control
shall continue.
1.2 "ATML Technology" shall mean the proprietary and confidential
technical information and data related to the Helium ASIC furnished to Symbios
by or on behalf of ATML, including but not limited to those specifications,
designs, software. techniques, processes and other technology identified in
Exhibit A as being owned by ATML.
<PAGE>
1.3 "Class 1 Defect" shall mean a defect in a Helium ASIC: (a) such that
the Helium ASIC fails to meet Specifications; or (b) that causes loss or
corruption of data continuously or in certain isolated instances, and for which
no workaround exists, or where a workaround exists such workaround provides
significant loss of performance; or (c) that causes loss of sales to a
significant portion of the customer and prospect base because of such defect.
1.4 "Class 2 Defect" shall mean a defect in a Helium ASIC: (a) such that
the Helium ASIC marginally fails to meet Specifications; or (b) that does not
cause significant loss or corruption of data, and for which a workaround
exists, which workaround provides negligible loss of performance; or (c) that
causes negligible impact on sales to the customer and prospect base because of
such defect.
1.5 "Delivery Date" shall mean a date for which delivery of Helium ASICs
has been properly committed to by Symbios.
1.6 "First Commercial Sale" shall mean the first commercial sale by ATML
or its Affiliates of a version of the Helium ASIC supplied by Symbios which
conforms to the Specifications.
1.7 "Helium ASIC" shall mean each version of the Helium ASIC supplied
hereunder to ATML by Symbios as described in Exhibit B hereto, as such exhibit
may be amended from time to time by mutual written agreement of the Parties.
1.8 "Pre-Production Samples" shall mean Helium ASICs supplied to ATML by
Symbios which Symbios has tested to the then current test program, for use by
ATML in preliminary testing or qualification. Pre-Production Samples are parts
which are ordered prior to receipt by Symbios of ATML's Prototype Approval.
1.9 "Production Version Chip" shall mean a version of the Helium ASIC, to
be developed under this Agreement, that conforms to the Specifications in all
material respects except that it may exhibit no more than two (2) Class 2
Defects as determined by ATML and is based on a Prototype Sample or Pre-
Production Sample for which Prototype Approval has been given by ATML.
1.10 "Prototype Approval" shall mean signature approval by ATML indicating
they have completed testing of any Prototype Samples or Pre-Production Samples
and have approved that version as the Production Version Chip.
1.11 "Prototype Delivery Date(s)" shall mean the dates specified in
Exhibit C for delivery of the required Prototype Samples and Pre-Production
Samples.
1.12 "Prototype Samples" shall mean Helium ASICs which are expedited
through the fabrication process to provide early samples of each version of the
Helium ASIC to ATML in order for ATML to evaluate the version for production
release and Prototype Approval.
2
<PAGE>
1.13 "Specifications" shall mean: (i) the descriptions of the technical
requirements, component blocks, features, functionality, performance criteria,
operating conditions, interfaces, data transfer, processing parameters and
protocols applicable to the Helium ASIC, as such descriptions are set forth in
the attached Exhibit B, from the beginning of the development until receipt by
Symbios of the netlist, (ii) the logical netlist, from the date of receipt by
Symbios of such netlist until post layout approval by ATML, (iii) the validated
physical layout, from post layout approval by ATML until signoff by ATML of the
completed test program and (iv) the mutually agreed upon test program, after
signoff by ATML of such test program.
1.14 "Symbios Technology"- Except that which is described as ATML
Technology, all technical and non-technical information, data, or software
related to design and manufacture of integrated circuits and the Helium ASIC,
including without limitation, the specifications, designs, software, techniques,
processes and other technology identified in Exhibit B as being owned by
Symbios, and
1.14.1 the layout, simulation, fabrication, packaging and testing of the
Helium ASIC,
1.14.2 the behavior level model of the Helium ASIC the net list,
1.14.3 the methods, processes, techniques, apparatus and software used or
useful in the layout, simulation, fabrication, packaging and testing of the
Helium ASIC
1.14.4 the design, fabrication and test tools used to produce Prototype
Samples and the Helium ASIC, including, without limitation, pattern generation
tapes, masks, cells and cell interiors, and all trade secrets, copyrights, mask
works, patents and other intellectual property rights therein.
ARTICLE 2. DESIGN AND DEVELOPMENT OBLIGATIONS
2.1 Development Obligations
2.1.1 The Parties shall jointly design and develop the Helium ASIC with
each of them contributing intellectual property, technology, tools and resources
as described in Exhibit A such that the Helium ASIC conforms to the
Specifications. Both Parties recognize that time is of the essence in the
performance of this activity and each Party shall apply reasonable efforts
required to meet commitments of the Development Schedule in Exhibit C. Changes
to Exhibits A, B and C shall be made only by written agreement between the
Parties.
2.1.2 The Parties shall jointly agree that the design of the Helium ASIC
is completed by signature acceptance of both the logical net list (Verilog RTL)
and the validated physical layout (place and route with SDF), following which
these files will supersede the logical definitions provided within the
Specifications.
2.1.3 As further described in Exhibit C, Symbios shall promptly provide
library design kits and other components to ATML to enable ATML to integrate
them with its ATM circuit design. ATML shall design the Helium ASIC using
Verilog and synthesize the design using
3
<PAGE>
Synopsys to RTL level taking account of post layout back annotation to ensure
correct functionality. Symbios shall be responsible for layout incorporating its
ARM cores, memory compilers, Universal Serial Bus and Ethernet interface and
Symbios shall produce a GDS II tape together with a test program for use in
production. Symbios shall use reasonable efforts to layout the Helium ASIC to
have the minimum die size. ATML shall maintain and Symbios shall assist in
developing the data sheet for the device. Symbios shall provide timing
information for the macrocells provided.
2.1.4 ATML shall pay Symbios for its non recurring engineering ("NRE")
costs associated with developing the Helium ASIC as set forth in Exhibit D. The
Parties agree that such payment incorporates any and all fees Symbios charges
for use of its intellectual property and technical contribution to the design
and development of the Helium ASIC as described in Exhibits A, B and C.
2.1.5 Symbios shall provide ATML with reasonable technical assistance and
information required for ATML to be able to publish an industry standard data
sheet to its customers for the Helium ASIC based upon the Specifications in
Exhibit B.
2.2 Prototype Samples and Evaluation
2.2.1 Symbios shall fabricate a lot of twelve (12) wafers of the Helium
ASIC developed as above of which six (6) wafers shall be finished for the
provision of Prototype Samples of the Helium ASIC. The other 6 wafers shall be
held pre-metal to provide for rapid correction and re-submission of the new
Prototype Samples in the event that a defect is identified which can be
corrected by a metal layer change. Symbios shall use reasonable efforts to
adjust its fabrication processes such that within the lots of six (6) wafers
there shall exist Helium ASICs representative of the extremes and nominal
characteristics to be anticipated in subsequent Helium ASIC production that
complies with the Specifications.
2.2.2 Symbios shall use reasonable efforts to deliver a quantity of twenty
five (25) Prototype Samples of the Helium ASIC to ATML no later than the
scheduled date for Prototype Samples shown in Exhibit C. Such Prototype Samples
shall be as fully tested as possible by Symbios prior to delivery within the
time allotted in Exhibit C. Ceramic packaging may be used for such Prototype
Samples.
2.2.3 ATML shall test and validate the Prototype Samples and provide
written Prototype Approval or rejection, if applicable, to Symbios within the
time allotted in Exhibit C.
2.3 Corrections. In the event that the Prototype Samples are found to
either not conform to the Specifications or to exhibit one or more Class 1
Defect or to exhibit more than two Class 2 Defects then ATML shall specify in
detail the reason that the Prototypes do not meet the Specifications. The Party
responsible for that part of the design identified as being incorrect shall use
reasonable efforts to correct the design, remove the defect and repeat those
phases of the development process necessary to re-supply new Prototype Samples.
The other Party shall provide reasonable assistance to the Party responsible for
correcting such defect. Each Party shall be responsible for its own costs in
this event; however, if the defect is caused by ATML
4
<PAGE>
then Symbios shall be entitled to claim from ATML the re-spin charges for
fabricating the new Prototype Samples per the prices in Exhibit D. From the date
of receipt by Symbios of ATML's Prototype Approval, Symbios shall warrant the
Helium ASICs it produces for ATML according to Article 10 herein.
2.4 Pre-Production Supplies. If ATML places an order for Pre-Production
Samples and signs the appropriate Pre-Production Agreement, Symbios shall
manufacture, package and test the Helium ASIC as available from the twelve (12)
wafers fabricated per 2.2.1 above in order to make available pre-production
quantities of the Helium ASIC for initial application by ATML and its customers.
Availability of pre-production quantities of the Helium ASIC shall be as
described in Exhibit C and units shall be charged to ATML at the prices set
forth in Exhibit D. At the time the order is placed Symbios will inform ATML of
its option to have pre-production Helium ASICs packaged off-shore or at the
Symbios manufacturing facility in which case prices will vary as set forth in
Exhibit D.
ARTICLE 3. OWNERSHIP; LICENSE
3.1 Ownership.
3.1.1 The Parties agree that, as between the Parties, Symbios shall own all
right, title and interest (including all patent rights, copyrights, trade secret
rights, mask works rights and all other intellectual property rights throughout
the world (collectively, "Proprietary Rights")) in all Symbios Technology
including but not limited to those items listed in Exhibit A.
3.1.2 The Parties agree that, as between the Parties, ATML shall own all
Proprietary Rights in all ATML Technology including but not limited to those
items listed in Exhibit A.
3.2 Grant of License.
3.2.1 License from Symbios to ATML. Without payment of additional
consideration, Symbios grants to ATML an irrevocable, non-exclusive, non-
cancelable, non-sub-licensable, perpetual, royalty free, personal, worldwide
license under its Proprietary Rights in the Symbios Technology solely for the
purpose of exclusive sale and distribution by ATML of the Helium ASIC.
3.2.2 License from ATML to Symbios. Without payment of additional
consideration, ATML grants to Symbios an irrevocable, non-exclusive, non-
cancelable, non-sub-licensable, perpetual, royalty free, personal, worldwide
license under its Proprietary Rights in the ATML Technology solely for the
purpose of making, having made or using the Helium ASIC for its exclusive supply
to ATML.
3.3 Third Party Rights. Symbios represents and warrants that it possesses
licenses sufficient to allow it to incorporate intellectual property and
technology originated by Sand Microelectronics Incorporated, Sican
Microelectronics Corp, Advanced RISC Machines Limited and any other entity from
which it procures such things within its contribution to the design and
manufacture of the Helium ASIC such that ATML may purchase, market and sell the
Helium
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ASIC world-wide and free of royalty other than as already included within the
NRE and Helium ASIC pricing stated in Exhibit D. Symbios agrees to maintain such
licenses in effect, at Symbios' sole expense, such that it will apply to all
Helium ASICs that Symbios sells to ATML under this Agreement.
3.4 Trademarks. Neither Party shall at any time use any trade name,
trademark, service mark, logo, company name or other designation of the other
Party without obtaining such Party's prior written consent (given or withheld in
its sole discretion), and then only as expressly and unambiguously permitted in
such consent.
ARTICLE 4. SALE AND PURCHASE OF HELIUM ASICS
4.1 Sale and Purchase. Symbios agrees to use reasonable efforts to
manufacture and sell exclusively to ATML such quantities of the Helium ASIC as
ATML may order in accordance herewith. It is understood that Symbios shall have
the right in connection with supply hereunder to contract with respect to
manufacture of the Helium ASIC either at its parent company, Hyundai Electronics
Incorporated, Ichon, Korea fabrication facility or another foundry qualified by
Symbios and approved by ATML as Symbios deems advisable, provided, however, that
Symbios shall remain fully responsible hereunder.
4.2 Quantity; Forecasts. Commencing on the Effective Date, ATML shall
provide Symbios with non-binding four (4) month rolling delivery forecast on the
twentieth (20th) day of each month.
Notwithstanding any forecast provided by ATML, ATML shall have the right to
order an unlimited quantity of Helium ASICs in accordance with this Article 4.
4.3 Orders; Delivery; Incidental Charges. All Orders for Helium ASICs
shall be submitted by ATML or its designated representative to Symbios in
writing at least twelve (12) weeks prior to ATML's requested Delivery Date.
Orders for Helium ASICs shall be in multiples of the Minimum Order Quantity
specified in Exhibit D. Symbios shall use reasonable efforts to deliver the
Helium ASICs within five (5) business days of the applicable Delivery Dates.
4.4 Delivery.
4.4.1 All Helium ASICs delivered to ATML shall be F.C.A. (Incoterms 1992)
at the origin designated on ATML's purchase order. Symbios shall use reasonable
efforts to deliver Helium ASICs via air freight within five (5) days of the
applicable Delivery Dates. Any customs or duties relating to such
transportation and delivery shall be at ATML's expense. All shipping charges,
insurance premiums, and other expenses relating to such transportation and
delivery shall be at Symbios' expense. Symbios shall notify ATML of each
delivery promptly and provide shipment details of air-way bill and flight number
where appropriate.
4.4.2 Product Marking. Symbios shall mark each Helium ASIC with Advanced
RISC Machines Limited's logo, ATML's name, logo, the model number, and the
revision level, if any. The Helium ASICs shall not be marked with Symbios'
name, nor shall they be marked with any
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Symbios mark or model number. The Helium ASICs shall be marked with a date code,
a lot number and Symbios' 10 digit part number.
4.4.3 The Helium ASICs shall be packed and shipped in accordance with the
specifications set forth in Exhibit E hereto.
4.5 Rescheduling. ATML may freely reschedule the delivery of Helium
ASICs, at no charge to ATML, for any delivery due ninety (90) days or more from
the date of the reschedule. Rescheduling of deliveries due in less than 90 days
but more than 30 days time is limited to the end of the month following the
month in which delivery was originally due. Deliveries due within 30 days may
be rescheduled to the end of the month in which they were originally due.
4.6 Cancellation ATML may cancel its orders at any time in which case
Symbios will be entitled to invoice for the costs of its work in progress as
follows:
No work in progress 0% cancellation charge
Wafer fabrication prior to poly photography 40% cancellation charge
Prior to interconnect 55% cancellation charge
Sorted die (md. die bank if any) 60% cancellation charge
Packaged product 10004 cancellation charge
4.7 Failure to Deliver. ATML may cancel any order not delivered by
Symbios within thirty (30) days of the Delivery Date, whether or not due to
force majeure, and shall in addition have all other rights and remedies
available hereunder, at law or in equity.
4.8 Sorted Die Orders. ATML may at its option order and Symbios shall
supply up to 25% of ATML's annualized requirements in the form of sorted die
which has not been assembled into a packaged product subject to a review of the
associated quality and warranty restrictions.
4.9 Die Bank.
4.9.1 Symbios shall maintain a segregated die bank inventory on receipt of
instruction to do so by a separate die-bank purchase order from ATML. All
production shall be cycled through this die bank thus ensuring that the material
in the die bank is freshly manufactured. On receipt of further instruction from
ATML to provide packaged product from this die bank the lead time from order to
delivery shall be three (3) weeks. ATML shall order, pay for and solely own the
die bank at a cost of 75% of the pricing for product quoted in Exhibit D.
4.9.2 If the die bank is held at inventory for more than 90 days with no
backlog or orders for product, or this Agreement is terminated, Symbios will
notify ATML of the quantity of product in the die bank. At that time, ATML will
either:
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(i) issue a purchase order to Symbios for 100% of the unit selling
price to have the inventory assembled to finished product and shipped to ATML,
or
(ii) pay Symbios the value of the die bank, as determined by the die
bank purchase order.
4.9.3 In the event that ATML chooses 4.9.2 (ii) above, Symbios may destroy
the material in the die bank thirty days after receiving payment from ATML.
4.9.4 If ATML fails to respond to Symbios' notice or fails to select one
of the above options within 30 days of the date of such notice, option described
in 4.9.2 (ii) above will be deemed to have been selected by the ATML.
4.9.5 Die Bank Early Life Charges. Prior to shipment of the first 900,000
units of the Production Version Chip or January 1, 1999 whichever event occurs
first, up to 50,000 die-bank units may be ordered at 50% of the finished product
cost. Units beyond 50,000 will be charged at 75% as above. The cancellation
schedule shown in section 4.6 applies to the die bank material as well.
ARTICLE 5. QUALITY CONTROL
5.1 ISO 9000 Quality Control System. Symbios shall at all times during
the term of this Agreement maintain a quality control system that meets the
requirements of ISO 9000 and shall at all times take such additional measures as
are necessary to maintain a quality control system designed to identify, correct
and prevent quality deficiencies in the Helium ASICs. Notwithstanding the
foregoing, failure to maintain an 150 9000 Quality Control System does not
constitute material breach of this Agreement.
5.2 Pre-shipment Testing. Prior to delivery, Symbios shall test all
Helium ASICs and shall not ship any Helium ASIC which fails to meet the
Specifications. Quarterly following Prototype Approval by ATML, Symbios will
send ATML a copy of our CBR (Customer Based Requirements Report) which includes
information regarding assembly, fabrication, semiconductor metrics, reliability
and test.
5.3 Inspection. ATML may at its option send its quality control
personnel to Symbios manufacturing facilities to observe the manufacturing and
testing of Helium ASICs, provided such inspections shall be properly noticed to
Symbios and shall be reasonable in scope and frequency.
5.4 Rejection of Helium ASICs in Case of Nonconformity
5.4.1 ATML may reject any portion of any shipment of Helium ASICs which
does not meet the Specifications. In order to reject a shipment, ATML must:
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(i) give notice to Symbios of ATML's intent to reject the
shipment within sixty (60) days of receipt together with a written indication of
the reasons for such possible rejection, and
(ii) as promptly as reasonably possible thereafter provide Symbios
with notice of final rejection and the full basis therefor.
Before returning any product to Symbios, ATML must contact Symbios for a
Returned Material Authorization number and other appropriate instructions. ATML
may then return the product to Symbios according to those instructions.
After notice of intent to reject is given, ATML shall cooperate with
Symbios in determining whether rejection is necessary or justified. If no such
notice of intent to reject is timely received, ATML shall be deemed to have
accepted such delivery of Helium ASICs.
5.4.2 Whether or not Symbios accepts ATML's basis for rejection, promptly
on receipt of a notice of rejection, Symbios shall use reasonable efforts, at
ATML's request, to provide replacement Helium ASICs which shall be purchased by
ATML as provided in this Agreement.
5.4.3 Upon confirmation by Symbios of defective product, Symbios will
instruct ATML to either return the rejected batch or destroy such batch promptly
and provide Symbios with certification of such destruction.
ARTICLE 6. PRICE AND PAYMENTS
6.1 Price. Pricing for non-recurring engineering charges, re-spins, pre-
production and production Helium ASICs is set forth in Exhibit D hereto.
6.2 Method of Payment. Subject to approval from Symbios' accounts
receivable department, all payments due hereunder to Symbios shall be paid in
United States dollars not later than thirty (30) days following the date of the
applicable invoice. In the absence of such approval, payments to Symbios will
be by a Standby Letter of Credit ("LOC"). All bank fees associated with the LOC
are the responsibility of ATM L.
6.3 Pricing Reviews. Price reduction shall be reviewed on each
anniversary of the date of first supply of production parts taking into
consideration volumes shipped during the previous twelve (12) months and cost
improvements over and above those forecast at the time of making the price
quotation shown in Exhibit D.
6.4 Interim Pricing Review. Within fifteen (15) days notice from ATML to
Symbios, Symbios agrees to meet with ATML and to enter into good faith
discussions regarding any proposed adjustment to pricing, provided such requests
are reasonable in frequency.
ARTICLE .7. CONFIDENTIALITY
7.1 Confidential Information means all information reasonably related to
information exchanged pursuant to this Agreement in the form of trade secrets
which one party ("Discloser")
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first discloses to the other party ("Recipient") during the term of this
Agreement: (i) in documents or other tangible materials clearly marked
CONFIDENTIAL or the like, or (ii) orally or in any other intangible form, if at
the time of first disclosure the Discloser tells the Recipient that the
information is confidential, and within 10 calendar days after that first
disclosure the Discloser delivers to the Recipient documents or other tangible
materials clearly marked CONFIDENTIAL or the like which disclose or describe
that information.
"Confidential Information" does not include information which: (a) is or
becomes publicly known or readily ascertainable by the public through no
wrongful act of the Recipient; (b) is independently developed by or for the
Recipient; (c) the Recipient receives from a third party, if the Recipient does
not know of any restrictions on the disclosure of that information; or (d) the
Discloser discloses to a third party without similar restrictions on disclosure.
7.2 Sole Obligations. For a period of 36 months from the date of
disclosure of the Confidential Information, the Recipient will use reasonable
efforts to prevent the disclosure of Confidential Information to any other
person, unless disclosure is required by law. Symbios may disclose ATML's
Confidential Information to Symbios/7 /affiliates (Symbios' parent company and
the companies its parent directly or indirectly owns or controls) and
subcontractors, if the Confidential Information so disclosed remains subject to
this Article 7 and Symbios remains liable for any unauthorized disclosures by
its affiliates. All materials containing Confidential Information delivered by
the Discloser under this Agreement are and will remain the Discloser's property;
at the Discloser's written request, the Recipient must promptly return to the
Discloser all those materials and any copies, except a single archival copy.
Symbios will use reasonable efforts to prevent the disclosure of Confidential
Information contained in masks and test programs under this Section 7.2 for a
period extending from the date of disclosure until 36 months following the
termination of this Agreement.
7.3 Product Development and Marketing. Subject to the intellectual
property rights of each Party, this Article 7 does not: (i) restrict either
party from developing new products, improving existing products, or marketing
any new, improved, or existing products; or (ii) commit either party to disclose
any particular information, or to develop, make, use, buy, sell, or otherwise
dispose of any existing or future product, or to favor or recommend any product
or service of the other party. To be binding, any such restriction or
commitment must be in writing and signed by both parties.
7.4 Other Information Not Confidential Unless Otherwise Agreed; No Patent
or Copyright Licenses Implied. This Article 7 does not enlarge, diminish, or
affect the rights and obligations that either party may have or come to have
under any other written agreement signed by both parties, or with respect to any
patent or copyright of either party. Except as this Article 7 or any such other
written agreement specifically provides, there are no restrictions on the use or
disclosure of any information exchanged at any time between the parties, in the
past or in the future, except restrictions that either party may independently
have a right to assert under the patent or copyright laws.
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7.5 Warranty Disclaimer; Limitation on Actions and Applicable Law.
Neither party makes any representations or warranties of any kind with respect
to its respective Confidential Information, which is provided to Recipient "AS
IS," and neither party shall have any liability of any kind to Recipient
resulting from Recipient's receipt or use of the Confidential Information.
ARTICLE 8. SECURITY OF SUPPLY; ALTERNATE ARRANGEMENTS
8.1 Last Time Buy. In the event that Symbios determines the production
of the Helium ASIC is to be discontinued then Symbios shall provide ATML notice
of such intent ("Notice"), and shall offer ATML a last time buy opportunity. The
Notice will contain the date for the last shipment of product ("EOL Date"),
which shall be no less than 12 months after the date of such Notice. At ATML's
request and with the appropriate purchase order, Symbios will hold in inventory
a quantity of product no greater than 20% of the shipments made during the
twelve (12) month period immediately proceeding the date of the Notice. Symbios
will hold this inventory for up to one year past the EOL Date at a cost to ATML
of 120% of the current finished unit price.
8.2 Second Source Fabrication Facility. At ATML's request Symbios will
attempt to setup production for the device at a second source facility for a
charge to ATML of sixty thousand dollars ($60,000). If, at the time of such
request, cumulative deliveries of the Helium ASIC have exceeded one million
units the second source shall be set up by Symbios at no cost to ATML. For the
avoidance of doubt, ATML cannot place orders directly with this Symbios second
source.
ARTICLE 9. TERMINATION, RIGHTS AND OBLIGATIONS UPON TERMINATION
9.1 Term. Unless terminated by either Party pursuant to the other
provisions of this Article 9, this Agreement shall continue in effect until six
(6) years from the date of First Commercial Sale of the first Production Version
Chip supplied hereunder (the "Initial Term"). Thereafter, this Agreement shall
automatically renew for additional one (1) year renewal terms unless either
Party gives written notice to the other Party of its intent not to renew this
Agreement at least one hundred and twenty (120) calendar days prior to the
expiration of the original term or renewal term, as the case may be, of this
Agreement.
9.2 Termination for Default. If either Party materially defaults in the
performance of any material agreement, condition or covenant of this Agreement
and such default or noncompliance shall not have been remedied within ninety
(90) days (or ten (10) days in the case of non-payment) after receipt by the
defaulting Party of a notice thereof from the other Party, the Party not in
default may terminate this Agreement.
9.3 Rights and Obligations on Expiration or Termination. Except to the
extent expressly provided to the contrary, the following provisions shall
survive the termination of this Agreement: all warranty, infringement,
confidentiality, arbitration, and liability obligations and limitations, and
those terms which by their nature are intended to survive, will survive. Any
rights of Symbios to payments accrued through termination as well as obligations
of the Parties
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under firm orders placed prior to termination, the terminating Party may elect
whether obligations under firm orders will remain in effect and except that
Symbios will have no obligation with respect to Delivery Dates more than six (6)
months after termination.
ARTICLE 10. WARRANTY; INDEMNIFICATION; EPIDEMIC FAILURE
10.1 Warranty of Title. Symbios warrants to ATML that ATML shall upon
shipment by Symbios acquire good and clear title to each Helium ASIC, free and
clear of all liens and encumbrances.
10.2 Helium ASIC Warranty. Symbios warrants to ATML and ATML's customers
that each Helium ASIC will, for a period of three (3) years from date it is
shipped by Symbios, have no Class 1 Defects, have no more than two (2) Class 2
Defects, and shall otherwise conform to the Specifications current at time of
shipment during the duration of such three (3) year period.
During the warranty period Symbios, at its sole option, shall either issue
a credit for the purchase price of the defective Helium ASICs or replace any
defective Helium ASIC, provided that the Helium ASIC is returned to Symbios
(which return shall be at Symbios' expense). This warranty shall survive
inspection and payment, provided that ATML promptly notified Symbios of any
defect covered by such warranty. All replaced Helium ASICs become the property
of Symbios. Any replacement Helium ASIC shall be covered by this warranty for
the remainder of the original warranty period or for six (6) months from the
date of shipment of the replaced Helium ASIC by Symbios, whichever is longer.
10.3 Sorted Die Warranty. In the case that deliveries of the Helium ASIC
are made in the form of sorted die then the warranty period in Article 10;2
above is reduced to 30 days from the date of shipment by Symbios.
EXCEPT AS EXPRESSLY STATED HEREIN, NO OTHER WARRANTIES ARE EXPRESSED OR
IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
10.4 Patent. Copyright and Trademark Claims Against the Parties.
10.4.1 "Indemnifying Party" shall mean:
(i) Symbios, with respect to third party claims that the Symbios
Technology used in the development or manufacture of the Helium ASIC infringes a
patent, copyright, trade secret or any other intellectual property right in the
countries of the United States, the European Community, Australia, Brazil,
Canada, Japan and South Korea,
(ii) ATML with respect to third party claims that ATML Technology
used in the development or manufacture of the Helium ASIC infringes a patent,
copyright, trade secret or any other intellectual property right in the
countries of the United States, the European Community, Australia, Brazil,
Canada, Japan and South Korea.
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10.4.2 If a Party to this Agreement (the "Indemnified Party") shall
receive a claim for which the other Party to this Agreement is the Indemnifying
Party, the Indemnified Party will notify the Indemnifying Party promptly in
writing and give the Indemnifying Party all necessary information and assistance
and the exclusive authority to evaluate, defend and settle such claim. The
Indemnifying Party, at its own expense, shall settle or defend against such
claim, and may then at its option:
(i) procure for the Indemnified Party the right to use the
allegedly infringing material or product (if the Indemnified Party would, absent
the claim, have a right to use such material or product under this Agreement),
or
(ii) replace or modify the allegedly infringing material or
products to avoid infringement, provided such replacements shall offer no less
functionality, or
(iii) request the Indemnified Party to halt its distribution and
sale of the allegedly infringing material or product and refund the purchase
price less a reasonable amount of depreciation for any product returned to the
Indemnifying Party, or
(iv) do any combination of the foregoing.
Provided that timely notice has been given by the Indemnified Party, should
any court of competent jurisdiction hold such material or product to be
infringing, the Indemnifying Party shall pay any final judgment against the
Indemnified Party arising from such infringement and, if the use of such
material or product by the Indemnified Party is enjoined, the Indemnifying Party
shall take at its option, one or more of the actions described in (i), (ii) or
(iii) above.
10.4.3 If a Party to this Agreement receives a claim for which it is the
Indemnifying Party, it may, at its own expense and option, replace or modify the
products or materials to avoid infringement.
10.4.4 The indemnity in this Section 10.4 will not apply (i) if the claim
is found to be based upon the manner in which a Helium ASIC is combined together
with other hardware or software components, or (ii) if the claim is found to be
based upon the negligence, recklessness or willful action or inaction of the
Indemnified Party, or (iii) if the Indemnified Party does not comply with the
provisions of this Section 10.4 and such failure materially prejudices the
Indemnifying Patty or (iv) to any infringement occurring after 'the Indemnified
Party has received notice alleging infringement, unless the Indemnifying Party
has given the Indemnified Party written permission to continue the alleged
infringement, or (v) to any settlement entered into in violation of this Section
10.4.
10.4.5 In no event shall a Party to this Agreement be entitled to settle
any claim for which it is the Indemnified Party without the consent of the
Indemnifying Party.
10.4.6 THE FOREGOING IS GIVEN TO EACH PARTY IN LIEU OF ALL WARRANTIES OF
NON-INFRINGEMENT WITH RESPECT TO THE HELIUM ASICS. THE FOREGOING STATES THE SOLE
AND EXCLUSIVE LIABILITY OF THE PARTIES
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FOR INFRINGEMENT OF ANY PATENT OR OTHER INTELLECTUAL PROPERTY RIGHTS.
10.4.7 The provisions of this Section 10.4 shall survive termination of
this Agreement.
10.5 Epidemic Failure. In the event of an Epidemic Failure (as defined
below) the Parties shall promptly meet to attempt to identify the cause of the
Epidemic Failure and the universe of effected Helium ASICs. Symbios will use
reasonable efforts to assist ATML with the replacement of the Helium ASICs that
are prone to failure. For the purposes of this Agreement "Epidemic Failure"
shall mean any thirty day period in which the failure rate expressed as a
percentage equals or exceeds one percent (1%), such percentage to be calculated
by multiplying one hundred by a fraction the numerator of which is the total
number of Helium ASIC failures in the field due to any one failure mechanism
during such thirty day period and the denominator of which is the total number
of Helium ASICs shipped by Symbios over the three (3) years prior to the last
day of such thirty day period. This provision shall not survive termination of
this Agreement.
ARTICLE 11. LIMITED LIABILITY
11.1 NEITHER PARTY SHALL BE LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF
THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY
FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES.
11.2. Except for personal injury caused by Symbios' negligence, Symbios'
cumulative liability under this Agreement will not exceed the aggregate amount
paid to Symbios under this Agreement, even if a term of this Agreement fails of
its essential purpose.
ARTICLE 12. MISCELLANEOUS
12.1 Entire Agreement. This Agreement contains the entire agreement of
the Parties regarding the subject matter hereof and supersedes all prior
agreements, understandings and negotiations regarding the same. This Agreement
may not be changed, modified, amended or supplemented except by a written
instrument signed by both Parties. Furthermore, it is the intention of the
Parties that this Agreement be controlling over additional or different terms of
any order, confirmation, invoice or similar document.
12.2 Assignability. This Agreement may not be assigned by either Patty
without the prior consent of the other Party; provided, however, (a) either
Party may assign this Agreement to any entity which acquires substantially all
of its stock, assets or business, and (b) ATML may assign this Agreement, in
whole or in part, to any Affiliate of ATML.
12.3 Severability. If any provision of this Agreement shall be held
illegal or unenforceable, that provision shall be limited or eliminated to the
minimum extent necessary so that this Agreement shall otherwise remain in full
force and effect and enforceable.
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12.4 Use of Party's Name. No right, express or implied, is granted by
this Agreement to either Party to use in any manner the name of the other or any
other trade name or trademark of the other in connection with the performance of
this Agreement.
12.5 Notice and Reports. All notices, consents or approvals required by
this Agreement shall be in writing sent by certified or registered air mail,
postage prepaid or by facsimile or cable (confirmed by such certified or
registered mail) to the Parties at the following addresses or such other
addresses as may be designated in writing by the respective Parties:
12.9.2 ATML and Symbios agree to settle by arbitration any controversy or
claim between them, including without limitation those related to this
Agreement, any order or any product to which this Agreement applies, whether
based on contract, tort, fraud, misrepresentation, or other legal theory. A
single arbitrator will conduct the arbitration in Denver, Colorado, if brought
by ATML and San Francisco, CA if brought by ATML, under the then current rules
and supervision of the American Arbitration Association. ATML and Symbios will
select an arbitrator from a panel of persons knowledgeable in semiconductor
marketing or design or manufacturing, as applicable. The arbitrator will have
the authority to award temporary and permanent injunctive relief, but may not
award punitive or exemplary damages to either party. The decision and award of
the arbitrator will be final and binding and may be entered in any court having
jurisdiction. ATML and Symbios will pay their own attorney's fees associated
with the arbitration, and will pay the other costs and expenses of the
arbitration as the rules of the American Arbitration Association provide.
12.9.3 Neither party may bring any action, regardless of form, related to
this Agreement, any order or any product to which this Agreement applies, more
than one year after the party bringing the action knew or should have known that
the cause of action accrued.
12.9.4 The duty to arbitrate under Section 12.9.2, above extends to any
director, officer, employee, agent, or affiliate making or defending any claim
which would otherwise be arbitrable.
12.10 Captions. Paragraph captions are inserted for convenience only and
in no way are to be construed to define, limit or affect the construction or
interpretation of this Agreement.
12.11 Force Majeure. A Party shall not be liable for nonperformance or
delay in performance (other 'than of obligations regarding confidentiality)
caused by any event reasonably beyond the control of such Party including, but
not limited to wars, hostilities, revolutions riots, civil commotion, national
emergency, strikes, lockouts, unavailability of supplies, epidemics, fire,
flood, earthquake, force of nature, explosion, embargo, or any other Act of God,
or any law, proclamation, regulation, ordinance, or other act or order of any
court, government or governmental agency.
12.12 BASIS OF BARGAIN. EACH PARTY RECOGNIZES AND AGREES THAT THE
WARRANTY DISCLAIMERS AND LIABILITY AND REMEDY LIMITATIONS IN THIS AGREEMENT ARE
MATERIAL, BARGAINED FOR BASES OF THIS AGREEMENT AND THAT THEY HAVE BEEN TAKEN
INTO ACCOUNT AND REFLECTED IN
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DETERMINING THE CONSIDERATION TO BE GIVEN BY EACH PARTY UNDER THIS AGREEMENT AND
IN THE DECISION BY EACH PARTY TO ENTER INTO THIS AGREEMENT.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement to be
effective as of the date first written above.
Symbios
By: /s/
Print: Randolph W. Zwetzig
Title: Vice President Asic and
Peripheral Solutions
ATML
By /s/
Print: Charles Cotton
Title: CEO
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EXHIBIT 10.21
VIRATA CORPORATION
1999 STOCK INCENTIVE PLAN
-------------------------
Section 1. Purpose of Plan.
---------------
The purpose of this 1999 Stock Incentive Plan (the "Plan") of Virata
Corporation, a Delaware corporation, a Delaware corporation (each, as
applicable, the "Company"), is to enable the Company to attract, retain and
motivate its employees, non-employee directors, and independent contractors or
consultants by providing for or increasing the proprietary interests of such
employees, non-employee directors, and independent contractors or consultants in
the Company.
Section 2. Persons Eligible Under Plan.
---------------------------
Any employee, non-employee director, independent contractor or consultant
of the Company or any of its subsidiaries (including a corporation that becomes
a subsidiary after the adoption of this Plan) (each, a "Participant") shall be
eligible to be considered for the grant of Awards (as defined in this Plan)
under this Plan, provided that "Incentive Stock Options" (as defined herein) may
only be granted to employees of the Company or any of its subsidiaries.
Section 3. Awards.
------
(a) On behalf of the Company, the Compensation Committee (as defined in
this Plan) is hereby authorized to enter into any type of arrangement with a
Participant that is not inconsistent with the provisions of this Plan and that,
by its terms, involves or might involve the issuance of common stock, par value
$0.01, of the Company (the "Common Stock"). The entering into of any such
arrangement is referred to herein as the "grant" of an "Award."
(b) Awards are not restricted to any specified form or structure and may
include, without limitation, sales or bonuses of stock, restricted stock, stock
options, reload stock options, stock purchase warrants, other rights to acquire
stock, securities convertible into or redeemable for stock, stock appreciation
rights, phantom stock, dividend equivalents, performance units or performance
shares, and an Award may consist of one such security or benefit, or two or more
of them in tandem or in the alternative.
(c) Awards may be issued, and shares of Common Stock may be issued pursuant
to an Award, for any lawful consideration as determined by the Compensation
Committee, including, without limitation, services rendered by the recipient of
such Award.
(d) Any Award of an option to acquire shares of Common Stock shall be
granted subject to the terms, conditions and restrictions contained in a Stock
Option Agreement (a "Stock Option Agreement") between the Participant and the
Company. Subject to the provisions of this Plan, the Compensation Committee, in
its sole and absolute discretion, shall determine all of the
<PAGE>
terms and conditions of each Award granted under this Plan, which terms and
conditions may include, among other things:
(i) a provision permitting the recipient of such Award, including
any recipient who is a director or officer of the Company, to pay the purchase
price of the shares of Common Stock or other property issuable pursuant to such
Award, and such recipient's tax withholding obligation, if any, with respect to
such issuance, in whole or in part, by any one or more of the following:
(A) the delivery of cash;
(B) the delivery of other property deemed acceptable by the
Compensation Committee;
(C) the delivery of previously owned shares of capital stock of
the Company or other property; or
(D) a reduction in the amount of Common Stock or other property
otherwise issuable pursuant to such Award;
(ii) a provision conditioning or accelerating the receipt of benefits
pursuant to such Award, either automatically or in the discretion of the
Compensation Committee, upon the occurrence of specified events, including,
without limitation, a change of control of the Company (as defined by the
Compensation Committee), an acquisition of a specified percentage of the voting
power of the Company, the dissolution or liquidation of the Company, a sale of
substantially all of the property and assets of the Company or an event of the
type described in Section 7 hereof;
(iii) provisions required in order for such Award to qualify as an
incentive stock option (an "Incentive Stock Option") under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") including but not limited
to:
(A) a requirement that the exercise price for each Incentive
Stock Option granted hereunder shall be not less than one hundred percent
(100%) of the Fair Market Value (as defined in this Plan) of the Common
Stock on the date such Option is granted to a Participant (110% if the
Participant owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company, the Company, or any of
their parents or subsidiaries after application of the stock ownership
attribution rules of Section 424(d) of the Code);
(B) a provision that any option granted under this Plan shall by
its terms be nontransferable by the Participant other than by will or the
laws of descent and distribution (in which case such descendant or
beneficiary shall be subject to all terms of the Plan applicable to
Participants) and is exercisable during the Participant's lifetime only by
the Participant or by the Participant's guardian or legal representative in
the event of the Participant's death or disability;
2
<PAGE>
(C) a provision that for so long as required under Section 422 of
the Code and the regulations promulgated thereunder, during the term of the
Plan, the aggregate Fair Market Value of the Common Stock with respect to
which Incentive Stock Options are first exercisable by a Participant under
this Plan and all other plans of the Company, the Company and its
subsidiaries or parents during any calendar year shall not exceed $100,000
and options in excess of such amount shall be treated as nonqualified stock
options. For the purpose of this paragraph, the Fair Market Value of the
Common Stock shall be determined at the time the Incentive Stock Option is
granted;
(D) a requirement that an Incentive Stock Option may not be
exercised after the expiration of ten years from the date such Option is
granted to Participant (five years if the Participant owns stock possessing
more than 10% of the total combined voting power of all classes of stock of
the Company, the Company, or any of its parents or subsidiaries after
application of the stock ownership attribution rules of Section 424(d) of
the Code); and
(E) a provision that the Participant notify the Company in
writing of any sale or other disposition of shares of Common Stock acquired
pursuant to an Incentive Stock Option if such sale or other disposition
occurs (i) within two years of the grant of the Incentive Stock Option or
(ii) within one year of the issuance of the shares of Common Stock to the
Participant.
(iv) a right to repurchase the Common Stock acquired upon exercise of
an Award if Participant's employment or association with the Company or any of
its subsidiaries is terminated for any reason, or in other circumstances, at
either the exercise price thereof or the Fair Market Value thereof on the last
day of the month preceding the month in which such termination or other
circumstance occurs; provided, however, that if the right to repurchase is at
-------- -------
the exercise price thereof, such repurchase right shall lapse at the rate of at
least 20% of the shares per year over five years from the date the option is
granted. Such repurchase right shall be exercised for cash or cancellation of
purchase money indebtedness for the shares within 90 days of termination of
employment (or in the case of securities issued upon exercise of options after
the date of termination, within 90 days after the date of exercise). Each
certificate representing Common Stock subject to such provisions shall bear a
legend to the effect that such shares are subject to certain repurchase rights
of the Company; or
(v) a provision that upon a termination of employment for cause, the
Participant will not be entitled to exercise any options or other rights at any
time after such termination. For purposes of this Plan, "cause" is defined as:
(i) an act of dishonesty or willful misconduct; (ii) a breach of fiduciary duty
owed to the Company or its stockholders involving personal profit or any other
material breach of fiduciary duty; (iii) an act of fraud, embezzlement,
malfeasance or misappropriation of Company property; (iv) a conviction of an
illegal act or felony, or engaging in abuse of alcohol, illegal drugs or
controlled substances; or (v) a willful failure to perform reasonable duties,
responsibilities or instructions from the Company.
3
<PAGE>
(e) Notwithstanding anything to the contrary herein, any Award of an
option to acquire shares of Common Stock granted under this Plan shall comply
with the following provisions:
(i) the exercise price per share of Common Stock of such option
shall not be less than 85% of the Fair Market Value of a share of Common Stock
at the time the option is granted (100% in case of an Incentive Stock Option),
except that the exercise price shall be 110% of the Fair Market Value in the
case of any person who owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company, the Company or any of its
parents or subsidiaries;
(ii) the exercise period of the option shall not be more than 120
months from the date the option is granted;
(iii) the option shall be nontransferable other than by will or the
laws of descent and distribution;
(iv) in the case of an option granted to persons other than officers,
directors or consultants of the Company or its affiliates, the option's vesting
period shall be at least 20% per year over five years from the date the option
is granted, subject to reasonable conditions including, without limitation,
continued employment; in the case of an option granted to officers, directors or
consultants of the Company or its affiliates, the option shall vest at any time
or during any period established by the Compensation Committee;
(v) unless employment is terminated for cause (as defined above),
the optionee shall be entitled to exercise his or her options after termination
of employment as follows:
(A) at least six (6) months from the date of termination if
termination was caused by death or disability within the meaning of Section
22(e)(3) of the Code; and
(B) at least thirty (30) days from the date of termination if
termination was caused by other than death or disability; and
(vi) all optionees shall be provided with financial statements at
least annually unless all optionees are key employees of the Company whose
duties in connection with the Company assure them the equivalent information.
Section 4. Stock Subject to Plan.
---------------------
(a) At any time, the aggregate number of shares of Common Stock issued and
issuable pursuant to all Awards (including all Incentive Stock Options) granted
under this Plan shall not exceed ___________________________ (_____________)
subject to adjustment as provided in Section 7 and the aggregate number of
shares of Common Stock issued and issuable pursuant to all options (including
all Incentive Stock Options) granted under this Plan shall not exceed
________________________ (______________) subject to adjustment as provided in
4
<PAGE>
Section 7; provided, however, that adjustments pursuant to Section 7 with
-------- -------
respect to Incentive Stock Options issued under this Plan, shall be limited to
those that will not adversely affect the status of options as Incentive Stock
Options.
(b) For purposes of Section 4(a) of this Plan, the aggregate number of
shares of Common Stock issued and issuable pursuant to Awards granted under this
Plan shall at any time be deemed to be equal to the sum of the following:
(i) the number of shares of Common Stock that were issued prior to
such time pursuant to Awards granted under this Plan, other than shares of
Common Stock that were subsequently reacquired by the Company pursuant to the
terms and conditions of such Awards and with respect to which the holder thereof
received no benefits of ownership such as dividends; plus
(ii) the maximum number of shares of Common Stock that are or may be
issuable at or after such time pursuant to Awards granted under this Plan prior
to such time.
(c) The aggregate number of shares of Common Stock subject to Awards
granted during any twelve-month period to any one Participant shall not exceed
_____________ (____________). Such number shall be subject to adjustment as
provided in Section 7; provided, however, that to the extent the Compensation
-------- -------
Committee deems necessary, adjustments pursuant to Section 7 shall be limited to
those that will not adversely affect the status of Awards as "performance-based
compensation" within the meaning of Section 162(m) of the Code.
Section 5. Duration of Plan.
----------------
No Awards shall be made under this Plan after _____________, 2009.
Although shares of Common Stock may be issued after ________________, 2009
pursuant to Awards made on or prior to such date, no shares of Common Stock
shall be issued under this Plan after _______________, 2019 (the "Termination
Date").
Section 6. Administration of Plan.
----------------------
(a) This Plan shall be administered by the Compensation Committee (the
"Compensation Committee") of the Board of Directors of the Company (the "Board")
consisting of two or more directors, provided that Awards hereunder shall be
--------
approved by the Board. In the event that the Company becomes "publicly held"
within the meaning of Section 162(m) of the Code, then, with respect to any
Awards intended to qualify for the "performance-based compensation" exception in
Section 162(m) of the Code, the Compensation Committee shall, to the extent
necessary, consist of two or more directors each of whom is an "outside
director" within the meaning of Section 162(m) of the Code and such Award shall
not be subject to Board approval.
5
<PAGE>
(b) Subject to the provisions of this Plan, the Compensation Committee
shall be authorized and empowered to do all things necessary or desirable in
connection with the administration of this Plan, including, without limitation,
the following:
(i) adopt, amend and rescind rules and regulations relating to this
Plan;
(ii) determine which persons are Participants and to which of such
Participants, if any, Awards shall be granted hereunder;
(iii) grant Awards to Participants and determine the terms and
conditions thereof, including the number of shares of Common Stock issuable
pursuant thereto;
(iv) accelerate the exercisability of an Award or extend the period
during which an owner of an Award may exercise his or her rights under such
Award (but not beyond the Termination Date);
(v) determine whether, and the extent to which adjustments are
required pursuant to Section 7 hereof; and
(vi) interpret and construe this Plan and the terms and conditions of
any Award granted this Plan.
Section 7. Adjustments.
-----------
If the outstanding securities of the class then subject to this Plan are
increased, decreased or exchanged for or converted into cash, property or a
different number or kind of securities, or if cash, property or securities are
distributed in respect of such outstanding securities, in either case as a
result of a reorganization, merger, consolidation, recapitalization,
restructuring, reclassification, dividend (other than a regular, quarterly cash
dividend) or other distribution, stock split, reverse stock split or the like,
or if substantially all of the property and assets of the Company are sold,
then, unless the terms of such transaction or this Plan shall provide otherwise,
the Compensation Committee shall make appropriate and proportionate adjustments
in (a) the number, exercise price and type of shares or other securities or cash
or other property, as applicable, that may be acquired pursuant to Incentive
Stock Options and other Awards theretofore granted under this Plan, (b) the
maximum number and type of shares or other securities that may be issued
pursuant to Incentive Stock Options and other Awards thereafter granted under
this Plan, and (c) the maximum number of shares of Common Stock that may be
subject to Awards granted during any twelve-month period to any Participant, as
provided in Section 4(d) hereof; provided, however, that no adjustment shall be
-------- -------
made to the number of shares of Common Stock that may be acquired pursuant to
outstanding Incentive Stock Options or the maximum number of shares of Common
Stock with respect to which Incentive Stock Options may be granted under this
Plan to the extent such adjustment would result in such options being treated as
other than Incentive Stock Options; provided, further, that no such adjustment
-------- -------
shall be made to the extent the Compensation Committee determines that such
adjustment would result in the disallowance of a federal income tax deduction
for compensation attributable to Awards
6
<PAGE>
hereunder by causing such compensation to be other than "performance-based
compensation" within the meaning of Section 162(m)(4)(C) of the Code.
Section 8. Amendment and Termination of Plan.
---------------------------------
The Board may amend or terminate this Plan at any time and in any manner,
subject to the following limitations:
(a) No such amendment or termination shall deprive the recipient of any
Award theretofore granted under this Plan, without the consent of such
recipient, of any of his or her rights thereunder or with respect thereto; and
(b) If an amendment to this Plan would (i) increase the maximum number of
shares of Common Stock that may be issued pursuant to (A) all Awards granted
under this Plan, (B) all Incentive Stock Options granted under this Plan, or (C)
Awards granted under this Plan during any calendar year to any one Participant,
(ii) change the class of persons eligible to receive Awards under this Plan, or
(iii) affect this Plan's compliance with applicable provisions of the Code, as
amended from time to time, the amendment shall be subject to approval by the
Company's shareholders to the extent required to comply with Sections 422 and
162(m) of the Code, and other applicable provisions of or rules under the Code,
as amended from time to time.
Section 9. Effective Date of Plan.
----------------------
This Plan shall be effective as of _______________, 1999, the date upon
which it was approved by the Board; provided, however, that no shares of Common
-------- -------
Stock may be issued under this Plan until it has been approved by the
affirmative votes of the holders of a majority of the securities of the Company,
which approval shall be obtained within twelve months from the date hereof.
Section 10. Definition of Fair Market Value.
-------------------------------
For purposes of this Plan, "Fair Market Value" shall mean the fair market
value of the Common Stock. If the shares of Common Stock are not publicly
traded, fair market value shall be determined by the Board or the Compensation
Committee and may be computed by any method which the Board or the Compensation
Committee in good faith believes will reflect the fair market value of the
Common Stock on the date of such determination or, if necessary, in accordance
with Section 260.140.50 of Title 10 of the California Code of Regulations. If
the shares of Common Stock are publicly traded, fair market value shall be the
closing sale price per share of the Common Stock, if the shares of Common Stock
are listed on a national securities exchange, or if the shares of Common Stock
are not then so listed, the closing bid price per share of Common Stock, on the
day in question (or, if such day is not a trading day or if no sales of shares
of Common Stock were made on such day, on the nearest preceding trading day on
which sales of shares of Common Stock were made), as reported in the Wall Street
Journal, or, if trading in the shares of Common Stock is not then reported in
Wall Street Journal, at such
7
<PAGE>
closing sale or bid price as may then appear in what the Board or the
Compensation Committee in its judgment then deems to be the most nearly
comparable listing or reporting service.
Section 11. Additional Approvals.
--------------------
Notwithstanding Section 3(d) hereof, to the extent necessary and/or
permitted and lawful for the Company to do so under UK law, if such law shall
apply hereto, the approval by the affirmative votes of the holders of a majority
of the securities of the Company shall be required for the exercise of any
option granted hereunder which may be deemed a "repurchase" under UK law.
8
<PAGE>
EXHIBIT 10.23
INDEMNITY AGREEMENT
AGREEMENT dated as of ________________, 1999 by and between Virata
Corporation, a Delaware corporation (the "Virata"), on the one hand, and
------
___________________ (the "Indemnitee"), on the other.
----------
RECITALS
Indemnitee is a director and/or officer of Virata and/or an Affiliate
Indemnitee (as hereinafter defined) of a Virata Affiliate (as defined below).
Virata and Indemnitee recognize the high risk of litigation and other claims
being asserted against directors and officers in today's environment.
The Bylaws of Virata require Virata to indemnify its directors and officers
as currently provided therein, and Indemnitee has been serving and continues to
serve as a director and/or officer of Virata and/or an Affiliate Indemnitee of a
Virata Affiliate in part in reliance on such provisions. The Bylaws of Virata
permit Virata to purchase and maintain insurance or to furnish similar
protection or make other arrangements (any such insurance, protection or
arrangement, an "Indemnification Arrangement") on behalf of Indemnitee against
---------------------------
personal liability (including, but not limited to, providing for Advanced
Amounts, as hereinafter defined) asserted against him or her or incurred by or
on behalf of him or her in such capacity as a director or officer of Virata or
as an Affiliate Indemnitee of a Virata Affiliate, or arising out of his or her
status as such, whether or not Virata would have the power to indemnify him or
her against such liability under the provisions of this Agreement or under the
Delaware General Corporation Law (the "DGCL"), as it may then be in effect.
----
In part to provide Indemnitee with specific contractual assurance of
substantial protection against personal liability (regardless of, among other
things, any amendment to or revocation of the aforementioned provisions of
Virata's Bylaws or any change in the composition of Virata's Board of Directors
or control of Virata), Virata desires to enter into this Agreement. DGCL
Section 145(f) expressly recognizes that the indemnification provisions of the
DGCL are not exclusive of any other rights to which a person seeking
indemnification may be entitled under the Certificate of Incorporation or Bylaws
of Virata, or an agreement providing for indemnification, or a resolution of
stockholders or directors, or otherwise, and the Bylaws of Virata expressly
recognizes that the indemnification provisions of the Bylaws of Virata shall not
be deemed exclusive of, and shall not affect, any other rights to which a person
seeking indemnification may be entitled under any agreement, and this Agreement
is being entered into pursuant to the Bylaws of Virata, as permitted by the
DGCL.
In order to induce Indemnitee to serve as a director and/or officer of
Virata and/or and Affiliate Indemnitee of a Virata Affiliate, and in
consideration of Indemnitee's so serving, Virata desires to hold harmless and
indemnify Indemnitee and to make arrangements pursuant to which Indemnitee may
be advanced or reimbursed expenses incurred by Indemnitee in certain
proceedings, in every case to the fullest extent authorized or permitted by the
DGCL, or any other applicable law, or by any amendment thereof or other
statutory provisions authorizing or
<PAGE>
permitting such indemnification which are adopted after the date hereof (but, in
the case of any such amendment, only to the extent that such amendment permits
Virata to provide broader indemnification rights than the DGCL, or other
applicable law, permitted Virata to provide prior to such amendment).
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and of
Indemnitee's continuing to serve Virata as a director and/or officer and/or a
Virata Affiliate as an Affiliate Indemnitee, the parties agree as follows:
1. Indemnification. To the fullest extent allowed by law, Virata shall
---------------
hold harmless and indemnify Indemnitee, his or her executors, administrators or
assigns against any and all expenses, liabilities and losses (including, without
limitation, investigation expenses, expert witnesses' and attorneys' fees and
expenses, judgments, penalties, fines, amounts paid or to be paid in settlement
any interest, assessments, or other charges imposed thereon and any federal,
state, local or foreign taxes imposed as a result of actual or deemed receipt of
any payment hereunder) actually incurred by Indemnitee (net of any related
insurance proceeds or other amounts received by Indemnitee or paid by or on
behalf of Virata on Indemnitee's behalf in compensation of such expenses,
liabilities or losses) in connection with any actual or threatened action, suit
or proceeding, whether civil, criminal, administrative or investigative or in
arbitration, to which Indemnitee is a party or participant or is threatened to
be made a party or participant (a "Proceeding"), as a plaintiff, defendant,
----------
respondent, witness or otherwise, based upon, arising from, relating to or by
reason of the fact that Indemnitee: (a) is, was, shall be or shall have been a
director and/or officer of Virata or (b) is or was serving, shall serve, or
shall have served at the request of Virata as a director, officer, partner,
trustee, fiduciary, employee or agent ("Affiliate Indemnitee") of another
--------------------
foreign or domestic corporation or non-profit corporation, cooperative,
partnership, joint venture, trust, employee benefit plan, or other incorporated
or unincorporated enterprise (each, a "Virata Affiliate"); or arising from or
----------------
relating to any action or omission to act taken by Indemnitee in any of the
foregoing capacities; provided, however, that, except as provided in Section
9(b) hereof, Virata shall indemnify Indemnitee in connection with a Proceeding
initiated by Indemnitee only if such proceeding (or part thereof) was authorized
by a two-thirds vote of the Board of Directors of Virata.
Indemnitee shall be presumed to be entitled to such indemnification under
this Agreement upon submission of a written claim pursuant to Section 4 hereof.
Thereafter, Virata shall have the burden of proof to overcome the presumption
that Indemnitee is so entitled. Such presumption shall only be overcome by a
judgment or other final adjudication, after all appeals and all time for appeals
has expired ("Final Determination"), which is adverse to Indemnitee and which
-------------------
establishes (a) that his acts were committed in bad faith, or were the result of
active and deliberate dishonesty, and were material to the cause of action so
adjudicated and (b) that Indemnitee in fact personally gained a financial profit
or other advantage to which he was not legally entitled. If Indemnitee is not
wholly successful in any Proceeding but is successful on the merits or
otherwise, as to one or more but less than all claims, issues or matters in such
Proceeding, Virata agrees to indemnify Indemnitee to the maximum extent
permitted by law
2
<PAGE>
against all losses and expenses incurred by Indemnitee in connection with each
successfully resolved claim, issue or matter. Neither the failure of Virata
(including its Boards of Directors, legal counsel or stockholders) to have made
a determination prior to the commencement of such Proceeding that
indemnification of Indemnitee is proper in the circumstances because such person
has met the applicable standard of conduct set forth in the DGCL, nor an actual
determination by Virata (including its Board of Directors, its legal counsel or
its stockholders) that Indemnitee has not met the applicable standard of
conduct, shall be a defense to the action or create a presumption that
Indemnitee has not met the applicable standard of conduct. The purchase,
establishment or maintenance of any Indemnification Arrangement shall not in any
way diminish, restrict, limit or adversely affect the rights and obligations of
Virata or of Indemnitee under this Agreement, except as expressly provided
herein, and the execution and delivery of this Agreement by Virata and
Indemnitee shall not in any way diminish, restrict, limit or adversely affect
Indemnitee's right to indemnification from Virata or any other party or parties
under any other Indemnification Arrangement, the Certificate of Incorporation or
Bylaws of Virata, or the DGCL.
2. Period of Limitations. No legal action shall be brought and no cause
---------------------
of action shall be asserted by or on behalf of Virata or any affiliate of Virata
against Indemnitee, Indemnitee's spouse, heirs, executors, or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, or such longer period as may be required by applicable law
under the circumstances. Any claim or cause of action of Virata or its
affiliate shall be extinguished and deemed released unless asserted by the
timely filing of a legal action within such period; provided, however, that if
any shorter period of limitations is otherwise applicable to any such cause of
action the shorter period shall govern.
3. Insurance. Subject only to the provisions of this Section 3, as long
---------
as Indemnitee shall continue to serve as a director and/or officer of Virata (or
shall continue at the request of Virata to serve as an Affiliate Indemnitee or a
Virata Affiliate) and, thereafter, as long as Indemnitee shall be subject to any
possible Proceeding by reason of the fact that Indemnitee was a director and/or
officer of Virata and/or an Affiliate Indemnitee of a Virata Affiliate (or
served in any of said other capacities), Virata shall, unless no such policies
are available in any market, purchase and maintain in effect for the benefit of
Indemnitee one or more valid, binding and enforceable policies (the "Insurance
---------
Policies") of directors' and officers' liability insurance ("D&O Insurance")
- -------- -------------
providing adequate liability coverage for Indemnitee's acts as a director and/or
officer of Virata or as an Affiliate Indemnitee of a Virata Affiliate. Virata
shall promptly notify Indemnitee of any lapse, amendment or failure to renew
said policy or policies or any provision thereof relating to the extent or
nature of coverage provided thereunder. In the event any Virata does not
purchase and maintain in effect said policy or policies of D&O Insurance
pursuant to the provisions of this Section 3, Virata shall, in addition to and
not in limitation of the other rights granted Indemnitee under this Agreement,
hold harmless and indemnify Indemnitee to the full extent of coverage which
would otherwise have been provided for the benefit of Indemnitee pursuant to the
Insurance Policies.
3
<PAGE>
4. Claims for Payments. Indemnitee shall have the right to receive from
-------------------
Virata on demand or, at his or her option, to have Virata pay promptly on his or
her behalf, in advance of a Final Determination of a Proceeding, all amounts
payable by Virata pursuant to the terms of this Agreement as corresponding
amounts are expended or incurred by Indemnitee in connection with any Proceeding
or otherwise (such amounts so expended or incurred being referred to as
"Advanced Amounts"). In making any claim for payment by Virata of any amount,
----------------
including any Advanced Amount, pursuant to this Agreement, Indemnitee shall
submit to Virata a written request for payment (a "Claim") which includes a
-----
schedule setting forth in reasonable detail the dollar amount expended (or
incurred or expected to be expended or incurred). Each item on such schedule
shall be supported by the bill, agreement, or other documentation relating
thereto, a copy of which shall be appended to the schedule as an exhibit.
Where Indemnitee is requesting Advanced Amounts, Indemnitee must also
provide an undertaking to repay such Advanced Amounts if a Final Determination
is made that Indemnitee is not entitled to indemnification hereunder.
5. Section 16(b) Liability. Notwithstanding anything herein to the
-----------------------
contrary, Virata shall not be liable under this Agreement to make any payment in
connection with any claim made against Indemnitee for an accounting of profits
made from the purchase or sale by Indemnitee of securities of Virata within the
meaning of Section 16(b) of the Securities Exchange Act of 1934, and amendments
thereto, or similar provisions of any state statutory law or common law.
6. Continuation of Indemnity. All agreements and obligations of Virata
-------------------------
contained herein shall continue during the period Indemnitee is a director
and/or officer of Virata (or is serving at the request of Virata as an Affiliate
Indemnitee of a Virata Affiliate) and shall continue thereafter so long as
Indemnitee shall be subject to any possible Proceeding by reason of the fact
that Indemnitee was a director or officer of Virata or served as such an
Affiliate Indemnitee of a Virata Affiliate.
7. Successors: Binding Agreement. This Agreement shall be binding on,
------------------------------
and shall inure to the benefit of and be enforceable by, each of Virata's
successors and assigns and by Indemnitee's personal or legal representatives,
executors, administrators, successors, heirs, distributees, divisees and
legatees. Virata shall require any successor or assignee (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of Virata, by written agreement
in form and substance reasonably satisfactory to Virata and to Indemnitee,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that Virata would be required to perform if no such
succession or assignment had taken place.
8. Notification and Defense of Claim. Promptly after receipt by
---------------------------------
Indemnitee of notice of the commencement of any Proceeding, Indemnitee shall, if
a claim in respect thereof is to be made against Virata under this Agreement,
notify Virata of the commencement thereof, but the failure to so notify Virata
will not relieve Virata from any liability which it may have to Indemnitee.
With respect to any such Proceeding:
a. Virata shall be entitled to participate therein at its own
expense;
4
<PAGE>
b. Except with prior written consent of Indemnitee, Virata shall not
be entitled to assume the defense of any Proceeding; and
c. Virata shall not settle any Proceeding in any manner which would
impose any penalty or limitation on Indemnitee without Indemnitee's prior
written consent, which consent shall not be unreasonably withheld.
Indemnitee shall not settle any Proceeding with respect to which Indemnitee
has received indemnified amounts or Advanced Amounts without Virata's prior
written consent, which consent shall not be unreasonably withheld.
9. Enforcement.
-----------
(a) Virata has entered into this Agreement and assumed the obligations
imposed on Virata hereby in order to induce Indemnitee to act as a director
and/or officer of Virata and/or as an Affiliate Indemnitee of a Virata
Affiliate and acknowledges that Indemnitee is relying upon this Agreement
in continuing in such capacity.
(b) All expenses incurred by Indemnitee in connection with the
preparation and submission of Indemnitee's request for indemnification
hereunder shall be borne by Virata, unless Indemnitee is found in a Final
Determination not to be entitled to such indemnification. In the event
Indemnitee has requested payment of any amount under this Agreement and has
not received payment thereof within thirty (30) days of such request,
Indemnitee may bring any action to enforce rights or collect moneys due
under this Agreement, and, if Indemnitee is successful in such action,
Virata shall reimburse Indemnitee for all of Indemnitee's fees and expenses
in bringing and pursuing such action. If it is determined that Indemnitee
is entitled to indemnification for part (but not all) of the
indemnification so requested, expenses incurred in seeking enforcement of
such partial indemnification shall be reasonably prorated among the claims,
issues or matters for which Indemnitee is entitled to indemnification for
claims, issues or matter for which Indemnitee is not so entitled.
Indemnitee shall be entitled to the advancement of such amounts to the full
extent contemplated by Section 4 hereof in connection with such Proceeding.
10. Separability. If any provision or provisions of this Agreement shall
------------
be held to be invalid, illegal or unenforceable for any reason whatsoever, (a)
the validity, legality and enforceability of the remaining provisions of this
Agreement (including, without limitation, all portions of any sections or
subsections of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not by themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby, and (b) to
the fullest extent possible, the provisions of any section or subsections of
this Agreement containing any such provisions held to be invalid, illegal or
unenforceable shall be construed so as to give effect to the intent of the
parties that Virata provide protection to Indemnitee to the fullest extent
enforceable.
5
<PAGE>
11. Miscellaneous. No provision of this Agreement may be modified, waived
-------------
or discharged unless such modification, waiver or discharge is agreed to in
writing signed by Indemnitee and an authorized officer of Virata, designated by
the Board of Directors of Virata. No waiver by either party at any time of any
breach by the other party of, or of compliance with, any condition or provision
of this Agreement to be performed by such other party shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same time or at any
prior or subsequent time. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Delaware, without giving effect to the principles of conflicts of laws thereof.
Indemnitee may bring an action seeking resolution of disputes or controversies
arising under, or in any way related to, this Agreement in the state or federal
court jurisdiction in which Indemnitee resides or in which his place of business
is located and in any related appellate courts, and Virata hereby consents to
the jurisdiction of such courts and to such venue.
12. Notices. For the purposes of this Agreement, notices and all other
-------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to Indemnitee: ___________________
___________________
___________________
___________________
If to Virata: Virata Corporation
2933 Bunker Hill Lane, Suite 201
Santa Clara, California 95954
Facsimile: (408) 566-___
Attention: Chief Executive Officer
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
13. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
13. Effectiveness. This Agreement shall be effective as of the day and
-------------
year first above written.
6
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the day and year first above written.
VIRATA CORPORATION
By:_______________________________
Name:
Title:
INDEMNITEE
__________________________________
7
<PAGE>
EXHIBIT 10.24
VIRATA
1 May, 1999
Mr. C W A Cotton
25 Wordsworth Grove
Cambridge
CB3 9HH
Dear Charles
I am delighted to confirm the following changes to your terms and conditions of
employment.
1. Salary increase to (Pounds)155,875pa with effect from 1 May, 1999.
2. A bonus plan for FY2000 of $120,000 against objectives to be agreed with
myself.
All other terms and conditions remain unchanged, namely:
1. Title of Chief Executive Officer.
2. Commencement date 16 September, 1997. During your term of employment with
Virata, you will devote you full time, skill and attention to your duties
and responsibilities, and shall perform them faithfully in order to further
the business goals of Virata and its affiliated entities.
3. Salary review annually in August with any related salary adjustments
effective 1 August.
4. In the event that the Company is acquired by or merges with another company,
we will use our reasonable efforts to cause you to be offered a position of
equal status and conditions by Virata, its parent company or the new merged
company.
5. Annual holiday entitlement of 25 days.
6. Other than for termination for cause, your notice period from the Company
will be 18 months from the termination date. You will be required to give
the Company 6 months notice of your intention to leave. As a specific change
to the normal terms of the Company's Share Option Scheme, your share options
will continue to vest throughout the notice period.
7. Your normal place of work will be the Company's offices at Mount Pleasant
House, Cambridge. However, you are expected to visit the Company's offices
in Santa Clara and Raleigh on a regular basis and travel as required to
fulfil your duties.
8. Benefits remain in line with the Company's standard package.
Yours sincerely
/s/ H. Hauser
Hermann Hauser
Chairman
<PAGE>
HHIPO
17 September 1997
Mr. C W A Cotton
25 Wordsworth Grave
Newnham
Cambridge
CB3 9HH
Dear Charles
As a result of our recent discussions and as confirmed by the Board at the
September 1997 Board Meeting. I am delighted to offer you the position of Chief
Executive Officer of ATM Ltd. and President of ATM Inc.
This is an important stage in the development of the Company. The Board
wishes to continue to explore the opportunities for strategic relationships with
companies in the broadband communications or semiconductor fields. You will be
responsible for directing this activity reporting to myself You will also pursue
options for the Company which will provide funding for the period through to an
IPO.
The terms and conditions of this offer are as follows:
1. Commencement date 18 September 1997.
2. Salary of (Pounds)135,00pa payable monthly.
3. Salary review annually in August with any related salary adjustments
effective 1 August.
4. Additional share options of 500,000 at 15p - a summary of your share
options is shown in an Attachment to this letter.
5. A bonus of (Pounds)40,OOO on successful achievement of one or other of
the objectives set out above.
6. l~ the event of a successful sale of the Company during your employment
with the Company, you will be paid an additional cash bonus as follows:
2
<PAGE>
<TABLE>
<CAPTION>
Bonus Basis Bonus Payment Share Price
----------- -------------- -----------
<S> <C> <C>
$ 55,000 $ 82,500 $ 1.50
$ 55,000 $ 109,450 $ 1.~g
$ 80,000 $ 160,000 $ 2.00
$ 80,000 $ 239,200 $ 2.99
$ 100,000 $ 300,000 $ 3.00
$ 100,000 $ 399,000 $ 3.99
$ 125,000 $ 500,000 $ 4.00
</TABLE>
The Bonus Basis is the cash amount per dollar of ordinary share price on
the assumption that the share capital of ATM Ltd. is divided into ordinary
shares of Ip each. In the event of the ordinary shares being consolidated or
sub-divided an appropriate adjustment will be made to the bonus payments.
7. In the event that the Company is acquired by or merges with another
company you will be offered a position of equal status and conditions by ATM
Ltd., its parent company or the new merged company.
8. Annual holiday entitlement of 25 days pro rata.
9. Other than for termination for cause, your notice period from the
Company will be 18 months from the termination date. You will be required to
give the Company 6 months notice of your intention to leave. As a specific
change to the normal terms of the Company's Share Options Scheme, your share
options will continue to vest throughout the notice period
10. Your normal place of work will be the Company's offices at Mount
Pleasant House Cambridge. However, you are expected to visit the Company's
office in Santa Clara, California on a regular basis and to travel as required
to fulfill your duties.
11. Other benefits remain I-n line with the Company's standard package
Please indicate your acceptance of this offer by signing and returning one
Copy of the contract to Pauline Diggins.
This is an exciting period for ATM Ltd. and I am looking forward to working
with you to ensure its success.
Yours sincerely
Hermann Hauser
Chairman
3
<PAGE>
ADVANCED TELECOMMUNICATIONS MODULES LIMITED ("The Employer")
SUMMARY OF TERMS AND CONDITIONS OF EMPLOYMENT
(Employees should refer to company handbook for details)
Date: 16 September, 1997
Statement of Terms of Employment pursuant to the Employment Protection
(Consolidation) Act 1978. This statement, which supersedes all previous
statement; sets out particulars of the terms and conditions under which you are
employed.
<TABLE>
<S> <C>
1. Name of "the Employee Charles Cotton
2. Address:-. 25 Wordsworth Grove
Newham, Cambridge
3. (a) Date of Birth: 23 March, 1947
(b) National Insurance Number: YL 24 53 47 B
4. (a) Date Employment began: 16 September, 1997
(b) Date of Continuous Employment (If different
from above)
5. Job Title: CEO
6. Basic Hours of Work: 9am - 5.30pm
7. Salary Payment Day: Last Friday of month
8. Holiday Entitlement; 25 days pro rata
9. Notice of Termination: From ATML 18 months
To ATML 6 months
10. Place of Employment: Mount Pleasant House, Cambridge
11. Salary: (Pounds)135,OOOpa
</TABLE>
4
<PAGE>
1. CONTINUITY OF EMPLOYMENT
Your period of continuous employment with the Employer began on the date
specified on page 1. Employment with any previous employer does not count as
part of your period of continuous employment.
2. JOB DESCRIPTION
You are employed in the capacity specified on page 1 but it is expected
that if necessary you may be required to undertake other work of which you are
capable and/or for which you have trained or will receive training from the
employer.
3. SALARY
Your salary is paid by bank credit transfer at monthly intervals as
specified on page 1, one month in arrears. Salaries will be reviewed annually.
4. TRAVEL/EXPENSES
You may from time to time be expected to travel on behalf of the Company.
All travel and subsistence expenses wholly and necessarily incurred by you on
the Employer's business will be reimbursed on production of the relevant
receipts and vouchers.
5. HOURS OF WORK
Your basic hours of work are those specified on page 1.
You will be required to work such hours as are necessary for the proper
performance of your duties. Payment to salaried staff for overtime work will
only be made in circumstances agreed in advance by the Employer.
6. ANNUAL HOLIDAYS
The holiday year runs from 1 January to 31 December. Carry forward into the
following year (unless specifically granted by the Employer in writing) is not
permitted.
You are entitled to holidays as specified on page 1.
In addition you will be entitled to all statutory Bank Holidays unless
required to work on that day in which case you will receive an extra day's
holiday to be taken at a time to be agreed with the Employer or at the
Employer's discretion pay in lieu.
If employment commences or terminates during a specific holiday year,
holiday entitlement for that year will be calculated on the period actually
worked, pro rata on the basis of completed calendar months.
5
<PAGE>
If at the time of termination of employment you have exceeded your holiday
entitlement, your final payment will be reduced accordingly
In any event you must give at least four weeks notice of your intention to
take a holiday, and the Employer, whilst making every effort to meet your
wishes, reserves the right to refuse permission if your absence would result in
inadequate staffing.
7. SICKNESS AND INJURY
If you are late for work, or absent from whatever cause, a telephone call
should be made by you or by someone on your behalf. Notification should be made
as soon as possible to inform the Employer (Personnel) of the reason for absence
and the probable length or time you will be absent.
If you are absent from work due to sickness or injury which continues for
more than seven days (including weekends) you must provide the Employer with a
Medical certificate on the eighth day of sickness or injury. Thereafter Medical
Certificates must be provided to the Employer on a weekly basis.
8. SICKNESS PAY
The Employer will continue to pay you when you are absent through illness.
You will continue to receive your full salary for the following maximum periods.
<TABLE>
<CAPTION>
Years Service Maximum total sick pay in one year
<S> <C>
Up to one year 4 weeks
Over one year/under three years 8 weeks
Three years and over 13 weeks
</TABLE>
These periods will be cumulative over the course of twelve months and any
payments beyond these maximum periods will be at the discretion of the Employer.
State sick pay will be deducted from any sum of sickness pay which you receive.
9. BENEFITS PACKAGE
The Employer operates a benefits package for all eligible employees.
Details of this package will be given to you when you become eligible.
10. CONFIDENTIALITY
You may not disclose any information of a confidential nature relating to
the Company or any of its associated companies or their business or trade
secrets or in respect of which the
6
<PAGE>
Company owes an obligation or confidence to any third party during your
employment except in the proper course of your employment or within five years
after the termination of your employment.
11. NOTICE OF TERMINATION
Notice of termination will be in writing and will be as required under the
provisions of the Employment Protection (Consolidation) Act 1978 or any
amendment thereof unless specified otherwise on page 2.
Should you wish to terminate your employment with the Employer, you will be
required to give notice in writing as specified on page 2.
12. INVENTIONS
Any invention, discovery, improvement or design in or relating to apparatus
of a type made, assembled, sold, designed or in the process of development by
the Employer or in or relating to the manufacture of such apparatus or otherwise
suitable for the purposes of the business of the Employer which is made by you
in the course of your employment with the Employer shall be promptly disclosed
by you to your immediate superior.
Copyright and similar rights in all work done in the course of your
employment shall belong to the Employer.
As between the Employer and you, the ownership of all inventions made by
you in the course of your employment will be determined in accordance with
Section 3 of the Patents Act 1977.
At the Employer's request you will during or after your employment with the
Employer, do everything necessary at the Employer's expense to obtain letters
patent, including any extension thereof, design, copyright and similar
protection for the same in any part of the world, and to vest exclusively in the
Employer all letters patent, including any extension thereof, design, copyright
and any other protection relating thereto.
13. GRIEVANCE PROCEDURE
If you have any grievance regarding your employment, you should approach
your immediate superior orally or in writing. If the matter is not resolved then
appeal can be made to the Board of Directors.
14. DISCIPLINARY PROCEDURE
Matters of discipline will in the first instance be dealt with by your
immediate superior with an appeal to the Board of Directors.
7
<PAGE>
EXHIBIT 10.25
Virata
2933 Bunker Hill Lane, Suite 201
Santa Clara, CA 95054
Phone: 408-666-1000
Fax: 408-960-8250
14 October 1998
Mr. Michael Gullett
300 Aleut Court
Fremont, CA 94639
Mr Michael,
We are pleased to offer you the position of Chief Operating Officer of
Virata. This offer will remain in effect until 16 October 1998, and can be
accepted by your signing this letter in the space indicated at the end of this
document. You will be an employee of Virata's Santa Clara-based subsidiary and
a Corporate Officer of the Cambridge-based Virata Limited parent company.
Your initial position with Virata will be Chief Operating Officer and you
will have functional responsibility for Engineering and Operations worldwide.
Further advancement will of course be a function of job performance as
interpreted by Charles Cotton and the Board of Directors of Virata.
During your term of employment with Virata, you shall devote your full
time, skill and attention to your duties and responsibilities, and shall perform
them faithfully in order to further the business goals of Virata and its
affiliated entities. In consideration of your services, you will be paid a base
salary of $225,000 per year ($18,750 per month, paid biweekly).
In addition to your salary compensation, you will participate in an annual
incentive bonus program from which you will be entitled to earn additional
annual compensation of up to $100,000 at 100% achievement. This bonus will be
based on objectives which you will agree with Charles Cotton. Half of the
annual incentive bonus will be guaranteed for the first year, you will be paid
$4,166,67 monthly as the guaranteed portion of your bonus. The non-guaranteed
potion of the bonus will be paid quarterly.
You will also be paid an initial "sign on bonus" compensation of $25,000
which will be paid in the first pay period following commencement of work.
In addition to your salary, sign on bonus and incentive bonus compensation,
subject to approval by the Board of Directors, you will receive a grant at 1.60
million ordinary share options in Virata Limited at an exercise price of $0.70.
At present, one percent of Virata on a fully diluted basis would represent
approximately 800,000 shares. The shares vest over a four year period, with one
quarter vesting 12 months after your start date. From the one year mark,
vesting will be 1/48th or 33,333 shares per month. The share options, will be
granted under the
<PAGE>
Virata Corporation Incentive Stock Option (ISO) plan to the extent allowed under
applicable regulations. Any additional options will be issued under the
"unapproved" share option plan.
Should you be asked to leave the company following a change in control,
through acquisition, merger or sale of all or substantially all of the assets,
or if you are terminated without cause, you will be entitled to salary
continuation for 12 months. In addition, your share options will continue to
vest through this 12 month period.
During this 12 month period Virata will provide you with continuation of
benefit coverage to the extent allowed by our benefit contractors based upon the
fact that you will no longer be an active Virata employee. Specifically,
company-paid life insurance could not be offered. Virata would continue to
provide medical and dental coverage, however this would initiate the 18 month
COBRA period and costs paid on your behalf would be taxable income to you.
In the event that Virata is acquired by or merged with another company, you
will be offered a position of equal status and conditions by Virata Inc. its
parent Company, or the newly merged company.
It is understood that during your initial several months with the company
you will be working extensively at our Cambridge, United Kingdom, facility.
During this period of work, temporary living expenses including housing in the
Cambridge area, and air travel for your wife between London and the Bay Area
will be paid for by Virata.
As a Virata employee you will be eligible for the following as part of our
comprehensive benefits program:
. Medical benefits: Virata offers a medical and dental program through
Aetna Vision coverage is provided by VSP. Employee co-payments for
premiums are deducted on a pre-tax basis as part of our Section 125
plan;
. Paid time off: You are eligible for three weeks (15 days) vacation and
additional paid time of for sick and personal time.
. Holidays: You are eligible for standard U.S. holidays, which total ten
(10) in 1998;
. 401(k): Virata offers employees a 401(k) savings plan. You will be
eligible to participate in this plan immediately upon joining Virata
providing all conditions of the Plan are completed with;
As an employee of Virata's Santa Clara-based subsidiary you should
recognize that some integration of benefits with the recently merged RSA
Communications until will occur and the benefits listed above could be altered
accordingly.
This offer of employment is contingent upon the following:
2
<PAGE>
. As an employee of Virata you will be expected to abide by Company
rules and regulations. You will also be expected to sign and comply
with a proprietary information and non-disclosure agreement which
requires, among other provisions, the assignment of parent rights to
any invention made during your employment of Virata and non-disclosure
of proprietary information;
. Employment with Virata is not a specific term and can be terminated by
yourself or Virata at any time for any reason, with or without cause.
Any contrary representations which may have been made or which may be
made to you are superseded by this offer.
. Your employment with Virata will be terminated for "cause" if
terminated due to your habitual neglect of duties, which neglect
continues uncorrected following written notice to you and a reasonable
opportunity for you to cure such neglect; excessive absenteeism;
violation of work rules or a policy set by the Board of Directors;
insubordination; or for misconduct or malfeasance;
Mike, we are excited about the possibility of having you join Virata as
Chief Operating Officer. We believe you will make an outstanding contribution
to Virata and are keen for you employment to begin as soon as possible. We are
confident that we can offer you the challenges, opportunities and rewards for
your contributions.
Please acknowledge your acceptance of the terms and conditions of this
letter by signing below and returning this letter by the end of this week.
We look forward to working with you in mutually beneficial relationship.
Sincerely,
/s/
Charles Cotton Andrew M. Vought
Chief Executive Officer Chief Financial Officer
Offer accepted: /s/
------------------------
Acceptance Date: ________________________
Anticipated start date:________________________
3
<PAGE>
EXHIBIT 10.26
1 May, 1999
Mr. A Vought
1499 Edgewood Drive
PaloAlto
CA 94301
USA
Dear Andy
I am delighted to inform you that your FY2000 bonus program has been set at
$75,000 against objectives to be agreed with myself.
All other terms of employment remain unchanged, namely:
1. Title of Senior Vice President and Chief Financial Officer.
2. Commencement date, 16 September, 1997. During your term of employment with
Virata, you will devote your full time, skill and attention to your duties
and responsibilities, and shall perform them faithfully in order to further
the business goals of Virata and its affiliated entities.
3. Salary of $182,750pa.
4. Virata will give you 18 months notice (or pay in lieu of notice) if your
employment is terminated for any reason other than for cause. We would ask
that you give 6 months notice to the Company. As a specific change to the
normal terms of the Company's Share Option Scheme, your share options will
continue to vest throughout the notice period.
5. In the event that the Company is acquired or merges with another company,
you will be offered a position of equal status and conditions to Virata,
its parent company or the new merged company.
Other other terms remain as in your offer letter of 10 may, 1996.
Yours sincerely
/s/ Charles Cotton
Charles Cotton
Chief Executive Officer
<PAGE>
May 10, 1996
ATTN: Andrew Vought
Dear Andy:
I have great pleasure in offering you the position of Chief Financial Officer
for ATM Inc. This role reports directly to the President and CEO Patrick
O'Hearn.
You will be responsible for all financial matters within both ATM Ltd, the
parent company and ATM Inc, the U.S. subsidiary.
This is a key role within the company and the compensation package is designated
to reflect this. Your salary will be $150K per annum paid bi-weekly. You will
be eligible to receive 325,000 share options at a strike price of 100 (UK) per
share. A copy of the share agreement outlining terms and conditions will be
sent to you.
In addition a bonus of 25,000 shares will be awarded to you upon achieving
agreed objectives in FY'96.
Your annual vacation will be 3 weeks accrued on a linear basis.
You will be covered by the Ollvetti Health and Benefits package. An outline of
this package has been provided to you.
Your start date is TBD.
If you have any questions regarding the offer please do not hesitate to contact
me. I look forward to receiving your signed acceptance of this offer as soon as
possible.
Best regards,
/s/ P. A. O'Hearn
Patrick O'Hearn /s/ Andrew Vought
-----------------
President and CEO Acceptance Signature
Advanced Telecommunication Modules Ltd.
May 13, 1996
------------
Date
POH:gs
<PAGE>
EXHIBIT 10.27
ADVANCED TELECOMMUNICATIONS MODULES LIMITED ("The Employer")
SUMMARY OF TERMS AND CONDITIONS OF EMPLOYMENT
(Employees should refer to company handbook for details)
Date: 5 May, 1997
Statement of Terms of Employment pursuant to the Employment Protection
(Consolidation) Act 1978. This statement, which supersedes all previous
statements, sets out particulars of the terms and conditions under which you are
employed.
1. Name of "the Employee": Martin Jackson
2. Address: Wakelands Farm
Finchingfield Road
Steeple Bumpstead
Suffolk, CB9 7EL
3. (a) Date of Birth: 11 August, 1959
(b) National Insurance Number: WM 31 91 43C
4. (a) Date Employment began 19 April, 1994
(b) Date of Continuous Employment
(if different from above):
5. Job Title: VP Engineering
6. Basic Hours of Work: 9am - 5.3Opm
7. Salary Payment Day: Last Friday of month
8. Holiday Entitlement: 20 days pro rata
9. Notice of Termination: From ATML 12 months
To ATML 3 months
10. Place of Employment: Mount Pleasant
House, Cambridge
11. Salary: (Pounds)76,250pa
<PAGE>
1. CONTINUITY OF EMPLOYMENT
Your period of continuous employment with the Employer began on the
date specified on page 1. Employment with any previous employer does
not count as part of your period of continuous employment.
2. JOB DESCRIPTION
You are employed in the capacity specified on page 1 but it is
expected that if necessary you may be required to undertake other work
of which you are capable and/or for which you have trained or will
receive training from the Employer.
3. SALARY
Your salary is paid by bank credit transfer at monthly intervals as
specified on page 1, one month in arrears. Salaries will be reviewed
annually.
4. TRAVEL/EXPENSES
You may from time to time be expected to travel on behalf of the
Company. All travel and subsistence expenses wholly and necessarily
incurred by you on the Employer's business will be reimbursed on
production of the relevant receipts and vouchers.
5. HOURS OF WORK
Your basic hours of work are those specified on page 1.
You will be required to work such hours as are necessary for the
proper performance of your duties. Payment to salaried staff for
overtime work will only be made in circumstances agreed in advance by
the Employer.
6. ANNUAL HOLIDAYS
The holiday year runs from 1 January to 31 December. Carry forward
into the following year (unless specifically granted by the Employer
in writing) is not permitted.
You are entitled to holidays as specified on page 1
In addition you will be entitled to all statutory Bank Holidays unless
required to work on that day in which case you will receive an extra
day's holiday to be taken at a time to be agreed with the Employer or
at the Employer's discretion pay in lieu.
2
<PAGE>
If employment commences or terminates during a specific holiday year,
holiday entitlement for that year will be calculated on the period
actually worked, pro rata on the basis of completed calendar months.
If at the time of termination of employment you have exceeded your
holiday entitlement, your final payment will be reduced accordingly.
In any event you must give at least four weeks notice of your
intention to take a holiday, and the Employer, whilst making every
effort to meet your wishes, reserves the right to refuse permission if
your absence would result in inadequate staffing.
7. SICKNESS AND INJURY
If you are late for work, or absent from whatever cause, a telephone
call should be made by you or by someone on your behalf. Notification
should be made as soon as possible to inform the Employer (Personnel)
of the reason for absence and the probable length of time you will be
absent.
If you are absent from work due to sickness or injury which continues
for more than seven days (including weekends) you must provide the
Employer with a Medical certificate on the eighth day of sickness or
injury. Thereafter Medical Certificates must be provided to the
Employer on a weekly basis.
8. SICKNESS PAY
The Employer will continue to pay you when you are absent through
illness. You will continue to receive your full salary for the
following maximum periods:-
Years Service Maximum total sick pay in one year
Up to one year 4 weeks
Over one year/under three years 8 weeks
Three years and over 13 weeks
These periods will be cumulative over the course of twelve months and
any payments beyond these maximum periods will be at the discretion of
the Employer. State sick pay will be deducted from any sum of sickness
pay which you receive.
9. BENEFITS PACKAGE
The Employer operates a benefits package for all eligible employees.
Details of this package will be given to you when you become eligible.
3
<PAGE>
10. CONFIDENTIALITY
You may not disclose any information of a confidential nature relating
to the Company or any of its associated companies or their business or
trade secrets or in respect of which the Company owes an obligation of
confidence to any third party during your employment except in the
proper course of your employment or within five years after the
termination of your employment.
11. NOTICE OF TERMINATION
Notice of termination will be in writing and will be as required under
the provisions of the Employment Protection (Consolidation) Act 1978
or any amendment thereof unless specified otherwise on page 2.
Should you wish to terminate your employment with the Employer, you
will be required to give notice in writing as specified on page 2.
12. INVENTIONS
Any invention, discovery, improvement or design in or relating to
apparatus of a type made, assembled, sold, designed or in the process
of development by the Employer or in or relating to the manufacture of
such apparatus or otherwise suitable for the purposes of the business
of the Employer which is made by you in the course of your employment
with the Employer shall be promptly disclosed by you to your immediate
superior.
Copyright and similar rights in all work done in the course of your
employment shall belong to the Employer.
As between the Employer and you, the ownership of all inventions made
by you in the course of your employment will be determined in
accordance with Section 39 of the Patents Act 1977.
At the Employer's request you will during or after your employment
with the Employer, do everything necessary at the Employer's expense
to obtain letters patent, including any extension thereof, design,
copyright and similar protection for the same in any part of the
world, and to vest exclusively in the Employer all letters patent,
including any extension thereof, design, copyright and any other
protection relating thereto.
13. GRIEVANCE PROCEDURE
If you have any grievance regarding your employment, you should
approach your immediate superior orally or in writing. If the matter
is not resolved then appeal can be made to the Board or Directors.
14. DISCIPLINARY PROCEDURE
4
<PAGE>
Matters of discipline will in the first instance be dealt with by your
immediate superior with an appeal to the Board of Directors.
15. SAFETY
You are responsible for taking reasonable care for the health and
safety of yourself and other persons who may be affected by your acts
and omissions at work and for complying with any rules and regulations
which the Employer may produce in this respect.
16. CHANGES
In respect of any changes in the terms and conditions of employment
you will be notified in writing of any such changes within one month
or any such change
FOR AND ON BEHALF OF ATM LTD
Signed /s/ Charles Cohon
---------------------------
Date 2 June 1997
-----------------------------
ACKNOWLEDGEMENT BY THE EMPLOYEE
I agree that the preceding provisions form the basis of my Contract of
Employment and acknowledge receipt of a statement of which the foregoing is
a true copy.
Signed___________________________
Date_____________________________
5
<PAGE>
EXHIBIT 10.28
ATML
2 June, 1997
Mr. T Cooper
24 Stuart Court
Los Altos
CA 94022
USA
Dear Tom:
With immediate effect your notice period from ATM Inc. will be extended to 12
months. The notice period you are required to give ATM Inc. is 3 months.
Two copies of the revised contract of employment are attached. Please sign and
return one copy to Pauline Diggins for the Company's records.
Yours sincerely
/s/ /s/
Paul Lazay Charles Cotton
President and CEO Chief Operating Officer
<PAGE>
ATML
PD/9845.97
7 April, 1997
Thomas Cooper
24 Stuart Court
Los Altos, CA 94022
Dear Tom
Further to recent conversations, I am delighted to inform you that your salary
will be increased to $150.000pa, with effect from 1 April, 1997. I can also
confirm that your bonus level will be increased to $30,000pa on achievement of
agreed objectives. The overall effect is that your total target earnings will
be $180,000pa commencing 1 April, 1997.
May I take this opportunity to thank you for the hard work and effort that you
have put into ATML since you joined. Wee look forward to your continued support
to ensure the company's success in the future.
Yours sincerely,
/s/ Charles Cotton
Charles Cotton
Chief Operating Officer
<PAGE>
ATM
December 16, 1994
Thomas Cooper
24 Stuart Court
Los Altos, CA 94022
Dear Thomas,
I would like to extend to you the following offer as Vice President of Marketing
and Sales for Advanced Telecommunications Modules, Incorporated.
In this position you will report directly to Patrick O'Hearn, President and CEO.
Your salary will be $135K per year.
In addition a bonus of $25,000 will be paid to you upon your achieving agreed
objectives.
You will be eligible to receive 190,000 share options at 5 pence per share. A
copy of our share agreement will be sent to you.
Your annual vacation will be 3 weeks. This will be accrued on a linear basis.
You will be covered under the Olivetti health and benefits package, details will
be discussed after start date.
Start date will be (TBA) January 1994.
Please review this offer and signify your acceptance by sending a signed copy
back to me by January 1, 1995.
Sincerely,
/s/ Patrick O'Hearn /s/ Thomas Cooper
Patrick O'Hearn
President, CEO
<PAGE>
ATM Advanced Telecommunications Modules Inc.
AGREEMENT REGARDING
PROPRIETARY INFORMATION AND INVENTIONS
In consideration of my employment or continued employment by Advance
Telecommunications Modules Inc. (which will hereinafter collectively be called
the "Company"), and the compensation paid to me by the Company from time to
time, I hereby represent to and agree with the company as follows:
1. I understand that the Company Is engaged in a continuous program of
research, development, production and marketing with respect to its present
and future products and including fields generally related to its business.
I further understand that as an essential part of my employment with the
Company, I am expected to make new contributions to and create inventions
of value for the Company, although this Agreement does not constitute a
contract of employment or obligate the Company to employ me for any stated
period of time.
2. I represent that I have not brought and will not bring with me to the
Company or use in the performance of my responsibilities at the Company any
materials or documents of a former employer which are not generally
available to the public, unless I have first obtained written authorization
from the former employer for their possession and use, which written
authorization I will deliver to the Company on or before my first day of
employment with the Company.
3. I understand that my employment by the Company creates a relationship of
confidence and trust between me and the Company with respect to any
information of a employment by the Company and which (i) relates to the
business of the Company or to the business of any customer or supplier of
the Company, or (ii) has been created, discovered or developed by, or has
otherwise become known to the Company and has commercial value in the
business in which the Company is engaged (hereinafter called Proprietary
Information"). By way of illustration, but not limitation, Proprietary
Information includes trade secrets, processes, formulas, computer programs,
data, know-how, inventions, improvements, techniques, marketing plans,
product plans, strategies, forecasts and customer lists.
4. All Proprietary Information shall be the sole property of the Company and
its assigns. I hereby assign to the Company any rights I may have or
acquire in all Proprietary Information. At all times, both during my
employment and after its termination, I will keep in confidence and trust
all Proprietary 'Information, and I will not use or disclose any
Proprietary Information or anything relating to it without the written
consent of the Company, except as may be necessary in the ordinary course
of performing my duties as an employee of the Company. In the event of the
termination of my employment by me or by the Company for any reason, I will
promptly deliver to the Company all documents
<PAGE>
and data of any nature containing or pertaining to any Proprietary
Information and I will not take with me any such documents or data or any
reproduction thereof.
5. I will promptly disclose in confidence to the Company, or any persons
designated by it, all inventions, improvements, original works of
authorship, formulas, processes, computer programs, techniques, know-how
and data, whether or not patentable or copyrightable, made or conceived or
first reduced to practice or learned by me, either alone or jointly with
others, during the period of my employment, whether or not in the course of
my employment (hereinafter collectively called "Inventions").
6. I agree that all such Inventions which the Company in its sole discretion
determines to be related to or useful in the business or research or
development of the company, or which result from work performed by me for
the Company, shall be the sole and exclusive property of the Company and
its assigns, and the Company and other statutory or common law protections
for such Inventions in any and all countries. I further agree to assist
the Company in every proper way (but at the Company's expense) to obtain
and from time to time enforce patents, copyrights and countries. To that
end, I will execute all documents for use in applying for and obtaining
such patents, copyrights and other statutory or common law protections
therefore and enforcing same, as the Company may desire, together with any
assignments thereof to the Company or to persons designated by the Company.
My obligations under Paragraph 6 shall continue beyond the termination of
my employment with the Company, but the Company shall compensate me at a
reasonable rate after such termination for time actually spent by me at the
Company's request on such assistance.
7. I have notified and I understand that the provisions of paragraph 6 above
do not apply to an invention which qualifies fully under the provisions of
Section 2870 of the California Labor Code, which state:
ANY PROVISION IN AN EMPLOYMENT AGREEMENT WHICH PROVIDES THAT AN EMPLOYEE
SHALL ASSIGN OR OFFER TO ASSIGN ANY OF HIS OR HER RIGHTS IN AN INVENTION TO
HIS OR HER EMPLOYER SHALL NOT APPLY TO AN INVENTION FOR WHICH NO EQUIPMENT,
SUPPLIES, FACILITY, OR TRADE SECRET INFORMATION OF THE EMPLOYER WAS USED
AND WHICH WAS DEVELOPED ENTIRELY ON THE EMPLOYEE'S OWN TIME, AND (a) WHICH
DOES NOT RELATE (1) TO THE BUSINESS OF THE EMPLOYER OR (2) TO THE
EMPLOYER'S ACTUAL OR DEMONSTRABLY ANTICIPATED RESEARCH OR DEVELOPMENT, OR
(b) WHICH DOES NOT RESULT FROM ANY WORK PERFORMED BY THE EMPLOYEE FOR THE
EMPLOYER. ANY PROVISION WHICH PURPORTS TO APPLY TO SUCH AN INVENTION IS TO
THAT EXTENT AGAINST THE PUBLIC POLICY OF THIS STATE AND IS TO THAT EXTENT
VOID AND UNENFORCEABLE.
8. I have identified on Exhibit A attached hereto a complete list of all
inventions which have been made or conceived or first reduced to practice
by me alone or jointly with others
2
<PAGE>
prior to my employment by the Company and which I desire to exclude from
the operation of this Agreement.
9. I agree that during the period of my employment with the Company I will
not, without the Company's written consent, engage in any employment or
activity other than for the Company in any business which the Company is
now or may hereafter become engaged.
10. I represent that my performance of all the terms of this Agreement and as
an employee of the Company does not and will not breach any agreement to
keep in confidence proprietary information acquired by me in confidence or
in trust prior to my employment with the Company, and I agree not to enter
into any agreement either written or oral in conflict herewith. I hereby
authorize the Company to make known the terms of this Agreement and the
fact of my responsibility hereunder to any person or entity, including
without limitation customers of the Company and my future employers.
11. I agree that I shall not for a period of six (6) months immediately
following the termination of my employment with the Company for any reason,
whether with or without cause either directly or indirectly (i) call on,
solicit, or take away, either for myself or for any other person or entity,
any of the customers or clients of the Company on whom I called or with
whom I became acquainted during my employment with the Company, or (ii)
solicit or take away. or attempt to solicit or take away any employees of
the Company, either for myself or for any other persons or entity.
12. I understand that my breach of the Agreement may cause the Company
irreparable harm 'which may not be adequately compensated by money damages.
Accordingly in the event of a breach or threatened breach by me of the
Agreement, the Company shall be entitled to injunctive or other preliminary
or equitable relief in addition to such other remedies as may be available
to the Company for such breach or threatened breach, including the recovery
of damages.
13 This agreement shall be binding upon me, my heirs, executors, assigns, and
administrators and shall inure to the benefit of the Company, its
successors and assigns. If any provision of this Agreement is held by a
court of competent jurisdiction to be void or unenforceable for any reason,
the remaining provisions of this Agreement shall continue with full force
and effect.
14. This agreement shall be effective as of the first day of my employment by
the Company, namely: Jan 6, 1995.
-----------
15. There are 1 inventions identified on Exhibit A attached hereto.
-
3
<PAGE>
Accepted:
by: ________________________________________________________________________
(Employee's Signature)
____________________________________________________________________________
(Employee's Printed Name)
Title: _____________________________________________________________________
(Employee's Job Position at ATM Inc.)
Dated: ________________, 19___
By: ________________________________________________________________________
(Witnessed By)
4
<PAGE>
EXHIBIT 21.1
List of Subsidiaries of Virata Corporation
------------------------------------------
Virata Limited United Kingdom
Virata Santa Clara Corporation Delaware
Virata Raleigh Corporation Delaware
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our reports dated August 20, 1999, relating to the financial statements and
financial statement schedule of Virata Corporation, which appear in such
Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
September 3, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 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
September 3, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AND RELATED NOTES FOR THE NINE MONTHS ENDED DECEMBER 31,
1998 AND THE YEAR ENDED MARCH 31, 1998 IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> MAR-31-2000 MAR-31-1999
<PERIOD-START> APR-01-1999 APR-01-1998
<PERIOD-END> JUN-30-1999 MAR-31-1999
<CASH> 6,509 8,616
<SECURITIES> 0 0
<RECEIVABLES> 2,486 5,009
<ALLOWANCES> 370 2,742
<INVENTORY> 381 264
<CURRENT-ASSETS> 10,885 13,380
<PP&E> 6,664 6,576
<DEPRECIATION> 4,368 4,092
<TOTAL-ASSETS> 16,311 19,183
<CURRENT-LIABILITIES> 5,705 5,338
<BONDS> 0 0
0 0
811 811
<COMMON> 211 211
<OTHER-SE> 8,589 11,693
<TOTAL-LIABILITY-AND-EQUITY> 16,311 19,183
<SALES> 2,665 9,256
<TOTAL-REVENUES> 2,665 9,256
<CGS> 1,273 3,997
<TOTAL-COSTS> 1,273 3,997
<OTHER-EXPENSES> 4,835 24,010
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 49 155
<INCOME-PRETAX> (3,015) (17,157)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,015) (17,157)
<EPS-BASIC> 0.23 1.33
<EPS-DILUTED> 0.23 1.33
</TABLE>
