<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 1, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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STANFORD MICRODEVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3674 77-0073042
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
522 ALMANOR AVENUE
SUNNYVALE, CA 94086
(408) 616-5400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT VAN BUSKIRK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
STANFORD MICRODEVICES, INC.
522 ALMANOR AVENUE
SUNNYVALE, CA 94086
(408) 616-5400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
<TABLE>
<S> <C>
STEVEN E. BOCHNER ROBERT M. MATTSON, JR.
STEVEN V. BERNARD CRAIG S. MORDOCK
SUSAN P. KRAUSE BRANDON C. PARRIS
WILSON SONSINI GOODRICH & ROSATI MORRISON & FOERSTER LLP
PROFESSIONAL CORPORATION 19900 MACARTHUR BOULEVARD
650 PAGE MILL ROAD 12TH FLOOR
PALO ALTO, CA 94304 IRVINE, CA 92612
(650) 493-9300 (949) 251-7500
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C>
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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Common stock, $0.001 par value.......................... $50,000,000 $13,200
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</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o).
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
The information in this preliminary 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 declared
effective. This preliminary prospectus is not an offer to sell these
securities and we are not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MARCH 1, 2000
[STANFORD MICRODEVICES LOGO]
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SHARES
COMMON STOCK
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This is the initial public offering of Stanford Microdevices, Inc. and we are
offering shares of our common stock. We anticipate the initial
public offering price will be between $ and $ per share. We have
applied to list our common stock on the Nasdaq National Market under the symbol
"SMDI."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS PROCEEDS TO
PRICE TO AND STANFORD
PUBLIC COMMISSIONS MICRODEVICES
---------------- -------------- ------------
<S> <C> <C> <C>
Per share $ $ $
Total $ $ $
</TABLE>
We have granted the underwriters the right to purchase up to
additional shares to cover over-allotments.
DEUTSCHE BANC ALEX. BROWN
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS
ROBERTSON STEPHENS
The date of this prospectus is , 2000
<PAGE> 3
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that investors
should consider before investing in our common stock. Investors should carefully
read the entire prospectus, including "Risk Factors" and the financial
statements, before making an investment decision.
OUR BUSINESS
We are a leading designer and supplier of high performance radio frequency,
or RF, components for communications equipment. Our products are used primarily
in wireless communications equipment to enable and enhance the transmission and
reception of voice and data signals. Our customers include communications
equipment manufacturers and a private label reseller of our RF components. We
design our products to meet the rapidly evolving performance requirements for
mobile wireless applications, such as cellular and mobile data networks,
broadband wireline applications, such as coaxial cable and fiber optic networks,
and fixed wireless applications, such as local and wide area site-to-site data
networks.
We offer a broad line of products that range in complexity from discrete
components to integrated circuits and multi-component modules. We believe our
products are well suited for the increasingly data-centric environments of
existing and future communications networks. We have adopted a fabless operating
strategy, which we believe is unique in the RF components industry. We outsource
the manufacturing of our semiconductor wafers to several wafer fabrication
facilities, or third-party wafer fabs, that use leading-edge process
technologies. We focus internally on our RF design and development expertise and
select what we believe to be the optimal process technology for any given
application without the constraint of a captive wafer fab facility. Our fabless
operating strategy, combined with our RF design and test expertise, gives us the
flexibility necessary to deliver a comprehensive line of high quality products
at compelling prices to our customers.
Our objective is to become the leading supplier of RF components for
wireless and broadband wireline communications infrastructure equipment. We
intend to achieve this objective by providing a comprehensive portfolio of high
performance and high value standard and customized RF components optimized for
their target applications. We recently established a separate business unit
focused on developing customized products for our customers' specific RF
applications. We plan to focus on expanding our product development initiatives
in wireless and broadband wireline infrastructure markets. We will also continue
to invest in research and development in the areas of semiconductor materials,
device modeling, RF circuit design, packaging technology, and test and
measurement.
We sell our products worldwide through U.S.-based distributors, through a
private label reseller who sells our products under its brand and through our
direct sales force. Our products are also sold through a worldwide network of
independent sales representatives whose orders are fulfilled either by us or our
distributors. We are expanding our marketing efforts to create awareness for our
products within our target markets and to support our direct and indirect sales
efforts.
We were incorporated in California on May 20, 1985 as Matrix Microassembly
Corporation. We began doing business as Stanford Microdevices, Inc. in 1992. On
November 21, 1997 we reincorporated in Delaware as Stanford Microdevices, Inc.
Our principal executive offices are located at 522 Almanor Avenue, Sunnyvale,
California 94086. Our telephone number at that location is (408) 616-5400. Our
web site is located at www.stanfordmicro.com. The information contained on our
web site does not constitute part of this prospectus.
1
<PAGE> 4
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Stanford Microdevices........ shares
Common stock to be outstanding after this offering... shares
Use of proceeds...................................... For working capital and general corporate
purposes. See "Use of Proceeds" on page 15 for
more detailed information.
Proposed Nasdaq National Market symbol............... SMDI
</TABLE>
The number of shares of common stock to be outstanding upon completion of
this offering is based on the number of shares outstanding as of December 31,
1999. This number assumes the conversion into common stock of all of our
mandatorily redeemable convertible preferred stock outstanding on that date and
the exercise of outstanding warrants to purchase 1,100,000 shares of our common
stock at an exercise price of $4.50 per share, and excludes:
- 5,231,373 shares subject to outstanding options under our Amended and
Restated 1998 Stock Plan;
- 1,963,318 shares available for future option grants under our Amended and
Restated 1998 Stock Plan; and
- 300,000 shares of common stock that will be available for issuance under
our 2000 Employee Stock Purchase Plan upon completion of this offering.
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1995 1996 1997 1998 1999
----------- ------ ------ ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues................................... $3,185 $4,712 $6,898 $8,231 $18,065
Gross profit................................... 828 1,484 2,928 3,377 8,069
Income (loss) from operations.................. 149 125 1,165 373 (2,516)
Net income (loss).............................. 137 101 1,105 279 (2,547)
Net income (loss) applicable to common
stockholders................................. 137 101 1,105 279 (2,802)
Pro forma basic and diluted net loss per share
(unaudited).................................. $ (0.15)
Shares used to compute pro forma basic and
diluted net loss per share (unaudited)....... 16,608
</TABLE>
See note 1 of the notes to consolidated financial statements for an
explanation of the determination of the number of shares used to compute the pro
forma basic and diluted per share amount.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............................. $10,965 $10,965
Working capital........................................ 7,746 7,746
Total assets........................................... 19,719 19,719
Long term obligations, less current portion............ 1,299 1,299
Mandatorily redeemable convertible preferred stock..... 17,255 --
Total stockholders' equity (net capital deficiency).... (6,310) 10,945
</TABLE>
The pro forma balance sheet data summarized above assumes the conversion of
all outstanding shares of mandatorily redeemable convertible preferred stock
into common stock upon completion of this offering on a one-to-one basis. The
pro forma as adjusted data above
2
<PAGE> 5
adjusts the pro forma amounts to reflect the application of the net proceeds
from the sale of shares of common stock offered by us at an assumed
initial public offering price of $ per share, after deducting estimated
underwriting discounts and commissions and estimated offering expenses.
Stanford Microdevices is our trademark. All other brand names or trademarks
appearing in this prospectus are the property of their respective holders.
-------------------------
Unless otherwise indicated, all information in this prospectus assumes:
- that the underwriters have not exercised their option to purchase
additional shares;
- conversion of all shares of mandatorily redeemable convertible preferred
stock into shares of common stock upon completion of this offering;
- the exercise of outstanding warrants to purchase 1,100,000 shares of
common stock; and
- the filing of an amended and restated certificate of incorporation,
increasing our authorized common stock and authorizing a class of
5,000,000 shares of undesignated preferred stock, upon completion of this
offering.
3
<PAGE> 6
RISK FACTORS
This offering involves a high degree of risk. Investors should carefully
consider the risks and uncertainties and the other information in this
prospectus before deciding whether to invest in shares of our common stock. Any
of the following risks could cause the trading price of our common stock to
decline.
RISKS RELATED TO OUR BUSINESS
WE MAY NOT MEET QUARTERLY FINANCIAL EXPECTATIONS, WHICH COULD CAUSE OUR STOCK
PRICE TO DECLINE.
Our quarterly operating results are likely to vary significantly in the
future based upon a number of factors related to our industry and the markets
for our products, over many of which we have little or no control. We operate in
a highly dynamic industry and future results could be subject to significant
fluctuations, particularly on a quarterly basis. These fluctuations could cause
us to fail to meet quarterly financial expectations, which could cause our stock
price to decline rapidly and significantly. Factors contributing to the
volatility of our stock price include:
- the timing and success of new product and technology introductions by us
or our competitors;
- availability of raw materials, semiconductor wafers and manufacturing
capacity or fluctuations in our manufacturing yields;
- changes in selling prices for our integrated circuits due to competitive
or currency exchange rate pressures;
- changes in our product mix;
- changes in the relative percentage of products sold through distributors
as compared to direct sales;
- market acceptance of our products; and
- changes in customer purchasing cycles.
Due to the factors discussed above, investors should not rely on
quarter-to-quarter comparisons of our results of operations as indicators of
future performance.
OUR RELIANCE ON THIRD-PARTY WAFER FABS TO MANUFACTURE OUR SEMICONDUCTOR WAFERS
MAY CAUSE A SIGNIFICANT DELAY IN OUR ABILITY TO FILL ORDERS AND LIMITS OUR
ABILITY TO ASSURE PRODUCT QUALITY AND TO CONTROL COSTS.
We do not own or operate a semiconductor fabrication facility. We currently
rely on four third-party wafer fabs to manufacture substantially all of our
semiconductor wafers. Each of these third-party wafer fabs is our sole source
for wafers manufactured using a particular process technology. Substantially all
of our products sold in 1999 were manufactured in gallium arsenide by TRW. The
supply agreement with TRW provides us with a guaranteed supply of wafers through
December 31, 2000. We may not be able to negotiate an extension to this
agreement on favorable terms, if at all. We also may not be successful in
forming an alternative supply arrangement that provides us with a sufficient
supply of gallium arsenide wafers. In addition, we have only recently begun
working with two of our four principal third-party wafer fabs. The loss of one
of our third-party wafer fabs, in particular TRW, or any delay or reduction in
wafer supply will impact our ability to fulfill customer orders, perhaps
materially, and could
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damage our relationships with our customers, either of which would significantly
harm our business and operating results. Because there are limited numbers of
third-party wafer fabs that use the particular process technologies we select
for our products and that have sufficient capacity to meet our needs, using
alternative or additional third-party wafer fabs would require an extensive
qualification process that could prevent or delay product shipments.
Our reliance on these third-party wafer fabs involves several additional
risks, including reduced control over the manufacturing costs, delivery times,
reliability and quality of our components produced from these wafers. The
fabrication of semiconductor wafers is a highly complex and precise process.
Minute impurities, difficulties in the fabrication process, defects in the masks
used to print circuits on a wafer, wafer breakage or other factors can cause a
substantial percentage of wafers to be rejected or numerous die on each wafer to
be nonfunctional. We expect that our customers will continue to establish
demanding specifications for quality, performance and reliability that must be
met by our products. Our third-party wafer fabs may not be able to achieve and
maintain acceptable production yields in the future. These risks are heightened
with respect to our two newest third-party wafer fabs which have not yet
produced wafers in volume for us. To the extent our third-party wafer fabs
suffer failures or defects, we could experience lost revenues, increased costs,
and delays in, cancellations or rescheduling of orders or shipments, any of
which would harm our business.
In the past, we have experienced delays in product shipments from our
third-party wafer fabs, which in turn delayed product shipments to our
customers. We may in the future experience similar delays or other problems,
such as inferior wafer quality, reduced manufacturing yields and inadequate
wafer supply.
OUR RELIANCE ON SUBCONTRACTORS TO PACKAGE OUR PRODUCTS COULD CAUSE A DELAY IN
OUR ABILITY TO FULFILL ORDERS OR COULD INCREASE OUR COST OF REVENUES.
We do not package the RF components that we sell but rather rely on
subcontractors to package our products. Packaging is the procedure of
electrically bonding and encapsulating the integrated circuit into its final
protective plastic or ceramic casing. We provide the wafers containing the
integrated circuits and, in some cases, packaging materials to third-party
packagers. Although we currently work with five packagers, substantially all of
our net revenues in 1999 were attributable to products packaged by one
subcontractor, MPI Corporation of Manila, Philippines. A relative of one of our
principal stockholders controls MPI. We do not have long-term contracts with our
third-party packagers stipulating fixed prices or packaging volumes. Therefore,
in the future we may be unable to obtain sufficient high quality or timely
packaging of our products. The loss or reduction in packaging capacity of any of
our current packagers, particularly MPI, would significantly damage our
business. In addition, increased packaging costs will adversely affect our
profitability.
The fragile nature of the semiconductor wafers that we use in our
components requires sophisticated packaging techniques and can result in low
packaging yields. If our packaging subcontractors fail to achieve and maintain
acceptable production yields in the future, we could experience increased costs,
including warranty expense and costs associated with customer support, delays in
or cancellations or rescheduling of orders or shipments, product returns or
discounts and lost revenues, any of which would harm our business.
WE DEPEND ON TWO DISTRIBUTORS FOR A SIGNIFICANT PORTION OF OUR SALES, THE LOSS
OF ANY ONE OF WHICH WOULD LIMIT OUR ABILITY TO SUSTAIN AND GROW OUR REVENUES.
Historically, two distributors, Avnet Electronics Marketing and Richardson
Electronics, have accounted for a significant portion of our sales. In 1999,
sales through Richardson Electronics represented 38% of our net revenues and
sales through Avnet Electronics Marketing
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<PAGE> 8
represented 13% of our net revenues. These distributors principally purchase our
standard components for resale to their customers. Our contracts with these
distributors do not require them to purchase our products and may be terminated
by them at any time without penalty. If our distributors fail to successfully
market and sell our products, our revenues could be materially adversely
affected. The loss of either of our current distributors and our failure to
develop new and viable distribution relationships would limit our ability to
sustain and grow our revenues.
WE DEPEND ON MINICIRCUITS LABORATORIES FOR A SUBSTANTIAL PORTION OF OUR REVENUES
AND THE LOSS OF MINICIRCUITS AS A CUSTOMER OR A DECREASE IN PURCHASES BY
MINICIRCUITS WOULD ADVERSELY AFFECT OUR REVENUES.
Sales to Minicircuits Laboratories, a private label reseller of our
products, account for a significant portion of our revenues. For example, 36% of
our net revenues in 1998 and 41% of our net revenues in 1999 were attributable
to sales to Minicircuits. We expect that we will continue to rely on sales to
Minicircuits for a significant portion of our future revenues. In addition to
reselling products of Stanford Microdevices and other RF component suppliers,
Minicircuits also designs and supplies their own RF components. Our current
contract with Minicircuits does not require Minicircuits to purchase our
products in the future. If we were to lose Minicircuits as a customer, or if
Minicircuits substantially reduced its purchases, our business and operating
results would be adversely affected.
INTENSE COMPETITION IN OUR INDUSTRY COULD PREVENT US FROM INCREASING REVENUES
AND SUSTAINING PROFITABILITY.
The RF semiconductor industry is intensely competitive and is characterized
by the following:
- rapid technological change;
- rapid product obsolescence;
- shortages in wafer fabrication capacity;
- price erosion; and
- unforeseen manufacturing yield problems.
We compete primarily with other suppliers of high-performance RF components
used in the infrastructure of communications networks such as Agilent, Alpha
Industries, Anadigics, Conexant, Infineon, M/A-COM, Minicircuits Laboratories,
NEC, RF Micro Devices, TriQuint Semiconductor and Watkins-Johnson. We also
compete with communications equipment manufacturers who manufacture RF
components internally such as Ericsson, Lucent, Motorola and Nortel Networks. We
expect increased competition both from existing competitors and from a number of
companies that may enter the RF component market, as well as future competition
from companies that may offer new or emerging technologies. In addition, many of
our current and potential competitors have significantly greater financial,
technical, manufacturing and marketing resources than we have. As a result,
communications equipment manufacturers may decide not to buy from us due to
their concerns about our size, financial stability or ability to interact with
their logistics systems. Our failure to successfully compete in our markets
would have a material adverse effect on our business, financial condition and
results of operations.
6
<PAGE> 9
OUR BUSINESS STRATEGY IS DEPENDENT ON SUCCESSFUL MARKETING AND SALES OF RF
COMPONENTS PRODUCED USING THREE PROCESS TECHNOLOGIES WITH WHICH WE HAVE LIMITED
EXPERIENCE.
We shipped our first products using silicon germanium and indium gallium
phosphide in the fourth quarter of 1999. In addition, although we plan to act as
a reseller of products manufactured using the laterally diffused metal oxide
semiconductor process, we have not yet generated any revenues from resale of
these products. As a result, investors have a very limited basis upon which to
evaluate the demand for, and market acceptance of, products manufactured using
these technologies. If our products using these technologies do not meet
customer expectations or if the market for these products fails to develop or
develops more slowly than we expect, our business would be harmed.
IF WE FAIL TO INTRODUCE NEW PRODUCTS IN A TIMELY AND COST-EFFECTIVE MANNER, OUR
ABILITY TO SUSTAIN AND INCREASE OUR REVENUES COULD SUFFER.
The markets for our products are characterized by frequent new product
introductions, evolving industry standards and changes in product and process
technologies. Because of this, our future success will in large part depend on:
- our ability to continue to introduce new products in a timely fashion;
- our ability to improve our products and to adapt to new process
technologies in a timely manner;
- our ability to adapt our products to support emerging and established
industry standards; and
- market acceptance of our products.
We estimate that the development cycles of our products from concept to
production could last up to 12 months. We may not be able to introduce new
products in a timely and cost-effective manner which would impair our ability to
sustain and increase our revenues.
PRODUCT QUALITY, PERFORMANCE AND RELIABILITY PROBLEMS COULD DISRUPT OUR BUSINESS
AND HARM OUR FINANCIAL CONDITION.
Our customers demand that our products meet stringent quality, performance
and reliability standards. RF components such as those we produce may contain
undetected defects or flaws when first introduced or after commencement of
commercial shipments. We have from time to time experienced product quality,
performance or reliability problems. In addition, some of our products are
manufactured using process technologies that are relatively new and for which
long-term field performance data are not available. As a result, defects or
failures may occur in the future relating to our product quality, performance
and reliability. If these failures or defects occur, we could experience lost
revenues, increased costs, including warranty expense and costs associated with
customer support, delays in or cancellations or rescheduling of orders or
shipments and product returns or discounts, any of which would harm our
business.
SOURCES FOR CERTAIN COMPONENTS AND MATERIALS ARE LIMITED, WHICH COULD RESULT IN
DELAYS OR REDUCTIONS IN PRODUCT SHIPMENTS.
The semiconductor industry from time to time is affected by limited
supplies of certain key components and materials. For example, we rely on
limited sources for certain packaging materials. If we, or our packaging
subcontractors, are unable to obtain these or other materials in the required
quantity and quality, we could experience delays or reductions in product
shipments, which would materially and adversely affect our profitability.
Although we have not
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experienced any significant difficulty to date in obtaining these materials,
these shortages may arise in the future. We cannot guarantee that we would not
lose potential sales if key components or materials are unavailable, and as a
result, we are unable to maintain or increase our production levels.
IF COMMUNICATIONS EQUIPMENT MANUFACTURERS INCREASE THEIR INTERNAL PRODUCTION OF
RF COMPONENTS, OUR REVENUES WOULD DECREASE AND OUR BUSINESS WOULD BE HARMED.
Currently, communications equipment manufacturers obtain their RF
components by either developing them internally or by buying widely available
standard RF components from third-party distributors. We have historically
generated substantially all of our revenues through sales of standard components
to these manufacturers through our distributors. If communications equipment
manufacturers increase their internal production of RF components and reduce
purchases of RF components from third parties, our revenues would decrease and
our business would be harmed.
WE HAVE RECENTLY ESTABLISHED A BUSINESS UNIT FOCUSED ON DESIGNING RF COMPONENTS
FOR SPECIFIC EQUIPMENT MANUFACTURERS. OUR FAILURE TO GROW THIS BUSINESS UNIT
WOULD IMPAIR OUR ABILITY TO SUSTAIN AND INCREASE OUR REVENUES.
Communications equipment manufacturers have begun to work directly with
component suppliers such as us to design and build customized products for
specific needs. We have recently established a business unit focused on
designing RF components to meet these needs. Our business strategy is dependent
in part on this business unit to sustain and increase our revenues. This
business unit has not yet completed development of or shipped any products and
we cannot guarantee that we will be successful in developing this business unit.
Development of this business unit will require us to expand our internal sales
force and successfully install logistic and supply chain software and processes
to manage this business unit. Each of these tasks will require significant
management attention and expenditure of resources. Even with this attention and
these expenditures, we may be unsuccessful in operating this business unit and
this business unit may not generate any revenues.
We may spend considerable sums developing components for a particular
application or a potential customer. We do not expect that these customers will
have any contractual obligation to purchase these products and we many never
realize any revenues from sales of these products. In addition, if the recent
trend of outsourcing the design and manufacture of customized components to
third parties is reversed, we would not be able to execute this element of our
business strategy.
THIRD-PARTY WAFER FABS WHO MANUFACTURE THE SEMICONDUCTOR WAFERS FOR OUR PRODUCTS
MAY COMPETE WITH US IN THE FUTURE.
Several third-party wafer fabs independently produce and sell RF components
directly to communications equipment manufacturers. We currently rely on certain
of these third-party wafer fabs to produce the semiconductor wafers for our
products and, in the case of UltraRF, for the production of the RF components
which we plan to resell to communications equipment manufacturers. These
third-party wafer fabs possess confidential information concerning our products
and product release schedules. We cannot guarantee that they would not use our
confidential information to compete with us. Competition from these third-party
wafer fabs may result in reduced demand for our products and could damage our
relationships with these third-party wafer fabs, thereby harming our business.
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PERCEIVED RISKS RELATING TO PROCESS TECHNOLOGIES WE MAY ADOPT IN THE FUTURE TO
MANUFACTURE OUR PRODUCTS COULD CAUSE RELUCTANCE AMONG POTENTIAL CUSTOMERS TO
PURCHASE OUR PRODUCTS.
We may adopt new process technologies in the future to manufacture our
products. Prospective customers of these products may be reluctant to purchase
these products based on perceived risks of these new technologies. These risks
could include concerns related to manufacturing costs and yields and
uncertainties about the relative cost-effectiveness of products produced using
these new technologies. If our products fail to achieve market acceptance, our
business, financial condition and results of operations would be materially
adversely affected.
WE MAY ENCOUNTER DIFFICULTIES IN MANAGING OUR GROWTH.
We are experiencing a period of rapid growth and expansion that will
continue to place a significant strain on our management and other resources.
The number of our employees has increased from 24 at December 31, 1998 to 77 at
December 31, 1999. To accommodate this growth, we must implement a variety of
new and upgraded operational and financial systems, procedures and controls,
including the improvement of the accounting and other internal management
systems. This may require substantial managerial and financial effort, and our
efforts in this regard may not be successful. Our current systems, procedures
and controls may not be adequate to support our operations. If we fail to
improve our operational, financial and management information systems, or fail
to effectively motivate or manage our new and future employees, our business
could be harmed.
Several members of our senior management joined us in 1999, including
Robert Van Buskirk, our President and Chief Executive Officer, and Thomas
Scannell, our Vice President, Finance and Administration and Chief Financial
Officer. We cannot guarantee that our management team will be able to continue
to work together effectively or manage our growth successfully.
IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL,
WE MAY BE UNABLE TO PURSUE BUSINESS OPPORTUNITIES OR DEVELOP OUR PRODUCTS.
We believe that our future success will depend in large part upon our
continued ability to recruit, hire, retain and motivate highly skilled
technical, marketing and managerial personnel, who are in great demand.
Competition for these employees, particularly RF integrated circuit design
engineers, is intense. Our failure to hire additional qualified personnel in a
timely manner and on reasonable terms could adversely affect our business and
profitability. In addition, from time to time we may recruit and hire employees
from our customers, suppliers and distributors, which could damage our business
relationship with these parties. Our success also depends on the continuing
contributions of our senior management and technical personnel, all of whom
would be difficult to replace. The loss of key personnel could adversely affect
our ability to execute our business strategy, which could cause our results of
operations and financial condition to suffer. We may not be successful in
retaining these key personnel.
OUR LIMITED ABILITY TO PROTECT OUR PROPRIETARY INFORMATION AND TECHNOLOGY MAY
ADVERSELY AFFECT OUR ABILITY TO COMPETE.
Our future success and ability to compete is dependent in part upon our
proprietary information and technology. None of our technology is currently
patented. Instead, we rely on a combination of contractual rights and copyright,
trademark and trade secret laws and practices to establish and protect our
proprietary technology. We generally enter into confidentiality
9
<PAGE> 12
agreements with our employees, consultants, resellers, wafer suppliers,
customers and potential customers, and strictly limit the disclosure and use of
other proprietary information. The steps taken by us in this regard may not be
adequate to prevent misappropriation of our technology. Additionally, our
competitors may independently develop technologies that are substantially
equivalent or superior to our technology. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy or otherwise obtain
or use our products or technology. In addition, the laws of some foreign
countries do not protect our proprietary rights to the same extent as do the
laws of the United States.
OUR PRODUCTS COULD INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, AND
RESULTING CLAIMS AGAINST US COULD BE COSTLY AND REQUIRE US TO ENTER INTO
DISADVANTAGEOUS LICENSE OR ROYALTY ARRANGEMENTS.
The semiconductor industry is characterized by the existence of a large
number of patents and frequent litigation based on allegations of patent
infringement and the violation of intellectual property rights. Although we
attempt to avoid infringing known proprietary rights of third parties in our
product development efforts, we expect that we may be subject to legal
proceedings and claims for alleged infringement by us or our licensees of
third-party proprietary rights, such as patents, trade secrets, trademarks or
copyrights, from time to time in the ordinary course of business. Any claims
relating to the infringement of third-party proprietary rights, even if not
meritorious, could result in costly litigation, divert management's attention
and resources, or require us to enter into royalty or license agreements which
are not advantageous to us. In addition, parties making these claims may be able
to obtain an injunction, which could prevent us from selling our products in the
United States or abroad. We may increasingly be subject to infringement claims
as the number of our products grows.
OUR RELIANCE ON FOREIGN SUPPLIERS AND MANUFACTURERS EXPOSES US TO THE ECONOMIC
AND POLITICAL RISKS OF THE COUNTRIES IN WHICH THEY ARE LOCATED.
Independent third parties in other countries package all of our products
and supply some of our wafers and substantially all of the packaging materials
used in the production of our components. Due to our reliance on foreign
suppliers and packagers, we are subject to the risks of conducting business
outside the United States. These risks include:
- unexpected changes in, or impositions of, legislative or regulatory
requirements;
- shipment delays, including delays resulting from difficulty in obtaining
export licenses;
- tariffs and other trade barriers and restrictions;
- political, social and economic instability; and
- potential hostilities and changes in diplomatic and trade relationships.
In addition, we currently transact business with our foreign suppliers and
packagers in U.S. dollars. Consequently, if the currencies of our suppliers'
countries were to increase in value against the U.S. dollar, our suppliers may
attempt to raise the cost of our wafers, packaging materials, and packaging
services, which could have an adverse effect on our profitability.
A SIGNIFICANT PORTION OF OUR PRODUCTS ARE SOLD TO INTERNATIONAL CUSTOMERS EITHER
THROUGH OUR DISTRIBUTORS OR DIRECTLY BY US, WHICH EXPOSES US TO RISKS THAT MAY
ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
A significant portion of our direct sales and sales through our
distributors were to foreign purchasers, particularly in countries located in
Asia. Demand for our products in Asia could
10
<PAGE> 13
decrease, which could have a materially adverse effect on our results of
operations. Therefore, our future operating results may depend on several
economic conditions in Asia, including:
- changes in trade policy and regulatory requirements;
- fluctuations in currency;
- duties, tariffs and other trade barriers and restrictions;
- trade disputes; and
- political instability.
ANY FUTURE ACQUISITIONS OF COMPANIES OR TECHNOLOGIES MAY RESULT IN DISTRACTION
OF OUR MANAGEMENT AND DISRUPTIONS TO OUR BUSINESS.
We may acquire or make investments in complementary businesses,
technologies, services or products if appropriate opportunities arise. From time
to time, we may engage in discussions and negotiations with companies regarding
our acquiring or investing in their businesses, products, services or
technologies. We may not be able to identify suitable acquisition or investment
candidates in the future, or if we do identify suitable candidates, we may not
be able to make such acquisitions or investments on commercially acceptable
terms or at all. If we acquire or invest in another company, we could have
difficulty assimilating that company's personnel, operations, technology or
products and service offerings. In addition, the key personnel of the acquired
company may decide not to work for us. These difficulties could disrupt our
ongoing business, distract our management and employees, increase our expenses
and adversely affect our results of operations. Furthermore, we may incur
indebtedness or issue equity securities to pay for any future acquisitions. The
issuance of equity securities could be dilutive to our existing stockholders. In
addition, the accounting treatment for any acquisition transaction may result in
significant goodwill, which, when amortized, will negatively affect our net
income. As of the date of this prospectus, we have no agreement to enter into
any investment or acquisition transaction.
RISKS RELATED TO OUR INDUSTRY
OUR GROWTH DEPENDS ON THE GROWTH OF THE INFRASTRUCTURE FOR WIRELESS AND WIRELINE
COMMUNICATIONS. IF THIS MARKET DOES NOT CONTINUE TO GROW, OR IF IT GROWS AT A
SLOW RATE, DEMAND FOR OUR PRODUCTS WILL DIMINISH.
Our success will depend in large part on the continued growth of the
telecommunications industry in general and, in particular, the market for
wireless and wireline infrastructure components. We cannot assure you that the
market for these infrastructure products will continue to grow at historical
rates or at all. Even if the demand for infrastructure grows, we will need to
complete new product designs that meet the needs of our customers at a rate
consistent with the growth of the market. Our product and process development
efforts may not be successful in this regard.
THE TIMING OF THE ADOPTION OF INDUSTRY STANDARDS MAY NEGATIVELY IMPACT
WIDESPREAD MARKET ACCEPTANCE OF OUR PRODUCTS.
The markets in which we and our customers compete are characterized by
rapidly changing technology, evolving industry standards and continuous
improvements in products and services. If technologies or standards supported by
our or our customers' products become obsolete or
11
<PAGE> 14
fail to gain widespread commercial acceptance, our business will be
significantly damaged. In addition, the increasing demand for wireless and
wireline communications has exerted pressure on standards bodies worldwide to
adopt new standards for these products, generally following extensive
investigation of, and deliberation over, competing technologies. The delays
inherent in the standards approval process may in the future cause the
cancellation, postponement or rescheduling of the installation of communications
systems by our customers. These delays may in the future have a material adverse
effect on the sale of products by us and on our business, financial condition
and results of operations.
INDUSTRY-WIDE FLUCTUATIONS IN SUPPLY AND DEMAND FOR SEMICONDUCTOR PRODUCTS COULD
ADVERSELY IMPACT OUR BUSINESS.
The semiconductor industry has historically been characterized by wide
fluctuations in supply and demand for semiconductor products. From time to time,
demand for semiconductor products has decreased, often in connection with, or in
anticipation of, major additions of wafer fabrication capacity or maturing
product cycles or due to general economic conditions. In the past, diminished
product demand, production overcapacity and subsequent accelerated price erosion
have lasted for extended periods of time. These fluctuations may occur in the
future and could materially and adversely impact our business.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE MAY BE EXTREMELY VOLATILE.
Our common stock has never been sold in a public market and an active
trading market for our common stock may not develop or be sustained upon the
completion of this offering. We are negotiating the initial public offering
price of the common stock with the underwriters. However, the initial public
offering price may not be indicative of the prices that will prevail in the
public market after the offering, and the market price of the common stock could
fall below the initial public offering price. Investors should read the
"Underwriting" section for a discussion of the factors considered in determining
the initial public offering price.
In addition, the market price of our common stock could fluctuate widely in
response to the following factors:
- actual or anticipated variations in operating results;
- announcements of technological innovations, new products or new services
by us or by our competitors or customers;
- changes in financial estimates or recommendations by stock market
analysts regarding us or our competitors;
- announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments;
- additions or departures of key personnel;
- future equity or debt offerings or our announcements of these offerings;
and
- general market and economic conditions.
In addition, in recent years, the stock market in general, and the Nasdaq
National Market and the securities of technology companies in particular, have
experienced extreme price and volume fluctuations. These fluctuations have often
been unrelated or disproportionate to the
12
<PAGE> 15
operating performance of individual companies. These broad market fluctuations
may materially adversely affect our stock price, regardless of our operating
results.
WE MAY INVEST OR SPEND THE PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH
INVESTORS MAY NOT AGREE AND IN WAYS THAT MAY NOT YIELD A FAVORABLE RETURN.
We will retain broad discretion over the use of proceeds from this
offering. Stockholders may not deem the actual uses desirable, and our use of
the proceeds may not yield a significant return or any return at all. We intend
to use the proceeds from this offering for research and development, working
capital and other general corporate purposes and to finance potential
acquisitions and investments. Because of the number and variability of factors
that determine our use of the net proceeds from this offering, we cannot
guarantee that these uses will not vary substantially from our currently planned
uses.
SOME OF OUR EXISTING STOCKHOLDERS CAN EXERT CONTROL OVER US, AND THEY MAY NOT
MAKE DECISIONS THAT REFLECT THE INTERESTS OF STANFORD MICRODEVICES OR OTHER
STOCKHOLDERS.
After this offering, our officers, directors and principal stockholders
(greater than 5% stockholders) will together control approximately % of our
outstanding common stock and our two founding stockholders will control %
of our outstanding common stock. As a result, these stockholders, if they act
together, and our founding stockholders acting alone, will be able to exert a
significant degree of influence over our management and affairs and control
matters requiring stockholder approval, including the election of all of our
directors and approval of significant corporate transactions. In addition, this
concentration of ownership may delay or prevent a change in control of Stanford
Microdevices and might affect the market price of our common stock. In addition,
the interests of these stockholders may not always coincide with the interests
of Stanford Microdevices or the interests of other stockholders.
OUR CHARTER AND BYLAWS AND DELAWARE LAW CONTAIN PROVISIONS THAT MAY DELAY OR
PREVENT A CHANGE OF CONTROL.
Provisions of our charter and bylaws may have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of us. These provisions could limit the price
that investors might be willing to pay in the future for shares of our common
stock. These provisions include:
- division of the board of directors into three separate classes;
- elimination of cumulative voting in the election of directors;
- prohibitions on our stockholders from acting by written consent and
calling special meetings;
- procedures for advance notification of stockholder nominations and
proposals; and
- the ability of the board of directors to alter our bylaws without
stockholder approval.
In addition, our board of directors has the authority to issue up to
5,000,000 shares of preferred stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without any further vote or action by the stockholders. The issuance of
preferred stock, while providing flexibility in connection with possible
financings or acquisitions or other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of our
outstanding voting stock.
13
<PAGE> 16
We are also subject to Section 203 of the Delaware General Corporation Law
that, subject to exceptions, prohibits a Delaware corporation from engaging in
any business combination with any interested stockholder for a period of three
years following the date that this stockholder became an interested stockholder.
The preceding provisions of our charter and bylaws, as well as Section 203 of
the Delaware General Corporation Law, could discourage potential acquisition
proposals, delay or prevent a change of control and prevent changes in our
management.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
The market price of our common stock could decline as a result of sales by
our existing stockholders of a large number of shares of our common stock in the
market after this offering or the perception that such sales could occur. These
sales also might make it more difficult for us to sell equity securities in the
future at a time and at a price that we deem appropriate. Please see "Shares
Eligible for Future Sale" for a description of sales that may occur in the
future.
WE DO NOT INTEND TO PAY DIVIDENDS ON OUR COMMON STOCK.
We currently intend to retain any future earnings for funding growth and,
therefore, do not anticipate paying any dividends in the foreseeable future.
INVESTORS IN THIS OFFERING WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.
We expect the initial public offering to be substantially higher than the
net tangible book value per share of our common stock. The net tangible book
value of a share of common stock purchased at an assumed initial public offering
price of $ per share will be only $ . Additional dilution may be
incurred if holders of options to purchase our common stock, whether currently
outstanding or subsequently granted, exercise their options.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance. In some cases, forward-looking statements can be identified by
terminology such as "may," "will," "should," "expect," "anticipate," "intend,"
"plan," "believe," "estimate," "potential," or "continue," the negative of these
terms or other comparable terminology. These statements involve a number of
risks and uncertainties. Actual events or results may differ materially from any
forward-looking statement as a result of various factors, including those we
discuss in "Risk Factors" and elsewhere in this prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Except as required by law, we undertake
no obligation to update publicly any forward-looking statements for any reason
after the date of this prospectus to conform these statements to actual results
or to changes in our expectations. Before investing in our common stock,
investors should be aware that the occurrence of the events described under
"Risk Factors" and elsewhere in this prospectus could have a material adverse
effect on our business, operating results and financial condition.
14
<PAGE> 17
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the shares of
common stock we are offering at an assumed initial public offering price of
$ per share, after deducting estimated underwriting discounts and
commissions and estimated offering expenses will be approximately $ .
If the underwriters' over-allotment option is exercised in full, we estimate
that our net proceeds will be approximately $ million. We expect to use
the net proceeds from this offering for general corporate purposes, including
working capital, research and development and capital expenditures. A portion of
the proceeds may also be used to acquire or invest in complementary businesses
or products or to obtain the right to use complementary technologies, although
there are no current plans, negotiations or discussions for any of these
transactions. Pending use of the net proceeds for the above purposes, we intend
to invest these funds in short-term, interest-bearing, investment grade
securities.
DIVIDEND POLICY
In the past, we have operated as an S corporation for federal tax purposes
and we have paid dividends to the holders of our common stock. We became a C
corporation in October 1999 and we currently anticipate that we will retain all
of our future earnings for use in the expansion and operation of our business
and do not anticipate paying any cash dividends in the foreseeable future.
15
<PAGE> 18
CAPITALIZATION
The following table shows:
- our actual capitalization as of December 31, 1999;
- our capitalization as of December 31, 1999 on a pro forma basis to
reflect the automatic conversion of all outstanding shares of mandatorily
redeemable convertible preferred stock into shares of common stock upon
the closing of this offering; and
- our pro forma capitalization as of December 31, 1999 as adjusted to
reflect the exercise of outstanding warrants and the receipt of the
estimated net proceeds from the sale of common stock offered by us at an
assumed initial public offering price of $ per share, after deducting
estimated underwriting discounts and commissions and estimated offering
expenses.
The following table does not include:
- 5,231,373 shares of common stock subject to outstanding options as of
December 31, 1999 at a weighted average exercise price of $1.25 per
share;
- 1,963,318 additional shares of common stock available for future grant
under our Amended and Restated 1998 Stock Plan; or
- 300,000 shares of common stock that will be available for issuance under
our 2000 Employee Stock Purchase Plan upon completion of this offering.
This information should be read in conjunction with our consolidated
financial statements and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Long-term debt, less current portion.................... $ 1,299 $ 1,299
Mandatorily redeemable convertible preferred stock,
$.001 par value, 6,000,000 shares authorized actual
and pro forma, 5,647,839 shares issued and
outstanding, actual; no shares issued or outstanding,
pro forma and pro forma as adjusted................... 17,255 --
Stockholders' equity (net capital deficiency):
Preferred stock, $.001 par value, no shares
authorized, issued or outstanding actual and pro
forma; 5,000,000 shares authorized, no shares
issued and outstanding pro forma as adjusted....... -- --
Common stock, $.001 par value, 30,000,000 shares
authorized actual and pro forma; 15,000,000 shares
issued and outstanding actual, 20,647,839 shares
issued and outstanding pro forma; 200,000,000
shares authorized, shares issued and
outstanding pro forma as adjusted.................. 15 21
Additional paid-in capital.............................. 5,141 22,390
Deferred stock compensation............................. (4,061) (4,061)
Accumulated deficit..................................... (7,405) (7,405)
------- ------- --------
Total stockholders' equity (net capital deficiency)..... (6,310) 10,945
------- ------- --------
Total capitalization.................................... $12,244 $12,244
======= ======= ========
</TABLE>
16
<PAGE> 19
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
approximately $10.9 million, or $0.53 per share. Pro forma net tangible book
value per share represents the amount of our total tangible assets reduced by
the amount of our total liabilities divided by the total number of shares of
common stock outstanding after giving effect to the automatic conversion of our
mandatorily redeemable convertible preferred stock into shares of common stock.
After giving effect to our sale of the shares of common stock
offered by this prospectus, based upon an assumed initial public offering price
of $ per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by us, our pro forma net
tangible book value at December 31, 1999 would have been $ , or
$ per share. This represents an immediate increase in pro forma net tangible
book value of $ per share to existing stockholders and an immediate dilution
to new investors of $ per share. Dilution is determined by subtracting pro
forma net tangible book value per share after this offering from the assumed
initial public offering price per share. 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 before the
offering as of December 31, 1999....................... $
Increase in pro forma net tangible book value per share
attributable to new investors..........................
-------
Pro forma net tangible book value per share after this
offering..................................................
-------
Dilution per share to new investors......................... $
=======
</TABLE>
The following table sets forth, on a pro forma basis as of December 31,
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 by investors purchasing shares in this offering (based
upon an assumed initial public offering price of $ per share before
deducting estimated underwriting discounts and commissions and estimated
offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 20,647,839 % $17,000,000 % $ 0.82
New investors............. $
---------- ----- ----------- ----- ------
Total................... 100.0% $ 100.0% $
========== ===== =========== ===== ======
</TABLE>
If the underwriters' over-allotment option is exercised in full, the number
of shares held by new investors will increase to , or % of
the total shares of common stock outstanding after this offering.
The above discussion and tables assume no exercise of stock options or
warrants outstanding as of December 31, 1999 and gives effect to the conversion
of all outstanding shares of mandatorily redeemable convertible preferred stock
into common stock. In the event that we issue additional shares of common stock
in the future, purchasers of common stock in this offering may experience
further dilution. As of December 31, 1999, there were options outstanding to
purchase 5,231,373 shares of common stock at a weighted average exercise price
of approximately $1.25 per share and warrants to purchase 1,100,000 shares of
common stock at an exercise price of $4.50 per share. We also have 1,963,318
shares of common stock available for issuance under our Amended and Restated
1998 Stock Plan. To the extent these outstanding options or warrants are
exercised, or new options or rights are issued under our stock plans, new
investors will experience further dilution.
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<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
The following consolidated selected financial data should be read in
conjunction with the consolidated financial statements and related notes, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statement of
operations data for the years ended December 31, 1997, 1998 and 1999 and the
consolidated balance sheet data as of December 31, 1998 and 1999 have been
derived from consolidated financial statements that have been audited by Ernst &
Young LLP, independent auditors, included elsewhere in this prospectus. The
consolidated statement of operations data for the year ended December 31, 1996
and the consolidated balance sheet data as of December 31, 1996 and 1997 have
been derived from audited consolidated financial statements not included in this
prospectus. The consolidated statement of operations data for the year ended
December 31, 1995 and the consolidated balance sheet data as of December 31,
1995 are derived from unaudited consolidated financial statements not included
in this prospectus and, in our opinion, include all adjustments, consisting of
normal recurring adjustments, which are necessary for a fair presentation of the
results of operations as of and for this period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1995 1996 1997 1998 1999
----------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues:
Product revenues.......................................... $ 1,296 $ 3,676 $ 5,963 $ 7,417 $17,248
Contract manufacturing revenues........................... 1,889 1,036 935 814 817
------- ------- ------- ------- -------
Total net revenues...................................... 3,185 4,712 6,898 8,231 18,065
Cost of revenues............................................ 2,357 3,228 3,970 4,854 9,996
------- ------- ------- ------- -------
Gross profit................................................ 828 1,484 2,928 3,377 8,069
Operating expenses:
Research and development.................................. 161 472 643 932 2,274
Sales and marketing....................................... 169 373 461 1,107 2,951
General and administrative................................ 349 514 659 965 2,089
Special charges........................................... -- -- -- -- 2,990
Amortization of deferred stock compensation............... -- -- -- -- 281
------- ------- ------- ------- -------
Total operating expenses................................ 679 1,359 1,763 3,004 10,585
------- ------- ------- ------- -------
Income (loss) from operations............................... 149 125 1,165 373 (2,516)
Interest and other income (expense), net.................... 1 (13) (10) (84) 17
Provision for income taxes.................................. 13 11 50 10 48
------- ------- ------- ------- -------
Net income (loss)........................................... $ 137 $ 101 $ 1,105 $ 279 $(2,547)
======= ======= ======= ======= =======
Accretion of mandatorily redeemable convertible preferred
stock..................................................... -- -- -- -- (255)
------- ------- ------- ------- -------
Net income (loss) applicable to common
stockholders.............................................. $ 137 $ 101 $ 1,105 $ 279 $(2,802)
======= ======= ======= ======= =======
Basic and diluted net income (loss) per share applicable to
common stockholders....................................... $ 0.01 $ 0.01 $ 0.07 $ 0.02 $ (0.19)
======= ======= ======= ======= =======
Shares used to compute basic and diluted net income (loss)
per share applicable to common stockholders............... 15,000 15,000 15,000 15,000 15,000
Pro forma basic and diluted net loss per share
(unaudited)............................................... $ (0.15)
=======
Shares used to compute pro forma basic and diluted net loss
per share (unaudited)..................................... 16,608
Distribution to stockholders................................ $ -- $ 168 $ 784 $ 1,067 $ 4,388
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
----------- ------ ------ ------ -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $114 $ 190 $ 486 $ 217 $10,965
Working capital (deficit)................................... 438 199 (10) (854) 7,746
Total assets................................................ 550 1,649 3,742 3,806 19,719
Long term obligations, less current portion................. 118 63 147 813 1,299
Mandatorily redeemable convertible preferred stock.......... -- -- -- -- 17,255
Total stockholders' equity (net capital deficiency)......... 333 267 588 10 (6,310)
</TABLE>
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<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and our consolidated financial statements
and notes included elsewhere in this prospectus. The discussion in this
prospectus contains forward-looking statements that involve risks, uncertainties
and assumptions, such as statements of our plans, objectives, expectations and
intentions. The cautionary statements made in this prospectus should be read as
being applicable to all related forward-looking statements wherever they appear
in this prospectus. Our actual results may differ materially from those
discussed here. Factors that could cause or contribute to the differences
include those discussed in "Risk Factors," as well as those discussed elsewhere
in this prospectus.
OVERVIEW
We are a leading designer and supplier of high performance RF components
for communications equipment manufacturers. Our products are used primarily in
wireless communications equipment to enable and enhance the transmission and
reception of voice and data signals.
We derive a majority of our revenues from the sale of standard RF
components, which we develop from our own specifications and sell primarily
through distributors. In early 2000, we launched a separate business unit
focused on designing customized products for specific RF applications for
communications equipment manufacturers. These products are still in development
and we do not expect to generate material revenues from this business unit until
at least 2001.
We sell our products worldwide through U.S.-based distributors, through a
private label reseller who sells our products under its brand and through our
direct sales force. Our products are also sold through a worldwide network of
independent sales representatives whose orders are fulfilled either by
distributors or us. Significant portions of our distributors' end sales are made
to their customers overseas.
From 1986 to 1995, we generated revenues primarily from design services and
contract manufacturing services for RF components. Net revenues from contract
manufacturing services as a percentage of our total net revenues declined
significantly from 1996 to 1999. Net revenues from contract manufacturing
services for Pulsar Microwave accounted for 11% of our total net revenues in
1997. Contract manufacturing customers represented less than 10% of our total
net revenues in 1998 and 1999. In 1999, we made the strategic decision to
discontinue our contract manufacturing services.
For our direct sales and private label sales, we recognize revenues when
the product has been shipped and no further obligations remain. Although we have
never experienced a delay in customer acceptance of our products, should a
customer delay acceptance in the future, our policy is to delay revenue
recognition until the products are accepted by a customer. Revenues for contract
manufacturing services are recognized when the completed assemblies are shipped
and no further obligations remain. Provisions for product returns are recorded
upon shipment. Revenues from our distributors are deferred until the
distributors resell the products to their customers.
Two distributors, Avnet Electronics Marketing and Richardson Electronics,
and a private label reseller of our products, Minicircuits Laboratories,
accounted for a significant portion of our net revenues in 1997, 1998 and 1999.
Sales to Minicircuits Laboratories represented 49% of net revenues in 1997, 36%
of net revenues in 1998 and 41% of net revenues in 1999. Richardson Electronics
represented 19% of net revenues in 1997, 40% of net revenues in 1998
19
<PAGE> 22
and 38% of net revenues in 1999. Avnet Electronics Marketing represented 7% of
net revenues in 1997, 11% of net revenues in 1998 and 13% of net revenues in
1999. Richardson Electronics and Avnet Electronics Marketing distribute our
products to a large number of end customers. We anticipate that sales through
distributors and to one or more private label resellers will continue to account
for a substantial portion of our net revenues.
Cost of revenues consists primarily of the costs of wafers from our
third-party wafer fabs, costs of packaging performed by third-party vendors,
costs of testing, and costs associated with procurement, production control,
quality assurance and manufacturing engineering. We subcontract our wafer
manufacturing and packaging and do only final testing and tape and reel assembly
at our facilities.
Historically, gross margins on our sales through our distributors, to
private label resellers and from our contract manufacturing services have
differed materially from each other. As a result, the relative mix of these
sales affects our reported gross margin. Furthermore, revenues and associated
cost of revenues of products sold through distributors are not recognized until
shipment to the distributor's customer. Therefore, we record the deferred margin
on distributor inventory on our balance sheet. As a result, our reported gross
margin for any particular period can be affected by the level of inventory at
our distributors.
Through 1999, one packaging firm, MPI Corporation in Manila, Philippines,
packaged substantially all of our products. MPI also performed substantially all
of the manufacturing that related to our contract manufacturing services.
Relatives of our founding stockholders own MPI. Although we added four
additional packaging subcontractors in 1999, we anticipate that MPI will
continue to account for a substantial portion of our packaging in the near
future.
Research and development expenses consist primarily of salaries and related
expenses for personnel engaged in research and development, material costs for
prototype and test units and other expenses related to the design, development,
testing and enhancement of our products and, to a lesser extent, fees paid to
consultants and outside service providers. We expense all of our research and
development costs as they are incurred.
Sales and marketing expenses consist primarily of salaries, commissions and
related expenses for personnel engaged in marketing, sales and customer support
functions, as well as costs associated with trade shows, promotional activities,
advertising and public relations. We pay and expense commissions to our
independent sales representatives when revenues from the associated sale are
recognized.
General and administrative expenses consist primarily of salaries and
related expenses for executive, finance, accounting, information technology, and
human resources personnel and professional fees.
In recent years we have incurred substantial costs to develop our
technology and products, to recruit and train personnel for our engineering,
sales and marketing and technical support departments, and to establish an
administrative organization. Our full-time employees increased from 24 at
December 31, 1998 to 77 at December 31, 1999. We expect to continue to spend
significantly in these areas as we continue to grow.
In connection with the grant of stock options to employees through December
31, 1999, we recorded deferred stock compensation within stockholders' equity of
approximately $4.3 million, representing the difference between the deemed fair
value of the common stock for accounting purposes and the exercise price of
these options at the date of grant. During the year ended December 31, 1999, we
amortized $281,000 of this deferred stock compensation. We will amortize the
remaining deferred stock compensation over the vesting period of the related
options, generally four years. The amount of deferred stock compensation expense
to
20
<PAGE> 23
be recorded in future periods could decrease if options for which accrued but
unvested compensation has been recorded are forfeited. The amount of deferred
stock compensation expense could increase for additional stock options granted
to employees through the date of our initial public offering.
We began operations in 1985 and began to generate revenues in 1987. Until
October 1999, we were organized as an S corporation for federal tax reporting
purposes and were wholly owned by our founders. In October 1999, we revoked our
election to be treated as an S corporation under the Internal Revenue Code.
RESULTS OF OPERATIONS
The following table shows selected statement of operations data expressed
as a percentage of net revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Net revenues:
Product revenues...................................... 86.4% 90.1% 95.5%
Contract manufacturing revenues....................... 13.6 9.9 4.5
----- ----- -----
Total net revenues................................. 100.0 100.0 100.0
Cost of revenues........................................ 57.6 59.0 55.3
----- ----- -----
Gross profit............................................ 42.4 41.0 44.7
Operating expenses:
Research and development.............................. 9.3 11.3 12.6
Sales and marketing................................... 6.7 13.5 16.3
General and administrative............................ 9.5 11.7 11.6
Special charges....................................... -- -- 16.5
Amortization of deferred stock compensation........... -- -- 1.6
----- ----- -----
Total operating expenses........................... 25.5 36.5 58.6
----- ----- -----
Income (loss) from operations........................... 16.9 4.5 (13.9)
Interest and other income (expense), net................ (0.2) (1.0) 0.1
Provision for income taxes.............................. 0.7 0.1 0.3
----- ----- -----
Net income (loss)....................................... 16.0% 3.4% (14.1)%
===== ===== =====
</TABLE>
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
Net Revenues
Net revenues increased from $6.9 million in 1997 to $8.2 million in 1998.
This increase was primarily due to the impact of hiring a professional sales
person in the fourth quarter of 1997 and the addition of a second distributor in
1997. These actions resulted in increased shipments by distributors to their
customers in 1998. Net revenues increased from $8.2 million in 1998 to $18.1
million in 1999. This increase was the result of more effective promotion of our
products by us and our distributors, increased demand from our private label
reseller and increased availability of our products due to higher inventory
levels at our distributors and at our facility. Sales through our distributors
were 25% of net revenues in 1997, 51% of net revenues in 1998 and 51% of net
revenues in 1999. Sales to our private label reseller comprised 49% of net
revenues in 1997, 36% of net revenues in 1998 and 41% of net revenues in 1999.
Contract manufacturing comprised 14% of net revenues in 1997, 10% of net
revenues in 1998 and 5% of net revenues in 1999.
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<PAGE> 24
Cost of Revenues
Cost of revenues increased from $4.0 million in 1997 to $4.9 million in
1998, primarily as a result of added costs relating to increased sales volume
and costs incurred to expand our internal testing operations in the second half
of 1998. In addition, we recorded compensation expense of $150,000 in 1998
resulting from stock options granted to non-employees. Cost of revenues
increased from $4.9 million in 1998 to $10.0 million in 1999. This increase was
the result of volume-related added costs for more material and personnel and the
depreciation expense for additional manufacturing equipment. Operations
personnel increased from 13 in 1998 to 26 in 1999.
Gross Profit
Gross profit increased from $2.9 million in 1997 to $3.4 million in 1998.
Gross margin decreased from 42% in 1997 to 41% in 1998. This decrease is
primarily attributable to the increase in manufacturing related expenses
incurred in 1998, partially offset by an increase in sales of higher margin
products. Gross profit increased from $3.4 million in 1998 to $8.1 million in
1999. Gross margin increased from 41% in 1998 to 45% in 1999. This increase is
primarily attributable to a decrease in wafer and packaging costs from our
subcontractors due to our higher volumes, better utilization of our own testing
operations, and a decrease in contract manufacturing revenues as a percentage of
our total revenues.
Operating Expenses
RESEARCH AND DEVELOPMENT. Research and development expenses increased from
$643,000 in 1997 to $932,000 in 1998. This increase is primarily the result of
the addition of new personnel and increased expenses for engineering materials
related to new product development. Research and development personnel increased
from two employees in 1997 to four employees in 1998. Research and development
expenses increased from $932,000 in 1998 to $2.3 million in 1999. This increase
is primarily attributable to the addition of new personnel, increased expenses
for engineering materials related to new product development, and the opening of
additional design centers. We opened a design center in Richardson, Texas in the
second half of 1998 and a design center in Long Beach, California in August of
1999. We opened a design center in Ottawa, Canada in December of 1999 and
anticipate that we will open additional design centers in other locations in
future periods. Research and development personnel increased from four in 1998
to 18 in 1999. We expect that the absolute dollar amount of research and
development expenses will continue to increase as we make additional investments
in our technology and products.
SALES AND MARKETING. Sales and marketing expenses increased from $461,000
in 1997 to $1.1 million in 1998. This increase is primarily attributable to
increased personnel, advertising expenses and commissions to outside sales
representatives. Sales and marketing personnel increased from two in 1997 to
four in 1998. Sales and marketing expenses increased from $1.1 million in 1998
to $3.0 million in 1999. This increase is primarily attributable to increased
personnel, commissions to outside sales representatives and expenses related to
the opening of our Long Beach facility. Sales and marketing personnel increased
from four in 1998 to 19 in 1999. We expect increases in sales and marketing
expenses to continue in future periods as we continue to hire additional
marketing and sales employees.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $659,000 in 1997 to $965,000 in 1998. This increase is primarily
attributable to increased personnel and consulting fees and compensation expense
of $60,000 resulting from stock options granted to non-employees. General and
administrative expenses increased from $965,000 in 1998 to $2.1 million in 1999.
This increase is primarily attributable to increased
22
<PAGE> 25
personnel and professional fees and compensation expense of $474,000 resulting
from stock options granted to non-employees. General and administrative
personnel increased from three in 1998 to 14 in 1999. We expect general and
administrative expenses to increase in absolute dollars in future periods as we
expand our administrative staff to support the growth of our operations.
SPECIAL CHARGES. In the fourth quarter of 1999, we paid a cash dividend of
$4.0 million to our common stockholders in connection with our Series A
preferred financing. This amount has been recorded in stockholders' equity as a
distribution to stockholders. We agreed to pay any federal or state taxes
associated with the payment of the dividend and certain other items. We paid a
total of $3.0 million to our stockholders in December 1999 as a result of this
agreement. We recorded the $3.0 million as a special charge in the consolidated
statement of operations as this amount represents a non-recurring transaction
that we do not consider to be reflective of our ongoing operations.
AMORTIZATION OF DEFERRED STOCK COMPENSATION. In connection with the grant
of stock options to employees through December 31, 1999, we recorded deferred
stock compensation within stockholders' equity of approximately $4.3 million,
representing the difference between the deemed fair value of the common stock
for financial statement reporting purposes and the exercise price of these
options at the date of grant. We recorded amortization of deferred stock
compensation of $281,000 during 1999.
Interest and Other Income (Expense), Net
Interest and other income (expense), net includes income from our cash
investments and interest expense from capital lease financing obligations and
borrowings under our bank line of credit. We had net interest and other expense
of $10,000 in 1997 and $84,000 in 1998 and net interest and other income of
$17,000 in 1999.
Provision for Income Taxes
We elected to be taxed as an S corporation under the Internal Revenue Code
through October 4, 1999. Consequently, our stockholders were taxed on their
proportionate share of our taxable income and no provision for federal income
taxes has been provided in the statement of operations for the years ended
December 31, 1997, 1998 and for the period from January 1, 1999 through October
4, 1999.
The provisions for income taxes of $50,000 in 1997, $10,000 in 1998 and
$48,000 in 1999 reflect state franchise taxes. We did not recognize any tax
benefit for our 1999 losses and fully reserved our deferred tax assets because
of our inability to predict with reasonable certainty sufficient future taxable
income. In addition, no tax planning strategies or net operating loss carryback
opportunities were available at December 31, 1999. Accordingly, we have
concluded that it is more likely that the deferred tax assets will not be
realized and have recorded a valuation allowance of $2.7 million. Future period
taxes may vary depending on our overall operating results, the mix of income
among tax jurisdictions and our ability to utilize the net operating loss
carryforwards.
As of December 31, 1999, we had net operating loss carryforwards for
federal and state tax purposes of approximately $1.5 million and $703,000,
respectively, available to offset future taxable income. The federal and state
net operating loss carryforwards expire in 2019 and 2004, respectively, if not
utilized. Utilization of net operating loss carryforwards may be subject to a
substantial annual limitation due to ownership change limitations provided by
the Internal Revenue Code and similar state provisions. The annual limitation
may result in the expiration of net operating loss carryforwards before
utilization.
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<PAGE> 26
QUARTERLY RESULTS OF OPERATIONS
The following table presents a summary of our consolidated results of
operations for each of the four quarters of 1999. The information for each of
these quarters is unaudited and has been prepared on a basis consistent with our
audited consolidated financial statements appearing elsewhere in this
prospectus. This information includes all adjustments, consisting only of normal
recurring adjustments, that we considered necessary for a fair presentation of
this information when read in conjunction with our audited consolidated
financial statements and related notes appearing elsewhere in this prospectus.
Results of operations for any quarter are not necessarily indicative of results
for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
--------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues:
Product revenues........................ $2,595 $4,288 $4,828 $ 5,537
Contract manufacturing revenues......... 282 220 145 170
------ ------ ------ -------
Total net revenues................... 2,877 4,508 4,973 5,707
Cost of revenues.......................... 1,655 2,544 2,463 3,334
------ ------ ------ -------
Gross profit.............................. 1,222 1,964 2,510 2,373
Operating expenses:
Research and development................ 337 552 493 892
Sales and marketing..................... 504 682 710 1,055
General and administrative.............. 222 434 514 919
Special charges......................... -- -- -- 2,990
Amortization of deferred stock
compensation......................... -- -- 111 170
------ ------ ------ -------
Total operating expenses............. 1,063 1,668 1,828 6,026
------ ------ ------ -------
Income (loss) from operations............. 159 296 682 (3,653)
Interest and other income (expense),
net..................................... (29) (34) (40) 120
Provision for income taxes................ 16 16 16 --
------ ------ ------ -------
Net income (loss)......................... $ 114 $ 246 $ 626 $(3,533)
====== ====== ====== =======
PERCENTAGE OF NET REVENUES:
Net revenues:
Product revenues........................ 90.2% 95.1% 97.1% 97.0%
Contract manufacturing revenues......... 9.8 4.9 2.9 3.0
------ ------ ------ -------
Total net revenues................... 100.0 100.0 100.0 100.0
Cost of revenues.......................... 57.5 56.4 49.5 58.4
------ ------ ------ -------
Gross profit.............................. 42.5 43.6 50.5 41.6
Operating expenses:
Research and development................ 11.7 12.3 9.9 15.6
Sales and marketing..................... 17.6 15.1 14.3 18.5
General and administrative.............. 7.7 9.6 10.4 16.1
Special charges......................... -- -- -- 52.4
Amortization of deferred stock
compensation......................... -- -- 2.2 3.0
------ ------ ------ -------
Total operating expenses............. 37.0 37.0 36.8 105.6
------ ------ ------ -------
Income (loss) from operations............. 5.5 6.6 13.7 (64.0)
Interest and other income (expense),
net..................................... (0.9) (0.7) (0.8) 2.1
Provision for income taxes................ 0.6 0.4 0.3 --
------ ------ ------ -------
Net income (loss)......................... 4.0% 5.5% 12.6% (61.9)%
====== ====== ====== =======
</TABLE>
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<PAGE> 27
FOUR QUARTERS ENDED DECEMBER 31, 1999
Net Revenues
Net revenues increased in each of the four quarters of 1999. These
quarterly increases were the result of increased selling efforts and more
effective promotion of our products by us and our distributors and increased
demand from our private label reseller. In particular, the increase from the
first quarter of 1999 to the second quarter of 1999 was also due to the
increased availability of our products due to higher inventory levels at our
distributors and at our facility.
Cost of Revenues
Cost of revenues increased in each quarter with the exception of the third
quarter of 1999. These increases were primarily a result of increased unit
sales. The decrease in the third quarter was primarily the result of one-time
favorable wafer costs from a key wafer fab. Gross profit and gross margin
increased in each of the first three quarters of 1999 due to lower costs
associated with higher volume through our testing facilities and packaging
subcontractors. Gross profit and gross margin in the third quarter of 1999 also
increased due to a one-time reduction in wafer pricing. Gross profit and gross
margin decreased in the fourth quarter of 1999. This decrease was primarily the
result of increased distributor inventory which resulted in the deferral of the
associated margin. Also contributing to the decrease were higher inventory
reserves as a result of an increase in distributor inventory levels and
increased costs of consumable manufacturing materials.
Operating Expenses
RESEARCH AND DEVELOPMENT. Research and development expenses increased in
the first two quarters of 1999 primarily as a result of the addition of
personnel and costs incurred for the development of new products. Research and
development expenses decreased in the third quarter of 1999 compared to the
second quarter of 1999 primarily as a result of lower materials costs for
prototype and test units, partially offset by the opening of our Long Beach
facility in the third quarter of 1999. Research and development expenses
increased in the fourth quarter of 1999 compared to the third quarter of 1999
primarily as a result of higher materials costs for prototype and test units and
increases in personnel.
SALES AND MARKETING. Sales and marketing expenses increased in each of the
four quarters of 1999 primarily as a result of increased personnel, higher
volume-related sales commissions and the opening of our Long Beach facility in
the third quarter of 1999.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
in each of the four quarters of 1999 primarily as a result of increased
personnel and professional fees. Additionally, in the fourth quarter of 1999, we
recorded $342,000 of compensation expense resulting from stock options granted
to non-employees.
SPECIAL CHARGES. In the fourth quarter of 1999, we incurred a special
charge of $3.0 million related to non-recurring bonus payments to our common
stockholders.
AMORTIZATION OF DEFERRED STOCK COMPENSATION. We recorded amortization of
deferred stock compensation of $111,000 in the third quarter of 1999 and
$170,000 in the fourth quarter of 1999.
INTEREST AND OTHER INCOME (EXPENSE), NET. Interest and other income
(expense), net, increased to $120,000 in the fourth quarter as a result of
interest income earned on proceeds from the issuance of our mandatorily
redeemable convertible preferred stock.
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<PAGE> 28
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations primarily through cash generated from
operations, equipment lease financing and through the private sale of
mandatorily redeemable convertible preferred stock. As of December 31, 1999, we
had cash and cash equivalents of $11.0 million, working capital of $7.7 million
and an accumulated deficit of $7.4 million.
Our operating activities provided cash of $1.5 million in 1997, $1.3
million in 1998 and $560,000 in 1999. In 1997, cash provided by operating
activities was primarily attributable to net income of $1.1 million, an increase
in deferred margin on distributor inventory of $1.3 million, accrued liabilities
of $264,000 and non-cash charges related to depreciation and amortization of
$111,000. These were partially offset by increases in accounts receivable of
$687,000, inventories of $477,000 and other assets of $217,000. In 1998, cash
provided by operating activities was primarily attributable to a $471,000
decrease in accounts receivable and non-cash charges related to stock option
compensation and depreciation and amortization. These were partially offset by
an increase in accounts payable of $217,000 and deferred margin on distributor
inventory of $130,000. In 1999, cash provided by operating activities was
primarily attributable to increases in accounts payable of $1.9 million,
deferred margin on distributor inventory of $1.8 million, accrued liabilities of
$523,000 and non-cash charges related to deferred stock compensation
amortization, stock option compensation and depreciation and amortization. These
were partially offset by increases in accounts receivable of $752,000,
inventories of $1.3 million and other assets of $486,000.
Our investing activities used cash of $293,000 in 1997, $41,000 in 1998 and
$1.9 million in 1999. Our investing activities reflect purchases of
manufacturing equipment and other fixed assets.
Our financing activities used cash of $869,000 in 1997 and $1.5 million in
1998 and provided cash of $12.0 million in 1999. In 1997, cash used in financing
activities consisted of distributions to stockholders of $784,000 and equipment
lease financing of $85,000. In 1998, cash used in financing activities consisted
of distributions to stockholders of $1.1 million and equipment lease financing
of $435,000. In 1999, cash provided by financing activities primarily resulted
from $17.0 million of proceeds received from the issuance of mandatorily
redeemable convertible preferred stock. This was partially offset by dividends
paid to our stockholders of $4.4 million and equipment lease financing of
$573,000. Our December 31, 1999 net loss applicable to common stockholders
includes $255,000 of accretion charges to increase the carrying amount of our
mandatorily redeemable convertible preferred stock to the amount we would be
required to pay if this preferred stock were to be redeemed.
We maintain a secured credit facility with a financial institution that
includes a $3.0 million line of credit. Borrowings under the revolving credit
line may be made and repaid at any time and bear interest at the base rate, as
announced by the lender, plus 0.5%. At December 31, 1999, there were no
outstanding amounts under this credit facility. At December 31, 1999, we were in
violation of one of our financial covenants under the credit facility due to
payment of a dividend and non-recurring special charges during the fourth
quarter of 1999. We are in the process of negotiating a new credit facility with
the same financial institution to replace the existing line.
We currently anticipate that the net proceeds from this offering, together
with our current available cash and cash equivalents and cash generated from
operations will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures for at least the next 12 months.
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<PAGE> 29
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS, No. 133, Accounting for Derivative
Instruments and hedging Activities. SFAS 133 provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. SFAS 133 was to be effective for fiscal years beginning
after June 15, 1999. However, in July 1999, the Financial Accounting Standards
Board issued SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133. SFAS 137
defers for one year the effective date of SFAS 133 that will now apply to all
fiscal quarters of all fiscal years beginning after June 15, 2000. We believe
that the adoption of SFAS 133 will not have a material impact on our
consolidated financial position, results of operations or cash flows.
In March 1998, the American Institute of Certified Public Accountants, or
AICPA, issued Statement of Position 98-1, or SOP 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use. SOP 98-1 requires
that entities capitalize certain costs related to internal use software once
certain criteria have been met. We adopted SOP 98-1 for the year ended December
31, 1999. The adoption of SOP 98-1 did not have a material impact on our
financial condition or results of operations.
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of
Start-Up Activities. SOP 98-5 requires that all start-up costs related to new
operations must be expensed as incurred. In addition, all start-up costs that
were capitalized in the past must be written off when SOP 98-5 is adopted. We
adopted SOP 98-5 on January 1, 1999. The adoption of SOP 98-5 did not have a
material impact on our financial condition or results of operations.
EFFECT OF YEAR 2000
As of March 1, 2000, we had not experienced any disruptions related to year
2000 issues, nor do we expect to experience any year 2000 related disruption in
the operation of our systems. To our knowledge, none of our customers have
experienced any year 2000 related issues with our products. Additionally, to our
knowledge, none of our manufacturing, packaging or our other suppliers have
experienced any material year 2000 problems. Although most year 2000 problems
should have become evident on January 1, 2000, additional year 2000 related
problems may become evident only after that date. We will continue to monitor
our critical computer applications and those of our suppliers and vendors
throughout the year to ensure that any late year 2000 matters that may arise are
promptly addressed.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Our sales have been made to predominantly U.S.-based customers and
distributors in U.S. dollars. As a result, we have not had any material exposure
to factors such as changes in foreign currency exchange rates. However, in
future periods, we expect to expand selling into foreign markets, including
Europe and Asia. Because our sales are denominated in U.S. dollars, a
strengthening of the U.S. dollar could make our products less competitive in
foreign markets.
At December 31, 1999, our cash and cash equivalents consisted primarily of
money market funds and commercial paper and we did not hold any derivative
financial instruments or any short or long-term investments. Our interest income
and expense are sensitive to changes in the general level of interest rates. In
this regard, changes in interest rates can affect the interest earned on our
cash equivalents.
27
<PAGE> 30
BUSINESS
OVERVIEW
Stanford Microdevices is a leading designer and supplier of high
performance RF components for communications equipment manufacturers. Our
products are used primarily in wireless communications equipment to enable and
enhance the transmission and reception of voice and data signals. The
performance of the RF section of communications equipment -- which is used to
convert, process and amplify the high frequency signals that transmit voice or
data -- has a significant influence on the overall performance of communications
systems. We design our products to meet the rapidly evolving performance
requirements for mobile wireless applications such as cellular and mobile data
networks, broadband wireline applications such as coaxial cable and fiber optic
networks, and fixed wireless applications such as local and wide area
site-to-site data networks.
We offer a broad line of products that range in complexity from discrete
components to integrated circuits and multi-component modules. We believe our
products are well suited for the increasingly data-centric environments of
existing and future communications networks. We have adopted a fabless operating
strategy, which we believe is unique in the RF components industry. We outsource
the manufacturing of our semiconductor wafers to several wafer fabrication
facilities, or third-party wafer fabs, that use leading-edge process
technologies. We focus internally on our RF design and development expertise and
select what we believe to be the optimal process technology for any given
application without the constraint of a captive wafer fab facility. Our fabless
operating strategy, combined with our RF design and test expertise, gives us the
flexibility necessary to deliver a comprehensive line of high quality products
at compelling prices to our customers.
INDUSTRY BACKGROUND
Demand for Connectivity and Mobility Driving Investment in Communications
Infrastructure
Consumers and businesses are demanding increased connectivity, mobility,
functionality and bandwidth from telecommunications service providers. Increased
deployment and use of wireless communications systems and the rise of wireline
and wireless Internet applications offer users the potential for access any
time, anywhere to voice and data networks. International Data Corporation (IDC),
an independent market research firm, estimates that the number of worldwide
Internet users will increase from 196 million in 1999 to 399 million by 2002.
Users are also increasingly relying on networks for data services in addition to
traditional voice services. The U.S. Department of Commerce has estimated that
data traffic in the United States is doubling every 100 days. Wireless Internet
and other data services will significantly increase the performance demands on
wireless networks. IDC estimates that the number of worldwide subscribers for
wireless phone service will grow from 303 million in 1998 to 1.1 billion by
2003. IDC further estimates that the number of wireless subscribers in the
United States who are able to send and receive information over the Internet is
expected to increase from 7.9 million in 1999 to 61.5 million by 2003.
Communications service providers are making significant investments in
network infrastructure to enable and enhance connectivity for today's
information-driven economy. Wireless and broadband wireline communications
service providers are expanding capacity and offering a broader range of
services to support the changing needs of users. Competitive pressures are also
requiring service providers to offer increased bandwidth and to reduce operating
costs. In the case of wireless networks, communications service providers must
support a rapidly growing number of subscribers and the subscribers' demands for
more expanded service. In addition, wireless network operators are adopting new
standards such as third generation, or 3G, standards that enable the migration
from voice-only to integrated voice
28
<PAGE> 31
and high-speed data services, which are not fully supported by today's installed
infrastructure. MultiMedia Telecommunications Association estimates that the
number of subscribers to mobile data services, such as those enabled by 3G
standards, will rise to 16.5 million by 2003 -- representing a 40% compound
annual growth rate from 1999. Providers of broadband wireline services over
cable and fiber networks are also looking for network infrastructure solutions
to meet increasing performance requirements and to minimize their total cost of
ownership.
Challenges Facing Communications Equipment Manufacturers
Manufacturers of communications equipment must develop systems to meet the
requirements of communications service providers. In meeting these challenges,
equipment manufacturers face significant market and product performance
pressures. These include:
- SHORTER TIME TO MARKET -- The intensity of competition and the resulting
need to adopt new technologies is forcing communications equipment
manufacturers to develop and launch products in the shortest time
possible.
- HIGHER PERFORMANCE AND MORE RELIABLE SYSTEMS -- Communications equipment
manufacturers are facing increased demands from communications service
providers for greater bandwidth, which is a measure of a system's
capacity. System reliability is another key performance requirement due
to the high costs of equipment downtime and of maintaining communications
networks.
- REDUCED COSTS -- Communications service providers seek to minimize both
the up-front equipment acquisition costs as well as ongoing operating
costs as they upgrade their networks. Communications equipment
manufacturers must, as a result, offer a better value proposition.
Need for High Performance RF Components from Third-Party Suppliers
Communications equipment manufacturers are adopting new approaches in
designing systems to deliver the performance and feature improvements that
service providers require. In a typical communications system, the principal
functional blocks are the RF subsystem, which receives, amplifies and transmits
signals, the signal processor, which encodes and decodes digitized signals, and
the antenna. Since the RF subsystem receives the signal, interfaces with the
signal processor, and amplifies and transmits the signal, a system's performance
and signal quality are significantly affected by the RF subsystem.
Communications equipment manufacturers often do not have the internal expertise
or the time to address every aspect of a system's RF performance. To lower their
production costs and shorten product development cycles, equipment manufacturers
are increasingly seeking innovative RF components from third-party suppliers who
offer a broad range of high-performance products.
Most RF component suppliers have made significant investments in their own
wafer fabs. These wafer fabs are typically based on a single process technology.
A process technology is a method of manufacturing semiconductor devices and
circuits using a given wafer material. As a result, RF component suppliers
generally focus most of their attention on developing products using their own
process technology even if another process may be more appropriate for a given
application. To adopt one of these other process technologies, these component
suppliers would have to migrate their current facility to the other
technologies, make significant capital investments in new wafer fabs or develop
relationships with merchant wafer fabs. Because all of these steps are expensive
and time consuming, most RF component suppliers resist changing process
technologies. As a result, many of these component suppliers do not offer the
broadest range of products or may offer sub-optimal products for certain
applications.
Manufacturers of communications infrastructure equipment, such as base
stations used by wireless service providers, require components that are
optimized for a feature known as
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<PAGE> 32
linearity. Linearity is a measure of signal quality. Many RF component suppliers
have optimized their products for power efficiency at the expense of linear
performance, making these products well suited for battery-powered, portable
applications, but not optimal for infrastructure applications. We believe these
suppliers would require new design techniques, process technologies and testing
capabilities to modify their products to address the market for infrastructure
equipment.
We believe that there is a substantial market opportunity for a third-party
supplier of high performance RF components who can meet the needs for
flexibility, performance and value required by communications equipment
manufacturers.
OUR SOLUTION
We design, develop and market a broad range of RF components using leading
process technologies for use in wireless and broadband wireline communications
equipment. Our products are designed to provide the following competitive
benefits to communications equipment manufacturers:
OPTIMAL SOLUTIONS. The combination of our design expertise and access
to several leading process technologies enables us to deliver optimal
solutions to our customers. Our fabless operating model provides us with
the flexibility to use multiple process technologies. Because each process
technology has a different impact on characteristics such as linearity,
frequency, operating voltage, output power, noise suppression and heat
dissipation, the selection of a process technology is critical to the
function of a component. Our components are designed to optimize
functionality by selecting the process technology that provides the
appropriate characteristics for the intended application. This approach
also enables us to quickly adapt to changes in product specifications or
market requirements.
HIGH PERFORMANCE FOR INFRASTRUCTURE APPLICATIONS. We design our
products specifically for communications infrastructure equipment. We have
made engineering trade-offs in favor of design characteristics that are
most important to infrastructure equipment manufacturers. Our products are
particularly well suited for communications equipment that require high
capacity, clear signals, longer product life and extended transmit and
receive range.
PRODUCT AND TECHNOLOGY BREADTH. Our product portfolio includes a broad
line of products that range in complexity from discrete components to
integrated circuits and multi-component modules designed to meet the varied
needs of our customers. We offer a wide range of solutions based on
different process technologies. The availability and breadth of our product
portfolio facilitate efficient customer sourcing and improve time to market
for communications equipment manufacturers.
PRICE PERFORMANCE. We believe that our combination of product quality
and high performance at competitive prices makes our products a compelling
value proposition for our customers.
OUR STRATEGY
Our objective is to become the leading supplier of RF components for
wireless and broadband wireline communications equipment. We intend to achieve
this objective by providing a comprehensive portfolio of high performance and
high value standard and customized RF components optimized for their target
applications. Our strategy consists of the following elements:
EXPAND PORTFOLIO OF STANDARD PRODUCTS AND DEVELOP INNOVATIVE CUSTOM
PRODUCTS. We will continue to design products that meet standard
specifications widely adopted by communications equipment manufacturers.
These standard products historically have
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<PAGE> 33
constituted the core of our business and we anticipate that they will
continue to account for a significant portion of our revenues. In addition,
we gain significant economies of scale due to the high sales volumes of
these products. We plan to continue to invest significantly in research and
development to grow our portfolio of these products.
We recently established a separate business unit focused on developing
customized products for specific RF applications. We plan to focus on
expanding our product development initiatives in the wireless and broadband
wireline infrastructure markets. A key aspect of our new product focus will
be to design unique custom multi-component products that offer significant
price and performance advantages over current solutions. We believe that
some of these customized products can be marketed through our distribution
channels in the future as standard products.
LEVERAGE OUR FABLESS OPERATING MODEL. Our fabless strategy gives us
the flexibility to design products that are tailored for the intended
application. By avoiding the administrative and capital-intensive burden of
operating a captive wafer manufacturing facility, we will continue to
maintain the flexibility to adopt and leverage emerging process
technologies. We believe this approach is unique in the RF components
industry and plan to leverage the advantages it provides to offer optimized
solutions for our target markets.
CONTINUE TO INVEST IN OUR TECHNOLOGY AND PRODUCT QUALITY. We will
continue to invest in research and development in the areas of
semiconductor materials, device modeling, RF circuit design, packaging
technology, and test and measurement. We will also maintain and extend a
rigorous quality assurance program to ensure the highest product quality.
Our quality program includes periodic qualification testing of all
products, including extended lifetime testing under accelerated temperature
and other operating conditions, designed to simulate more extreme operating
conditions than would be encountered in most practical applications.
STRENGTHEN STRATEGIC TECHNOLOGY AND SUPPLIER RELATIONSHIPS. We have
formed supplier relationships with TRW, Nortel Networks, Temic
Semiconductors (an Atmel company) and UltraRF (a subsidiary of Spectrian),
and are engaged in joint development efforts with Nortel Networks, Temic
Semiconductors and UltraRF. We plan to strengthen these relationships by
continuing to engage in co-development projects on new products and
adaptations of existing products. We also will seek to establish strategic
technology and supplier relationships with additional third-party wafer
fabs as new process technologies emerge and to secure additional
fabrication capacity.
RECRUIT THE BEST TALENT AVAILABLE. The market for experienced RF
designers and application engineers is highly competitive. Our strategy is
to attract the best talent by offering the opportunity to work with leading
design and process technologies and the flexibility to work at any of our
design centers. We have design centers in Long Beach and Sunnyvale,
California, Ottawa, Canada and Richardson, Texas. By locating our design
centers in areas that have significant numbers of RF-related businesses, we
believe we are better able to recruit experienced design engineers locally.
We plan to open additional design centers in strategic locations and to
continue to recruit experienced RF design engineers at our existing design
centers.
MAINTAIN OUR DISTRIBUTION CHANNELS AND EXPAND OUR DIRECT MARKETING AND
SALES FORCE. We have long-standing relationships with our two worldwide
distributors, Avnet Electronics Marketing and Richardson Electronics, and
will continue to market our standard products through them and other
distributors. We plan to broaden our direct marketing efforts and expand
our direct sales force and sales representatives to market and sell our
customized products.
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<PAGE> 34
PRODUCTS
We sell RF components used in the infrastructure of mobile wireless,
broadband wireline and fixed wireless communications networks. RF components
include low noise and power amplifiers, drivers, pre-drivers, switches,
modulators, demodulators, upconverters and downconverters. They convert, switch,
process and amplify the high frequency signals that carry the information to be
transmitted or received.
The following is a simplified illustration of the RF subsystems in the
transmitter and receiver sections of a typical communication system:
[SIMPLIED RF SUBSYSTEM DIAGRAM]
We classify our products broadly into two categories: standard products,
which we develop from our own specifications and generally sell through
distributors, and customized products under development, which we are designing
for particular applications by original equipment manufacturers and will sell
directly through our own sales force.
Our current product offerings address key functions in the transmission
section of a typical communication system and include:
- LOW NOISE AMPLIFIERS. These are components in the receiver section of an
RF system that receive signals from an antenna at extremely low levels
and amplify these signals. Due to the low noise characteristics of our
amplifiers, they can be used to amplify very weak signals.
- PRE-DRIVERS AND DRIVERS. A pre-driver is a component in the transmitter
section that provides the first stage of amplification in a power
amplifier chain. These amplifiers take very weak transmitted signals and
amplify them. A driver takes the amplified signals from a pre-driver and
further amplifies these signals before transmitting them to the last
stage of amplification. Our pre-drivers and drivers determine the overall
ability of an RF subsystem to work with signals of different strengths
with minimum distortion.
- POWER AMPLIFIERS. These components provide the final stage of signal
amplification to boost signal strength for transmission through the
antenna. Power amplifiers operate at different frequencies, power levels
and air interface standards. The majority of our power amplifier products
are linear amplifiers, which add a minimum amount of distortion to the
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<PAGE> 35
input signal. Currently, we purchase our power amplifier products from a
third-party wafer fab for resale under our own brand.
- SWITCHES. These are used to direct RF signals to various ports within a
communications system. Our switches preserve signal strength and minimize
channel interference as they perform their functions.
- DISCRETE DEVICES. These are transistors which contain minimal circuitry
and are used as building blocks in a variety of component applications
such as oscillators, mixers and active circuits. Important attributes of
our discrete devices are wide frequency range, low noise and low power
consumption.
Products under development include:
- MODULATORS AND DEMODULATORS. These are components in the transmitter or
receiver section that combine digital information with an RF signal by
varying the phase and amplitude of the signal so that the resulting
signal can be transmitted or received.
- MIXERS, UPCONVERTERS AND DOWNCONVERTERS. These components are frequently
combined with amplifiers to accept low or high frequency signals, and mix
them with a local oscillator signal to produce a lower or higher
frequency signal for processing or transmission.
- WIRELINE INTEGRATED CIRCUITS. We are currently developing a high-speed
broadband wireline chip set which can be used in fiber optic and local
and wide area network applications. This chip set includes a
transimpedance amplifier, which amplifies the electrically converted
optical signal, a postamplifier, which minimizes signal loss, and a laser
driver, which energizes the laser.
PROCESS TECHNOLOGIES
We have expertise in designing and manufacturing RF components in multiple
process technologies. We design our products using four process technologies to
meet the price and performance requirements of our customers. These process
technologies are:
GALLIUM ARSENIDE HETEROJUNCTION BIPOLAR TRANSISTOR (GAAS HBT). GaAs
HBT technology is an effective alternative or complement to silicon
solutions in many high-performance RF applications. GaAs HBT has inherent
physical properties that allow electrons to move up to five times faster
than those of silicon. This results in integrated circuits that operate at
much higher speeds than silicon devices with lower power consumption. We
use GaAs HBT technology for applications that require high linearity and
low power consumption.
INDIUM GALLIUM PHOSPHIDE HETEROJUNCTION BIPOLAR TRANSISTOR (INGAP
HBT). InGaP HBT technology uses the same wafer material as GaAs HBT, but
offers performance advantages over GaAs HBT due to inherent properties
which generally result in less variation in wafer processing. As a result,
InGaP HBT typically results in higher manufacturing yields. We use this
process for products that require higher frequency, improved linearity,
enhanced noise performance or greater reliability. We are migrating our
products from the GaAs HBT process to the InGaP HBT process as this
technology matures.
SILICON GERMANIUM HETEROJUNCTION BIPOLAR TRANSISTOR (SIGE HBT). Like
GaAs HBT technology, SiGe HBT also achieves high operating speeds by using
a material that has significantly higher electron mobility than silicon,
but still uses silicon wafers and established standard silicon processing.
SiGe HBT technology results in more predictable and improved manufacturing
yields. We use this process in the design and manufacture of our products
to achieve high frequency performance and significant economies of scale.
Because of its
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significantly lower cost, SiGe HBT is a good choice for processing more
integrated and complex components which require increased semiconductor
area.
LATERALLY DIFFUSED METAL OXIDE SEMICONDUCTOR (LDMOS). LDMOS technology
uses standard silicon materials in an alternative configuration to deliver
high-power solutions, high efficiency and superior linearity when compared
to traditional silicon transistors. Because the LDMOS process uses silicon,
LDMOS devices are less expensive than devices manufactured using gallium
arsenide wafers. Silicon dissipates heat more efficiently than gallium
arsenide, and has the capability to operate at higher voltages. As a
result, our products were designed using the LDMOS process for high-output
power applications required for transmitter applications.
Below is a summary of our current products and products under development
indicating the process technologies used in manufacturing:
<TABLE>
<CAPTION>
PROCESS TECHNOLOGY
---------------------------
GAAS INGAP SIGE LDMOS
---- ----- ---- -----
<S> <C> <C> <C> <C>
CURRENT PRODUCTS:
Low Noise Amplifiers.................................. X X
Pre-Drivers........................................... X X X
Drivers............................................... X X
Power Amplifiers...................................... X
Switches.............................................. X
Discrete Devices...................................... X X
PRODUCTS UNDER DEVELOPMENT:
Modulators and Demodulators........................... X
Mixers, Upconverters and Downconverters............... X
Wireline Integrated Circuits.......................... X X
</TABLE>
We shipped our first products using SiGe and InGaP in the fourth quarter of
1999 and have begun to design products using LDMOS. Although we currently offer
LDMOS power amplifiers as a reseller of UltraRF, we have not yet generated any
revenues from resale of these products.
CUSTOMERS
End customers for our products are primarily manufacturers of
communications infrastructure equipment. The following is a list of our 20
largest customers, based on 1999 revenues, who have purchased our products
either directly or through our distributors, Avnet Electronics Marketing and
Richardson Electronics:
<TABLE>
<S> <C>
Aerostar Industry Motorola
Air-Tech System MRV Communications
Editron Olson Technology
GSS Array Technologies Phase Atlantic
Hughes Network Systems Pulsar Microwave
Italtel Rohde & Schwarz
J Cort Systems Sam Ji Electronics
M/A-COM Microelectronics Sanmina Corporation
Microwave International Telaxis Communications
Minicircuits Laboratories Young Woo Telecom
</TABLE>
SALES, MARKETING AND CUSTOMER SUPPORT
We sell our products worldwide through U.S.-based distributors, through a
private label reseller who sells our products under its brand and through our
direct sales force. Our products are also sold through a worldwide network of
independent sales representatives whose orders
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are fulfilled either by us or our distributors. Each of these channels is
supported by our customer service and marketing communication functions. We are
expanding our marketing efforts to create awareness for our products within our
target markets and to support our direct and indirect sales efforts. We have
implemented an integrated mix of marketing activities including trade journal
advertisements, and public relations and promotional events such as tradeshows,
seminars and technical conferences.
We generally sell our standard products through distributors. We believe
that sales through our distributors will continue to account for a significant
amount of our revenues in the foreseeable future. We plan to sell customized
products through our direct sales force to a targeted group of communications
equipment manufacturers. We believe this approach will enable us to work more
closely with these customers to gain a better understanding of, and more
effectively meet, their needs.
Our products are highly technical and our customers frequently consult with
us to select a component for a given application, determine product performance
under specified conditions unique to their system, or test a product for new
applications. To meet the needs of our customers, we provide support in all
stages of the sales process, from concept definition and product selection to
post-sale support. These services are provided by our applications engineering
organization, which works closely with our sales organization in all pre- and
post-sale activities. We intend to invest in expanding our applications
engineering organization to assist our customers.
As of December 31, 1999, we had 19 employees in our sales and marketing
organization, including six application engineers.
OPERATIONS
Our products are designed at our four design centers located in North
America. We apply our expertise in packaging during the design phase to ensure
that our RF components meet high performance standards. The relationship between
a circuit and its package is critical to the reliability and electrical
performance of RF components. We outsource the fabrication of our semiconductor
wafers to several independent wafer fabs. Our four principal third-party wafer
fabs are:
- TRW for GaAs HBT;
- Nortel Networks for InGaP HBT;
- Temic Semiconductors for SiGe HBT; and
- UltraRF for LDMOS.
Our supply agreements with Nortel Networks, Temic Semiconductors and
UltraRF give us multi-year supply guarantees. Our supply agreement with TRW
includes supply guarantees through December 31, 2000. We will seek to extend our
supply agreements with these third-party wafer fabs while concurrently seeking
second sources for the wafers they supply. GEC Marconi and TriQuint
Semiconductor also manufacture limited quantities of semiconductor wafers for
us. Following production of wafers by our third-party wafer fabs, we perform
wafer inspection at our headquarters in Sunnyvale, California. As a result, we
are able to ensure that the wafers meet high standards of reliability required
for their use in communications equipment. Semiconductor packaging is then
outsourced to five offshore subcontractors and packaged components are returned
to our headquarters in Sunnyvale, California for final testing, quality
assurance, and tape and reel assembly for final shipment.
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The following diagram illustrates this manufacturing flow:
[Flow Chart]
RESEARCH AND DEVELOPMENT
We focus our research activities in the areas of semiconductor materials,
device modeling, RF circuit design, packaging technology, and test and
measurement. In the area of semiconductor materials, we are focusing our
research efforts on two areas: heterojunctions, or semiconductor junctions made
out of two dissimilar semiconductor materials, and emerging semiconductor
materials that offer high linearity and low power consumption critical for
digital communications networks. In the area of device modeling, we are
expanding our library of device models which predict the performance of a
transistor within a circuit design.
Our circuit design efforts are focused on developing products that provide
repeatable performance and reliability and that are easy to use in
communications equipment design. Our products generally incorporate integrated
matching structures, eliminating the need for additional external components and
providing stable performance over a range of temperatures and varying supply
voltages. We also work closely with our third-party wafer fabs to design test
circuits for new process technologies.
In the area of packaging technology, we are developing specialized packages
that offer both high frequency performance and efficient heat dissipation. We
also work closely with our packaging subcontractors to research new package
designs and materials. We are building a team of experienced packaging engineers
to expand research and development in advanced RF packaging.
Our proprietary test and measurement techniques coupled with our packaging
expertise completes our back-end, or production, competency. We have a number of
high-speed automatic component testers that are capable of recording high
frequency data at extremely high throughput rates using our proprietary
software. We intend to continue to increase throughput rates by developing new
test software that accelerates data recording while adding the ability to
measure additional test parameters.
Our principal development work is concentrated on expanding the versatility
of existing products and developing customized solutions for targeted
communications equipment manufacturers. A key factor in this development work is
to design products with improved
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<PAGE> 39
functionality by selecting the process technology that provides the optimal
performance and price for our customers. Our ability to align our design
expertise with leading process technologies enables us to focus and adapt our
research and development efforts to keep pace with changing market requirements.
At December 31, 1999, we had 18 employees in our research and development
organization. We incurred research and development expenses of approximately
$643,000 in 1997, $932,000 in 1998 and $2.3 million in 1999.
COMPETITION
The RF semiconductor industry is intensely competitive. Competition in our
markets is primarily affected by the ability to design standard and customized
products that meet customers' price and performance requirements in a sufficient
quantity and in a timely manner, the quality of customer service and technical
support, and the availability and breadth of product offerings.
We compete primarily with other suppliers of high performance RF components
used in the infrastructure of communications networks such as Agilent, Alpha
Industries, Anadigics, Conexant, Infineon, M/A-COM, Minicircuits Laboratories,
NEC, RF Micro Devices, TriQuint Semiconductor and Watkins-Johnson. We also
compete with current and potential communications equipment manufacturers who
manufacture RF components internally such as Ericsson, Lucent, Motorola and
Nortel Networks. We expect increased competition from existing competitors and
from a number of companies that may enter the RF component market, as well as
future competition from companies that may offer new or emerging technologies.
In addition, many of our current and potential competitors have significantly
greater financial, technical, manufacturing and marketing resources than we
have. Our failure to successfully compete in our markets would have a material
adverse effect on our business, financial condition and results of operations.
INTELLECTUAL PROPERTY
We rely upon a combination of copyright, trade secret and trademark laws to
protect our intellectual property. Third-party wafer fabs own the patents for
the process technologies used in the manufacture of our wafers. We do not
currently have any patents or patent applications pending. However, we intend to
seek patent protection for our future products and technologies where
appropriate and to protect our proprietary technology under U.S. and foreign
laws affording protection for integrated circuit designs, trademarks and trade
secrets.
We rely primarily upon trade secrets, technical know-how and other
unpatented proprietary information relating to our product development and
production activities. To protect our trade secrets, technical know-how and
other proprietary information, our employees are required to enter into
agreements providing for the maintenance of confidentiality and assignment of
rights to inventions made by them while employed by us. We also enter into
non-disclosure agreements to protect our confidential information delivered to
third parties and control access to and distribution of our proprietary
information. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy or otherwise obtain and use our products or
technology or to develop products with the same functionality as our products.
Monitoring unauthorized use of our proprietary information is difficult and we
cannot be certain that the steps we have taken will prevent misappropriation of
our technology, particularly in foreign countries where the laws may not protect
proprietary rights as fully as do the laws of the United States.
Although we rely on copyright, trade secret and trademark law to protect
our technology, we believe that factors such as the technological and creative
skills of our personnel, new product developments, frequent product enhancements
and reliable product maintenance are
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more essential to establishing and maintaining a technology leadership position.
We can give no guarantee that others will not develop technologies that are
similar or superior to our technology.
BACKLOG
At December 31, 1999, our backlog was approximately $11.5 million. We
include in our backlog all accepted product purchase orders for which delivery
has been specified within one year, including orders from distributors. Of the
$11.5 million in total backlog as of December 31, 1999, $10 million was
attributable to purchase orders by our distributors. We do not recognize revenue
from sales through our distributors until the distributor has sold our product
to their customer. Product orders in our backlog are subject to changes in
delivery schedules or to cancellation at the option of the purchaser without
significant penalty. Our backlog may vary significantly from time to time
depending upon the level of capacity available to satisfy unfilled orders.
Accordingly, although useful for scheduling production, backlog as of any
particular date may not be a reliable indicator of sales for any future period.
EMPLOYEES
As of December 31, 1999, we had 77 full time employees, including 19 in
sales and marketing, 18 in research and development, 26 in operations and 14 in
general and administrative functions. None of our employees are subject to a
collective bargaining agreement, and we believe that our relations with our
employees are good.
FACILITIES
Our headquarters are located in Sunnyvale, California in two buildings in
which we lease an aggregate of approximately 32,000 square feet. One lease
expires in 2002 and the other expires in 2004. We also lease approximately 5,000
square feet of office space in Richardson, Texas, approximately 3,000 square
feet of office space in Long Beach, California and approximately 3,800 square
feet of office space in Ottawa, Canada. We believe that our existing facilities
meet our current needs and that we will be able to obtain additional commercial
space as needed. We do not own any real estate.
LEGAL PROCEEDINGS
Although we are not currently a party to any litigation, we may from time
to time become involved in litigation relating to claims arising from our
ordinary course of business. These claims, even if not meritorious, could result
in the expenditure of significant financial and managerial resources.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The names, ages, and positions of our current executive officers and
directors as of March 1, 2000, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John Ocampo..................... 40 Chairman of the Board and Chief Technology Officer
Robert Van Buskirk.............. 50 President, Chief Executive Officer and Director
Walter Baker.................... 33 Vice President and General Manager of Standard
Products Unit
Gary Gianatasio................. 59 Vice President and General Manager of Wireless
Infrastructure Products Unit
Guy Krevet...................... 46 Vice President, Operations
Susan Ocampo.................... 42 Treasurer
Gerald Quinnell................. 43 Chief Operating Officer and Vice President, Sales
and Marketing
Thomas Scannell................. 49 Vice President, Finance and Administration, Chief
Financial Officer, Secretary and Assistant
Treasurer
John Bumgarner, Jr.............. 57 Director
Peter Chung..................... 32 Director
Casimir Skrzypczak.............. 58 Director
</TABLE>
Executive Officers
JOHN OCAMPO, a co-founder of Stanford Microdevices, has served as our
Chairman of the Board and Chief Technology Officer since May 1999. From 1984 to
May 1999, Mr. Ocampo also served as our President and Chief Executive Officer.
From 1982 to 1984, Mr. Ocampo served as General Manager at Magnum Microwave, an
RF component manufacturer. From 1980 to 1982, he served as Engineering Manager
at Avantek, a telecommunications engineering company, now
Hewlett-Packard/Avantek. Mr. Ocampo holds a B.S.E.E. degree from Santa Clara
University.
ROBERT VAN BUSKIRK has served as our President and Chief Executive Officer
and as a director since June 1999. Before joining Stanford Microdevices, Mr. Van
Buskirk held the position of Executive Vice President of Business Development
and Operations from October 1998 to June 1999 at Multilink Technology
Corporation, a company specializing in the design, development, and marketing of
high bit-rate electronic products for advanced fiber optic transmission systems.
Prior to his position at Multilink, Mr. Van Buskirk held various management
positions at TRW, a semiconductor wafer manufacturer, including Executive
Director of the TRW GaAs telecom products business from August 1993 to October
1998. Mr. Van Buskirk holds a B.A. from California State University at Long
Beach.
WALTER BAKER has served as our Vice President and General Manager of the
Standard Products Unit since November 1999. Mr. Baker served as our Vice
President of Engineering from September 1998 to November 1999, and as
Engineering Manager of our design center in Richardson, Texas from September
1997 to September 1998. From June 1996 to September 1997, he was a Senior RFIC
Design Engineer at Fujitsu Electronics, a manufacturer of electronic components.
From May 1993 to June 1996, Mr. Baker held the position of Design Manager at ITT
General Transistor Corporation (GTC), a manufacturer of transistors. Mr. Baker
received his B.S.E.E from Texas A&M University, an M.S.E.E. degree from Georgia
Tech, and an M.B.A. from the University of Phoenix. Mr. Baker is a member of the
Institute of Electrical and Electronic Engineers.
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GARY GIANATASIO has served as Vice President and General Manager of our
Wireless Infrastruture Products Unit since December 1999. From July 1997 through
November 1999, Mr. Gianatasio provided services to Stanford Microdevices as an
independent management consultant. From January 1997 to December 1999, Mr.
Gianatasio served as a principal of G. Gianatasio & Associates. From April 1990
to July 1997, Mr. Gianatasio held various positions at Spectrian Corporation, an
RF component company, most recently as Senior Vice President of Business
Development. Mr. Gianatasio holds a B.S. from San Jose State University.
GUY KREVET has served as our Vice President, Operations since November
1998. From June 1995 to November 1998, Mr. Krevet served as Vice President and
General Manager of Operation, Engineering, and Manufacturing for Avnet, Inc., a
distributor of electronic components and computer products. From April 1971 to
June 1995, Mr. Krevet served in various positions at Hewlett-Packard/Avantek,
most recently as Manufacturing Manager.
SUSAN OCAMPO is co-founder of Stanford Microdevices, and has served as our
Treasurer since November 1999. From 1988 to November 1999, Mrs. Ocampo also
served as Chief Financial Officer and Secretary and as one of our directors.
Mrs. Ocampo holds a B.A. from Maryknoll College, in Manila, Philippines.
GERALD QUINNELL has served as our Vice President, Sales and Marketing and
Chief Operating Officer since November 1998. Mr. Quinnell served as President
and Chief Operating Officer of the RF and Microwave business unit of Avnet, Inc.
from June 1997 to September 1998, and as Corporate Vice President of Avnet,
Inc., from June 1997 to September 1998. From November 1988 to September 1998,
Mr. Quinnell served as Chief Operating Officer of Penstock, Inc., an RF and
microwave distribution company subsequently sold to Avnet, Inc. Mr. Quinnell
holds a B.S. from the University of Phoenix.
THOMAS SCANNELL has served as our Vice President, Finance and
Administration, Chief Financial Officer, Secretary and Assistant Treasurer since
November 1999. From November 1996 to May 1999 Mr. Scannell served as the Vice
President, Finance of Spectra-Physics Lasers, a laser manufacturer. From
November 1990 to November 1996, Mr. Scannell held the positions of Division
Controller and Assistant Corporate Controller at Raychem Corporation, a
materials science company. Mr. Scannell holds a B.A. and an M.B.A. from Stanford
University.
Directors
JOHN BUMGARNER, JR. has served as our director since December 1999. Mr.
Bumgarner has been a Senior Vice President of Corporate Development and Planning
at Williams, a communications and natural gas pipeline infrastructure company,
since 1979. Mr. Bumgarner currently serves as President of Williams
International and President of Williams Headquarters Building Group. Mr.
Bumgarner also serves as President of Strategic Investments for Williams
Communications. Mr. Bumgarner also serves as a director of MPSI, a global
software and database company, PowerTel, a telecommunications service provider
in Australia, Apco Argentina, an exploration and production company, and
Williams Communications, a telecommunications company. Mr. Bumgarner received a
B.S. from the University of Kansas, and an M.B.A. from Stanford University.
PETER CHUNG has served as our director since October 1999. Mr. Chung is a
General Partner and Member of various entities affiliated with Summit Partners,
L.P., a venture capital and private equity firm, where he has been employed
since August 1994. Summit Partners, L.P. and its affiliates manage a number of
private equity funds, including Summit Ventures V, L.P., Summit V Companion
Fund, L.P., Summit V Advisors (QP) Fund, L.P., Summit V Advisors Fund, L.P. and
Summit Investors III, L.P. Prior to attending Stanford Business School, Mr.
Chung was a Financial Analyst with the Mergers and Acquisitions department at
Goldman, Sachs & Co. from 1989 to 1992. Mr. Chung also serves as a director of
ADVA AG Optical Networking, an optical networking systems company, Ditech
Communications Corporation, a developer of echo
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cancellation and optical networking equipment, Somera Communications, Inc., a
supplier of telecommunications infrastructure equipment and services, Splash
Technology Holdings, Inc., a color server systems company, and several privately
held companies. Mr. Chung received an A.B. from Harvard University and an M.B.A.
from Stanford University.
CASIMIR SKRZYPCZAK has served as our director since January 2000. Since
October 1999, Mr. Skrzypczak has been a Senior Vice President at Cisco Systems,
a networking systems company. Prior to joining Cisco, Mr. Skrzypczak served as a
Group President at Telcordia Technologies, a telecommunications company, from
July 1997 to October 1999. From September 1985 to June 1997, Mr. Skrzypczak
served as President of NYNEX Corporation, a telecommunications company. Mr.
Skrzypczak also serves as a director of JDS Uniphase, a fiber-optic products
manufacturer. Mr. Skrzypczak holds a B.E. from Villanova University and an
M.B.A. from Hofstra University.
Except for John Ocampo and Susan Ocampo, who are husband and wife, there
are no family relationships among any of our directors or executive officers.
BOARD OF DIRECTORS
Our board of directors is currently comprised of five directors. In
accordance with the terms of our certificate of incorporation, the terms of
office of our board of directors will be divided into three classes upon the
closing of this offering: Class I, whose term will expire at the annual meeting
of stockholders to be held in 2001, Class II, whose term will expire at the
annual meeting of stockholders to be held in 2002, and Class III, whose term
will expire at the annual meeting of stockholders to be held in 2003. The Class
I directors will be Messrs. Chung and Van Buskirk, the Class II directors will
be Messrs. Bumgarner and Skrzypczak, and the Class III director will be Mr.
Ocampo. At each annual meeting of stockholders after the initial classification,
the successors to directors whose terms will then expire will be elected to
serve from the time of election and qualification until the third annual meeting
following election. Any additional directorships resulting from an increase in
the number of directors will be distributed among the three classes so that, as
nearly as possible, each class will consist of one-third of our directors.
BOARD COMMITTEES
Our board of directors has a compensation committee and an audit committee.
The compensation committee consists of Messrs. Chung and Bumgarner. The
compensation committee was designated in September 1999 and the audit committee
was designated in November 1999. The compensation committee makes
recommendations regarding our stock option plans and all matters concerning
executive compensation. The audit committee consists of Messrs. Bumgarner, Chung
and Skrzypczak. The audit committee approves our independent auditors, reviews
the results and scope of annual audits and other accounting related services,
and evaluates our internal audit and control functions.
DIRECTOR COMPENSATION
We do not pay any cash compensation to directors for serving in that
capacity, although directors are reimbursed for expenses in connection with
attendance at board of directors and committee meetings. Directors are eligible
to participate in our Amended and Restated 1998 Stock Plan. Pursuant to our
Amended and Restated 1998 Stock Plan, all non-employee directors are
automatically granted an option to purchase 40,000 shares of common stock upon
their election to the board of directors and an option to purchase an additional
10,000 shares of common stock each year following the date of our annual
stockholder's meeting if on such date, he has served on our board of directors
for at least the previous six months. On December 29, 1999, we granted Mr.
Bumgarner an option to purchase 40,000 shares of common stock at an exercise
price of $3.50 per share. On January 13, 2000, we granted
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Mr. Skrzypczak an option to purchase 40,000 shares of common stock at an
exercise price of $5.50 per share. Employee directors are also eligible to
participate in our employee stock purchase plan. See "-- Employee Benefit
Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee consists of Mr. Chung and Mr. Bumgarner. None of
our executive officers serves as a director or member of the compensation
committee or other board committee performing equivalent functions of another
entity that has one or more executive officers serving on the board of directors
or compensation committee of Stanford Microdevices. Prior to the formation of
the compensation committee, compensation decisions were made by the board of
directors beginning in May 1999 and prior to that by our President.
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
We have entered into change of control agreements with Guy Krevet and Mr.
Quinnell which provide that these executive officers are entitled to a maximum
of six months of severance pay and acceleration of options in the event of the
termination of employment of such individual within twelve months of a change of
control of Stanford Microdevices. In addition, we have signed an offer letter
with Mr. Scannell that provides for six months of severance pay in the event Mr.
Scannell is terminated without cause, and acceleration of all outstanding
options in the event of a change of control of Stanford Microdevices. We also
signed an offer letter with Mr. Gianatasio that provides for four months of
severance pay and one year acceleration of options in the event Mr. Gianatasio
is terminated without cause, and acceleration of all outstanding options in the
event of a change of control of Stanford Microdevices.
EXECUTIVE COMPENSATION
The following table sets forth in summary form information concerning the
compensation paid by us during the fiscal year ended December 31, 1999 to our
Chief Executive Officer and each of our four other most highly compensated
executive officers. These individuals are referred to as the named executive
officers in this prospectus.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -------------------
---------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- --------------------------- -------- -------- ------------ ------------------- ------------
<S> <C> <C> <C> <C> <C>
Robert Van Buskirk......... $ 93,461 $ 50,000 -- 342,180 $2,897
President and Chief
Executive Officer
John Ocampo................ 241,799 100,000 2,989,958 -- 17,932
Chairman of the Board and
Chief
Technology Officer
Susan Ocampo............... 217,673 100,000 -- -- 17,924
Treasurer
Gerald Quinnell............ 200,000 100,000 -- 119,924 3,293
Chief Operating Officer
and Vice President,
Sales and Marketing
Guy Krevet................. 154,038 75,000 -- 111,090 3,293
Vice President,
Operations
</TABLE>
The amount in the column entitled "Other Annual Compensation" for Mr.
Ocampo consists of amounts paid to Mr. Ocampo to reimburse Mr. and Mrs. Ocampo
for federal and state taxes of Stanford Microdevices paid by Mr. and Mrs. Ocampo
while we were an S corporation and to reimburse Mr. and Mrs. Ocampo for taxes
they incurred as a result of the receipt of these amounts and taxes associated
with receipt of a dividend paid in 1999.
The amounts in the column entitled "All Other Compensation" consist of term
life insurance premiums paid by us and contributions by us of $2,500 to each
named executive officer's 401(k) plan account. We also paid Mr. and Mrs. Ocampo
$14,841 each pursuant to our profit sharing plan.
Mr. Van Buskirk joined Stanford Microdevices as our President and Chief
Executive Officer in May 1999. Mr. Van Buskirk's salary on an annualized basis
in 1999 was $225,000. Mr. Ocampo served as our President and Chief Executive
Officer until May 1999. Mrs. Ocampo served as our Chief Financial Officer and
Secretary until November 1999.
The table above excludes Mr. Scannell, our Vice President, Finance and
Administration, Chief Financial Officer and Secretary, who joined Stanford
Microdevices in November 1999. Mr. Scannell's annual salary is $175,000 and he
was granted an option to purchase 200,000 shares in 1999 at an exercise price of
$1.50 per share.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides summary information regarding stock options
granted to each of the named executive officers in 1999. The information
regarding stock options granted to named executive officers as a percentage of
total options granted to employees in 1999 is based on options to purchase a
total of 2,211,373 shares that were granted to employees,
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<PAGE> 46
consultants and directors in 1999, all pursuant to our 1998 Stock Plan. No stock
appreciation or stock purchase rights were granted during 1999.
Options were granted at an exercise price equal to the fair market value of
our common stock, as determined by the board of directors on the date of grant.
The potential realizable values set forth in the table below assume that
the fair market value of our common stock on the date of grant will appreciate
at the indicated rate compounded annually for the entire ten-year term of the
option and that the option is exercised and sold on the last day of its term.
The 5% and 10% assumed annual rates of compounded stock price appreciation are
mandated by rules of the Securities and Exchange Commission and do not reflect
our projections or estimates of future stock price growth.
All options indicated in the table below have a ten year term. The options
vest as to 25% of the shares one year from the vesting commencement date and the
remaining shares shall vest at the rate of 1/48 of the shares at the end of each
month thereafter, provided that the optionee remains our employee or a
consultant to Stanford Microdevices. In addition, Mr. Krevet and Mr. Quinnell
have agreements that provide for acceleration of vesting under certain
conditions as described in "-- Employment Agreements and Change of Control
Arrangements."
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------------- OPTION VALUE AT ASSUMED
NUMBER PERCENT OF TOTAL ANNUAL RATE OF STOCK
OF SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
---- ------------- ---------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert Van Buskirk... 200,000 9.0% $1.50 6/7/09 $188,668 $478,123
22,180 1.0 1.50 9/30/09 20,923 53,024
120,000 5.4 1.50 11/8/09 113,201 286,874
John Ocampo.......... -- -- -- -- -- --
Susan Ocampo......... -- -- -- -- -- --
Gerald Quinnell...... 39,924 1.8 1.50 9/30/09 37,662 95,443
80,000 3.6 1.50 11/08/09 75,467 191,249
Guy Krevet........... 11,090 0.5 1.50 9/30/09 10,462 26,512
100,000 4.5 1.50 11/8/09 94,334 239,061
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth for each of the named executive officers
certain information concerning the number of shares subject to both exercisable
and unexercisable stock options at December 31, 1999. Also reported are values
for "in-the-money" options that represent the positive spread between the
respective exercise prices of outstanding stock options and $3.50, which is the
fair market value of the common stock as of December 31, 1999 as determined in
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<PAGE> 47
good faith by our board of directors. No shares were acquired by the named
executive officers upon exercise of stock options during the year ended December
31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1999 AT DECEMBER 31, 1999
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert Van Buskirk.................. -- 342,180 $ -- $684,360
John Ocampo......................... -- -- -- --
Susan Ocampo........................ -- -- -- --
Gerald Quinnell..................... 108,313 371,611 273,176 895,472
Guy Krevet.......................... 30,087 181,003 75,882 404,298
</TABLE>
EMPLOYEE BENEFIT PLANS
AMENDED AND RESTATED 1998 STOCK PLAN
Our Amended and Restated 1998 Stock Plan provides for the grant of
incentive stock options to our employees, including our officers and employee
directors, and for the grant of nonstatutory stock options and stock purchase
rights to our employees, directors and consultants. This Amended and Restated
1998 Stock Plan was adopted by our board of directors and was approved by our
stockholders in February 2000.
A total of 7,194,691 shares of our common stock have been reserved for
issuance under our Amended and Restated 1998 Stock Plan. In addition, annual
increases will be added beginning in 2001, equal to the lesser of 1,500,000
shares, 3% of our outstanding shares on such date, or a lesser amount determined
by our board of directors. As of December 31, 1999, no options had been
exercised, options to purchase 5,231,373 shares of common stock were outstanding
and 1,963,318 were available for future grant.
Administration
Our board of directors or a committee of our board of directors administers
our Amended and Restated 1998 Stock Plan. The administrator has the power to
determine, among other things:
- the terms of the options or stock purchase rights granted, including the
exercise price of the option or stock purchase right;
- the number of shares subject to each option or stock purchase right;
- the exercisability of each option or stock purchase right; and
- the form of consideration payable upon the exercise of each option or
stock purchase right.
Options
The administrator determines the exercise price of options granted under
our Amended and Restated 1998 Stock Plan, but with respect to all incentive
stock options and nonstatutory stock options intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Internal Revenue Code, the exercise price must at least equal the fair market
value of our common stock on the date of grant. The term of an incentive stock
option may not exceed ten years, except that with respect to any participant who
owns 10% or more of the voting power of all classes of our outstanding capital
stock, the term must not exceed five years and the exercise price must equal at
least 110% of the fair market value on the grant date. The administrator
determines the term of all other options.
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<PAGE> 48
No optionee may be granted an option to purchase more than 1,000,000 shares
in any fiscal year. In connection with his or her initial service, an optionee
may be granted an additional option to purchase up to 1,000,000 shares.
After termination of one of our employees, directors or consultants, he or
she may exercise his or her option for the period of time stated in the option
agreement. Generally, if termination is due to death or disability, the option
will remain exercisable for 12 months. In all other cases, the option will
generally remain exercisable for three months. However, an option may never be
exercised later than the expiration of its term.
Stock Purchase Rights
The administrator determines the exercise price of stock purchase rights
granted under our Amended and Restated 1998 Stock Plan. Unless the administrator
determines otherwise, the restricted stock purchase agreement will grant us a
repurchase option that we may exercise upon the voluntary or involuntary
termination of the purchaser's service with us for any reason (including death
or disability). The purchase price for shares we repurchase will generally be
the original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to us. The administrator determines the rate at
which our repurchase option will lapse.
Transferability of Options and Stock Purchase Rights
Our Amended and Restated 1998 Stock Plan generally does not allow for the
transfer of options or stock purchase rights, other than by will or by the laws
of descent or distribution, and only the optionee may exercise an option or
stock purchase right during his or her lifetime.
Automatic Option Grants to Non-Employee Directors
Our Amended and Restated 1998 Stock Plan also provides for the automatic
grant of 40,000 shares of common stock to a director who first becomes a
non-employee director (except those directors who become non-employee directors
by ceasing to be employee directors). This option will vest as to 25% of the
shares subject to the option on each anniversary of the date of grant. Each
non-employee director will automatically be granted an option to purchase 10,000
shares each year following the date of our annual stockholder's meeting (except
after the first such annual meeting if it is held within six months of the date
of this offering) if on such date, he or she will have served on our board of
directors for at least the previous six months. All of these options will vest
as to 25% of the shares subject to the option on each anniversary of the date of
grant. All options automatically granted to non-employee directors will have a
term of ten years and the exercise price will be 100% of the fair market value
per share of common stock on the date of grant.
Adjustments upon Merger or Asset Sale
Our Amended and Restated 1998 Stock Plan provides that in the event of our
merger with or into another corporation or a sale of substantially all of our
assets, the successor corporation will assume or substitute an equivalent option
or right for each outstanding option or stock purchase right. If following the
assumption or substitution of an option automatically granted to one of our
outside directors any such outside director is terminated other than by his or
her voluntary resignation, then he or she will have the right to exercise the
option as to all of the shares subject to the option, including shares which
would not otherwise be exercisable.
If there is no assumption or substitution of outstanding options or stock
purchase rights, the administrator will provide notice to the optionee that he
or she has the right to exercise the option or stock purchase right as to all of
the shares subject to the option or stock purchase right, including shares which
would not otherwise be exercisable, for a period of 15 days from
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<PAGE> 49
the date of the notice. The option or stock purchase right will terminate upon
the expiration of the 15-day period.
Amendment and Termination of the Amended and Restated 1998 Stock Plan
Our Amended and Restated 1998 Stock Plan will automatically terminate in
2010, unless we terminate it sooner. In addition, our board of directors has the
authority to amend, suspend or terminate our Amended and Restated 1998 Stock
Plan provided it does not adversely affect any previously granted option or
stock purchase right or any previously issued shares of common stock.
2000 EMPLOYEE STOCK PURCHASE PLAN
Our 2000 Employee Stock Purchase Plan was adopted by our board of directors
in February 2000, and approved by our stockholders in February 2000 and is
intended to become effective upon completion of this offering. A total of
300,000 shares of our common stock has been reserved for issuance, plus annual
increases beginning in 2001 equal to the lesser of 350,000 shares, 1% of the
outstanding shares on such date, or a lesser amount as may be determined by our
board of directors. As of the date of this prospectus, no shares have been
issued under our 2000 Employee Stock Purchase Plan.
Structure of the 2000 Employee Stock Purchase Plan
Our 2000 Employee Stock Purchase Plan is intended to qualify under Section
423 of the Code and contains consecutive, overlapping 24-month offering periods.
Each offering period includes four six-month purchase periods. The offering
periods generally start on the first trading day on or after May 15 and November
15 of each year and terminate on the first trading day on or after the May 15 or
November 15 offering period commencement date 24 months later, except for the
first such offering period which will commence on the first trading day on or
after the effective date of this offering and will end on the first trading day
on or after May 15, 2002 and the second offering period will commence on the
first trading day on or after November 15, 2000.
Eligibility
All of our employees are eligible to participate if they are customarily
employed by us or any participating subsidiary for at least 20 hours per week
and more than five months in any calendar year. However, an employee may not be
granted an option to purchase stock under the Purchase Plan if such employee:
- immediately after grant owns stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock, or
- whose rights to purchase stock under all of our employee stock purchase
plans accrues at a rate that exceeds $25,000 worth of stock for each
calendar year.
Purchases
Our Purchase Plan permits participants to purchase common stock through
payroll deductions of up to 15% of their eligible compensation which includes a
participant's base straight time gross earnings and commissions, but exclusive
of overtime pay, shift premium, incentive compensation, incentive payments,
bonuses and other compensation. A participant may purchase a maximum of 10,000
shares during a six month purchase period.
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<PAGE> 50
Amounts deducted and accumulated by the participant are used to purchase
shares of our common stock at the end of each six-month purchase period. The
price is 85% of the lower of the fair market value of our common stock either:
- at the beginning of an offering period, or
- at the end of a purchase period.
If the fair market value at the end of a purchase period is less than the
fair market value at the beginning of the offering period, participants will be
withdrawn from the current offering period following their purchase of shares on
the purchase date and will be automatically re-enrolled in a new offering
period. Participants may end their participation at any time during an offering
period, and will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with us.
Transferability of Rights
A participant may not transfer rights granted under our 2000 Employee Stock
Purchase Plan other than by will, the laws of descent and distribution or as
otherwise provided under the Purchase Plan.
Merger or Asset Sale
In the event of our merger with or into another corporation or a sale of
all or substantially all of our assets, a successor corporation will assume or
substitute each outstanding option. If the successor corporation refuses to
assume or substitute for the outstanding options, the offering period then in
progress will be shortened, and a new exercise date will be set.
Amendment and Termination of the 2000 Employee Stock Purchase Plan
Our 2000 Employee Stock Purchase Plan will terminate in 2010 unless we
terminate it sooner. Our board of directors has the authority to amend or
terminate our 2000 Employee Stock Purchase Plan, except that no such action may
adversely affect any outstanding rights to purchase stock under our 2000
Employee Stock Purchase Plan.
PROFIT SHARING PLAN
In January of 1997, we adopted a profit sharing plan that allows for
discretionary contributions to the plan at the discretion of our board of
directors out of our current or accumulated profits. Our contribution is limited
to 15% of eligible participants' annual compensation, subject to certain
adjustments. Our contributions were approximately $91,000 in 1997, $121,000 in
1998 and $127,000 in 1999. We intend to terminate this plan.
401(k) RETIREMENT PLAN
We maintain a tax-qualified retirement and deferred savings plan for our
employees, commonly known as a 401(k) plan. The 401(k) plan provides that each
participant may contribute up to 15% of his or her pre-tax gross compensation up
to a statutory limit, which was $10,000 in the 1999 calendar year. Under our
401(k) Plan, we make matching non-discretionary contributions to our 401(k) plan
of up to $2,500 per year for each participant in the plan. Under the 401(k)
plan, we may make discretionary contributions as determined by our board of
directors. In 1999, we made an aggregate of $51,000 in contributions to the
401(k) plan.
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LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
- breach of their duty of loyalty to the corporation or its stockholders;
- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
- any transaction from which the director derives an improper personal
benefit.
The limitation of liability in our certificate of incorporation does not
apply to liabilities arising under the federal or state securities laws and does
not affect the availability of equitable remedies such as injunctive relief or
rescission.
Our bylaws provide that we shall indemnify our directors, officers,
employees and agents to the maximum extent permitted by Delaware law. We believe
that indemnification under our bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our bylaws also permit us to
secure insurance on behalf of any current or former officer, director, employee
or other agent of our company, or of another enterprise if serving at our
request, for any liability arising out of his or her actions in that capacity,
regardless of whether we would have the power to indemnify him or her against
liability under the provisions of Delaware law.
Prior to the effective time of this offering, we intend to enter into
agreements to indemnify our directors and officers, in addition to the
indemnification provided for in our bylaws. These agreements, among other
things, require us to indemnify our directors and officers for any and all
expenses including attorneys fees, and including any federal, state, local or
foreign taxes imposed on them as a result of the actual or deemed receipt of any
payments under the indemnification agreement, judgments, fines, penalties and
amounts paid in settlement (if such settlement is approved in advance by us,
which approval shall not be unreasonably withheld) any action, suit or
proceeding, including any action by or in the right of Stanford Microdevices
arising out of the individual's status as a director, officer, employee, or
agent of Stanford Microdevices, any subsidiary of Stanford Microdevices or any
other company or enterprise to which the person provides services at our request
and to advance expenses incurred by the individual in connection with any
proceeding against the individual with respect to which the individual may be
entitled to indemnification by us. We believe that our certificate of
incorporation, by law provisions and indemnification agreements are necessary to
attract and retain qualified persons as directors and officers. Upon completion
of this offering, we will also maintain directors and officers liability
insurance.
At present, we are not aware of any pending litigation or proceeding
involving a director or officer in which indemnification is required or
permitted, and we are not aware of any threatened litigation or proceeding that
may result in a claim for indemnification.
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CERTAIN TRANSACTIONS
The following is a description of transactions in the last three 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 which are otherwise described
under "Management."
On September 30, 1999, we declared a cash dividend payable to all holders
of common stock as of October 1, 1999 in an aggregate amount of $4.0 million.
Mr. and Mrs. Ocampo, and trusts for their benefit, were the sole common
stockholders of Stanford Microdevices at the time of this dividend and received
payment of the entire $4.0 million. Mr. and Mrs. Ocampo are principal
stockholders of Stanford Microdevices and each is an executive officer. Mr.
Ocampo is our Chairman of the Board, and our Chief Technology Officer. Mrs.
Ocampo is our Treasurer. In connection with transactions related to our Series A
financing in October 1999, we agreed to pay any federal or state taxes,
including a gross-up payment, associated with the payment of the dividend in
October 1999 to Mr. and Mrs. Ocampo. A total of $3.0 million was paid to Mr. and
Mrs. Ocampo in December 1999 as a result of this agreement and to reimburse Mr.
and Mrs. Ocampo for the S corporation federal and state taxes of Stanford
Microdevices in 1998 and 1999. We also paid additional dividends to Mr. and Mrs.
Ocampo as follows: $784,000 in 1997, $1,100,000 in 1998 and $388,000 in 1999.
In October 1999, we sold an aggregate 4,983,388 shares of our mandatorily
redeemable convertible preferred stock at a price per share of $3.01 to entities
affiliated with Summit Partners and in connection therewith issued warrants to
purchase up to 1,100,000 shares of common stock at an exercise price of $4.50
per share to entities affiliated with Summit Partners. Upon consummation of this
offering, each share of mandatorily redeemable convertible preferred stock will
automatically convert into one share of our common stock, and all unexercised
warrants will terminate. Mr. Chung, a director of Stanford Microdevices, is a
general partner in certain funds affiliated with Summit Partners. Summit
Partners is also entitled to registration rights with respect to the common
stock issued or issuable upon conversion of its mandatorily redeemable
convertible preferred stock and upon exercise of its warrants. We believe that
the shares issued in this transaction were sold at the then fair market value.
In the past, we have used the services of MPI Corporation of Manila,
Philippines, for the packaging of substantially all of our RF components and all
of our contract manufacturing services. MPI is owned by Jose Ocampo, a cousin of
John Ocampo, our co-founder, Chairman of the Board and Chief Technology Officer,
and a principal stockholder of Stanford Microdevices. We paid MPI an aggregate
of $1,902,000 in 1997, $1,056,000 in 1998 and $1,235,000 in 1999 for these
services. We also granted Jose Ocampo options to purchase 333,270 shares of
common stock at exercise prices ranging from $0.92 to $1.50.
We plan to enter into an indemnification agreement with each of our current
and future executive officers and directors.
See the description of certain change of control agreements entered into
with some of our officers described above under "Management -- Employment
Agreements and Change of Control Arrangements."
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PRINCIPAL STOCKHOLDERS
The following table sets forth as of December 31, 1999, and as adjusted to
reflect the sale of the shares of common stock offered hereby, certain
information with respect to the beneficial ownership of the common stock as to:
- each person known by us to own beneficially more than 5% of the
outstanding shares of our common stock;
- each of the named executive officers;
- each of our directors; and
- all of our directors and executive officers as a group.
Except as indicated in the table or footnotes below, and subject to
applicable community property laws, the persons named below have sole voting and
investment power with respect to all shares of common stock held by them.
Applicable percentage ownership in the table is based on 20,647,839 shares
of common stock outstanding as of December 31, 1999, and shares
outstanding immediately following the completion of this offering. Beneficial
ownership is determined in accordance with the rules of the SEC. Shares of
common stock subject to options that are presently exercisable or exercisable
within 60 days of December 31, 1999 are deemed outstanding for the purpose of
computing the percentage ownership of the person or entity holding options or
warrants, but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person or entity.
Unless otherwise indicated below, each person or entity named below has an
address in care of Stanford Microdevices' principal executive offices at 522
Almanor Avenue, Sunnyvale, California 94086.
<TABLE>
<CAPTION>
BENEFICIALLY OWNED
PERCENTAGE OF SHARES
NUMBER OF SHARES --------------------------------
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
------------------------ ------------------ --------------- --------------
<S> <C> <C> <C>
5% Stockholders, Directors and Named Executive
Officers:
John and Susan Ocampo(1)....................... 14,248,764 69.0% %
Entities affiliated with Summit Partners
L.P.(2)...................................... 6,083,388 28.0
Robert Van Buskirk............................. -- *
Guy Krevet(3).................................. 34,716 *
Gerald Quinnell(4)............................. 124,976 *
John Bumgarner, Jr............................. 71,248 *
Peter Chung(5)................................. -- *
Casimir Skrzypczak............................. -- *
All directors and executive officers as a
group (11 persons)(6)..................... 14,560,244 69.7% %
</TABLE>
- -------------------------
* Less than 1% of the outstanding shares of common stock.
(1) Consists of 1,500,000 shares held by John Ocampo, 1,500,000 shares held by
Susan Ocampo, 8,208,765 shares held jointly by John and Susan Ocampo, as
community property, 1,500,000 shares held by John Ocampo and Susan Ocampo,
Trustees of Susan Ocampo Annuity Trust U/I Dtd. September 27, 1999,
1,500,000 shares held by John Ocampo and Susan Ocampo, Trustees of John
Ocampo Annuity Trust U/I dtd. September 27, 1999, and an aggregate of 39,999
shares held by various trusts for the benefit of the Ocampos' minor
children. Mr. and Mrs. Ocampo are co-trustees with a third person of each
these trusts and share voting and dispositive authority over these shares.
51
<PAGE> 54
Mr. and Mrs. Ocampo disclaim beneficial ownership of the shares held by
these trusts except to the extent of their pecuniary interest in these
shares.
(2) Consists of 3,691,389 shares held by Summit Ventures V, L.P., 75,794 shares
held by Summit Investors III, L.P., 79,958 shares held by Summit V Advisors,
L.P., 874,599 shares held by Summit Ventures V Companion Fund, L.P., 261,648
shares held by Summit V Advisors (QP), L.P., and an aggregate of 1,100,000
shares subject to outstanding warrants exercisable within 60 days of
December 31, 1999 held by these entities. Summit Partners, LLC is the
general partner of Summit Partners V, L.P., which is the general partner of
each of Summit Ventures V, L.P., Summit V Advisors, L.P., Summit V Advisors
(QP), L.P. and Summit Ventures V Companion Fund, L.P. Summit Partners, LLC,
through an investment committee, has voting and dispositive authority over
the shares held by each of these entities and Summit Investors III. The
address of record for entities affiliated with Summit Partners, L.P. is 499
Hamilton Avenue, Suite 200, Palo Alto, CA 94301.
(3) Consists of 34,716 shares subject to outstanding options exercisable within
60 days of December 31, 1999.
(4) Consists of 124,976 shares subject to outstanding options exercisable within
60 days of December 31, 1999.
(5) Mr. Chung, one of our directors, is a member of Summit Partners LLC, the
general partner of Summit Ventures V, which is the general partner of each
of Summit Ventures V, L.P., Summit V Advisors, L.P., Summit Ventures V
Companion Fund, L.P. and Summit V Advisors Fund (QP), L.P. Summit Partners,
LLC, through an investment committee, has voting and dispositive authority
over the shares held by these entities and Summit Investors III, L.P. Mr.
Chung does not have voting or dispositive authority over these shares and
disclaims beneficial ownership except to the extent of his pecuniary
interest in these shares.
(6) Also includes an aggregate of 240,232 shares subject to outstanding options
exercisable within 60 days of December 31, 1999.
52
<PAGE> 55
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering our certificate of incorporation will be
amended and restated to provide for total authorized capital stock of
200,000,000 shares of common stock, $0.001 par value per share, and 5,000,000
shares of preferred stock, $0.001 par value per share.
The following summary does not purport to be complete and is subject to,
and qualified in its entirety by, the provisions of our restated certificate of
incorporation, which is included as an exhibit to the registration statement of
which this prospectus is a part, and by the provisions of applicable law.
COMMON STOCK
Assuming the conversion of all outstanding shares of mandatorily redeemable
convertible preferred stock into common stock as of December 31, 1999, there
were 20,647,839 shares of common stock outstanding held of record by 52
stockholders. After giving effect to the sale of common stock offered hereby,
there will be shares of common stock outstanding.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Holders of common
stock have no preemptive rights or rights to convert their common stock into any
other securities. There are no redemption or sinking fund provisions applicable
to the common stock. All outstanding shares of common stock are fully paid and
non-assessable, and the shares of common stock to be issued upon completion of
this offering will be fully paid and non-assessable.
PREFERRED STOCK
Pursuant to our restated certificate of incorporation that will be filed
upon completion of this offering, our board of directors will have the
authority, without further action by the stockholders, to designate and issue up
5,000,000 shares of preferred stock in one or more series. Our board of
directors will also be able to designate the powers, preferences, privileges and
relative participating, optional or special rights and the qualifications,
limitations or restrictions of each series of preferred stock, including
dividend rights, conversion rights, voting rights, terms of redemption and
liquidation preferences, any or all of which may be greater than the rights of
the common stock. Our board, without stockholder approval, can issue preferred
stock with voting, conversion or other rights that could adversely affect the
voting power and other rights of the holders of common stock. Preferred stock
could thus be issued quickly with terms calculated to delay or prevent a change
in control of Stanford Microdevices or make removal of management more
difficult. Additionally, the issuance of preferred stock may have the effect of
decreasing the market price of the common stock, and may adversely affect the
voting and other rights of the holders of common stock. Upon the closing of this
offering, there will be no shares of preferred stock outstanding and we have no
present plans to issue any of the preferred stock.
REGISTRATION RIGHTS
Assuming the conversion of all outstanding mandatorily redeemable
convertible preferred stock into common stock upon completion of this offering,
the holders of 6,747,839 shares of common stock or their transferees are
entitled to registration rights with respect to these shares under the
Securities Act. These rights are provided under the terms of an agreement
53
<PAGE> 56
between Stanford Microdevices and the holders of these securities. Subject to
limitations in the agreement, these registration rights include the following:
- The holders of at least a majority of these securities then outstanding
may require, on two occasions beginning six months after the date of this
prospectus, that we use our commercially reasonable efforts to register
these securities for public resale, provided that the anticipated
aggregate offering price of such public resale would exceed $10,000,000.
- If we register any of our common stock either for our own account or for
the account of other security holders, the holders of these securities
are entitled to include their shares of common stock in that
registration, subject to the ability of the underwriters to limit the
number of shares included in the offering, provided that these holders
may not be reduced below 30% of the total number of shares included in
the offering.
- The holders of these securities may also require us, not more than once
in any 12 month period, to register all or a portion of these securities
on Form S-3 when use of that form becomes available to us, provided,
among other limitations, that the proposed aggregate selling price, net
of any underwriters' discounts or commissions, is at least $2,500,000.
We will be responsible for paying all registration expenses other than
underwriting discounts and commissions, and the holders selling their shares
will be responsible for paying all selling expenses.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF OUR CERTIFICATE OF INCORPORATION, BYLAWS
AND OF DELAWARE LAW
Charter Documents
Provisions of our charter and bylaws may have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of us. These provisions are expected to
discourage coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of Stanford Microdevices to first
negotiate with us. These provisions could limit the price investors might be
willing to pay in the future for our common stock and could have the effect of
delaying or preventing a change in control. We believe that the benefits of
increased protection of our ability to negotiate with the proponent of an
unfriendly or unsolicited acquisition proposal outweigh the disadvantages of
discouraging these proposals because, among other things, negotiation will
result in an improvement of their terms. These provisions could limit the price
that investors might be willing to pay in the future for shares of our common
stock. These provisions include:
- division of the board of directors into three separate classes;
- elimination of cumulative voting in the election of directors;
- prohibitions on our stockholders from acting by written consent and
calling special meetings;
- procedures for advance notification of stockholder nominations and
proposals; and
- the ability of the board of directors to alter our bylaws without
stockholder approval.
In addition, subject to limitations prescribed by law, our board of
directors has the authority to issue up to 5,000,000 shares of preferred stock
and to determine the price, rights, preferences, privileges and restrictions,
including voting rights, of those shares without any further vote or action by
the stockholders. The issuance of preferred stock, while providing flexibility
in connection with possible financings or acquisitions or other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire a majority of our outstanding voting stock.
54
<PAGE> 57
Delaware Law
We are also subject to Section 203 of the Delaware General Corporation Law
which subject to certain exceptions prohibits a publicly held Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date the person became an
interested stockholder, unless:
- prior to the date of the transaction, the board of directors approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock outstanding at the time the transaction
commenced excluding for purposes of determining the number of shares
outstanding (a) shares owned by persons who are directors and also
officers and (b) shares held by employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
- on or following the date of the transaction the business combination is
approved by the board of directors and authorized at an annual or special
meeting of stockholders, by the affirmative vote of at least two-thirds
of the outstanding voting stock that is not owned by the interested
stockholder.
Generally, a "business combination" includes a merger, asset or stock sale,
or other transaction resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns or, within three years prior to the
determination of interested stockholder status, did own 15% or more of a
corporation's outstanding voting securities. We expect the existence of this
provision to have an anti-takeover effect with respect to transactions that our
board of directors do not approve in advance. We also anticipate that Section
203 may also discourage attempts that might result in a premium over the market
price for the shares of common stock held by stockholders. A Delaware
corporation may opt out of Section 203 with an express provision in its original
certificate of incorporation or an express provision in its certification of
incorporation or bylaws resulting from amendments approved by the holders of at
least a majority of the corporation's outstanding voting shares. We have not
opted out of Section 203.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services. ChaseMellon's address is 85 Challenger Road, Ridgefield
Park, New Jersey 07660 and its telephone number is (800) 356-2017.
55
<PAGE> 58
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have outstanding
shares of common stock, assuming no exercise of the underwriters' over-allotment
option and no exercise of options after December 31, 1999. Of these shares, the
shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act; provided however,
that if shares are purchased by "affiliates" as that term is defined in Rule 144
of the Securities Act, their sales of shares would be subject to certain
limitations and restrictions that are described below.
The remaining 20,647,839 shares of common stock held by existing
stockholders were issued and sold by us in reliance on exemptions from the
registration requirements of the Securities Act. All of these shares will be
subject to lock-up agreements described below on the effective date of the
offering. Upon expiration of the 180-day lock-up agreements, 20,576,591 shares
will become eligible for sale, subject in some cases to the limitations of Rule
144. In addition, 71,248 shares will become eligible for sale on December 29,
2000.
In addition, we have 2,263,318 shares of our common stock available for
future grant pursuant to our stock plans, and 5,231,373 shares subject to
outstanding options at December 31, 1999. All of these outstanding options are
also subject to the 180-day lockup and shares are subject to a 360-day
lockup. We intend to register, prior to the expiration of the lock-up, all of
the shares of common stock reserved for issuance under our stock option plans
and under our employee stock purchase plan. This registration will permit the
resale of shares by non-affiliates in the public market without restriction
beginning on expiration of the lock-up. We also have warrants to purchase
1,100,000 shares of common stock. The shares subject to these warrants will be
available for sale as soon as the expiration of the lockup, assuming a cashless
exercise of the warrants.
We and each of our officers and directors and substantially all other
stockholders have agreed with Deutsche Bank Securities Inc. not to sell or
otherwise dispose of any their shares for a period of 180 days after the date of
this prospectus without the prior written consent of Deutsche Bank Securities
Inc. Deutsche Bank Securities Inc., however, may in its sole discretion, at any
time and without notice, release all or any portion of the shares subject to
lock-up agreements. Deutsche Bank Securities Inc. does not have any current
plans to effect such a release.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market System during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to other requirements regarding the
manner of sale, notice filing and the availability of current public information
about us.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be
56
<PAGE> 59
sold for at least two years, would be entitled to sell these shares under Rule
144(k) without regard to the requirements described above. Therefore, unless
otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering.
RULE 701
In general, any employee, director, officer, consultant or advisor who
purchases shares from us in connection with a written compensatory plan or
contract before the effective date of the offering is entitled to resell these
shares 90 days after the effective date of the offering in reliance on Rule 144,
without having to comply with certain restrictions, including the holding
period, contained in Rule 144.
The SEC has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, along with the shares acquired upon
exercise of these options, including exercises after the date of this
prospectus. Securities issued in reliance on Rule 701 are restricted securities
and, subject to the contractual restrictions described above, beginning 90 days
after the date of this prospectus, may be sold by persons other than
"affiliates" subject only to the manner of sale restrictions of Rule 144 and by
"affiliates" under Rule 144 without compliance with its one-year minimum holding
requirement.
REGISTRATION RIGHTS
After this offering, the holders of 6,747,839 shares of our common stock
will be entitled to certain rights with respect to registration of such shares
under the Securities Act. Registration of these shares under the Securities Act
would result in these shares becoming freely tradeable without restriction under
the Securities Act (except for shares purchased by our affiliates). Investors
should look at "Description of Capital Stock -- Registration Rights" for a
description of those shares entitled to registration.
57
<PAGE> 60
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement the
underwriters named below, through their representatives Deutsche Bank Securities
Inc., Banc of America Securities LLC, CIBC World Markets Corp. and FleetBoston
Robertson Stephens Inc. have severally agreed to purchase from Stanford
Microdevices the following respective number of shares of common stock at a
public offering price less the underwriting discounts and commissions set forth
on the cover page of this prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Deutsche Bank Securities Inc. .............................
Banc of America Securities LLC.............................
CIBC World Markets Corp. ..................................
FleetBoston Robertson Stephens Inc. .......................
---------
Total....................................................
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares of common stock offered hereby are subject
to certain conditions precedent and that the underwriters will purchase all
shares of the common stock offered hereby, other than those covered by the
over-allotment option described below, if any of these shares are purchased.
The underwriters propose to offer the shares of common stock to the public
at the public offering price set forth on the cover of this prospectus and to
dealers at a price that represents a concession not in excess of $ per share
under the public offering price. The underwriters may allow, and these dealers
may re-allow, a concession of not more than $ per share to other dealers.
After the initial public offering, representatives of the underwriters may
change the offering price and other selling terms.
We have granted to the underwriters an option, exercisable not later than
30 days after the date of this prospectus, to purchase up to additional
shares of common stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus. The
underwriters may exercise this option only to cover over-allotments made in
connection with the sale of the common stock offered hereby. To the extent that
the underwriters exercise this option, each of the underwriters will become
obligated, subject to conditions, to purchase approximately the same percentage
of additional shares of common stock as the number of shares of common stock to
be purchased by it in the above table bears to the total number of shares of
common stock offered hereby. We will be obligated, pursuant to the option, to
sell these additional shares of common stock to the underwriters to the extent
the option is exercised. If any additional shares of common stock are purchased,
the underwriters will offer the additional shares on the same terms as those on
which the shares are being offered.
The underwriting fee is equal to the public offering price per share of
common stock less the amount paid by the underwriters to us per share of common
stock. The underwriting fee is % of the initial public offering price. We have
agreed to pay the underwriters the following
58
<PAGE> 61
fees, assuming either no exercise or full exercise by the underwriters of the
underwriters' over-allotment option:
<TABLE>
<CAPTION>
TOTAL FEES
----------------------------------------------
WITHOUT EXERCISE OF WITH FULL EXERCISE OF
FEE PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
------------- --------------------- ---------------------
<S> <C> <C> <C>
Fees paid by Stanford
Microdevices....................
</TABLE>
In addition, we estimate that our share of the total expenses of this
offering, excluding underwriting discounts and commissions, will be
approximately $ .
We have agreed to indemnify the underwriters against some specified types
of liabilities, including liabilities under the Securities Act, and to
contribute to payments the underwriters may be required to make in respect of
any of these liabilities.
Each of our officers and directors, and substantially all of our
stockholders and holders of options and warrants to purchase our stock, have
agreed not to offer, sell, contract to sell or otherwise dispose of, or enter
into any transaction that is designed to, or could be expected to, result in the
disposition of any shares of our common stock or other securities convertible
into or exchangeable or exercisable for shares of our common stock or
derivatives of our common stock owned by these persons prior to this offering or
common stock issuable upon exercise of options or warrants held by these persons
for a period of 180 days after the date of this prospectus without the prior
written consent of Deutsche Bank Securities Inc. This consent may be given at
any time without public notice. We have entered into a similar agreement with
the representatives of the underwriters, except that we may grant options and
sell shares pursuant to our Amended and Restated 1998 Stock Plan and our 2000
Employee Stock Purchase Plan without such consent. There are no agreements
between the representatives and any of our stockholders or affiliates releasing
them from these lock-up agreements prior to the expiration of the 180-day
period.
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
In order to facilitate the offering of our common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of our common stock. Specifically, the underwriters may over-allot
shares of our common stock in connection with this offering, thus creating a
short position in our common stock for their own account. A short position
results when an underwriter sells more shares of common stock than that
underwriter is committed to purchase. Additionally, to cover these
over-allotments or stabilize the market price of our common stock, the
underwriters may bid for, and purchase, shares of our common stock in the open
market. Finally, the representatives, on behalf of the underwriters, may also
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of our common
stock at a level above that which might otherwise prevail in the open market.
These transactions may be effected on the Nasdaq National Market or otherwise.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to shares for our vendors, employees, family
members of employees, customers and other third parties. The number of shares of
our common stock available for sale to the general public will be reduced to the
extent these reserved shares are purchased. Any reserved shares that are not
purchased by these persons will be offered by the underwriters to the general
public on the same basis as the other shares in this offering.
59
<PAGE> 62
PRICING OF THIS OFFERING
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock will
be determined by negotiation among Stanford Microdevices and the representatives
of the underwriters. Among the factors to be considered in determining the
public offering price will be:
- prevailing market conditions;
- our results of operations in recent periods;
- the present stage of our development;
- the market capitalizations and stages of development of other companies
that we and the representatives of the underwriters believe to be
comparable to us; and
- estimates of our business potential.
The estimated initial public offering price range set forth on the cover of
this preliminary prospectus is subject to change as a result of market
conditions and other factors.
LEGAL MATTERS
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California, will pass upon the validity of the common stock offered hereby for
Stanford Microdevices. Morrison & Foerster LLP, Irvine, California, will pass
upon certain legal matters in connection with this offering for the
underwriters.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedules at December 31, 1998 and 1999 and for each of
the three years in the period ended December 31, 1999 as set forth in their
report. We have included our financial statements and schedule in the prospectus
and elsewhere in the registration statement in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION AVAILABLE TO YOU
We have filed with the SEC a registration statement on Form S-1, including
exhibits, schedules and amendments filed with this registration statement, under
the Securities Act with respect to the common stock to be sold under this
prospectus. Prior to the offering we were not required to file reports with the
SEC. This prospectus does not contain all the information set forth in the
registration statement. For further information about our company and the shares
of common stock to be sold in the offering, please refer to the registration
statement. Statements made in this prospectus concerning the contents of any
contract, agreement or other document filed as an exhibit to the registration
statement are summaries of the terms of contract, agreements or documents and
are not necessarily complete. Complete exhibits have been filed with the
registration statement.
The registration statement and exhibits may be inspected, without charge,
and copies may be obtained at prescribed rates, at the SEC's Public Reference
facility maintained by the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549.
The public may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-732-0330. The registration statement and other
information filed with the SEC is available at the web site maintained by the
SEC on the worldwide web at http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent accountants and quarterly
reports for the first three quarters of each fiscal year containing unaudited
financial statements.
60
<PAGE> 63
STANFORD MICRODEVICES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity (Net Capital
Deficiency)............................................... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 64
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Stanford Microdevices, Inc.
We have audited the accompanying consolidated balance sheets of Stanford
Microdevices, Inc. as of December 31, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity (net capital
deficiency), and cash flows for each of the three years in the period ended
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Stanford Microdevices, Inc. at December 31, 1998 and 1999, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
San Jose, California
February 16, 2000
F-2
<PAGE> 65
STANFORD MICRODEVICES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AS OF
----------------- DECEMBER 31,
1998 1999 1999
------ ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 217 $10,965
Accounts receivable, net of allowance for doubtful
accounts of $116 in 1998 and $100 in 1999......... 929 1,681
Inventories.......................................... 969 2,227
Other current assets................................. 14 348
------ -------
Total current assets.............................. 2,129 15,221
Property and equipment, net.......................... 1,602 4,271
Deposits and other assets............................ 75 227
------ -------
Total assets...................................... $3,806 $19,719
====== =======
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY (NET CAPITAL
DEFICIENCY)
Current liabilities:
Accounts payable..................................... $ 583 $ 2,493
Accrued expenses..................................... 449 972
Deferred margin on distributor inventory............. 1,534 3,287
Capital lease obligations, current portion........... 417 723
------ -------
Total current liabilities......................... 2,983 7,475
Capital lease obligations.............................. 813 1,299
Mandatorily redeemable convertible preferred stock..... -- 17,255
Commitments
Stockholders' equity (net capital deficiency):
Preferred stock, $0.001 par value:
Authorized shares -- 5,000,000 (pro forma) Issued
and outstanding shares -- none (pro forma)........ -- -- $ --
Common stock, $0.001 par value:
Authorized shares -- 30,000,000 (actual) --
200,000,000 (pro forma)
Issued and outstanding shares -- 15,000,000 at
December 31, 1998 and 1999; 20,647,839 (pro
forma).......................................... 15 15 21
Additional paid-in capital........................... 210 5,141 22,390
Deferred stock compensation.......................... -- (4,061) (4,061)
Retained earnings (accumulated deficit).............. (215) (7,405) (7,405)
------ ------- -------
Total stockholders' equity (net capital
deficiency)..................................... 10 (6,310) $10,945
------ ------- =======
Total liabilities, mandatorily redeemable
convertible preferred stock and stockholders'
equity (net capital deficiency)................. $3,806 $19,719
====== =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 66
STANFORD MICRODEVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Net revenues:
Product revenues....................................... $ 5,963 $ 7,417 $17,248
Contract manufacturing revenues........................ 935 814 817
------- ------- -------
Total net revenues.................................. 6,898 8,231 18,065
Cost of revenues......................................... 3,970 4,854 9,996
------- ------- -------
Gross profit............................................. 2,928 3,377 8,069
Operating expenses:
Research and development............................... 643 932 2,274
Sales and marketing.................................... 461 1,107 2,951
General and administrative............................. 659 965 2,089
Special charges........................................ -- -- 2,990
Amortization of deferred stock compensation............ -- -- 281
------- ------- -------
Total operating expenses............................ 1,763 3,004 10,585
------- ------- -------
Income (loss) from operations............................ 1,165 373 (2,516)
Interest expense......................................... 28 97 167
Interest and other income, net........................... 18 13 184
------- ------- -------
Income (loss) before taxes............................... 1,155 289 (2,499)
Provision for income taxes............................... 50 10 48
------- ------- -------
Net income (loss)........................................ 1,105 279 (2,547)
Accretion of mandatorily redeemable convertible preferred
stock.................................................. -- -- (255)
------- ------- -------
Net income (loss) applicable to common stockholders...... $ 1,105 $ 279 $(2,802)
======= ======= =======
Historical basic and diluted net income (loss) per share
applicable to common stockholders...................... $ 0.07 $ 0.02 $ (0.19)
======= ======= =======
Shares used to compute historical basic and diluted net
income (loss) per share applicable to common
stockholders........................................... 15,000 15,000 15,000
======= ======= =======
Pro forma basic and diluted net loss per share
(unaudited)............................................ $ (0.15)
=======
Shares used to compute pro forma basic and diluted net
loss per share (unaudited)............................. 16,608
=======
</TABLE>
See accompanying notes.
F-4
<PAGE> 67
STANFORD MICRODEVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
RETAINED STOCKHOLDERS'
COMMON STOCK ADDITIONAL DEFERRED EARNINGS EQUITY
------------------- PAID-IN STOCK (ACCUMULATED) (NET CAPITAL
SHARES AMOUNT CAPITAL COMPENSATION (DEFICIT) DEFICIENCY)
---------- ------ ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.. 15,000,000 $15 $ -- $ -- $ 252 $ 267
Distributions to
stockholders.............. -- -- -- -- (784) (784)
Net income and comprehensive
net income................ -- -- -- -- 1,105 1,105
---------- --- ------ ------- ------- -------
Balance at December 31, 1997.. 15,000,000 15 -- -- 573 588
Compensation expense related
to stock options.......... -- -- 210 -- -- 210
Distributions to
stockholders.............. -- -- -- -- (1,067) (1,067)
Net income and comprehensive
net income................ -- -- -- -- 279 279
---------- --- ------ ------- ------- -------
Balance at December 31, 1998.. 15,000,000 15 210 -- (215) 10
Compensation expense related
to stock options.......... -- -- 589 -- -- 589
Deferred stock
compensation.............. -- -- 4,342 (4,342) -- --
Amortization of deferred
stock compensation........ -- -- -- 281 -- 281
Accretion of mandatorily
redeemable convertible
preferred stock........... -- -- -- -- (255) (255)
Distributions to
stockholders.............. -- -- -- -- (4,388) (4,388)
Net loss and comprehensive
net loss.................. -- -- -- -- (2,547) (2,547)
---------- --- ------ ------- ------- -------
Balance at December 31, 1999.. 15,000,000 $15 $5,141 $(4,061) $(7,405) $(6,310)
========== === ====== ======= ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 68
STANFORD MICRODEVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1998 1999
------ ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......................................... $1,105 $ 279 $(2,547)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 111 391 547
Compensation expense related to stock options........... -- 210 589
Amortization of deferred stock compensation............. -- -- 281
Changes in operating assets and liabilities:
Accounts receivable.................................. (687) 471 (752)
Inventories.......................................... (477) 123 (1,258)
Other assets......................................... (217) 128 (486)
Accounts payable..................................... 86 (217) 1,910
Accrued expenses..................................... 264 19 523
Deferred margin on distributor inventory............. 1,273 (130) 1,753
------ ------- -------
Net cash provided by operating activities.......... 1,458 1,274 560
INVESTING ACTIVITIES
Purchases of property and equipment....................... (293) (41) (1,851)
------ ------- -------
Net cash used in investing activities..................... (293) (41) (1,851)
FINANCING ACTIVITIES
Proceeds from issuance of mandatorily redeemable
convertible preferred stock............................. -- -- 17,000
Principal payments on capital lease obligations........... (85) (435) (573)
Proceeds from loan payable................................ -- -- 200
Repayment of loan payable................................. -- -- (200)
Distributions to stockholders............................. (784) (1,067) (4,388)
------ ------- -------
Net cash provided by (used in) financing activities....... (869) (1,502) 12,039
------ ------- -------
Increase (decrease) in cash............................... 296 (269) 10,748
Cash at beginning of year................................. 190 486 217
------ ------- -------
Cash at end of year....................................... $ 486 $ 217 $10,965
====== ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest.................................... $ 28 $ 97 $ 167
Cash paid for income tax.................................. $ 7 $ 51 $ 24
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES
Equipment acquired under capital lease.................... $ 233 $ 1,405 $ 1,365
Accretion of mandatorily redeemable convertible preferred
stock................................................... $ -- $ -- $ 255
Deferred stock compensation............................... $ -- $ -- $ 4,342
</TABLE>
See accompanying notes.
F-6
<PAGE> 69
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Company was incorporated in California and began operations in 1985 as
Matrix Microassembly Corporation. In 1987, the Company sold its first products
and began to generate revenues. The Company began doing business as Stanford
Microdevices, Inc. in 1992. In November 1997, the Company reincorporated in
Delaware as Stanford Microdevices, Inc. The Company is a leading designer and
supplier of high performance RF components for communications equipment
manufacturers. Its products are used primarily in wireless communications
equipment to enable and enhance the transmission and reception of voice and data
signals. From 1985 through October 1999, the Company was organized as a
Subchapter S corporation for federal tax reporting purposes. In October 1999,
the Company's election to be treated as an S corporation under the Internal
Revenue Code was revoked.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Stanford Microdevices, Canada. Intercompany
balances and transactions have been eliminated.
Through December 31, 1999, the Company operated on calendar fiscal quarters
and a fiscal year ending December 31. Beginning in 2000, the Company will
operate on thirteen week fiscal quarters ending on the Sunday closest to the end
of the calendar quarter, with the exception of the fourth quarter, which will
end on December 31.
Foreign Currency Translation
The Company uses the U.S. dollar as its functional currency for Stanford
Microdevices, Canada. All monetary assets and liabilities are remeasured at the
current exchange rate at the end of the period, nonmonetary assets and
liabilities are remeasured at historical exchange rates and revenues and
expenses are remeasured at average exchange rates in effect during the period.
Transaction gains and losses resulting from the process of remeasurement were
not material in any period presented.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Revenue from product sales to customers, other than distributors, is
generally recognized at the time the product is shipped, title has transferred,
and no obligations remain. In circumstances where a customer delays acceptance
of our product, the Company defers recognition of the revenue until acceptance.
To date, the Company has not had customers delay acceptance of its products. A
provision is made for estimated product returns as shipments are made. Product
returns for nondistributor customers were not material for any period presented.
Contract manufacturing revenue is recognized at the time of shipment of
completed assemblies when no further obligations remain.
F-7
<PAGE> 70
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
The Company grants its distributors limited rights of return and certain
price adjustments on unsold inventory held by such distributors. The Company has
limited control over the extent to which products sold to distributors are sold
to third party customers. Accordingly, the Company recognizes revenues on sales
to distributors at the time its products are sold by the distributors to third
party customers. The recognition of sales to distributors and the related gross
profit on the products held by distributors is deferred until the sale to the
third party customer. The deferred gross profit is included as "deferred margin
on distributor inventory" in the accompanying balance sheets.
Advertising Expenses
The Company expenses its advertising costs in the period in which they are
incurred. Advertising expense was $60,000 in 1997, $134,000 in 1998, and
$366,000 in 1999.
Research and Development Costs
Research and development costs are charged to expense as incurred.
Cash and Cash Equivalents
Cash equivalents consist of financial instruments which are readily
convertible to cash and have original maturities of three months or less at the
time of acquisition. The Company's cash and cash equivalents as of December 31,
1997, 1998 and 1999 consisted primarily of bank deposits and commercial paper
and money market funds issued or managed by large financial institutions in the
United States. Cash equivalents are carried at cost which approximates fair
value. The estimated fair market values of cash equivalents are based on quoted
market prices.
Cash equivalents as of December 31, 1999 were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR MARKET
COST GAIN LOSS VALUE
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Cash equivalents:
Money market funds........................... $ 53 -- -- $ 53
Commercial paper............................. 10,800 -- -- 10,800
------- ------- ------- -------
Total cash equivalents......................... $10,853 -- -- $10,853
======= =======
</TABLE>
Concentrations of Credit Risk, Customers and Suppliers
Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of cash equivalents and
accounts receivable. The Company places its cash equivalents with high credit
financial institutions, primarily in money market accounts and commercial paper
which are readily convertible to cash and have original maturities of three
months or less at the time of acquisition. The Company has established
guidelines relative to diversification and maturities that attempt to maintain
safety and liquidity. The Company has not experienced any losses on its cash
equivalents.
The Company's accounts receivables are primarily derived from revenue
earned from customers located in the United States. Sales to foreign customers
are generally denominated in U.S. dollars, minimizing currency risk to the
Company. The Company performs ongoing credit
F-8
<PAGE> 71
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
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.
A relatively small number of customers account for a significant percentage
of the Company's net revenues. For the year ended December 31, 1997, three
customers accounted for approximately 49%, 19% and 11% of net revenues,
respectively. For the year ended December 31, 1998, three customers accounted
for approximately 40%, 36% and 11% of net revenues, respectively. For the year
ended December 31, 1999, three customers accounted for approximately 41%, 38%
and 13% of net revenues, respectively. The Company expects that the sale of its
products to a limited number of customers may continue to account for a high
percentage of net revenues for the foreseeable future.
Currently, the Company relies on a limited number of suppliers of materials
and labor for the significant majority of its product inventory but is pursuing
alternative suppliers. As a result, should the Company's current suppliers not
produce and deliver inventory for the Company to sell on a timely basis,
operating results may be adversely impacted.
Inventories
Inventories are stated at the lower of standard cost, which approximates
actual (first-in, first-out method) or market (estimated net realizable value).
The valuation of inventories at the lower of cost or market requires the use of
estimates regarding the amounts of current inventory that will be sold. These
estimates are dependent on the Company's assessment of current and expected
orders from its customers, including consideration that orders are subject to
cancellation with limited advance notice prior to shipment.
The components of inventories are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1998 1999
---- ------
(IN THOUSANDS)
<S> <C> <C>
Inventories:
Raw materials........................................... $276 $ 914
Work-in-process......................................... 212 659
Finished goods.......................................... 481 654
---- ------
Total................................................ $969 $2,227
==== ======
</TABLE>
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation
and amortization. Property and equipment are depreciated for financial reporting
purposes using the straight-line method over the estimated useful lives of three
to seven years. Leasehold improvements are amortized using the straight-line
method over the shorter of the useful lives of the assets or the terms of the
leases. The Company periodically performs reviews to evaluate the recoverability
of its property and equipment based upon expected undiscounted cash flows and
recognizes impairment from the carrying value of property and equipment, if any,
based on the fair value of
F-9
<PAGE> 72
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
such assets. No asset impairment occurred in any of the years presented.
Property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1999
------ ------
(IN THOUSANDS)
<S> <C> <C>
Property and equipment:
Machinery and equipment............................... $1,739 $3,600
Computer equipment and software....................... 121 1,274
Furniture and fixtures................................ 47 101
Leasehold improvements................................ 241 389
------ ------
Total.............................................. 2,148 5,364
Less accumulated depreciation and amortization........ 546 1,093
------ ------
Property and equipment, net............................. $1,602 $4,271
====== ======
</TABLE>
Income Taxes
The Company previously elected to be taxed as an S corporation under
Subchapter S of the Internal Revenue Code. Consequently, the stockholders were
taxed on their proportionate share of the Company's taxable income and no
provision for Federal income taxes has been provided for periods in which the
Company elected to be taxed as an S corporation. Effective October 4, 1999, the
Company revoked its election to be treated as an S corporation under the
Internal Revenue Code.
Subsequent to October 4, 1999, the Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards No. 109 (FAS 109),
"Accounting for Income Taxes." FAS 109 requires the use of the liability method
of accounting for income taxes. Under the liability method, deferred income tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using enacted
tax rates and laws that will be in effect when the differences are expected to
reverse. The Company records a valuation allowance against deferred tax assets
when it is more likely than not that such assets will not be realized.
Fair Value of Financial Instruments
The Company's financial instruments, including cash equivalents, accounts
receivable and accounts payable are carried at cost, which approximates their
fair value because of the short-term maturity of these instruments. The fair
value of capital lease obligations are estimated based on current interest rates
available to the Company for debt instruments with similar terms, degrees of
risk, and remaining maturities. The carrying values of these obligations
approximate their fair values.
Stock-Based Compensation
As described in Note 5, the Company has elected to account for its employee
stock plans in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB Opinion No. 25), and to adopt
the disclosure-only provisions as required under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS
123).
F-10
<PAGE> 73
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
The Company accounts for stock issued to nonemployees in accordance with
the provisions of FAS 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 (Loss)
The Company has adopted Statement of Accounting Standards No. 130,
"Reporting Comprehensive Income" (FAS 130). FAS 130 requires that all items
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The Company's comprehensive
net income (loss) was the same as its net income (loss) for the years ended
December 31, 1997, 1998 and 1999.
Segments of an Enterprise
The Company has adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information" (FAS
131). FAS 131 superseded Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segments of a Business Enterprise". FAS 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports. FAS 131 also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The adoption
of FAS 131 did not affect the Company's results of operations or financial
position, see Note 9.
Net Income (Loss) Per Share
The Company computes net income (loss) per share in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (FAS
128) and SEC Staff Accounting Bulletin No. 98 (SAB 98). Under the provisions of
FAS 128 and SAB 98, basic net income (loss) per share is computed by dividing
the net income (loss) applicable to common stockholders for the period by the
weighted average number of shares of Common Stock outstanding during the period.
Diluted net income (loss) per share is computed by dividing the net income
(loss) applicable to common stockholders for the period by the weighted average
number of shares of Common Stock and potential Common Stock equivalents
outstanding during the period, if dilutive. Potential Common Stock equivalents
include incremental shares of Common Stock issuable upon the exercise of stock
options and warrants and upon conversion of Mandatorily Redeemable Convertible
Preferred Stock.
F-11
<PAGE> 74
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
The following table sets forth the computation of basic and diluted net
income (loss) per share for the years indicated (in thousands, except per share
data):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Net income (loss) applicable to common
stockholders................................... $ 1,105 $ 279 $(2,802)
======= ======= =======
Weighted average number of common shares
outstanding during the period.................. 15,000 15,000 15,000
======= ======= =======
Basic and diluted net income (loss) per share
applicable to common stockholders.............. $ 0.07 $ 0.02 $ (0.19)
======= ======= =======
</TABLE>
The effects of options to purchase 5,231,373 shares of Common Stock at an
average exercise price of $1.25 for the year ended December 31, 1999 have not
been included in the computation of diluted net loss per share as the effect
would have been antidilutive.
The effects of warrants to purchase 1,100,000 shares of Common Stock at an
average exercise price of $4.50 for the year ended December 31, 1999 have not
been included in the computation of diluted net loss per share as the effect
would have been antidilutive.
The effects of conversion of 5,647,839 shares of Mandatorily Redeemable
Convertible Preferred Stock for the year ended December 31, 1999 have not been
included in the computation of diluted net loss per share as the effect would
have been antidilutive.
The effects of options to purchase 3,020,000 shares of Common Stock at an
average exercise price of $0.92 for the year ended December 31, 1998 have no
impact on the computation of diluted net income per share because the option's
exercise price was not less than the estimated average market price of the
Company's common shares during that period.
The options, warrants and Mandatorily Redeemable Convertible Preferred
Stock that were antidilutive in 1999 may be dilutive in future years'
calculations as they were still outstanding at December 31, 1999.
Pro Forma Basic and Diluted Net Loss Per Share (Unaudited)
Pro forma basic and diluted net loss per share for the year ended December
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 Mandatorily Redeemable Convertible Preferred Stock 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 October 4, 1999, the date of
original issuance. The shares used in calculating the pro forma basic and
diluted net loss per share amounts also include the number of shares issuable
upon the exercise of warrants to purchase the Company's Common Stock as such
warrants expire upon the completion of the Company's initial public offering.
For the purposes of pro forma net loss per share, the Company assumes the
warrants will be exercised prior to or in connection with the completion of the
initial public offering. For the purposes of calculating pro forma basic and
diluted net loss per share, net loss applicable to common stockholders has been
adjusted to eliminate accretion on the Company's Mandatorily Redeemable
Convertible Preferred Stock.
F-12
<PAGE> 75
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
Pro Forma Stockholders' Equity (Unaudited)
If the offering contemplated by the Company is completed, each share of
Mandatorily Redeemable Convertible Preferred Stock outstanding will
automatically be converted into one share of Common Stock. Unaudited pro forma
stockholders' equity at December 31, 1999, as adjusted for the assumed
conversion of Mandatorily Redeemable Convertible Preferred Stock based on the
shares of Mandatorily Redeemable Convertible Preferred Stock outstanding at
December 31, 1999, is disclosed on the balance sheet.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and hedging Activities: (FAS 133). FAS 133 provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. FAS 133 was to be effective for fiscal years beginning after
June 15, 1999. However, in July 1999, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133" (FAS 137). FAS 137 defers for one year the effective
date of FAS 133 which will now apply to all fiscal quarters of all fiscal years
beginning after June 15, 2000. The Company does not believe the adoption of FAS
133 will have a material impact on its consolidated financial position, results
of operations or cash flows.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued SOP 98-1, Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use, (SOP 98-1). SOP 98-1 requires that entities
capitalize certain costs related to internal use software once certain criteria
have been met. The Company adopted SOP 98-1 for the year ended December 31,
1999. The adoption of SOP 98-1 did not have a material impact on the Company's
financial condition or results of operations.
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of
Start-Up Activities, (SOP 98-5). SOP 98-5 requires that all start-up costs
related to new operations must be expensed as incurred. In addition, all
start-up cost that were capitalized in the past must be written off when SOP
98-5 is adopted. The Company adopted SOP 98-5 on January 1, 1999. The adoption
of SOP 98-5 did not have a material impact on the Company's financial condition
or results of operations.
2. LINE OF CREDIT AND CAPITAL LEASE OBLIGATIONS
Line of Credit
The Company maintains a secured credit facility with Comerica Bank that
includes a $3,000,000 line of credit. Borrowings under the revolving credit line
may be made and repaid at any time and bear interest at the base rate (as
announced by the lender) plus 0.5%. In addition, borrowings under the revolving
credit line are subject to the Company's compliance with certain financial and
other covenants and are secured by certain of the Company's assets. At December
31, 1999, there were no outstanding amounts under this credit facility. At
December 31, 1999, the Company was in violation of one of its covenants under
the credit facility.
F-13
<PAGE> 76
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
Capital Lease Obligations
The Company leases certain equipment under noncancelable lease agreements
that are accounted for as capital leases. Equipment under capital lease
arrangements and included in property and equipment aggregated approximately
$1,800,000 and $3,165,000 at December 31, 1998 and 1999, respectively. Related
accumulated depreciation was approximately $570,000 and $1,143,000 at December
31, 1998 and 1999, respectively. Depreciation expense related to assets under
capital leases is included in depreciation expense. In addition, the capital
leases are generally secured by the related equipment and the Company is
required to maintain liability and property damage insurance.
Future minimum lease payments under noncancelable capital leases at
December 31, 1999 are as follows (in thousands):
<TABLE>
<S> <C>
2000....................................................... $ 877
2001....................................................... 691
2002....................................................... 513
2003....................................................... 229
------
Total minimum lease payments............................... 2,310
Less amounts representing interest......................... 288
------
Present value of minimum lease payments.................... 2,022
Less current portion....................................... 723
------
Long-term portion.......................................... $1,299
======
</TABLE>
3. COMMITMENTS
The Company leases its facilities under operating lease agreements. The
operating leases for the Company's facilities expire in 2001 through 2004.
Future minimum lease payments under these leases as of December 31, 1999 are as
follows (in thousands):
<TABLE>
<S> <C>
2000..................................................... $ 551
2001..................................................... 550
2002..................................................... 497
2003..................................................... 37
2004..................................................... 37
------
Total minimum lease payments............................. $1,672
======
</TABLE>
Rent expense under the operating leases was $91,000, $401,000, and $424,000
for the years ended December 31, 1997, 1998 and 1999, respectively.
Unconditional Purchase Obligations
The Company has unconditional purchase obligations to certain suppliers
that supply the Company's wafer requirements. The obligations under wafer supply
agreements or non-cancelable purchase orders require the Company to purchase
minimum quantities from the suppliers' products at a specified price. At
December 31, 1999, the Company had approximately $5,900,000 of unconditional
purchase obligations.
F-14
<PAGE> 77
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
4. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
Mandatorily Redeemable Convertible Preferred Stock at December 31, 1999
consists of the following:
<TABLE>
<CAPTION>
SHARES SHARES LIQUIDATION REDEMPTION
AUTHORIZED OUTSTANDING PREFERENCE AMOUNT
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Series A........................ 6,000,000 5,647,839 $17,255,000 $17,255,000
</TABLE>
In October 1999, the Company issued 5,647,839 shares of Mandatorily
Redeemable Convertible Preferred Stock at $3.01 per share for net proceeds of
approximately $17,000,000. The holders of the Mandatorily Redeemable Convertible
Preferred Stock have various rights and preferences as follows:
Voting
Each share of Mandatorily Redeemable Convertible Preferred Stock has voting
rights equal to an equivalent number of shares of Common Stock into which it is
convertible and votes together with the holders of Common Stock.
As long as at least 1,412,000 shares of the originally issued shares of
Mandatorily Redeemable Convertible Preferred Stock are outstanding, the Company
must obtain approval from the holders of at least a majority of the then
outstanding shares of Mandatorily Redeemable Convertible Preferred Stock in
order to amend the amended restated certificate of incorporation or bylaws,
change the authorized number of directors of the Company, authorize or issue any
other equity security senior to or on parity with the Mandatorily Redeemable
Convertible Preferred Stock, alter or change the rights, preferences or
privileges of the Mandatorily Redeemable Convertible Preferred Stock, redeem or
purchase any shares of Preferred Stock or Common Stock other than by redemption
in accordance with the amended restated certificate of incorporation, liquidate,
dissolve or effect a recapitalization or reorganization in any form of
transaction, increase or decrease the number of authorized shares of Mandatorily
Redeemable Convertible Preferred Stock, dispose of more than 25% of the
Company's property or business, merge or consolidate with any other corporation
or effect a transaction in which more than 50% of the voting power of the
Company is disposed of.
Conversion
Each share of Mandatorily Redeemable Convertible Preferred Stock
outstanding is automatically convertible into one share of Common Stock, subject
to adjustment for dilution, and will be converted into Common Stock in the event
of the closing of a public offering of at least $30,000,000 in aggregate
proceeds at a minimum price of $7.53 per share. As of December 31, 1999, the
Company had reserved 5,647,839 shares of its Common Stock for issuance upon
conversion of the outstanding Mandatorily Redeemable Convertible Preferred
Stock.
Dividends
Holders of shares of Mandatorily Redeemable Convertible Preferred Stock are
entitled to receive cumulative dividends at the per annum rate of $0.18 per
share, prior to payment of dividends on any other class of stock. These
dividends accrue and cumulate whether or not declared by the Board of Directors,
but are not payable upon the successful completion of an
F-15
<PAGE> 78
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
initial public offering. The Company has accrued such dividends at December 31,
1999 as accretion to the Mandatorily Redeemable Convertible Preferred Stock
redemption value.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, holders of the Mandatorily Redeemable
Convertible Preferred Stock are entitled to receive $3.01 per share plus accrued
but unpaid dividends, prior to any distribution to the holders of Common Stock.
Any assets remaining after distribution of the preference amounts on the
Mandatorily Redeemable Convertible Preferred Stock will be distributed on a pro
rata basis to all holders of Mandatorily Redeemable Convertible Preferred Stock
and Common Stock until such time as the holders of the Mandatorily Redeemable
Convertible Preferred Stock have received $7.53 per share. Any assets remaining
after distribution of these amounts will be distributed on a pro rata basis to
holders of Common Stock.
Redemption
The holders of a majority of the then outstanding Mandatorily Redeemable
Convertible Preferred Stock may cause the Company to redeem their shares after
the seventh anniversary of the Mandatorily Redeemable Convertible Preferred
Stock issuance date in three annual installments. Redemption will be at the
greater of fair market value or the original issue price plus accrued but unpaid
dividends. During the fourth quarter of 1999, the Company recorded an increase
to its accumulated deficit of $255,000 related to the accretion to the
Mandatorily Redeemable Convertible Preferred Stock redemption value.
5. STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Warrants
In connection with its sale of Mandatorily Redeemable Convertible Preferred
Stock, the Company issued warrants to purchase 1,100,000 shares of Common Stock
at $4.50 per share. The warrants are immediately exercisable and expire at the
earlier of October 5, 2002, the completion of an initial public offering of the
Company's Common Stock of greater than $4.50 per share, the sale or transfer of
substantially all of the assets of the Company or the closing of an acquisition
of the Company.
Common Stock
Each share of Common Stock is entitled to one vote. The holders of Common
Stock are also entitled to receive dividends from legally available assets of
the Company when and if declared by the Board of Directors, subject to the prior
rights of holders of Mandatorily Redeemable Convertible Preferred Stock.
At December 31, 1999, shares of Common Stock were reserved for future
issuance as follows:
<TABLE>
<S> <C>
Conversion of Mandatorily Redeemable Convertible
Preferred Stock..................................... 5,647,839
Warrants.............................................. 1,100,000
1998 Stock Option Plan................................ 5,994,691
----------
12,742,530
==========
</TABLE>
F-16
<PAGE> 79
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
Stock Option Plan
In January 1998, the Company established the 1998 Stock Plan (the 1998
Plan) under which stock options may be granted to employees, directors and
consultants of the Company and authorized 4,000,000 shares of Common Stock
thereunder. In 1999, Board of Directors approved increases in the number of
shares authorized for issuance under the 1998 Plan to 5,994,691. Under the 1998
Plan, nonstatutory stock options may be granted to employees, directors and
consultants, and incentive stock options (ISO) may be granted only to employees.
In the case of an ISO that is granted to an employee who, at the time of the
grant of such option, owns stock representing more than 10% of the total
combined voting power of all classes of stock of the Company, the per share
exercise price shall not be less than 110% of the fair market value per share on
the date of grant. For ISO's granted to any other employee, the per share
exercise price shall not be less than 100% of the fair value per share on the
date of grant. The exercise price for nonqualified options may not be less than
85% of the fair value of Common Stock at the option grant date. Options
generally expire after ten years. Vesting and exercise provisions are determined
by the Board of Directors. Options generally vest over 4 years, 25% after the
first year and ratably each month over the remaining 36 months.
Rights to purchase stock may also be granted under the 1998 Plan with
terms, conditions, and restrictions determined by the Board of Directors.
The following is a summary of option activity for the 1998 Plan:
<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS
-------------------------------------------------------
PRICE WEIGHTED
SHARES NUMBER OF PER AVERAGE
AVAILABLE SHARES SHARE EXERCISE PRICE
---------- --------- ------------- --------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997........ -- -- $-- $ --
Authorized........................ 4,000,000 -- $-- $ --
Granted........................... (3,020,000) 3,020,000 $0.92 $0.92
Exercised......................... -- -- $-- $ --
Canceled.......................... -- -- $-- $ --
---------- ---------
Balance at December 31, 1998........ 980,000 3,020,000 $0.92 $0.92
Authorized........................ 1,994,691 -- $-- $ --
Granted........................... (2,211,373) 2,211,373 $0.92 - $3.50 $1.71
Exercised......................... -- -- $-- $ --
Canceled.......................... -- -- $-- $ --
---------- ---------
Balance at December 31, 1999........ 763,318 5,231,373 $0.92 - $3.50 $1.25
========== =========
</TABLE>
F-17
<PAGE> 80
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
In addition, the following table summarizes information about stock options
that were outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------- OPTIONS EXERCISABLE
WEIGHTED --------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OF SHARES LIFE PRICE OF SHARES PRICE
--------------- --------- ----------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$0.92 3,150,000 8.37 $0.92 2,346,664 $0.92
$1.50 1,813,373 9.80 $1.50 235,490 $1.50
$3.50 268,000 9.99 $3.50 -- $3.50
--------- ---------
Total 5,231,373 8.93 $1.25 2,582,154 $0.97
========= =========
</TABLE>
In 1998, the Company granted approximately 1,070,000 stock options to
nonemployees at exercise prices of $0.92 per share in exchange for services. The
Company recorded charges to cost of sales and general and administrative expense
in 1998 of $60,000 and $150,000, respectively, representing the fair value of
vested stock options granted to nonemployees in 1998. In 1999, the Company
granted approximately 102,000 stock options to nonemployees at exercise prices
of $1.50 per share in exchange for services. The Company recorded charges to
cost of sales, sales and marketing and general and administrative expense in
1999 of $93,000, $23,000, and $474,000, respectively, representing the fair
value of vested stock options granted to nonemployees in 1998 and 1999. All of
these options were outstanding at December 31, 1999. Approximately 9,365 of
these options were unvested at December 31, 1999.
Stock-Based Compensation
The Company applies APB Opinion No. 25 and related interpretations in
accounting for stock-based awards to employees and directors. Under APB Opinion
No. 25, when the exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net income (loss) and net income (loss) per
share is required under FAS 123 and is calculated as if the Company had
accounted for its employee stock options granted during the years ended December
31, 1998 and 1999 under the fair value method of FAS 123. The fair value for
employee and director stock options granted was estimated at the date of grant
using a minimum value option pricing model with the following weighted-average
assumptions: risk-free interest rates of 5.66% and 6.45% for 1998 and 1999,
respectively; no dividend yield; and a weighted average expected life of the
option of 5.5 years.
As discussed above, the valuation models used under FAS 123 were developed
for use in estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, valuation models require
the input of highly subjective assumptions, including the expected life of the
option. Because the Company's employee stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
F-18
<PAGE> 81
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Had
compensation cost for the Company's stock-based compensation plan been
determined consistent with fair value method of FAS 123, the Company's net
income (loss) applicable to common stockholders and net income (loss) per share
applicable to common stockholders would have been adjusted to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1998 1999
-------- ---------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Net income (loss) applicable to common stockholders:
As reported............................................. $ 279 $(2,802)
Pro forma............................................... $ (172) $(2,828)
Basic and diluted net income (loss) per share attributable
to holders of Common Stock:
As reported............................................. $ 0.02 $ (0.19)
Pro forma............................................... $(0.01) $ (0.19)
</TABLE>
The effects on pro forma disclosures of applying FAS 123 are not likely to
be representative of the effects on pro forma disclosures of future years.
Because FAS 123 is applicable only to options granted subsequent to December 31,
1997 the pro forma effect will not be fully reflected until 2002.
The options' weighted average grant date fair value, which is the value
assigned to the options under FAS 123, was $0.25 and $1.36 for options granted
during 1998 and 1999, respectively.
Deferred Stock Compensation
In connection with the grant of stock options to employees through December
31, 1999, the Company recorded deferred stock compensation within stockholders'
equity of approximately $4,342,000, representing the difference between the
deemed fair value of the Common Stock for financial statement presentation
purposes and the option exercise price of these options at the date of grant.
During the year ended December 31, 1999 we amortized $281,000 of this deferred
stock compensation. We will amortize the remaining deferred stock compensation
using the straight-line method, over the vesting period of the related options,
generally four years.
6. EMPLOYEE BENEFIT PLANS
In January of 1997, the Company adopted a profit sharing plan that allows
for discretionary contributions to the plan at the discretion of the Board of
Directors out of the current or accumulated profits of the Company. The Company
contribution is limited to 15% of eligible participants annual compensation,
subject to certain adjustments. Contributions made by the Company were
approximately $91,000, $121,000 and $127,000 in 1997, 1998 and 1999,
respectively.
In October of 1999, the Company adopted a 401(k) and profit sharing plan
(the Plan) that allows eligible employees to contribute up to 15% of their
salary, subject to annual limits. Under the Plan, eligible employees may defer a
portion of their pretax salaries but not more than statutory limits. The Company
shall make matching nondiscretionary contributions to the Plan of
F-19
<PAGE> 82
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
up to $2,500 per year for each plan participant. In addition, the Company may
make discretionary contributions to the Plan as determined by the Board of
Directors. Contributions to the Plan during the year ended December 31, 1999,
were approximately $51,000.
7. INCOME TAXES
The Company elected to be taxed as an S-corporation under the Internal
Revenue Code through October 4, 1999. Consequently, the stockholders were taxed
on their proportionate share of our taxable income and no provision for federal
income taxes has been provided in the statements of operations for the years
ended December 31, 1997 and 1998 and for the period beginning January 1, 1999
through October 4, 1999. The Company's S-corporation status was revoked in
October 1999.
Our provision for income taxes for the years ended December 31, 1997, 1998,
and 1999 is summarized as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
State..................................................... $50 $10 $48
--- --- ---
$50 $10 $48
=== === ===
</TABLE>
A reconciliation of taxes computed at the federal statutory income tax rate
to provision (benefit) for (from) income taxes follows:
<TABLE>
<CAPTION>
1997 1998 1999
----- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision (benefit) computed at federal statutory
rate................................................. $ 393 $ 98 $ (850)
S-corporation earnings taxes at the stockholder
level................................................ (393) (98) (351)
State tax.............................................. 50 10 48
Valuation allowance.................................... -- -- 1,097
Amortization of deferred stock compensation............ -- -- 95
Other.................................................. -- -- 9
----- ---- ------
$ 50 $ 10 $ 48
===== ==== ======
</TABLE>
Deferred income taxes reflect the tax effects of temporary differences
between the value of assets and liabilities for financial reporting purposes and
the amounts used for income tax
F-20
<PAGE> 83
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
purposes. Significant components of the Company's deferred tax assets and
liabilities as of December 31, 1999 consist of the following (in thousands):
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards....................... $ 534
Accruals and reserves.................................. 662
Deferred margin on distributor inventory............... 1,303
Compensation expense related to stock options.......... 266
Other.................................................. 19
-------
Total deferred tax assets........................... 2,784
Valuation allowance...................................... (2,719)
-------
Gross deferred tax assets................................ 65
Deferred tax liability:
Tax over book depreciation............................. (65)
-------
Net deferred tax assets (liabilities).................... $ --
=======
</TABLE>
Realization of the Company's deferred tax assets is dependent on the
Company's ability to generate sufficient future taxable income, the timing and
amount of which the Company has concluded cannot be determined with certainty at
this time. Based on the Company's uncertainty as to its ability to project
sufficient future taxable income, the Company has concluded that it is more
likely that the deferred tax assets will not be realized. Accordingly, in 1999,
the Company recorded a valuation allowance for the net deferred tax assets of
$2,719,000 to reflect these uncertainties.
As of December 31, 1999, the Company had net operating loss carryforwards
for federal and state tax purposes of approximately $1,450,000 and $703,000,
respectively. The federal and state net operating loss carryforwards will expire
in 2019 and 2004, respectively, if not utilized.
Utilization of the net operating loss carryforwards may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986, as amended, and similar state provisions.
The annual limitation may result in the expiration of net operating loss
carryforwards before utilization.
8. RELATED PARTY TRANSACTIONS
The Company purchases assembly services from a packaging subcontractor and
supplier of contract manufacturing services located in the Philippines (the
Supplier). The Supplier's principle stockholder is a cousin of the Company's
chairman of the board.
The Company granted 600,000 and 66,540 stock options with exercise prices
of $0.92 and $1.50 in 1998 and 1999, respectively to two employees of the
Supplier. In connection with the option grants, the Company recorded $150,000
and $93,000 of compensation expense in 1998 and 1999, respectively in accordance
with EITF 96-18.
Purchases from the Supplier totaled $1,902,000 $1,056,000 and $1,235,000
for the years ended December 31, 1997, 1998 and 1999, respectively.
F-21
<PAGE> 84
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
9. SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
The Company operates in one business segment, the sale of radio frequency
semiconductor components for communications network infrastructures. The Company
sells its radio frequency semiconductor components to original equipment
manufacturers in the wireless and wireline infrastructure market through
distributors, worldwide outside sales representatives, through a private label
manufacturing partnership, and acting as a contract manufacturer. The chief
executive officer has been identified as the chief operating decision maker
(CODM) because he has the final authority over resource allocation decisions and
performance assessment.
All of the Company's net revenues are generated in the United States. The
Company's long-lived assets reside in the following geographic areas (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
Long-lived assets:
United States....................................... $3,661
Canada.............................................. 837
------
$4,498
======
</TABLE>
Three of the Company's customers, Minicircuits Laboratories, Richardson
Electronics and Pulsar Microwave accounted for 49%, 19% and 11% of net revenues,
respectively, for the year ended December 31, 1997. Minicircuits Laboratories,
Richardson Electronics and Avnet Electronics accounted for 36%, 40%, and 11% of
net revenues, respectively, for the year ended December 31, 1998. Minicircuits
Laboratories, Richardson Electronics Laboratories and Avnet Electronics
accounted for 41%, 38%, and 13% of net revenues, respectively, for the year
ended December 31, 1999. No other customer accounted for more than 10% of net
revenues during these years.
10. SPECIAL CHARGES
In the fourth quarter of 1999, the Company's Board of Directors paid a cash
dividend to holders of Common Stock in an aggregate amount of $4,000,000. The
Company also agreed to pay a non-recurring bonus to its stockholders to cover
any federal or state taxes associated with the payment of the dividend. A total
bonus of $2,990,000 was paid in December 1999 as a result of this agreement. The
Company recorded the $2,990,000 as special charges in the statement of
operations as this amount represents a nonrecurring transaction that the Company
does not consider to be reflective of its ongoing operations.
11. SUBSEQUENT EVENTS
Initial Public Offering
In February 2000, the Company's Board of Directors approved the filing of a
Registration Statement with the Securities and Exchange Commission permitting
the Company to sell Common Stock to the public. Upon completion of the initial
public offering, the Company's Certificate of Incorporation will be amended to
authorize 200,000,000 shares of Common Stock and 5,000,000 shares of Preferred
Stock.
F-22
<PAGE> 85
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
1998 Stock Plan
In February 2000, the Company's Board of Directors approved an increase in
the number of shares reserved under the 1998 Stock Plan by 1,200,000 shares. In
addition, the Board approved automatic increases on the first day of each of the
Company's fiscal years beginning January 1, 2001, equal to the lesser of
1,500,000 shares, 3% of the outstanding shares on such date, or a lesser amount
determined by the Board of Directors. The shares may be authorized, but
unissued, or reacquired Common Stock. The changes to the 1998 Stock Plan are
subject to stockholder approval.
2000 Employee Stock Purchase Plan
In February 2000, the Company's Board of Directors approved the 2000
Employee Stock Purchase Plan (the Purchase Plan). A total of 300,000 shares of
Common Stock has been reserved for issuance under the Purchase Plan, as well as
an automatic annual increase on the first day of each of the Company's fiscal
years beginning January 1, 2001 equal to the lesser of 350,000 shares, 1% of the
outstanding Common Stock on that date, or a lesser amount as determined by the
Board. The Purchase Plan is subject to stockholder approval.
F-23
<PAGE> 86
EDGAR DESCRIPTION OF GRAPH ON PAGE 32:
[Graph entitled "Simplified RF Subsystem" consisting of three rectangles in one
row under the header "Receiver" located over a second row of two rectangles and
three triangles under the header "Transmitter". The three rectangles in the top
row contain the words "Low Noise Amplifier", "Downconverter" and "Demodulator"
inside. The first triangle in the bottom row is above the words "Power
Amplifier". To its right is a second triangle with the word "Driver" beneath it.
To its right is a third triangle with the word "Pre-Driver" beneath it. To its
right is the first rectangle with the word "Upconverter" inside. To its right is
the second triangle with the word "Modulator" inside. A line runs from the
farthest right rectangle in the bottom row through the items in the bottom row,
up on the left side through a square with the word "Switch" to its right, and
through the rectangles on the top row. A line with a circle at top and crescents
of increasing side appearing to the left of the circle extends from the square
with the word "Switch" next to it and is topped with the word "Antenna". To the
right of the two rows of triangles and rectangles are the words "Data Signal
Input/Output". Above these words is a curving line and an arrow pointing in
towards the bottom row. Below the words "Signal Input/Output" is a curving line
and an arrow pointing away from the top row.]
EDGAR DESCRIPTION OF GRAPH ON PAGE 36:
[Diagram consisting of four rows of bubbles and rectangles connected by lines.
The first row consists of four bubbles with the words "Wafer Fabrication" to the
left. Inside the first bubble are the words "GaAs Fab". Inside the second bubble
are the words "InGaP Fab". Inside the third bubble are the words "SiGe Fab".
Inside the fourth bubble are the words "LDMOS Fab". The second row consists of
one rectangle with the words "Wafer Inspection" to the left. Inside the
rectangle are the words "Stanford Microdevices Wafer Qualification". The third
row consists of five bubbles with the words "Semiconductor Packaging" to the
left. Inside the first bubble are the words "Packager-Malaysia". Inside the
second bubble are the words "Packager-Thailand". Inside the third bubble are the
words "Packager-Philippines". Inside the fourth bubble are the words
"Packager-Philippines". Inside the fifth bubble are the words "Packager-Taiwan".
The fourth row consists of one rectangle with the words "Final Testing and
Quality Assurance to the left. Inside the rectangle are the words "Stanford
Microdevices RF Test, Tape and Reel, and Quality Assurance". ]
EDGAR DESCRIPTION OF INSIDE FRONT COVER ARTWORK:
[Graphic of human hand holding a globe of the world. Underneath this graphic are
the words "Helping the world stay in touch." Underneath these words is the
following text: "Stanford Microdevices is a leading designer and supplier of
high performance RF components for communications equipment manufacturers. We
design our products to meet the rapidly evolving performance requirements of:
Mobile wireless applications such as cellular and mobile data networks.
Broadband wireline applications such as high-speed transmission of
voice, data and video.
Fixed wireless applications such as local and wide area site-to-site data
networks.
Our innovative RF products help businesses and people connect for any time, any
where communications." Underneath this text is the logo of Stanford
Microdevices.]
EDGAR DESCRIPTION OF GATEFOLD ARTWORK:
[Graphic containing the heading at the top of the page "Delivering RF
Innovation". Beneath this heading is a diagram consisting of three subdiagrams
arranged from left to right.
The diagram on the left is entitled "Mobile Wireless" and consists of two
squares attached by a horizontal line with dots on each end, with a third larger
square attached to this line with another vertical line with dots. Each square
contains a photograph. The larger square on top has an arrow pointing to it from
the left.
The diagram in the middle is connected to the diagram on the left by a
horizontal line with curves in it and is entitled "Broadband Wireline". This
diagram consists of two squares attached by a horizontal line with dots on each
end, with a third larger square attached to this line with another vertical line
with dots. Each square contains a photograph.
The diagram to the right is connected to the diagram in the middle by a
horizontal line with two parallel vertical lines in the middle of it and is
entitled "Fixed Wireless". This diagram consists of two squares attached by a
horizontal line with dots on each end, with a third larger square attached to
this line with another vertical line with dots. Each square contains a
photograph.]
EDGAR DESCRIPTION OF INSIDE FRONT COVER ARTWORK:
[Stanford Microdevices logo and URL address]
<PAGE> 87
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON ANY
UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS AN OFFER TO SELL
ONLY THE SHARES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND IN
JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THE
PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 1
Risk Factors......................... 4
Forward-Looking Statements........... 14
Use of Proceeds...................... 15
Dividend Policy...................... 15
Capitalization....................... 16
Dilution............................. 17
Selected Consolidated Financial
Data............................... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 19
Business............................. 28
Management........................... 39
Certain Transactions................. 50
Principal Stockholders............... 51
Description of Capital Stock......... 53
Shares Eligible for Future Sale...... 56
Underwriting......................... 58
Legal Matters........................ 60
Experts.............................. 60
Where You Can Find Additional
Information........................ 60
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT BUY, SELL OR TRADE IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN
THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. DEALERS ARE ALSO
OBLIGATED TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
[STANFORD MICRODEVICES LOGO]
STANFORD MICRODEVICES
SHARES
COMMON STOCK
DEUTSCHE BANC ALEX. BROWN
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS
ROBERTSON STEPHENS
PROSPECTUS
, 2000
<PAGE> 88
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of common stock being registered. All amounts are estimates except
the registration fee, the NASD filing fee and the Nasdaq National Market listing
fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC Registration Fee........................................ $13,200
NASD Fee.................................................... 5,500
Nasdaq National Market Listing Fee.......................... *
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Printing Expenses........................................... *
Transfer Agent Fees......................................... *
Miscellaneous............................................... *
-------
Total............................................. $ *
=======
</TABLE>
- -------------------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's Certificate of Incorporation includes a provision that eliminates
the personal liability of its directors for monetary damages for breach of their
fiduciary duty as a director to the fullest extent permitted under Delaware law.
In addition, as permitted by Section 145 of the Delaware General Corporation
Law, the Bylaws of the Registrant provide that: (1) the Registrant is required
to indemnify its directors and executive officers and persons serving in these
capacities in other business enterprises (including, for example, subsidiaries
of the Registrant) at the Registrant's request, to the fullest extent permitted
by Delaware law, including in those circumstances in which indemnification would
otherwise be discretionary; (2) the Registrant may, in its discretion, indemnify
its employees and agents in those circumstances where indemnification is not
required by law; (3) the rights conferred in the Bylaws are not exclusive, and
the Registrant is authorized to enter into indemnification agreements with its
directors, executive officers and employees; and (4) the Registrant may not
retroactively amend the Bylaw provisions in a way that is adverse to the
directors, executive officers and employees who benefit from these protections.
The Registrant's policy is to enter into indemnification agreements with
each of its directors and executive officers that provide the maximum indemnity
allowed to directors and executive officers by Section 145 of the Delaware
General Corporation Law and the Bylaws, as well as certain additional procedural
protections. In addition, these indemnity agreements provide that parties to the
indemnification agreements will be indemnified to the fullest possible extent
not prohibited by law against any and all expenses (including any federal,
state, local or foreign taxes imposed on the Indemnitee as a result of the
actual or deemed receipt of any payments under the Indemnification Agreement),
judgments, fines, penalties and amounts paid in settlement (if such settlement
is approved in advance by the Registrant, which approval shall not be
unreasonably withheld), actually and reasonably incurred in relation to the
Indemnitee's position as a director, officer, employee, agent or fiduciary of
the Registrant, or any subsidiary of the Registrant, or in relation to the
Indemnitee's service at the request of the Registrant as a
II-1
<PAGE> 89
director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust or other enterprise or in relation to
Indemnitee's action or inaction while serving in such a capacity. Stanford
Microdevices will not be obligated pursuant to the indemnity agreements to
indemnify or advance expenses to an indemnified party with respect to
proceedings or claims initiated by the indemnified party and not by way of
defense, counterclaim or crossclaim, except with respect to proceedings
specifically authorized by the Registrants' Board of Directors or brought to
enforce a right to indemnification under the indemnity agreement, the
Registrants' Bylaws or any statute or law. Under the agreements, the Registrant
is not obligated to indemnify the indemnified party (1) for any expenses
incurred by the indemnified party with respect to any proceeding instituted by
the indemnified party to enforce or interpret the agreement, if a court of
competent jurisdiction determines that each of the material assertions made by
the indemnified party in such proceeding was not made in good faith or was
frivolous; (2) for any amounts paid in settlement of a proceeding unless the
Registrant consents to such settlement; (3) with respect to any proceeding
brought by the Registrant against the indemnified party for willful misconduct,
unless a court determines that each of such claims was not made in good faith or
was frivolous; (4) on account of any suit in which judgment is rendered against
the indemnified party for an accounting of profits made from the purchase or
sale by the indemnified party of securities of the Registrant pursuant to the
provisions of sec. 16(b) of the Securities Exchange Act of 1934 and related
laws; (5) on account of the indemnified party's conduct which is finally
adjudged to have been knowingly fraudulent or deliberately dishonest, or to
constitute willful misconduct or a knowing violation of the law; (6) an account
of any conduct from which the indemnified party derived an improper personal
benefit; (7) on account of conduct the indemnified party believed to be contrary
to the best interests of the Registrant or its stockholders; (8) on account of
conduct that constituted a breach of the indemnified party's duty of loyalty to
the Registrant or its stockholders; or (9) if a final decision by a court having
jurisdiction in the matter shall determine that such indemnification is not
lawful.
The indemnification provision in the Certificate of Incorporation, Bylaws
and the indemnification agreements entered into between the Registrant and its
directors and executive officers, may be sufficiently broad to permit
indemnification of the Registrant's officers and directors for liabilities
arising under the 1933 Act.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT
DOCUMENT NUMBER
-------- -------
<S> <C>
Form of Underwriting Agreement.............................. 1.1
Restated Certificate of Incorporation of Registrant as
currently in effect....................................... 3.1
Form of Restated Certificate of Incorporation of Registrant
to be filed upon closing of the offering.................. 3.2
Bylaws of Registrant, as amended, as currently in effect.... 3.3
Form of Indemnification Agreement to be entered into by the
Registrant with each of its directors and executive
officers.................................................. 10.1
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Registrant has issued and sold the
following securities:
(a) During the past three years, the Registrant has granted an
aggregate of 5,313,373 options to purchase shares of unregistered common
stock to directors, officers, employees, former employees and consultants
at exercise prices ranging from $0.92 to $8.00 per share. These shares were
sold pursuant to the exercise of options granted by the Board of Directors.
As to each director, officer, employee and consultant of the Registrant who
was issued these securities, the Registrant relied upon Rule 701 of the
II-2
<PAGE> 90
Securities Act of 1933, as amended (the "Securities Act"). Each such person
was granted such options pursuant to a written contract between such person
and the Registrant. In addition, the Registrant met the conditions imposed
under Rule 701(b).
(b) On October 5, 1999, the Registrant sold 5,647,839 shares of
unregistered Series A Preferred Stock and issued warrants to purchase
1,100,000 shares of Common Stock to two venture capital companies for
aggregate cash consideration of $3.01 per share, for proceeds of
$16,999,995.39. The Registrant relied upon Section 4(2) of the Securities
Act in connection with the sale of these shares.
Appropriate legends were affixed to the share certificates issued in the
transactions described above. All recipients had adequate access, through their
relationships with the Registrant, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of Registrant as
currently in effect.
3.2 Form of Restated Certificate of Incorporation of Registrant
to be filed upon the closing of the offering.
3.3 Bylaws of Registrant, as amended, as currently in effect.
4.1* Form of Registrant's Common Stock Certificate.
4.2 Investors' Rights Agreement, dated as of October 5, 1999,
among the Registrant and the parties named therein.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement to be entered into by
Registrant with each of its directors and executive
officers.
10.2 Change of Control Severance Agreement dated November 23,
1998 between Registrant and Guy Krevet.
10.3 Change of Control Severance Agreement dated December 1, 1998
between Registrant and Gerald Quinnell.
10.4 Offer Letter dated October 22, 1999 between Registrant and
Thomas Scannell.
10.5 Offer Letter dated November 1, 1999 between Registrant and
Gary Gianatasio.
10.6 Agreement dated December 1, 1999 among Registrant, John and
Susan Ocampo, and certain stockholders.
10.7+ Services Sale Agreement between Registrant and TRW, Inc.
dated August 19, 1998, as amended.
10.8+ Foundry Agreement between Registrant and Temic Semiconductor
dated September 1, 1999.
10.9*+ Volume Purchase Agreement between Registrant and Nortel
Networks dated September 1, 1999.
10.10+ Supply Agreement between Registrant and Spectrian, Inc.
dated October 7, 1999.
10.11 Amended and Restated 1998 Stock Plan and related agreements.
10.12 2000 Employee Stock Purchase Plan and related agreements.
10.13* Sublease between Registrant and Telesensory dated September
5, 1997.
10.14 Lease between Registrant and Arden Realty dated July 30,
1999.
10.15* Lease for between Registrant and Aetna Life Insurance
Company dated May 26, 1998.
10.16* Sublease between Registrant and Family and Child Guidance
Centers dated November 22, 1999.
10.17* Lease between Registrant and Elk Property Management Limited
dated November 19, 1999.
</TABLE>
II-3
<PAGE> 91
<TABLE>
<CAPTION>
<C> <S>
11.1 Statement of computation of net income per share and pro
forma net income per share (see Note 5 of Notes to Financial
Statements).
21.1 Subsidiaries of the Registrant.
23.1* Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
23.2 Consent of Ernst & Young, LLP, Independent Auditors.
24.1 Power of Attorney (see page II-6).
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* To be supplied by amendment.
+ Confidential treatment has been requested for portions of these exhibits.
(b) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions referenced in Item 14 of this Registration Statement
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, 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 Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE> 92
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Sunnyvale,
State of California, on this 1st day of March, 2000.
STANFORD MICRODEVICES, INC.
By: /s/ ROBERT VAN BUSKIRK
------------------------------------
Robert Van Buskirk
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints, jointly and severally, Robert Van Buskirk, John
Ocampo and Thomas Scannell and each one of them, his true and lawful
attorney-in-fact and agents, each with full power of substitution, 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 registration statement related to the offering contemplated by this
registration statement that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933 and to file the same, with all exhibits
thereto and all other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents or any of them, or
his or their substitute or substitutes, may lawfully do or cause to be done or
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ JOHN OCAMPO Chairman of the Board and March 1, 2000
- -------------------------------------------------------- Chief Technology Officer
John Ocampo
/s/ ROBERT VAN BUSKIRK President, Chief Executive March 1, 2000
- -------------------------------------------------------- Officer and Director
Robert Van Buskirk (Principal Executive
Officer)
/s/ THOMAS SCANNELL Vice President of Finance March 1, 2000
- -------------------------------------------------------- and Chief Financial Officer
Thomas Scannell (Principal Financial and
Accounting Officer)
/s/ JOHN C. BUMGARNER, JR. Director March 1, 2000
- --------------------------------------------------------
John C. Bumgarner, Jr.
</TABLE>
II-5
<PAGE> 93
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ PETER CHUNG Director March 1, 2000
- --------------------------------------------------------
Peter Chung
/s/ CASIMIR SKRZYPCZAK Director March 1, 2000
- --------------------------------------------------------
Casimir Skrzypczak
</TABLE>
II-6
<PAGE> 94
SCHEDULE II
STANFORD MICRODEVICES, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
ADDITIONS-
BALANCE AT CHARGED BALANCE AT
YEAR ENDED BEGINNING OF TO COSTS DEDUCTIONS- END OF
DECEMBER 31, PERIOD AND EXPENSES WRITE-OFFS PERIOD
- ------------------------------------- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
1997................................. $ -- $91,000 $ -- $ 91,000
1998................................. 91,000 25,000 -- 116,000
1999................................. 116,000 -- 16,000 100,000
</TABLE>
S-1
<PAGE> 95
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of Registrant as
currently in effect.
3.2 Form of Restated Certificate of Incorporation of Registrant
to be filed upon the closing of the offering.
3.3 Bylaws of Registrant, as amended, as currently in effect.
4.1* Form of Registrant's Common Stock Certificate.
4.2 Investors' Rights Agreement, dated as of October 5, 1999,
among the Registrant and the parties named therein.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement to be entered into by
Registrant with each of its directors and executive
officers.
10.2 Change of Control Severance Agreement dated November 23,
1998 between Registrant and Guy Krevet.
10.3 Change of Control Severance Agreement dated December 1, 1998
between Registrant and Gerald Quinnell.
10.4 Offer Letter dated October 22, 1999 between Registrant and
Thomas Scannell.
10.5 Offer Letter dated November 1, 1999 between Registrant and
Gary Gianatasio.
10.6 Agreement dated December 1, 1999 among Registrant, John and
Susan Ocampo, and certain stockholders.
10.7+ Services Sale Agreement between Registrant and TRW, Inc.
dated August 19, 1998, as amended.
10.8+ Foundry Agreement between Registrant and Temic Semiconductor
dated September 1, 1999.
10.9*+ Volume Purchase Agreement between Registrant and Nortel
Networks dated September 1, 1999.
10.10+ Supply Agreement between Registrant and Spectrian, Inc.
dated October 7, 1999.
10.11 Amended and Restated 1998 Stock Plan and related agreements.
10.12 2000 Employee Stock Purchase Plan and related agreements.
10.13* Sublease between Registrant and Telesensory dated September
5, 1997.
10.14 Lease between Registrant and Arden Realty dated July 30,
1999.
10.15* Lease for between Registrant and Aetna Life Insurance
Company dated May 26, 1998.
10.16* Sublease between Registrant and Family and Child Guidance
Centers dated November 22, 1999.
10.17* Lease between Registrant and Elk Property Management Limited
dated November 19, 1999.
11.1 Statement of computation of net income per share and pro
forma net income per share (see Note 5 of Notes to Financial
Statements).
21.1 Subsidiaries of the Registrant.
23.1* Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LP Independent Auditors.
24.1 Power of Attorney (see page II-7).
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* To be supplied by amendment.
+ Confidential treatment has been requested for portions of these exhibits.
<PAGE> 1
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
STANFORD MICRODEVICES, INC.
(PURSUANT TO SECTIONS 242 AND 245 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE)
Stanford Microdevices, Inc., a corporation organized and existing
under and by virtue of the provisions of the General Corporation Law of the
State of Delaware (the "General Corporation Law"),
DOES HEREBY CERTIFY:
FIRST: That the name of this corporation is Stanford
Microdevices, Inc. and that this corporation was originally incorporated
pursuant to the General Corporation Law on November 6, 1997 under the name
Stanford Microdevices, Inc.
SECOND: That the Board of Directors duly adopted resolutions
proposing to amend and restate the Certificate of Incorporation of this
corporation, declaring said amendment and restatement to be advisable and in the
best interests of this corporation and its stockholders, and authorizing the
appropriate officers of this corporation to solicit the consent of the
stockholders therefor, which resolution setting forth the proposed amendment and
restatement is as follows:
RESOLVED, that the Certificate of Incorporation of this
corporation be amended and restated in its entirety as follows:
ARTICLE I
The name of this corporation is Stanford Microdevices, Inc.
ARTICLE II
The address of the registered office of this corporation in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, 19805,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
ARTICLE IV
A. Classes of Stock. This corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number
<PAGE> 2
of shares that this corporation is authorized to issue is Thirty-Six Million
(36,000,000) shares. Thirty Million (30,000,000) shares shall be Common Stock
and Six Million (6,000,000) shares shall be Preferred Stock, each with a par
value of $0.001 per share.
B. Rights, Preferences and Restrictions of Preferred Stock. The
Preferred Stock authorized by this Restated Certificate of Incorporation may be
issued from time to time in one or more series. The rights, preferences,
privileges, and restrictions granted to and imposed on the Series A Preferred
Stock, which series shall consist of Five Million Six Hundred Forty-Six Thousand
One Hundred Ninety-Two (5,646,192) shares (the "Series A Preferred Stock"), are
as set forth below in this Article IV(B). The Board of Directors is hereby
authorized to fix or alter the rights, preferences, privileges and restrictions
granted to or imposed upon additional series of Preferred Stock, and the number
of shares constituting any such series and the designation thereof, or of any of
them. Subject to compliance with applicable protective voting rights that have
been or may be granted to the Preferred Stock or series thereof in Certificates
of Designation or this corporation's Restated Certificate of Incorporation
("Protective Provisions"), but notwithstanding any other rights of the Preferred
Stock or any series thereof, the rights, privileges, preferences and
restrictions of any such additional series may be subordinated to, pari passu
with (including, without limitation, inclusion in provisions with respect to
liquidation and acquisition preferences, redemption and/or approval of matters
by vote or written consent), or senior to any of those of any present or future
class or series of Preferred or Common Stock. Subject to compliance with
applicable Protective Provisions, the Board of Directors is also authorized to
increase or decrease the number of shares of any series (other than the Series A
Preferred Stock), prior or subsequent to the issue of that series, but not below
the number of shares of such series then outstanding. In case the number of
shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
1. Dividend Provisions.
(a) Subject to the rights of any series of Preferred Stock that
may from time to time come into existence, the holders of shares of Series A
Preferred Stock shall be entitled to receive dividends, out of any assets
legally available therefor, prior and in preference to any declaration or
payment of any dividend (payable other than in Common Stock or other securities
and rights convertible into or entitling the holder thereof to receive, directly
or indirectly, additional shares of Common Stock of this corporation) on shares
of any other stock of this corporation, payable when, as, and if declared by the
Board of Directors. Dividends on each share of Series A Preferred Stock shall
accrue at the rate of 6.0% per annum on the sum of $3.01 per share (as adjusted
for any stock split, stock dividends, combinations, recapitalizations,
reorganizations and the like with respect to the Series A Preferred Stock, the
"Original Series A Issue Price") plus all accrued and unpaid dividends thereon
(as adjusted for any stock splits, stock dividends, combinations,
recapitalizations, reorganizations and the like with respect to the Series A
Preferred Stock) from and including the date of issuance (as defined below) of
the Series A Preferred Stock to and including the first to occur of the date on
which (i) the assets and funds of this corporation are distributed to its
stockholders pursuant to a dissolution of this corporation or (ii) the share of
the Series A Preferred Stock is redeemed or otherwise purchased by this
corporation. In the event that a share of Series A Preferred Stock is converted
into Common Stock, no accrued and unpaid dividends with respect to such share,
if any, shall be paid
2
<PAGE> 3
to the holder thereof. Such dividends shall accrue and cumulate whether or not
they have been declared and whether or not there are profits, surplus or other
fund of this corporation legally available for the payment of dividends. The
date on which this corporation first issues any shares of Series A Preferred
Stock shall be deemed to be its "Date of Issuance" regardless of the number of
times a transfer of such share is made on the stock records maintained by or for
this corporation and regardless of the number of certificates which may be
issued to evidence such share. The holders of the outstanding Series A Preferred
Stock can waive any dividend preference that such holders shall be entitled to
receive under this Section 1 upon the affirmative vote or written consent of the
holders of at least a majority of the Series A Preferred Stock then outstanding.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, subject to the rights of
series of Preferred Stock that may from time to time come into existence, the
holders of Series A Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of this corporation to the
holders of Common Stock by reason of their ownership thereof, an amount per
share equal to the sum of (i) the "Original Series A Issue Price" and (ii)
accrued but unpaid dividends on such share (as such accrued dividends are
adjusted for any stock splits, stock dividends, combinations, recapitalizations,
reorganizations and the like). If upon the occurrence of such event, the assets
and funds thus distributed among the holders of the Series A Preferred Stock
shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amounts, then, subject to the rights of series of
Preferred Stock that may from time to time come into existence, the entire
assets and funds of this corporation legally available for distribution shall be
distributed ratably among the holders of the Series A Preferred Stock in
proportion to the amount of such stock owned by each such holder.
(b) Upon the completion of the distribution required by
subsection (a) of this Section 2 and any other distribution that may be required
with respect to series of Preferred Stock that may from time to time come into
existence, the remaining assets of this corporation available for distribution
to stockholders shall be distributed among the holders of Series A Preferred
Stock and Common Stock pro rata based on the number of shares of Common Stock
held by each (assuming full conversion of all such Series A Preferred Stock into
Common Stock) until with respect to the holders of Series A Preferred Stock,
such holders shall have received an aggregate of $7.53 per share (as adjusted
for any stock splits, stock dividends, combinations, recapitalizations,
reorganizations and the like), including the amounts paid pursuant to subsection
(a) of this Section 2; thereafter, subject to the rights of series of Preferred
Stock that may from time to time come into existence, if assets remain in this
corporation, the holders of the Common Stock of this corporation shall receive
all of the remaining assets of this corporation pro rata based on the number of
shares of Common Stock held by each.
(c) Instead of receiving the amounts that would otherwise be
payable pursuant to subsections (a) and (b) of this Section 2 in the event of
any liquidation, dissolution or winding up of this corporation, subject to the
rights of series of Preferred Stock that may from time to time come into
existence, holders of Series A Preferred Stock may elect to receive by reason of
their ownership thereof an amount per share equal to the amount they would
receive assuming
3
<PAGE> 4
they converted a share of Series A Preferred Stock into Common
Stock immediately prior to the distribution of assets of this corporation
relating to such liquidation, dissolution or winding up.
(d)
(i) For purposes of this Section 2, a liquidation,
dissolution or winding up of this corporation shall be deemed to be occasioned
by, or to include (unless the holders of at least a majority of the Series A
Preferred Stock then outstanding shall determine otherwise), (A) the acquisition
of this corporation by another entity by means of any transaction or series of
related transactions (including, without limitation, any reorganization, merger
or consolidation) that results in the transfer of fifty percent (50%) or more of
the outstanding voting power of this corporation; or (B) a sale of all or
substantially all of the assets of this corporation (collectively, a "Corporate
Transaction").
(ii) In any of such events, if the consideration received
by this corporation is other than cash, its value shall be its Fair Market Value
(as defined below), except that to the extent such consideration consists of
securities, then such securities shall be valued as follows:
(A) Securities not subject to investment letter or
other similar restrictions on free marketability covered by (B) below:
(1) If traded on a securities exchange or
through The Nasdaq Stock Market, the value shall be deemed to be the average of
the closing prices of the securities on such exchange or system over the thirty
(30) day period ending three (3) days prior to the closing of such event;
(2) If actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the thirty (30) day period ending three (3) days
prior to the closing of such event; and
(3) If there is no active public market, the
value shall be the Fair Market Value thereof.
(B) The method of valuation of securities subject
to investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A) (1), (2) or (3) to reflect the Fair Market
Value thereof, as mutually determined by this corporation and the holders of at
least a majority of the voting power of all then outstanding shares of Series A
Preferred Stock or, if there is no such determination, as determined pursuant to
subsection (e) of this Section 2.
(iii) In the event the requirements of this subsection
2(d) are not complied with, this corporation shall forthwith either:
(A) cause such event to be postponed until such
time as the requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event the
rights, preferences and privileges of the holders of the Series A Preferred
Stock shall revert to and be
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the same as such rights, preferences and privileges existing immediately prior
to the date of the first notice referred to in subsection 2(d)(iv) hereof.
(iv) This corporation shall give each holder of record of
Series A Preferred Stock written notice of such impending transaction not later
than twenty (20) days prior to the stockholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 2, and this corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after this corporation has given the first notice
provided for herein or sooner than ten (10) days after this corporation has
given notice of any material changes provided for herein; provided, however,
that such periods may be shortened upon the written consent of the holders of
Preferred Stock that are entitled to such notice rights or similar notice rights
and that represent at least a majority of the voting power of all then
outstanding shares of such Preferred Stock.
(e) For purposes of this Article IV, "Fair Market Value" shall
mean, with respect to any security or other property, the fair market value of
such security or property as established by mutual agreement of this corporation
and the holders of at least a majority of the then outstanding shares of Series
A Preferred Stock; provided, however, if such parties cannot agree on such value
within ten (10) days of the date such value is to be determined, then the fair
market value shall be established by appraisal as set forth below:
(i) Appraisals hereunder shall be undertaken by two (2)
appraisers, one (1) selected by this corporation and one (1) selected by the
holders of at least a majority of the then outstanding shares of Series A
Preferred Stock. Such appraisers shall have twenty (20) days following the
appointment of the last appraiser to be appointed to agree upon a fair market
value.
(ii) In the event that such appraisers cannot so agree
within such period of time (A) if such appraisers' valuations do not vary by
more than ten percent (10%), then the fair market value shall be the mean of
such valuations and (B) if such appraisers' valuations differ by more than ten
percent (10%), such appraisers shall select a third appraiser who shall
calculate the fair market value independently. Except as set forth in the next
sentence, following such independent appraisal, the fair market value shall be
the average of the two (2) valuations that are closest in amount. If one
appraiser's valuation is the mean of the two (2) other valuations, such mean
valuation shall be the fair market value. In the event that the two (2) original
appraisers cannot agree upon a third appraiser within thirty (30) days following
the end of the thirty (30) day period referred to above, then the third
appraiser shall be appointed by the American Arbitration Association.
(iii) The fees and expenses of the appraisers chosen
pursuant to the provisions above shall be shared equally by the parties.
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3. Redemption.
(a) Subject to the rights of series of Preferred Stock that may
from time to time come into existence, at any time after October 4, 2006, but
within ninety (90) days after the receipt by this corporation of a written
request from the holders of not less than a majority of the then outstanding
Series A Preferred Stock that all or, if less than all, a specified percentage
of such holders' shares of Series A Preferred Stock shall be redeemed, and
concurrently with surrender by such holders of the certificates representing
such shares, this corporation shall, to the extent it may lawfully do so, redeem
in three (3) annual installments (each payment date being referred to herein as
a "Redemption Date") the shares specified in such request by paying in cash
therefor an amount per share (the "Series A Redemption Price") equal to the
greater of (i) the sum of (A) the Original Series A Issue Price and (B) accrued
but unpaid dividends on such share (as adjusted for any stock splits, stock
dividends, combinations, recapitalizations, reorganizations and the like with
respect to the Series A Preferred Stock) or (ii) the Fair Market Value
(calculated without applying any valuation discount because such share is not
publicly tradeable or the holder of such share is a minority stockholder) of
such share. The number of shares of Series A Preferred Stock that this
corporation shall be required to redeem on any one Redemption Date shall be
equal to the amount determined by dividing (i) the aggregate number of shares of
Series A Preferred Stock outstanding immediately prior to such Redemption Date
that have been requested to be redeemed pursuant to this Section 3(a) by (ii)
the number of remaining Redemption Dates (including the Redemption Date to which
such calculation applies). Any redemption of Series A Preferred Stock effected
pursuant to this subsection 3(a) shall be made on a pro rata basis among the
holders of the Series A Preferred Stock in proportion to the number of shares of
Series A Preferred Stock proposed to be redeemed by such holders.
(b) Subject to the rights of series of Preferred Stock that may
from time to time come into existence, at least fifteen (15) but no more than
thirty (30) days prior to each Redemption Date, written notice shall be mailed,
first class postage prepaid, to each holder of record (at the close of business
on the business day next preceding the day on which notice is given) of the
Series A Preferred Stock to be redeemed, at the address last shown on the
records of this corporation for such holder, notifying such holder of the
redemption to be effected on the applicable Redemption Date, specifying the
number of shares to be redeemed from such holder, the Redemption Date, the
Redemption Price, the place at which payment may be obtained and calling upon
such holder to surrender to this corporation, in the manner and at the place
designated, his, her or its certificate or certificates representing the shares
to be redeemed (the "Redemption Notice"). Except as provided in subsection
(3)(c), on or after each Redemption Date, each holder of Series A Preferred
Stock to be redeemed on such Redemption Date shall surrender to this corporation
the certificate or certificates representing such shares, in the manner and at
the place designated in the Redemption Notice, and thereupon the applicable
Redemption Price of such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof and
each surrendered certificate shall be cancelled. In the event less than all the
shares represented by any such certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares.
(c) From and after each Redemption Date, unless there shall have
been a default in payment of the Redemption Price, all rights of the holders of
shares of Series A Preferred Stock designated for redemption on such Redemption
Date in the Redemption Notice
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as holders of Series A Preferred Stock (except the right to receive the
applicable Redemption Price without interest upon surrender of their certificate
or certificates) shall cease with respect to such shares, and such shares shall
not thereafter be transferred on the books of this corporation or be deemed to
be outstanding for any purpose whatsoever. Subject to the rights of series of
Preferred Stock that may from time to time come into existence, if the funds of
this corporation legally available for redemption of shares of Series A
Preferred Stock on a Redemption Date are insufficient to redeem the total number
of shares of Series A Preferred Stock to be redeemed on such date, those funds
that are legally available will be used to redeem the maximum possible number of
such shares ratably among the holders of such shares to be redeemed such that
each holder of a share of Series A Preferred Stock receives the same percentage
of the applicable Series A Redemption Price. The shares of Series A Preferred
Stock not redeemed shall remain outstanding and entitled to all the rights and
preferences provided herein. Subject to the rights of series of Preferred Stock
that may from time to time come into existence, at any time thereafter when
additional funds of this corporation are legally available for the redemption of
shares of Series A Preferred Stock, such funds will immediately be used to
redeem the balance of the shares that this corporation has become obliged to
redeem on any Redemption Date but that it has not redeemed.
(d) On or prior to each Redemption Date, this corporation shall
deposit the Redemption Price of all shares of Series A Preferred Stock
designated for redemption on such Redemption Date in the Redemption Notice, and
not yet redeemed or converted, with a bank or trust corporation having aggregate
capital and surplus in excess of $100,000,000 as a trust fund for the benefit of
the respective holders of the shares designated for redemption and not yet
redeemed, with irrevocable instructions and authority to the bank or trust
corporation to publish the notice of redemption thereof and pay the Redemption
Price for such shares to their respective holders on or after the Redemption
Date, upon receipt of notification from this corporation that such holder has
surrendered his, her or its share certificate to this corporation pursuant to
subsection (3)(b) above. As of the date of such deposit (even if prior to the
Redemption Date), the deposit shall constitute full payment of the shares to
their holders, and from and after the date of the deposit the shares so called
for redemption shall be redeemed and shall be deemed to be no longer
outstanding, and the holders thereof shall cease to be stockholders with respect
to such shares and shall have no rights with respect thereto except the rights
to receive from the bank or trust corporation payment of the Redemption Price of
the shares, without interest, upon surrender of their certificates therefor, and
the right to convert such shares as provided in Article III(B)(4) hereof. Such
instructions shall also provide that any moneys deposited by this corporation
pursuant to this subsection (3)(d) for the redemption of shares thereafter
converted into shares of this corporation's Common Stock pursuant to Article
III(B)(4) hereof prior to the Redemption Date shall be returned to this
corporation forthwith upon such conversion. The balance of any moneys deposited
by this corporation pursuant to this subsection (3)(d) remaining unclaimed at
the expiration of two (2) years following the Redemption Date shall thereafter
be returned to this corporation upon its request expressed in a resolution of
its Board of Directors.
4. Conversion. The holders of the Series A Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after the
date of issuance of such
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share and on or prior to the fifth day prior to the Redemption Date, if any, as
may have been fixed in any Redemption Notice with respect to such share of
Series A Preferred Stock, at the office of this corporation or any transfer
agent for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing the Original Series A Issue Price by
the Conversion Price applicable to such share, determined as hereafter provided,
in effect on the date the certificate is surrendered for conversion. The initial
Conversion Price per share for shares of Series A Preferred Stock shall be the
Original Series A Issue Price; provided, however, that the Conversion Price for
the Series A Preferred Stock shall be subject to adjustment as set forth in
subsection 4(d).
(b) Automatic Conversion. Each share of Series A Preferred Stock
shall automatically be converted into shares of Common Stock at the Conversion
Price at the time in effect for such Series A Preferred Stock immediately upon
the earlier of (i) this corporation's sale of its Common Stock in a firm
commitment underwritten public offering pursuant to a registration statement on
Form S-1 or Form SB-2 under the Securities Act of 1933, as amended (the
"Securities Act"), the public offering price of which was not less than $7.53
per share (as adjusted for any stock splits, stock dividends, combinations,
recapitalizations, reorganizations and the like) and $30 million in aggregate
proceeds (net of underwriting discounts and commissions) or (ii) the date
specified by written consent or agreement of the holders of a majority of the
then outstanding shares of Series A Preferred Stock.
(c) Mechanics of Conversion. Before any holder of Series A
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he or she shall surrender the certificate or certificates therefor, duly
endorsed, at the office of this corporation or of any transfer agent for the
Series A Preferred Stock, and shall give written notice to this corporation at
its principal corporate office, of the election to convert the same and shall
state therein the name or names in which the certificate or certificates for
shares of Common Stock are to be issued. This corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Series A Preferred Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the shares of Series A Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date. If the conversion is in
connection with an underwritten offering of securities registered pursuant to
the Securities Act, the conversion may, at the option of any holder tendering
Series A Preferred Stock for conversion, be conditioned upon the closing with
the underwriters of the sale of securities pursuant to such offering, in which
event the persons entitled to receive the Common Stock upon conversion of the
Series A Preferred Stock shall not be deemed to have converted such Series A
Preferred Stock until immediately prior to the closing of such sale of
securities.
(d) Conversion Price Adjustments of Preferred Stock for Certain
Dilutive Issuances, Splits and Combinations. The Conversion Price of the Series
A Preferred Stock shall be subject to adjustment from time to time as follows:
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(i) (A) If this corporation shall issue, after the Date of
Issuance, any Additional Stock (as defined below) without consideration or for a
consideration per share less than the Conversion Price for such series in effect
immediately prior to the issuance of such Additional Stock, the Conversion Price
for such series in effect immediately prior to each such issuance shall
forthwith (except as otherwise provided in this clause (i)) be adjusted to a
price determined by multiplying such Conversion Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance (including shares of Common Stock deemed to
be issued pursuant to subsection 4(d)(i)(E)(1) or (2)) plus the number of shares
of Common Stock that the aggregate consideration received by this corporation
for such issuance would purchase at such Conversion Price; and the denominator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such issuance (including shares of Common Stock deemed to be issued
pursuant to subsection 4(d)(i)(E)(1) or (2)) plus the number of shares of such
Additional Stock.
(B) No adjustment of the Conversion Price for the
Series A Preferred Stock shall be made in an amount less than one cent per
share, provided that any adjustments that are not required to be made by reason
of this sentence shall be carried forward and shall be either taken into account
in any subsequent adjustment made prior to three (3) years from the date of the
event giving rise to the adjustment being carried forward, or shall be made at
the end of three (3) years from the date of the event giving rise to the
adjustment being carried forward. Except to the limited extent provided for in
subsections (E)(3) and (E)(4), no adjustment of such Conversion Price pursuant
to this subsection 4(d)(i) shall have the effect of increasing the Conversion
Price above the Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by this corporation for any underwriting or otherwise
in connection with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock
for a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance (whether before, on or
after the Date of Issuance) of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities, the following provisions shall apply for all
purposes of this subsection 4(d)(i) and subsection 4(d)(ii):
(1) The aggregate maximum number of shares of
Common Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of time,
but without taking into account potential antidilution adjustments) of such
options to purchase or rights to subscribe for Common Stock shall be deemed to
have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
subsections
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4(d)(i)(C) and (d)(i)(D)), if any, received by this corporation upon the
issuance of such options or rights plus the minimum exercise price provided in
such options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of, or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability, including,
without limitation, the passage of time, but without taking into account
potential antidilution adjustments) for, any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such securities
were issued or such options or rights were issued and for a consideration equal
to the consideration, if any, received by this corporation for any such
securities and related options or rights (excluding any cash received on account
of accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by this corporation (without taking into
account potential antidilution adjustments) upon the conversion or exchange of
such securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in
subsections 4(d)(i)(C) and (d)(i)(D)).
(3) In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to this
corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof (unless
such options or rights or convertible or exchangeable securities were merely
deemed to be included in the numerator and denominator for purposes of
determining the number of shares of Common Stock outstanding for purposes of
subsection 4(d)(i)(A)), the Conversion Price of the Series A Preferred Stock, to
the extent in any way affected by or computed using such options, rights or
securities, shall be recomputed to reflect such change, but no further
adjustment shall be made for the actual issuance of Common Stock or any payment
of such consideration upon the exercise of any such options or rights or the
conversion or exchange of such securities.
(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series A Preferred Stock, to the extent
in any way affected by or computed using such options, rights or securities or
options or rights related to such securities (unless such options or rights were
merely deemed to be included in the numerator and denominator for purposes of
determining the number of shares of Common Stock outstanding for purposes of
subsection 4(d)(i)(A)), shall be recomputed to reflect the issuance of only the
number of shares of Common Stock (and convertible or exchangeable securities
that remain in effect) actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such securities or upon the exercise
of the options or rights related to such securities.
(5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to subsections
4(d)(i)(E)(1) and (2)
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shall be appropriately adjusted to reflect any change, termination or expiration
of the type described in either subsection 4(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common
Stock issued (or deemed to have been issued pursuant to subsection 4(d)(i)(E))
by this corporation after the Date of Issuance other than:
(A) Common Stock issued pursuant to a transaction
described in subsection 4(d)(iii), 4(e) and 4(f) hereof; or
(B) up to 4,927,734 shares of Common Stock
(including shares of Common Stock issuable upon the exercise of options to
purchase Common Stock outstanding on the Date of Issuance but excluding shares
repurchased by this corporation in connection with the termination of service)
issuable or issued to employees, directors and consultants of this corporation
for compensatory purposes directly or pursuant to a stock option plan,
restricted stock plan, purchase plan or other employee or consultant incentive
plan or arrangement approved by the Board of Directors of this corporation; or
(C) Common Stock issued upon conversion of shares
of Preferred Stock; or
(D) the issuance of securities in connection with
a bona fide business acquisition of or by this corporation, whether by merger,
consolidation, sale of assets, sale or exchange of stock or otherwise; or
(E) Common Stock issued or issuable in a public
offering prior to or in connection with which all of the outstanding shares of
Series A Preferred Stock will be converted to Common Stock; or
(F) Common Stock issued or issuable to suppliers,
lessors or lenders to this corporation, or in connection with a corporate
collaboration, joint venture, partnership or marketing, distribution,
development, licensing or other arrangements to which this Corporation is a
party, in each case to the extent such transaction is not primarily for equity
purposes and is approved by the Board of Directors of this corporation
(including the Series A Director (as defined below)); or
(G) Common Stock issued or issuable pursuant to
any transaction approved by holders of a majority of the then outstanding Series
A Preferred Stock; or
(H) shares of Common stock issued (or deemed to
have been issued pursuant to subsection 4(d)(i)(E) hereof) with the consent of
holders of a majority of the Series A Preferred Stock that such shares shall not
be characterized as Additional Stock.
(iii) In the event this corporation should at any time or
from time to time after the date of issuance fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
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securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price of the Series A Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion of
each share of such series shall be increased in proportion to such increase in
the aggregate number of shares of Common Stock outstanding and those issuable
with respect to such Common Stock Equivalents with the number of shares issuable
with respect to Common Stock Equivalents determined from time to time in the
manner provided for deemed issuances in subsection 4(d)(i)(E).
(iv) If the number of shares of Common Stock outstanding
at any time after the Date of Issuance is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Series A Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be decreased in proportion to such
decrease in outstanding shares.
(e) Other Distributions. In the event this corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4(d)(iii), then,
in each such case for the purpose of this subsection 4(e), the holders of the
Series A Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of this corporation into which their shares of Series A Preferred Stock
are convertible as of the record date fixed for the determination of the holders
of Common Stock of this corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or Section 2) provision shall be made so that the holders of the
Series A Preferred Stock shall thereafter be entitled to receive upon conversion
of the Series A Preferred Stock the number of shares of stock or other
securities or property of the Corporation or otherwise, to which a holder of
Common Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of the Series A Preferred Stock after the recapitalization to the
end that the provisions of this Section 4 (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series A Preferred Stock) shall be applicable after that event
as nearly equivalent as may be practicable.
(g) No Impairment. This corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed
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hereunder by this corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Preferred Stock against
impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon the conversion
of any share or shares of the Series A Preferred Stock, and if the conversion
would result in the issuance of a fraction of a share of Common Stock, the
corporation shall, in lieu of such fractional share, pay the holders a sum in
cash equal to the fair market value of such fraction on the date of conversion
(as determined in good faith by the Board of Directors of this corporation).
Whether or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of shares of Series A Preferred
Stock the holder is at the time converting into Common Stock and the number of
shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of Series A Preferred Stock pursuant to this Section 4,
this corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. This corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the Conversion Price for such series of Preferred Stock at the
time in effect, and (C) the number of shares of Common Stock and the amount, if
any, of other property that at the time would be received upon the conversion of
a share of Series A Preferred Stock.
(i) Notices of Record Date. In the event of any taking by this
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series A Preferred Stock, at least
twenty (20) days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right; provided, however, that such periods may be shortened
upon the written consent of the holders of Preferred Stock that are entitled to
such notice rights or similar notice rights and that represent at least a
majority of the voting power of all then outstanding shares of such Preferred
Stock.
(j) Reservation of Stock Issuable Upon Conversion. This
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Series A Preferred Stock, in addition to such
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other remedies as shall be available to the holder of such Series A Preferred
Stock, this corporation will take such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to this Restated Certificate of
Incorporation.
(k) Notices. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Series A Preferred Stock shall
be deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of this
corporation.
5. Voting Rights.
(a) General Voting Rights. The holder of each share of Series A
Preferred Stock shall have the right to one vote for each share of Common Stock
into which such Series A Preferred Stock could then be converted, and with
respect to such vote, such holder shall have full voting rights and powers equal
to the voting rights and powers of the holders of Common Stock, and shall be
entitled, notwithstanding any provision hereof, to notice of any stockholders'
meeting in accordance with the Bylaws of this corporation, and shall be entitled
to vote, together with holders of Common Stock, with respect to any question
upon which holders of Common Stock have the right to vote. Fractional votes
shall not, however, be permitted and any fractional voting rights available on
an as-converted basis (after aggregating all shares into which shares of Series
A Preferred Stock held by each holder could be converted) shall be rounded to
the nearest whole number (with one-half being rounded upward).
(b) Voting for the Election of Directors. As long as at least a
majority of the shares of Series A Preferred Stock originally issued remain
outstanding, the holders of such shares of Series A Preferred Stock shall be
entitled to elect one (1) director of this corporation (the "Series A
Director"). The holders of outstanding Common Stock shall be entitled to elect
two (2) directors of this corporation. The holders of Series A Preferred Stock
and Common Stock (voting together as a single class and not as separate series,
and on an as-converted basis) shall be entitled to elect any remaining directors
of this corporation.
In the case of any vacancy (other than a vacancy caused by
removal) in the office of a director occurring among the directors elected by
the holders of a class or series of stock pursuant to this Section 5(b), the
remaining directors so elected by that class or series may by affirmative vote
of a majority thereof (or the remaining director so elected if there be but one,
or if there are no such directors remaining, by the affirmative vote of the
holders of a majority of the shares of that class or series), elect a successor
or successors to hold office for the unexpired term of the director or directors
whose place or places shall be vacant. Any director who shall have been elected
by the holders of a class or series of stock or by any directors so elected as
provided in the immediately preceding sentence hereof may be removed during the
aforesaid term of office, either with or without cause, by, and only by, the
affirmative vote of the holders of the shares of the class or series of stock
entitled to elect such director or directors, given either at a special meeting
of such stockholders duly called for that purpose or pursuant to a written
14
<PAGE> 15
consent of stockholders, and any vacancy thereby created may be filled by the
holders of that class or series of stock represented at the meeting or pursuant
to written consent.
6. Protective Provisions. Subject to the rights of series of
Preferred Stock that may from time to time come into existence, so long as at
least twenty five percent (25%) of the originally issued shares of Series A
Preferred Stock are outstanding, this corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then outstanding shares of Series A
Preferred Stock:
(a) (i) directly or indirectly sell, convey, or otherwise dispose
of all or more than twenty-five percent (25%) all of its property or business
(measured by the Fair Market Value of such property or business), (ii) merge
into or consolidate with any other corporation (other than a wholly-owned
subsidiary corporation) or (iii) effect any transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of this
corporation is disposed of;
(b) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including, without limitation, any
reorganization into a limited liability company, a partnership or any other
non-corporate entity which is treated as a partnership for United States income
tax purposes);
(c) alter or change the rights, preferences or privileges of the
shares of Series A Preferred Stock so as to affect adversely the shares;
(d) increase or decrease (other than by redemption or conversion)
the total number of authorized shares of Series A Preferred Stock;
(e) authorize, issue or enter into any agreement providing for
the issuance (contingent or otherwise) of any capital stock or other equity
securities (or any securities convertible into or exchangeable for any capital
stock or other equity securities) which are senior to or on parity with the
Series A Preferred Stock with respect to the payment of dividends, redemptions
or distributions upon liquidation or otherwise;
(f) redeem, purchase or otherwise acquire (or pay into or set
aside for a sinking fund for such purpose) any share or shares of Preferred
Stock or Common Stock; provided, however, that this restriction shall not apply
to (i) the repurchase of shares of Common Stock from employees, officers,
directors, consultants or other persons performing services for this corporation
or any subsidiary pursuant to agreements under which this corporation has the
option to repurchase such shares upon the occurrence of certain events, such as
the termination of employment or the proposed transfer of such shares, or (ii)
the redemption of any share or shares of Preferred Stock in accordance with
Section 3;
(g) amend this corporation's Restated Certificate of
Incorporation or Bylaws; or
(h) change the authorized number of directors of this
corporation.
15
<PAGE> 16
7. Status of Redeemed or Converted Stock. In the event any shares
of Series A Preferred Stock shall be redeemed or converted pursuant to Section 3
or Section 4 hereof, the shares so redeemed or converted shall be cancelled and
shall not be issuable by this corporation. The Restated Certificate of
Incorporation of this corporation shall be appropriately amended to effect the
corresponding reduction in this corporation's authorized capital stock.
C. Common Stock. The rights, preferences, privileges and
restrictions granted to and imposed on the Common Stock are as set forth below
in this Article IV(C).
1. Dividend Rights. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of this corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or
winding up of this corporation, the assets of this corporation shall be
distributed as provided in Section 2 of Division (B) of Article IV hereof.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common Stock shall
have the right to one vote for each such share, and shall be entitled to notice
of any stockholders' meeting in accordance with the bylaws of this corporation,
and shall be entitled to vote upon such matters and in such manner as may be
provided by law.
ARTICLE V
Except as otherwise provided in this Restated Certificate of
Incorporation, 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 any or all of the Bylaws of this corporation.
ARTICLE VI
The number of directors of this corporation shall be fixed from
time to time by a bylaw or amendment thereof duly adopted by the Board of
Directors or by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the
Bylaws of this corporation shall so provide.
16
<PAGE> 17
ARTICLE VIII
Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. The books of this corporation may be
kept (subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of this corporation.
ARTICLE IX
A director of this corporation shall, to the fullest extent
permitted by the General Corporation Law as it now exists or as it may hereafter
be amended, not be personally liable to this corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to this
corporation or its stockholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law, or (iv) for any transaction from
which the director derived any improper personal benefit. If the General
Corporation Law is amended, after approval by the stockholders of this Article,
to authorize corporation action further eliminating or limiting the personal
liability of directors, then the liability of a director of this corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law, as so amended.
Any amendment, repeal or modification of this Article IX, or the
adoption of any provision of this Restated Certificate of Incorporation
inconsistent with this Article IX, by the stockholders of this corporation shall
not apply to or adversely affect any right or protection of a director of this
corporation existing at the time of such amendment, repeal, modification or
adoption.
ARTICLE X
This corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
ARTICLE XI
To the fullest extent permitted by applicable law, this
corporation is authorized to provide indemnification of (and advancement of
expenses to) agents of this corporation (and any other persons to which General
Corporation Law permits this corporation to provide indemnification) through
bylaw provisions, agreements with such agents or other persons, vote of
stockholders or disinterested directors or otherwise, in excess of the
indemnification and advancement otherwise permitted by Section 145 of the
General Corporation Law, subject only to limits created by applicable General
Corporation Law (statutory or non-statutory), with respect to actions for breach
of duty to this corporation, its stockholders, and others.
Any amendment, repeal or modification of the foregoing provisions
of this Article XI shall not adversely affect any right or protection of a
director, officer, agent, or other person existing at the time of, or increase
the liability of any director of this corporation with
17
<PAGE> 18
respect to any acts or omissions of such director, officer or agent occurring
prior to, such amendment, repeal or modification.
* * *
THIRD: The foregoing amendment and restatement was approved by
the holders of the requisite number of shares of said corporation in accordance
with Section 228 of the General Corporation Law.
FOURTH: That said amendment and restatement was duly adopted in
accordance with the provisions of Section 242 and 245 of the General Corporation
Law.
18
<PAGE> 19
IN WITNESS WHEREOF, this Restated Certificate of Incorporation
has been executed by the President and Chief Executive Officer and the Secretary
of this corporation on this 4th day of October, 1999.
/s/ ROBERT VAN BUSKIRK
--------------------------------------------------
Robert Van Buskirk, President and Chief Executive
Officer
/s/ SUSAN OCAMPO
--------------------------------------------------
Susan Ocampo, Secretary
<PAGE> 20
CERTIFICATE OF AMENDMENT OF
RESTATED CERTIFICATE OF INCORPORATION
OF
STANFORD MICRODEVICES, INC.
John Ocampo certifies that:
1. He is the duly elected and acting Chairman of the Board of Directors
and Chief Technology Officer of Stanford Microdevices, Inc., a corporation
organized and existing under the laws of the state of Delaware (the
"Corporation").
2. The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on November 6, 1997.
The Restated Certificate of Incorporation of the Corporation (the "Restated
Certificate") was filed with the Secretary of State of the State of Delaware on
October 4, 1999.
3. Pursuant to Section 242 of the General Corporation Law of the State
of Delaware, this Certificate of Amendment of Restated Certificate of
Incorporation amends the provisions of the Restated Certificate.
4. The terms and provisions of this Certificate of Amendment of Restated
Certificate of Incorporation have been duly approved by written consent of the
required number of shares of outstanding stock of the Corporation pursuant to
Subsection 228(a) of the General Corporation Law of the State and written notice
pursuant to Subsection 228(d) of the General Corporation Law of the State has
been given to those stockholders whose written consent has not been obtained.
5. Article IV(B) of the Restated Certificate is hereby amended to read
in its entirety as follows:
"B. Rights, Preferences and Restrictions of Preferred Stock. The
Preferred Stock authorized by this Restated Certificate of
Incorporation may be issued from time to time in one or more series.
The rights, preferences, privileges, and restrictions granted to and
imposed on the Series A Preferred Stock, which series shall consist
of Five Million Six Hundred Forty-Seven Thousand Eight Hundred
Thirty-Nine (5,647,839) shares (the "Series A Preferred Stock"), are
as set forth below in this Article IV(B). The Board of Directors is
hereby authorized to fix or alter the rights, preferences, privileges
and restrictions granted to or imposed upon additional series of
Preferred Stock, and the
<PAGE> 21
number of shares constituting any such series and the designation
thereof, or of any of them. Subject to compliance with applicable
protective voting rights that have been or may be granted to the
Preferred Stock or series thereof in Certificates of Designation or
this corporation's Restated Certificate of Incorporation ("Protective
Provisions"), but notwithstanding any other rights of the Preferred
Stock or any series thereof, the rights, privileges, preferences and
restrictions of any such additional series may be subordinated to,
pari passu with (including, without limitation, inclusion in
provisions with respect to liquidation and acquisition preferences,
redemption and/or approval of matters by vote or written consent), or
senior to any of those of any present or future class or series of
Preferred or Common Stock. Subject to compliance with applicable
Protective Provisions, the Board of Directors is also authorized to
increase or decrease the number of shares of any series (other than
the Series A Preferred Stock), prior or subsequent to the issue of
that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
[Remainder of Page Intentionally Left Blank]
-2-
<PAGE> 22
IN WITNESS WHEREOF, this Certificate of Amendment of the Restated
Certificate of Incorporation, which amends certain provisions of the Restated
Certificate of Incorporation of the Corporation, having been duly adopted in
accordance with Section 242 of the Delaware General Corporation Law, has been
duly executed by its Chairman of the Board of Directors and Chief Technology
Officer, this 4th day of October, 1999.
/s/ JOHN OCAMPO
-------------------------------------
John Ocampo
Chairman of the Board of Directors and Chief
Technology Officer
-3-
<PAGE> 1
Exhibit 3.2
RESTATED
CERTIFICATE OF INCORPORATION
OF
STANFORD MICRODEVICES, INC.
Stanford Microdevices, Inc. (the "CORPORATION"), a corporation organized
and existing under the laws of the State of Delaware, hereby certifies as
follows:
1. The name of the Corporation is Stanford Microdevices, Inc. The
original Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware on November 6, 1997.
2. Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, this Restated Certificate of Incorporation restates and
integrates and further amends the provisions of the Corporation's Certificate of
Incorporation.
3. The terms and provisions of this Restated Certificate of
Incorporation have been duly approved by written consent of the required number
of shares of outstanding stock of the Corporation pursuant to Subsection 228(a)
of the General Corporation Law of the State and written notice pursuant to
Subsection 228(d) of the General Corporation Law of the State has been given to
those stockholders whose written consent has not been obtained.
4. The text of the Restated Certificate of Incorporation reads in its
entirety as follows:
FIRST. The name of the Corporation is Stanford Microdevices, Inc.
SECOND. The address of the Corporation's registered office in the State
of Delaware is Corporation Trust Center, 1209 Orange St., Wilmington, County of
New Castle, Delaware 19801. The name of its registered agent at such address is
The Corporation Trust Company.
THIRD. 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.
FOURTH. This Corporation is authorized to issue two classes of shares
to be designated, respectively, Common Stock ("COMMON") and Preferred Stock
("PREFERRED"). The total number of shares of Common this Corporation shall have
authority to issue is 200,000,000 with a par value of $0.001 per share. The
total number of shares of Preferred this Corporation shall have authority to
issue is 5,000,000 with a par value of $0.001 per share.
The Board of Directors is authorized, subject to limitations prescribed
by law, to provide for the issuance of the shares of Preferred in series and, by
filing a certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in such series,
and to fix the designation, powers, preferences and rights of the shares of each
such series and the qualifications, limitations or restrictions thereof.
<PAGE> 2
The authority of the Board with respect to each series shall include,
but not be limited to, determination of the following:
(a) the number of shares constituting that series and the distinctive
designation of that series;
(b) the dividend rate on the shares of that series, whether dividends
shall be cumulative and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
(c) whether that series shall have voting rights, in addition to the
voting rights provided by law and, if so, the terms of such voting rights;
(d) whether that series shall have conversion privileges and, if so, the
terms and conditions of such conversion, including provision for adjustment of
the conversion rate in such events as the Board of Directors shall determine;
(e) whether or not the shares of that series shall be redeemable and, if
so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable and the amount per share payable in
case of redemption, which amount may vary under different conditions and at
different redemption dates;
(f) whether that series shall have a sinking fund for the redemption or
purchase of shares of that series and, if so, the terms and amount of such
sinking fund; and
(g) the rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and the
relative rights of priority, if any, of payment of shares of that series.
FIFTH.
A. The management of the business and the conduct of the affairs of
the Corporation shall be vested in the Board of Directors. Prior to the closing
of the first sale of Common Stock of the Corporation pursuant to a registration
statement declared effective by the Securities and Exchange Corporation under
the Securities Act of 1933, as amended, the number of directors which shall
constitute the whole Board of Directors shall be fixed in the manner designated
in the Bylaws of the Corporation.
B. At any time following the closing of the first sale of Common
Stock of the Corporation pursuant to a registration statement declared effective
by the Securities and Exchange Corporation under the Securities Act of 1933, as
amended, the number of directors which constitute the whole Board of Directors
of the Corporation shall be fixed exclusively by one or more resolutions adopted
from time to time by the Board of Directors. The Board of Directors shall be
divided into three classes designated as Class I, Class II, and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first annual
meeting of stockholders following the date hereof, the term of office
-2-
<PAGE> 3
of the Class I directors shall expire and Class I directors shall be elected for
a full term of three years. At the second annual meeting of stockholders
following the date hereof, the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full term of three years.
At the third annual meeting of stockholders following the date hereof, the term
of office of the Class III directors shall expire and Class III directors shall
be elected for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
C. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend or
repeal the Bylaws of the Corporation.
D. Elections of directors need not be by written ballot except and
to the extent provided in the Bylaws of the corporation.
E. Vacancies created by newly created directorships, created in
accordance with the Bylaws of this Corporation, may be filled by the vote of a
majority, although less than a quorum, of the directors then in office, or by a
sole remaining director
SIXTH.
A. To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or as may hereafter be amended, a director of
the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
B. The Corporation may indemnify to the fullest extent permitted
by law any person made or threatened to be made a party to an action or
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that he, his testator or intestate is or was a director, officer,
employee or agent of the Corporation or any predecessor of the Corporation or
serves or served at any other enterprise as a director, officer, employee or
agent at the request of the Corporation or any predecessor to the Corporation.
C. Neither any amendment nor repeal of this Article SIXTH, nor
the adoption of any provision of this Corporation's Certificate of Incorporation
inconsistent with this Article SIXTH, shall eliminate or reduce the effect of
this Article SIXTH, in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article SIXTH, would accrue
or arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
SEVENTH. The Corporation is to have perpetual existence.
EIGHTH.
A. Meetings of stockholders may be held within or without the
State of Delaware, as the Bylaws may provide. The books of the Corporation may
be kept (subject to any
-3-
<PAGE> 4
provision contained in the statutes) outside of the State of Delaware at such
place or places as may be designated from time to time by the Board of Directors
or in the Bylaws of the Corporation.
B. At any time following the closing of the first sale of Common
Stock of the Corporation pursuant to a registration statement declared effective
by the Securities and Exchange Corporation under the Securities Act of 1933, as
amended, stockholders of the Corporation may not take any action by written
consent in lieu of a meeting and any action contemplated by stockholders after
such time must be taken at a duly called annual or special meeting of
stockholders.
C. Advance notice of new business and stockholder nominations for
the election of directors shall be given in the manner and to the extent
provided in the Bylaws of the Corporation.
NINTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
-4-
<PAGE> 5
WITNESS WHEREOF, this Certificate has been signed this __ day of ______,
2000.
STANFORD MICRODEVICES, INC.
----------------------------------
Robert Van Buskirk, President and
Chief Executive Officer
ATTEST:
- -----------------------------------
Thomas Scannell, Secretary
<PAGE> 1
Exhibit 3.3
BYLAWS
OF
STANFORD MICRODEVICES, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I CORPORATE OFFICES ..............................................1
1.1 REGISTERED OFFICE ..........................................1
1.2 OTHER OFFICES ..............................................1
ARTICLE II MEETINGS OF STOCKHOLDERS ......................................1
2.1 PLACE OF MEETINGS ..........................................1
2.2 ANNUAL MEETING .............................................1
2.3 SPECIAL MEETING ............................................2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS ...........................2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE ...............2
2.6 QUORUM .....................................................2
2.7 ADJOURNED MEETING; NOTICE ..................................2
2.8 VOTING .....................................................3
2.9 WAIVER OF NOTICE ...........................................3
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING ....3
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING;
GIVING CONSENTS ............................................4
2.12 PROXIES ....................................................5
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE ......................5
ARTICLE III DIRECTORS ..................................................5
3.1 POWERS .....................................................5
3.2 NUMBER OF DIRECTORS ........................................6
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS ....6
3.4 RESIGNATION AND VACANCIES ..................................6
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE ...................7
3.6 FIRST MEETINGS .............................................7
3.7 REGULAR MEETINGS ...........................................8
3.8 SPECIAL MEETINGS; NOTICE ...................................8
3.9 QUORUM .....................................................8
3.10 WAIVER OF NOTICE ...........................................8
3.11 ADJOURNED MEETING; NOTICE ..................................8
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING ..........8
3.13 FEES AND COMPENSATION OF DIRECTORS .........................9
3.14 APPROVAL OF LOANS TO OFFICERS ..............................9
3.15 REMOVAL OF DIRECTORS .......................................9
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IV COMMITTEES ..................................................9
4.1 COMMITTEES OF DIRECTORS .....................................9
4.2 COMMITTEE MINUTES ..........................................10
4.3 MEETINGS AND ACTION OF COMMITTEES ..........................10
ARTICLE V OFFICERS ...................................................11
5.1 OFFICERS ...................................................11
5.2 ELECTION OF OFFICERS .......................................11
5.3 SUBORDINATE OFFICERS .......................................11
5.4 REMOVAL AND RESIGNATION OF OFFICERS ........................11
5.5 VACANCIES IN OFFICES .......................................11
5.6 CHAIRMAN OF THE BOARD ......................................12
5.7 PRESIDENT ..................................................12
5.8 VICE PRESIDENT .............................................12
5.9 SECRETARY ..................................................12
5.10 TREASURER ..................................................13
5.11 ASSISTANT SECRETARY ........................................13
5.12 ASSISTANT TREASURER ........................................13
5.13 AUTHORITY AND DUTIES OF OFFICERS ...........................13
ARTICLE VI INDEMNITY .....................................................14
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS ..................14
6.2 INDEMNIFICATION OF OTHERS ..................................14
6.3 INSURANCE ..................................................14
ARTICLE VII RECORDS AND REPORTS .........................................15
7.1 MAINTENANCE AND INSPECTION OF RECORDS ......................15
7.2 INSPECTION BY DIRECTORS ....................................15
7.3 ANNUAL STATEMENT TO STOCKHOLDERS ...........................16
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS .............16
ARTICLE VIII GENERAL MATTERS ............................................16
8.1 CHECKS .....................................................16
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS ...........16
</TABLE>
-ii-
<PAGE> 4
TABLE OF CONTENTS
(continued)
<TABLE>
Page
----
<S> <C>
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES .....................17
8.4 SPECIAL DESIGNATION ON CERTIFICATES ........................17
8.5 LOST CERTIFICATES ..........................................17
8.6 CONSTRUCTION; DEFINITIONS ..................................18
8.7 DIVIDENDS ..................................................18
8.8 FISCAL YEAR ................................................18
8.9 SEAL .......................................................18
8.10 TRANSFER OF STOCK ..........................................18
8.11 STOCK TRANSFER AGREEMENTS ..................................19
8.12 REGISTERED STOCKHOLDERS ....................................19
ARTICLE IX AMENDMENTS .................................................19
ARTICLE X DISSOLUTION ................................................19
ARTICLE XI CUSTODIAN ..................................................20
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES ................20
11.2 DUTIES OF CUSTODIAN .......................................21
</TABLE>
-iii-
<PAGE> 5
BYLAWS
OF
STANFORD MICRODEVICES, INC.
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date and
at a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the 1st day of
June in each year at 10:00 a.m. However, if such day falls on a legal holiday,
then the meeting shall be held at the same time and place on the next succeeding
full business day. At the meeting, directors shall be elected and any other
proper business may be transacted.
2.3 SPECIAL MEETING
<PAGE> 6
A special meeting of the stockholders may be called, at any time
for any purpose or purposes, by the board of directors or by such person
or persons as may be authorized by the Certificate of Incorporation or
the Bylaws.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings with stockholders shall be in writing and shall
be sent or otherwise given in accordance with Section 2.5 of these bylaws not
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder entitled to vote at such meeting. The notice shall specify
the place, date, and hour of the meeting, and, in the case of a special meeting,
the purpose or purposes for which the meeting is called.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.6 QUORUM
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present or represented. At such adjourned meeting at
which a quorum is present or represented, any business may be transacted that
might have been transacted at the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
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2.8 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Except as provided in the last paragraph of this Section 2.8, or as may
be otherwise provided in the certificate of incorporation, each stockholder
shall be entitled to one vote for each share of capital stock held by such
stockholder.
At a stockholders' meeting at which directors are to be elected,
or at elections held under special circumstances, a stockholder shall be
entitled to cumulate votes (i.e., cast for any candidate a number of votes
greater than the number of votes which such stockholder normally is entitled to
cast). Each holder of stock, or of any class or classes or of a series or series
thereof, who elects to cumulate votes shall be entitled to as many votes as
equals the number of votes which (absent this provision as to cumulative voting)
he would be entitled to cast for the election of directors with respect to his
shares of stock multiplied by the number of directors to be elected by him, and
he may cast all of such votes for a single director or may distribute them among
the number to be voted for, or for any two or more of them, as he may see fit.
2.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the certificate of incorporation, any
action required by this chapter to be taken at any annual or special meeting of
stockholders of a 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, and without a vote if a consent in writing, setting forth the
action so taken, is 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.
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Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
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 entitled 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
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(ii) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the board of directors is necessary, shall be the day on which the
first written consent is expressed.
(iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
2.12 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on
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the proxy (whether by manual signature, typewriting, telegraphic transmission or
otherwise) by the stockholder or the stockholder's attorney-in-fact. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Section 212(c) of the General Corporation Law of
Delaware.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a 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.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
The number of directors of the corporation shall be not less than one
(1) nor more than five (5). The exact number of directors shall be two (2) until
changed, within the limits specified above, by a bylaw amending this Section
3.2, duly adopted by the board of directors or by the stockholders. The
indefinite number of directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted amendment to the
certificate of incorporation or by an amendment to this bylaw duly adopted by
the vote or written consent of the holders of a majority issued and outstanding
and entitled to vote or by resolution of a majority of the board of directors.
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No reduction of the authorized number of directors shall have the effect
of removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stock holders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to fill
a vacancy, shall hold office until his successor is elected and qualified or
until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the
corporation. When one or more directors so resigns and the resignation is
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation or resignations
shall become effec tive, and each director so chosen shall hold office as
provided in this section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or 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.
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If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be held
at such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.7 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
3.8 SPECIAL MEETINGS; NOTICE
Special meetings of the board may be called by the president on three
(3) days' notice to each director, either personally or by mail, telegram,
telex, or telephone; special meetings shall be called by the president or
secretary in like manner and on like notice on the written request of two (2)
directors unless the board consists of only one (1) director, in which case
special meetings shall be called by the president or secretary in like manner
and on like notice on the written request of the sole director.
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3.9 QUORUM
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
3.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these bylaws.
3.11 ADJOURNED MEETING; NOTICE
If a quorum is not present at any meeting of the board of directors,
then the directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum is
present.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the board
of directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.13 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the compensation
of directors.
3.14 APPROVAL OF LOANS TO OFFICERS
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The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.15 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these bylaws, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors.
No reduction of the authorized number of directors shall have the effect
of removing any director prior to the expiration of such director's term of
office.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist of
one or more of the directors of the corpo ration. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. 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 of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors or in the bylaws of the corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or
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consolidation under Sections 251 or 252 of the General Corporation Law of
Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all
or substantially all of the corporation's property and assets, (iv) recommend to
the stockholders a dissolution of the corporation or a revocation of a
dissolution, or (v) amend the bylaws of the corporation; and, unless the board
resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws, Section
3.5 (place of meetings and meetings by telephone), Section 3.7 (regular
meetings), Section 3.8 (special meetings and notice), Section 3.9 (quorum),
Section 3.10 (waiver of notice), Section 3.11 (adjournment and notice of
adjournment), and Section 3.12 (action without a meeting), with such changes in
the context of those bylaws as are necessary to substitute the committee and its
members for the board of directors and its members; provided, however, that the
time of regular meetings of committees may also be called by resolution of the
board of directors and that notice of special meetings of committees shall also
be given to all alternate members, who shall have the right to attend all
meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, one or more vice
presidents, a secretary, and a treasurer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more
assistant vice presidents, assistant secretaries, assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these bylaws. Any number of offices may be held by the same
person.
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5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
bylaws, shall be chosen by the board of directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation shall be filled
by the board of directors.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the board
of directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of
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the corporation and shall, subject to the control of the board of directors,
have general supervision, direction, and control of the business and the
officers of the corporation. He shall preside at all meetings of the
shareholders and, in the absence or nonexistence of a chairman of the board, at
all meetings of the board of directors. He shall have 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 of
directors or these bylaws.
5.8 VICE PRESIDENT
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform all
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. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the board of directors, these bylaws,
the president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and shareholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at shareholders'
meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all shareholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the board of directors required to be given by law or
by these bylaws. He shall keep the seal of the corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or by these bylaws.
5.10 TREASURER
The treasurer shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of the properties
and business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings,
and shares. The books of account shall at all reasonable times be open to
inspection by any director.
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The treasurer shall deposit all money and other valuables in the name
and to the credit of the corporation with such depositaries as may be designated
by the board of directors. He shall disburse the funds of the corporation as may
be ordered by the board of directors, shall render to the president and
directors, whenever they request it, an account of all of his transactions as
treasurer and of the financial condition of the corporation, and shall have such
other powers and perform such other duties as may be prescribed by the board of
directors or these bylaws.
5.11 ASSISTANT SECRETARY
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
5.12 ASSISTANT TREASURER
The assistant treasurer, or, if there is more than one, the assistant
treasurers, in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the treasurer or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the treasurer
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
5.13 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner permitted
by the General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' 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 an
agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the
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corporation includes any person (i) who is or was a director or officer of the
corporation, (ii) who is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, or (iii) who was a director or officer of a corporation which
was a predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' 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 an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 INSURANCE
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 the General Corporation Law of Delaware.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its shareholders listing their names and addresses and the number and class of
shares held by each shareholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to
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<PAGE> 19
inspect for any proper purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records and to make copies or extracts
therefrom. A proper purpose shall mean a purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or other
agent is the person who seeks the right to inspection, the demand under oath
shall be accompanied by a power of attorney or such other writing that
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation at its registered
office in Delaware or at its principal place of business.
The officer who has charge of the stock ledger of a 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.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the
treasurer, the secretary or assistant secretary of this corporation, or any
other person authorized by the board of directors or the president or a 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
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directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
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The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
8.7 DIVIDENDS
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The directors of the corporation, subject to any restrictions contained
in the certificate of incorporation, may declare and pay dividends upon the
shares of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the corporation's
capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
The corporation shall have a corporate seal consisting of two concentric
circles containing the words "Stanford Microdevices, Inc." and "Delaware" in the
outer circle, and in the inner circle the date of incorporation of this
corporation.
8.10 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any agreement
with any number of shareholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
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ARTICLE IX
AMENDMENTS
The original or other bylaws of the corporation may be adopted, amended
or repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.
ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the board of
directors of the corporation that the corporation should be dissolved, the
board, after the adoption of a resolution to that effect by a majority of the
whole board at any meeting called for that purpose, shall cause notice to be
mailed to each stockholder entitled to vote thereon of the adoption of the
resolution and of a meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such certificate's becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent
in writing, either in person or by duly authorized attorney, to a dissolution,
no meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the General
Corporation Law of Delaware. Upon such consent's becoming effective in
accordance with Section 103 of the General Corporation Law of Delaware, the
corporation shall be dissolved. If the consent is signed by an attorney, then
the original power of attorney or a photocopy thereof shall be attached to and
filed with the consent. The consent filed with the Secretary of State shall have
attached to it the affidavit of the secretary or some other officer of the
corporation stating that the consent has been signed by or on behalf of all the
stockholders entitled to vote on a dissolution; in addition, there shall be
attached to the consent a certification by the secretary or some other officer
of the corporation setting forth the names and residences of the directors and
officers of the corporation.
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ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may appoint
one or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(ii) the business of the corporation is suffering or is
threatened with irreparable injury because the directors are so divided
respecting the management of the affairs of the corporation that the required
vote for action by the board of directors cannot be obtained and the
stockholders are unable to terminate this division; or
(iii) the corporation has abandoned its business and has failed
within a reasonable time to take steps to dissolve, liquidate or distribute its
assets.
11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver
appointed under Section 291 of the General Corporation Law of Delaware, but the
authority of the custodian shall be to continue the business of the corporation
and not to liquidate its affairs and distribute its assets, except when the
Court of Chancery otherwise orders and except in cases arising under Sections
226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware.
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CERTIFICATE OF ADOPTION OF BYLAWS
OF
Stanford Microdevices, Inc.
Adoption by Incorporator
The undersigned person appointed in the Certificate of Incorporation to
act as the Incorporator of Stanford Microdevices, Inc. hereby adopts the
foregoing bylaws, comprising twenty-one (21) pages, as the Bylaws of the
corporation.
Executed this 21st day of November, 1997.
/s/ STEVEN V. BERNARD
---------------------------------
Steven V. Bernard, Incorporator
Certificate by Secretary of Adoption by Incorporator
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of Stanford Microdevices, Inc. and that the foregoing
Bylaws, comprising twenty-one (21) pages, were adopted as the Bylaws of the
corporation on November ___, 1997, by the person appointed in the Certificate of
Incorporation to act as the Incorporator of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
affixed the corporate seal this 21st day of November 1997.
/s/ SUSAN M. OCAMPO
---------------------------------
Susan M. Ocampo, Secretary
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CERTIFICATE OF AMENDMENT
TO BYLAWS
The undersigned, being the duly elected Secretary of Stanford Microdevices,
Inc., a Delaware corporation (the "Company"), does hereby certify that Section
3.2 of the Bylaws of the Company was amended by the Joint Written Consent of the
Board of Directors and Stockholders on September 30, 1999 to read in its
entirety as follows:
"3.2 Number of Directors
Except as otherwise set forth in the Certificate of Incorporation, the
exact number of directors of the Corporation shall be five (5) until
changed, by a bylaw amendment to this Section 3.2, duly adopted by the
Board of Directors or by the stockholders. The number of directors may be
changed by a duly adopted amendment to the certificate of incorporation or
by an amendment to this bylaw duly adopted by the vote or written consent
of the holders of a majority of the stock issued and outstanding and
entitled to vote or by resolution of a majority of the Board of Directors.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name this
14th day of January, 2000.
/s/ THOMAS SCANNELL
------------------------------------
Thomas Scannell, Secretary
<PAGE> 1
Exhibit 4.2
INVESTORS' RIGHTS AGREEMENT
OCTOBER 5, 1999
<PAGE> 2
Exhibit 4.2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Registration Rights.......................................................1
1.1 Definitions......................................................1
1.2 Request for Registration.........................................2
1.3 Company Registration.............................................4
1.4 Form S-3 Registration............................................5
1.5 Obligations of the Company.......................................6
1.6 Information from Holder..........................................7
1.7 Expenses of Registration.........................................7
1.8 Delay of Registration............................................8
1.9 Indemnification..................................................8
1.10 Reports Under Securities Exchange Act of 1934..................10
1.11 Assignment of Registration Rights..............................10
1.12 Limitations on Subsequent Registration Rights..................11
1.13 "Market Stand-Off" Agreement...................................11
1.14 Termination of Registration Rights.............................12
2. Covenants of the Company.................................................12
2.1 Delivery of Financial Statements................................12
2.2 Inspection......................................................13
2.3 Termination of Information and Inspection Covenants.............13
2.4 Right of First Offer on Future Issuances of Shares..............13
2.5 Right of First Offer on Future Issuance of Subordinated Debt....14
2.6 Key-Man Insurance...............................................16
2.7 Travel Expenses.................................................16
2.8 Negative Covenants..............................................16
2.9 Affirmative Covenants...........................................18
2.10 Termination of Certain Covenants...............................19
3. Miscellaneous............................................................19
3.1 Successors and Assigns..........................................19
3.2 Governing Law...................................................19
3.3 Counterparts....................................................19
3.4 Titles and Subtitles............................................19
3.5 Notices.........................................................19
3.6 Expenses........................................................20
3.7 Entire Agreement; Amendments and Waivers........................20
3.8 Severability....................................................20
3.9 Aggregation of Stock............................................20
3.10 Specific Enforcement...........................................20
SCHEDULE A Schedule of Investors
</TABLE>
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<PAGE> 3
INVESTORS' RIGHTS AGREEMENT
THIS INVESTORS' RIGHTS AGREEMENT is made as of October 5, 1999,
by and among Stanford Microdevices, Inc., a Delaware corporation (the "Company")
and the investors listed on Schedule A hereto, each of which is herein referred
to as an "Investor."
RECITALS
WHEREAS, the Company and the Investors are parties to the Series
A Preferred Stock and Warrant Purchase Agreement of even date herewith (the
"Purchase Agreement") pursuant to which each Investor purchased Series A
Preferred Stock of the Company ("Series A Preferred Stock") and certain
Investors affiliated with Summit Partners purchased a Warrant to Purchase Common
Stock ("Warrant") exercisable to purchase Common Stock of the Company ("Common
Stock");
WHEREAS, in order to induce the Investors to invest funds in the
Company pursuant to the Purchase Agreement, the Investors and the Company hereby
agree that this Agreement shall govern the rights of the Investors to cause the
Company to register shares of Common Stock issued or issuable to them and
certain other matters as set forth herein;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as
follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of
1933, as amended.
(b) The term "Form S-3" means such form under the
Act as in effect on the date hereof or any registration form under the Act
subsequently adopted by the SEC that permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
(c) The term "Holder" means any person owning or
having the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.11 hereof.
(d) The term "Initial Offering" means the Company's
first firm commitment underwritten public offering of its Common Stock under the
Act.
(e) The term "1934 Act" means the Securities
Exchange Act of 1934, as amended.
(f) The term "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement or similar document in
<PAGE> 4
compliance with the Act, and the declaration or ordering of effectiveness of
such registration statement or document.
(g) The term "Registrable Securities" means (i) the
Common Stock issuable or issued upon conversion of the Series A Preferred Stock
issued to the Investors pursuant to the Purchase Agreement and upon exercise of
the Warrants issued to the Investors pursuant to the Purchase Agreement, and
(ii) any Common Stock of the Company issued as (or issuable upon the conversion
or exercise of any warrant, right or other security that is issued as) a
dividend or other distribution with respect to, or in exchange for, or in
replacement of, the shares referenced in clause (i) of this Section 1.1(g),
excluding, in all cases, however, any Registrable Securities sold by a person in
a transaction in which a Holder's rights under this Section 1 are not assigned
in accordance with Section 1.11. As to any particular Registrable Securities,
such securities shall cease to be Registrable Securities when they have been
distributed to the public pursuant to an offering registered under the
Securities Act or sold to the public through a broker dealer or market maker in
compliance with Rule 144 under the Act (or any similar rule then in force) or
repurchased or redeemed by the Company.
(h) The number of shares of "Registrable Securities
Outstanding" shall be determined by the number of shares of Common Stock
outstanding that are, and the number of shares of Common Stock issuable pursuant
to then exercisable or convertible securities that are, Registrable Securities.
(i) The term "SEC" shall mean the Securities and
Exchange Commission.
1.2 Request for Registration.
(a) Subject to the conditions of this Section 1.2,
if the Company shall receive at any time after the earlier of (i) three (3)
years after the date of this Agreement or (ii) six (6) months after the
effective date of the Initial Offering, a written request from the Holders of at
least a majority of the Registrable Securities then outstanding (the "Initiating
Holders") that the Company file a registration statement under the Act covering
the registration of Registrable Securities with an anticipated aggregate
offering price of at least $10,000,000, then the Company shall, within twenty
(20) days of the receipt thereof, give written notice of such request to all
Holders, and subject to the limitations of this Section 1.2, use all
commercially reasonable efforts to effect, as soon as practicable, the
registration under the Act of all Registrable Securities that the Holders
request to be registered in a written request received by the Company within
twenty (20) days of the mailing of the Company's notice pursuant to this Section
1.2(a). Each request for a Demand Registration shall specify the number of
Registrable Securities requested to be registered.
(b) If the Initiating Holders intend to distribute
the Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 1.2 and the Company shall include such information in the written
notice referred to in Section 1.2(a). In such event the right of any Holder to
include its Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's
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<PAGE> 5
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting by the
Company (which underwriter or underwriters shall be reasonably acceptable to a
majority in interest of the Initiating Holders). Notwithstanding any other
provision of this Section 1.2, if the underwriter advises the Company that
marketing factors require a limitation of the number of securities underwritten
(including Registrable Securities), then the Company shall so advise all Holders
of Registrable Securities that would otherwise be underwritten pursuant hereto,
and the number of shares that may be included in the underwriting shall be
allocated to the Holders of such Registrable Securities on a pro rata basis
based on the number of Registrable Securities held by all such Holders
(including the Initiating Holders). Any Registrable Securities excluded or
withdrawn from such underwriting shall be withdrawn from the registration.
(c) The Company shall not be required to effect a
registration pursuant to this Section 1.2:
(i) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, unless the Company
is already subject to service in such jurisdiction and except as may be required
under the Act; or
(ii) after the Company has effected two (2)
registrations pursuant to this Section 1.2, and such registrations have been
declared or ordered effective; or
(iii) during the period starting with the date
sixty (60) days prior to the Company's good faith estimate of the date of the
filing of, and ending on a date one hundred twenty (120) days following the
effective date of, a Company-initiated registration subject to Section 1.3 below
or a previous demand registration under this Section 1.2 or thirty (30) days
following the effective date of a previous demand registration pursuant to
Section 1.4 below, provided that the Company is actively employing in good faith
all reasonable efforts to cause such registration statement to become effective;
or
(iv) if the Initiating Holders propose to
dispose of Registrable Securities that may be registered on Form S-3 pursuant to
Section 1.4 hereof; or
(v) if the Company shall furnish to Holders
requesting a registration statement pursuant to this Section 1.2, a certificate
signed by the Company's Chief Executive Officer or Chairman of the Board stating
that in the good faith judgment of the Board of Directors of the Company, it
would be seriously detrimental to the Company and its stockholders for such
registration statement to be effected at such time, in which event the Company
shall have the right to defer such filing for a period of not more than ninety
(90) days after receipt of the request of the Initiating Holders, provided that
such right to delay a request shall be exercised by the Company not more than
once in any twelve (12)-month period. For purposes of this Section 1.2(v) and
Section 1.4(b)(iii) below, a registration statement may be deemed to be
seriously detrimental to the Company and its stockholders if it would have a
material adverse effect on any proposal or plan by the Company to engage in any
acquisition of
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<PAGE> 6
assets or any merger, consolidation, tender offer, reorganization or similar
transaction or a material adverse effect on the Company's business.
1.3 Company Registration.
(a) If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for stockholders other than the Holders) any of its stock or
other securities under the Act in connection with the public offering of such
securities (other than a registration relating solely to the sale of securities
to participants in a Company stock plan, a registration relating to a corporate
reorganization or other transaction under Rule 145 of the Act, a registration on
any form that does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities, or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities that are
also being registered), the Company shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
Holder given within twenty (20) days after mailing of such notice by the Company
in accordance with Section 3.5, the Company shall, subject to the provisions of
Section 1.3(c), use all reasonable efforts to cause to be registered under the
Act all of the Registrable Securities that each such Holder has requested to be
registered.
(b) Right to Terminate Registration. The Company
shall have the right to terminate or withdraw any registration initiated by it
under this Section 1.3 prior to the effectiveness of such registration whether
or not any Holder has elected to include securities in such registration. The
expenses of such withdrawn registration shall be borne by the Company in
accordance with Section 1.7 hereof.
(c) Underwriting Requirements. In connection with
any offering involving an underwriting of shares of the Company's capital stock,
the Company shall not be required under this Section 1.3 to include any of the
Holders' securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it (or by other persons entitled to select the underwriters) and enter into an
underwriting agreement in customary form with such underwriter or underwriters
selected by the Company, and then only in such quantity as the underwriters
determine in their sole discretion will not jeopardize the success of the
offering by the Company. If the total amount of securities, including
Registrable Securities, requested by stockholders to be included in such
offering exceeds the amount of securities sold other than by the Company that
the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
that the underwriters determine in their sole discretion will not jeopardize the
success of the offering (the securities so included to be apportioned pro rata
among the selling Holders according to the total amount of securities entitled
to be included therein owned by each selling Holder or in such other proportions
as shall mutually be agreed to by such selling Holders), but in no event shall
the amount of securities of the selling Holders included in the offering be
reduced below twenty-five percent (25%) of the total amount of securities
included in such offering, unless such offering is the initial public offering
of the Company's securities, in which case the selling Holders may be one
hundred percent (100%)
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<PAGE> 7
excluded if the underwriters make the determination described above and no other
stockholder's securities are included. For purposes of the preceding
parenthetical concerning apportionment, for any selling stockholder that is a
Holder of Registrable Securities and that is a partnership or corporation, the
partners, retired partners and stockholders of such Holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "selling
Holder," and any pro rata reduction with respect to such "selling Holder" shall
be based upon the aggregate amount of Registrable Securities owned by all such
related entities and individuals.
1.4 Form S-3 Registration. In case the Company shall
receive from the Holders of the Registrable Securities a written request or
requests that the Company effect a registration on Form S-3 and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holder or Holders, the Company shall:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(b) use all reasonable efforts to effect, as soon
as practicable, such registration and all such qualifications and compliances as
may be so requested and as would permit or facilitate the sale and distribution
of all or such portion of such Holders' Registrable Securities as are specified
in such request, together with all or such portion of the Registrable Securities
of any other Holders joining in such request as are specified in a written
request given within fifteen (15) days after receipt of such written notice from
the Company; provided, however, that the Company shall not be obligated to
effect any such registration, qualification or compliance, pursuant to this
section 1.4:
(i) if Form S-3 is not available for such
offering by the Holders;
(ii) if the Holders, together with the holders
of any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other securities
(if any) at an aggregate price to the public (net of any underwriters' discounts
or commissions) of less than $2,500,000;
(iii) if the Company shall furnish to the
Holders a certificate signed by the Chief Executive Officer or Chairman of the
Board of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than ninety (90) days after
receipt of the request of the Holder or Holders under this Section 1.4;
provided, however, that the Company shall not utilize this right more than once
in any twelve month period;
(iv) if the Company has, within the twelve (12)
month period preceding the date of such request, already effected one
registration on Form S-3 for the Holders pursuant to this Section 1.4; or
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(v) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.
(c) Subject to the foregoing, the Company shall
file a registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Holders. Registrations effected pursuant to this
Section 1.4 shall not be counted as requests for registration effected pursuant
to Sections 1.2.
1.5 Obligations of the Company. Whenever required under
this Section 1 to effect the registration of any Registrable Securities, the
Company shall, as expeditiously and as reasonably possible:
(a) prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use all reasonable
efforts to cause such registration statement to become effective, and, upon the
request of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for a period of up to one
hundred twenty (120) days or, if earlier, until the distribution contemplated in
the Registration Statement has been completed; provided, however, that if the
Company shall furnish to the Holders a certificate signed by the Chief Executive
Officer or Chairman of the Board of the Company stating that in the good faith
judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such Registration Statement
to be kept effective at such time as a result of ongoing negotiations between
the Company and a third party, then the Company shall not be obligated to keep
such Registration Statement effective during the 30-day period from the date of
such certificate; provided, further, however, that the Company shall not utilize
this right more than once during any twelve month period;
(b) prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Act with respect to the disposition of all securities
covered by such registration statement;
(c) furnish to the Holders such numbers of copies
of a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them;
(d) use all reasonable efforts to register and
qualify the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions within the United States as
shall be reasonably requested by the Holders; provided that the Company shall
not be required in connection therewith or as a condition thereto to qualify to
do business or to file a general consent to service of process in any such
states or jurisdictions, unless the Company is already subject to service in
such jurisdiction and except as may be required under the Act;
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(e) in the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offering;
(f) notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Act or the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(g) cause all such Registrable Securities
registered hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed; and
(h) provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration.
1.6 Information from Holder. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to this
Section 1 with respect to the Registrable Securities of any selling Holder that
such Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it and intended to be offered and sold, and the
intended method of disposition of such securities as shall be required to effect
the registration of such Holder's Registrable Securities.
1.7 Expenses of Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Sections 1.2, 1.3 and 1.4,
including (without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the Company
and the fees and disbursements of one special counsel for the selling Holders
shall be borne by the Company. Notwithstanding the foregoing, the Company shall
not be required to pay for any expenses of any registration proceeding begun
pursuant to Section 1.2 or Section 1.4 if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered (in which case all participating Holders
shall bear such expenses pro rata based upon the number of Registrable
Securities that were to be requested in the withdrawn registration) unless, in
the case of a registration requested under Section 1.2, the Holders of a
majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 1.2; provided, however, that if at the
time of such withdrawal, the Holders have learned of a material adverse change
in the condition, business, or prospects of the Company from that known to the
Holders at the time of their request and have withdrawn the request with
reasonable promptness following disclosure by the Company of such material
adverse change, then the Holders shall not be required to pay any of such
expenses and shall retain their rights pursuant to Section 1.2 or 1.4. To the
extent registration expenses are not required to be paid by the Company, each
holder of securities included in any registration hereunder shall pay those
registration expenses allocable to the registration of such holder's securities
so included and any registration expenses not so allocable shall be borne by all
sellers
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<PAGE> 10
of securities included in such registration in proportion to the aggregate
selling price of the securities to be so registered.
1.8 Delay of Registration. No Holder shall have any
right to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.9 Indemnification. In the event any Registrable
Securities are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company
will indemnify and hold harmless each Holder, the partners or officers,
directors and stockholders of each Holder, legal counsel and accountants for
each Holder, any underwriter (as defined in the Act) for such Holder and each
person, if any, who controls such Holder or underwriter within the meaning of
the Act or the 1934 Act, against any losses, claims, damages or liabilities
(joint or several) to which they may become subject under the Act, the 1934 Act
or any state securities laws, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Act, the 1934 Act, any state securities laws or any rule or
regulation promulgated under the Act, the 1934 Act or any state securities laws;
and the Company will reimburse each such Holder, underwriter or controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
subsection l.9(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the written consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability or action to the extent that it arises out of or is
based upon a Violation that occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person; provided
further, however, that the foregoing indemnity agreement with respect to any
preliminary prospectus shall not inure to the benefit of any Holder or
underwriter, or any person controlling such Holder or underwriter, from whom the
person asserting any such losses, claims, damages or liabilities purchased
shares in the offering, if a copy of the prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Holder or underwriter to
such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the shares to such person, and if the
prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage or liability.
(b) To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Company, each of its directors,
officers, each person, if any,
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<PAGE> 11
who controls the Company within the meaning of the Act, legal counsel and
accountants for the Company, any underwriter, any other Holder selling
securities in such registration statement and any controlling person of any such
underwriter or other Holder, against any losses, claims, damages or liabilities
(joint or several) to which any of the foregoing persons may become subject,
under the Act, the 1934 Act or any state securities laws, insofar as such
losses, claims, damages or liabilities (or actions in respect thereto) arise out
of or are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and each such Holder will reimburse any person intended
to be indemnified pursuant to this subsection l.9(b), for any legal or other
expenses reasonably incurred by such person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection l.9(b) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Holder (which
consent shall not be unreasonably withheld), provided that in no event shall any
indemnity under this subsection l.9(b) exceed the gross proceeds from the
offering received by such Holder.
(c) Promptly after receipt by an indemnified party
under this Section 1.9 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.9,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party; provided, however, that an indemnified
party (together with all other indemnified parties that may be represented
without conflict by one counsel) shall have the right to retain one separate
counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.9, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.9.
(d) If the indemnification provided for in this
Section 1.9 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or expense
referred to herein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information
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<PAGE> 12
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent
that the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.
(f) The obligations of the Company and Holders
under this Section 1.9 shall survive the completion of any offering of
Registrable Securities in a registration statement under this Section 1, and
otherwise.
1.10 Reports Under Securities Exchange Act of 1934. With
a view to making available to the Holders the benefits of Rule 144 promulgated
under the Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as
those terms are understood and defined in SEC Rule 144, at all times after the
effective date of the Initial Offering;
(b) file with the SEC in a timely manner all
reports and other documents required of the Company under the Act and the 1934
Act; and
(c) furnish to any Holder, so long as the Holder
owns any Registrable Securities, forthwith upon request (i) a written statement
by the Company that it has complied with the reporting requirements of SEC Rule
144 (at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC that permits the
selling of any such securities without registration or pursuant to such form.
1.11 Assignment of Registration Rights. The rights to
cause the Company to register Registrable Securities pursuant to this Section 1
may be assigned (but only with all related obligations) by a Holder to a
transferee or assignee of such securities that (i) is a subsidiary, parent,
partner, limited partner, member, retired partner or stockholder of a Holder,
(ii) is a Holder's family member or trust for the benefit of an individual
Holder, or (iii) after such assignment or transfer, holds at least 100,000
shares of Registrable Securities (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other recapitalizations), provided:
(a) the Company is, within a reasonable time after such transfer, furnished with
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned;
(b) such transferee or
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<PAGE> 13
assignee agrees in writing to be bound by and subject to the terms and
conditions of this Agreement, including without limitation the provisions of
Section 1.13 below; and (c) such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Act.
1.12 Limitations on Subsequent Registration Rights. From
and after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company that would allow such holder or prospective holder (a) to include
such securities in any registration filed under Section 1.3 hereof, unless under
the terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of
such securities will not reduce the amount of the Registrable Securities of the
Holders that are included or (b) to demand registration of their securities.
1.13 "Market Stand-Off" Agreement. Each Holder hereby
agrees that it will not, without the prior written consent of the managing
underwriter, during the period commencing on the date of the final prospectus
relating to the Initial Offering and ending on the date specified by the Company
and the managing underwriter (such period not to exceed one hundred eighty (l80)
days) (i) lend, offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock (whether such shares or any such
securities are then owned by the Holder or are thereafter acquired), or (ii)
enter into any swap or other arrangement that transfers to another, in whole or
in part, any of the economic consequences of ownership of the Common Stock,
whether any such transaction described in clause (i) or (ii) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise. As to each Holder, the foregoing provisions of this Section 1.13
shall apply only to the Company's Initial Offering, shall not apply to the sale
of any shares to an underwriter pursuant to an underwriting agreement, and shall
only be applicable to the Holders if all officers and directors and greater than
one percent (1%) stockholders of the Company enter into or are subject to
similar agreements. The underwriters in connection with the Company's Initial
Offering are intended third party beneficiaries of this Section 1.13 and shall
have the right, power and authority to enforce the provisions hereof as though
they were a party hereto.
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
each Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.14 Termination of Registration Rights. No Holder shall
be entitled to exercise any right provided for in this Section 1 after five (5)
years following the consummation of the Initial Offering or, as to any Holder,
such earlier time at which all Registrable Securities held by such Holder (and
any affiliate of the Holder with whom such Holder must aggregate its sales under
Rule 144) can be sold in any three (3)-month period without registration in
compliance with Rule 144 of the Act.
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<PAGE> 14
2. Covenants of the Company.
2.1 Delivery of Financial Statements. The Company shall
deliver to each Investor:
(a) as soon as practicable, but in any event within
ninety (90) days after the end of each fiscal year of the Company, an income
statement for such fiscal year, a balance sheet of the Company and statement of
stockholders' equity as of the end of such year, and a statement of cash flows
for such year, such year-end financial reports to be in reasonable detail,
prepared in accordance with generally accepted accounting principles ("GAAP"),
and audited and certified by a Big Five accounting firm as selected by the Board
of Directors of the Company;
(b) as soon as practicable, but in any event within
forty-five (45) days after the end of each of the first three (3) quarters of
each fiscal year of the Company, an unaudited income statement, statement of
cash flows for such fiscal quarter and an unaudited balance sheet as of the end
of such fiscal quarter;
(c) within thirty (30) days of the end of each
month, an unaudited income statement and statement of cash flows and balance
sheet for and as of the end of such month, in reasonable detail;
(d) as soon as practicable, but in any event at
least thirty (30) days prior to the end of each fiscal year, an annual budget
and operating plan for the next fiscal year, prepared on a monthly basis,
including balance sheets, income statements and statements of cash flows for
such months and, as soon as prepared, any other budgets or revised budgets
prepared by the Company;
(e) with respect to the financial statements called
for in subsections (b) and (c) of this Section 2.1, an instrument executed by
the Chief Financial Officer or President of the Company certifying that such
financials were prepared in accordance with GAAP consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by GAAP) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment; and
(f) such other information relating to the
financial condition, business, prospects or corporate affairs of the Company as
the Investor or any assignee of the Investor may from time to time request;
provided, however, that the Company shall not be obligated under this subsection
(f) or any other subsection of Section 2.1 to provide information that it deems
in good faith to be a trade secret or similar confidential information.
2.2 Inspection. The Company shall permit each
Investor, at such Investor's expense, to visit and inspect the Company's
properties, to examine its books of account and records and to discuss the
Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by the Investor; provided, however, that
the Company shall not be obligated pursuant to this Section 2.2 to provide
access to any information that it reasonably considers to be a trade secret or
similar confidential information.
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2.3 Termination of Information and Inspection
Covenants. The covenants set forth in Sections 2.1 and 2.2 shall terminate as to
Investors and be of no further force or effect upon consummation of the Initial
Offering or when the Company first becomes subject to the periodic reporting
requirements of Sections 12(g) or 15(d) of the 1934 Act, whichever event shall
first occur.
2.4 Right of First Offer on Future Issuances of Shares.
Subject to the terms and conditions specified in this paragraph 2.4, the Company
hereby grants to each Investor a right of first offer with respect to future
sales by the Company of its Shares (as hereinafter defined). For purposes of
this Section 2.4, Investor includes any general partners and affiliates of an
Investor. An Investor shall be entitled to apportion the right of first offer
hereby granted it among itself and its partners and affiliates in such
proportions as it deems appropriate. Each time the Company proposes to offer any
shares of, or securities convertible into or exchangeable or exercisable for any
shares of, any class of its capital stock ("Shares"), the Company shall first
make an offering of such Shares to each Investor in accordance with the
following provisions.
(a) The Company shall deliver a notice in
accordance with Section 3.5 (for purposes of this Section 2.4, a "Notice") to
each Investor stating (i) its bona fide intention to offer such Shares, (ii) the
number of such Shares to be offered, and (iii) the price and terms upon which it
proposes to offer such Shares.
(b) By written notification received by the
Company, within twenty (20) calendar days after receipt of the Notice, each
Investor may elect to purchase or obtain, at the price and on the terms
specified in the Notice, up to that portion of such Shares that equals the
proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion of the Preferred Stock which is then held by such
Investor, bears to the total number of shares of Common Stock of the Company
then outstanding (assuming full conversion of all then outstanding convertible
securities). The Company shall promptly, in writing, inform each Investor that
elects to purchase all the shares available to it (a "Fully-Exercising
Investor") of any other Investor's failure to do likewise. During the ten (10)
day period commencing after such information is given, each Fully-Exercising
Investor may elect to purchase that portion of the Shares for which Investors
were entitled to subscribe but which were not subscribed for by the Investors
that is equal to the proportion that the number of shares of Common Stock issued
and held, or issuable upon conversion of Preferred Stock then held, by such
Fully-Exercising Investor bears to the total number of shares of Common Stock
issued and held, or issuable upon conversion of the Preferred Stock then held,
by all Fully-Exercising Investors who wish to purchase some of the unsubscribed
shares.
(c) If all Shares that Investors are entitled to
obtain pursuant to subsection 2.4(b) are not elected to be obtained as provided
in subsection 2.4(b) hereof, the Company may, during the ninety (90) day period
following the expiration of the period provided in subsection 2.4(b) hereof,
offer the remaining unsubscribed portion of such Shares to any person or persons
at a price not less than, and upon terms no more favorable to the offeree than
those specified in the Notice. If the Company does not enter into an agreement
for the sale of the Shares within such period, or if such agreement is not
consummated within ninety (90) days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Investors in accordance herewith.
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(d) The right of first offer in this paragraph 2.4
shall not be applicable to (i) shares of Common Stock issued pursuant to a
transaction described in subsection 4(d)(iii) of the Article IV of the Company's
Restated Certificate of Incorporation as in effect on the date hereof (the
"Restated Certificate"); (ii) up to 4,927,734 shares of Common Stock (including
any shares of Common Stock issuable upon the exercise of options to purchase
Common Stock outstanding on the date hereof but excluding shares repurchased by
the Company in connection with the termination of service) plus such additional
number of shares approved by the Board and the holders of a majority of the
Series A Preferred Stock, issued or issuable to employees, directors and
consultants for compensatory purposes pursuant to a stock option plan,
restricted stock plan, purchase plan or other employee or consultant incentive
plan or arrangement approved by the Board of Directors of the Company; (iii) the
issuance of securities pursuant to a bona fide, firmly underwritten public
offering of shares of Common Stock, registered under the Act, at an offering
price of at least $7.53 per share (as adjusted for any stock split, stock
dividends, combinations recapitalizations, reorganizations and the like) and
resulting in proceeds to the Company of at least $30 million in the aggregate
(net of underwriting discounts and commissions), (iv) the issuance of securities
pursuant to the conversion or exercise of convertible or exercisable securities,
(v) the issuance of securities in connection with a bona fide business
acquisition of or by the Company, whether by merger, consolidation, sale of
assets, sale or exchange of stock or otherwise, or (vi) the issuance of stock,
warrants or other securities or rights to suppliers, lessors or lenders to the
Company, or in connection with a corporate collaboration, joint venture,
partnership or marketing, distribution, development, licensing or other
arrangements to which the Company is a party, in each case to the extent such
transaction is not primarily for equity purposes and is approved by the Board of
Directors of this corporation (including the Series A Director (as defined in
the Restated Certificate)); and (vii) the issuance of stock, warrants, or other
securities or rights pursuant to any transaction approved by the holder or
holders of a majority of the outstanding Registrable Securities.
2.5 Right of First Offer on Future Issuance of
Subordinated Debt. Subject to the terms and conditions specified in this Section
2.5, the Company hereby grants to each Investor a right of first offer with
respect to future sales by the Company of its Subordinated Debt (as hereinafter
defined). For purposes of this Section 2.5, Investor includes any general
partners and affiliates of an Investor. An Investor shall be entitled to
apportion the right of first offer hereby granted it among itself and its
partners and affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any Subordinated Debt,
the Company shall first make an offering of such Subordinated Debt to each
Investor in accordance with the following provisions.
(a) The Company shall deliver a notice in
accordance with Section 3.5 (for purposes of this Section 2.5, a "Notice") to
each Investor stating (i) its bona fide intention to offer such Subordinated
Debt, (ii) the principal amount of such Subordinated Debt to be offered, and
(iii) the price and terms upon which it proposes to offer such Subordinated
Debt.
(b) By written notification received by the
Company, within twenty (20) calendar days after receipt of the Notice, Investor
may elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Subordinated Debt
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<PAGE> 17
that equals the proportion that the number of shares of Common Stock issued and
held, or issuable upon conversion of the Preferred Stock then held, by such
Investor bears to the total number of shares of Common Stock of the Company then
issued and held, or issuable upon conversion of the Preferred Stock then held,
by all Investors. The Company shall promptly, in writing, inform each Investor
that elects to purchase all the Subordinated Debt available to it (a
"Fully-Exercising Investor") of any other Investor's failure to do likewise.
During the ten (10) day period commencing after such information is given, each
Fully-Exercising Investor may elect to purchase that portion of the Subordinated
Debt for which Investors were entitled to subscribe but which were not
subscribed for by the Investors that is equal to the proportion that the number
of shares of Common Stock issued and held, or issuable upon conversion of
Preferred Stock then held, by such Fully-Exercising Investor bears to the total
number of shares of Common Stock issued and held, or issuable upon conversion of
the Preferred Stock then held, by all Fully-Exercising Investors who wish to
purchase some of the unsubscribed shares.
(c) If all Subordinated Debt that Investors are
entitled to obtain pursuant to subsection 2.5(b) are not elected to be obtained
as provided in subsection 2.5(b) hereof, the Company may, during the ninety (90)
day period following the expiration of the period provided in subsection 2.5(b)
hereof, offer the remaining unsubscribed portion of such Subordinated Debt to
any person or persons at a price not less than, and upon terms no more favorable
to the offeree than those specified in the Notice. If the Company does not enter
into an agreement for the sale of the Subordinated Debt within such period, or
if such agreement is not consummated within ninety (90) days of the execution
thereof, the right provided hereunder shall be deemed to be revived and such
Subordinated Debt shall not be offered unless first reoffered to the Investors
in accordance herewith.
(d) The right of first offer in this paragraph 2.5
shall not be applicable to (i) the issuance or sale of any Debt (as defined
below) (other than Subordinated Debt) by the Company; or (ii) the issuance or
sale of Subordinated Debt after Investors have purchased a total of $5 million
principal amount of Subordinated Debt of the Company.
(e) The term "Subordinated Debt" means Debt (as
defined below) of the Company that is customarily characterized as subordinated
debt by an established credit rating agency, including all Debt that by its
terms is subordinated in right of payment to other Debt of the Company.
Notwithstanding the foregoing, Subordinated Debt does not include (i) Debt of
the Company to a commercial bank, an equipment lease lender or a strategic
partner of the Company as part of a transaction not entered into primarily for
financing purposes, (ii) Debt that is secured by a first priority lien on all or
a significant portion of the Company's assets or (iii) any Shares. The term
"Debt" means, with respect to a person, indebtedness of such person for money
borrowed or evidenced by bonds, notes, debentures or similar instruments or
leases for equipment or that are required to be capitalized pursuant to
generally accepted accounting principles. Any warrants or other rights to
acquire Shares issued by the Company in connection with the issuance of Debt
shall not be considered in determining whether the Debt is Subordinated Debt.
2.6 Key-Man Insurance. The Company shall use its best
efforts to maintain from financially sound and reputable insurers term life
insurance on the life of John Ocampo, Robert Van Buskirk and Gerald Quinnell
each in the amount of $1,000,000. Such
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<PAGE> 18
policies shall name the Company as loss payee and shall not be cancelable by the
Company without prior approval of the Board of Directors.
2.7 Travel Expenses. The Company shall reimburse each
member of the Company's Board of Directors for all reasonable out-of-pocket
expenses, including airfare at full economy rates, for attending meetings of
such Board of Directors (or committees thereof) or stockholders of the Company.
Such reimbursement shall be paid within thirty (30) days of submission of a
written request for reimbursement providing reasonable detail as to the expenses
for which reimbursement is sought.
2.8 Negative Covenants. So long as at least twenty-
five percent (25%) of the shares of Series A Preferred Stock issued pursuant to
the Purchase Agreement remain outstanding, the Company shall not do any of the
following without the written consent of the holders of a majority of the then
outstanding shares of Series A Preferred Stock:
(a) except as otherwise agreed to by the
compensation committee of the Board of Directors or as set forth on the
Disclosure Schedule to the Purchase Agreement, increase the compensation payable
to the Company's Chief Executive Officer, President, Chief Technical Officer or
Chief Financial Officer, any other executive officer of the Company or to a
director of the Company;
(b) except as otherwise agreed to by the Series A
Director, issue any equity securities or securities convertible into or
exercisable for equity securities of the Company to any officers, directors or
employees of or consultants to the Company, other than up to 4,927,734 shares of
Common Stock or options or rights to acquire Common Stock (including any shares
of Common Stock subject to options outstanding on the date hereof) issued for
compensatory purposes directly or pursuant to a stock option plan, restricted
stock plan, purchase plan or other employee or consultant incentive plan or
arrangement approved by the Board of Directors of the Company;
(c) materially change the type of products sold or
services provided by the Company;
(d) become subject to any agreement or instrument
which by its terms would (under any circumstances) restrict the Company's right
to perform the provisions of this Agreement, the Warrants, the Ancillary
Agreements, the Restated Certificate or the Bylaws (including, without
limitation, provisions relating to the making of redemptions of the Series A
Preferred Stock), provided that any liabilities incurred in the ordinary course
of business shall not be deemed to restrict the Company's ability to redeem the
Series A Preferred Stock pursuant to the Restated Certificate;
(e) materially change the terms of the Stock Plan
or adopt any new stock option plan or employee stock ownership plan;
(f) enter into, amend, modify or supplement, any
agreement, transaction, commitment or arrangement with any of its officers,
directors, holders of 1% or more of its voting capital stock, or their
respective affiliates, except for employment and compensation arrangements and
benefit programs;
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<PAGE> 19
(g) except as expressly provided for in any budget
or operating plan approved by the Series A Director, create, incur, assume or
suffer to exist, additional indebtedness exceeding an aggregate principal amount
of $500,000 (excluding indebtedness outstanding on the date hereof) outstanding
at any time on a consolidated basis;
(h) except as expressly provided for in any budget
or operating plan approved by the Series A Director, create, incur, assume or
suffer to exist, any Liens other than Permitted Liens or Liens in existence on
the date hereof;
(i) except as expressly provided for in any budget
or operating plan approved by the Series A Director, make any capital
expenditures or investments (including, without limitation, payments with
respect to capitalized leases, as determined in accordance with generally
accepted accounting principles consistently applied) exceeding $250,000
individually or $500,000 in the aggregate on a consolidated basis during any
twelve-month period;
(j) except as expressly provided for in any budget
or operating plan approved by the Series A Director, enter into any real
property leases or rental agreements (excluding capitalized leases, as
determined in accordance with generally accepted accounting principles
consistently applied) under which the lease payments exceed $250,000
individually or $500,000 in the aggregate on a consolidated basis during any
twelve-month period; or
(k) except as expressly provided for in any budget
or operating plan approved by the Series A Director, make any investment or
acquire any interest in any company or business (other than contractual
arrangements in the ordinary course of business) exceeding $500,000 individually
or in the aggregate on a consolidated basis within any twelve-month period.
The "Series A Director" means the director elected by holders of
Series A Preferred Stock pursuant to Section 5(b)(i) of Article IV.A of the
Company's Restated Certificate of Incorporation in effect on the date hereof, as
such may be amended from time to time.
2.9 Affirmative Covenants. So long as at least twenty
five percent (25%) of the Series A Preferred Stock issued pursuant to the
Purchase Agreement remains outstanding, the Company shall:
(a) at all times cause to be done all things
necessary to maintain, preserve and renew its corporate existence and all
material licenses, authorizations and permits from governmental entities
necessary to the conduct of its business;
(b) pay and discharge when payable all material
taxes, assessments and governmental charges imposed upon its properties or upon
the income or profits therefrom (in each case before the same becomes delinquent
and before penalties accrue thereon) and all material claims for labor,
materials or supplies which if unpaid would by law become a Lien (except a
Permitted Lien) upon any of its property, unless and to the extent that the same
are being contested in good faith and by appropriate proceedings and adequate
reserves (as determined in accordance with generally accepted accounting
principles, consistently applied) have been established on its consolidated
financial statements with respect thereto;
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<PAGE> 20
(c) comply with all other material obligations
which it incurs pursuant to any contract or agreement, whether oral or written,
as such obligations become due, unless and to the extent that the same are being
contested in good faith and by appropriate proceedings and adequate reserves (as
determined in accordance with generally accepted accounting principles,
consistently applied) have been established on its books with respect thereto;
(d) comply with all applicable laws, rules and
regulations of all governmental authorities, the violation of which could
reasonably be expected to have a Material Adverse Effect upon the financial
condition, operating results, assets, operations or business prospects of the
Company;
(e) use commercially reasonable efforts to obtain,
possess and maintain all material Intellectual Property Rights necessary to the
conduct of its business and own all right, title and interest in and to, or have
a valid license for, all such Intellectual Property Rights;
(f) maintain proper books of record and account
which present fairly in all material respects its financial condition and
results of operations and make provisions on its consolidated financial
statements for all such proper reserves as in each case are required in
accordance with generally accepted accounting principles, consistently applied;
(g) enter into and maintain invention assignment
and nondisclosure agreements with each of its employees and consultants;
(h) require all option agreements issued under the
Company's 1998 Stock Plan after the date hereof to provide for a right of first
refusal on transfers for the benefit of the Company and the vesting of such
shares over a four (4) year period; provided, however, that no such shares shall
vest until one (1) year from date of grant or issuance, as the case may be, at
which time twenty-five percent (25%) of such shares shall vest, unless otherwise
approved by the compensation committee of the Board of Directors;
(i) prior to the first public offering of the
Company's securities under the Act, purchase directors' and officers' insurance
in a reasonable amount.
2.10 Termination of Certain Covenants. The covenants set
forth in Sections 2.4, 2.5, 2.6, 2.7, 2.8 and 2.9 shall terminate and be of no
further force or effect upon the consummation of the sale of securities pursuant
to a bona fide, firmly underwritten public offering of shares of common stock,
registered under the Act, at an offering price of at least $7.53 per share (as
adjusted for any stock split, dividend, combination, recapitalization,
reorganization and the like) and resulting in gross proceeds (net of
underwriting discounts and commission) to the Company of at least $30 million.
3. Miscellaneous.
3.1 Successors and Assigns. Except as otherwise
provided herein (including Section 1.11 hereof), the terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties (including
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<PAGE> 21
transferees of any shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
3.2 Governing Law. This Agreement shall be governed by
and construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within the
state of California.
3.3 Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
3.4 Titles and Subtitles. The titles and subtitles
used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.
3.5 Notices. Unless otherwise provided, any notice
required or permitted under this Agreement shall be given in writing and shall
be deemed effectively given upon personal delivery to the party to be notified
or upon delivery by confirmed facsimile transmission, nationally recognized
overnight courier service, or upon deposit with the United States Post Office,
by registered or certified mail, postage prepaid and addressed to the party to
be notified at the address indicated for such party on the signature page or
Schedule A hereof, or at such other address as such party may designate by ten
(10) days' advance written notice to the other parties.
3.6 Expenses. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
3.7 Entire Agreement; Amendments and Waivers. This
Agreement (including the Exhibits hereto, if any) constitutes the full and
entire understanding and agreement among the parties with regard to the subjects
hereof and thereof. Any term of this Agreement may be amended and the observance
of any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the holders of a majority of the Registrable
Securities. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each holder of any Registrable Securities, each future
holder of all such Registrable Securities, and the Company.
3.8 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
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<PAGE> 22
3.9 Aggregation of Stock. All shares of Registrable
Securities held or acquired by affiliated entities or persons shall be
aggregated together for the purpose of determining the availability of any
rights under this Agreement.
3.10 Specific Enforcement. It is agreed and understood
that monetary damages would not adequately compensate an injured Party for the
breach of Sections 2.9 and 2.10 of this Agreement by the Company, that this
Agreement shall be specifically enforceable, and that any breach or threatened
breach of this Agreement shall be the proper subject of a temporary or permanent
injunction or restraining order. Further, the Company hereto waives any claim or
defense that there is an adequate remedy at law for such breach or threatened
breach.
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<PAGE> 23
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
COMPANY:
STANFORD MICRODEVICES, INC.
By: /s/ Robert Van Buskirk
---------------------------------------
Robert Van Buskirk
President and Chief Executive Officer
Address: 522 Almanor Avenue
Sunnyvale, California 94086
SIGNATURE PAGE TO STANFORD MICRODEVICES, INC.
INVESTORS' RIGHTS AGREEMENT
<PAGE> 24
INVESTORS:
SUMMIT VENTURES V, L.P.
By: Summit Partners V, L.P.,
Its General Partner
By: Summit Partners, LLC,
Its General Partner
By: /s/ PETER CHUNG
---------------------------------
Member
SUMMIT V COMPANION FUND, L.P.
By: Summit Partners V, L.P.
Its General Partner
By: Summit Partners, LLC
Its General Partner
By: /s/ PETER CHUNG
---------------------------------
Member
SUMMIT V ADVISORS FUND, L.P.
By: Summit Partners, LLC
Its General Partner
By: /s/ PETER CHUNG
---------------------------------
Member
SUMMIT V ADVISORS FUND (QP), L.P.
By: Summit Partners, LLC
Its General Partner
By: /s/ PETER CHUNG
---------------------------------
Member
SUMMIT INVESTORS III, L.P.
By: /s/ PETER CHUNG
---------------------------------
General Partner
<PAGE> 25
INVESTORS:
Needham Capital SBIC II, L.P.
By: /s/ JOHN MICHAELSON
---------------------------------
John C. Michaelson
General Partner
Needham Capital Partners II (Bermuda), L.P.
By: /s/ JOHN MICHAELSON
---------------------------------
John C. Michaelson
General Partner
<PAGE> 26
SCHEDULE A
SCHEDULE OF INVESTORS
SUMMIT VENTURES V, L.P.
SUMMIT V COMPANION FUND, L.P.
SUMMIT V ADVISORS FUND, L.P.
SUMMIT V ADVISORS FUND (QP), L.P.
SUMMIT INVESTORS III, L.P.
NEEDHAM CAPITAL SBIC II, L.P.
NEEDHAM CAPITAL PARTNERS II (BERMUDA), L.P.
S-1
<PAGE> 1
Exhibit 10.1
STANFORD MICRODEVICES, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of _____
2000 by and between Stanford Microdevices, Inc., a Delaware corporation (the
"Company"), and the indemnitee listed on the signature page hereto
("Indemnitee").
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve the Company and its
related entities;
WHEREAS, in order to induce Indemnitee to continue to provide services
to the Company, the Company wishes to provide for the indemnification of, and
the advancement of expenses to, Indemnitee to the maximum extent permitted by
law;
WHEREAS, the Company and Indemnitee recognize the continued difficulty
in obtaining liability insurance for the Company's directors, officers,
employees, agents and fiduciaries, the significant increases in the cost of such
insurance and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited;
WHEREAS, the Company and Indemnitee desire to continue to have in place
the additional protection provided by an indemnification agreement and to
provide indemnification and advancement of expenses to the Indemnitee to the
maximum extent permitted by Delaware law; and
WHEREAS, in view of the considerations set forth above, the Company and
Indemnitee desire to amend and restate any prior indemnification between the
Company and Indemnitee;
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Certain Definitions.
(a) "Change in Control" shall mean, and shall be deemed to have
occurred if, on or after the date of this Agreement, (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended), other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
owned directly or indirectly by the stockholders of the Company in substantially
the same
<PAGE> 2
proportions as their ownership of stock of the Company, becomes the "beneficial
owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing more than fifty percent (50%) of the
total voting power represented by the Company's then outstanding Voting
Securities, (ii) during any period of two (2) consecutive years, individuals who
at the beginning of such period constitute the Board of Directors of the Company
and any new director whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least two
thirds (2/3) of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof,
or (iii) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation other than a merger or consolidation
which would result in the Voting Securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into Voting Securities of the surviving
entity) at least eighty percent (80%) of the total voting power represented by
the Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one (1) transaction or a
series of related transactions) all or substantially all of the Company's
assets.
(b) "Claim" shall mean with respect to a Covered Event: any
threatened, pending or completed action, suit, proceeding or alternative dispute
resolution mechanism, or any hearing, inquiry or investigation that Indemnitee
in good faith believes might lead to the institution of any such action, suit,
proceeding or alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other.
(c) References to the "Company" shall include, in addition to
Stanford Microdevices, Inc., any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger to which
Stanford Microdevices, Inc. (or any of its wholly owned subsidiaries) is a party
which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees, agents or
fiduciaries, so that if Indemnitee is or was a director, officer, employee,
agent or fiduciary of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee, agent
or fiduciary of another corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise, Indemnitee shall stand in the same
position under the provisions of this Agreement with respect to the resulting or
surviving corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(d) "Covered Event" shall mean any event or occurrence related to
the fact that Indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company, or any subsidiary of the Company, or is or was serving
at the request of the Company as a director, officer, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action or inaction on the part of Indemnitee
while serving in such capacity.
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<PAGE> 3
(e) "Expenses" shall mean any and all expenses (including attorneys'
fees and all other costs, expenses and obligations incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, to be a witness in or to participate in, any
action, suit, proceeding, alternative dispute resolution mechanism, hearing,
inquiry or investigation), judgments, fines, penalties and amounts paid in
settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld), actually and reasonably incurred,
of any Claim and any federal, state, local or foreign taxes imposed on the
Indemnitee as a result of the actual or deemed receipt of any payments under
this Agreement.
(f) "Expense Advance" shall mean a payment to Indemnitee pursuant to
Section 3 of Expenses in advance of the settlement of or final judgement in any
action, suit, proceeding or alternative dispute resolution mechanism, hearing,
inquiry or investigation which constitutes a Claim.
(g) "Independent Legal Counsel" shall mean an attorney or firm of
attorneys, selected in accordance with the provisions of Section 2(d) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three (3) years (other than with respect to matters concerning
the rights of Indemnitee under this Agreement, or of other indemnitees under
similar indemnity agreements).
(h) References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on
Indemnitee with respect to an employee benefit plan; and references to "serving
at the request of the Company" shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves
services by, such director, officer, employee, agent or fiduciary with respect
to an employee benefit plan, its participants or its beneficiaries; and if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in the interest of the participants and beneficiaries of an employee benefit
plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the
best interests of the Company" as referred to in this Agreement.
(i) "Reviewing Party" shall mean, subject to the provisions of
Section 2(d), any person or body appointed by the Board of Directors in
accordance with applicable law to review the Company's obligations hereunder and
under applicable law, which may include a member or members of the Company's
Board of Directors, Independent Legal Counsel or any other person or body not a
party to the particular Claim for which Indemnitee is seeking indemnification.
(j) "Section" refers to a section of this Agreement unless otherwise
indicated.
(k) "Voting Securities" shall mean any securities of the Company
that vote generally in the election of directors.
2. Indemnification.
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<PAGE> 4
(a) Indemnification of Expenses. Subject to the provisions of
Section 2(b) below, the Company shall indemnify Indemnitee for Expenses to the
fullest extent permitted by law if Indemnitee was or is or becomes a party to or
witness or other participant in, or is threatened to be made a party to or
witness or other participant in, any Claim (whether by reason of or arising in
part out of a Covered Event), including all interest, assessments and other
charges paid or payable in connection with or in respect of such Expenses.
(b) Review of Indemnification Obligations. Notwithstanding the
foregoing, in the event any Reviewing Party shall have determined (in a written
opinion, in any case in which Independent Legal Counsel is the Reviewing Party)
that Indemnitee is not entitled to be indemnified hereunder under applicable
law, (i) the Company shall have no further obligation under Section 2(a) to make
any payments to Indemnitee not made prior to such determination by such
Reviewing Party, and (ii) the Company shall be entitled to be reimbursed by
Indemnitee (who hereby agrees to reimburse the Company) for all Expenses
theretofore paid in indemnifying Indemnitee; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee is entitled to
be indemnified hereunder under applicable law, any determination made by any
Reviewing Party that Indemnitee is not entitled to be indemnified hereunder
under applicable law shall not be binding and Indemnitee shall not be required
to reimburse the Company for any Expenses theretofore paid in indemnifying
Indemnitee until a final judicial determination is made with respect thereto (as
to which all rights of appeal therefrom have been exhausted or lapsed).
Indemnitee's obligation to reimburse the Company for any Expenses shall be
unsecured and no interest shall be charged thereon.
(c) Indemnitee Rights on Unfavorable Determination; Binding Effect.
If any Reviewing Party determines that Indemnitee substantively is not entitled
to be indemnified hereunder in whole or in part under applicable law, Indemnitee
shall have the right to commence litigation seeking an initial determination by
the court or challenging any such determination by such Reviewing Party or any
aspect thereof, including the legal or factual bases therefor, and, subject to
the provisions of Section 15, the Company hereby consents to service of process
and to appear in any such proceeding. Absent such litigation, any determination
by any Reviewing Party shall be conclusive and binding on the Company and
Indemnitee.
(d) Selection of Reviewing Party; Change in Control. If there has
not been a Change in Control, any Reviewing Party shall be selected by the Board
of Directors, and if there has been such a Change in Control (other than a
Change in Control which has been approved by a majority of the Company's Board
of Directors who were directors immediately prior to such Change in Control),
any Reviewing Party with respect to all matters thereafter arising concerning
the rights of Indemnitee to indemnification of Expenses under this Agreement or
any other agreement or under the Company's Certificate of Incorporation or
Bylaws as now or hereafter in effect, or under any other applicable law, if
desired by Indemnitee, shall be Independent Legal Counsel selected by Indemnitee
and approved by the Company (which approval shall not be unreasonably withheld).
Such counsel, among other things, shall render its written opinion to the
Company and Indemnitee as to whether and to what extent Indemnitee would be
entitled to be indemnified hereunder under
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<PAGE> 5
applicable law and the Company agrees to abide by such opinion. The Company
agrees to pay the reasonable fees of the Independent Legal Counsel referred to
above and to indemnify fully such counsel against any and all expenses
(including attorneys' fees), claims, liabilities and damages arising out of or
relating to this Agreement or its engagement pursuant hereto. Notwithstanding
any other provision of this Agreement, the Company shall not be required to pay
Expenses of more than one Independent Legal Counsel in connection with all
matters concerning a single Indemnitee, and such Independent Legal Counsel shall
be the Independent Legal Counsel for any or all other Indemnitees unless (i) the
Company otherwise determines or (ii) any Indemnitee shall provide a written
statement setting forth in detail a reasonable objection to such Independent
Legal Counsel representing other Indemnitees.
(e) Mandatory Payment of Expenses. Notwithstanding any other
provision of this Agreement other than Section 10 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
Claim, Indemnitee shall be indemnified against all Expenses incurred by
Indemnitee in connection therewith.
3. Expense Advances.
(a) Obligation to Make Expense Advances. Upon receipt of a written
undertaking by or on behalf of the Indemnitee to repay such amounts if it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
therefor by the Company, the Company shall make Expense Advances to Indemnitee.
(b) Form of Undertaking. Any written undertaking by the Indemnitee
to repay any Expense Advances hereunder shall be unsecured and no interest shall
be charged thereon.
(c) Determination of Reasonable Expense Advances. The parties agree
that for the purposes of any Expense Advance for which Indemnitee has made
written demand to the Company in accordance with this Agreement, all Expenses
included in such Expense Advance that are certified by affidavit of Indemnitee's
counsel as being reasonable shall be presumed conclusively to be reasonable.
4. Procedures for Indemnification and Expense Advances.
(a) Timing of Payments. All payments of Expenses (including without
limitation Expense Advances) by the Company to the Indemnitee pursuant to this
Agreement shall be made to the fullest extent permitted by law as soon as
practicable after written demand by Indemnitee therefor is presented to the
Company, but in no event later than forty-five (45) business days after such
written demand by Indemnitee is presented to the Company, except in the case of
Expense Advances, which shall be made no later than twenty (20) business days
after such written demand by Indemnitee is presented to the Company.
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<PAGE> 6
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified or Indemnitee's
right to receive Expense Advances under this Agreement, give the Company notice
in writing as soon as practicable of any Claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the
Company shall be directed to the Chief Executive Officer of the Company at the
address shown on the signature page of this Agreement (or such other address as
the Company shall designate in writing to Indemnitee). In addition, Indemnitee
shall give the Company such information and cooperation as it may reasonably
require and as shall be within Indemnitee's power.
(c) No Presumptions; Burden of Proof. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by this
Agreement or applicable law. In addition, neither the failure of any Reviewing
Party to have made a determination as to whether Indemnitee has met any
particular standard of conduct or had any particular belief, nor an actual
determination by any Reviewing Party that Indemnitee has not met such standard
of conduct or did not have such belief, prior to the commencement of legal
proceedings by Indemnitee to secure a judicial determination that Indemnitee
should be indemnified under this Agreement or applicable law, shall be a defense
to Indemnitee's claim or create a presumption that Indemnitee has not met any
particular standard of conduct or did not have any particular belief. In
connection with any determination by any Reviewing Party or otherwise as to
whether the Indemnitee is entitled to be indemnified hereunder, the burden of
proof shall be on the Company to establish that Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 4(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Claim in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be
obligated hereunder to provide indemnification for or make any Expense Advances
with respect to the Expenses of any Claim, the Company, if appropriate, shall be
entitled to assume the defense of such Claim with counsel approved by Indemnitee
(which approval shall not be unreasonably withheld) upon the delivery to
Indemnitee of written notice of the Company's election to do so. After delivery
of such notice, approval of such counsel by Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees or expenses of separate counsel subsequently employed by
or on behalf of Indemnitee with respect to the same Claim; provided that, (i)
Indemnitee shall have the right to employ Indemnitee's separate counsel in any
such Claim at Indemnitee's expense and (ii) if (A) the employment of separate
counsel by
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<PAGE> 7
Indemnitee has been previously authorized by the Company, (B) Indemnitee shall
have reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of any such defense, or (C) the Company
shall not continue to retain such counsel to defend such Claim, then the fees
and expenses of Indemnitee's separate counsel shall be Expenses for which
Indemnitee may receive indemnification or Expense Advances hereunder.
5. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. The Company hereby agrees to indemnify the Indemnitee to
the fullest extent permitted by law, notwithstanding that such indemnification
is not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its board of directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 10(a) hereof.
(b) Nonexclusivity. The indemnification and the payment of Expense
Advances provided by this Agreement shall be in addition to any rights to which
Indemnitee may be entitled under the Company's Certificate of Incorporation, its
Bylaws, any other agreement, any vote of stockholders or disinterested
directors, the General Corporation Law of the State of Delaware, or otherwise.
The indemnification and the payment of Expense Advances provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though subsequent thereto
Indemnitee may have ceased to serve in such capacity.
6. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation, Bylaws or otherwise) of the amounts otherwise payable hereunder.
7. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
8. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge
that in certain instances, federal law or applicable public policy may prohibit
the Company from indem-
-7-
<PAGE> 8
nifying its directors, officers, employees, agents or fiduciaries under this
Agreement or otherwise. Indemnitee understands and acknowledges that the Company
has undertaken or may be required in the future to undertake with the Securities
and Exchange Commission to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
9. Liability Insurance. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are provided to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
10. Exceptions. Notwithstanding any other provision of this Agreement,
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for
Expenses resulting from acts, omissions or transactions for which Indemnitee is
prohibited from receiving indemnification under this Agreement or applicable
law; provided, however, that notwithstanding any limitation set forth in this
Section 10(a) regarding the Company's obligation to provide indemnification,
Indemnitee shall be entitled under Section 3 to receive Expense Advances
hereunder with respect to any such Claim unless and until a court having
jurisdiction over the Claim shall have made a final judicial determination (as
to which all rights of appeal therefrom have been exhausted or lapsed) that
Indemnitee has engaged in acts, omissions or transactions for which Indemnitee
is prohibited from receiving indemnification under this Agreement or applicable
law.
(b) Claims Initiated by Indemnitee. To indemnify or make Expense
Advances to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, counterclaim or crossclaim, except (i)
with respect to actions or proceedings brought to establish or enforce a right
to indemnification under this Agreement or any other agreement or insurance
policy or under the Company's Certificate of Incorporation or Bylaws now or
hereafter in effect relating to Claims for Covered Events, (ii) in specific
cases if the Board of Directors has approved the initiation or bringing of such
Claim, or (iii) as otherwise required under Section 145 of the Delaware General
Corporation Law, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification or insurance recovery, as the case may be.
(c) Lack of Good Faith. To indemnify Indemnitee for any Expenses
incurred by the Indemnitee with respect to any action instituted (i) by
Indemnitee to enforce or interpret this Agreement, if a court having
jurisdiction over such action determines as provided in Section 13 that each of
the material assertions made by the Indemnitee as a basis for such action was
not made in good faith or was frivolous, or (ii) by or in the name of the
Company to enforce or interpret this Agreement, if a court having jurisdiction
over such action determines as provided in Section 13 that
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<PAGE> 9
each of the material defenses asserted by Indemnitee in such action was made in
bad faith or was frivolous.
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute; provided, however, that
notwithstanding any limitation set forth in this Section 10(d) regarding the
Company's obligation to provide indemnification, Indemnitee shall be entitled
under Section 3 to receive Expense Advances hereunder with respect to any such
Claim unless and until a court having jurisdiction over the Claim shall have
made a final judicial determination (as to which all rights of appeal therefrom
have been exhausted or lapsed) that Indemnitee has violated said statute.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs and
personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect, and whether by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part, of
the business or assets of the Company, by written agreement in form and
substance satisfactory to Indemnitee, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place. This Agreement
shall continue in effect regardless of whether Indemnitee continues to serve as
a director, officer, employee, agent or fiduciary (as applicable) of the Company
or of any other enterprise at the Company's request.
13. Expenses Incurred in Action Relating to Enforcement or
Interpretation. In the event that any action is instituted by Indemnitee under
this Agreement or under any liability insurance policies maintained by the
Company to enforce or interpret any of the terms hereof or thereof, Indemnitee
shall be entitled to be indemnified for all Expenses incurred by Indemnitee with
respect to such action (including without limitation attorneys' fees),
regardless of whether Indemnitee is ultimately successful in such action, unless
as a part of such action a court having jurisdiction over such action makes a
final judicial determination (as to which all rights of appeal therefrom have
been exhausted or lapsed) that each of the material assertions made by
Indemnitee as a basis for such action was not made in good faith or was
frivolous; provided, however, that until such final judicial determination is
made, Indemnitee shall be entitled under Section 3 to receive payment of Expense
Advances hereunder with respect to such action. In the event of an action
instituted by or in the name of the Company under this Agreement to enforce or
interpret any of the terms of this Agreement, Indemnitee shall be entitled to be
indemnified for all Expenses incurred by Indemnitee in defense of such action
(including without limitation costs and expenses incurred with respect to
Indemnitee's counterclaims and cross-claims made in such action), unless as a
part of such action a
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<PAGE> 10
court having jurisdiction over such action makes a final judicial determination
(as to which all rights of appeal therefrom have been exhausted or lapsed) that
each of the material defenses asserted by Indemnitee in such action was made in
bad faith or was frivolous; provided, however, that until such final judicial
determination is made, Indemnitee shall be entitled under Section 3 to receive
payment of Expense Advances hereunder with respect to such action.
14. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and signed for by the party addressed, on the date of such
delivery, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third (3rd) business day after the date postmarked.
Addresses for notice to either party are as shown on the signature page of this
Agreement, or as subsequently modified by written notice.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including without limitation each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement, and all rights, remedies,
liabilities, powers and duties of the parties to this Agreement, shall be
governed by and construed in accordance with the laws of the State of Delaware
without regard to principles of conflicts of laws.
18. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless it is in writing
signed by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed to be or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver.
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<PAGE> 11
20. Integration and Entire Agreement. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.
STANFORD MICRODEVICES, INC.
By:
----------------------------
Name:
-------------------------
Title:
------------------------
Address: Stanford Microdevices, Inc.
522 Almanor Avenue
Sunnyvale, CA 94086
AGREED TO AND ACCEPTED
--------------------------
(Signature)
--------------------------
(Print Name)
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<PAGE> 1
EXHIBIT 10.2
STANFORD MICRODEVICES, INC.
CHANGE OF CONTROL SEVERANCE AGREEMENT
This Change of Control Severance Agreement (the "Agreement") is made and
entered into effective as of November 23, 1998 (the "Effective Date"), by and
between Guy Krevet (the "Employee") and Stanford Microdevices, Inc., a Delaware
corporation (the "Company"). Certain capitalized terms used in this Agreement
are defined in Section 1 below.
R E C I T A L S
A. It is expected that the Company from time to time will consider the
possibility of a Change of Control. The Board of Directors of the Company (the
"Board") recognizes that such consideration can be a distraction to the Employee
and can cause the Employee to consider alternative employment opportunities.
B. The Board believes that it is in the best interests of the Company and
its shareholders to provide the Employee with an incentive to continue his
employment and to maximize the value of the Company upon a Change of Control for
the benefit of its shareholders.
C. In order to provide the Employee with enhanced financial security and
sufficient encouragement to remain with the Company notwithstanding the
possibility of a Change of Control, the Board believes that it is imperative to
provide the Employee with certain severance benefits upon the Employee's
termination of employment following a Change of Control.
AGREEMENT
In consideration of the mutual covenants herein contained and the continued
employment of Employee by the Company, the parties agree as follows:
1. Definition of Terms. The following terms referred to in this Agreement
shall have the following meanings:
(a) Cause. "Cause" shall mean (i) any act of personal dishonesty
taken by the Employee in connection with his responsibilities as an employee
which is intended to result in substantial personal enrichment of the Employee,
(ii) Employee's conviction of a felony which the Board reasonably believes has
had or will have a material detrimental effect on the Company's reputation or
business, (iii) a willful act by the Employee which constitutes misconduct and
is injurious to the Company, and (iv) continued willful violations by the
Employee of the Employee's obligations to the Company after there has been
delivered to the Employee a written demand for performance from the Company
which describes the basis for the Company's belief that the Employee has not
substantially performed his duties.
<PAGE> 2
(b) Change of Control. "Change of Control" shall mean the occurrence
of any of the following events:
(i) the approval by shareholders of the Company of a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation;
(ii) any approval by the shareholders of the Company of a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets;
or
(iii) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) becoming the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 50% or more of the total
voting power represented by the Company's then outstanding voting securities;
provided however that this section 1(b)(iii) shall not apply to any person or
persons who, either individually or jointly, on the date of this Agreement
beneficially owned securities of the Company representing 50% or more of the
total voting power represented by the Company's then outstanding voting
securities.
(c) Compensation Continuation Period. "Compensation Continuation
Period" shall mean the period of time commencing with termination of the
Employee's employment as a result of Involuntary Termination at anytime within
twelve (12) months after a Change of Control and ending with the earlier to
occur of (1) the expiration of six (6)] months following the date of the
Employee's termination, or (2) the date the Employee obtains full-time
employment in a senior management position with a subsequent employer.
(d) Involuntary Termination. "Involuntary Termination" shall mean (i)
without the Employee's express written consent, a significant reduction of the
Employee's duties, position or responsibilities relative to the Employee's
duties, position or responsibilities in effect immediately prior to such
reduction, or the removal of the Employee from such position, duties and
responsibilities, unless the Employee is provided with comparable duties,
position and responsibilities; provided, however, that a reduction in duties,
position or responsibilities solely by virtue of the Company being acquired and
made part of a larger entity (as, for example, when the Chief Financial Officer
of the Company remains as such following a Change of Control but is not made the
Chief Financial Officer of the acquiring corporation) shall not constitute an
"Involuntary Termination;" (ii) without the Employee's express written consent,
a substantial reduction, without good business reasons, of the facilities and
perquisites (including office space and location) available to the Employee
immediately prior to such reduction; (iii) a reduction by the Company of the
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<PAGE> 3
Employee's base salary as in effect immediately prior to such reduction; (iv) a
material reduction by the Company in the kind or level of employee benefits to
which the Employee is entitled immediately prior to such reduction with the
result that the Employee's overall benefits package is significantly reduced;
(v) without the Employee's express written consent, the relocation of the
Employee to a facility or a location more than fifty (50) miles from his current
location; (vi) any purported termination of the Employee by the Company which is
not effected for Cause or for which the grounds relied upon are not valid; or
(vii) the failure of the Company to obtain the assumption of this Agreement by
any successors contemplated in Section 6 below.
(e) Termination Date. "Termination Date" shall mean the effective
date of any notice of termination delivered by one party to the other hereunder.
2. Term of Agreement. This Agreement shall terminate upon the date that
all obligations of the parties hereto under this Agreement have been satisfied.
3. At-Will Employment. The Company and the Employee acknowledge that the
Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason, the
Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
established under the Company's then existing employee benefit plans or policies
at the time of termination.
4. Change of Control and Severance Benefits.
(a) Option Acceleration Upon a Change of Control. Upon a Change of
Control, the vesting and exercisability of each option granted to the Employee
by the Company (the "Options") shall automatically accelerate in full; provided,
however, that if it is determined by the Company's independent public
accountants that such acceleration would preclude accounting for the Change of
Control as a pooling of interests for financial accounting purposes, and it is a
condition to the closing of the Change of Control that the transaction be
accounted for as a pooling of interests, then the vesting and exercisability of
the Options shall not accelerate pursuant to this Section 4(a).
(b) Termination Following A Change of Control.
(i) Severance Payments. If the Employee's employment with the
Company terminates as a result of an Involuntary Termination at any time within
twelve (12) months after a Change of Control, then the Employee shall be
entitled to receive continuing payments of severance pay during the Compensation
Continuation Period at a rate equal to the Employee's base salary (as in effect
immediately prior to the Change of Control). Such severance payments shall be
paid in accordance with the Company's normal payroll practices. In addition,
during the Compensation Continuation Period, the Company shall continue to make
available to the Employee and Employee's spouse and dependents covered under any
group health plans or life insurance plans of the Company on the date of such
termination of employment, all group health, life and other
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<PAGE> 4
similar insurance plans in which Employee or such Covered Dependents participate
on the date of the Employee's termination.
(ii) Other Termination. If the Employee's employment with the
Company terminates other than as a result of an Involuntary Termination at any
time within twelve (12) months after a Change of Control, then the Employee
shall not be entitled to receive severance or other benefits hereunder, but may
be eligible for those benefits (if any) as may then be established under the
Company's then existing severance and benefits plans and policies at the
Termination Date.
(c) Termination Apart from a Change of Control. If the Employee's
employment with the Company terminates for any or no reason other than within
twelve (12) months following a Change of Control, then the Employee shall not be
entitled to receive severance or other benefits hereunder, but may be eligible
for those benefits (if any) as may then be established under the Company's then
existing severance and benefits plans and policies at the time of such
Disability or death.
(d) Accrued Wages and Vacation; Expenses. Without regard to the
reason for, or the timing of, Employee's termination of employment: (i) the
Company shall pay the Employee any unpaid base salary due for periods prior to
the Termination Date; (ii) the Company shall pay the Employee all of the
Employee's accrued and unused vacation through the Termination Date; and (iii)
following submission of proper expense reports by the Employee, the Company
shall reimburse the Employee for all expenses reasonably and necessarily
incurred by the Employee in connection with the business of the Company prior to
the Termination Date. These payments shall be made promptly upon termination and
within the period of time mandated by law.
5. Limitation on Payments. In the event that the severance and other
benefits provided for in this Agreement or otherwise payable to the Employee (i)
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for this
Section, would be subject to the excise tax imposed by Section 4999 of the Code,
then the Employee's severance benefits under this Agreement shall be payable to
such lesser amount which would result in no portion of such severance benefits
being subject to the excise tax under Section 4999 of the Code. Unless the
Company and the Employee otherwise agree in writing, any determination required
under this Section shall be made in writing by the Company's independent public
accountants (the "Accountants"), whose determination shall be conclusive and
binding upon the Employee and the Company for all purposes. For purposes of
making the calculations required by this Section, the Accountants may make
reasonable assumptions and approximations concerning applicable taxes and may
rely on reasonable, good faith interpretations concerning the application of
Section 280G and 4999 of the Code. The Company and the Employee shall furnish to
the Accountants such information and documents as the Accountants may reasonably
request in order to make a determination under this Section. The Company shall
bear all costs the Accountants may reasonably incur in connection with any
calculations contemplated by this Section.
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<PAGE> 5
Limitation on Payments. In the event that the benefits provided for in the
Agreement, when aggregated with any other payments or benefits received by the
Employee, would (i) constitute "parachute payments" within the meaning of
Section 280G of the Code, and (ii) would be subject to the excise tax imposed by
Section 4999 of the Code ("the Excise Tax"), then the Employee's benefits
hereunder shall be either
(a) delivered in full, or
(b) delivered as to such lesser extent which would result in no
portion of such benefits being subject to the Excise Tax,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the Excise Tax, results in the receipt by the
Employee on an after-tax basis, of the greatest amount of benefits,
notwithstanding that all or some portion of such benefits may be taxable under
Section 4999 of the Code. Unless the Company and the Employee otherwise agree in
writing, any determination required under this paragraph shall be made in
writing by the Company's independent public accountants (the "Accountants")
whose determination shall be conclusive and binding upon the Employee and the
Company for all purposes. For purposes of making the calculations required by
this paragraph, the Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of Sections 280G and 4999 of
the Code. The Company and the Employee shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
make a determination under this paragraph. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this paragraph.
6. Successors.
(a) Company's Successors. Any successor to the Company (whether
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the Company's obligations under this Agreement and
agree expressly to perform the Company's obligations under this Agreement in the
same manner and to the same extent as the Company would be required to perform
such obligations in the absence of a succession. For all purposes under this
Agreement, the term "Company" shall include any successor to the Company's
business and/or assets which executes and delivers the assumption agreement
described in this subsection (a) or which becomes bound by the terms of this
Agreement by operation of law.
(b) Employee's Successors. Without the written consent of the
Company, Employee shall not assign or transfer this Agreement or any right or
obligation under this Agreement to any other person or entity. Notwithstanding
the foregoing, the terms of this Agreement and all rights of Employee hereunder
shall inure to the benefit of, and be enforceable by, Employee's
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<PAGE> 6
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
7. Notices.
(a) General. Notices and all other communications contemplated by
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid. In the case of the Employee,
mailed notices shall be addressed to him at the home address which he most
recently communicated to the Company in writing. In the case of the Company,
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Secretary.
(b) Notice of Termination. Any termination by the Company for Cause
or by the Employee as a result of a voluntary resignation or an Involuntary
Termination shall be communicated by a notice of termination to the other party
hereto given in accordance with this Section. Such notice shall indicate the
specific termination provision in this Agreement relied upon, shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination under the provision so indicated, and shall specify the Termination
Date (which shall be not more than thirty (30) days after the giving of such
notice). The failure by the Employee to include in the notice any fact or
circumstance which contributes to a showing of Involuntary Termination shall not
waive any right of the Employee hereunder or preclude the Employee from
asserting such fact or circumstance in enforcing his rights hereunder.
8. Arbitration.
(a) Any dispute or controversy arising out of, relating to, or in
connection with this Agreement, or the interpretation, validity, construction,
performance, breach, or termination thereof, shall be settled by binding
arbitration to be held in San Francisco, California, in accordance with the
National Rules for the Resolution of Employment Disputes then in effect of the
American Arbitration Association (the "Rules"). The arbitrator may grant
injunctions or other relief in such dispute or controversy. The decision of the
arbitrator shall be final, conclusive and binding on the parties to the
arbitration. Judgment may be entered on the arbitrator's decision in any court
having jurisdiction.
(b) The arbitrator(s) shall apply California law to the merits of any
dispute or claim, without reference to conflicts of law rules. The arbitration
proceedings shall be governed by federal arbitration law and by the Rules,
without reference to state arbitration law. Employee hereby consents to the
personal jurisdiction of the state and federal courts located in California for
any action or proceeding arising from or relating to this Agreement or relating
to any arbitration in which the parties are participants.
-6-
<PAGE> 7
(c) The Company and Employee shall each pay one-half of the costs and
expenses of such arbitration, and each shall separately pay its counsel fees and
expenses.
(d) Employee understands that nothing in this Section modifies
Employee's at-will employment status. Either Employee or the Company can
terminate the employment relationship at any time, with or without cause.
(e) EMPLOYEE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES
ARBITRATION. EMPLOYEE UNDERSTANDS THAT SUBMITTING ANY CLAIMS ARISING OUT OF,
RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION,
VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDING
ARBITRATION, CONSTITUTES A WAIVER OF EMPLOYEE'S RIGHT TO A JURY TRIAL AND
RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE
EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING
CLAIMS:
(i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT;
BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD
FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL
INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION;
NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC
ADVANTAGE; AND DEFAMATION.
(ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR
MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS
ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT
ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR
STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR CODE
SECTION 201, et seq;
(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND
REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
9. Miscellaneous Provisions.
(a) No Duty to Mitigate. The Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement, nor shall any
such payment be reduced by any earnings that the Employee may receive from any
other source.
(b) Waiver. No provision of this Agreement may be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by the
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<PAGE> 8
Employee and by an authorized officer of the Company (other than the Employee).
No waiver by either party of any breach of, or of compliance with, any condition
or provision of this Agreement by the other party shall be considered a waiver
of any other condition or provision or of the same condition or provision at
another time.
(c) Integration. This Agreement and the stock option agreements
representing the Options represent the entire agreement and understanding
between the parties as to the subject matter herein and supersede all prior or
contemporaneous agreements, whether written or oral.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the internal substantive
laws, but not the conflicts of law rules, of the State of California.
(e) Severability. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision hereof, which shall remain in full force and effect.
(f) Employment Taxes. All payments made pursuant to this Agreement
shall be subject to withholding of applicable income and employment taxes.
(g) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year first
above written.
COMPANY: STANFORD MICRODEVICES, INC.
By: /s/ JOHN OCAMPO
------------------------------------------
Title:
---------------------------------------
EMPLOYEE: /s/ GUY KREVET
---------------------------------------------
-8-
<PAGE> 1
EXHIBIT 10.3
STANFORD MICRODEVICES, INC.
CHANGE OF CONTROL SEVERANCE AGREEMENT
This Change of Control Severance Agreement (the "Agreement") is made and
entered into effective as of December 1, 1998 (the "Effective Date"), by and
between Gerald Quinnell (the "Employee") and Stanford Microdevices, Inc., a
Delaware corporation (the "Company"). Certain capitalized terms used in this
Agreement are defined in Section 1 below.
R E C I T A L S
A. It is expected that the Company from time to time will consider the
possibility of a Change of Control. The Board of Directors of the Company (the
"Board") recognizes that such consideration can be a distraction to the Employee
and can cause the Employee to consider alternative employment opportunities.
B. The Board believes that it is in the best interests of the Company and
its shareholders to provide the Employee with an incentive to continue his
employment and to maximize the value of the Company upon a Change of Control for
the benefit of its shareholders.
C. In order to provide the Employee with enhanced financial security and
sufficient encouragement to remain with the Company notwithstanding the
possibility of a Change of Control, the Board believes that it is imperative to
provide the Employee with certain severance benefits upon the Employee's
termination of employment following a Change of Control.
AGREEMENT
In consideration of the mutual covenants herein contained and the continued
employment of Employee by the Company, the parties agree as follows:
1. Definition of Terms. The following terms referred to in this Agreement
shall have the following meanings:
(a) Cause. "Cause" shall mean (i) any act of personal dishonesty
taken by the Employee in connection with his responsibilities as an employee
which is intended to result in substantial personal enrichment of the Employee,
(ii) Employee's conviction of a felony which the Board reasonably believes has
had or will have a material detrimental effect on the Company's reputation or
business, (iii) a willful act by the Employee which constitutes misconduct and
is injurious to the Company, and (iv) continued willful violations by the
Employee of the Employee's obligations to the Company after there has been
delivered to the Employee a written demand for performance from the Company
which describes the basis for the Company's belief that the Employee has not
substantially performed his duties.
(b) Change of Control. "Change of Control" shall mean the occurrence
of any of the following events:
<PAGE> 2
(i) the approval by shareholders of the Company of a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation;
(ii) any approval by the shareholders of the Company of a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets;
or
(iii) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) becoming the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 50% or more of the total
voting power represented by the Company's then outstanding voting securities;
provided however that this section 1(b)(iii) shall not apply to any person or
persons who, either individually or jointly, on the date of this Agreement
beneficially owned securities of the Company representing 50% or more of the
total voting power represented by the Company's then outstanding voting
securities.
(c) Compensation Continuation Period. "Compensation Continuation
Period" shall mean the period of time commencing with termination of the
Employee's employment as a result of Involuntary Termination at anytime within
twelve (12) months after a Change of Control and ending with the earlier to
occur of (1) the expiration of six (6)] months following the date of the
Employee's termination, or (2) the date the Employee obtains full-time
employment in a senior management position with a subsequent employer.
(d) Involuntary Termination. "Involuntary Termination" shall mean (i)
without the Employee's express written consent, a significant reduction of the
Employee's duties, position or responsibilities relative to the Employee's
duties, position or responsibilities in effect immediately prior to such
reduction, or the removal of the Employee from such position, duties and
responsibilities, unless the Employee is provided with comparable duties,
position and responsibilities; provided, however, that a reduction in duties,
position or responsibilities solely by virtue of the Company being acquired and
made part of a larger entity (as, for example, when the Chief Financial Officer
of the Company remains as such following a Change of Control but is not made the
Chief Financial Officer of the acquiring corporation) shall not constitute an
"Involuntary Termination;" (ii) without the Employee's express written consent,
a substantial reduction, without good business reasons, of the facilities and
perquisites (including office space and location) available to the Employee
immediately prior to such reduction; (iii) a reduction by the Company of the
Employee's base salary as in effect immediately prior to such reduction; (iv) a
material reduction by the Company in the kind or level of employee benefits to
which the Employee is entitled immediately prior to such reduction with the
result that the Employee's overall benefits package is significantly reduced;
(v) without the Employee's express written consent, the relocation of the
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<PAGE> 3
Employee to a facility or a location more than fifty (50) miles from his current
location; (vi) any purported termination of the Employee by the Company which is
not effected for Cause or for which the grounds relied upon are not valid; or
(vii) the failure of the Company to obtain the assumption of this Agreement by
any successors contemplated in Section 6 below.
(e) Termination Date. "Termination Date" shall mean the effective
date of any notice of termination delivered by one party to the other hereunder.
2. Term of Agreement. This Agreement shall terminate upon the date that
all obligations of the parties hereto under this Agreement have been satisfied.
3. At-Will Employment. The Company and the Employee acknowledge that the
Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason, the
Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
established under the Company's then existing employee benefit plans or policies
at the time of termination.
4. Change of Control and Severance Benefits.
(a) Option Acceleration Upon a Change of Control. Upon a Change of
Control, the vesting and exercisability of each option granted to the Employee
by the Company (the "Options") shall automatically accelerate in full; provided,
however, that if it is determined by the Company's independent public
accountants that such acceleration would preclude accounting for the Change of
Control as a pooling of interests for financial accounting purposes, and it is a
condition to the closing of the Change of Control that the transaction be
accounted for as a pooling of interests, then the vesting and exercisability of
the Options shall not accelerate pursuant to this Section 4(a).
(b) Termination Following A Change of Control.
(i) Severance Payments. If the Employee's employment with the
Company terminates as a result of an Involuntary Termination at any time within
twelve (12) months after a Change of Control, then the Employee shall be
entitled to receive continuing payments of severance pay during the Compensation
Continuation Period at a rate equal to the Employee's base salary (as in effect
immediately prior to the Change of Control). Such severance payments shall be
paid in accordance with the Company's normal payroll practices. In addition,
during the Compensation Continuation Period, the Company shall continue to make
available to the Employee and Employee's spouse and dependents covered under any
group health plans or life insurance plans of the Company on the date of such
termination of employment, all group health, life and other similar insurance
plans in which Employee or such Covered Dependents participate on the date of
the Employee's termination.
(ii) Other Termination. If the Employee's employment with the
Company terminates other than as a result of an Involuntary Termination at any
time within twelve (12) months after a Change of Control, then the Employee
shall not be entitled to receive severance or
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<PAGE> 4
other benefits hereunder, but may be eligible for those benefits (if any) as may
then be established under the Company's then existing severance and benefits
plans and policies at the Termination Date.
(c) Termination Apart from a Change of Control. If the Employee's
employment with the Company terminates for any or no reason other than within
twelve (12) months following a Change of Control, then the Employee shall not be
entitled to receive severance or other benefits hereunder, but may be eligible
for those benefits (if any) as may then be established under the Company's then
existing severance and benefits plans and policies at the time of such
Disability or death.
(d) Accrued Wages and Vacation; Expenses. Without regard to the
reason for, or the timing of, Employee's termination of employment: (i) the
Company shall pay the Employee any unpaid base salary due for periods prior to
the Termination Date; (ii) the Company shall pay the Employee all of the
Employee's accrued and unused vacation through the Termination Date; and (iii)
following submission of proper expense reports by the Employee, the Company
shall reimburse the Employee for all expenses reasonably and necessarily
incurred by the Employee in connection with the business of the Company prior to
the Termination Date. These payments shall be made promptly upon termination and
within the period of time mandated by law.
5. Limitation on Payments. In the event that the severance and other
benefits provided for in this Agreement or otherwise payable to the Employee (i)
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for this
Section, would be subject to the excise tax imposed by Section 4999 of the Code,
then the Employee's severance benefits under this Agreement shall be payable to
such lesser amount which would result in no portion of such severance benefits
being subject to the excise tax under Section 4999 of the Code. Unless the
Company and the Employee otherwise agree in writing, any determination required
under this Section shall be made in writing by the Company's independent public
accountants (the "Accountants"), whose determination shall be conclusive and
binding upon the Employee and the Company for all purposes. For purposes of
making the calculations required by this Section, the Accountants may make
reasonable assumptions and approximations concerning applicable taxes and may
rely on reasonable, good faith interpretations concerning the application of
Section 280G and 4999 of the Code. The Company and the Employee shall furnish to
the Accountants such information and documents as the Accountants may reasonably
request in order to make a determination under this Section. The Company shall
bear all costs the Accountants may reasonably incur in connection with any
calculations contemplated by this Section.
Limitation on Payments. In the event that the benefits provided for in the
Agreement, when aggregated with any other payments or benefits received by the
Employee, would (i) constitute "parachute payments" within the meaning of
Section 280G of the Code, and (ii) would be subject to the excise tax imposed by
Section 4999 of the Code ("the Excise Tax"), then the Employee's benefits
hereunder shall be either
(a) delivered in full, or
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<PAGE> 5
(b) delivered as to such lesser extent which would result in no
portion of such benefits being subject to the Excise Tax,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the Excise Tax, results in the receipt by the
Employee on an after-tax basis, of the greatest amount of benefits,
notwithstanding that all or some portion of such benefits may be taxable under
Section 4999 of the Code. Unless the Company and the Employee otherwise agree in
writing, any determination required under this paragraph shall be made in
writing by the Company's independent public accountants (the "Accountants")
whose determination shall be conclusive and binding upon the Employee and the
Company for all purposes. For purposes of making the calculations required by
this paragraph, the Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of Sections 280G and 4999 of
the Code. The Company and the Employee shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
make a determination under this paragraph. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this paragraph.
6. Successors.
(a) Company's Successors. Any successor to the Company (whether
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the Company's obligations under this Agreement and
agree expressly to perform the Company's obligations under this Agreement in the
same manner and to the same extent as the Company would be required to perform
such obligations in the absence of a succession. For all purposes under this
Agreement, the term "Company" shall include any successor to the Company's
business and/or assets which executes and delivers the assumption agreement
described in this subsection (a) or which becomes bound by the terms of this
Agreement by operation of law.
(b) Employee's Successors. Without the written consent of the
Company, Employee shall not assign or transfer this Agreement or any right or
obligation under this Agreement to any other person or entity. Notwithstanding
the foregoing, the terms of this Agreement and all rights of Employee hereunder
shall inure to the benefit of, and be enforceable by, Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
7. Notices.
(a) General. Notices and all other communications contemplated by
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid. In the case of the Employee,
mailed notices shall be addressed to him at the home address which he most
recently communicated to the Company in writing. In the case of the Company,
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<PAGE> 6
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Secretary.
(b) Notice of Termination. Any termination by the Company for Cause
or by the Employee as a result of a voluntary resignation or an Involuntary
Termination shall be communicated by a notice of termination to the other party
hereto given in accordance with this Section. Such notice shall indicate the
specific termination provision in this Agreement relied upon, shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination under the provision so indicated, and shall specify the Termination
Date (which shall be not more than thirty (30) days after the giving of such
notice). The failure by the Employee to include in the notice any fact or
circumstance which contributes to a showing of Involuntary Termination shall not
waive any right of the Employee hereunder or preclude the Employee from
asserting such fact or circumstance in enforcing his rights hereunder.
8. Arbitration.
(a) Any dispute or controversy arising out of, relating to, or in
connection with this Agreement, or the interpretation, validity, construction,
performance, breach, or termination thereof, shall be settled by binding
arbitration to be held in San Francisco, California, in accordance with the
National Rules for the Resolution of Employment Disputes then in effect of the
American Arbitration Association (the "Rules"). The arbitrator may grant
injunctions or other relief in such dispute or controversy. The decision of the
arbitrator shall be final, conclusive and binding on the parties to the
arbitration. Judgment may be entered on the arbitrator's decision in any court
having jurisdiction.
(b) The arbitrator(s) shall apply California law to the merits of any
dispute or claim, without reference to conflicts of law rules. The arbitration
proceedings shall be governed by federal arbitration law and by the Rules,
without reference to state arbitration law. Employee hereby consents to the
personal jurisdiction of the state and federal courts located in California for
any action or proceeding arising from or relating to this Agreement or relating
to any arbitration in which the parties are participants.
(c) The Company and Employee shall each pay one-half of the costs and
expenses of such arbitration, and each shall separately pay its counsel fees and
expenses.
(d) Employee understands that nothing in this Section modifies
Employee's at-will employment status. Either Employee or the Company can
terminate the employment relationship at any time, with or without cause.
(e) EMPLOYEE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES
ARBITRATION. EMPLOYEE UNDERSTANDS THAT SUBMITTING ANY CLAIMS ARISING OUT OF,
RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION,
VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDING
ARBITRATION, CONSTITUTES A WAIVER OF EMPLOYEE'S RIGHT TO A JURY TRIAL AND
RELATES TO
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<PAGE> 7
THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE
RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:
(i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT;
BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD
FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL
INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION;
NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC
ADVANTAGE; AND DEFAMATION.
(ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR
MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS
ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT
ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR
STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR CODE
SECTION 201, et seq;
(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND
REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
9. Miscellaneous Provisions.
(a) No Duty to Mitigate. The Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement, nor shall any
such payment be reduced by any earnings that the Employee may receive from any
other source.
(b) Waiver. No provision of this Agreement may be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by the Employee and by an authorized officer of the Company (other
than the Employee). No waiver by either party of any breach of, or of compliance
with, any condition or provision of this Agreement by the other party shall be
considered a waiver of any other condition or provision or of the same condition
or provision at another time.
(c) Integration. This Agreement and the stock option agreements
representing the Options represent the entire agreement and understanding
between the parties as to the subject matter herein and supersede all prior or
contemporaneous agreements, whether written or oral.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the internal substantive
laws, but not the conflicts of law rules, of the State of California.
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<PAGE> 8
(e) Severability. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision hereof, which shall remain in full force and effect.
(f) Employment Taxes. All payments made pursuant to this Agreement
shall be subject to withholding of applicable income and employment taxes.
(g) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year first
above written.
COMPANY: STANFORD MICRODEVICES, INC.
By: /s/ JOHN OCAMPO
------------------------------------------
Title:
---------------------------------------
EMPLOYEE: /s/ GERALD QUINNELL
---------------------------------------------
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<PAGE> 1
Exhibit 10.4
Stanford Microdevices
522 Almanor Ave.
Sunnyvale, CA 94086
408-616-5400
22 October 1999
Thomas J. Scannell
10208 Cass Place
Cupertino, CA 95014
Dear Tom:
I am pleased to offer you the position of Chief Financial Officer (CFO) of
Stanford Microdevices (SMI). In this position you will report to the President
and CEO in the SMI corporate headquarters located in Sunnyvale, CA.
Your responsibilities will include the following:
o FINANCIAL OPERATIONS
- Strategic financial management
- Capital planning and asset management
- Financial control and measurement systems
- Accounting and auditing operations
- Financial reporting
- Tax planning
- Cash and treasury management
o INFORMATION SYSTEMS
o HUMAN RESOURCES
o CORPORATE DEVELOPMENT AND MANAGEMENT SUPPORT
o SPECIAL PROJECTS AS DIRECTED BY THE PRESIDENT AND CEO
<TABLE>
<S> <C> <C>
Your compensation for this position will be:
o BASE SALARY: $175,000 with annual reviews
o INCENTIVE BONUS: Up to 40% annual bonus
o STOCK OPTIONS: 200,000 shares at expected strike price of $1.50
o 401K Eligibility ninety (90) days after start date
o OTHER BENEFITS: Standard executive SMI medical, dental, vacation
benefits
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
Other agreements include:
o Change of Control: In the event that SMI is acquired (>51% change of
control), vesting acceleration for outstanding options
will occur
o Responsibilities: In the event that you are terminated for any reason
other than cause, or in the event that a diminution of
duties occurs for any reason other than cause, you will
receive six months of base salary as compensation
o Air travel: Upon direction from your physician, business class air
travel will be provided by the company for all
business-related travel
</TABLE>
I am confident that you will make a valuable contribution to the future growth
of SMI.
Please sign below as an acceptance of this offer and of the indicated start
date; return a signed copy to me at your earliest convenience. If you have any
questions regarding this offer or any other questions please do not hesitate to
contact me.
Regards,
Robert Van Buskirk
President and Chief Executive Officer
Stanford Microdevices
I accept the terms of this offer letter.
I intend to start on 10-22-99
-----------------------------------
Date
/s/ THOMAS SCANNELL
-----------------------------------
Thomas Scannell
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<PAGE> 1
Exhibit 10.5
Stanford Microdevices
522 Almanor Ave.
Sunnyvale, CA 94086
408-616-5400
November 1, 1999
Dear Mr. Gary Gianatasio,
This is to confirm the verbal offer of the position as Vice President - Wireless
Infrastructure Products Unit of Stanford Microdevices, Inc. In this position you
will report to the COO in the SMI corporate headquarters located in Sunnyvale,
CA.
Your responsibilities will include the following:
GENERAL MANAGEMENT OF WIRELESS BUSINESS UNIT
o Marketing
o Product Marketing
o New Product Planning and Development
o Applications Engineering
o Financial Operations of Business Unit
<TABLE>
<S> <C> <C>
Your compensation is as follows:
o Base salary (annual): $180,000 with annual reviews
o Incentive Bonus (annual): Up to 40%
o Stock Options: 130,000 shares at expected strike price of $1.50
o 401K Eligible on 12/1/99
o Other Benefits: Standard executive SMI medical, dental,
vacation benefits
Other agreements include:
o Change of Control: In the event that SMI is acquired (>51%
change of control), and the acquiring party
does not have an equivalent ISO plan, vesting
acceleration for outstanding options will occur.
o Responsibilities: In the event that you are terminated for any
reason other than cause, or in the event that
a diminution of duties occurs for any reason
other than cause, you will receive four
months of base salary as compensation and
additional one year of options will be
vested.
</TABLE>
I am confident that you will make a valuable contribution to Stanford's success
and I am anxious to have you join our team.
<PAGE> 2
Please sign below as an acceptance of this offer and return a signed copy to me
at your earliest convenience. Please also indicate how soon you can start. If
you have any questions regarding the terms of this offer or any other questions
please contact me directly at 408-616-5401.
Welcome to Stanford Microdevices, Inc.
Sincerely,
Gerald Quinnell
COO
I accept the terms of this offer letter.
I intend to start on 11-24-99
----------------------------------------
Date
/s/ GARY GIANATASIO
----------------------------------------
Gary Gianatasio
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EXHIBIT 10.6
AGREEMENT
This Agreement is made as of the 1st day of December, 1999 by and among
John Ocampo and Susan Ocampo (the "Founders"), Stanford Microdevices, Inc., a
Delaware corporation (the "Company") and at least a majority of the holders of
the Company's Series A Preferred Stock (the "Series A Investors").
WHEREAS, the Series A Investors purchased an aggregate of 5,647,839
shares of Series A Preferred Stock of the Company pursuant to a Series A
Preferred Stock Purchase Agreement dated as of September 30, 1999 (the "Series A
Agreement");
WHEREAS, the Company paid to the holders of record of the Common Stock
of the Company on September 30, 1999, a cash dividend in the amount of
$4,000,000 (the "Dividend");
WHEREAS, pursuant to the Disclosure Schedule attached as Exhibit C to
the Series A Agreement, the Company and the Founders disclosed that the Company
had an obligation to (i) pay the Founders an amount of cash equal to that dollar
amount which would equal the federal and state income taxes payable by the
Founders as a result of the S-corporation earnings of the Company for 1998 and
1999 (the "Original Tax Payment") and (ii) to "gross-up" the Tax Payment for any
taxes payable by the Founders as a result of the receipt of such Tax Payment
(the "Original Gross-Up Amount");
WHEREAS, the Tax Payment and the Gross-Up Amount were to be determined
in the reasonable discretion of Ernst & Young, the Company's auditors (the
"Auditors"); and
WHEREAS, the Auditors have determined the Tax Payment and Gross-Up
Amount and the parties hereto wish to memorialize their agreement to such amount
in writing and to provide for the payment of any taxes due by the Founders as a
result of receipt by the Founders of the Dividend.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, the parties agree as follows:
1. DETERMINATION OF TAX PAYMENT AND GROSS-UP AMOUNT.
(a) Payment of Tax Payment. Based on the Auditors' determination, the
Company, the Founders and the undersigned, on behalf of all Series A Investors,
agree that the Original Tax Payment is equal to $1,371,781, which amount shall
be paid to the Founders by the Company within 30 days following the date of
this Agreement.
(b) Payment of Gross-Up Amount. Based on the Auditors' determination,
the Company, the Founders and the undersigned, on behalf of all Series A
Investors, agree that Original Gross-Up Amount is equal to $1,200,334 which
amount shall be paid to the Founders by the Company within 30 days following the
date of this Agreement.
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(c) Payment of Additional Gross-Up Amount. In addition to the Original
Gross-Up Amount and the Original Tax Payment, the Company, the Founders and the
undersigned, on behalf of all Series A Investors, agree that the Company shall
pay the Founders an additional amount equal to $137,684 which amount represents
the tax due on the taxable portion of the Dividend paid to the Founders (the
"Additional Tax Payment") and an amount equal to $120,476 which amount
represents a "gross-up" for tax purposes of the Additional Tax Payment paid to
the Founders (the "Additional Gross-Up Amount"). The Additional Tax Payment and
Additional Gross-Up Amount shall be paid to the Founders by the Company within
30 days following the date of this Agreement.
(d) Tax Penalty Payment. Based on the Auditor's determination, the
Company, the Founders and the undersigned, on behalf of all Series A Investors,
agree that the Company shall pay within 30 days following the date of this
Agreement, an amount equal to $85,387 which represents late payment penalties
payable by the Founders to taxing authorities, and an amount equal to $74,296
which represents a "gross-up" for tax purposes of these penalties.
(e) Good Faith Estimate. The parties hereto acknowledge that the amounts
payable by the Company to the Founders hereunder are based on certain estimates
used to project the Company's taxable earnings prior to October 1, 1999. The
parties acknowledge that such amounts may need to be adjusted following a final
calculation once the Company's tax returns are prepared and finalized. The
parties agree that the Auditor's final determination after such returns are
filed shall be binding and agree to reimburse the relevant party any overpayment
or pay any additional amounts required.
2. EFFECT ON SERIES A AGREEMENT. The Series A Investors acknowledge and agree
that this Agreement shall modify and update the Disclosure Schedule attached as
Exhibit C to the Series A Agreement, effective as of the date of such Disclosure
Schedule, and the payment of the amounts described above shall not be a basis of
liability of the Company or the Founders under the Series A Agreement.
3. MISCELLANEOUS.
(a) Governing Law; Dispute Resolution; Attorneys' Fees.
(i) This Agreement shall be governed by and construed under the
laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California.
(ii) To the extent that any misunderstanding or dispute cannot
be resolved agreeably in a friendly manner, the dispute will be mediated by a
mutually acceptable mediator to be chosen by the Company and such Founders as
may be involved, within forty-five (45) days after written notice by one of the
parties demanding mediation. No party may unreasonably withhold consent to the
selection of a mediator, however, by mutual agreement the Company and such
Founders as may be involved may postpone mediation until each has completed
specified but limited discovery with respect to a dispute. The parties may also
agree to attempt some other
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form of alternative dispute resolution ("ADR") in lieu of mediation, including
by way of example and without limitation neutral fact-finding or a mini-trial.
Any dispute which the parties cannot resolve through
negotiation, mediation or other form of ADR within six months of the date of the
initial demand for it by one of the parties may then be submitted to the courts
within California for resolution. The use of any ADR procedures will not be
construed under the doctrines of laches, waiver or estoppel to affect adversely
the rights of either party. Nothing in this Section 3 will prevent either party
from resorting to judicial proceedings if (i) good faith efforts to resolve the
dispute under these procedures have been unsuccessful or (ii) interim relief
from a court is necessary to prevent serious and irreparable injury to one party
or to others.
(iii) In the event that any dispute among the parties to this
Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
(b) Amendment. Any provision may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only by the written consent of (i) as to the
Company, only by the Company, (ii) as to each Founder, by such Founder and (iii)
as to the Series A Investors, by a majority of the shares of Common Stock
issuable or issued upon conversion of the Series A Preferred Stock held by such
Series A Investors. Any amendment or waiver effected in accordance with clauses
(i), (ii) and (iii) of this paragraph shall be binding upon the Company, the
Founder in question and the Series A Investors, as the case may be.
(c) Assignment of Rights. This Agreement and the rights and obligations
of the parties hereunder shall inure to benefit of, and be binding upon, the
parties' respective successors, assigns and legal representatives.
(d) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as forth
below their signature on the signature page hereto.
Any party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth above
using any other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail, or electronic mail), but not such
notice, request, demand, claim, or other communication shall be deemed to have
been duly given unless and until it actually is received by the intended
recipient. Any party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other parties notice in the manner herein set forth.
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(e) Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to a party, upon any breach or default of another party
under this Agreement shall impair any such right, power or remedy of the
non-defaulting party nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default therefore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of a party of any breach or default under this Agreement
or any waiver on the part of a party of any provisions or conditions of this
Agreement must be made in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded, shall be cumulative and not
alternative.
(f) Severability. In the event one or more of the provisions of this
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
(g) Counterparts. This Agreement may be executed in one or more
counterparts, including counterparts transmitted by telecopier or facsimile, all
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument. Facsimile copies with signatures of the parties to
this Agreement, or their duly authorized representatives, shall be legally
binding and enforceable. All such facsimile copies are declared as originals and
accordingly admissible in any jurisdiction, tribunal or ADR forum having
jurisdiction over any matter relating to this Agreement.
(h) Entire Agreement. This Agreement constitutes the entire agreement
between the parties relative to the specific subject matter hereof. Any previous
agreement among the parties relative to the specific subject matter hereof is
superseded by this Agreement.
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The foregoing agreement is hereby executed as of the date first above
written.
STANFORD MICRODEVICES, INC.
By: /s/ ROBERT VAN BUSKIRK
---------------------------------
Robert Van Buskirk
President and Chief Executive Officer
FOUNDERS:
/s/ JOHN OCAMPO
-----------------------------------
John Ocampo
Address:
/s/ SUSAN OCAMPO
----------------------------------------
Susan Ocampo
Address:
SERIES A INVESTORS:
INVESTORS:
SUMMIT VENTURES V, L.P.
By: Summit Partners V, L.P.,
Its General Partner
By: Summit Partners, LLC,
Its General Partner
By: /s/ PETER CHUNG
-------------------------------------
Member
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SUMMIT V COMPANION FUND, L.P.
By: Summit Partners V, L.P.
Its General Partner
By: Summit Partners, LLC
Its General Partner
By: /s/ PETER CHUNG
-------------------------------------
Member
SUMMIT V ADVISORS FUND, L.P.
By: Summit Partners, LLC
Its General Partner
By: /s/ PETER CHUNG
-------------------------------------
Member
SUMMIT V ADVISORS FUND (QP), L.P.
By: Summit Partners, LLC
Its General Partner
By: /s/ PETER CHUNG
-------------------------------------
Member
SUMMIT INVESTORS III, L.P.
By: /s/ PETER CHUNG
-------------------------------------
General Partner
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EXHIBIT 10.7
FOUNDRY SERVICES SALE AGREEMENT
A FOUNDRY SERVICE SALE AGREEMENT (hereinafter "Agreement") is entered
into as of August 19, 1998 ("Effective Date") between Stanford Microdevices,
with offices at 522 Almanor Ave., Sunnyvale, CA 94086 (hereinafter "Buyer") and
TRW Inc., a corporation organized in the State of Ohio, U.S.A., acting through
its Space and Electronics Group, with offices at One Space Park, Redondo Beach,
California 90278, U.S.A. (hereinafter "TRW" or "Seller").
WHEREAS, Buyer desires to purchase, and TRW desires to provide the
personnel, material, equipment, services and facilities necessary to perform the
work specified in this Agreement and the parties desire to define the terms and
conditions under which the same will be furnished.
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS AND PRIORITY
1.1 DEFINITIONS: The following words and phrases shall have the meanings set
forth below:
AGREEMENT: This Sale Agreement between TRW and Buyer including
the following Exhibits, attached hereto and made a
part hereof:
EXHIBIT 1A: Statement of Work
EXHIBIT 1B: List of Deliverables, Price, Delivery
Schedule and Buyer's Site
CONTRACT PRICE: Defined in Article 4.1.
DELIVERY DATE(s): Defined in Section 6.1.
MASKSET: The set of plates used to define the
photolithographic pattern of the MMIC design for
semiconductor wafer processing.
MMIC: Monolithic Microwave Integrated Circuit
PRODUCTS: The equipment and materials described in Exhibits
1A
WAFER: The processed GaAs substrate containing Buyer's
designed MMIC's
SERVICES: The services to be provided by TRW under this
Agreement
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SITE: Buyer's facility or other location identified in
Exhibit 1B as the destination to which
transportation is to be arranged for deliverable
items.
TRW PLANT: Each of the factories or establishments of TRW and
its suppliers located in the United States.
1.2 PRIORITY: In case of any inconsistencies between this Agreement and
any of the Exhibits, the text of this Agreement shall prevail.
ARTICLE 2
SUBJECT MATTER OF SALE
2.1 SUPPLY: TRW hereby agrees to sell to Buyer and Buyer hereby agrees to buy
from TRW, on and subject to the terms and conditions contained in this
Agreement, the Products and Services listed in Exhibit 1A.
2.1 REQUIREMENTS: Buyer shall buy from TRW no less than the minimum quantities
of Product as set forth in Exhibit 1B.
ARTICLE 3
EFFECTIVE DATE AND TERM
This Agreement shall be effective and binding on the parties as of the first
date noted above when signed by Buyer and TRW (the "Effective Date") and shall
remain in force and effect until 31 August 2000. Articles 12 and 15 hereof shall
survive termination or completion of this Agreement.
ARTICLE 4
CONTRACT PRICE, TAXES,
TRANSPORTATION, EXPENSES AND CHARGES
4.1 PRICE: Buyer shall pay TRW for the performance of TRW's obligations
hereunder, the prices for Products and Services stated in Exhibit 1B in
accordance with the provisions of Article 5. The aforementioned price is
hereinafter referred to as the "Contract Price."
4.2 TAXES: Any taxes (including but not limited to, stamp, withholding, value
added and turnover taxes), duties, fees, charges, or assessments of any nature
levied by any governmental authority in connection with this transaction,
whether levied against Buyer or TRW, or employees of TRW as a result of Services
performed or Products provided by TRW under this Agreement, shall be for Buyer's
account and shall be paid directly by Buyer to the governmental authority
concerned. If TRW is required by law or otherwise to pay any such levy and/or
fines, penalties, or assessments in the first instance, or as a result of
Buyer's failure to comply with any applicable laws or regulations governing the
payment of such levies by Buyer, the amount of any payments so made by TRW shall
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be reimbursed by Buyer to TRW upon submission of TRW's invoices and supporting
documentation. Buyer's resale tax certificate number is ____________.
4.3 TRANSPORTATION EXPENSES: Seller shall pay for all expenses of handling,
freight, and other transportation expenses including, without limiting the
foregoing, all packing and special handling charges for shipment incurred in
connection with the delivery of the Products from the TRW Plant to the Site.
4.4 ACCEPTANCE OF ORDERS: Each week after the Effective Date, Buyer shall submit
purchase order(s) to TRW specifying its requirements for Product delivery ten
(10) weeks thereafter. Buyer must specify part number, order quantity, and
requested delivery date on all purchase orders placed under this Agreement. TRW
shall use its best efforts to accept and supply all Orders for Products which
buyer submits hereunder, and unless otherwise agreed, TRW shall deliver products
so ordered on or before the requested delivery specified in each Order. All
preprinted terms and conditions contained in any Order are superseded by the
terms and conditions of this Agreement. Notwithstanding the foregoing, TRW shall
have no obligation to accept and shall not be deemed to have accepted, any Order
(i) for any Products not listed in Exhibit 1A hereto or revisions thereof; or
(ii) which specifies a delivery date less than ten (10) weeks from the date of
such Order.
TRW shall provide Buyer notice in the event any Order specifying delivery dates
less than ten weeks from the date of submission of the Order can be
accommodated. Such notice shall be provided to Buyer within five working days
after receipt of such Order.
4.5.1 ORDER PROCESSING Buyer may change an individual Order delivery schedule
provided that such change request is furnished to TRW in writing, and in
accordance with the following advance notification terms:
(a) If written notification is received by TRW five (5) work days or
less from the original Order delivery date - no schedule deviation shall
be allowable; or
(b) If written notification is received by TRW six (6) work days or more
from the original Order delivery date - Buyer may delay delivery up to
(3) weeks
Buyer may request only one delay, as set forth herein, per scheduled delivery.
TRW reserves the right to sell such products to another customer. TRW shall
notify Buyer of such impending sale; and Buyer shall have option to accept
product based upon original delivery schedule. TRW may complete sale to any
other customer unless Buyer provides TRW written notification of its option to
accept product based upon original Order delivery schedule within (24) hours of
TRW's notification of the impending sale to another customer.
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4.5.2 ORDER CANCELLATION Buyer must provide in writing request for cancellation
of order. If an order is in process, Buyer agrees that TRW shall assess
cancellation charges as follows:
[***]
4.6 ROLLING ORDERS FORECASTS Buyer shall submit to TRW on the Effective date and
quarterly thereafter during the term hereof a rolling sales forecast of Buyer's
best estimate of their requirements for product delivery during the next nine
months. The forecast shall be formatted as set forth in Appendix 1C, and list
separately for each time period covered by the forecast the product quantity, by
part number, which Buyer expects to require during each period. The Rolling
Forecast is intended to give the supplier visibility into upcoming requirements
for capacity planning and does not take the place of the ordering process.
4.7 PRODUCT RETURNS Prior to returning any product to TRW, Buyer must obtain a
Return Material Authorization (RMA) number from TRW. TRW is not obligated to
accept nor shall have any liability for any returned Product(s) without RMA. TRW
shall at its sole option either replace, credit invoice or issue a refund for
Products TRW determines to be non-conforming with the requirements herein.
Product(s) shall not be returned by Buyer to TRW more than ninety (90) days
after the original date of shipment of such Product(s) from TRW to Buyer.
ARTICLE 5
PAYMENT
5.1 METHOD OF PAYMENT: Payment for Products and Services shall be in United
States dollars (U.S.D.) and shall be due and payable within 30 days of Buyer's
receipt of TRW's invoice in the amounts as set forth in Exhibit 1B. TRW may
assess a late payment charge, equivalent to the rate of one percent (1%) per
month (or partial month) of any past due invoice balance, until such past due
balance plus any late charges associated therewith is paid in full. Buyer's
failure to pay TRW invoices in full within forty five (45) days of Buyer's
receipt of invoice shall constitute a default condition under this Agreement.
Payment shall be made by mail or electronic funds transfer of immediately
available funds as follows:
By Mail By Wire Transfer
TRW Space & Defense Bank of America
File No. 41818 1850 Gateway Boulevard
Los Angeles, CA 90074 Concord, California 92520
Telex - MCI #67652
ABA 121000358
TRW Account # 06005-04132
*Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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Payment of other charges, if any, provided for in this Agreement shall be due
and payable within thirty (30) days after receipt of TRW's invoice thereof. In
the event that payment is not made within thirty (30) days, Buyer shall pay
additional late charges as set forth herein until full payment is received.
ARTICLE 6
SHIPMENT, TITLE, AND RISK OF LOSS
6.1 DELIVERY OF PRODUCTS: TRW shall place the Products in the possession of the
carrier on or before the date or dates specified in Exhibit 1B for delivery to
Buyer, F.O.B. origin ("F.O.B."), to the Site. TRW shall arrange for shipment of
the deliverable items by common carrier to the Site, and in accordance with
Article 4.3 above, the cost of such shipping shall be borne by Seller.
6.2 PROTECTION AND PACKING OF THE PRODUCTS: TRW shall arrange to have all
deliverable items suitably packaged in accordance with good commercial
practices. The cost of all standard packaging, except for special packaging
associated with air shipment, shall be borne by TRW. Unless otherwise provided,
all packing containers used by TRW shall be non-returnable.
6.3 RISK OF LOSS AND TITLE: Risk of loss shall pass to Buyer upon delivery to
the carrier at Seller's facility, notwithstanding any provisions for payment of
freight or insurance by Seller, or the form of shipping documents, or the breach
or default by Seller at the time of loss. Risk of loss of goods sent to Seller
for adjustment shall remain with Buyer until such are received by Seller.
Neither (i) the time, method, place, or medium of payment provided for herein,
or any combination of the foregoing, nor (ii) the manner of consignment provided
for, whether to, or to the order of, Buyer or its agent, shall in any way limit
or modify the rights of TRW as the owner of the Products, to have control over
the right to possession of the Products until the title thereto passes to Buyer
as provided for above. The term "F.O.B" or other commercial abbreviations, if
used on any document related to this Agreement, shall not be deemed to relate to
the time when or the place where the title of and responsibility for the
Products is transferred from TRW to Buyer.
ARTICLE 7
FACTORY TESTING
Prior to delivery, TRW or its suppliers shall perform standard quality control
inspections and tests applicable to their respective deliverable items. Records
of such tests shall be retained by TRW and remain available for review by Buyer
for at least one year after the date(s) of delivery. A copy of such inspection
test records shall be delivered to Buyer with scheduled deliveries of Product to
which such records correspond. TRW shall make available to Buyer upon Buyer's
request, process control monitor (PCM) and specification limit testing protocols
implemented by TRW with respect to Products.
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ARTICLE 8
WARRANTY
8.1 WARRANTY: TRW warrants that, upon delivery to Buyer, the wafers shall meet
TRW's commercial visual inspection requirements and the Process Control Monitor
specifications. Should the wafers not conform, at delivery, to the above
requirements and specifications, TRW shall replace the non-conforming wafers.
Any non-conforming Products must be returned for inspection to TRW. Buyer shall
prepay all freight charges to return any such non-conforming Products to TRW.
8.2 EXCLUSION: THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES,
CONDITIONS OR REPRESENTATIONS, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE
INCLUDING ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE OR
MERCHANTABILITY. THIS WARRANTY SHALL NOT BE VALID IF THE PRODUCTS HAVE BEEN
SUBJECTED TO ABUSE, MISUSE, ACCIDENT, ALTERATION, NEGLECT, UNAUTHORIZED REPAIR,
OR EXPOSURE TO CONDITIONS BEYOND APPLICABLE ENVIRONMENT.
ARTICLE 9
DELAYS
9.1 FORCE MAJEURE: No failure on the part of either party to carry out or
observe any of the terms or provisions of this Agreement or any order hereunder
(except the payment of monies owed hereunder) shall be deemed a breach of this
Agreement or such Order if same shall arise or result from force majeure or from
any cause reasonable beyond the control of Buyer or TRW, as the case may be,
including but without limitation, acts of God, acts (including delays or failure
to act) of any governmental authority, (de jeure or de facto), war (declared or
undeclared), riot, fires, labor disputes, sabotage or epidemics. Should such
delay occur, the date or dates of performance by the affected party shall be
extended for a period equal to the number of days during which performance is so
delayed. The affected party shall give the other party written notice of such
delay within five (5) working days after identification of the delay. If a delay
in the performance of any Order in the aggregate shall continue for more than
one hundred and eighty (180) calendar days and the parties have not agreed upon
a revised basis for performing the Order at the and of such delays, the either
party, upon thirty (30) days written notice, may terminate such Order without
liability.
9.2 TRW DELAYS: If at any time TRW discovers that it is unable (whether for
reasons set out in Section 9.1 or otherwise) to deliver any Products to Buyer on
the scheduled delivery date, TRW shall give Buyer written notice within five (5)
working days of such discover, which notice shall specify the delivery date on
which TRW shall be able to deliver such Products to Buyer. If the delivery date
proposed by TRW is more than forty five (45) days after the scheduled delivery
date, Buyer shall have the right to cancel (in whole or in part) its Order for
such Products, by giving TRW written notice of cancellation within five (5)
working days after receipt of TRW's notification of delay.
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ARTICLE 10
TRANSFERS AND ASSIGNMENTS
10.1 TRANSFER: Neither party shall, without the consent in writing of the other
Party, which consent shell not be unreasonably withheld, assign or transfer this
Agreement or the benefits or obligations thereof or any part thereof to any
other person other than a subsidiary wholly owned by such Party, provided that
this shall not affect any right of such Party to assign, either absolutely or by
way of charge, any moneys due or to become due to it or which may become payable
to it under this Agreement.
10.2 RELEASE OF OBLIGATIONS: No assignment or transfer of any right or duty
hereunder by either party shall constitute a novation or otherwise release or
relieve such party of its obligations hereunder.
ARTICLE 11
TERMINATION
11.1 TERMINATION: This Agreement can be terminated by the terminating party in
writing to the other party under the circumstances set forth below:
(a) By the non-defaulting party if the other party fails to pay
the nondefaulting party any amount required to be paid hereunder within five
days of when the amount is due and payable hereunder; or
(b) By the non-defaulting party if the other party fails to
perform any other material obligation required to be performed by it under any
provision of this Agreement within thirty (30) days after the time specified or
within thirty (30) days after notice from the non-defaulting party that such
performance has become due; provided, however, Buyer shall have no right to
terminate this Agreement for TRW's default so long as corrective action is being
diligently pursued by TRW in a manner that demonstrates that TRW's obligations
hereunder shall be completed in sufficient time to allow Buyer to meet its
end-use requirements for the Products; or
(c) By either party upon thirty (30) days prior written notice to
the other party if the delays resulting from any of the causes stated in Article
9.1 extend in the aggregate for more than one hundred eighty (180) days and the
parties have not agreed upon a revised basis for continuing the work at the end
of such delays, including adjustment of the price; or
(d) By TRW if Buyer has not provided TRW with the Final Layout
Tape within twelve (12) months of the Effective Date.
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11.2 TERMINATION CHARGES
(a) In the event of termination of this Agreement by TRW pursuant
to Article 11.1(a) or 11.1(b) above, the termination charges owed by Buyer to
TRW shall be the Contract Price not already paid to TRW by Buyer.
(b) In the event of termination of this Agreement pursuant to
Article 11.1(c) or 11.1(d) above, TRW shall promptly submit to Buyer a detailed
written statement and supporting documentation of TRW's work effort to date. The
report shall also include a listing of the charges to terminate the work effort.
The termination charges shall not exceed the value of this Agreement (plus any
interest or late charges set forth in Article 5 hereof) and shall include the
following:
(1) the price of any completed and unbilled Products or Services
pursuant to Exhibit 1B;
(2) for partially completed Products or Services a charge equal to the
price of the Product multiplied by the percentage of completion of the partially
completed Product or Service; and
(3) any charges for late payment or Buyer's delay as set forth in
Article 5.
(c) The termination charges set forth in this Article 11.2 shall
be paid by Buyer within thirty (30) days after receipt of TRW's invoice
therefore.
11.3 STOPPAGE OF WORK FOLLOWING TERMINATION: Following receipt of a notice of
termination pursuant to Article 11.1 hereof, TRW shall immediately stop
performing the service hereunder and shall not enter into or place any orders
with its vendors or subcontractors in connection with the performance of this
Agreement.
11.4 BUYER'S REMEDIES IN THE EVENT OF TERMINATION: In the event that Buyer
terminates this Agreement as a result of TRW's breaches of the provisions
covered in Article 11.1(b), Buyer shall be entitled to the remedies provided in
the Uniform Commercial Code as adopted in California, subject to the limitations
set forth in Article 12.2 hereof. Buyer shall not be entitled to any damages,
compensation or other remedies in the event that either party terminates the
Agreement pursuant to Article 11.1(c) hereof.
ARTICLE 12
LIMITATION OF LIABILITY
12.1 INFRINGEMENT: Nothing contained in this Agreement shall be construed as a
warranty or representation that the manufacture, sale, lease, use or other
disposition of systems, processes, circuits, devices, software and products will
be free from infringement of patents, utility models, design patents, maskwork
rights, copyrights, trade secrets and/or other legal rights of third parties.
-8-
<PAGE> 9
12.2 LIMITATION OF LIABILITY: The total liability of TRW on all claims in total
whether in contract, tort (including sole or concurrent negligence), or
otherwise, arising out of, connected with, or resulting from the manufacture,
sale, delivery, resale, repair, replacement, or use of the Products or Services
shall not exceed the Contract Price
12.3 DAMAGES: In no event shall TRW be liable for any special, indirect,
incidental or consequential damages, however caused, whether by TRW's sole or
concurrent negligence or otherwise, including, but not limited to costs and
expenses incurred in connection with labor, overhead, transportation,
installation, or removal of the Products or substitute facilities or supply
sources.
12.4 INDEMNIFICATION: (a) In the event any product to be furnished under this
Agreement is not to be made in accordance with drawings, samples or
manufacturing specifications designated by Buyer, but rather is the design of
Seller, Seller agrees that it shall, at its own expense and at its option,
defend or settle any claim, suit, or proceeding brought against Buyer or any
customer of Buyer, based on an allegation that the product furnished under this
Agreement constitutes a direct or a contributory infringement of any claim of
any patent, mask work, copyright or any other intellectual property right. This
obligation shall be effective only if Buyer shall have made all payments then
due and if Seller is notified of said allegation promptly in writing and given
authority, information, and assistance for the settlement or defense of said
claim, suit, or proceeding. Seller shall pay all damages and costs assessed in
such suit or proceedings. In the event of a final adjudication by a court of
competent jurisdiction that its product or any part thereof infringes or
violates any third party intellectual property right or if the use or sale
thereof is enjoined, or if the provisions of any negotiated settlement Agreement
prohibit the use of the product, Seller shall at its sole option and its own
expense, either: (a) procure for Buyer the right to continue using the product;
or (b) replace it with a substantially equivalent non-infringing product; or (c)
modify it so it becomes non-infringing but substantially equivalent; or (d) if
none of the above is reasonably available, terminate the Buyer's right to use
the product, accept the return of the product from Buyer, and return to the
Buyer the price originally paid by Buyer to Seller for the product supplied by
Seller.
The foregoing indemnity does not apply to the following: (1) infringement by a
combination of products furnished under this Agreement with other products not
furnished hereunder unless Seller is a contributory infringer; (2) infringement
resulting from changes or modifications made to or from the product by the
Buyer; and (3) any settlements of a claim, suit, or proceeding made without
Seller's written consent.
The foregoing states the entire liability of Seller with respect to infringement
or violation of third party intellectual property rights in connection with
products furnished under this Agreement.
(a) In the event any product to be furnished under this Agreement
is to be made in accordance with drawings, samples or manufacturing
specifications designated by Buyer and is not the design of Seller, Buyer agrees
to defend, indemnify and hold Seller harmless to the same extent
-9-
<PAGE> 10
and subject to the same requirements as set forth in Sellers indemnification of
Buyer as set forth in (a) above.
ARTICLE 13
NOTICES
All notices, requests, consents, and other communications required or permitted
to be given under this Agreement must be in writing and mailed by registered or
certified mail to the other party at its respective business address as follows:
<TABLE>
<CAPTION>
if to TRW: if to Buyer:
- --------- -----------
<S> <C>
TRW Inc., Space and Electronics Group Stanford Microdevices
Telecommunication Products Division 522 Almanor Ave.
One Space Park, Bldg E2/5085 Sunnyvale, CA 94086
Redondo Beach, California 90278 Attention: Mr. John Ocampo
Attention: Mr. Edward Cornejo Phone: (408) 616-5499
Phone: 310-814-2001 Fax: (408) 496-4774
FAX: 310-812-7011
</TABLE>
ARTICLE 14
CONTRACT CHANGE PROCEDURE
14.1 CHANGES: Any changes to this Agreement after the effective date hereof
which relate to: (i) the deletion of Products or Services; (ii) adding
additional Products, or Services; (iii) changing or modifying Products or
Services; or (iv) making other changes which do not materially alter the scope
of this Agreement shall be made in accordance with the procedures set forth in
this Article 14.
14.2 CONTRACT CHANGES REQUESTS: Either party hereto may, from time to time and
at any time during the term hereof, request a change, as defined in Section
14.1, to this Agreement (The party requesting the change is hereinafter referred
to as the "Requesting Party."). Requests for changes shall be in writing and
shall be addressed and delivered to the other party (the "Notified Party"). Such
writing shall be identified as a "Contract Change Request" (or "CCR"), shall
carry a sequential number for ease of tracking, shall set forth in detail the
nature of the change requested, and shall identify the Products to be changed.
14.3 PROCEDURE: As soon as practical after receipt by the Notified Party of
copies of the CCR, the parties shall, as necessary, meet to discuss the
change(s) and to ascertain cost and schedule impacts, if any.
14.4 CONTRACT CHANGE NOTICE: If the parties decide to implement a change
request, a standard form Contract Change Notice ("CCN") shall be prepared, which
CCN shall describe the change, delineate the cost, schedule, and other impacts
of the change and the payment terms for any price
-10-
<PAGE> 11
increase. Execution of a CCN by both parties shall constitute a modification
hereof and shall be binding on both parties hereto.
14.5 EXCEPTION: Substitutions relative to Products which are purchased items not
manufactured by TRW may be made by TRW without the consent of Buyer if such
substitutes are of like quality.
ARTICLE 15
INTELLECTUAL PROPERTY
15.1 PROPRIETARY INFORMATION: For the purpose of this Agreement:
(a) "Proprietary Information" shall mean all drawings, documents,
ideas, know-how and other information supplied by one Party ("Disclosing Party")
to another ("Recipient") (whether disclosed orally, or in documentary form, by
demonstration or otherwise) for the purpose of achieving the objectives of this
Agreement.
(b) "Proper Use" shall mean use of the Proprietary Information
solely by the Recipient for the objectives of this Agreement.
15.2 NONDISCLOSURE: Buyer and TRW each agree to employ reasonable efforts to
keep in confidence and prevent the disclosure to any person(s) outside their
respective organizations or any person(s) within their organizations not having
a need to know, all information received from the other which is designated in
writing or by appropriate stamp or legend to be of a proprietary nature
(hereafter "Proprietary Information") and neither will use Proprietary
Information for purposes other than the Purpose; provided, however, neither
party will be liable for disclosure or use of such information if the same is:
(a) In the public domain at the time of disclosure, or is subsequently
made available to the general public without restriction by the disclosing
party;
(b) known to the Recipient at the time of disclosure without
restrictions on its use or independently developed by the Recipient, and there
is adequate documentation to demonstrate either condition;
(c) used or disclosed with the prior written approval of the Disclosing
Party;
(d) disclosed without restriction to the Recipient from a source other
than the Disclosing Party; or
(e) disclosed after five (5) years from the date of delivery by the
Disclosing Party to the Recipient, which five (5) year period shall survive the
termination of this Agreement.
-11-
<PAGE> 12
If any portion of Proprietary Information falls within any one of these
exceptions, the remainder shall continue to be subject to the foregoing
prohibitions and restrictions. The Recipient of Proprietary Information shall
inform its employees of the confidential nature of the Proprietary Information
and shall prohibit them from making copies of any of it except where such copies
are necessary for the purposes of Proper Use, unless agreed upon by the
Disclosing Party.
Each party shall protect the Proprietary Information of the other party using
the same degree of care, but no less than a reasonable degree of care, to
prevent the unauthorized use, dissemination or publication of the confidential
information as that party uses to protect its own Proprietary Information of
comparable importance.
Prior to disclosure of Proprietary Information to any employee, each party shall
fully advise such employee that he or she is required to hold in confidence all
information and that such information is not to be disclosed to persons outside
his or her organization or to any co-employees not directly concerned with
furthering the Purpose. The parties shall maintain between themselves and their
officers, employees and consultants duly binding agreements by such persons as
may be necessary to fulfill their obligations under this Agreement.
15.3 MARKING: Proprietary Information made available in written form by one
Party to another Party shall be marked with the legend:
"PROPRIETARY INFORMATION"
or "TRW PROPRIETARY INFORMATION"
as the case may be, or an equivalent conspicuous legend. No sheet or page of any
written material shall be so labeled which is not, in good faith, believed by
the Disclosing Party to contain Proprietary Information. A Recipient of
Proprietary Information hereunder shall have no obligation with respect to any
portion of any written material which is not so labeled or any information
received orally unless it is identified as proprietary and a written summary of
such oral communication, specifically identifying the items of Proprietary
Information, is furnished to the Recipient within thirty (30) days of such
disclosure.
The individuals identified below are the only persons authorized to receive
Proprietary information on behalf of the Parties:
For Buyer: Mr. John Ocampo
For TRW: Dr. Tom Joseph
By written notice to the other Party, these representatives may be replaced by
another person from the same Party.
-12-
<PAGE> 13
15.4 JUDICIAL ORDERS: In the event any governmental or judicial order requires
the disclosure of Proprietary Information, the Recipient of such Proprietary
Information shall promptly but in any event prior to such disclosure notify the
originator of the Proprietary Information of the requirement and provide
reasonable aid and assistance if the originator decides to oppose such
governmental or judicial order. Recipient shall not be liable for any disclosure
of Proprietary Information made pursuant to such governmental or judicial order
if it has complied with the provisions of this paragraph.
15.5 COMPENSATION: The Parties shall not be obligated to compensate each other
for the transfer of any Proprietary Information under this Agreement and agree
that no warranties of any kind are given with respect to such Proprietary
Information or any use thereof. No license is hereby granted under any patent,
trademark or copyrights with respect to any Proprietary Information.
15.6 SURVIVAL: The obligations of the Parties concerning confidentiality set
forth in this Article 15 shall survive termination or completion of this
Agreement. All documents, drawings and writings disclosing Proprietary
Information and all copies thereof shall be returned promptly by a party to the
other party upon receipt of a request therefor or following termination or
expiration of this Agreement except that recipient may keep one archival copy
for evidentiary purposes only.
ARTICLE 16
MISCELLANEOUS
16.1 HEADINGS: The headings and titles to the articles, sections, and paragraphs
of this Agreement are inserted for convenience only and shall not be deemed a
part hereof or affect the construction or interpretation of any provision
hereof.
16.2 REMEDIES: Unless otherwise expressly provided herein, the rights and
remedies hereunder are in addition to, and not in limitation of, other rights
and remedies under the Agreement, at law or in equity, and exercise of one right
or remedy shall not be deemed a waiver of any other right or remedy.
16.3 MODIFICATION AND WAIVER: No cancellation, modification, deletion, addition,
or other change in the Agreement or any provision hereof, or waiver of any right
or remedy herein provided, shall be effective for any purpose unless
specifically set forth in a writing signed by the party to be bound thereby. No
waiver of any right or remedy in respect of any occurrence or event on one
occasion shall be deemed a waiver of such right or remedy in respect of such
occurrence or event on any other occasion.
16.4 ENTIRE AGREEMENT: This Agreement supersedes all other agreements, oral or
written, heretofore made with respect to the subject hereof and the transactions
contemplated hereby and contains the entire agreement of the parties.
-13-
<PAGE> 14
16.5 SEVERABILITY: Any provision hereof prohibited by or unlawful or
unenforceable under any applicable law of any jurisdiction shall as to such
jurisdiction be ineffective without affecting any other provision of the
Agreement. To the full extent, however, that the provisions of such applicable
law may be waived, they are hereby waived, to the end that the Agreement be
deemed to be a valid and binding agreement enforceable in accordance with its
terms.
16.6 CONTROLLING LAW: All questions concerning the validity and operation of
this Agreement and the performance of the obligations imposed upon the parties
hereunder shall be governed by the laws of the State of California applicable to
contracts entered into and wholly to be performed in such jurisdiction.
16.7 SUCCESSORS AND ASSIGNS: The provisions of this Agreement shall be binding
upon and for the benefit of TRW and Buyer and their respective successors and
assigns. This provision shall not be deemed to expand or otherwise affect the
limitation on assignment and transfers set forth in Article 10 and no party is
intended to or shall have any right or interest under this Agreement, except, as
provided in Article 10.
16.8 COUNTERPARTS: This Agreement has been executed in several counterparts,
each of which shall be deemed to be an original, and all such counterparts
together shall constitute but one and the same instrument.
16.9 LANGUAGE: If a translation of this Agreement is required or otherwise made,
the English version shall be the official version and shall control in the event
of differences. All communications relating to this Agreement shall be in
English.
16.10 EXPORT SALES:
(a) Buyer agrees that it shall not knowingly sell, transfer, or deliver,
directly or indirectly, any part or portion of the Products or related
documentation supplied by TRW pursuant to this Agreement to any person or
organization in any country where such sale, transfer, or delivery by Buyer
would be prohibited by law or regulation now or hereafter in effect which
imposes any restrictions on United States trade with foreign countries.
16.11 OWNERSHIP OF MASKSET(s): Each party hereto shall retain sole ownership of
its Masksets and TRW shall retain sole possession of any and all Masksets
developed or procured by TRW under this Agreement. TRW will store Buyer's
Maskset at TRW for a maximum period of two (2) years after delivery of the
Products (wafers) to Buyer. TRW will destroy/dispose of the Maskset after the
two (2) year storage period.
16.12 OWNERSHIP OF MMIC DESIGNS: Each party hereto shall retain sole ownership
rights to its MMIC designs. TRW shall retain all rights to individual circuit
elements, design libraries, design rule manuals, circuit elements and MMIC
fabrication processes. Buyer agrees that TRW may release maskset information
containing Buyer's designs to TRW's maskset vendor, for maskset procurement.
-14-
<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this Agreement in English
as of the date and year first set forth above.
TRW INC Buyer
By: /s/ Frederick J. F By: /s/ John Ocampo
-------------------------------- -------------------------------------
for David B. Vandervoet John Ocampo
Title: VP & General Manager Title: Chairman
----------------------------- ----------------------------------
-15-
<PAGE> 16
EXHIBIT 1A
LIST OF PRODUCTS
1. PCM Tested 3" GaAs HBT Wafers (Darlington Amplifiers)
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION
----------- -----------
<S> <C>
[***]
</TABLE>
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 17
EXHIBIT 1B
PRICE, MINIMUM ANNUAL QUANTITIES, DELIVERY SCHEDULE AND SITE
A. UNIT PRICE
3" GaAs HBT Wafers (Darlington Amplifiers)
<TABLE>
<CAPTION>
STANDARD
PART NUMBER DESCRIPTION PROCESS PRICE
----------- ----------- -------------
<S> <C> <C>
[***]
</TABLE>
B. MINIMUM QUANTITIES DURING TERM
PRODUCT NUMBER OF WAFERS
3" GaAs Process Wafers [***]
C. SITE: Stanford Microdevices
522 Almanor Avenue
Sunnyvale, Ca 94086
D. DELIVERY SCHEDULE
Wafers will be shipped to Buyer not later than ten (10) weeks from the
first Monday after receipt of valid order.
E. LIFE TIME BUY OPTION
TRW AGREES TO PROVIDE UP TO [***] WAFERS, LESS THE TOTAL NUMBER OF WAFERS
PREVIOUSLY DELIVERED TO BUYER UNDER TRW SALES NUMBERS 65487 AND 66002, UPON
TRW'S NOTIFICATION TO BUYER THAT TRW WILL OBSOLETE OR UPGRADE ITS HBT MMIC
FABRICATION PROCESS. TRW WILL PROVIDE THIS NOTIFICATION TO BUYER AT LEAST SIX
MONTHS PRIOR TO THE TIME THAT TRW WILL NO LONGER ACCEPT ORDERS FOR SAID PRODUCT.
A DELIVERY SCHEDULE WILL BE NEGOTIATED AT THE TIME THE OPTION IS EXERCISED,
PRIOR TO TRW'S INITIATING PERFORMANCE OF THE OPTION.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 18
EXHIBIT 1C
Rolling Sales Forecast Format
Pursuant to Article 4.6 of this Agreement, Buyer shall submit regular rolling
sales forecast formatted as follows:
<TABLE>
<CAPTION>
WEEKS MONTHS
----- ------
PART NUMBER 1 2 3 4 5 6 7 8 9 10 11 12 Month Month Month Month Month Month
4 5 6 7 8 9
- --------------- --------- --- -- --- --- -- --- -- --- --- ---- ---- ------ --------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C><C><C> <C> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
e.g. DAMP2 Forecast
- --------------- --------- --- -- --- --- -- --- -- --- --- ---- ---- ------ --------- ------- -------- -------- -------- --------
e.g. DAMP7 Forecast
- --------------- --------- --- -- --- --- -- --- -- --- --- ---- ---- ------ --------- ------- -------- -------- -------- --------
</TABLE>
The initial 10 weeks shall indicate existing orders from Buyer.
<PAGE> 19
CONTRACT CHANGE NOTICE AMENDMENT NO. 1
TO
TRW/STANFORD WAFER SUPPLY AGREEMENT
AGREEMENT NO. 1A551
THIS AMENDMENT ("Amendment") is made and entered into and between Stanford
Microdevices ("Buyer") and TRW Inc., by and through its Space and Electronics
Group, a corporation organized and existing under the laws of Ohio, having
offices at Redondo Beach, California, USA ("TRW").
WHEREAS, Buyer and TRW entered into Agreement No. 1A551 with an
effective date of 19 August 1998.
WHEREAS, Buyer and TRW desire to amend the Agreement in order to add 3"
GaAs HBT wafers designed by the the Buyer and maskset layout support.
NOW THEREFORE, the parties agree to amend the Agreement as follows:
Exhibit 1A, List of Products as included as part of the original agreement, is
deleted and replaced with Exhibit 1A-Revision 1 (copy attached).
Exhibit 1B, Price and Minimum Annual Quantities, Deliver Schedule and Site, as
included as part of the original agreement, is deleted and replaced with Exhibit
1B-Revision 1 (copy attached).
The above changes constitute Contract Change Notice No. 1 to the Agreement.
Except as expressly provided hereinabove all other terms and conditions of the
Agreement shall apply herein and remain in full force and effect as previously
agreed to between Buyer and TRW. In the event of any conflict between the terms
of this Amendment and those of the Agreement, the terms of this Amendment will
be deemed to have superseded those of the Agreement and exclusively will govern
the matter in question.
Buyer: TRW Inc.
Space and Electronics Group
By: /s/ John Ocampo By: /s/ Brian H. Ward
------------------------------- -----------------------------------
Name: John Ocampo Name: Brian H. Ward
Title: President & CEO Title: Contracts Manager
Stanford Microdevices Telecommunication Programs
Division
Date: 9-4-98 Date: 9/2/98
<PAGE> 20
EXHIBIT 1A-REVISION 1
LIST OF PRODUCTS
1. PCM Tested 3" GaAs HBT Wafers (Darlington Amplifiers)
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION
----------- -----------
<S> <C>
[***]
</TABLE>
2.
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION
----------- -----------
<S> <C>
PAD2 VARIOUS
SMDXX VARIOUS
</TABLE>
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 21
EXHIBIT 1B-REVISION 1
PRICE, MINIMUM ANNUAL QUANTITIES, DELIVERY SCHEDULE AND SITE
A. PRICE
1. 3" GaAs HBT Wafers (Darlington Amplifiers)
<TABLE>
<CAPTION>
Standard
Part Number Description Process Price
----------- ----------- -------------
<S> <C> <C>
[***] [***] [***]
</TABLE>
2. 3" GaAs HBT Wafers (Circuits designed by Buyer)
Maximum of [***] Wafers for sale, transaction completed by
December 31, 1998.
<TABLE>
<CAPTION>
Standard
Part Number Description Process Price
----------- ----------- -------------
<S> <C> <C>
[***] VARIOUS [***]
VARIOUS
</TABLE>
3. Layout support for Stanford Microdevices Product masksets. (Does not
include cost for or purchase of maskset. Buyer will purchase and supply
maskset.)
<TABLE>
<CAPTION>
Standard
Product Process Price
------- -------------
<S> <C>
Three (3) circuits or less (Production) $[***]
Greater than three (3) circuits $[***]
</TABLE>
[***]
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 22
EXHIBIT 1B-REVISION 1 (CONTINUED)
B. MINIMUM QUANTITIES DURING TERM
<TABLE>
<CAPTION>
Product Number of Wafers
------- ----------------
<S> <C>
3" GaAs Process Wafers [***]
</TABLE>
C. SITE
Stanford Microdevices
522 Almanor Avenue
Sunnyvale, CA 94086
D. DELIVERY SCHEDULE
Wafers will be shipped to Buyer not later than ten (10) weeks from the
first Monday after receipt of valid order.
E. LIFE TIME BUY OPTION
TRW agrees to provide up to [***] wafers, less the total number of
wafers previously delivered to Buyer under TRW Sales Numbers 65487 and
66002, upon TRW's notification to buyer that TRW will obsolete or
upgrade its HBT MMIC fabrication process. TRW will provide this
notification to Buyer at least six months prior to the time that TRW
will no longer accept orders for said Product. A delivery schedule will
be negotiated at the time the option is exercised, prior to TRW's
initiating performance of the option.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 23
CONTRACT CHANGE NOTICE AMENDMENT NO. 2
TO
TRW/STANFORD WAFER SUPPLY AGREEMENT
AGREEMENT NO. 1A551
THIS AMENDMENT ("Amendment") is made and entered into and between Stanford
Microdevices ("Buyer") and TRW Inc., by and through its Space and Electronics
Group, a corporation organized and existing under the laws of Ohio, having
offices at Redondo Beach, California, USA ("TRW").
WHEREAS, Buyer and TRW entered into Agreement No. 1A551 with an
effective date of 19 August 1998 ("Agreement").
WHEREAS, Buyer and TRW desire to amend the Agreement in order to
evaluate an alternative [***] coating process for Darlington Amplifier
Products.
NOW THEREFORE, the parties agree to amend the Agreement as follows:
Exhibits 1A and 1B, as included as part of the original Agreement and Amendment
1, are deleted and replaced with Exhibits 1A - Revision 2 and 1B - Revision 2
(attached).
The above changes constitute Contract Change Notice No. 2 to the Agreement.
Except as expressly provided hereinabove all other items and conditions of the
Agreement shall apply herein and remain in full force and effect as previously
agreed to between Buyer and TRW. In the event of any conflict between the terms
of this Amendment and those of the Agreement, the terms of this Amendment will
be deemed to have superseded those of the Agreement and exclusively will govern
the matter in question.
Stanford Microdevices TRW Inc.
Space and Electronics Group
By: /s/ John Ocampo /s/ Patrick J. Reynolds
-------------------------------- --------------------------------------
Name: John Ocampo Name:
Title: President & CEO Title:
Date: Date: 11/24/98
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 24
EXHIBIT 1A - REVISION 2
LIST OF PRODUCTS
1. PCM TESTED 3" GAAS HBT WAFERS (DARLINGTON AMPLIFIERS)
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION
----------- -----------
<S> <C>
[***]
</TABLE>
2. PCM TESTED 3" GAAS HBT WAFERS
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION
----------- -----------
<S> <C>
[***]
</TABLE>
3. TRW ENGINEERING
TRW shall conduct evaluation of [***] coating vs. a Layout change on
Darlington Amplifiers and shall also conduct an implementation study of
selected technique for application to future products. TRW shall
determine all criteria for selection of technique, select technique
based upon its criteria, and prepare the appropriate documentation to
implement the selected technique.
Price for future sale of Products utilizing the selected technique to
Buyer shall be negotiated separately between TRW and Buyer, and such
Products shall be incorporated into this Agreement by Amendment.
TRW shall retain ownership and all intellectual property rights to
technical data, techniques, applications, trade secrets or documentation
and other intellectual property related to this activity and such
information shall be deemed TRW Proprietary Information pursuant to
Article 15 of the Agreement.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 25
EXHIBIT 1B - REVISION 2
PRICE, MINIMUM ANNUAL QUANTITIES, DELIVERY SCHEDULE AND SITE
A. PRICE
1. 3" GaAs HBT Wafers (Darlington Amplifiers)
<TABLE>
<CAPTION>
Part Number Description Standard Process Price
----------- ----------- ----------------------
<S> <C> <C>
[***] [***] [***]
</TABLE>
2. 3" GaAS HBT Wafers (Circuits designed by Buyer)
Maximum of Ninety (90) Wafers for sale, transaction completed by
December 31, 1998.
<TABLE>
<CAPTION>
Part Number Description Standard Process Price
----------- ----------- ----------------------
<S> <C> <C>
[***] [***] [***]
</TABLE>
3. Layout support for Stanford Microdevices Product masksets. (Does not
include cost for or purchase of maskset. Buyer will purchase and supply
maskset.)
<TABLE>
<CAPTION>
Product Standard Process Price
------- ----------------------
<S> <C>
Three (3) circuits or less (Production) [***]
Greater than three (3) circuits [***]
</TABLE>
4. TRW Evaluation of [***] Coating vs. a Layout change on Darlington
Amplifiers and Implementation study - [***] Payment Schedule: [***]
shall be due upon execution of this Amendment. The balance is due upon
completion of the implementation study. Such completion shall be
evidenced by Completion Certificate signed by TRW.
[***]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 26
B. MINIMUM QUANTITIES DURING TERM
<TABLE>
<CAPTION>
Product Number of Wafers
------- ----------------
<S> <C>
3" GaAs Process Wafers [***]
</TABLE>
C. SITE
Stanford Microdevices
522 Almanor Avenue
Sunnyvale, CA 94086
D. DELIVERY SCHEDULE
Wafers will be shipped to Buyer not later than ten (10) weeks from the
first Monday after receipt of valid order.
E. LIFE TIME BUY OPTION
TRW agrees to provide up to [***] wafers, less the total number of
wafers previously delivered to Buyer under TRW Sales Numbers 65487 and
66002, upon TRW's notification to buyer that TRW will obsolete or
upgrade its HBT MMIC fabrication process. TRW will provide this
notification to Buyer at least six months prior to the time that TRW
will no longer accept orders for said Product. A delivery schedule will
be negotiated at the time the option is exercised, prior to TRW's
initiating performance of the option.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 27
CONTRACT CHANGE NOTICE AMENDMENT NO. 3
TO
TRW/STANFORD WAFER SUPPLY AGREEMENT
AGREEMENT NO. 1A551
THIS AMENDMENT ("Amendment") is made and entered into and between Stanford
Microdevices, Inc. ("Buyer") and TRW Inc., by and through its Space and
Electronics Group, a corporation organized and existing under the laws of Ohio,
having offices at Redondo Beach, California, USA ("TRW").
WHEREAS, Buyer and TRW entered into Agreement No. 1A551 with an
effective date of August 19, 1998.
WHEREAS, Buyer and TRW desire to amend the Agreement in order to provide
for expedited production.
NOW THEREFORE, the parties agree to amend the Agreement as follows:
Exhibit 1B, Price and Minimum Annual Quantities, as revised through Revision 2
is deleted and replaced with Exhibit 1B- Revision 3 dated August 2, 1999 (Copy
attached).
The above changes constitute Contract Change Notice No. 3 to the Agreement.
Except as expressly provided hereinabove all other terms and conditions of the
Agreement shall apply herein and remain in full force and effect as previously
agreed to between Buyer and TRW. In the event of any conflict between the terms
of this Amendment and those of the Agreement, the terms of this Amendment will
be deemed to have superseded those of the Agreement and exclusively will govern
the matter in question.
Buyer: TRW Inc.
Space and Electronics Group
By: /s/ John Ocampo By: /s/ Patrick J. Reynolds
--------------------------------- ------------------------------------
Name: John Ocampo Name: Patrick J. Reynolds
Title: President & CEO Title: Contracts Manager
Stanford Microdevices, Inc.
Date: 8/4/99 Date: 8/11/99
<PAGE> 28
EXHIBIT 1B - REVISION 3
PRICE, MINIMUM ANNUAL QUANTITIES, DELIVERY SCHEDULE AND SITE
AUGUST 2, 1999
A. PRICE
1. 3" GaAs HBT Wafers (Darlington Amplifiers)
<TABLE>
<CAPTION>
Part Number Description Standard Process Price
----------- ----------- ----------------------
<S> <C> <C>
[***] [***] [***]
</TABLE>
2. 3" GaAs HBT Wafers (Circuits designed by Buyer)
Maximum of [***] Wafers for sale, transaction completed by December 31,
1998.
<TABLE>
<CAPTION>
Part Number Description Standard Process Price
----------- ----------- ----------------------
<S> <C> <C>
[***] [***] [***]
</TABLE>
[***]
3. Layout support for Stanford Microdevices Product masksets. (Does not
include cost for or purchase of maskset. Buyer will purchase and supply
maskset.)
<TABLE>
<CAPTION>
Product Standard Process Price
------- ----------------------
<S> <C>
Three (3) circuits or less (Production) [***]
Greater than three (3) circuits [***]
</TABLE>
4. TRW Evaluation of [***] Coating vs. a Layout change on Darlington
Amplifiers and Implementation study - [***] Payment Schedule: [***]
shall be due upon execution of Amendment No. 2. The balance is due upon
completion of the implementation study. Such completion shall be
evidenced by Completion Certificate signed by TRW.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 29
5. Accelerated Lot Option(1)
<TABLE>
<CAPTION>
Deliverable Standard Process Price
----------- ----------------------
<S> <C> <C>
[***] [***]
</TABLE>
Note 1) Only one (1) order for an Accelerated lot can be accepted for processing
at any time from all Stanford Microdevices contracts.
Note 2) Accelerated lot pricing is only valid if wafers are shipped to Buyer not
later than 45 days from receipt of order or lot start, whichever is later. TRW
will deliver a minimum lot start. For a lot that is designated as Accelerated
after it has already started fabrication, the shipment date will be determined
as follows; 1+(1-EV) x 45 days from the time the lot is designated Accelerated
at TRW. EV equals the Earned Value or percent complete of the in-process lot.
Note 3) If the shipment date to Stanford Microdevices is 46 days or later (or as
defined above for a lot in process) from receipt of order or lot start, option
price shall not be charged. The option is available when ordered in conjunction
with a production lot or for a lot in process.
B. MINIMUM QUANTITIES DURING TERM
<TABLE>
<CAPTION>
Product Number of Wafers
------- ----------------
<S> <C> <C>
3" GaAs Process Wafers [***]
</TABLE>
C. SITE
Stanford Microdevices
522 Almanor Avenue
Sunnyvale, CA 94086
D. DELIVERY SCHEDULE
Wafers will be shipped to Buyer not later than ten (10) weeks from the
first Monday after receipt of valid order.
E. LIFE TIME BUY OPTION
TRW agrees to provide up to [***] wafers, less the total number of
wafers previously delivered to Buyer under TRW Sales Numbers 65487 and
66002, upon TRW's notification to buyer that TRW will obsolete or
upgrade its HBT MMIC fabrication process. TRW will provide this
notification to Buyer at least six months prior to the time that TRW
will no longer accept orders for said Product. A delivery schedule will
be negotiated at the time the option is exercised, prior to TRW's
initiating performance of the option.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
2
<PAGE> 30
CONTRACT CHANGE NOTICE AMENDMENT NO. 4
TO
TRW/STANFORD WAFER SUPPLY AGREEMENT
AGREEMENT NO. 1A551
THIS AMENDMENT ("Amendment") is made and entered into and between Stanford
Microdevices, Inc. ("Buyer") and TRW Inc., by and through its Space and
Electronics Group, a corporation organized and existing under the laws of Ohio,
having offices at Redondo Beach, California, USA ("TRW").
WHEREAS, Buyer and TRW entered into Agreement No. 1A551 with an
effective date of August 19, 1998.
WHEREAS, Buyer and TRW desire to amend the Agreement in order to provide
for expedited production.
NOW THEREFORE, the parties agree to amend the Agreement as follows:
Article 3, Effective Date and Term: Delete "31 August 1999" and replace with "31
December 2000."
Article 13, Notices: Delete "Mr. Edward Cornejo, Phone 310-814-2001" and replace
with "Mr. Patrick J. Reynolds, Phone: 310-812-7602".
Article 15, Intellectual Property, Section 15.3 Marking: Delete "Messrs. Ed
Cornejo and Bob Van Buskirk" and replace with "Mr. Patrick J. Reynolds".
Exhibit 1B, Price and Minimum Annual Quantities, as revised through Revision 3
is deleted and replaced with Exhibit 1B- Revision 4 dated November 23, 1999
(Copy attached).
Add the following exhibit: Exhibit 1D, Time and Material (T&M) Labor Rates,
Calendar Years 1999 and 2000, dated November 23, 1999.
The above changes constitute Contract Change Notice No. 4 to the Agreement.
Except as expressly provided hereinabove all other terms and conditions of the
Agreement shall apply herein and remain in full force and effect as previously
agreed to between Buyer and TRW. In the event of any conflict between the terms
of this Amendment and those of the Agreement, the terms of this Amendment will
be deemed to have superseded those of the Agreement and exclusively will govern
the matter in question.
Buyer: TRW Inc.
Space & Electronics Group
By: /s/ Jerry Quinnell /s/ Wes Bush
-------------------------------- ---------------------------------------
Name: Jerry Quinnell Name: Wes Bush
Title: Chief Operating Officer Title: Vice President and General
Stanford Microdevices, Inc. Manager Telecommunication
Programs Division
Date: Date:
TRW PROPRIETARY
<PAGE> 31
A. PRICE MQP PRICE SUBJECT TO MINIMUM QUANTITY PURCHASE (MQP) TERMS IN "B."
BELOW.
1. 3" GaAs HBT Wafers (Darlington Amplifiers)
<TABLE>
<CAPTION>
Mask Name MQP Price Reversion Price
--------- --------- ---------------
<S> <C> <C>
[***] [***] [***]
</TABLE>
2. 3" GaAs HBT Wafers (Circuits designed by Buyer)
<TABLE>
<CAPTION>
Part Number Description MQP Price Reversion Price
----------- ----------- --------- ---------------
<S> <C> <C> <C>
[***] [***] [***] [***]
</TABLE>
[***]
3. LINE ITEM 3. TASK, "LAYOUT SUPPORT FOR STANFORD MICRODEVICES PRODUCT
MASKSETS", IS HEREIN DELETED IN ITS ENTIRETY.
4. Time & Material (T&M) Engineering Support for Failure Analysis and
Device Troubleshooting, Mask Layouts, and related support, shall be
billed per the hourly rates per Exhibit 1D. Material and Other Direct
Costs (ODC) will be billed as incurred.
5. LINE ITEM 4. TASK, "TRW EVALUATION OF [***] COATING VS. A LAYOUT
CHANGE ON DARLINGTON AMPLIFIERS AND IMPLEMENTATION STUDY - [***], IS
HEREIN DELETED IN ITS ENTIRETY.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
1
TRW PROPRIETARY
<PAGE> 32
6. Accelerated Lot Option(1)
<TABLE>
<CAPTION>
Deliverable Standard Process Price
----------- ----------------------
<S> <C>
[***] [***]
</TABLE>
Note 1) Only one (1) order for an Accelerated lot can be accepted for
processing at any time from all Stanford Microdevices contracts.
Note 2) Accelerated lot pricing is only valid if wafers are shipped to Buyer
not later than 45 days from receipt of order or lot start, whichever is later.
TRW will deliver a minimum of three (3) wafers for a six (6) wafer lot start.
For a lot that is designated as Accelerated after it has already started
fabrication, the shipment date will be determined as follows; 1+(l-EV) x 45
days from the time the lot is designated Accelerated at TRW. EV equals the
Earned Value or percent complete of the in-process lot.
Note 3) If the shipment date to Stanford Microdevices is 46 days or later (or
as defined above for a lot in process) from receipt of order or lot start,
option price shall not be charged. The option is available when ordered in
conjunction with a production lot or for a lot in process.
B. MINIMUM QUANTITIES DURING CALENDAR YEAR 2000
The minimum purchase quantity of HBT wafers for the year 2000 shall be:
<TABLE>
<CAPTION>
Product Number of Wafers
------- ----------------
<S> <C>
3" GaAs HBT Wafers [***]
</TABLE>
If Buyer fails to purchase the minimum quantity, the price reverts to the
reversion price of [***] per wafer, TRW Darlington Amplifiers, and [***] per
wafer, SMD Circuits designed by Buyer. Prices are good and the order quantity is
measured for all deliveries starting 1 January 2000, no matter when they started
or when they were ordered. Releases against this delivery quantity will still be
by purchase order as it has been in 1999.
C. SITE
Stanford Microdevices, Inc.
522 Almanor Avenue
Sunnyvale, CA 94086
D. DELIVERY SCHEDULE
Wafers will be shipped to Buyer not later than ten (10) weeks from the
first Monday after receipt of valid order.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
2
TRW PROPRIETARY
<PAGE> 33
EXHIBIT 1B - REVISION 4
PRICE, MINIMUM ANNUAL QUANTITIES, DELIVERY SCHEDULE AND SITE
NOVEMBER 23, 1999
E. LIFE TIME BUY OPTION
TRW agrees to provide up to [***] wafers, less the total number
of wafers previously delivered to Buyer under this contract, and
TRW Sales Numbers 65487 and 66002, upon TRW's notification to
buyer that TRW will obsolete or upgrade its HBT MMIC fabrication
process. TRW will provide this notification to Buyer at least six
months prior to the time that TRW will no longer accept orders
for said Product. A delivery schedule will be negotiated at the
time the option is exercised, prior to TRW's initiating
performance of the option.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
3
TRW PROPRIETARY
<PAGE> 34
EXHIBIT 1D
TIME AND MATERIAL (T&M) LABOR RATES
CALENDAR YEARS 1999 AND 2000
NOVEMBER 23, 1999
<TABLE>
<CAPTION>
HOURLY RATES
Acct. Code Labor Category 1999 2000
- ---------- -------------- ------- -------
<S> <C> <C> <C>
[***] [***] [***] [***]
</TABLE>
Notes: 1) [***]
2) [***]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
4
<PAGE> 1
EXHIBIT 10.8
FOUNDRY AGREEMENT
This Agreement (the "Agreement") is entered into this 1st day of September, 1999
by and between
TEMIC Semiconductor GmbH, having its registered office at Theresienstrasse 2,
POB 3535, 74072 Heilbronn, Germany, hereinafter referred to as `TEMIC'
and
Stanford Microdevices Inc., having its registered office at 522 Almanor Avenue,
Sunnyvale, CA 94086, USA, hereinafter referred to as `SMI'.
TEMIC desires to sell, and SMI desires to buy, semiconductor wafers and parts to
be manufactured by TEMIC using SMI proprietary designs, pursuant to the terms
and conditions of this Agreement.
The provisions of this Agreement do not alter the provisions specified in the
License Agreement between SMI and TEMIC. The Agreements complement each other.
NOW, THEREFORE; in consideration of these premises, and the mutual promises and
conditions in this Agreement, the parties agree as follows:
1. SCOPE OF FOUNDRY SERVICE
1.1 Subject to the terms and conditions contained in Section 13 of
this Agreement, SMI and TEMIC hereby will disclose know-how,
copyrights and mask work rights to make and have made wafers (as
defined in Exhibit A) at TEMIC fabrication facility in
Heilbronn, Germany, or any TEMIC facility previously qualified
by SMI, in accordance with the Wafer Specifications set forth in
Exhibit B, to test such wafers, and to sell such wafers only to
SMI at the prices established in Exhibit A.
"Know-how", when used in this Agreement, shall mean all of SMI
designs, techniques, technology, trade secrets, proprietary
information and other confidential information disclosed by SMI
to TEMIC pursuant to this Agreement which SMI, at its sole
discretion, determines is necessary for TEMIC to produce wafers
under this Agreement.
1.2 TEMIC shall provide appropriate masks, wafer processing of
engineering runs and process validation runs (multi-project
wafers) at the prices per Exhibit A.
1.3 For all prices set forth in Exhibit A or in any amendment
thereto, such prices shall be no less favourable for SMI than
are extended to TEMIC customers, other than the TEMIC Companies,
for comparable goods or services supplied in comparable
quantities.
1.4 During this agreement TEMIC will not sell products, which are
pin-to-pin compatible to SMI products, [***]
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 2
However in no case shall TEMIC sell in any form products
exclusively developed by SMI to anyone other than SMI. This does
not preclude TEMIC from selling foundry services to anyone
(including those above) that do not include SMI intellectual
property.
2. PAYMENT
2.1 SMI shall pay in United States Dollars for wafers supplied by
TEMIC to SMI hereunder within [***] days after SMI receipt of
an invoice from TEMIC which shall be submitted to SMI upon
shipment.
2.2 SMI shall bear all costs to produce the initial mask set
necessary to produce any specific product, or mask changes to
complete design or process changes initiated by SMI. SMI shall
bear all costs for replacement masks or new masks to complete
process changes initiated by SMI as well as all costs for
replacement of masks worn of during production at TEMIC.
3. ORDERS, WARRANTY AND CLAIMS
3.1 TEMIC shall supply wafers, parts and other production services
to SMI in accordance with written purchase orders to be provided
by SMI. Each purchase order shall include the following:
(a) purchase order number
(b) product name
(c) manufacturing process
(d) quantities
(e) unit wafer prices and total prices
(f) desired shipment date (subject to Section "DELIVERY
TIMES" below)
(g) delivery instructions
(h) any special requests or comments
Subject orders shall become effective only upon the written
acceptance thereof by TEMIC within 5 working days.
The terms of this Agreement shall prevail over any conflicting
terms in any order documents, invoices or similar documents
exchanged between the parties hereunder.
3.2 SMI shall provide TEMIC every month with a good faith rolling
forecast of its wafer, parts and other production service
requirements on a monthly basis, and TEMIC shall use its best
efforts to make available to SMI sufficient fabrication capacity
and
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[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 3
engineering support to meet such forecast requirements. In
addition to the status reports established under Section 5
below, the parties shall provide one another with reasonable
notice about changes in desired shipping or production
schedules, availability of capacity or other similar situations.
The forecast is considered as firmorder for the period of 0-60
days, can change by [***] in the period of 60-120 days and can
vary by [***] for the period >120 days.
3.3 Any other provision of this Agreement notwithstanding, if TEMIC
shall be delayed more than sixty (60) days in the production and
delivery of wafers for any particular SMI purchase order,
regardless of cause, SMI may, at its reasonable discretion,
provided that TEMIC is unable to provide a recovery program
acceptable to SMI, cancel such order effective upon written
notice thereof to TEMIC. Upon resubmission of any such cancelled
order by SMI and acceptance thereof by TEMIC. TEMIC shall then
use its best efforts to give a priority delivery date to such
new order. If TEMIC delays production and delivery more than
sixty (60) days under three (3) or more SMI purchase orders in
any six (6) months' period under this Agreement, SMI may
terminate this Agreement immediately by sending notice of
termination to TEMIC.
3.4 TEMIC gives warranty on workmanship and material for [***]
months. In case of warranty claims by SMI, TEMICs warranty is
limited to the replacement of wafers.
3.5 TEMICs standard Terms & Conditions (Exhibit D) apply if not
otherwise specified in the contract.
4. DELIVERY TIMES
4.1 Unless otherwise agreed to in writing by SMI, delivery times
upon acceptance of a SMI purchase order by TEMIC shall be:
(a) twelve (12) weeks for production wafers, with the target
to go down to eight (8) weeks within Q4/99
(b) eight (8) weeks for engineering masks and wafers
TEMIC shall use its best efforts to achieve such delivery times
on a regular and consistent basis. However, since these delivery
times correspond to the actual production cycles for wafers, no
recovery is possible in case of accidental misprocessing of
wafer batches.
4.2 In the event of a third party suit or claim against SMI and/or
TEMIC involving a Third Party Right (as defined in Section 15),
TEMIC may, at its reasonable discretion and upon advice of its
legal counsel, suspend or terminate the production and supply of
any wafers to SMI if such continued production and supply would
or could cause TEMIC to violate such Third Party Right. TEMIC
shall discuss any such suspension or termination with SMI and
shall give due opportunity for SMI to satisfy the provisions of
Section 15, prior to the implementation thereof. In case TEMIC
-3-
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 4
interrupts production due to circumstances described
hereinabove, it shall provide reasonable assistance to SMI in
order to re-establish deliveries of wafers, if appropriate, by
subcontracting to another foundry.
5. STATUS REPORTS
5.1 Upon request from SMI, TEMIC shall provide SMI with
work-in-process, in SMI content and format, status reports, with
projection of wafer-out dates.
5.2 Any deviations from acknowledged delivery dates due to
unforeseen manufacturing problems shall be reported to SMI
within 3 working days when such problems become apparent.
6. PROCESS HOLDS
6.1 SMI may request in writing that TEMIC hold engineering wafer
processing at mask levels of [***] and [***] for a maximum
cumulative period of [***] days, and TEMIC shall accept such
requests.
7. PROCESS CHANGES
7.1 Either party may request the other party to accept changes in
the production process for wafers, provided, however, any
material changes to the production process for wafers that has
been previously approved by SMI for production of its wafers,
including changes to procedures, flow or specifications, may
only be made if such changes are first approved in writing by
SMI, which approval shall not be unreasonably withheld.
7.2 Changes requiring written approval are major changes as
described in Exhibit C.
8. OWNERSHIP AND RESPONSIBILITY
8.1 TEMIC acknowledges and agrees that SMI shall own all rights,
including, without limitation, all patent rights, copyrights,
trade secret rights, and mask work and similar rights, in and to
the wafers and other products produced by TEMIC for SMI
hereunder, and in the know-how disclosed by SMI to TEMIC
hereunder. TEMIC shall own all rights in and to the production
process and all know-how independently developed by TEMIC and
used in the manufacturing of the wafers. SMI and TEMIC
acknowledge that TEMIC is acting only as a foundry.
9. DISCONTINUATION OF PRODUCTION
9.1 In the event SMI cannot consume all processed wafers, TEMIC will
stop production immediately upon written notice of SMI and
advice the work-in-process status to SMI. In lieu of paying the
order value for completed wafers, the following compensation may
be calculated:
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[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 5
(a) For any wafers due for delivery in less than 8 weeks,
irrespective of the state of completion and in addition
to the charges under (b), (c) and (d) below
[***]
(b) For any wafers processed up to Poly-l [***]
(c) For any wafers processed up to Metal-1
(or Metal-2 if applicable) [***]
(d) For any wafers processed beyond Metal [***]
The percentages relate to the wafer prices per Exhibit A.
The quantities in steps (b), (c) and (d) have to relate
reasonably to the total quantity of wafers ordered.
9.2 TEMIC agrees to provide up to [***] wafers to SMI upon
notification that TEMIC will obsolete or upgrade its wafer
fabrication process. TEMIC will provide notification at least 6
months in advance prior to time of obsolescence or major process
change. Delivery of wafers ordered under this provision will be
at a mutually agreeable rate.
9.3 1 year after the final production, TEMIC may scrap the masks or
send the masks to SMI on SMIs request.
10. TEMIC QUALITY INSPECTION
10.1 TEMIC shall ship only such wafers or parts as have passed visual
inspection and electrical testing (PCM) by TEMIC, in accordance
with the specifications set forth in Exhibit B (the
"Specifications Used By Foundry to Build Wafers").
10.2 SMI and/or its appointed customers shall be entitled upon any
reasonably written request and during normal business hours, and
at its sole expense, to witness inspection and testing of all
wafers manufactured by TEMIC for SMI under this Agreement and to
audit the TEMIC quality control system to monitor the quality of
wafers manufactured. If corrective actions require follow-up,
additional, directly related audits are permitted, SMI
personnel, in conducting such inspections or audits, shall be
bound by TEMIC rules at its plants respecting visits by outside
personnel.
10.3 TEMIC shall keep and provide reasonable access by SMI to all
TEMIC test, inspection, processing, and full tracing of all
wafers, from fabrication to shipment, including scraps, normally
maintained for a wafer lot for each lot of wafers processed, for
SMI on the same terms as it handles its standard production
records for other customers. TEMIC shall not destroy records
pertaining to the wafers within 18 months of their creation, and
without first giving SMI thirty (30) days written notice of such
intended destruction and the right to obtain copies of such
records for SMI own files and at SMI own expense.
-5-
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 6
10.4 If TEMIC experiences any unusual technical problems in
manufacturing wafers pursuant to this Agreement, TEMIC may
request that SMI assist TEMIC in resolving such technical
problems, and SMI shall use its best efforts to assist TEMIC in
resolving such problems as promptly as possible. If SMI
personnel are requested by TEMIC to travel to TEMIC facilities
to assist TEMIC in resolving such technical problems, SMI shall
bear all of its own overhead costs and personnel and travel
expenses. TEMIC will provide adequate technical equipment for
carrying out effective analyses of the perceived technical
problems to SMI personnel while working at TEMIC facilities. If
TEMIC and SMI agree in good faith that the perceived problems
are not related to the design of SMI products, TEMIC will
reimburse travel expenses, including room and board.
10.5 Should TEMIC discover or be informed about a condition that may
affect the quality of reliability of wafers in process or
shipped to SMI will inform SMI immediately and present to SMI
all pertinent data.
11. LOC INSPECTION
11.1 SMI shall conduct its own inspection of shipped wafers or parts
in accordance with the Wafer Specifications within fifteen (15)
business days after receipt thereof by SMI. If any wafers or
parts shipped by TEMIC do not meet Wafer Specifications upon
such inspection, SMI shall immediately notify TEMIC in writing
of the rejection of such shipment and the lot number(s)
affected, and the specific defect of deficiency identified by
the inspection. SMI shall hold such materials in a safe and
secure facility and make them available for inspection by TEMIC,
subject to Section 11.5.
11.2 If appropriate TEMIC may direct SMI to return such defective
materials to TEMIC for further inspection, testing or other
procedures. Any such direction shall be accomplished by an TEMIC
Return Material Authorization ("RMA"), including a specific
tracer number to be prominently displayed on the shipping
container for such returned materials. Upon issuance of an RMA,
SMI shall promptly ship such materials together with all
relevant data from the SMI inspection to the designated TEMIC
facility, freight and insurance prepaid, in the original
shipping container or containers of equivalent protective
constitution.
11.3 SMI may return such wafers or parts hereunder for a credit and
may recover its return shipping and insurance expenses from
TEMIC if, and only if, defects in such materials actually exist
as indicated in the SMI rejection notice and were not caused by
SMI own misuse unauthorized modifications, neglect, improper
testing, attempts to repair, or by accident, fire or other
hazard, while such materials are in the possession or control of
SMI.
11.4 TEMIC and SMI acknowledge that some wafers or parts which do not
meet Wafer Specifications and/or are broken may nevertheless
still be expected to yield a functional and reliable produce. If
SMI elects to purchase such below-specification
-6-
<PAGE> 7
wafers or parts, shall be entitled to a partial credit against
the TEMIC invoice amount as may be reasonably agreed upon in
writing by SMI and TEMIC. If SMI and TEMIC fail to agree upon a
partial credit amount, then the below-specification wafers or
parts shall be returned to TEMIC at TEMICs expense for
destruction by TEMIC. TEMIC shall not sell or provide access to
such wafers to any third party.
11.5 SMI and TEMIC agree that conformance to the specifications
within this document does not necessarily indicate the wafers
are free of defects in material and/or workmanship, and that
subsequent processing or testing may uncover such defects in
material and/or workmanship. Warrant claims of such nature shall
be made by SMI no later than 30 working days after the first
indication of a potential problem to SMI and TEMIC agree to use
their best efforts to correct such defects and provide each
other with a reasonable amount of data or information to effect
a cure.
11.6 Any other provision of this Agreement to the contrary
notwithstanding, no claim by SMI with respect to wafers, parts
or services delivered to SMI thereunder shall be greater in
amount than the purchase price of the order in respect of which
damages are claimed. IN NO EVENT SHALL TEMIC BE LIABLE FOR ANY
CONSEQUENTIAL, INCIDENTAL, INDIRECT OR SPECIAL DAMAGES, HOWEVER
CAUSED, WITH REGARD TO ANY WAFERS, PARTS OR SERVICES DELIVERED
HEREUNDER. REGARDLESS OF WHETHER TEMIC HAS BEEN INFORMED OF THE
POSSIBILITY OF SUCH DAMAGES OR NOT.
12. DELIVERY QUANTITIES
12.1 Delivery quantities will match with ordered quantities as
closely as possible; however, wafer shipments will always be
done in integer multiples of production batches for the sake of
lot traceability. A production batch is currently [***] wafers.
In large volume continuous production, batches of [***] wafers
are preferred for better economy of scale. SMI will, whenever
possible, place orders in integer multiples of production
batches and TEMIC will deliver and invoice the actually
accomplished number of wafers (normally +0/-10 % of batch size).
13. CONFIDENTIALITY
13.1 Each party acknowledges that the information disclosed in
connection with any transactions contemplated hereunder will
contain the Confidential Information and trade secrets of the
disclosing party, and will remain the property of the disclosing
party ("Confidential Information"). A party receiving any
Confidential Information of the other party shall take all
reasonable measures to keep and hold any such Confidential
Information of the other party in strict confidence as it would
be its own Confidential Information and shall not disclose such
Confidential Information of the other party to any person, firm
or corporation without the prior written consent of the party
disclosing such Confidential Information. A party receiving
Confidential Information of the other party shall not, except as
may be authorized hereafter in
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with the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 8
writing by the disclosing party, use any Confidential
Information of the other party for any purpose not stated in
this Agreement.
13.2 A party receiving Confidential Information of the other party
shall limit dissemination of and access to any Confidential
Information of the other party to those employees or consultants
of the receiving party who have a good faith need for such
access to effectuate the purpose of this Agreement and who have
executed a standard non-disclosure agreement with the receiving
party.
13.3 The obligations of the receiving party described in this Section
shall survive termination or expiration of this Agreement and
shall continue in full force and effect with respect to any
information as long as it remains Confidential Information under
this Section 13.
13.4 A party receiving Confidential Information of the other party
may disclose such information to subcontractors upon the prior
written approval of the party disclosing the Confidential
Information if such disclosure is necessary to perform its
duties under this Agreement, and such approval shall not be
unreasonably withheld. The receiving party shall cause its
permitted subcontractors to sign a confidentiality agreement
with substantially the same terms and conditions of this Section
prior to disclosing Confidential Information of the other party
to such subcontractors.
13.5 Neither party shall have the obligation to the other party with
respect to any information of the other party of any portion
thereof which is:
(a) already known to the receiving party at the time of
receiving same as shown by the receiving party's files
and records in existence at the time of disclosure;
(b) or hereafter becomes publicly known through no wrongful
act of the receiving party;
(c) rightfully received from a third party without
restriction on disclosure and without breach of this
Agreement;
(d) now or hereafter independently developed by the
receiving party and without reliance in any degree upon
any Confidential Information of the other party;
(e) furnished by the disclosing party to a third party
without any restriction upon disclosure comparable to
that set forth in this Agreement; or
(f) revealed pursuant to a requirement of a governmental
agency or lay, provided that the receiving party
provides prompt written notice of such requirement or
law so as to afford the disclosing party an opportunity
to intervene and oppose disclosure.
13.6 The parties agree that any material breach of Section 13 will
cause irreparable injury and that injunctive relief in a court
of competent jurisdiction will be appropriate to
-8-
<PAGE> 9
prevent either an initial or continuing breach of such
nondisclosure and confidentiality provisions herein in addition
to any other relief to which the owner of such Confidential
Information may be entitled.
13.7 Insofar as the performance hereunder involves the transfer of
products and technologies subject to the United States Export
Regulations (15 C.F.R., Parts 779, et seq.), the parties hereto
warrant to fully comply with all pertinent regulations.
14. TERM
14.1 This Agreement may be terminated by SMI or TEMIC upon written
notice to the other party:
(a) in the event the other party files a petition in
bankruptcy, or in the event all or part of the other
party's assets are assigned to a trustee or receiver, or
if an involuntary petition in bankruptcy is filed by a
third party and the other party does not resolve such
petition in its favour within sixty (60) days after
filing and notice thereof; or
(b) in the event of a substantial breach of a material term
of this Agreement not remedied by the other party in
breach within thirty (30) days after receipt of written
notice by the terminating party specifying such breach
and requesting that it be remedied.
(c) immediately for any violations or Section 13.
14.2 IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY LOST PROFITS OR
ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, OR SPECIAL DAMAGES,
HOWEVER CAUSED, AND ON ANY THEORY OF LIABILITY, ARISING OUT OF
THE TERMINATION OF THIS AGREEMENT.
14.3 TEMIC shall not be liable for any damages caused by SMI
products, due to design, packaging, testing and whatsoever.
14.4 This agreement shall be in effect for 60 months and shall be
self renewing annually. Should TEMIC decide to not renew this
agreement the discontinuation of product clause (Section 9.1)
becomes valid.
15. INFRINGEMENT
15.1 TEMIC warrants to SMI that TEMIC owns the know-how, copyrights,
mask work rights, and other intellectual rights solely to enable
TEMIC to produce the wafers or parts for SMI lawfully. SMI
hereby indemnifies and holds TEMIC and its directors, officers,
employees and agents harmless from any claim, suit or other
liability (including reasonable attorneys, fees and costs)
arising out of or resulting from a material breach of the
foregoing warranty.
-9-
<PAGE> 10
15.2 SMI warrants to TEMIC that SMI owns, or otherwise has the right
to use on behalf of TEMIC all applicable intellectual property
rights to the manufacturing processes not otherwise licensed to
SMI by TEMIC which will be used by TEMIC to produce the wafers
or parts. SMI hereby indemnifies and holds TEMIC and its
directors, officers, employees and agents harmless from any
claim, suit or other liability (including reasonable attorneys,
fees and costs) arising out of or resulting from a material
breach of the foregoing warranty.
15.3 In the event of the institution of any suit or claim against an
indemnified party alleging that TEMIC manufacture of the wafers
or parts violates any circuit design patent or mask work,
manufacturing process patent, or other circuit design or
manufacturing process proprietary right of a third party
recognised under the laws of the United States of America
(hereinafter "Third Party Rights"), or shall become the subject
of any claim for violation of Third Party Rights, the
indemnified party shall promptly notify the indemnifying party
of such suit or claim and provide reasonable details thereof.
Failure to give such notice, if it materially impairs the
ability of the indemnifying party to defend against such suit or
claim, shall terminate any duty of indemnification under this
Section.
15.4 The indemnifying party shall have sole control of any action or
settlement negotiations relating to any such suit or claim, and
the indemnified party shall render all cooperation reasonably
requested by the indemnifying party in defense of such suit or
claim, provided that the indemnified party may retain its own
counsel at its own expense. The indemnified party shall not
settle or attempt to settle any such suit or claim without the
express written consent of the indemnifying party.
15.5 In addition to its duty of indemnification hereunder, the
indemnifying party may, at its sole discretion and expense:
(a) alter or change the circuit design or manufacturing
process, as may be the case, so as to make said design
or process non-infringing of any third Party Right; or
(b) obtain permission from the affected thirty party to use
the Third Party right, it being the intention of both
parties to continue the performance of this Agreement if
commercially reasonable to do so.
If neither of these methods is appropriate to eliminate the
infringement of the Third Party Right, the indemnifying party at
its sole discretion may terminate this Agreement or withdraw the
infringing products without any additional obligation or
liability to the indemnified party, for lost opportunity or
profits or otherwise, due to such termination.
-10-
<PAGE> 11
16. NOTICES
16.1 Any and all notices or other communications required or
permitted by this Agreement or by law to be served on or given
to either party hereto by the other party shall be in writing
and shall be deemed duly served and given when personally
delivered to either of the parties to whom it is directed, or in
lieu of such personal service, on the same day of transmission
by telex or confirmed facsimile or seven (7) days after deposit
in the mail, first class international air mail postage prepaid,
or two (2) business days after being sent by overseas courier,
addressed to:
Stanford Microdevices Inc. TEMIC Semiconductor GmbH
522 Almanor Avenue Theresienstrasse 2
Sunnyvale, CA 94086 D-74072 Heilbronn
Attn. of: Gerald L. Quinnell Attn. of: Dominik Winau
Copy to:
AMTEL Corporation
2325 Orchard Parkway
San Jose, CA 95131
Attn. of: Mike Ross
Copy to:
TEMIC Semiconductor
160 Street Road
Oxford, PA 19363
Attn. of: Rodney Hsing
Either party may change the addresses above upon notice duly
given in writing to the other party.
17. ARBITRATION
17.1 Except for any claim based upon an alleged or actual violation
of Section 13 above with respect to confidentiality and
non-disclosure, any dispute relating to the interpretation or
performance of this Agreement or the grounds for the termination
thereof shall be resolved at the request of either party through
final and binding arbitration as set forth herein. Such
arbitration shall be conducted by three (3) arbitrators, at
least one (1) of whom shall have reasonable technical knowledge
of and experience in the semiconductor industry, selected by the
mutual agreement of the parties, or, failing such agreement, as
selected according to the applicable rules specified below. The
parties shall bear the costs of such arbitrators equally.
17.2 Arbitration shall be conducted in the English language in
Sacramento, California, USA, under the Commercial Arbitration
Rules of the American Arbitration Association (the "AAA") and
its Supplementary Procedures for International Commercial
Arbitration, except as superseded by the provisions of this
Section. The
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<PAGE> 12
arbitration panel shall operate in all respects by a majority
vote of the arbitrators. The parties shall be entitled to all
discovery permitted under Section 1283.05 of the California Code
of Civil Procedure, with all such discovery to be completed
within ninety (90) days of the commencement of the arbitration,
provided, however, that if TEMIC is not entitled to discovery
under Germany's or other law, SMI shall not be entitled to
discovery. Upon completion of the arbitration bearing, the
arbitrators shall promptly render their decision and award,
which shall be in writing and which shall state the reasons for
the conclusions reached.
17.3 The arbitrators shall have the power to render any award for
ordinary damages or injunctive relief but may not award punitive
damages. If judicial enforcement or review of such arbitration
award is sought by either party, judgement may be entered upon
such award in any court of competent jurisdiction in the United
States or Germany, as the case may be.
17.4 The prevailing party in any such judicial enforcement,
arbitration or review proceeding or in any other legal
proceeding relating to the interpretation or performance of this
Agreement or the grounds for termination thereof shall be
entitled to its reasonable attorneys' fees and related other
costs (including the costs for any interpreters or translators)
in addition to any other amount of recovery ordered by such
court. For purposes of this Section, a "prevailing party" shall
be that party which recovers more than one-half (1/2) of the
amount set forth in its claim in the arbitration or which
defeats the other party's claim by more than one-half, or which
achieves a comparable result in respect of injunctive relief.
18. MISCELLANEOUS
18.1 This document constitutes the entire agreement of SMI and TEMIC
with regard to the subject matter hereof and supersedes all
prior negotiations and agreements whether written or oral. The
executed English language version of this Agreement and of any
other documents prepared by the parties under this Agreement
shall be controlling for all purposes.
18.2 This Agreement may be amended only by a written document
executed by authorized representatives of SMI and TEMIC.
18.3 SMI and TEMIC acknowledge the need for certainty, orderliness
and predictability essential to the performance of this
agreement in international commerce. The parties further
acknowledge that the choice of law to be applied by the parties
or by a tribunal in the event of arbitration of litigation
arising out of this Agreement is a material and bargained for
provision upon which both parties have had the opportunity to
consult with their respective legal advisors. In light of the
foregoing, this Agreement shall be governed by and construed in
accordance with the laws of the State of California, excluding
(a) its choice of law rules and
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<PAGE> 13
(b) the United Nations Convention on the International sale
of Goods.
18.4 No right may be assigned, and no duty may be delegated, by
either party under this Agreement except upon the written
consent of the other party, and any attempted assignment and
delegation without such consent shall be void.
18.5 Notwithstanding the foregoing, however, either party shall be
entitled to assign this Agreement, and all rights and
obligations hereunder, to a successor to all or substantially
all of its assets, whether by sale, merger, or otherwise,
provided that either party indicating such assignment shall
provide the other party with at least thirty (30) days prior
written notice and cause such assignee to be bound by this
Agreement. This agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective
representatives, heirs, administrators, successors and permitted
assigns except as otherwise provided herein.
18.6 The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
18.7 Except for the duty of payment for goods and services previously
supplied, neither party shall be responsible or liable to the
other party for non-performance or delay in performance of any
terms or conditions of this Agreement due to acts of God, acts
of governments, wars, riots, strikes or other labour disputes,
shortages of labour or materials, or other causes beyond the
reasonable control of the non-performing or delayed party,
provided, however, non-performance or delay in excess of one
hundred eighty (180) days shall constitute cause for termination
of this Agreement by either party.
18.8 This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but such counterparts
together shall constitute only one and the same instrument.
18.9 Any waiver (express or implied) by either party of any breach of
this agreement shall not constitute a waiver of any other or
subsequent breach.
18.10 In the event any provision of this Agreement is held to be
invalid or unenforceable, the valid or enforceable portion
thereof and the remaining provisions of this Agreement will
remain in full force and effect.
18.11 Each party hereto is an independent contractor of the other, and
neither shall be deemed an employee, agent, partner or joint
venturer of the other. Neither party shall make any commitment,
by contract or otherwise, binding upon the other nor represent
that it has any authority to do so.
18.12 Each party shall obey all applicable laws and regulations in the
performance of its respective duties and tasks under this
Agreement and shall use its best efforts to assist the other
party to do likewise.
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<PAGE> 14
18.13 Each party shall designate a single management representative
who shall be the primary point of contact for that party in its
relations with the other party hereunder, and each party may
change its representative from time to time upon prior written
notice to the other party. Initially, the SMI representative
shall be Gerald L. Quinnell and the TEMIC representative shall
be [***].
IN WITNESS WHEREOF the parties have caused this agreement to be
executed by their respective duly authorized representatives.
FOR STANFORD MICRODEVICES FOR TEMIC
<TABLE>
<S> <C> <C>
/s/ Gerald L. Quinnell /s/ Dr. Dominik Winau /s/ Dr. Frank Heinricht
- ---------------------- ---------------------- -----------------------
(signature) (signature) (signature)
Gerald L. Quinnell Dr. Dominik Winau Dr. Frank Heinricht
Chief Operating Officer Vice President Business Chief Executive Officer
Stanford Microdevices Center Communications TEMIC Semiconductors
TEMIC Semiconductors
Sept 01, 1999 09/09/99 09/09/99
- ---------------------- ---------------------- -----------------------
(date) (date) (date)
</TABLE>
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[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 15
EXHIBIT A
PRODUCT DESCRIPTION
[***]
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 16
[***]
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect to
the omitted portions.
-2-
<PAGE> 17
EXHIBIT B
[***]
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 18
EXHIBIT C
[***]
All other changes are considered to be minor changes, unless otherwise mutually
agreed on in writing.
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 19
EXHIBIT D
STANDARD TERMS AND CONDITIONS OF SALE
1. GENERAL: This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California. This constitutes
the entire Agreement between Buyer and Supplier with respect to the
purchase and sale of the Products described on the face hereof and only
representations or statements contained herein shall be binding upon
Supplier as a warranty or otherwise. Acceptance or acquiescence in the
course of performance rendered pursuant hereto shall not be relevant to
determine the meaning of this writing even though the accepting or
acquiescing party has knowledge of the nature of the performance and
opportunity for objection. No addition to or modification of any of the
terms and conditions specified herein shall be binding upon Supplier
unless made in writing and signed by a duly authorized representative of
Supplier. The terms and conditions specified herein shall prevail
notwithstanding any variance from the terms and conditions of any order
or other form submitted by Buyer for the Products set forth on the face
of this Agreement ("Products"). To the extent that this writing may be
treated as an acceptance of Buyer's prior offer, such acceptance is
expressly made conditional on assent by Buyer to the terms hereof, and,
without limitation, acceptance of the goods by Buyer shall constitute
such assent. All cancellations and reschedules require a minimum of
thirty (30) days notice for standard product and ninety (90) days notice
for non-standard product, commencing 5 days after notice is received at
the Temic facility that was designated to ship the product. All products
scheduled for delivery during the respective thirty (30) or ninety (90)
day period will be shipped unless an exception is negotiated with the
Product Marketing Manager.
2. PRICES AND TAXES:
(a) Prices shown are F.O.B. Supplier's plant. Regardless of any
prices quoted by Supplier or listed on Buyer's order, any order
is accepted only at the price shown on Supplier's Sales Order
Acknowledgment of such order and Supplier reserves the right to
revise such prices prior to shipment so as to reflect any
increased cost to Supplier for materials used in the manufacture
of the Products. Prices are also subject to revision when
interruptions, engineering changes or modifications are caused
or requested by Buyer. All prices are quoted, all orders are
accepted, and all billings are rendered exclusive of all
federal, state and local excise, transactions, sales, use and
similar taxes. Consequently, in addition to the prices specified
herein, the amount of any present or future excise,
transactions, sales, use or similar tax applicable to the sale
of a product hereunder shall be paid by Buyer. Such taxes, when
applicable, Will appear as separate additional items on the
invoice unless Supplier receives a proper tax exemption
certificate from Buyer prior to shipment. All personal property
taxes assessable on the products after delivery to Buyer shall
be borne by Buyer.
(b) In the event that a "revert pricing" schedule, a "bill back"
schedule, or a pricing schedule which indicates lower per unit
prices or higher volume purchases appears as part of this
Agreement, it is understood and agreed that the unit price to be
paid by Buyer is that price determined by the total number of
units purchased by Buyer in accordance with the schedule at the
date of termination of this Agreement. Any payment made by Buyer
at price levels equal to the lowest per unit price appearing on
this Agreement is accepted by Supplier only as an accommodation
to Buyer and as a partial payment in the event that the
necessary volume of units to achieve the lowest available price
is not purchased. In the event of any termination of this
Agreement for any reason, Buyer agrees that it will pay Supplier
a unit price based upon the total number of units purchased
prior to termination.
(c) In the event Buyer shall desire quantities of any product in
addition to those contracted for pursuant to this Agreement
Buyer agrees that Supplier shall have no obligation whatsoever
to renegotiate this price.
3. TERMS AND CONDITIONS OF PAYMENT. Where Supplier has extended credit to
Buyer, terms of payment shall be net thirty (30) days from the date of
invoice. A late charge in the amount of the lesser of one percent (1%)
of the outstanding amount or the maximum amount permitted by law shall
be assessed each twenty-eight (28) days on all accounts fifteen (15)
days past due. The amount of credit may be changed or credit withdrawn
by Supplier at any time in Supplier's sole discretion. On any order on
which credit is not extended by Supplier, shipment or delivery shall be
made at Supplier's election: Cash with Order (in whole or part) C.O.D.
or sight draft attached to bill of lading or other shipping documents,
with all costs of collection to be paid by Buyer.
<PAGE> 20
Buyer agrees to make payment of each shipment separately and understands
that if payment is not so made Supplier is under no obligation to make
further shipments. If shipment or manufacture is delayed by Buyer,
payment shall become due on the date when Supplier is prepared to make
shipment or on the date on which manufacture is delayed, and such
payment shall be made based on the contract price and the percentage of
completion. Products held by Supplier for Buyer by reason of Buyer's
delay shall be held at the risk and expense of Buyer. If, in the
judgment of Supplier, the financial condition of Buyer at any time does
not justify continuance of production or shipment upon the terms of
payment specified, Supplier may require full or partial payment in
advance and, in the event of bankruptcy or insolvency of Buyer, or in
the event any proceeding is brought by or against Buyer under the
bankruptcy or insolvency laws, Supplier shall be entitled to cancel any
order of Buyer then outstanding and shall receive reimbursement from
Buyer for all costs incurred by Supplier in connection with any such
canceled order from and after the date of such order to and including
the date of cancellation.
4. DELIVERY AND RISK OF LOSS: All products shall be delivered to Buyer,
F.O.B. Supplier's plant, and Buyer assumes all risk of loss from the
time the products are delivered to a common carrier or placed in the
United States Mails, as the case may be, for shipment to Buyer. Should
United States Mails be specified as method of delivery by Buyer, Buyer
waives right to proof of delivery in the absence of specific
instructions. Supplier will exercise its discretion in the method of
shipment. Unless otherwise specified to the contrary, supplier is under
no obligation to ship by any particular date. Shipping dates are
approximate, and in the case of development contracts, it is recognized
that no delivery dates are certain until by a separate writing signed by
Supplier, supplier obligates itself to specific delivery dates.
5. WARRANTIES: THE WARRANTIES CONTAINED IN THIS AGREEMENT ARE IN LIEU OF
ANY AND ALL OTHER WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, EXCEPT AS
TO TITLE, AND ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR
A PARTICULAR PURPOSE ARE HEREBY DISCLAIMED BY THE SUPPLIER AND EXCLUDED
FROM THIS AGREEMENT. In no event shall Supplier have any warranty
obligation to any person with respect to products purchased from someone
other than Supplier or one of its contract distributors. Standard
Products of Supplier (those products appearing on Supplier's official
price list) are warranted to be free from defects in materials and
workmanship and, when tested, to meet the applicable published
specification as of the date hereof. Development Products of Supplier
(those products not appearing on Supplier's official price list) are
warranted to be free from defects in materials and workmanship and to
meet the agreed to applicable specification supplied by Buyer to
Supplier as of the date of this agreement. Unless otherwise specifically
agreed to in writing signed by Supplier, Supplier's warranty shall
extend for one year from the date of invoice or until Buyer resells the
respective product(s), whichever date first occurs. The liability of
Supplier under the warranty as herein set forth is limited solely to
replacing, repairing or issuing credit (each at the discretion of
supplier) for such products that are defective at the time they are
received by Buyer, provided that supplier will not be liable under this
warranty unless, (i) Supplier is, during the warranty period, promptly
notified in writing upon discovery of defects by Buyer, (ii) the
defective unit is returned to Supplier, transportation charges prepaid
by Buyer, (iii) the defective unit is received by Supplier for
adjustment no later than four weeks following the last day of the
warranty, and (iv) Supplier's examination of such unit shall disclose to
its satisfaction, that such defects have not been caused by misuse,
neglect, improper installation, repair, alteration or accident. In no
event shall Supplier be responsible for reimbursing Buyer for any costs
of replacement of any defective product. Supplier shall not be
responsible for any shortage unless Buyer shall notify Supplier in
writing within thirty days following receipt of shipment, of Buyer's
claim for any such shortage, together with a reasonably detailed
description of the basis of such claim.
IN NO EVENT SHALL SUPPLIER BE LIABLE TO BUYER FOR LOSS OF PROFITS, LOSS
OF USE, OR CONSEQUENTIAL DAMAGES BASED UPON A CLAIM FOR BREACH OF
CONTRACT OR BREACH OF WARRANTY. Supplier's warranty shall not be
enlarged, diminished or affected by and no obligation or liability shall
arise or grow out of Supplier rendering technical advice or service in
connection with Buyer's order for the products furnished hereunder.
Tools, dies and other equipment furnished Supplier by Buyer shall be at
Buyer's risk and expense. Weights and dimensions set forth in sales
literature on equipment products are not guaranteed unless specifically
agreed to in writing signed by Supplier.
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<PAGE> 21
6. PATENTS, COPYRIGHTS, AND MASK WORKS:
With respect to products manufactured solely to Supplier's design or
specification, Supplier shall indemnify, defend and hold Buyer harmless
against any and all expenses, damages, costs or losses resulting from
any suit or proceedings brought against Buyer based on a claim that any
such products or any parts thereof constitute an infringement of any
patent, copyright or mask work of the United States or any other
jurisdiction, provided that supplier is notified promptly of such claim
in writing and given authority, information and assistance (at
Supplier's expense) for the defense of same in the event said products
or any parts thereof, are found to constitute infringement of any United
States or other patent, copyright or mask work right and the use of said
products or parts is enjoined. Supplier shall, in its sole discretion
either procure for buyer the right to continue using said products or
parts, replace said products or parts with noninfringing substitutes or
accept the return of said products or parts and refund the purchase
price and the transportation costs related thereto.
Buyer shall indemnify, defend and hold Supplier harmless from any and
all expenses, damages, costs or losses resulting from any suit or
proceeding brought for infringement of patents, copyrights, mask works,
or trademarks or for unfair competition or violation of trade secrets
arising from compliance with Buyer's designs, specifications or
instructions.
The sales of products or any parts thereof hereunder confers on Buyer no
license to or other rights under any patent, copyright or mask work
rights, trade secrets, or other proprietary information or processes of
Supplier covering or relating to (a) the structure, design or concept of
any devices to which the products or parts may be applied, or (b) any
process, part or machine in connection with which such products may be
manufactured or used. Supplier shall not be liable for any costs or
damages incurred by Buyer as a result of any suit or proceeding brought
against Buyer and Buyer will indemnify, defend and hold Supplier
harmless from any expenses, damages, costs or losses resulting from any
suit or proceeding brought against Supplier, either severally or jointly
with Buyer so far as such suit or proceeding is based upon claims (a)
that use by Buyer of any product, or any parts thereof furnished
hereunder, in combination with products not supplied by Supplier or (b)
that a manufacturing use or other process by Buyer utilizing any
product, or any parts thereof furnished thereunder constitutes either
(i) direct or contributory infringement of any patent, copyright or mask
work right of the United States or other jurisdiction, or (ii) direct or
indirect violation of any trade secret or proprietary right.
THIS PROVISION IS STATED IN LIEU OF ANY OTHER EXPRESSED, IMPLIED OR
STATUTORY WARRANTY AGAINST INFRINGEMENT AND SHALL BE THE SOLE AND
EXCLUSIVE REMEDY FOR PATENT, COPYRIGHT, OR MASK WORK INFRINGEMENT OF ANY
KIND.
7. CONTINGENCIES: Supplier shall not be liable for any failure to perform,
or delay in performance, caused by circumstances beyond its reasonable
control which makes such performance commercially impracticable
including, but not limited to fire, storm, flood, earthquake, explosion,
accident, acts of a public enemy or rebellion, insurrection, sabotage,
epidemic, quarantine restrictions, labor dispute, labor shortages,
transportation embargoes, or delays in transportation, shortages of
materials, acts of God, acts of Federal government or any agency
thereof, acts of state or local government or agency thereof, and
judicial action. In the event of inability due to any of the above
circumstances to supply the total demands for the goods specified in
Buyer's orders, Supplier may allocate its available supply without
liability for any failure of performance which may result therefrom. To
the extent that no allocation is made to Buyer, either Buyer or Supplier
shall have the right to terminate the contract by prompt notice to the
other party in writing.
8. NON-WAIVER OF DEFAULT. In the event of any default by Buyer, Supplier
may decline to make further shipments without in any way affecting its
rights under such order. If, despite any default by Buyer, Supplier
elects to continue to make shipments, its action shall not constitute a
waiver of any default by Buyer or in any way affect the Supplier's legal
remedies regarding any such default. No claim or right arising out of a
breach of the Agreement by Buyer can be discharged in whole or in part
by waiver or renunciation of the claim or right unless the waiver or
renunciation is supported by consideration, and is in writing signed by
Supplier.
9. ASSIGNS: The Agreement shall be binding and inure to the benefit of the
successors and assigns of Supplier, but shall not be assignable by Buyer
voluntarily or involuntarily without the written consent of Supplier.
10. TITLE TO PRODUCTS: Title to and right of possession of the products sold
hereunder shall remain with Supplier until all payments provided
hereunder (including deferred payments whether evidenced by notes or
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<PAGE> 22
otherwise and revert pricing or billback payments) shall have been made
in full, and Buyer agrees to do all acts necessary to perfect and
maintain such right and title in Supplier. Failure of the Buyer to pay
the purchase price for any product when due shall give the Supplier the
right, without liability, to repossess such product with or without
notice, and to avail itself of any remedy provided by law.
-4-
<PAGE> 1
EXHIBIT 10.10
SUPPLY AGREEMENT
This Agreement (the "Agreement") is entered into this 7th day of
October, 1999 by and between Spectrian, Inc., Semiconductor Division, having its
office at 350 West Java Drive, Sunnyvale, California, 94089, hereinafter
referred to as "SPECTRIAN"
and
Stanford Microdevices Inc., having its office at 522 Almanor Avenue,
Sunnyvale, CA 94086, USA, hereinafter referred to as "SMI".
SPECTRIAN desires to sell, and SMI desires to buy, semiconductor wafers,
transistors, and capacitors to be manufactured by SPECTRIAN using proprietary
designs, pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE in consideration of these premises, and the mutual
promises and conditions in this Agreement, the parties agree as follows.
1. Scope of Agreement.
1.1 Subject to the terms and conditions contained in Section 14
of this Agreement, SMI and SPECTRIAN hereby will disclose Know-how as defined
below and Confidential information, as defined in Section 14 to have wafers,
transistors and capacitors made at SPECTRIAN's fabrication facility in
Sunnyvale, California, in accordance with the Wafer, Transistor, and Capacitor
Specifications set forth in Exhibit A, and to test such wafers, transistors and
capacitors, and to sell such wafers, transistors, and capacitors to SMI at the
prices established in Exhibit B.
"Know-how", when used in this Agreement, shall mean all of
SPECTRIAN designs, techniques, technology, trade secrets, proprietary
information and other confidential information disclosed by SPECTRIAN to SMI
pursuant to this Agreement, which SPECTRIAN and SMI jointly agree is necessary
for SPECTRIAN to produce wafers, transistors, and capacitors under this
Agreement.
1.2 [***]
1.3 [***]
1.4 SPECTRIAN and SMI mutually agree that from time to time and
upon the agreement of the parties, additional new products may be added to the
Agreement.
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
<PAGE> 2
1.5 [***]
2. License.
2.1 SPECTRIAN hereby grants SMI and its wholly owned subsidiaries
a worldwide non-exclusive and non-transferable marketing license to sell certain
finished discrete LDMOS transistor devices and dies identified by product
specifications attached to this Agreement, which shall be marketed under the SMI
label.
2.2 SPECTRIAN hereby grants SMI and its wholly owned subsidiaries
a worldwide, royalty-free, non-exclusive and non-transferable license to the
technology and Know-how necessary to assemble and test stand alone transistor
devices manufactured with wafers procured under this Agreement. No license shall
be granted to SMI with respect to the wafer fabrication process technology,
rather, SPECTRIAN will supply to SMI for assembly semiconductor dies on which
SPECTRIAN has fabricated the applicable transistor device. SPECTRIAN shall make
available to SMI LDMOS dies manufactured using processes and structures
developed by SPECTRIAN after the effective date of this Agreement in SPECTRIAN's
fab for power amplifier devices. In addition, SPECTRIAN shall provide SMI access
to all related LDMOS assembly and test technologies developed by SPECTRIAN and
deemed necessary by SMI to develop new transistor designs. Spectrian hereby
grants SMI and its wholly owned subsidiaries a non-exclusive and
non-transferable, royalty, worldwide free license to the intellectual property
listed in Exhibit E of the Agreement required for the assembly and test of
transistors using SPECTRIAN dice. The parties shall mutually agree on the
contents of Exhibit E, which will be defined by December 31, 1999; provided
that, should SMI use the intellectual property defined in Exhibit E with other
foundries' dice, then a future royalty agreement may be negotiated between
SPECTRIAN and SMI.
3. Payment.
3.1 SMI shall pay in United States Dollars for wafers supplied by
SPECTRIAN to SMI hereunder within [***] days after SMI receipt of an invoice
from SPECTRIAN which shall be submitted to SMI upon shipment.
4. Orders, Warranty and Claims.
4.1 SPECTRIAN shall supply wafers, transistors, and parts to SMI
in accordance with written purchase orders to be provided by SMI. Each purchase
order shall include the following:
(a) purchase order number;
(b) product name;
(c) manufacturing process;
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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<PAGE> 3
(d) quantities;
(e) unit wafer, transistor, and/or parts prices and total
prices;
(f) desired shipment date (subject to Section 6 "DELIVERY
TIMES" below);
(g) delivery instructions; and
(h) any special requests or comments.
Subject orders shall become effective only upon the written acceptance
thereof by SPECTRIAN within 5 working days.
The terms of this Agreement shall prevail over any conflicting terms in
any order documents, invoices or similar documents exchanged between the parties
hereunder.
4.2 SMI shall place an annual purchase order with SPECTRIAN for
the finished transistor devices shown in Exhibit A to be sold to the merchant
market and for wafers to be utilized in manufacturing transistors for sale to
the merchant market. SMI and SPECTRIAN shall hold annual pricing negotiations
for the products shown in Exhibit A or more frequently as required to meet
specific demands of the merchant market.
4.3 SMI shall provide SPECTRIAN every month with a good faith
four (4) month rolling forecast of its wafer, transistors, and parts
requirements on a monthly basis, and SPECTRIAN shall use its best efforts to
make available to SMI sufficient fabrication, assembly and test capacity to meet
such forecast requirements. In addition to the status reports established under
Section 7 below, the parties shall provide one another with reasonable notice
about changes in desired shipping or production schedules, availability of
capacity or other similar situations. The forecast is considered as a firm order
for a period of thirty (30) days; changeable by [***] in the 31-59 day period,
and changeable as much as required in the period of 60 days or greater.
a. Any other provision of this Agreement notwithstanding,
if SPECTRIAN shall be delayed more than sixty (60) days in the production and
delivery of wafers, transistors or parts for any particular SMI purchase order,
regardless of cause, SMI may, at its reasonable discretion, provided that
SPECTRIAN is unable to provide a recovery program acceptable to SMI, cancel such
order effective upon written notice thereof to SPECTRIAN. Upon resubmission of
any such cancelled order by SMI and acceptance thereof by SPECTRIAN, SPECTRIAN
shall then use its best efforts to give a priority delivery date to such new
order. If SPECTRIAN delays production and delivery more than sixty (60) days
under three (3) or more SMI purchase orders in any six (6) months' period under
this Agreement, SMI may terminate this Agreement immediately by sending notice
of termination to SPECTRIAN.
b. SPECTRIAN gives warranty on workmanship and material
for [***] months. In case of warranty claims by SMI, SPECTRIAN's warranty is
limited to the replacement of wafers, transistors, and/or parts.
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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5. Product Support.
5.1 SPECTRIAN agrees to provide technical assistance and other
support to SMI as reasonably required. SPECTRIAN agrees to provide the
information necessary for SMI to generate technical sales data and marketing
collateral for the devices shown in Exhibit A. SMI shall be responsible for the
production of all sales literature and collateral.
6. Delivery Times.
6.1 Unless otherwise agreed to in writing by SMI, delivery times
upon acceptance of a SMI purchase order by SPECTRIAN shall be:
a) WAFERS - twelve (12) weeks for production wafers for
quantities up to 100 wafers, with the target to go down to eight (8) weeks in
2000; delivery times for quantities beyond 100 wafers are to be mutually agreed
upon.
b) TRANSISTORS - In accordance with the acknowledged
purchase orders.
c) CAPACITORS - In accordance with the acknowledged
purchase orders.
SPECTRIAN shall use its best efforts to achieve all delivery times on a
regular and consistent basis.
6.2 In the event of a third party suit or claim against SMI
and/or SPECTRIAN involving a Third Party Right (as defined in Section 16),
SPECTRIAN may, at its reasonable discretion and upon advice of its legal
counsel, suspend or terminate the production and supply of any wafers and
transistors to SMI if such continued production and supply would or could cause
SPECTRIAN to violate such Third Party Right. SPECTRIAN shall discuss any such
suspension or termination with SMI and shall give due opportunity for SMI to
satisfy the provisions of Section 16, prior to the implementation thereof. In
case SPECTRIAN interrupts production due to circumstances described hereinabove,
it shall provide reasonable assistance to SMI in order to re-establish
deliveries of wafers and transistors, if appropriate, by subcontracting to
another foundry.
7. Status Reports.
7.1 Upon request from SMI, SPECTRIAN shall provide SMI with
work-in-process information, in SMI content and format, status reports, with
projection of waferout and transistor completion dates.
7.2 Any deviations from acknowledged delivery dates due to
unforeseen manufacturing problems shall be reported to SMI within 3 working days
when such problems become apparent.
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8. Process Changes.
8.1 Either party may request the other party to accept changes in
the production process for wafers, provided, however, any material changes to
the production process for wafers that has been previously approved by SMI for
production of its wafers, including changes to procedures, flow or
specifications, may only be made if such changes are first approved in writing
by SMI, which approval shall not be unreasonably withheld.
8.2 Changes requiring written approval are major changes as
described in Exhibit C.
9. Ownership and Responsibility.
a. SPECTRIAN and SMI acknowledge that each party will own its
pre-existing technology, and any technology solely created by it. SPECTRIAN will
own any and all intellectual property developed solely by SPECTRIAN related to
semiconductor manufacturing, the die, packaging or internal matching of devices
covered by this agreement. Except as set forth above, all know-how and
inventions relating to the design of devices, device assembly, or internal
matching of devices jointly invented by the parties in the course of product
development efforts will be jointly owned and each party shall retain the right
to use and license such technology.
10. Discontinuation of Production.
a. SPECTRIAN agrees, upon notification to SMI that SPECTRIAN will
render obsolete or make a major fab process change, close the wafer fab, or
change ownership, to make available for purchase at the option of SMI that
quantity of wafers equal to SMI's past purchases or reasonably anticipated
future purchases under this Agreement, as the case may be, over a five (5) year
period of time. SPECTRIAN will provide notification at least 12 months in
advance of time of obsolescence or major process change. Delivery of wafers
ordered under this provision will be at a mutually agreeable rate but shall in
no case extend over a period greater than 12 months.
11. Spectrian Quality Inspection.
11.1 SPECTRIAN shall ship only such wafers, transistors or parts
as have passed visual inspection and electrical testing by SPECTRIAN, in
accordance with the latest approved revisions in effect of the specifications
set forth in Exhibit A.
11.2 SPECTRIAN shall process all wafers and dies delivered to SMI
in accordance with the latest approved revision level of SPECTRIAN Specification
040160, "LDMOS Wafer Evaluation and Die Preparation Process," and the applicable
LDMOS Die Specifications (510XXX) except as modified by Section 11.3 of the
Agreement.
11.3 SPECTRIAN will perform DC testing only on wafer and die
delivered to SMI in accordance with the requirements of 040160 and the
applicable 510XXX documents. SMI will perform all RF device evaluation assembly
and test for wafer qualification. All references to device builds for evaluation
sample testing, and qualification noted in 040160 and 510XXX documents are not
applicable to SPECTRIAN.
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SPECTRIAN warranties that [***] of the die from each wafer
delivered to SMI, when packaged into finished devices, will yield transistors
that comply with the applicable [***] transistor document. In the event a wafer
does not comply with this requirement, SMI will advise SPECTRIAN immediately,
but in no case later than [***] business days after receipt thereof by SMI, that
a wafer(s) has failed to comply with the performance and yield requirements of
paragraph 11.3. An engineering review meeting will be convened, attended by the
engineering representatives of both companies to review wafer data, and set a
corrective action plan for any failed wafers. After discussions regarding the
failed wafers have been completed, SMI, at its option and with advanced
notification to SPECTRIAN, shall return the wafer(s) for credit or replacement
or another agreed upon solution.
11.4 SMI and/or its appointed customers shall be entitled upon
any reasonably written request and during normal business hours, and at its sole
expense, to witness inspection and testing of all wafers manufactured by
SPECTRIAN for SMI under this Agreement and to audit the SPECTRIAN quality
control system to monitor the quality of wafers manufactured. If corrective
actions require follow-up, additional, directly related audits are permitted,
SMI personnel, in conducting such inspections or audits, shall be bound by
SPECTRIAN rules at its plants respecting visits by outside personnel.
11.5 SPECTRIAN shall keep, and provide reasonable access to SMI,
all SPECTRIAN test, inspection, processing, and full tracing of all wafers, from
fabrication to shipment, including scraps, normally maintained for a wafer lot
for each lot of wafers processed, on the same terms as it handles its standard
production records for other customers. SPECTRIAN shall not destroy records
pertaining to the wafers within 18 months of their creation and without first
giving SMI thirty (30) days written notice of such intended destruction and, the
right to obtain copies of such records for SMI own files and at SMI own expense.
11.6 Should SPECTRIAN discover or be informed about a condition
that may affect the quality or reliability of wafers in process or shipped to
SMI, SPECTRIAN will inform SMI immediately and present to SMI all pertinent
data.
12. Inspection.
12.1 SMI shall conduct its own inspection of shipped wafers,
transistors or parts in accordance with the Exhibit A wafer, transistor and
capacitor specifications within thirty (30) business days after receipt thereof
by SMI. If any wafers, transistors or capacitors shipped by SPECTRIAN do not
meet specifications upon such inspection, SMI shall immediately notify SPECTRIAN
in writing of the rejection of such shipment, and the specific defect or
deficiency identified by the inspection. SMI shall hold such materials in a safe
and secure facility and make them available for inspection by SPECTRIAN, subject
to Section 12.5.
12.2 If appropriate, SPECTRIAN may direct SMI to return such
defective materials to SPECTRIAN for further inspection, testing or other
procedures. Any such direction shall be accomplished by an SPECTRIAN Return
Material Authorization ("RMA"), including a specific tracer number to be
prominently displayed on the shipping container for such returned materials.
Upon issuance of an RMA, SMI shall promptly ship such materials together with
all
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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relevant data from the SMI inspection to the designated SPECTRIAN facility,
freight and insurance prepaid, in the original shipping container or containers
of equivalent protective constitution.
12.3 SMI may return such wafers, transistors or parts hereunder
for a credit and may recover its return shipping and insurance expenses from
SPECTRIAN if, and only if, defects in such materials actually exist as indicated
in the SMI rejection notice and were not caused by SMI own misuse, unauthorized
modifications, neglect, improper testing, attempts to repair, or by accident,
fire or other hazard, while such materials were in the possession or control of
SMI.
12.4 SPECTRIAN and SMI acknowledge that some wafers or parts
which do not meet Wafer Specifications and/or are broken may nevertheless still
be expected to yield a functional and reliable product. If SMI elects to
purchase such below-specification wafers or parts, SMI shall be entitled to a
partial credit against the SPECTRIAN invoice in an amount as may be reasonably
agreed upon in writing by SMI and SPECTRIAN. If SMI and SPECTRIAN fail to agree
upon a partial credit amount, then the below-specification wafers or parts shall
be returned to SPECTRIAN at SPECTRIAN's expense.
12.5 SMI and SPECTRIAN agree that conformance to the
specifications within this document does not necessarily indicate the wafers are
free of defects in material and/or workmanship, and that subsequent processing
or testing may uncover such defects in material and/or workmanship. Warranty
claims of such nature shall be made by SMI no later than 30 working days after
the first indication of a potential problem to SMI, and SMI and SPECTRIAN agree
to use their best efforts to correct such defects and provide each other with a
reasonable amount of data or information to effect a cure.
12.6 Any other provision of this Section 12 to the contrary
notwithstanding, no claim by SMI with respect to wafers, parts or services
delivered to SMI under this Agreement shall be greater in amount than the
purchase price of the order in respect of which damages are claimed. IN NO EVENT
SHALL SPECTRIAN BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT OR SPECIAL
DAMAGES, HOWEVER CAUSED, WITH REGARD TO ANY WAFERS, PARTS OR SERVICES DELIVERED
HEREUNDER. REGARDLESS OF WHETHER SPECTRIAN HAS BEEN INFORMED OF THE POSSIBILITY
OF SUCH DAMAGES OR NOT.
13. Delivery Quantities.
13.1 Delivery quantities will match with ordered quantities as
closely as possible; [***]
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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14. Confidentiality.
14.1 Each party acknowledges that the information disclosed in
connection with any transactions contemplated hereunder will contain the
Confidential Information and trade secrets of the disclosing party, and will
remain the property of the disclosing party ("Confidential Information"). A
party receiving any Confidential Information of the other party shall take all
reasonable measures to keep and hold any such Confidential Information of the
other party in strict confidence as it would its own Confidential Information
and shall not disclose such Confidential Information of the other party to any
person, firm or corporation without the prior written consent of the other
party. A party receiving Confidential Information of the other party shall not,
except as may be authorized hereafter in writing by the disclosing party, use
any Confidential Information of the other party for any purpose not stated in
this Agreement.
14.2 A party receiving Confidential Information of the other
party shall limit dissemination of and access to any Confidential Information of
the other party to those employees or consultants of the receiving party who
have a good faith need for such access to effectuate the purpose of this
Agreement and who have executed a standard non-disclosure agreement with the
receiving party.
14.3 The obligations of the receiving party described in this
Section shall survive termination or expiration of this Agreement and shall
continue in full force and effect with respect to any information as long as it
remains Confidential Information under this Section 14.
14.4 A party receiving Confidential Information of the other
party may disclose such information to subcontractors upon the prior written
approval of the party disclosing the Confidential Information if such disclosure
is necessary to perform the receiving party's duties under this Agreement, and
such approval shall not be unreasonably withheld. The receiving party shall
cause its permitted subcontractors to sign a confidentiality agreement with
substantially the same terms and conditions of this Section prior to disclosing
Confidential Information of the other party to such subcontractors.
14.5 Neither party shall have a Confidential Information
obligation to the other party with respect to any information of the other party
or any portion thereof which is:
(a) already known to the receiving party at the time of
receiving same as shown by the receiving party's files and records in existence
at the time of disclosure;
(b) or hereafter becomes publicly known through no
wrongful act of the receiving party;
(c) rightfully received from a third party without
restriction on disclosure and without breach of this Agreement;
(d) now or hereafter independently developed by the
receiving party and without reliance in any degree upon any Confidential
Information of the other party;
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(e) furnished by the disclosing party to a third party
without any restriction upon disclosure comparable to that set forth in this
Agreement; or
(f) revealed pursuant to a requirement of a governmental
agency or law, provided that the receiving party provides prompt written notice
of such requirement or law so as to afford the disclosing party an opportunity
to intervene and oppose disclosure.
14.6 The parties agree that any material breach of Section 14
will cause irreparable injury and that injunctive relief in a court of competent
jurisdiction will be appropriate to prevent either an initial or continuing
breach of such nondisclosure and confidentiality provisions herein in addition
to any other relief to which the owner of such Confidential Information may be
entitled.
15. Term.
15.1 This Agreement may be terminated by SMI or SPECTRIAN upon
written notice to the other party:
(a) in the event the other party files a petition in
bankruptcy, or in the event all or part of the other party's assets are assigned
to a trustee or receiver, or if an involuntary petition in bankruptcy is filed
by a third party and the other party does not resolve such petition in its favor
within sixty (60) days after filing and notice thereof;
(b) in the event of a substantial breach of a material
term of this Agreement not remedied by the other party in breach within thirty
(30) days after receipt of written notice by the terminating party specifying
such breach and requesting that it be remedied; and
(c) immediately for any violations of Section 14.
a. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY LOST PROFITS
OR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, OR SPECIAL DAMAGES, HOWEVER CAUSED,
AND ON ANY THEORY OF LIABILITY, ARISING OUT OF THE TERMINATION OF THIS
AGREEMENT.
b. SPECTRIAN shall not be liable for any damages whatsoever
caused by SMI products, due to design, packaging and testing.
15.4 This agreement shall be in effect for [***] and shall be
self renewing on the anniversary of this Agreement thereafter unless terminated
by either party at least [***] prior to such renewal. Should SPECTRIAN decide to
not renew this agreement the discontinuation of product clause (Section 10.0)
becomes effective.
16. Infringement.
16.1 SPECTRIAN warrants to SMI that SPECTRIAN owns the know-how,
copyrights, mask work rights, and other intellectual rights solely to enable
SPECTRIAN to produce the wafers, transistors or parts for SMI lawfully.
SPECTRIAN hereby indemnifies and holds SMI and its directors, officers,
employees and agents harmless from any claim, suit or other liability
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
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(including reasonable attorneys' fees and costs) arising out of or resulting
from a material breach of the foregoing warranty.
16.2 SMI warrants to SPECTRIAN that SMI owns, or otherwise has
the right to use on behalf of SPECTRIAN all applicable intellectual property
rights to the manufacturing processes not otherwise licensed to SMI by SPECTRIAN
which will be used by SPECTRIAN to produce the wafers or parts. SMI hereby
indemnifies and holds SPECTRIAN and its directors, officers, employees and
agents harmless from any claim, suit or other liability (including reasonable
attorneys' fees and costs) arising out of or resulting from a material breach of
the foregoing warranty.
16.3 In the event of the institution of any suit or claim against
an indemnified party alleging that SPECTRIAN's manufacture of the wafers or
parts violates any circuit design patent or mask work, manufacturing process
patent, or other circuit design or manufacturing process proprietary right of a
third party recognized under the laws of the United States of America
(hereinafter "Third Party Rights"), or shall become the subject of any claim for
violation of Third Party Rights, the indemnified party shall promptly notify the
indemnifying party of such suit or claim and provide reasonable details thereof.
Failure to give such notice, if it materially impairs the ability of the
indemnifying party to defend against such suit or claim, shall terminate any
duty of indemnification under this Section.
16.4 The indemnifying party shall have sole control of any action
or settlement negotiations relating to any such suit or claim, and the
indemnified party shall render all cooperation reasonably requested by the
indemnifying party in defense of such suit or claim, provided that the
indemnified party may retain its own counsel at its own expense. The indemnified
party shall not settle or attempt to settle any such suit or claim without the
express written consent of the indemnifying party.
16.5 In addition to its duty of indemnification hereunder, the
indemnifying party may, at its sole discretion and expense:
(a) alter or change the circuit design or manufacturing
process, as may be the case, so as to make said design or process non-infringing
of any Third Party Right; or
(b) obtain permission from the affected third party to use
the Third Party right, it being the intention of both parties to continue the
performance of this Agreement if commercially reasonable to do so.
If neither of these methods is appropriate to eliminate
the infringement of the Third Party Right, the indemnifying party at its sole
discretion may terminate this Agreement or withdraw the infringing products
without any additional obligation or liability to the indemnified party, for
lost opportunity or profits or otherwise, due to such termination.
17. Notices.
17.1 Any and all notices or other communications required or
permitted by this Agreement or by law to be served on or given to either party
hereto by the other party shall be in writing and shall be deemed duly served
and given when personally delivered to either of the parties
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to whom it is directed, or in lieu of such personal service, on the same day of
transmission by confirmed facsimile or seven (7) days after deposit in the mail,
first class international air mail postage prepaid, or two (2) business days
after being sent by overseas courier, addressed to:
SMI Microdevices Inc. SPECTRIAN, CORPORATION.
522 Almanor Avenue Semiconductor Division
Sunnyvale, CA 94086 350 West Java Drive
Attn. of: Gerald L. Quinnell Sunnyvale, CA 94089
Attn. of: Chris Tubis
Either party may change the addresses above upon notice
duly given in writing to the other party.
18. Arbitration.
18.1 Except for any claim based upon an alleged or actual
violation of Section 14 above with respect to confidentiality and
non-disclosure, any dispute relating to the interpretation or performance of
this Agreement or the grounds for the termination thereof shall be resolved at
the request of either party through arbitration as set forth herein. Such
arbitration shall be conducted by one (1) arbitrator who has reasonable
technical knowledge of and experience in the semiconductor industry, chosen and
agreed upon by the parties.
18.2 Arbitration shall be conducted in Sunnyvale, California,
USA, under the Commercial Arbitration Rules of the American Arbitration
Association (the "AAA"), except as superseded by the provisions of this Section,
or such other rules as may be agreed upon by the parties. The parties shall be
entitled to all discovery permitted under Section 1283.05 of the California Code
of Civil Procedure, with all such discovery to be completed within ninety (90)
days of the commencement of the arbitration. Upon completion of the arbitration
hearing, the arbitrator shall promptly render the decision and award, which
shall be in writing and which shall state the reasons for the conclusions
reached.
18.3 The arbitrator shall have the power to render any award for
ordinary damages or injunctive relief but may not award punitive damages. If
judicial enforcement or review of such arbitration award is sought by either
party, judgement may be entered upon such award in any court of competent
jurisdiction in the United States.
18.4 The prevailing party in any such judicial enforcement,
arbitration or review proceeding or in any other legal proceeding relating to
the interpretation or performance of this Agreement or the grounds for
termination thereof shall be entitled to its reasonable attorneys' fees and
related other costs (including the costs for the arbitrator and the fees of any
interpreters or translators) in addition to any other amount of recovery ordered
by such court. For purposes of this Section, a "prevailing party" shall be that
party which recovers more than one-half (1/2) of the amount set forth in its
claim in the arbitration or which defeats the other party's claim by more than
one-half, or which achieves a comparable result in respect of injunctive relief.
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19. Miscellaneous.
19.1 This document constitutes the entire agreement of SMI and
SPECTRIAN with regard to the subject matter hereof and supersedes all prior
negotiations and agreements whether written or oral. The executed version of
this Agreement and of any other documents prepared by the parties under this
Agreement shall be controlling for all purposes.
19.2 This Agreement may be amended only by a written document
executed by authorized representatives of SMI and SPECTRIAN.
19.3 No right may be assigned, and no duty may be delegated, by
either party under this Agreement except upon the written consent of the other
party, and any attempted assignment and delegation without such consent shall be
void.
19.4 Notwithstanding the foregoing, however, either party shall
be entitled to assign this Agreement, and all rights and obligations hereunder,
to a wholly-owned subsidiary or to a successor to all or substantially all of
its assets, whether by sale, merger, or otherwise, provided that either party
indicating such assignment shall provide the other party with at least thirty
(30) days prior written notice and cause such assignee to be bound by this
Agreement. In the event of a major change of ownership, either party shall have
the right to terminate the Agreement with at least 60 days prior written notice.
This agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective representatives, heirs, administrators,
successors and permitted assigns except as otherwise provided herein.
19.5 The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
19.6 Except for the duty of payment for goods and services
previously supplied, neither party shall be responsible or liable to the other
party for non-performance or delay in performance of any terms or conditions of
this Agreement due to acts of God, acts of governments, wars, riots, strikes or
other labor disputes, shortages of labor or materials, or other causes beyond
the reasonable control of the non-performing or delayed party, provided,
however, non-performance or delay in excess of one hundred eighty (180) days
shall constitute cause for termination of this Agreement by either party.
19.7 This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but such counterparts
together shall constitute only one and the same instrument.
19.8 Any waiver (express or implied) by either party of any
breach of this agreement shall not constitute a waiver of any other or
subsequent breach.
19.9 In the event any provision of this Agreement is held to be
invalid or unenforceable, the valid or enforceable portion thereof and the
remaining provisions of this Agreement will remain in full force and effect.
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19.10 Each party hereto is an independent contractor of the
other, and neither shall be deemed an employee, agent, partner or joint venturer
of the other. Neither party shall make any commitment, by contract or otherwise,
binding upon the other nor represent that it has any authority to do so.
19.11 Each party shall obey all applicable laws and regulations
in the performance of its respective duties and tasks under this Agreement and
shall use its best efforts to assist the other party to do likewise.
19.12 Each party shall designate a single management
representative who shall be the primary point of contact for that party in its
relations with the other party hereunder, and each party may change its
representative from time to time upon prior written notice to the other party.
Initially, the SMI representative shall be Gerald L. Quinnell and the SPECTRIAN
representative shall be Chris Tubis.
19.13 This Agreement shall be governed by the laws of the state
of California without regard to its conflicts of laws principles.
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IN WITNESS WHEREOF the parties have caused this agreement to be executed
by their respective duly authorized representatives.
FOR STANFORD MICRODEVICES, INC. FOR SPECTRIAN CORPORATION
/s/ Gerald L. Quinnell /s/ Chris Tubis
- ------------------------------- ---------------------------------
(signature) (signature)
Gerald L. Quinnell Chris Tubis
Chief Operating Officer President
STANFORD MICRODEVICES, INC. Semiconductor Division
SPECTRIAN CORPORATION
Nov 8, 1999 5th Nov 1999
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(date) (date)
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<PAGE> 15
EXHIBIT A
PRODUCT SPECIFICATIONS
[***]
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
<PAGE> 16
[***]
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
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<PAGE> 17
EXHIBIT B
PRICING
<TABLE>
<CAPTION>
- --------------------------------------------- -----------------------------------------------
TRANSISTORS WAFERS/DIE
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DEVICE PRICE (EACH) TYPE PRICE (EACH)
- --------------------------------------------- -----------------------------------------------
<S> <C> <C> <C>
[***] [***] [***] [***]
- --------------------------------------------- -----------------------------------------------
CAPACITORS
-----------------------------------------------
TYPE PRICE/WAFER
-----------------------------------------------
[***] [***]
-----------------------------------------------
</TABLE>
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
<PAGE> 18
EXHIBIT C
MAJOR CHANGE CLASSIFICATION
The following are considered major changes and require SMI notification prior to
implementation.
WAFER FABRICATION
[***]
PACKAGING
[***]
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
<PAGE> 19
EXHIBIT D
<TABLE>
<CAPTION>
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LDMOS TRANSISTOR ASSEMBLY
- -----------------------------------------------------------------------------------------------
TRANSISTOR MODEL DEVICE P/N ASSEMBLY SPECIFICATION
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
[***] [***] [***]
- -----------------------------------------------------------------------------------------------
</TABLE>
Specifications 510XXX"
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
<PAGE> 20
EXHIBIT E
INTELLECTUAL PROPERTY FOR ASSEMBLY/TEST OF SPECTRIAN DEVICES USING SPECTRIAN
DICE
<PAGE> 1
Exhibit 10.11
STANFORD MICRODEVICES, INC.
AMENDED AND RESTATED 1998 STOCK PLAN
AS ADOPTED ON FEBRUARY 30, 1998
AS AMENDED ON SEPTEMBER 30, 1999
AS AMENDED ON DECEMBER 15, 1999
AS AMENDED AND RESTATED ON FEBRUARY 18, 2000
1. Purposes of the Plan. The purposes of this 1998 Stock Plan are:
- to attract and retain the best available personnel for positions
of substantial responsibility,
- to provide additional incentive to Employees, Directors and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means Stanford Microdevices, Inc., a Delaware
corporation.
<PAGE> 2
(h) "Consultant" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Inside Director" means a Director who is an Employee.
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<PAGE> 3
(p) "IPO Effective Date" means the date upon which the Securities
and Exchange Commission declares the initial public offering of the Company's
common stock as effective.
(q) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(r) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.
(s) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(t) "Option" means a stock option granted pursuant to the Plan.
(u) "Option Agreement" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(v) "Option Exchange Program" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.
(w) "Optioned Stock" means the Common Stock subject to an Option or
Stock Purchase Right.
(x) "Optionee" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(y) "Outside Director" means a Director who is not an Employee.
(z) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(aa) "Plan" means this 1998 Stock Plan.
(bb) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.
(cc) "Restricted Stock Purchase Agreement" means a written agreement
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(dd) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(ee) "Section 16(b)" means Section 16(b) of the Exchange Act.
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<PAGE> 4
(ff) "Service Provider" means an Employee, Director or Consultant.
(gg) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 14 of the Plan.
(hh) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ii) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 14
of the Plan, the maximum aggregate number of Shares that may be optioned and
sold under the Plan is 7,194,691 Shares, plus an annual increase to be added on
the first day of the Company's fiscal year beginning in 2001, equal to the
lesser of (i) 1,500,000 shares, (ii) 3% of the outstanding shares on such date
or (iii) a lesser amount determined by the Board. The Shares may be authorized,
but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under the Plan (unless the Plan
has terminated); provided, however, that Shares that have actually been issued
under the Plan, whether upon exercise of an Option or Right, shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if Shares of Restricted Stock are repurchased by the
Company at their original purchase price, such Shares shall become available for
future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. Different Committees with
respect to different groups of Service Providers may administer the Plan.
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
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<PAGE> 5
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Option or Stock Purchase Right granted hereunder.
Such terms and conditions include, but are not limited to, the exercise price,
the time or times when Options or Stock Purchase Rights may be exercised (only
the Board may determine whether vesting may be based on performance criteria),
any vesting acceleration or waiver of forfeiture restrictions (the Board may not
delegate this power), and any restriction or limitation regarding any Option or
Stock Purchase Right or the shares of Common Stock relating thereto, based in
each case on such factors as the Administrator, in its sole discretion, shall
determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted (the
Board may not delegate this power);
(vii) to institute an Option Exchange Program (the Board may not
delegate this power);
(viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 16(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan (the Board may not delegate this power);
(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that
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<PAGE> 6
the amount of tax to be withheld is to be determined. All elections by an
Optionee to have Shares withheld for this purpose shall be made in such form and
under such conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights
may be granted to Service Providers. Incentive Stock Options may be granted only
to Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 1,000,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 1,000,000
Shares, which shall not count against the limit set forth in subsection (i)
above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 14.
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<PAGE> 7
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 14), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 20 of the Plan, the amendment and
restatement of the Plan shall become effective upon the IPO Effective Date. It
shall continue in effect for a term of ten (10) years from the date of obtaining
stockholder approval of the Plan in 2000, unless terminated earlier under
Section 16 of the Plan.
8. Term of Option. The term of each Option shall be stated in the
Option Agreement. In the case of an Incentive Stock Option, the term shall be
ten (10) years from the date of grant or such shorter term as may be provided in
the Option Agreement. Moreover, in the case of an Incentive Stock Option granted
to an Optionee who, at the time the Incentive Stock Option is granted, owns
stock representing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five (5) years from the date of
grant or such shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be determined
by the Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described
in paragraph (A) immediately above, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
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<PAGE> 8
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
months on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to
the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate
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<PAGE> 9
entry on the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
Shares promptly after the Option is exercised. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the
Shares are issued, except as provided in Section 14 of the Plan.
Exercising an Option in any manner shall decrease the number
of Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Notice of Grant), by the Optionee's estate or
by a person who acquires the right to exercise the Option by bequest or
inheritance, but only to the extent that the Option is vested on the date of
death. In the absence of a specified time in the Option Agreement, the Option
shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to his or
her entire Option, the Shares covered by the unvested portion of the Option
shall immediately revert to the Plan. The Option may be exercised by the
executor or administrator of the Optionee's estate or, if none, by the person(s)
entitled to exercise the Option under the Optionee's will or the laws of descent
or distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
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<PAGE> 10
(e) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing or electronically, by means of a Notice of Grant,
of the terms, conditions and restrictions related to the offer, including the
number of Shares that the offeree shall be entitled to purchase, the price to be
paid, and the time within which the offeree must accept such offer. The offer
shall be accepted by execution of a Restricted Stock Purchase Agreement in the
form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 14
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13.Formula Option Grants to Outside Directors. Outside Directors shall
be automatically granted Options each year in accordance with the following
provisions:
(a) All Options granted pursuant to this Section shall be
Nonstatutory Stock Options and, except as otherwise provided herein, shall be
subject to the other terms and conditions of the Plan.
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<PAGE> 11
(b) Each person who first becomes an Outside Director on or after
the IPO Effective Date, whether through election by the stockholders of the
Company or appointment by the Board to fill a vacancy, shall be automatically
granted an Option to purchase 40,000 Shares (the "First Option") on the date he
or she first becomes an Outside Director; provided, however, that an Inside
Director who ceases to be an Inside Director but who remains a Director shall
not receive a First Option.
(c) Each Outside Director shall be automatically granted an
Option to purchase 10,000 Shares (a "Subsequent Option") following each annual
meeting of the stockholders of the Company, except in the case of the first such
annual meeting after the IPO Effective Date if such annual meeting is held
within six (6) months of the IPO Effective Date, if as of such date, he or she
shall continue to serve on the Board and shall have served on the Board for at
least the preceding six (6) months.
(d) Notwithstanding the provisions of subsections (b) and (c)
hereof, any exercise of an Option granted before the Company has obtained
stockholder approval of the Plan in accordance with Section 20 hereof shall be
conditioned upon obtaining such stockholder approval of the Plan in accordance
with Section 20 hereof.
(e) The terms of each First Option granted pursuant to this
Section shall be as follows:
(i) the term of the First Option shall be ten (10) years.
(ii) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the First Option.
(iii) the First Option shall vest as to 25% of the Shares
subject to the First Option on each anniversary of its date of grant provided
that the Optionee continues to serve as a Director on such dates.
(f) The terms of each Subsequent Option granted pursuant to this
Section shall be as follows:
(i) the term of the Subsequent Option shall be ten (10)
years.
(ii) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Subsequent Option.
(iii) the Subsequent Option shall vest as to 25% of the
Shares subject to the Subsequent Option on each anniversary of its date of grant
provided that the Optionee continues to serve as a Director on such dates.
14. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and
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<PAGE> 12
Stock Purchase Right, and the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options or Stock
Purchase Rights have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option or Stock Purchase Right, as well as
the price per share of Common Stock covered by each such outstanding Option or
Stock Purchase Right, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. With respect
to Options granted to an Outside Director pursuant to Section 13 that are
assumed or substituted for, if following such assumption or substitution the
Optionee's status as a Director or a director of the successor corporation, as
applicable, is terminated other than upon a voluntary resignation by the
Optionee, then the Optionee shall fully vest in and have the right to exercise
the Option as to all of the Optioned Stock, including Shares as to which it
would not otherwise be vested or exercisable.
In the event that the successor corporation refuses to assume
or substitute for the Option or Stock Purchase Right, the Optionee shall fully
vest in and have the right to exercise the Option or Stock Purchase Right as to
all of the Optioned Stock, including Shares as to which it would not otherwise
be vested or exercisable. If an Option or Stock Purchase Right becomes fully
vested and exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Administrator shall notify the Optionee in writing
or electronically that the Option or Stock Purchase Right shall be fully vested
and exercisable for a period of fifteen (15) days from the date of
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<PAGE> 13
such notice, and the Option or Stock Purchase Right shall terminate upon the
expiration of such period.
For the purposes of this paragraph, the Option or Stock
Purchase Right shall be considered assumed if, following the merger or sale of
assets, the option or right confers the right to purchase or receive, for each
Share of Optioned Stock subject to the Option or Stock Purchase Right
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
15. Date of Grant. The date of grant of an Option or Stock Purchase
Right shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
16. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
17. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
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<PAGE> 14
(b) Investment Representations. As a condition to the exercise of
an Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
18. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
19.Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
20.Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
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<PAGE> 15
STANFORD MICRODEVICES, INC.
1998 STOCK PLAN
STOCK OPTION AGREEMENT
[U.S. EMPLOYEES]
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
1. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
The undersigned Optionee has been granted an Option to purchase Common
Stock of the Company, subject to the terms and conditions of the Plan and this
Option Agreement, as follows:
Grant Number ________________________
Date of Grant ________________________
Vesting Commencement Date ________________________
Exercise Price per Share $________________________
Total Number of Shares Granted ________________________
Total Exercise Price $________________________
Type of Option: Incentive Stock Option
-----
Nonstatutory Stock Option
------
Term/Expiration Date: ________________________
Vesting Schedule:
This Option shall be exercisable, in whole or in part, according to the
following vesting schedule:
25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 1/48 of the Shares subject to the Option
shall vest each month thereafter, subject to Optionee's continuing to be a
Service Provider on such dates.
<PAGE> 16
Termination Period:
This Option shall be exercisable for three months after Optionee ceases
to be a Service Provider. Upon Optionee's death or disability, this Option may
be exercised for one year after Optionee ceases to be a Service Provider. In no
event may Optionee exercise this Option after the Term/Expiration Date as
provided above.
2. AGREEMENT
(a) Grant of Option. The Plan Administrator of the Company hereby
grants to the Optionee named in the Notice of Grant (the "Optionee"), an option
(the "Option") to purchase the number of Shares set forth in the Notice of
Grant, at the exercise price per Share set forth in the Notice of Grant (the
"Exercise Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. Subject to Section 14(c) of the Plan, in the
event of a conflict between the terms and conditions of the Plan and this Option
Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
(b) Exercise of Option.
(i) Right to Exercise. This Option shall be exercisable
during its term in accordance with the Vesting Schedule set out in the Notice of
Grant and with the applicable provisions of the Plan and this Option Agreement.
(ii) Method of Exercise. This Option shall be exercisable by
delivery of an exercise notice in the form attached as Exhibit A (the AExercise
Notice@) which shall state the election to exercise the Option, the number of
Shares with respect to which the Option is being exercised, and such other
representations and agreements as may be required by the Company. The Exercise
Notice shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by the aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option
unless such issuance and such exercise complies with Applicable Laws. Assuming
such compliance, for income tax purposes the Shares shall be considered
transferred to the Optionee on the date on which the Option is exercised with
respect to such Shares.
(c) Optionee's Representations. In the event the Shares have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), at the time this Option is
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<PAGE> 17
exercised, the Optionee shall, if required by the Company, concurrently with the
exercise of all or any portion of this Option, deliver to the Company his or her
Investment Representation Statement in the form attached hereto as Exhibit B and
shall read the applicable rules of the Commissioner of Corporations attached to
such Investment Representation Statement.
(d) Lock-Up Period. Optionee hereby agrees that, if so requested
by the Company or any representative of the underwriters (the "Managing
Underwriter") in connection with any registration of the offering of any
securities of the Company under the Securities Act, Optionee shall not sell or
otherwise transfer any Shares or other securities of the Company during the
180-day period (or such other period as may be requested in writing by the
Managing Underwriter and agreed to in writing by the Company) (the "Market
Standoff Period") following the effective date of a registration statement of
the Company filed under the Securities Act. Such restriction shall apply only to
the first registration statement of the Company to become effective under the
Securities Act that includes securities to be sold on behalf of the Company to
the public in an underwritten public offering under the Securities Act. The
Company may impose stop-transfer instructions with respect to securities subject
to the foregoing restrictions until the end of such Market Standoff Period.
(e) Method of Payment. Payment of the aggregate Exercise Price
shall be by any of the following, or a combination thereof, at the election of
the Optionee:
(i) cash or check;
(ii) consideration received by the Company under a formal
cashless exercise program adopted by the Company in connection with the Plan; or
(iii) surrender of other Shares which, (i) in the case of
Shares acquired upon exercise of an option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (ii) have a Fair Market
Value on the date of surrender equal to the aggregate Exercise Price of the
Exercised Shares.
(f) Restrictions on Exercise. This Option may not be exercised
until such time as the Plan has been approved by the shareholders of the
Company, or if the issuance of such Shares upon such exercise or the method of
payment of consideration for such shares would constitute a violation of any
Applicable Law.
(g) Non-Transferability of Option. This Option may not be
transferred in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by
Optionee. The terms of the Plan and this Option Agreement shall be binding upon
the executors, administrators, heirs, successors and assigns of the Optionee.
(h) Term of Option. This Option may be exercised only within the
term set out in the Notice of Grant, and may be exercised during such term only
in accordance with the Plan and the terms of this Option.
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<PAGE> 18
(i) Tax Consequences. Set forth below is a brief summary as
of the date of this Option of some of the federal tax consequences of exercise
of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE
SHARES.
(i) Exercise of ISO. If this Option qualifies as an ISO,
there will be no regular federal income tax liability upon the exercise of the
Option, although the excess, if any, of the Fair Market Value of the Shares on
the date of exercise over the Exercise Price will be treated as an adjustment to
the alternative minimum tax for federal tax purposes and may subject the
Optionee to the alternative minimum tax in the year of exercise.
(ii) Exercise of Nonstatutory Stock Option. There may be a
regular federal income tax liability upon the exercise of a Nonstatutory Stock
Option. The Optionee will be treated as having received compensation income
(taxable at ordinary income tax rates) equal to the excess, if any, of the Fair
Market Value of the Shares on the date of exercise over the Exercise Price. If
Optionee is an Employee or a former Employee, the Company will be required to
withhold from Optionee's compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
(iii) Disposition of Shares. In the case of an NSO, if Shares
are held for at least one year, any gain realized on disposition of the Shares
will be treated as long-term capital gain for federal income tax purposes. In
the case of an ISO, if Shares issuable upon exercise of the Option are held for
at least one year after exercise and for at least two years after the Date of
Grant, any gain realized on disposition of the Shares will also be treated as
long-term capital gain for federal income tax purposes. If Shares issued upon
exercise of an ISO are disposed of within one year after exercise or two years
after the Date of Grant, any gain realized on such disposition will be treated
as compensation income (taxable at ordinary income rates) to the extent of the
difference between the Exercise Price and the lesser of (1) the Fair Market
Value of the Shares on the date of exercise, or (2) the sale price of the
Shares. Any additional gain will be taxed as capital gain, short-term or
long-term depending on the period that the ISO Shares were held.
(iv) Notice of Disqualifying Disposition of ISO Shares. If
the Option granted to Optionee herein is an ISO, and if Optionee sells or
otherwise disposes of any of the Shares acquired upon exercise of to the ISO on
or before the later of (1) the date two years after the Date of Grant, or (2)
the date one year after the date of exercise, the Optionee shall immediately
notify the Company in writing of such disposition. Optionee acknowledges that
Optionee may be subject to income tax withholding by the Company on the
compensation income recognized by the Optionee.
(j) Entire Agreement; Governing Law. The Plan is incorporated
herein by reference. The Plan and this Option Agreement constitute the entire
agreement of the
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<PAGE> 19
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws but not
the choice of law rules of the State of California.
(k) No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND
AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS
EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that
he or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.
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<PAGE> 20
OPTIONEE: STANFORD MICRODEVICES, INC.
By:
- ---------------------------------- -------------------------------
Signature
Name:
-----------------------------
Title:
- ----------------------------------- ----------------------------
Print Name
Residence Address:
- ------------------------
- ------------------------
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<PAGE> 21
EXHIBIT A
1998 STOCK PLAN
EXERCISE NOTICE
Stanford Microdevices, Inc.
522 Almanor Avenue
Sunnyvale, CA 94086
Attention: Secretary
1. Exercise of Option. Effective as of today, ___________, 20__, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of Common Stock (the "Shares") of Stanford Microdevices, Inc.
(the "Company") under and pursuant to the 1998 Stock Plan (the "Plan") and the
Stock Option Agreement dated ________, 20 (the ------ "Option Agreement").
2. Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price of the Shares, as set forth in the Option Agreement.
3. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance of the Shares (as evidenced
by the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Shares,
notwithstanding the exercise of the Option. The Shares shall be issued to the
Optionee as soon as practicable after the Option is exercised. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date of issuance except as provided in Section 12 of the Plan.
5. Company's Right of First Refusal. Before any Shares held by Optionee
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
bona fide intention to sell or otherwise transfer such Shares; (ii) the name of
each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the
number of Shares to be transferred to each Proposed Transferee; and (iv) the
bona fide cash price or other consideration for which the Holder proposes to
transfer the
<PAGE> 22
Shares (the "Offered Price"), and the Holder shall offer the Shares at the
Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice, that any such sale or
other transfer is effected in accordance with any applicable securities laws and
that the Proposed Transferee agrees in writing that the provisions of this
Section shall continue to apply to the Shares in the hands of such Proposed
Transferee. If the Shares described in the Notice are not transferred to the
Proposed Transferee within such period, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(f) Exception for Certain Family Transfers. Notwithstanding anything
to the contrary contained in this Section, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean the Optionee's spouse, lineal
descendant or antecedent, father, mother, brother or sister. In such case, the
transferee or other recipient shall receive and hold the Shares so transferred
subject to the provisions of this Section, and there shall be no further
transfer of such Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First Refusal
shall terminate as to any Shares upon the first sale of Common Stock of the
Company to the general public pursuant to a registration statement filed with
and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
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<PAGE> 23
6. Tax Consultation. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
7. Restrictive Legends and Stop-Transfer Orders.
(a) Legends. Optionee understands and agrees that the Company shall
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER
OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE
ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE
OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF
THESE SHARES.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
8. Successors and Assigns. The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.
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<PAGE> 24
9. Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Administrator which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Administrator shall be final and binding on
all parties.
10. Governing Law; Severability. This Agreement is governed by the
internal substantive laws but not the choice of law rules, of the State of
California.
11. Entire Agreement. The Plan and Option Agreement are incorporated
herein by reference. This Agreement, the Plan, the Option Agreement and the
Investment Representation Statement constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee.
Submitted by:Accepted by:
OPTIONEE: STANFORD MICRODEVICES, INC.
By:
- ---------------------------- ------------------------------
Signature
Name:
----------------------------
- ------------------------------
Title:
---------------------------
Address: Address:
- ------------------------ ------------------------
- ------------------------ ------------------------
------------------------------
Date Received
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<PAGE> 25
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE:
COMPANY: STANFORD MICRODEVICES, INC.
SECURITY: COMMON STOCK
AMOUNT:
DATE:
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities constitute
"restricted securities" under the Securities Act and have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Optionee's
investment intent as expressed herein. In this connection, Optionee understands
that, in the view of the Securities and Exchange Commission, the statutory basis
for such exemption may be unavailable if Optionee's representation was
predicated solely upon a present intention to hold these Securities for the
minimum capital gains period specified under tax statutes, for a deferred sale,
for or until an increase or decrease in the market price of the Securities, or
for a period of one year or any other fixed period in the future. Optionee
further understands that the Securities must be held indefinitely unless they
are subsequently registered under the Securities Act or an exemption from such
registration is available. Optionee further acknowledges and understands that
the Company is under no obligation to register the Securities. Optionee
understands that the certificate evidencing the Securities will be imprinted
with a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel
satisfactory to the Company, a legend prohibiting their transfer without the
consent of the Commissioner of Corporations of the State of California and any
other legend required under applicable state securities laws.
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<PAGE> 26
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to the satisfaction of
certain conditions. Rule 701 provides that if the issuer qualifies under Rule
701 at the time of the grant of the Option to the Optionee, the exercise will be
exempt from registration under the Securities Act. In the event the Company
becomes subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer
period as any market stand-off agreement may require) the Securities exempt
under Rule 701 may be resold, subject to the satisfaction of certain of the
conditions specified by Rule 144, including: (1) the resale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934); and, in the case of an affiliate, (2) the availability of certain public
information about the Company, (3) the amount of Securities being sold during
any three month period not exceeding the limitations specified in Rule 144(e),
and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time of
grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than one year after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than two years, the satisfaction of the conditions set forth in
sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee further understands that in the event all of the applicable
requirements of Rule 701 or 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
(e) Optionee understands that the certificate evidencing the Securities
will be imprinted with a legend which prohibits the transfer of the Securities
without the consent of the Commissioner of Corporations of California. Optionee
has read the applicable Commissioner's Rules with respect to such restriction, a
copy of which is attached.
Signature of Optionee:
----------------------------------------
Date:__________________________, 20_____
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<PAGE> 1
Exhibit 10.12
STANFORD MICRODEVICES, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 2000 Employee Stock
Purchase Plan of Stanford Microdevices, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company or
any committee thereof designated by the Board of Directors of the Company in
accordance with Section 14 of the Plan.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the common stock of the Company.
(d) "Company" shall mean Stanford Microdevices, Inc. and any
Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross
earnings and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary that has
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first Trading Day of each
Offering Period.
(i) "Exercise Date" shall mean the first Trading Day on or after
May 15 and November 15 of each year.
<PAGE> 2
(j) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the date of determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock for
the last market trading day prior to the date of determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(iv) For purposes of the Enrollment Date of the first
Offering Period under the Plan, the Fair Market Value shall be the initial price
to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock (the
"Registration Statement").
(k) "Offering Periods" shall mean the periods of approximately
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after May 15 and
November 15 of each year and terminating on the first Trading Day on or after
the May 15 or November 15 Offering Period commencement date approximately
twenty-four months later; provided, however, that the first Offering Period
under the Plan shall commence with the first Trading Day on or after the date on
which the Securities and Exchange Commission declares the Company's Registration
Statement effective and end on the first Trading Day on or after May 15, 2002
and the second Offering Period under the Plan shall commence on the first
Trading Day on or after November 15, 2000. The duration and timing of Offering
Periods may be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this 2000 Employee Stock Purchase Plan.
(m) "Purchase Period" shall mean the approximately six month
period commencing on one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.
(n) "Purchase Price" shall mean 85% of the Fair Market Value of a
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.
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<PAGE> 3
(o) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign,
of which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding,
no Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 15 and November 15 each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and end on the first Trading Day on or after
May 15, 2002 and the second Offering Period shall commence on the first Trading
Day on or after November 15, 2000. The Board shall have the power to change the
duration of Offering Periods (including the commencement dates thereof) with
respect to future offerings without shareholder approval if such change is
announced at least five (5) days prior to the scheduled beginning of the first
Offering Period to be affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such
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<PAGE> 4
authorization is applicable, unless sooner terminated by the participant as
provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during a Purchase Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Purchase Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or
at the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than
10,000 shares of the Company's Common Stock
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<PAGE> 5
(subject to any adjustment pursuant to Section 19), and provided further that
such purchase shall be subject to the limitations set forth in Sections 3(b) and
12 hereof. The Board may, for future Offering Periods, increase or decrease, in
its absolute discretion, the maximum number of shares of the Company's Common
Stock an Employee may purchase during each Purchase Period of such Offering
Period. Exercise of the option shall occur as provided in Section 8 hereof,
unless the participant has withdrawn pursuant to Section 10 hereof. The option
shall expire on the last day of the Offering Period.
8. Exercise of Option.
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the
number of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under the
Plan on the Enrollment Date of the applicable Offering Period, or (ii) the
number of shares available for sale under the Plan on such Exercise Date, the
Board may in its sole discretion (x) provide that the Company shall make a pro
rata allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
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<PAGE> 6
10. Withdrawal.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Termination of Employment.
Upon a participant's ceasing to be an Employee, for any reason,
he or she shall be deemed to have elected to withdraw from the Plan and the
payroll deductions credited to such participant's account during the Offering
Period but not yet used to exercise the option shall be returned to such
participant or, in the case of his or her death, to the person or persons
entitled thereto under Section 15 hereof, and such participant's option shall be
automatically terminated. The preceding sentence notwithstanding, a participant
who receives payment in lieu of notice of termination of employment shall be
treated as continuing to be an Employee for the participant's customary number
of hours per week of employment during the period in which the participant is
subject to such payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 300,000 shares plus an annual increase to be added on the first day of
the Company's fiscal year beginning in 2001, equal to the lesser of (i) 350,000
shares, (ii) 1% of the outstanding shares on such date or (iii) a lesser amount
determined by the Board.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall
be registered in the name of the participant or in the name of the participant
and his or her spouse.
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<PAGE> 7
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each
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<PAGE> 8
Purchase Period (pursuant to Section 7), as well as the price per share and the
number of shares of Common Stock covered by each option under the Plan which has
not yet been exercised shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 19 hereof,
no such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its shareholders. Except as provided
in Section 19 and this Section 20 hereof, no amendment may make any change in
any option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any successor rule or provision or any other applicable law,
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<PAGE> 9
regulation or stock exchange rule), the Company shall obtain shareholder
approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation
of the Plan may result in unfavorable financial accounting consequences, the
Board may, in its discretion and, to the extent necessary or desirable, modify
or amend the Plan to reduce or eliminate such accounting consequence including,
but not limited to:
(i) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(ii) shortening any Offering Period so that Offering Period
ends on a new Exercise Date, including an Offering Period underway at the time
of the Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such
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<PAGE> 10
shares if, in the opinion of counsel for the Company, such a representation is
required by any of the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period.
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<PAGE> 11
EXHIBIT A
STANFORD MICRODEVICES, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date:___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ____________________ hereby elects to participate in the Stanford
Microdevices, Inc. Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to purchase shares of the Company's
Common Stock in accordance with this Subscription Agreement and the
Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (from 0 to 15%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only).
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after
the Exercise Date, I will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares at the
time such shares were purchased by me over the price which I paid for
the shares. I hereby agree to notify the Company in writing within 30
days after the date of any disposition of my shares and I will make
adequate provision for Federal, state or other tax withholding
obligations, if any, which arise upon the
<PAGE> 12
disposition of the Common Stock. The Company may, but will not be
obligated to, withhold from my compensation the amount necessary to meet
any applicable withholding obligation including any withholding
necessary to make available to the Company any tax deductions or
benefits attributable to sale or early disposition of Common Stock by
me. If I dispose of such shares at any time after the expiration of the
2-year and 1-year holding periods, I understand that I will be treated
for federal income tax purposes as having received income only at the
time of such disposition, and that such income will be taxed as ordinary
income only to the extent of an amount equal to the lesser of (1) the
excess of the fair market value of the shares at the time of such
disposition over the purchase price which I paid for the shares, or (2)
15% of the fair market value of the shares on the first day of the
Offering Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)
---------------------------------------------------
(First) (Middle) (Last)
------------------------- -----------------------------------
Relationship (Address)
-2-
<PAGE> 13
Employee's Social
Security Number:
------------------------------------
Employee's Address:
------------------------------------
------------------------------------
------------------------------------
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:
------------------ -----------------------------------------------------
Signature of Employee
-----------------------------------------------------
Spouse's Signature (If beneficiary other than spouse)
-3-
<PAGE> 14
EXHIBIT B
STANFORD MICRODEVICES, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Stanford
Microdevices, Inc. Employee Stock Purchase Plan which began on ____________,
______ (the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
--------------------------------
--------------------------------
--------------------------------
Signature:
--------------------------------
Date:
---------------------------
<PAGE> 1
EXHIBIT 10.14
STANDARD OFFICE LEASE
BETWEEN
ARDEN REALTY LIMITED PARTNERSHIP,
a Maryland limited partnership,
AS LANDLORD
AND
STANFORD MICRODEVICES, a Delaware corporation
AS TENANT
SUITE 580
5000 East Spring Street
Long Beach, California
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 - Basic Lease Provisions -1-
ARTICLE 2 - Term -2-
ARTICLE 3 - Rental -2-
(a) Basic Rental -2-
(b) Increase in Direct Costs -2-
(c) Definitions -3-
(d) Determination of Payment -5-
ARTICLE 4 - Security Deposit -6-
ARTICLE 5 - Holding Over -7-
ARTICLE 6 - Personal Property Taxes -7-
ARTICLE 7 - Use -7-
ARTICLE 8 - Condition of Premises -8-
ARTICLE 9 - Repairs and Alterations -8-
ARTICLE 10 - Liens -9-
ARTICLE 11 - Project Services -9-
ARTICLE 12 - Rights of Landlord -10-
ARTICLE 13 - Indemnity; Exemption of Landlord from Liability -11-
(a) Indemnity -11-
(b) Exemption of Landlord from Liability -11-
ARTICLE 14 - Insurance -11-
(a) Tenant's Insurance -11-
(b) Form of Policies -12-
(c) Landlord's Insurance -12-
(d) Waiver of Subrogation -12-
(e) Compliance with Law -12-
ARTICLE 15 - Assignment and Subletting -13-
ARTICLE 16 - Damage or Destruction -15-
ARTICLE 17 - Subordination -16-
ARTICLE 18 - Eminent Domain -16-
ARTICLE 19 - Default -17-
ARTICLE 20 - Remedies -17-
ARTICLE 21 - Transfer of Landlord's Interest -19-
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 22 - Broker -19-
ARTICLE 23 - Parking -20-
ARTICLE 24 - Waiver -20-
ARTICLE 25 - Estoppel Certificate -20-
ARTICLE 26 - Liability of Landlord -21-
ARTICLE 27 - Inability To Perform -21-
ARTICLE 28 - Hazardous Waste -21-
ARTICLE 29 - Surrender of Premises; Removal of Property -22-
ARTICLE 30 - Miscellaneous -23-
(a) Severability; Entire Agreement -23-
(b) Attorney's Fees; Waiver of Jury Trial -23-
(c) Time of Essence -24-
(d) Headings; Joint and Several -24-
(e) Reserved Area -24-
(f) No Option -24-
(g) Use of Project Name; Improvements -24-
(h) Rules and Regulations -24-
(i) Quiet Possession -25-
(j) Rent -25-
(k) Successors and Assigns -25-
(l) Notices -25-
(m) Persistent Delinquencies -25-
(n) Right of Landlord to Perform -25-
(o) Access, Changes in Project, Facilities, Name -25-
(p) Signing Authority -26-
(q) Identification of Tenant -26-
(r) Substitute Premises -27-
(s) Survival of Obligations -27-
(t) Confidentiality -27-
(u) Governing Law -27-
(v) Exhibits and Addendum -28-
(w) Financial Statements -28-
ARTICLE 31 - Signage/Directory -28-
ARTICLE 32 - Early Termination -28-
</TABLE>
-ii-
<PAGE> 4
EXHIBITS
--------
<TABLE>
<S> <C>
Exhibit "A" Premises
Exhibit "B" Rules and Regulations
Exhibit "C" Notice of Lease Term Dates
and Tenant's Percentage
Exhibit "D" Tenant Work Letter
Exhibit "E" Corporate Resolutions
</TABLE>
-iii-
<PAGE> 5
STANDARD OFFICE LEASE
This Standard Office Lease ("Lease") is made and entered into as of
this 30th day of July, 1999, by and between ARDEN REALTY LIMITED PARTNERSHIP, a
Maryland limited partnership ("Landlord"), and STANFORD MICRODEVICES, a Delaware
corporation ("Tenant").
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
the premises described as Suite No. 580 as designated on the plan attached
hereto and incorporated herein as Exhibit "A" ("Premises") of the project
("Project") whose address is 5000 East Spring Street, Long Beach, California for
the term and upon the terms and conditions hereinafter set forth, and Landlord
and Tenant hereby agree as follows:
ARTICLE 1 - Basic Lease Provisions:
- -----------------------------------
A. Term:
Commencement Date: The earlier of (i) the date Tenant first commences
to conduct business in the Premises, or (ii) the date
of Substantial Completion of Tenant Improvements (as
each such term is defined in the Work Letter Agreement
attached hereto as Exhibit "D") in the Premises.
Anticipated
Commencement Date: August 15, 1999
Expiration Date: The date immediately preceding the third (3rd)
anniversary of the Commencement Date; provided,
however, that if the Commencement Date is a date other
than the first day of a month, the Expiration Date
shall be the last day of the month which is thirty-six
(36) months after the month in which the Commencement
Date falls, unless extended or earlier terminated
pursuant to this Lease.
B. Square Footage: Landlord and Tenant stipulate and agree that the
Premises contains 3,000 rentable square feet.
C. Basic Rental:
<TABLE>
<CAPTION>
Annual Monthly Monthly Basic Rental
Lease Month(s) Basic Rental Basic Rental Per Rentable Sq. Foot
-------------- ------------ ------------ ---------------------
<S> <C> <C> <C>
1-18 $70,200.00 $5,850.00 $1.95
19-36 $73,800.00 $6,150.00 $2.05
</TABLE>
D. Base Year: 1999
E. Tenant's
Proportionate Share: 1.84%
F. Security Deposit: A security deposit of $6,150.00 shall be due and
payable by Tenant to Landlord upon Tenant's
execution of this Lease.
-1-
<PAGE> 6
G. Permitted Use: General office use consistent with the character of a
first-class office building.
H. Broker: None
I. Parking Passes: Tenant shall have the right to lease nine (9)
unreserved parking passes in accordance with the
charges and provisions set forth in Article 23 of this
Lease.
J. First Month's Rent: The first full month's rent of $5,850.00 shall be due
and payable by Tenant to Landlord upon Tenant's
execution of this Lease.
ARTICLE 2 - Term
- ----------------
The Term of this Lease shall commence on the Commencement Date as set forth
in Article 1.A. of the Basic Lease Provisions, and shall end on the expiration
date set forth in Article 1.A. of the Basic Lease Provisions. For purposes of
this Lease, the term "Lease Year" shall mean each consecutive twelve (12) month
period during the Lease Term, with the first Lease Year commencing on the
Commencement Date; however, (a) if the Commencement Date falls on a day other
than the first day of a calendar month, the first Lease Year shall end on the
last day of the eleventh (11th) month after the Commencement Date and the second
(2nd) and each succeeding Lease Year shall commence on the first day of the next
calendar month, and (b) the last Lease Year shall end on the Expiration Date. If
Landlord is unable to deliver possession of the Premises to Tenant on or before
the anticipated Commencement Date, Landlord shall not be subject to any
liability for its failure to do so, and such failure shall not affect the
validity of this Lease nor the obligations of Tenant hereunder. Landlord may
deliver to Tenant a Commencement Letter in a form substantially similar to that
attached hereto as Exhibit "C", which Tenant shall execute and return to
Landlord within five (5) days of receipt thereof. Failure of Tenant to timely
execute and deliver the Commencement Letter shall constitute an acknowledgment
that the statements included in such notice are true and correct without
exception.
ARTICLE 3 - Rental
- ------------------
(a) Basic Rental. Tenant agrees to pay to Landlord during the Term hereof,
at Landlord's office, or to such other person or at such other place as directed
from time to time by written notice to Tenant from Landlord, the initial monthly
and annual sums as set forth in Article 1.C of the Basic Lease Provisions,
payable in advance on the first day of each calendar month, without demand,
setoff or deduction, and in the event this Lease commences or the date of
expiration of this Lease occurs other than on the first day or last day of a
calendar month, the rent for such month shall be prorated. Notwithstanding the
foregoing, the first full month's rent shall be paid to Landlord in accordance
with Article 1.J. of the Basic Lease Provisions.
(b) Increase in Direct Costs. The term "Base Year" means the calendar year
set forth in Article 1.D. of the Basic Lease Provisions. If, in any calendar
year during the Term of this Lease, the Direct Costs (as hereinafter defined)
paid or incurred by Landlord shall be higher than the Direct Costs for the Base
Year, Tenant shall pay an additional sum for such and each subsequent calendar
year equal to the product of the amount set forth in Article 1.E. of the Basic
Lease Provisions multiplied by such increased amount of Direct Costs. In the
event either the Premises and/or the Project is expanded or reduced, then
Tenant's proportionate share shall be appropriately adjusted, and as to the
calendar year in which such change occurs, Tenant's proportionate share for such
year shall be determined on the basis of the number of days during that
particular calendar year that such Tenant's proportionate share was in effect.
In the event this Lease shall terminate on any date other than the last day of a
calendar year, the additional sum payable hereunder by Tenant during the
calendar year in which this Lease terminates shall be prorated on the basis of
the relationship which the number of days which have elapsed from the
commencement of said calendar year to and including said date on which this
Lease terminates bears to three hundred sixty-five (365). Any and all amounts
due and payable by Tenant pursuant
-2-
<PAGE> 7
to Articles 3(b), (c) and (d) hereof shall be deemed "Additional Rent", and
Landlord shall be entitled to exercise the same rights and remedies upon default
in these payments as Landlord is entitled to exercise with respect to defaults
in Monthly Basic Rental payments. Notwithstanding the foregoing, in no event
shall Tenant's Proportionate Share of the amount by which Direct Controllable
Costs (as defined below) for any calendar year exceed the Direct Controllable
Costs for the Base Year increase by more than seven percent (7%), calculated on
a cumulative and compounded basis, from Tenant's Proportionate Share of said
excess for the immediately preceding calendar year. "Direct Controllable Costs"
shall mean all Operating Costs, except for the following: (A) the cost of all
charges for electricity, gas, water and other utilities furnished to the
Project, including any taxes thereon, (B) expenses incurred by Landlord in
connection with the Project for labor (including unionized labor expenses),
including, but not limited to, salaries, wages, medical, surgical and general
welfare benefits and pension payments, payroll taxes, fringe benefits,
employment taxes, workers' compensation, uniforms and dry cleaning thereof for
all persons who perform duties connected with the operation, maintenance and
repair of the Project, (C) the cost of all charges for fire and extended
coverage, liability and all other insurance for the Project carried by Landlord,
and (D) costs incurred in connection with upgrading the Premises or Project to
comply with disability, life, seismic, fire and safety codes, ordinances,
statutes, or other laws which become effective on or after the Commencement
Date.
(c) Definitions. As used herein the term "Direct Costs" shall mean the sum
of the following:
(i) "Tax Costs", which shall mean any and all real estate taxes and
other similar charges on real property or improvements, assessments, water and
sewer charges, and all other charges assessed, reassessed or levied upon the
Project and appurtenances thereto and the parking or other facilities thereof,
or the real property thereunder (collectively, "Real Property") or attributable
thereto or on the rents, issues, profits or income received or derived therefrom
which are assessed, reassessed or levied by the United States, the State of
California or any local government authority or agency or any political
subdivision thereof, and shall include Landlord's reasonable legal fees, costs
and disbursements incurred in connection with proceedings for reduction of Tax
Costs or any part thereof; provided, however, if at any time after the date of
this Lease the methods of taxation now prevailing shall be altered so that in
lieu of or as a supplement to or a substitute for the whole or any part of any
Tax Costs, there shall be assessed, reassessed or levied (a) a tax, assessment,
reassessment, levy, imposition or charge wholly or partially as a net income,
capital or franchise levy or otherwise on the rents, issues, profits or income
derived therefrom, or (b) a tax, assessment, reassessment, levy (including, but
not limited to, any municipal, state or federal levy), imposition or charge
measured by or based in whole or in part upon the Real Property and imposed upon
Landlord, or (c) a license fee measured by the rent payable under this Lease,
then all such taxes, assessments, reassessments or levies or the part thereof so
measured or based, shall be deemed to be included in the term "Direct Costs". In
no event shall Tax Costs included in Direct Costs for any year subsequent to the
Base Year be less than the amount of Tax Costs included in Direct Costs for the
Base Year. In addition, when calculating Tax Costs for the Base Year, special
assessments shall only be deemed included in Tax Costs for the Base Year to the
extent that such special assessments are included in Tax Costs for the
applicable subsequent calendar year during the Term.
(ii) "Operating Costs", which shall mean all costs and expenses
incurred by Landlord in connection with the maintenance, operation, replacement,
ownership and repair of the Project, the equipment, the intrabuilding network
cable, adjacent walks, malls and landscaped and common areas and the parking
structure, areas and facilities of the Project, including, but not limited to,
salaries, wages, medical, surgical and general welfare benefits and pension
payments, payroll taxes, fringe benefits, employment taxes, workers'
compensation, uniforms and dry cleaning thereof for all persons who perform
duties connected with the operation, maintenance and repair of the Project, its
equipment the intrabuilding network cable and the adjacent walks and landscaped
areas, including janitorial, gardening, security, parking, operating engineer,
elevator, painting, plumbing, electrical, carpentry, heating, ventilation, air
conditioning, window washing, hired services, a reasonable allowance for
depreciation of the cost of acquiring or the rental expense of personal property
used in the maintenance, operation and repair of the Project,
-3-
<PAGE> 8
accountant's fees incurred in the preparation of rent adjustment statements,
legal fees, real estate tax consulting fees, personal property taxes on property
used in the maintenance and operation of the Project, fees, costs, expenses or
dues payable pursuant to the terms of any covenants, conditions or restrictions
or owners' association pertaining to the Project, capital expenditures incurred
to effect economies of operation of, or stability of services to, the Project
and capital expenditures required by government regulations, laws, or
ordinances, including, but not limited to the American with Disabilities Act;
costs incurred (capital or otherwise) on a regular recurring basis every three
(3) or more years for certain maintenance projects (e.g., parking lot slurry
coat or replacement of lobby and elevator cab carpeting); the cost of all
charges for electricity, gas, water and other utilities furnished to the
Project, including any taxes thereon; the cost of all charges for fire and
extended coverage, liability and all other insurance for the Project carried by
Landlord; the cost of all building and cleaning supplies and materials; the cost
of all charges for cleaning, maintenance and service contracts and other
services with independent contractors and administration fees; a property
management fee (which fee may be imputed if Landlord has internalized management
or otherwise acts as its own property manager); and license, permit and
inspection fees relating to the Project. In the event, during any calendar year,
the Project is less than ninety-five percent (95%) occupied at all times, the
Operating Costs shall be adjusted to reflect the Operating Costs of the Project
as though ninety-five percent (95%) were occupied at all times, and the increase
or decrease in the sums owed hereunder shall be based upon such Operating Costs
as so adjusted. In no event shall costs for any item of utilities included in
Direct Costs for any year subsequent to the Base Year be less than the amount
included in Direct Costs for the Base Year for such utility item.
Notwithstanding anything to the contrary set forth in the Lease, Operating
Costs shall not include the following:
(1) Any ground or underlying lease rental;
(2) Bad debt expenses and interest, principal, points and fees
on debts or amortization on any mortgage or other debt instrument encumbering
the Building or the Land;
(3) Costs of a capital nature, including, without limitation,
capital repairs, capital improvements and capital equipment, except for those
(A) acquired in Landlord's reasonable judgment to reduce Operating Expenses
(amortized at an annual rate which when added to interest costs is reasonably
calculated to equal the amount of Operating Expenses to be saved in each
calendar year throughout the Lease Term, as determined at the time Landlord
elected to proceed with the capital improvement or acquisition of the capital
equipment to reduce Operating Expenses), together with interest at the actual
interest rate incurred by Landlord, or (13) incurred after the Commencement Date
in order to comply with any governmental law or regulation that was not enacted
prior to the Commencement Date, provided that such capital costs shall be
amortized over their useful life as determined by generally accepted accounting
principles, together with interest at the actual interest rate incurred by
Landlord;
(4) Costs incurred by Landlord to the extent that Landlord is
reimbursed by insurance proceeds or is otherwise reimbursed;
(5) Marketing costs, including leasing commissions, attorneys,
fees (in connection with the negotiation and preparation of letters, deal memos,
letters of intent, leases, subleases and/or assignments), space planning costs,
and other costs and expenses incurred in connection with the lease, sublease
and/or assignment negotiations and transactions with present or prospective
tenants or other occupants of the Building;
(6) Expenses in connection with services or other benefits which
are not offered to Tenant or for which Tenant is charged for directly;
(7) Notwithstanding any contrary provision of the Lease,
including, without limitation, any provision relating to capital expenditures,
costs arising from the presence of "Hazardous Materials" as that term is defined
in Section 8.4 of the Lease, or about
-4-
<PAGE> 9
the Building or Land including, without limitation, Hazardous Materials in the
ground water or soil, not placed in the Premises, Building or Land by Tenant;
and
(8) Costs incurred in connection with construction of initial
tenant improvements or alterations to any tenant space.
(d) Determination of Payment.
(i) If for any calendar year ending or commencing within the Term,
Tenant's Proportionate Share of Direct Costs for such calendar year exceeds
Tenant's Proportionate Share of Direct Costs for the Base Year, then Tenant
shall pay to Landlord, in the manner set forth in Sections 3(d)(ii) and (iii),
below, and as additional rent, an amount equal to the excess (the "Excess").
(ii) Landlord shall give Tenant a yearly expense estimate statement
(the "Estimate Statement") which shall set forth Landlord's reasonable estimate
(the "Estimate") of what the total amount of Direct Costs for the then-current
calendar year shall be and the estimated Excess (the "Estimated Excess") as
calculated by comparing Tenant's Proportionate Share of Direct Costs for such
calendar year, which shall be based upon the Estimate, to Tenant's Proportionate
Share of Direct Costs for the Base Year. Landlord shall endeavor to deliver the
Estimate Statement to Tenant on or before April 30th of each year. The failure
of Landlord to timely furnish the Estimate Statement for any calendar year shall
not preclude Landlord from enforcing its rights to collect any Estimated Excess
under this Article 3. If pursuant to the Estimate Statement an Estimated Excess
is calculated for the then-current calendar year, Tenant shall pay, with its
next installment of Monthly Basic Rental due, a fraction of the Estimated Excess
for the then-current calendar year (reduced by any amounts paid pursuant to the
last sentence of this Section 3(d)(ii)). Such fraction shall have as its
numerator the number of months which have elapsed in such current calendar year
to the month of such payment, both months inclusive, and shall have twelve (12)
as its denominator. Until a new Estimate Statement is furnished, Tenant shall
pay monthly, with the Monthly Basic Rental installments, an amount equal to
one-twelfth (1/12th) of the total Estimated Excess set forth in the previous
Estimate Statement delivered by Landlord to Tenant.
(iii) In addition, Landlord shall endeavor to give to Tenant on or
before the first day of April following the end of each calendar year, a
statement (the "Statement") which shall state the Direct Costs incurred or
accrued for such preceding calendar year, and which shall indicate the amount,
if any, of the Excess. Upon receipt of the Statement for each calendar year
during the Term, if amounts paid by Tenant as Estimated Excess are less than the
actual Excess as specified on the Statement, Tenant shall pay, with its next
installment of Monthly Basic Rental due, the full amount of the Excess for such
calendar year, less the amounts, if any, paid during such calendar year as
Estimated Excess. If, however, the Statement indicates that amounts paid by
Tenant as Estimated Excess are greater than the actual Excess as specified on
the Statement, such overpayment shall be credited against Tenant's next
installments of Estimated Excess. The failure of Landlord to timely furnish the
Statement for any calendar year shall not prejudice Landlord from enforcing its
rights under this Article 3. Even though the Term has expired and Tenant has
vacated the Premises, when the final determination is made of Tenant's
Proportionate Share of the Direct Costs for the calendar year in which this
Lease terminates, if an Excess is present, Tenant shall immediately pay to
Landlord an amount as calculated pursuant to the provisions of this Article
3(d). The provisions of this Section 3(d)(iii) shall survive the expiration or
earlier termination of the Term.
(iv) Within one hundred twenty (120) days after receipt of a Statement
by Tenant ("Review Period"), if Tenant disputes the amount set forth in the
Statement, an independent certified public accountant (which accountant is a
member of a nationally or regionally recognized accounting firm and is not paid
on a contingency based upon the results of the audit), designated by Tenant,
may, after reasonable notice to Landlord and at reasonable times, inspect
Landlord's records at Landlord's offices, provided that Tenant is not then in
default after expiration of all applicable cure periods and provided further
that Tenant and such accountant or representative shall, and each of them shall
use their commercially reasonable efforts to cause their respective
-5-
<PAGE> 10
agents and employees to, maintain all information contained in Landlord's
records in strict confidence. Notwithstanding the foregoing, Tenant shall only
have the right to review Landlord's records one (1) time during any twelve (12)
month period. Tenant's failure to dispute the amounts set forth in any Statement
within the Review Period shall be deemed to be Tenant's approval of such
Statement and Tenant, thereafter, waives the right or ability to dispute the
amounts set forth in such Statement. If after such inspection, but within thirty
(30) days after the Review Period, Tenant notifies Landlord in writing that
Tenant still disputes such amounts, a certification as to the proper amount
shall be made in accordance with Landlord's standard accounting practices, at
Tenant's expense, by an independent certified public accountant selected by
Landlord and who is a member of a nationally or regionally recognized accounting
firm. Landlord shall cooperate in good faith with Tenant and the accountant to
show Tenant and the accountant the information upon which the certification is
to be based. However, if such certification by the accountant proves that the
Direct Costs set forth in the Statement were overstated by more than ten percent
(10%), then the cost of the accountant and the cost of such certification shall
be paid for by Landlord. Promptly following the parties receipt of such
certification, the parties shall make such appropriate payments or
reimbursements, as the case may be, to each other, as are determined to be owing
pursuant to such certification.
(v) If the Project is a part of a multi-building development, those
Direct Costs attributable to such development as a whole (and not attributable
solely to any individual building therein) shall be allocated by Landlord to the
Project and to the other buildings within such development on an equitable
basis.
ARTICLE 4 - Security Deposit
- ----------------------------
Tenant has deposited with Landlord the sum set forth in Article 1.F. of the
Basic Lease Provisions as security for the full and faithful performance of
every provision of this Lease to be performed by Tenant. If Tenant breaches any
provision of this Lease, including but not limited to the payment of rent,
Landlord may use all or any part of this security deposit for the payment of any
rent or any other sums in default, or to compensate Landlord for any other loss
or damage which Landlord may suffer by reason of Tenant's default. If any
portion of said deposit is so used or applied, Tenant shall, within five (5)
days after written demand therefor, deposit cash with Landlord in an amount
sufficient to restore the security deposit to its original amount. If Monthly
Basic Rental is increased, the amount of the security deposit required to be
maintained by Tenant shall also be increased so as to maintain at all times and
from time to time, the same ratio to Monthly Basic Rental as applicable on the
Commencement Date. Tenant agrees that Landlord shall not be required to keep the
security deposit in trust, segregate it or keep it separate from Landlord's
general funds, but Landlord may commingle the security deposit with its general
funds, and Tenant shall not be entitled to interest on such deposit. At the
expiration of the Lease Term, and provided there exists no default by Tenant
hereunder, the security deposit, or any balance thereof shall be returned to
Tenant (or, at Landlord's option, to Tenant's assignee), provided that
subsequent to the expiration of this Lease, Landlord may retain from said
security deposit (i) an amount reasonably estimated by Landlord to cover
potential Direct Cost reconciliation payments due with respect to the calendar
year in which this Lease terminates or expires (such amount so retained shall
not, in any event, exceed ten percent (10%) of estimated Direct Cost payments
due from Tenant for such calendar year through the date of expiration or earlier
termination of this Lease and any amounts so retained and not applied to such
reconciliation shall be returned to Tenant within thirty (30) days after
Landlord's delivery of the Statement for such calendar year), (ii) any and all
amounts reasonably estimated by Landlord to cover the anticipated costs to be
incurred by Landlord to remove any signage provided to Tenant under this Lease
and to repair any damage caused by such removal (in which case any excess amount
so retained by Landlord shall be returned to Tenant within thirty (30) days
after such removal and repair), and (iii) any and all amounts permitted by law
or this Article 4. Tenant hereby waives the provisions of Section 1950.7 of the
California Civil Code and all other provisions of law, now or hereafter in
effect, which provide that Landlord may claim from a security deposit only those
sums reasonably necessary to remedy defaults in the payment of rent, to repair
damage caused by Tenant or to clean the Premises, it being agreed that Landlord
may, in addition, claim those sums specified in this Article 4 above and/or
those sums reasonably necessary to compensate Landlord
-6-
<PAGE> 11
for any other loss or damage, foreseeable or unforeseeable, caused by the acts
or omissions of Tenant or any officer, employee, agent, contractor or invitee of
Tenant.
ARTICLE 5 - Holding Over
- ------------------------
Should Tenant, without Landlord's written consent, hold over after
termination of this Lease, Tenant shall become a tenant from month-to-month,
only upon each and all of the terms herein provided as may be applicable to a
month-to-month tenancy, and any such holding over shall not constitute an
extension of this Lease. During such holding over, Tenant shall pay in advance,
monthly rent at one hundred fifty percent (150%) of the rate in effect for the
last month of the Term of this Lease, in addition to, and not in lieu of, all
other payments required to be made by Tenant hereunder, including, but not
limited to, Tenant's Proportionate Share of any increase in Direct Costs.
Nothing contained in this Article 5 shall be construed as consent by Landlord to
any holding over of the Premises by Tenant, and Landlord expressly reserves the
right to require Tenant to surrender possession of the Premises to Landlord as
provided in this Lease upon the expiration or earlier termination of the Term.
If Tenant fails to surrender the Premises upon the expiration or termination of
this Lease, Tenant agrees to indemnify, defend and hold Landlord harmless from
all costs, loss, expense or liability, including without limitation, claims made
by any succeeding tenant and real estate brokers claims and attorney's fees.
ARTICLE 6 - Personal Property Taxes
- -----------------------------------
Tenant shall pay, prior to delinquency, all taxes assessed against or
levied upon trade fixtures, furnishings, equipment and all other personal
property of Tenant located in the Premises. In the event any or all of Tenant's
trade fixtures, furnishings, equipment and other personal property shall be
assessed and taxed with property of Landlord, or if the cost or value of any
leasehold improvements in the Premises exceeds the cost or value of a
Project-standard buildout as determined by Landlord and, as a result, real
property taxes for the Project are increased, Tenant shall pay to Landlord its
share of such taxes within ten (10) days after delivery to Tenant by Landlord of
a statement in writing setting forth the amount of such taxes applicable to
Tenant's property or above-standard improvements. Tenant shall assume and pay to
Landlord at the time of paying Basic Rental any excise, sales, use, rent,
occupancy, garage, parking, gross receipts or other taxes (other than net income
taxes) which may be imposed on or on account of letting of the Premises or the
payment of Basic Rental or any other sums due or payable hereunder, and which
Landlord may be required to pay or collect under any law now in effect or
hereafter enacted. Tenant shall pay directly to the party or entity entitled
thereto all business license fees, gross receipts taxes and similar taxes and
impositions which may from time to time be assessed against or levied upon
Tenant, as and when the same become due and before delinquency. Notwithstanding
anything to the contrary contained herein, any sums payable by Tenant under this
Article 6 shall not be included in the computation of "Tax Costs."
ARTICLE 7 - Use
- ---------------
Tenant shall use and occupy the Premises only for the use set forth in
Article 1.G. of the Basic Lease Provisions and shall not use or occupy the
Premises or permit the same to be used or occupied for any other purpose without
the prior written consent of Landlord, which Landlord consent may be given or
withheld in Landlord's sole and absolute discretion, and Tenant agrees that it
will use the Premises in such a manner so as not to interfere with or infringe
upon the rights of other tenants in the Project. Tenant shall, at its sole cost
and expense, promptly comply with all covenants, conditions and restrictions,
laws, statutes, ordinances and governmental regulations or requirements now in
force or which may hereafter be in force relating to or affecting (i) the
condition, use or occupancy of the Premises or the Project excluding the cost to
construct alterations or modifications to the Project not related to Tenant's
particular use of the Premises, and (ii) improvements installed or constructed
in the Premises by or for the benefit of Tenant. Tenant shall not do or permit
to be done anything which would invalidate or increase the cost of any fire and
extended coverage insurance policy covering the Project and/or the property
located therein, and Tenant shall comply with all rules, orders, regulations and
requirements of any organization which sets out standards, requirements or
recommendations commonly referred to by major fire insurance underwriters.
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<PAGE> 12
Tenant shall have the right to use in common with Landlord and other
tenants, the Project's common entrances, lobbies, corridors, elevators,
lavatories, loading docks, trash removal areas, grounds, roads, driveways,
stairways, sidewalks, parking areas and facilities, and other similar areas, as
reasonably determined by Landlord, which enable Tenant to obtain full use and
enjoyment of the Premises for all customary purposes ("Common Areas").
ARTICLE 8 - Condition of Premises
- ---------------------------------
Subject to the performance by Landlord of its obligations under the Work
Letter Agreement attached hereto as Exhibit "D," Tenant hereby agrees that the
Premises shall be taken "as is", "with all faults", "without any representations
or warranties, and Tenant hereby agrees and warrants that it has investigated
and inspected the condition of the Premises and the suitability of same for
Tenant's purposes, and Tenant does hereby waive and disclaim any objection to,
cause of action based upon, or claim that its obligations hereunder should be
reduced or limited because of the condition of the Premises or the Project or
the suitability of same for Tenant's purposes. Tenant acknowledges that neither
Landlord nor any agent nor any employee of Landlord has made any representations
or warranty with respect to the Premises or the Project or with respect to the
suitability of either for the conduct of Tenant's business, and Tenant expressly
warrants and represents that Tenant has relied solely on its own investigation
and inspection of the Premises and the Project in its decision to enter into
this Lease and let the Premises in an "as is" condition. The taking of
possession of the Premises by Tenant shall conclusively establish that the
Premises and the Project were at such time in satisfactory condition. Tenant
hereby waives Sections 1941 and 1942 of the Civil Code of California or any
successor provision of law.
Landlord reserves the right from time to time, but subject to payment by
and/or reimbursement from Tenant as otherwise provided herein: (i) to install,
use, maintain, repair, replace and relocate for service to the Premises and/or
other parts of the Project pipes, ducts, conduits, wires, appurtenant fixtures,
and mechanical systems, wherever located in the Premises or the Project, (ii) to
alter, close or relocate any facility in the Premises or the Common Areas or
otherwise conduct any of the above activities for the purpose of complying with
a general plan for fire/life safety for the Project or otherwise, and (iii) to
comply with any federal, state or local law, rule or order with respect thereto
or the regulation thereof not currently in effect. Landlord shall attempt to
perform any such work with the least inconvenience to Tenant as possible, but in
no event shall Tenant be permitted to withhold or reduce Basic Rental or other
charges due hereunder as a result of same, or otherwise make claim against
Landlord for interruption or interference with Tenant's business and/or
operations.
ARTICLE 9 - Repairs and Alterations
- -----------------------------------
Landlord shall maintain the structural portions of the Project including
the foundation, floor/ceiling slabs, roof, curtain wall, exterior glass,
columns, beams, shafts, stairs, stairwells, elevator cabs and common areas and
shall also maintain and repair the basic mechanical, electrical, lifesafety,
plumbing, sprinkler systems and heating, ventilating and air-conditioning
systems. Except as expressly provided as Landlord's obligation in this Article
9, Tenant shall keep the Premises in good condition and repair. All damage or
injury to the Premises or the Project resulting from the act or negligence of
Tenant, its employees, agents or visitors, guests, invitees or licensees or by
the use of the Premises shall be promptly repaired by Tenant, at its sole cost
and expense, to the satisfaction of Landlord; provided, however, that for damage
to the Project as a result of casualty or for any repairs that may impact the
mechanical, electrical, plumbing, heating, ventilation or air conditioning
systems of the Project, Landlord shall have the right (but not the obligation)
to select the contractor and oversee all such repairs. Landlord may make any
repairs which are not promptly made by Tenant after Tenant's receipt of written
notice and the reasonable opportunity of Tenant to make said repair within five
(5) business days from receipt of said written notice, and charge Tenant for the
cost thereof, which cost shall be paid by Tenant within five (5) days from
invoice from Landlord. Tenant shall be responsible for the design and function
of all non-standard improvements of the Premises, whether or not installed by
Landlord at Tenant's request. Tenant waives all rights to make repairs at the
expense of Landlord, or to deduct the cost thereof from the rent. Tenant shall
make no alterations, changes or additions in or to the Premises (collectively,
"Alterations") without Landlord's prior written
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consent, which consent shall not be unreasonably withheld, and then only by
contractors or mechanics reasonably approved by Landlord in writing and upon the
reasonable approval by Landlord in writing of fully detailed and dimensioned
plans and specifications pertaining to the Alterations in question, to be
prepared and submitted by Tenant at its sole cost and expense. Tenant shall at
its sole cost and expense obtain all necessary approvals and permits pertaining
to any Alterations approved by Landlord. If Landlord, in approving any
Alterations, specifies a commencement date therefor, Tenant shall not commence
any work with respect to such Alterations prior to such date. Tenant hereby
indemnifies, defends and agrees to hold Landlord free and harmless from all
liens and claims of lien, and all other liability, claims and demands arising
out of any work done or material supplied to the Premises by or at the request
of Tenant in connection with any Alterations. If permitted Alterations are made,
they shall be made at Tenant's sole cost and expense and shall be and become the
property of Landlord, except that Landlord may, by written notice to Tenant
given at least thirty (30) days prior to the end of the Term, require Tenant at
Tenant's expense to remove all partitions, counters, railings and other
Alterations installed by Tenant, and to repair any damages to the Premises
caused by such removal. Any and all costs attributable to or related to the
applicable building codes of the city in which the Project is located (or any
other authority having jurisdiction over the Project) arising from Tenant's
plans, specifications, improvements, alterations or otherwise shall be paid by
Tenant at its sole cost and expense. With regard to repairs, Alterations or any
other work arising from or related to this Article 9, Landlord shall be entitled
to receive an administrative/supervision fee (which fee shall vary depending
upon whether or not Tenant orders the work directly from Landlord) sufficient to
compensate Landlord for all overhead, general conditions, fees and other costs
and expenses arising from Landlord's involvement with such work. The
construction of initial improvements to the Premises shall be governed by the
terms of the Tenant Work Letter and not the terms of this Article 9.
ARTICLE 10 - Liens
- ------------------
Tenant shall keep the Premises and the Project free from any mechanics'
liens, vendors' liens, or any other liens arising out of any work performed,
materials furnished, or obligations incurred by Tenant, and agrees to defend,
indemnify and hold harmless Landlord from and against any such lien or claim or
action thereon, together with costs of suit and reasonable attorney's fees
incurred by Landlord in connection with any such claim or action. Before
commencing any work of alteration, addition or improvement to the Premises,
Tenant shall give Landlord at least ten (10) business days' written notice of
the proposed commencement of such work (to afford Landlord an opportunity to
post appropriate notices of non-responsibility). In the event that there shall
be recorded against the Premises or the Project or the Property of which the
Premises is a part any claim or lien arising out of any such work performed,
materials furnished or obligations incurred by Tenant and such claim or lien
shall not be removed or discharged within ten (10) days of filing, Landlord
shall have the right but not the obligation to pay and discharge said lien
without regard to whether such lien shall be lawful or correct or to require
that Tenant deposit with Landlord in cash, lawful money of the United States,
one hundred fifty percent (150%) of the amount of such claim, which sum may be
retained by Landlord until such claim shall have been removed of record or until
judgment shall have been rendered on such claim and such judgment shall have
become final, at which time Landlord shall have the right to apply such deposit
in discharge of the judgment on said claim and any costs, including attorney's
fees, incurred by Landlord, and shall remit the balance thereof to Tenant.
ARTICLE 11 - Project Services
- -----------------------------
(a) Landlord agrees to furnish to the Premises, at a cost to be included
in Operating Costs, from 8:00 a.m. to 6:00 p.m., Mondays through Fridays, and
9:00 a.m. to 1:00 p.m. on Saturdays, excepting local and national holidays, air
conditioning and heat, all in such reasonable quantities as in the judgment of
Landlord is reasonably necessary for the comfortable occupancy of the Premises.
In addition, Landlord shall provide electric current for normal lighting and
normal office machines, elevator service and water on the same floor as the
Premises for lavatory and drinking purposes in such reasonable quantities as in
the judgment of Landlord is reasonably necessary for general office use.
Janitorial and maintenance services shall be furnished five (5) days per week,
excepting local and national holidays. Tenant shall comply with all rules and
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regulations which Landlord may reasonably establish for the proper functioning
and protection of the common area air conditioning, heating, elevator,
electrical intrabuilding network cable and plumbing systems. Landlord shall not
be liable for any loss of, or injury to, property or for injury to, or
interference with, Tenant's business, including, without limitation, loss of
profits however occurring, and there shall be no rent abatement as a result of,
any stoppage, reduction or interruption of any such services caused by
governmental rules, regulations or ordinances, riot, strike, labor disputes,
breakdowns, accidents, necessary repairs or other cause. Except as specifically
provided in this Article 11, Tenant agrees to pay for all utilities and other
services utilized by Tenant and additional building services furnished to Tenant
not uniformly furnished to all tenants of the Project at the rate generally
charged by Landlord to tenants of the Project.
(b) Tenant will not, without the prior written consent of Landlord, use
any apparatus or device in the Premises, which will in any way increase the
amount of electricity or water usually furnished or supplied for use of the
Premises as general office space; nor connect any apparatus, machine or device
with water pipes or electric current (except through existing electrical outlets
in the Premises) for the purpose of using electric current or water.
(c) If Tenant shall require electric current in excess of that which
Landlord is obligated to furnish under Article 11(a) above, Tenant shall first
obtain the written consent of Landlord, which Landlord may refuse in its sole
and absolute discretion, to the use thereof and Landlord may cause an electric
current meter or submeter to be installed in the Premises to measure the amount
of such excess electric current consumed by Tenant in the Premises. The cost of
any such meter and of installation, maintenance and repair thereof, shall be
paid for by Tenant, and Tenant agrees to pay to Landlord promptly upon demand
therefor by Landlord, for all such excess electric current consumed by any such
use as shown by said meter at the rates charged for such service by the city in
which the Project is located or the local public utility, as the case may be,
furnishing the same, plus any additional expense incurred by Landlord in keeping
account of the electric current so consumed.
(d) If any lights, machines or equipment (including, but not limited to
computers) are used by Tenant in the Premises which materially affect the
temperature otherwise maintained by the air conditioning system, or generate
substantially more heat in the Premises than would be generated by the building
standard lights and usual office equipment, Landlord shall have the right to
install any machinery and equipment which Landlord reasonably deems necessary to
restore temperature balance, including, but not limited to, modifications to the
standard air conditioning equipment, and the cost thereof, including the cost of
installation and any additional cost of operation and maintenance occasioned
thereby, shall be paid by Tenant to Landlord upon demand by Landlord. Landlord
shall not be liable under any circumstances for loss of or injury to property,
however occurring, through or in connection with, or incidental to, failure to
furnish any of the foregoing.
(e) If Tenant requires heating, ventilation and/or air conditioning during
times other than the times provided in Article 11(a) above, Tenant shall give
Landlord such advance notice as Landlord shall reasonably require and shall pay
Landlord's standard charge for such after-hours use.
(f) Landlord may impose a reasonable charge for any utilities or services
(other than electric current and heating, ventilation and/or air conditioning
which shall be governed by Articles 11(c) and (e) above) utilized by Tenant in
excess of the amount or type that Landlord reasonably determines is typical for
general office use.
ARTICLE 12 - Rights of Landlord
- -------------------------------
Landlord and its agents shall have the right to enter the Premises at all
reasonable times for the purpose of cleaning the Premises, examining or
inspecting the same, serving or posting and keeping posted thereon notices as
provided by law, or which Landlord deems necessary for the protection of
Landlord or the Property, showing the same to prospective tenants, lenders or
purchasers of the Project, in the case of an emergency, and for making such
alterations, repairs, improvements or additions to the Premises or to the
Project as Landlord may deem necessary or
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desirable. If Tenant shall not be personally present to open and permit an entry
into the Premises at any time when such an entry by Landlord is necessary or
permitted hereunder, Landlord may enter by means of a master key or may enter
forcibly, only in the case of an emergency, without liability to Tenant except
for any failure to exercise due care for Tenant's property, and without
affecting this Lease.
ARTICLE 13 - Indemnity: Exemption of Landlord from Liability
- ------------------------------------------------------------
(a) Indemnity. Tenant shall indemnify, defend and hold Landlord harmless
from any and all claims arising from Tenant's use of the Premises or the Project
(including Tenant's signage) or from the conduct of its business or from any
activity, work or thing which may be permitted or suffered by Tenant in or about
the Premises or the Project and shall further indemnify, defend and hold
Landlord harmless from and against any and all claims arising from any breach or
default in the performance of any obligation on Tenant's part to be performed
under this Lease or arising from any negligence of Tenant or any of its agents,
contractors, employees or invitees, patrons, customers or members in or about
the Project and from any and all costs, attorney's fees, expenses and
liabilities incurred in the defense of any claim or any action or proceeding
brought thereon, including negotiations in connection therewith. Tenant hereby
assumes all risk of damage to property or injury to persons in or about the
Premises from any cause, and Tenant hereby waives all claims in respect thereof
against Landlord, excepting where the damage is caused solely by the gross
negligence or willful misconduct of Landlord.
(b) Exemption of Landlord from Liability. Landlord shall not be liable for
injury to Tenant's business, or loss of income therefrom, or, except in
connection with damage or injury resulting from the gross negligence or wilful
misconduct of Landlord, or its authorized agents, for damage that may be
sustained by the person, goods, wares, merchandise or property of Tenant, its
employees, invitees, customers, agents, or contractors, or any other person in,
on or about the Premises directly or indirectly caused by or resulting from
fire, steam, electricity, gas, water, or rain which may leak or flow from or
into any part of the Premises, or from the breakage, leakage, obstruction or
other defects of the pipes, sprinklers, wires, appliances, plumbing, air
conditioning, light fixtures, or mechanical or electrical systems or from
intrabuilding network cable, whether such damage or injury results from
conditions arising upon the Premises or upon other portions of the Project or
from other sources or places and regardless of whether the cause of such damage
or injury or the means or repairing the same is inaccessible to Tenant. Landlord
shall not be liable to Tenant for any damages arising from any act or neglect of
any other tenant of the Project.
Tenant acknowledges that Landlord's election to provide mechanical
surveillance or to post security personnel in the Project is solely within
Landlord's discretion; Landlord shall have no liability in connection with the
decision whether or not to provide such services, and Tenant hereby waives all
claims based thereon. Landlord shall not be liable for losses due to theft,
vandalism, or like causes. Tenant shall defend, indemnify, and hold Landlord
harmless from any such claims made by any employee, licensee, invitee,
contractor, agent or, other person whose presence in, on or about the Premises
or the Project is attendant to the business of Tenant.
ARTICLE 14 - Insurance
- ----------------------
(a) Tenant's Insurance. Tenant, shall at all times during the Term of this
Lease, and at its own cost and expense, procure and continue in force the
following insurance coverage: (i) Commercial General Liability Insurance with a
combined single limit for bodily injury and property damages of not less than
One Million Dollars ($1,000,000) per occurrence and Two Million Dollars
($2,000,000) in the annual aggregate, including products liability coverage if
applicable, covering the insuring provisions of this Lease; (ii) a policy of
standard fire, extended coverage and special extended coverage insurance (all
risks), including a vandalism and malicious mischief endorsement, sprinkler
leakage coverage and earthquake sprinkler leakage where sprinklers are provided
in an amount equal to ninety percent (90%) of the full replacement value new
without deduction for depreciation of all (A) Tenant Improvements, Alterations,
fixtures and other improvements in the Premises, and (B) trade fixtures,
furniture, equipment and other personal property installed by or at the expense
of Tenant; (iii) Workers' Compensation coverage
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as required by law; and (iv) extra expense insurance covering failure of
Tenant's telecommunications equipment and covering all other perils, failures or
interruptions. Tenant shall carry and maintain during the entire Lease Term
(including any option periods, if applicable), at Tenant's sole cost and
expense, increased amounts of the insurance required to be carried by Tenant
pursuant to this Article 14 as may be reasonably required by Landlord.
(b) Form of Policies. The aforementioned minimum limits of policies and
Tenant's procurement and maintenance thereof shall in no event limit the
liability of Tenant hereunder. The Commercial General Liability Insurance policy
shall name Landlord, Landlord's property manager, Landlord's lender(s) and such
other persons or firms as Landlord specifies from time to time, as additional
insureds with an appropriate endorsement to the policy(s). All such insurance
policies carried by Tenant shall be with companies having a rating of not less
than B+ VII in Best's Insurance Guide. Tenant shall furnish to Landlord, from
the insurance companies, or cause the insurance companies to furnish,
certificates of coverage. Tenant shall request that each insurer shall provide
(30) days' prior written notice to Landlord prior to any reduction of coverage
or other modification or cancellation by the insurer. Deductible amounts under
all insurance policies required to be carried by Tenant shall not exceed Five
Thousand Dollars ($5,000.00) per occurrence. All commercial general liability
and property damage insurance shall be written on an "occurrence" basis, which
shall afford coverage for all claims based on acts, omissions, injury and
damage, which occurred or arose (or the onset of which occurred or arose) in
whole or in part during the policy period. All such policies shall be endorsed
to agree that Tenant's policy is primary and that any insurance covered by
Landlord is excess and not contributing with any Tenant insurance requirement
hereunder. Tenant shall, at least twenty (20) days prior to the expiration of
such policies, furnish Landlord with renewals or binders. Tenant agrees that if
Tenant does not take out and maintain such insurance or furnish Landlord with
renewals or binders, Landlord may (but shall not be required to) procure said
insurance on Tenant's behalf and charge Tenant the cost thereof, which amount
shall be payable by Tenant upon demand with interest (at the rate set forth in
Section 20(e) below) from the date such sums are extended. Tenant shall have the
right to provide such insurance coverage, pursuant to blanket policies obtained
by Tenant, provided such blanket policies expressly afford coverage to the
Premises and to Tenant as required by this Lease.
(c) Landlord's Insurance. Landlord shall, as a cost to be included in
Operating Costs, procure and maintain at all times during the Term of this
Lease, a policy or policies of insurance covering loss or damage to the Project
in the amount of the full replacement costs without deduction for depreciation
thereof (exclusive of Tenant's trade fixtures, inventory, personal property and
equipment), providing protection against all perils included within the
classification of fire and extended coverage, vandalism coverage, and malicious
mischief, sprinkler leakage, water damage, and special extended coverage on
building. Additionally, Landlord may (but shall not be required to) carry: (i)
Bodily injury and property damage liability insurance and/or excess liability
coverage insurance; (ii) earthquake and/or flood damage insurance; and (iii)
rental income insurance at its election or if required by its lender from time
to time during the Term hereof, in such amounts and with such limits as Landlord
or its lender may deem appropriate. The costs of such insurance shall be
included in Operating Costs.
(d) Waiver of Subrogation. Landlord and Tenant each agree to have their
respective insurers issuing the insurance described in Sections 14(a)(ii),
14(a)(iv) and the first sentence of Section 14(c) waive any rights of
subrogation that such companies may have against the other party. Tenant hereby
waives any right that Tenant may have against Landlord and Landlord hereby
waives any right that Landlord may have against Tenant as a result of any loss
or damage to the extent such loss or damage is insurable under such policies.
(e) Compliance with Law. Tenant agrees that it will not, at any time,
during the Term of this Lease, carry any stock of goods or do anything in or
about the Premises which will in any way tend to increase the insurance rates
upon the Project. Tenant agrees to pay Landlord forthwith upon demand the amount
of any increase in premiums for insurance against loss by fire that may be
charged during the Term of this Lease on the amount of insurance to be carried
by Landlord on the Project resulting from the foregoing, or from Tenant doing
any act in or about said Premises which does so increase the insurance rates,
whether or not Landlord shall have
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<PAGE> 17
consented to such act on the part of Tenant. If Tenant installs upon the
Premises any electrical equipment which constitutes an overload of electrical
lines of the Premises, Tenant shall, at its own cost and expense in accordance
with all other Lease provisions, and subject to the provisions of Articles 9, 10
and 11 hereof, make whatever changes are necessary to comply with requirements
of the insurance underwriters and any governmental authority having jurisdiction
thereover, but nothing herein contained shall be deemed to constitute Landlord's
consent to such overloading. Tenant shall, at its own expense, comply with all
requirements of the insurance authority having jurisdiction over the Project
necessary for the maintenance of reasonable fire and extended coverage insurance
for the Premises, including, without limitation thereto, the installation of
fire extinguishers or an automatic dry chemical extinguishing system.
ARTICLE 15 - Assignment and Subletting
- --------------------------------------
Tenant shall have no right to, either voluntarily, involuntarily, by
operation of law or otherwise, sell, assign, transfer or hypothecate this Lease,
or sublet the Premises or any part thereof, or permit the Premises or any part
thereof to be used or occupied by anyone other than Tenant or Tenant's employees
without the prior written consent of Landlord which shall not be unreasonably
withheld. If Tenant is a corporation, unincorporated association, partnership or
limited liability company, the sale, assignment, transfer or hypothecation of
any class of stock or other ownership interest in such corporation, association,
partnership or limited liability company in excess of fifty percent (50%) in the
aggregate shall be deemed an assignment within the meaning and provisions of
this Article 15. Tenant may transfer its interest pursuant to this Lease only
upon the following express conditions, which conditions are agreed by Landlord
and Tenant to be reasonable:
(a) That the proposed transferee shall be subject to the prior written
consent of Landlord, which consent will not be unreasonably withheld but,
without limiting the generality of the foregoing, it shall be reasonable for
Landlord to deny such consent if:
(i) The use to be made of the Premises by the proposed transferee is
(a) not generally consistent with the character and nature of all other
tenancies in the Project, or (b) a use which conflicts with any so-called
"exclusive" then in favor of, or for any use which is the same as that stated in
any percentage rent lease to, another tenant of the Project or any other
buildings which are in the same complex as the Project, or (c) a use which would
be prohibited by any other portion of this Lease (including, but not limited to,
any rules and regulations then in effect);
(ii) The financial responsibility of the proposed transferee is not
reasonably satisfactory to Landlord;
(iii) The proposed transferee is either a governmental agency or
instrumentality thereof; or
(iv) Either the proposed transferee or any person or entity which
directly or indirectly controls, is controlled by or is under common control
with the proposed transferee (A) occupies space in the Project at the time of
the request for consent, or (B) is negotiating with Landlord or has negotiated
with Landlord during the six (6) month period immediately preceding the date of
the proposed transfer, to lease space in the Project.
(b) Whether or not Landlord consents to any such transfer, Tenant shall
pay to Landlord Landlord's then standard processing fee and reasonable
attorneys' fees incurred in connection with the proposed transfer up to the
aggregate sum of One Thousand Five Hundred Dollars ($1,500.00);
(c) That the proposed transferee shall execute an agreement pursuant to
which it shall agree to perform faithfully and be bound by all of the terms,
covenants, conditions, provisions and agreements of this Lease applicable to
that portion of the Premises so transferred; and
(d) That an executed duplicate original of said assignment and assumption
agreement or other transfer on a form reasonably approved by Landlord, shall be
delivered to Landlord
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<PAGE> 18
within five (5) days after the execution thereof, and that such transfer shall
not be binding upon Landlord until the delivery thereof to Landlord and the
execution and delivery of Landlord's consent thereto. It shall be a condition to
Landlord's consent to any subleasing, assignment or other transfer of part or
all of Tenant's interest in the Premises (hereinafter referred to as a
"Transfer") that (i) upon Landlord's consent to any Transfer, Tenant shall pay
and continue to pay fifty percent (50%) of any "Transfer Premium" (defined
below), received by Tenant from the transferee; (ii) any sublesee of part or all
of Tenant's interest in the Premises shall agree that in the event Landlord
gives such sublessee notice that Tenant is in default under this Lease, such
sublessee shall thereafter make all sublease or other payments directly to
Landlord, which will be received by Landlord without any liability whether to
honor the sublease or otherwise (except to credit such payments against sums due
under this Lease), and any sublessee shall agree to attorn to Landlord or its
successors and assigns at their request should this Lease be terminated for any
reason, except that in no event shall Landlord or its successors or assigns be
obligated to accept such attornment; (iii) any such Transfer and consent shall
be effected on forms supplied by Landlord and/or its legal counsel; (iv)
Landlord may require that Tenant not then be in default hereunder in any
respect; (v) subject to Landlord's right to require attornment by any subtenant,
any termination of this Lease, whether voluntary or involuntary, shall cause
each sublease to terminate, notwithstanding Landlord's prior approval of the
sublease; and (vi) Tenant or the proposed subtenant or assignee (collectively,
"Transferee") shall agree to pay Landlord, upon demand, as additional rent, a
sum equal to the additional costs, if any, incurred by Landlord for maintenance
and repair as a result of any change in the nature of occupancy caused by such
subletting or assignment. In the event of a voluntary termination of this Lease
by agreement between Landlord and Tenant, to the extent that any subtenant has
any claim or cause of action arising from or related to such voluntary
termination of this Lease and resulting termination of the sublease, the
subtenant shall be conclusively presumed to have waived such claim or cause of
action against Landlord (including Landlord's employees, agents or
representatives), the Premises and the Project, and to have agreed that any such
claim or cause of action shall be asserted solely against Tenant. "Transfer
Premium" shall mean all rent, additional rent or other consideration payable by
a Transferee in connection with a Transfer in excess of the rent and Additional
Rent payable by Tenant under this Lease during the term of the Transfer and if
such Transfer is less than all of the Premises, the Transfer Premium shall be
calculated on a rentable square foot basis after deducting the reasonable
expenses incurred by Tenant for (i) any changes, alterations and improvements to
the Premises paid for by Tenant in connection with the Transfer, (ii) any other
out-of-pocket monetary concessions provided by Tenant to the transferee, and
(iii) any brokerage commissions paid for by Tenant in connection with the
Transfer. "Transfer Premium" shall also include, but not be limited to, key
money, bonus money or other cash consideration paid by a transferee to Tenant in
connection with such Transfer, and any payment in excess of fair market value
for services rendered by Tenant to the Transferee and any payment in excess of
fair market value for assets, fixtures, inventory, equipment, or furniture
transferred by Tenant to the Transferee in connection with such Transfer. Any
sale, assignment, hypothecation, transfer or subletting of this Lease which is
not in compliance with the provisions of this Article 15 shall be void and
shall, at the option of Landlord, terminate this Lease. In no event shall the
consent by Landlord to an assignment or subletting be construed as relieving
Tenant, any assignee, or sublessee from obtaining the express written consent of
Landlord to any further assignment or subletting, or as relating Tenant from any
liability or obligation hereunder whether or not then accrued and Tenant shall
continue to be fully liable therefor. No collection or acceptance of rent by
Landlord from any person other than Tenant shall be deemed a waiver of any
provision of this Article 15 or the acceptance of any assignee or subtenant
hereunder, or a release of Tenant (or of any successor of Tenant or any
subtenant). Notwithstanding anything to the contrary in this Lease, if Tenant or
any proposed Transferee claims that Landlord has unreasonably withheld or
delayed its consent under this Article 15 or otherwise has breached or acted
unreasonably under this Article 15, their sole remedies shall be a declaratory
judgment and an injunction for the relief sought without any monetary damages,
and Tenant hereby waives all other remedies, including, without limitation, any
right at law or equity to terminate this Lease, on its own behalf and, to the
extent permitted under all applicable laws, on behalf of the proposed
Transferee.
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<PAGE> 19
(e) Notwithstanding anything to the contrary contained in this Article 15,
except in the event of a "deemed assignment" pursuant to a sale, assignment,
transfer or hypothecation of any class of stock or other ownership interest in
Tenant in excess of fifty percent (50%) in the aggregate, Landlord shall have
the option by giving written notice to Tenant within thirty (30) days after
Landlord's receipt of a request for consent to a proposed Transfer, to terminate
this Lease as to the portion of the Premises which is the subject of the
Transfer. If this Lease is so terminated with respect to less than the entire
Premises, the Basic Rental and Tenant's Proportionate Share shall be prorated
based on the number of rentable square feet retained by Tenant as compared to
the total number of rentable square feet contained in the original Premises, and
this Lease as so amended shall continue thereafter in full force and effect, and
upon the request of either party, the parties shall execute written confirmation
of the same.
(f) Notwithstanding anything herein to the contrary: (a) in the event
Tenant is a public corporation, or is engaging in an initial public offering of
its stock, the sale of stock in Tenant shall not require Landlord's consent; and
(b) Tenant may, without Landlord's consent but with prior written notice to
Landlord, assign this Lease, sublet or Transfer all or any portion of the
Premises to (i) any entity resulting from a merger, consolidation or other such
reorganization with Tenant, (ii) any entity succeeding to the business and
assets of Tenant, or (iii) any entity that controls, is controlled by, is under
common control with, or is otherwise affiliated by substantially common
ownership with, Tenant (a "Tenant Affiliate"), provided that in the event of any
assignment, sublease or Transfer, the net worth of the Tenant Affiliate is such
that the Tenant Affiliate is reasonably likely to be able to perform its
obligations under this Lease.
ARTICLE 16 - Damage or Destruction
- ----------------------------------
If the Project is damaged by fire or other insured casualty and the
insurance proceeds have been made available therefor by the holder or holders of
any mortgages or deeds of trust covering the Premises or the Project, the damage
shall be repaired by Landlord to the extent such insurance proceeds are
available therefor and provided such repairs can, in Landlord's sole opinion, be
completed within two hundred seventy (270) days after the necessity for repairs
as a result of such damage becomes known to Landlord without the payment of
overtime or other premiums, and until such repairs are completed rent shall be
abated in proportion to the part of the Premises which is unusable by Tenant in
the conduct of its business (but there shall be no abatement of rent by reason
of any portion of the Premises being unusable for a period equal to one (1) day
or less). However, if the damage is due to the fault or neglect of Tenant, its
employees, agents, contractors, guests, invitees and the like, there shall be no
abatement of rent, unless and to the extent Landlord receives rental income
insurance proceeds. If the cost of repair of improvements within the Premises by
Landlord exceeds the amount of insurance proceeds received by Landlord from
Landlord's insurance carrier, such excess costs shall be paid by Tenant to
Landlord prior to Landlord's repair of such damage. If repairs cannot, in
Landlord's opinion, be completed within two hundred seventy (270) days after the
necessity for repairs as a result of such damage becomes known to Landlord
without the payment of overtime or other premiums, Landlord may, at its option,
either (i) make them in a reasonable time and in such event this Lease shall
continue in effect and the rent shall be abated, if at all, in the manner
provided in this Article 16, or (ii) elect not to effect such repairs and
instead terminate this Lease, by notifying Tenant in writing of such termination
within sixty (60) days after Landlord learns of the necessity for repairs as a
result of damage, such notice to include a termination date giving Tenant sixty
(60) days to vacate the Premises. In addition, Landlord may elect to terminate
this Lease if the Project shall be damaged by fire or other casualty or cause,
whether or not the Premises are affected, and the damage is not fully covered,
except for deductible amounts, by Landlord's insurance policies. Finally, if the
Premises or the Project is damaged to any substantial extent during the last
twelve (12) months of the Term, then notwithstanding anything contained in this
Article 16 to the contrary, Landlord shall have the option to terminate this
Lease by giving written notice to Tenant of the exercise of such option within
sixty (60) days after Landlord learns of the necessity for repairs as the result
of such damage. A total destruction of the Project shall automatically terminate
this Lease. Except as provided in this Article 16, there shall be no abatement
of rent and no liability of Landlord by reason of any injury to or interference
with Tenant's business or property arising from such damage or destruction or
the making of any repairs, alterations or improvements in or
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<PAGE> 20
to any portion of the Project or the Premises or in or to fixtures,
appurtenances and equipment therein. Tenant understands that Landlord will not
carry insurance of any kind on Tenant's furniture, furnishings, trade fixtures
or equipment, and that Landlord shall not be obligated to repair any damage
thereto or replace the same. Except for proceeds relating to Tenant's furniture,
furnishings, trade fixtures and equipment, Tenant acknowledges that Tenant shall
have no right to any proceeds of insurance relating to property damage. With
respect to any damage which Landlord is obligated to repair or elects to repair,
Tenant, as a material inducement to Landlord entering into this Lease,
irrevocably waives and releases its rights under the provisions of Sections 1932
and 1933 of the California Civil Code.
ARTICLE 17 - Subordination
- --------------------------
This Lease is subject and subordinate to all ground or underlying leases,
mortgages and deeds of trust which affect the Property or the Project, including
all renewals, modifications, consolidations, replacements and extensions
thereof; provided, however, if the lessor under any such lease or the holder or
holders of any such mortgage or deed of trust shall advise Landlord that they
desire or require this Lease to be prior and superior thereto, upon written
request of Landlord to Tenant, Tenant agrees to promptly execute, acknowledge
and deliver any and all documents or instruments which Landlord or such lessor,
holder or holders deem necessary or desirable for purposes thereof. Landlord
shall have the right to cause this Lease to be and become and remain subject and
subordinate to any and all ground or underlying leases, mortgages or deeds of
trust which may hereafter be executed covering the Premises, the Project or the
property or any renewals, modifications, consolidations, replacements or
extensions thereof, for the full amount of all advances made or to be made
thereunder and without regard to the time or character of such advances,
together with interest thereon and subject to all the terms and provisions
thereof; provided, however, that Landlord obtains from the lender or other party
in question a written undertaking in favor of Tenant to the effect that such
lender or other party will not disturb Tenant's right of possession under this
Lease if Tenant is not then or thereafter in breach of any covenant or provision
of this Lease. Tenant agrees, within ten (10) days after Landlord's written
request therefor, to execute, acknowledge and deliver upon request any and all
documents or instruments requested by Landlord or necessary or proper to assure
the subordination of this Lease to any such mortgages, deed of trust, or
leasehold estates. Tenant agrees that in the event any proceedings are brought
for the foreclosure of any mortgage or deed of trust or any deed in lieu
thereof, to attorn to the purchaser or any successors thereto upon any such
foreclosure sale or deed in lieu thereof as so requested to do so by such
purchaser and to recognize such purchaser as the lessor under this Lease; Tenant
shall, within five (5) days after request execute such further instruments or
assurances as such purchaser may reasonably deem necessary to evidence or
confirm such attornment. Tenant agrees to provide copies of any notices of
Landlord's default under this Lease to any mortgagee or deed of trust
beneficiary whose address has been provided to Tenant and Tenant shall provide
such mortgagee or deed of trust beneficiary a commercially reasonable time after
receipt of such notice within which to cure any such default. Tenant waives the
provisions of any current or future statute, rule or law which may give or
purport to give Tenant any right or election to terminate or otherwise adversely
affect this Lease and the obligations of the Tenant hereunder in the event of
any foreclosure proceeding or sale.
ARTICLE 18 - Eminent Domain
- ---------------------------
If the whole of the Premises or the Project or so much thereof as to render
the balance unusable by Tenant shall be taken under power of eminent domain, or
is sold, transferred or conveyed in lieu thereof, this Lease shall automatically
terminate as of the date of such condemnation, or as of the date possession is
taken by the condemning authority, at Landlord's option. No award for any
partial or entire taking shall be apportioned, and Tenant hereby assigns to
Landlord any award which may be made in such taking or condemnation, together
with any and all rights of Tenant now or hereafter arising in or to the same or
any part thereof; provided, however, that nothing contained herein shall be
deemed to give Landlord any interest in or to require Tenant to assign to
Landlord any award made to Tenant for the taking of personal property and trade
fixtures belonging to Tenant and removable by Tenant at the expiration of the
Term hereof as provided hereunder or for the interruption of, or damage to,
Tenant's business. In the event of a partial taking described in this Article
18, or a sale, transfer or conveyance in lieu
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<PAGE> 21
thereof which does not result in a termination of this Lease, the rent shall be
apportioned according to the ratio that the part of the Premises remaining
useable by Tenant bears to the total area of the Premises. Tenant hereby waives
any and all rights it might otherwise have pursuant to Section 1265.130 of the
California Code of Civil Procedure.
ARTICLE 19 - Default
- --------------------
Each of the following acts or omissions of Tenant or of any guarantor of
Tenant's performance hereunder, or occurrences, shall constitute an "Event of
Default":
(a) Failure or refusal to pay Basic Rental, Additional Rent or any other
amount to be paid by Tenant to Landlord hereunder within three (3) calendar days
after notice that the same is due or payable hereunder; said three (3) day
period shall be in lieu of, and not in addition to, the notice requirements of
Section 1161 of the California Code of Civil Procedure or any similar or
successor law;
(b) Except as set forth in Subparagraphs (a) above and (c) through and
including (g) below, failure to perform or observe any other covenant or
condition of this Lease to be performed or observed within thirty (30) days
following written notice to Tenant of such failure. Such thirty (30) day notice
shall be in lieu of, and not in addition to, any law required under Section 1161
of the California Code of Civil Procedure or any similar or successor law;
(c) Abandonment or vacating or failure to accept tender of possession of
the Premises or any significant portion thereof;
(d) The taking in execution or by similar process or law (other than by
eminent domain) of the estate hereby created;
(e) The filing by Tenant or any guarantor hereunder in any court pursuant
to any statute of a petition in bankruptcy or insolvency or for reorganization
or arrangement for the appointment of a receiver of all or a portion of Tenant's
property; the filing against Tenant or any guarantor hereunder of any such
petition, or the commencement of a proceeding for the appointment of a trustee,
receiver or liquidator for Tenant, or for any guarantor hereunder, or of any of
the property of either, or a proceeding by any governmental authority for the
dissolution or liquidation of Tenant or any guarantor hereunder, if such
proceeding shall not be dismissed or trusteeship discontinued within thirty (30)
days after commencement of such proceeding or the appointment of such trustee or
receiver; or the making by Tenant or any guarantor hereunder of an assignment
for the benefit of creditors. Tenant hereby stipulates to the lifting of the
automatic stay in effect and relief from such stay for Landlord in the event
Tenant files a petition under the United States Bankruptcy laws, for the purpose
of Landlord pursuing its rights and remedies against Tenant and/or a guarantor
of this Lease;
(f) Tenant's failure to cause to be released any mechanics liens filed
against the Premises or the Project within twenty (20) days after the date the
same shall have been filed or recorded; or
(g) Tenant's failure to observe or perform according to the provisions of
Articles 17 or 25 within two (2) business days after notice from Landlord.
All defaults by Tenant of any covenant or condition of this Lease shall be
deemed by the parties hereto to be material.
ARTICLE 20 - Remedies
- ---------------------
(a) Upon the occurrence of an Event of Default under this Lease as
provided in Article 19 hereof, Landlord may exercise all of its remedies as may
be permitted by law, including, but not limited to, the remedy provided by
Section 1951.4 of the California Civil Code, and including, without limitation,
terminating this Lease, re-entering the Premises and removing all persons and
property therefrom, which property may be stored by Landlord at a warehouse or
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<PAGE> 22
elsewhere at the risk, expense and for the account of Tenant. If Landlord elects
to terminate this Lease, Landlord shall be entitled to recover from Tenant the
aggregate of all amounts permitted by law, including, but not limited to (i) the
worth at the time of award of the amount of any unpaid rent which had been
earned at the time of such termination; plus (ii) the worth at the time of award
of the amount by which the unpaid rent which would have been earned after
termination until the time of award exceeds the amount of such rental loss that
Tenant proves could have been reasonably avoided; plus (iii) the worth at the
time of award of the amount by which the unpaid rent for the balance of the
Lease Term after the time of award exceeds the amount of such rental loss that
Tenant proves could have been reasonably avoided; plus (iv) any other amount
necessary to compensate Landlord for all the detriment proximately caused by
Tenant's failure to perform its obligations under this Lease or which in the
ordinary course of things would be likely to result therefrom, specifically
including, but not limited to, brokerage commissions and advertising expenses
incurred, expenses of remodeling the Premises or any portion thereof for a new
tenant, whether for the same or a different use, and any special concessions
made to obtain a new tenant; and (v) at Landlord's election, such other amounts
in addition to or in lieu of the foregoing as may be permitted from time to time
by applicable law. The term "rent" as used in this Article 20(a) shall be deemed
to be and to mean all sums of every nature required to be paid by Tenant
pursuant to the terms of this Lease, whether to Landlord or to others. As used
in Items (i) and (ii), above, the "worth at the time of award" shall be computed
by allowing interest at the rate set forth in Item (e), below, but in no case
greater than the maximum amount of such interest permitted by law. As used in
Item (iii), above, the "worth at the time of award" shall be computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus one percent (1%).
(b) Nothing in this Article 20 shall be deemed to affect Landlord's right
to indemnification for liability or liabilities arising prior to the termination
of this Lease for personal injuries or property damage under the indemnification
clause or clauses contained in this Lease.
(c) Notwithstanding anything to the contrary set forth herein, Landlord's
re-entry to perform acts of maintenance or preservation of or in connection with
efforts to relet the Premises or any portion thereof, or the appointment of a
receiver upon Landlord's initiative to protect Landlord's interest under this
Lease shall not terminate Tenant's right to possession of the Premises or any
portion thereof and, until Landlord does elect to terminate this Lease, this
Lease shall continue in full force and effect, and Landlord may enforce all of
Landlord's rights and remedies hereunder including, without limitation, the
remedy described in California Civil Code Section 1951.4 (lessor may continue
lease in effect after lessee's breach and abandonment and recover rent as it
becomes due, if lessee has the right to sublet or assign, subject only to
reasonable limitations). Accordingly, if Landlord does not elect to terminate
this Lease on account of any default by Tenant, Landlord may, from time to time,
without terminating this Lease, enforce all of its rights and remedies under
this Lease, including the right to recover all rent as it becomes due.
(d) All rights, powers and remedies of Landlord hereunder and under any
other agreement now or hereafter in force between Landlord and Tenant shall be
cumulative and not alternative and shall be in addition to all rights, powers
and remedies given to Landlord by law, and the exercise of one (1) or more
rights or remedies shall not impair Landlord's right to exercise any other right
or remedy.
(e) Any amount due from Tenant to Landlord hereunder which is not paid
when due shall bear interest at the lower of eighteen percent (18%) per annum,
or the maximum lawful rate of interest from the due date until paid, unless
otherwise specifically provided herein, but the payment of such interest shall
not excuse or cure any default by Tenant under this Lease. In addition to such
interest: (i) if Basic Rental is not paid within ten (10) days after the same is
due, a late charge equal to ten percent (10%) of the amount overdue or Five
Hundred Dollars ($500.00), whichever is greater, shall be assessed and shall
accrue for each calendar month or part thereof until such rental, including the
late charge, is paid in full, which late charge Tenant hereby agrees is a
reasonable estimate of the damages Landlord shall suffer as a result of Tenant's
late payment; and (ii) an additional charge of Twenty-Five Dollars ($25.00)
shall be assessed for any check given to Landlord by or on behalf of Tenant
which is not honored by the drawee thereof,
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<PAGE> 23
which damages include Landlord's additional administrative and other costs
associated with such late payment and unsatisfied checks, and the parties agree
that it would be impracticable or extremely difficult to fix Landlord's actual
damage in such event. Such charges for interest and late payments and
unsatisfied checks are separate and cumulative and are in addition to and shall
not diminish or represent a substitute for any or all of Landlord's rights or
remedies under any other provision of this Lease.
(f) Whether or not Landlord elects to terminate this Lease on account of
any default by Tenant, as set forth in this Article 20, Landlord shall have the
right to terminate any and all subleases, licenses, concessions or other
consensual arrangements for possession entered into by Tenant and affecting the
Premises or may, in Landlord's sole discretion, succeed to Tenant's interest in
such subleases, licenses, concessions or arrangements. In the event of
Landlord's election to succeed to Tenant's interest in any such subleases,
licenses, concessions or arrangements, Tenant shall, as of the date of notice by
Landlord of such election, have no further right to or interest in the rent or
other consideration receivable thereunder.
(g) (i) Landlord shall not be in default under this Lease unless Landlord
fails to perform obligations required of Landlord within sixty (60) days after
written notice is delivered by Tenant to Landlord and to the holder of any
mortgages or deeds of trust (collectively, "Lender") covering the Premises whose
name and address shall have theretofore been furnished to Tenant in writing,
specifying the obligation which Landlord has failed to perform; provided,
however, that if the nature of Landlord's obligation is such that more than
sixty (60) days are required for performance, then Landlord shall not be in
default if Landlord or Lender commences performance within such sixty (60) day
period and thereafter diligently prosecutes the same to completion.
(ii) In the event of any default, breach or violation of Tenant's
rights under this Lease by Landlord, Tenant's exclusive remedies shall be an
action for specific performance or action for actual damages. Without limiting
any other waiver by Tenant which may be contained in this Lease, Tenant hereby
waives the benefit of any laws granting it the right to perform Landlord's
obligation, or the right to terminate this Lease on account of any Landlord
default.
ARTICLE 21 - Transfer of Landlord's Interest
- --------------------------------------------
In the event of any transfer or termination of Landlord's interest in the
Premises or the Project by sale, assignment, transfer, foreclosure, deed in lieu
of foreclosure, or otherwise, whether voluntary or involuntary, Landlord shall
be automatically relieved of any and all obligations and liabilities on the part
of Landlord from and after the date of such transfer or termination, including
furthermore without limitation the obligation of Landlord under Article 4 above
and California Civil Code 1950.7 to return the security deposit, provided said
security deposit is transferred to said transferee. Tenant agrees to attorn to
the transferee upon any such transfer and to recognize such transferee as the
lessor under this Lease and Tenant shall, within five (5) days after request,
execute such further instruments or assurances as such transferee may reasonably
deem necessary to evidence or confirm such attornment.
ARTICLE 22 - Broker
- -------------------
In connection with this Lease, Tenant warrants and represents that it has
had dealings only with firm(s) set forth in Article 1.H. of the Basic Lease
Provisions and that it knows of no other person or entity who is or might be
entitled to a commission, finder's fee or other like payment in connection
herewith and does hereby indemnify and agree to hold Landlord, its agents,
members, partners, representatives, officers, affiliates, shareholders,
employees, successors and assigns harmless from and against any and all loss,
liability and expenses which Landlord may incur should such warranty and
representation prove incorrect, inaccurate or false.
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<PAGE> 24
ARTICLE 23 - Parking
- --------------------
Tenant shall rent from Landlord, commencing on the Commencement Date, the
number of unreserved parking passes set forth in Article 1.I. of the Basic Lease
Provisions, which parking passes shall pertain to the Project parking facility.
Tenant shall pay to Landlord for automobile parking passes the prevailing rate
charged from time to time at the location of such parking passes. In addition,
Tenant shall be responsible for the full amount of any taxes imposed by any
governmental authority in connection with the renting of such parking passes by
Tenant or the use of the parking facility by Tenant. Tenant's continued right to
use the parking passes is conditioned upon Tenant abiding by all rules and
regulations which are prescribed from time to time for the orderly operation and
use of the parking facility where the parking passes are located, including any
sticker or other identification system established by Landlord, Tenant's
cooperation in seeing that Tenant's employees and visitors also comply with such
rules and regulations, and Tenant not being in default under this Lease.
Landlord specifically reserves the right to change the size, configuration,
design, layout and all other aspects of the Project parking facility at any time
and Tenant acknowledges and agrees that Landlord may, without incurring any
liability to Tenant and without any abatement of rent under this Lease, from
time to time, close-off or restrict access to the Project parking facility for
purposes of permitting or facilitating any such construction, alteration or
improvements. Landlord may delegate its responsibilities hereunder to a parking
operator or a lessee of the parking facility in which case such parking operator
or lessee shall have all the rights of control attributed hereby to the
Landlord. The parking passes rented by Tenant pursuant to this Article 23 are
provided to Tenant solely for use by Tenant's own personnel and such passes may
not be transferred, assigned, subleased or otherwise alienated by Tenant without
Landlord's prior approval. Tenant may validate visitor parking by such method or
methods as the Landlord may establish, at the validation rate from time to time
generally applicable to visitor parking.
ARTICLE 24 - Waiver
- -------------------
No waiver by Landlord of any provision of this Lease shall be deemed to be
a waiver of any other provision hereof or of any subsequent breach by Tenant of
the same or any other provision. No provision of this Lease may be waived by
Landlord, except by an instrument in writing executed by Landlord. Landlord's
consent to or approval of any act by Tenant requiring Landlord's consent or
approval shall not be deemed to render unnecessary the obtaining of Landlord's
consent to or approval of any subsequent act of Tenant, whether or not similar
to the act so consented to or approved. No act or thing done by Landlord or
Landlord's agents during the Term of this Lease shall be deemed an acceptance of
a surrender of the Premises, and no agreement to accept such surrender shall be
valid unless in writing and signed by Landlord. Any payment by Tenant or receipt
by Landlord of an amount less than the total amount then due hereunder shall be
deemed to be in partial payment only thereof and not a waiver of the balance due
or an accord and satisfaction, notwithstanding any statement or endorsement to
the contrary on any check or any other instrument delivered concurrently
therewith or in reference thereto. Accordingly, Landlord may accept any such
amount and negotiate any such check without prejudice to Landlord's right to
recover all balances due and owing and to pursue its other rights against Tenant
under this Lease, regardless of whether Landlord makes any notation on such
instrument of payment or otherwise notifies Tenant that such acceptance or
negotiation is without prejudice to Landlord's rights.
ARTICLE 25 - Estoppel Certificate
- ---------------------------------
Tenant shall, at any time and from time to time, upon not less than ten
(10) days' prior written notice from Landlord, execute, acknowledge and deliver
to Landlord a statement in writing certifying the following information (but not
limited to the following information in the event further information is
requested by Landlord): (a) that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as modified, is in full force and effect); (b) the dates to
which the rental and other charges are paid in advance, if any; (c) the amount
of Tenant's security deposit, if any; and (d) acknowledging that there are not,
to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder,
and no events or conditions then in existence which, with the passage of time
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<PAGE> 25
or notice or both, would constitute a default on the part of Landlord hereunder,
or specifying such defaults, events or conditions, if any are claimed. It is
expressly understood and agreed that any such statement may be relied upon by
any prospective purchaser or encumbrancer of all or any portion of the Real
Property. Tenant's failure to deliver such statement within such time shall
constitute an admission by Tenant that all statements contained therein are true
and correct. Tenant agrees to execute all documents required in accordance with
this Article 25 within ten (10) days after delivery of said documents. Tenant
hereby irrevocably appoints Landlord as Tenant's attorney-in-fact and in
Tenant's name, place and stead to execute any and all documents described in
this Article 25 if Tenant fails to do so within the specified time period.
ARTICLE 26 - Liability of Landlord
- ----------------------------------
Notwithstanding anything in this Lease to the contrary, any remedy of
Tenant for the collection of a judgment (or other judicial process) requiring
the payment of money by Landlord in the event of any default by Landlord
hereunder or any claim, cause of action, obligation, contractual statutory or
otherwise by Tenant against Landlord concerning, arising out of or relating to
any matter relating to this Lease and all of the covenants and conditions or any
obligations, contractual, statutory, or otherwise set forth herein, shall be
limited solely and exclusively to an amount which is equal to the lesser of (i)
the interest of Landlord in and to the Project, and (ii) the interest Landlord
would have in the Project if the Project were encumbered by third party debt in
an amount equal to ninety percent (90%) of the then current value of the
Property (as such value is reasonably determined by Landlord). No other property
or assets of Landlord, or any member, officer, director, shareholder, partner,
trustee, agent, servant or employee of Landlord ("Representative") shall be
subject to levy, execution or other enforcement procedure for the satisfaction
of Tenant's remedies under or with respect to this Lease, Landlord's obligations
to Tenant, whether contractual, statutory or otherwise, the relationship of
Landlord and Tenant hereunder, or Tenant's use or occupancy of the Premises.
Tenant further understands that any liability, duty or obligation of Landlord to
Tenant shall automatically cease and terminate as of the date that Landlord or
any of Landlord's Representatives no longer have any right, title or interest in
or to the Project. Notwithstanding any contrary provision herein, neither
Landlord nor any Landlord Representative shall be liable under any circumstances
for injury or damage to, or interference with, Tenant's business, including but
not limited to, loss of profits, loss of rents or other revenues, loss of
business opportunity, loss of goodwill or loss of use, in each case, however
occurring.
ARTICLE 27 - Inability To Perform
- ---------------------------------
This Lease and the obligations of Tenant hereunder shall not be affected or
impaired because Landlord is unable to fulfill any of its obligations hereunder
or is delayed in doing so, if such inability or delay is caused by reason of any
prevention, delay, stoppage due to strikes, lockouts, acts of God, or any other
cause previously, or at such time, beyond the reasonable control or anticipation
of Landlord (collectively, a "Force Majeure"), and Landlord's obligation under
this Lease shall be forgiven and suspended by any such Force Majeure.
ARTICLE 28 - Hazardous Waste
- ----------------------------
(a) Tenant shall not cause or permit any Hazardous Material (as defined in
Article 28(d) below) to be brought, kept or used in or about the Project by
Tenant, its agents, employees, contractors, or invitees. Tenant indemnifies
Landlord from and against any breach by Tenant of the obligations stated in the
preceding sentence, and agrees to defend and hold Landlord harmless from and
against any and all claims, judgments, damages, penalties, fines, costs,
liabilities, or losses (including, without limitation, diminution in value of
the Project, damages for the loss or restriction or use of rentable or usable
space or of any amenity of the Project, damages arising from any adverse impact
or marketing of space in the Project, and sums paid in settlement of claims,
attorney's fees, consultant fees, and expert fees) which arise during or after
the Term of this Lease as a result of such breach. This indemnification of
Landlord by Tenant includes, without limitation, costs incurred in connection
with any investigation of site conditions or any cleanup, remedial, removal, or
restoration work required by any federal, state, or local governmental agency or
political subdivision because of Hazardous Material present in
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<PAGE> 26
the soil or ground water on or under the Project. Without limiting the
foregoing, if the presence of any Hazardous Material on the Project caused or
permitted by Tenant results in any contamination of the Project and subject to
the provisions of Articles 9, 10 and 11, hereof, Tenant shall promptly take all
actions at its sole expense as are necessary to return the Project to the
condition existing prior to the introduction of any such Hazardous Material and
the contractors to be used by Tenant for such work must be approved by Landlord,
which approval shall not be unreasonably withheld so long as such actions would
not potentially have any material adverse long-term or short-term effect on the
Project and so long as such actions do not materially interfere with the use and
enjoyment of the Project by the other tenants thereof. Tenant's obligations
under this Section 28(a) shall survive the expiration or earlier termination of
this Lease.
(b) Intentionally Omitted.
(c) It shall not be unreasonable for Landlord to withhold its consent to
any proposed transfer if (i) the proposed transferee's anticipated use of the
Premises involves the generation, storage, use, treatment, or disposal of
Hazardous Material; (ii) the proposed transferee has been required by any prior
landlord, lender, or governmental authority to take remedial action in
connection with Hazardous Material contaminating a property if the contamination
resulted from such transferee's actions or use of the property in question; or
(iii) the proposed transferee is subject to an Enforcement Order issued by any
governmental authority in connection with the use, disposal, or storage of a
Hazardous Material.
(d) As used herein, the term "Hazardous Material" means any hazardous or
toxic substance, material, or waste which is or becomes regulated by any local
governmental authority, the State of California or the United States Government.
The term "Hazardous Material" includes, without limitation, any material or
substance which is (i) defined as "Hazardous Waste", "Extremely Hazardous
Waste", or "Restricted Hazardous Waste" under Sections 25115, 25117 or 25122.7,
or listed pursuant to Section 25140 of the California Health and Safety Code,
Division 20, Chapter 6.5 (Hazardous Waste Control Law); (ii) defined as a
"Hazardous Substance" under Section 25316 of the California Health and Safety
Code, Division 20, Chapter 6.8 (Carpenter-Presley-Tanner Hazardous Substance
Account Act); (iii) defined as a "Hazardous Material", "Hazardous Substance", or
"Hazardous Waste" under Section 25501 of the California Health and Safety Code,
Division 20, Chapter 6.95 (Hazardous Materials Release Response Plans and
Inventory); (iv) defined as a "Hazardous Substance" under Section 25281 of the
California Health and Safety Code, Division 20, Chapter 6.7 (Underground Storage
of Hazardous Substances); (v) petroleum; (vi) asbestos; (vii) listed under
Article 9 or defined as "Hazardous" or "Extremely Hazardous" pursuant to Article
11 of Title 22 of the California Administrative Code, Division 4, Chapter 20;
(viii) designated as a "Hazardous Substance" pursuant to Section 311 of the
Federal Water Pollution Control Act (33 U.S.C. Section 1317); (ix) defined as a
"Hazardous Waste" pursuant to Section 1004 of the Federal Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901, et seq. (42 U.S.C. Section 6903); or
(x) defined as a "Hazardous Substance" pursuant to Section 101 of the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601, et seq. (42 U.S.C. Section 9601).
(e) As used herein, the term "laws" means any applicable federal, state
or local law, ordinance, or regulation relating to any Hazardous Material
affecting the Project, including, without limitation, the laws, ordinances, and
regulations referred to in Article 28(d) above.
ARTICLE 29 - Surrender of Premises: Removal of Property
- -------------------------------------------------------
(a) The voluntary or other surrender of this Lease by Tenant to Landlord,
or a mutual termination hereof, shall not work a merger, and shall at the option
of Landlord, operate as an assignment to it of any or all subleases or
subtenancies affecting the Premises.
(b) Upon the expiration of the Term of this Lease, or upon any earlier
termination of this Lease, Tenant shall quit and surrender possession of the
Premises to Landlord in as good order and condition as the same are now and
hereafter may be improved by Landlord or Tenant, reasonable wear and tear and
repairs which are Landlord's obligation excepted, and shall, without
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expense to Landlord, remove or cause to be removed from the Premises all debris
and rubbish, all furniture, equipment, business and trade fixtures,
free-standing cabinet work, moveable partitioning, telephone and data cabling
and other articles of personal property owned by Tenant or installed or placed
by Tenant at its own expense in the Premises, and all similar articles of any
other persons claiming under Tenant unless Landlord exercises its option to have
any subleases or subtenancies assigned to it, and Tenant shall repair all damage
to the Premises resulting from the installation and removal of such items to be
removed.
(c) Whenever Landlord shall re-enter the Premises as provided in Article
12 hereof, or as otherwise provided in this Lease, any property of Tenant not
removed by Tenant upon the expiration of the Term of this Lease (or within
forty-eight (48) hours after a termination by reason of Tenant's default), as
provided in this Lease, shall be considered abandoned, and Landlord may remove
any or all of such items and dispose of the same in any manner or store the same
in a public warehouse or elsewhere for the account and at the expense and risk
of Tenant, and if Tenant shall fail to pay the cost of storing any such property
after it has been stored for a period of ninety (90) days or more, Landlord may
sell any or all of such property at public or private sale, in such manner and
at such times and places as Landlord, in its sole discretion, may deem proper,
without notice or to demand upon Tenant, for the payment of all or any part of
such charges or the removal of any such property, and shall apply the proceeds
of such sale as follows: first, to the cost and expense of such sale, including
reasonable attorney's fees for services rendered; second, to the payment of the
cost of or charges for storing any such property; third, to the payment of any
other sums of money which may then or thereafter be due to Landlord from Tenant
under any of the terms hereof; and fourth, the balance, if any, to Tenant.
(d) All fixtures, Alterations and/or appurtenances attached to or built
into the Premises prior to or during the Term of the Lease, whether by Landlord
or Tenant and whether at the expense of Landlord or Tenant, or of both, shall be
and remain part of the Premises and shall not be removed by Tenant at the end of
the Term unless otherwise expressly provided for in this Lease or unless such
removal is required by Landlord. Such fixtures, leasehold improvements,
Alterations, additions, improvements and/or appurtenances shall include, but not
be limited to all floor coverings, drapes, paneling, built-in cabinetry,
molding, doors, vaults (including vault doors), plumbing systems, security
systems, electrical systems, lighting systems, silencing equipment,
communication systems, all fixtures and outlets for the systems mentioned above
and for all telephone, radio, telegraph and television purposes, and any special
flooring or ceiling installations. Notwithstanding the foregoing, Tenant shall
remove all of Tenant's equipment and trade fixtures on or before the expiration
or earlier termination of this Lease, and shall repair all damage caused by such
removal.
ARTICLE 30 - Miscellaneous
- --------------------------
(a) Severability; Entire Agreement. Any provision of this Lease which
shall prove to be invalid, void, or illegal shall in no way affect, impair or
invalidate any other provision hereof, and any such other provisions shall
remain in full force and effect. This Lease and the exhibits and any Addendum
attached hereto constitute the entire agreement between the parties hereto with
respect to the subject matter hereof, and no prior agreement or understanding
pertaining to any such matter shall be effective for any purpose. No provision
of this Lease may be amended or supplemented except by an agreement in writing
signed by the parties hereto or their successor-in-interest.
(b) Attorney's Fees; Waiver of Jury Trial.
(i) In any action to enforce the terms of this Lease, including any
suit by Landlord for the recovery of rent or possession of the Premises, the
losing party shall pay the successful party a reasonable sum for attorney's fees
in such suit and such attorney's fees shall be deemed to have accrued prior to
the commencement of such action and shall be paid whether or not such action is
prosecuted to judgment.
(ii) Should Landlord, without fault on Landlord's part, be made a
party to any litigation instituted by Tenant or by any third party against
Tenant, or by or against any person
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holding under or using the Premises by license of Tenant, or for the foreclosure
of any lien for labor or material furnished to or for Tenant or any such other
person or otherwise arising out of or resulting from any act or transaction of
Tenant or of any such other person, Tenant covenants to save and hold Landlord
harmless from any judgment rendered against Landlord or the Premises or any part
thereof and from all costs and expenses, including reasonable attorney's fees
incurred by Landlord in connection with such litigation.
(iii) When legal services are rendered by an attorney at law who is an
employee of a party, attorney's fees incurred by that party shall be deemed to
include an amount based upon the number of hours spent by such employee on such
matters multiplied by an appropriate billing rate determined by taking into
consideration the same factors, including but not limited by, the importance of
the matter, time applied, difficulty and results, as are considered when an
attorney not in the employ of a party is engaged to render such service.
(iv) EACH PARTY HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY
ACTION SEEKING SPECIFIC PERFORMANCE OF ANY PROVISION OF THIS LEASE, FOR DAMAGES
FOR ANY BREACH UNDER THIS LEASE, OR OTHERWISE FOR ENFORCEMENT OF ANY RIGHT OR
REMEDY HEREUNDER.
(c) Time of Essence. Each of Tenant's covenants herein is a condition, and
time is of the essence with respect to the performance of every provision of
this Lease.
(d) Headings; Joint and Several. The article headings contained in this
Lease are for convenience only and do not in any way limit or amplify any term
or provision hereof. The terms "Landlord" and "Tenant" as used herein shall
include the plural as well as the singular, the neuter shall include the
masculine and feminine genders and the obligations herein imposed upon Tenant
shall be joint and several as to each of the persons, firms or corporations of
which Tenant may be composed.
(e) Reserved Area. Tenant hereby acknowledges and agrees that the exterior
walls of the Premises and the area between the finished ceiling of the Premises
and the slab of the floor of the Project thereabove have not been demised
hereby, and the use thereof, together with the right to install, maintain, use,
repair and replace pipes, ducts, conduits and wires leading through, under or
above the Premises in locations which will not materially interfere with
Tenant's use of the Premises and serving other parts of the Project, are hereby
excepted and reserved unto Landlord.
(f) No Option. The submission of this Lease by Landlord, its agent or
representative for examination or execution by Tenant does not constitute an
option or offer to Lease the Premises upon the terms and conditions contained
herein or a reservation of the Premises in favor of Tenant, it being intended
hereby that this Lease shall only become effective upon the execution hereof by
Landlord and delivery of a fully executed lease to Tenant.
(g) Use of Project Name; Improvements. Tenant shall not be allowed to use
the name, picture or representation of the Project, or words to that effect, in
connection with any business carried on in the Premises or otherwise (except at
Tenant's address) without the prior written consent of Landlord. In the event
that Landlord undertakes any additional improvements on the Real Property,
including but not limited to new construction or renovation or additions to the
existing improvements, Landlord shall not be liable to Tenant for any noise,
dust, vibration or interference with access to the Premises or disruption in
Tenant's business caused thereby.
(h) Rules and Regulations. Tenant shall observe faithfully and comply
strictly with the Rules and Regulations attached to this Lease as Exhibit "B"
and made a part hereof, and such other rules and regulations as Landlord may
from time to time reasonably adopt for the safety, care and cleanliness of the
Project, the facilities thereof, or the preservation of good order therein.
Landlord shall not be liable to Tenant for violation of any such rules and
regulations, or for the breach of any covenant or condition in any Lease by any
other tenant in the Project. A waiver
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<PAGE> 29
by Landlord of any rule or regulation for any other tenant shall not constitute
nor be deemed a waiver of the rules or regulations for this Tenant.
(i) Quiet Possession. Upon Tenant's paying the Basic Rent, Additional Rent
and other sums provided hereunder and observing and performing all of the
covenants, conditions and provisions on Tenant's part to be observed and
performed hereunder, Tenant shall have quiet possession of the Premises for the
entire Term hereof, subject to all of the provisions of this Lease.
(j) Rent. All payments required to be made hereunder to Landlord shall be
deemed to be rent, whether or not described as such.
(k) Successors and Assigns. Subject to the provisions of Article 15
hereof, all of the covenants, conditions and provisions of this Lease shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns.
(l) Notices. Any notice required or permitted to be given hereunder shall
be in writing and may be given by personal service evidenced by a signed receipt
or sent by registered or certified mail, return receipt requested, or via
overnight courier, and shall be effective upon proof of delivery, addressed to
Tenant at the Premises or to Landlord at the management office for the Project,
with a copy to Landlord, c/o Arden Realty, Inc., 11601 Wilshire Boulevard, Los
Angeles, California 90025, Attn: Legal Department. Either party may by notice to
the other specify a different address for notice purposes except that, upon
Tenant's taking possession of the Premises, the Premises shall constitute
Tenant's address for notice purposes. A copy of all notices to be given to
Landlord hereunder shall be concurrently transmitted by Tenant to such party
hereafter designated by notice from Landlord to Tenant. Any notices sent by
Landlord regarding or relating to eviction procedures, including without
limitation three day notices, may be sent by regular mail.
(m) Persistent Delinquencies. In the event that Tenant shall be delinquent
by more than fifteen (15) days in the payment of rent on three (3) separate
occasions in any twelve (12) month period, Landlord shall have the right to
terminate this Lease by thirty (30) days' written notice given by Landlord to
Tenant within thirty (30) days of the last such delinquency.
(n) Right of Landlord to Perform. All covenants and agreements to be
performed by Tenant under any of the terms of this Lease shall be performed by
Tenant at Tenant's sole cost and expense and without any abatement of rent. If
Tenant shall fail to pay any sum of money, other than rent, required to be paid
by it hereunder or shall fail to perform any other act on its part to be
performed hereunder, and such failure shall continue beyond any applicable cure
period set forth in this Lease, Landlord may, but shall not be obligated to,
without waiving or releasing Tenant from any obligations of Tenant, make any
such payment or perform any such other act on Tenant's part to be made or
performed as is in this Lease provided. All sums so paid by Landlord and all
reasonable incidental costs, together with interest thereon at the rate of ten
percent (10%) per annum from the date of such payment by Landlord, shall be
payable to Landlord on demand, and Tenant covenants to pay any such sums, and
Landlord shall have (in addition to any other right or remedy of Landlord) the
same rights and remedies in the event of the non-payment thereof by Tenant as in
the case of default by Tenant in the payment of the rent.
(o) Access, Changes in Project, Facilities, Name.
(i) Every part of the Project except the inside surfaces of all
walls, windows and doors bounding the Premises (including exterior building
walls, core corridor walls and doors and any core corridor entrance), and any
space in or adjacent to the Premises used for shafts, stacks, pipes, conduits,
fan rooms, ducts, electric or other utilities, sinks or other building
facilities, and the use thereof, as well as access thereto through the Premises
for the purposes of operation, maintenance, decoration and repair, are reserved
to Landlord.
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(ii) Tenant shall permit Landlord to install, use and maintain pipes,
ducts and conduits within the walls, columns and ceilings of the Premises.
(iii) Landlord reserves the right, without incurring any liability to
Tenant therefor, to make such changes in or to the Project and the fixtures and
equipment thereof, as well as in or to the street entrances, halls, passages,
elevators, stairways and other improvements thereof, as it may deem necessary or
desirable.
(iv) Landlord may adopt any name for the Project, and Landlord
reserves the right to change the name or address of the Project at any time.
(p) Signing Authority. If Tenant is a corporation, partnership or limited
liability company, each individual executing this Lease on behalf of said entity
represents and warrants that this Lease is binding upon said entity in
accordance with its terms, and that he or she is duly authorized to execute and
deliver this Lease on behalf of said entity in accordance with: (i) if Tenant is
a corporation, a duly-adopted resolution of the Board of Directors of said
corporation or in accordance with the by-laws of said corporation, (ii) if
Tenant is a partnership, the terms of the partnership agreement, and (iii) if
Tenant is a limited liability company, the terms of its operating agreement.
Concurrently with Tenant's execution of this Lease, Tenant shall provide to
Landlord a copy of: (a) if Tenant is a corporation, such resolution of the Board
of Directors authorizing the execution of this Lease on behalf of such
corporation, which copy of resolution shall be duly certified by the secretary
or an assistant secretary of the corporation to be a true copy of a resolution
duly adopted by the Board of Directors of said corporation and shall be in the
form of Exhibit "E" or in some other form reasonably acceptable to Landlord, (b)
if Tenant is a partnership, a copy of the provisions of the partnership
agreement granting the requisite authority to each individual executing this
Lease on behalf of said partnership, and (c) if Tenant is a limited liability
company, a copy of the provisions of its operating agreement granting the
requisite authority to each individual executing this Lease on behalf of said
limited liability company. In the event Tenant fails to comply with the
requirements set forth in this Subparagraph (p), then each individual executing
this Lease shall be personally liable for all of Tenant's obligations in this
Lease.
(q) Identification of Tenant.
(i) If Tenant constitutes more than one person or entity, (A) each of
them shall be jointly and severally liable for the keeping, observing and
performing of all of the terms, covenants, conditions and provisions of this
Lease to be kept, observed and performed by Tenant, (B) the term "Tenant" as
used in this Lease shall mean and include each of them jointly and severally,
and (C) the act of or notice from, or notice or refund to, or the signature of
any one (1) or more of them, with respect to the tenancy of this Lease,
including, but not limited to, any renewal, extension, expiration, termination
or modification of this Lease, shall be binding upon each and all of the persons
or entities executing this Lease as Tenant with the same force and effect as if
each and all of them had so acted or so given or received such notice or refund
or so signed.
(ii) If Tenant is a partnership (or is comprised of two or more
persons, individually and as co-partners of a partnership) or if Tenant's
interest in this Lease shall be assigned to a partnership (or to two (2) or more
persons, individually and as co-partners of a partnership) pursuant to Article
15 hereof (any such partnership and such persons hereinafter referred to in this
Article 30(q)(ii) as "Partnership Tenant"), the following provisions of this
Lease shall apply to such Partnership Tenant:
(A) The liability of each of the parties comprising Partnership
Tenant shall be joint and several.
(B) Each of the parties comprising Partnership Tenant hereby
consents in advance to, and agrees to be bound by, any written instrument which
may hereafter be executed, changing, modifying or discharging this Lease, in
whole or in part, or surrendering all or any part of the Premises to the
Landlord, and by notices, demands, requests or other
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<PAGE> 31
communication which may hereafter be given, by Partnership Tenant or any of the
parties comprising Partnership Tenant or by the individual or individuals
authorized to execute this Lease on behalf of Partnership Tenant under
Subparagraph (p) above.
(C) Any bills, statements, notices, demands, requests or other
communications given or rendered to Partnership Tenant or to any of the parties
comprising Partnership Tenant shall be deemed given or rendered to Partnership
Tenant and to all such parties and shall be binding upon Partnership Tenant and
all such parties.
(D) If Partnership Tenant admits new partners, all of such new
partners shall, by their admission to Partnership Tenant, be deemed to have
assumed performance of all of the terms, covenants and conditions of this Lease
on Tenant's part to be observed and performed.
(E) Partnership Tenant shall give prompt notice to Landlord of
the admission of any such new partners, and, upon demand of Landlord, shall
cause each such new partner to execute and deliver to Landlord an agreement in
form satisfactory to Landlord, wherein each such new partner shall assume
performance of all of the terms, covenants and conditions of this Lease on
Partnership Tenant's part to be observed and performed (but neither Landlord's
failure to request any such agreement nor the failure of any such new partner to
execute or deliver any such agreement to Landlord shall terminate the provisions
of clause (D) of this Article 30(q)(ii) or relieve any such new partner of
his/her obligations thereunder).
(r) Substitute Premises. Landlord shall have the right at any time during
the Term hereof, upon giving Tenant not less than sixty (60) days' prior notice,
to provide and furnish Tenant with space elsewhere in the Project of
approximately the same size as the Premises and remove and place Tenant in such
space, with Landlord to pay all reasonable costs and expenses incurred as a
result of such movement to new space (e.g., reasonable cost to change Tenant's
stationary, moving expenses, reasonable costs of changing Tenant's signage on
the entrance to the Premises, the cost of similar tenant improvements). If
Landlord moves Tenant to such new space, this Lease and each and all of its
terms, covenants and conditions shall remain in full force and effect and shall
be deemed applicable to such new space and such new space shall thereafter be
deemed to be the "Premises" as though Landlord and Tenant had entered into an
express written amendment of this Lease with respect thereto.
(s) Survival of Obligations. Any obligations of Tenant occurring prior to
the expiration or earlier termination of this Lease shall survive such
expiration or earlier termination.
(t) Confidentiality. Tenant acknowledges that the content of this Lease
and any related documents are confidential information. Except as required by
applicable law, Tenant shall keep such confidential information strictly
confidential and shall not disclose such confidential information to any person
or entity other than Tenant's financial, legal and space planning consultants
and any proposed lenders, investors, subtenants or assignees.
(u) Governing Law. This Lease shall be governed by and construed in
accordance with the laws of the State of California. No conflicts of law rules
of any state or country (including, without limitation, California conflicts of
law rules) shall be applied to result in the application of any substantive or
procedural laws of any state or country other than California. All
controversies, claims, actions or causes of action arising between the parties
hereto and/or their respective successors and assigns shall be brought, heard
and adjudicated by the courts of the State of California, with venue in the
County of Los Angeles. Each of the parties hereto hereby consents to personal
jurisdiction by the courts of the State of California in connection with any
such controversy, claim, action or cause of action, and each of the parties
hereto consents to service of process by any means authorized by California law
and consent to the enforcement of any judgment so obtained in the courts of the
State of California on the same terms and conditions as if such controversy,
claim, action or cause of action had been originally heard and adjudicated to a
final judgment in such courts. Each of the parties hereto further acknowledges
that the laws and courts of California were freely and voluntarily chosen to
govern this Lease and to adjudicate any claims or disputes hereunder.
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<PAGE> 32
(v) Exhibits and Addendum. The Exhibits and Addendum, if applicable,
attached hereto are incorporated herein by this reference as if fully set forth
herein.
(w) Financial Statements. Tenant shall, when requested by Landlord from
time to time, furnish a true and correct audited financial statement of its
financial condition prepared in conformity with generally accepted accounting
principles and in a form reasonably satisfactory to Landlord.
ARTICLE 31 - Signage/Directory
- ------------------------------
Provided Tenant is not in default hereunder, Tenant, at Landlord's sole
cost and expense, shall have the right to one (1) line in the lobby directory
during the Lease Term.
ARTICLE 32 - Early Termination
- ------------------------------
Notwithstanding anything contained to the contrary in this Lease, Tenant
shall have the right to terminate this Lease effective as of the expiration of
the twenty-fourth (24th) month of the Lease Term (the "Early Expiration Date"),
provided that: (i) Tenant shall give Landlord written notice ("Cancellation
Notice") at least eight (8) months prior to the Early Expiration Date that
Tenant is exercising its rights to terminate this Lease and specifying the Early
Expiration Date; (ii) at both the time Tenant gives the Cancellation Notice and
as of the Early Expiration Date, Tenant shall not be in default under this Lease
and no situation exists which with the passage of time or the giving of notice
(or both) could constitute a default under this Lease; and (iii) the
Cancellation Notice shall be accompanied by a payment (the "Early Expiration
Payment"), without set-off or deduction, equal to one (1) month's monthly Basic
Rental payable as of the Early Expiration Date. Notwithstanding the foregoing,
there shall be no Early Expiration Payment in the event that, in connection with
such termination, Tenant and Landlord (or Landlord's affiliate) have executed
and delivered a new lease in a building owned by Landlord or Landlord's
affiliate for premises consisting of a greater number of rentable square feet
than the Premises.
IN WITNESS WHEREOF, the parties have executed this Lease, consisting of the
foregoing provisions and Articles, including all exhibits and other attachments
referenced therein, as of the date first above written.
"TENANT" "LANDLORD"
STANFORD MICRODEVICES, a Delaware ARDEN REALTY LIMITED PARTNERSHIP,
corporation a Maryland limited partnership
By: /s/ JOHN OCAMPO By: ARDEN REALTY, INC.,
----------------------------------- a Maryland corporation
Name: John Ocampo Its: Sole General Partner
Title: President /s/ Signature Illegible
By: /s/ SUSAN OCAMPO
-----------------------------------
Name: Susan Ocampo
Title: Secretary
By: /s/ ANDREW J. SOBEL
-----------------------------------
Name: Andrew J. Sobel
Title: Exec. V.P. and
Assistant Secretary
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<PAGE> 33
EXHIBIT "A"
-----------
PREMISES
[GRAPH OMITTED]
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<PAGE> 34
EXHIBIT "B"
-----------
RULES AND REGULATIONS
1. No sign, advertisement or notice shall be displayed, printed or
affixed on or to the Premises or to the outside or inside of the Project or so
as to be visible from outside the Premises or Project without Landlord's prior
written consent. Landlord shall have the right to remove any non-approved sign,
advertisement or notice, without notice to and at the expense of Tenant, and
Landlord shall not be liable in damages for such removal. All approved signs or
lettering on doors and walls shall be printed, painted, affixed or inscribed at
the expense of Tenant by Landlord or by a person selected by Landlord and in a
manner and style acceptable to Landlord.
2. Tenant shall not obtain for use on the Premises ice, waxing, cleaning,
interior glass polishing, rubbish removal, towel or other similar services, or
accept barbering or boot-blackening, or coffee cart services on the Premises,
except from persons authorized by Landlord and at the hours and under
regulations fixed by Landlord. No vending machines or machines of any
description shall be installed, maintained or operated upon the Premises without
Landlord's prior written consent.
3. The sidewalks, hall, passages, exits, entrances, elevators and
stairways shall not be obstructed by Tenant or used for any purpose other than
for ingress and egress from Tenant's Premises. Under no circumstances is trash
to be stored in the corridors. Notice must be given to Landlord for any large
deliveries. Furniture, freight and other large or heavy articles, and all other
deliveries may be brought in to the Project only at times and in the manner
designated by Landlord, and always at Tenant's sole responsibility and risk.
Landlord may impose reasonable charges for use of freight elevators after or
before normal business hours. All damage done to the Project by moving or
maintaining such furniture, freight or articles shall be repaired by Landlord at
Tenant's expense. Tenant shall not take or permit to be taken in or out of
entrances or passenger elevators of the Project, any item normally taken, or
which Landlord otherwise reasonably requires to be taken, in or out through
services doors or on freight elevators. Tenant shall move all supplies,
furniture and equipment as soon as received directly to the Premises, and shall
move all waste that is at any time being taken from the Premises directly to the
areas designated for disposal.
4. Toilet rooms, toilets, urinals, wash bowls and other apparatus shall
not be used for any purpose other than for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein, and the
expense of any breakage, stoppage or damage resulting from the violation of this
rule shall be borne by the Tenant whether caused by Tenant or caused by Tenant's
employees or invitees.
5. Tenant shall not overload the floor of the Premises or mark, drive
nails, screw or drill into the partitions, ceilings or floor or in any way
deface the Premises. Tenant shall not place typed, handwritten or computer
generated signs in the corridors or any other common areas. Should there be a
need for signage additional to the Project standard tenant placard, a written
request shall be made to Landlord to obtain approval prior to any installation.
All costs for said signage shall be Tenant's responsibility.
6. In no event shall Tenant place a load upon any floor of the Premises
or portion of any such flooring exceeding the floor load per square foot of area
for which such floor is designed to carry and which is allowed by law, or any
machinery or equipment which shall cause excessive vibration to the Premises or
noticeable vibration to any other part of the Project. Prior to bringing any
heavy safes, vaults, large computers or similarly heavy equipment into the
Project, Tenant shall inform Landlord in writing of the dimensions and weights
thereof and shall obtain Landlord's consent thereto, which consent Landlord
shall have the right to deny. Such consent shall not constitute a representation
or warranty by Landlord that the safe, vault or other equipment complies, with
regard to distribution of weight and/or vibration, with the provisions of this
Rule 6 nor relieve Tenant from responsibility for the consequences of such
noncompliance, and any such safe, vault or other equipment which Landlord
determines to constitute a danger of damage
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<PAGE> 35
to the Project or a nuisance to other Tenants, either alone or in combination
with other heavy and/or vibrating objects and equipment, shall be promptly
removed by Tenant, at Tenant's cost, upon Landlord's written notice of such
determination and demand for removal thereof.
7. Tenant shall not use or keep in the Premises or Project any kerosene,
gasoline or inflammable, explosive or combustible fluid or material, or use any
method of heating or air conditioning other than that supplied by Landlord.
8. Tenant shall not lay linoleum, tile, carpet or other similar floor
covering so that the same shall be affixed to the floor of the Premises in any
manner except as approved by Landlord.
9. Tenant shall not install or use any blinds, shades, awnings or screens
in connection with any window or door of the Premises and shall not use any
drape or window covering facing any exterior glass surface other than the
standard drapes, blinds or other window covering established by Landlord.
10. Tenant shall cooperate with Landlord in obtaining maximum
effectiveness of the cooling system by closing window coverings when the sun's
rays fall directly on windows of the Premises. Tenant shall not obstruct, alter,
or in any way impair the efficient operation of Landlord's heating, ventilating
and air-conditioning system. Tenant shall not tamper with or change the setting
of any thermostats or control valves.
11. The Premises shall not be used for manufacturing or for the storage of
merchandise except as such storage may be incidental to the permitted use of the
Premises. Tenant shall not, without Landlord's prior written consent, occupy or
permit any portion of the Premises to be occupied or used for the manufacture or
sale of liquor or tobacco in any form, or a barber or manicure shop, or as an
employment bureau. The Premises shall not be used for lodging or sleeping or for
any improper, objectionable or immoral purpose. No auction shall be conducted on
the Premises.
12. Tenant shall not make, or permit to be made, any unseemly or
disturbing noises, or disturb or interfere with occupants of Project or
neighboring buildings or premises or those having business with it by the use of
any musical instrument, radio, phonographs or unusual noise, or in any other
way.
13. No bicycles, vehicles or animals of any kind shall be brought into or
kept in or about the Premises, and no cooking shall be done or permitted by any
tenant in the Premises, except that the preparation of coffee, tea, hot
chocolate and similar items for tenants, their employees and visitors shall be
permitted. No tenant shall cause or permit any unusual or objectionable odors to
be produced in or permeate from or throughout the Premises. The foregoing
notwithstanding, Tenant shall have the right to use a microwave and to heat
microwavable items typically heated in an office. No hot plates, toasters,
toaster ovens or similar open element cooking apparatus shall be permitted in
the Premises.
14. The sashes, sash doors, skylights, windows and doors that reflect or
admit light and air into the halls, passageways or other public places in the
Project shall not be covered or obstructed by any tenant, nor shall any bottles,
parcels or other articles be placed on the window sills.
15. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any tenant, nor shall any changes be made in existing
locks or the mechanisms thereof unless Landlord is first notified thereof, gives
written approval, and is furnished a key therefor. Each tenant must, upon the
termination of his tenancy, give to Landlord all keys and key cards of stores,
offices, or toilets or toilet rooms, either furnished to, or otherwise procured
by, such tenant, and in the event of the loss of any keys so furnished, such
tenant shall pay Landlord the cost of replacing the same or of changing the lock
or locks opened by such lost key if Landlord shall deem it necessary to make
such change. Upon Tenant's request, Landlord shall provide to Tenant the number
of keys requested by Tenant for the Premises, provided that Tenant pays to
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<PAGE> 36
Landlord the standard charge imposed by Landlord for furnishing any such keys to
Tenant. Tenant shall not key or re-key any locks. All locks shall be keyed by
Landlord's locksmith only.
16. Landlord shall have the right to prohibit any advertising by any
tenant which, in Landlord's opinion, tend to impair the reputation of the
Project or its desirability as an office building and upon written notice from
Landlord any tenant shall refrain from and discontinue such advertising.
17. Landlord reserves the right to control access to the Project by all
persons after reasonable hours of generally recognized business days and at all
hours on Sundays and legal holidays. Each tenant shall be responsible for all
persons for whom he requests after hours access and shall be liable to Landlord
for all acts of such persons. Landlord shall have the right from time to time to
establish reasonable rules pertaining to freight elevator usage, including the
allocation and reservation of such usage for tenants' initial move-in to their
premises, and final departure therefrom.
18. Any person employed by any tenant to do janitorial work shall, while
in the Project and outside of the Premises, be subject to and under the control
and direction of the Office of the Project or its designated representative such
as security personnel (but not as an agent or servant of Landlord, and the
tenant shall be responsible for all acts of such persons).
19. All doors opening onto public corridors shall be kept closed, except
when being used for ingress and egress. Tenant shall cooperate and comply with
any reasonable safety or security programs, including fire drills and air raid
drills, and the appointment of "fire wardens" developed by Landlord for the
Project, or required by law. Before leaving the Premises unattended, Tenant
shall close and securely lock all doors or other means of entry to the Premises
and shut off all lights and water faucets in the Premises.
20. The requirements of tenants will be attended to only upon application
to the Office of the Project.
21. Canvassing, soliciting and peddling in the Project are prohibited and
each tenant shall cooperate to prevent the same.
22. All office equipment of any electrical or mechanical nature shall be
placed by tenants in the Premises in settings approved by Landlord, to absorb or
prevent any vibration, noise or annoyance.
23. No air conditioning unit or other similar apparatus shall be installed
or used by any tenant without the prior written consent of Landlord. Tenant
shall pay the cost of all electricity used for air conditioning in the Premises
if such electrical consumption exceeds normal office requirements, regardless of
whether additional apparatus is installed pursuant to the preceding sentence.
24. There shall not be used in any space, or in the public halls of the
Project, either by any tenant or others, any hand trucks except those equipped
with rubber tires and side guards.
25. All electrical ceiling fixtures hung in offices or spaces along the
perimeter of the Project must be florescent and/or of a quality, type, design
and bulb color approved by Landlord. Tenant shall not permit the consumption in
the Premises of more than 2 1/2 watts per net usable square foot in the Premises
in respect of office lighting nor shall Tenant permit the consumption in the
Premises of more than one and one-half (1 1/2) watts per net usable square foot
of space in the Premises in respect of the power outlets therein, at any one
time. In the event that such limits are exceeded, Landlord shall have the right
to require Tenant to remove any lighting fixtures and equipment as it deems
necessary and/or to charge Tenant for the cost of the additional electricity
consumed.
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<PAGE> 37
26. Parking
(a) Attended garage hours shall be 7:00 a.m. to 7:00 p.m., Monday
through Friday, and closed on weekends, state and federal holidays excepted, as
revised from time to time by Landlord. [Note: The parking garage is accessible
twenty-four (24) hours a day, seven (7) days a week.]
(b) Automobiles must be parked entirely within the stall lines on the
floor.
(c) All directional signs and arrows must be observed.
(d) The speed limit shall be five (5) miles per hour.
(e) Parking is prohibited in areas not striped for parking.
(f) Parking cards or any other device or form of identification
supplied by Landlord (or its operator) shall remain the property of Landlord (or
its operator). Such parking identification device must be displayed as requested
and may not be mutilated in any manner. The serial number of the parking
identification device may not be obliterated. Devices are not transferable or
assignable and any device in the possession of an unauthorized holder will be
void. There will be a replacement charge to the Tenant or person designated by
Tenant of Twenty-Five Dollars ($25.00) for loss of any parking card. There shall
be a security deposit of Twenty-Five Dollars ($25.00) due at issuance for each
card key issued to Tenant.
(g) The monthly rate for parking is payable one (1) month in advance
and must be paid by the third business day of each month. Failure to do so will
automatically cancel parking privileges and a charge at the prevailing daily
rate will be due. No deductions or allowances from the monthly rate will be made
for days parker does not use Parking Facilities.
(h) Tenant may validate visitor parking by such method or methods as
the Landlord may approve, at the validation rate from time to time generally
applicable to visitor parking.
(i) Landlord (and its operator) may refuse to permit any person who
violates the within rules to park in the garage, and any violation of the rules
shall subject the automobile to removal from the garage at the parker's expense.
In either of said events, Landlord (or its operator) shall refund a pro rata
portion of the current monthly parking rate and the sticker or any other form of
identification supplied by Landlord (or its operator) will be returned to
Landlord (or its operator).
(j) Garage managers or attendants are not authorized to make or allow
any exceptions to these Rules and Regulations.
(k) All responsibility for any loss or damage to automobiles or any
personal property therein is assumed by the parker.
(l) Loss or theft of parking identification devices from automobiles
must be reported to the garage manager immediately, and a lost or stolen report
must be filed by the parker at that time.
(m) The Parking facilities are for the sole purpose of parking one
automobile per space. Washing, waxing, cleaning or servicing of any vehicles by
the parker or his agents is prohibited.
(n) Landlord (and its operator) reserves the right to refuse the
issuance of monthly stickers or other parking identification devices to any
Tenant and/or its employees who refuse to comply with the above Rules and
Regulations and all posted and unposted City, State or Federal ordinances, laws
or agreements.
(o) Tenant agrees to acquaint all employees with these Rules and
Regulations.
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<PAGE> 38
EXHIBIT "C"
-----------
NOTICE OF LEASE TERM DATES
TO: DATE:
-------------------------- -------------------------
--------------------------
--------------------------
--------------------------
RE: Lease dated ___________, 19___, between ARDEN REALTY LIMITED PARTNERSHIP, a
Maryland limited partnership ("Landlord"), and ____________________________
("Tenant"), concerning Suite ______, located at___________________________.
Gentlemen:
In accordance with the Lease, Landlord wishes to advise and/or confirm the
following:
1. That the Premises have been accepted herewith by the Tenant as being
substantially complete in accordance with the Lease and that there is no
deficiency in construction.
2. That the Tenant has taken possession of the Premises and acknowledges
that under the provisions of the Lease the term of said Lease shall commence as
of ______________ for a term of ___________________ ending on _________________.
3. That in accordance with the Lease, Basic Rental commenced to accrue on
_________________.
4. If the Commencement Date of the Lease is other than the first day of
the month, the first billing will contain a pro rata adjustment. Each billing
thereafter shall be for the full amount of the monthly installment as provided
for in said Lease.
5. Rent is due and payable in advance on the first day of each and every
month during the term of said Lease. Your rent checks should be made payable to
______________________________________.
6. The exact number of rentable square feet within the Premises is
_______________ square feet.
7. Tenant's Proportionate Share, as adjusted based upon the exact number
of rentable square feet within the Premises is __________%.
AGREED TO AND ACCEPTED:
TENANT:
- ---------------------------------
By:
------------------------------
Its:
-----------------------------
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<PAGE> 39
EXHIBIT "D"
-----------
TENANT WORK LETTER
This Tenant Work Letter shall set forth the terms and conditions relating
to the renovation of the tenant improvements in the Premises. This Tenant Work
Letter is essentially organized chronologically and addresses the issues of the
renovation of the Premises, in sequence, as such issues will arise.
SECTION 1
---------
LANDLORD'S INITIAL CONSTRUCTION IN THE PREMISES
-----------------------------------------------
Landlord has constructed, at its sole cost and expense, the base, shell and
core (i) of the Premises, and (ii) of the floor of the Project on which the
Premises is located (collectively, the "Base, Shell and Core"). Tenant has
inspected and hereby approves the condition of the Base, Shell and Core, and
agrees that the Base, Shell and Core shall be delivered to Tenant in its current
"as-is" condition. The improvements to be initially installed in the Premises
shall be designed and constructed pursuant to this Tenant Work Letter. Any costs
of initial design and construction of any improvements to the Premises shall be
a "Tenant Improvement Allowance Item", as that term is defined in Section 2.2 of
this Tenant Work Letter.
SECTION 2
---------
TENANT IMPROVEMENTS
-------------------
2.1 Tenant Improvement Allowance. Tenant shall be entitled to a one-time
tenant improvement allowance (the "Tenant Improvement Allowance") in the amount
of $13,045.00 calculated based on $5.00 per usable square foot] for the costs
relating to the initial design and construction of Tenant's improvements which
are permanently affixed to the Premises (the "Tenant Improvements"). In no event
shall Landlord be obligated to make disbursements pursuant to this Tenant Work
Letter in a total amount which exceeds the Tenant Improvement Allowance and in
no event shall Tenant be entitled to any credit for any unused portion of the
Tenant Improvement Allowance not used by Tenant by August 31, 1999.
2.2 Disbursement of the Tenant Improvement Allowance. Except as otherwise
set forth in this Tenant Work Letter, the Tenant Improvement Allowance shall be
disbursed by Landlord (each of which disbursements shall be made pursuant to
Landlord's disbursement process) for the costs of the construction of the Tenant
Improvements and for the following items and costs (collectively, the "Tenant
Improvement Allowance Items"): (i) payment of the fees of the "Architect" and
the "Engineers," as those terms are defined in Section 3.1 of this Tenant Work
Letter, and payment of the fees incurred by, and the cost of documents and
materials supplied by, Landlord and Landlord's consultants in connection with
the preparation and review of the "Construction Drawings," as that term is
defined in Section 3.1 of this Tenant Work Letter; (ii) the cost of permits and
construction supervision fees; (iii) the cost of any changes in the Base, Shell
and Core required by the Construction Drawings; (iv) the cost of any changes to
the Construction Drawings or Tenant Improvements required by applicable building
codes (the "Code"); (v) any other costs triggered by the performance of the
Tenant Improvements which are required by any Code; (vi) the cost of demolishing
any existing improvements in the Premises; and (vii) the "Landlord Supervision
Fee", as that term is defined in Section 4.3.2 of this Tenant Work Letter.
However, in no event shall more than Three and 00/100 Dollars ($3.00) per usable
square foot of the Tenant Improvement Allowance be used for the items described
in (i) and (ii) above; any additional amount incurred as a result of (i) and
(ii) above shall be deemed to constitute an Over-Allowance Amount.
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<PAGE> 40
2.3 Standard Tenant Improvement Package. Landlord has established
specifications (the "Specifications") for the Project standard components to be
used in the construction of the Tenant Improvements in the Premises
(collectively, the "Standard Improvement Package"), which Specifications are
available upon request. The quality of Tenant Improvements shall be equal to or
of greater quality than the quality of the Specifications, provided that
Landlord may, at Landlord's option, require the Tenant Improvements to comply
with certain Specifications.
SECTION 3
---------
CONSTRUCTION DRAWINGS
---------------------
3.1 Selection of Architect/Construction Drawings. Tenant shall retain an
architect/space planner designated by Landlord (the "Architect") to prepare the
"Construction Drawings," as that term is defined in this Section 3.1. Tenant
shall also retain the engineering consultants designated by Landlord (the
"Engineers") to prepare all plans and engineering working drawings relating to
the structural, mechanical, electrical, plumbing, HVAC and lifesafety work of
the Tenant Improvements. The plans and drawings to be prepared by Architect and
the Engineers hereunder shall be known collectively as the "Construction
Drawings." All Construction Drawings shall comply with the drawing format and
specifications as reasonably determined by Landlord, and shall be subject to
Landlord's reasonable approval. Tenant and Architect shall verify, in the field,
the dimensions and conditions as shown on the relevant portions of the base
building plans, and Tenant and Architect shall be solely responsible for the
same, and Landlord shall have no responsibility in connection therewith.
Landlord's review of the Construction Drawings as set forth in this Section 3,
shall be for its sole purpose and shall not imply Landlord's review of the same,
or obligate Landlord to review the same, for quality, design, Code compliance or
other like matters. Accordingly, notwithstanding that any Construction Drawings
are reviewed by Landlord or its space planner, architect, engineers and
consultants, and notwithstanding any advice or assistance which may be rendered
to Tenant by Landlord or Landlord's space planner, architect, engineers, and
consultants, Landlord shall have no liability whatsoever in connection therewith
and shall not be responsible for any omissions or errors contained in the
Construction Drawings.
3.2 Final Space Plan. On or before the date set forth in Schedule 1,
attached hereto, Tenant and the Architect shall prepare the final space plan for
Tenant Improvements in the Premises (collectively, the "Final Space Plan"),
which Final Space Plan shall include a layout and designation of all offices,
rooms and other partitioning, their intended use, and equipment to be contained
therein, and shall deliver the Final Space Plan to Landlord for Landlord's
approval.
3.3 Final Working Drawings. On or before the date set forth in Schedule 1,
Tenant, the Architect and the Engineers shall complete the architectural and
engineering drawings for the Premises, and the final architectural working
drawings in a form which is complete to allow subcontractors to bid on the work
and to obtain all applicable permits (collectively, the "Final Working
Drawings") and shall submit the same to Landlord for Landlord's approval.
3.4 Permits. The Final Working Drawings shall be approved by Landlord (the
"Approved Working Drawings") prior to the commencement of the construction of
the Tenant Improvements. Tenant shall cause the Architect to immediately submit
the Approved Working Drawings to the appropriate municipal authorities for all
applicable building permits necessary to allow "Contractor," as that term is
defined in Section 4.1, below, to commence and fully complete the construction
of the Tenant Improvements (the "Permits"). No changes, modifications or
alterations in the Approved Working Drawings may be made without the prior
written consent of Landlord, which consent shall not be unreasonably withheld.
3.5 Time Deadlines. Tenant shall use its best, good faith efforts and all
due diligence to cooperate with the Architect, the Engineers, and Landlord to
complete all phases of the Construction Drawings and the permitting process and
to receive the permits, and with Contractor for approval of the "Cost Proposal,"
as that term is defined in Section 4.2 of this Tenant Work Letter, as soon as
possible after the execution of the Lease, and, in that regard, shall meet with
Landlord on a scheduled basis to be determined by Landlord, to discuss Tenant's
progress in
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<PAGE> 41
connection with the same. The applicable dates for approval of items, plans and
drawings as described in this Section 3, Section 4 below, and in this Tenant
Work Letter are set forth and further elaborated upon in Schedule 1 (the "Time
Deadlines"), attached hereto. Tenant agrees to comply with the Time Deadlines.
SECTION 4
---------
CONSTRUCTION OF THE TENANT IMPROVEMENTS
---------------------------------------
4.1 Contractor. The contractor which shall construct the Tenant
Improvements shall be a contractor designated by Landlord. The contractor
selected may be referred to herein as the "Contractor".
4.2 Cost Proposal. After the Approved Working Drawings are signed by
Landlord and Tenant, Landlord shall provide Tenant with a cost proposal in
accordance with the Approved Working Drawings, which cost proposal shall
include, as nearly as possible, the cost of all Tenant Improvement Allowance
Items to be incurred by Tenant in connection with the construction of the Tenant
Improvements (the "Cost Proposal"). Tenant shall approve and deliver the Cost
Proposal to Landlord within three (3) business days of the receipt of the same,
and upon receipt of the same by Landlord, Landlord shall be released by Tenant
to purchase the items set forth in the Cost Proposal and to commence the
construction relating to such items. The date by which Tenant must approve and
deliver the Cost Proposal to Landlord shall be known hereafter as the "Cost
Proposal Delivery Date".
4.3 Construction of Tenant Improvements by Contractor under the
Supervision of Landlord.
-----------------------------------------------------------
4.3.1 Over-Allowance Amount. On the Cost Proposal Delivery Date,
Tenant shall deliver to Landlord an amount (the "Over-Allowance Amount") equal
to the difference between (i) the amount of the Cost Proposal and (ii) the
amount of the Tenant Improvement Allowance (less any portion thereof already
disbursed by Landlord, or in the process of being disbursed by Landlord, on or
before the Cost Proposal Delivery Date). The Over-Allowance Amount shall be
disbursed by Landlord prior to the disbursement of any then remaining portion of
the Tenant Improvement Allowance, and such disbursement shall be pursuant to the
same procedure as the Tenant Improvement Allowance. In the event that, after the
Cost Proposal Delivery Date, any revisions, changes, or substitutions shall be
made to the Construction Drawings or the Tenant Improvements, any additional
costs which arise in connection with such revisions, changes or substitutions or
any other additional costs shall be paid by Tenant to Landlord immediately upon
Landlord's request as an addition to the Over-Allowance Amount.
4.3.2 Landlord's Retention of Contractor. Landlord shall independently
retain Contractor, on behalf of Tenant, to construct the Tenant Improvements in
accordance with the Approved Working Drawings and the Cost Proposal and Landlord
shall supervise the construction by Contractor, and Tenant shall pay a
construction supervision and management fee (the "Landlord Supervision Fee") to
Landlord in an amount equal to the product of (i) three percent (3%) and (ii) an
amount equal to the Tenant Improvement Allowance plus the Over-Allowance Amount
(as such Over-Allowance Amount may increase pursuant to the terms of this Tenant
Work Letter).
SECTION 5
---------
COMPLETION OF THE TENANT IMPROVEMENTS
-------------------------------------
5.1 Substantial Completion. For purposes of this Lease, "SUBSTANTIAL
COMPLETION" of the Tenant Improvements in the Premises shall occur upon the
completion of construction of the Tenant Improvements in the Premises pursuant
to the Approved Working Drawings, with the exception of any punch list items and
any tenant fixtures, work-stations, built-in furniture, or equipment to be
installed by Tenant.
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<PAGE> 42
5.2 Delay of the Substantial Completion of the Premises. Except as
provided in this Section 5, the Commencement Date and Tenant's obligation to pay
rent for the Premises shall occur as set forth in the Lease. However, if there
shall be a delay or there are delays in the Substantial Completion of the Tenant
Improvements in the Premises as a result of the following (collectively, "Tenant
Delays"):
5.2.1 Tenant's failure to comply with the Time Deadlines;
5.2.2 Tenant's failure to timely approve any matter requiring Tenant's
approval;
5.2.3 A breach by Tenant of the terms of this Tenant Work Letter or
the Lease;
5.2.4 Changes in any of the Construction Drawings after disapproval of
the same by Landlord or because the same do not comply with Code or other
applicable laws;
5.2.5 Tenant's request for changes in the Approved Working Drawings;
5.2.6 Tenant's requirement for materials, components, finishes or
improvements which are not available in a commercially reasonable time given the
anticipated date of Substantial Completion of the Tenant Improvements in the
Premises, or which are different from, or not included in, the Standard
Improvement Package;
5.2.7 Changes to the Base, Shell and Core required by the Approved
Working Drawings; or
5.2.8 Any other acts or omissions of Tenant, or its agents, or
employees;
then, notwithstanding anything to the contrary set forth in the Lease or this
Tenant Work Letter and regardless of the actual date of the Substantial
Completion of Tenant Improvements in the Premises, the date of Substantial
Completion thereof shall be deemed to be the date that Substantial Completion
would have occurred if no Tenant Delay or Delays, as set forth above, had
occurred.
SECTION 6
---------
MISCELLANEOUS
-------------
6.1 Tenant's Representative. Tenant has designated Bob Van Buskirk as its
sole representative with respect to the matters set forth in this Tenant Work
Letter, who, until further notice to Landlord, shall have full authority and
responsibility to act on behalf of the Tenant as required in this Tenant Work
Letter.
6.2 Landlord's Representative. Prior to commencement of construction of
Tenant Improvements, Landlord shall designate a representative with respect to
the matters set forth in this Tenant Work Letter, who, until further notice to
Tenant, shall have full authority and responsibility to act on behalf of the
Landlord as required in this Tenant Work Letter.
6.3 Time of the Essence in This Tenant Work Letter. Unless otherwise
indicated, all references herein to a "number of days" shall mean and refer to
calendar days.
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<PAGE> 43
SCHEDULE 1
-----------
TIME DEADLINES
--------------
<TABLE>
<CAPTION>
Dates Actions to be Performed
----- -----------------------
<S> <C> <C>
A. August 5, 1999 Tenant to deliver Final Space Plan to Landlord.
B. August 10, 1999 Tenant to deliver Final Working Drawings to Landlord.
</TABLE>
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<PAGE> 44
EXHIBIT "E"
-----------
CERTIFIED COPY OF
BOARD OF DIRECTORS RESOLUTIONS OF
STANFORD MICRODEVICES, a Delaware corporation
The undersigned, being the duly elected Corporate Secretary of STANFORD
MICRODEVICES, a Delaware corporation ("Corporation"), hereby certifies that the
following is a true, full and correct copy of the resolutions adopted by the
Corporation by unanimous written consent in lieu of a special meeting of its
Board of Directors, and that said resolutions have not been amended or revoked
as of the date hereof.
RESOLVED, that the Corporation is hereby authorized to execute, deliver and
fully perform that certain document entitled Standard Office Lease ("Lease") by
and between the Corporation and Arden Realty Limited Partnership, a Maryland
limited partnership, for the lease of space at 5000 East Spring Street, Long
Beach, California.
RESOLVED FURTHER that the Corporation is hereby authorized and directed to
make, execute and deliver any and all consents, certificates, documents,
instruments, amendments, confirmations, guarantees, papers or writings as may be
required in connection with or in furtherance of the Lease (collectively with
the Lease, the "Documents") or any transactions described therein, and to do any
and all other acts necessary or desirable to effectuate the foregoing
resolution.
RESOLVED FURTHER that the following officers acting together: John Ocampo
as President and Susan H. Ocampo as Secretary are authorized to execute and
deliver the Documents on behalf of the Corporation, together with any other
documents and/or instruments evidencing or ancillary to the Documents, and in
such forms and on such terms as such officer(s) shall approve, the execution
thereof to be conclusive evidence of such approval and to execute and deliver on
behalf of the Corporation all other documents necessary to effectuate said
transaction in conformance with these resolutions.
Dated: 8/4/99
------
, Corporate Secretary
-------------------
-2-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
Stanford Microdevices (Canada), an Ontario company
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
February 16, 2000 in the Registration Statement (Form S-1) and related
Prospectus of Stanford Microdevices dated March 1, 2000.
Our audits also included the financial statement schedule of Stanford
Microdevices for each of the three years in the period ended December 31, 1999
listed in Item 16(b) of this Registration Statement. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
/s/ ERNST & YOUNG LLP
San Jose, California
February 29, 2000
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 10,965
<SECURITIES> 0
<RECEIVABLES> 1,781
<ALLOWANCES> 100
<INVENTORY> 2,227
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<PP&E> 5,364
<DEPRECIATION> 1,093
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<CURRENT-LIABILITIES> 7,475
<BONDS> 0
17,255
0
<COMMON> 15
<OTHER-SE> (6,325)
<TOTAL-LIABILITY-AND-EQUITY> 19,719
<SALES> 18,065
<TOTAL-REVENUES> 18,065
<CGS> 9,996
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<OTHER-EXPENSES> 10,585
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 167
<INCOME-PRETAX> (2,499)
<INCOME-TAX> 48
<INCOME-CONTINUING> (2,547)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,547)
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