<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
APPLIED MICRO CIRCUITS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3674 94-2586591
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
---------------
6290 SEQUENCE DRIVE
SAN DIEGO, CALIFORNIA 92121
(619) 450-9333
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
DAVID M. RICKEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
APPLIED MICRO CIRCUITS CORPORATION
6290 SEQUENCE DRIVE
SAN DIEGO, CALIFORNIA 92121
(619) 450-9333
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
MARK A. MEDEARIS THOMAS W. KELLERMAN
GLEN R. VAN LIGTEN CHRISTINA B. ROBINSON
CARL L. SPATARO, JR. PATRICIA MONTALVO
MITCHELL S. ZUKLIE BROBECK, PHLEGER & HARRISON LLP
VENTURE LAW GROUP TWO EMBARCADERO PLACE
A PROFESSIONAL CORPORATION 2200 GENG ROAD
2800 SAND HILL ROAD PALO ALTO, CA 94303
MENLO PARK, CA 94025
---------------
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 of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement 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. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01........ 6,267,500 $12.00 $75,210,000 $22,791
========================================================================================================
</TABLE>
(1) Includes 817,500 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act.
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 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
cPURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 10, 1997
[LOGO OF AMCC]
5,450,000 SHARES
COMMON STOCK
Of the 5,450,000 shares of Common Stock offered hereby, 2,700,000 shares are
being sold by Applied Micro Circuits Corporation, ("AMCC" or the "Company"),
and 2,750,000 shares are being sold by certain stockholders of the Company. See
"Principal and Selling Stockholders." The Company will not receive any of the
proceeds from the sale of shares by the Selling Stockholders. Prior to this
offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price per share will
be between $10.00 and $12.00. See "Underwriting" for information relating to
the method of determining the initial public offering price.
-----------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
============================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
- --------------------------------------------------------------------------------------------
Total(2)................... $ $ $ $
============================================================================================
</TABLE>
(1) Before deducting expenses payable by the Company, estimated at $700,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 817,500 shares of Common Stock solely to cover over-
allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ , respectively.
-----------
The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of BancAmerica Robertson Stephens, San Francisco,
California, on or about , 1997.
BANCAMERICA ROBERTSON STEPHENS
NATIONSBANC MONTGOMERY SECURITIES, INC.
COWEN & COMPANY
The date of this Prospectus is , 1997
<PAGE>
AMCC's silicon solutions for high-bandwidth connectivity
SONET/SDH/ATM
.Three generations of products with increasing levels of integration
.Low power, low jitter and low cost
[Picture of group of six AMCC integrated circuits layered on a triangular
background.]
FIBRE CHANNEL/GIGABIT ETHERNET
.Evolution to fully integrated transceiver
.One chip for two standards
[Picture of group of six AMCC integrated circuits layered on a triangular
background.]
SERIAL BACKPLANE
.Crosspoint switches
.Serializers/deserializers
.Fast acquisition and fast reconfiguration times
[Picture of group of four AMCC integrated circuits.]
[Picture of cluster of optical fiber lines.]
[Picture of wafer fabrication facility worker and printed circuit bound with
an AMCC integrated circuit.]
[Picture of personal computer monitor.]
[Picture of an AMCC integrated circuit on top of a wafer.]
[TO COME]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING THE ENTRY OF STABILIZING BIDS, SYNDICATE COVERING
TRANSACTIONS OR THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES SEE "UNDERWRITING."
2
<PAGE>
AMCC's silicon solutions for the
advanced telecommunications and data communications solutions
This 3Com switch uses AMCC's S3028 OC-12 transceiver chip in an ATM optical
interface card
[Picture of a computer switch, an ATM optical interface card and an AMCC
transceiver chip.]
ROUTER
BRIDGE
ETHERNET
SWITCH
LAN BACKBONE
[Three symbols organized into a pictorial depiction of a LAN backbone.]
Nortel's S/DMS Transport Node OC-48 ring uses AMCC's ASIC products
[Picture of Nortel's S/DMS Transport Node OC-48 ring.]
METROPOLITAN AREA NETWORK
[Graphical depiction of a row of eight skyscrapers.]
Alcatel uses AMCC's ASICs in OC-48 (2.4 GHz) and OC-192(9.6GHz) transmission
equipment.
[Picture of Alcatel's OC-48 transmission equipment.]
Alcatel uses AMCC's S3017/18 transmitter/receiver pair in an OC-12, 622 Mbps,
cross-connect switch.
[Picture of Alcatel's OC-12 cross-connect switch and two AMCC.]
WAN SONET/SDH
<PAGE>
World's communications infrastructure
solutions AMCC provides high-performance, high-bandwidth products to worldwide
industry leaders such as 3Com, Alcatel, GPT, Nortel (Northern Telecom), Sun
Microsystems and Vixel.
RAID
DESKTOP PC
FIBRE CHANNEL
ATM
SERVER
WORKSTATION
DATA NETWORK
[Four symbols organized into a pictorial depiction of a data network.]
A Sun Microsystems server with an OC-3/12 ATM interface uses AMCC's S3020/21
transmitter/receiver pair.
[Picture of a Sun Microsystems' server and an AMCC transmitter/receiver
pair.]
WORKSTATION
SERVER
DISK DRIVE
FIBRE CHANNEL
FIBRE CHANNEL
WORKSTATION
ENGINEERING NETWORK
[Four symbols organized into a pictorial depiction of an Engineering
Network.]
Vixel optical modules for the 1 GHz Fibre Channel interface uses AMCC's S2044/45
transmitter/receiver pair.
[Picture of Vixel optical modules and an AMCC transmitter/receiver pair.]
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY
PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................ 4
Risk Factors........................................................... 6
Use of Proceeds........................................................ 19
Dividend Policy........................................................ 19
Capitalization......................................................... 20
Dilution............................................................... 21
Selected Consolidated Financial Data................................... 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 23
Business............................................................... 30
Management............................................................. 45
Certain Transactions................................................... 54
Principal and Selling Stockholders..................................... 55
Description of Capital Stock........................................... 58
Shares Eligible for Future Sale........................................ 60
Underwriting........................................................... 62
Legal Matters.......................................................... 64
Experts................................................................ 64
Additional Information................................................. 64
Index to Consolidated Financial Statements............................. F-1
</TABLE>
----------------
The Company intends to furnish its stockholders with annual reports
containing audited financial statements examined by independent auditors and
make available to its stockholders unaudited quarterly information for the
first three quarters of each fiscal year.
AMCC is a registered trademark of the Company. All rights are fully
reserved. This Prospectus also includes trademarks of companies other than the
Company.
The Company was incorporated in California in 1979 and reincorporated in
Delaware in 1987. The Company's principal executive offices are located at
6290 Sequence Drive, San Diego, California 92121 and its telephone number is
(619) 450-9333.
3
<PAGE>
SUMMARY
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements and from the results
historically experienced. Factors that may cause or contribute to such
differences include, but are not limited to, those under "Risk Factors" and
elsewhere in this Prospectus. The following summary is qualified in its
entirety by the more detailed information including "Risk Factors" and the
Consolidated Financial Statements and Notes thereto, appearing elsewhere in
this Prospectus.
THE COMPANY
AMCC designs, develops, manufactures and markets high-performance, high-
bandwidth silicon solutions for the world's communications infrastructure. The
Company utilizes a combination of high-frequency, mixed-signal design
expertise, system-level knowledge and multiple silicon process technologies to
offer IC products for the telecommunications markets that address the SONET/SDH
and ATM transmission standards and for the data communications markets that
address the Gigabit Ethernet, ATM and Fibre Channel transmission standards. The
Company also leverages its technology to provide solutions for the ATE, high-
speed computing and military markets. Customers of the Company include 3Com,
Alcatel, Cisco Systems, Compaq, Hughes Electronics, Nortel, Sun Microsystems
and Teradyne.
Substantial growth in the Internet, World Wide Web and cellular and facsimile
communications, the emergence of new applications such as video conferencing
and the growing demand for remote network access and higher speed, data
intensive communication between local area networks have caused current network
system infrastructures to become bandwidth constrained due to the increasing
volume and complexity of data types transmitted. In order to meet these
increased bandwidth demands, communications systems OEMs must utilize
increasingly complex ICs, which account for a greater portion of the value-
added proprietary content of these systems. This trend has created a
significant opportunity for IC suppliers with mixed-signal and system-level
expertise that are capable of designing solutions that enable the transmission
of increasing volumes of complex data at increasingly higher speeds. Dataquest
estimates that the worldwide SONET/SDH market for ICs was approximately $240
million in 1996 and will increase to approximately $700 million in 2000 and
that the ATM market for ICs was approximately $130 million in 1996 and will
increase to approximately $700 million in 2000. The Fibre Channel and Gigabit
Ethernet markets for ICs were relatively small in 1996, and Dataquest estimates
these combined markets will be approximately $300 million in 2000.
The Company addresses these market opportunities by leveraging its proven,
stable and predictable bipolar and BiCMOS process technologies at its internal
wafer fabrication facility, complemented by advanced CMOS processes from
external foundries, to offer high-performance, high-frequency solutions
optimized for specific applications and customer requirements. The Company
believes silicon-based processes tend to be less expensive, more predictable
with respect to yields and better able to ramp to high-volume production than
non-silicon processes. By using its silicon-based processes and extensive
design libraries, the Company is able to offer products that provide
significant cost, power, performance and reliability advantages for
communications systems OEMs.
The Company has developed multiple generations of many of its products. In
the telecommunications market, the Company provides ATM and SONET/SDH physical
layer transceivers and Clock Recovery and Synthesis Units for the OC-3 and OC-
12 standards and is currently developing an OC-48 chip set. In the data
communications market, the Company provides physical layer transceivers for
Gigabit Ethernet and Fibre Channel applications as well as crosspoint switches
for serial backplanes. In the high-speed computing market, the Company provides
PCI controllers and high-frequency clock drivers and clock generators. In
addition, the Company also provides high-performance, low-power ASIC products
for the ATE and military markets.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company............. 2,700,000 shares
Common Stock Offered by the Selling Stockhold-
ers............................................ 2,750,000 shares
Common Stock Outstanding after the Offering..... 19,801,750 shares(1)
Use of Proceeds................................. For capital expenditures related to
expansion of the Company's manufacturing
operations, working capital and general
corporate purposes
Proposed Nasdaq National Market Symbol.......... AMCC
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FISCAL YEAR ENDED MARCH 31, SEPTEMBER 30,
----------------------------------------- ---------------
1993 1994 1995 1996 1997 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Net revenues............ $38,296 $49,686 $46,950 $50,264 $57,468 $27,955 $35,208
Gross profit............ 17,735 20,499 19,437 16,095 27,411 12,201 18,674
Operating income (loss). 1,319 1,713 (783) (3,420) 7,004 2,895 5,942
Net income (loss)....... $ 993 $10,204 $(1,071) $(3,694) $ 6,316 $ 2,643 $ 5,934
======= ======= ======= ======= ======= ======= =======
Pro forma net income per
share(2)............... $ 0.33 $ 0.30
======= =======
Shares used in pro forma
net income per share
calculation(2)......... 19,020 19,623
======= =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------
AS
ACTUAL ADJUSTED(3)
------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................................. $18,953 $45,874
Total assets................................................ 44,382 71,303
Long-term capital lease obligations, less current portion... 2,096 2,096
Total stockholders' equity.................................. 30,118 57,039
</TABLE>
- -------
(1) Based on the pro forma number of shares of Common Stock outstanding at
September 30, 1997. Excludes, as of September 30, 1997: (i) 157,968 shares
of Common Stock issuable upon exercise of options outstanding under the
Company's 1982 Employee Incentive Stock Option Plan (the "1982 Plan") at a
weighted average exercise price of $0.46 per share; (ii) 2,049,309 shares
of Common Stock issuable upon exercise of options outstanding under the
Company's 1992 Stock Option Plan (the "1992 Plan") at a weighted average
exercise price of $1.06 per share; (iii) 2,553,380 shares reserved for
future issuance under the 1992 Plan; (iv) 200,000 shares reserved for
future issuance under the Company's 1997 Directors' Plan (the "Directors'
Plan"); (v) 400,000 shares of Common Stock reserved for issuance under the
Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan"); (vi)
83,807 shares of Common Stock issuable upon exercise of certain warrants at
a weighted average exercise price of $2.91 per share; and (vii) 24,755
shares of Common Stock issuable upon exercise of certain other outstanding
options at a weighted average exercise price of $0.48 per share.
(2) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used to compute the
pro forma net income per share amounts.
(3) Adjusted to give effect to the sale of 2,700,000 shares of Common Stock by
the Company at an assumed initial public offering price of $11.00 per share
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
Unless otherwise indicated, all information in this Prospectus (i) reflects a
2-for-3 reverse stock split of the Preferred Stock and Common Stock to be
effected upon the closing of this offering, (ii) reflects the conversion of
each share of Preferred Stock into Common Stock upon the closing of this
offering and (iii) assumes no exercise of the Underwriters' over-allotment
option. See "Underwriting."
5
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective purchasers of the Common Stock offered hereby
should review carefully the following risk factors as well as the other
information set forth in this Prospectus. This Prospectus contains forward-
looking statements based upon current expectations that involve risks and
uncertainties. The Company's actual results and the timing of certain events
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth in the
following risk factors and elsewhere in this Prospectus.
FLUCTUATIONS IN OPERATING RESULTS
AMCC has experienced and may in the future experience fluctuations in its
operating results. The Company incurred net losses in fiscal 1995 and 1996.
The Company's quarterly and annual operating results are affected by a wide
variety of factors that could materially and adversely affect revenues, gross
profit and operating income, including, but not limited to: the rescheduling
or cancellation of orders by customers; fluctuations in the timing and amount
of customer requests for product shipments; fluctuations in manufacturing
yields and inventory levels; changes in product mix; the Company's ability to
introduce new products and technologies on a timely basis; the announcement or
introduction of products and technologies by the Company's competitors; the
availability of external foundry capacity, purchased parts and raw materials;
competitive pressures on selling prices; the timing of investments in research
and development; market acceptance of the Company's and its customers'
products; the timing of depreciation and other expenses to be incurred by the
Company in connection with the expansion of its existing manufacturing
facility and in connection with its proposed new wafer fabrication facility;
costs associated with compliance with applicable environmental regulations;
costs associated with future litigation, if any, including without limitation,
litigation relating to the use or ownership of intellectual property; general
semiconductor industry conditions; and general economic conditions.
The Company's expense levels are relatively fixed and are based, in part, on
its expectations of future revenues. Because the Company is continuing to
increase its operating expenses for personnel and new product development and
is limited in its ability to reduce expenses quickly in response to any
revenue shortfalls, the Company's business, financial condition and operating
results would be adversely affected if increased revenues are not achieved.
Furthermore, sudden shortages of raw materials or production capacity
constraints can lead producers to allocate available supplies or capacity to
customers with resources greater than those of the Company, which could
interrupt the Company's ability to meet its production obligations. Finally,
average selling prices in the semiconductor industry historically have
decreased over the life of a product, and as a result, the average selling
prices of the Company's products may be subject to significant pricing
pressures in the future. In response to such pressures, the Company may take
pricing or other actions that could have a material adverse effect on the
Company's business, financial condition and operating results.
The Company's business is characterized by short-term orders and shipment
schedules, and customer orders typically can be canceled or rescheduled
without significant penalty to the customer. Due to the absence of substantial
noncancellable backlog, the Company typically plans its production and
inventory levels based on internal forecasts of customer demand, which is
highly unpredictable and can fluctuate substantially. In addition, from time
to time, in response to anticipated long lead times to obtain inventory and
materials from its outside foundries, the Company may order materials in
advance of anticipated customer demand, which might result in excess inventory
levels or unanticipated inventory write-downs if expected orders fail to
materialize or other factors render the customer's products less marketable.
Furthermore, the Company currently anticipates that an increasing portion of
its revenues in future periods will be derived from sales of application-
specific standard products ("ASSPs") as compared to application-specific
integrated circuits ("ASICs"). Customer orders for ASSPs typically have
shorter lead times than orders for ASICs, which may make it increasingly
difficult for the Company to predict its revenues and inventory levels and
adjust production appropriately in future periods. A failure by the Company to
plan inventory and production levels effectively could have a material adverse
effect on the Company's business, financial condition and operating results.
6
<PAGE>
As a result of the foregoing or other factors, the Company may experience
fluctuations in future operating results on a quarterly or annual basis that
could materially and adversely affect its business, financial condition and
operating results. Accordingly, the Company believes that period-to-period
comparisons of its operating results should not be relied upon as an
indication of future performance. In addition, the results of any quarterly
period are not indicative of results to be expected for a full fiscal year.
There can be no assurance that the Company will be able to achieve increased
sales or maintain its profitability in any future period. In certain future
quarters, the Company's operating results may be below the expectations of
public market analysts or investors. In such event, the market price of the
Company's Common Stock could be materially and adversely affected.
MANUFACTURING YIELDS
The fabrication of semiconductors is a complex and precise process. Minute
levels of contaminants in the manufacturing environment, defects in masks used
to print circuits on a wafer, difficulties in the fabrication process or other
factors can cause a substantial percentage of wafers to be rejected or a
significant number of die on each wafer to be nonfunctional. In addition, the
planned expansion of the clean room in the Company's existing wafer
fabrication facility could increase the risk to the Company of contaminants in
such facility. Many of these problems are difficult to diagnose, time
consuming and expensive to remedy and can result in shipment delays. As a
result, semiconductor companies often experience problems in achieving
acceptable wafer manufacturing yields, which are represented by the number of
good die as a proportion of the total number of die on any particular wafer,
particularly in connection with the commencement of production in a new
fabrication facility or the transfer of manufacturing operations between
fabrication facilities. Because the majority of the Company's costs of
manufacturing are relatively fixed, maintenance of the number of shippable die
per wafer is critical to the Company's results of operations. Yield decreases
can result in substantially higher unit costs and may result in reduced gross
profit and net income. The Company has in the past experienced yield problems
in connection with the manufacture of its products. For example, in the second
quarter of fiscal 1997 the Company experienced a decrease in internal yields,
which adversely impacted its gross margin for the quarter. The Company
estimates yields per wafer in order to estimate the value of inventory. If
yields are materially different than projected, work-in-process inventory may
need to be revalued. There can be no assurance that the Company will not
suffer periodic yield problems in connection with new or existing products or
in connection with the commencement of production in the Company's proposed
new manufacturing facility or the transfer of the Company's manufacturing
operations to such facility, any of which problems could cause the Company's
business, financial condition and operating results to be materially and
adversely affected. See "-- Manufacturing Capacity Limitations; New Production
Facility."
Semiconductor manufacturing yields are a function both of product design and
process technology. In cases where products are manufactured for the Company
by an outside foundry, the process technology is typically proprietary to the
manufacturer. Since low yields may result from either design or process
technology failures, yield problems may not be effectively determined or
resolved until an actual product exists that can be analyzed and tested to
identify process sensitivities relating to the design rules that are used. As
a result, yield problems may not be identified until well into the production
process, and resolution of yield problems would require cooperation by and
communication between the Company and the manufacturer. In some cases this
risk could be compounded by the offshore location of certain of the Company's
manufacturers, increasing the effort and time required to identify,
communicate and resolve manufacturing yield problems. If the Company develops
relationships with additional outside foundries, yields could be adversely
affected due to difficulties associated with adopting the Company's technology
and product design to the proprietary process technology and design rules of
such new foundries. Because of the Company's limited access to wafer
fabrication capacity from its outside foundries for certain of its products,
any decrease in manufacturing yields of such products could result in an
increase in the Company's per unit costs for such products and force the
Company to allocate its available product supply among its customers, thus
potentially adversely impacting customer relationships as well as revenues and
gross margin. There can be no assurance that the Company's outside foundries
will achieve or maintain acceptable manufacturing yields in the future.
Furthermore, the Company also faces the risk of product recalls resulting from
design or manufacturing defects which are not
7
<PAGE>
discovered during the manufacturing and testing process. Any of the foregoing
factors could have a material adverse effect on the Company's business,
financial condition and operating results.
RISKS ASSOCIATED WITH INCREASING DEPENDENCE ON TELECOMMUNICATIONS AND DATA
COMMUNICATIONS MARKETS AND INCREASING DEPENDENCE ON APPLICATION-SPECIFIC
STANDARD PRODUCTS
An important part of the Company's strategy is to continue its focus on the
telecommunications market and to leverage its technology and expertise to
penetrate further the data communications market for high-speed ICs. The
Company anticipates that sales to its other traditional markets will grow more
slowly or not at all and, in some instances, as in the case of military
markets, may decrease over time. The telecommunications and data
communications markets are characterized by extreme price competition, rapid
technological change, industry standards that are continually evolving and, in
many cases, short product life cycles. These markets frequently undergo
transitions in which products rapidly incorporate new features and performance
standards on an industry-wide basis. If, at the beginning of each such
transition, the Company's products are unable to support the new features or
performance levels being required by OEMs in these markets, the Company would
be likely to lose business from an existing or potential customer and,
moreover, would not have the opportunity to compete for new design wins until
the next product transition occurs. There can be no assurance that the Company
will be able to penetrate the telecommunications or data communications market
successfully. A failure by the Company to develop products with required
features or performance standards for the telecommunications or data
communications markets, a delay as short as a few months in bringing a new
product to market or a failure by the Company's telecommunications or data
communications customers to achieve market acceptance of their products by
end-users could significantly reduce the Company's revenues for a substantial
period, which would have a material adverse effect on the Company's business,
financial condition and operating results. See " -- Risks Associated with
Dependence on High-Speed Computing Market."
A significant portion of the Company's revenues in recent periods has been,
and is expected to continue to be, derived from sales of products based on the
Synchronous Optical Network ("SONET")/Synchronous Digital Hierarchy ("SDH")
transmission standards and the Asynchronous Transfer Mode ("ATM") transmission
standard. If the communications market evolves to new standards, there is no
assurance the Company will be able to successfully design and manufacture new
products that address the needs of its customers or that such new products
will meet with substantial market acceptance. Although the Company has
developed some initial products for the emerging Gigabit Ethernet and Fibre
Channel communications standards, sales of these products have been minimal to
date and there is no assurance AMCC will be successful in addressing the
market opportunities for products based on these standards.
The Company has under development a number of ASSPs for the
telecommunications and data communications markets, from which it expects to
derive an increasing portion of its future revenues. The Company has a limited
operating history in selling ASSPs, particularly to customers in the
telecommunications and data communications markets, upon which an evaluation
of the Company's prospects in such markets can be based. In addition, the
Company's relationships with certain customers in these markets have been
established recently. The Company's future success in selling ASSPs, and in
particular, selling ASSPs to customers in the telecommunications and data
communications markets, will depend in large part on whether the Company's
ASSPs are developed on a timely basis and whether such products achieve market
acceptance among new and existing customers, and on the timing of the
commencement of volume production of the OEMs' products, if at all. The
Company has in the past encountered difficulties in introducing new products
in accordance with customers' delivery schedules and the Company's initial
expectations. There can be no assurance the Company will not encounter such
difficulties in the future or that the Company will be able to develop and
introduce ASSPs in a timely manner so as to meet customer demands. Any such
difficulties or a failure by the Company to develop and timely introduce such
ASSPs would have a material adverse effect on the Company's business,
financial condition and operating results. See "-- Rapid Technological Change;
Necessity to Develop and Introduce New Products."
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RISKS ASSOCIATED WITH DEPENDENCE ON HIGH-SPEED COMPUTING MARKET
The Company historically has derived significant revenues from product sales
to customers in the high-speed computing market and currently anticipates that
it will continue to derive significant revenues from sales to customers in
this market in the near term. The market for high-speed computing IC products
is subject to extreme price competition. The Company believes that the average
selling prices of the Company's IC products for the high-speed computing
market will decline in future periods and that the Company's gross margin on
sales of such products also will decline in future periods. There can be no
assurance that the Company will be able to reduce the costs of manufacturing
its high-speed computing IC products in response to declining average selling
prices. Even if the Company successfully utilizes new processes or
technologies to reduce the manufacturing costs of its high-speed computing
products in a timely manner, there can be no assurance that the Company's
customers in the high-speed computing market will purchase such new products.
A failure by the Company to reduce its manufacturing costs sufficiently or a
failure by the Company's customers to purchase such products could have a
material adverse effect on the Company's business, financial condition and
operating results. Furthermore, the Company expects that certain of its
competitors may seek to develop and introduce products that integrate the
functions performed by the Company's high-speed computing IC products on a
single chip. In addition, one or more of the Company's customers may choose to
utilize discrete components to perform the functions served by the Company's
high-speed computing IC products or may use their own design and fabrication
facilities to create a similar product. In either case, the need for high-
speed computing customers to purchase the Company's IC products could be
eliminated, which could adversely affect the Company's business, financial
condition and operating results. See "-- Intense Competition."
RAPID TECHNOLOGICAL CHANGE; NECESSITY TO DEVELOP AND INTRODUCE NEW PRODUCTS
The markets for the Company's products are characterized by rapidly changing
technologies, evolving and competing industry standards, short product life
cycles, changing customer needs, emerging competition, frequent new product
introductions and enhancements and rapid product obsolescence. The Company's
future success will depend, in large part, on its ability to develop, gain
access to and use leading technologies in a cost-effective and timely manner
and on its ability to continue to develop its technical and design expertise.
The Company's ability to have its products designed into its customers' future
products, to maintain close working relationships with key customers in order
to develop new products, particularly ASSPs, that meet customers' changing
needs and to respond to changing industry standards and other technological
changes on a timely and cost-effective basis will also be a critical factor in
the Company's future success. Furthermore, once a customer has designed a
supplier's product into its system, the customer is extremely reluctant to
change its supply source due to significant costs associated with qualifying a
new supplier. Accordingly, the failure by the Company to achieve design wins
with its key customers could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Research and Development."
Products for telecommunications and data communications applications, as
well as for high-speed computing applications are based on industry standards
that are continually evolving. The Company's ability to compete in the future
will depend on its ability to identify and ensure compliance with evolving
industry standards. The emergence of new industry standards could render the
Company's products incompatible with products developed by major systems
manufacturers. As a result, the Company could be required to invest
significant time and effort and to incur significant expense to redesign the
Company's products to ensure compliance with relevant standards. If the
Company's products are not in compliance with prevailing industry standards
for a significant period of time, the Company could miss opportunities to
achieve crucial design wins. There can be no assurance that the Company will
be successful in developing or using new technologies or in developing new
products or product enhancements on a timely basis, or that such new
technologies, products or product enhancements will achieve market acceptance.
In the past, the Company has encountered difficulties in introducing new
products and product enhancements in accordance with customers' delivery
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schedules and the Company's initial expectations. The Company could encounter
such difficulties in the future. The Company's pursuit of necessary
technological advances may require substantial time and expense. A failure by
the Company, for technological or other reasons, to develop and introduce new
or enhanced products on a timely basis that are compatible with industry
standards and satisfy customer price and performance requirements would have a
material adverse effect on the Company's business, financial condition and
operating results. See "-- Fluctuations in Operating Results," and "-- Risks
Associated with Increasing Dependence on Telecommunications and Data
Communications Markets and Increasing Dependence on Application-Specific
Standard Products."
INTENSE COMPETITION
The semiconductor market is highly competitive and subject to rapid
technological change, price erosion and heightened international competition.
The telecommunications, data communications, ATE and high-speed computing
industries in particular are intensely competitive. The Company believes that
the principal factors of competition in its markets are price, product
performance, product quality and time-to-market. The ability of the Company to
compete successfully in its markets depends on a number of factors, including
success in designing and subcontracting the manufacture of new products that
implement new technologies, product quality, reliability, price, the
efficiency of production, design wins for its IC products, ramp up of
production of the Company's products for particular systems manufacturers,
end-user acceptance of the systems manufacturers' products, market acceptance
of competitors' products and general economic conditions. In addition, the
Company's competitors may offer enhancements to existing products or offer new
products based on new technologies, industry standards or customer
requirements that are available to customers on a more timely basis than
comparable products from the Company or that have the potential to replace or
provide lower-cost alternatives to the Company's products. The introduction of
such enhancements or new products by the Company's competitors could render
the Company's existing and future products obsolete or unmarketable.
Furthermore, once a customer has designed a supplier's product into its
system, the customer is extremely reluctant to change its supply source due to
the significant costs associated with qualifying a new supplier. Finally, the
Company expects that certain of its competitors and other semiconductor
companies may seek to develop and introduce products that integrate the
functions performed by the Company's IC products on a single chip, thus
eliminating the need for the Company's products. Each of these factors could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "-- Risks Associated with Dependence on High-
Speed Computing Market."
In the telecommunications and data communications markets, the Company
competes primarily against gallium arsenide ("GaAs") based companies such as
Giga, TriQuint and Vitesse, and bipolar silicon based products from companies
such as Hewlett-Packard, Maxim and Sony. In certain circumstances, most
notably with respect to ASICs supplied to Nortel, AMCC's customers or
potential customers have internal IC manufacturing capabilities, and this
internal source is an alternative available to the customer. In the ATE
market, the Company competes primarily against Vitesse and silicon ECL and
BiCMOS products offered principally by semiconductor manufacturers such as
Analog Devices, Lucent Technologies and Maxim. In the high-speed computing
market, the Company competes primarily against Chrontel and PLX. Many of these
companies and potential new competitors have significantly greater financial,
technical, manufacturing and marketing resources than the Company. In
addition, in lower-frequency applications, the Company faces increasing
competition from CMOS-based products, particularly as the performance of such
products continues to improve. There can be no assurance that the Company will
be able to develop new products to compete with new technologies on a timely
basis or in a cost-effective manner. Any failure by the Company to compete
successfully in its target markets, particularly in the telecommunications and
data communications markets, would have a material adverse effect on the
Company's business, financial condition and results of operations. See "--
Risks Associated with Increasing Dependence on Telecommunications and Data
Communications Markets and Increasing Dependence on Application-Specific
Standard Products."
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MANUFACTURING CAPACITY LIMITATIONS; NEW PRODUCTION FACILITY
The Company currently manufactures a majority of its IC products at its
four-inch wafer fabrication facility located in San Diego, California. The
Company believes that, upon the completion of the planned expansion of the
clean room in its existing fabrication facility, it will be able to satisfy
its production needs of products produced in its fabrication facility through
the end of 2001. The Company plans to use a portion of the proceeds of this
offering to purchase equipment and make leasehold improvements related to the
expansion in 1997 and 1998. In addition, the Company will be required to hire,
train and manage additional production personnel in order to increase its
production capacity as scheduled. In the event the Company's plans to expand
the manufacturing capacity of its fabrication facility are not implemented on
a timely basis, the Company could face production capacity constraints, which
could have a material adverse effect on the Company's business, financial
condition and operating results.
The Company is currently in the process of planning construction of a new
six-inch wafer fabrication facility, initially to complement, and potentially
to replace, its existing facility in San Diego. The Company currently plans to
acquire, or acquire rights to a site no later than mid-1998, initiate
construction of the new facility during 1999 and to complete the physical
plant during 2000. Following the completion of the physical plant, the Company
must install equipment and perform necessary testing prior to commencing
commercial production at the facility, a process which the Company anticipates
will take at least nine months. Accordingly, the Company believes the new
facility will not begin commercial production prior to late 2001. This new
fabrication facility will have room for additional equipment and manufacturing
capacity. The Company estimates that the cost of the new wafer fabrication
facility will be at least $60.0 million, of which approximately $25.0 million
relates to the purchase of land and construction of the building and
approximately $35.0 million relates to capital equipment purchases necessary
to establish the initial manufacturing capacity of the facility. The Company
currently anticipates that it will incur a significant portion of the expense
related to these capital equipment purchases prior to the end of 1999. The
Company intends to fund part of the cost of the new facility with a portion of
the proceeds of this offering. The balance of the cost of this facility will
be funded through a combination of cash from operations and additional debt or
equity financing. There can be no assurance that the Company will be able to
obtain the additional financing necessary to fund the construction and
completion of the new manufacturing facility. Any failure by the Company to
obtain on a timely basis such financing could delay the completion of the
facility and have a material adverse effect on the Company's business,
financial condition and results of operations. To date, the Company has not
acquired or acquired rights to a suitable site for its proposed new
manufacturing facility. There can be no assurance that the Company will be
able to acquire rights to such a site in a timely manner, if at all. Any
significant delay by the Company in finding such a site could have a material
adverse effect on the Company's business, financial condition and operating
results. In addition, the Company's existing wafer fabrication facility is and
its proposed new wafer fabrication facility will be located in California.
There can be no assurance that these facilities will not be subject to natural
disasters such as earthquakes or floods. In addition, the depreciation and
other expenses to be incurred by the Company in connection with the expansion
of its existing manufacturing facility and in connection with its proposed new
wafer fabrication facility may adversely effect the Company's gross margin in
any future fiscal period. See "-- Need For Additional Capital."
The construction of the new wafer fabrication facility entails significant
risks, including shortages of materials and skilled labor, unavailability or
late delivery of process equipment, unforeseen environmental or engineering
problems, work stoppages, weather interferences and unanticipated cost
increases, any of which could have a material adverse effect on the building,
equipping and production start-up of the new facility. In addition, unexpected
changes or concessions required by local, state or federal regulatory agencies
with respect to necessary licenses, land use permits, site approvals and
building permits could involve significant additional costs and delay the
scheduled opening of the facility and could reduce the Company's anticipated
revenues. As a result of the foregoing and other factors, there can be no
assurance that the project will be completed within its current budget or
within the period currently scheduled by the Company, which could have a
material adverse effect on its business, financial condition and operating
results. Furthermore, if the Company is unable to achieve adequate
manufacturing yields in its proposed new fabrication facility in a timely
manner or if the Company's revenues do not increase commensurate with the
anticipated increase in
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manufacturing capacity associated with the new facility, the Company's
business, financial condition and operating results could also be materially
adversely affected. In addition, in the future, the Company may be required
for competitive reasons to make capital investments in its existing wafer
fabrication facility or to accelerate the timing of the construction of its
new wafer fabrication facility in order to expedite the manufacture of
products based on more advanced manufacturing processes. To the extent such
capital investments are required, the Company's gross profit and, as a result,
its business, financial condition and operating results, could be materially
and adversely affected. See "-- Manufacturing Yields."
The successful operation of the Company's proposed new wafer fabrication
facility, if completed, as well as the Company's overall production
operations, will also be subject to numerous risks. The Company has no prior
experience with the operation of the equipment or the processes involved in
producing finished six-inch wafers, which differ significantly from those
involved in the production of four-inch wafers. The Company will be required
to hire, train and manage production personnel in order to effectively operate
the new facility. The Company does not have sufficient excess production
capacity at its existing San Diego facility to fully offset any failure of the
proposed new wafer fabrication facility to meet planned production goals. The
Company may transfer its current San Diego manufacturing operations into the
proposed new wafer fabrication facility subsequent to its completion. Should
this transfer occur, there can be no assurance that the Company will not
experience delays in completing product testing and documentation required by
customers to qualify or requalify the Company's products from this facility as
being from an approved source as a result of this transfer, which could
materially adversely affect the Company's business, financial condition and
operating results. The Company will also have to effectively coordinate and
manage two manufacturing facilities to successfully meet its overall
production goals. The Company has no experience in coordinating and managing
production facilities that are located at different sites or in the transfer
of manufacturing operations from one facility to another. As a result of these
and other factors, the failure of the Company to successfully operate the
proposed new wafer fabrication facility, to successfully coordinate and manage
the two sites or to transfer the Company's manufacturing operations could
adversely affect the Company's overall production and could have a material
adverse effect on its business, financial condition and operating results.
TRANSITION TO NEW PROCESS TECHNOLOGIES
The markets for the Company's products are characterized by rapid changes in
manufacturing process technologies. To provide competitive products to its
target markets, the Company must develop improved process technologies. The
Company's future success will depend, in large part, upon its ability to
continue to improve its existing process technologies, develop new process
technologies, and adapt its process technologies to emerging industry
standards. The Company may in the future be required to transition one or more
of its products to process technologies with smaller geometries in order to
reduce costs and/or improve product performance. There can be no assurance
that the Company will be able to improve its process technologies and develop
new process technologies in a timely manner or that such improvements or
developments will result in products that achieve market acceptance. A failure
by the Company to improve its existing process technologies or processes or
develop new process technologies in a timely manner could adversely affect the
Company's business, financial condition and operating results. See " -- Rapid
Technological Change; Necessity to Develop and Introduce New Products," " --
Manufacturing Capacity Limitations; New Production Facility" and "Business --
Research and Development."
DEPENDENCE ON THIRD-PARTY MANUFACTURING AND SUPPLY RELATIONSHIPS
The Company relies on outside foundries for the manufacture of certain of
its products. The Company generally does not have long-term wafer supply
agreements with its outside foundries that guarantee wafer or product
quantities, prices or delivery lead times. Instead, the Company's products
that are manufactured by outside foundries are manufacturered on a purchase
order basis. The Company expects that, for the foreseeable future, certain of
its products will be manufactured by a single outside foundry. Because
establishing relationships with new outside foundries takes several months,
there is no readily available alternative source of supply for these products.
A manufacturing disruption experienced by one or more of the Company's outside
foundries would impact the production of the Company's products for a
substantial
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period of time, which could have a material adverse effect on the Company's
business, financial condition and operating results. Furthermore, in the event
that the transition to the next generation of manufacturing technologies at
one or more of the Company's outside foundries is unsuccessful or delayed, the
Company's business, financial condition and operating results could be
materially and adversely affected.
There are additional risks associated with the Company's dependence upon
third party manufacturers for certain of its products, including, but not
limited to, reduced control over delivery schedules, quality assurance,
manufacturing yields and costs, the potential lack of adequate capacity during
periods of excess demand, limited warranties on wafers or products supplied to
the Company, increases in prices and potential misappropriation of the
Company's intellectual property. With respect to certain of its products, the
Company depends upon external foundries to produce wafers and, in some cases,
finished products of acceptable quality, to deliver those wafers and products
to the Company on a timely basis and to allocate to the Company a portion of
their manufacturing capacity sufficient to meet the Company's needs. On
occasion, the Company has experienced difficulties in causing these events to
occur satisfactorily. The Company's wafer and product requirements typically
represent a very small portion of the total production of these external
foundries. The Company is subject to the risk that a producer will cease
production on an older or lower-volume process that is used to produce the
Company's parts. Additionally, there can be no assurance that such external
foundries will continue to devote resources to the production of the Company's
products or continue to advance the process design technologies on which the
manufacturing of the Company's products are based. Any such difficulties could
have a material adverse effect on the Company's business, financial condition
and operating results. See "-- Manufacturing Yields."
Certain of the Company's products are assembled and packaged by third-party
subcontractors. The Company does not have long-term agreements with any of
these subcontractors. Such assembly and packaging is conducted on a purchase
order basis. As a result of its reliance on third-party subcontractors to
assemble and package its products, the Company cannot directly control product
delivery schedules, which could lead to product shortages or quality assurance
problems that could increase the costs of manufacturing, assembly or packaging
of the Company's products. In addition, the Company may, from time to time, be
required to accept price increases for such assembly or packaging services
that could have a material adverse effect on the Company's business, financial
condition and operating results. Due to the amount of time normally required
to qualify assembly and packaging subcontractors, product shipments could be
delayed significantly if the Company is required to find alternative
subcontractors. In the future, the Company may contract with third parties for
the testing of its products. Any problems associated with the delivery,
quality or cost of the assembly, testing or packaging of the Company's
products could have a material adverse effect on the Company's business,
financial condition and operating results.
Due to an industry transition to six-inch wafer fabrication facilities,
there is a limited number of suppliers of the four-inch wafers used by the
Company to build products in its existing manufacturing facility. Although the
Company believes that it will have sufficient access to four-inch wafers to
support production in its existing fabrication facility for the foreseeable
future, there can be no assurance that the Company's current suppliers will
continue to supply the Company with four-inch wafers on a long-term basis.
Additionally, the availability of manufacturing equipment needed for a four-
inch process is limited and certain new equipment required for more advanced
processes may not be available for a four-inch process. If the Company is not
able to obtain a sufficient supply of four-inch wafers or to obtain the
requisite equipment for a four-inch process, the Company's business, financial
condition and operating results would be materially adversely affected.
CUSTOMER CONCENTRATION
Historically, a relatively small number of customers has accounted for a
significant portion of the Company's revenues in any particular period. The
Company has no long-term volume purchase commitments from any of its major
customers. In fiscal 1996 and 1997 and for the first six months of fiscal
1998, the Company's five largest customers accounted for approximately 44%,
44% and 41% of the Company's revenues, respectively. The Company anticipates
that sales of its products to relatively few customers will
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continue to account for a significant portion of its revenues. In the event of
a reduction, delay or cancellation of orders from one or more significant
customers or if one or more of its significant customers select products
manufactured by one of the Company's competitors for inclusion in future
product generations, the Company's business, financial condition and operating
results could be materially and adversely affected. There can be no assurance
that the Company's current customers will continue to place orders with the
Company, that orders by existing customers will continue at current or
historical levels or that the Company will be able to obtain orders from new
customers. The loss of one or more of the Company's current significant
customers could materially and adversely affect the Company's business,
financial condition and operating results. See "-- Intense Competition" and
"Business -- Products and Customers."
MANAGEMENT OF GROWTH
The Company has experienced, and may continue to experience, periods of rapid
growth and expansion, which have placed, and could continue to place, a
significant strain on the Company's limited personnel and other resources. To
manage these expanded operations effectively, the Company will be required to
continue to improve its operational, financial and management systems and to
successfully hire, train, motivate and manage its employees. In particular,
certain of the Company's senior management personnel recently joined the
Company and the Company is currently recruiting for the position of Vice
President, Operations. The Company's ability to manage growth successfully will
require such personnel to work together effectively. In addition, the expansion
of the Company's current wafer fabrication facility, the construction and
operation of the Company's planned wafer fabrication facility, the initial
integration of the proposed new wafer fabrication facility with the Company's
current facility and the subsequent potential transfer of the Company's
manufacturing operations to the proposed new wafer fabrication facility will
require significant management, technical and administrative resources. There
can be no assurance that the Company will be able to manage its growth or
effectively integrate its planned wafer fabrication facility into its current
operations, and a failure to do so could have a material adverse effect on the
Company's business, financial condition and operating results.
DEPENDENCE ON QUALIFIED PERSONNEL
The Company's future success depends in part on the continued service of its
key design engineering, sales, marketing and executive personnel and its
ability to identify, hire and retain additional personnel. There is intense
competition for qualified personnel in the semiconductor industry, in
particular design engineers, and there can be no assurance that the Company
will be able to continue to attract and train such engineers or other qualified
personnel necessary for the development of its business or to replace engineers
or other qualified personnel that may leave the Company's employ in the future.
The Company's anticipated growth is expected to place increased demands on the
Company's resources and will likely require the addition of new management
personnel and the development of additional expertise by existing management
personnel. Loss of the services of, or failure to recruit, key design engineers
or other technical and management personnel could be significantly detrimental
to the Company's product and process development programs or otherwise have a
material adverse effect on the Company's business, financial condition and
operating results.
NEED FOR ADDITIONAL CAPITAL
The Company requires substantial working capital to fund its business,
particularly to finance inventories and accounts receivable and for capital
expenditures. The Company believes that the net proceeds of this offering,
together with its available cash, cash equivalents and short-term investments
and cash generated from operations, will be sufficient to meet the Company's
capital requirements through the next twelve months, although the Company could
be required, or could elect, to seek to raise additional financing during such
period. The Company's future capital requirements will depend on many factors,
including the costs associated with the expansion of its manufacturing
operations, the rate of revenue growth, the timing and extent of spending to
support research and development programs and expansion of sales and marketing,
the timing of introductions of new products and enhancements to existing
products, and market acceptance of the Company's products. The Company expects
that it will need to raise additional debt or equity financing in
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the future, primarily for purposes of financing the acquisition of property
for its proposed new wafer fabrication facility, the construction of the
proposed new wafer fabrication facility and the purchase of equipment for the
proposed new wafer fabrication facility. There can be no assurance that such
additional debt or equity financing will be available on commercially
reasonable terms or at all. See "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
UNCERTAINTY REGARDING PATENTS AND PROTECTION OF PROPRIETARY RIGHTS
The Company relies in part on patents to protect its intellectual property.
In the United States, the Company has been issued 13 patents, which
principally cover certain aspects of the design and architecture of the
Company's IC products and have expiration dates ranging from 2004 to 2009. In
addition, the Company has three patent applications pending in the United
States Patent and Trademark Office (the "PTO"). There can be no assurance that
the Company's pending patent applications or any future applications will be
approved, or that any issued patents will provide the Company with competitive
advantages or will not be challenged by third parties, or that the patents of
others will not have an adverse effect on the Company's ability to do
business. Furthermore, there can be no assurance that others will not
independently develop similar products or processes, duplicate the Company's
products or processes or design around any patents that may be issued to the
Company.
The Company also relies on a combination of mask work protection,
trademarks, copyrights, trade secret laws, employee and third-party
nondisclosure agreements and licensing arrangements to protect its
intellectual property. Despite these efforts, there can be no assurance that
others will not independently develop substantially equivalent intellectual
property or otherwise gain access to the Company's trade secrets or
intellectual property, or disclose such intellectual property or trade
secrets, or that the Company can meaningfully protect its intellectual
property. A failure by the Company to meaningfully protect its intellectual
property could have a material adverse effect on the Company's business,
financial condition and operating results.
As a general matter, the semiconductor industry is characterized by
substantial litigation regarding patent and other intellectual property
rights. The Company in the past has been and in the future may be notified
that it may be infringing the intellectual property rights of third parties.
The Company has certain indemnification obligations to customers with respect
to the infringement of third-party intellectual property rights by its
products. There can be no assurance that infringement claims by third parties
or claims for indemnification by customers or end users of the Company's
products resulting from infringement claims will not be asserted in the future
or that such assertions, if proven to be true, will not materially adversely
affect the Company's business, financial condition or operating results. In
March 1997, the Company received a written notice from legal counsel for Dr.
Chou Li asserting that the Company manufactures certain of its products in
ways that appear to such counsel to infringe a United States patent held by
Dr. Li (the "Li Patent"). After a review of its technology in light of such
assertion, the Company believes that the Company's processes do not infringe
any of the claims of this patent. However, there can be no assurance that Dr.
Li will not file a lawsuit against the Company or that the Company would
prevail in any such litigation. Any litigation relating to the intellectual
property rights of third parties, including, but not limited to the Li Patent,
whether or not determined in the Company's favor or settled by the Company,
would at a minimum be costly and could divert the efforts and attention of the
Company's management and technical personnel, which could have a material
adverse effect on the Company's business, financial condition or operating
results. In the event of any adverse ruling in any such matter, the Company
could be required to pay substantial damages, which could include treble
damages, cease the manufacturing, use and sale of infringing products,
discontinue the use of certain processes or obtain a license under the
intellectual property rights of the third party claiming infringement. There
can be no assurance, however, that a license would be available on reasonable
terms or at all. Any limitations on the Company's ability to market its
products, any delays and costs associated with redesigning its products or
payments of license fees to third parties or any failure by the Company to
develop or license a substitute technology on commercially reasonable terms
could have a material adverse effect on the Company's business, financial
condition and operating results.
15
<PAGE>
INTERNATIONAL SALES
International sales (including sales to Canada) accounted for 44%, 40% and
41% of revenues in fiscal 1996, fiscal 1997 and the first six months of fiscal
1998, respectively. The Company anticipates that international sales may
increase in future periods and may account for an increasing portion of the
Company's revenues. As a result, an increasing portion of the Company's
revenues may be subject to certain risks, including changes in regulatory
requirements, tariffs and other barriers, timing and availability of export
licenses, political and economic instability, difficulties in accounts
receivable collections, natural disasters, difficulties in staffing and
managing foreign subsidiary and branch operations, difficulties in managing
distributors, difficulties in obtaining governmental approvals for
telecommunications and other products, foreign currency exchange fluctuations,
the burden of complying with a wide variety of complex foreign laws and
treaties and potentially adverse tax consequences. The Company is also subject
to the risks associated with the imposition of legislation and regulations
relating to the import or export of high technology products. The Company
cannot predict whether quotas, duties, taxes or other charges or restrictions
upon the importation or exportation of the Company's products will be
implemented by the United States or other countries. Because sales of the
Company's products have been denominated to date primarily in United States
dollars, increases in the value of the United States dollar could increase the
price of the Company's products so that they become relatively more expensive
to customers in the local currency of a particular country, leading to a
reduction in sales and profitability in that country. Future international
activity may result in increased foreign currency denominated sales. Gains and
losses on the conversion to United States dollars of accounts receivable,
accounts payable and other monetary assets and liabilities arising from
international operations may contribute to fluctuations in the Company's
results of operations. Some of the Company's customer purchase orders and
agreements are governed by foreign laws, which may differ significantly from
United States laws. Therefore, the Company may be limited in its ability to
enforce its rights under such agreements and to collect damages, if awarded.
Any of the foregoing factors could have a material adverse effect on the
Company's business, financial condition and operating results.
ENVIRONMENTAL REGULATIONS
The Company is subject to a variety of federal, state and local governmental
regulations related to the use, storage, discharge and disposal of toxic,
volatile or otherwise hazardous chemicals used in its manufacturing process.
Any failure to comply with present or future regulations could result in the
imposition of fines on the Company, the suspension of production or a cessation
of operations. In addition, such regulations could restrict the Company's
ability to expand its facilities at its present location or construct or
operate its planned wafer fabrication facility or could require the Company to
acquire costly equipment or incur other significant expenses to comply with
environmental regulations or clean up prior discharges. In this regard, since
1993 the Company has been named as a potentially responsible party ("PRP")
along with a large number of other companies that used Omega Chemical
Corporation ("Omega") in Whittier, California to handle and dispose of certain
hazardous waste material. The Company is a member of a large group of PRPs that
has agreed to fund certain remediation efforts at the Omega site, which efforts
are ongoing. To date, the Company's payment obligations with respect to such
funding efforts have not been material and the Company believes that its future
obligations to fund such efforts will not have a material adverse effect on its
business, financial condition or operating results.
The Company uses significant amounts of water throughout its manufacturing
process. Previous droughts in California have resulted in restrictions being
placed on water use by manufacturers and residents in California. In the event
of future drought, reductions in water use may be mandated generally, and it is
unclear how such reductions will be allocated among California's different
users. There can be no assurance that near term reductions in water allocations
to manufacturers will not occur, which could have a material adverse affect on
the Company's business, financial condition or operating results.
ABSENCE OF PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common Stock
and there can be no assurance that an active trading market will develop or be
sustained. The initial offering price for Common
16
<PAGE>
Stock to be sold by the Company was determined by negotiations among the
Company and the Underwriters and may bear no relationship to the price at
which the Common Stock will trade after completion of this offering. See
"Underwriting" for factors considered in determining such offering price. The
market price of the Common Stock could be subject to significant fluctuations
in response to quarter-to-quarter variations in the Company's anticipated or
actual operating results; announcements or introductions of new products;
technological innovations or setbacks by the Company or its competitors,
conditions in the semiconductor, telecommunications, data communications, ATE,
high-speed computing or military markets; the commencement of litigation,
changes in estimates of the Company's performance by securities analysts, and
other events or factors. In addition, the stock market in recent years has
experienced extreme price and volume fluctuations that have affected the
market prices of many high technology companies, particularly semiconductor
companies, and that have often been unrelated or disproportionate to the
operating performance of companies. These fluctuations, as well as general
economic and market conditions, may affect adversely the market price of the
Common Stock. Furthermore, the shares of the Company's Common Stock that were
outstanding immediately prior to this offering are held by a large number of
individual stockholders. Upon the expiration of lock-up agreements between the
Underwriters and certain of these stockholders, which lock-up agreements
expire upon the later of (i) 180 days after the effectiveness of this offering
or (ii) three days after the public release of the Company's earnings for the
fiscal period ending on or immediately prior to the completion of such 180-day
period (as applicable, the "Lock-Up Period"), substantially all of the
Company's outstanding Common Stock held by stockholders immediately prior to
this offering will be eligible for sale in the public market, subject in some
cases to the volume and other restrictions of Rule 144 and Rule 701 under the
Securities Act of 1933 (the "Securities Act"). There can be no assurance that
sales of Common Stock by such stockholders upon expiration of the Lock-Up
Period will not adversely affect the market price of the Common Stock. See "--
Shares Eligible for Future Sale" and "Shares Eligible for Future Sale."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock (including shares
issued upon the exercise of outstanding options and warrants) in the public
market following this offering could adversely affect the market price for the
Common Stock. Such sales could also make it more difficult for the Company to
sell its equity or equity-related securities in the future at a time and price
that the Company deems appropriate. Upon completion of this offering, the
Company will have 19,801,750 shares of Common Stock outstanding. The 5,450,000
shares offered hereby will be immediately tradable without restriction. The
14,351,750 remaining shares of Common Stock outstanding upon completion of
this offering will be "restricted securities" as that term is defined in Rule
144 under the Securities Act ("Restricted Shares"). Of the Restricted Shares,
approximately 665,000 will be eligible for immediate sale in the public market
upon completion of this offering without restriction under Rule 144(k) under
the Securities Act, and approximately 571,500 will be eligible for sale 90
days after the effective date of the registration statement filed pursuant to
this offering (the "Effective Date") under Rule 144 under the Securities Act,
subject in some cases to volume and other restrictions. As a result of lock-up
agreements between certain stockholders and the Company or the Representatives
of the Underwriters, the remaining approximately 13,115,250 Restricted Shares
will not be available for immediate sale in the public market until the
expiration of the 180 day period following the Effective Date, subject in some
cases to the volume and other restrictions of Rule 144 and Rule 701 under the
Securities Act. However, BancAmerica Robertson Stephens may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to lock-up agreements. Shares eligible to be sold by
affiliates pursuant to Rule 144 are subject to volume and other restrictions.
The Company intends to register the Common Stock to be issued pursuant to the
Company's 1997 Employee Stock Purchase Plan on the Effective Date, and intends
to register all of the shares of Common Stock to be issued pursuant to the
Company's other employee benefit plans approximately 90 days after the
Effective Date.
EFFECT OF ANTI-TAKEOVER PROVISIONS
Immediately after the closing of this offering, the Company's Board of
Directors will have the authority to issue up to 2,000,000 shares of Preferred
Stock and to determine the price, rights, preferences and
17
<PAGE>
privileges and restrictions, including voting rights, of those shares without
any further vote or action by the Company's stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any shares of Preferred Stock that may be issued
in the future. The issuance of Preferred Stock may delay, defer or prevent a
change in control of the Company as the terms of the Preferred Stock that might
be issued could potentially prohibit the Company's consummation of any merger,
reorganization, sale of substantially all of its assets, liquidation or other
extraordinary corporate transaction without the approval of the holders of the
outstanding shares of Preferred Stock. In addition, the issuance of Preferred
Stock could have a dilutive effect on stockholders of the Company. Section 203
of the Delaware General Corporation Law, to which the Company is subject,
restricts certain business combinations with any "interested stockholder" as
defined by such statute. The statute may delay, defer or prevent a change of
control of the Company.
DILUTION
Purchasers of the Common Stock in this offering will suffer immediate and
substantial dilution of $8.12 per share in the net tangible book value of the
Common Stock from the initial public offering price. To the extent that
outstanding options and warrants to purchase the Common Stock are exercised,
there will be further dilution.
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,700,000 shares of Common
Stock offered hereby, at an estimated offering price of $11.00 per share, are
estimated to be $26,921,000 ($35,284,025 assuming the Underwriters' over-
allotment option is exercised in full), after deducting the Underwriting
discounts and commissions and estimated offering expenses payable by the
Company. The Company currently expects that approximately $5.0 million of the
net proceeds will be used to fund the expansion of the manufacturing capacity
of the Company's existing manufacturing facility, that approximately $20.0
million will be used for the construction of and the purchase of equipment for
a proposed new wafer fabrication facility and that the balance of the net
proceeds will be used for working capital and other general corporate
purposes. The amounts actually expended for each purpose and the timing of
such expenditures may vary significantly depending on numerous factors
including the amount of costs associated with the expansion of the Company's
manufacturing operations, the rate of revenue growth, the timing and extent of
spending to support research and development programs and expansion of sales
and marketing, the timing of introduction of new products and product
enhancements and market acceptance of the Company's products. The Company
believes that its available cash and cash equivalents and cash generated from
operations, together with the net proceeds of this offering, will be
sufficient to meet its capital requirements through the next 12 months.
However, there can be no assurance that the Company will not require
additional debt or equity financing prior to such time or that such additional
debt or equity financing, if required, will be available upon terms acceptable
to the Company, or at all. The Company may also use a portion of the proceeds
for the acquisition of or investment in complementary businesses, products or
technologies, although no acquisitions are currently being planned or
negotiated as of the date of this Prospectus and no portion of the net
proceeds has been allocated for any specific acquisition. Pending such uses,
the Company intends to invest the net proceeds from this offering in short-
term, interest-bearing, investment-grade securities. The Company will not
receive any proceeds from the sale of the shares being offered by the Selling
Stockholders. See "Risks Factors--Need For Additional Capital."
DIVIDEND POLICY
The Company has never declared or paid dividends on its capital stock. The
Company currently anticipates that it will retain all available funds for use
in its business, and does not anticipate paying any cash dividends in the
foreseeable future.
19
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) actual
as of September 30, 1997, (ii) pro forma to reflect the automatic conversion
of all outstanding shares of the Company's Preferred Stock into Common Stock
upon the closing of this offering and (iii) as adjusted to give effect to the
receipt of the estimated net proceeds from the sale by the Company of
2,700,000 shares of Common Stock offered hereby, at an assumed initial public
offering price of $11.00 per share, after deducting the underwriting discounts
and commissions and estimated offering expenses payable by the Company. This
table should be read in conjunction with Management's Discussion and Analysis
of Financial Condition and Results of Operations and the Consolidated
Financial Statements of the Company and the Notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of capital lease obligations(1). $ 2,641 $ 2,641 $ 2,641
======= ======= =======
Long-term capital lease obligations, less cur-
rent portion................................... 2,096 2,096 2,096
Stockholders' equity:
Preferred Stock, $.01 par value, 1,350,000
shares authorized; 1,051,294 shares issued
and outstanding, actual; 2,000,000 shares au-
thorized, none issued and outstanding, pro
forma and as adjusted........................ 11 -- --
Common Stock, $.01 par value, 34,500,000
shares authorized; 6,392,660 shares issued
and outstanding, actual; 17,101,750 shares
issued and outstanding, pro forma; 60,000,000
shares authorized, 19,801,750 shares issued
and outstanding, as adjusted(2).............. 64 171 198
Additional paid-in capital.................... 34,655 34,559 61,453
Deferred compensation......................... (552) (552) (552)
Accumulated deficit........................... (3,559) (3,559) (3,559)
Notes receivable from stockholders............ (501) (501) (501)
------- ------- -------
Total stockholders' equity................... 30,118 30,118 57,039
------- ------- -------
Total capitalization........................ $32,214 $32,214 $59,135
======= ======= =======
</TABLE>
- --------
(1) See Note 6 of Notes to Consolidated Financial Statements for a description
of the Company's obligations under capital leases.
(2) Excludes, as of September 30, 1997: (i) 157,968 shares of Common Stock
issuable upon exercise of options outstanding under the 1982 Plan at a
weighted average exercise price of $0.46 per share; (ii) 2,049,309 shares
of Common Stock issuable upon exercise of options outstanding under the
1992 Plan at a weighted average exercise price of $1.06 per share;
(iii) 2,553,380 shares of Common Stock reserved for future issuance under
the 1992 Plan; (iv) 200,000 shares of Common Stock reserved for future
issuance under the Directors' Plan; (v) 400,000 shares of Common Stock
reserved for issuance under the Purchase Plan; (vi) 83,807 shares issuable
upon exercise of certain warrants at a weighted average exercise price of
$2.91 per share; and (vii) 24,755 shares of Common Stock issuable upon the
exercise of certain other outstanding options at a weighted average
exercise price of $0.48 per share. See "Management --1982 Employee
Incentive Stock Option Plan" and "-- 1992 Stock Option Plan" and Note 4 of
Notes to Consolidated Financial Statements.
20
<PAGE>
DILUTION
The pro forma net tangible book value of the Company's Common Stock as of
September 30, 1997 was approximately $30.1 million, or $1.76 per share. Pro
forma net tangible book value per share represents the amount of the Company's
total tangible assets less total liabilities, divided by the pro forma number
of shares of Common Stock outstanding at September 30, 1997. Pro forma net
tangible book value dilution per share represents the difference between the
amount per share paid by purchasers of shares of Common Stock in the offering
made hereby and the pro forma net tangible book value per share immediately
after completion of this offering. After giving effect to the estimated net
proceeds from the sale by the Company of 2,700,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $11.00 per share
and after deducting the underwriting discounts and commissions and estimated
offering expenses payable by the Company, the Company's pro forma net tangible
book value at September 30, 1997 would have been $57.0 million, or $2.88 per
share of Common Stock. This represents an immediate increase in net tangible
book value of $1.12 per share to existing stockholders and an immediate
dilution in net tangible book value of $8.12 per share to new investors
purchasing shares in this offering at the assumed initial public offering
price. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price........................... $11.00
Pro forma net tangible book value at September 30, 1997....... $1.76
Increase attributable to new investors........................ 1.12
-----
Pro forma net tangible book value after offering................ 2.88
------
Dilution to new investors....................................... $ 8.12
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1997, the number of shares of Common Stock purchased from the Company, the
total consideration paid and the average price per share paid by the existing
stockholders and by new investors purchasing shares in this offering at an
assumed public offering price of $11.00 per share (before deducting
underwriting discounts and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
------------------ ------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 17,101,750 86.4% $34,957,000 54.1% $ 2.04
New investors................. 2,700,000 13.6 29,700,000 45.9 11.00
---------- ----- ----------- -----
Total....................... 19,801,750 100.0% $64,657,000 100.0%
========== ===== =========== =====
</TABLE>
The foregoing table excludes, as of September 30, 1997: (i) 157,968 shares
of Common Stock issuable upon exercise of options outstanding under the 1982
Plan at a weighted average exercise of $0.46 per share; (ii) 2,049,309 shares
of Common Stock issuable upon exercise of options outstanding under the 1992
Plan at a weighted average exercise price of $1.06 per share; (iii) 2,553,380
shares of Common Stock reserved for future issuance under the 1992 Plan; (iv)
200,000 shares of Common Stock reserved for future issuance under the
Directors' Plan; (v) 400,000 shares of Common Stock reserved for issuance
under the Purchase Plan; (vi) 83,807 shares of Common Stock issuable upon the
exercise of certain warrants at a weighted average exercise price of $2.91 per
share; and (vii) 24,755 shares issuable upon exercise of certain other
outstanding options at a weighted average exercise price of $0.48 per share.
See "Management -- 1982 Employee Incentive Stock Option Plan" and "-- 1992
Stock Option Plan" and Note 4 of Notes to Consolidated Financial Statements.
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statements of operations data set forth below for
the fiscal years ended March 31, 1995, 1996 and 1997 and the consolidated
balance sheet data at March 31, 1996 and 1997 are derived from the
consolidated financial statements of the Company audited by Ernst & Young LLP,
independent auditors, that are included elsewhere in this Prospectus. The
consolidated statements of operations data for the fiscal years ended
March 31, 1993 and 1994 and the consolidated balance sheet data as of March
31, 1993, 1994 and 1995 are derived from consolidated financial statements
audited by Ernst & Young LLP, which are not included in this Prospectus. The
consolidated balance sheet data at September 30, 1997 and the consolidated
statements of operations data for the six months ended September 30, 1996 and
1997 are derived from unaudited consolidated financial statements included
elsewhere in this Prospectus. The unaudited consolidated financial statements
include all adjustments, consisting only of normal recurring adjustments, that
the Company considers necessary for a fair presentation of the Company's
consolidated financial position and consolidated results of operations for
these periods. Operating results for the six months ended September 30, 1997
are not necessarily indicative of the results that may be expected for the
entire fiscal year ending March 31, 1998. The following selected consolidated
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and related Notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED SEPTEMBER
FISCAL YEAR ENDED MARCH 31, 30,
------------------------------------------- ---------------
1993 1994 1995 1996 1997 1996 1997
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $38,296 $49,686 $46,950 $50,264 $57,468 $27,955 $35,208
Cost of revenues........ 20,561 29,187 27,513 34,169 30,057 15,754 16,534
------- ------- ------- ------- ------- ------- -------
Gross profit............ 17,735 20,499 19,437 16,095 27,411 12,201 18,674
Operating expenses:
Research and develop-
ment.................. 8,617 9,273 10,108 8,283 7,870 3,412 6,002
Selling, general and
administrative........ 7,799 9,513 10,112 11,232 12,537 5,894 6,730
------- ------- ------- ------- ------- ------- -------
Total operating ex-
penses................ 16,416 18,786 20,220 19,515 20,407 9,306 12,732
------- ------- ------- ------- ------- ------- -------
Operating income (loss). 1,319 1,713 (783) (3,420) 7,004 2,895 5,942
Gain on contract settle-
ment................... -- 9,530 -- -- -- -- --
Net interest income (ex-
pense)................. (308) (464) (358) (242) (29) 24 151
------- ------- ------- ------- ------- ------- -------
Income (loss) before
provision for income
taxes.................. 1,011 10,779 (1,141) (3,662) 6,975 2,919 6,093
Provision (benefit) for
income taxes........... 18 575 (70) 32 659 276 159
------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $ 993 $10,204 $(1,071) $(3,694) $ 6,316 $ 2,643 $ 5,934
======= ======= ======= ======= ======= ======= =======
Pro forma net income per
share(1)............... $ 0.33 $ 0.30
======= =======
Shares used in pro forma
net income per share
calculation(1) ........ 19,020 19,623
======= =======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------------- SEPTEMBER 30,
1993 1994 1995 1996 1997 1997
------- ------- ------- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Working capital.......... $11,338 $19,867 $16,753 $14,030 $19,364 $18,953
Total assets............. 26,585 45,124 40,180 37,836 41,814 44,382
Long-term obligations,
less current portion.... 3,632 7,493 6,516 4,447 3,192 2,096
Total stockholders' equi-
ty...................... 15,523 25,829 24,805 21,512 27,743 30,118
</TABLE>
- -------
(1) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the method used to determine the number of shares used to
compute the pro forma net income per share amounts.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
AMCC designs, develops, manufactures and markets high-performance, high-
bandwidth silicon solutions for the world's communications infrastructure. The
Company tailors solutions to customer and market requirements by using a
combination of high-frequency, mixed-signal design expertise, system-level
knowledge and multiple silicon process technologies. AMCC believes that its
internal bipolar and BiCMOS processes, complemented by advanced CMOS processes
from external foundries, enable the Company to offer high-performance, high-
speed solutions optimized for specific applications and customer requirements.
The Company further believes that its products provide significant cost,
power, performance and reliability advantages for systems OEMs in addition to
accelerating time-to-market. The Company also leverages its technology to
provide products for the automated test equipment ("ATE"), high-speed
computing and military markets.
Since inception, the Company has focused primarily on the design,
manufacture and sale of high-performance silicon integrated circuits ("ICs").
The Company's first significant revenues were derived from sales of high-speed
application-specific integrated circuits ("ASICs") to military and ATE
customers. The Company subsequently utilized its high-performance mixed-signal
design and process technologies to diversify into the telecommunications and
high-speed computing markets and, more recently, the data communications
market. Commencing in fiscal 1992, the Company adopted a strategy in which
much of its next-generation technology and products were based on a process
under development with a strategic foundry partner. In fiscal 1994, the
strategic partner elected to end this relationship and paid the Company $10.0
million in connection with termination of the proposed foundry relationship.
In fiscal 1995, the Company redirected its strategy to concentrate on the
development of application-specific standard products ("ASSPs") for the high-
performance telecommunications and high-speed computing markets. As a result
of the termination of the relationship with the strategic partner, decreased
orders from two major customers, charges associated with reductions in the
Company's work force and charges taken for excess inventories, the Company had
fluctuating revenues and incurred net losses in fiscal 1995 and 1996.
In fiscal 1997, the Company substantially reorganized its management team
and increased its focus on becoming the leading supplier of high-performance,
high-bandwidth connectivity ICs for the world's communications infrastructure.
Accordingly, the Company accelerated the pace of development of new products
for high-performance telecommunications and data communications markets.
Following the reorganization of the Company's management team in fiscal 1997
and its renewed focus on ASSPs for the telecommunications and data
communications markets, the Company returned to profitability and its revenues
have increased in each of the last six fiscal quarters.
The Company derives its revenues principally through product sales, which
are recognized upon shipment to customers. Revenues from sales to distributors
that are made under agreements allowing for price protection and right of
return on products unsold by the distributor are not recognized until the
distributor ships the product to its customer. The Company also derives a
small portion of its revenues from non-recurring engineering contracts, which
revenues are recognized using the percentage-of-completion method. All
international sales are denominated in United States dollars.
23
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain selected consolidated statements of
operations data as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FISCAL YEAR SEPTEMBER
ENDED MARCH 31, 30,
--------------------- ------------
<S> <C> <C> <C> <C> <C>
<CAPTION>
1995 1996 1997 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues.............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.......................... 58.6 68.0 52.3 56.4 47.0
----- ----- ----- ----- -----
Gross profit.............................. 41.4 32.0 47.7 43.6 53.0
Operating expenses:
Research and development................ 21.5 16.5 13.7 12.2 17.0
Selling, general and administrative..... 21.6 22.3 21.8 21.1 19.1
----- ----- ----- ----- -----
Total operating expenses.............. 43.1 38.8 35.5 33.3 36.1
----- ----- ----- ----- -----
Operating income (loss)................... (1.7) (6.8) 12.2 10.3 16.9
Net interest income (expense)............. (0.7) (0.5) (0.1) 0.1 0.4
----- ----- ----- ----- -----
Income (loss) before provision for income
taxes.................................... (2.4) (7.3) 12.1 10.4 17.3
Provision (benefit) for income taxes...... (0.1) 0.0 1.1 0.9 0.4
----- ----- ----- ----- -----
Net income (loss)......................... (2.3)% (7.3)% 11.0% 9.5% 16.9%
===== ===== ===== ===== =====
</TABLE>
COMPARISON OF THE SIX MONTHS ENDED SEPTEMBER 30, 1997 TO THE SIX MONTHS ENDED
SEPTEMBER 30, 1996
Net Revenues. Net revenues for the six months ended September 30, 1997 were
approximately $35.2 million, representing an increase of 26% over net revenues
of approximately $28.0 million for the six months ended September 30, 1996.
The increase in net revenues was due primarily to an increase in revenues from
communications products, reflecting unit growth in shipments of existing
products, as well as the introduction of new products for these markets.
Increased shipments of PCI bus products also contributed to the net revenue
growth. Sales to Nortel accounted for 19% and 20% of net revenues for the six
months ended September 30, 1997 and 1996, respectively. Sales outside of North
America accounted for 24% and 23% of net revenues for the six months ended
September 30, 1997 and 1996, respectively.
Gross Margin. In addition to the costs of internal wafer fabrication and the
costs of procuring wafers and finished goods from external foundries, the
Company's cost of revenues includes costs associated with packaging, assembly,
testing, procurement and quality assurance functions, some of which are
performed by third-party vendors. Gross margin (gross profit as a percentage
of revenues) was 53.0% for the six months ended September 30, 1997, as
compared to 43.6% for the six months ended September 30, 1996. The increase in
gross margin resulted from increased utilization of the Company's wafer
fabrication facility, as well as improved manufacturing yields. The Company's
gross margin is primarily impacted by factory utilization, wafer yields and
product mix. Although AMCC does not expect its gross margin to continue to
increase at the rate reflected above, its strategy is to maximize factory
utilization whenever possible, maintain or improve its manufacturing yields,
and focus on the development and sales of high-performance products that can
have higher gross margins. There can be no assurance, however, that the
Company will be successful in achieving these objectives. In addition, these
factors can vary significantly from quarter to quarter, which would likely
result in fluctuations in quarterly gross margin and net income. See "Risk
Factors -- Fluctuations in Operating Results."
Research and Development. Research and development ("R&D") expenses consist
primarily of compensation and associated costs relating to new product
development and new process development. These costs include design and
process engineering costs, design tools and prototyping costs (including non-
recurring
24
<PAGE>
engineering charges from foundries) and photomask and pre-production wafer
costs. R&D expenditures are expensed as incurred. R&D expenses increased to
approximately $6.0 million, or 17.0% of revenues, for the six months ended
September 30, 1997, from approximately $3.4 million, or 12.2% of net revenues,
for the six months ended September 30, 1996. The increase in R&D expenses was
due to accelerated new product and process development efforts, including
additions to the Company's engineering staff and related expenses as well as
increased prototyping costs. The Company expects R&D expenses in absolute
dollars to increase significantly in the future due to planned increases in
personnel, prototyping costs and depreciation resulting from increased capital
investment for process development and design tools. Currently, R&D expenses
are primarily focused on the development of products for the
telecommunications and data communications markets, and the Company expects to
continue this focus.
Selling, General and Administrative. Selling, general and administrative
("SG&A") expenses consist primarily of compensation for sales, marketing and
administrative personnel, commissions paid to third-party sales
representatives and expenses associated with product promotion. SG&A expenses
were approximately $6.7 million, or 19.1% of revenues, for the six months
ended September 30, 1997, as compared to approximately $5.9 million, or 21.1%
of net revenues, for the six months ended September 30, 1996. The increase in
SG&A expenses in the six months ended September 30, 1997 primarily reflected
increased commissions to third-party sales representatives and an increased
provision for doubtful accounts due to the Company's expanding customer base.
The decrease in SG&A expenses as a percentage of net revenues in the six
months ended September 30, 1997 was a result of net revenues increasing more
rapidly than SG&A expenses. The Company expects SG&A expenses to increase in
the future due to additional staffing in its sales and marketing departments
and additional expenses related to being a public company.
Net Interest Income. Net interest income consists of interest income
generated from the Company's cash, cash equivalents and short-term
investments, net of interest expense paid on the Company's debt and capital
lease obligations. Net interest income increased to $151,000 for the six
months ended September 30, 1997 from $24,000 for the six months ended
September 30, 1996, reflecting interest income from larger cash and short-term
investment balances during the six months ended September 30, 1997 and a
decrease in interest expense associated with outstanding capital lease and
debt obligations.
Income Taxes. The Company's estimated annual effective tax rate used for the
six months ended September 30, 1997 was 2.6% due to the reduction of a
valuation allowance recorded against deferred tax assets. This reduction
results from the projected level of income for fiscal 1998, which makes the
realization of these deferred tax assets more likely than not. The effective
tax rate of 9.5% for the six months ended September 30, 1996 was a result of
alternative minimum taxes ("AMT"). The Company expects its effective tax rate
to be closer to statutory rates in fiscal 1999.
Deferred Compensation. In connection with the grant of certain stock options
to employees during the six months ended September 30, 1997, the Company
recorded aggregate deferred compensation of $599,000, representing the
difference between the deemed fair value of the Common Stock at the date of
grant for accounting purposes and the option exercise price of such options.
Such amount is presented as a reduction of stockholders' equity and amortized
ratably over the vesting period of the applicable options. Amortization of
deferred compensation recorded for the six months ended September 30, 1997 was
$47,000. The Company currently expects to record amortization of deferred
compensation with respect to these option grants of approximately $127,000,
$159,000, $159,000, $129,000 and $25,000 during the fiscal years ended March
31, 1998 (including the amount set forth above for the six months ended
September 30, 1997), 1999, 2000, 2001 and 2002, respectively.
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
Net Revenues. Net revenues for fiscal 1997 increased to approximately $57.5
million from approximately $50.3 million in fiscal 1996 and $47.0 million in
fiscal 1995. The increase in net revenues was due primarily to increases in
fiscal 1997 and 1996 of revenues from sales of communications products and PCI
bus products, reflecting unit growth in shipments of existing products, as
well as the introduction of new products for
25
<PAGE>
the communications market. In fiscal 1997, 1996 and 1995, sales to Nortel
accounted for 20%, 20% and 17%, respectively, of net revenues. Sales to
customers outside of North America accounted for 21%, 24% and 14% of net
revenues in fiscal 1997, 1996 and 1995, respectively, reflecting an increase
in revenues from sales to such customers, but fluctuating percentages of net
revenues. The Company is focused on increasing the percentage of net revenues
derived from sales to customers outside of North America.
Gross Margin. Gross margin was 47.7%, 32.0% and 41.4% in fiscal 1997, 1996
and 1995, respectively. The decrease in gross margin in fiscal 1996 was
attributable primarily to a decrease in the utilization of the Company's wafer
fabrication facility, as well as an approximately $3.7 million charge taken
for excess inventory, primarily of clock products for the high-speed computing
market. In addition, decreases in average selling prices ("ASPs") for clock
products also contributed to the decrease in gross margin in fiscal 1996. The
increase in gross margin in fiscal 1997 resulted primarily from a significant
reduction in charges related to excess inventory, as well as from increased
utilization of the Company's wafer fabrication facility. See "Risk Factors --
Fluctuations in Operating Results."
Research and Development. R&D expenses were approximately $7.9 million, $8.3
million and $10.1 million in fiscal 1997, 1996 and 1995, respectively. R&D
expenses accounted for 13.7%, 16.5% and 21.5% of net revenues for fiscal 1997,
1996 and 1995, respectively. The decreases in R&D expenses were due to
reductions in the Company's research and development engineering staff and to
lower prototyping costs. During fiscal 1997, the Company began significant
efforts to increase the R&D staff and to accelerate new product development
efforts. These efforts resulted in higher R&D expenses during the six months
ended March 31, 1997 and September 30, 1997.
Selling, General and Administrative. SG&A expenses were approximately $12.5
million, $11.2 million and $10.1 million in fiscal 1997, 1996 and 1995,
respectively. SG&A expenses accounted for 21.8%, 22.3% and 21.6% of revenues
for fiscal 1997, 1996 and 1995, respectively. The increase in SG&A expenses in
fiscal 1996 was primarily due to charges related to the turnover of executive
personnel and the costs of implementing a comprehensive management information
system. SG&A expenses increased in fiscal 1997 primarily due to higher
compensation and product promotion expenses.
Net Interest Expense. Net interest expense was $29,000, $242,000 and
$358,000 in fiscal 1997, 1996 and 1995, respectively. The decreases in net
interest expense were attributable primarily to decreasing levels of capital
lease and debt obligations over the three-year period and to increases in
interest income as a result of increasing levels of cash, cash equivalents and
short-term investments.
Income Taxes. The Company's effective tax rate for fiscal 1997 was 9.5%,
which was comprised primarily of AMT reduced by net operating loss and
research and development tax credits. The tax provision (benefit) for fiscal
1996 and 1995 were not material due to losses incurred during those fiscal
years.
26
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly consolidated
financial information in dollars and as a percentage of revenues for the six
fiscal quarters ended September 30, 1997. The Company believes that all
necessary adjustments, consisting only of normal recurring adjustments, have
been included in the amounts stated below to state fairly the selected
quarterly information when read in conjunction with the Consolidated Financial
Statements and the Notes thereto included elsewhere herein. The operating
results for any quarter are not necessarily indicative of results for any
future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------
JUNE SEPT. DEC. JUNE SEPT.
30, 30, 31, MARCH 31, 30, 30,
1996 1996 1996 1997 1997 1997
------- ------- ------- --------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Net revenues............ $13,845 $14,110 $14,509 $15,004 $17,053 $18,155
Cost of revenues........ 7,682 8,072 7,046 7,257 8,156 8,378
------- ------- ------- ------- ------- -------
Gross profit............ 6,163 6,038 7,463 7,747 8,897 9,777
Operating expenses:
Research and develop-
ment................. 1,797 1,615 2,256 2,202 2,525 3,477
Selling, general and
administrative....... 2,917 2,977 3,092 3,551 3,339 3,391
------- ------- ------- ------- ------- -------
Total operating ex-
penses............. 4,714 4,592 5,348 5,753 5,864 6,868
------- ------- ------- ------- ------- -------
Operating income........ 1,449 1,446 2,115 1,994 3,033 2,909
Net interest income (ex-
pense)................. (17) 41 (19) (34) 66 85
------- ------- ------- ------- ------- -------
Income before provisions
for income taxes....... 1,432 1,487 2,096 1,960 3,099 2,994
Provision for income
taxes.................. 135 141 198 185 81 78
------- ------- ------- ------- ------- -------
Net income.............. $ 1,297 $ 1,346 $ 1,898 $ 1,775 $ 3,018 $ 2,916
======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF NET
REVENUES:
Net revenues............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........ 55.5 57.2 48.6 48.4 47.8 46.1
------- ------- ------- ------- ------- -------
Gross profit............ 44.5 42.8 51.4 51.6 52.2 53.9
Operating expenses:
Research and develop-
ment................. 13.0 11.4 15.5 14.7 14.8 19.2
Selling, general and
administrative....... 21.1 21.1 21.3 23.6 19.6 18.7
------- ------- ------- ------- ------- -------
Total operating ex-
penses............. 34.1 32.5 36.8 38.3 34.4 37.9
------- ------- ------- ------- ------- -------
Operating income........ 10.4 10.3 14.6 13.3 17.8 16.0
Net interest income (ex-
pense)................. (0.0) 0.2 (0.1) (0.2) 0.4 0.5
------- ------- ------- ------- ------- -------
Income before provisions
for income taxes....... 10.4 10.5 14.5 13.1 18.2 16.5
Provision for income
taxes.................. 1.0 1.0 1.4 1.3 0.5 0.4
------- ------- ------- ------- ------- -------
Net income.............. 9.4% 9.5% 13.1% 11.8% 17.7% 16.1%
======= ======= ======= ======= ======= =======
</TABLE>
The Company's net revenues have increased in each of the six quarters ended
September 30, 1997, primarily due to increased unit shipments of the Company's
products as well as the introduction of new products primarily for the
communications market. Although gross margin has fluctuated, it generally
increased over this period as increased utilization of the Company's wafer
fabrication facility resulted in decreased per unit costs. The decrease in
gross margin for the three months ended September 30, 1996 was principally due
to a decrease in manufacturing yields during that quarter. The increase in
gross margin for the three months ended December 31, 1996 and subsequent
quarters was primarily due to improved yields
27
<PAGE>
and increased utilization of the Company's wafer fabrication facility.
Although R&D expenses fluctuated both in actual amounts and as a percentage of
revenues, R&D expenses generally increased over this period as the Company
increased its engineering staff and accelerated new product development
efforts. In particular, the increase in R&D expenses for the three months
ended December 31, 1996 primarily reflected increased recruiting, relocation
and compensation expenses for development personnel, as well as prototyping
costs related to new product development. The level of R&D expenses increased
significantly again in the three months ended September 30, 1997 due to
expenses associated with increases in engineering staff and to increased
prototyping expenses. The Company believes R&D expenses in absolute dollars
will continue to increase significantly in the future. SG&A expenses remained
relatively stable over this period, except in the three months ended March 31,
1997. The increase in SG&A expenses in the three months ended March 31, 1997
reflected, in particular, expenditures for product promotion. In the three
months ended September 30, 1997, costs associated with moving the Company's
administration, engineering, test and assembly operations to a new facility
contributed to increases in cost of revenues, SG&A and R&D expenses.
The Company's quarterly results of operations have varied significantly in
the past and may continue to do so in the future. These variations have been,
and may in the future be, due to a number of factors, any of which could have
a material adverse effect on the Company's business, financial condition and
results of operations. These factors include, but are not limited to: the
rescheduling or cancellation of orders by customers; fluctuations in the
timing and amount of customer requests for product shipments; fluctuations in
manufacturing yields and inventory levels; changes in product mix; the
Company's ability to introduce new products and technologies on a timely
basis; the introduction of products and technologies by the Company's
competitors; the availability of external foundry capacity, purchased parts
and raw materials; competitive pressures on selling prices; the timing of
investments in research and development; market acceptance of the Company's
and its customers' products; the timing of depreciation and other expenses to
be incurred by the Company in connection with the expansion of its existing
manufacturing facility and in connection with its proposed new manufacturing
facility; the timing and amount of recruiting and relocation expenses,
prototyping costs and product promotional expenses; costs associated with
future litigation, if any, including without limitation, litigation relating
to the use or ownership of intellectual property; costs associated with
compliance with applicable environmental regulations; general semiconductor
industry conditions; and general economic conditions. Historically, average
selling prices in the semiconductor industry have decreased over the life of a
product, and as a result, the average selling prices of the Company's products
may be subject to significant pricing pressures in the future. Because the
Company is continuing to increase its operating expenses for personnel and new
product development, and because the Company is limited in its availability to
reduce expenses quickly in response to any revenue short falls, the Company's
business, financial condition and operating results would be adversely
affected if increased sales are not achieved. In addition, the Company's
operating results may be below the expectations of public market analysts or
investors, which could have a material adverse effect on the market price of
the Common Stock. See "Risk Factors -- Fluctuations in Operating Results," "--
Manufacturing Yields," "-- Risks Associated with Increasing Dependence on
Telecommunications and Data Communications Markets and Increasing Dependence
on Application-Specific Standard Products," "-- Risks Associated with
Dependence on High-Speed Computing Market," "-- Rapid Technological Change;
Necessity to Develop and Introduce New Products," "-- Manufacturing Capacity
Limitations; New Production Facility," "-- Transition to New Process
Technologies," "-- Customer Concentration," "-- Intense Competition," "--
Management of Growth" and "-- International Sales."
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity as of September 30, 1997
consisted of $11.4 million in cash, cash equivalents and short-term
investments and a $900,000 loan commitment to finance the purchase of
fabrication equipment currently expected to occur prior to the end of fiscal
1998. Working capital as of September 30, 1997 was $19.0 million compared to
$19.4 million as of March 31, 1997. This decrease in working capital was
primarily due to the repurchase of certain shares of the Company's Preferred
Stock, offset by cash provided by operations. During the fiscal years ended
March 31, 1997, 1996 and 1995 and the six months ended September 30, 1997, the
Company financed its operations primarily through cash provided by operations
and equipment lease financing.
28
<PAGE>
During the six months ended September 30, 1997, the Company generated $6.9
million of cash from operating activities, compared to $6.6 million in the six
months ended September 30, 1996. The increase in cash provided by operating
activities was primarily due to the increase in profitability. For the fiscal
years ended March 31, 1997, 1996 and 1995, net cash provided by operating
activities was $11.9 million, $6.5 million and $1.4 million, respectively. Net
cash provided by operating activities in fiscal 1997 primarily reflected net
income before depreciation and amortization expense. Net cash provided by
operating activities in fiscal 1996 differed from the net loss primarily due
to adjustments for depreciation and amortization expense, a reduction in
inventory levels and an increase in accounts payable and accrued liabilities.
Net cash provided by operating activities in fiscal 1995 differed from the net
loss primarily due to adjustments for depreciation and amortization expense
and reduction of accounts receivable, partially offset by funding of increased
levels of inventories and reduction of accounts payable and accrued
liabilities.
Capital expenditures totalled $4.1 million, $2.6 million and $6.2 million
for fiscal 1997, 1996 and 1995, respectively, of which $1.2 million, $1.2
million and $3.4 million for fiscal 1997, 1996 and 1995, respectively, were
financed using capital leases. During the six months ended September 30, 1997,
capital expenditures totalled $4.3 million, of which approximately $282,000
was financed by capital leases. The Company intends to increase its capital
expenditures for manufacturing equipment, test equipment and computer hardware
and software. The Company currently plans to expand the clean room in its
existing fabrication facility. The Company anticipates that the aggregate cost
of this expansion and the purchase of equipment and leasehold improvements
related thereto will be approximately $15.0 million, which the Company plans
to finance through a combination of cash from operations, debt and lease
financing and approximately $5.0 million of the net proceeds of this offering.
The Company currently expects to spend approximately $4.8 million on capital
expenditures in the second half of fiscal 1998, of which $2.1 million is
related to the expansion. The Company also plans to initiate construction of a
new six-inch wafer fabrication facility during 1999 and to complete the
physical plant during 2000. The Company believes the new facility will not
begin commercial production prior to late 2001. The Company estimates that the
cost of the new wafer fabrication facility will be at least $60.0 million, of
which approximately $25.0 million relates to the purchase of land and
construction of the facility and approximately $35.0 million relates to
capital equipment purchases. The Company plans to finance the new wafer
fabrication facility through a combination of cash from operations, debt and
lease financing and approximately $20.0 million of the net proceeds of this
offering. Although the Company believes that it will be able to obtain
financing for a significant portion of the planned capital expenditures at
competitive rates and terms from its existing and new financing sources, there
can be no assurance that the Company will be successful in these efforts. See
"Risk Factors -- Manufacturing Capacity Limitations; New Production Facility,"
"-- Dependence on Third-Party Manufacturing and Supply Relationships" and "--
Need For Additional Capital."
The Company has not raised financing from sales of equity (other than option
exercises under employee stock plans) since September 1987, and as a financing
strategy has used cash flow from operating activities and equipment debt and
lease financing. In June 1997, the Company repurchased 172,300 shares of
Preferred Stock (convertible into 2,119,435 shares of Common Stock) for
approximately $3.9 million.
The Company believes that the net proceeds of this offering, together with
its available cash, cash equivalents and short-term investments, and cash
generated from operations, will be sufficient to meet the Company's capital
requirements for the next 12 months, although the Company could be required,
or could elect, to seek to raise additional capital during such period. The
Company expects that it will need to raise additional debt or equity financing
in the future. There can be no assurance that such additional debt or equity
financing will be available on commercially reasonable terms or at all. See
"Risk Factors -- Need for Additional Capital" and "Use of Proceeds."
29
<PAGE>
BUSINESS
OVERVIEW
AMCC designs, develops, manufactures and markets high-performance, high-
bandwidth silicon solutions for the world's communications infrastructure. The
Company utilizes a combination of high-frequency mixed-signal design
expertise, system-level knowledge and multiple silicon process technologies to
offer IC products for the telecommunications markets that address the
SONET/SDH and ATM transmission standards and for the data communications
markets that address the Gigabit Ethernet, ATM and Fibre Channel transmission
standards. The Company also leverages its technology to provide solutions for
the ATE, high-speed computing and military markets. Customers of the Company
include 3Com, Alcatel, Cisco Systems, Compaq, Hughes Electronics, Nortel, Sun
Microsystems and Teradyne.
The Company has developed multiple generations of many of its products. In
the telecommunications market, the Company provides ATM and SONET/SDH physical
layer transceivers and Clock Recovery and Synthesis Units for the OC-3 and OC-
12 standards, and is currently developing an OC-48 chip set. In the data
communications market, the Company provides physical layer transceivers for
Gigabit Ethernet and Fibre Channel applications as well as crosspoint switches
for serial backplanes. In the high-speed computing market, the Company
provides PCI controllers and high-frequency clock drivers and clock
generators. In addition, the Company also provides high-performance, low-power
ASIC products for the ATE and military markets.
INDUSTRY BACKGROUND
The Communications Industry
Communications technology has evolved from simple analog voice signals
transmitted over networks of copper telephone lines to complex analog and
digital voice and data transmitted over hybrid networks of media such as
copper, coaxial and fiber optic cables. This evolution has been driven by
enormous increases in the number of users and the complexity of the data types
transmitted over networks. In addition, the substantial growth in the
Internet, the World Wide Web and cellular and facsimile communications; the
emergence of new applications such as video conferencing; and the increase in
demand for remote network access and higher speed, higher bandwidth
communication between local area networks and local and wide area networks
have increased network bandwidth requirements.This increase has made current
systems architectures inadequate.
In the telecommunications market, service providers and equipment suppliers
in particular have been impacted by the inadequacy of systems architectures
caused by the current public network infrastructure. This infrastructure was
designed to optimize voice communications and is not well suited for the high-
throughput requirements of data transmission that is transmitted in "bursts."
The volume and complexity of this data has led to the increasing deployment of
fiber optic technology for use in wide area networks ("WANs"). This technology
has substantially greater transmission capacity and is less error prone and
easier to maintain than copper networks. The Synchronous Optical Network
("SONET") standard in North America, and the Synchronous Digital Hierarchy
("SDH") standard in the rest of the world, have emerged as the standards for
the transmission of signals over optical fiber. The SONET/SDH standards
facilitate high data integrity and improved network reliability, while
reducing maintenance and other operation costs by standardizing
interoperability among equipment from different vendors. A transmission
standard complementary to SONET/SDH, Asynchronous Transfer Mode ("ATM"), has
emerged to optimize bandwidth utilization. ATM is a network transmission
standard that packages data and reduces network delays, enabling the support
of not only data traffic, but delay-sensitive voice, video and imaging
applications.
In the data communications market, similar bandwidth issues have arisen as
the convergence of the LAN and WAN as well as the greater computational power
of PCs have enabled powerful network applications such
30
<PAGE>
as video conferencing and Web communications. However, these new applications
and the increasing number of computers on networks have significantly
increased the volume of data traffic and, as a result, the network has now
become the bottleneck in the delivery of integrated video, audio and data.
Ethernet is currently the most widespread LAN standard, operating at 10 to 100
megabits per second. However, LAN backbones are rapidly being upgraded to
Gigabit Ethernet and ATM in order to increase available bandwidth. These
network protocols, which enable expanded bandwidth in excess of one gigabit
per second, are emerging as the new standards for LAN backbones. In addition,
the Fibre Channel standard, which also facilitates data transmission at rates
exceeding one gigabit per second, has emerged as a practical, cost-effective
and expandable method for achieving high-speed, high-volume data transfer
among workstations, mainframes, data storage devices and other peripherals.
Fibre Channel and Gigabit Ethernet are complementary and compatible
transmission standards and the emergence of Gigabit Ethernet has accelerated
the growth of the Fibre Channel standard.
The Communications IC Opportunity
In order to address the growing requirements of communications networks,
equipment suppliers are having to develop and introduce increasingly
sophisticated systems at a rapid rate. To achieve the performance and
functionality required by such systems, these OEMs must utilize increasingly
complex integrated circuits ("ICs"), which now account for a larger portion of
the value-added proprietary content of such systems. As a result of the rapid
pace of new product introductions, the proliferation of standards to be
accommodated and the difficulty of designing and producing requisite ICs,
equipment suppliers increasingly outsource these ICs to semiconductor firms
with specialized expertise. These trends have created a significant
opportunity for IC suppliers that can design cost-effective solutions for the
transmission of high-frequency data. Dataquest estimates that the worldwide
SONET/SDH markets for ICs were approximately $240 million in 1996 and will
increase to approximately $700 million in 2000, and that the ATM markets for
ICs were approximately $130 million in 1996 and will increase to approximately
$700 million in 2000. The Fibre Channel and Gigabit Ethernet markets were
relatively small in 1996 and Dataquest estimates that such combined markets
will be approximately $300 million in 2000.
IC suppliers must utilize a variety of skills and technologies to satisfy
the requirements of communications equipment OEMs. These OEMs require IC
suppliers that possess system-level expertise and can quickly bring to market
high-performance, highly reliable, power-efficient ICs. Additionally, these
OEMs seek suppliers with both analog and digital expertise to provide high-
frequency, mixed-signal solutions to bridge the analog physical world and the
digital computing environment. In particular, telecommunications OEMs require
IC suppliers to provide solutions that minimize jitter (a measure of the
stability and crispness of a signal), which degrades transmission quality over
distance. Data communications products typically have substantially shorter
life cycles than telecommunications products, and the rate of new product
introductions is very high. Therefore, data communications OEMs specifically
require IC suppliers that can provide IC solutions that accommodate these
increased time-to-market demands. Furthermore, the data communications market
is highly cost driven and generally involves large volumes, therefore, OEMs in
this market to require IC suppliers that can provide increasingly lower cost
IC solutions that can quickly be ramped into high-volume production.
In the high-performance IC market, a number of process technologies are used
to produce ICs. Traditionally, designers have relied on silicon-based
manufacturing process technologies for the development of high-speed, mixed-
signal analog and digital circuits with precision timing. In some cases, OEMs
utilize discrete components or IC solutions based on non-silicon processes
such as gallium arsenide ("GaAs") to meet the high-frequency requirements of
certain communications products. However, non-silicon processes tend to be
more expensive, less predictable with respect to yields and less able to ramp
to high-volume production than silicon processes.
31
<PAGE>
The Automated Test Equipment Industry
Automated test equipment ("ATE") is used for the comprehensive testing of
ICs, printed circuit boards and electronic systems. Increasing worldwide
demand for ICs has led to a corresponding increase in the demand for IC test
equipment. IC manufacturers continue to increase the pace of introduction of
increasingly complex and higher speed ICs. Thus, ATE OEMs must provide new
systems that are capable of testing ICs and electronic systems with
increasingly higher frequencies and that are introduced rapidly enough to
support the increased pace at which new ICs and electronic systems are being
introduced. In addition, very accurate timing, utilizing precision analog
verniers, is critical for the testing of today's advanced microprocessors and
other ICs. Furthermore, ATE OEMs differentiate their systems and optimize
speed and timing performance through the use of customized ICs. Accordingly,
ATE OEMs require IC suppliers that possess the combination of application-
specific integrated circuit ("ASIC") methodologies, high-performance process
technologies and high-speed, mixed-signal design expertise that can deliver
ICs with the requisite speeds and precision timing. Generally, ATE equipment
requires ICs that operate at faster speeds and have more precise timing than
the ICs being tested. This need for speed and precision timing requires that
IC suppliers use high-performance processors that are similar to the high-
performance processes required to service the advanced telecommunications
market. Finally, ATE OEMs require IC suppliers that deliver timely solutions,
enabling the OEMs to satisfy their increasingly rapid time-to-market
requirements. In today's environment, there are declining numbers of IC
suppliers that satisfy these requirements.
The High-Speed Computing Industry
Increasing worldwide demand for high-performance computing equipment has led
to a corresponding increase in the demand for ICs for the high-speed computing
industry. High-speed computing equipment manufacturers must deliver increased
computational performance that is compatible with, and driven by rapidly
increasing microprocessor speeds. The peripheral devices that communicate with
the computer processor must keep pace with the processor to enable the system
to deliver optimal performance. The pace of new product introductions in this
industry continues to accelerate, and product life cycles continue to shorten.
As a result, a premium is placed on time-to-market. High-performance computing
equipment manufacturers must rely on suppliers of cost-effective, increasingly
complex, standard ICs that can be designed, produced and delivered in time to
meet rapidly changing market demands.
AMCC SOLUTION
AMCC designs, develops, manufactures and markets high-performance, high-
bandwidth silicon solutions for the world's communications infrastructure. The
Company tailors solutions to customer and market requirements by utilizing a
combination of high-frequency mixed-signal design expertise, system-level
knowledge and multiple process technologies. AMCC believes that its internal
bipolar and BiCMOS processes, complemented by advanced CMOS processes from
external foundries, enable the Company to offer high-performance, high-
frequency solutions optimized for specific applications and customer
requirements. By using its proven silicon-based processes and extensive design
libraries, the Company is able to offer products that provide significant
cost, power, performance and reliability advantages for communications systems
OEMs. In addition, this enables the Company to accelerate its time-to-market
as well as quickly ramp into high-volume production. The Company also
leverages its technology to provide solutions for the ATE, high-speed
computing and military markets.
In the telecommunications market, the Company provides IC products for the
SONET/SDH and ATM standards. The Company's customers in the telecommunications
market include Alcatel, ECI, GPT, Nortel and SAT. In the data communications
market, the Company supplies products targeted at Gigabit Ethernet, ATM and
Fibre Channel applications. The Company's customers in this market include
3Com, Cabletron, Cisco Systems, Compaq, Fujikura and Vixel. In the ATE market,
the Company provides high-speed products for both memory and logic testers.
The Company's ATE customers include Hewlett-Packard, LTX, Schlumberger,
Teradyne and Texas Instruments. Finally, in the high-speed computing market,
the Company
32
<PAGE>
supplies PCI bus controllers as well as precision timing products. The
Company's customers for this market include Ericsson, Intel and NEC. The
Company has developed multiple generations of many of its products and has
maintained long-term relationships with many of its customers.
STRATEGY
AMCC's objective is to be the leading supplier of high-performance, high-
bandwidth connectivity IC solutions for the world's communications
infrastructure. To achieve this objective, the Company employs the following
strategies:
Focus on High-Growth Telecommunications Markets
AMCC targets key high-growth telecommunications markets, including those for
SONET/SDH and ATM products. The Company has built substantial competencies
focused on the specific requirements of these markets in the areas of process
technology and mixed-signal design and substantial expertise in systems
architecture and applications support. The Company believes that the
integration of these capabilities enables it to optimize solutions addressing
the high-bandwidth connectivity requirements of telecommunications systems
OEMs.
Leverage Telecommunication Capabilities in High-Bandwidth Data Communications
Markets
AMCC leverages its mixed-signal design expertise, process technologies and
systems capabilities in telecommunications to address specific customer
requirements in high-bandwidth data communications markets. The Company
believes that this strategy enables it to provide data communications OEMs
with cost-effective IC solutions that can be introduced and produced rapidly.
The Company has targeted, in particular, Gigabit Ethernet, ATM and Fibre
Channel applications. Consistent with this strategy, the Company has
introduced serial backplane ICs to address the growing demand for high-
bandwidth switching.
Exploit Established Markets
The Company believes it has developed a strong presence in specific segments
of the ATE, high-speed computing and military markets, where it maintains
established customer relationships and many competitive products. AMCC
believes that its high-performance design expertise is directly applicable to
the product requirements of these markets. Furthermore, the Company believes
that its process technologies are well-suited for the ATE and military
applications that are being served by a decreasing number of suppliers. AMCC
believes that continued participation in these markets provides it with an
opportunity for revenue diversification and stability.
Capitalize on Multiple Silicon-Process Technologies to Provide Optimized
Solutions
The Company is dedicated to utilizing the best silicon process technology
available to offer solutions optimized for specific applications and customer
requirements. The Company has successfully developed multiple generations of
its processes and believes that it will be able to continue the evolution of
its processes to deliver the performance required of future communications
ICs. AMCC believes its current and future bipolar and BiCMOS processes,
complemented by advanced CMOS processes from external foundries, together with
its mixed-signal design expertise, provide the Company with the flexibility to
design and manufacture products that are tailored to its customers' individual
needs. Through this flexible approach, AMCC is better able to transition
products over time to new manufacturing processes as product performance
requirements and process technologies evolve.
33
<PAGE>
Capitalize on Established Silicon-Process Technologies to Provide Cost-
Effective Solutions
The Company applies its systems expertise and its mixed-signal analog and
digital design techniques to architect high-performance products based on
established silicon process technologies. The Company believes that these
silicon-based processes are proven, stable and predictable and benefit from
the extensive semiconductor industry infrastructure devoted to the support of
silicon processes. The process technologies employed by AMCC are designed to
deliver high-performance products while being substantially less capital
intensive than other advanced semiconductor processes. In addition, the
Company's ASIC methodology enables the use of cells that have been
successfully characterized and manufactured previously. As a result, the
Company believes it is well-positioned to deliver products on time and to meet
the rapidly increasing production requirements of its customers.
Continue to Develop Internal Wafer Fabrication Capability
The Company believes that the continued development of its internal bipolar
and BiCMOS wafer fabrication capability provides an important competitive
advantage. This capability improves the Company's ability to design and
manufacture new products with short development cycles. It also gives AMCC
greater control over its manufacturing process characteristics and costs, and
enhances its ability to leverage existing design libraries and methodologies
for future products.
PRODUCTS AND CUSTOMERS
AMCC designs, develops, manufactures and markets high-performance, high-
bandwidth silicon solutions for the world's communications infrastructure. The
Company's current IC products address the needs of two primary segments of the
communications market: the telecommunications market and the data
communications market. The Company's products for the telecommunications and
the data communications markets are designed to respond to the growing demand
for high-speed networking applications for established WAN standards such as
SONET/SDH and ATM and emerging LAN standards such as Gigabit Ethernet, ATM and
Fibre Channel. The Company also markets and sells IC products that address the
needs of the ATE, high-speed computing and military markets. The Company
utilizes its high-performance digital and mixed-signal design expertise and
systems knowledge, together with its internal bipolar and BiCMOS processes and
CMOS processes from outside foundries, to design and manufacture products that
are tailored to its customers' individual needs.
The Company has used its design methodologies to successfully develop
products ranging from ASSPs designed for industry-wide applications, to ASICs
that are custom solutions for specific customer applications. These
complementary products enable the Company to provide optimal solutions for its
customers' applications. For example, the earlier generation of the Company's
standard SONET products used ASIC platforms for quick time-to-market.
Recently, the Company used the S2052, its ASSP designed for the Gigabit
Ethernet market, as a platform to develop its S2053 and S2054 products, two
customer-specific devices that will eventually become standard products. As
the Company develops special macros such as Phase Locked Loops ("PLLs") to
support a customers' application needs, they become part of the Company's ASIC
library, which in turn can be used for other ASICs or ASSPs. The Company
believes that it has a particularly strong competence in the design of high-
speed, low-jitter PLLs, which are key elements in its mixed-signal
transceivers and precision timing products.
AMCC's products for SONET/SDH, ATM, Gigabit Ethernet and Fibre Channel
applications are primarily focused on very high-speed digital and mixed-signal
circuits called physical layer circuits. These circuits consist of a
transmitter and receiver that, when integrated, is called a transceiver chip.
Most of these circuits are very high-speed, mixed-signal circuits that convert
parallel digital inputs into a single analog bit stream that is up to 20 times
faster than the original signal. The diagram below illustrates the manner in
which a physical layer circuit takes parallel digital data from an overhead
processor clocked at speeds of up to 33 MHz and converts it into high-speed
digital signals with clock rates of up to 125 MHz. This digital data is
34
<PAGE>
then converted into an analog/serial data stream for transmission at clock
speeds of up to 1.25 GHz, representing a tenfold increase in speed, to an
optical transmitter or other physical media interfaces. The diagram also
illustrates the manner in which a high-speed analog serial data stream from an
optical receiver is converted into lower speed parallel digital data for
transmission to an overhead processor.
[Diagram labeled "Figure 1: SONET/SDH, GIGABIT ETHERNET FUNCTIONAL BLOCK
DIAGRAM" is comprised of headings, boxes and arrows. The headings "Slow Speed
Digital," "High Speed Digital Interface" and "High Speed Digital Analog
Interface" appear from left to right across the top of the diagram, below
which the staggered headings "Overhead Processor," "Physical Interface" and
"Physical Media Interface" appear. Directly below the heading "Overhead
Processor" is a rectangular box labeled "Processing Unit" that is connected to
a parallel box labeled "Digital I/O" by a line labeled 33 Mhz. The upper half
of this box is connected, by several arrows pointing to the right, to a third
rectangular box labeled "Transmitter." The "Transmitter" box is connected by a
line labeled "Up to 1250 MHz" to a rectangular box labeled "Optical
Transmitter." Below the "Optical Transmitter" box is an identical box labeled
"Optical Receiver," which, in turn, is connected by an arrow pointing to the
left to a box labeled "Receiver." The "Receiver" box is connected by several
arrows pointing to the left, to the "Digital I/O" box. Below these arrows, in
the center of the diagram, is the heading "AMCC Products." The headings
"Digital," "Mixed Signal" and "Analog" appear from left to right across the
bottom of the diagram.]
FIGURE 1: SONET/SDH, GIGABIT ETHERNET FUNCTIONAL BLOCK DIAGRAM
Telecommunications Products
The following table describes the Company's telecommunications products:
<TABLE>
<CAPTION>
DATE OF
PRODUCTION
PRODUCTS RELEASE(1) APPLICATION
- -------------------------------------------------------------------------------
<C> <C> <S>
S3005/6 June 1993 ATM physical layer transceiver products
for OC-3
S3020/21 December 1994 (155 Mbps) and/or OC-12 (622 Mbps).
- -------------------------------------------------------------------------------
S3015/16 March 1995 ATM/E-4 & STM-1 physical layer
transmitter/receiver pair (155 Mbps).
- -------------------------------------------------------------------------------
S3017/18 June 1995 SONET/SDH physical layer transceiver
products for OC-3
S3028 January 1997 (155 Mbps) and/or OC-12 (622 Mbps).
- -------------------------------------------------------------------------------
S3014/25 December 1993 Clock Recovery and Synthesis Units for
SONET/ATM
S3026/27 March 1997 Modules for OC-3 (155 Mbps) and/or OC-
12 (622 Mbps).
</TABLE>
(1) The date of production release is the date that the particular product is
available for volume shipment to customers. Engineering samples of these
products are available prior to volume shipment to customers.
AMCC introduced its first generation OC-3 (155 Mbps) physical layer products
in 1993. The Company has since developed two additional generations of these
products, each integrating greater functionality on each chip while improving
jitter performance. "Jitter" is a measure of the degradation in the quality of
the signal being transmitted or received. Jitter can be caused by the presence
of noise in the system and increases with the distance over which the signal
is transmitted. Jitter is usually controlled by special analog circuit
techniques that separate the noise in the system from the valid data. Low
jitter devices enable the system designer to transmit the signal over longer
distances or use less expensive optical devices thus reducing the
35
<PAGE>
overall system cost. The Company's first generation of these products consisted
of transmitter/receiver pairs with dual voltage. The second generation
consisted of products that are compatible with single +5V optical modules. The
Company's third generation physical layer product, the S3028, is a single chip
transceiver designed to be compatible with the system needs of optical links.
This product offers systems OEMs selectable reference frequencies, a 4 or 8-bit
data path, a PECL or TTL level interface, a diagnostic mode and special failure
indicators. The Company has under development additional ATM physical layer
transceiver products compatible with the OC-3 and OC-12 standard, as well as
additional SONET/SDH physical layer transceiver products for OC-12 and OC-48
applications.
AMCC's products for the OC-12 (622 Mbps) standard are highly integrated
products that consist of parallel-to-serial converters ("Mux"), serial-to-
parallel converters ("DeMux"), transmit and receive Phase Locked Loops
("PLLs"), Clock Synthesis Units ("CSU") and Clock Recovery Units ("CRU") with
low power dissipation and low output jitter. The superior jitter performance of
these products enables customers to use less expensive optical components. The
Company has also successfully integrated five PLLs on a single product at 155
Mbps. The power dissipation of this multichannel device is less than 1 watt
(less than 200 milliwatt per PLL). All of the Company's telecommunications
devices are supported with evaluation boards and design aids for easy
implementation by engineers with limited knowledge of high performance circuit
layout techniques.
The Company's Micropower bipolar standard cell ASIC products are well-suited
for high performance telecommunications applications that require up to 20,000
equivalent gates, a high-speed digital interface, low jitter, and PLL macros
operating at speeds of up to 2.5 GHz. The Company also uses its Micropower
technology for its ASSPs for the SONET/SDH market.
Current customers for the Company's telecommunications products include
Alcatel, ECI, Fujitsu, GPT, Nortel and SAT. The Company has achieved design
wins for its ASIC and ASSP products with certain other customers in the
telecommunications market, including DSC Communications, IBM, NEC and Nokia.
There can be no assurance that these design wins will result in volume
shipments to any of such customers. Sales to Nortel accounted for 17%, 20%, 20%
and 19%, of the Company's net revenues in fiscal 1995, 1996, 1997 and for the
six months ended September 30, 1997, respectively. No other customer
represented greater than 10% of the Company's net revenues during such periods.
Data Communications Products
The following table describes the Company's data communications products:
<TABLE>
<CAPTION>
DATE OF
PRODUCTION
PRODUCTS RELEASE(1) APPLICATION
- --------------------------------------------------------------------------------
<S> <C> <C>
S2046/47................ October 1996 Transceivers/physical layer ICs for Gigabit Ethernet
S2052................... June 1997 backbone and Fibre Channel.
- --------------------------------------------------------------------------------
S2036................... February 1995 Serial chip sets, GLM Transceivers for Fibre
S2042/43................ August 1996 Channel (1.0625 Gbps, 533 and 265 Mbps) and
S2044/45................ August 1996 Redundant Array of Independent Disks ("RAID")
drives.
- --------------------------------------------------------------------------------
S2016................... October 1995 High density switches, physical layer ICs, multi-port
S2024................... September 1995 crosspoint switches and transceivers for backplanes
S2025................... May 1996 in ISP networks.
S2052................... June 1997
S2042/43................ August 1996
</TABLE>
(1) The date of production release is the date that the particular product is
available for volume shipment to customers. Engineering samples of these
products are available prior to volume shipment to customers.
36
<PAGE>
LAN Products. AMCC introduced its first generation of data communications
physical layer devices in 1995. The Company has since developed two additional
generations of products that support both +5V and +3.3V applications. The
Company's first two generations of physical layer devices consisted of
transmitter/receiver pairs with 10-bit interfaces or industry-standard 20-bit
interfaces for Giga-Link Modules ("GLM") and open fiber control for the Fibre
Channel standard. The Company's most recent data communications IC product,
the S2052, is the industry's only single chip transceiver that supports both
the Fibre Channel and Gigabit Ethernet transmission standards. This product is
compatible with the Fibre Channel pin-out configuration and is capable of
directly driving fiber optic or twinaxial cables. Some of the Company's
customers also use derivatives of the S2052 for their specific application
needs. All of the Company's data communications IC products are supported with
evaluation boards and design aids for easy implementation by engineers with
limited knowledge of high performance circuit layout techniques. The Company
has under development additional physical layer ICs for Gigabit Ethernet and
Fibre Channel applications.
Serial Backplane Products. In addition to the WAN and LAN network equipment
and standards developed to address the issue of network bandwidth, network
equipment OEMs must also ensure that once high-frequency signals exit the
transmission network, they can be switched efficiently, while taking full
advantage of the available bandwidth. Backplanes (the boards that distribute
signals to various ports of a switching system) are currently emerging as a
serious constraint for systems OEMs because redesigning the traditional
architecture of parallel channels to accommodate higher frequency signals is
prohibitively expensive. Therefore, serial channels, which can accommodate
much higher frequencies, are being increasingly employed. The Company believes
that this transition has created a significant opportunity for suppliers that
can design IC solutions enabling the transmission of high-frequency data
through a serial backplane.
Data communications system designers use three different backplane
architectures. All of these architectures use serializer and deserializer
chips such as the Company's S2502 and S2042/43 chip sets and one of these
architectures uses crosspoint switches. Based upon the system design, 16-bit
or 32-bit crosspoint switches are currently required and, in the future, 64-
bit crosspoint switches may be required. AMCC introduced its first generation
of crosspoint based serial backplane products in 1995. These products included
16-bit and 32-bit crosspoint switches with fast reconfiguration time and the
S2042/43 serializer/deserializer pair with fast acquisition time. The Company
currently offers its second generation 32-bit crosspoint switch and the S2502
single chip serializer/deserializer, as a serial backplane solution. The
Company has under development additional multi-port products for backplane
applications.
Current customers of the Company's IC products in the data communications
market include 3Com, Cabletron Systems, Compaq, Digital Equipment Corporation,
Fujikura and Vixel. The Company has achieved design wins with certain other
customers in this market, including Adaptec, Cisco Systems, FORE Systems and
Sun Microsystems. There can be no assurance that these design wins will result
in volume shipments to any of such customers.
ATE
AMCC introduced its current generation gate array Q20000 family of products
in 1991 and its Micropower based standard cell products in 1993. Micropower,
one of the first products to offer +3.3V operation for high performance ASICs,
uses AMCC's proprietary bipolar process. The high-performance and low-power
characteristics of this family of products make it particularly suitable for
high performance semiconductor ATE applications that require approximately
4,000 equivalent gates, low jitter and precision circuits. Current customers
for the Company's products for the ATE market include Hewlett-Packard, LTX,
Schlumberger and Teradyne. The Company has achieved design wins with Teradyne
and Texas Instruments for circuits using these products. There can be no
assurance that these design wins will result in volume shipments to any of
such customers.
37
<PAGE>
High-Speed Computing Products
The following table describes the Company's high-speed computing products:
<TABLE>
<CAPTION>
DATE OF
PRODUCTION
PRODUCT FAMILY RELEASE(1) APPLICATION
- -------------------------------------------------------------------------------
<S> <C> <C>
S5933................... March 1997 PCI controllers.
SC3000 Series........... 1992-96 Clock drivers for servers.
SC4400 Series........... 1992-96 Clock generators for servers.
S4506................... January 1997 250 MHz Clock generator for Rambus-based systems.
S4507................... June 1997 300 MHz Clock generator for Rambus-based systems.
</TABLE>
(1) The date of production release is the date that the particular product is
available for volume shipment to customers. Engineering samples of these
products are available prior to volume shipment to customers.
AMCC offers two product lines that address the high-speed computing market.
The S5933 is a standard master/slave PCI controller chip that is the first in
the Company's line of PCI controller chips. Each of the Company's high-speed
computing devices is supported with a comprehensive development kit and third-
party driver software. The Company sells these products to a very large and
diverse customer base. Current customers of the Company's products include
Cisco Systems, Ericsson, IBM and SAT. The Company's S5933 PCI controller chip
is also used in reference designs with C-Cube Microsystems for digital video
disk products.
AMCC's second line of high-speed computing products consists of clocking
devices that use the Company's PLL technology for precision clock generation
for applications in the workstation, telecommunications and data
communications markets. AMCC's 250 MHz and 300 MHz clock generators are being
used in Rambus-based systems. The Company's customers with Rambus-based
systems also include Chromatic Research, Gateway 2000, LG Semiconductor,
Micron Electronics, NEC and STB. The Company has under development additional
PCI controller chips.
Military
The Company introduced its Q20000 family gate array family of ASIC products
in 1991. These devices are well suited for military applications and as well
as replacements for ECLinPSTM logic from Motorola. The Company sells ASICs to
military customers such as Hughes Electronics, Northrop Grumman, Raytheon,
Rockwell International and Texas Instruments.
TECHNOLOGY
The Company utilizes its technological and design expertise to solve the
unique problems of high-speed digital and mixed-signal circuit designs for the
world's communications infrastructure. The Company's competencies include the
design and manufacture of high-performance digital and mixed-signal ICs, in-
depth knowledge of the architecture and functioning of high-bandwidth
telecommunications and data communications systems, proven ASIC design
methodologies and libraries, and high-performance semiconductor manufacturing
and packaging expertise.
Design of High-Performance Digital and Mixed-Signal ICs
AMCC has developed multiple generations of products that integrate both
analog and digital elements on the same chip, while balancing the difficult
trade-offs of speed, power and timing inherent in high-speed applications.
AMCC was one of the first companies to embed analog PLLs in bipolar chips with
digital logic for high-speed data transmission and receiver applications.
Since the introduction of AMCC's first on-chip clock recovery and clock
synthesis products in 1993 (the S3005/S3006 chip set), the Company has refined
these key circuits and has successfully integrated multiple analog functions
and multiple channels on the same
38
<PAGE>
chip. For example, the Company has under development a quad transceiver with a
PLL clock recovery and PLL clock multiplier. The mixing of digital and analog
signals poses difficult challenges for IC designers, particularly at high
frequencies. The Company has built significant expertise in mixed-signal IC
designs through the development of multiple generations of products. The
Company believes that one of its primary skills is its ability to integrate
increasingly complex analog functions with high-speed digital logic on a
single chip. The Company also applies this expertise, developed using bipolar
process technology, to IC designs on CMOS processes.
Systems and Architecture Expertise
AMCC believes that its systems architects, design engineers and technical
marketing and applications engineers have a thorough understanding of the
telecommunications and data communications systems for which the Company
designs and builds ASSPs. Using this systems expertise, AMCC develops
semiconductor devices to meet OEMs' high-bandwidth systems requirements. By
understanding the systems into which its products are designed, the Company
believes that it is better able to anticipate and develop optimal solutions
for the various cost, power and performance trade-offs faced by its customers.
AMCC believes that its systems knowledge also enables the Company to design
its IC products to provide the most cost-effective and performance-optimized
solution available using proven process technologies. For example, in its IC
design for OC-48 applications, AMCC applied its systems knowledge and mixed-
signal design expertise to partition the solution into bipolar and high-speed
CMOS chips, which enabled AMCC to offer a substantially lower power
alternative and provide the customer with added flexibility in its future
design plans.
Design Methodology
The Company believes that its extensive experience in the use of ASIC design
methodologies (gate arrays and standard cells), enables its designers to
accelerate the design of new standard products. The Company also has extensive
experience in using ASIC methodologies in collaborative product development
efforts with its customers. The Company uses extensive libraries of analog and
digital blocks that have been well characterized and previously used, which
the Company believes decreases design costs and cycle time and minimizes any
final redesign that may be required once the circuit is implemented in
silicon. The Company's design methodology utilizes advanced computer aided
design ("CAD") tools for each of the following phases of the implementation
process: design capture, logic synthesis, simulation, physical layout and chip
composition and verification. AMCC uses industry-standard CAD tool sets
whenever possible, but augments these tool sets with certain proprietary tools
that enable its designers to optimize mixed-signal performance at very high
frequencies. Industry standard Verilog/VHDL models, developed at the
behavioral and the gate level, are given to key customers for system level
simulation and verification, and feedback from these customers is used to
finalize the Company's device designs to ensure that AMCC's devices will
interface appropriately with the OEM's system. The Company believes that this
process results in shortened design cycle time and greater first-time
correctness of production-worthy devices.
Process Technology
AMCC utilizes its own internal wafer fabrication facility and has developed
and produced multiple generations of cost-effective, high-performance bipolar
and BiCMOS processes. Bipolar processes are widely recognized as the
technology of choice for circuits that require high-speed, analog-intensive
circuitry with low to moderate levels of density (number of gates or functions
per chip). Nevertheless, the Company believes that the number of companies
possessing this advanced bipolar process capability and applying it to the
markets targeted by AMCC is limited. The proven internal silicon-based process
technologies employed by the Company have not required the highly capital-
intensive facilities needed by certain advanced microprocessor, memory or CMOS
ASIC suppliers. The Company believes that its bipolar-based processes are the
optimal choice for the performance (speed, timing and stability), power and
cost trade-offs that must be made in providing the mixed-signal ICs required
by its targeted markets.
39
<PAGE>
Packaging
AMCC has substantial experience in the development and use of plastic and
ceramic packages for high-performance applications. The selection of the
optimal package solution is a vital element of the delivery of high-
performance products, and involves balancing cost, size, thermal management
and technical performance. AMCC's products are designed to reduce power
dissipation and die size to enable the use of industry standard packages. AMCC
employs a wide variety of package types, and is currently designing products
using ball grid arrays, tape ball grid arrays and multi-chip modules with pin
counts in excess of 200 pins. The Company's experience with a variety of
packages is one of the factors that enables it to provide optimal high-
performance IC solutions to its customers.
RESEARCH AND DEVELOPMENT
AMCC's research and development expertise and efforts are focused on the
development of high-performance, mixed-signal ASSPs for advanced
communications applications, as well as ASIC products and methodologies for
communications and ATE applications. The Company also focuses on the
development of silicon wafer fabrication processes that are optimized for
these applications.
Product Development
The Company's product development is focused on building high-performance,
analog-intensive design expertise that is incorporated into well-documented
blocks that can be reused by AMCC's design group for multiple products. The
Company has, and continues to make, significant investments in advanced CAD
tools to leverage its design engineering staff, reduce design cycle time and
increase first-time design correctness. AMCC is consistently seeking to add
engineers with high-performance, mixed-signal experience in both its bipolar
and CMOS design groups. The Company's product development is driven by the
imperatives of reducing design cycle time, increasing first-time design
correctness, adhering to disciplined, well documented design processes and
continuing to be responsive to customer needs.
Process Development
The Company's process development is focused on enhancing its current
bipolar processes and developing new processes optimized for high-performance
digital and mixed-signal communications applications. These new processes are
being designed to provide higher transistor speeds and improved parasitics to
address higher frequency communications requirements, as well as the need to
constantly improve jitter performance in the circuits, while maintaining low
power dissipation and enabling high yields in volume production. AMCC's
process engineers are also involved with the selection and management of the
Company's relationships with outside foundries to provide the advanced CMOS
processes required by certain of AMCC's products. The Company is also
developing high-performance packages for its products in collaboration with
its packaging suppliers and its customers.
The Company's research and development expenses in fiscal years 1995, 1996,
1997 and the six months ended September 30, 1997 were $10.1, $8.3, $7.9 and
$6.0 million, respectively, which were 21.5%, 16.5%, 13.7% and 17.0%,
respectively, of revenues for such periods. The Company has 86 employees
engaged in engineering and product development related activities.
MANUFACTURING
Wafer Fabrication
AMCC manufactures products at its four-inch wafer fabrication facility in
San Diego, California in a 7,600 square foot clean room. The Company is
currently expanding the clean room by approximately 600 square feet to
accommodate new equipment that will expand capacity and will be used for
process
40
<PAGE>
development. The Company believes that its wafer fabrication facility has
competitive yields, cycle times and costs, produces large die at acceptable
yields and operates on a flexible basis of multiple products and variable lot
sizes. However, there can be no assurance that the Company will achieve or
obtain acceptable manufacturing yield levels in the future. The Company is
currently running several different bipolar and BiCMOS processes in this
facility. See "Risk Factors -- Manufacturing Yields" and "Business --
Technology."
The Company is currently in the initial stages of planning the construction
of a new six-inch wafer fabrication facility that it believes will be located
in San Diego, California. AMCC believes that it will need such a facility to
be operational in approximately four years in order to support the Company's
growth and to build certain new products. The Company currently plans to
acquire or acquire rights to a site for this new facility by the end of 1998.
AMCC currently utilizes four outside foundries, AMI Semiconductor ("AMI"),
IBM, Kawasaki CSI Japan ("Kawasaki") and Taiwan Semiconductor Manufacturing
Corporation ("TSMC") for the production of certain products designed on CMOS
processes. The Company does not plan to fabricate its own CMOS wafers.
Most of the Company's PCI Bus products are currently produced by AMI on a
five-inch CMOS process. Certain of the Company's other PCI Bus products are
being designed to be produced in Japan by Kawasaki on a six-inch CMOS process.
Additionally, certain of AMCC's products are being produced by TSMC on
six-inch CMOS and BiCMOS processes. Some of the Company's products are being
designed to be produced by IBM on eight-inch CMOS processes. Although the
Company has a long term agreement with IBM that ensures that AMCC will be able
to purchase certain minimum quantities of wafers through March 2000, the
Company does not have long-term wafer supply agreements with its other outside
foundries that guarantee wafer or product quantities, prices or delivery lead
times. There are certain risks associated with the Company's dependence upon
external foundries for certain of its products, including reduced control over
delivery schedules, quality assurance, manufacturing yields and costs, the
potential lack of adequate capacity during periods of excess demand, limited
warranties on wafers or products supplied to the Company, increases in prices
and potential misappropriation of the Company's intellectual property. See
"Risk Factors -- Dependence on Third-Party Manufacturing and Supply
Relationships."
Components and Raw Materials
AMCC purchases all of its "raw" silicon wafers from Wacker Siltronic
Corporation ("WSC"). While most silicon wafers now being supplied to the
semiconductor industry are larger than four inches, AMCC believes that WSC
will continue to supply AMCC's needs for the foreseeable future. AMCC also
carries a significant inventory of raw wafers to cushion any interruption in
supply. AMCC purchases its ceramic packages from Kyocera America and NTK
Ceramics and its plastic packaging from ASAT. See "Risk Factors -- Dependence
on Third-Party Manufacturing and Supply Relationships."
Assembly and Test
The Company assembles prototypes and modest production volumes of specific
products in its internal assembly facility in San Diego, California. Most of
the Company's production assembly, however, is performed by multiple assembly
subcontractors located in the Far East, Europe and the United States.
Following assembly, the packaged units are returned to the Company for burn-in
(in some cases), final testing and marking prior to shipment to customers.
From time to time, some testing is performed by subcontractors. See "Risk
Factors -- Dependence on Third-Party Manufacturing and Supply Relationships."
SALES AND MARKETING
The Company sells its products principally through a direct sales
organization consisting of a network of independent manufacturers'
representatives in specified territories that work under the direction of the
Company's direct sales force and distributors.
41
<PAGE>
The Company has a total of 12 direct sales personnel and field applications
engineers. The direct sales force is technically trained and is supported by
applications engineers in the field as well as applications and design
engineers at the Company's headquarters. The Company believes that this
"engineering-intensive" relationship with its customers results in strong,
long-term customer relationships beneficial to both the Company and its
customers. The Company augments this strategic account sales approach with
domestic and foreign distributors, which service primarily smaller accounts
purchasing ASSPs.
In North America, the Company's direct sales effort is supported by 20
independent manufacturers representatives and one distributor. The Company
sells its products through 11 distributors in Europe and eight distributors
throughout the rest of the world. In fiscal 1996 and 1997 and during the six
months ended September 30, 1997, approximately 24%, 21% and 24% of the
Company's revenues were derived from sales to customers located outside of
North America.
The Company's sales headquarters is located in San Diego, California. The
Company maintains sales offices in Burlington, Massachusetts; Raleigh, North
Carolina; San Clemente, California; and Plano, Texas.
PROPRIETARY RIGHTS
The Company relies in part on patents to protect its intellectual property.
In the United States, the Company has been issued 13 patents, which
principally cover certain aspects of the design and architecture of the
Company's IC products. In addition, the Company has three patent applications
pending in the United States Patent and Trademark Office (the "PTO"), and have
expiration dates ranging from 2004 to 2009. There can be no assurance that the
Company's pending patent applications or any future applications will be
approved, or that any issued patents will provide the Company with competitive
advantages or will not be challenged by third parties, or that the patents of
others will not have an adverse effect on the Company's ability to do
business. Furthermore, there can be no assurance that others will not
independently develop similar products or processes, duplicate the Company's
products or processes or design around any patents that may be issued to the
Company.
The Company also relies on a combination of mask work protection,
trademarks, copyrights, trade secret laws, employee and third-party
nondisclosure agreements and licensing arrangements to protect its
intellectual property. Despite these efforts, there can be no assurance that
others will not independently develop substantially equivalent intellectual
property or otherwise gain access to the Company's trade secrets or
intellectual property, or disclose such intellectual property or trade
secrets, or that the Company can meaningfully protect its intellectual
property. A failure by the Company to meaningfully protect its intellectual
property could have a material adverse effect on the Company's business,
financial condition and operating results.
As a general matter, the semiconductor industry is characterized by
substantial litigation regarding patent and other intellectual property
rights. The Company in the past has been and in the future may be notified
that it may be infringing the intellectual property rights of third parties.
The Company has certain indemnification obligations to customers with respect
to the infringement of third party intellectual property rights by its
products. There can be no assurance that infringement claims by third parties
or claims for indemnification by customers or end users of the Company's
products resulting from infringement claims will not be asserted in the future
or that such assertions, if proven to be true, will not materially adversely
affect the Company's business, financial condition or operating results. In
March 1997, the Company received a written notice from legal counsel for Dr.
Chou Li asserting that the Company manufactures certain of its products in
ways that appear to such counsel to infringe a United States patent held by
Dr. Li (the"Li Patent"). After a review of its technology in light of such
assertion, the Company believes that the Company's processes do not infringe
any of the claims of this patent. However, there can be no assurance that Dr.
Li will not file a lawsuit against the Company or that the Company would
prevail in any such litigation. Any litigation relating to the intellectual
property rights of third parties, including, but not limited to the Li Patent,
whether or not determined in the Company's favor or settled by the Company,
would at a minimum be costly and could divert the efforts and attention of the
Company's management and technical personnel, which could have a material
adverse effect on the Company's business, financial condition or operating
results. In the event
42
<PAGE>
of any adverse ruling in any such matter, the Company could be required to pay
substantial damages, which could include treble damages, cease the
manufacturing, use and sale of infringing products, discontinue the use of
certain processes or obtain a license under the intellectual property rights of
the third-party claiming infringement. There can be no assurance, however, that
a license would be available on reasonable terms or at all. Any limitations on
the Company's ability to market its products, any delays and costs associated
with redesigning its products or payments of license fees to third parties or
any failure by the Company to develop or license a substitute technology on
commercially reasonable terms could have a material adverse effect on the
Company's business, financial condition and operating results. See "Risk
Factors--Uncertainty Regarding Patents and Protection of Proprietary Rights."
COMPETITION
The semiconductor market, particularly the high-performance semiconductor
market, is highly competitive and subject to rapid technological change, price
erosion and heightened international competition. The telecommunications, data
communications, ATE and high-speed computing industries are also becoming
intensely competitive due in part to deregulation and heightened international
competition. The ability of the Company to compete successfully in its markets
depends on a number of factors, including product performance, success in
designing and subcontracting the manufacture of new products that implement new
technologies, product quality, reliability, price, the efficiency of
production, design wins for its IC products, ramp up of production of the
Company's products for particular system manufacturers, end-user acceptance of
the system manufacturers' products, market acceptance of competitors' products
and general economic conditions. In addition, the Company's competitors may
offer enhancements to existing products, or offer new products based on new
technologies, industry standards or customer requirements, that are available
to customers on a more timely basis than comparable products from the Company
or that have the potential to replace or provide lower cost alternatives to the
Company's products. The introduction of such enhancements or new products by
the Company's competitors could render the Company's existing and future
products obsolete or unmarketable. Furthermore, once a customer has designed a
supplier's product into its system, the customer is extremely reluctant to
change its supply source due to the significant costs associated with
qualifying a new supplier. Finally, the Company expects that certain of its
competitors and other semiconductor companies may seek to develop and introduce
products that integrate the functions performed by the Company's IC products on
a single chip, thus eliminating the need for the Company's products. Each of
these factors could have a material adverse effect on the Company's business,
financial condition and results of operations. See "-- Risks Associated with
Dependence on High-Speed Computing Market."
In the telecommunications and data communications markets, the Company
competes primarily against GaAs-based companies such as Giga, TriQuint and
Vitesse, and bipolar silicon-based products from companies such as Hewlett-
Packard, Maxim and Sony. In certain circumstances, most notably with respect to
ASICs supplied to Northern Telecom, AMCC's customers or potential customers
have internal IC manufacturing capability, and this internal source is an
alternative available to the customer. In the ATE market, the Company competes
primarily against Vitesse and silicon ECL and BiCMOS products offered
principally by semiconductor manufacturers such as Analog Devices, Lucent
Technologies and Maxim. In the high-speed computing market, the Company
competes against companies such as Chrontel and PLX. Many of these companies
and potential new competitors have significantly greater financial, technical,
manufacturing and marketing resources than the Company. In addition, in lower-
frequency applications, the Company faces increasing competition from other
CMOS-based products, particularly as the performance of such products continues
to improve. There can be no assurance that the Company will be able to develop
new products to compete with new technologies on a timely basis or in a cost-
effective manner. Any failure by the Company to compete successfully in its
target markets, particularly in the telecommunications and data communications
markets, would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors--Intense
Competition" and "Risks Associated with Dependence on Telecommunications and
Data Communications Markets and Increasing Dependence on Application-Specific
Standard Products."
43
<PAGE>
ENVIRONMENTAL MATTERS
The Company is subject to a variety of federal, state and local governmental
regulations related to the use, storage, discharge and disposal of toxic,
volatile or otherwise hazardous chemicals used in its manufacturing process.
Any failure to comply with present or future regulations could result in the
imposition of fines on the Company, the suspension of production or a
cessation of operations. In addition, such regulations could restrict the
Company's ability to expand its facilities at its present location or
construct or operate its planned wafer fabrication facility or could require
the Company to acquire costly equipment or incur other significant expenses to
comply with environmental regulations or clean up prior discharges. In this
regard, since 1993 the Company has been named as a potentially responsible
party ("PRP") along with a large number of other companies that used Omega
Chemical Corporation ("Omega") in Whittier, California to handle and dispose
of certain hazardous waste material. The Company is a member of a large group
of PRPs that has agreed to fund certain remediation efforts at the Omega site,
which efforts are ongoing. To date, the Company's payment obligations with
respect to such funding efforts have not been material and the Company
believes that its future obligations to fund such efforts will not have a
material adverse effect on its business, financial condition or operating
results.
LEGAL PROCEEDINGS
From time to time, the Company may be involved in litigation relating to
claims arising out of its operations in the normal course of business. As of
the date of this Prospectus, the Company is not engaged in any legal
proceedings that are expected, individually or in the aggregate, to have a
material adverse effect on the Company's business, financial condition or
operating results.
FACILITIES
The Company's executive offices, research and development and engineering
functions are located in San Diego, California in a 90,000 square foot
building that is leased by the Company under a lease that expires in 2007. In
addition, the Company occupies a 21,000 square foot building in San Diego,
which houses the Company's manufacturing facilities under a lease that expires
in 1998, but provides the Company with options to extend the lease for up to
two additional five year periods. The Company leases additional space for
sales offices in Burlington, Massachusetts; Los Angeles, California; Plano,
Texas; Raleigh, North Carolina and San Jose, California.
EMPLOYEES
As of September 30, 1997, the Company had 287 employees: 29 in
administration, 86 in engineering and product development, 135 in operations
and 37 in marketing and sales. The Company's ability to attract and retain
qualified personnel is essential to its continued success. None of the
Company's employees is represented by a collective bargaining agreement, nor
has the Company ever experienced any work stoppage. The Company believes its
employee relations are good.
44
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of the Company, and their ages as of
September 30, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------ --- -------------------------------------------------
<S> <C> <C>
David M. Rickey......... 41 President, Chief Executive Officer and Director
Joel O. Holliday........ 58 Vice President, Finance and Administration,
Treasurer, Chief Financial Officer and Secretary
Thomas L. Tullie........ 33 Vice President, Sales
Anil K. Bedi............ 47 Vice President, Marketing
Laszlo V. Gal........... 49 Vice President, Engineering
Roger A. Smullen, Sr. 61 Chairman of the Board of Directors,
(1).................... Acting Vice President, Operations
William K. Bowes, 71 Director
Jr.(1).................
Franklin P. Johnson, 69 Director
Jr.(1)(2)..............
Arthur B. Stabenow(2)... 58 Director
R. Clive Ghest(2)....... 60 Director
</TABLE>
- -------
(1) Member of Audit Committee
(2) Member of Compensation Committee
David M. Rickey has served as President, Chief Executive Officer and
Director since February 1996. From August 1993 to May 1995, Mr. Rickey served
as the Company's Vice President of Operations. From May 1995 to February 1996,
Mr. Rickey served as Vice President of Operations at NexGen, a semiconductor
company. Previously, Mr. Rickey spent more than eight years with Nortel, a
telecommunications manufacturer, where he led the wafer fab engineering and
manufacturing operations in both Ottawa, Canada and San Diego, California. Mr.
Rickey also worked in various engineering positions with IBM from 1981 to
1985. Mr. Rickey has earned B.S. degrees from both Marietta College (summa cum
laude) and Columbia University. In addition, Mr. Rickey received an M.S. in
Materials Science and Engineering from Stanford University.
Joel O. Holliday has served as the Vice President, Finance and
Administration, Treasurer, Chief Financial Officer and Secretary of the
Company since November 1981. He has previously served as the Director of
Finance during the reorganization of Westgate-California Corporation and as
Vice President, Finance of Spin Physics, Inc., an electronics company. Mr.
Holliday received a B.A. from Claremont McKenna College and an M.B.A. from
Harvard Business School.
Thomas L. Tullie joined the Company as Vice President, Sales in August 1996.
Prior to joining the Company, from 1989 to 1996 Mr. Tullie held several
strategic sales management positions, most recently as Director of East Coast
Sales, at S-MOS Systems, a semiconductor company. Prior to joining S-MOS
Systems, Mr. Tullie was a designer in the workstations group of Digital
Equipment Corporation. Mr. Tullie earned a B.S. from the University of
Massachusetts and an M.B.A. from Clark University.
Anil K. Bedi joined the Company in August 1996 as Vice President, Marketing.
Prior to joining the Company, Mr. Bedi worked at Philips Semiconductor from
October 1993 to July 1996, where he served as Director of Strategic Marketing
and General Manager of the Mass Storage Product Group. Prior to joining
Philips Semiconductor, from 1984 to 1993 Mr. Bedi served in senior marketing
and management positions at Oki Semiconductor and Gazelle and TriQuint
Semiconductor (two GaAs-based semiconductor companies). Mr. Bedi has also held
marketing and sales positions at Xerox Corporation and National Semiconductor.
Mr. Bedi earned his B.S.E.E. and M.S.E.E. degrees from the University of
Wisconsin and his M.B.A. from the University of Utah.
Laszlo V. Gal joined the Company in January 1997 as Vice President,
Engineering. From September 1994 to December 1996, he served in various senior
management positions, including Director of Product Development at Motorola,
Inc. Mr. Gal served as the manager of IC Designs at Burroughs/Unisys from 1983
to 1994 and worked as a staff scientist at the IBM Research Center from 1981
to 1982. From 1979 to 1981 Mr. Gal was a member of the technical staff at
Rockwell Corporation, where he worked on GaAs development. Mr. Gal was
educated at the
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<PAGE>
Budapest Technical University in Hungary, where he received a B.S. and M.S.
and Ph.D in Electrical Engineering. He holds 12 U.S. patents in VLSI design
and applications.
Roger A. Smullen, Sr. has served as the Chairman of the Company's Board of
Directors since October 1982. Mr. Smullen has served as Acting Vice President,
Operations of the Company since August 1997. From April 1983 until April 1987,
Mr. Smullen served as the Company's Chief Executive Officer. Previously, he
was senior vice president of operations of Intersil, Inc.'s semiconductor
division. In 1967, Mr. Smullen co-founded National Semiconductor. Prior to
that, he was director of integrated circuits at Fairchild Semiconductor. He
holds a B.S. in mechanical engineering from the University of Minnesota.
William K. Bowes, Jr. has served as a director of the Company since April
1980. He has been a general partner of U.S. Venture Partners, a venture
capital investment entity, since July 1981. Mr. Bowes serves as a director of
Amgen, Inc., XOMA Corporation and several privately-held U.S. Venture Partners
portfolio companies. Mr. Bowes holds a B.A. from Stanford University and an
M.B.A. from Harvard Business School.
Franklin P. Johnson, Jr. has served as a director of the Company since April
1980. He is the general partner of Asset Management Partners, a venture
capital partnership. In addition, Mr. Johnson is a general partner of the
general partner of Asset Management Associates, a venture capital limited
partnership. Mr. Johnson has been a venture capital investor for more than
five years. Mr. Johnson is also Chairman of the Board of Boole and Babbage,
Inc., and a director of Amgen, Inc. and IDEC Pharmaceuticals Corporation. Mr.
Johnson holds a B.S. from Stanford University and an M.B.A. from Harvard
Business School.
Arthur B. Stabenow has served as a director of the Company since July 1988.
Mr. Stabenow has been Chairman, President and Chief Executive Officer of Micro
Linear Corporation, a manufacturer of integrated circuits, since April 1986.
Mr. Stabenow has over 35 years of experience in the semiconductor industry.
From January 1979 to March 1986, he was employed as a vice president and
general manager at National Semiconductor Corporation. Mr. Stabenow is
currently a director of Zoran, Inc. and Micro Linear Corporation. Mr. Stabenow
holds an M.B.A. from the University of New Haven.
R. Clive Ghest has served as a director of the Company since July 1997.
Since January 1997, Mr. Ghest has been a principal of Ghest Associates
Consulting. Mr. Ghest was the Vice President of Business Development at
Advanced Micro Devices Inc. from February 1986 to December 1996. He has more
than 35 years of experience in various capacities in the computer,
communications and semiconductor industries. Mr. Ghest holds an M.S.E.E. from
the University of Santa Clara and an Hons. B.Sc. from the University of
London.
BOARD COMPOSITION
The Company currently has authorized six directors. Each director is elected
for a period of one year at the Company's annual meeting of stockholders and
serves until the next annual meeting or until his or her successor is duly
elected and qualified. The executive officers serve at the discretion of the
Board of Directors. There are no family relationships among any of the
directors or executive officers of the Company.
BOARD COMPENSATION
Except for reimbursement for reasonable travel expenses relating to
attendance at Board meetings and the grant of stock options, directors are not
compensated for their services as directors. Directors who are employees of
the Company are eligible to participate in the Company's 1992 Stock Option
Plan and, beginning in 1997, they will also be eligible to participate in the
Company's 1997 Employee Stock Purchase Plan. Beginning in 1997, directors who
are not employees of the Company will be eligible to participate in the
Company's 1997 Directors' Stock Option Plan. See "-- 1982 Employee Incentive
Stock Option Plan," " -- 1992 Stock Option Plan" and " -- 1997 Directors'
Stock Option Plan." The Chairman of the Company's Board of Directors is
compensated for certain services provided to the Company. See "Certain
Transactions."
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has established a Compensation Committee
and an Audit Committee. The Board of Directors does not maintain a Nominating
Committee or a committee performing similar functions. The
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<PAGE>
Compensation Committee recommends salaries, incentives and other forms of
compensation for directors, officers and other employees of the Company,
administers (with the Board of Directors) the various incentive compensation
and benefit plans (including the 1992 Plan and the 1997 Employee Stock
Purchase Plan) of the Company and recommends policies relating to such
incentive compensation and benefit plans. The Audit Committee reviews the need
for internal auditing procedures and the adequacy of internal controls. The
Audit Committee meets periodically with management and the independent
auditors. The Board of Directors may also establish additional committees from
time to time.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Company's Board of
Directors are currently Mr. Ghest, Mr. Johnson and Mr. Stabenow. None of these
directors has at any time been an officer or employee of the Company or any
subsidiary of the Company. No interlocking relationship exists between the
Company's Board of Directors or Compensation Committee and the board of
directors or compensation committee of any other company nor has such an
interlocking relationship existed in the past.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning the
compensation earned or paid for services rendered to the Company during the
fiscal year ended March 31, 1997 by the Chief Executive Officer and each of
the other four most highly compensated executive officers (the "Named
Officers"), each of whose aggregate compensation during the Company's last
fiscal year exceeded, or would exceed on an annualized basis, $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS (#) COMPENSATION
- --------------------------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
David M. Rickey
President and Chief
Executive Officer........... $277,215(1) $61,500 -- $133,826(2)
Joel O. Holliday
Vice President, Finance and
Administration, Treasurer,
Chief Financial Officer and
Secretary................... 162,208(1) 41,500 33,333 2,000(3)
Roger A. Smullen
Chairman of the Board of
Directors and Acting Vice
President, Operations....... 208,000 41,500 33,333 --
Thomas Tullie
Vice President, Sales....... 124,934(1)(4) 60,500 133,333 38,863(5)
Anil Bedi
Vice President, Marketing... 106,346(1) 56,500 206,666 8,560(6)
Laszlo Gal(7)
Vice President, Engineering. 22,885(1) 46,500 206,666 8,522(8)
</TABLE>
- --------
(1) Includes pre-tax contributions to the AMCC 401(k) Plan.
(2) Includes $128,706 paid to Mr. Rickey in the form of relocation expenses, a
matching contribution in the amount of $2,000 that the Company made on Mr.
Rickey's behalf to the AMCC 401(k) Plan and annual premiums in the amount
of $3,120 paid by the Company on a term life insurance policy.
(3) Includes a matching contribution in the amount of $2,000 that the Company
made on Mr. Holliday's behalf to the AMCC 401(k) Plan.
(4) Includes commissions earned by Mr. Tullie in the amount of $38,396, of
which $25,191 was paid to Mr. Tullie in fiscal 1997 and $13,205 was paid
to Mr. Tullie in fiscal 1998.
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<PAGE>
(5) Includes a matching contribution in the amount of $565 that the Company
made on Mr. Tullie's behalf to the AMCC 401(k) Plan and $38,298 paid to
Mr. Tullie for relocation expenses.
(6) Includes a matching contribution in the amount of $1,171 that the Company
made on Mr. Bedi's behalf to the AMCC 401(k) Plan and $7,389 paid to Mr.
Bedi for relocation expenses.
(7) Mr. Gal joined the Company in January 1997, and his annualized base salary
for the fiscal year ended March 31, 1997 year was $175,000.
(8) Includes $8,522 paid to Mr. Gal for relocation expenses.
OPTION GRANTS
The following table provides certain summary information regarding stock
options granted to the Named Officers during the fiscal year ended March 31,
1997. No stock appreciation rights were granted during such fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
-------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(4)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED (#) FISCAL YEAR(2) ($/SHARE)(3) DATE 5% 10%
---- ----------- -------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
David M. Rickey......... 0 0% N/A N/A N/A N/A
Joel O. Holliday........ 33,333 2.35 $0.53 07/17/2006 $ 28,505 $ 45,390
Roger A. Smullen........ 33,333 2.35 $0.53 07/17/2006 28,505 45,390
Thomas Tullie........... 133,333 9.39 $0.53 06/30/2006 114,022 181,562
Anil Bedi............... 206,666 14.55 $0.53 07/17/2006 176,735 281,420
Laszlo Gal.............. 206,666 14.55 $0.53 01/30/2007 176,735 281,420
</TABLE>
- --------
(1) Consists of options granted pursuant to the 1992 Plan. See "-- 1992 Stock
Option Plan."
(2) An aggregate of 1,457,285 options to purchase shares of Common Stock of
the Company were granted during fiscal year ended March 31, 1997, of which
1,420,619 shares were granted to employees.
(3) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the rules of the SEC. There can be no assurance that the
actual stock price appreciation over the ten-year option term will be at
the assumed 5% and 10% levels or at any other defined level. Unless the
market price of the Common Stock appreciates over the option term, no
value will be realized from the option grants made to the Named Officers.
(4) The exercise price and tax withholding obligations related to exercise may
be paid by delivery of shares that are already owned or by offset of the
underlying shares, subject to certain conditions.
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<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table provides certain summary information concerning the
shares of Common Stock represented by outstanding stock options held by each
of the Named Officers as of March 31, 1997. No stock appreciation rights were
exercised during such fiscal year and no stock appreciation rights were
outstanding at the end of such fiscal year.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT MARCH 31, 1997(1) AT MARCH 31, 1997
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE(2) EXERCISABLE UNEXERCISABLE(2)
---- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
David M. Rickey... 800,000 0 $ 0 $ 0
Joel O. Holliday.. 83,333 0 0 0
Roger A. Smullen.. 73,333 0 0 0
Thomas Tullie..... 133,333 0 0 0
Anil Bedi......... 206,666 0 0 0
Laszlo Gal........ 206,666 0 0 0
</TABLE>
- --------
(1) No Named Officer exercised options during the fiscal year ended March 31,
1997.
(2) Options granted under the 1982 Plan and 1992 Plan are generally
immediately exercisable, but subject to a right of repurchase pursuant to
the vesting schedule of each such grant. Accordingly, the table reflects
those options that are exercisable, not those options that are vested. See
"-- 1982 Employee Incentive Stock Option Plan" and "-- 1992 Stock Option
Plan."
1982 EMPLOYEE INCENTIVE STOCK OPTION PLAN
The Company's 1982 Employee Incentive Stock Option Plan (the "1982 Plan")
was adopted by the Board of Directors in November 1982 and approved by the
stockholders in July 1983. A total of 5,338,666 shares of Common Stock has
been reserved for issuance under the 1982 Plan. The 1982 Plan expired by its
own terms on November 1, 1992; however, options granted under the 1982 Plan
remain outstanding as of the date of this offering.
The purposes of the 1982 Plan are to encourage selected employees to accept
or continue employment with the Company, to provide additional incentives to
the Company's employees and to increase the interest of employees in the
Company's welfare. The 1982 Plan provides for the granting to employees
(including officers and employee directors) of "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). The 1982 Plan is administered by the Board of Directors,
which determines the terms of options granted under the 1982 Plan, including
the exercise price, number of shares subject to the option and the
exercisability thereof. Subject to the discretion of the Board of Directors,
options granted under the 1982 Plan generally are immediately exercisable in
full and 1/5th of the shares subject to the options vest each year over the
five year period measured from the grant date. Unvested shares purchased upon
exercise of such options are subject to repurchase by the Company, at its
option, upon an optionee's termination of employment. No options granted under
the 1982 Plan are transferable by the optionee other than by will or the laws
of descent and distribution, and each option is exercisable during the
lifetime of the optionee only by such optionee.
The exercise price of all stock options granted under the 1982 Plan must be
at least equal to the fair market value of the shares subject to such options
on the date of grant. With respect to any participant who owns stock
possessing more than 10% of the voting rights of the Company's outstanding
capital stock, the exercise price must equal at least 110% of the fair market
value on the grant date. Incentive stock options granted to a participant, may
not, on an aggregate basis, become exercisable for more than $100,000 (valued
at the time of grant) per calendar year. No options have been granted to date
at prices less than 100% of the fair market value on the date of grant.
Options granted under the 1982 Plan may not have a term in excess of
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<PAGE>
ten years. However, all stock options granted to an optionee who, at the time
of grant, owns stock representing more than 10% of the Company's outstanding
capital stock, may not have a term in excess of five years.
In the event of a merger of the Company with or into another corporation or
a sale of substantially all of the Company's assets, the options shall become
immediately exercisable or an equivalent option substituted by the successor
corporation. The Plan Administrator has the discretion to accelerate the
vesting of the option shares at any time.
Under the 1982 Plan, as of September 30, 1997, options to purchase 4,140,173
shares of Common Stock had been exercised, options to purchase an aggregate of
157,968 shares of Common Stock were outstanding at a weighted average exercise
price of $0.46 per share and no shares remain available for future grant as
the 1982 Plan expired in November 1992.
The Board of Directors may at any time amend, alter, suspend or discontinue
the 1982 Plan as long as such action does not adversely affect any outstanding
option and provided that stockholder approval shall be required for an
amendment to increase the number of shares of Common Stock reserved for
issuance under the 1982 Plan, extend the duration of the 1982 Plan, extend the
period over which options may be exercised under the 1982 Plan or change the
class of persons eligible to receive options under the 1982 Plan.
1992 STOCK OPTION PLAN
The Company's 1992 Stock Option Plan (the "1992 Plan") was adopted by the
Board of Directors in July 1992 and approved by the stockholders in September
1992 and subsequently amended. A total of 6,027,304 shares of Common Stock
have been reserved for issuance under the Stock Plan. As of September 30,
1997, options to purchase 1,424,615 shares of Common Stock had been exercised,
options to purchase a total of 2,049,309 shares at a weighted average exercise
price of $1.06 per share were outstanding and 2,553,380 shares remained
available for future option grants.
The 1992 Plan provides for the granting to employees, including officers and
directors, of incentive stock options within the meaning of Section 422 of the
Code and for the granting to employees and consultants, including nonemployee
directors, of nonstatutory stock options. To the extent an optionee would have
the right in any calendar year to exercise for the first time one or more
incentive stock options for shares having an aggregate fair market value
(under all plans of the Company and determined for each share as of the date
the option to purchase the shares was granted) in excess of $100,000, any such
excess options shall be treated as nonstatutory stock options. If not
terminated earlier, the 1992 Plan will terminate in July 2002.
The 1992 Plan may be administered by the Board of Directors or a committee
of the Board (the "Administrator"). The Administrator determines the terms of
options granted under the 1992 Plan, including the number of shares subject to
the option, exercise price, term and exercisability. The exercise price of all
incentive stock options granted under the 1992 Plan must be at least equal to
the fair market value of the Common Stock on the date of grant. The exercise
price of any incentive stock option granted to an optionee who owns stock
representing more than 10% of the total combined voting power of all classes
of outstanding capital stock of the Company or any parent or subsidiary
corporation of the Company (a "10% Stockholder") must equal at least 110% of
the fair market value of the Common Stock on the date of grant. The exercise
price of all nonstatutory stock options must equal at least 85% of the fair
market value of the Common Stock on the date of grant; provided, however, that
the exercise price of any nonstatutory stock option granted to a Named
Executive of the Company must equal at least 100% of the fair market value of
the Common Stock on the date of grant. Payment of the exercise price may be
made in cash or other consideration, including promissory notes, as determined
by the Administrator. The Plan Administrator has the discretion to implement
one or more repricing programs whereby outstanding options under the 1992 Plan
with exercise prices above the current market price of the Common Stock will
be cancelled, and new options will be granted in replacement with an exercise
price based on such current market value.
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<PAGE>
The Administrator determines the term of options, which may not exceed 10
years (5 years in the case of an incentive stock option granted to a 10%
Stockholder). No option may be transferred by the optionee other than by will
or the laws of descent or distribution. Each option may be exercised during
the lifetime of the optionee only by such optionee. The Administrator
determines when options become exercisable. Subject to the discretion of the
Board of Directors, options granted under the 1992 Plan generally are
immediately exercisable in full, and (i) for the initial option grant to each
optionee (the "Initial Option"), 1/4th of the number of such shares subject to
the option generally vest as of the one year anniversary of the vesting
commencement date and 1/48th of the remainder vest at the end of each month
thereafter; and (ii) for option grants subsequent to the Initial Option,
1/48th of the number of such shares subject to the option generally vest at
the end of each month after the vesting commencement date.
In the event of the merger of the Company with another corporation, in which
the Company is not the surviving entity, then each option shall immediately
vest as to one year of additional vesting. Each option may be thereafter
assumed or an equivalent option substituted by the successor corporation,
otherwise the options will terminate. The Administrator has the authority to
amend or terminate the 1992 Plan as long as such action does not adversely
affect any outstanding option and provided that, to the extent necessary and
desirable to comply with Rule 16b-3 under the Securities Exchange Act of 1934,
as amended, (the "Exchange Act") or with Section 162(m) or 422 of the Code (or
any other applicable law or regulation, including the requirements of the NASD
or an established stock exchange), the Company shall obtain stockholder
approval of any amendment to the 1992 Plan in such a manner and to such a
degree as required.
1997 DIRECTORS' STOCK OPTION PLAN
The Company's 1997 Directors' Stock Option Plan (the "Directors' Plan") was
adopted by the Board of Directors in October 1997, subject to stockholder
approval. A total of 200,000 shares of Common Stock has been reserved for
issuance under the Directors' Plan. The Directors' Plan provides for the grant
of nonstatutory stock options to nonemployee directors of the Company. The
Directors' Plan is designed to work automatically, without administration;
however, to the extent administration is necessary, it will be provided by the
Board of Directors. To the extent they arise, it is expected that conflicts of
interest will be addressed by abstention of any interested director from both
deliberations and voting regarding matters in which such director has a
personal interest.
The Directors' Plan provides that each person who is or becomes a
nonemployee director of the Company will be granted a nonstatutory stock
option to purchase 12,500 shares of Common Stock (the "First Option") on the
date on which the optionee first becomes a nonemployee director of the
Company. Thereafter, on April 1 each year (starting in 2000 for nonemployee
directors who are serving as directors as of the date of the closing of this
offering), each nonemployee director of the Company will be granted an option
to purchase 12,500 shares of Common Stock (a "Subsequent Option") if, on such
date, he or she has served on the Company's Board of Directors for at least
six months.
The Directors' Plan sets neither a maximum nor a minimum number of shares
for which options may be granted to any one nonemployee director, but does
specify the number of shares that may be included in any grant and the method
of making a grant. No option granted under the Directors' Plan is transferable
by the optionee other than by will or the laws of descent or distribution or
pursuant to a qualified domestic relations order, and each option is
exercisable, during the lifetime of the optionee, only by such optionee. The
Directors' Plan provides that the First Option shall become exercisable in
installments as to 1/12th of the total number of shares subject to the First
Option on each monthly anniversary of the date of grant of the First Option.
Each Subsequent Option shall become exercisable in installments as to 1/12th
of the total number of shares subject to the Subsequent Option on each monthly
anniversary of the grant date of that Subsequent Option. If a nonemployee
Director ceases to serve as a Director for any reason other than death or
disability, he or she may, but only within 90 days after the date he or she
ceases to be a Director of the Company, exercise options granted under the
Directors' Plan to the extent that he or she was entitled to exercise it at
51
<PAGE>
the date of such termination. To the extent that he or she was not entitled to
exercise any such option at the date of such termination, or if he or she does
not exercise such option (which he or she was entitled to exercise) within
such 90 day period, such option shall terminate. The exercise price of all
stock options granted under the Directors' Plan shall be equal to the fair
market value of a share of the Common Stock on the grant date of the option.
Options granted under the Directors' Plan have a term of ten years.
In the event of the dissolution or liquidation of the Company, a sale of all
or substantially all of the assets of the Company, the merger of the Company
with or into another corporation or any other reorganization of the Company in
which more than 50% of the shares of the Company entitled to vote are
exchanged, each outstanding option will become exercisable for all the option
shares as fully vested shares immediately prior to the effectiveness of such
dissolution, liquidation, sale, merger or reorganization, at the end of which
time the option shall terminate, unless the option is assumed by the
corporation succeeding the Company or acquiring its business by reason of such
dissolution, liquidation, sale, merger or reorganization. The Board of
Directors may amend or terminate the Directors' Plan; provided, however, that
no such action may adversely affect any outstanding option. If not terminated
earlier, the Directors' Plan will have a term of ten years.
1997 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors in September 1997, subject to stockholder
approval. A total of 400,000 shares of Common Stock are reserved for issuance
under the Purchase Plan.
The Purchase Plan, which is intended to qualify under Section 423 of the
Code, will be implemented by an offering periods of 24 months duration with
new offering periods (other than the first offering period) commencing on or
about February 1 and August 1 of each year. Each offering period will consist
of four consecutive purchase periods of six months duration, with the last day
of each period being designated a purchase date. However, the first offering
period is expected to commence on the date of the Offering and continue
through January 31, 2000, with the first purchase date occurring on July 31,
1998, and subsequent purchase dates to occur every six months thereafter). The
Purchase Plan will be administered by the Compensation Committee (comprised of
Messrs. Ghest, Johnson and Stabenow, outside directors of the Company who are
not eligible to participate in the Purchase Plan). Employees (including
officers and employee directors) of the Company, or of any majority-owned
subsidiary designated by the Board, are eligible to participate in the
Purchase Plan if they are employed by the Company or any such subsidiary for
at least 20 hours per week and more than five months per year. The Purchase
Plan permits eligible employees to purchase Common Stock through payroll
deductions, which may not exceed 20% of an employee's compensation, at a price
equal to the lower of 85% of the fair market value of the Company's Common
Stock at the beginning of the offering period or the purchase date. If the
fair market value of the Common Stock on a purchase date is less than the fair
market value at the beginning of the Offering period, a new 24-month offering
period will automatically begin on the first business day following the
purchase date with a new fair market value. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the
Company. If not terminated earlier, the Purchase Plan will have a term of 20
years.
The Purchase Plan provides that in the event of a merger of the Company with
or into another corporation or a sale of all or substantially all of the
Company's assets, each right to purchase stock under the Purchase Plan will be
assumed or an equivalent right substituted by the successor corporation unless
the Board of Directors shortens the offering period so that employees' rights
to purchase stock under the Purchase Plan are exercised prior to the merger or
sale of assets. The Board of Directors has the power to amend or terminate the
Purchase Plan as long as such action does not adversely affect any outstanding
rights to purchase stock thereunder.
401(K) PLAN
Effective January 1, 1986, the Company established a 401(k) defined
contribution retirement plan (the "Retirement Plan") covering all full-time
employees with greater than three months service. The Retirement
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<PAGE>
Plan provides for voluntary employee contributions from 1% to 20% of annual
compensation, subject to a maximum limit allowed by Internal Revenue Service
guidelines. The Company may contribute such amounts as determined by the Board
of Directors. Employer contributions vest to participants at a rate of 20% per
year of service, provided that after five years of service all past and
subsequent employer contributions are 100% vested. During the years ended March
31, 1997, 1996 and 1995, the Company contributed $318,000, $182,000 and
$116,000, respectively.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law (the "Delaware Law"),
the Company has included in its Restated Certificate of Incorporation a
provision to eliminate the personal liability of its officers and directors for
monetary damages for breach or alleged breach of their fiduciary duties as
officers or directors, respectively, subject to certain exceptions. In
addition, the Company's Bylaws provide that the Company is required to
indemnify its officers and directors under certain circumstances, including
those circumstances in which indemnification would otherwise be discretionary,
and the Company is required to advance expenses to its officers and directors
as incurred in connection with proceedings against them for which they may be
indemnified. The Company has entered into indemnification agreements with its
officers and directors containing provisions that are in some respects broader
than the specific indemnification provisions contained in the Delaware Law. The
indemnification agreements require the Company, among other things, to
indemnify such officers and directors against certain liabilities that may
arise by reason of their status or service as officers and directors (other
than liabilities arising from willful misconduct of a culpable nature), to
advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified, and to obtain directors' and officers'
insurance if available on reasonable terms. The Company has also obtained
directors' and officers' liability insurance. The Company believes that its
charter provisions and indemnification agreements are necessary to attract and
retain qualified persons as directors and officers.
53
<PAGE>
CERTAIN TRANSACTIONS
In January 1996, the Company entered into a letter agreement with David
Rickey, the Company's President and Chief Executive Officer. This agreement
entitles Mr. Rickey to a salary of $275,000 per year and term life insurance
purchased by the Company for the benefit of Mr. Rickey's estate. Pursuant to
the terms of the agreement, if the Company enters into certain change-of-
control transactions, the vesting of Mr. Rickey's options to purchase shares
of the Company's Common Stock will accelerate. In addition, the agreement
provides that if the Company is acquired and the per share value of the
Company's Common Stock is less than $3.00 per share, the Company will
compensate Mr. Rickey for the difference between $3.00 per share and the per
share merger or sale price determined by the Company's Board of Directors. The
letter agreement provides that Mr. Rickey's employment is at will and
terminable by the Company or Mr. Rickey for any reason, with or without cause,
and with or without notice.
In February 1996, the Company entered into a loan arrangement with Mr.
Rickey, pursuant to which the Company loaned to Mr. Rickey $150,000 ("Note No.
1") and $53,000 ("Note No. 2") at an annual interest rate of 5.32%. In May
1996, the Company entered into a loan arrangement with Mr. Rickey pursuant to
which the Company loaned $750,000 ("Note No. 3") to Mr. Rickey at an interest
rate of 5.76% per annum compounded annually. The loan is evidenced by a non-
recourse promissory note, which is secured by 46,500 shares of Common Stock of
Advanced Micro Devices. In April 1997, Mr. Rickey repaid approximately
$190,639 of the principal and accrued interest on Note No. 1 and Note No. 2,
and Mr. Rickey delivered a full recourse, unsecured promissory note with a
principal amount of $12,392 and an interest rate of 5.91% per annum in
cancellation of Note No. 1 and Note No. 2.
In July 1997, Mr. Rickey exercised stock options granted under the 1992
Plan. In payment of the purchase price for the exercised shares, Mr. Rickey
delivered promissory notes in principal amounts of approximately $400,000,
$20,000 and $35,000 bearing interest at rates of 5.98%, 5.98% and 6.54%,
respectively. The notes and accrued interest thereon are payable in full in
February 2000, February 2000 and April 2001, respectively.
The Company has entered into indemnification agreements with its officers
and directors containing provisions that may require the Company, among other
things, to indemnify its officers and directors against certain liabilities
that may arise by reason of their status or service as officers or directors
(other than liabilities arising from willful misconduct of a culpable nature)
and to advance their expenses incurred as a result of any proceeding against
them as to which they could be indemnified. For a description of limitations
of liability and certain indemnification arrangements with respect to the
Company's directors and officers, see "Management -- Limitation of Liability
and Indemnification Matters."
Certain stockholders are entitled to certain registration rights in respect
of the Common Stock issued or issuable upon conversion thereof. See
"Description of Capital Stock -- Registration Rights of Certain Holders."
For a description of compensation of officers and directors of the Company
and the eligibility of officers and directors of the Company to participate in
the Company's employee benefit plans, see "Management --Board Compensation"
and "-- Executive Compensation."
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors, principal stockholders and affiliates
will be approved by a majority of the Board of Directors, including a majority
of the independent and disinterested outside directors on the Board of
Directors, and will be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of September 30, 1997 and as
adjusted to reflect the sale of the Common Stock offered by the Company
pursuant to this Prospectus and conversion of all outstanding shares of
Preferred Stock into shares of Common Stock by (i) each of the Company's
directors and Named Officers, (ii) all directors and executive officers as a
group and (iii) each person who is known by the Company to own beneficially
more than 5% of the Company's Common Stock.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED SHARES BENEFICIALLY
PRIOR TO OFFERING(1) OWNED AFTER OFFERING(1)
-------------------- NUMBER OF -----------------------
NUMBER PERCENT(2) SHARES OFFERED NUMBER PERCENT(2)
--------- ---------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
David M. Rickey (3)..... 893,332 5.22% -- 893,332 4.51%
Joel O. Holliday (4).... 505,261 2.94 -- 505,261 2.54
Roger A. Smullen (5).... 577,412 3.37 -- 577,412 2.96
Thomas Tullie (6)....... 166,665 * -- 166,665 *
Anil K. Bedi (7)........ 226,666 1.31 -- 226,666 1.13
Laszlo V. Gal (8)....... 213,332 1.23 -- 213,332 1.07
William K. Bowes, Jr.,
including shares held
by affiliates of U.S.
Venture Partners (9)... 953,427 5.55 -- 830,224 4.18
Franklin P. Johnson,
Jr., including shares
held by Asset Manage-
ment Partners and Asset
Management Associates
(10)................... 604,329 3.73 -- 640,329 3.22
Arthur B. Stabenow (11). 86,663 * -- 86,663 *
R. Clive Ghest (12)..... 50,000 * -- 50,000 *
Sequoia Capital (13).... 1,199,992 7.02 -- 1,199,992 6.06
3000 Sand Hill Road
Menlo Park, CA 94025
U.S. Venture Partners
(14)................... 884,194 5.17 123,203 760,991 3.84
2180 Sand Hill Road
Menlo Park, CA 94025
Albert J. Martinez (15). 709,996 4.15 354,998 354,998 1.79
1366 Via Alta
Del Mar, CA 92014
Harrison Capital, Inc. . 277,879 1.62 277,879 -- --
2000 Westchester Ave.
White Plains, NY 10650
Lumberman's Mutual
Casualty Company (16).. 255,519 1.49 255,519 -- --
c/o Zurich Investment
Management, Inc.,
222 S. Riverside Plaza
Chicago, IL 60606
Funds affiliated with
Venture Capital Fund of
America (17)........... 206,558 1.33 206,558 -- --
Additional Selling
Stockholders (93
stockholders), each
holding less than 1.0%
of the Common Stock
prior to this
offering (18).......... 2,330,221 13.62 1,531,843 798,378 4.03
All directors and execu-
tive officers as a
group (10 persons)
(19)................... 4,277,087 24.92 123,203 4,153,884 21.00
</TABLE>
55
<PAGE>
- -------
*Less than 1% of the outstanding shares
(1) Assumes no exercise of the Underwriters' over-allotment option. Except
pursuant to applicable community property laws or as indicated in the
footnotes to this table, to the Company's knowledge, each stockholder
identified in the table possesses sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by such
stockholder.
(2) Applicable percentage of ownership for each stockholder is based on
17,101,750 shares of Common Stock outstanding as of September 30, 1997.
Beneficial ownership is determined in accordance with the rules of the
SEC and includes voting and investment power with respect to the shares.
In computing the shares beneficially owned by a person and the percentage
of ownership of that person, shares of Common Stock subject to options
held by that person that are currently exercisable or exercisable within
60 days of September 30, 1997 are deemed outstanding. Such shares,
however, are not deemed outstanding for the purposes of computing the
percentage ownership of each other person.
(3) Includes 398,333 shares which are no longer subject to repurchase by the
Company.
(4) Includes 321,931 shares held in the name of Joel O. Holliday and Rosanne
R. Holliday, Co-Trustees of the Joel O. Holliday Family Trust dated April
1, 1985 and 66,666 shares held in the name of the Holliday Children 1985
Trust. Includes 55,556 shares of Common Stock issuable upon the exercise
of immediately exercisable options which are subject to repurchase
rights, of which 4,166 shares are no longer subject to repurchase by the
Company.
(5) Includes 20,000 shares of Common Stock issuable upon the exercise of
immediately exercisable options. Such shares are no longer subject to
repurchase by the Company.
(6) Includes 48,611 shares which are no longer subject to repurchase by the
Company.
(7) Represents Common Stock issuable upon the exercise immediately
exercisable options which are subject to repurchase rights, of which
58,472 shares are no longer subject to repurchase by the Company.
(8) Represents Common Stock issuable upon the exercise immediately
exercisable options which are subject to repurchase rights, of which 833
shares are no longer subject to repurchase by the Company.
(9) William K. Bowes, Jr., a director of the Company, holds 5,901 shares of
Common Stock directly. In addition, Mr. Bowes holds immediately
exercisable options to purchase 63,332 shares of Common Stock which are
subject to repurchase rights, of which 23,054 shares, are no longer
subject to repurchase by the Company. In addition, Mr. Bowes is a partner
of the general partner of U.S. Venture Partners, which holds 380,039
shares; U.S. Venture Partners III which holds 327,616 shares; Second
Ventures, L.P. which holds 53,336 shares; and U.S. Ventures, S.A. which
holds 123,203 shares. Mr. Bowes disclaims beneficial ownership of the
shares held by U.S. Venture Partners, U.S. Venture Partners III, Second
Ventures, L.P. and U.S. Ventures, S.A. except to the extent of his
pecuniary interest therein. See Note 14.
(10) Includes 63,332 shares of Common Stock issuable upon the exercise of
immediately exercisable options which are subject to repurchase rights,
of which 23,054 shares are no longer subject to repurchase by the
Company. Mr. Johnson is the general partner of Asset Management Partners,
which holds 226,380 shares. In addition, Mr. Johnson is a general partner
of AMC Partners, a general partner of Asset Management Associates, which
holds 350,617 shares. Mr. Johnson disclaims beneficial ownership with
respect to the shares held by Asset Management Partners and Asset
Management Associates except to the extent of his pecuniary interest
therein.
(11) Includes 31,777 shares which are no longer subject to repurchase by the
Company.
(12) Represents shares of Common Stock issuable upon exercise of immediately
exercisable options which are subject to repurchase rights, of which
5,555 shares are no longer subject to repurchase by the Company.
(13) Includes 1,142,856 shares held by Sequoia Capital Growth Fund and 57,136
shares held by Sequoia Technology Partners III.
(14) Includes 380,039 shares held by U.S. Venture Partners, 327,616 shares
held by U.S. Venture Partners III, 53,336 shares held by Second Ventures
L.P. and 123,203 shares held by U.S. Ventures, S.A. William K. Bowes,
Jr., a director of the Company, is a general partner of the general
partner of each of these
56
<PAGE>
partnerships. Mr. Bowes disclaims beneficial ownership of such shares
except to the extent of his pecuniary interest therein. See Note 9.
(15) All of these shares represent shares held in the name of Albert J.
Martinez and S. Gay Hugo-Martinez, Co-Trustees for the Martinez Family
Trust dated August 26, 1992.
(16) Zurich Investment Management, Inc. (with Zurich Kemper Investments, Inc.
as sub-advisor) acts as investment manager to Lumberman's Mutual Casualty
Insurance Company, American Manufacturer's Mutual Insurance Company and
American Motorists Insurance Company and in such capacity may be deemed
to be the beneficial owner of the shares held by such entities. American
Manufacturer's Mutual Insurance Company and American Motorist's Insurance
Company, each of which beneficially owns less than 1.0% of the Company's
outstanding Common Stock prior to this offering, are each selling 28,567
shares of Common Stock in the offering. After the offering, each such
entity will no longer hold shares of the Company's Common Stock.
(17) Includes 150,270 shares held by VCFA Investment II, Ltd. and 56,288
shares held by VCFA Investment Secondaries, Ltd.
(18) Consists of 93 Stockholders, each of which beneficially owns less than
1.0% of the Company's outstanding Common Stock prior to the offering.
(19) Includes 1,461,191 shares held by entities affiliated with certain
directors as described in Notes 9, 10 and 11. Also includes 135,134
shares subject to immediately exercisable options and for which the
repurchase rights have lapsed.
57
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this Offering, the authorized capital stock of the
Company will consist of 60,000,000 shares of Common Stock, $.01 par value, and
2,000,000 shares of undesignated Preferred Stock, $.01 par value, after giving
effect to the amendment of the Company's Certificate of Incorporation to
delete references to the Series 1 Preferred Stock, Series 2 Preferred Stock
and Series 3 Preferred Stock, which will occur upon conversion of such
Preferred Stock into Common Stock upon the closing of this offering.
COMMON STOCK
As of September 30, 1997, there were 17,101,750 shares of Common Stock
outstanding (as adjusted to reflect the conversion of all outstanding shares
of Series 1 Preferred Stock, Series 2 Preferred Stock and Series 3 Preferred
Stock into Common Stock upon the completion of this offering), held of record
by 877 stockholders, and options to purchase an aggregate of 2,232,032 shares
of Common Stock were also outstanding. There will be 19,801,750 shares of
Common Stock outstanding (assuming no exercise of the Underwriter's
overallotment option) after giving effect to the sale of the shares of Common
Stock to the public offered hereby.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferential rights with respect to any outstanding Preferred Stock, holders
of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor.
See "Dividend Policy." In the event of liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to share ratably in
all assets remaining after payment of liabilities and satisfaction of
preferential rights of any outstanding Preferred Stock. The Common Stock has
no preemptive or conversion rights or other subscription rights. The
outstanding shares of Common Stock are, and the shares of Common Stock to be
issued upon completion of this offering will be, fully paid and non-
assessable.
PREFERRED STOCK
Upon the closing of the offering, all outstanding shares of Preferred Stock
will automatically be converted into Common Stock. Thereafter, the Board of
Directors is authorized to issue Preferred Stock in one or more series and to
fix the rights, preferences, privileges and restrictions thereof, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of
shares constituting any series or the designation of such series, without
further vote or action by the stockholders. The issuance of Preferred Stock
may have the effect of delaying, deferring or preventing a change in control
of the Company without further action by the stockholders. The issuance of
Preferred Stock with voting and conversion rights may adversely affect the
voting power of the holders of Common Stock, including voting rights, of the
holders of Common Stock. In certain circumstances, such issuance could have
the effect of decreasing the market price of the Common Stock. As of the
closing of the offering, no shares of Preferred Stock will be outstanding and
the Company currently has no plans to issue any shares of Preferred Stock.
REGISTRATION RIGHTS
Upon the closing of the offering, the holders of 10,709,090 shares of Common
Stock (the "Registrable Securities"), and 83,807 shares issuable pursuant to
the exercise of certain warrants to purchase Common Stock, or their
transferees are entitled to certain rights with respect to the registration of
such shares under the Securities Act. These rights are provided under the
terms of agreements between the Company and the
58
<PAGE>
holders of the Registrable Securities. Subject to certain limitations in the
agreement, the holders of at least 40% of the Registrable Securities (the
"Initiating Holders") may require, on two occasions after the closing of the
offering, that the Company use its best efforts to register the Registrable
Securities for public resale provided that a minimum of $5,000,000 in Common
Stock must be sold by the Initial Holders in such public resale. If the Company
registers any of its Common Stock either for its own account or for the account
of other security holders, the holders of Registrable Securities are entitled
to include their shares of Common Stock in such registration, subject to the
ability of the underwriters to limit the number of shares included in the
Offering. The holders of Registrable Securities may also require the Company to
register all or a portion of their Registrable Securities on Form S-3 when use
of such form becomes available to the Company. All registration expenses must
be borne by the Company and all selling expenses relating to the Registrable
Securities must be borne by the holders of the securities being registered.
WARRANTS
As of September 30, 1997 the Company had outstanding warrants to purchase
83,807 shares of Common Stock. Of these, warrants exercisable for an aggregate
of 64,760 shares of Common Stock have an exercise price of $3.00 per share.
Each of these warrants will terminate, if not exercised, five years from the
date of the closing of this Offering and under the terms of these warrants, the
Company may require the holders of these warrants to exercise such warrants
immediately prior to the closing of this offering. The Company has also issued
a warrant exercisable for 19,047 shares of Common Stock at an exercise price of
$2.63 per share. This warrant will terminate, if not exercised, five years from
the date of the closing of this offering.
TRANSFER AGENT AND REGISTRAR
The name and address of transfer agent and registrar for the Company's Common
Stock is Harris Trust Company of California, 601 South Figueroa St., Ste. 4900,
Los Angeles, California, 90017. Its telephone number at that address is (213)
239-0671.
LISTING
The Company has applied to list its Common Stock on the Nasdaq National
Market under the trading symbol AMCC. The Company has not applied to list its
Common Stock on any other exchange. See "Risk Factors--Absence of Prior Public
Market and Possible Volatility of Stock Price."
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect prevailing market prices. Furthermore, since a
limited number of shares will be available for sale shortly after this
offering because of certain contractual and legal restrictions on resale (as
described below), sales of substantial amounts of Common Stock of the Company
in the public market after the restrictions lapse could adversely affect the
prevailing market price and the ability of the Company to raise equity capital
in the future.
Upon completion of the offering, the Company will have outstanding
19,801,750 shares of Common Stock (assuming no exercise of the Underwriters'
over-allotment option and no exercise of options outstanding under the
Company's 1982 Plan and 1992 Plan or warrants outstanding or other options
outstanding after September 30, 1997). Of these shares, the 5,450,000 shares
sold in the offering (plus any shares issued upon exercise of the
Underwriters' over-allotment option) will be freely tradeable without
restriction under the Securities Act, unless purchased by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act.
The remaining 14,351,750 shares of Common Stock outstanding are "restricted
securities" within the meaning of Rule 144 under the Securities Act
("Restricted Shares"). Restricted Shares may be sold in the public market only
if registered or if they qualify for an exemption from registration under
Rules 144, 144(k) or 701 promulgated under the Securities Act, which are
summarized below. Sales of the Restricted Shares in the public market, or the
availability of such shares for sale, could adversely affect the market price
of the Common Stock.
The holders of approximately 13,115,250 shares of Common Stock, including
officers and directors of the Company have entered into lock-up agreements
(the "Lock-Up Agreements") with the Company or the Representatives of the
Underwriters generally providing that they will not offer, sell, contract to
sell or grant any option to purchase or otherwise dispose of the shares of
Common Stock of the Company or any securities exercisable for or convertible
into the Company's Common Stock owned by them for a period of 180 days after
the effective date of the registration statement filed pursuant to this
offering (the "Effective Date"), without the prior written consent of
BancAmerica Robertson Stephens, the designated representative of the
Underwriters. As a result of these contractual restrictions, notwithstanding
possible earlier eligibility for sale under the provisions of Rules 144 (as
described below), 144(k) and 701, shares subject to Lock-Up Agreements will
not be saleable until such agreements expire or are waived by the designated
Underwriters' representative. Taking into account the Lock-Up Agreements, and
assuming the designated Underwriters' representative does not release
stockholders from these agreements, the following shares will be eligible for
sale in the public market at the following times: beginning on the Effective
Date, only the shares sold in the offering and approximately 665,000 shares
pursuant to Rule 144(k) ,will be immediately available for sale in the public
market; beginning 90 days after the Effective Date, approximately 571,500
shares will be eligible for sale pursuant to Rule 144(k); and beginning 180
days after the Effective Date approximately 13,115,250 shares will be freely
tradeable, subject in some cases to the volume and other restrictions of Rule
144.
In general, under Rule 144 as currently in effect, and beginning after the
expiration of the Lock-Up Period, a person (or persons whose shares are
aggregated) who has beneficially owned Restricted Shares 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: (i) one percent of the number of shares
of Common Stock then outstanding (which will equal approximately 198,000
shares immediately after the offering); or (ii) the average weekly trading
volume of the Common Stock during the four calendar weeks preceding the sale.
Sales under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information
about the Company. Under Rule 144(k), a person who is not deemed to have been
an affiliate of the Company at any time during the three months preceding a
sale, and who has beneficially owned the shares proposed to be sold for at
least two years, is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.
60
<PAGE>
All Company employees who acquire Common Stock pursuant to stock option
grants under the 1992 Plan are restricted from selling securities of the
Company until 180 days after the Effective Date. The 1982 Plan contains no
such lock-up provisions. Therefore, beginning 90 days after the Effective
Date, any employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to the 1982 Plan and who has not entered
into a Lock-Up Agreement may be entitled to rely on the resale provisions of
Rule 701 to the extent that such shares were purchased after May 20, 1988. In
addition, beginning 180 days after the Effective Date, any employee, officer
or director of or consultant to the Company who purchased his or her shares
after May 20, 1988 pursuant to options that were granted under the Company's
1982 Stock Option Plan and who has entered into a Lock-Up Agreement, or who
purchased his or her shares pursuant to options that were granted under the
Company's 1992 Stock Option Plan may be entitled to rely on the resale
provisions of Rule 701. Rule 701 permits affiliates to sell their Rule 701
shares under Rule 144 without complying with the holding period requirements
of Rule 144. Rule 701 further provides that non-affiliates may sell such
shares in reliance on Rule 144 without having to comply with the holding
period, public information, volume limitation or notice provisions of Rule
144. In addition, the Company intends to file a registration statement under
the Securities Act to register the shares of Common Stock to be issued
pursuant to the Company's 1997 Employee Stock Purchase Plan on the Effective
Date and to file registration statements under the Securities Act
approximately 90 days after the Effective Date to register all of the shares
to be issued pursuant to the Company's other employee benefit plans. As a
result, any options exercised under the 1992 Plan or any other benefit plan
after the effectiveness of such registration statement will also be freely
tradeable in the public market, except that shares held by affiliates will
still be subject to the volume limitation, manner of sale, notice and public
information requirements of Rule 144 unless otherwise resaleable under Rule
701. As of September 30, 1997, there were outstanding options for the purchase
of 2,232,032 shares, of which options for 2,232,032 shares were exercisable,
subject in certain cases to repurchase rights of the Company. No shares have
been issued to date under the Company's Purchase Plan or Directors Plan. See
"Risk Factors -- Shares Eligible for Future Sale," "Management -- 1982
Employee Incentive Stock Option Plan," "-- 1992 Stock Option Plan" and "--
1997 Employee Stock Purchase Plan" and "Description of Capital Stock --
Registration Rights."
61
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives,
BancAmerica Robertson Stephens, NationsBanc Montgomery Securities, Inc. and
Cowen & Company (the "Representatives"), have severally agreed, subject to the
terms and conditions of the Underwriting Agreement, to purchase from the
Company and the Selling Stockholders the number of shares of Common Stock set
forth opposite their respective names below. The Underwriters are committed to
purchase and pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
BancAmerica Robertson Stephens.....................................
NationsBanc Montgomery Securities, Inc.............................
Cowen & Company ...................................................
---------
Total............................................................ 5,450,000
=========
</TABLE>
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose to offer the shares of Common Stock to the
public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price, less a concession of not
more than $ per share, of which $ per share may be
reallowed to other dealers. After the initial public offering, the public
offering price, concession and reallowance to dealers may be reduced by the
Representatives. No such reduction shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
additional 817,500 shares of Common Stock at the same price per share as the
Company and the Selling Stockholders receive for the 5,450,000 shares that the
Underwriters have agreed to purchase. To the extent that the Underwriters
exercise such option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage of such additional shares that the
number of shares of Common Stock to be purchased by it shown in the above
table represents as a percentage of the 5,450,000 shares offered hereby. If
purchased, such additional shares will be sold by the Underwriters on the same
terms as those on which the 5,450,000 shares are being sold. The Company will
be obligated, pursuant to the option, to sell shares to the Underwriters to
the extent the option is exercised. The Underwriters may exercise such option
only to cover over-allotments made in connection with the sale of shares of
Common Stock offered hereby.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act of 1933, as
amended, and liability arising from breaches of representations and warranties
contained in the Underwriting Agreement.
Pursuant to the terms of lock-up agreements, the holders of 13,115,250
shares of the Company's Common Stock, including the officers and directors
have agreed with the Company or the Representatives that, until the expiration
of the 180 day period following the effective date of the registration
statement filed pursuant to this offering (the "Effective Date"), subject to
certain limited exceptions, they will not, directly or indirectly, offer,
sell, contract to sell, grant any option to purchase, pledge, or otherwise
dispose of or transfer, any shares of Common Stock, or any securities
convertible into or exchangeable for, or any rights to purchase or acquire,
shares of Common Stock, now owned or hereafter acquired by such holders or
with respect to which they have or hereafter acquire the power of disposition,
without the prior written consent of BancAmerica Robertson Stephens.
BancAmerica Robertson Stephens may, in its sole discretion, without notice,
release all or any portion of the securities subject to lock-up agreements.
See "Shares Eligible for Future Sale." Approximately 13,115,250 shares of
Common Stock subject to lock-up agreements will be
62
<PAGE>
eligible for immediate public sale following the expiration of the 180 day
period following the Effective Date, subject to Rule 144. In addition, the
Company has agreed that, until the expiration of the Lock-Up Period, the
Company will not, without the prior written consent of BancAmerica Robertson
Stephens, subject to certain exceptions, sell or otherwise dispose of any
shares of Common Stock, any options or warrants to purchase any shares of
Common Stock or any securities convertible into, exercisable for or
exchangeable for shares of Common Stock other than the Company's sale of
shares in this offering, the issuance of Common Stock upon the exercise of
outstanding options and warrants, or the Company's grant of options and
issuance of stock under existing stock option or stock purchase plans. See
"Shares Eligible for Future Sale."
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters do not intend to confirm sales to accounts over which
they exercise discretionary authority.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in this offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids which may have the effect of
stabilizing or maintaining the market price of Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is
a bid for or the purchase of the Common Stock on behalf of the Underwriters
for the purpose of fixing or maintaining the price of the Common Stock. A
"syndicate covering transaction" is the bid for or the purchase of the Common
Stock on behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with this offering. A "penalty bid" is an
arrangement permitting the Representatives to reclaim the selling concession
otherwise accruing to an Underwriter or syndicate member in connection with
this offering if the Common Stock originally sold by such Underwriter or
syndicate member is purchased by the Representatives in a syndicate covering
transaction and has therefore not been effectively placed by such Underwriter
or syndicate member. The Representatives have advised the Company that such
transactions may be effected on the Nasdaq National Market or otherwise and,
if commenced, may be discontinued at any time.
The Underwriters have reserved for possible sale, at the initial public
offering price, a maximum of 5.0% of the shares of Common Stock offered hereby
for certain individuals approved by the Company and who have expressed an
interest in purchasing shares of Common Stock in this offering. The number of
shares available for sale to the general public will be reduced to the extent
any such persons are offered and purchase such reserved shares. Any reserved
shares not so purchased will be offered by the Underwriters to the general
public on the same basis as other shares offered hereby.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined through negotiations among the Company, the Selling
Stockholders and the Representatives. The material factors to be considered in
such negotiations are prevailing market conditions, certain financial
information of the Company for recent periods, market valuations of other
companies that the Company, the Selling Stockholders and the Representatives
believe to be comparable to the Company, estimates of the business potential
of the Company, the present state of the Company's development, the Company's
management and other factors deemed relevant. 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. There
can be no assurance that an active or orderly trading market will develop for
the Common Stock or that the Common Stock will trade in the public market
subsequent to this offering at or above the initial trading price. See "Risk
Factors -- Absence of Prior Market and Possible Volatility of Stock Price" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
63
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Venture Law Group, A Professional Corporation, Menlo Park,
California. Certain legal matters in connection with this Offering will be
passed upon for the Underwriters by Brobeck, Phleger & Harrison LLP, Palo
Alto, California.
EXPERTS
The consolidated financial statements of Applied Micro Circuits Corporation
at March 31, 1996 and 1997, and for each of the three years in the period
ended March 31, 1997, appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission, a Registration Statement on Form
S-1 (together with all amendments, schedules and exhibits thereto, the
"Registration Statement") under the Securities Act with respect to the shares
of Common Stock offered hereby. This Prospectus, which constitutes a part of
the Registration Statement, does not contain all of the information set forth
in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement. Statements made in this
Prospectus as to the contents of any contract, agreement or other document are
not necessarily complete; with respect to each such contract, agreement or
other document filed as an exhibit to the Registration Statement, reference is
made to the exhibit for a more complete description of the matter involved,
and each such statement shall be deemed qualified in its entirety by such
reference. The Registration Statement and the exhibits thereto may be
inspected, without charge, at the public reference facilities maintained by
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices at 500 West Madison Street,
Chicago, IL 60661, and 7 World Trade Center, New York, New York 10048. Copies
of such material can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Registration Statement and the exhibits thereto may also be
accessed through the EDGAR terminals in the Commission's public reference
facilities in Washington, D.C. or through the World Wide Web at
http://www.sec.gov.
64
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
APPLIED MICRO CIRCUITS CORPORATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors......................... F-2
Consolidated Balance Sheets as of March 31, 1996 and 1997 and September
30, 1997 (Unaudited)..................................................... F-3
Consolidated Statements of Operations for each of the three years in the
period ended March 31, 1997 and for the six months ended September 30,
1996 and 1997 (Unaudited)................................................ F-4
Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended March 31, 1997 and for the six months ended
September 30, 1997 (Unaudited)........................................... F-5
Consolidated Statements of Cash Flows for each of the three years in the
period ended March 31, 1997 and for the six months ended September 30,
1996 and 1997 (Unaudited)................................................ F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Applied Micro Circuits Corporation
We have audited the accompanying consolidated balance sheets of Applied
Micro Circuits Corporation as of March 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended March 31, 1997. 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 generally accepted auditing
standards. 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 Applied Micro Circuits Corporation at March 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended March 31, 1997, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
April 25, 1997, except for Note 11, as to which the date is
October , 1997
- -------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon completion of
certain events as described in Note 11 to the consolidated financial
statements.
/s/ ERNST & YOUNG LLP
San Diego, California
October 7, 1997
F-2
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY AT
MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
----------------- ------------- -------------
1996 1997 1997 1997
-------- ------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..... $ 4,277 $ 5,488 $ 2,041
Short-term investments --
available-for-sale 4,541 8,109 9,361
Accounts receivable, net of
allowance for doubtful ac-
counts of $90 and $200 at
March 31, 1996 and 1997, re-
spectively, and $350 at Sep-
tember 30, 1997 (unaudited).. 9,476 8,418 9,809
Inventories................... 6,836 7,530 7,961
Deferred income taxes......... -- -- 1,096
Other current assets.......... 777 698 853
-------- ------- -------
Total current assets......... 25,907 30,243 31,121
Notes receivable from officer
and employees.................. -- 803 934
Property and equipment, net..... 11,929 10,768 12,327
-------- ------- -------
Total assets................... $ 37,836 $41,814 $44,382
======== ======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable.............. $ 3,981 $ 2,428 $ 4,730
Accrued payroll and related
expenses..................... 1,291 3,102 2,647
Other accrued liabilities..... 2,130 1,881 1,221
Deferred revenue.............. 831 806 929
Current portion of long-term
debt......................... 582 37 --
Current portion of capital
lease obligations............ 3,062 2,625 2,641
-------- ------- -------
Total current liabilities.... 11,877 10,879 12,168
Long-term debt, less current
portion........................ 37 -- --
Long-term capital lease obliga-
tions, less current portion.... 4,410 3,192 2,096
Commitments and contingencies
(Notes 6 and 10)
Stockholders' equity:
Preferred Stock, $0.01 par
value:
2,000,000 shares authorized
pro forma, none issued and
outstanding pro forma
Convertible preferred stock,
$0.01 par value:
Authorized shares --
1,350,000...................
Issued and outstanding
shares -- 1,223,594 at
March 31, 1996 and 1997 and
1,051,294 at September 30,
1997 (unaudited) (none pro
forma, unaudited)............
Liquidation value -- $25,695
at March 31, 1996 and 1997
and $22,077 at September 30,
1997 (unaudited)............. 12 12 11 $ --
Common stock, $0.01 par value:
Authorized shares --
34,500,000..................
Issued and outstanding
shares -- 4,968,316 and
5,025,357 at March 31, 1996
and 1997, respectively, and
6,392,660 at September 30,
1997, (unaudited) (17,101,750
pro forma, unaudited)........ 49 50 64 171
Additional paid-in capital.... 36,971 36,974 34,655 34,559
Deferred compensation......... -- -- (552) (552)
Accumulated deficit........... (15,444) (9,235) (3,559) (3,559)
Notes receivable from stock-
holders...................... (76) (58) (501) (501)
-------- ------- ------- -------
Total stockholders' equity... 21,512 27,743 30,118 $30,118
-------- ------- ------- =======
Total liabilities and stock-
holders' equity............... $ 37,836 $41,814 $44,382
======== ======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------- ---------------
1995 1996 1997 1996 1997
------- ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues........................ $46,950 $50,264 $57,468 $27,955 $35,208
Cost of revenues.................... 27,513 34,169 30,057 15,754 16,534
------- ------- ------- ------- -------
Gross profit........................ 19,437 16,095 27,411 12,201 18,674
Operating expenses:
Research and development.......... 10,108 8,283 7,870 3,412 6,002
Selling, general and administra-
tive............................. 10,112 11,232 12,537 5,894 6,730
------- ------- ------- ------- -------
Total operating expenses........ 20,220 19,515 20,407 9,306 12,732
------- ------- ------- ------- -------
Operating income (loss)............. (783) (3,420) 7,004 2,895 5,942
Interest income (expense), net...... (358) (242) (29) 24 151
------- ------- ------- ------- -------
Income (loss) before income taxes... (1,141) (3,662) 6,975 2,919 6,093
Provision (benefit) for income tax-
es................................. (70) 32 659 276 159
------- ------- ------- ------- -------
Net income (loss)................... $(1,071) $(3,694) $ 6,316 $ 2,643 $ 5,934
======= ======= ======= ======= =======
Pro forma net income per share...... $ 0.33 $ 0.30
======= =======
Shares used in pro forma net income
per share calculation.............. 19,020 19,623
======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE TOTAL
----------------- ----------------- PAID-IN DEFERRED ACCUMULATED FROM STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT STOCKHOLDERS EQUITY
--------- ------ --------- ------ ---------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31,
1994................. 1,223,594 $12 4,247,977 $42 $36,655 $ -- $(10,646) $(234) $25,829
Issuance of stock
pursuant to exer-
cise of stock op-
tions.............. -- -- 204,558 2 91 -- -- -- 93
Repurchase of common
stock.............. -- -- (26,278) -- (13) -- (33) -- (46)
Net loss............ -- -- -- -- -- -- (1,071) -- (1,071)
--------- --- --------- --- ------- ----- -------- ----- -------
Balance, March 31,
1995................. 1,223,594 12 4,426,257 44 36,733 -- (11,750) (234) 24,805
Issuance of stock
pursuant to exer-
cise of stock op-
tions.............. -- -- 547,767 5 251 -- -- -- 256
Repurchase of common
stock.............. -- -- (5,708) -- (13) -- -- -- (13)
Payments on and for-
giveness of notes.. -- -- -- -- -- -- -- 158 158
Net loss............ -- -- -- -- -- -- (3,694) -- (3,694)
--------- --- --------- --- ------- ----- -------- ----- -------
Balance, March 31,
1996................. 1,223,594 12 4,968,316 49 36,971 -- (15,444) (76) 21,512
Issuance of stock
pursuant to exer-
cise of stock op-
tions.............. -- -- 92,680 1 41 -- -- -- 42
Repurchase of common
stock.............. -- -- (35,639) -- (38) -- (107) -- (145)
Payment on notes.... -- -- -- -- -- -- -- 18 18
Net income.......... -- -- -- -- -- -- 6,316 -- 6,316
--------- --- --------- --- ------- ----- -------- ----- -------
Balance, March 31,
1997................. 1,223,594 12 5,025,357 50 36,974 -- (9,235) (58) 27,743
Issuance of stock
pursuant to exer-
cise of stock op-
tions. (unaudited). -- -- 1,367,303 14 700 -- -- (455) 259
Payments on notes
(unaudited)........ -- -- -- -- -- -- -- 12 12
Repurchase of pre-
ferred stock on
June 20, 1997
(unaudited)........ (172,300) (1) -- -- (3,618) -- (258) -- (3,877)
Deferred compensa-
tion related to
stock options
(unaudited)........ -- -- -- -- 599 (599) -- -- --
Amortization of de-
ferred compensation
(unaudited)........ -- -- -- -- -- 47 -- -- 47
Net income (unau-
dited)............. -- -- -- -- -- -- 5,934 -- 5,934
--------- --- --------- --- ------- ----- -------- ----- -------
Balance at September
30, 1997 (unaudited). 1,051,294 $11 6,392,660 $64 $34,655 $(552) $ (3,559) $(501) $30,118
========= === ========= === ======= ===== ======== ===== =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------- --------------
1995 1996 1997 1996 1997
------- ------- ------- ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net income (loss).................. $(1,071) $(3,694) $ 6,316 $2,643 $5,934
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization...... 5,092 5,311 5,185 2,744 2,731
Amortization of deferred compensa-
tion.............................. -- -- -- -- 47
Loss on debt forgiveness........... -- 150 -- -- --
Changes in assets and liabilities:
Accounts receivable............... 2,021 (594) 1,058 569 (1,391)
Inventories....................... (1,085) 1,887 (694) 789 (431)
Other current assets.............. (224) 117 79 120 (155)
Accounts payable.................. (2,079) 1,853 (1,553) (840) 2,302
Accrued payroll and other accrued
liabilities...................... (1,290) 1,047 1,562 558 (1,115)
Deferred income taxes............. -- -- -- -- (1,096)
Deferred revenue.................. 30 416 (25) 48 123
------- ------- ------- ------ ------
Net cash provided by operating
activities...................... 1,394 6,493 11,928 6,631 6,949
Investing activities
Proceeds from sales and maturities
of short-term investments......... 1,500 11,238 7,944 3,466 6,463
Purchase of short-term investments. (1,677) (10,859) (11,512) (5,073) (7,715)
Notes receivable from officer and
employees......................... -- -- (803) (803) (131)
Purchase of property and equipment. (2,761) (1,427) (2,855) (948) (4,008)
------- ------- ------- ------ ------
Net cash used for investing ac-
tivities........................ (2,938) (1,048) (7,226) (3,358) (5,391)
Financing activities
Proceeds from issuance of common
stock............................. 93 256 42 15 259
Repurchase of common stock......... (46) (13) (145) -- --
Repurchase of preferred stock...... -- -- -- -- (3,877)
Payments on notes receivable from
stockholders...................... -- 8 18 18 12
Payments on capital lease obliga-
tions............................. (3,224) (2,750) (2,824) (1,789) (1,362)
Payments on long-term debt......... (800) (864) (582) (337) (37)
------- ------- ------- ------ ------
Net cash used for financing ac-
tivities........................ (3,977) (3,363) (3,491) (2,093) (5,005)
------- ------- ------- ------ ------
Net increase (decrease) in cash
and cash equivalents............ (5,521) 2,082 1,211 1,180 (3,447)
Cash and cash equivalents at begin-
ning of period..................... 7,716 2,195 4,277 4,277 5,488
------- ------- ------- ------ ------
Cash and cash equivalents at end of
period............................. $ 2,195 $ 4,277 $ 5,488 $5,457 $2,041
======= ======= ======= ====== ======
Supplemental disclosure of cash flow
information:
Cash paid for:
Interest........................... $ 799 $ 715 $ 656 $ 286 $ 261
======= ======= ======= ====== ======
Income taxes....................... $ 48 $ 48 $ 770 $ 271 $1,700
======= ======= ======= ====== ======
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations of approximately $3.4 million, $1.2 million and
$1.2 million were incurred during fiscal years 1995, 1996 and 1997,
respectively, and $215,000 and $282,000 during the six month periods ended
September 30, 1996 and 1997, respectively. During the six months ended
September 30, 1997, notes were received for the exercise of stock options
totalling $455,000.
See accompanying notes.
F-6
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO SEPTEMBER 30, 1997 AND THE
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
AMCC designs, develops, manufactures and markets high-performance, high-
bandwidth silicon solutions for the world's communications infrastructure.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All significant intercompany balances and
transactions have been eliminated in consolidation.
Interim Financial Information (Unaudited)
The accompanying financial statements at September 30, 1997 and for the six
months ended September 30, 1996 and 1997 are unaudited but include all
adjustments (consisting of normal recurring accruals) which, in the opinion of
management, are necessary for a fair statement of the financial position and
the operating results and cash flows for the interim date and periods
presented. Results for the interim period ended September 30, 1997 are not
necessarily indicative of results for the entire year or future periods.
Cash, Cash Equivalents and Short-Term Investments
Cash and cash equivalents consist of highly liquid debt instruments with
original maturities of three months or less at date of acquisition, or money
market type funds. Short-term investments consist of United States treasury
notes, obligations of U.S. government agencies and corporate bonds. The
Company maintains its excess cash in financial institutions with strong credit
ratings and has not experienced any significant losses on its investments. The
estimated fair value of each investment security approximates cost and,
therefore, no unrealized gains or losses existed as of March 31, 1997 and 1996
or at September 30, 1997.
The following is a summary of available-for-sale securities (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------
1996 1997
------ ------
<S> <C> <C>
U.S. treasury securities and obligations of U.S. government
agencies.................................................. $2,502 $4,189
U.S. corporate debt securities............................. 1,743 3,628
Other...................................................... 296 292
------ ------
$4,541 $8,109
====== ======
</TABLE>
Available-for-sale securities at March 31, 1997 by contractual maturity are
as follows (in thousands):
<TABLE>
<S> <C>
Due in one year or less............................................ $5,005
Due after one year through two years............................... 3,104
------
$8,109
======
</TABLE>
F-7
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(INFORMATION PERTAINING TO SEPTEMBER 30, 1997 AND THE
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Concentration of Credit Risk
The Company believes that the concentration of credit risk in its trade
receivables is mitigated by the Company's credit evaluation process,
relatively short collection terms and dispersion of its customer base. The
Company generally does not require collateral. The Company has not experienced
significant losses on trade receivables from any particular customer or
geographic region for any period presented.
The Company invests its excess cash in debt instruments of the U.S.
Treasury, governmental agencies and corporations with strong credit ratings.
The Company has established guidelines relative to diversification and
maturities that attempt to maintain safety and liquidity. These guidelines are
periodically reviewed and modified to take advantage of trends in yields and
interest rates. The Company has not experienced any significant losses on its
cash equivalents or short-term investments.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
disclosures made in the accompanying notes to the financial statements. These
estimates include assessing the collectability of accounts receivable, the use
and recoverability of inventory, estimates to complete engineering contracts,
costs of future product returns under warranty and provisions for
contingencies expected to be incurred. Actual results could differ from those
estimates.
Inventories
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market. The Company's inventory valuation process is done
on a part-by-part basis. Lower of cost to market adjustments, specifically
identified on a part-by-part basis, reduce the carrying value of the related
inventory and take into consideration reductions in sales prices, excess
inventory levels and obsolete inventory. Once established, these adjustments
are considered permanent and are not reversed until the related inventory is
sold or disposed.
Property and Equipment
Property and equipment are stated at cost and depreciated over the estimated
useful lives of the assets (3 to 7 years) using the straight-line method.
Leasehold improvements are stated at cost and amortized over the shorter of
the useful life of the asset or the lease term. Property and equipment under
capital leases are recorded at the net present value of the minimum lease
payments and are amortized over the shorter of the useful life of the assets
or the lease term. Leased assets purchased at the expiration of the lease term
are capitalized at acquisition cost.
Impairment of Long-Lived Assets
On April 1, 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of. The adoption of SFAS No. 121 did
not impact the financial position or results of operations of the Company.
Advertising Cost
Advertising costs are expensed as incurred.
F-8
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(INFORMATION PERTAINING TO SEPTEMBER 30, 1997 AND THE
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Revenues
Revenues related to product sales are generally recognized when the products
are shipped to the customer. Recognition of revenues and the related cost of
revenues on shipments to distributors that are made under agreements allowing
for price protection and right of return on products unsold by the distributor
are deferred until the distributor ships the product to its customer. Revenues
on engineering design contracts are recognized using the percentage-of-
completion method based on actual cost incurred to date compared to total
estimated costs of the project. Deferred revenue represents the margin on
shipments of products to distributors that will be recognized when the
distributors ship the products to their customers and billings in excess of
costs and estimated earnings on uncompleted engineering design contracts.
Warranty Reserves
Estimated expenses for warranty obligations are accrued as revenue is
recognized. Reserve estimates are adjusted periodically to reflect actual
experience.
Research and Development
Research and development costs are expensed as incurred. Substantially all
research and development expenses are related to new product development,
designing significant improvements to existing products and new process
development.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB 25") and related
interpretations in accounting for its employee and director stock options
because the alternative fair value accounting provided for under Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123") requires the use of option valuation models that
were not developed for use in valuing employee and director stock options. As
a result, deferred compensation is recorded for the excess of the fair value
of stock on the date of the option grant, over the exercise price of the
option. The deferred compensation is amortized over the vesting period of the
option.
Reclassification
Certain prior period amounts have been reclassified to conform with the
current period presentation.
Pro Forma Net Income Per Share and Unaudited Pro Forma Stockholders' Equity
Pro forma net income per share is computed using the weighted average number
of shares of common stock and common stock equivalents outstanding during the
periods presented. Common stock equivalents result from outstanding
convertible preferred stock and options and warrants to purchase common stock.
The Securities and Exchange Commission requires stock issued during the twelve
months immediately preceding the initial public offering, plus the number of
equivalent shares of common stock granted or issued during the same period, be
included in the calculation of shares used in computing net income per share
as if these shares were outstanding for all periods presented (using the
treasury stock method and the assumed initial public offering price).
F-9
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(INFORMATION PERTAINING TO SEPTEMBER 30, 1997 AND THE
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
As discussed in Note 4, at September 30, 1997, the Company has 1,051,294
shares of convertible preferred stock which is convertible into a total of
10,709,090 shares of common stock, assuming no antidilution adjustments are
necessary. Upon the consummation of the offering contemplated by this
Prospectus, all of the convertible preferred stock will be converted into
common stock. Unaudited pro forma stockholders' equity as of September 30,
1997 is adjusted for the conversion of preferred stock into common stock.
Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings per Share, which is required to be adopted on March 31, 1998. At
that time, the Company will be required to change the method currently used to
compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The application of the statement to the six
month period ended September 30, 1997 would result in primary pro forma
earnings per share of $0.33 compared to $0.30 as reported. The impact on fully
diluted earnings per share has not been determined.
2. CERTAIN FINANCIAL STATEMENT INFORMATION
<TABLE>
<CAPTION>
MARCH 31,
------------------ SEPTEMBER 30,
1996 1997 1997
-------- -------- -------------
<S> <C> <C> <C>
Inventories (in thousands):
Finished goods.......................... $ 2,631 $ 1,076 $ 2,648
Work in process......................... 2,651 4,279 4,172
Raw materials........................... 1,554 2,175 1,141
-------- -------- --------
$ 6,836 $ 7,530 $ 7,961
======== ======== ========
Property and equipment (in thousands):
Machinery and equipment................. $ 19,168 $ 21,211 $ 21,272
Leasehold improvements.................. 5,588 5,789 6,538
Computers, office furniture and equip-
ment................................... 11,396 11,701 13,930
-------- -------- --------
36,152 38,701 41,740
Less accumulated depreciation and amorti-
zation................................... (24,223) (27,933) (29,413)
-------- -------- --------
$ 11,929 $ 10,768 $ 12,327
======== ======== ========
</TABLE>
The cost and accumulated amortization of machinery and equipment under
capital leases at March 31, 1997 were approximately $12.2 million and $7.3
million, respectively ($14.9 million and $7.8 million, at March 31, 1996).
Amortization of assets held under capital leases is included with depreciation
expense.
During the years ended March 31, 1995, 1996 and 1997 and the six month
periods ended September 30, 1996 and 1997 the Company earned interest income
of $441,000, $473,000, $627,000, $283,000 and $411,000, respectively, and
incurred interest expense of $799,000, $715,000, $656,000, $259,000 and
$260,000, respectively.
F-10
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(INFORMATION PERTAINING TO SEPTEMBER 30, 1997 AND THE
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
3. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31
------------
1996 1997
----- -----
<S> <C> <C>
Notes payable with interest rates ranging from 8.3% to 10.5%,
paid in January 1997........................................ $ 162 $ --
10.0% notes payable, paid in April 1997...................... 457 37
----- -----
619 37
Less current portion......................................... (582) (37)
----- -----
$ 37 $ --
===== =====
</TABLE>
4. STOCKHOLDERS' EQUITY
Convertible Preferred Stock
A summary of the shares of convertible preferred stock issued and
outstanding at March 31, and September 30, 1997 is as follows (in thousands,
except share data):
<TABLE>
<CAPTION>
MARCH 31, 1997 SEPTEMBER 30, 1997
----------------------------- -----------------------
SHARES PREFERENCE SHARES PREFERENCE
PAR ISSUED AND IN ISSUED AND IN
VALUE OUTSTANDING LIQUIDATION OUTSTANDING LIQUIDATION
----- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Series 1.............. $ 4 408,692 $ 8,582 312,803 $ 6,569
Series 2.............. 2 238,096 5,000 211,040 4,432
Series 3.............. 6 576,806 12,113 527,451 11,076
--- --------- ------- --------- -------
Total............... $12 1,223,594 $25,695 1,051,294 $22,077
=== ========= ======= ========= =======
</TABLE>
Each share of Series 1, 2 and 3 preferred stock is convertible at the option
of the holder into approximately 16, 7.0 and 8 shares of common stock,
respectively, subject to certain anti-dilution adjustments. The Series 1, 2
and 3 preferred shares may be redeemed upon approval of the Company's Board of
Directors and only with the vote of 60% of the outstanding preferred stock at
a redemption price of $23.10 per share.
Conversion is automatic immediately upon the closing of an underwritten
public offering in which aggregate gross proceeds equal or exceed $10 million
and the price per share is not less than $6.30.
Each share of preferred stock is entitled to one vote for each share of
common stock into which it would convert. No dividends may be paid to common
stockholders unless equivalent dividends are paid to preferred stockholders.
Additionally, the preferred stockholders have certain rights of first refusal
on any new securities offering (other than certain securities issued to
employees), which rights of first refusal terminate upon completion of the
Company's initial public offering, and certain registration rights.
F-11
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(INFORMATION PERTAINING TO SEPTEMBER 30, 1997 AND THE
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Stock Options
The Company's 1992 Stock Option Plan provides for the granting of incentive
stock options to employees. Generally, options are granted at prices at least
equal to fair value of the Company's common stock on the date of grant as
determined by the Company's Board of Directors. In addition, certain officers
and directors have been granted nonqualified stock options. The Company's 1982
Employee Incentive Stock Option Plan expired in 1992, however, options to
purchase an aggregate of 157,968 shares of common stock remain outstanding as
of September 30, 1997.
Options under both plans expire not more than ten years from the date of
grant and are immediately exercisable after the date of grant but are subject
to certain repurchase rights by the Company until such ownership rights have
vested. Vesting generally occurs over four years. At March 31, 1997 and
September 30, 1997, 267 shares and 655,483 shares of common stock were subject
to repurchase, respectively.
Pursuant to an executive employment agreement between the Company and an
executive, the Company granted an option to purchase 800,000 shares of the
Company's common stock at $0.53 per share under the 1992 Stock Option Plan.
The option vests ratably over four years. In the event the Company is
acquired, the agreement stipulates that under certain circumstances the
executive is eligible for certain additional compensation. These options as
well as 66,667 additional options issued in April 1997 were exercised in July
1997. The exercise was paid for with various notes which aggregate $455,000 at
interest rates between 5.98% and 6.54% which are due at the earlier of
February 12, 2000 ($420,000) and April 9, 2001 ($35,000) or the termination of
employment.
Certain other option agreements provide for the exercise of stock options
with long-term promissory notes. These notes bear interest at rates ranging
from 5.32% to 5.91%, are payable at the earlier of termination of employment
or January 1998 and are secured by the shares of common stock purchased with
the notes.
The effect of applying the minimum value method of SFAS 123 to options
granted to employees in fiscal year 1997 and 1996 did not result in a pro
forma net income (loss) for either period that is materially different from
historical reported amounts. Therefore, such pro forma information is not
presented herein. The minimum value method was applied using the following
weighted average assumptions for fiscal year 1997 and 1996, respectively: risk
free interest rate of 6.20% and 6.15%; an expected option life of four years;
and no annual dividends. Future pro forma results of operations under SFAS 123
may be materially different from actual reported amounts.
F-12
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(INFORMATION PERTAINING TO SEPTEMBER 30, 1997 AND THE
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
A summary of the Company's stock option activity, including those issued
outside of the plans, and related information are as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------------------------------------
1995 1996 1997 SEPTEMBER 30, 1997
-------------------- -------------------- -------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- --------- --------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 1,911,566 $0.48 1,633,054 $0.50 1,690,160 $0.51 2,842,293 $0.51
Granted............... 195,332 0.53 1,017,000 0.53 1,457,333 0.53 1,001,812 2.23
Exercised............. (204,558) 0.45 (547,767) 0.47 (92,680) 0.45 (1,367,303) 0.52
Forfeited............. (269,286) 0.50 (412,127) 0.51 (212,520) 0.53 (244,770) 0.52
--------- ----- --------- ----- --------- ----- ---------- -----
Outstanding at end of
period................. 1,633,054 $0.50 1,690,160 $0.51 2,842,293 $0.51 2,232,032 $1.01
========= ===== ========= ===== ========= ===== ========== =====
Vested at end of period. 917,449 $0.48 349,337 $0.51 851,764 $0.51 641,432 $0.51
========= ===== ========= ===== ========= ===== ========== =====
Weighted-average fair
value of options
granted during the
period................. $0.12 $0.15
===== =====
</TABLE>
The weighted-average remaining contractual life of the options outstanding
at March 31, 1997 is 8.4 years. Exercise prices of all options outstanding as
of March 31, 1997 range from $0.45 to $0.53. The weighted-average remaining
contractual life of the vested options is 6.5 years as of March 31, 1997. The
range of exercise prices for options outstanding as of September 30, 1997 was
$0.45 to $8.25 per share.
Through September 30, 1997, the Company recorded deferred compensation
expense for the difference between the exercise price and the deemed fair
value for financial statement presentation purposes of the Company's common
stock, as determined by the Board of Directors, for all options granted in the
first and second quarters of fiscal 1998. This deferred compensation
aggregates to $599,000, which will be amortized over the four year vesting
period of the related options.
Warrants
In connection with certain notes payable secured by equipment, capital
leases for equipment and revolving lines of credit issued in 1989 and 1990,
the Company has outstanding warrants to purchase 83,807 shares of common stock
at $2.63 to $3.00 per share, subject to certain anti-dilution adjustments and
adjustments in the event of certain mergers or acquisitions. No value was
placed on the warrants at the time of issuance as it was deemed to be
immaterial. These warrants expire not more than ten years from date of grant
or five years after the Company's initial public offering, whichever is later.
F-13
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(INFORMATION PERTAINING TO SEPTEMBER 30, 1997 AND THE
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Common Shares Reserved for Future Issuance
At September 30, 1997, shares of the Company's common stock are reserved for
issuance upon the conversion or exercise of the following equity instruments
(unaudited):
<TABLE>
<S> <C>
Conversion of preferred stock..................................... 10,709,090
Stock options:
Issued and outstanding.......................................... 2,232,032
Authorized for future grants.................................... 353,380
----------
2,585,412
Warrants.......................................................... 83,807
----------
13,378,309
==========
</TABLE>
5. INCOME TAXES
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------
1995 1996 1997
----- ------- -------
<S> <C> <C> <C>
CURRENT
Federal............................................... $ -- $ 27 $ 380
State................................................. (70) 5 279
----- ------- -------
$ (70) $ 32 $ 659
===== ======= =======
The provision (credit) for income taxes reconciles to the amount computed by
applying the federal statutory rate (35%) to income before income taxes as
follows (in thousands):
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------
1995 1996 1997
----- ------- -------
<S> <C> <C> <C>
Tax at federal statutory rate......................... $(399) $(1,282) $ 2,441
Net operating loss without benefit.................... 399 1,282 --
Utilization of net operating loss and research and de-
velopment tax credit carryforwards................... -- -- (2,061)
State taxes, net of federal benefit and credits....... (70) 5 279
Federal alternative minimum tax....................... -- 27 --
----- ------- -------
$ (70) $ 32 $ 659
===== ======= =======
</TABLE>
F-14
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(INFORMATION PERTAINING TO SEPTEMBER 30, 1997 AND THE
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Significant components of the Company's deferred tax assets and liabilities
for federal and state income taxes as of March 31, 1997 and 1996 are as shown
below. As of March 31, 1997, a valuation allowance had been recognized to
offset the deferred tax assets as realization of such assets was uncertain.
The estimated annualized effective tax rate for fiscal 1998, which was used to
determine the provision for the six month period ended September 30, 1997, is
computed based on the Company's projected 1998 income which will allow for a
full reduction of the valuation allowance and realization of the deferred tax
asset.
<TABLE>
<CAPTION>
MARCH 31,
----------------
1996 1997
---- -------
<S> <C> <C>
Deferred tax assets (in thousands):
Reserves................................................... $ 2,512 $ 2,233
Capitalization of inventory and research and development
costs..................................................... 334 226
Research and development credit carryforwards.............. 2,405 1,667
Depreciation and amortization.............................. 335 200
Net operating loss carryforwards........................... 2,102 --
Other credit carryforwards................................. 886 768
------- -------
Subtotal..................................................... 8,574 5,094
Valuation allowance.......................................... (8,574) (5,094)
------- -------
Net deferred taxes........................................... $ -- $ --
======= =======
</TABLE>
At March 31, 1997, the Company has federal alternative minimum tax,
investment and research and development tax credit carryforwards of
approximately $366,000, $270,000 and $1.6 million, respectively, which will
begin to expire in 1998 unless previously utilized.
Under Internal Revenue Code Section 382, the Company's use of its tax credit
carryforwards could be limited in the event of certain cumulative changes in
the Company's stock ownership.
For the six months ended September 30, 1996 and 1997, income taxes have been
provided based on the estimated annual effective tax rate applied to pre tax
income for the interim period.
6. LEASE COMMITMENTS
The Company leases its present manufacturing facilities under a long-term
operating lease expiring in March 1998. The lease expiring is renewable for up
to ten years. This lease requires the Company to pay property taxes and
incidental maintenance expenses and contain escalation clauses based upon
increases in the Consumer Price Index.
In September 1997, the Company moved into a new administration and
manufacturing facility which is leased under a long-term operating lease. This
lease expires in September 2007, requires the Company to pay property taxes
and incidental maintenance expenses and is renewable for up to ten years. The
lease provides for defined rent increases over the term of the lease.
F-15
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(INFORMATION PERTAINING TO SEPTEMBER 30, 1997 AND THE
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Annual future minimum lease payments, including machinery and equipment
under capital leases and the Company's commitment relating to its new
administration and manufacturing facility, as of March 31, 1997 are as follows
(in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
FISCAL YEAR ENDING MARCH 31, LEASES LEASES
---------------------------- --------- -------
<S> <C> <C>
1998..................................................... $1,037 $2,980
1999..................................................... 848 2,170
2000..................................................... 848 759
2001..................................................... 870 320
2002..................................................... 889 225
Thereafter............................................... 5,070 --
------ ------
Total minimum lease payments........................... $9,562 6,454
======
Less amount representing interest......................... 637
------
Present value of remaining minimum capital lease payments
(including current portion of $2,625).................... $5,817
======
</TABLE>
Rent expense (including short-term leases and net of sublease income) for
the years ended March 31, 1995, 1996 and 1997 was $1.7 million, $2.3 million
and $1.2 million, respectively. Rent expense for the six months ended
September 30, 1996 and 1997 was $600,000 and $573,000, respectively. Included
in the 1996 rent expense is an accrual of $565,000 for losses on facilities
for which sublease income was expected to be less than the remaining minimum
lease payments. Sublease income was $16,000, $0 and $208,000 for the years
ended March 31, 1995 1996 and 1997, respectively.
7. RELATED PARTY TRANSACTIONS
As of March 31, 1996, the Company had advanced $203,000 to an officer of the
Company. During 1997, an additional $750,000 was advanced to this officer and
$150,000 of the advances made during 1996 were repaid. Notes were received by
the Company providing for interest on the balance at rates from 5.32% to
5.76%. Principal and interest under the notes are due on or before February
28, 1999 and $750,000 of the balance is secured by marketable securities owned
by the officer.
8. EMPLOYEE RETIREMENT PLAN
Effective January 1, 1986, the Company established a 401(k) defined
contribution retirement plan (the "Retirement Plan") covering all full-time
employees with greater than three months of service. The Retirement Plan
provides for voluntary employee contributions from 1% to 20% of annual
compensation, subject to a maximum limit allowed by Internal Revenue Service
guidelines. The Company may contribute such amounts as determined by the Board
of Directors. Employer contributions vest to participants at a rate of 20% per
year of service, provided that after five years of service all past and
subsequent employer contributions are 100% vested. The contributions charged
to operations totalled $116,000, $182,000 and $318,000 for the years ended
March 31, 1995, 1996 and 1997, respectively, and $157,000 and $180,000 for the
six months ended September 30, 1996 and 1997, respectively.
F-16
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(INFORMATION PERTAINING TO SEPTEMBER 30, 1997 AND THE
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
9. SIGNIFICANT CUSTOMER AND GEOGRAPHIC INFORMATION
During the years ended March 31, 1995, 1996 and 1997 and the six month
periods ended September 30, 1996 and 1997, 17%, 20% and 20% and 20% and 19%,
respectively, of net revenues were from one customer. No other customer
accounted for more than 10% of revenues in any period.
Revenue by geographic region for the years ended March 31, 1995, 1996 and
1997, and the six months ended September 30, 1996 and 1997 were as follows (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED SEPTEMBER
YEAR ENDED MARCH 31, 30,
----------------------- ---------------
1995 1996 1997 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net revenues:
United States...................... $32,554 $28,134 $34,424 $15,682 $20,857
Canada............................. 8,030 10,116 10,943 5,727 5,866
Europe and Israel.................. 4,075 6,525 8,216 4,466 6,373
Asia............................... 2,291 5,489 3,885 2,080 2,112
------- ------- ------- ------- -------
Total............................ $46,950 $50,264 $57,468 $27,955 $35,208
======= ======= ======= ======= =======
</TABLE>
10. CONTINGENCIES
The Company is party to various legal actions arising in the normal course
of business. In addition, since 1993 the Company has been named as a
potentially responsible party ("PRP") along with a large number of other
companies that used Omega Chemical Corporation ("Omega") in Whittier,
California to handle and dispose of certain hazardous waste material. The
Company is a member of a large group of PRPs that has agreed to fund certain
remediation efforts at the Omega site for which the Company has accrued
approximately $50,000. Although the ultimate outcome of these matters is not
presently determinable, management believes that the resolution of all such
pending matters, net of amounts accrued, will not have a material adverse
affect on the Company's financial position or results of operations.
11. SUBSEQUENT EVENTS
Repurchase of Convertible Preferred Stock
On April 24, 1997 the Board authorized the Company to repurchase up to $4
million of convertible preferred stock, with priority given to the holders of
convertible preferred stock that submit bids for the sale of their shares of
convertible preferred stock at the lowest price per share. On June 20, 1997
the Company repurchased an aggregate of 172,300 shares of convertible
preferred stock for approximately $3.9 million at prices between $1.20 and
$2.61 per share on an as converted to common stock basis.
Stock Split and Increase in Shares Authorized
On October 6, 1997, the Board of Directors authorized, subject to
stockholder approval, a two for three reverse stock split of all outstanding
common stock. All share and per share amounts and stock option data have been
restated to retroactively reflect a stock split. Additionally, on October 6,
1997, the Board of Directors modified, subject to the closing of the public
offering and stockholder approval, the Company's capital structure to
authorize 60 million shares of common stock, ($0.01 par value) and 2 million
shares of preferred stock ($0.01 par value) the shares reserved for issuance
under the 1992 Stock Option Plan were increased by 2.2 million shares.
F-17
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(INFORMATION PERTAINING TO SEPTEMBER 30, 1997 AND THE
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
1997 Employee Stock Purchase Plan
The Company's 1997 Employee Stock Purchase Plan (the "1997 Purchase Plan")
was adopted by the Board of Directors on October 6, 1997, subject to
stockholder approval. A total of 400,000 shares of Common Stock are reserved
for issuance under the 1997 Purchase Plan.
1997 Directors' Stock Option Plan
The Company's 1997 Directors' Stock Option Plan (the "Directors' Plan") was
adopted by the Board of Directors on October 6, 1997, subject to stockholder
approval. A total of 200,000 shares of Common Stock are reserved for issuance
under the Directors' Plan. The Directors' Plan provides for the grant of non-
statutory options to nonemployee directors of the Company.
Preferred Stock
On October 6, 1997, the Board of Directors adopted, subject to shareholder
approval, an amendment to the Certificate of Incorporation to allow, upon the
closing of the initial public offering, the issuance of up to 2,000,000 shares
of preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, dividend
rates, conversion rights, voting rights, terms of redemption, redemption
prices, liquidation preferences and the number of shares constituting any
series or the designation of such series, without further vote or action by
the stockholders.
F-18
<PAGE>
High-Speed Computing Products
AMCC's S5933 is used for DVD, communications and industrial computer
applications.
[Picture of AMCC integrated circuits, a computer keyboard, a CD-ROM, a
digital video disk and a computer.]
Automated Test Equipment
[Picture of a man working on a computer.]
[Picture of wafer in the process of being manufactured.]
Teradyne high-speed logic and mixed-signal testers use AMCC's Micropower ASICs
with high-precision timing elements.
[Picture of a Teradyne high-speed logic and mixed-signal tester, a computer
and an integrated circuit.]
<PAGE>
(22)[Picture of fiber optic cables.]
(23)[Picture of fiber optic cables.]
(24)[Picture of AMCC integrated circuits and wafers.]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fee and the Nasdaq
National Market listing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC registration fee.......................................... $
NASD filing fee............................................... 6,020
Nasdaq National Market listing fee............................ 50,000
Printing and engraving expenses............................... 100,000
Legal fees and expenses....................................... 300,000
Accounting fees and expenses.................................. 185,000
Blue Sky qualification fees and expenses...................... 5,000
Transfer Agent and Registrar fees............................. 10,000
Miscellaneous fees and expenses...............................
--------
Total....................................................... $700,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "Delaware Law")
authorizes a court to award, or a corporation's Board of Directors to grant,
indemnity to directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article Seven of the Company's Certificate
of Incorporation (Exhibit 3.2 hereto) and Article [VI] of the Company's Bylaws
(Exhibit 3.3 hereto) provide for indemnification of the Company's directors,
officers, employees and other agents to the maximum extent permitted by
Delaware Law. In addition, the Company has entered into Indemnification
Agreements (Exhibit 10.1 hereto) with its officers and directors. The
Underwriting Agreement (Exhibit 1.1) also provides for cross-indemnification
among the Company, the Selling Stockholders and the Underwriters with respect
to certain matters, including matters arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
As of September 30, 1997, the Company has issued 7,772,065 options to
purchase Common Stock of the Company with a weighted average price of $0.68 to
a number of employees and directors of and consultants to the Company. To
date, 5,564,788 of such options have been exercised and 5,564,788 shares of
Common Stock have been issued pursuant to such exercises.
The issuances of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of such
Securities Act as transactions by an issuer not involving any public offering.
In addition, certain issuances described in Item 4 were deemed exempt from
registration under the Securities Act in reliance upon Rule 701 promulgated
under the Securities Act. The recipients of securities in each such
transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and warrants issued in such transactions. All recipients had
adequate access, through their relationships with the Company, to information
about the Company.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement (subject to negotiation).
3.1 Amended and Restated Certificate of Incorporation of the Company.
3.2 Form of Amended and Restated Certificate of Incorporation of the
Company (to be filed with the Delaware Secretary of State upon the
closing of the Offering).
3.3 Amended and Restated Bylaws of the Company.
3.4 Form of Amended and Restated Bylaws of the Company (to be filed with
the Delaware Secretary of State upon the closing of the Offering).
4.1* Specimen Stock Certificate.
5.1* Opinion of Venture Law Group regarding the legality of the Common
Stock being registered.
10.1 Form of Indemnification Agreement between the Company and each of its
Officers and Directors.
10.2 1982 Employee Incentive Stock Option Plan, as amended, and form of
Option Agreement.
10.3 1992 Stock Option Plan as proposed to be amended, and form of Option
Agreement.
10.4 1997 Employee Stock Purchase Plan and form of Subscription Agreement.
10.5 1997 Directors' Stock Option Plan and form of Option Agreement.
10.6 401(k) Plan, effective April 1, 1985 and form of Enrollment Agreement.
10.7 Convertible Preferred Stock, Series 1 and Series 2, Purchase
Agreement, dated December 8, 1983.
10.8 Convertible Preferred Stock Series 3 Purchase Agreement, dated
September 16, 1987.
10.9 Industrial Real Estate Lease, dated October 29, 1996 between the
Registrant and ADI Mesa Partners-AMCC, L.P. (the Sequence Drive
Lease).
10.10 Industrial Real Estate Lease, dated April 8, 1992 between the
Registrant and Mira Mesa Business Park (the Oberlin Drive Lease).
10.11 Security Agreements, dated January 30, 1992 by and between the
Registrant and Roger Smullen.
10.12 Promissory Notes, dated January 30, 1992, as amended, by and between
the Registrant and Roger Smullen.
10.13 Loan Agreement, dated May 1, 1996 and Exercise Notice and Restricted
Stock Purchase Agreements dated July 23, 1997 by and between
Registrant and David Rickey.
10.14 Promissory Notes, dated February 12, 1996, May 1, 1996, April 1, 1997
and July 23, 1997 by and between the Registrant and David Rickey.
10.15** Patent License Agreement, dated January 1, 1988, as amended by and
between Registrant and Motorola, Inc.
10.16** Patent License Agreement, dated March 1, 1991, as amended, by and
between Registrant and International Business Machines Corporation.
10.17** Patent License Agreement, dated June 1, 1997 by and between Registrant
and International Business Machines Corporation.
10.18 Letter Agreement, dated January 30, 1996 by and between the Registrant
and David Rickey.
10.19** Patent License Agreement, dated October 19, 1992, as amended by and
between Registrant and Alcatel Network Systems, Inc.
11.1 Computation of Pro Forma Earnings Per Share.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
23.1 Consent of Independent Auditors (see page II-5)
23.2* Consent of Counsel (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-4)
27.1 Financial Data Schedules
</TABLE>
- --------
* To be supplied by amendment.
** Confidential treatment requested as to certain portions of this Exhibit.
(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 registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question 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 Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act 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 Securities Act
of 1933, 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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of San Diego, State of
California on October 9, 1997.
APPLIED MICRO CIRCUITS CORPORATION
/s/ David M. Rickey
By: _________________________________
DAVID M. RICKEY
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints, jointly and severally, David M. Rickey
and Joel O. Holliday, and each of them, as his attorney-in-fact, with full
power of substitution, for him in any and all capacities, to sign any and all
amendments to this Registration Statement (including post-effective
amendments), and any and all Registration Statements filed pursuant to Rule
462 under the Securities Act of 1933, as amended, in connection with or
related to the Offering contemplated by this Registration Statement and its
amendments, if any, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may be
signed by our said attorney to any and all amendments to said Registration
Statement.
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>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ David M. Rickey President and Chief October 9, 1997
____________________________________ Executive Officer
DAVID M. RICKEY
/s/ Joel O. Holliday Chief Financial Officer October 9, 1997
____________________________________
JOEL O. HOLLIDAY
/s/ Roger A. Smullen, Sr. Director and Chairman of the October 9, 1997
____________________________________ Board of Directors
ROGER A. SMULLEN, SR.
/s/ William K. Bowes, Jr. Director October 9, 1997
____________________________________
WILLIAM K. BOWES, JR.
/s/ R. Clive Ghest Director October 9, 1997
____________________________________
R. CLIVE GHEST
/s/ Franklin P. Johnson, Jr. Director October 9, 1997
____________________________________
FRANKLIN P. JOHNSON, JR.
/s/ Arthur B. Stabenow Director October 9, 1997
____________________________________
ARTHUR B. STABENOW
</TABLE>
II-4
<PAGE>
EXHIBIT 23.1
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
April 25, 1997 (except Note 11, as to which the date is October 7, 1997) in
this Registration Statement on Form S-1 and related Prospectus of Applied
Micro Circuits Corporation for the registration of shares of its common
stock.
Our audits also included the financial statement schedule of Applied Micro
Circuits Corporation for the three years ended March 31, 1997 listed in Item
16(b). This schedule is the responsibility of 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.
ERNST & YOUNG LLP
San Diego, California
October , 1997
- -------------------------------------------------------------------------------
The foregoing is in the form that will be signed upon the completion of
certain events as described in Note 11 to the consolidated financial
statements.
/s/ ERNST & YOUNG LLP
San Diego, California
October 8, 1997
II-5
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------- ---------- --------------------- ----------- ------
ADDITIONS
---------
(1) (2)
CHARGED CHARGED
BALANCE AT TO COSTS TO OTHER BALANCE
BEGINNING AND ACCOUNTS- DEDUCTIONS- AT END
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Six Months Ended September 30, 1997:
$200 $154 $ -- $ 4 $350
Allowance for doubtful accounts
- -----------------------------------------------------------------------------------------------------
Year ended March 31, 1997: $ 90 $198 $ 88 $ -- $200
Allowance for doubtful accounts
- -----------------------------------------------------------------------------------------------------
Year ended March 31, 1996: $115 $ -- $ -- $ 25 $ 90
Allowance for doubtful accounts
- -----------------------------------------------------------------------------------------------------
Year ended March 31, 1995 $ 60 $ 81 $ -- $ 26 $115
Allowance for doubtful accounts
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement (subject to negotiation).
3.1 Amended and Restated Certificate of Incorporation of the Company.
3.2 Form of Amended and Restated Certificate of Incorporation of the
Company (to be filed with the Delaware Secretary of State upon the
closing of the Offering).
3.3 Amended and Restated Bylaws of the Company.
3.4 Form of Amended and Restated Bylaws of the Company (to be effective
upon the closing of the offering).
4.1* Specimen Stock Certificate.
5.1* Opinion of Venture Law Group regarding the legality of the Common
Stock being registered.
10.1 Form of Indemnification Agreement between the Company and each of its
Officers and Directors.
10.2 1982 Employee Incentive Stock Option Plan, as amended, and form of
Option Agreement.
10.3 1992 Stock Option Plan as amended, and form of Option Agreement.
10.4 1997 Employee Stock Purchase Plan and form of Subscription Agreement.
10.5 1997 Directors' Stock Option Plan and form of Option Agreement.
10.6 401(k) Plan, effective April 1, 1985 and form of Enrollment Agreement.
10.7 Convertible Preferred Stock, Series 1 and Series 2, Purchase
Agreement, dated December 8, 1983.
10.8 Convertible Preferred Stock Series 3 Purchase Agreement, dated
September 16, 1987.
10.9 Industrial Real Estate Lease, dated October 29, 1996 between the
Registrant and ADI Mesa Partners-AMCC, L.P. (the Sequence Drive
Lease).
10.10 Industrial Real Estate Lease, dated April 8, 1992 between the
Registrant and Mira Mesa Business Park (the Oberlin Drive Lease).
10.11 Security Agreements, dated January 30, 1992 by and between the
Registrant and Roger Smullen.
10.12 Promissory Notes, dated January 30, 1992, as amended, by and between
the Registrant and Roger Smullen.
10.13 Loan Agreement, dated May 1, 1996 and Exercise Notice and Restricted
Stock Purchase Agreements dated July 23, 1997 by and between
Registrant and David Rickey.
10.14 Promissory Notes, dated February 12, 1996, May 1, 1996, April 1, 1997
and July 23, 1997 by and between the Registrant and David Rickey.
10.15** Patent License Agreement, dated January 1, 1988, as amended by and
between Registrant and Motorola, Inc.
10.16** Patent License Agreement, dated March 1, 1991, as amended, by and
between Registrant and International Business Machines Corporation.
10.17** Patent License Agreement, dated June 1, 1997 by and between Registrant
and International Business Machines Corporation.
10.18 Letter Agreement, dated January 30, 1996 by and between the Registrant
and David Rickey.
10.19** Patent License Agreement, dated October 19, 1992, as amended by and
between Registrant and Alcatel Network Systems, Inc.
11.1 Computation of Pro Forma Earnings Per Share.
23.1 Consent of Independent Auditors (see page II-5)
23.2* Consent of Counsel (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-4)
27.1 Financial Data Schedules
</TABLE>
- --------
* To be supplied by amendment.
** Confidential treatment requested as to certain portions of this Exhibit.
<PAGE>
EXHIBIT 1.1
[SUBJECT TO NEGOTIATION]
5,450,000 SHARES/1/
APPLIED MICRO CIRCUITS CORPORATION
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
November __, 1997
ROBERTSON, STEPHENS & COMPANY LLC
As Representatives of the several Underwriters
c/o Robertson, Stephens & Company LLC
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
Applied Micro Circuits Corporation, a Delaware corporation (the
"Company"), and certain stockholders of the Company named in Schedule B hereto
(hereafter called the "Selling Stockholders") address you as the Representatives
of each of the persons, firms and corporations listed in Schedule A hereto
(herein collectively called the "Underwriters") and hereby confirm their
respective agreements with the several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell
---------------------
2,700,000 shares of its authorized and unissued Common Stock, $0.01 par value,
to the several Underwriters. The Selling Stockholders, acting severally and not
jointly, propose to sell an aggregate of 2,750,000 shares of the Company's
authorized and outstanding Common Stock, $0.01 par value, to the several
Underwriters. The 2,700,000 shares of Common Stock, $0.01 par value, of the
Company to be sold by the Company are hereinafter called the "Company Shares"
and the 2,750,000 shares of Common Stock, $0.01 par value, to be sold by the
Selling Stockholders are hereinafter called the "Selling Stockholder Shares."
The Company Shares and the Selling Stockholder Shares are hereinafter
collectively referred to as the "Firm Shares." The Company also proposes to
grant to the Underwriters an option to purchase up to 817,500 additional shares
of the Company's Common Stock, $0.01 par value (the "Option Shares"), as
provided in Section 7 hereof. As used in this Agreement, the term "Shares" shall
include the Firm Shares and the Option Shares. All shares of Common Stock, $0.01
par value, of the Company to be outstanding after giving effect to the sales
contemplated hereby, including the Shares, are hereinafter referred to as
"Common Stock."
2. Representations, Warranties and Agreements of the Company.
---------------------------------------------------------
] I. The Company/2/ represents and warrants to and agrees with
each Underwriter that:
_____________________________________
/1/ Plus an option to purchase up to 817,500 additional shares from the
Company to cover over-allotments.
/2/ In Primary/Secondary Offerings and Secondary Offerings consider whether
certain Selling Shareholders should also give some or all of the
representations and warranties contained in this Section 2.I.
<PAGE>
(a) A registration statement on Form S-1 (File No. 33-
_____) with respect to the Shares, including a prospectus subject to completion,
has been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the applicable rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
pursuant to Rule 462(b) of the Rules and Regulations as may have been required
prior to the date hereof have been similarly prepared and filed with the
Commission; and the Company will file such additional amendments to such
registration statement, such amended prospectuses subject to completion and such
abbreviated registration statements as may hereafter be required. Copies of such
registration statement and amendments, of each related prospectus subject to
completion (the "Preliminary Prospectuses"), including all documents
incorporated by reference therein, and of any abbreviated registration statement
pursuant to Rule 462(b) of the Rules and Regulations have been delivered to you.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information omitted from the registration
statement pursuant to Rule 430A(a) or, if Robertson, Stephens & Company LLC, on
behalf of the several Underwriters, shall agree to the utilization of Rule 434
of the Rules and Regulations, the information required to be included in any
term sheet filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and
Regulations pursuant to subparagraph (1), (4) or (7) of Rule 424(b) of the Rules
and Regulations or as part of a post-effective amendment to the registration
statement (including a final form of prospectus). If the registration statement
relating to the Shares has not been declared effective under the Act by the
Commission, the Company will prepare and promptly file an amendment to the
registration statement, including a final form of prospectus, or, if Robertson,
Stephens & Company LLC, on behalf of the several Underwriters, shall agree to
the utilization of Rule 434 of the Rules and Regulations, the information
required to be included in any term sheet filed pursuant to Rule 434(b) or (c),
as applicable, of the Rules and Regulations. The term "Registration Statement"
as used in this Agreement shall mean such registration statement, including
financial statements, schedules and exhibits, in the form in which it became or
becomes, as the case may be, effective (including, if the Company omitted
information from the registration statement pursuant to Rule 430A(a) or files a
term sheet pursuant to Rule 434 of the Rules and Regulations, the information
deemed to be a part of the registration statement at the time it became
effective pursuant to Rule 430A(b) or Rule 434(d) of the Rules and Regulations)
and, in the event of any amendment thereto or the filing of any abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations
relating thereto after the effective date of such registration statement, shall
also mean (from and after the effectiveness of such amendment or the filing of
such abbreviated registration statement) such registration statement as so
amended, together with any such abbreviated registration statement. The term
"Prospectus" as used in this Agreement shall mean the prospectus relating to the
Shares as included in such Registration Statement at the time it becomes
effective (including, if the Company omitted information from the Registration
Statement pursuant to Rule 430A(a) of the Rules and Regulations, the information
deemed to be a part of the Registration Statement at the time it became
effective pursuant to Rule 430A(b) of the Rules and Regulations); provided,
--------
however, that if in reliance on Rule 434 of the Rules and Regulations and with
- -------
the consent of Robertson, Stephens & Company LLC, on behalf of the several
Underwriters, the Company shall have provided to the Underwriters a term sheet
pursuant to Rule 434(b) or (c), as applicable, prior to the time that a
confirmation is sent or given for purposes of Section 2(10)(a) of the Act, the
term "Prospectus" shall mean the "prospectus subject to completion" (as defined
in Rule 434(g) of the Rules and Regulations) last provided to the Underwriters
by the Company and circulated by the Underwriters to all prospective purchasers
of the Shares (including the information deemed to be a part of the Registration
Statement at the time it became effective pursuant to Rule 434(d) of the Rules
and Regulations). Notwithstanding the foregoing, if any revised prospectus shall
be provided to the Underwriters by the Company for use in connection with the
offering of the Shares that differs from the prospectus referred to in the
immediately preceding sentence (whether or not such revised prospectus is
required to be filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations), the term "Prospectus" shall refer to such revised prospectus
from and after the time it is first provided to the Underwriters for such use.
If in reliance on Rule 434 of the Rules and Regulations and with the consent of
Robertson, Stephens & Company LLC, on behalf of the several Underwriters, the
Company shall have provided to the Underwriters a term sheet pursuant to Rule
434(b) or (c), as applicable, prior to the time that
2.
<PAGE>
a confirmation is sent or given for purposes of Section 2(10)(a) of the Act, the
Prospectus and the term sheet, together, will not be materially different from
the prospectus in the Registration Statement.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and at the time
the Registration Statement became or becomes, as the case may be, effective and
at all times subsequent thereto up to and on the Closing Date (hereinafter
defined) and on any later date on which Option Shares are to be purchased, (i)
the Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained and will contain all material information required to be
included therein by the Act and the Rules and Regulations and will in all
material respects conform to the requirements of the Act and the Rules and
Regulations, (ii) the Registration Statement, and any amendments or supplements
thereto, did not and will not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and (iii) the Prospectus, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that none of the representations and
-------- -------
warranties contained in this subparagraph (b) shall apply to information
contained in or omitted from the Registration Statement or Prospectus, or any
amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
(c) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation with full power and authority
(corporate and other) to own, lease and operate its properties and conduct its
business as described in the Prospectus; the Company owns all of the outstanding
capital stock of its subsidiaries free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest; each of the Company and its
subsidiaries is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the ownership or leasing of its
properties or the conduct of its business requires such qualification, except
where the failure to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise; no proceeding has been instituted in any such
jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification; each of the Company and its
subsidiaries is in possession of and operating in compliance with all
authorizations, licenses, certificates, consents, orders and permits from state,
federal and other regulatory authorities which are material to the conduct of
its business, all of which are valid and in full force and effect; neither the
Company nor any of its subsidiaries is in violation of its respective charter or
bylaws or in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any material bond,
debenture, note or other evidence of indebtedness, or in any material lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which the Company or any of its subsidiaries is
a party or by which it or any of its subsidiaries or their respective properties
may be bound; and neither the Company nor any of its subsidiaries is in material
violation of any law, order, rule, regulation, writ, injunction, judgment or
decree of any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or any of its subsidiaries or over
their respective properties of which it has knowledge. The Company does not own
or control, directly or indirectly, any corporation, association or other entity
other than AMCC (Barbados) Ltd.
(d) The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and is
a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
3.
<PAGE>
similar laws relating to or affecting creditors' rights generally or by general
equitable principles; the performance of this Agreement and the consummation of
the transactions herein contemplated will not result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
(i) any bond, debenture, note or other evidence of indebtedness, or under any
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which it or any of its subsidiaries or their
respective properties may be bound, (ii) the charter or bylaws of the Company or
any of its subsidiaries, or (iii) any law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective properties. No consent, approval,
authorization or order of or qualification with any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or over their respective properties is
required for the execution and delivery of this Agreement and the consummation
by the Company or any of its subsidiaries of the transactions herein
contemplated, except such as may be required under the Act, or under state or
other securities or Blue Sky laws, all of which requirements have been satisfied
in all material respects.
(e) There is not any pending or, to the best of the Company's
knowledge, threatened action, suit, claim or proceeding against the Company, any
of its subsidiaries or any of their respective officers or any of their
respective properties, assets or rights before any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or over their respective officers or
properties or otherwise which (i) might result in any material adverse change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise or might materially and adversely affect their properties, assets or
rights, (ii) might prevent consummation of the transactions contemplated hereby
or (iii) is required to be disclosed in the Registration Statement or Prospectus
and is not so disclosed; and there are no agreements, contracts, leases or
documents of the Company or any of its subsidiaries of a character required to
be described or referred to in the Registration Statement or Prospectus or to be
filed as an exhibit to the Registration Statement by the Act or the Rules and
Regulations which have not been accurately described in all material respects in
the Registration Statement or Prospectus or filed as exhibits to the
Registration Statement.
(f) All outstanding shares of capital stock of the Company
(including the Selling Stockholder Shares) have been duly authorized and validly
issued and are fully paid and nonassessable, have been issued in compliance with
all federal and state securities laws, were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for or purchase
securities, and the authorized and outstanding capital stock of the Company is
as set forth in the Prospectus under the caption "Capitalization" and conforms
in all material respects to the statements relating thereto contained in the
Registration Statement and the Prospectus (and such statements correctly state
the substance of the instruments defining the capitalization of the Company);
the Firm Shares and the Option Shares to be purchased from the Company hereunder
have been duly authorized for issuance and sale to the Underwriters pursuant to
this Agreement and, when issued and delivered by the Company against payment
therefor in accordance with the terms of this Agreement, will be duly and
validly issued and fully paid and nonassessable, and will be sold free and clear
of any pledge, lien, security interest, encumbrance, claim or equitable
interest; and no preemptive right, co-sale right, registration right, right of
first refusal or other similar right of stockholders exists with respect to any
of the Firm Shares or Option Shares to be purchased from the Company hereunder
or the issuance and sale thereof other than those that have been expressly
waived prior to the date hereof and those that will automatically expire upon
and will not apply to the consummation of the transactions contemplated on the
Closing Date. No further approval or authorization of any stockholder, the Board
of Directors of the Company or others is required for the issuance and sale or
transfer of the Shares except as may be required under the Act or under state or
other securities or Blue Sky laws. All issued and outstanding shares of capital
stock of each subsidiary of the Company have been duly authorized and validly
issued and are fully paid and nonassessable, and were not issued in violation of
or subject to any preemptive right, or other rights to subscribe for or purchase
shares and are owned by the Company free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest. Except as disclosed in the
Prospectus and the financial statements of the Company, and the related notes
thereto, included in the Prospectus, neither the Company nor any subsidiary has
4.
<PAGE>
outstanding any options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The description
of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised thereunder,
set forth in the Prospectus accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options and
rights.
(g) Ernst & Young LLP, which has examined the consolidated
financial statements of the Company, together with the related schedules and
notes, as of March 31, 1995, 1996 and 1997 and for each of the years in the
three (3) years ended March 31, 1997 filed with the Commission as a part of the
Registration Statement, which are included in the Prospectus, are independent
accountants within the meaning of the Act and the Rules and Regulations; the
audited consolidated financial statements of the Company, together with the
related schedules and notes, and the unaudited consolidated financial
information, forming part of the Registration Statement and Prospectus, fairly
present the financial position and the results of operations of the Company and
its subsidiaries at the respective dates and for the respective periods to which
they apply; and all audited consolidated financial statements of the Company,
together with the related schedules and notes, and the unaudited consolidated
financial information, filed with the Commission as part of the Registration
Statement, have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved except as may be
otherwise stated therein. The selected and summary financial and statistical
data included in the Registration Statement present fairly the information shown
therein and have been compiled on a basis consistent with the audited financial
statements presented therein. No other financial statements or schedules are
required to be included in the Registration Statement.
(h) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, there has not been (i)
any material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise, (ii) any transaction that is material to the
Company and its subsidiaries considered as one enterprise, except transactions
entered into in the ordinary course of business, (iii) any obligation, direct or
contingent, that is material to the Company and its subsidiaries considered as
one enterprise, incurred by the Company or its subsidiaries, except obligations
incurred in the ordinary course of business, (iv) any change in the capital
stock or outstanding indebtedness of the Company or any of its subsidiaries that
is material to the Company and its subsidiaries considered as one enterprise,
(v) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company or any of its subsidiaries, or (vi) any loss or
damage (whether or not insured) to the property of the Company or any of its
subsidiaries which has been sustained or will have been sustained which has a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise.
(i) Except as set forth in the Registration Statement and
Prospectus, (i) each of the Company and its subsidiaries has good and marketable
title to all properties and assets described in the Registration Statement and
Prospectus as owned by it, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest, other than such as would not
have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise, (ii) the agreements to which the
Company or any of its subsidiaries is a party described in the Registration
Statement and Prospectus are valid agreements, enforceable by the Company and
its subsidiaries (as applicable), except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles and, to the best of the Company's knowledge, the
other contracting party or parties thereto are not in material breach or
material default under any of such agreements, and (iii) each of the Company and
its subsidiaries has valid and enforceable leases for all properties described
in the Registration Statement and Prospectus as leased by it, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles. Except
5.
<PAGE>
as set forth in the Registration Statement and Prospectus, the Company owns or
leases all such properties as are necessary to its operations as now conducted
or as proposed to be conducted.
(j) The Company and its subsidiaries have timely filed all
necessary federal, state and foreign income and franchise tax returns and have
paid all taxes shown thereon as due, and there is no tax deficiency that has
been or, to the best of the Company's knowledge, might be asserted against the
Company or any of its subsidiaries that might have a material adverse effect on
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise; and all tax liabilities are adequately provided for on the books of
the Company and its subsidiaries.
(k) The Company and its subsidiaries maintain insurance with
insurers of recognized financial responsibility of the types and in the amounts
generally deemed adequate for their respective businesses and consistent with
insurance coverage maintained by similar companies in similar businesses,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company or its subsidiaries against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect; neither the Company nor any
such subsidiary has been refused any insurance coverage sought or applied for;
and neither the Company nor any such subsidiary has any reason to believe that
it will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise.
(l) To the best of Company's knowledge, no labor disturbance by
the employees of the Company or any of its subsidiaries exists or is imminent;
and the Company is not aware of any existing or imminent labor disturbance by
the employees of any of its principal suppliers, subassemblers, [value added
resellers], subcontractors, original equipment manufacturers, [authorized
dealers], external foundries or international distributors that might be
expected to result in a material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise. No collective bargaining
agreement exists with any of the Company's employees and, to the best of the
Company's knowledge, no such agreement is imminent.
(m) Each of the Company and its subsidiaries owns or possesses
adequate rights to use all patents, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names and copyrights which are
necessary to conduct its businesses as described in the Registration Statement
and Prospectus; the expiration of any patents, patent rights, trade secrets,
trademarks, service marks, trade names or copyrights would not have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise; the Company has not received any notice of, and has no knowledge
of, any infringement of or conflict with asserted rights of the Company by
others with respect to any patent, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names or copyrights; and the Company
has not received any notice of, and has no knowledge of, any infringement of or
conflict with asserted rights of others with respect to any patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names or copyrights which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, might have a material adverse effect on
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise.
(n) The Common Stock has been approved for quotation on The
Nasdaq National Market, subject to official notice of issuance.
(o) The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it will not become an "investment
company"
6.
<PAGE>
or a company "controlled" by an "investment company" within the meaning of the
1940 Act and such rules and regulations.
(p) The Company has not distributed and will not distribute
prior to the later of (i) the Closing Date, or any date on which Option Shares
are to be purchased, as the case may be, and (ii) completion of the distribution
of the Shares, any offering material in connection with the offering and sale of
the Shares other than any Preliminary Prospectuses, the Prospectus, the
Registration Statement and other materials, if any, permitted by the Act.
(q) Neither the Company nor any of its subsidiaries has at any
time during the last five (5) years (i) made any unlawful contribution to any
candidate for foreign office or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(s) Each officer and director of the Company, each Selling
Stockholder and each beneficial owner of 5,700 or more shares of Common Stock
has agreed in writing that such person will not, for a period equal to the
greater of (i) 180 days from the date that the Registration Statement is
declared effective by the Commission or (ii) three (3) days after the public
release of the Company's earnings for the fiscal period ending on or immediately
prior to the completion of such 180-day period (the "Lock-up Period"), offer to
sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant any
rights with respect to (collectively, a "Disposition") any shares of Common
Stock, any options or warrants to purchase any shares of Common Stock or any
securities convertible into or exchangeable for shares of Common Stock
(collectively, "Securities") now owned or hereafter acquired directly by such
person or with respect to which such person has or hereafter acquires the power
of disposition, otherwise than (i) as a bona fide gift or gifts, provided the
donee or donees thereof agree in writing to be bound by this restriction, (ii)
as a distribution to partners or stockholders of such person, provided that the
distributees thereof agree in writing to be bound by the terms of this
restriction, or (iii) with the prior written consent of Robertson, Stephens &
Company LLC. The foregoing restriction has been expressly agreed to preclude the
holder of the Securities from engaging in any hedging or other transaction which
is designed to or reasonably expected to lead to or result in a Disposition of
Securities during the Lock-up Period, even if such Securities would be disposed
of by someone other than such holder. Such prohibited hedging or other
transactions would include, without limitation, any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from
Securities. Furthermore, such person has also agreed and consented to the entry
of stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by such person except in compliance with this
restriction. The Company has provided to counsel for the Underwriters a complete
and accurate list of all securityholders of the Company and the number and type
of securities held by each securityholder. The Company has provided to counsel
for the Underwriters true, accurate and complete copies of all of the agreements
pursuant to which its officers, directors and stockholders have agreed to such
or similar restrictions (the "Lock-up Agreements") presently in effect or
effected hereby. The Company hereby represents and warrants that it will not
release any of its officers, directors or other stockholders from any Lock-up
Agreements currently existing or hereafter effected without the prior written
consent of Robertson, Stephens & Company LLC.
(t) Except as set forth in the Registration Statement and
Prospectus, (i) the Company is in compliance with all rules, laws and
regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
which are applicable to its business, (ii) the Company has received no notice
from any governmental authority or third party of an asserted claim under
7.
<PAGE>
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus, (iii) the Company will not be required to make
future material capital expenditures to comply with Environmental Laws and (iv)
no property which is owned, leased or occupied by the Company has been
designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. (S) 9601, et
--
seq.), or otherwise designated as a contaminated site under applicable state or
- ----
local law.
(u) The Company and each of its subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(v) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or guarantees
of indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus.
II. Each Selling Stockholder, severally and not jointly, represents
and warrants to and agrees with each Underwriter and the Company that:
(a) Such Selling Stockholder now has and on the Closing Date
will have valid marketable title to the Shares to be sold by such Selling
Stockholder, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest other than pursuant to this Agreement; and upon
delivery of such Shares hereunder and payment of the purchase price as herein
contemplated, each of the Underwriters will obtain valid marketable title to the
Shares purchased by it from such Selling Stockholder, free and clear of any
pledge, lien, security interest pertaining to such Selling Stockholder or such
Selling Stockholder's property, encumbrance, claim or equitable interest,
including any liability for estate or inheritance taxes, or any liability to or
claims of any creditor, devisee, legatee or beneficiary of such Selling
Stockholder.
(b) Such Selling Stockholder has duly authorized (if
applicable), executed and delivered, in the form heretofore furnished to the
Representatives, an irrevocable Power of Attorney (the "Power of Attorney")
appointing David M. Rickey and Joel O. Holliday as attorneys-in-fact
(collectively, the "Attorneys" and individually, an "Attorney") and a Letter of
Transmittal and Custody Agreement (the "Custody Agreement") with Harris Trust,
as custodian (the "Custodian"); each of the Power of Attorney and the Custody
Agreement constitutes a valid and binding agreement on the part of such Selling
Stockholder, enforceable in accordance with its terms, except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles; and each of such Selling
Stockholder's Attorneys, acting alone, is authorized to execute and deliver this
Agreement and the certificate referred to in Section 6(h) hereof on behalf of
such Selling Stockholder, to determine the purchase price to be paid by the
several Underwriters to such Selling Stockholder as provided in Section 3
hereof, to authorize the delivery of the Selling Stockholder Shares under this
Agreement and to duly endorse (in blank or otherwise) the certificate or
certificates representing such Shares or a stock power or powers with respect
thereto, to accept payment therefor, and otherwise to act on behalf of such
Selling Stockholder in connection with this Agreement.
(c) All consents, approvals, authorizations and orders required
for the execution and delivery by such Selling Stockholder of the Power of
Attorney and the Custody Agreement, the execution and delivery by or on behalf
of such Selling Stockholder of this Agreement and the sale and delivery of the
Selling Stockholder Shares under this Agreement (other than, at the time of the
execution hereof (if the Registration Statement has not yet been declared
effective by the Commission), the issuance of the order of the Commission
8.
<PAGE>
declaring the Registration Statement effective and such consents, approvals,
authorizations or orders as may be necessary under state or other securities or
Blue Sky laws) have been obtained and are in full force and effect; such Selling
Stockholder, if other than a natural person, has been duly organized and is
validly existing in good standing under the laws of the jurisdiction of its
organization as the type of entity that it purports to be; and such Selling
Stockholder has full legal right, power and authority to enter into and perform
its obligations under this Agreement and such Power of Attorney and Custody
Agreement, and to sell, assign, transfer and deliver the Shares to be sold by
such Selling Stockholder under this Agreement.
(d) Such Selling Stockholder will not, during the Lock-up
Period, effect the Disposition of any Securities now owned or hereafter acquired
directly by such Selling Stockholder or with respect to which such Selling
Stockholder has or hereafter acquires the power of disposition, otherwise than
(i) as a bona fide gift or gifts, provided the donee or donees thereof agree in
writing to be bound by this restriction, (ii) as a distribution to partners or
stockholders of such Selling Stockholder, provided that the distributees thereof
agree in writing to be bound by the terms of this restriction, or (iii) with the
prior written consent of Robertson, Stephens & Company LLC. The foregoing
restriction is expressly agreed to preclude the holder of the Securities from
engaging in any hedging or other transaction which is designed to or reasonably
expected to lead to or result in a Disposition of Securities during the Lock-up
Period, even if such Securities would be disposed of by someone other than the
Selling Stockholder. Such prohibited hedging or other transactions would
include, without limitation, any short sale (whether or not against the box) or
any purchase, sale or grant of any right (including, without limitation, any put
or call option) with respect to any Securities or with respect to any security
(other than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from Securities. Such Selling
Stockholder also agrees and consents to the entry of stop transfer instructions
with the Company's transfer agent against the transfer of the securities held by
such Selling Stockholder except in compliance with this restriction.
(e) Certificates in negotiable form for all Shares to be sold by
such Selling Stockholder under this Agreement, together with a stock power or
powers duly endorsed in blank by such Selling Stockholder, have been placed in
custody with the Custodian for the purpose of effecting delivery hereunder.
(f) This Agreement has been duly authorized by each Selling
Stockholder that is not a natural person and has been duly executed and
delivered by or on behalf of such Selling Stockholder and is a valid and binding
agreement of such Selling Stockholder, enforceable in accordance with its terms,
except as rights to indemnification hereunder may be limited by applicable law
and except as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; and the
performance of this Agreement and the consummation of the transactions herein
contemplated will not result in a breach or violation of any of the terms and
provisions of or constitute a default under any bond, debenture, note or other
evidence of indebtedness, or under any lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture or other agreement or instrument to
which such Selling Stockholder is a party or by which such Selling Stockholder,
or any Selling Stockholder Shares hereunder, may be bound or, to the best of
such Selling Stockholders' knowledge, result in any violation of any law, order,
rule, regulation, writ, injunction, judgment or decree of any court, government
or governmental agency or body, domestic or foreign, having jurisdiction over
such Selling Stockholder or over the properties of such Selling Stockholder, or,
if such Selling Stockholder is other than a natural person, result in any
violation of any provisions of the charter, bylaws or other organizational
documents of such Selling Stockholder.
(g) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares.
(h) Such Selling Stockholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
9.
<PAGE>
(i) All information furnished by or on behalf of such Selling
Stockholder relating to such Selling Stockholder and the Selling Stockholder
Shares that is contained in the representations and warranties of such Selling
Stockholder in such Selling Stockholder's Power of Attorney or set forth in the
Registration Statement or the Prospectus is, and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up to and on the Closing Date, was or will be, true, correct
and complete, and does not, and at the time the Registration Statement became or
becomes, as the case may be, effective and at all times subsequent thereto up to
and on the Closing Date (hereinafter defined) will not, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make such information not misleading.
(j) Such Selling Stockholder will review the Prospectus and will
comply with all agreements and satisfy all conditions on its part to be complied
with or satisfied pursuant to this Agreement on or prior to the Closing Date,
and will advise one of its Attorneys and Robertson, Stephens & Company LLC prior
to the Closing Date if any statement to be made on behalf of such Selling
Stockholder in the certificate contemplated by Section 6(h) would be inaccurate
if made as of the Closing Date.
(k) Such Selling Stockholder does not have, or has waived prior
to the date hereof, any preemptive right, co-sale right or right of first
refusal or other similar right to purchase any of the Shares that are to be sold
by the Company or any of the other Selling Stockholders to the Underwriters
pursuant to this Agreement; such Selling Stockholder does not have, or has
waived prior to the date hereof, any registration right or other similar right
to participate in the offering made by the Prospectus, other than such rights of
participation as have been satisfied by the participation of such Selling
Stockholder in the transactions to which this Agreement relates in accordance
with the terms of this Agreement; and such Selling Stockholder does not own any
warrants, options or similar rights to acquire, and does not have any right or
arrangement to acquire, any capital stock, rights, warrants, options or other
securities from the Company, other than those described in the Registration
Statement and the Prospectus.
(l) Such Selling Stockholder is not aware (without having
conducted any investigation or inquiry) that any of the representations and
warranties of the Company set forth in Section 2.I. above is untrue or
inaccurate in any material respect./3/
3. Purchase, Sale and Delivery of Shares. On the basis of the
-------------------------------------
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and the Selling Stockholders
agrees, severally and not jointly, to sell to the Underwriters, and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
the Selling Stockholders, respectively, at a purchase price of $[10-12] per
share, the respective number of Firm Shares as hereinafter set forth and Selling
Stockholder Shares set forth opposite the names of the Company and the Selling
Stockholders in Schedule B hereto. The obligation of each Underwriter to the
Company and to each Selling Stockholder shall be to purchase from the Company or
such Selling Stockholder that number of Company Shares or Selling Stockholder
Shares, as the case may be, which (as nearly as practicable, as determined by
you) is in the same proportion to the number of Company Shares or Selling
Stockholder Shares, as the case may be, set forth opposite the name of the
Company or such Selling Stockholder in Schedule B hereto as the number of Firm
Shares which is set forth opposite the name of such Underwriter in Schedule A
hereto (subject to adjustment as provided in Section 10) is to the total number
of Firm Shares to be purchased by all the Underwriters under this Agreement.
The certificates in negotiable form for the Selling Stockholder Shares
have been placed in custody (for delivery under this Agreement) under the
Custody Agreement. Each Selling Stockholder agrees that the certificates for the
Selling Stockholder Shares of such Selling Stockholder so held in custody are
subject to the interests of the Underwriters hereunder, that the arrangements
made by such Selling Stockholder for such custody,
____________________________________
/3/ Consider removing parenthetical for selling shareholders who are officers
or directors of the issuer.
10.
<PAGE>
including the Power of Attorney is to that extent irrevocable and that the
obligations of such Selling Stockholder hereunder shall not be terminated by the
act of such Selling Stockholder or by operation of law, whether by the death or
incapacity of such Selling Stockholder or the occurrence of any other event,
except as specifically provided herein or in the Custody Agreement. If any
Selling Stockholder should die or be incapacitated, or if any other such event
should occur, before the delivery of the certificates for the Selling
Stockholder Shares hereunder, the Selling Stockholder Shares to be sold by such
Selling Stockholder shall, except as specifically provided herein or in the
Custody Agreement, be delivered by the Custodian in accordance with the terms
and conditions of this Agreement as if such death, incapacity or other event had
not occurred, regardless of whether the Custodian shall have received notice of
such death or other event.
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made against
payment of the purchase price therefor by the several Underwriters by certified
or official bank check or checks drawn in next-day funds, payable to the order
of the Company with regard to the Shares being purchased from the Company, and
to the order of the Custodian for the respective accounts of the Selling
Stockholders with regard to the Shares being purchased from such Selling
Stockholders (and the Company and such Selling Stockholders agree not to deposit
and to cause the Custodian not to deposit any such check in the bank on which it
is drawn, and not to take any other action with the purpose or effect of
receiving immediately available funds, until the business day following the date
of its delivery to the Company or the Custodian, as the case may be, and, in the
event of any breach of the foregoing, the Company or the Selling Stockholders,
as the case may be, shall reimburse the Underwriters for the interest lost and
any other expenses borne by them by reason of such breach), at the offices of
Venture Law Group, 2800 Sand Hill Road, Menlo Park, California 94025 (or at such
other place as may be agreed upon among the Representatives and the Company and
the Attorneys), at 7:00 A.M., San Francisco time (a) on the third (3rd) full
business day following the first day that Shares are traded, (b) if this
Agreement is executed and delivered after 1:30 P.M., San Francisco time, the
fourth (4th) full business day following the day that this Agreement is executed
and delivered or (c) at such other time and date not later than seven (7) full
business days following the first day that Shares are traded as the
Representatives and the Company and the Attorneys may determine (or at such time
and date to which payment and delivery shall have been postponed pursuant to
Section 10 hereof), such time and date of payment and delivery being herein
called the "Closing Date;" provided, however, that if the Company has not made
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available to the Representatives copies of the Prospectus within the time
provided in Section 4(d) hereof, the Representatives may, in their sole
discretion, postpone the Closing Date until no later than two (2) full business
days following delivery of copies of the Prospectus to the Representatives. The
certificates for the Firm Shares to be so delivered will be made available to
you at such office or such other location including, without limitation, in New
York City, as you may reasonably request for checking at least one (1) full
business day prior to the Closing Date and will be in such names and
denominations as you may request, such request to be made at least two (2) full
business days prior to the Closing Date. If the Representatives so elect,
delivery of the Firm Shares may be made by credit through full fast transfer to
the accounts at The Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the Closing
Date for the Firm Shares to be purchased by such Underwriter or Underwriters.
Any such payment by you shall not relieve any such Underwriter or Underwriters
of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public offering
price of $[10-12] per share. After the initial public offering, the several
Underwriters may, in their discretion, vary the public offering price.
The information set forth in the last paragraph on the front cover
page (insofar as such information relates to the Underwriters), on the inside
front cover concerning stabilization and over-allotment by the Underwriters, and
under the second and seventh paragraphs under the caption "Underwriting" in
any Preliminary
11.
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Prospectus and in the Prospectus constitutes the only information furnished by
the Underwriters to the Company for inclusion in any Preliminary Prospectus, the
Prospectus or the Registration Statement, and you, on behalf of the respective
Underwriters, represent and warrant to the Company and the Selling Shareholders
that the statements made therein do not include any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
4. Further Agreements of the Company. The Company agrees with the
---------------------------------
several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; the Company will use its best efforts
to cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify you, promptly after it shall receive notice thereof, of the
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if the Company files a term sheet pursuant to Rule
434 of the Rules and Regulations, the Company will provide evidence satisfactory
to you that the Prospectus and term sheet meeting the requirements of Rule
434(b) or (c), as applicable, of the Rules and Regulations, have been filed,
within the time period prescribed, with the Commission pursuant to subparagraph
(7) of Rule 424(b) of the Rules and Regulations; if for any reason the filing of
the final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed; it will notify you promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; promptly upon your request, it will
prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of counsel for the
several Underwriters ("Underwriters' Counsel"), may be necessary or advisable in
connection with the distribution of the Shares by the Underwriters; it will
promptly prepare and file with the Commission, and promptly notify you of the
filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Shares as then in effect would include
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; in case any Underwriter is required
to deliver a prospectus nine (9) months or more after the effective date of the
Registration Statement in connection with the sale of the Shares, it will
prepare promptly upon request, but at the expense of such Underwriter, such
amendment or amendments to the Registration Statement and such prospectus or
prospectuses as may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the Act; and it will file no amendment or supplement to the
Registration Statement or Prospectus which shall not previously have been
submitted to you a reasonable time prior to the proposed filing thereof or to
which you shall reasonably object in writing, subject, however, to compliance
with the Act and the Rules and Regulations and the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge, of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement or of the initiation
or threat of any proceeding for that purpose; and it will promptly use its best
efforts
12.
<PAGE>
to prevent the issuance of any stop order or to obtain its withdrawal at the
earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts to qualify the Shares
for offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the Company
shall not be required in connection therewith or as a condition thereof to
qualify as a foreign corporation or to execute a general consent to service of
process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as available, and,
in the case of the Prospectus and any term sheet or abbreviated term sheet under
Rule 434, in no event later than the first (1st) full business day following the
first day that Shares are traded, copies of the Registration Statement (three of
which will be signed and which will include all exhibits), each Preliminary
Prospectus, the Prospectus and any amendments or supplements to such documents,
including any prospectus prepared to permit compliance with Section 10(a)(3) of
the Act, all in such quantities as you may from time to time reasonably request.
Notwithstanding the foregoing, if Robertson, Stephens & Company LLC, on behalf
of the several Underwriters, shall agree to the utilization of Rule 434 of the
Rules and Regulations, the Company shall provide to you copies of a Preliminary
Prospectus updated in all respects through the date specified by you in such
quantities as you may from time to time reasonably request.
(e) The Company will make generally available to its
securityholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first occurring
after the first anniversary of the effective date of the Registration Statement,
an earnings statement (which will be in reasonable detail but need not be
audited) complying with the provisions of Section 11(a) of the Act and covering
a twelve (12) month period beginning after the effective date of the
Registration Statement.
(f) During a period of five (5) years after the date hereof, the
Company will furnish to its stockholders as soon as practicable after the end of
each respective period, annual reports (including financial statements audited
by independent certified public accountants) and unaudited quarterly reports of
operations for each of the first three quarters of the fiscal year, and will
furnish to you and the other several Underwriters hereunder, upon request (i)
concurrently with furnishing such reports to its stockholders, statements of
operations of the Company for each of the first three (3) quarters in the form
furnished to the Company's stockholders, (ii) concurrently with furnishing to
its stockholders, a balance sheet of the Company as of the end of such fiscal
year, together with statements of operations, of stockholders' equity, and of
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent certified public accountants, (iii)
as soon as they are available, copies of all reports (financial or other) mailed
to stockholders, (iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, any securities
exchange or the National Association of Securities Dealers, Inc. ("NASD"), (v)
every material press release and every material news item or article in respect
of the Company or its affairs which was generally released to stockholders or
prepared by the Company or any of its subsidiaries, and (vi) any additional
information of a public nature concerning the Company or its subsidiaries, or
its business which you may reasonably request. During such five (5) year period,
if the Company shall have active subsidiaries, the foregoing financial
statements shall be on a consolidated basis to the extent that the accounts of
the Company and its subsidiaries are consolidated, and shall be accompanied by
similar financial statements for any significant subsidiary which is not so
consolidated.
(g) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
13.
<PAGE>
(h) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which may
be the same entity as the transfer agent) for its Common Stock.
(i) The Company will file Form SR in conformity with the
requirements of the Act and the Rules and Regulations.
(j) If the transactions contemplated hereby are not consummated
by reason of any failure, refusal or inability on the part of the Company or any
Selling Stockholder to perform any agreement on their respective parts to be
performed hereunder or to fulfill any condition of the Underwriters' obligations
hereunder, or if the Company shall terminate this Agreement pursuant to Section
11(a) hereof, or if the Underwriters shall terminate this Agreement pursuant to
Section 11(b)(i), the Company will reimburse the several Underwriters for all
out-of-pocket expenses (including fees and disbursements of Underwriters'
Counsel) incurred by the Underwriters in investigating or preparing to market or
marketing the Shares.
(k) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(l) During the Lock-up Period, the Company will not, without the
prior written consent of Robertson Stephens & Company LLC, effect the
Disposition of, directly or indirectly, any Securities other than the sale of
the Firm Shares and the Option Shares to be sold by the Company hereunder and
the Company's issuance of options or Common Stock under the Company's presently
authorized 1992 Stock Option Plan, 1997 Directors' Stock Option Plan and 1997
Employee Stock Purchase Plan (collectively, the "Stock Plans").
(m) During a period of ninety (90) days from the effective date
of the Registration Statement, the Company will not file a registration
statement registering shares under the Stock Plans or other employee benefit
plan.
5. Expenses.
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(a) The Company and the Selling Stockholders agree with each
Underwriter that:
i) The Company and the Selling Stockholders will pay and
bear all costs and expenses in connection with the preparation, printing and
filing of the Registration Statement (including financial statements, schedules
and exhibits), Preliminary Prospectuses and the Prospectus and any amendments or
supplements thereto; the printing of this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreement, the Preliminary Blue Sky Survey and
any Supplemental Blue Sky Survey, the Underwriters' Questionnaire and Power of
Attorney, and any instruments related to any of the foregoing; the issuance and
delivery of the Shares hereunder to the several Underwriters, including transfer
taxes, if any, the cost of all certificates representing the Shares and transfer
agents' and registrars' fees; the fees and disbursements of counsel for the
Company; all fees and other charges of the Company's independent certified
public accountants; the cost of furnishing to the several Underwriters copies of
the Registration Statement (including appropriate exhibits), Preliminary
Prospectus and the Prospectus and any amendments or supplements to any of the
foregoing; NASD filing fees and the cost of qualifying the Shares under the laws
of such jurisdictions as you may designate (including filing fees and fees and
disbursements of Underwriters' Counsel in connection with such NASD filings and
Blue Sky qualifications); and all other expenses directly incurred by the
Company and the Selling Stockholders in connection with the performance of their
obligations hereunder. Any additional expenses incurred as a result of
14.
<PAGE>
the sale of the Shares by the Selling Stockholders will be borne collectively by
the Company and the Selling Stockholders. The provisions of this Section
5(a)(i) are intended to relieve the Underwriters from the payment of the
expenses and costs which the Selling Stockholders and the Company hereby agree
to pay, but shall not affect any agreement which the Selling Stockholders and
the Company may make, or may have made, for the sharing of any of such expenses
and costs. Such agreements shall not impair the obligations of the Company and
the Selling Stockholders hereunder to the several Underwriters.
ii) In addition to its other obligations under Section 8(a)
hereof, the Company agrees that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding described in
Section 8(a) hereof, it will reimburse the Underwriters on a monthly basis for
all reasonable legal or other expenses incurred in connection with investigating
or defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligation to reimburse the Underwriters for
such expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Underwriters
shall promptly return such payment to the Company together with interest,
compounded daily, determined on the basis of the prime rate (or other commercial
lending rate for borrowers of the highest credit standing) listed from time to
time in The Wall Street Journal which represents the base rate on corporate
loans posted by a substantial majority of the nation's thirty (30) largest banks
(the "Prime Rate"). Any such interim reimbursement payments which are not made
to the Underwriters within thirty (30) days of a request for reimbursement shall
bear interest at the Prime Rate from the date of such request.
iii) In addition to their other obligations under Section
8(b) hereof, each Selling Stockholder agrees that, as an interim measure during
the pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 8(b) hereof relating to such Selling Stockholder, it will
reimburse the Underwriters on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of such
Selling Stockholder's obligation to reimburse the Underwriters for such expenses
and the possibility that such payments might later be held to have been improper
by a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Underwriters shall
promptly return such payment to the Selling Stockholders, together with
interest, compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments which are not made to the Underwriters within
thirty (30) days of a request for reimbursement shall bear interest at the Prime
Rate from the date of such request.
(b) In addition to their other obligations under Section 8(c)
hereof, the Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(c) hereof, they will reimburse the
Company and each Selling Stockholder on a monthly basis for all reasonable legal
or other expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding, notwithstanding
the absence of a judicial determination as to the propriety and enforceability
of the Underwriters' obligation to reimburse the Company and each such Selling
Stockholder for such expenses and the possibility that such payments might later
be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Company and each such Selling Stockholder shall promptly return
such payment to the Underwriters together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim reimbursement
payments which are not made to the Company and each such Selling Stockholder
within thirty (30) days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections
5(a)(ii), 5(a)(iii) and 5(b) hereof, including the amounts of any requested
reimbursement payments, the method of determining such amounts and the basis on
which such amounts
15.
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shall be apportioned among the reimbursing parties, shall be settled by
arbitration conducted under the provisions of the Constitution and Rules of the
Board of Governors of the New York Stock Exchange, Inc. or pursuant to the Code
of Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 5(a)(ii), 5(a)(iii)
and 5(b) hereof and will not resolve the ultimate propriety or enforceability of
the obligation to indemnify for expenses which is created by the provisions of
Sections 8(a), 8(b) and 8(c) hereof or the obligation to contribute to expenses
which is created by the provisions of Section 8(e) hereof.
6. Conditions of Underwriters' Obligations. The obligations of the
---------------------------------------
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company and the Selling Stockholders
herein, to the performance by the Company and the Selling Stockholders of their
respective obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 2:00 P.M., San Francisco time, on the date following the date of this
Agreement, or such later date as shall be consented to in writing by you; and no
stop order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company, any Selling Stockholder or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of the
Shares, shall have been reasonably satisfactory to Underwriters' Counsel, and
such counsel shall have been furnished with such papers and information as they
may reasonably have requested to enable them to pass upon the matters referred
to in this Section.
(c) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date, or any later date on which Option Shares are to
be purchased, as the case may be, there shall not have been any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise from
that set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus; and
(d) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, the
following opinion of counsel for the Company and the Selling Stockholders, dated
the Closing Date or such later date on which Option Shares are to be purchased
addressed to the Underwriters and with reproduced copies or signed counterparts
thereof for each of the Underwriters, to the effect that subject to negotiation:
16.
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[OPINION SUBJECT TO NEGOTIATION]
i) The Company and each Significant Subsidiary/4/ (as
that term is defined in Regulation S-X of the Act) has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation;
ii) The Company and each Significant Subsidiary has the
corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectus;
iii) The Company and each Significant Subsidiary is duly
qualified to do business as a foreign corporation and is in good
standing in each jurisdiction, if any, in which the ownership or
leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in
good standing would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations or business
of the Company and its subsidiaries considered as one enterprise. To
such counsel's knowledge, the Company does not own or control,
directly or indirectly, any corporation, association or other entity
other than AMCC (Barbados) Ltd.;
iv) The authorized, issued and outstanding capital stock
of the Company is as set forth in the Prospectus under the caption
"Capitalization" as of the dates stated therein, the issued and
outstanding shares of capital stock of the Company (including the
Selling Stockholder Shares) have been duly and validly issued and are
fully paid and nonassessable, and, to such counsel's knowledge, will
not have been issued in violation of or subject to any preemptive
right, co-sale right, registration right, right of first refusal or
other similar right;
v) All issued and outstanding shares of capital stock of
each Significant Subsidiary of the Company have been duly authorized
and validly issued and are fully paid and nonassessable, and, to such
counsel's knowledge, have not been issued in violation of or subject
to any preemptive right, co-sale right, registration right, right of
first refusal or other similar right and are owned by the Company free
and clear of any pledge, lien, security interest, encumbrance, claim
or equitable interest;
vi) The Firm Shares or the Option Shares, as the case may
be, to be issued by the Company pursuant to the terms of this
Agreement have been duly authorized and, upon issuance and delivery
against payment therefor in accordance with the terms hereof, will be
duly and validly issued and fully paid and nonassessable, and will not
have been issued in violation of or subject to any preemptive right,
co-sale right, registration right, right of first refusal or other
similar right.
vii) The Company has the corporate power and authority to
enter into this Agreement and to issue, sell and deliver to the
Underwriters the Shares to be issued and sold by it hereunder;
viii) This Agreement has been duly authorized by all
necessary corporate action on the part of the Company and has been
duly executed and delivered by the Company and, assuming due
authorization, execution and delivery by you, is a valid and binding
agreement of the Company, enforceable in accordance with its terms,
except insofar as indemnification provisions may be limited by
applicable law and except as enforceability may be limited by
___________________
/4/ Legal opinion shall be limited to subsidiaries that are significant within
the meaning of Item 3-01 of Regulation S-X, unless a subsidiary is
otherwise of particular importance to the Company (e.g. limited revenues
or assets but holds proprietary information valuable to the Company).
17.
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[OPINION SUBJECT TO NEGOTIATION]
bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally or by general
equitable principles;
ix) The Registration Statement has become effective under
the Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Act;
x) The Registration Statement and the Prospectus, and
each amendment or supplement thereto (other than the financial
statements (including supporting schedules) and financial data derived
therefrom as to which such counsel need express no opinion), as of the
effective date of the Registration Statement, complied as to form in
all material respects with the requirements of the Act and the
applicable Rules and Regulations;
xi) The information in the Prospectus under the caption
"Description of Capital Stock," to the extent that it constitutes
matters of law or legal conclusions, has been reviewed by such counsel
and is a fair summary of such matters and conclusions; and the forms
of certificates evidencing the Common Stock and filed as exhibits to
the Registration Statement comply with Delaware law;
xii) The description in the Registration Statement and the
Prospectus of the charter and bylaws of the Company and of statutes
are accurate and fairly present the information required to be
presented by the Act and the applicable Rules and Regulations;
xiii) To such counsel's knowledge, there are no agreements,
contracts, leases or documents to which the Company is a party of a
character required to be described or referred to in the Registration
Statement or Prospectus or to be filed as an exhibit to the
Registration Statement which are not described or referred to therein
or filed as required;
xiv) The performance of this Agreement and the consummation
of the transactions herein contemplated (other than performance of the
Company's indemnification obligations hereunder, concerning which no
opinion need be expressed) will not (a) result in any violation of the
Company's charter or bylaws or (b) to such counsel's knowledge, result
in a material breach or violation of any of the terms and provisions
of, or constitute a default under, any bond, debenture, note or other
evidence of indebtedness, or any lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture or other agreement or
instrument known to such counsel to which the Company is a party or by
which its properties are bound, or any applicable statute, rule or
regulation known to such counsel or, to such counsel's knowledge, any
order, writ or decree of any court, government or governmental agency
or body having jurisdiction over the Company or any of its
subsidiaries, or over any of their properties or operations;
xv) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries,
or over any of their properties or operations is necessary in
connection with the consummation by the Company of the transactions
herein contemplated, except such as have been obtained under the Act
or such as may be required under state or other securities or Blue Sky
laws in connection with the purchase and the distribution of the
Shares by the Underwriters;
xvi) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company or
any of its subsidiaries of a character
18.
<PAGE>
[OPINION SUBJECT TO NEGOTIATION]
required to be disclosed in the Registration Statement or the
Prospectus by the Act or the Rules and Regulations, other than those
described therein;
xvii) To such counsel's knowledge, neither the Company
nor any of its subsidiaries is presently (a) in material violation of
its respective charter or bylaws, or (b) in material breach of any
applicable statute, rule or regulation known to such counsel or, to
such counsel's knowledge, any order, writ or decree of any court or
governmental agency or body having jurisdiction over the Company or
any of its subsidiaries, or over any of their properties or
operations; and
xviii) To such counsel's knowledge, except as set forth in
the Registration Statement and Prospectus, no holders of Common Stock
or other securities of the Company have registration rights with
respect to securities of the Company and, except as set forth in the
Registration Statement and Prospectus, all holders of securities of
the Company having rights known to such counsel to registration of
such shares of Common Stock or other securities, because of the filing
of the Registration Statement by the Company have, with respect to the
offering contemplated thereby, waived such rights or such rights have
expired by reason of lapse of time following notification of the
Company's intent to file the Registration Statement or have included
securities in the Registration Statement pursuant to the exercise of
and in full satisfaction of such rights;
xix) Each Selling Stockholder which is not a natural person has
full right, power and authority to enter into and to perform its
obligations under the Power of Attorney and Custody Agreement to be
executed and delivered by it in connection with the transactions
contemplated herein; the Power of Attorney and Custody Agreement of
each Selling Stockholder that is not a natural person has been duly
authorized by such Selling Stockholder; the Power of Attorney and
Custody Agreement of each Selling Stockholder has been duly executed
and delivered by or on behalf of such Selling Stockholder; and the
Power of Attorney and Custody Agreement of each Selling Stockholder
constitutes the valid and binding agreement of such Selling
Stockholder, enforceable in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable
principles;
xx) Each of the Selling Stockholders has full right, power and
authority to enter into and to perform its obligations under this
Agreement and to sell, transfer, assign and deliver the Shares to be
sold by such Selling Stockholder hereunder;
xxi) This Agreement has been duly authorized by each Selling
Stockholder that is not a natural person and has been duly executed
and delivered by or on behalf of each Selling Stockholder; and
xxii) Upon the delivery of and payment for the Shares as
contemplated in this Agreement, each of the Underwriters will receive
valid marketable title to the Shares purchased by it from such Selling
Stockholder, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest. In rendering such opinion,
such counsel may assume that the Underwriters are without notice of
any defect in the title of the Shares being purchased from the Selling
Stockholders.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness
19.
<PAGE>
[SUBJECT TO NEGOTIATION]
of the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the Closing Date and on any later date on which
Option Shares are to be purchased, the Registration Statement and any amendment
or supplement thereto (other than the financial statements including supporting
schedules and other financial and statistical information derived therefrom, as
to which such counsel need express no comment) contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or at the
Closing Date or any later date on which the Option Shares are to be purchased,
as the case may be, the Registration Statement, the Prospectus and any amendment
or supplement thereto (except as aforesaid) contained any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions
of law not involving the laws of the United States or the State of California
and Delaware upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company, the Selling
Stockholders or officers of the Selling Stockholders (when the Selling
Stockholder is not a natural person), and of government officials, in which case
their opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy in any such opinion,
representation or certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, an opinion
of [Penny & Edmonds], special patent counsel to the Company, dated the Closing
Date and on any later date on which Option Shares are to be purchased, to the
effect that [subject to negotiation]:
i) The Company is listed in the records of the United
States Patent and Trademark Office ("PTO") as the holder of record of the
patent applications listed in Exhibit A to such opinion (the "Patent
Applications"), and such counsel shall state that number of such Patent
Applications, listed on Exhibit B to such opinion (the "Patents"), which
have been allowed or indicated as containing allowable subject matters.
Written assignments to the Company of all ownership interests in the Patent
Applications have been duly authorized, executed and delivered by all of
the inventors in accordance with their terms. There is no claim of any
party other than the Company to any ownership interest or lien with respect
to any of the Patent Applications;
ii) other than in connection with assertions or inquiries
made by patent office examiners in the ordinary course of the prosecution
of the Company's Patent Applications and except as set forth on Exhibit C
to such opinion, there is not pending or threatened in writing any action,
suit, proceeding or claim by others (A) challenging the validity or scope
of the Patent Applications held by or licensed to the Company, or (B)
asserting that any third party patent is infringed by the activities of the
Company described in the Prospectus or by the manufacture, use or sale of
any of the Company's products or other items made and used according to the
Patent Applications held by or licensed to the Company;
iii) except as set forth on Exhibit C hereto, there is not
pending or threatened in writing any action, suit, proceeding or claim by
the Company asserting infringement on the part of any third party of the
Patent Applications;
iv) the statements in the Prospectus under the captions
"Risk Factors -- Uncertainty Regarding Patents and Protection of
Proprietary Rights" and "Business -- Proprietary Rights," (collectively,
the "Intellectual Property Portion") insofar as such statements relate to
the Patent Applications or any legal matters, documents and proceedings
relating thereto, fairly and accurately present the
20.
<PAGE>
[OPINION SUBJECT TO NEGOTIATION]
information called for with respect to such legal matters, documents and
proceedings and fairly and accurately summarize the matters referred to
therein;
v) Nothing has come to the attention of such counsel that
has caused it to believe that the information contained in the Intellectual
Property Portion of the Registration Statement, at the time the
Registration Statement became effective, or the Prospectus, as of its date
and as of the Closing Date or on any later date on which Option Shares are
to be purchased, as the case may be, contained any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein not misleading or that the information in such sections
of any amendment or supplement to the Prospectus, as of its respective
date, and as of the Closing Date or on any later date on which Option
Shares are to be purchased, as the case may be, contained any untrue
statement of a material fact or omitted to state a material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(f) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, an opinion
of Brobeck, Phleger & Harrison LLP in form and substance satisfactory to you,
with respect to the sufficiency of all such corporate proceedings and other
legal matters relating to this Agreement and the transactions contemplated
hereby as you may reasonably require, and the Company shall have furnished to
such counsel such documents as they may have requested for the purpose of
enabling them to pass upon such matters.
(g) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a letter
from Ernst & Young LLP addressed to the Underwriters, dated the Closing Date or
such later date on which Option Shares are to be purchased, as the case may be,
confirming that they are independent certified public accountants with respect
to the Company within the meaning of the Act and the applicable published Rules
and Regulations and based upon the procedures described in such letter delivered
to you concurrently with the execution of this Agreement (herein called the
"Original Letter"), but carried out to a date not more than five (5) business
days prior to the Closing Date or such later date on which Option Shares are to
be purchased, as the case may be, (i) confirming, to the extent true, that the
statements and conclusions set forth in the Original Letter are accurate as of
the Closing Date or such later date on which Option Shares are to be purchased,
as the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of such letter, or to reflect the availability of more recent financial
statements, data or information. The letter shall not disclose any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise from
that set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus. The Original Letter from Ernst & Young LLP
shall be addressed to or for the use of the Underwriters in form and substance
satisfactory to the Underwriters and shall (i) represent, to the extent true,
that they are independent certified public accountants with respect to the
Company within the meaning of the Act and the applicable published Rules and
Regulations, (ii) set forth their opinion with respect to their examination of
the consolidated balance sheet of the Company as of March 31, 1997 and related
consolidated statements of operations, stockholders' equity, and cash flows for
the twelve (12) months ended March 31, 1997, (iii) state that Ernst & Young LLP
has performed the procedures set out in Statement on Auditing Standards No. 71
("SAS 71") for a review of interim financial information and providing the
report of Ernst & Young LLP as described in SAS 71 on the financial statements
for each of the six month periods ended September 30, 1997 and 1996 (the
"Interim Financial Statements"), (iv) state that in the course of such review,
nothing came to their attention that leads them to believe that any material
modifications need to be made to any of the Interim Financial Statements in
order for them to be in compliance with generally accepted accounting principles
consistently applied across the periods presented, and (v) address other matters
agreed upon by Ernst & Young LLP and you. In addition, you shall have received
from Ernst & Young LLP a letter addressed to the Company and made available to
you for the use of the Underwriters stating that their review of the Company's
system of internal accounting
21.
<PAGE>
controls, to the extent they deemed necessary in establishing the scope of their
examination of the Company's consolidated financial statements as of March 31,
1997, did not disclose any weaknesses in internal controls that they considered
to be material weaknesses.
(h) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, signed by the Chief
Executive Officer and Chief Financial Officer of the Company, to the effect
that, and you shall be satisfied that:
i) The representations and warranties of the Company in
this Agreement are true and correct, as if made on and as of the
Closing Date or any later date on which Option Shares are to be
purchased, as the case may be, and the Company has complied with all
the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Date or any later
date on which Option Shares are to be purchased, as the case may be;
ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened under the
Act;
iii) When the Registration Statement became effective and
at all times subsequent thereto up to the delivery of such
certificate, the Registration Statement and the Prospectus, and any
amendments or supplements thereto, contained all material information
required to be included therein by the Act and the Rules and
Regulations and in all material respects conformed to the requirements
of the Act and the Rules and Regulations, the Registration Statement,
and any amendment or supplement thereto, did not and does not include
any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, the Prospectus, and any amendment or
supplement thereto, did not and does not include any untrue statement
of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which
they were made, not misleading, and, since the effective date of the
Registration Statement, there has occurred no event required to be set
forth in an amended or supplemented Prospectus which has not been so
set forth; and
iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus,
there has not been (a) any material adverse change in the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one
enterprise, (b) any transaction that is material to the Company and
its subsidiaries considered as one enterprise, except transactions
entered into in the ordinary course of business, (c) any obligation,
direct or contingent, that is material to the Company and its
subsidiaries considered as one enterprise, incurred by the Company or
its subsidiaries, except obligations incurred in the ordinary course
of business, (d) any change in the capital stock or outstanding
indebtedness of the Company or any of its subsidiaries that is
material to the Company and its subsidiaries considered as one
enterprise, (e) any dividend or distribution of any kind declared,
paid or made on the capital stock of the Company or any of its
subsidiaries, or (f) any loss or damage (whether or not insured) to
the property of the Company or any of its subsidiaries which has been
sustained or will have been sustained which has a material adverse
effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise.
22.
<PAGE>
7. You shall be satisfied that, and you shall have received a
certificate, dated the Closing Date from the Attorneys for each Selling
Stockholder to the effect that, as of the Closing Date, they have not been
informed that:
(a) The representations and warranties made by such Selling
Stockholder herein are not true or correct in any material respect on
the Closing Date; or
(b) Such Selling Stockholder has not complied with any
obligation or satisfied any condition which is required to be
performed or satisfied on the part of such Selling Stockholder at or
prior to the Closing Date.
8. The Company shall have obtained and delivered to you an agreement
from each officer and director of the Company, each Selling Stockholder and each
beneficial owner of 5,700 or more shares of Common Stock in writing prior to the
date hereof that such person will not, during the Lock-up Period, effect the
Disposition of any Securities now owned or hereafter acquired directly by such
person or with respect to which such person has or hereafter acquires the power
of disposition, otherwise than (i) as a bona fide gift or gifts, provided the
donee or donees thereof agree in writing to be bound by this restriction, (ii)
as a distribution to partners or stockholders of such person, provided that the
distributees thereof agree in writing to be bound by the terms of this
restriction, or (iii) with the prior written consent of Robertson, Stephens &
Company LLC. The foregoing restriction shall have been expressly agreed to
preclude the holder of the Securities from engaging in any hedging or other
transaction which is designed to or reasonably expected to lead to or result in
a Disposition of Securities during the Lock-up Period, even if such Securities
would be disposed of by someone other than such holder. Such prohibited hedging
or other transactions would including, without limitation, any short sale
(whether or not against the box) or any purchase, sale or grant of any right
(including, without limitation, any put or call option) with respect to any
Securities or with respect to any security (other than a broad-based market
basket or index) that includes, relates to or derives any significant part of
its value from Securities. Furthermore, such person will have also agreed and
consented to the entry of stop transfer instructions with the Company's transfer
agent against the transfer of the Securities held by such person except in
compliance with this restriction.
9. Option Shares.
-------------
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company hereby grants to the several Underwriters, for the purpose of covering
over-allotments in connection with the distribution and sale of the Firm Shares
only, a nontransferable option to purchase up to an aggregate of 817,500 Option
Shares at the purchase price per share for the Firm Shares set forth in Section
3 hereof. Such option may be exercised by the Representatives on behalf of the
several Underwriters on one (1) or more occasions in whole or in part during the
period of thirty (30) days after the date on which the Firm Shares are initially
offered to the public, by giving written notice to the Company. The number of
Option Shares to be purchased by each Underwriter upon the exercise of such
option shall be the same proportion of the total number of Option Shares to be
purchased by the several Underwriters pursuant to the exercise of such option as
the number of Firm Shares purchased by such Underwriter (set forth in Schedule A
hereto) bears to the total number of Firm Shares purchased by the several
Underwriters (set forth in Schedule A hereto), adjusted by the Representatives
in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in next-day funds, payable to the order of the Company (and the
Company agrees not to deposit any such check in the bank on which it is drawn,
and not to take any other action with the purpose or effect of receiving
immediately available funds, until the business day following the date of its
delivery to the Company). In the event of any breach of the foregoing, the
Company shall reimburse the Underwriters for the interest lost and any other
expenses borne by them by reason of such breach. Such delivery and payment
shall take place at the offices of Venture Law Group, 2800
23.
<PAGE>
Sand Hill Road, Menlo Park, California 94025 or at such other place as may be
agreed upon among the Representatives and the Company (i) on the Closing Date,
if written notice of the exercise of such option is received by the Company at
least two (2) full business days prior to the Closing Date, or (ii) on a date
which shall not be later than the third (3rd) full business day following the
date the Company receives written notice of the exercise of such option, if such
notice is received by the Company less than two (2) full business days prior to
the Closing Date.
The certificates for the Option Shares to be so delivered will be made
available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the date of payment and delivery and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to such date of payment and
delivery. If the Representatives so elect, delivery of the Option Shares may be
made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a) hereof,
the obligations of the several Underwriters to purchase such Option Shares will
be subject (as of the date hereof and as of the date of payment and delivery for
such Option Shares) to the accuracy of and compliance with the representations,
warranties and agreements of the Company herein, to the accuracy of the
statements of the Company and officers of the Company made pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder, to the conditions set forth in Section 6 hereof, and to the condition
that all proceedings taken at or prior to the payment date in connection with
the sale and transfer of such Option Shares shall be satisfactory in form and
substance to you and to Underwriters' Counsel, and you shall have been furnished
with all such documents, certificates and opinions as you may request in order
to evidence the accuracy and completeness of any of the representations,
warranties or statements, the performance of any of the covenants or agreements
of the Company or the satisfaction of any of the conditions herein contained.
(c) The Company and the Selling Stockholders shall have furnished to
you such further certificates and documents as you shall reasonably request
(including certificates of officers of the Company, the Selling Stockholders or
officers of the Selling Stockholders (when the Selling Stockholder is not a
natural person) as to the accuracy of the representations and warranties of the
Company and the Selling Stockholders herein, as to the performance by the
Company and the Selling Stockholders of their respective obligations hereunder
and as to the other conditions concurrent and precedent to the obligations of
the Underwriters hereunder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company and the Selling Stockholders will furnish
you with such number of conformed copies of such opinions, certificates, letters
and documents as you shall reasonably request.
10. Indemnification and Contribution.
--------------------------------
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD), under
the Act, the Exchange Act or otherwise, specifically including, but not limited
to, losses, claims, damages or liabilities (or actions in respect thereof)
arising out of or based upon (i) any breach of any representation, warranty,
agreement or covenant of the Company herein contained, (ii) any
24.
<PAGE>
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement or any amendment or supplement thereto, or 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 untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and agrees to reimburse each Underwriter for any legal or other
expenses reasonably incurred by it in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
-------- -------
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, such Preliminary Prospectus or the Prospectus, or
any such amendment or supplement thereto, in reliance upon, and in conformity
with, written information relating to any Underwriter furnished to the Company
by such Underwriter, directly or through you, specifically for use in the
preparation thereof and, provided further, that the indemnity agreement provided
-------- -------
in this Section 8(a) with respect to any Preliminary Prospectus shall not inure
to the benefit of any Underwriter from whom the person asserting any losses,
claims, damages, liabilities or actions based upon any untrue statement or
alleged untrue statement of material fact or omission or alleged omission to
state therein a material fact purchased Shares, if a copy of the Prospectus in
which such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person, if
any, who controls any Underwriter within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which the
Company may otherwise have.
(b) Each Selling Stockholder, severally and not jointly, agrees to
indemnify and hold harmless each Underwriter against any losses, claims, damages
or liabilities, joint or several, to which such Underwriter may become subject
(including, without limitation, in its capacity as an Underwriter or as a
"qualified independent underwriter" within the meaning of Schedule E or the
Bylaws of the NASD) under the Act, the Exchange Act or otherwise, specifically
including, but not limited to, losses, claims, damages or liabilities (or
actions in respect thereof) arising out of or based upon (i) any breach of any
representation, warranty, agreement or covenant of such Selling Stockholder
herein contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, or 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 untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, in the case of subparagraphs (ii) and (iii) of this Section 8(b) to
the extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company or such Underwriter
by such Selling Stockholder, directly or through such Selling Stockholder's
representatives, specifically for use in the preparation thereof, and agrees to
reimburse each Underwriter for any legal or other expenses reasonably incurred
by it in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
-------- -------
provided in this Section 8(b) with respect to any Preliminary Prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
losses, claims, damages, liabilities or actions based upon any untrue statement
or alleged untrue statement of a material fact or omission or alleged omission
to state therein a material fact purchased Shares, if a copy of the Prospectus
in which such untrue statement or alleged untrue statement or omission or
alleged omission was corrected had not been sent or given to such person within
the time required by the Act and the Rules and Regulations, unless such failure
is the result of noncompliance by the Company with Section 4(d) hereof.
25.
<PAGE>
The indemnity agreement in this Section 8(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person, if
any, who controls any Underwriter within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which
such Selling Stockholder may otherwise have.
(c) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless the Company and each Selling Stockholder against any losses,
claims, damages or liabilities, joint or several, to which the Company or such
Selling Stockholder may become subject under the Act or otherwise, specifically
including, but not limited to, losses, claims, damages or liabilities (or
actions in respect thereof) arising out of or based upon (i) any breach of any
representation, warranty, agreement or covenant of such Underwriter herein
contained, (ii) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment or supplement
thereto, or 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 untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 8(c) to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Underwriter, directly or through
you, specifically for use in the preparation thereof, and agrees to reimburse
the Company and each such Selling Stockholder for any legal or other expenses
reasonably incurred by the Company and each such Selling Stockholder in
connection with investigating or defending any such loss, claim, damage,
liability or action.
The indemnity agreement in this Section 8(c) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each officer of
the Company who signed the Registration Statement and each director of the
Company, each Selling Stockholder and each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which
each Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party shall, if
a claim in respect thereof is to be made against any indemnifying party under
this Section 8, notify the indemnifying party in writing of the commencement
thereof but the omission so to notify the indemnifying party will not relieve it
from any liability which it may have to any indemnified party otherwise than
under this Section 8. In case any such action is brought against any
indemnified party, and it notified the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it shall elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified party,
to assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, that if the defendants in any such action
-------- -------
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume such
legal defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of the indemnifying party's
election so to assume the defense of such action and approval by the indemnified
party of counsel, the indemnifying party will not be liable to such indemnified
party under this Section 8 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 8(a),
8(b) or 8(c) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying
26.
<PAGE>
party has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. In no event shall any indemnifying party be
liable in respect of any amounts paid in settlement of any action unless the
indemnifying party shall have approved the terms of such settlement; provided
--------
that such consent shall not be unreasonably withheld. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could have
been sought hereunder by such indemnified party, unless such settlement includes
an unconditional release of such indemnified party from all liability on all
claims that are the subject matter of such proceeding.
(e) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this Section 8
but it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that, except as set forth
in Section 8(f) hereof, the Underwriters severally and not jointly are
responsible pro rata for the portion represented by the percentage that the
underwriting discount bears to the initial public offering price, and the
Company and the Selling Stockholders are responsible for the remaining portion,
provided, however, that (i) no Underwriter shall be required to contribute any
- -------- -------
amount in excess of the amount by which the underwriting discount applicable to
the Shares purchased by such Underwriter exceeds the amount of damages which
such Underwriter has otherwise required to pay and (ii) no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. The contribution agreement in this Section 8(e)
shall extend upon the same terms and conditions to, and shall inure to the
benefit of, each person, if any, who controls any Underwriter, the Company or
any Selling Stockholder within the meaning of the Act or the Exchange Act and
each officer of the Company who signed the Registration Statement and each
director of the Company.
(f) The liability of each Selling Stockholder under the
representations, warranties and agreements contained herein and under the
indemnity agreements contained in the provisions of this Section 8 shall be
limited to an amount equal to the initial public offering price of the Selling
Stockholder Shares sold by such Selling Stockholder to the Underwriters minus
the amount of the underwriting discount paid thereon to the Underwriters by such
Selling Stockholder. The Company and such Selling Stockholders may agree, as
among themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible.
(g) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
11. Representations, Warranties, Covenants and Agreements to Survive
----------------------------------------------------------------
Delivery. All representations, warranties, covenants and agreements of the
- --------
Company, the Selling Stockholders and the Underwriters herein or in certificates
delivered pursuant hereto, and the indemnity and contribution agreements
contained in Section 8 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter
or any person controlling any Underwriter within the meaning of the Act or the
Exchange Act, or by or on behalf of the Company or any Selling Stockholder, or
any of their officers, directors or controlling persons within the meaning of
the Act or the Exchange Act, and shall survive the delivery of the Shares to the
several Underwriters hereunder or termination of this Agreement.
27.
<PAGE>
12. Substitution of Underwriters. If any Underwriter or Underwriters
----------------------------
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for twenty-
four (24) hours to allow the several Underwriters the privilege of substituting
within twenty-four (24) hours (including non-business hours) another underwriter
or underwriters (which may include any nondefaulting Underwriter) satisfactory
to the Company. If no such underwriter or underwriters shall have been
substituted as aforesaid by such postponed Closing Date, the Closing Date may,
at the option of the Company, be postponed for a further twenty-four (24) hours,
if necessary, to allow the Company the privilege of finding another underwriter
or underwriters, satisfactory to you, to purchase the Firm Shares which the
defaulting Underwriter or Underwriters so agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted underwriter or
underwriters to take up the Firm Shares of the defaulting Underwriter or
Underwriters as provided in this Section 10, (i) the Company shall have the
right to postpone the time of delivery for a period of not more than seven (7)
full business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement, supplements to the Prospectus or other
such documents which may thereby be made necessary, and (ii) the respective
number of Firm Shares to be purchased by the remaining Underwriters and
substituted underwriter or underwriters shall be taken as the basis of their
underwriting obligation. If the remaining Underwriters shall not take up and
pay for all such Firm Shares so agreed to be purchased by the defaulting
Underwriter or Underwriters or substitute another underwriter or underwriters as
aforesaid and the Company shall not find or shall not elect to seek another
underwriter or underwriters for such Firm Shares as aforesaid, then this
Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, neither the Company nor any Selling
Stockholder shall be liable to any Underwriter (except as provided in Sections 5
and 8 hereof) nor shall any Underwriter (other than an Underwriter who shall
have failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, the Selling
Stockholders and the other Underwriters for damages, if any, resulting from such
default) be liable to the Company or any Selling Stockholder (except to the
extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
13. Effective Date of this Agreement and Termination.
------------------------------------------------
(a) This Agreement shall become effective at the earlier of (i) 6:30
A.M., San Francisco time, on the first full business day following the effective
date of the Registration Statement, or (ii) the time of the initial public
offering of any of the Shares by the Underwriters after the Registration
Statement becomes effective. The time of the initial public offering shall mean
the time of the release by you, for publication, of the first newspaper
advertisement relating to the Shares, or the time at which the Shares are first
generally offered by the Underwriters to the public by letter, telephone,
telegram or telecopy, whichever shall first occur. By giving notice as set
forth in Section 12 before the time this Agreement becomes effective, you, as
Representatives of the several
28.
<PAGE>
Underwriters, or the Company, may prevent this Agreement from becoming effective
without liability of any party to any other party, except as provided in
Sections 4(j), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters, shall have
the right to terminate this Agreement by giving notice as hereinafter specified
at any time on or prior to the Closing Date or on or prior to any later date on
which Option Shares are to be purchased, as the case may be, (i) if the Company
or any Selling Stockholder shall have failed, refused or been unable to perform
any agreement on its part to be performed, or because any other condition of the
Underwriters' obligations hereunder required to be fulfilled is not fulfilled,
including, without limitation, any change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is material
and adverse, or (ii) if additional material governmental restrictions, not in
force and effect on the date hereof, shall have been imposed upon trading in
securities generally or minimum or maximum prices shall have been generally
established on the New York Stock Exchange or on the American Stock Exchange or
in the over the counter market by the NASD, or trading in securities generally
shall have been suspended on either such exchange or in the over the counter
market by the NASD, or if a banking moratorium shall have been declared by
federal, New York or California authorities, or (iii) if the Company shall have
sustained a loss by strike, fire, flood, earthquake, accident or other calamity
of such character as to interfere materially with the conduct of the business
and operations of the Company regardless of whether or not such loss shall have
been insured, or (iv) if there shall have been a material adverse change in the
general political or economic conditions or financial markets as in your
reasonable judgment makes it inadvisable or impracticable to proceed with the
offering, sale and delivery of the Shares, or (v) if there shall have been an
outbreak or escalation of hostilities or of any other insurrection or armed
conflict or the declaration by the United States of a national emergency which,
in the reasonable opinion of the Representatives, makes it impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus. In the event of termination pursuant to subparagraph (i) above,
the Company shall remain obligated to pay costs and expenses pursuant to
Sections 4(j), 5 and 8 hereof. Any termination pursuant to any of subparagraphs
(ii) through (v) above shall be without liability of any party to any other
party except as provided in Sections 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
14. Notices. All notices or communications hereunder, except as
-------
herein otherwise specifically provided, shall be in writing and if sent to you
shall be mailed, delivered, telegraphed (and confirmed by letter) or telecopied
(and confirmed by letter) to you c/o Robertson, Stephens & Company LLC, 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel; if sent to the Company, such
notice shall be mailed, delivered, telegraphed (and confirmed by letter) or
telecopied (and confirmed by letter) to Applied Micro Circuits Corporation, 6290
Sequence Drive, San Diego, California 92121 telecopier number (619) 535-6800,
Attention: David M. Rickey, Chief Executive Officer; if sent to one or more of
the Selling Stockholders, such notice shall be sent mailed, delivered,
telegraphed (and confirmed by letter) or telecopied (and confirmed by letter) to
David M. Rickey and Joel O. Holliday, as Attorneys-in-Fact for the Selling
Stockholders, at 6290 Sequence Drive, San Diego, California 92121 telecopier
number (619) 535-6800.
15. Parties. This Agreement shall inure to the benefit of and be
-------
binding upon the several Underwriters and the Company and the Selling
Stockholders and their respective executors, administrators, successors and
assigns. Nothing expressed or mentioned in this Agreement is intended or shall
be construed to give any person or entity, other than the parties hereto and
their respective executors, administrators, successors and assigns, and the
controlling persons within the meaning of the Act or the Exchange Act, officers
and directors referred to in Section 8 hereof, any legal or equitable right,
remedy or claim in respect of this Agreement or any provisions herein contained,
this Agreement and all conditions and provisions hereof being intended to be and
being
29.
<PAGE>
for the sole and exclusive benefit of the parties hereto and their respective
executors, administrators, successors and assigns and said controlling persons
and said officers and directors, and for the benefit of no other person or
entity. No purchaser of any of the Shares from any Underwriter shall be
construed a successor or assign by reason merely of such purchase.
In all dealings with the Company and the Selling Stockholders under
this Agreement, you shall act on behalf of each of the several Underwriters, and
the Company and the Selling Stockholders shall be entitled to act and rely upon
any statement, request, notice or agreement made or given by you jointly or by
Robertson, Stephens & Company LLC on behalf of you.
16. Applicable Law. This Agreement shall be governed by, and
--------------
construed in accordance with, the laws of the State of California.
17. Counterparts. This Agreement may be signed in several
------------
counterparts, each of which will constitute an original.
30.
<PAGE>
If the foregoing correctly sets forth the understanding among the
Company, the Selling Stockholders and the several Underwriters, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, the Selling Stockholders
and the several Underwriters.
Very truly yours,
APPLIED MICRO CIRCUITS CORPORATION
By ______________________________
David M. Rickey, President and
Chief Executive Officer
SELLING STOCKHOLDERS
By ________________________________
Attorney-in-Fact for the Selling Stockholders
named in Schedule B hereto
Accepted as of the date first above written:
ROBERTSON, STEPHENS & COMPANY LLC
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By ROBERTSON, STEPHENS & COMPANY LLC
By ROBERTSON, STEPHENS & COMPANY GROUP, L.L.C.
By _________________________
Authorized Signatory
31.
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriters To Be
- ----------------------------------
Purchased
-----------
<S> <C>
Robertson, Stephens & Company LLC............
Montgomery Securities........................
Cowen & Company..............................
-----------
Total...................................
===========
</TABLE>
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of
Firm
Shares To
Company Be Sold
------------------- ---------
<S> <C>
Applied Micro Circuits Corporation
-----------
Total........................
===========
Name of Selling Stockholder Number of
[------------------------------- Selling
Stockholder
Shares
To Be Sold
-----------
-----------
Total........................
===========
</TABLE>
<PAGE>
EXHIBIT 3.1
PAGE 1
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF
"APPLIED MICRO CIRCUITS CORPORATION", FILED IN THIS OFFICE ON THE TWENTIETH DAY
OF MAY, A.D. 1997, AT 6 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS FOR RECORDING.
[SIGNATURE]
-----------
Edward J. Freel, Secretary of State
[SEAL HERE]
AUTHENTICATION: 8475268
2116925 8100
DATE: 05-21-97
971165480
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
APPLIED MICRO CIRCUITS CORPORATION
I, DAVID RICKEY, certify that:
1. I am the President of Applied Micro Circuits Corporation, a Delaware
corporation (the "Corporation').
2. The Corporation's present name is Applied Micro Circuits Corporation
and the Corporation's name will not be changed by the following amendment and
restatement of the Corporation's Certificate of Incorporation.
3. The Corporation's original Certificate of Incorporation was filed with
the Secretary of the State of Delaware on February 6, 1987.
4. The Certificate of Incorporation of this Corporation is amended and
restated to read in full as follows:
2
<PAGE>
FIRST: Name. The name of this Corporation is Applied Micro Circuits
----
Corporation.
SECOND: Registered Office. The address of the registered office of the
-----------------
Corporation in the State of Delaware is 15 East North Street, in the City of
Dover, County of Kent, and the name of its registered agent at that address is
Incorporating Services, Ltd.
THIRD: Purposes. The purpose of this Corporation is to engage in any
--------
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH Capital Stock.
--------------
A. Authorized Capital. The Corporation shall be authorized to issue two
-------------------
classes of shares which shall be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares which the Corporation shall have
authority to issue is 35,850,000 and the aggregate amount of the par value of
all shares that are to have a par value shall be $358,500. The total number of
shares of Common Stock which this Corporation is authorized to issue is
34,500,000, each share to have a par value of $.01. The total number of shares
of Preferred Stock which this Corporation is authorized to issue is 1,350,000,
each share to have a par value of $.01.
FIFTH: Rights Preferences, Privileges and Restrictions of Preferred and
----------------------------------------------------------------
Common Stock. 410,000 shares of Preferred Stock are hereby designated Preferred
- ------------
Stock Series 1; 300,000 shares are hereby designated Preferred Stock Series 2,
and 591,964 shares are hereby designated as Preferred Stock Series 3. The
rights, preferences, privileges and restrictions granted to and imposed upon the
Preferred Stock Series 1, the Preferred Stock Series 2, the Preferred Stock
Series 3 and the Common Stock are as follows:
1. Definitions
-- -----------
For purposes of this Article Fifth, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Corporation.
(b) "Corporation" shall mean this Corporation.
(c) "Original Issue Date" shall mean the date on which the first share of
a series of Preferred Stock was originally issued.
(d) "Preferred Stock" shall collectively refer to Preferred Stock Series
1, Preferred Stock Series 2 and Preferred Stock Series 3.
(e) "Subsidiary" shall mean any Corporation at least 50% of whose
outstanding voting stock shall at the time be owned directly or indirectly by
the Corporation or by one or more Subsidiaries.
3
<PAGE>
2. Dividends
-- ---------
The holders of the outstanding shares of Preferred Stock shall not be
entitled to any dividend payments except as provided herein. The holders of the
outstanding shares of Common Stock shall be entitled to receive dividends out of
finds of the Corporation legally available for the declaration of dividends, as
and when declared by the Board of Directors, provided that no dividend
whatsoever (other than a dividend payable solely in Common Stock) shall be paid
or declared, and no distribution shall be made, on any Common Stock unless the
same dividends shall be paid or declared, and the same distribution shall be
made, with respect to the Preferred Stock. For purposes of receipt of dividends,
each share of Preferred Stock shall be treated as the number of shares of Common
Stock equal to the number of shares of Common Stock into which such shares of
Preferred Stock could be converted, pursuant to the provisions of paragraph 6
hereof (with any fractional share determined on an aggregate conversion basis
being rounded to the nearest whole share), at the record date for the
determination of stockholders entitled to dividends.
3. Liquidation Rights
-- ------------------
(a) In the event of any liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, the holders of each share of
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, before any
payment or declaration and setting apart for payment of any amount shall be made
in respect of the Common Stock, all amount equal to $21.00 per share.
(b) If upon any liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, the assets to be distributed to
the holders of the Preferred Stock shall be insufficient to permit the payment
to such stockholders of the full preferential amount aforesaid under (a), then
all of the assets of the Corporation to be distributed shall be distributed
ratably among the holders of the Preferred Stock in proportion to the full
preferential amount each such holder is entitled to receive.
(c) After the payment or distribution to the holders of the Preferred
Stock of the full preferential amounts aforesaid, the holders of the Common
Stock then outstanding shall be entitled to receive ratably all the assets of
the Corporation.
4. Redemption
-- ----------
(a) At, or at any time after, December 31, 1992, and from time to time
thereafter, the Corporation may, at the option of the Board of Directors, and
only with the vote or written consent of 60% of the outstanding shares of the
Preferred Stock, redeem the Preferred Stock Series l, the Preferred Stock Series
2 and the Preferred Stock Series 3, or any of them, in whole or in part, as
provided herein. The redemption price (hereinafter referred to as the
"Redemption Price") for each share of Preferred Stock Series 1, for each share
of Preferred Stock Series 2 and for each share of Preferred Stock Series 3 shall
be an amount in cash equal to $23.10 per share, plus all dividends declared but
unpaid with respect to such share to the Redemption Date (as defined below). In
the event of the redemption of only part of the then outstanding Preferred
Stock, the corporation shall
4
<PAGE>
effect its redemption ratably among and within the series according to the
number of shares held by each holder of the Preferred Stock being redeemed.
(b) At least thirty (30) days and not more than sixty (60) days prior to
the date fixed for any such redemption of the Preferred Stock (hereinafter
referred to as the "Redemption Date"), written notice hereinafter referred to as
the "Redemption Notice") shall be mailed, postage prepaid, to each holder of
record of Preferred Stock at his post office address last shown on the records
of the Corporation or given by the holder to the Corporation for purposes of
notice. For each series of Preferred Stock, the Redemption Notice shall state:
(i) Whether all or less than all of the outstanding shares of the
series are to be redeemed, and the total number of shares being redeemed of the
series;
(ii) The number of shares of the series held by the holder that the
Corporation intends to redeem;
(iii) The Redemption Date and the Redemption Price for that series;
(iv) The date upon which the holder's Conversion Rights (as
hereinafter defined) as to such shares terminate, and
(v) That the holder is to surrender to the Corporation, in the manner
and at the place designated, his certificate or certificates representing the
shares of the series to be redeemed.
(c) On or before the Redemption Date, each holder of shares of a series
of Preferred Stock to be redeemed, unless such holder has exercised his right to
convert the shares as provided in paragraph 6 hereof, shall surrender the
certificate or certificates representing such shares to the Corporation, in the
manner and at the place designated in the Redemption Notice, and thereupon the
Redemption Price for 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 canceled and retired. In the event less
than all of the shares represented by such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
(d) If the Redemption Notice shall have been duly given, and if on the
Redemption Date the Redemption Price is either paid or made available for
payment through the deposit arrangement specified in subparagraph (e) below,
then notwithstanding that the certificates evidencing any of the shares of
Preferred Stock Series 1, any of the shares of Preferred Stock Series 2 or any
of the shares of Preferred Stock Series 3 so called for redemption shall not
have been surrendered, all rights with respect to such shares shall forthwith
after the Redemption Date terminate, except only the right of the holders to
receive the Redemption Price without interest upon surrender of their
certificate or certificates therefor.
(e) At least three (3) days prior to the Redemption Date, the Corporation
shall deposit with any bank or trust company within or outside the State of
Delaware, having a capital and surplus of at least $100,000,000, as a trust fund
for the benefit of holders of Preferred Stock, a sum
5
<PAGE>
equal to the aggregate Redemption Price of all shares of Preferred Stock Series
1 called for redemption and not yet redeemed, plus the aggregate Redemption
Price of all shares of Preferred Stock Series 2 called for redemption and not
yet redeemed, plus the aggregate Redemption Price of all shares of Preferred
Stock Series 3 called for redemption and not yet redeemed, with irrevocable
instructions and authority to the bank or trust company to pay, on or after the
Redemption Date or prior thereto, the Redemption Price to the respective holders
upon the surrender of their share certificates. All interest on the sum so
deposited shall be for the account of the Corporation. From and after the date
of such deposit, the shares so called for redemption shall be redeemed. The
deposit shall constitute full payment of the shares to their holders, and from
and after the date of the deposit the shares 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 company 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 paragraph 6 hereof. Any funds so
deposited and unclaimed at the end of one year from the Redemption Date shall be
released or repaid to the Corporation, after which the holders of shares called
for redemption shall be entitled to receive payment of the Redemption Price only
from the Corporation.
5. Voting Rights
-- -------------
(a) Except as otherwise required by law, the holder of each share of
Preferred stock shall be entitled to notice of any stockholders' meeting, to
vote on all matters submitted to a stockholder for a vote and shall be entitled
to one vote for each share of Common Stock into which such share of Preferred
Stock could be converted, pursuant to the provisions of paragraph 6 hereof (with
any fractional share determined on an aggregate conversion basis being rounded
to the nearest whole share), at the record date for the determination of
stockholders entitled to vote on such matters or, if no such record date is
established, at the date such vote is taken or any written consent of
stockholders is solicited.
(b) Except as otherwise expressly provided herein, or as required by law,
the holders of shares of Preferred Stock Series 1, Preferred Stock Series 2,
Preferred Stock Series 3 and Common Stock shall vote together and not as
separate classes.
(c) At a stockholders' meeting at which directors are to be elected, no
stockholder shall be entitled to accumulate votes (i.e., cast for any one or
more candidates a number of votes greater than the number of the stockholder's
shares in accordance with paragraph 5(a) unless the candidates' names have been
placed in nomination prior to commencement of the voting and a stockholder has
given notice prior to commencement of the voting of the stockholder's intention
to accumulate votes. If any stockholder has given such a notice, then every
stockholder entitled to vote may accumulate votes for candidates in nomination
and give one candidate a number of votes equal to the number of directors to be
elected, multiplied by the number of votes to which that stockholder's shares
are entitled, or distribute the stockholder's votes on the same principle among
any or all of the candidates, as the stockholder thinks fit. The candidates
receiving the highest number of votes, up to the number of directors to be
elected, shall be elected.
6
<PAGE>
6. Conversion.
-- ----------
The holders of the Preferred Stock Series 1, the Preferred Stock
Series 2 and the Preferred stock Series 3 shall have the following
conversion rights ("Conversion Rights"):
(a) Right to Convert.
--- -----------------
(i) Each share of Preferred Stock shall be convertible, without the
payment of any additional consideration by the holder thereof and at the option
of the holder thereof, at any time after the date of issuance of such shares and
on or prior to the Redemption Date, if any, as may have been fixed in any
Redemption Notice, at the office of the Corporation or any transfer agent for
the Preferred Stock or Common Stock, into fully paid and nonassessable shares of
Common Stock, at the respective Conversion Prices (as hereafter defined)
therefor in effect at the time of conversion determined as provided herein.
(ii) Before any holder of Preferred Stock shall be entitled to convert
the same into shares of Common Stock, he shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Common Stock, and shall give written notice to the
Corporation at such office that he elects to convert the same and shall state
therein the number of shares of Preferred Stock being converted and his name or
the name or names of the nominee or nominees in which he wishes the certificate
or certificates for shares of Common Stock to be issued. Thereupon the
Corporation shall promptly issue and deliver at such office to such holder of
Preferred Stock, or to such holder's nominee or nominees, a certificate or
certificates for the number of shares of Common Stock to which he shall be
entitled, together with cash in lieu of any fraction of a share.
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 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 on such date.
(b) Automatic Conversion. In addition to the Conversion rights set forth
--- --------------------
in paragraph 6(a) herein, the holders of Preferred Stock shall have the
following additional Conversion Rights:
(i) Each share of Preferred Stock shall automatically be converted
into shares of Common Stock at the then effective Conversion Prices, immediately
upon the closing of a firm commitment underwritten public offering pursuant to
an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the account of the
Corporation in which the aggregate gross proceeds received by the corporation,
at the public offering price, equal or exceed $10,000,000, and the public
offering price per share of which equals or exceeds $4.20 per share of Common
Stock (appropriately adjusted for subdivisions and combinations of shares of
Common Stock).
7
<PAGE>
Upon the occurrence of the event specified in subsection (i) of this
paragraph (6)(b), the outstanding shares of the series of Preferred Stock to be
converted shall be converted automatically without any further action by the
holders of such shares and whether or not the certificates representing such
shares are surrendered to the Corporation or any transfer agent for the Common
Stock, and the stock certificates representing the outstanding shares of the
series of Preferred Stock to be converted shall be deemed to represent and
consist of the Common Stock into which such Preferred Stock is deemed converted
provided, however, that the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such conversion
unless certificates evidencing such shares of the Preferred Stock being
converted are either delivered to the Corporation or any transfer agent, as
hereinafter provided, or the holder notifies the Corporation or any transfer
agent, as hereinafter provided, that such certificates have been lost, stolen,
or destroyed and executes an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection therewith.
Upon the automatic conversion of the Preferred Stock, the holders of such
Preferred Stock shall surrender the certificates representing such shares at the
office of the Corporation or of any transfer agent for the Common Stock.
Thereupon, there shall be issued and delivered to such holder, promptly at such
office and in his name as shown on such surrendered certificate or certificates,
a certificate or certificates for the number of shares of Common Stock, into
which the shares of the Preferred Stock surrendered were convertible on the date
on which such automatic conversion occurred, together with cash in lieu of any
fraction of a share.
(c) Conversion Price. The Preferred Stock Series 1 shall be convertible
--- ----------------
into the number of shares of Common Stock that results from dividing the
Conversion Price per share in effect at the time of conversion into $21.00 for
each share of Preferred Stock Series 1 being converted; the Conversion Price per
share for the Preferred Stock Series 1 shall initially be $.875. The Preferred
Stock Series 2 and Preferred Stock Series 3 shall be convertible into the number
of shares of Common Stock that results from dividing the Conversion Price per
share in effect at the time of conversion into $21.00 for each share of
Preferred Stock Series 2 and each share of Preferred Stock Series 3 being
converted; the Conversion Price per share of Preferred Stock Series 2 shall
initially be $2.10; and the Conversion Price per share of Preferred Stock Series
3 shall initially bc $1.75. The Initial Conversion Price for each class of
Preferred Stock shall be subject to adjustment from time to time as provided
herein.
(d) Adjustment for Stock Splits and Combinations. If the Corporation
--- --------------------------------------------
shall at any time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the Conversion Prices then in
effect immediately before that subdivision shall be proportionately decreased,
and, conversely, if the Corporation shall at any time or from time to time after
the Original Issue Date combine the outstanding shares of Common Stock the
Conversion Prices then in effect immediately before the combination shall be
proportionately increased. Any adjustment under this paragraph 6(d) shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(e) Adjustment for Certain Dividends and Distributions. In the event the
--- --------------------------------------------------
Corporation at any time, or from time to time after the Original Issue Date,
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive a dividend or other
8
<PAGE>
distribution payable in additional shares of Common Stock, then and in each such
event the Conversion Price for each series of Preferred Stock then in effect
shall be decreased, in the case of such issuance, at the close of business on
the date immediately prior to the date fixed for such issuance or, in the event
such a record date shall have been fixed, as of the close of business on such
record date, by multiplying the Conversion Price for each series of Preferred
Stock then in effect by a fraction:
(i) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the date fixed for such
issuance or the close of business on such record date, and
(ii) the denominator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the date fixed for such
issuance or the close of business on such record date, plus the number of shares
of Common Stock issuable in payment of such dividend or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price for such series of Preferred Stock shall be
recomputed accordingly as of the close of business on such record date, and
thereafter the Conversion Price for such series of Preferred Stock shall be
adjusted pursuant to this paragraph 6(e) as of the time of actual payment of
such dividends or distributions.
(f) Adjustment for Reclassification, Exchange. Or Substitution. If the
--- ----------------------------------------------------------
Common Stock issuable upon the conversion of the Preferred Stock shall be
changed into the same or a different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification, or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
above), then and in each such event the holder of each share of Preferred Stock
shall have the right thereafter to convert such share into the kind and amount
of shares of stock and other securities and property receivable upon such
reorganization, reclassification, or other change by holders of the number of
shares of Common Stock into which such shares of Preferred Stock might have been
converted immediately prior to such reorganization, reclassification, or change,
all subject to further adjustment as provided herein.
(g) Reorganization, Mergers. Consolidations, or Sales of Assets. If at
--- -----------------------------------------------------------
any time or from time to time there shall be a capital reorganization of the
Common Stock (other than a subdivision, combination, reclassification, or
exchange of shares provided for elsewhere in this paragraph 6) or a merger or
consolidation of the Corporation with or into another corporation, or the sale
of all or substantially all of the Corporation's properties and assets to any
other person, then, as a part of such reorganization, merger, consolidation, or
sale, provision shall be made so that the holders of the Preferred Stock shall
thereafter be entitled to receive, upon conversion of the Preferred Stock, the
number of shares of stock or other securities or property of the Corporation, or
of the successor corporation resulting from such merger or consolidation or
sale, to which a holder of Common Stock deliverable upon conversion would have
been entitled on such capital reorganization, merger, consolidation, or sale. In
any such case, appropriate adjustment shall be made in the application of the
provisions of this paragraph 6 with respect to the rights of the holders of the
Preferred Stock
9
<PAGE>
after the reorganization, merger, consolidation or sale to the end that the
provisions of this paragraph 6 (including adjustment of the conversion Prices
then in effect and the number of shares purchasable upon conversion of the
Preferred Stock) shall be applicable after that event as nearly equivalent as
may be practicable.
(h) Sale of Shares Below Conversion Price.
--- --------------------------------------
(i) If at any time or from time to time after the Original Issue Date,
the Corporation shall issue or sell additional Shares of Common Stock (as
hereinafter defined), other than as a dividend or other distribution on any
class of stock as provided in paragraph 6(e) above and other than upon a
subdivision or combination of shares of Common Stock as provided in paragraph
6(d) above, for a consideration per share less than the then existing Conversion
Price for a series of Preferred Stock (or, if an adjusted Conversion Price shall
be in effect by reason of a previous adjustment, less than such adjusted
Conversion Price), then and in each case the then Conversion Price for such
series of Preferred Stock shall be reduced as of the opening of business on the
date of such issue or sale, to a price determined by multiplying that Conversion
Price by a fraction (i) the numerator of which shall be (A) the number of shares
of Common Stock outstanding immediately prior to such issue or sale (including
shares of Common Stock issuable upon conversion of any Preferred Stock or other
convertible securities), plus (B) the number of shares of Common Stock that the
aggregate consideration received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at such Conversion
Price, and (ii) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue or sale (including shares of
Common Stock issuable upon conversion of any Preferred Stock or other
convertible securities), plus the number of such Additional Shares of Common
Stock so issued.
(ii) For the purpose of making any adjustment in the Conversion Price
or number of shares of Common Stock purchasable on conversion of Preferred Stock
as provided above, the consideration received by the Corporation for any issue
or sale of securities shall,
(1) to the extent it consists of cash, be computed at the net
amount of cash received by the Corporation after deduction of
any underwriting or similar commissions, concessions, or
compensation paid or allowed by the Corporation in connection
with such issue or sale;
(2) to the extent it consists of property other than cash, be
computed at the fair value of that property as determined in
good faith by the Board; and
(3) if Additional Shares of Common Stock, Convertible
Securities (as hereinafter defined) or rights or options to
purchase either Additional Shares of Common Stock or
Convertible Securities are issued or sold together with other
stock or securities or other assets of the Corporation for a
consideration that covers both, be computed as the portion of
the consideration so received that may be reasonably
determined in good
10
<PAGE>
faith by the Board to be allocable to such Additional Shares
of Common Stock, Convertible Securities or rights or options.
(iii) For the purpose of the adjustment provided in subsection (1) of
this paragraph 6(h), if at any time or from time to time after the Original
Issue Date the Corporation shall issue any rights or options for the purchase
of, or stock or other securities convertible into, Additional Shares of Common
Stock (such convertible stock or securities being hereinafter referred to as
"Convertible Securities'), then, in each case, if the Effective Price (as
hereinafter defined) of such rights, options or Convertible Securities shall be
less than the then existing Conversion Price for a series of Preferred Stock,
the Corporation shall be deemed to have issued at the time of the issuance of
such rights or options or Convertible Securities the maximum number of
Additional Shares of Common Stock issuable upon exercise or conversion thereof
and to have received as consideration for the issuance of such shares an amount
equal to the total amount of the consideration, if any, received by the
Corporation for the issuance of such rights or options or Convertible
Securities, plus, in the case of such options or rights, the minimum amounts of
consideration, if any, payable to the Corporation upon exercise or conversion of
such options or rights. "Effective Price" shall mean the quotient determined by
dividing the total of all of such consideration by such maximum number of
Additional Shares of Common Stock. No further adjustment of the Conversion Price
adjusted upon the issuance of such rights, options or Convertible Securities
shall be made as a result of the actual issuance of Additional Shares of Common
Stock on the exercise of any such rights or options or the conversion of any
such Convertible Securities.
If any such rights or options or the conversion privilege represented
by any such Convertible Securities shall expire without having been exercised,
the Conversion Price adjusted upon the issuance of such rights, options, or
Convertible Securities shall be readjusted to the Conversion Price that would
have been in effect had an adjustment been made on the basis that the only
Additional Shares of Common Stock so issued were the Additional Shares of Common
Stock, if any, actually issued or sold on the exercise of such rights or options
or rights of conversion of such Convertible Securities, and such Additional
Shares of Common Stock, if any, were issued or sold for the consideration
actually received by the Corporation upon such exercise, plus the consideration,
if any, actually received by the Corporation for the granting of all such rights
or options, whether or not exercised, plus the consideration received for
issuing or selling the Convertible Securities actually converted plus the
consideration, if any, actually received by the Corporation on the conversion of
such Convertible Securities.
(iv) For the purpose of the adjustment provided for in subsection (1)
of this paragraph 6(h), if at any time or from time to time after the Original
Issue Date the Corporation shall issue any rights or options for the purchase of
Convertible Securities, then, in each such case, if the Effective Price thereof
is less than the then current Conversion Price for a series of Preferred Stock,
the Corporation shall be deemed to have issued at the time of the issuance of
such rights or
11
<PAGE>
options the maximum number of Additional Shares of Common Stock issuable upon
conversion of the total amount of Convertible Securities covered by such rights
or options and to have received as consideration for the issuance of such
Additional Shares of Common Stock an amount equal to the amount of
consideration, if any, received by the Corporation for the issuance of such
rights or options, plus the minimum amounts of consideration, if any, payable to
the Corporation upon the exercise of such rights or options plus the minimum
amount of consideration, if any, payable to the Corporation upon the conversion
of such Convertible Securities. "Effective Price" shall mean the quotient
determined by dividing the total amount of such consideration by such maximum
number of Additional Shares of Common Stock. No further adjustment of such
Conversion Price adjusted upon the issuance of such rights or options shall be
made as a result of the actual issuance of the Convertible Securities or upon
the exercise of such rights or options or upon the actual issuance of Additional
Shares of Common Stock upon the conversion of such convertible Securities.
The provisions of subsection (3) above for the readjustment of such
Conversion Price upon the expiration of rights or options or the rights of
conversion of Convertible Securities shall apply mutatis mutandis to the rights,
options and Convertible Securities referred to in this subsection (4).
(i) Definition. The term "Additional Shares of Common Stock" as used
--- ----------
herein shall mean all shares of Common Stock issued or deemed issued by the
Corporation after the Original Issue Date, whether or not subsequently
reacquired or retired by the Corporation, other than (1) shares of Common Stock
issued upon conversion of the Preferred Stock and (2) up to 13,035,811
additional shares of Common Stock issued to employees, officers, directors,
consultants or other persons performing services for the Corporation, pursuant
to any stock offering, plan, or arrangement approved by the Board of Directors
of the Corporation.
(j) Certificate of Adjustment. In each case of an adjustment or
--- --------------------------
readjustment of the Conversion Price for the number of shares of Common Stock or
other securities issuable upon conversion of a series of Preferred Stock
pursuant to this paragraph 6, the Corporation at its expense shall compute such
adjustment or readjustment in accordance with the terms hereof and prepare a
certificate, executed by the Chief Financial Officer of the Corporation, showing
such adjustment or readjustment, and shall mail such certificate, by first class
mail, postage prepaid, to each registered holder of Preferred Stock at the
holder's address as shown in the Corporation's books. The certificate shall set
forth such adjustment or readjustment, showing in detail the facts upon which
such adjustment or readjustment is based including a statement of (A) the
consideration received or to be received by the Corporation for any Additional
Shares of Common Stock issued or sold or deemed to have been issued or sold,
(13) the Conversion Price at the time in effect for each series of Preferred
Stock, and (C) the number of Additional Shares of Common Stock and the type and
amount, if any, of other property which at the time would be received upon
conversion of the Preferred Stock.
(k) Notices of Record Date. In the event of (i) any taking by the
--- -----------------------
Corporation of a record of the holders of any class or series of securities for
the purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution or (ii) any reclassification or recapitalization
of the capital stock of the Corporation, any merger or consolidation of the
Corporation, or any transfer of all or substantially all of the assets of the
Corporation, or any transfer of all or substantially all of the assets of the
Corporation to any other corporation, entity or person, or any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation, the
Corporation shall mail to each holder of Preferred Stock, at least 30 days prior
to the record date
12
<PAGE>
specified therein, a notice specifying (A) the date on which any such record is
to be taken for the purpose of such dividend or distribution and a description
of such dividend or distribution, (B) the date on which any such reorganization,
reclassification, dissolution, liquidation, or winding up is expected to become
effective, and (C) the time,if any, is to be fixed, as to when the holders of
record of Common Stock (or other securities) shall be entitled to exchange their
shares of Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification, dissolution, liquidation
or winding up.
(l) Fractional Shares. No fractional shares of Common Stock shall be
--- ----------------
issued upon conversion of Preferred Stock. In lieu of any fractional shares to
which the holder would otherwise be entitled, the Corporation shall pay cash
equal to the product of such fraction multiplied by the fair market value of one
share of the Corporation's Common Stock on the date of conversion, as determined
in good faith by the Board.
(m) Reservation of Stock Issuable Upon Conversion. The 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 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 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 Preferred Stock, the
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 purpose.
(n) Notices. Any notice required by the provisions of this paragraph 6 to
--- -------
be given to the holder of shares of the Preferred Stock shall be deemed given
when personally delivered to such holder or five business days after the same
has been deposited in the United States mail, certified or registered mail,
return receipt requested, postage prepaid, and addressed to each holder of
record at his address appearing on the books of the Corporation.
(o) No Impairment. The 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 performance
of any of the terms to be observed or performed hereunder by the Corporation,
but will at all times in good faith assist in the carrying out of all provisions
in this paragraph 6 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
Preferred Stock against impairment.
7. Restrictions
------------
(a) The Corporation shall not amend its Certificate of Incorporation
without the approval, by vote or written consent, by the holders of at least 60%
of the outstanding Preferred Stock if such amendment would change any of the
rights, preferences, privileges of, or limitations provided for herein for the
benefit of any shares of the Preferred Stock. Without limiting the generality of
the preceding sentence, the Corporation will not amend its Certificate of
Incorporation
13
<PAGE>
without the approval by the holders of at least 60% of the outstanding Preferred
Stock if such amendment would:
(i) Reduce the amount payable to the holders of Preferred Stock upon
the voluntary or involuntary liquidation, dissolution, or winding up the
Corporation, or change the relative seniority of the liquidation preference of
the Preferred Stock to the rights upon liquidation of the holders of any capital
stock of the Corporation;
(ii) Reduce the Redemption Price specified in paragraph 4 hereof;
(iii) Cancel or modify the voting Rights granted to holders of
Preferred Stock under paragraph 5 hereof;
(iv) Cancel or modify the Conversion Rights provided for in paragraph
6 hereof.
Without limiting the generality of the foregoing, any amendment which would
materially and adversely affect any rights, preferences or privileges of, or
limitations provided for herein for the benefit, of any particular series of
Preferred stock without affecting each other series of Preferred Stock equally,
shall require the approval of at least 60% of the outstanding Preferred Stock of
the affected series.
(b) The Corporation shall not, without the approval, by vote or written
consent, by the holders of at least 60% of the outstanding Preferred Stock,
merge or consolidate with or into another corporation (other than a
consolidation or merger in which the Corporation is the continuing corporation
and which does not result in any reclassification of, or change in, the
outstanding shares of Common Stock or Preferred Stock) or sell or transfer all
or substantially all of the assets of the Corporation.
SIXTH: Limitation of Liability. Each director of this Corporation shall
-----------------------
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 such director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the General Corporation Law of the State of Delaware, or (iv) for any
transaction from which such director derived any improper personal benefit. If
the General Corporation Law of the State of Delaware is amended after the filing
of this Amended and Restated Certificate of Incorporation with the Delaware
Secretary of State so as to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of each
director of this Corporation shall be eliminated or limited to the fullest
extent permitted by the General Corporation Law of the State of Delaware, as so
amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the corporation shall not adversely affect any right or protection of a
director of this Corporation existing at the time of such repeal or
modification.
14
<PAGE>
SEVENTH: Management of Business. The business and affairs of this
------------------------
Corporation shall be managed by or under the direction of the Board of
Directors. Elections of directors need not be by written ballot unless required
by the Bylaws of this Corporation.
EIGHTH: Bylaws. In furtherance and not in limitation of the powers
------
conferred by statute, the Board of Directors and the stockholders are each
expressly authorized to make, repeal, alter, amend and rescind the bylaws of
this Corporation.
NINTH Amendments. The Corporation reserves the right to amend, alter,
----------
change or repeal any provision contained in this Amended and Restated
Certificate of Incorporation and to take other corporate action to the extent
and in the manner now or hereafter permitted or prescribed by the laws of the
State of Delaware. All rights conferred on stockholders herein are granted
subject to this reservation.
5. The foregoing Amended and Restated Certificate of Incorporation has
been duly proposed by the Board of Directors and submitted by the Board of
Directors to the stockholders of the Corporation in accordance with Section 245
of the General Corporation Law of the State of Delaware.
6. The foregoing Amended and Restated Certificate of Incorporation has
been duly approved by the required vote of stockholders in accordance with
Section 242 of the General Corporation Law of the State of Delaware. The total
number of shares of Common Stock of the Corporation is 7,538,035 and the total
number of shares of Preferred Stock is 1,233,594. The number of shares of
Common Stock and Preferred Stock voting in favor of the Amended and Restated
Certificate of Incorporation exceeded the vote required. The percentage vote
required was more than 50 percent of the shares of Common Stock and Preferred
Stock outstanding as of December 31, 1996, voting together as a class, more
than 50 percent of the shares of Common Stock outstanding as of December 31,
1996, voting as a separate class, and 60 percent of the Preferred Stock
outstanding as of December 31, 1996, voting as a separate class.
15
<PAGE>
IN WITNESS WHEREOF, I, the undersigned, under penalty of perjury, declare and
certify that the filing of this Amended and Restated Certificate is my act and
deed and the facts stated herein are true, and accordingly, I have executed this
Amended and Restated Certificate as of this 20th day of May, 1997.
----
[SIGNATURE]
---------------------------
David Rickey, President
ATTESTED:
[SIGNATURE]
---------------------------
Joel O. Holliday, Secretary
16
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
APPLIED MICRO CIRCUITS CORPORATION
The following Amended and Restated Certificate of Incorporation of Applied
Micro Circuits Corporation amends and restates the provisions of and supersedes
the Certificate of Incorporation filed with the Secretary of State of the State
of Delaware on February 6, 1984, as amended, in its entirety.
FIRST: The name of this corporation is Applied Micro Circuits Corporation
-----
(the "Corporation").
SECOND: The address of the Corporation's registered office in the State of
------
Delaware is 15 East North Street, City of Dover, County of Kent. The name of
its registered agent at such address is Incorporating Services Limited.
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: (A) This Corporation is authorized to issue 62,000,000 shares of
------
its capital stock, which shall be divided into two classes known as Common Stock
and Preferred Stock, respectively.
(B) The total number of shares of Common Stock which this
Corporation is authorized to issue is 60,000,000 with a par value of $0.01 per
share. The total number of shares of Preferred Stock which this Corporation is
authorized to issue is 2,000,000 with a par value of $0.01 per share. The
Preferred Stock may be issued from time to time in one or more series. The Board
of Directors of this Corporation is hereby authorized, within the limitations
and restrictions prescribed by law or stated in this Certificate of
Incorporation, and by filing a certificate pursuant to applicable law of the
State of Delaware, to provide for the issuance of Preferred Stock in series and
(i) to establish from time to time the number of shares to be included in each
such series; (ii) to fix the voting powers, designations, powers, preferences
and relative, participating, optional or other rights of the shares of each such
series and the qualifications, limitations or restrictions thereof, including
but not limited to, the fixing or alteration of the dividend rights, dividend
rate, conversion rights, conversion rates, voting rights, rights and terms of
redemption (including sinking fund provisions), the redemption price or prices,
and the liquidation preferences of any wholly unissued series of shares of
Preferred Stock; and (iii) to increase or decrease the number of shares of any
series subsequent to the issue of shares of that series, but not below the
number of shares of such series then outstanding. In case the number of shares
of any series shall be so decreased, the shares constituting such decrease
<PAGE>
shall resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
FIFTH: In furtherance and not in limitation of powers conferred by
-----
statute, the Board of Directors of the Corporation is expressly authorized to
make, alter or repeal any or all of the Bylaws of the Corporation.
SIXTH: Elections of directors need not be by written ballot except and to
-----
the extent provided in the Bylaws of the Corporation.
SEVENTH: (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 or she, his or her testator or intestate is or was a
director, officer or employee of the Corporation or any predecessor of the
Corporation or serves or served at any other enterprise as a director, officer
or employee at the request of the Corporation or any predecessor to the
Corporation.
(C) Neither any amendment nor repeal of this Article SEVENTH, nor
the adoption of any provision of the Corporation's Certificate of Incorporation
inconsistent with this Article SEVENTH, shall eliminate or reduce the effect of
this Article SEVENTH in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article SEVENTH, would
accrue or arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
EIGHTH: The Corporation is to have perpetual existence.
------
NINTH: The number of directors which will constitute the whole Board of
-----
Directors of the Corporation shall be designated in the Bylaws of the
Corporation.
TENTH: Meetings of stockholders may be held within or outside the State of
-----
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any statutory provision) outside the State of Delaware at such place
or places as may be designated from time to time by the Board of Directors in
the Bylaws of the Corporation.
The foregoing Amended and Restated Certificate of Incorporation has been
duly adopted by the stockholders of the corporation in accordance with the
provisions of Section 242 and 245 of the General Corporate Law of the State of
Delaware, as amended.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this certificate on
___________________, 1997.
David M. Rickey, President
________________, Secretary
The undersigned certify under penalty of perjury that they have read the
foregoing Amended and Restated Certificate of Incorporation and know the
contents thereof, and that the statements therein are true.
Executed at San Diego, California on _____________, 1997.
David M. Rickey, President
________________, Secretary
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
APPLIED MICRO CIRCUITS CORPORATION,
a Delaware Corporation
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE. The registered office shall be established and
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maintained at 229 South State Street, Dover, Delaware 19901.
Section 2. OTHER OFFICES. The Corporation may have other offices, either
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within or without the State of Delaware, at such place or places as the Board of
Directors may from time to time appoint or the business of the Corporation may
require. The initial executive offices of the Corporation in the State of
California shall be at 5502 Oberlin Drive, San Diego, California 92121.
ARTICLE II
MEETING OF STOCKHOLDERS
Section 1. ANNUAL MEETINGS. Annual meetings of stockholders for the election
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of directors and for such other business as may be stated in the notice of the
meeting, shall be held at such place, either within or without the State of
Delaware, and at such time and date as the Board of Directors, by resolution,
shall determine and as set forth in the notice of the meeting.
If the date of the annual meeting shall fall upon a legal
holiday, the meeting shall be held on the next succeeding business day. At each
annual meeting, the stockholders entitled to vote shall elect a Board of
Directors and may transact such other corporate business as shall be
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<PAGE>
stated in the notice of the meeting.
Section 2. OTHER MEETINGS. Meetings of stockholders for any purpose other
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than the election of directors may be held at such time and place, within or
without the State of Delaware, as shall be stated in the notice of the meeting.
Section 3. VOTING. Each stockholder entitled to vote in accordance with the
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terms and provisions of the Certificate of Incorporation and these Bylaws shall
be entitled to one vote, in person or by proxy, for each share of stock entitled
to vote held by such stockholder, but no proxy shall be voted after three years
from its date unless such proxy provides for a longer period. All elections for
directors shall be decided by plurality vote; all other questions shall be
decided by majority vote except as otherwise provided by the Certificate of
Incorporation or the laws of the State of Delaware.
Section 4. STOCKHOLDER LIST. The officer who has charge of the stock ledger
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of the Corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of 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.
Said 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 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 be available for inspection at the meeting.
Section 5. QUORUM. Except as otherwise required by law, by the Certificate
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of Incorporation or by these Bylaws, the presence, in person or by proxy, of
stockholders holding a
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<PAGE>
majority of the stock of the Corporation entitled to vote shall constitute a
quorum at all meetings of the stockholders. In case a quorum shall not be
present at any meeting, a majority in interest of the stockholders entitled to
vote, present in person or by proxy, shall have power to adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present. At any such adjourned meeting at which a quorum shall
be present or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. If the adjournment is for more
than thirty 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.
Section 6. SPECIAL MEETINGS. A special meeting of the stockholders, for any
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purpose, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called at any time by the Board of Directors, or by the
Chairman of the Board, or by the President, or by one or more stockholders
holding shares in the aggregate entitled to cast not less than 10% of the votes
at that meeting or one or more persons holding in the aggregate not less than
20% of the number of shares of Common Stock issued or issuable upon conversion
of the aggregate of the Preferred Stock Series 1 and Preferred Stock Series 2.
Such request shall state the purpose of the proposed meeting.
Section 7. NOTICE OF MEETINGS. Written notice, stating the place, date and
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time of the meeting, and the general nature of the business to be considered,
shall be given to each stockholder entitled to vote at his/her address as it
appears on the records of the Corporation, not less than ten (10) nor more than
sixty (60) days before the date of the meeting.
3
<PAGE>
Section 8. BUSINESS TRANSACTED. No business other than that stated in the
- ----------
notice shall be transacted at any meeting without the unanimous consent of all
the stockholders entitled to vote at such meeting.
Section 9. ACTION WITHOUT MEETING. Unless otherwise provided in the
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Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders of the corporation, or any action which 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, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. NUMBER AND TERM. The number of directors which shall constitute
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the whole board shall be established from time to time by the Board of
Directors, but in no event shall be less than five or more than eleven. The
directors shall be elected at the annual meeting of the stockholders, and except
as provided in Section 2 of this Article III, each director elected shall hold
office until his successor is elected and qualified. Directors need not be
stockholders.
4
<PAGE>
Section 2. RESIGNATIONS. Any director may resign at any time. Such
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resignation shall be made in writing, and shall take effect at the time
specified therein, and if no time be specified, at the time of its receipt by
the President or Secretary. The acceptance of a resignation shall not be
necessary to make it effective.
Section 3. VACANCIES. Vacancies and newly created directorships resulting
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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, though less than a quorum, or by a
sole remaining director; whenever the holders of any class or classes of stock
or series thereof are entitled to elect one or more directors by 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. The directors so chosen shall hold office until the next
annual election and until their successors are duly elected and shall qualify,
unless sooner displaced. If there are no directors in office, then an election
of directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten 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.
Section 4. REMOVAL. Any director or directors may be removed either for or
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without
5
<PAGE>
cause at any time by the affirmative vote of the holders of a majority of all
the shares of stock outstanding and entitled to vote at a special meeting of the
stockholders called for the purpose and the vacancies thus created may be
filled, at the meeting held for the purpose of removal, by the affirmative vote
of a majority in interest of the stockholders entitled to vote.
Section 5. INCREASE OF NUMBER. The number of directors may be increased by
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amendment of these Bylaws by the affirmative vote of a majority of the
directors, or, by the affirmative vote of a majority in interest of the
stockholders, at the annual meeting or at a special meeting called for that
purpose, and by like vote the additional directors may be chosen at such meeting
in accordance with Section 1 of this Article, to hold office until the next
annual election and until their successors are elected and qualify. The
foregoing right of the stockholders to elect directors to fill vacancies on the
Board of Directors created by an increase in the number of authorized directors
shall not be in derogation of the right of the directors to fill such vacancies
pursuant to Section 3 of this Article.
Section 6. COMPENSATION. Unless otherwise restricted by the Certificate of
- ----------
Incorporation or these Bylaws, the Board of Directors shall have the authority
to fix the compensation of the directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. Nothing herein contained shall be construed to
preclude any director for serving the Corporation in any other capacity as an
officer, agent or otherwise, and receiving compensation therefor.
Section 7. ACTION WITHOUT MEETING. 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
6
<PAGE>
meeting if all members of the Board or of such 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.
Section 8. MANAGEMENT OF BUSINESS OF CORPORATION. The business of the
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Corporation shall be managed by or under the direction of its Board of Directors
which may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Certificate of Incorporation or
by these Bylaws directed or required to be exercised or done by the
stockholders.
ARTICLE IV
MEETINGS OF THE BOARD OF DIRECTORS
Section 1. PLACE OF MEETINGS. The Board of Directors of the Corporation may
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hold meetings either within or without the State of Delaware.
Section 2. QUORUM AT MEETING. At all meetings of the board a majority of the
- ----------
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 shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 3. COMMUNICATION AT MEETINGS. Unless otherwise restricted by the
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Certificate of Incorporation or these Bylaws, members of the Board of Directors,
or any
7
<PAGE>
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.
Section 4. SPECIAL MEETINGS. Special meetings of the Board of Directors for
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any purpose or purposes may be called at any time by the Chairman of the Board
or the President or any Vice President or the Secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at the director's address
as it is shown on the records of the Corporation. In the case the notice is
mailed, it shall be deposited in the United States mail at least four (4) days
before the time of the holding of the meeting. In case the notice is delivered
personally, or by telephone or telegram, it shall be delivered personally or by
telephone or to the telegraph company at least forty-eight (48) hours before the
time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated either to the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose of the meeting nor the place if the meeting is to be held at the
principal executive office of the Corporation.
ARTICLE V
COMMITTEES OF DIRECTORS
Section 1. DESIGNATION OF COMMITTEES. The Board of Directors may, by
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resolution passed by a majority of the whole board, designate one or more
committees, each committee to
8
<PAGE>
consist of one or more of the Directors of the Corporation. The board many
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.
Section 2. POWERS OF COMMITTEES. Any such committee, to the extent provided
- ----------
in the resolution of the Board of Directors, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to amending the Certificate of Incorporation
(except to the extent provided in resolutions of the Board of Directors and
permitted by the General Corporation Law of Delaware), adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the Bylaws of the Corporation; and,
unless the resolution 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 the General Corporation Law of Delaware. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the Board of Directors.
Section 3. MINUTES OF COMMITTEES. Each. committee shall keep regular minutes
- ----------
of its meetings and report the same to the Board of Directors when required.
9
<PAGE>
ARTICLE VI
OFFICERS
Section 1. OFFICERS. The officers of the Corporation shall consist of a
- ----------
Chairman of the Board, a President, a Treasurer, and a Secretary, and shall be
elected by the Board of Directors and shall hold office until their successors
are elected and qualified. In addition, the Board of Directors may elect one or
more Vice-Presidents and such Assistant Secretaries and Assistant Treasurers as
it may deem proper. None of the officers of the Corporation need be directors.
The officers shall be elected at the first meeting of the Board of Directors
after each annual meeting. More than two offices may be held by the same person,
unless the Certificate of Incorporation or these Bylaws otherwise provide.
Section 2. OTHER OFFICERS AND AGENTS. The Board of Directors may appoint such
- ----------
officers and agents as it may deem advisable, who shall hold their offices for
such terms and shall exercise such power and perform such duties as from time to
time may be assigned by the Board of Directors.
Section 3. SALARIES AND TERMS OF OFFICERS. The salaries of all officers and
- ----------
agents of the Corporation shall be fixed by the Board of Directors. The officers
of the Corporation shall hold office until their successors are chosen and
qualified. Any officer elected or appointed by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors.
10
<PAGE>
Section 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of
- ----------
Directors shall be the Chief Executive Officer of the Corporation, and shall,
subject to the control of the Board, have general supervision, direction and
control of the business and affairs of the Corporation. The Chairman shall
preside at all meetings of the Board. He shall be ex officio a member of all the
committees of the Corporation, and shall have the general powers and duties of
management usually vested in the office of Chief Executive Officer of a
corporation, and shall have such other powers and duties as may be prescribed by
the Board.
Section 5. PRESIDENT. Subject to such supervisory powers as may be given by
- ----------
the Board or the Bylaws to the Chairman of the Board of Directors, the President
shall be the Chief Operating Officer of the Corporation. In the absence of the
Chairman of the Board of Directors, the President shall preside at all meetings
of the Board. He shall have the general powers and duties of management usually
vested in the office of Chief Operating Officer of a corporation, and shall have
such other powers and duties as may be prescribed by the Board or the Bylaws.
Section 6. VICE-PRESIDENT. Each Vice-President shall have such powers and
- ----------
shall perform such duties as shall be assigned by the directors.
Section 7. TREASURER. The Treasurer shall have the custody of the corporate
- ----------
funds and securities and shall keep full and accurate account of receipts and
disbursements in books belonging to the Corporation. He/she shall deposit all
monies and other valuables in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the Corporation as may be
ordered by
11
<PAGE>
the Board of Directors, or the President, taking proper vouchers for such
disbursements. He/she shall render to the President and Board of Directors at
the regular meetings of the Board of Directors, or whenever they may request it,
an account of all his/her transactions as Treasurer and of the financial
condition of the Corporation. If required by the Board of Directors, the
Treasurer shall give the Corporation a bond for the faithful discharge of duties
in such amount and with such surety as the Board shall prescribe.
The Treasurer also shall, in general, perform all the duties
incident to the office of Treasurer, including the development of financial
statements based on existing facts, together with recommendations to the
President regarding all fiscal matters; provided, however, that he/she shall not
have the authority to make any material financial decisions without approval of
the Chairman, the President or the Board of Directors.
Section 8. SECRETARY. The Secretary shall give, or cause to be given, notice
- ----------
of all meetings of stockholders and directors, and all other notices required by
law or by these Bylaws, and in case of absence or refusal or neglect so to do,
any such notice may be given by any person thereunto directed by the President,
or by the Directors, or stockholders, upon whose requisition the meeting is
called as provided in these Bylaws. He shall record all the proceedings of the
meetings of the Corporation and of directors in a book to be kept for that
purpose. He/she shall keep in safe custody the seal of the Corporation, and when
authorized by the Board of Directors, affix the same to any instrument requiring
it, and when so affixed, it shall be attested by his signature or by the
signature of any Assistant Secretary. The Secretary shall perform such other
duties as may be prescribed by the Board of Directors or President under whose
supervision he shall be.
12
<PAGE>
Section 9. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. Assistant
- ----------
Treasurers and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the directors.
ARTICLE VII
CERTIFICATES OF STOCK
Section 1. CERTIFICATES OF STOCK. The shares of the 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 in the
Corporation shall be entitled to have a certificate, signed by, or in the name
of the Corporation by, the Chairman of the Board of Directors, or the President
or a Vice-President and the Treasurer or an Assistant Treasurer, or the
Secretary of the Corporation, certifying the number of shares owned by him in
the Corporation. If the Corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the designations,
preferences and relative, participating, optional or other special rights or
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 which the Corporation shall
issue to represent such class or series of stock, provided 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
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<PAGE>
back of the certificate which 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, designations, preferences
and relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights. Where a certificate is countersigned (1) by a
transfer agent other than the Corporation or its employee, or (2) by a registrar
other than the Corporation or its employee, the signatures of such officers may
be facsimiles. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, such certificate may be issued by the Corporation with the same
effect as if he/she were such officer, transfer agent or registrar at the date
of issue.
Section 2. LOST CERTIFICATES. New certificates of stock may be issued in the
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place of any certificate theretofor issued by the Corporation, alleged to have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate of stock to be lost, stolen or destroyed.
The directors may, in their discretion, require the owner of the lost, stolen or
destroyed certificate or his legal representatives, to give the Corporation a
bond, in such sum as they may direct, not exceeding double the value of the
stock, to indemnify the Corporation against it on account of the alleged loss,
theft or destruction of any such new certificate.
Section 3. TRANSFER OF STOCK. The shares of stock of the Corporation shall be
- ----------
transferable only upon its books by the holders thereof in person or by their
duly authorized attorneys or legal representatives, and upon such transfer the
old certificates shall be surrendered
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<PAGE>
to the Corporation by the delivery thereof to the person in charge of the stock
and transfer books and ledgers, or to such other persons as the directors may
designate, by who they shall be canceled, and new certificates shall thereupon
be issued. A record shall be made of each transfer and whenever a transfer shall
be made for collateral security, and not absolutely, it shall be so expressed in
the entry of the transfer books and ledgers. The Board of Directors shall have
the power and authority to make such rules and regulations as they deem
expedient concerning the issuance, transfer and registration of certificates for
the shares of the Corporation.
Section 4. STOCKHOLDERS' RECORD DATE. In order that the Corporation may
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determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any 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 nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. 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.
Section 5. REGISTERED STOCKHOLDERS. The Corporation shall be entitled to
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recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable
15
<PAGE>
or other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. DIVIDENDS. Subject to the provisions of the Certificate of
- ----------
Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the Corporation as and when they deem expedient. Dividends may be paid
in cash, in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation. Before declaring any dividends
there may be set apart out of any funds of the Corporation available for
dividends, such sum or sums as the directors from time to time in their
discretion deem proper working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
directors shall deem conducive to the interests of the Corporation.
Section 2. SEAL. The corporate seal shall be circular in form and shall
- ----------
contain the name of the Corporation, the year of its creation and the words
"CORPORATE SEAL DELAWARE". Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or otherwise reproduced.
Section 3. FISCAL YEAR. The fiscal year of the Corporation shall be determined
- ----------
by resolution of the Board of Directors.
Section 4. CHECKS. All checks, drafts, or other orders for the payment of
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money, notes or
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<PAGE>
other evidences of indebtedness issued in the name of the Corporation shall be
signed by the officer or officers, agent or agents of the Corporation, and in
such manner as shall be determined from time to time by resolution of the Board
of Directors.
Section 5. NOTICE AND WAIVER OF NOTICE. Whenever any notice is required by
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these Bylaws to be given, personal notice is not meant unless expressly stated,
and any notice so required shall be deemed to be sufficient if given by
depositing the same in the United States mail, postage prepaid, addressed to the
person entitled thereto at his/her address as it appears on the records of the
Corporation, and such notice shall be deemed to have been given on the day of
such mailing. Stockholders not entitled to vote shall not be entitled to receive
notice of any meetings except as otherwise provided by statute.
Whenever any notice whatever is required to be given under the provisions
of any law, or under the provisions of the Certificate of Incorporation of the
Corporation or these Bylaws, a waiver thereof in writing signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed proper notice.
Whenever notice is required to be given under the provisions of any
law or the Certificate of Incorporation or these Bylaws to any stockholder whom
(i) notice of two consecutive annual meetings, and all notices of meetings or of
the taking of action by written consent without a meeting to such person during
the period between such two consecutive annual meetings, or (ii) all, and at
least two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve month period, have been mailed addressed to such
person at his/her address as shown on the records of the Corporation and have
been returned undeliverable, the giving of such notice to such person shall not
be required. If any such person shall deliver to the
17
<PAGE>
Corporation a written notice setting forth his/her then current address, notice
to such person shall be reinstated.
ARTICLE IX
INDEMNIFICATION
Each person who is or was a director, officer, employee or agent of the
Corporation (including the heirs, executors, administrators or estate of such
person) shall be indemnified by the Corporation as of right to the full extent
permitted or authorized by the General Corporation Law of Delaware against any
liability, cost or expense asserted against such director, officer, employee or
agent and incurred by such director, officer, employee or agent in any such
person's capacity as a director, officer, employee or agent or arising out of
any such person's status as a director, officer, employee or agent. The
Corporation may, but shall not be obligated to, maintain insurance, at its
expense, to protect itself and any such person against any such liability, cost
or expense.
ARTICLE X
AMENDMENTS
These Bylaws may be altered and repealed or new bylaws may be adopted at any
annual meeting of the stockholders or any special meeting thereof if notice
thereof is contained in the notice of such special meeting by the affirmative
vote of a majority of the stock issued and outstanding or entitled to vote at
such meeting, or by the regular meeting of the Board of Directors, at any
regular meeting of the Board of Directors, or at any special meeting of the
Board of Directors, if notice thereof is contained in the notice of such special
meeting.
18
<PAGE>
Exhibit 3.4
AMENDED AND RESTATED BYLAWS
OF
APPLIED MICRO CIRCUITS CORPORATION
<PAGE>
TABLE OF CONTENTS
Page
----
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 1
2.4 Manner Of Giving Notice; Affidavit Of Notice 2
2.5 Advance Notice of Stockholder Nominees 2
2.6 Quorum 3
2.7 Adjourned Meeting; Notice 3
2.8 Conduct Of Business 3
2.9 Voting 3
2.10 Waiver Of Notice 4
2.11 Record Date For Stockholder Notice; Voting; Giving Consents 4
2.12 Proxies 4
ARTICLE III - DIRECTOR 5
3.1 Powers 5
3.2 Number Of Directors 5
3.3 Election, Qualification And Term Of Office Of Directors 5
3.4 Resignation And Vacancies 5
3.5 Place Of Meetings; Meetings By Telephone 6
3.6 Regular Meetings 6
3.7 Special Meetings; Notice 7
3.8 Quorum 7
3.9 Waiver Of Notice 7
3.10 Board Action By Written Consent Without A Meeting 8
3.11 Fees And Compensation Of Directors 8
3.12 Approval Of Loans To Officers 8
3.13 Removal Of Directors 8
3.14 Chairman Of The Board Of Directors 9
ARTICLE IV - COMMITTEES 9
<PAGE>
4.1 Committees Of Directors 9
4.2 Committee Minutes 9
4.3 Meetings And Action Of Committees 10
ARTICLE V - OFFICERS 10
5.1 Officers 10
5.2 Appointment Of Officers 10
5.3 Subordinate Officers 10
5.4 Removal And Resignation Of Officers 11
5.5 Vacancies In Offices 11
5.6 Chief Executive Officer 11
5.7 President 11
5.8 Vice Presidents 11
5.9 Secretary 12
5.10 Chief Financial Officer 12
5.11 Representation Of Shares Of Other Corporations 12
5.12 Authority And Duties Of Officers 13
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND
OTHER AGENTS 13
6.1 Indemnification Of Directors And Officers 13
6.2 Indemnification Of Others 13
6.3 Payment Of Expenses In Advance 14
6.4 Indemnity Not Exclusive 14
6.5 Insurance 14
6.6 Conflicts 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 15
ARTICLE VIII - GENERAL MATTERS 16
8.1 Checks 16
8.2 Execution Of Corporate Contracts And Instruments 16
8.3 Stock Certificates; Partly Paid Shares 16
8.4 Special Designation On Certificates 17
8.5 Lost Certificates 17
8.6 Construction; Definitions 17
8.7 Dividends 17
8.8 Fiscal Year 18
<PAGE>
8.9 Seal 18
8.10 Transfer Of Stock 18
8.11 Stock Transfer Agreements 18
8.12 Registered Stockholders 18
ARTICLE IX - AMENDMENTS 18
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
APPLIED MICRO CIRCUITS CORPORATION
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE.
-----------------
The registered office of the corporation shall be in the City of
Dover, County of Kent, State of Delaware. The name of the registered agent of
the corporation at such location is Incorporating Services Limited.
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 on such date, time
and place, either within or without the State of Delaware, as may be designated
by resolution of the Board of Directors each year. At the meeting, directors
shall be elected and any other proper business may be transacted.
2.3 SPECIAL MEETING.
---------------
(a) A special meeting of the stockholders may be called at any time by
the Board of Directors, the chairman of the board or the president.
-1-
<PAGE>
2.4 NOTICE OF STOCKHOLDER'S MEETINGS; AFFIDAVIT OF NOTICE.
-----------------------------------------------------
All notices of meetings of stockholders shall be in writing and shall
be sent or otherwise given in accordance with this Section 2.4 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 (or such longer or
shorter time as is required by Section 2.5 of these Bylaws, if applicable). 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.
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.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES.
--------------------------------------
Only persons who are nominated in accordance with the procedures set
forth in this Section 2.5 shall be eligible for election as directors.
Nominations of persons for election to the board of directors of the corporation
may be made at a meeting of stockholders by or at the direction of the board of
directors or by any stockholder of the corporation entitled to vote for the
election of directors at the meeting who complies with the notice procedures set
forth in this Section 2.5. Such nominations, other than those made by or at the
direction of the board of directors, shall be made pursuant to timely notice in
writing to the secretary of the corporation. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the corporation not less than sixty (60) days nor more than ninety
(90) days prior to the meeting; provided, however, that in the event that less
than sixty (60) days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made. Such stockholder's notice shall set forth (a)
as to each person whom the stockholder proposes to nominate for election or re-
election as a Director, (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of shares of the corporation which are
beneficially owned by such person and (iv) any other information relating to
such person that is required to be disclosed in solicitations of proxies for
election of Directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including,
without limitation, such person's written
-2-
<PAGE>
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); and (b) as to the stockholder giving the notice (i) the
name and address, as they appear on the corporation's books, of such stockholder
and (ii) the class and number of shares of the corporation which are
beneficially owned by such stockholder. At the request of the Board of Directors
any person nominated by the Board of Directors for election as a director shall
furnish to the secretary of the corporation that information required to be set
forth in a stockholder's notice of nomination which pertains to the nominee. No
person shall be eligible for election as a director of the corporation unless
nominated in accordance with the procedures set forth in this Section 2.5. The
Chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that a nomination was not made in accordance with the procedures
prescribed by the Bylaws, and if he or she should so determine, he or she shall
so declare to the meeting and the defective nomination shall be disregarded.
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 either (a) the chairman of the meeting or (b) 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.
2.8 CONDUCT OF BUSINESS.
-------------------
The chairman of any meeting of stockholders shall determine the order
of business and the procedure at the meeting, including the manner of voting and
the conduct of business.
2.9 VOTING.
------
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<PAGE>
(a) 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).
(b) Except 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.
2.10 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 stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these Bylaws.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING.
------------------------------------------
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 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:
(a) 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.
-4-
<PAGE>
(b) 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 may
authorize another person or persons to act for such stockholder 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 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(e) of the General Corporation Law of Delaware.
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.
-------------------
Upon the adoption of these Bylaws, the number of directors
constituting the entire Board of Directors shall be six. Thereafter, this
number may be changed by a resolution of the Board of Directors or of the
stockholders, subject to Section 3.4 of these Bylaws. No reduction of the
authorized number of directors shall have the effect of removing any director
before such 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
-5-
<PAGE>
stockholders 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 or her successor is elected and qualified or until his or her 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
attention of the Secretary of 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 effective, 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:
(a) 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.
(b) 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.
-6-
<PAGE>
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 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.
3.7 SPECIAL MEETINGS; NOTICE.
------------------------
Special meetings of the Board of Directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need
-7-
<PAGE>
not specify the purpose or the place of the meeting, if the meeting is to be
held at the principal executive office of the corporation.
3.8 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.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 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 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.
3.10 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. Written consents representing actions taken by the
board
-8-
<PAGE>
or committee may be executed by telex, telecopy or other facsimile transmission,
and such facsimile shall be valid and binding to the same extent as if it were
an original.
3.11 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. No such compensation shall preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor.
3.12 APPROVAL OF LOANS TO OFFICERS.
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
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.
3.13 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; provided, however,
that if the stockholders of the corporation are entitled to cumulative voting,
if less than the entire Board of Directors is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board 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.
3.14 CHAIRMAN OF THE BOARD OF DIRECTORS.
----------------------------------
The corporation may also have, at the discretion of the Board of
Directors, a chairman of the Board of Directors who shall not be considered an
officer of the corporation.
ARTICLE IV
-9-
<PAGE>
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 corporation. 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 such
member or members 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 (a) 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 the designations and 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 or
fix the number of shares of any series of stock or authorize the increase or
decrease of the shares of any series), (b) adopt an agreement of merger or
consolidation under Sections 251 or 252 of the General Corporation Law of
Delaware, (c) recommend to the stockholders the sale, lease or exchange of all
or substantially all of the corporation's property and assets, (d) recommend to
the stockholders a dissolution of the corporation or a revocation of a
dissolution, or (e) 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.
-10-
<PAGE>
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 Section 3.5 (place of meetings and
meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and
Section 3.10 (action without a meeting) of these Bylaws, with such changes in
the context of such provisions 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 be determined either by
resolution of the Board of Directors or by resolution of the committee, that
special 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 chief executive officer, a
president, a secretary, and a chief financial officer. The corporation may also
have, at the discretion of the Board of Directors, one or more vice presidents,
one or more assistant secretaries, one or more 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.
5.2 APPOINTMENT 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 appointed 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 chief executive
officer or 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.
-----------------------------------
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<PAGE>
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
attention of the Secretary of 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 CHIEF EXECUTIVE OFFICER.
-----------------------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board, if any, the chief executive
officer of the corporation 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 or she shall preside at all meetings of the
stockholders and, in the absence or nonexistence of a chairman of the board, at
all meetings of the Board of Directors and shall have the general powers and
duties of management usually vested in the office of chief executive officer of
a corporation and shall have such other powers and duties as may be prescribed
by the Board of Directors or 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 any) or the chief executive
officer, the president shall have general supervision, direction, and control of
the business and other officers of the corporation. He or she shall have the
general powers and duties of management usually vested in the office of
president of a corporation and such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
-12-
<PAGE>
5.8 VICE PRESIDENTS.
---------------
In the absence or disability of the chief executive officer and
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 stockholders. The minutes shall show
the time and place of each meeting, the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' 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 stockholders 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 stockholders and of the Board of Directors required to be given by law or
by these Bylaws. He or she 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 CHIEF FINANCIAL OFFICER.
-----------------------
The chief financial officer 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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<PAGE>
The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the Board of Directors. He or she shall
disburse the funds of the corporation as may be ordered by the Board of
Directors, shall render to the president, the chief executive officer, or the
directors, upon request, an account of all his or her transactions as chief
financial officer and of the financial condition of the corporation, and shall
have other powers and perform such other duties as may be prescribed by the
Board of Directors or the Bylaws.
5.11 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.
----------------------------------------------
The chairman of the board, the chief executive officer, the president,
any vice president, the chief financial officer, the secretary or assistant
secretary of this corporation, or any other person authorized by the Board of
Directors or the chief executive officer 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 directly or by any other person authorized to do
so by proxy or power of attorney duly executed by the person having such
authority.
5.12 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
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS
--------------------------------------------------------------------
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 corporation includes any person (a) who is or was
a director or officer of the corporation, (b) 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 (c) who was a director
or officer of a
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<PAGE>
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 maximum 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 (a) who is or was an employee or
agent of the corporation, (b) 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 (c) 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 PAYMENT OF EXPENSES IN ADVANCE.
------------------------------
Expenses incurred in defending any action or proceeding for which
indemnification is required pursuant to Section 6.1 or for which indemnification
is permitted pursuant to Section 6.2 following authorization thereof by the
Board of Directors shall be paid by the corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by or on
behalf of the indemnified party to repay such amount if it shall ultimately be
determined that the indemnified party is not entitled to be indemnified as
authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE.
-----------------------
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any Bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the certificate of
incorporation
6.5 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 or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation
-15-
<PAGE>
would have the power to indemnify him or her against such liability under the
provisions of the General Corporation Law of Delaware.
6.6 CONFLICTS.
---------
No indemnification or advance shall be made under this Article VI,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
(a) That it would be inconsistent with a provision of the certificate
of incorporation, these Bylaws, a resolution of the stockholders or an agreement
in effect at the time of the accrual of the alleged cause of the action asserted
in the proceeding in which the expenses were incurred or other amounts were
paid, which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS.
-------------------------------------
The corporation shall, either at its principal executive offices or at
such place or places as designated by the Board of Directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, 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 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.
7.2 INSPECTION BY DIRECTORS.
-----------------------
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<PAGE>
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 or her 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.
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.
-17-
<PAGE>
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 chief executive officer or the president or vice-president,
and by the chief financial officer 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 or
she were such officer, transfer agent or registrar at the date of issue.
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.
-----------------
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<PAGE>
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 previously 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 the owner's 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.
---------
The directors of the corporation, subject to any restrictions
contained in (a) the General Corporation Law of Delaware or (b) the certificate
of incorporation, may declare and pay dividends upon the shares of its capital
stock. 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 may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof, to be
impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK.
-----------------
-19-
<PAGE>
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 stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the 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.
ARTICLE IX
AMENDMENTS
----------
The 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.
-20-
<PAGE>
Exhibit 10.1
INDEMNIFICATION AGREEMENT
-------------------------
This Indemnification Agreement (the "Agreement") is made as of
---------
____________, 1997, by and between Applied Micro Circuits Corporation, a
Delaware corporation (the "Company"), and ______________ (the "Indemnitee").
------- ----------
RECITALS
--------
The Company and Indemnitee recognize the increasing difficulty in obtaining
liability insurance for directors, officers and key employees, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance. The Company and Indemnitee further recognize the
substantial increase in corporate litigation in general, subjecting directors,
officers and key employees to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
Indemnitee does not regard the current protection available as adequate under
the present circumstances, and Indemnitee and agents of the Company may not be
willing to continue to serve as agents of the Company without additional
protection. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, and to indemnify its directors,
officers and key employees so as to provide them with the maximum protection
permitted by law.
AGREEMENT
---------
In consideration of the mutual promises made in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
---------------
(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee
-----------------------
if Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action, suit or proceeding if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order,
<PAGE>
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that Indemnitee did not act in good
faith and in a manner which Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company, or, with respect to any criminal
action or proceeding, that Indemnitee had reasonable cause to believe that
Indemnitee's conduct was unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall
---------------------------------------------
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, by
reason of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) and, to the fullest extent permitted by
law, amounts paid in settlement (if such settlement is approved in advance by
the Company, which approval shall not be unreasonably withheld), in each case to
the extent actually and reasonably incurred by Indemnitee in connection with the
defense or settlement of such action or suit if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company and its stockholders, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudicated by court order or judgment
to be liable to the Company in the performance of Indemnitee's duty to the
Company and its stockholders unless and only to the extent that the court in
which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
(c) MANDATORY PAYMENT OF EXPENSES. To the extent that Indemnitee has
-----------------------------
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1(a) or Section 1(b) or the defense of any
claim, issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith.
2. NO EMPLOYMENT RIGHTS. Nothing contained in this Agreement is intended
--------------------
to create in Indemnitee any right to continued employment.
3. EXPENSES; INDEMNIFICATION PROCEDURE.
-----------------------------------
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all expenses
-----------------------
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding referred to in
Section l(a) or Section 1(b) hereof
2
<PAGE>
(including amounts actually paid in settlement of any such action, suit or
proceeding). Indemnitee hereby undertakes to repay such amounts advanced only
if, and to the extent that, it shall ultimately be determined that Indemnitee is
not entitled to be indemnified by the Company as authorized hereby.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
--------------------------------
condition precedent to his or her right to be indemnified 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 and shall be given in accordance with the provisions of
Section 12(d) below. 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) PROCEDURE. Any indemnification and advances provided for in
---------
Section 1 and this Section 3 shall be made no later than twenty (20) days after
receipt of the written request of Indemnitee. If a claim under this Agreement,
under any statute, or under any provision of the Company's Certificate of
Incorporation or Bylaws providing for indemnification, is not paid in full by
the Company within twenty (20) days after a written request for payment thereof
has first been received by the Company, Indemnitee may, but need not, at any
time thereafter bring an action against the Company to recover the unpaid amount
of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also
be entitled to be paid for the expenses (including attorneys' fees) of bringing
such action. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in connection with any action,
suit or proceeding in advance of its final disposition) that Indemnitee has not
met the standards of conduct which make it permissible under applicable law for
the Company to indemnify Indemnitee for the amount claimed, but the burden of
proving such defense shall be on the Company and Indemnitee shall be entitled to
receive interim payments of expenses pursuant to Section 3(a) unless and until
such defense may be finally adjudicated by court order or judgment from which no
further right of appeal exists. It is the parties' intention that if the
Company contests Indemnitee's right to indemnification, the question of
Indemnitee's right to indemnification shall be for the court to decide, and
neither the failure of the Company (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel, or
its stockholders) to have made a determination that indemnification of
Indemnitee is proper in the circumstances because Indemnitee has met the
applicable standard of conduct required by applicable law, nor an actual
determination by the Company (including its Board of Directors, any committee or
subgroup of the Board of Directors, independent legal counsel, or its
stockholders) that Indemnitee has not met such applicable standard of conduct,
shall create a presumption that Indemnitee has or has not met the applicable
standard of conduct.
(d) NOTICE TO INSURERS. If, at the time of the receipt of a notice of
------------------
a claim pursuant to Section 3(b) hereof, the Company has director and officer
liability insurance in
3
<PAGE>
effect, the Company shall give prompt notice of the commencement of such
proceeding 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 proceeding in accordance with the terms of
such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be obligated
--------------------
under Section 3(a) hereof to pay the expenses of any proceeding against
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such proceeding, with counsel approved by Indemnitee, upon the delivery to
Indemnitee of written notice of its election so to do. 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 of counsel subsequently incurred by Indemnitee with
respect to the same proceeding, provided that (i) Indemnitee shall have the
right to employ counsel in any such proceeding at Indemnitee's expense; and (ii)
if (A) the employment of counsel by 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, in fact, have employed counsel to
assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
-------------------------------------------------
(a) SCOPE. Notwithstanding any other provision of this Agreement, 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, such changes shall be deemed to be within
the purview of Indemnitee's rights and the Company's obligations under this
Agreement. 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, such changes, 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.
(b) NONEXCLUSIVITY. The indemnification provided by this Agreement
--------------
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested members of the Company's Board of
Directors, the General Corporation Law of the State of Delaware, or otherwise,
both as to action in Indemnitee's official capacity and as to action in
4
<PAGE>
another capacity while holding such office. The indemnification provided under
this Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though he or she may have ceased
to serve in any such capacity at the time of any action, suit or other covered
proceeding.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision
-----------------------
of this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines or penalties actually or reasonably incurred in the
investigation, defense, appeal or settlement of any civil or criminal action,
suit or proceeding, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion of such expenses,
judgments, fines or penalties to which Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, Federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its directors and officers
under this Agreement or otherwise. For example, the Company and Indemnitee
acknowledge that the Securities and Exchange Commission (the "SEC") has taken
---
the position that indemnification is not permissible for liabilities arising
under certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the SEC 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.
7. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall, from time
----------------------------------------
to time, make the good faith determination whether or not it is practicable for
the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
director and officer liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded 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, if
Indemnitee is not an officer or director but is a key employee. Notwithstanding
the foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not
reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a parent
or subsidiary of the Company.
5
<PAGE>
8. SEVERABILITY. Nothing in this Agreement is intended to require or
------------
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. EXCEPTIONS. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses
------------------------------
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;
(b) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
------------------
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous;
(c) INSURED CLAIMS. To indemnify Indemnitee for expenses or
--------------
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the
extent such expenses or liabilities have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors' liability insurance
maintained by the Company; or
(d) CLAIMS UNDER SECTION 16(B). To indemnify Indemnitee for expenses
--------------------------
or 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.
10. CONSTRUCTION OF CERTAIN PHRASES.
-------------------------------
(a) For purposes of this Agreement, references to the "Company" shall
-------
include, in addition to the resulting corporation, any constituent corporation
(including any
6
<PAGE>
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that if
Indemnitee is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, 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.
(b) For purposes of this Agreement, 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 or agent of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants, or beneficiaries;
and 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.
- --------------------------------------------
11. ATTORNEYS' FEES. In the event that any action is instituted by
---------------
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
12. MISCELLANEOUS.
-------------
(a) GOVERNING LAW. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Delaware, without giving effect to principles of conflict of law.
7
<PAGE>
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) CONSTRUCTION. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(d) NOTICES. Any notice, demand or request required or permitted to
-------
be given under this Agreement shall be in writing and shall be deemed sufficient
when delivered personally or sent by telegram or forty-eight (48) hours after
being deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed to the party to be notified at such party's address as
set forth below or as subsequently modified by written notice.
(e) COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
----------------------
Company and its successors and assigns, and inure to the benefit of Indemnitee
and Indemnitee's heirs, legal representatives and assigns.
(g) 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
to effectively bring suit to enforce such rights.
[Signature Page Follows]
8
<PAGE>
The parties hereto have executed this Agreement as of the day and year set
forth on the first page of this Agreement.
APPLIED MICRO CIRCUITS CORPORATION
By:
Title:
AGREED TO AND ACCEPTED:
[Indemnitee Name]
(Signature)
Address: [Indemnitee Address]
[Indemnitee Adcdress]
9
<PAGE>
EXHIBIT 10.2
AS AMENDED EFFECTIVE
December 13,1990
1982 EMPLOYEE INCENTIVE STOCK OPTION PLAN
OF
APPLIED MICRO CIRCUITS CORPORATION
----------------------------------
1. PURPOSE OF THE PLAN
-------------------
The purpose of the 1982 Employee Incentive Stock Option Plan (the "Plan")
of APPLIED MICRO CIRCUITS CORPORATION (the "Company") are to:
a. furnish incentive to individuals chosen to receive options
because they are considered capable of responding by improving operations and
increasing profits;
b. encourage selected employees to accept or continue employment
with the Company or its subsidiaries; and
c. increase the interest of individuals chosen to receive options
in the Company's welfare by encouraging ownership of its Common stock.
To accomplish the foregoing objectives, the Plan provides a means whereby
employees may receive stock options which qualify as "incentive stock options"
under Section 422A ("Section 422A") of the Internal Revenue Code ("Code") as it
may be amended from time to time.
2. ELIGIBLE PERSONS
----------------
Every person who at the date of grant is an employee of the Company or of
any affiliate of the Company is eligible to receive an option or options under
the Plan; provided, however, that options may not be granted under the Plan to
any person who owns, directly or indirectly, stock of the Company constituting
more than 10% of the total combined voting power of the Company's outstanding
stock, or the stock of any affiliate of the Company, unless the exercise price
of the options granted to any such person under the Plan, at the time such
option is granted, is equal to at least 110% of the fair market value of the
stock subject to the option, and any such option is not exercisable for a period
exceeding five years after the date of grant. The term "affiliate," as used in
the Plan, means a parent or subsidiary corporation, as defined in the applicable
provisions (currently set forth in Section 425) of the Code. The term
"employee" includes an officer or a director who is an employee.
3. STOCK SUBJECT TO THE PLAN
-------------------------
An aggregate of 8,008,000 authorized but unissued shares of the Common
Stock of the Company or such number and class of securities as adjusted to give
effect to the antidilution provisions contained in Section 6(b) hereof, may be
sold upon the exercise of options granted
<PAGE>
under the Plan. In the event that any option outstanding under the Plan expires,
or is terminated for any reason, unexercised in whole or in part, prior to the
end of the period during which options may be granted under the Plan, the shares
of stock allocable to the unexercised portion of such option may again be
subjected to option under the Plan. In addition, shares of stock issued as the
result of an exercise of options granted under the Plan which are repurchased by
the Company prior to the end of the period during which options may be granted
under the Plan may again be subjected to option under the Plan; provided,
however that only those shares which are repurchased pursuant to a written
agreement between the optionee and the Company in connection with the execution
or amendment of a written stock option agreement shall be so subjected to option
under the Plan.
4. ADMINISTRATION
--------------
The Plan shall be administered by the Board of Directors or, if established
by the Board of Directors, by a committee (the "Committee") consisting of not
less than three persons, all of whom are and shall be directors of the Company,
to be appointed by the Company's Board of Directors. Committee members shall
serve for such terms as the Board of Directors may in each case determine, and
shall be subject to removal at any time by the Board of Directors. Vacancies on
the Committee, however caused, may be filled by the Board of Directors. The
committee may select one of its members as chairman, and may hold meetings at
such times and places as it may determine. A majority of the Committee shall
constitute a quorum, and acts of the Committee approved at a meeting at which a
quorum is present, or acts approved in writing by all of the members of the
Committee, shall be valid acts of the Committee. Subject to the general
purposes, terms and conditions of the Plan, and to the direction of the Board of
Directors, the Committee, if there be one, shall have full power to implement
and carryout the Plan in all ways permissible under the applicable provisions of
the Code including, but not limited to, the following: to construe and
interpret the Plan; to prescribe, amend and rescind rules and regulations
relating to the Plan; and to make all other determinations necessary or
advisable for the administration of the Plan. The Committee, if there be one,
shall submit to the Board of Directors the names of employees to whom the
Committee recommends that an option or options be granted under the Plan, the
number of shares of stock to be covered by each option and the terms and
conditions of each option. Options shall be granted upon approval by the Board
of Directors or, if the Committee is given general or specific authority to do
so by the Board of Directors, to the extent so authorized, upon approval by the
Committee without submission to, and review by, the Board of Directors, except
that the Committee shall not have authority to approve the grant of options to
members of the Board of Directors without approval by the Board of Directors.
5. GRANTING OF OPTIONS
-------------------
No options shall be granted under the plan after November 1, 1992.
Each option shall be evidenced by a written stock option agreement executed
by the Company and employee to whom such option is granted.
-2-
<PAGE>
The aggregate fair market value (determined at the time the option is
granted) of the stock with respect to which incentive stock options are
exercisable for the first time by a grantee hereunder during any calendar year
(under all incentive stock option plans of the Company and its parent and
subsidiary corporations) shall not exceed one hundred thousand dollars
($100,000.00). The limitations imposed by this paragraph shall apply only to
options granted on or after January 1,1987.
6. TERMS AND CONDITIONS OF OPTIONS
-------------------------------
Each option shall be subject to the following terms and conditions:
a. Option Price. The option price, which shall be approved by the
------------
Board of Directors, shall be determined in accordance with the applicable
provisions of the Code and shall in no event be less than the fair market value
of the Company's capital stock at the time the option is granted. In the absence
of an established market for such stock, the fair market value thereof, for the
purposes of the plan, shall be determined in good faith by the Committee of the
Board of Directors. If the stock of the Company is regularly quoted by a
recognized securities dealer, the fair market value thereof, for the purposes of
the Plan, shall be the mean between the highest and lowest selling prices for
such stock as quoted on such exchange for the date the option is granted (or if
there are no sales for such date of grant, then for the last preceding business
day on which there were sales).
b. Adjustments. In the event that the stock of the Company is
-----------
changed by reason of any stock split, reverse stock split, recapitalization, or
other change in the capital structure of the Company, or converted into or
exchanged for other securities as a result of any merger, consolidation or
reorganization, or in the event that the outstanding number of shares of stock
of the Company is increased through payment of a stock dividend, appropriate
proportionate adjustments shall be made in the number and class of shares of
stock subject to the Plan, the number and class of shares of stock subject to
any option outstanding under the Plan, and the exercise price of any such
outstanding option; provided, however, that the Company shall not be required to
issue fractional shares as a result of any such adjustment. Any such adjustment
shall be made upon approval by the Board of Directors, whose determination shall
be conclusive. If there is any other change in the number or kind of the
outstanding shares of stock of the Company, or of any other security into which
such stock shall have been changed or for which it shall have been exchanged,
and if the Board of Directors, in its sole discretion, determines that such
change equitably requires any adjustment in the options then outstanding under
the Plan, such adjustment shall be made in accordance with the determination of
the Board of Directors. No adjustments shall be required by reason of the
issuance or sale by the Company for cash or other consideration of additional
shares of its stock or securities convertible into or exchangeable for shares of
its stock. All adjustments shall be made in such a manner that each option which
is adjusted will continue to qualify under Section 422A as an "incentive stock
option."
c. Corporate Transactions. New option rights may be substituted
----------------------
for the option rights granted under the Plan, or the Company's duties as to
options outstanding under the
-3-
<PAGE>
Plan may be assumed, by an employer corporation other than the Company, or by a
parent or subsidiary of such employer corporation, in connection with any
merger, consolidation, acquisition, separation, reorganization, liquidation or
like occurrence in which the Company is involved, in such a manner that will
allow the then outstanding options to continue to qualify as "incentive stock
options" under Section 422A to the full extent permitted thereby.
Notwithstanding the foregoing or the provisions of paragraph 6(b) hereof, in the
event such employer corporation, or parent or subsidiary of such employer
corporation, does not substitute new option rights for, and substantially
equivalent to, the option rights granted hereunder, or assume the option rights
granted hereunder, or if the Company's Board of Directors determines, in its
sole discretion, that option rights outstanding under the Plan should not then
continue to be outstanding, the option rights granted hereunder shall terminate
and thereupon become null and void (i) upon dissolution or liquidation of the
Company, or similar occurrence, or (ii) upon any merger, consolidation,
acquisition, separation, or similar occurrence, where the Company will not be a
surviving corporation; provided, however, that each optionee shall have the
right immediately prior to or concurrently with such dissolution, liquidation,
merger, consolidation, acquisition, separation, or similar occurrence, to
exercise any unexpired option rights granted here under subject to the time
limitations for exercise of "incentive stock options" provided in Section 422A.
d. Option Exercise Period. Each option granted under the Plan shall
----------------------
become exercisable and shall expire on a date or in installments, and shall
contain such other terms as may be determined by the Committee or by the Board
of Directors and as set forth in the stock option agreement, but in no event
shall any option hereunder expire later than ten (10) years from the date such
option is granted.
e. Exercise of Option by Employee Who Holds Other Options.
------------------------------------------------------
Notwithstanding any terms of any stock option agreement, no option granted under
the Plan ("new option") shall be exercisable while there is outstanding in favor
of the optionee to whom such new option is granted an "incentive stock option,"
granted to such optionee prior to the granting of the new option, which permits
the employee to purchase stock in such optionee's employer corporation, or in a
predecessor corporation of any of such corporations. For such purposes, any
incentive stock option shall be treated as outstanding until such option is
exercised in full or expires by reason of lapse of time. This paragraph 6(e),
however, shall not restrict the exercisability of any option granted under the
Plan except as may be necessary to allow such option to qualify under Section
422A as an "incentive stock option" and shall not apply to any option granted
under the plan after December 31, 1986.
f. Change of Option Period. Notwithstanding any other provision of
-----------------------
the Plan, the Board of Directors or the Committee may accelerate the earliest
date or dates on which outstanding options (or any installments thereof) are
exercisable.
g. Option Grant Date. The date of grant of an option granted under
-----------------
the Plan shall be the date as of which the Board of Directors or the Committee
(if the option is granted by the Committee without review by the Board of
Directors) approves the grant. If for any reason, including a unilateral
decision by the Company not to execute an agreement evidencing such
-4-
<PAGE>
option, a written stock option agreement evidencing the option is not executed
within sixty (60) days after the date of grant, such option shall be deemed null
and void. No option shall be exercisable until such a stock option agreement is
executed by the Company and the optionee.
h. Nonassignability of Option Rights. No option granted under the
---------------------------------
Plan shall be assignable or otherwise transferable by the optionee except by win
or by the laws of descent and distribution. During the life of an optionee, his
option shall be exercisable only by the optionee.
i. Payment. Except as provided below, payment in full, in cash,
-------
shall be made for all stock purchased at the time written notice of exercise of
an option is given to the company, and proceeds of any payment shall constitute
general funds of the Company. Notwithstanding the preceding sentence, the Board
of Directors may authorize any one or more of the following in connection with
the exercise of an option by an optionee:
i. acceptance of the optionee's personal promissory note for
all or part of the option price, bearing such interest rate, if any, as
determined by the Board of Directors, which promissory note may be either
secured or unsecured in such manner as the Board of Directors shall approve
(including, without limitation, by a security interest in the shares of the
Company);
ii. delivery by optionee of Common Stock of the Company already
owned by such optionee for all or part of the option price, provided the value
of such Common Stock is equal on the date of exercise to the option price, or
such portion thereof as the optionee is authorized to pay by delivery of such
stock;
iii. a loan by the Company to optionee of all or a portion of the
option price at such interest rate, if any, as determined by the Board of
Directors, and on an unsecured or secured basis as the Board of Directors shall
approve (including, without limitation, by a security interest in the shares of
the Company), and/or
iv. a guaranty by the Company of a loan to the optionee by a
third party of all or part of the option price (but not more than the option
price), and such guaranty may be on an unsecured or secured basis as the Board
of Directors shall approve (including, without limitation, by a security
interest in the shares of the Company).
Any such authorization shall be made at the time of option grant.
j. Termination of Employment. Option rights granted under the Plan,
-------------------------
to the extent such rights have not then expired pursuant to paragraph 6(k) or
otherwise, or been exercised, shall terminate and become null and void thirty
(30) days after the date that an optionee ceases, for any reason, to be an
employee of the Company or any affiliate of the Company, and shall be
exercisable during said thirty (30) day period only to the extent such rights
were exercisable on or before the date the optionee ceased to be an employee of
the Company or any affiliate of the Company. Subject to paragraph 6(k), but
notwithstanding any other provision hereof:
-5-
<PAGE>
i. In the event of such a termination of employment due to the
death of the optionee, the personal representatives of the optionee or any
person or persons who acquire any such option rights from the optionee by will
or the applicable laws of descent and distribution may, at any time within a
period of twelve (12) months after the death of the optionee, exercise any or
all of such option rights to the extent such option rights were exercisable on
the date of the death of the optionee;
ii. In the event of such a termination of employment by reason
of the disability of the optionee, the optionee or, if the optionee thereafter
dies, the personal representative of the optionee or any person or persons who
acquired any such option rights from the optionee by will or the applicable laws
of descent and distribution may, at any time within a period of twelve (12)
months after said termination, exercise any or all of such option rights to the
extent such option rights were exercisable on the date of the termination of
employment;
iii. For Plan purposes a transfer of an optionee from the Company
to an affiliate or vice versa, or from one affiliate to another, or leave of
absence duly authorized by the Company shall not be deemed a termination of
employment or a break in continuous employment.
k. Expiration of Certain Option Rights. Any option rights held by
-----------------------------------
an optionee on the date such optionee ceases, for any reason, to be an employee
of the Company or any affiliate of the Company which would, when exercised,
result in the purchase of shares of the Company which would be subject to
repurchase rights held by the Company pursuant to an agreement signed by the
optionee and the Company, shall expire on the date the optionee ceases to be an
employee of the Company or any affiliate of the Company.
1. Other Provisions. Each option granted under the Plan may contain
----------------
such other terms, provisions, and conditions not inconsistent with the Plan as
may be determined by the Board of Directors or the Committee, and shall include
such provisions and conditions as are necessary to qualify the option under
Section 422A as an "incentive stock option."
7. MANNER OF EXERCISE
------------------
An optionee wishing to exercise an option shall give written notice to the
Company at its principal executive office, to the attention of the Secretary of
the Company, accompanied by payment of the exercise price. The date the Company
receives written notice of an exercise hereunder accompanied by payment of the
exercise price will be considered as the date such option was exercised. As
soon as possible after receipt of such written notice, the Company shall,
without stock issue or transfer taxes to the optionee or other person entitled
to exercise, deliver to the optionee or other person a certificate or
certificates for the requisite number of shares of stock. An optionee or
transferee of an option shall not have any privileges as shareholder with
respect to any stock covered by the option until the date of issuance of stock
certificate.
-6-
<PAGE>
8. EMPLOYMENT RELATIONSHIP
-----------------------
Nothing in the Plan or any option granted thereunder shall interfere with
or limit in any way the right of the Company or of any of its subsidiaries to
terminate any optionee's employment at any time, nor confer upon any optionee
any right to continue in the employ of the Company or any of its subsidiaries.
9. AMENDMENT. SUSPENSION OR TERMINATION OF THE PLAN
-------------------------------------------------
The Board of Directors may at any time amend, alter, suspend or discontinue
the Plan, but no amendment, alteration, suspension or discontinuation shall be
made which would impair the right of any optionee under any option theretofore
granted, without his consent, or which, without the approval of the
stockholders, would:
a. except as is provided in Section 6 of the Plan, increase the
total number of shares of stock reserved for the purposes of the Plan;
b. extend the duration of the Plan;
c. extend the period during and over which options may be exercised
under the Plan; or
d. change the class of persons eligible to receive options granted
hereunder.
Without limiting the foregoing, but subject to the provisions of paragraph
6(e) hereof, the Board of Directors may at any time or from time to time
authorize the Company, with the consent of the respective optionees, to issue
new options in exchange for the surrender and cancellation of any or all
outstanding options.
10. EFFECTIVE DATE OF THE PLAN
--------------------------
The Plan shall become effective upon approval by the Board of Directors,
provided, however, that any option granted prior to approval by stockholders of
the Company holding a majority (or such greater number as may be required by law
or applicable governmental regulations or order) of the shares entitled to vote
shall be subject to, and conditioned upon, such shareholder approval. Options
may be granted and exercised under the Plan only after there has been compliance
with all applicable federal and state securities laws.
-7-
<PAGE>
STOCK OPTION AGREEMENT
OPTIONS GRANTED UNDER
1982 EMPLOYEE INCENTIVE STOCK OPTION PLAN
OF
APPLIED MICRO CIRCUITS CORPORATION
----------------------------------
THIS AGREEMENT, is entered into by and between APPLIED MICRO CIRCUITS
CORPORATION, a Delaware corporation (the "Company"), and the undersigned
employee of the Company or one of its affiliates (the "Employee").
RECITALS
--------
WHEREAS, the Company has adopted a stock option plan, designated as the 1982
Employee Incentive Stock Option Plan (the "Plan"), pursuant to which options
that qualify as "incentive stock options" under Section 422A of the Internal
Revenue Code, as added by the Economic Recovery Tax Act of 1981, and as it may
be amended from time to time ("Section 422A"), may be granted to selected
employees of the Company or any of its affiliates; and
WHEREAS, on the date hereof the employee is a bona fide employee of the
Company or one of its affiliates, as defined in the Plan; and
WHEREAS, the Board of Directors (or the Committee appointed to administer the
Plan) has determined that it would be to the advantage and interest of the
Company and its stockholders to grant to the Employee the option rights provided
for herein as an inducement to continue to render services to the Company or one
of its affiliates and as an incentive for increased efforts in the rendering of
such services; and has advised the Company thereof and instructed the
undersigned officer to issue the within option rights as provided in the Plan;
and
<PAGE>
WHEREAS, the Board of Directors (or the Committee) has approved of the
granting to the Employee of the option rights evidenced by this Agreement;
NOW, THEREFORE, it is mutually agreed as follows:
1. Grant of Option Rights. Subject to the terms and conditions
----------------------
contained herein, the Company hereby grants to the Employee the option rights
specified herein:
(a) the number and class of shares of the Company's currently
authorized but unissued stock subject to the option rights granted hereunder are
in an aggregate of not to exceed [number] shares of the company's common stock;
(b) the option exercise price, which has been determined as specified
in the Plan, is $.35 per share;
(c) the option rights granted hereunder are exercisable beginning on
[dated] and ending on [tenyears]. (In no event may any option rights granted
hereunder be exercised later than ten (10) years from the date hereof);
(d) notwithstanding the provisions of subparagraph 1(c) above, the
minimum number of shares which may be purchased upon any partial exercise of the
option rights granted hereunder is 100 shares;
(e) upon execution of this Agreement, Employee shall also execute an
Applied Micro Circuits Corporation Incentive Stock Option Repurchase Agreement.
To exercise any of the option rights granted hereunder, the Employee must have
remained in the employ of the Company or one of its affiliates continuously from
the date of this Agreement through the date of each exercise, except as
otherwise provided in paragraph 3 hereof. The granting of option rights
hereunder shall impose no obligation on the Company or any of its affiliates to
continue the employment of the Employee, and shall not lessen or affect the
right of the Company
<PAGE>
or any affiliate which employs the Employee to terminate
such employment or to change the duties, compensation, or other terms of
employment of the Employee. The term "affiliate", wherever herein used, shall
have the same meaning as in the Plan, and shall mean any parent or subsidiary
corporation as defined in the applicable provisions of the Internal Revenue Code
(currently set forth in Section 425 of said Code).
2. Fractional Shares; Compliance with Laws. In no even shall the
---------------------------------------
Company be required to issue factional shares upon the exercise of any option
rights granted hereunder.
No option rights granted hereunder may be exercised, and the Company shall not
be required to issue or deliver any certificate or certificates for shares
purchased upon the exercise of option rights granted hereunder, until there has
been compliance with all then applicable requirements of law, including such
registration or other proceedings under federal and state securities' laws
including such registration or other proceedings under federal and state
securities laws as may in the Company's opinion be necessary or appropriate.
3. Necessity of Employment When Option is Exercised. The option rights
------------------------------------------------
granted hereunder, to the extent such rights have not expired pursuant to
Section 4 or otherwise, or been exercised, shall terminate and become null and
void thirty (30) days after the date that the Employee ceases, for any reason,
to be an employee of the Company or one of its affiliates, and shall not be
exercisable on or after said date. Option rights granted hereunder shall only be
exercisable during said thirty (30) day period to the extent such rights were
exercisable on or before the date Employee ceases to be an employee of the
Company or one of its affiliates. Subject to Section 4 hereof, but not
withstanding the foregoing:
(a) in the event of such a termination of employment due to the death
of the Employee, the personal representatives of the Employee or any person or
persons who acquired any such
<PAGE>
option rights from the Employee by will or the applicable laws of descent and
distribution may, at any time within a period of twelve (12) months after the
death of the Employee, exercise any or all of such option rights to the extent
such option rights were exercisable on the date of death of the Employee;
(b) in the event of such a termination of employment by reason of the
disability of the Employee, the Employee or, if the Employee dies within a
period of twelve (12) months after said termination, the personal
representatives of the Employee or any person or persons who acquired any such
option rights from the Employee by will or the applicable laws of descent and
distribution may, at any time within a period of twelve (12) months after said
termination, exercise any or all of such option rights to the extent such option
rights were exercisable on the date of termination of employment;
(c) provided, however, that, for the purposes of this Agreement, a
transfer of the Employee from the Company to an affiliate or vice versa, or from
one affiliate to another, or a leave of absence duly authorized by the Company
shall not be deemed a termination of employment or a break in continuous
employment. In no event may any option rights granted under this Agreement be
exercised by any person or entity after the expiration of ten (10) years from
the date hereof. References throughout this Agreement to the Employee shall be
deemed, where appropriate, to include any person entitled to exercise the option
after the death of the Employee under the terms of this paragraph 3.
4. Expiration of Certain Option Rights. Any option rights held by Employee
-----------------------------------
on the date Employee ceases, for any reason, to be an employee of the Company or
any affiliate of the Company which would, when exercised, result in the purchase
of shares of the Company which would be subject to repurchase rights held by the
Company pursuant to an agreement signed by
<PAGE>
Employee and the Company, shall expire on the date Employee ceases to be an
employee of the Company or any affiliate of the Company.
5. Nonassignability of Option Rights. The option rights granted hereunder
---------------------------------
(i) shall, except as provided in paragraph 3 hereof, be exercisable only by the
Employee, (ii) shall not be transferred, assigned, pledged or hypothecated in
any manner whatsoever, whether voluntarily, involuntarily or by operation of
law, and (iii) shall not be subject to EXECUTION, attachment or similar process.
Upon any attempt to transfer, assign, pledge, hypothecate, or otherwise dispose
of the said option rights contrary to the provisions hereof, the said option
rights shall immediately become null and void.
6. Adjustments: Appropriate proportionate adjustments shall be made by the
-----------
Company in the number and class of shares of stock subject to the option rights
granted hereunder and the exercise price of the option rights granted hereunder
in the event that (i) the common stock of the Company is changed by reason of
any stock split, reverse stock split, recapitalization, or other change in the
capital structure of the Company, or converted into or exchanged for other
securities as a result of any merger, consolidation or reorganization, or (ii)
the outstanding number of shares of common stock of the Company is increased
through payment of a stock dividend; provided, however, that the Company shall
not be required to issue fractional shares as a result of any such adjustment.
Any such adjustment shall be made upon approval by the Board of Directors,
whose determination shall be conclusive. If there is any other change in the
number or kind of the outstanding shares of capital stock of the Company, or of
any other security into which such stock shall have been changed or for which it
shall have been exchanged, and if the Board of Directors, in its sole
discretion, determines that such change equitably requires any adjustment in the
option rights granted hereunder, such adjustment shall be made in accordance
with the determination of
<PAGE>
the Board of Directors. No adjustments shall be required by reason of the
issuance or sale by the Company for cash or other consideration of additional
shares of its capital stock or securities convertible into or exchangeable for
share of its capital stock. All adjustments shall be made in such a manner that
will allow the option rights granted hereunder to continue to qualify under
Section 422A as "Incentive stock option" rights.
New option rights may be substituted for the option rights granted hereunder,
or the Company's duties under this Agreement may be assumed by an employer
corporation other than the Company, or by an affiliate of such employer
corporation, in connection with any merger, consolidation, acquisition,
separation, reorganization, liquidation, or like occurrence, in which the
Company is involved, in such a manner that will allow the option rights granted
hereunder to continue to qualify as "incentive stock option" rights under
Section 422A and to the full extent permitted thereby. Not withstanding the
foregoing provisions of this paragraph 5, in the event such employer
corporation, or affiliate of such employer corporation, refuses to substitute
new option rights for an substantially equivalent to, the option rights granted
hereunder, or to assume the option rights granted hereunder, or if the Company's
Board of Directors determines, in its sole discretion, that option rights
outstanding under the Plan should not then continue to be outstanding, the
option rights granted hereunder shall terminate and thereupon become null and
void (i) upon the dissolution or liquidation of the Company, or similar
occurrence, or (ii) upon any merger, consolidation, acquisition, or separation,
or similar occurrence, if the Company is not the surviving corporation,
provided, however, that the Employee shall have the right, immediately prior to
or concurrently with such dissolution, liquidation, merger, consolidation,
acquisition, separation, or similar occurrences, to exercise any unexpired
option rights granted hereunder subject to (i) the
<PAGE>
condition of paragraph 1(c) that no option rights granted hereunder may be
exercised after the expiration of ten (10) years from the date hereof, and (ii)
the provisions of paragraph 1(e) hereof.
7. Method of Exercise; Rights of Optionee in Stock. The option rights
-----------------------------------------------
granted hereunder shall be exercisable upon written notice to the Company
accompanied by payment to the Company of the option exercise price as to the
shares being purchased. Payment of the option exercise price shall be in cash
or, at the optionee's election, by delivery of Common Stock of the Company for
all or part of the option price, provided the value of such Common Stock as
determined by the Board of Directors or the Committee in accordance with any
reasonable valuation method, is equal to the option price or such portion
thereof as the Optionee is authorized to pay by delivery of such stock. Neither
the Employee nor his personal representatives, heirs, or legatees shall have any
rights or privileges of a shareholder of the Company in respect to the shares
issuable upon the exercise of the option rights granted hereunder, unless and
until certificates representing such shares shall have been issued and delivered
in accordance with the terms hereof.
8. Notices. Any notice to be given under the terms of this Agreement
-------
shall be mailed, telegraphed, or delivered, and confirmed, to the Company, in
care of its Secretary, at the principal office of the Company, and any notice to
be given to the Employee shall be mailed, telegraphed, or delivered, and
confirmed, to him at the address given beneath his signature hereto, or at such
other address as either party may hereafter designate in writing to the other.
Any such notice shall be deemed to have been duly given 48 hours after the
deposit thereof in the United States mail, addressed as aforesaid, registered or
certified and postage and registry or certification fee prepaid.
<PAGE>
9. Date of Grant. The option rights granted hereunder shall be deemed to
-------------
have been granted on the date set forth below, which is the date upon which the
Board of Directors or the Committee approved the granting of such option rights.
The said date is within ten years from the date on which the Plan was adopted by
the Board of Directors, or the date on which the Plan was approved by the
Company's stockholders, whichever date is earlier.
10. Option Rights Governed by Plan and Internal Revenue Code. The
--------------------------------------------------------
provisions of the Plan, a copy of which is attached hereto, shall be deemed to
be incorporated in, and to have been made a part of, this Agreement, and shall
be deemed to be controlling in the event that any of the provisions of this
Agreement are inconsistent therewith. This Agreement shall be deemed to include
such other provisions not set forth in the Plan or herein, or not inconsistent
with any provisions set forth in the Plan or herein, as may be necessary to
qualify the option granted hereunder as an "incentive stock option" under
Section 422A.
11. Securities Law Compliance. Upon each issuance of shares of
-------------------------
stock in accordance herewith, the Employee, or his personal representatives,
heirs, or legatees receiving such shares, shall, if requested by the Company in
order to comply with federal or state securities laws, represent in writing to
the Company that such shares are being acquired with not view to any
distribution thereof or shall make such other representations in writing to the
Company, with respect to the further transfer of such shares, as may be deemed
by the Company to be necessary or appropriate under the applicable federal and
state securities laws. The Company, at its sole discretion, may take all
reasonable steps (including the affixing of an appropriate legend on
certificates embodying such shares of stock) to assure itself against any resale
or distribution not in compliance with federal or state securities laws.
<PAGE>
12. Persons Bound. Subject to the provisions against assignment set forth
-------------
in paragraph 4 hereof, and to the provisions of paragraph 5 hereof, this
Agreement shall be binding upon and inure to the benefit of any successor or
successors of the Company, and the personal representatives, heirs, and legatees
of the Employee.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in
its behalf by one of its officers and sealed by its corporate seal, as of the
date set forth below, and the Employee has hereunto set his hand on or as of
said date, which date is the date such option rights were approved for grant,
with Employee by his aid execution hereof hereby representing that the residence
indicated below his (or her) name is his (or her) bona fide residence and
domicile.
Dated as of:
APPLIED MICRO CIRCUITS CORPORATION
By:
--------------------------------------------
Joel O. Holliday, Vice President
EMPLOYEE
<PAGE>
EXHIBIT 10.3
APPLIED MICRO CIRCUITS CORPORATION
1992 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this 1992 Stock Option Plan are
--------------------
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or non statutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees appointed
-------------
pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" means the Committee appointed by the Board of
---------
Directors in accordance with paragraph (a) of Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
------------
(f) "Company" means Applied Micro Circuits Corporation, a Delaware
-------
corporation.
(g) "Consultant" means any person, including an advisor, who is
----------
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not.
(h) "Continuous Status as an Employee or Consultant" means the absence
----------------------------------------------
of any interruption or termination of service as an Employee or Consultant.
Continuous Status as an Employee or Consultant shall not be considered in the
case of: (i) sick leave; (ii) military leave; (iii) any other leave of absence
approved by the Board, provided that such leave is for a period of not more than
ninety (90) days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute, or unless provided otherwise pursuant to
Company policy adopted from time to time; or (iv) in the case of transfers
between locations of the Company or between the Company, its Subsidiaries or its
successor.
(i) "Employee" means any person, including officers and directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
<PAGE>
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(k) "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 National Market of the
National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ")
System, 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 system or
exchange, or the exchange with the greatest volume of trading in Common Stock,
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 quoted on the NASDAQ System (but not on
the National Market thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high bid and low asked prices for the Common Stock or;
(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
Administrator.
(1) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code.
(m) "Named Executive" means any individual who, on the last day of the
---------------
Company's fiscal year, is the chief executive officer of the Company (or is
acting in such capacity) or among the four highest compensated officers of the
Company (other than the chief executive officer). Such officer status shall be
determined pursuant to the executive compensation disclosure rules under the
Exchange Act.
(n) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(o) "Option" means a stock option granted pursuant to the Plan.
------
(p) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(q) "Optionee" means an Employee or Consultant who receives an Option.
--------
(r) "Parent" means a "parent corporation", whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(s) "Plan" means this 1992 Stock Option Plan.
----
(t) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
<PAGE>
(u) "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 which may be optioned and sold
under the Plan is Six Million Twenty-Seven Thousand Three Hundred Four
(6,027,304) shares of Common Stock (on a post-split basis). The shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Administration With Respect to Directors and Officers. With
-----------------------------------------------------
respect to grants of Options to Employees or Consultants who are also officers
or directors of the Company, grants under the Plan shall be made by (A) the
Board if the Board may make grants under the Plan in compliance with Rule 16b-3
promulgated under the Exchange Act or any successor thereto ("Rule 16b-3") and
Section 162(m) of the Code as it applies so as to qualify grants or Options to
Named Executives as performance-based compensation, or (B) a Committee
designated by the Board to make grants under the Plan, which Committee shall be
constituted in such a manner as to permit grants under the Plan to comply with
Rule 16b-3, to qualify grants of options to Named Executives as performance-
based compensation under Section 162(m) of the Code and otherwise so as to
satisfy legal requirements relating to the administration of incentive stock
option plans, if any, of California corporate and securities laws and of the
Code (the "Applicable Laws"). Once appointed, such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies, however caused, and remove
all members of the Committee and thereafter directly administer the Plan, all to
the extent permitted by Rule 16b-3 and to the extent required under Section
162(m) of the Code to qualify grants of Options to Named Executives as
performance-based compensation.
(ii) Multiple Administrative Bodies. If permitted by Rule
------------------------------
16b-3, the Plan may be administered by different bodies with respect to
directors, non-director officers and Employees who are neither directors nor
officers.
(iii) Administration With Respect to Consultants and Other
----------------------------------------------------
Employees. With respect to grants of Options to Employees or Consultants who
are neither directors nor officers of the Company, the Plan shall be
administered by (A) the Board or (B) a Committee designated by the Board, which
committee shall be constituted in such a manner as to satisfy the Applicable
Laws. Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or
<PAGE>
without cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, 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 of the Common Stock, in
accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom Options
may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder;
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted.
(c) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options
5. Eligibility.
-----------
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if such Optionee is
otherwise eligible, be granted an additional Option or Options.
(b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
<PAGE>
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with respect
to continuation of employment or consulting relationship with the Company, nor
shall it interfere in any way with such Optionee's right or the Company's right
to terminate such Optionee's employment or consulting relationship at any time,
with or without cause.
6. 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
stockholders of the Company as described in Section 19 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 15 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement. However, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the 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 term of the Option shall
be five (5) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement
8. Limitation on Grants to Employees. Subject to adjustment as provided
---------------------------------
in this Plan, the maximum number of Shares which may be subject to options
granted to any one Employee under this Plan for any fiscal year of the Company
shall be 1,000,000 (on a post-split basis). This Section 8 shall not apply
prior to the date upon which the Company becomes subject to the Exchange Act and
following such date, shall not apply until the (i) earliest of: (A) the first
material modification of the Plan (including any increase to the number of
shares reserved for issuance under the Plan in accordance with Section 3); (B)
the issuance of all of the shares of common stock reserved for issuance under
the Plan; (C) the expiration of the Plan; or (D) the first meeting of
shareholders at which directors are to be elected that occurs after the close of
the third calendar year following the calendar year in which occurred the first
registration of any equity security under Section 12 of the Exchange Act; or
(ii) such other date required by Section 162(m) of the Code and the rules and
regulations promulgated thereunder.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting
<PAGE>
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 other Employee, 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
(A) granted to a person who, at the time of grant of such
Option, is a Named Executive of the Company, the per Share exercise price shall
be no less than 100% of the Fair Market Value on the date of grant.
(B) granted to any person other than a Named Executive, the
per Share exercise price shall be no less than 85% of the Fair Market Value per
Share on the date of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares which (x) 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 (y) 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, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price (6) by delivering an irrevocable subscription agreement for the
Shares which irrevocably obligates the option holder to take and pay for the
Shares not more than twelve months after the date of delivery of the
subscription agreement, (7) any combination of the foregoing methods of payment,
(8) or such other consideration and method of payment for the issuance of Shares
to the extent permitted under Applicable Laws. In making its determination as to
the type of consideration to accept, the Board shall consider if acceptance of
such consideration may be reasonably expected to benefit the Company.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan.
An Option may not be exercised for a fraction of a Share.
<PAGE>
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
The Company shall issue (or cause to be issued) such stock certificate promptly
upon exercise of the Option.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be 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 Employment. In the event of termination of an
-------------------------
Optionee's Continuous Status as an Employee or Consultant with the Company (as
the case may be), such Optionee may, but only within thirty (30) days (or such
other period of time as is determined by the Board, which, in the case of an
Incentive Stock Option shall not exceed three (3) months after the date of such
termination (but in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement), exercise such Optionee's Option to
the extent that Optionee was entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise the
Option at the date of such termination, or if Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of Section
----------------------
9(b) above, in the event of termination of an Optionee's or Continuous Status as
an Employee or Consultant as a result of such Optionee's total and permanent
disability (as defined in Section 22(e)(3) of the Code), Optionee may, but only
within twelve (12) months from the date of such termination (but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise the Option to the extent otherwise entitled to
exercise it at the date of such termination. To the extent that Optionee was
not entitled to exercise the Option at the date of termination, or if Optionee
does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee, the
-----------------
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement), by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent the Optionee was entitled to exercise the Option at the
date of death. To the extent that Optionee was not entitled to exercise the
Option at the date of termination, or if Optionee does not exercise such Option
to the extent so entitled within the time specified herein, the Option shall
terminate.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b)
----------
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or
<PAGE>
restrictions as may be required thereunder to qualify for the maximum exemption
from Section 16 of the Exchange Act with respect to Plan transactions.
11. Non-Transferability of Options. The Option 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.
12. Stock Withholding to Satisfy Withholding Tax Obligations. At the
--------------------------------------------------------
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option, which tax liability is subject to tax withholding
under applicable tax laws, and the Optionee is obligated to pay the Company an
amount required to be withheld under applicable tax laws, the Optionee may
satisfy the withholding tax obligation by one or some combination of the
following methods: (i) by cash payment, or (ii) out of Optionee's current
compensation, or (iii) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares which (a) in the case of Shares previously
acquired from the Company, 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 or less than the applicant's withholding taxes, (iv) by
electing to have the Company withhold from the Shares to be issued upon exercise
of the Option that number of Shares having a fair market value equal to the
amount required to be withheld. For this purpose, the fair market value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined (the "Tax Date").
If the Optionee is subject to Section 16 of the Exchange Act (an
"Insider"), any surrender of previously owned Shares to satisfy tax withholding
obligations arising upon exercise of this Option must comply with the applicable
provisions of Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3").
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made; and
(c) all elections shall be subject to the consent or disapproval of
the Administrator.
In the event the election to have Shares withheld is made by an Optionee
and the Tax Date is deferred under Section 83 of the Code because no election is
filed under Section 83(b) of the Code, the Optionee shall receive the full
number of Shares with respect to which the Option is exercised but such Optionee
shall be unconditionally obligated to tender back to the Company the proper
number of Shares on the Tax Date.
<PAGE>
13. Adjustments Upon Changes in Capitalization; Corporate Transactions.
------------------------------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option, as well as the price per share of Common Stock covered by each
such outstanding Option, 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.
(b) Corporate Transactions. In the event of the proposed dissolution
----------------------
or liquidation of the Company, the Option will terminate immediately prior to
the consummation of such proposed action, unless otherwise provided by the
Administrator. The Administrator may, in the exercise of its sole discretion in
such instances, declare that any Option shall terminate as of a date fixed by
the Administrator and give each Optionee the right to exercise his or her Option
as to all or any part of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable. In the event of a sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, in which the Company is not the surviving
corporation the Option shall vest and become immediately exercisable for the
number of Shares that would otherwise be vested and exercisable under the terms
of the Option one (1) year after the date of the Corporate Transaction.
Thereafter, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Administrator determines, in the exercise of
its sole discretion and in lieu of such assumption or substitution, that the
Option shall vest and the Optionee shall have the right to exercise the Option
as to some or all of the Optioned Stock, including Shares as to which the Option
would not otherwise be vested and exercisable. If the Administrator makes an
Option 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 that
the Option shall be vested and exercisable for a period of fifteen (15) days
from the date of such notice, and the Option will terminate upon the expiration
of such period.
14. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each
<PAGE>
Employee or Consultant to whom an Option is so granted within a reasonable time
after the date of such grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without such Optionee's consent. In addition,
to the extent necessary and desirable to comply with Rule 16b-3 under the
Exchange Act or with Sections 162(m) and 422 of the Code (or any other
applicable law or regulation, including the requirements of the NASD or an
established stock exchange), the Company shall obtain stockholder approval of
any Plan amendment in such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
16. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, 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 Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
17. 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.
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.
18. Agreements. Options shall be evidenced by written agreements in such
----------
form as the Board shall approve from time to time.
<PAGE>
19. Stockholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be obtained
in the degree and manner required under applicable state and federal law.
20. Information to Optionees. The Company shall provide to each Optionee,
------------------------
during the period such Optionee has one or more Options outstanding, and to each
individual who acquired shares pursuant to the exercise of an option, with
copies of all annual reports and other information which are provided to all
stockholders of the Company. The Company shall not be required to provide such
information if the issuance of Options under the Plan is limited to key
employees whose duties in connection with the Company assure their access to
equivalent information.
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
Optionee:
Total Options Granted:
Exercise Price per Share: $5.50
Date of Grant: SEPTEMBER 23, 1997
Expiration Date: SEPTEMBER 23, 2007
Vesting Commencement Date: SEPTEMBER 30, 1997
Applied Micro Circuits Corporation, a Delaware corporation (the "Company"),
has granted to the optionee named above (the "Optionee"), an option (the
"Option") to purchase the total number of shares of Common Stock of the Company
set forth above (the "Shares"), at the price as set forth above, subject in all
respects to the terms, definitions and provisions of the 1992 Stock Option Plan
(the "Plan") adopted by the Company, which is incorporated herein by reference.
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings herein.
1. Nature of the Option. This Option is intended to qualify as an
---------------------
Incentive Stock Option as defined in Section 422 of the Code.
2. Exercise Price. The exercise price for each share of Common Stock is
--------------
set forth above and is not less than the fair market value per share of the
Common Stock on the date of grant.
3. Exercise of Option. This Option shall be exercisable during its term
------------------
in accordance with the provisions of Section 9 of the Plan as follows:
(i) Right to Exercise.
-----------------
(a) Subject to subsections 3(i)(b), (c) and (d) below, this
Option shall be exercisable cumulatively as follows: 1/48th of the
aggregate number of shares subject to this Option shall be deemed
exercisable one month from the vesting commencement date of this
Option and 1/48th of the aggregate number of shares subject to this
Opton shall be exercisable for each following full month period
Optionee has been continuously employed by the Company, such that this
Option shall be fully exercisable four years from the vesting
commencement date of this Option; provided, however, that the
foregoing vesting schedule shall temporarily cease during any period
of time that Optionee's employment is subject to an approved leave of
absence as set forth in Section 2(g) of the Plan and shall recommence
upon Optionee's return to the employ of the Company.
This Option may be exercised in whole or in part at any time as to Shares
which have not yet vested under the above vesting schedule; provided, however,
that the Optionee shall execute as a condition to such exercise of this Option,
the Exercise Notice and Restricted Stock Purchase Agreement attached hereto as
Exhibit A.
<PAGE>
(b) This Option may not be exercised for a fraction of a
share or for an amount less than 100 shares.
(c) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is
governed by Sections 7, 8 and 9 below, subject to the limitations
contained in subsection 3(i)(d).
(d) In no event may this Option be exercised after the date
of expiration of the term of this Option as set forth in Section 11
below.
(ii) Method of Exercise. This Option shall be exercisable by
------------------
executing the Exercise Notice and Restricted Stock Purchase Agreement in
the form attached hereto as Exhibit A (the "Exercise Agreement") which
shall state Optionee's election to exercise the Option, the number of
Shares in respect of which the Option is being exercised, the Company's
right to repurchase all or a portion of the Shares under certain specified
conditions, the Company's right of first refusal as to the Shares and such
other representations and agreements as to the holder's investment intent
with respect to such Shares of Common Stock as may be required by the
Company pursuant to the provisions of the Plan. Such written notice shall
be signed by the Optionee and shall be delivered in person or by certified
mail to the Secretary of the Company or the Secretary's designee. The
Exercise Agreement shall be accompanied by payment of the exercise price.
This Option shall be deemed to be exercised upon receipt by the Company of
such Exercise Agreement accompanied by the exercise price.
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares may then be
listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
4. Optionee's Representations. In the event this Option and the Shares
--------------------------
purchasable pursuant to the exercise of this Option have not been registered
under the Securities Act of 1933, as amended, at the time this Option is
exercised, Optionee shall, concurrently with the exercise of all or any portion
of this Option, deliver to the Company such Optionee's Investment Representation
Statement in the form attached hereto as Exhibit B.
5. Method of Payment. Payment of the exercise price shall be by any of
-----------------
the following, or a combination thereof, at the election of the Board, in its
sole discretion:
(i) cash;
(ii) check; or
(iii) surrender of other shares of Common Stock of the Company at a
value equal to the exercise price of the Shares as to which the Option is being
exercised.
6. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the stockholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of
this Option, the Company may require Optionee to make any representation and
warranty to the Company as may be required by any applicable law or regulation.
<PAGE>
7. Termination of Status as an Employee. In the event of termination of
------------------------------------
Optionee's Continuous Status as an Employee, the Optionee may, but only within
thirty (30) days after the date of such termination (but in no event later than
the date of expiration of the term of this Option as set forth in Section 11
below), exercise this Option to the extent exercisable at the date of such
termination. Optionee's employment shall be deemed terminated on such date, if
any, as Optionee becomes a part-time employee, as defined in the Company's then
current employment guidelines. To the extent this Option was not exercisable at
the date of such termination, or if the Optionee does not exercise this Option
within the time specified herein, the Option shall terminate.
8. Disability of Optionee. Notwithstanding the provisions of Section 7
----------------------
above, in the event of termination of Optionee's Continuous Status as an
Employee as a result of such Optionee's total and permanent disability (as
defined in Section 22(e)(3) of the Code), the Optionee may, but only within
twelve (12) months from the date of termination of employment (but in no event
later than the date of expiration of the term of this Option as set forth in
Section 11 below), exercise this Option to the extent exercisable at the date of
such termination. To the extent that the Option was not exercisable at the date
of termination, or if the Optionee does not exercise such Option within the time
specified herein, the Option shall terminate.
9. Death of Optionee. In the event of the death of Optionee during the
-----------------
term of this Option and while an Employee of the Company and having been in
Continuous Status as an Employee since the date of grant of the Option, the
Option may be exercised, at any time within twelve (12) months following the
date of death (but in no event later than the date of expiration of the term of
this Option as set forth in Section 11 below), by Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent exercisable at the date of death.
10. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by him. The terms of this
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
11. Term of Option. This Option may be exercised on or before the
--------------
Expiration Date and may be exercised during such term only in accordance with
the Plan and the terms of this Option.
12. Early Disposition of Stock. Optionee understands that if Optionee
--------------------------
disposes of any Shares received under this Option within two (2) years after the
date of this Agreement or within one (1) year after such Shares were transferred
to such Optionee, Optionee will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an amount
generally measured by the difference between the price paid for the Shares and
the lower of the fair market value of the Shares at the date of the exercise or
the fair market value of the Shares at the date of disposition. The amount of
such ordinary income may be measured differently if Optionee is an officer,
director or 10% stockholder of the Company, or if the Shares were subject to a
substantial risk of forfeiture at the time they were transferred to Optionee.
Optionee hereby agrees to notify the Company in writing within 30 days after the
- --------------------------------------------------------------------------------
date of any such disposition. Optionee understands that if Optionee disposes of
- ----------------------------
such Shares at any time after the expiration of such two-year and one-year
holding periods, any gain on such sale will be taxed as long-term capital gain.
<PAGE>
13. Section 83(b) Election For Alternative Minimum Tax for Incentive Stock
----------------------------------------------------------------------
Options. Optionee hereby acknowledges that Optionee has been informed that if
- -------
Optionee exercises an incentive stock option as to "unvested shares," unless an
83(b) election is filed by the Optionee with the Internal Revenue Service within
------
30 days of the purchase of the Shares, the Optionee will be required to include
- -------
(for alternative minimum tax purposes only) an amount equal to the excess, if
any, of the fair market value of the Shares at the time the shares vest over the
purchase price for such Shares. For this purpose, "unvested" shares includes
shares purchased by certain persons who are subject to Section 16 of the
Securities Exchange Act of 1934, as amended, and shares as to which the Company
retains a right to repurchase unvested shares at the Optionee's cost upon the
Optionee's termination of employment with the Company. Optionee is encouraged
and advised to consult tax advisors in connection with the purchase of the
Shares as to the advisability of filing an election for alternative minimum tax
purposes under Section 83(b). OPTIONEE HEREBY ASSUMES ALL RESPONSIBILITY FOR
FILING SUCH ELECTION AND PAYING ANY TAXES RESULTING FROM SUCH ELECTION OR THE
VESTING LAPSE OF SUCH SHARES.
APPLIED MICRO CIRCUITS CORPORATION
a Delaware corporation
By:
-----------------------------------
Joel O. Holliday
Title: Vice President
THIS SPACE INTENTIONALLY
LEFT BLANK - SIGNATURE OF
OPTIONEE ON FOLLOWING PAGE
<PAGE>
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT AT THE WILL OF THE
COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT BY THE COMPANY, NOR SHALL IT INTERFERE IN
ANY WAY WITH SUCH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE SUCH
OPTIONEE'S EMPLOYMENT AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and certain related
information and represents that Optionee is familiar with the terms and
provisions of these documents, and hereby accepts this Option subject to all of
those terms and provisions. 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 Board upon any questions arising under the Plan.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.
Dated:
----------------
--------------------------------------------------
(Optionee)
Residence Address:
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
Optionee:
Total Options Granted:
Exercise Price per Share:
Date of Grant:
Expiration Date:
Vesting Commencement Date:
Applied Micro Circuits Corporation, a Delaware corporation (the "Company"),
has granted to the optionee named above (the "Optionee"), an option (the
"Option") to purchase the total number of shares of Common Stock of the Company
set forth above (the "Shares"), at the price as set forth above, subject in all
respects to the terms, definitions and provisions of the 1992 Stock Option Plan
(the "Plan") adopted by the Company, which is incorporated herein by reference.
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings herein.
1. Nature of the Option. This Option is intended to qualify as an
---------------------
Incentive Stock Option as defined in Section 422 of the Code.
2. Exercise Price. The exercise price for each share of Common Stock is
--------------
set forth above and is not less than the fair market value per share of the
Common Stock on the date of grant.
3. Exercise of Option. This Option shall be exercisable during its term
------------------
in accordance with the provisions of Section 9 of the Plan as follows:
(i) Right to Exercise.
-----------------
(a) Subject to subsections 3(i)(b), (c) and (d) below, this
Option shall be exercisable cumulatively as follows: 25% of the
aggregate number of shares subject to this Option shall be deemed
exercisable one year from the vesting commencement date of this Option
and 1/48th of the aggregate number of shares subject to this Option
shall be exercisable for each following full month period Optionee has
been continuously employed by the Company, such that this Option shall
be fully exercisable four years from the vesting commencement date of
this Option; provided, however, that the foregoing vesting schedule
shall temporarily cease during any period of time that Optionee's
employment is subject to an approved leave of absence as set forth in
Section 2(g) of the Plan and shall recommence upon Optionee's return
to the employ of the Company.
This Option may be exercised in whole or in part at any time as to Shares
which have not yet vested under the above vesting schedule; provided, however,
that the Optionee shall execute as a condition to such exercise of this Option,
the Exercise Notice and Restricted Stock Purchase Agreement attached hereto as
Exhibit A.
<PAGE>
(b) This Option may not be exercised for a fraction of a
share or for an amount less than 100 shares.
(c) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is
governed by Sections 7, 8 and 9 below, subject to the limitations
contained in subsection 3(i)(d).
(d) In no event may this Option be exercised after the date
of expiration of the term of this Option as set forth in Section 11
below.
(ii) Method of Exercise. This Option shall be exercisable by
------------------
executing the Exercise Notice and Restricted Stock Purchase Agreement in
the form attached hereto as Exhibit A (the "Exercise Agreement") which
shall state Optionee's election to exercise the Option, the number of
Shares in respect of which the Option is being exercised, the Company's
right to repurchase all or a portion of the Shares under certain specified
conditions, the Company's right of first refusal as to the Shares and such
other representations and agreements as to the holder's investment intent
with respect to such Shares of Common Stock as may be required by the
Company pursuant to the provisions of the Plan. Such written notice shall
be signed by the Optionee and shall be delivered in person or by certified
mail to the Secretary of the Company or the Secretary's designee. The
Exercise Agreement shall be accompanied by payment of the exercise price.
This Option shall be deemed to be exercised upon receipt by the Company of
such Exercise Agreement accompanied by the exercise price.
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares may then be
listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
4. Optionee's Representations. In the event this Option and the Shares
--------------------------
purchasable pursuant to the exercise of this Option have not been registered
under the Securities Act of 1933, as amended, at the time this Option is
exercised, Optionee shall, concurrently with the exercise of all or any portion
of this Option, deliver to the Company such Optionee's Investment Representation
Statement in the form attached hereto as Exhibit B.
5. Method of Payment. Payment of the exercise price shall be by any of
-----------------
the following, or a combination thereof, at the election of the Board, in its
sole discretion:
(i) cash;
(ii) check; or
(iii) surrender of other shares of Common Stock of the Company at a
value equal to the exercise price of the Shares as to which the Option is being
exercised.
<PAGE>
6. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the stockholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of
this Option, the Company may require Optionee to make any representation and
warranty to the Company as may be required by any applicable law or regulation.
7. Termination of Status as an Employee. In the event of termination of
------------------------------------
Optionee's Continuous Status as an Employee, the Optionee may, but only within
thirty (30) days after the date of such termination (but in no event later than
the date of expiration of the term of this Option as set forth in Section 11
below), exercise this Option to the extent exercisable at the date of such
termination. Optionee's employment shall be deemed terminated on such date, if
any, as Optionee becomes a part-time employee, as defined in the Company's then
current employment guidelines. To the extent this Option was not exercisable at
the date of such termination, or if the Optionee does not exercise this Option
within the time specified herein, the Option shall terminate.
8. Disability of Optionee. Notwithstanding the provisions of Section 7
----------------------
above, in the event of termination of Optionee's Continuous Status as an
Employee as a result of such Optionee's total and permanent disability (as
defined in Section 22(e)(3) of the Code), the Optionee may, but only within
twelve (12) months from the date of termination of employment (but in no event
later than the date of expiration of the term of this Option as set forth in
Section 11 below), exercise this Option to the extent exercisable at the date of
such termination. To the extent that the Option was not exercisable at the date
of termination, or if the Optionee does not exercise such Option within the time
specified herein, the Option shall terminate.
9. Death of Optionee. In the event of the death of Optionee during the
-----------------
term of this Option and while an Employee of the Company and having been in
Continuous Status as an Employee since the date of grant of the Option, the
Option may be exercised, at any time within twelve (12) months following the
date of death (but in no event later than the date of expiration of the term of
this Option as set forth in Section 11 below), by Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent exercisable at the date of death.
10. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by him. The terms of this
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
11. Term of Option. This Option may be exercised on or before the
--------------
Expiration Date and may be exercised during such term only in accordance with
the Plan and the terms of this Option.
12. Early Disposition of Stock. Optionee understands that if Optionee
--------------------------
disposes of any Shares received under this Option within two (2) years after the
date of this Agreement or within one (1) year after such Shares were transferred
to such Optionee, Optionee will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an amount
generally measured by the difference between the price paid for the Shares and
the lower of the fair market value of the Shares at the date of the exercise or
the fair market value of the Shares at the date of disposition. The amount of
such ordinary income may be measured differently if Optionee is an officer,
director or 10% stockholder of the Company, or if the Shares were subject to a
substantial risk of forfeiture at the time they were transferred to Optionee.
Optionee hereby agrees to notify the Company in writing within 30 days after the
- --------------------------------------------------------------------------------
date of any such disposition. Optionee understands that if Optionee disposes of
- ----------------------------
such Shares at any time after the expiration of such two-year and one-year
holding periods, any gain on such sale will be taxed as long-term capital gain.
<PAGE>
13. Section 83(b) Election For Alternative Minimum Tax for Incentive Stock
----------------------------------------------------------------------
Options. Optionee hereby acknowledges that Optionee has been informed that if
- -------
Optionee exercises an incentive stock option as to "unvested shares," unless an
83(b) election is filed by the Optionee with the Internal Revenue Service within
------
30 days of the purchase of the Shares, the Optionee will be required to include
- -------
(for alternative minimum tax purposes only) an amount equal to the excess, if
any, of the fair market value of the Shares at the time the shares vest over the
purchase price for such Shares. For this purpose, "unvested" shares includes
shares purchased by certain persons who are subject to Section 16 of the
Securities Exchange Act of 1934, as amended, and shares as to which the Company
retains a right to repurchase unvested shares at the Optionee's cost upon the
Optionee's termination of employment with the Company. Optionee is encouraged
and advised to consult tax advisors in connection with the purchase of the
Shares as to the advisability of filing an election for alternative minimum tax
purposes under Section 83(b). OPTIONEE HEREBY ASSUMES ALL RESPONSIBILITY FOR
FILING SUCH ELECTION AND PAYING ANY TAXES RESULTING FROM SUCH ELECTION OR THE
VESTING LAPSE OF SUCH SHARES.
APPLIED MICRO CIRCUITS CORPORATION
a Delaware corporation
By:
----------------------------------
Joel O. Holliday
Title: Vice President
THIS SPACE INTENTIONALLY
LEFT BLANK - SIGNATURE OF
OPTIONEE ON FOLLOWING PAGE
<PAGE>
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT AT THE WILL OF THE
COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT BY THE COMPANY, NOR SHALL IT INTERFERE IN
ANY WAY WITH SUCH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE SUCH
OPTIONEE'S EMPLOYMENT AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and certain related
information and represents that Optionee is familiar with the terms and
provisions of these documents, and hereby accepts this Option subject to all of
those terms and provisions. 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 Board upon any questions arising under the Plan.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.
Dated:
---------------
------------------------------------------------
(Optionee)
Residence Address:
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT
Applied Micro Circuits Corporation
6195 Lusk Blvd.
San Diego, CA 92121-2793
Attention: Corporate Secretary
THIS AGREEMENT is made between (the "Purchaser") and
--------------
Applied Micro Circuits Corporation, a Delaware corporation (the "Company") as of
.
- ---------------
RECITALS
--------
(1) Pursuant to the exercise of a stock option granted to the Purchaser
under the Company's 1992 Stock Option Plan (the "Plan"), and pursuant to the
Incentive Stock Option Agreement (the "Option Agreement") dated by and
---------
between the Company and the Purchaser, the Purchaser has elected to purchase
of those shares which have become vested under the vesting schedule
- ----------
set forth in Section 3(i) of the Option Agreement ("Vested Shares") and
shares which have not yet vested under such schedule ("Unvested
- ----------
Shares"). (The Vested Shares and the Unvested Shares are sometimes collectively
referred to herein as the "Shares").
(2) As set forth in the Option Agreement and the Plan, this Agreement gives
the Company the right to repurchase at cost of the Unvested Shares in the event
of a termination of the Purchaser's employment with the Company prior to the
date upon which they would have vested under the Option Agreement and also
grants the Company a right of first refusal to purchase the Shares upon certain
conditions.
Company's Option to Repurchase. If the Purchaser's employment with
------------------------------
the Company is terminated for any reason (a "Termination"), the Company (or its
assignee under this Agreement) shall have the right and option to purchase from
the Purchaser, or the Purchaser's legal representative, as the case may be (the
"Company Option"), at the price paid by Purchaser for such shares (the "Option
Price"), up to that number of shares which would, if the option had not been so
exercised, have been unvested as of the date of termination. The Option
Agreement and the Plan are hereby incorporated by reference and made a part of
this Agreement.
1
<PAGE>
Procedure for Exercise of Company Option.
----------------------------------------
Upon the occurrence of a Termination, the Company may exercise
the Company Option by delivering personally or by first class mail, to
Purchaser (or such Purchaser's transferee or legal representative, as the
case may be), within 60 days of the Termination, a notice in writing
indicating the Company's intention to exercise the Company Option and
setting forth a date for closing (the "Closing") not later than thirty (30)
days from the mailing of such notice. The Closing shall take place at the
Company's principal executive offices. At the Closing, the holder of the
certificates for the Unvested Shares being transferred shall deliver the
stock certificate or certificates evidencing the Unvested Shares, and the
Company shall deliver the purchase price therefor.
Whenever the Company shall have the right to purchase the
Unvested Shares pursuant to this Agreement, the Company may, upon written
notice to the Purchaser, assign to one or more persons the right to
exercise all or part of the Company's purchase rights. Each such assignee
shall have the right to exercise such right in its own name and for its own
account. If the Company Option is assigned by the Company and the fair
market value of the shares, as determined by the Board of Directors of the
Company, exceeds the repurchase price, and such assignee exercises the
Company Option, then the assignee shall pay to the Company the difference
between the fair market value of the shares repurchased and the aggregate
repurchase price.
If the Company does not elect to exercise the Company Option
conferred above by giving the requisite notice within sixty (60) days
following the Termination, the Company Option shall terminate.
Termination of Company Option. The Company Option provided for in
-----------------------------
Section 1 of this Agreement shall terminate upon the first date on which there
are no longer any Unvested Shares which are the subject of the Company Option.
Company's Right of First Refusal. Before any Shares held by Purchaser
--------------------------------
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").
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 Shares (the "Offered
Price"), and the Holder shall offer the Shares at the Offered Price to
the Company or its assignee(s).
At any time within 30 days after receipt of the Notice, the
Company and/or its assignee(s) may, by giving written notice to the
Holder, elect to purchase all, but not less than all, of the Shares
proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with
subsection (c) below.
2
<PAGE>
The purchase price ("Purchase Price") for the Shares
purchased by the Company or its assignee(s) under this Section shall
be (i) the Offered Price in the case of Shares that are Vested Shares,
or (ii) in the case of Shares that are not Vested Shares, the lower of
the Offered Price or the Option Price as defined in Section 1 hereof.
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.
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.
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 and provided further that any such sale or other
transfer is effected in accordance with any applicable securities laws
and the Proposed Transferee agrees in writing that the provisions of
this Section 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.
Anything to the contrary contained in this Section
notwithstanding, the transfer of any or all of the Shares during the
Purchaser's lifetime or on the Purchaser's death by will or intestacy
to the Purchaser's immediate family or a trust for the benefit of the
Purchaser's immediate family shall be exempt from the provisions of
this Section. "Immediate Family" as used herein shall mean spouse,
lineal descendant or antecedent, father, mother, brother or sister.
In such case, the transferee or other recipient shall receive and hold
the Shares so transferred subject to the provisions of this Section,
and there shall be no further transfer of such Shares except in
accordance with the terms of this Section.
The Right of First Refusal shall terminate as to any Shares
90 days after 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
1933 Act.
Transferability of the Shares; Escrow.
-------------------------------------
Purchaser hereby authorizes and directs the Secretary of the
Company, or such other person designated by the Company, to transfer the
Unvested Shares as to which the Company Option to purchase has been
exercised from Purchaser to the
3
<PAGE>
Company. Purchaser further authorizes the Company to refuse, or to cause
its transfer agent to refuse, to transfer any stock attempted to be
transferred in violation of this Agreement.
Except as required to effectuate the exercise of the Company
Option, none of the Unvested Shares which are subject to the Company Option
under Section 1 may be sold, transferred, pledged, hypothecated or
otherwise disposed of by Purchaser. The certificate or certificates
evidencing any of the shares purchased hereunder shall be endorsed with a
legend substantially as follows (together with any other legend(s)
restricting the transfer of the Unvested Shares necessary or appropriate
under applicable Federal or State securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH THE TERMS OF AN OPTION AGREEMENT AND A
RESTRICTED STOCK PURCHASE AGREEMENT PURSUANT TO WHICH SUCH SHARES WERE
PURCHASED, COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF THE
CORPORATION."
To ensure the availability for delivery of the Purchaser's
Unvested Shares upon repurchase by the Company pursuant to the Company
Option under Section 1, the Purchaser shall, upon execution of this
Agreement, deliver and deposit with the Secretary of the Company, or such
other person designated by the Company, the share certificates representing
the Unvested Shares. Purchaser shall further deliver to the Company a
stock power, duly endorsed in blank, attached hereto as Exhibit A-1, that
will be used only in accordance with the transfer of Shares pursuant to the
Company Option and the Right of First Refusal. The Unvested Shares shall
be held by the Secretary in escrow, until such time as the Company's rights
of repurchase pursuant to the Company Option no longer are in effect. As a
further condition to the Company's obligations under this Agreement, the
spouse of Purchaser, if any, shall execute and deliver to the Company the
Consent of Spouse attached hereto as Exhibit A-2.
The Company, or its designee, shall not be liable for any act it
may do or omit to do with respect to holding the Unvested Shares in escrow
and while acting in good faith and in the exercise of its judgment.
Transfer or sale of said Unvested Shares is subject to
restrictions on transfer imposed by any applicable State and Federal
securities laws. Any transferee shall hold such Unvested Shares subject to
all the provisions hereof and shall acknowledge the same by signing a copy
of this Agreement.
Ownership, Voting Rights, Duties. This Agreement shall not affect in
--------------------------------
any way the ownership, voting rights or other rights or duties of Purchaser,
except as specifically provided herein.
Adjustments of Unvested Shares. The Unvested Shares subject to this
------------------------------
Agreement shall be proportionately adjusted for any increase or decrease in the
number of issued shares of the Company, resulting from a subdivision or
consolidation of shares or the payment of a stock dividend or any other increase
or decrease in the number of said shares effected without receipt of
consideration by the Company.
4
<PAGE>
Market Standoff Agreement. Purchaser hereby agrees that if so
-------------------------
requested by the Company or any representative of the underwriters in connection
with any registration of the offering of any securities of the Company under the
1933 Act, Purchaser shall not sell or otherwise transfer any Shares or other
securities of the Company during the 180-day period following the effective date
of a registration statement of the Company filed under the 1933 Act; provided,
however, that such restriction shall only apply to the first two registration
statements of the Company to become effective under the 1933 Act which include
securities to be sold on behalf of the Company to the public in an underwritten
public offering under the 1933 Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such 180-day period.
Delivery of Payment. Purchaser herewith delivers to the Company full
-------------------
payment for the exercise of the Shares.
Notices. Notices required hereunder shall be given in person or by
-------
first class mail to the address of Purchaser shown on the records of the
Company, and to the Company at its principal executive office.
Survival of Terms. This Agreement shall apply to and bind Purchaser
-----------------
and the Company and their respective permitted assignees and transferees, heirs,
legatees, executors, administrators and legal successors.
Tax Consequences. The Purchaser understands that upon the sale of
----------------
shares acquired upon exercise of an incentive stock option at least two years
after the grant of the option and at least one year after exercise of the
option, any gain will be taxed to the Purchaser as long-term capital gain, which
under current law is taxed at the same rates as ordinary income. If these
holding periods are not satisfied, the Purchaser will recognize ordinary income
on the date of disposition. However, there may also be tax consequences to the
Purchaser under the alternative minimum tax in the year of exercise or in the
year that certain restrictions imposed on the shares lapse (i.e., the year the
stock is fully vested).
Such restrictions include the Company's right to repurchase unvested shares
at cost in the event of termination of employment, and, include the potential
liability of any "insider" (as defined below) of the Company to forfeit to the
Company any profits from any purchase and sale of Common Stock of the Company
within a six-month period, pursuant to Section 16(b) of the Securities Exchange
Act of 1934, as amended.
If unvested shares (i.e., shares subject to a repurchase option of the
Company) are purchased upon exercise of an incentive stock option, or if shares
are purchased by a Purchaser who could be subject to suit under Section 16(b) of
the Securities Exchange Act of 1934 in the event Purchaser disposed of such
shares, and the Purchaser subsequently disposes of such shares prior to the
expiration of the two-year and one-year holding periods, under proposed
regulations issued by the Internal Revenue Service the shares will be treated as
if they had been acquired by the Purchaser pursuant to a nonstatutory option.
See "Nonstatutory Options" below. It may be possible for a Purchaser to file a
"protective" election with the Internal Revenue Service under Section 83(b)
within 30 days after the date of exercise of an incentive stock option.
However, the Internal Revenue Service has never considered the question of
whether a Section 83(b) election can be filed with respect to the exercise of an
incentive stock option, and there can be no assurance that any such "protective"
election, even if properly and timely filed, would be recognized as effective by
the Internal Revenue Service. Therefore, a Purchaser should consult such
Purchaser's own tax
5
<PAGE>
advisor prior to exercising an incentive stock option with respect to unvested
shares, or prior to any exercise of an incentive stock option in the event that
Purchaser could be subject to Section 16(b) of the Securities Exchange Act of
1934 upon disposing of such shares, concerning the advisability of filing a
"protective" election under Section 83(b) of the Code.
A Section 83(b) election also commences the Purchaser's holding period in
the acquired property (for capital gain purposes) and affects the
characterization of gain or loss incurred upon disposition of such property.
Capital losses are allowed against up to $3,000 of ordinary income, and the
excess of net long-term capital loss over net short-term capital gain is allowed
in full for this purpose. In addition, the existence of capital gains or losses
will affect the limitation or the deductibility of a Purchaser's investment
interest.
The Purchaser understands that the tax consequences of exercising an option
and disposing of shares acquired thereunder depend on the Purchaser's individual
circumstances. Purchaser represents that Purchaser has had the opportunity to
consult a tax advisor and is not relying upon the Company for tax advice in this
regard.
Representations. The Purchaser has had the opportunity to review with
--------------- ----------------------------------------------------
such Purchaser's own tax advisors the federal, state, local and foreign tax
- ---------------------------------------------------------------------------
consequences of this investment and the transactions contemplated by this
- -------------------------------------------------------------------------
Agreement. The Purchaser is relying solely on such advisors and not on any
- ---------------------------------------------------------------------------
statements or representations of the Company or any of its agents. The
- -----------------------------------------------------------------------
Purchaser understands that Purchaser (and not the Company) shall be responsible
- -------------------------------------------------------------------------------
for such Purchaser's own tax liability that may arise as a result of this
- -------------------------------------------------------------------------
investment or the transactions contemplated by this Agreement.
- -------------------------------------------------------------
Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of California.
Purchaser represents that Purchaser has read this Agreement and is familiar
with its terms and provisions. Purchaser hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Agreement.
IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set
forth above.
APPLIED MICRO CIRCUITS CORPORATION
A DELAWARE CORPORATION
By:
__________________________
Joel Holliday
Title: Vice President, Finance & Administration
PURCHASER
6
<PAGE>
7
<PAGE>
EXHIBIT A-1
-----------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, I hereby sell, assign and transfer unto
----------------
( ) shares of the Common Stock of Applied Micro Circuits Corporation
--------
standing in my name of the books of said corporation represented by Certificate
No. herewith and do hereby irrevocably constitute and appoint
----- --------------
to transfer said stock on the books of the within-named corporation with full
power of substitution in the premises.
Dated: , 19 .
----------- --
Signature:
-----------------------------------------
This Assignment Separate from Certificate was executed in conjunction with
the terms of a Restricted Stock Purchase Agreement between the above assignor
and Applied Micro Circuits Corporation dated and is to be used only in
---------
accordance with the exercise of the Company Option and the Company's Right of
First Refusal.
<PAGE>
EXHIBIT A-2
-----------
CONSENT OF SPOUSE
I, , spouse of have read and approved the foregoing
-------- -----------
Agreement. In consideration of granting of the right to my spouse to purchase
shares of Applied Micro Circuits Corporation as set forth in the Agreement, I
hereby appoint my spouse as my attorney-in-fact in respect to the exercise of
any rights under the Agreement and agree to be bound by the provisions of the
Agreement insofar as I may have any rights under such Agreement or in any shares
issued pursuant thereto under the community property laws of the State of
California or similar laws relating to marital property in effect in the state
of our residence as of the date of the signing of the foregoing Agreement.
Dated:
-----------
---------------------------------------------
<PAGE>
EXHIBIT A-3
-----------
INCENTIVE STOCK OPTION ELECTION UNDER SECTION 83(b)
----------------------------------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer ("Taxpayer") has acquired property pursuant to the
exercise of an incentive stock option within the meaning of Section 422 of the
Code. Taxpayer hereby elects, pursuant to Section 83(b) of the Code and subject
to the limitations set forth herein (1) to include in the computation of such
Taxpayer's alternative minimum taxable income for the current taxable year an
amount equal to the excess of the fair market value of the property described
below (as of the time of transfer) over the amount paid for such property.
1. The name, address, Social Security number and taxable year of Taxpayer and
such Taxpayer's spouse are as follows:
Name : Taxpayer:
Spouse :
Address :
Social Security No. : Taxpayer:
Spouse :
Taxable Year: :
2. The property with respect to which the election is made is
shares of the Common Stock of Applied Micro Circuits
-------------
Corporation, a Delaware corporation (the "Company").
3. The date on which the property was transferred is :
-----------
4. The property is subject to the restrictions checked below:
---- the right of the Company to repurchase the property at the initial
purchase price in the event that Taxpayer ceases to perform
substantial services for the Company within a certain period of time;
---- restrictions imposed by Section 16(b) of the Securities Exchange Act
of 1934, as amended.
5. The fair market value of the property at the time of transfer, determined
without regard to any restriction other than a restriction which by its terms
will never lapse, was $
-----------
6. The amount (if any) paid for the property was $
-----------
1
<PAGE>
Taxpayer has submitted a copy of this statement to the Company and to the IRS
Service Center where Taxpayer files such Taxpayer's federal income tax returns.
A copy will also be filed with Taxpayer's federal income tax return for the
taxable year to which this election relates. The transferee of the property is
the person performing the services in connection with the transfer of the
property.
This election is made to the same effect, and with the same limitations, for
purposes of any applicable state statute corresponding to Section 83(b) of the
Code.
Taxpayer understands that the foregoing election may not be revoked except with
- -------------------------------------------------------------------------------
the consent of the Commissioner.
- -------------------------------
Dated:
---------------------------------------
The undersigned spouse of Taxpayer joins in this election.
Dated:
---------------------------------------
2
<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
PURCHASER :
SELLER : APPLIED MICRO CIRCUITS CORPORATION
COMPANY : APPLIED MICRO CIRCUITS CORPORATION
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, I, the
Purchaser, represent to the Seller and to the Company the following:
(a) I am aware of the Company's business affairs and financial
condition, and have acquired sufficient information about the Company to reach
an informed and knowledgeable decision to acquire the Securities. I am
purchasing these Securities for my own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act of 1933, as amended (the "Securities
Act").
(b) I understand that the Securities 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 my
investment intent as expressed herein. In this connection, I understand that,
in the view of the Securities and Exchange Commission (the "SEC"), the statutory
basis for such exemption may be unavailable if my 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.
(c) I further understand that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from registration is otherwise available. Moreover, I understand that the
Company is under no obligation to register the Securities. In addition, I
understand 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 for
the Company.
(d) I am 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 issuance of the Securities, such issuance will be exempt from
registration under the Securities Act. In the event the Company later becomes
subject to the reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, ninety (90)
1
<PAGE>
days thereafter the securities exempt under Rule 701 may be resold, subject to
the satisfaction of certain of the conditions specified by Rule 144, including
among other things: (1) the sale 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, and the amount of securities being sold during any three month period
not exceeding the limitations specified in Rule 144(e), if applicable.
Notwithstanding this paragraph (d), I acknowledge and agree to the restrictions
set forth in paragraph (e) hereof.
In the event that the Company does not qualify under Rule 701 at the
time of issuance of the Securities, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires
among other things: (1) the availability of certain public information about
the Company, (2) the resale occurring not less than two years after the party
has purchased, and made full payment for, within the meaning of Rule 144, the
securities to be sold; and, in the case of an affiliate, or of a non-affiliate
who has held the securities less than three years, (3) the sale 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 the amount of securities being sold during any three
month period not exceeding the specified limitations stated therein, if
applicable.
(e) I agree, in connection with the Company's initial underwritten
public offering of the Company's securities, (1) not to sell, make short sale
of, loan, grant any options for the purchase of, or otherwise dispose of any
shares of Common Stock of the Company held by me (other than those shares
included in the registration) without the prior written consent of the Company
or the underwriters managing such initial underwritten public offering of the
Company's securities for one hundred eighty (180) days from the effective date
of such registration, and (2) I further agree to execute any agreement
reflecting (1) above as may be requested by the underwriters at the time of the
public offering; provided however that the officers and directors of the Company
-------- -------
who own the stock of the Company also agree to such restrictions.
(f) I further understand that in the event all of the applicable
requirements of Rule 144 or Rule 701 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 Rule 144 and
Rule 701 are not exclusive, the Staff of the SEC has expressed its opinion that
persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 or Rule 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.
(g) I understand 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. I have
read the applicable Commissioner's Rules with respect to such restriction, a
copy of which is attached.
Signature of Purchaser:
2
<PAGE>
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
----------------------------------------------------
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: Restriction on Transfer. (a) The issuer of any security upon
---------- -----------------------
which a restriction on transfer has been imposed pursuant to Sections 260.102.6,
260.141.10 or 260.534 shall cause a copy of this section to be delivered to each
issuee or transferee of such security at the time the certificate evidencing the
security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a sale or
transfer of such security, or any interest therein, without the prior written
consent of the Commissioner (until this condition is removed pursuant to Section
260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of the Code
or Section 260.105.14 of these rules;
(4) to the transferror's ancestors, descendants or spouse, or any custodian
or trustee for the account of the transferror or the transferror's ancestors,
descendants, or spouse; or to a transferee by a trustee or custodian for the
account of the transferee or the transferee's ancestors, descendants or spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either acting as
such or as a finder) to a resident of a foreign state, territory or country who
is neither domiciled in this state to the knowledge of the broker-dealer, nor
actually present in this state if the sale of such securities is not in
violation of any securities law of the foreign state, territory or country
concerned;
(8) to a broker-dealer licensed under the Code in a principal transaction, or
as an underwriter or member of an underwriting syndicate or selling group;
(9) if the interest sold or transferred is a pledge or other lien given by
the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113 or 25121
of the Code, of the securities to be transferred, provided that no order under
Section 25140 or Subdivision (a) of Section 25143 is in effect with respect to
such qualification;
(11) by a corporation to a wholly owned subsidiary of such corporation, or by
a wholly owned subsidiary of a corporation to such corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or 25113 of
the Code, provided that no order under Section 25140 or Subdivision (a) of
Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who are
neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or to the
administrator of the unclaimed property law of another state;
(15) by the State Controller pursuant to the Unclaimed Property Law or by the
administrator of the unclaimed property law of another state if, in either such
case, such person (i) discloses to potential purchasers at the sale that
transfer of the securities is restricted under this rule, (ii) delivers to each
purchaser a copy of this rule, and (iii) advises the Commissioner of the name of
each purchaser;
(16) by a trustee to a successor trustee when such transfer does not involve
a change in the beneficial ownership of the securities; or
(17) by way of an offer and sale of outstanding securities in an issuer
transaction that is subject to the qualification requirement of Section 25110 of
the Code but exempt from that qualification requirement by subdivision (f) of
Section 25102;
provided that any such transfer is on the condition that any certificate
evidencing the security issued to such transferee shall contain the legend
required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
<PAGE>
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
PURCHASER :
SELLER : APPLIED MICRO CIRCUITS CORPORATION
COMPANY : APPLIED MICRO CIRCUITS CORPORATION
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, I, the
Purchaser, represent to the Seller and to the Company the following:
(a) I am aware of the Company's business affairs and financial
condition, and have acquired sufficient information about the Company to reach
an informed and knowledgeable decision to acquire the Securities. I am
purchasing these Securities for my own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act of 1933, as amended (the "Securities
Act").
(b) I understand that the Securities 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 my
investment intent as expressed herein. In this connection, I understand that,
in the view of the Securities and Exchange Commission (the "SEC"), the statutory
basis for such exemption may be unavailable if my 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.
(c) I further understand that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from registration is otherwise available. Moreover, I understand that the
Company is under no obligation to register the Securities. In addition, I
understand 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 for
the Company.
(d) I am 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
<PAGE>
offering subject to the satisfaction of certain conditions. Rule 701 provides
that if the issuer qualifies under Rule 701 at the time of issuance of the
Securities, such issuance will be exempt from registration under the Securities
Act. In the event the Company later becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter the securities exempt under Rule 701 may be resold,
subject to the satisfaction of certain of the conditions specified by Rule 144,
including among other things: (1) the sale 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, and the amount of securities being sold during any three
month period not exceeding the limitations specified in Rule 144(e), if
applicable. Notwithstanding this paragraph (d), I acknowledge and agree to the
restrictions set forth in paragraph (e) hereof.
In the event that the Company does not qualify under Rule 701 at the
time of issuance of the Securities, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires
among other things: (1) the availability of certain public information about the
Company, (2) the resale occurring not less than two years after the party has
purchased, and made full payment for, within the meaning of Rule 144, the
securities to be sold; and, in the case of an affiliate, or of a non-affiliate
who has held the securities less than three years, (3) the sale 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 the amount of securities being sold during any three
month period not exceeding the specified limitations stated therein, if
applicable.
(e) I agree, in connection with the Company's initial underwritten
public offering of the Company's securities, (1) not to sell, make short sale
of, loan, grant any options for the purchase of, or otherwise dispose of any
shares of Common Stock of the Company held by me (other than those shares
included in the registration) without the prior written consent of the Company
or the underwriters managing such initial underwritten public offering of the
Company's securities for one hundred eighty (180) days from the effective date
of such registration, and (2) I further agree to execute any agreement
reflecting (1) above as may be requested by the underwriters at the time of the
public offering, provided however that the officers and directors of the Company
-----------------
who own the stock of the Company also agree to such restrictions.
(f) I further understand that in the event all of the applicable
requirements of Rule 144 or Rule 701 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 Rule 144 and
Rule 701 are not exclusive, the Staff of the SEC has expressed its opinion that
persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 or Rule 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.
<PAGE>
(g) I understand 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. I have
read the applicable Commissioner's Rules with respect to such restriction, a
copy of which is attached.
Signature of Purchaser:
------------------------------------
Date: , 19
---------- ---
<PAGE>
Exhibit 10.4
APPLIED MICRO CIRCUITS CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1997 Employee Stock Purchase
Plan of Applied Micro Circuits Corporation.
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. 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 shall,
accordingly, 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.
-----
(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 Applied Micro Circuits Corporation, a
-------
Delaware corporation.
(e) "Compensation" shall mean all earnings reportable as W-2 wages for
------------
federal income tax withholding purposes.
(f) "Continuous Status as an Employee" shall mean the absence of any
--------------------------------
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of a leave of absence
agreed to in writing by the Company, provided that such leave is for a period of
not more than 90 days or reemployment upon the expiration of such leave is
guaranteed by contract or statute.
(g) "Contributions" shall mean all amounts credited to the account of
-------------
a participant pursuant to the Plan.
-1-
<PAGE>
(h) "Designated Subsidiaries" shall mean the Subsidiaries which have
-----------------------
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(i) "Employee" shall mean any person, including an Officer, who is
--------
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(k) "Purchase Date" shall mean the last day of each Purchase Period of
-------------
the Plan.
(l) "Offering Date" shall mean the first business day of each Offering
-------------
Period of the Plan.
(m) "Offering Period" shall mean a period of twenty-four (24) months
---------------
commencing on February 1 and August 1 of each year, except for the first
Offering Period as set forth in Section 4(a).
(n) "Officer" shall mean 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.
(o) "Plan" shall mean this Employee Stock Purchase Plan.
----
(p) "Purchase Period" shall mean a period of six (6) months within an
---------------
Offering Period, except for the first Purchase Period as set forth in Section
4(b).
(q) "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.
3. Eligibility.
-----------
(a) Any person who is an Employee as of the Offering Date of a given
Offering Period shall be eligible to participate in such Offering Period under
the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code.
-2-
<PAGE>
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, 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 stock and/or
hold outstanding options to purchase stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Company or of any subsidiary of the Company, or (ii) if such option would permit
his or her rights to purchase stock under all employee stock purchase plans
(described in Section 423 of the Code) of the Company and its Subsidiaries to
accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of fair
market value of such stock (determined at the time such option is granted) for
each calendar year in which such option is outstanding at any time.
4. Offering Periods and Purchase Periods.
--------------------------------------
(a) Offering Periods. The Plan shall be implemented by a series of
----------------
Offering Periods of twenty-four (24) months duration, with new Offering Periods
commencing on or about February 1 and August 1 of each year (or at such other
time or times as may be determined by the Board of Directors). The first
Offering Period shall commence on the beginning of the effective date of the
Registration Statement on Form S-1 for the initial public offering of the
Company's Common Stock (the "IPO Date") and continue until January 31, 2000. The
Plan shall continue until terminated in accordance with Section 19 hereof. The
Board of Directors of the Company shall have the power to change the duration
and/or the frequency of Offering Periods with respect to future offerings
without shareholder approval if such change is announced at least fifteen (15)
days prior to the scheduled beginning of the first Offering Period to be
affected. Eligible employees may not participate in more than one Offering
Period at a time.
(b) Purchase Periods. Each Offering Period shall consist of four (4)
----------------
consecutive purchase periods of six (6) months duration. The last day of each
Purchase Period shall be the "Purchase Date" for such Purchase Period. A
Purchase Period commencing on February 1 shall end on the next July 31. A
Purchase Period commencing on August 1 shall end on the next January 31. The
first Purchase Period shall commence on the IPO Date and shall end on July 31,
1998. The Board of Directors of the Company shall have the power to change the
duration and/or frequency of Purchase Periods with respect to future purchases
without shareholder approval if such change is announced at least fifteen (15)
days prior to the scheduled beginning of the first Purchase Period to be
affected.
5. Participation.
-------------
-3-
<PAGE>
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement on the form provided by the Company and
filing it with the Company's payroll office prior to the applicable Offering
Date, unless a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given offering. The
subscription agreement shall set forth the percentage of the participant's
Compensation (which shall be not less than 1% and not more than 20%) to be paid
as Contributions pursuant to the Plan.
(b) Payroll deductions shall commence on the first payroll following
the Offering Date and shall end on the last payroll paid on or prior to the last
Purchase Period of the Offering Period to which the subscription agreement is
applicable, unless sooner terminated by the participant as provided in Section
10.
6. Method of Payment of Contributions.
----------------------------------
(a) The participant shall elect to have payroll deductions made on
each payday during the Offering Period in an amount not less than one percent
(1%) and not more than twenty percent (20%) of such participant's Compensation
on each such payday. All payroll deductions made by a participant shall be
credited to his or her account under the Plan. A participant may not make any
additional payments into such account.
(b) A participant may discontinue his or her participation in the Plan
as provided in Section 10, or, during the Offering Period may increase or
decrease the rate of his or her Contributions during such Offering Period by
completing and filing with the Company a new subscription agreement; provided,
however, that no participant may effect more than one increase or decrease
during an Offering Period. The change in rate shall be effective as of the
beginning of the next calendar month following the date of filing of the new
subscription agreement, if the agreement is filed at least ten (10) business
days prior to such date and, if not, as of the beginning of the next succeeding
calendar month.
(c) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) herein, a participant's
payroll deductions may be decreased to 0% at such time during any Offering
Period which is scheduled to end during the current calendar year that the
aggregate of all payroll deductions accumulated with respect to such Offering
Period and any other Offering Period ending within the same calendar year equal
$21,250. Payroll deductions shall re-commence at the rate provided in such
participant's subscription Agreement at the beginning of the first Offering
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10.
-4-
<PAGE>
7. Grant of Option.
---------------
(a) On the Offering Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted an option to
purchase on each Purchase Date a number of shares of the Company's Common Stock
determined by dividing such Employee's Contributions accumulated prior to such
Purchase Date and retained in the participant's account as of the Purchase Date
by the lower of (i) eighty-five percent (85%) of the fair market value of a
share of the Company's Common Stock on the Offering Date, or (ii) eighty-five
percent (85%) of the fair market value of a share of the Company's Common Stock
on the Purchase Date; provided however, that the maximum number of shares an
Employee may purchase during each Offering Period shall be determined at the
Offering Date by dividing $25,000 by the fair market value of a share of the
Company's Common Stock on the Offering Date, and provided further that such
purchase shall be subject to the limitations set forth in Sections 3(b) and 13.
The fair market value of a share of the Company's Common Stock shall be
determined as provided in Section 7(b).
(b) The option price per share of the shares offered in a given
Offering Period shall be the lower of: (i) 85% of the fair market value of a
share of the Common Stock of the Company on the Offering Date; or (ii) 85% of
the fair market value of a share of the Common Stock of the Company on the
Purchase Date. The fair market value of the Company's Common Stock on a given
date shall be determined by the Board in its discretion based on the closing
price of the Common Stock for such date (or, in the event that the Common Stock
is not traded on such date, on the immediately preceding trading date), as
reported by the National Association of Securities Dealers Automated Quotation
(Nasdaq) National Market or, if such price is not reported, the mean of the bid
and asked prices per share of the Common Stock as reported by Nasdaq or, in the
event the Common Stock is listed on a stock exchange, the fair market value per
share shall be the closing price on such exchange on such date (or, in the event
that the Common Stock is not traded on such date, on the immediately preceding
trading date), as reported in The Wall Street Journal. For purposes of the
Offering Date under the first Offering Period under the Plan, the fair market
value of a share of the Common Stock of the Company shall be the Price to Public
as set forth in the final prospectus filed with the Securities and Exchange
Commission pursuant to Rule 424 under the Securities Act of 1933, as amended.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in paragraph 10, his or her option for the purchase of shares will be
exercised automatically on each Purchase Date of an Offering Period, and the
maximum number of full shares subject to the option will be purchased at the
applicable option price with the accumulated Contributions in his or her
account. The shares purchased upon exercise of an option hereunder shall be
deemed to be transferred to the participant on the Purchase Date. No
fractional shares shall be purchased. Any
-5-
<PAGE>
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. Any other
monies left over in a participant's account after a Purchase Date shall be
returned to the Participant. During his or her lifetime, a participant's option
to purchase shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Purchase Date of each
--------
Offering Period, 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 or the deposit of such number of shares with the broker
selected by the Company for administration of Plan stock purchases, as
determined by the Company.
10. Voluntary Withdrawal; Termination of Employment.
-----------------------------------------------
(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time at least
five (5) business days prior to each Purchase Date by giving written notice to
the Company. All of the participant's Contributions credited to his or her
account will be paid to him or her promptly after receipt of his or her notice
of withdrawal and his or her option for the current period will be automatically
terminated, and no further Contributions for the purchase of shares will be made
during the Offering Period.
(b) Upon termination of the participant's Continuous Status as an
Employee prior to the Purchase Date of an Offering Period for any reason,
including retirement or death, the Contributions credited to his or her account
will be returned to him or her or, in the case of his or her death, to the
person or persons entitled thereto under Section 14, and his or her option will
be automatically terminated.
(c) In the event an Employee fails to remain in Continuous Status as
an Employee of the Company for at least twenty (20) hours per week during the
Offering Period in which the employee is a participant, he or she will be deemed
to have elected to withdraw from the Plan and the Contributions credited to his
or her account will be returned to him or her and his or her option terminated.
(d) A participant's withdrawal from an offering will not have any
effect upon his or her eligibility to participate in a succeeding offering or in
any similar plan which may hereafter be adopted by the Company.
-6-
<PAGE>
11. Automatic Withdrawal. If the fair market value of the shares on the
--------------------
first Purchase Date of an Offering Period is less than the fair market value of
the shares on the Offering Date for such Offering Period, then every participant
shall automatically (i) be withdrawn from such Offering Period at the close of
such Purchase Date and after the acquisition of shares for such Purchase Period,
and (ii) be enrolled in the Offering Period commencing on the first business day
subsequent to such Purchase Period.
12. Interest. No interest shall accrue on the Contributions of a
--------
participant in the Plan.
13. Stock.
-----
(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be 400,000 shares subject
to adjustment upon changes in capitalization of the Company as provided in
Section 19. If the total number of shares which would otherwise be subject to
options granted pursuant to Section 7(a) on the Offering Date of an Offering
Period exceeds the number of shares then available under the Plan (after
deduction of all shares for which options have been exercised or are then
outstanding), the Company shall make a pro rata allocation of the shares
remaining available for option grant in as uniform a manner as shall be
practicable and as it shall determine to be equitable. In such event, the
Company shall give written notice of such reduction of the number of shares
subject to the option to each Employee affected thereby and shall similarly
reduce the rate of Contributions, if necessary.
(b) The participant will have no interest or voting right in shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Board, or a committee named by the Board, shall
--------------
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan. The composition of the committee shall be in accordance with the
requirements to obtain or retain any available exemption from the operation of
Section 16(b) of the Exchange Act pursuant to Rule 16b-3 promulgated thereunder.
15. Designation of Beneficiary.
--------------------------
-7-
<PAGE>
(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 the end of a
Purchase Period but prior to delivery to him or her 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 the Purchase Date of an Offering Period. 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
(and his or her spouse, if any) 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 Contributions 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 14) 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 in accordance with Section 10.
17. Use of Funds. All Contributions 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 Contributions.
18. Reports. Individual accounts will be maintained for each participant
-------
in the Plan. Statements of account will be given to participating Employees
promptly following the Purchase Date, which statements will set forth the
amounts of Contributions, the per share purchase price, the number of shares
purchased and the remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization; Corporate Transactions.
------------------------------------------------------------------
(a) Adjustment. Subject to any required action by the shareholders of
----------
the Company, the number of shares of Common Stock covered by each option under
the Plan which has
-8-
<PAGE>
not yet been exercised and the number of shares of Common Stock which have been
authorized for issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves"), as well as the price per share 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 issue 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) Corporate Transactions. In the event of the proposed dissolution
----------------------
or liquidation of the Company, the Offering Period will terminate immediately
prior to the consummation of such proposed action, unless otherwise provided by
the Board. 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 option under the Plan shall be assumed or an equivalent option
shall be substituted by such successor corporation or a parent or subsidiary of
such successor corporation, unless the Board determines, in the exercise of its
sole discretion and in lieu of such assumption or substitution, to shorten the
Offering Period then in progress by setting a new Purchase Date (the "New
Purchase Date"). If the Board shortens the Offering Period then in progress in
lieu of assumption or substitution in the event of a merger or sale of assets,
the Board shall notify each participant in writing, at least ten (10) days prior
to the New Purchase Date, that the Purchase Date for his or her option has been
changed to the New Purchase Date and that his or her option will be exercised
automatically on the New Purchase Date, unless prior to such date he or she has
withdrawn from the Offering Period as provided in Section 10. For purposes of
this paragraph, an option granted under the Plan shall be deemed to be assumed
if, following the sale of assets or merger, the option confers the right to
purchase, for each share of option stock subject to the option immediately prior
to the sale of assets or merger, the consideration (whether stock, cash or other
securities or property) received in the sale of assets or merger by holders of
Common Stock for each share of Common Stock held on the effective date of the
transaction (and if such holders were offered a choice of consideration, the
type of consideration chosen by the holders of a majority of the outstanding
shares of Common Stock); provided, however, that if such consideration received
in the sale of assets or merger was not solely common stock of the successor
corporation or its parent (as defined in Section 424(e) of the Code), the Board
may, with the consent of the successor corporation and the participant, provide
for the consideration to be received upon exercise of the option to be
-9-
<PAGE>
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
and the sale of assets or merger.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of shares of its outstanding Common Stock, and
in the event of the Company being consolidated with or merged into any other
corporation.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time terminate or
amend the Plan. Except as provided in Section 19, no such termination may affect
options previously granted, nor may an amendment make any change in any option
theretofore granted which adversely affects the rights of any participant. In
addition, to the extent necessary to comply with Rule 16b-3 under the Exchange
Act, or under Section 423 of the Code (or any successor rule or provision or any
applicable law or regulation), the Company shall obtain shareholder approval in
such a manner and to such a degree as so 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 and Purchase
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.
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.
-10-
<PAGE>
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 Exchange Act, 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 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; Effective Date. 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
twenty (20) years unless sooner terminated under Section 20.
24. Additional Restrictions of Rule 16b-3. The terms and conditions of
-------------------------------------
options granted hereunder to, and the purchase of shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
-11-
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
New Election ______
Change of Election ______
1. I, ________________________, hereby elect to participate in the APPLIED
MICRO CIRCUITS CORPORATION 1997 Employee Stock Purchase Plan (the "Plan") for
the Offering Period ______________, _____ to _______________, _____, and
subscribe to purchase shares of the Company's Common Stock in accordance with
this Subscription Agreement and the Plan.
2. I elect to have Contributions in the amount of _____% of my
Compensation, as those terms are defined in the Plan, applied to this purchase.
I understand that this amount must not be less than 1% and not more than 20% of
my Compensation during the Offering Period. (Please note that no fractional
percentages are permitted).
3. I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Item 2 of this Subscription Agreement. I
understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into such
account. I understand that all payments made by me shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price determined
in accordance with the Plan. I further understand that, except as otherwise set
forth in the Plan, shares will be purchased for me automatically on the Purchase
Date of each Offering Period unless I otherwise withdraw from the Plan by giving
written notice to the Company for such purpose.
4. I understand that I may discontinue at any time prior to the Purchase
Date my participation in the Plan as provided in Section 10 of the Plan. I also
understand that I can increase or decrease the rate of my Contributions to not
less than 1% and to not more than 20% of my Compensation on one occasion only
for each rate change during any Offering Period by completing and filing a new
Subscription Agreement with such increase or decrease taking effect as of the
beginning of the calendar month following the date of filing of the new
Subscription Agreement, if filed at least five (5) business days prior to the
beginning of such month. Further, I may change the rate of deductions for
future Offering Periods by filing a new Subscription Agreement, and any such
change will be effective as of the beginning of the next Offering Period. In
addition, I acknowledge that, unless I discontinue my participation in the Plan
as provided in Section 10 of the Plan, my election will continue to be effective
for each successive Offering Period.
5. I have received a copy of the Company's most recent description of the
Plan and a copy of the complete "APPLIED MICRO CIRCUITS CORPORATION 1997
Employee Stock Purchase Plan." I understand that my participation in the Plan
is in all respects subject to the terms of the Plan.
-1-
<PAGE>
6. Shares purchased for me under the Plan should be issued in the name(s)
of (name of employee or employee and spouse only):
____________________________________
-2-
<PAGE>
------------------------------------
7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:
NAME: (Please print)
-------------------------------------
(First) (Middle) (Last)
- ------------------------- -------------------------------------
(Relationship) (Address)
-------------------------------------
8. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Offering Date (the first day of the Offering
Period during which I purchased such shares) or within 1 year after the Purchase
Date, I will be treated for federal income tax purposes as having received
ordinary compensation income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares on the Purchase Date over
the price which I paid for the shares, regardless of whether I disposed of the
shares at a price less than their fair market value at the Purchase Date. The
remainder of the gain or loss, if any, recognized on such disposition will be
treated as capital gain or loss.
I hereby agree to notify the Company in writing within 30 days after
--------------------------------------------------------------------
the date of any such disposition, and I will make adequate provision for
- ------------------------------------------------------------------------
federal, state or other tax withholding obligations, if any, which arise upon
- -----------------------------------------------------------------------------
the 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 the sale or early
disposition of Common Stock by me.
9. If I dispose of such shares at any time after expiration of the 2-year
and 1-year holding periods, I understand that I will be treated for federal
income tax purposes as having
-3-
<PAGE>
received compensation 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 under the
option, or (2) 15% of the fair market value of the shares on the Offering Date.
The remainder of the gain or loss, if any, recognized on such disposition will
be treated as capital gain or loss.
I understand that this tax summary is only a summary and is subject to
----------------------------------------------------------------------
change. I further understand that I should consult a tax advisor concerning the
- ------
tax implications of the purchase and sale of stock under the Plan.
10. I hereby agree to be bound by the terms of the Plan. The
effectiveness of this Subscription Agreement is dependent upon my eligibility to
participate in the Plan.
SIGNATURE:
SOCIAL SECURITY #:
DATE:
SPOUSE'S SIGNATURE (necessary
if beneficiary is not spouse):
(Signature)
(Print name)
-4-
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
I, __________________________, hereby elect to withdraw my participation in
the APPLIED MICRO CIRCUITS CORPORATION 1997 Employee Stock Purchase Plan (the
"Plan") for the Offering Period _________. This withdrawal covers all
Contributions credited to my account and is effective on the date designated
below.
I understand that all Contributions credited to my account will be paid to
me within ten (10) business days of receipt by the Company of this Notice of
Withdrawal and that my option for the current period will automatically
terminate, and that no further Contributions for the purchase of shares can be
made by me during the Offering Period.
The undersigned further understands and agrees that he or she shall be
eligible to participate in succeeding offering periods only by delivering to the
Company a new Subscription Agreement.
Dated:___________________
Signature of Employee
Social Security Number
<PAGE>
EXHIBIT 10.5
APPLIED MICRO CIRCUITS CORPORATION
1997 DIRECTORS' STOCK OPTION PLAN
---------------------------------
1. PURPOSES OF THE PLAN. The purposes of this Directors' Stock Option
--------------------
Plan are to attract and retain the best available personnel for service as
Directors of the Company, to provide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their continued
service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. DEFINITIONS. As used herein, the following definitions shall apply:
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(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 Applied Micro Circuits Corporation, a
-------
Delaware corporation.
(e) "Continuous Status as a Director" shall mean the absence of any
-------------------------------
interruption or termination of service as a Director.
(f) "Director" shall mean a member of the Board.
--------
(g) "Employee" shall mean any person, including any officer or
--------
director, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(i) "Option" shall mean a stock option granted pursuant to the Plan.
------
All options shall be nonstatutory stock options (i.e., options that are not
intended to qualify as incentive stock options under Section 422 of the Code).
1
<PAGE>
(j) "Optioned Stock" shall mean the Common Stock subject to an Option.
--------------
(k) "Optionee" shall mean an Outside Director who receives an Option.
--------
(l) "Outside Director" shall mean a Director who is not an Employee.
----------------
(m) "Parent" shall mean a "parent corporation," whether now or
------
hereafter existing, as defined in Section 424(e) of the Code.
(n) "Plan" shall mean this 1997 Directors' Stock Option Plan.
----
(o) "Share" shall mean a share of the Common Stock, as adjusted in
-----
accordance with Section 11 of the Plan.
(p) "Subsidiary" shall mean 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 11 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 200,000 Shares (the "Pool") of Common Stock. The Shares may
----
be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. If Shares which were acquired upon exercise of an
Option are subsequently repurchased by the Company, such Shares shall not in any
event be returned to the Plan and shall not become available for future grant
under the Plan.
2
<PAGE>
4. ADMINISTRATION OF AND GRANTS OF OPTIONS UNDER THE PLAN.
------------------------------------------------------
(a) ADMINISTRATOR. Except as otherwise required herein, the Plan
-------------
shall be administered by the Board.
(b) PROCEDURE FOR GRANTS. All grants of Options hereunder shall be
--------------------
automatic and nondiscretionary and shall be made strictly in accordance with the
following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors.
(ii) An Outside Director shall be automatically granted an
Option to purchase 12,500 Shares (the "First Option") on the date on which such
------------
person first becomes an Outside Director after the effective date of the Plan,
whether through election by the stockholders of the Company or appointment by
the Board of Directors to fill a vacancy.
(iii) Each Outside Director shall be automatically granted an
Option to purchase 12,500 Shares (a "Subsequent Option") on April 1 of each
-----------------
calendar year, provided that, on such date, he or she shall have served on the
Board for at least six (6) months prior to the date of such Annual Meeting and,
provided further, that a Subsequent Option shall not be granted to an Outside
Director who is an Outside Director on the effective date of the Plan until
April 1, 2000.
(iv) Notwithstanding the provisions of subsections (ii) and (iii)
hereof, in the event that a grant would cause the number of Shares subject to
outstanding Options plus the number of Shares previously purchased upon exercise
of Options to exceed the Pool, then each such automatic grant shall be for that
number of Shares determined by dividing the total number of Shares remaining
available for grant by the number of Outside Directors receiving an Option on
such date on the automatic grant date. Any further grants shall then be deferred
until such time, if any, as additional Shares become available for grant under
the Plan through action of the stockholders to increase the number of Shares
which may be issued under the Plan or through cancellation or expiration of
Options previously granted hereunder.
(v) Notwithstanding the provisions of subsections (ii) and (iii)
hereof, any grant of an Option made before the Company has obtained stockholder
approval of the Plan in
3
<PAGE>
accordance with Section 17 hereof shall be conditioned upon obtaining such
stockholder approval of the Plan in accordance with Section 17 hereof.
(vi) The terms of each First Option granted hereunder shall be as
follows:
(1) the First Option shall be exercisable only while the Outside
Director remains a Director of the Company, except as set forth in Section 9
hereof;
(2) the exercise price per Share shall be 100% of the fair
market value per Share on the date of grant of the First Option, determined in
accordance with Section 8 hereof; and
(3) the First Option shall become exercisable in installments
cumulatively as to 1/12th of the Shares subject to the First Option on each
monthly anniversary of the date of grant of the Option.
(vii) The terms of each Subsequent Option granted hereunder
shall be as follows:
(1) the Subsequent Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Section 9 hereof;
(2) the exercise price per Share shall be 100% of the fair market
value per Share on the date of grant of the Subsequent Option, determined in
accordance with Section 8 hereof; and
(3) the Subsequent Option shall become exercisable in
installments cumulatively as to 1/12th of the Shares subject to the Subsequent
Option on each monthly anniversary of the date of grant of the Subsequent
Option.
(c) POWERS OF THE BOARD. Subject to the provisions and restrictions
-------------------
of the Plan, the Board shall have the authority, in its discretion: (i) to
determine, upon review of relevant information and in accordance with Section
8(b) of the Plan, the fair market value of the Common Stock; (ii) to determine
the exercise price per share of Options to be granted, which exercise price
shall be determined in accordance with Section 8(a) of the Plan; (iii) to
interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations
relating to the Plan; (v) to authorize any person to execute on behalf of the
Company any instrument required to effectuate
4
<PAGE>
the grant of an Option previously granted hereunder; and (vi) to make all other
determinations deemed necessary or advisable for the administration of the Plan.
(d) EFFECT OF BOARD'S DECISION. All decisions, determinations and
--------------------------
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
(e) SUSPENSION OR TERMINATION OF OPTION. If the President or his or
-----------------------------------
her designee reasonably believes that an Optionee has committed an act of
misconduct, the President may suspend the Optionee's right to exercise any
option pending a determination by the Board of Directors (excluding the Outside
Director accused of such misconduct). If the Board of Directors (excluding the
Outside Director accused of such misconduct) determines an Optionee has
committed an act of embezzlement, fraud, dishonesty, nonpayment of an obligation
owed to the Company, breach of fiduciary duty or deliberate disregard of the
Company rules resulting in loss, damage or injury to the Company, or if an
Optionee makes an unauthorized disclosure of any Company trade secret or
confidential information, engages in any conduct constituting unfair
competition, induces any Company customer to breach a contract with the Company
or induces any principal for whom the Company acts as agent to terminate such
agency relationship, neither the Optionee nor his or her estate shall be
entitled to exercise any option whatsoever. In making such determination, the
Board of Directors (excluding the Outside Director accused of such misconduct)
shall act fairly and shall give the Optionee an opportunity to appear and
present evidence on Optionee's behalf at a hearing before the Board or a
committee of the Board.
5. ELIGIBILITY. Options may be granted only to Outside Directors. All
-----------
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) hereof. An Outside Director who has been granted an Option may, if
he or she is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate his or her directorship at any time.
6. TERM OF PLAN; EFFECTIVE DATE. The Plan shall become effective on the
----------------------------
effectiveness of the registration statement under the Securities Act of 1933, as
amended, relating to the Company's initial public offering of securities. It
shall continue in effect for a term of ten (10) years unless sooner terminated
under Section 13 of the Plan.
5
<PAGE>
7. TERM OF OPTIONS. The term of each Option shall be ten (10) years from
---------------
the date of grant thereof.
8. 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 100% of the fair market value
per Share on the date of grant of the Option.
(b) FAIR MARKET VALUE. The fair market value shall be determined by
-----------------
the Board; provided, however, that where there is a public market for the Common
-------- -------
Stock, the fair market value per Share shall be the mean of the bid and asked
prices of the Common Stock in the over-the-counter market on the date of grant,
as reported in The Wall Street Journal (or, if not so reported, as otherwise
------------------------
reported by the National Association of Securities Dealers Automated Quotation
("Nasdaq") System) or, in the event the Common Stock is traded on the Nasdaq
National Market or listed on a stock exchange, the fair market value per Share
shall be the closing price on such system or exchange on the date of grant of
the Option (or, in the event that the Common Stock is not traded on such date,
on the immediately preceding trading date), as reported in The Wall Street
---------------
Journal. With respect to any Options granted hereunder concurrently with the
- -------
initial effectiveness of the Plan, the fair market value shall be the Price to
Public as set forth in the final prospectus relating to such initial public
offering.
(c) FORM OF CONSIDERATION. The consideration to be paid for the
---------------------
Shares to be issued upon exercise of an Option shall consist entirely of cash,
check, other Shares of Common Stock having 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 (which, if acquired from the Company, shall have been
held for at least six months), by delivery of a properly executed exercise
notice together with such other documentation as the Administrator and the
broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or any combination of such methods of payment and/or any other
consideration or method of payment as shall be permitted under applicable
corporate law.
9. EXERCISE OF OPTION.
------------------
6
<PAGE>
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
4(b) hereof; provided, however, that no Options shall be exercisable prior to
stockholder approval of the Plan in accordance with Section 17 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall be issued
to the Optionee as soon as practicable after exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be 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 STATUS AS A DIRECTOR. If an Outside Director
-----------------------------------
ceases to serve as a Director, he or she may, but only within ninety (90) days
after the date he or she ceases to be a Director of the Company, exercise his or
her Option to the extent that he or she was entitled to exercise it at the date
of such termination. Notwithstanding the foregoing, in no event may the Option
be exercised after its term set forth in Section 7 has expired. To the extent
that such Outside Director was not entitled to exercise an Option at the date of
such termination, or does not exercise such Option (which he or she was entitled
to exercise) within the time specified herein, the Option shall terminate.
(c) DISABILITY OF OPTIONEE. Notwithstanding Section 9(b) above, in
----------------------
the event a Director is unable to continue his or her service as a Director with
the Company as a result of his or her total and permanent disability (as defined
in Section 22(e)(3) of the Code), he or she may, but only within six (6) months
(or such other period of time not exceeding twelve (12)
7
<PAGE>
months as is determined by the Board) from the date of such termination,
exercise his or her Option to the extent he or she was entitled to exercise it
at the date of such termination. Notwithstanding the foregoing, in no event may
the Option be exercised after its term set forth in Section 7 has expired. To
the extent that he or she was not entitled to exercise the Option at the date of
termination, or if he or she does not exercise such Option (which he or she was
entitled to exercise) within the time specified herein, the Option shall
terminate.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee:
-----------------
(i) During the term of the Option who is, at the time of his or her
death, a Director of the Company and who shall have been in Continuous Status as
a Director since the date of grant of the Option, the Option may be exercised,
at any time within six (6) months following the date of death, by the Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent of the right to exercise that would have
accrued had the Optionee continued living and remained in Continuous Status as
Director for six (6) months (or such lesser period of time as is determined by
the Board) after the date of death. Notwithstanding the foregoing, in no event
may the Option be exercised after its term set forth in Section 7 has expired.
(ii) Three (3) months after the termination of Continuous Status as a
Director, the Option may be exercised, at any time within six (6) months
following the date of death, by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the date of termination.
Notwithstanding the foregoing, in no event may the option be exercised after its
term set forth in Section 7 has expired.
10. NONTRANSFERABILITY OF OPTIONS. The Option 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 or pursuant to a qualified
domestic relations order (as defined by the Code or the rules thereunder). The
designation of a beneficiary by an Optionee does not constitute a transfer. An
Option may be exercised during the lifetime of an Optionee only by the Optionee
or a transferee permitted by this Section.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.
------------------------------------------------------------------
(a) ADJUSTMENT. Subject to any required action by the stockholders of
----------
the Company, the number of shares of Common Stock covered by each outstanding
Option, and the
8
<PAGE>
number of shares of Common Stock which have been authorized for issuance under
the Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, as well as
the price per share of Common Stock covered by each such outstanding Option,
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.
(b) CORPORATE TRANSACTIONS. In the event of (i) a dissolution or
----------------------
liquidation of the Company, (ii) a sale of all or substantially all of the
Company's assets, (iii) a merger or consolidation in which the Company is not
the surviving corporation, or (iv) any other capital reorganization in which
more than fifty percent (50%) of the shares of the Company entitled to vote are
exchanged, the Company shall give to the Eligible Director, at the time of
adoption of the plan for liquidation, dissolution, sale, merger, consolidation
or reorganization, either a reasonable time thereafter within which to exercise
the Option, including Shares as to which the Option would not be otherwise
exercisable, prior to the effectiveness of such liquidation, dissolution, sale,
merger, consolidation or reorganization, at the end of which time the Option
shall terminate, or the right to exercise the Option, including Shares as to
which the Option would not be otherwise exercisable (or receive a substitute
option with comparable terms), as to an equivalent number of shares of stock of
the corporation succeeding the Company or acquiring its business by reason of
such liquidation, dissolution, sale, merger, consolidation or reorganization.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
------------------------
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
-------------------------------------
9
<PAGE>
(a) AMENDMENT AND TERMINATION. The Board may amend or terminate the
-------------------------
Plan from time to time in such respects as the Board may deem advisable;
provided that, to the extent necessary and desirable to comply with Rule 16b-3
- -------- ----
under the Exchange Act (or any other applicable law or regulation), the Company
shall obtain approval of the stockholders of the Company to Plan amendments to
the extent and in the manner required by such law or regulation.
Notwithstanding the foregoing, the provisions set forth in Section 4 of this
Plan (and any other Sections of this Plan that affect the formula award terms
required to be specified in this Plan by Rule 16b-3) shall not be amended more
than once every six months, other than to comport with changes in the Code, the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
----------------------------------
termination of the Plan that would impair the rights of any Optionee shall not
affect Options already granted to such Optionee and such Options shall remain in
full force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Board, which agreement
must be in writing and signed by the Optionee and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, 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 Shares, if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
15. 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. 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
10
<PAGE>
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
16. OPTION AGREEMENT. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
17. STOCKHOLDER APPROVAL. Continuance of the Plan shall be subject to
--------------------
approval by the stockholders of the Company at or prior to the first annual
meeting of stockholders held subsequent to the granting of an Option hereunder.
If such stockholder approval is obtained at a duly held stockholders' meeting,
it may be obtained by the affirmative vote of the holders of a majority of the
outstanding shares of the Company present or represented and entitled to vote
thereon. If such stockholder approval is obtained by written consent, it may be
obtained by the written consent of the holders of a majority of the outstanding
shares of the Company. Options may be granted, but not exercised, before such
stockholder approval.
11
<PAGE>
EXHIBIT 10.6
CERTIFICATE OF THE SECRETARY
REGARDING THE ADOPTION OF A RESOLUTION
BY THE BOARD OF DIRECTORS OF
APPLIED MICRO CIRCUITS CORPORATION
APPROVING AND ADOPTING THE
401(k) PROFIT SHARING PLAN AND TRUST AGREEMENT, AS AMENDED
* * * * * * * * * * * *
WHEREAS, Applied Micro Circuits Corporation, (the "Employer"), has had in
effect the Applied Micro Circuits Corporation 401(k) Employee Savings &
Retirement Plan ("Plan") and its corresponding trust ("Trust") effective as of
April 1, 1985, and said Plan and Trust have been amended from time to time
subsequent to adoption; and
WHEREAS, due to the enactment of the Tax Reform Act of 1986, and subsequent
legislation and regulations affecting retirement plans, the Board of Directors
is of the opinion that the said Plan and Trust should be amended and restated in
their entireties, for the purposes of clarity and continuity; and
WHEREAS, there have been presented to this meeting a form of Code Section
401(k) profit sharing plan and trust agreement representing amendments and
restatements in their entireties of the Plan and Trust previously adopted and in
effect, and said Plan and Trust, as amended, contains all the changes required
by law, and the Board of Directors is of the opinion that the Plan and the Trust
should be adopted.
NOW, THEREFORE, BE IT RESOLVED that the 401(k) Profit Sharing Plan and the
Trust agreement, as amended, in substantially the forms presented to this
meeting and heretofore considered and discussed, copies of which the Secretary
of the Employer is hereby authorized and directed to annex to the minutes of
this meeting and which are hereby made a part of the record thereof, be and the
same are hereby adopted by the Employer; and
BE IT FURTHER RESOLVED that a duly authorized Officer and representative of
the Employer be, and are hereby, authorized and directed to execute said Plan
and Trust for and on behalf of the Employer, and to do and perform such other
acts as may be necessary or convenient to establish said Plan and Trust and to
place them in operation in accordance with all of their terms; and
BE IT FURTHER RESOLVED that the Secretary of the Employer be and is hereby
authorized, whenever necessary or convenient, to prepare true and correct copies
of said Plan or Trust, and of this Resolution, to certify the correctness of the
same; and
<PAGE>
BE IT FURTHER RESOLVED that the President or Vice President and Secretary
of the Employer be and are hereby authorized and directed to take such action
and follow such procedure as may be necessary or proper for the Employer to
secure the approval of said Plan and Trust by the Commissioner of Internal
Revenue; and
BE IT FURTHER RESOLVED that in order to carry out the provisions of this
Plan, Applied Micro Circuits Corporation shall be named to act as Plan
Administrator as provided for by said Plan and Trust; and
BE IT FURTHER RESOLVED that the Board of Directors of the Employer hereby
gives to the Plan Administrator(s) the full authority and duty to direct the
investment and management of all trust assets; and
BE IT FURTHER RESOLVED that the Board of Directors of this Employer be, and
is hereby, authorized to accept the resignation of any Plan Administrator and to
appoint a replacement therefore; and
BE IT FURTHER RESOLVED that the Trustee(s) pursuant to the Retirement Trust
Agreement shall be:
T. Rowe Price Trust Company
said Trustee(s) shall signify acceptance of this appointment by execution of the
Retirement Trust Agreement.
* * * * * * * * * * * *
I, Joel Holliday, Secretary (or duly representative) of Applied Micro
Circuits Corporation, do hereby certify that the foregoing Resolution was duly
adopted and that the same is now in full force and effect, and has not been
altered, amended, or revoked.
DATED THIS 31 day of December, 1995.
By: /s/ JOEL HOLLIDAY
-----------------------------
Joel Holliday
TITLE: V.P. Finance & Administration
-----------------------------
-2-
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION 401(k) EMPLOYEE SAVINGS AND
RETIREMENT PLAN
<PAGE>
PREAMBLE
THIS AGREEMENT is made and entered into by Applied Micro Circuits
Corporation (hereinafter referred to as "Employer").
The Employer desires to provide its Eligible Employees with a method of
saving money for their security upon retirement, disability, or death.
The Applied Micro Circuits Corporation 401(k) Employee Savings and
Retirement Plan is hereby created for the sole and exclusive benefit of Eligible
Employees and their Beneficiaries. The Plan, and the Trust described in the
Plan, are designed and intended to qualify under the appropriate provisions of
the Internal Revenue Code and the appropriate State or Territory Taxation Code.
<PAGE>
401k SAVINGS PLAN
INDEX
-----
ARTICLE PAGE
- ------- ----
<PAGE>
ARTICLE ONE
ELECTIVE PROVISIONS
1.1 PLAN INFORMATION AND DEFINITIONS
(a) PLAN shall mean the APPLIED MICRO CIRCUITS CORPORATION 401(k) EMPLOYEE
----
SAVINGS AND RETIREMENT PLAN.
(b) EFFECTIVE DATE shall mean January 1, 1995 for the restated Plan, the
--------------
initial Effective Date of which was April 1, 1985.
Notwithstanding the foregoing, in the case of restatements for the Tax
Reform Act of 1986, the provisions of the Plan, generally, shall be applicable
to Plan Years commencing after 1988, except to the extent that an earlier
effective date is required pursuant to statute, Treasury Regulation, or as
stated in the Plan document.
(c) PLAN ADMINISTRATOR shall mean the Employer.
------------------
(d) PLAN YEAR shall mean the twelve (12)-consecutive month period
---------
commencing on January 1st, and ending on December 31st.
(e) LIMITATION YEAR shall be the same as the Plan Year.
---------------
(f) HOUR OF SERVICE, for all Employees covered under the Plan, shall be
---------------
determined on the basis of actual hours for which an Employee is paid, or
entitled to payment.
(g) LOOK BACK YEAR shall mean prior Plan Year.
--------------
(h) TOTAL DISABILITY shall be defined as a physical or mental condition
----------------
which totally and presumably prevents the Participant from engaging in any
substantial gainful employment, determined on the basis of a medical examination
by a doctor, or clinic which is satisfactory to the Administrator.
1.2 PARTICIPATION
(a) ELIGIBILITY REQUIREMENTS. An Eligible Employee shall mean any
------------------------
Employee of the Employer who meets the eligibility requirements set forth below.
An Employee shall satisfy the eligibility requirements upon attaining
age eighteen (18) and completing three (3) Months during which an Employee shall
not be required to complete any specified number of Hours of Service to receive
credit for such fractional year.
(b) ELIGIBILITY REQUIREMENT FOR EMPLOYEE DEFERRALS. An Employee may elect
----------------------------------------------
to make deferrals upon the completion of 3 Months of Service during which such
Employee shall not be required to complete any specified number of Hours of
Service.
1-1
<PAGE>
Employees of Affiliated Employers shall not participate in the Plan.
(c) ELIGIBILITY COMPUTATION PERIODS shall mean the Initial Eligibility
-------------------------------
Computation Period, which is the twelve (12) consecutive month period beginning
with the date upon which an Employee first performs an Hour of Service for the
Employer, and the Subsequent Eligibility Computation Period which shall mean the
Plan Year which includes the first anniversary of the commencement of the twelve
(12) consecutive month period beginning with the date upon which an Employee
first performs an Hour of Service for the Employer, and, where additional
periods are necessary, succeeding Plan Years.
(d) ENTRY DATE shall be the date an Eligible Employee commences
----------
participation in the Plan, and shall mean first day of the month coinciding
with, or next following the Participant's satisfaction of the Eligibility
Requirements of the Plan, or the date required under the provisions of Section
3.7.
1.3 EMPLOYER CONTRIBUTIONS, ALLOCATIONS AND ALLOCATION LIMITS
(a) COMPENSATION shall mean the total compensation paid to each
------------
Participant.
Compensation shall be based on the Plan Year.
Compensation for the first year of participation shall be recognized
as of the first day of the Plan Year which includes the Participant's Entry
Date.
Compensation and "414(s) Compensation" shall not include compensation
which is not currently includable in the Participant's income by reason of the
application of Code Sections 125, 402(a)(8), 402(h)(1)(B), or 403(b).
(b) EMPLOYEE DEFERRALS
------------------
A Participant may elect to defer from one percent (1%) to twenty
percent (20%) of his Compensation into the Trust each Plan Year.
Bonuses, paid within two and one-half months after the end of the Plan
Year, shall not be subject to elective deferral for the prior Plan Year, but
shall be included in the definition of Compensation for purposes of determining
the percentage of salary deferrals for the year in which such bonus was
received.
(1) COMMENCEMENT OF EMPLOYEE DEFERRALS
----------------------------------
A Participant may begin to defer Compensation upon electing to
make payroll deductions, beginning with the next payroll period coincident with,
or following each Entry Date.
1-2
<PAGE>
(2) CHANGE OF EMPLOYEE DEFERRAL AMOUNTS
-----------------------------------
(i) A Participant may increase the rate of his deferral on
February 1st, May 1st, August 1st and November 1st of each Plan Year.
(ii) A Participant may decrease the rate of his deferral on the
same date(s) as he may increase deferrals.
(iii) A Participant may stop his deferral anytime during the Plan
Year.
(iv) In order to make a requested change in the deferral rate in
a timely manner, the Administrator must be given at least ten (10) working days
notice of any changes in deferral percentage.
(c) MATCHING CONTRIBUTIONS
----------------------
(1) EMPLOYER MATCHING CONTRIBUTIONS
-------------------------------
The Employer may make a Matching Contribution equal to a percent of
the Participant's Employee deferrals, subject to the limitations set forth in
Section 1.3(c)(2). This percentage will be determined at the beginning of each
Plan Year.
(2) LIMITATIONS ON MATCHING CONTRIBUTIONS
-------------------------------------
Matching Contributions, on behalf of any Participant each year, shall
be limited to a certain dollar amount, subject to the limitations set forth in
Article Four, Section 4.12. This dollar amount will be set at the beginning of
each Plan Year.
(3) EMPLOYEES ELIGIBLE TO RECEIVE A MATCHING CONTRIBUTION
-----------------------------------------------------
All Participants who elect to make deferrals shall be entitled to
receive an allocation of Matching Contributions, subject to the provisions of
Section 1.3(c)(4) and Section 4.12 of the Plan.
(4) ELIGIBILITY FOR MATCHING CONTRIBUTIONS
--------------------------------------
In order to receive a Matching Contribution, a Participant must
elect to make Employee Deferrals, and shall share in the allocation regardless
of the number of Hours of Service completed in the Plan Year.
If, by the Participants not sharing in Employer Matching
Contributions, or forfeitures (if any) of such contributions for the Plan Year,
the Plan would fail to meet the coverage requirements of Code Section 410(b)(1)
for the Plan Year, then, subject to Section 4.18(b), and within the provisions
of Code Section 401(b), the members of the group of Participants, previously
specified in this Section as not sharing in Employer Contributions, shall share
in Employer Contributions for the Plan Year as follows: the minimum number
required to meet the coverage tests under Code Section 410(b)(1) shall be
eligible to receive an allocation
1-3
<PAGE>
based on their number of Hours of Service credited during the Plan Year, ranked
in descending order. If more than one individual receives credit for the lowest
number of Hours of Service for which any individual must be covered in order to
meet the coverage tests, then all individuals receiving credit for exactly that
number of Hours of Service shall share in the allocation of Employer
Contributions.
(5) FORFEITURES OF MATCHING CONTRIBUTIONS
-------------------------------------
All forfeitures of Matching Contributions shall be used to reduce
Employer contributions.
(6) TIMING OF FORFEITURES OF MATCHING CONTRIBUTIONS
-----------------------------------------------
Forfeitures of Matching Contributions shall occur immediately upon the
distribution of benefits from the Plan to the Participant, subject to the
requirements of Article Eleven.
(d) EMPLOYER NON-ELECTIVE CONTRIBUTIONS (discretionary)
---------------------------------------------------
Non-elective (discretionary) Contributions shall not be made to the
Plan.
QUALIFIED NON-ELECTIVE CONTRIBUTIONS
------------------------------------
Qualified Non-elective Contributions may be made in accordance with
Section 4.14 of the Plan.
ELIGIBILITY TO RECEIVE AN ALLOCATION OF QUALIFIED NON-ELECTIVE
--------------------------------------------------------------
CONTRIBUTIONS
-------------
In order to receive an allocation of Qualified Non-elective
Contributions, a Participant must complete 1,000 Hours of Service during a Plan
Year.
(e) EMPLOYEE VOLUNTARY (AFTER-TAX) CONTRIBUTIONS:
--------------------------------------------
Employee Voluntary (after-tax) Contributions shall be permitted, up to
the maximum allowable, as set forth in the Plan. Such contributions shall be
collected through either payroll deductions, or by direct contributions from
Participants.
(f) ROLLOVERS FROM QUALIFIED PLANS:
------------------------------
Rollovers from other qualified plans, shall be allowed from any
Employee, even if not a Participant.
(g) TRANSFERS FROM QUALIFIED PLANS:
------------------------------
Transfers from other qualified plans, shall be allowed from any
Employee, even if not a Participant, but must be distributed in a form permitted
by the Plan.
1-4
<PAGE>
(h) VALUATION RELATED INFORMATION
-----------------------------
(1) DEPOSIT OF EMPLOYER CONTRIBUTIONS
---------------------------------
The Employer shall deposit Employer Contributions into the Trust
each pay period, or on a more frequent basis at the discretion of the Employer.
(2) ALLOCATION DATE(S)
------------------
Employer contributions shall be allocated on the same date as
such contributions are deposited, as described in Section 1.3(h)(1).
(3) GUARANTEED RATE OF RETURN
-------------------------
There shall be no guaranteed rate of return in the Plan.
Investment returns shall be based on actual earnings of the Trust.
(4) VALUATIONS PER YEAR
-------------------
On an annual basis (or more frequently at the discretion of the
Plan Administrator), a valuation shall be performed subject to the provisions of
Section 4.18(d) .
(i) FAILSAFE ELECTION FOR CODE SECTION 415 LIMITS
---------------------------------------------
If any Participant in the Plan is also covered by one or more
qualified retirement plans, a welfare benefit fund, as defined in Code Section
419(e), an individual medical account, as defined in Code Section 415(l)(2),
which are maintained, or considered to be maintained by the Employer, then the
following method shall be used in regard to the treatment of Annual Additions
with respect to any Participant in the Plan.
No participant has ever been covered by one, or more qualified plans
maintained by this Sponsoring Employer.
(j) MINIMUM TOP-HEAVY ALLOCATIONS: Contributions and forfeitures, to
-----------------------------
equal 3% of each non-Key Employee's Compensation, shall be allocated to the
Employee's account when the Plan is Top-Heavy, subject to the contribution
allocations to Key Employees.
(k) MINIMUM BENEFITS FOR COMBINATION PLANS
--------------------------------------
For Employers who maintain both defined benefit and defined
contribution plans:
The Minimum Top-Heavy Allocation, referenced in Section 1.3(j), shall
be provided by this Plan.
For Employers who maintain two or more defined contribution plans, the
Minimum Top-Heavy Allocation, referenced in Section 1.3(j), shall be provided
under this Plan.
1-5
<PAGE>
The term "Present Value" shall refer to the Account Balance(s) of each
Participant in the Plan, as the Employer does not maintain a Defined Benefit
Pension Plan.
1.4 VESTING OF EMPLOYER CONTRIBUTIONS
(a) VESTING COMPUTATION PERIOD shall mean the twelve (12) consecutive
--------------------------
month period with the Plan Year.
(b) VESTING SCHEDULE
----------------
(1) Each Participant shall have a fully vested, nonforfeitable
interest in his Employee Deferral Account.
(2) Matching Contributions shall become vested in accordance with the
following vesting schedule:
Years of Counted Service Vested Percentage
------------------------ -----------------
Less than 1 year 0%
1 20%
2 40%
3 60%
4 80%
5 or more years 100%
(3) TOP-HEAVYVESTING SCHEDULE, for years in which the Plan is Top-Heavy,
-------------------------
and all years thereafter, shall be determined on the basis of:
The same vesting schedule as the non Top-Heavy vesting schedule.
(4) COUNTED YEARS OF SERVICE FOR VESTING:
------------------------------------
All of an Employee's Years of Service with the Employer are counted to
determine the vested percent of the Employee's Account Balance derived from
Employer Contributions.
1.5 DISTRIBUTION OF BENEFITS
(a) NORMAL RETIREMENT AGE shall mean age sixty-five (65).
---------------------
(b) NORMAL RETIREMENT or NORMAL RETIREMENT DATE shall mean the first day
----------------- ----------------------
of the Participant's Normal Retirement Age.
(c) EARLY RETIREMENT AGE shall not be applicable to the Plan.
--------------------
(d) EARLY RETIREMENT DATE shall not be applicable to the Plan.
---------------------
1-6
<PAGE>
(e) FORM OF DISTRIBUTIONS:
---------------------
Distributions shall be made in a form such as lump sum distributions,
installments, a form of annuity, or another payment form of the Participant's
choosing.
Further, distributions shall be made in cash and/or property.
(f) DISTRIBUTIONS UPON DEATH, as set forth in Article Thirteen, shall be
------------------------
made pursuant to the election of the Participant, or Beneficiary.
(g) AMOUNT OF DISTRIBUTION UPON TERMINATION OR RETIREMENT:
-----------------------------------------------------
The Participant shall be eligible to receive a distribution of the
vested portion of his Account, and the balance of any other accounts of such
Participant.
(h) CONDITIONS FOR DISTRIBUTIONS UPON TERMINATION:
---------------------------------------------
At the Participant's election, immediate distributions shall be made
as soon as administratively feasible.
(i) IN-SERVICE DISTRIBUTIONS - WITHDRAWAL OF EMPLOYER CONTRIBUTIONS shall
---------------------------------------------------------------
be allowed.
(j) PRE-RETIREMENT DISTRIBUTIONS shall be permitted if the Participant is
---------------------------
100% vested, and has reached the age of 59-1/2. The Participant may request a
distribution of his Account Balance without terminating employment. The
Participant may take distributions from the following Participant's Account(s):
All Accounts.
(k) HARDSHIP DISTRIBUTIONS:
----------------------
Participants may request a distribution based on financial hardship,
subject to the provisions of Section 11.9 of the Plan. This distribution shall
only be permitted from a Participant's Employee Deferral Account.
(1) The LIFE EXPECTANCIES of the Participant, and the Participant's spouse
-----------------
should the Participant (or spouse) so elect under Article Eleven of the Plan,
shall be recalculated pursuant to Code Section 401(a)(9)(D).
1.6 MISCELLANEOUS
(a) PARTICIPANT DIRECTED ACCOUNTS:
-----------------------------
Participants shall be permitted to direct the investment of their
accounts regardless of the Participant's vested interest in the Plan.
1-7
<PAGE>
The Administrator shall establish rules and shall provide information
about the fund(s) currently being offered, and their past performance.
(b) LOANS TO PARTICIPANTS:
---------------------
Participants shall be permitted to borrow from the Trust, pursuant to
the provisions of the loan policy. Monies repaid shall be directly credited to
the Participants' accounts.
(c) LIFE INSURANCE:
--------------
The purchase of life insurance shall not be allowed.
1-8
<PAGE>
ARTICLE TWO
DEFINITIONS
2.1 ACCOUNT BALANCE shall mean the balance of the Participant's Account which
---------------
shall be the accrued benefit.
2.2 ADMINISTRATIVE COMMITTEE, COMMITTEE OR PLAN ADMINISTRATOR shall mean the
---------------------------------------------------------
individual, individuals or Employer specified in Article One, Section 1.1(c)
appointed to act in accordance with the provisions of Article Six hereof.
2.3 AGGREGATION GROUP shall mean (i) each plan of the Employer in which a Key
-----------------
Employee is a Participant, and (ii) each other plan of the Employer which
enables any plan described in subsection (i) above to meet the requirements of
Sections 401(a)(4) or 410 of the Code. The Employer may treat any plan not
required to be included in an Aggregation Group under subsections (i) and (ii)
above, as being a part of such group if such group would continue to meet the
requirements of Sections 401(a)(4) and 410 of the Code with such plan being
taken into account. Collectively-bargained plans that include a Key Employee of
the Employer must be included in the required Aggregation Group for that
Employer.
2.4 ANNIVERSARY DATE shall mean the last day of the Plan Year.
----------------
2.5 ANNUAL ADDITIONS: For Plan Years beginning on or after January 1, 1987,
----------------
the sum of the following amounts credited to a Participant's Account for the
Limitation Year:
(i) Employer Contributions (including Employee Deferrals),
(ii) Employee (after-tax) Contributions,
(iii) Forfeitures, and
(iv) amounts allocated, after March 31, 1984, to an individual medical
account, as defined in Section 415(l)(2) of the Code, which is part of a pension
or annuity plan maintained by the Employer are treated as Annual Additions to a
defined contribution plan. Also amounts derived from contributions paid or
accrued after December 31, 1985, in taxable years ending after such date, which
are attributable to post-retirement medical benefits, allocated to the separate
account of a Key Employee, as defined in Section 419A(d)(3) of the Code, under a
welfare benefit fund, as defined in Section 419(e) of the Code, maintained by
the Employer are treated as Annual Additions to a defined contribution plan.
For this purpose, any excess amount applied under Sections 4.19(d) or
4.19(k) in the Limitation Year to reduce Contributions will be considered Annual
Additions for such Limitation Year.
2.6 BENEFICIARY shall mean the recipient selected by a Participant to
-----------
receive death benefits from the Participant's Account. If a Participant fails
to designate a Beneficiary, the Committee shall be empowered to designate a
Beneficiary or Beneficiaries from among the
2-1
<PAGE>
following persons and in the following order: (1) spouse at time of death; (2)
natural and adopted children; (3) parents; (4) brothers, sisters, nieces and
nephews; (5) estate of the Participant. Neither the Employer nor the Trustee
shall be named as Beneficiary.
2.7 BREAK IN SERVICE shall mean a Vesting Computation Period, Eligibility
----------------
Computation Period, or other relevant twelve (12) consecutive month period
(computation period) during which the Participant does not complete more than
five hundred (500) Hours of Service with Employer.
2.8 CODE shall mean the Internal Revenue Code of 1986 as amended.
----
2.9 COMPENSATION shall mean a Participant's compensation as specified by
------------
the Employer in Section 1.3(a). For any self-employed individual covered under
the Plan, Compensation will mean Earned Income.
For purposes of Section 1.3(a), "415 COMPENSATION" shall mean the 415
Safe Harbor Compensation as defined in Section 4.19(m), "W-2 EARNINGS" shall
mean wages as defined in Section 3401(a) of the Code for the purposes of income
tax withholding at the source but determined without regard to any rules that
limit the remuneration included in wages based on the nature or location of the
employment for the services performed (such as the exception for agricultural
labor in Code Section 3401(a)(2), "TOTAL COMPENSATION" shall mean wages as
defined in Section 3121(a) of the Code for purposes of calculating social
security taxes but determined without regard to the wage base limitation in
Section 3121(a)(1), the limitations on the exclusions from wages in Section
3121(a)(5)(C) and (D) for employee elective deferrals and payments by reason of
salary reduction agreements, the special rules in Code Section 3121(v), any
rules that limit covered employment based on the type or location of an
employee's employer, and any rules that limit the remuneration included in wages
based on familial relationship or based on the nature or location of the
employment or the services performed (such as the definition of employment in
Code Section 3121(b)(1) through (20).
As an alternative to the definition of Compensation provided in
Section 1.3(a), an Employer may, by written resolution or certificate, elect to
use the definition contained in Internal Revenue Temporary Regulation 1.414(s)-
1T(c)(3) which is a safe-harbor alternative definition." Compensation, using
this safe-harbor definition, shall mean compensation as defined in Code Section
415(c)(3) or the "415 Safe Harbor Compensation" defined in Section 4.8(m) of the
Plan reduced by all of the following: reimbursements or other expense
allowances, fringe benefits (cash or noncash), moving expenses, deferred
compensation, and welfare benefits. The foregoing safe-harbor definition shall
not be used to determine the Compensation of a self-employed individual.
As an alternative to the definition of "W-2 EARNINGS" as stated above,
an Employer may, by written resolution or certificate, elect to use the
definition contained in Internal Revenue Regulation 1.415-2(d)(11)(i) which
means that Compensation shall be defined as wages within the meaning of Section
3401(a) of the Code and all other payments of Compensation to an Employee by his
Employer (in the course of the Employer's trade or business) for which the
Employer is required to furnish the Employee with a written statement
2-2
<PAGE>
under Code Sections 6041(d), 6051(a)(3), and 6052. The Employer may choose to
modify the definition further by excluding amounts paid or reimbursed by the
Employer for moving expenses incurred by an Employee, but only to the extent
that at the time of the payment it is reasonable to believe that that these
amounts are deductible by the Employee under Code Section 217. Compensation
shall be determined without regard to any rules under Code Section 3401(a) that
limit the remuneration included in wages based on the nature or the location of
the employment or the services performed. This is the amount which is shown on
the "W-2" as earnings.
For Plan Years beginning after December 31, 1986, for purposes of the
Code Sections 401(k) and 401(m) testing in Sections 4.7 and 4.12 of the Plan, an
Employer may limit the amount of Compensation taken into consideration to that
portion of the Plan Year or calendar year in which the Employee was an eligible
Employee, provided that this limit is applied uniformly to all eligible
Employees under the Plan for the Plan Year.
Notwithstanding the above, if elected by the Employer in Section
1.3(a), Compensation shall include any amount which is contributed by the
Employer pursuant to a salary reduction agreement and which is not includible in
the gross income of the Employee under Sections 125, 402(e)(3), 402(h) or 403(b)
of the Code.
For years beginning after December 31, 1988, the annual Compensation
of each Participant taken into account under the Plan for any year shall not
exceed two hundred thousand dollars ($200,000), as adjusted by the Secretary at
the same time and in the same manner as under Section 415(d) of the Code, except
that the dollar increase in effect on January 1st of any calendar year is
effective for years beginning such calendar year and the first adjustment to the
$200,000 limitation is effected on January 1, 1990. If a plan determines
Compensation on a period of time that contains fewer than twelve calendar
months, then the annual Compensation limit is an amount equal to the annual
Compensation limit for the calendar year in which the Compensation period begins
multiplied by the ratio obtained by dividing the number of full months in the
period by 12. In determining the Compensation of a Participant for purposes of
this limitation, the rules of Section 414(q)(6) of the Code shall apply, except
in applying such rules, the term "family" shall include only the spouse of the
Participant and any lineal descendants of the Participant who have not attained
age nineteen (19) before the close of the year. If, as a result of the
application of such rules the adjusted two hundred thousand dollars ($200,000)
limitation is exceeded, then (except for purposes of determining the portion of
Compensation up to the integration level if this Plan provides for permitted
disparity) the following methods of adjustment shall be permitted: (1) the
limitation may be prorated among the affected individuals in proportion to each
such individual's Compensation as determined under this Section prior to the
application of this limitation; or (2) if, as a result of the application of the
family aggregation rules the adjusted two hundred thousand dollars ($200,000)
limitation is exceeded, then the limitation shall be met by first reducing the
highest paid family member(s) to the annual dollar Code Section 401(a)(17)
limitation (if applicable). Second, the Compensation of all family members shall
be prorated in the same proportion such that the total Compensation of all such
family members shall, when added together, equal the maximum Code Section
401(a)(17) dollar limitation.
2-3
<PAGE>
If Compensation for any prior Plan Year is taken into account in
determining an Employee's contributions or benefits for the current year, the
Compensation for such prior year shall be subject to the applicable annual
Compensation limit in effect for that prior year. For this purpose, for years
beginning after January 1, 1990, the applicable annual Compensation limit shall
be $200,000.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual Compensation of each Employee
taken into account under the Plan shall not exceed the OBRA `93 annual
compensation limit. The OBRA `93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Code Section 401(a)(17)(B). The cost-of-living adjustment in effect for a
calendar year applies to any period, not exceeding 12 months, over which
Compensation is determined (determination period) beginning in such calendar
year. If a determination period consists of fewer than 12 months, the OBRA `93
annual compensation limit shall be multiplied by a fraction, the numerator of
which is the number of months in the determination period, and the denominator
of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in
this Plan to the limitation under Code Section 401(a)(17) shall mean the OBRA
`93 annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current Plan Year,
the Compensation for that prior determination period is subject to the OBRA `93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA `93 annual
compensation limit is $150,000.
The term Compensation does not include (i) contributions made by the
Employer to a plan of deferred compensation to the extent that, before the
application of Code Section 415 limitations to that plan, the contributions are
not includable in the gross income of the Employee for the taxable year in which
contributed; (ii) Employer Contributions made on behalf of an Employee to a
simplified Employee pension described under Code Section 408(k) are not
considered as Compensation for the taxable year in which contributed to the
extent that such contributions are deductible by the Employee under Code Section
219(b)(7); (iii) distributions from a plan of deferred compensation are not
considered as Compensation herein, regardless of whether such amounts are
includable in the gross income of the Employee when distributed. However, any
amounts received by the Employee pursuant to an unfunded nonqualified plan of
deferred compensation may be considered as Compensation herein in the year such
amounts are includable in the gross income of the Employee; (iv) amounts
realized from the exercise of a nonqualified stock option, or when restricted
stock (or property) held by an Employee either becomes freely transferable or is
no longer subject to a substantial risk of forfeiture; (v) amounts realized from
the sale, exchange or other disposition of stock acquired under a qualified
stock option; or (vi) other amounts which receive special tax benefits such as
premiums for group term
2-4
<PAGE>
life insurance (but only to the extent that the premiums are not includable in
the gross income of the Employee) or contributions made by an Employer (whether
or not under a salary reduction agreement) towards the purchase of an annuity
contract described under Section 403(b) of the Code, whether or not the
contributions are excludable from the gross income of the Employee.
2.10 DEFINED BENEFIT PLAN FRACTION shall mean a fraction, the numerator of
-----------------------------
which is the sum of the Participant's projected annual benefits under all the
defined benefit plans (whether or not terminated) maintained by the Employer,
and the denominator of which is the lesser of 125 percent of the dollar
limitation determined for the Limitation Year under Sections 415(b) and (d) of
the Code or 140 percent of the highest average Compensation, including any
adjustments under Section 415(b) of the Code.
Notwithstanding the above, if the Participant was a Participant as of the
first day of the first Limitation Year beginning after December 31, 1986, in one
or more defined benefit plans maintained by the Employer which were in existence
on May 6, 1986, the denominator of this fraction will not be less than 125
percent of the sum of the annual benefits under such plans which the Participant
had accrued as of the close of the last Limitation Year beginning before January
1, 1981, disregarding any changes in the terms and conditions of the Plan after
May 5, 1986. The preceding sentence applies only if the defined benefit plans
individually and in the aggregate satisfied the requirements of Section 415 for
all Limitation Years beginning before January 1, 1987.
2.11 DEFINED CONTRIBUTION PLAN FRACTION shall mean a fraction ,the numerator of
----------------------------------
which is the sum of the Annual Additions to the Participant's account under all
the defined contribution plans (whether or not terminated) maintained by the
Employer for the current and all prior Limitation Years (including the Annual
Additions attributable to the Participant's nondeductible Employee contributions
to all defined benefit plans, whether or not terminated, maintained by the
Employer, and the Annual Additions attributable to all welfare benefit funds, as
defined in Section 419(e) of the Code, and individual medical accounts, as
defined in Section 415(l)(2) of the Code, maintained by the Employer), and the
denominator of which is the sum of the maximum aggregate amounts for the current
and all prior Limitation Years of Service with the Employer (regardless of
whether a defined contribution plan was maintained by the Employer). The maximum
aggregate amount in any Limitation Year is the lesser of one hundred twenty-five
(125) percent of the dollar limitation determined under Sections 415(b) and (d)
of the Code in effect under Section 415(c)(1)(A) of the Code or thirty-five (35)
percent of the Participant's Compensation for such year.
If the Employee was a Participant as of the end of the first day of the
first Limitation Year beginning after December 31, 1986, in one or more defined
contribution plans maintained by the Employer which were in existence on May 6,
1986, the numerator of this fraction will be adjusted if the sum of this
fraction and the defined benefit fraction would otherwise exceed 1.0 under the
terms of this Plan. Under the adjustment, an amount equal to the product of (1)
the excess of the sum of the fractions over 1.0 times (2) the denominator of
this fraction, will be permanently subtracted from the numerator of this
fraction. The adjustment is calculated using the fractions as they would be
computed as of the end of the last Limitation Year beginning
2-5
<PAGE>
before January 1,1987, and disregarding any changes in the terms and conditions
of the Plan made after May 5, 1986, but using the Section 415 limitation
applicable to the first Limitation . Year beginning on or after January 1, 1987.
For prior years calculations may be made as if the Tax Reform Act of 1986 was
applicable to such years.
The annual addition for any Limitation Year beginning before January 1,
1987, shall not be recomputed to treat all Employee contributions as Annual
Additions.
2.12 DETERMINATION DATE shall mean, with respect to any Plan Year, the last day
------------------
of the preceding Plan Year, or in case of the initial Plan Year, the last day of
such Plan Year.
2.13 EARNED INCOME shall mean the net earnings from self-employment in the
-------------
trade or business with respect to which the Plan is established, for which
personal services of the individual are a material income-producing factor. Net
earnings shall be determined with regard to the deduction allowed to the
Employer by Section 164(f) of the Code for taxable years beginning after
December 31, 1989. Net earnings shall be determined without regard to items not
included in gross income and the deductions allocable to such items. Net
earnings shall be reduced by contributions by the Employer to a qualified plan
to the extent deductible under Section 404 of the Code.
2.14 ELAPSED TIME: In the event that the "Elapsed Time" method is used to a
------------
ear of Service for Eligibility or Vesting as described in Article One, an
Employee will receive credit for the aggregate of all time period(s) commencing
with the Employee's first day of employment or reemployment and ending on the
date a Break in Service begins. The first day of employment or reemployment is
the first day the Employee performs an Hour of Service. An Employee will also
receive credit for any period of severance of less than 12-consecutive months.
Fractional periods of a year will be expressed in terms of days.
Break in Service, for purposes of this Section, is a Period of Severance of
at least 12-consecutive months.
Period of Severance is a continuous period of time during which the
Employee is not employed by the Employer. Such period begins on the date the
Employee retires, quits or is discharged, or if earlier, the 12-month
anniversary of the date on which the employee was otherwise first absent from
service.
An Employee who incurs a Break in Service under this Section 2.15, Elapsed
Time shall re-enter the Plan in accordance with the provisions of Section 3.5;
however, the term "Break In Service" as used in Section 3.5 shall have the
meaning set forth herein.
In the case of an Employee who is absent from work for maternity or
paternity reasons, the 12-consecutive month period beginning on the first
anniversary of the first date of such absence shall not constitute a Break In
Service. For purposes of this Paragraph, an absence from work for maternity or
paternity reasons means an absence (1) by reason of the pregnancy of the
Employee, (2) by reason of a birth of a child of the Employee, (3) by reason of
the placement of a child with the Employee in connection with the adoption of
such child by such Employee, or
2-6
<PAGE>
(4) for purposes of caring for such child for a period beginning immediately
following such birth or placement. The time credited under this Paragraph shall
be credited in the computation period in which the absence begins if the
crediting is necessary to prevent a Break in Service in that period, or in all
other cases, in the following computation period. No credit will be given under
this Section, however, unless the Employee returns to covered employment and
furnishes to the Administrative Committee such timely information as the
Committee may reasonably require to establish that the absence from work is for
reasons qualifying for the maternity/paternity provision (as set forth above)
and the number of days for which there was an absence.
2.15 ELIGIBLE EMPLOYEE shall mean any Employee who meets the Eligibility
-----------------
Requirements of Section 1.2(a).
2.1 EMPLOYEE shall mean any common-law Employee who is employed in any
--------
capacity by the Employer maintaining the Plan or of any other Employer required
to be aggregated with such Employer under Sections 414(b), (c), (m) or (o) of
the Code.
Unless specifically excluded under Section 1.2(a), the term Employee shall
also include any leased Employee deemed to be an Employee of any Employer
described in Section 2.32 as provided in Sections 414(n) or (o) of the Code.
2.17 EMPLOYEE CONTRIBUTIONS (AFTER-TAX) shall mean the amount, if any, which
----------------------------------
the Participant contributes to the Plan, on an after-tax basis.
2.18 EMPLOYEE CONTRIBUTION ACCOUNT shall mean the account maintained to record
-----------------------------
the Participant's Employee Contributions and adjustments relating thereto.
2.19 EMPLOYEE DEFERRAL CONTRIBUTION shall mean the amount of Compensation
------------------------------
electively deferred by the Participant on a pre-tax basis to the Plan in
accordance with the provisions of Article Four.
2.20 EMPLOYEE DEFERRAL OR DEFERRED INCOME ACCOUNT shall mean the account of a
--------------------------------------------
Participant to which are credited the Employee Deferral Contributions made this
Plan.
2.21 EMPLOYER shall mean the Employer adopting this Plan as signatory hereto
--------
and any successor assuming the obligations created hereunder. The Employer shall
include all trades or businesses which are members of a controlled group of
corporations under common control or members of an affiliated service group, as
defined in Sections 414(b), (c) and (m) of the Code (subject, however to the
provisions of Code Section 415(h) when applying the benefit limitations of Code
Section 415). If subsequent to the Employer's adoption of this Plan another
employer adopts this Plan and/or is required to be included within the meaning
of "Employer," then for purposes of Article Six "Employer" shall mean the
initial adopting Employer, unless otherwise stated herein. An Affiliated
----------
Employer shall mean an entity described in the second sentence of this
- --------
definition.
2.22 EMPLOYER CONTRIBUTIONS shall mean the amount contributed to the Trust Fund
----------------------
by the Employer pursuant to the terms of this Plan. This term shall not include
Employee Deferral
2-7
<PAGE>
Contributions unless specifically noted but shall include Employer Matching
Contributions and Employer Non-elective Contribution unless otherwise stated
herein.
2.23 EMPLOYER CONTRIBUTION OR GENERAL ACCOUNT shall mean an account that is
----------------------------------------
credited with Employer Contributions and each Participant's share of any net
income or loss of the Trust, but shall not include amounts allocated to the
Employee Deferral Account and the earnings and losses therefrom.
2.24 EMPLOYER MATCHING CONTRIBUTION OR MATCHING CONTRIBUTION shall mean the
-------------------------------------------------------
amount contributed to the Trust Fund by the Employer according to the provisions
of Article One and Section 4.10.
2.25 EMPLOYER MATCHING ACCOUNT shall mean an account that is credited with each
-------------------------
eligible Participant's share of any Employer Matching Contribution, and any net
income or loss of the Trust in relation to such contributions.
2.26 ERISA shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended.
2.27 FIDUCIARY shall mean a person who exercises any discretionary authority or
---------
discretionary control affecting the management of the Plan; who exercises any
authority or control respecting the management or disposition of Plan assets;
who renders investment advice for a fee or other compensation, direct or
indirect, with respect to any money or other property of the Plan or has any
authority or responsibility to do so; who has any discretionary authority or
discretionary responsibility in the administration of the Plan; or who, when
designated by a Named Fiduciary pursuant to authority granted by the Plan, acts
to carry out a fiduciary responsibility, subject to any exceptions granted
directly or indirectly by ERISA or any regulations promulgated thereunder.
2.28 FISCAL YEAR shall mean the fiscal year of the Employer's business.
-----------
2.29 HIGHLY COMPENSATED EMPLOYEE shall mean any highly compensated active
---------------------------
Employees and highly compensated former Employees.
(a) Highly compensated active Employee includes any Employee who performs
service for the Employer during the determination year and who, during the look-
back year: (i) received compensation from the Employer in excess of $15,000 (as
adjusted pursuant to Section 415(d) of the Code); (ii) received compensation
from the Employer in excess of $50,000 (as adjusted pursuant to Section 415(d)
of the Code) and was a member of the top-paid group for such year; or (iii) was
an officer of the Employer and received compensation during such year that was
greater than fifty percent of the dollar limitation in effect under Section
415(b)(1)(A) of the Code. The term Highly Compensated Employee also includes:
(i) Employees who are both described in the preceding sentence If the term
"determination year" is substituted for the term "look-back year" and the
Employee is one of the 100 Employees who received the most compensation from the
Employer during the determination year; and (ii) Employees who are five (5)
percent owners at any time during the look-back year or determination year.
2-8
<PAGE>
(1) If no officer has satisfied the compensation requirement of (iii)
above during either a determination year or look-back year, the highest-paid
officer for such year shall be treated as a Highly Compensated Employee.
(i) For this purpose, the determination year shall be the Plan
Year. The look-back year shall be as provided for in Section 1.1(g).
(b) A highly compensated former Employee includes any Employee who
separated from service (or was deemed to have separated) prior to the
determination year, performs no service for the Employer during the
Determination Year, and was a highly compensated active Employee for either the
separation year or any Determination Year ending on or after the Employee's
fifty-fifth (55th) birthday.
(c) If an Employee is, during a determination year or look-back year, a
family member of either a five (5) percent owner who is an active or former
Employee or a Highly Compensated Employee who is one of the ten (10) most highly
compensated Employees ranked on the basis of compensation paid by the Employer
during such year, then the family member and the five (5) percent owner or top-
ten highly compensated Employee shall be aggregated. In such case, the family
member and five (5) percent owner or top-ten (10) highly compensated Employee
shall be treated as a single Employee receiving compensation and plan
contributions or benefits equal to the sum of such compensation and
contributions or benefits of the family member and five (5) percent owner or
top-ten (10) Highly Compensated Employee. For purposes of this Section, family
member includes the spouse, lineal ascendants and descendants of the Employee or
former Employee and the spouses of such lineal ascendants and descendants.
(d) The determination of who is a Highly Compensated Employee, including
the determinations of the number and identity of Employees in the top-paid
group, the top one-hundred (100) Employees, the number of Employees treated as
officers and the compensation that is considered, will be made in accordance
with Section 414(q) of the Code and the Regulations thereunder.
2.30 HOUR OF SERVICE shall have the meaning set forth in Section 1.1(f) for the
---------------
performance of duties during the applicable computation period. An Hour of
Service shall also mean each hour for which back pay, irrespective of mitigation
of damages, has been either awarded or agreed to be awarded by the Employer to
the extent not otherwise credited to the Employee pursuant to this Section. An
Hour of Service shall also mean each hour for which an Employee is paid, or
entitled to payment, on account of a period of time during which no duties are
performed (irrespective of whether the employment relationship has terminated)
due to vacation, holiday, illness, incapacity (including disability), lay-off,
jury duty, military leave or leave of absence; provided, however, that no hours
shall be credited for a payment which reimburses an Employee for medical
expenses, and further provided that no more than five hundred one (501) Hours of
Service shall be credited under this sentence to an Employee on account of any
single continuous period during which the Employee performs no duties. Hours
for nonperformance of duties shall be credited in accordance with Department of
Labor Regulations Section 2530.200b-2(b). Hours
2-9
<PAGE>
shall be credited to the applicable computation period in accordance with
Department of Labor Regulations Section 2530.200b-2(c).
For purposes of determining whether a Break in Service, as defined herein,
for participation and vesting purposes has occurred in a computation period, an
Employee who is absent from work for maternity or paternity reasons shall
receive credit for the Hours of Service which would otherwise have been credited
to such Employee but for such absence, or in any case in which such hours cannot
be determined eight (8) Hours of Service per day of such absence (but not to
exceed five hundred one (501) Hours of Service in any computation period). For
purposes of this Paragraph, an absence from work for maternity or paternity
reasons means an absence (1) by reason of the pregnancy of the Employee, (2) by
reason of a birth of a child of the Employee, (3) by reason of the placement of
a child with the Employee in connection with the adoption of such child by such
Employee, or (4) for purposes of caring for such child for a period beginning
immediately following such birth or placement. The Hours of Service credited
under this Paragraph shall be credited in the computation period in which the
absence begins if the crediting is necessary to prevent a Break in Service in
that period, or in all other cases, in the following computation period. No
credit will be given under this Section, however, unless the Employee returns to
covered employment and furnishes to the Administrative Committee such timely
information as the Committee may reasonably require to establish that the
absence from work is for reasons qualifying for the maternity/paternity
provision (as set forth above) and the number of days for which there was an
absence.
2.31 KEY EMPLOYEE shall mean any Employee or former Employee (and the
------------
beneficiaries of such Employee) who at any time during the determination period
was an officer of the Employer if such individual's annual compensation exceeds
fifty (50) percent of the dollar limitation under Section 415(b)(1)(A) of the
Code, an owner (or considered an owner under Section 318 of the Code) of one of
the ten (10) largest interests in the Employer if such individual's compensation
exceeds one hundred (100) percent of the dollar limitation under Section
415(c)(1)(A) of the Code, a five (5) percent owner of the Employer, or a one (1)
percent owner of the Employer who has an annual compensation of more than one
hundred fifty thousand ($150,000). Annual compensation means compensation as
defined in Section 415(c)(3) of the Code, but including amounts contributed by
the Employer pursuant to a salary reduction agreement which are excludible from
the Employee's gross income under Section 125, Section 402(e)(3), Section 402(h)
or Section 403(b) of the Code. The determination period is the Plan Year
containing the Determination Date and the four (4) preceding Plan Years.
The determination of who is a Key Employee will be made in accordance with
Section 416(i)(1) of the Code and Regulations thereunder.
2.32 LEASED EMPLOYEE shall mean any person (other than an Employee of the
---------------
recipient pursuant to an agreement between the recipient and any other person
("leasing organization") has performed services for the recipient (or for the
recipient and related persons determined in accordance with Section 414(n)(6) of
the Code) on a substantially full time basis for a period of at least one (1)
year, and such services are of a type historically performed by Employees in the
business field of the recipient Employer. Contributions or benefits provided a
leased Employee
2-10
<PAGE>
by the leasing organization which are attributable to services performed for the
recipient Employer shall be treated as provided by the recipient Employer. If
and to the extent, that there are contributions or benefits provided by a
leasing organization on behalf of a Leased Employee, any reduction or offset
which may be made under this Plan shall be in accordance with Regulation Section
1.401(a)(26)-2(d)(9), and shall not constitute a separate current or prior
benefit structure.
A leased Employee shall not be considered an Employee of the recipient if:
(i) such Employee is covered by a money purchase pension plan providing: (1) a
nonintegrated Employer contribution rate of at least ten (10) percent of
compensation, as defined in Section 415(c)(3) of the Code, but including amounts
contributed pursuant to a salary reduction agreement which are excludable from
the Employee's gross income under Section 125, Section 402(e)(3), Section 402(h)
or Section 403(b) of the Code, (2) Immediate participation, and (3) full and
immediate vesting; and (ii) leased Employees do not constitute more than twenty
(20) percent of the recipient's nonhighly compensated workforce.
2.33 NAMED FIDUCIARY shall mean the parties in Section 2.2.
---------------
2.34 NET PROFITS shall mean current and accumulated earnings of the Employer
-----------
before federal and state taxes based upon net income as determined by the
Employer's annual tax return and contributions to this and any other qualified
plan.
2.35 NON-KEY EMPLOYEE shall mean any Employee or Beneficiary of any Employee or
----------------
former Employee who is not a Key Employee.
2.36 OWNER-EMPLOYEE shall mean a self-employed individual who is either a sole
--------------
proprietor or a partner who owns more than ten percent (10%) of the capital
interest or profits interest in a partnership.
2.37 PARTICIPANT shall mean an Eligible Employee as defined in Section 1.2.
-----------
2.38 PARTICIPANT'S ACCOUNT OR ACCOUNTS shall mean the account(s) maintained to
---------------------------------
record the Participant's Employee Deferral Account, Employee Contribution
Account, Employer Contribution Account, Employer Matching Account and any other
account maintained for the Participant, collectively or singly as the context
requires.
2.39 PARTY-IN-INTEREST shall mean any person or other entity defined as a
-----------------
Party-in-Interest under Section 3(14) of ERISA.
2.40 PRIOR PLAN shall mean any plan of the Employer which is superseded by this
----------
Plan.
2.41 QUALIFIED JOINT AND SURVIVOR ANNUITY shall mean an immediate annuity for
------------------------------------
the life of the Participant with a survivor annuity for the life of the spouse
which is not less than fifty (50) percent and not more than one hundred (100)
percent of the amount of the annuity which is payable during the joint lives of
the Participant and the spouse, which is the amount of benefit which can be
purchased with the Participant's vested Account Balance or, if greater, of any
2-11
<PAGE>
optional form of life annuity offered under the Plan. The percentage of the
Survivor Annuity under the Plan shall be fifty percent (50%).
No Qualified Joint and Survivor Annuity shall provide that payments to the
spouse of a deceased Participant are terminated because of the spouse's
remarriage.
2.42 QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY shall mean an annuity for the
-----------------------------------------
life of the spouse of a Participant, the actuarial equivalent of which is not
less than fifty percent (50%) of the Account Balance of the Participant as of
the date of death and which commences upon the death of the Participant.
2.43 SELF-EMPLOYED INDIVIDUAL shall mean an individual who has Earned Income
------------------------
for the taxable year from the trade or business for which the Plan is
established; also, an individual who would have had Earned Income but for the
fact that the trade or business had no Net Profits for the taxable year.
2.44 SHAREHOLDER-EMPLOYEE shall mean an Employee or officer of an electing
--------------------
small business corporation who owns, or is considered as owning within the
meaning of Code Section 318(a)(1), on any day during the taxable year of such
corporation, more than five percent (5%) of the outstanding stock of such
corporation.
2.45 TAXABLE YEAR OR FISCAL YEAR shall mean the twelve (12) month period used
---------------------------
by the Employer for reporting income.
2.46 TOP-HEAVY GROUP shall mean any Aggregation Group if the sum (as of the
---------------
Determination Date) of (i) the present value of the cumulative Accrued Benefits
for Key Employees under all defined benefit plans included in such group, and
(ii) the aggregate of the accounts of Key Employees under all defined
contribution plans included in such group) exceed sixty percent (60%) of a
similar sum determined for all Employees, excluding former Key Employees. For
purposes of determining the present value of the cumulative benefit for any
Participant, or the amount of the account of any Participant, such present value
or amount shall be determined in accordance with Regulations issued by the
Department of Treasury and such present value or amount shall be increased by
the aggregate distributions made with respect to such Participant under the Plan
during the five (5) year period ending on the Determination Date.
Account Balances shall be determined as of the most recent valuation date
occurring within a twelve (12) month period ending on the Determination Date and
shall be adjusted for contributions due or made as of the Determination Date.
If an Aggregation Group includes two (2) or more defined benefit plans,
the same actuarial assumptions must be used with respect to all such plans and
must be specified in such plans.
2.47 TOP-HEAVY PLAN shall mean for any Plan Year beginning after December 31,
--------------
1983, this Plan is top-heavy if any of the following conditions exists:
2-12
<PAGE>
(1) if the top-heavy ratio for this Plan exceeds sixty percent (60%) and
this Plan is not part of any required Aggregation Group or permissive
Aggregation Group of plans, or
(2) if this Plan is part of a required Aggregation Group of plans but not
part of a permissive Aggregation Group and the top-heavy ratio for the group or
plans exceeds sixty percent (60%), or
(3) if this Plan is part of a required Aggregation Group and part of a
permissive Aggregation Group of plans and the top-heavy ratio for the permissive
Aggregation Group exceeds sixty percent (60%).
2.48 TOTAL DISABILITY shall have the meaning set forth in Section 1.1.
----------------
2.49 TRUST OR TRUST FUND shall mean the Trust which is established by the
-------------------
Employer in connection with the adoption of this Plan and which holds the assets
of the Plan for the benefit of the Participants and their Beneficiaries.
However, if all of the assets of the Plan are insurance contracts, within the
meaning of ERISA Section 403, then all references to Trust or Trust Fund shall
refer to these assets.
2.50 TRUST AGREEMENT shall mean the agreement between the Employer and the
---------------
Trustee which provides for the administration of the Trust Fund. However, if
all of the assets of the Plan are insurance contracts, within the meaning of
ERISA Section 403, then all references to Trust Agreement shall refer to these
assets.
2.51 TRUSTEE shall mean the Trustee of the Trust Fund. However, if all of the
-------
assets of the Plan are insurance contracts, within the meaning of ERISA Section
403, then all references to Trustee shall refer to either the Committee or the
insurance company as appropriate.
2.52 YEAR OF SERVICE shall mean a relevant twelve (12) consecutive month period
---------------
(computation period) during which the Employee completes at least 1,000 Hours of
Service with the Employer.
In the event that the Employer adopts and maintains the Plan of a
predecessor employer, service with such predecessor employer shall be treated as
Years of Service with the successor Employer.
The foregoing terms whenever used in this Plan shall have the meaning set forth
herein unless a different meaning is specifically provided for in this Plan.
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<PAGE>
ARTICLE THREE
PARTICIPATION
3.1 ELIGIBILITY TO PARTICIPATE
--------------------------
The Plan Administrator shall establish an application procedure for the
purpose of enrolling new Participants. Each Employee who is an Eligible
Employee (as defined in Section 1.2) shall become a Participant as of the
applicable Entry Date. Any Employee who does not elect to participate hereunder
at the time he initially becomes an Eligible Employee may become a Participant
on the next applicable Entry Date upon giving written notice to the
Administrator. The Committee may establish forms and requirements through which
an Eligible Employee may elect not to become a Participant.
3.2 TERMINATION
-----------
A Participant shall continue to participate hereunder until employment
with the Employer is terminated by Normal Retirement, Late Retirement, Death,
Total Disability or a Break in Service. An Employee whose participation has
ceased may resume Plan participation upon re-hire as determined under Section
3.5 herein .
3.3 LEAVE OF ABSENCE AND MILITARY SERVICE
-------------------------------------
(a) A Participant's employment with the Employer shall not be deemed
terminated, and the Participant shall not incur a Break in Service, if the
Participant:
(1) Has been on a leave of absence, granted in writing by the Employer
in a nondiscriminatory manner before or after the absence, for any purpose
including, but not limited to, sickness, accident or other casualty, or for the
convenience of the Employer, provided that the Participant returns to work
before or at the expiration of such leave of absence or any extension thereof;
or
(2) Has been in the service of the Armed Forces of the United States
or any of its allies during a period of declared national emergency or in time
of war, or in the compulsory military service of the United States whether
during time of war or otherwise, provided that the Participant returns to work
within the period during which the Participant's employment rights are
guaranteed by applicable federal law following a discharge or severance from
such service; and
(3) Was in the employ of the Employer on the day immediately preceding
the period of absence.
(b) If the Participant fails to return to work within the time required
following such period of absence, such individual shall be deemed to have
terminated employment with the Employer as of the first day of such leave unless
the failure to return was due to the Participant's death, Total Disability, Late
Retirement, or Normal Retirement during such leave, in which event
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the Participant shall be deemed a Participant up to the time of the
Participant's death, Total Disability, Late Retirement, or Normal Retirement.
3.4 INACTIVE PARTICIPANTS
---------------------
Subject to the eligibility requirements in Section 1.2 and eligibility
requirements to receive an allocation of Employer contributions described in
Article One, Section 1.3(c) and Section 1.3(d), a Participant with more than
five hundred (500) Hours of Service but less than one thousand (1,000) Hours of
Service in any Plan Year shall be an inactive Participant for such Plan Year.
Amounts previously credited to the Participant's Account shall continue to be
held in trust for such Participant and the Participant shall be entitled to
benefits in accordance with the other provisions of the Plan throughout the
period during which the Participant is an inactive Participant.
3.5 BREAK IN SERVICE RULES - ELIGIBILITY
------------------------------------
(a) Except as otherwise provided in this Section, all of an Employee's
Years of Service with the Employer shall be taken into account when determining
whether such Employee is an Eligible Employee.
(b) In the case of a Participant who does not have any nonforfeitable
right under the Plan to the Participant's Account Balance derived from Employer
Contributions, Years of Service prior to a period of consecutive one (1) year
Breaks in Service shall be disregarded when determining the Employee's Years of
Service for purposes of eligibility if the number of the Participant's
consecutive one (1) year Breaks in Service equals or exceeds the greater of five
(5) or the aggregate number of Years of Service prior to such period of
consecutive Breaks in Service. When computing the aggregate number of Years of
Service prior to such Break in Service, Years of Service which could have been
disregarded under this Paragraph by reason of any prior Break in Service shall
be disregarded.
(1) If a Participant's Years of Service are disregarded pursuant to
Section 3.5(c), such Participant will be treated as a new Employee for
eligibility purposes. If a Participant's Years of Service may not be
disregarded pursuant to Section 3.5(c), such Participant shall continue to
participate in the Plan, or, if terminated, shall participate immediately upon
reemployment.
3.6 ELIGIBILITY COMPUTATION PERIODS (Section 1.2(b)]
-------------------------------
(a) Except as provided in Section 3.6(d), Hours of Service completed in
the Initial Eligibility Computation Period of the Employee shall be used when
determining whether the Employee has completed the eligibility requirements of
Section 1.2 for purposes of this Article. If the Employee fails to complete the
required number of Hours of Service in the Initial Eligibility Computation
Period, then the Hours of Service completed within the Subsequent Eligibility
Computation Period shall be used.
3-2
<PAGE>
(b) For purposes of determining Years of Service and Breaks in Service for
purposes of eligibility, the Initial Eligibility Computation Period and
Subsequent Eligibility Computation Period are those periods defined in Section
1.2(b).
(c) For purposes of Section 3.5, Years of Service shall be computed by
reference to the Hours of Service performed within the Initial Eligibility
Computation Period and Subsequent Eligibility Computation Period, if any, prior
to the time that the Employee becomes an Eligible Employee, plus the Vesting
Computation Period beginning with the Vesting Computation Period which includes
the date upon which the Employee becomes an Eligible Employee.
(d) Except as provided in Section 3.6(f) of this Section, the Hours of
Service completed within each Vesting Computation Period shall be used when
determining whether an Employee has incurred a Break in Service.
(e) Years of Service and Breaks in Service will be measured on the same
eligibility computation period.
(f) When determining whether an Employee who is not a Participant is an
Eligible Employee, and for purposes of Section 3.6, a Break in Service shall be
measured by Hours of Service completed within an Eligibility Computation Period.
3.7 COMMENCEMENT OF PARTICIPATION
-----------------------------
If the Plan provides for an eligibility requirement of a period equal to
or greater than six (6) months which elapses from a Participant's first Hour of
Service and/or the attainment of an age greater than twenty and one-half (20-
1/2) years, and does not provide a dual Entry Date in the definition of Entry
Date in Section 1.2(c) hereof, then the provisions of this Article shall be
construed and enforced so that it will be impossible for an Eligible Employee to
become a Participant later than the earlier of the first day of the Plan Year
which follows the date on which the Employee satisfies the statutory
requirements or the date six (6) months after the date on which the Employee
first satisfies such statutory requirements, unless the Employee separates from
service with the Employer and does not return before the earlier of such dates.
For purposes of this Section, if an Employee's prior service is disregarded by
the Break in Service rules of the Plan, such service shall also be disregarded
for purposes of determining the date upon which such Employee first became an
Eligible Employee.
An Employee who has met the eligibility requirements but terminates
employment before becoming a Participant, will participate on the later of the
Employee's date of reemployment or the first Entry Date following the date the
Employee met the eligibility requirements, if such individual is rehired prior
to Incurring a Break in Service.
3.8 PARTICIPATION UPON RETURN TO ELIGIBLE CLASS
-------------------------------------------
(a) In the event a Participant is no longer a member of an eligible class
of Employees and becomes ineligible to participate but has not incurred a Break
in Service, such Employee will participate immediately upon returning to an
eligible class of Employees. If such Participant
3-3
<PAGE>
incurs a Break In Service, eligibility will be determined under the Break in
Service rules of the Plan.
(b) In the event an Employee who is not a member of an eligible class of
Employees becomes a member of an eligible class, such Employee will participate
immediately if such Employee has satisfied the minimum age and service
requirements and would have otherwise previously become a Participant.
3-4
<PAGE>
ARTICLE FOUR
CONTRIBUTIONS AND ALLOCATIONS
4.1 COST OF PLAN
------------
The entire cost of establishing the Plan shall be borne by the Employer.
No Participant shall be required to contribute hereunder.
4.2 EMPLOYER CONTRIBUTIONS
----------------------
(a) Each Plan Year the Employer shall contribute an amount equal to the
Employee Deferral contributions. These contributions shall be allocated in
accordance with Section 4.18 among the Employee Deferral Accounts. Unless other
procedures are selected by the Committee, Participant deferrals shall generally
be made by payroll deduction in accordance with procedures established by the
Committee and shall be paid to the Trustee as soon as reasonably practicable
after the close of the calendar month in which the deferral was made, and in no
event later than the close of the next following calendar month.
(b) In the event that contributions shall be required in accordance with
Article One, Section 1.3 (e.g. required matching contributions or mandatory
non-elective contribution), or shall be deemed mandatory or non-discretionary as
provided in the various Articles of this Plan, the Employer shall contribute an
amount equal to such required contributions into the Trust each Plan Year.
(c) In addition, each Fiscal Year the Employer shall contribute such
amounts as the Employer may determine in its sole discretion, provided that (i)
no contribution shall be made for any Fiscal Year in excess of the maximum
allowable tax deduction, including carry-over amounts that are available, for a
contribution to this Plan for such Fiscal Year under the then current tax laws;
and (ii) the Fiscal Year for which each contribution is made shall be designated
at the time of the contribution.
(d) All contributions shall be made by the Employer no later than the time
prescribed by law for filing the federal income tax return of the Employer,
including extensions thereof, for the Fiscal Year for which a deduction for such
contribution is claimed. The Employer's Contribution may be made either in cash
or in kind, or partly in both cash and kind, but it shall be the Employer's
responsibility to determine the fair market value of a contribution which is not
made entirely in cash.
(e) Notwithstanding anything herein to the contrary, for Plan Years in
which the Plan is deemed to be a Top-Heavy Plan, Employer Contributions and
allocations shall be subject to the requirements of Article Fourteen herein.
4-1
<PAGE>
4.3 EMPLOYEE (AFTER-TAX) CONTRIBUTIONS
----------------------------------
(a) Participants are not required to make any contribution under this
Plan. However, if permitted by the provisions of Section 1.3(e), a Participant
may, each Fiscal Year, voluntarily contribute to this Plan and to all other
qualified plans of deferred compensation in which such individual is a
Participant, an amount which does not exceed the amount provided for in Section
1.3(h). Further, all Employee Contributions will be limited so as to meet the
nondiscrimination test of Section 401(m) of the Code. Employee Contributions may
be made by payroll deduction or by other methods and at other intervals in
accordance with rules established by the Committee. A Participant's contribution
shall be transmitted to the Trustee by the Employer within sixty (60) days after
the date on which the contribution was made. The Employer shall promptly notify
the Committee of any amounts so paid by it to the Trustee.
(b) If nondeductible Employee Contributions were permitted prior to the
year in which this Plan was adopted, then, either a separate account will be
maintained by the Trustee for the nondeductible Employee contributions of each
Participant, or the Account Balance derived from nondeductible Employee
contributions is the Employee's total Account Balance multiplied by a fraction,
the numerator of which is the total amount of nondeductible Employee
contributions less withdrawals and the denominator of which is the sum of the
numerator and the total contributions made by the Employer on behalf of the
Employee less withdrawals. For this purpose, contributions include contributed
amounts used to provide ancillary benefits and withdrawals include only amounts
distributed to the Employee and do not reflect the cost of any death benefits.
(c) A Participant may withdraw the Employee Contributions made by him at
any time upon thirty (30) days' written notice to the Committee, which notice
must be signed by the Participant's spouse in the presence of a Notary Public or
a Plan representative.
(d) No forfeitures will occur solely as a result of an Employee's
withdrawal of Employee contributions.
(e) If deductible Employee Contributions were permitted prior to the Plan
Year in which this Plan was adopted, then, the Committee will not accept
deductible Employee contributions which are made for a taxable year beginning
after December 31, 1986. Contributions made prior to that date will be
maintained in a separate account which will be nonforfeitable at all times. The
account will share in the gains and losses of the Trust in the same manner as
described in Section 4.11 of the Plan. No part of the deductible Employee
Contribution account will be used to purchase life insurance. Subject to
Section 12.2, Joint and Survivor Annuity requirements (if applicable), the
Participant may withdraw any part of the deductible Employee Contribution
account by making a written application to the Committee.
4.4 EMPLOYEE DEFERRAL ELECTION
--------------------------
(a) Each Plan Year a Participant shall be entitled to defer a portion of
his Compensation (in an amount permitted under Section 4.4(d), below) and to
have such deferred amount allocated to his Employee Deferral Account in the Plan
by submitting a written election
4-2
<PAGE>
to the Committee (on forms provided by the Committee or the Employer) which
designates the amount of Compensation to be deferred and which is signed by the
Participant. No amount shall be deferred for any pay period in excess of the
Participant's Compensation for services rendered while an active Participant.
All deferrals under this Section shall constitute Employer Contributions to the
Plan. Notwithstanding the above, in no event shall any Participant defer his
Compensation in an amount which exceeds the amount permitted under Section 4.5
for any Plan Year.
(b) Except as otherwise permitted by the Administrative Committee,
elections under Section 4.4(a) may only be made according to the options chosen
in Section 1.3(d). If job positions are first covered by the Plan during the
course of the Plan Year, the Administrative Committee may elect to apply the
preceding sentence to affected Employees as if the first day on which their job
positions are covered by the Plan was the first day of the Plan Year. An
Employee who transfers into a position covered by the Plan shall be permitted to
make a deferral election for the balance of the Plan Year in which the transfer
occurs if and to the extent permitted under written personnel practices of the
Employer covering the facility to which the individual transferred. Such
practices shall be uniformly and consistently applied.
(c) An election made under Section 4.4(a) may be modified in accordance
with the provisions of Article One, Section 1.3(b)(2). If an election is
revoked while in effect during the Plan Year, no further deferrals shall be made
for the balance of the Plan Year [unless otherwise noted in Section
1.3(b)(2)(iii)], effective as soon as administratively practicable after the
Employer receives written notice of the revocation. A revocation shall not
cause amounts which were deferred before the revocation became effective to
become distributable. Any new deferral election made after a revocation shall
become effective as of the first day of the immediately following Plan Year.
(d) Subject to Article One, each Plan Year a Participant shall be entitled
to defer his Compensation in a stated dollar amount which complies with the
percentage limitations above.
(e) All Participant elections under this Section shall be considered
permanent and shall be effective in subsequent Plan Years unless otherwise
stated in the Participant's written election to defer annual compensation.
4.5 ELECTIVE DEFERRALS-CONTRIBUTION LIMITATION
-------------------------------------------
No Participant shall be permitted to have Elective Deferrals made under
this Plan, or any other qualified plan maintained by the Employer, during any
taxable year, in excess of the dollar limitation contained in Section 402(g) of
the Code in effect at the beginning of such taxable year.
4.6 DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS
-----------------------------------------
(a) A Participant may assign to this Plan any Excess Elective Deferrals
made during a taxable year of the Participant by notifying the Plan
Administrator on or before April 1st of the following year of the amount of the
Excess Elective Deferrals to be assigned to the Plan. A Participant is deemed
to notify the Plan Administrator of any Excess Elective Deferrals that arise
4-3
<PAGE>
by taking into account only those Elective Deferrals made to this Plan and any
other Plans of this Employer.
Notwithstanding any other provisions of the Plan, Excess Elective
Deferrals, plus any income and minus any loss allocable thereto, shall be
distributed no later than April 15th to any Participant to whose account Excess
Elective Deferrals were assigned for the preceding year and who claims Excess
Elective Deferrals for such taxable year.
(b) Definitions:
(1) "Elective Deferrals" shall mean any Employer contributions made
to the Plan at the election of the Participant, in lieu of cash compensation,
and shall include contributions made pursuant to a salary reduction agreement or
other deferral mechanism. With respect to any taxable year, a Participant's
Elective Deferral is the sum of all Employer contributions made on behalf of
such Participant pursuant to an election to defer under any qualified plan as
described in Section 401(k) of the Code, any simplified employee pension cash or
deferred arrangement as described in Section 402(h)(1)(B), any eligible deferred
compensation plan under Section 457, any plan as described under Section
501(c)(18), and any Employer contributions made on the behalf of a Participant
for the purchase of an annuity contract under Section 403(b) pursuant to a
salary reduction agreement. Elective Deferrals shall not include any deferrals
properly distributed as excess Annual Additions.
(2) "Excess Elective Deferrals" shall mean those Elective Deferrals
that are includible in a Participant's gross income under Section 402(g) of the
Code to the extent such Participant's Elective Deferrals for a taxable year
exceed the dollar limitation under such Code section. Excess Elective Deferrals
shall be treated as Annual Additions under the Plan, unless such amounts are
distributed no later than the first April 15 following the close of the
Participant's taxable year.
Determination of income or loss: Excess Elective Deferrals shall
be adjusted for any income or loss up to the date of distribution. The income or
loss allocable to Excess Elective Deferrals shall be determined using (i) or
(ii) as a reasonable method. Income or loss allocable to the period between the
end of the taxable year and the date of distributions may be disregarded or may
be determined using the method described in (iii). The method chosen shall be:
(1) nondiscriminatory; (2) used for all the Plan's corrective distributions for
the Plan Year; and (3) for purposes of (2)(ii) of this Section, used for
allocating income to Participant's Accounts. The reasonable methods are:
(i) The income or loss allocable to Excess Elective Deferrals
is the sum of: (1) income or loss allocable to the Participant's Elective
Deferral account for the taxable year multiplied by a fraction, the numerator of
which is such Participant's Excess Elective Deferrals for the year and the
denominator is the Participant's Account Balance attributable to Elective
Deferrals without regard to any income or loss occurring during such taxable
year.
(ii) The income or loss allocable to Excess Elective Deferrals
shall be determined by first calculating the total allocable income for the Plan
Year attributable to
4-4
<PAGE>
Elective Deferrals, then multiplying the total allocable income by a fraction.
The numerator of the fraction is the total excess amount distributable to the
highly compensated employee and the denominator shall be the sum of the
Participant's Account Balance attributable to Elective Deferrals, determined as
of the beginning of the Plan Year.
(iii) Safe Harbor Method of Determining Gap Period Income: The
Employer may choose to determine the income during the period between the end of
the Plan Year and the date of distribution under the methods in this sub-section
or sub-sections (i) or (ii) above, or such income may be disregarded in
determining income or loss.
Gap Income allocable can be determined by using ten percent (10%)
of the income allocable to Excess Elective Deferrals for the Plan Year
multiplied by the number of whole calendar months between the end of the Plan
Year and the date of distribution, counting the month of distribution if
distribution occurs after the 15th of such month.
4.7 ACTUAL DEFERRAL PERCENTAGE TEST
-------------------------------
(a) The Actual Deferral Percentage (hereinafter "ADP") for Participants
who are Highly Compensated Employees for each Plan Year and the Actual Deferral
Percentage for Participants who are Non-highly Compensated Employees for the
same Plan Year must satisfy one of the following tests:
(1) The Actual Deferral Percentage for Participants who are Highly
Compensated Employees for the Plan Year shall not exceed the Actual Deferral
Percentage for Participants who are Non-highly Compensated Employees for the
same Plan Year multiplied by 1.25; or
(2) The Actual Deferral Percentage for Participants who are Highly
Compensated Employees for the Plan Year shall not exceed the Actual Deferral
Percentage for Participants who are Non-highly Compensated Employees for the
same Plan Year multiplied by 2.0, provided that the Actual Deferral Percentage
for Participants who are Highly Compensated Employees does not exceed the Actual
Deferral Percentage for Participants who are Non-highly Compensated Employees by
more than two (2) percentage points.
(b) Qualified Matching Contributions and Qualified Non-elective
Contributions (if any) may be taken into account as Elective Deferrals for
purposes of calculating the Actual Deferral Percentages under this Plan or any
other plan of the Employer, as provided by regulations under the Code.
(c) The amount of Qualified Matching Contributions made and/or Qualified
Non-elective Contributions made under Sections 4.11 or 4.14 of this Plan and
taken into account as Elective Deferrals for purposes of calculating the Actual
Deferral Percentage, subject to such other requirements as maybe prescribed by
the Secretary of the Treasury, shall be that amount necessary to meet the Actual
Deferral Percentage test stated in Section 4.1 of the Plan.
4-5
<PAGE>
(d) Special Rules:
(1) The Actual Deferral Percentage for any Participant who is a Highly
Compensated Employee for the Plan Year and who is eligible to have Elective
Deferrals (and Qualified Non-elective Contributions or Qualified Matching
Contributions, or both, if treated as Elective Deferrals for purposes of the
Actual Deferral Percentage test) allocated to the Participant's accounts under
two or more arrangements described in Section 401(k) of the Code, that are
maintained by the Employer, shall be determined as if such Elective Deferrals
(and, if applicable, such Qualified Non-elective Contributions or Qualified
Matching Contributions, or both) were made under a single arrangement. If a
Highly Compensated Employee participates in two or more cash or deferred
arrangements that have different Plan Years, all cash or deferred arrangements
ending with or within the same calendar year shall be treated as a single
arrangement. Notwithstanding the foregoing, certain plans shall be treated as
separate if mandatorily disaggregated under regulations under Code Section
401(k).
(2) In the event that this Plan satisfies the requirements of Sections
401(k), 401(a)(4), or 410(b) of the Code only if aggregated with one or more
other plans, or if one or more other plans satisfy the requirements of such
Sections of the Code only if aggregated with this Plan, then this Section shall
be applied by determining the Actual Deferral Percentage of Employees as if all
such plans were a single plan. For Plan Years beginning after December 31,
1989, plans may be aggregated in order to satisfy Section 401(k) of the Code
only if they have the same Plan Year.
(i) For purposes of determining the Actual Deferral Percentage
of a Participant who is a 5-percent owner or one of the ten most highly-paid
Highly Compensated Employees, the Elective Deferrals (and Qualified Non-elective
Contributions or Qualified Matching Contributions, or both, if treated as
Elective Deferrals for purposes of the Actual Deferral Percentage test) and
Compensation of such Participant shall include the Elective Deferrals (and, if
applicable, Qualified Non-elective Contributions and Qualified Matching
Contributions, or both) and Compensation for the Plan Year of Family Members (as
defined in Section 414(q)(6) of the Code). Family Members, with respect to such
Highly Compensated Employees, shall be disregarded as separate Employees in
determining the Actual Deferral Percentage both for Participants who are Non-
highly Compensated Employees and for Participants who are Highly Compensated
Employees.
(ii) For purposes of determining the Actual Deferral Percentage
test, Elective Deferrals, Qualified Non-elective Contributions and Qualified
Matching Contributions must be made before the last day of the twelve-month
period immediately following the Plan Year to which contributions relate.
(iii) The Employer shall maintain records sufficient to
demonstrate satisfaction of the Actual Deferral Percentage test and the amount
of Qualified Non-elective Contributions or Qualified Matching Contributions, or
both, used in such test.
4-6
<PAGE>
(iv) The determination and treatment of the Actual Deferral
Percentage amounts of any Participant shall satisfy such other requirements as
may be prescribed by the Secretary of the Treasury.
(v) Section 4.12(b) Multiple Use of Alternative Limitation and
Correction of Multiple Use shall apply at the discretion of the Plan
Administrator.
(e) Definitions:
(1) "Actual Deferral Percentage" shall mean, for a specified group of
Participants for a Plan Year, the average of the ratios (calculated separately
for each Participant in such group) of (1) the amount of Employer contributions
actually paid over to the Trust on behalf of such Participant for the Plan Year
to (2) the Participant's Compensation for such Plan Year (whether or not the
Employee was a Participant for the entire Plan Year). Employer contributions on
behalf of any Participant shall include: (1) any Elective Deferrals made
pursuant to the Participant's deferral election (including Excess Elective
Deferrals of Highly Compensated Employees), but excluding (a) Excess Elective
Deferrals of Non-highly Compensated Employees that arise solely from Elective
Deferrals made under the Plan or Plans of this Employer and (b) Elective
Deferrals that are taken into account in the Contribution Percentage test
(provided the Actual Deferral Percentage test is satisfied both with and without
exclusion of these Elective Deferrals); and (2) at the election of the Employer,
Qualified Non-elective Contributions and Qualified Matching Contributions. For
purposes of computing Actual Deferral Percentages, an Employee who would be a
Participant but for the failure to make Elective Deferrals shall be treated as a
Participant on whose behalf no Elective Deferrals are made.
4.8 DISTRIBUTION OF EXCESS CONTRIBUTIONS
------------------------------------
(a) Notwithstanding any other provision of this Plan, Excess
Contributions, plus any income and minus any loss allocable thereto, shall be
distributed following the close of the Plan Year in which the Excess
Contributions arose, but no later than the last day of the succeeding Plan Year
to Participants to whose accounts such Excess Contributions were allocated for
the preceding Plan Year. If such excess amounts are distributed more than 2-1/2
months after the last day of the Plan Year in which such excess amounts arose, a
ten (10) percent excise tax will be imposed on the Employer maintaining the Plan
with respect to such excess contribution. Such distributions shall be made to
Highly Compensated Employees on the basis of the respective portions of the
Excess Contributions attributable to each of such Employees. Excess
Contributions of Participants who are subject to the family member aggregation
rules shall be allocated among the family members in proportion to the Elective
Deferrals (and amounts treated as Elective Deferrals) of each family member that
is combined to determine the combined ADP.
(b) Excess Contributions (including the amounts recharacterized) shall be
treated as Annual Additions under the Plan.
(c) Determination of Income or Loss: Excess Contributions shall be
adjusted for any income or loss up to the date of distribution. The income or
loss allocable to Excess
4-7
<PAGE>
Contributions shall be determined using (i) or (ii) as a reasonable method. The
gap income may be disregarded or determined in the manner set forth in (iii)
below. The method chosen shall be: (1) nondiscriminatory; (2) used for all the
Plan's corrective distributions for the Plan Year; and (3) for purposes of
(c)(ii) of this Section, used for allocating income or Participant's Accounts.
The reasonable methods are:
(i) The income or loss allocable to Excess Contributions is the sum
of: (1) income or loss allocable to the Participant's Elective Deferral account
(and, if applicable, the Qualified Non-elective Contribution Account or the
Qualified Matching Contributions Account
or both) for the Plan Year multiplied by a fraction, the numerator of which is
such Participant's Excess Contributions for the year and the denominator is the
Participant's account balance attributable to Elective Deferrals (and Qualified
Non-Elective Contributions or Qualified Matching Contributions, or both, if any
of such contributions are included in the Actual Deferral Percentage test)
without regard to any income or loss occurring during such Plan Year.
(ii) The income or loss allocable to Excess Contributions shall be
determined by first calculating the total allocable income for the Plan Year
attributable to Elective Deferrals, then multiplying the total allocable income
by a fraction. The numerator of the fraction is the total excess amount
distributable to the highly compensated employee and the denominator shall be
the sum of the Participant's Account Balance attributable to Elective Deferrals,
determined as of the beginning of the Plan Year.
(iii) Safe Harbor Method of Determining Gap Period Income: The
Employer may choose to determine the income during the period between the end of
the Plan Year and the date of distribution under the methods in this sub-section
or sub-sections (i) or (ii) above, or such income may be disregarded in
determining income or loss.
Gap Income allocable can be determined by using ten percent
(10%) of the income allocable to Excess Contributions for the Plan Year
multiplied by the number of whole calendar months between the end of the Plan
Year and the date of distribution, counting the month of distribution if
distribution occurs after the 15th of such month.
(d) Accounting for Excess Contributions: Excess Contributions shall be
distributed by first returning any amount of unmatched elective deferrals which
exceed the limitation percentage specified in Section 1.3(c)(2), if applicable.
Secondly, Excess Contributions shall be distributed from the Participant's
Elective Deferral Account and Qualified Matching Contribution Account (if
applicable) in proportion to the Participant's remaining Elective Deferrals and
Qualified Matching Contributions (to the extent used in the Actual Deferral
Percentage test) for the Plan Year. Excess Contributions shall be distributed
from the Participant's Qualified Non-elective Contribution Account only to the
extent that such Excess Contributions exceed the balance in the Participant's
Elective Deferral Account and Qualified Matching Contribution Account.
4-8
<PAGE>
(e) Definition:
"Excess Contributions" shall mean, with respect to any Plan Year, the
excess of:
(i) The aggregate amount of Employer contributions actually taken
into account in computing the Actual Deferral Percentage of Highly Compensated
Employees for such Plan Year, over
(ii) The maximum amount of such contributions permitted by the Actual
Deferral Percentage test (determined by reducing contributions made on behalf of
Highly Compensated Employees in order of the Actual Deferral Percentages,
beginning with the highest of such percentages).
4.9 RECHARACTERIZATION
------------------
(a) In the event the Plan permits participants to maker Employee Voluntary
(after-tax) Contributions in Section 1.3(e) of Article One, a Participant may
treat his or her Excess Contributions as an after-tax contribution to the Plan.
Recharacterized amounts will remain nonforfeitable and subject to the same
distribution requirements as Elective Deferrals. Amounts may not be
recharacterized by a Highly Compensated Employee to the extent that such amount
in combination with other Employee Contributions made by that Employee would
exceed any stated limit under the Plan on Employee Contributions.
(b) Recharacterization must occur no later than two and one-half months
after the last day of the Plan Year in which such Excess Contributions arose and
is deemed to occur no earlier than the date the last Highly Compensated Employee
is informed in writing of the amount recharacterized and the consequences
thereof. Recharacterized amounts will be taxable to the Participant for the
Participant's tax year in which the Participant would have received them in
cash.
4.10 EMPLOYER MATCHING CONTRIBUTIONS
-------------------------------
If elected by the Employer in the Plan, the Employer may make Matching
Contributions to the Plan. Matching Contributions shall be vested in accordance
with Section 1.4(b) of the Plan. In any event, Matching Contributions shall be
fully vested at Normal Retirement Age, death, Total Disability, upon the
complete or partial termination of the Plan, or upon the complete discontinuance
of Employer contributions.
Forfeitures of Matching Contributions, other than Excess Aggregate
Contributions, shall be made in accordance with Sections 1.3(c)(4) and (5).
4.11 QUALIFIED MATCHING CONTRIBUTIONS
--------------------------------
(a) The Matching Contribution, if any, made by the Employer according to
Section l.3(c)(l) and Section 4.10 above, may (at the direction of the Plan
Administrator) become a Qualified Matching Contribution in part or in whole in
the event that the Plan fails to meet the
4-9
<PAGE>
Code Section 401(k) nondiscrimination tests as described in Section 4.12 of the
Plan or the Employer may elect to make an additional contribution as a Qualified
Matching Contribution based on a discretionary percentage, subject to the
limitations of Section 4.12 and Code Section 401(m) and corresponding
regulations.
(b) Definition:
"Qualified Matching Contributions" shall mean Matching Contributions
which are subject to the distribution and nonforfeitability requirements under
Section 401(k)(2)(B)(ii) of the Code when made.
4.12 LIMITATIONS ON EMPLOYER CONTRIBUTIONS AND MATCHING CONTRIBUTIONS
----------------------------------------------------------------
(effective for Plan Years beginning on or after January 1, 1987)
(a) The Average Contribution Percentage for Participants who are Highly
Compensated Employees for reach Plan Year and the Average Contribution
Percentage for Participants who are Non-highly Compensated Employees for the
same Plan Year must satisfy one of the following tests:
(1) The Average Contribution Percentage for Participants who are
Highly Compensated Employees for the Plan Year shall not exceed the Average
Contribution Percentage for Participants who are Non-highly Compensated
Employees for the same Plan Year multiplied by 1.25; or
(2) The Average Contribution Percentage for Participants who are
Highly Compensated Employees for the Plan Year shall not exceed the Average
Contribution Percentage for Participants who are Non-highly Compensated
Employees for the same Plan Year multiplied by two (2), provided that the
Average Contribution Percentage for Participants who are Highly Compensated
Employees does not exceed the Average Contribution Percentage for Participants
who are Non-highly Compensated Employees by more than two (2) percentage points.
(b) Special Rules:
(1) Multiple Use of Alternative Limitation and Correction of Multiple
Use:
(i) There is a Multiple Use of the Alternative Limitation, if one
or more Highly Compensated Employees participate in both a cash or deferred
arrangement and a plan subject to the Average Contribution Percentage test
maintained by the Employer and the sum of Actual Deferral Percentage and Average
Contribution Percentage of those Highly Compensated Employees subject to either
or both tests exceeds the Aggregate Limit. The amount by which each Highly
Compensated Employee's Contribution Percentage Amounts is reduced shall be
treated as an Excess Aggregate Contribution. The Actual Deferral Percentage and
Average Contribution Percentage of the Highly Compensated Employees are
determined after any corrections required to meet the Actual Deferral Percentage
and Average Contribution Percentage tests. Multiple use does not occur if either
the Actual Deferral Percentage or the Average Contribution Percentage of the
Highly Compensated Employees does not exceed 1.25
4-10
<PAGE>
multiplied by the Actual Deferral Percentage or the Average Contribution
Percentage of the Non-highly Compensated Employees, respectively.
(ii) A Multiple Use shall be corrected by reducing the Actual
Deferral Percentage of the entire group of Highly Compensated Employees eligible
for the cash or deferred arrangement in the manner described in Regulation
Section 1.401(k)-1(f)(1)(ii) [Regulation Section 1.401(k)-1(f)(2)] and/or by
reducing the actual contribution percentage of the entire group of Highly
Compensated Employees eligible to make Employee Contributions in the manner
described in Regulation Section 1.401(m)-1(e)(2), as described in Section 4.5,
so that there is no Multiple Use of the Alternative Limitation. The Employer may
elect to reduce the Actual Deferral Ratios and/or the Actual Contribution
Ratios, either for all Highly Compensated Employees under this Plan and/or the
cash or deferred arrangement subject to the reduction or for only those Highly
Compensated Employees who are eligible in both this Plan and the Code Section
401(k) cash or deferred arrangement.
(iii) The required reduction for correction for Multiple Use
shall be treated as an excess contribution or excess aggregate contribution
under this Plan.
(2) For purposes of this Section, the Contribution Percentage for any
Participant who is a Highly Compensated Employee and who is eligible to have
Contribution Percentage Amounts allocated to his or her account under two or
more plans described in Section 401(a) of the Code, or arrangements described in
Section 401(k) of the Code that are maintained by the Employer, shall be
determined as if the total of such Contribution Percentage Amounts was made
under each plan. If a Highly Compensated Employee participates in two or more
cash or deferred arrangements that have different plan years, all cash or
deferred arrangements ending with or within the same calendar year shall be
treated as a single arrangement. Notwithstanding the foregoing, certain plans
shall be treated as separate if mandatorily disaggregated under regulations
under Section 401(m) of the Code.
(3) In the event that this Plan satisfies the requirements of
Sections 401(m), 401(a)(4) or 410(b) of the Code only if aggregated with one or
more other plans, or if one or more other plans satisfy the requirements of such
Sections of the Code only if aggregated with this Plan, then this Section shall
be applied by determining the Contribution Percentage of Employees as if all
such plans were a single plan. For plan years beginning after December 31, 1989,
plans may be aggregated in order to satisfy Section 401(m) of the Code only if
they have the same plan year.
(4) For purposes of determining the Contribution Percentage of a
Participant who is a five-percent owner or one of the ten most highly-paid
Highly Compensated Employees, and is thereby subject to the family aggregation
rules of Code Section 414(q)(6), the Contribution Percentage Amounts for the
family group (which is treated as one Highly Compensated Employee) is the
greater of (1) the Contribution Percentage determined by combining the
contributions and Compensation of all eligible family members who are highly
compensated without regard to family aggregation, and (2) the Contribution
Percentage Amounts determined by combining the contributions and compensation of
all eligible family members.
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<PAGE>
Except to the extent taken into account in the preceding sentence, the
contributions and compensation of all family members are disregarded in
determining the Contribution Percentage for the groups of Highly Compensated
Employees and Non-highly Compensated Employees.
(5) For purposes of determining the Contribution Percentage test,
Employee Contributions are considered to have been made in the Plan Year in
which contributed to the Trust. Matching Contributions and Qualified Non-
elective Contributions will be considered made for a Plan Year if made no later
than the end of the twelve-month period beginning on the day after the close of
the Plan Year.
(6) The Employer shall maintain records sufficient to demonstrate
satisfaction of the Average Contribution Percentage test and the amount of
Qualified Non-elective Contributions or Qualified Matching Contributions, or
both, used in such test.
(7) The determination and treatment of the Contribution Percentage of
any Participant shall satisfy such other requirements as may be prescribed by
the Secretary of the Treasury.
(8) In the event that the contribution of a full Matching
Contribution would cause the Plan to fail the Contribution Percentage test, or
the multiple use test the Matching Contribution may be reduced in a manner which
would permit the Plan to satisfy the nondiscrimination requirements of this
Section 4.12.
(c) Definitions:
(1) "Aggregate Limit" shall mean the greater of:
(A) the sum of: (i) 1.25 times the greater of the Relevant
Actual Deferral Percentage of the non-highly compensated or the Relevant Average
Contribution Percentage of the non-highly compensated, and (ii) two percentage
points plus the lesser of the Relevant Actual Deferral Percentage or the
Relevant Actual Contribution Percentage. In no event, however, shall this amount
exceed twice the lesser of the Relevant Actual Deferral Percentage or the
Relevant Actual Contribution Percentage; or
(B) the sum of: (i) 1.25 times the lesser of the Relevant Actual
Deferral Percentage or the Relevant Actual Contribution Percentage, and (ii) two
percentage points plus the greater of the Relevant Actual Deferral Percentage or
the Relevant Actual Contribution Percentage. In no event, however, shall this
amount exceed twice the greater of the Relevant Actual Deferral Percentage or
the Relevant Actual Contribution Percentage.
(2) "Alternative Limitation" shall mean the alternative methods of
compliance with Code Sections 401(k) and (m) contained in Code Sections
401(k)(3)(A)(ii)(I) and 401(m)(2)(ii) respectively.
(3) "Average Contribution Percentage" shall mean the average of the
Contribution Percentages of the Eligible Participants in a group.
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<PAGE>
(4) "Compensation" for purposes of Code Section 401(m) and the
determination of Excess Aggregate Contributions shall be defined as provided in
Section 2.9.
Notwithstanding the foregoing, the Employer may elect to define
"Compensation" in an alternative manner by using the definition of compensation
provided in Code Section 414(s) provided this election is made on a uniform and
consistent basis with respect to all Employees and all plans of the Employer.
(5) "Contribution Percentage" shall mean the ratio (expressed as a
percentage) of the Participant's Contribution Percentage Amounts to the
Participant's Compensation for the Plan Year (whether or not the Employee was a
Participant for the entire Plan Year).
(6) "Contribution Percentage Amounts" shall mean the Employee
Contributions, Matching Contributions, Qualified Matching Contributions (to the
extent not taken into account for purposes of the ADP test), Qualified Non-
elective Contributions and Elective Deferrals (as long as the ADP test is met
before the Elective Deferral are used in the ACP test and continues to be met
following the exclusion of those Elective Deferrals that are used to meet the
ACP test) made under the Plan on behalf of the Participant for the Plan Year.
Such Contribution Percentage Amounts shall not include Matching Contributions
that are forfeited either to correct Excess Aggregate Contributions or because
the contributions to which they relate are Excess Deferrals, Excess
Contributions, or Excess Aggregate Contributions. Such Contribution Percentage
Amounts shall include forfeitures of Matching Contributions allocated to the
Participant's account which shall be taken into account in the year in which
such forfeiture is allocated, but only if such Forfeitures are allocated in
proportion to deferrals or Matching Contributions.
(7) "Eligible Participant" shall mean any Employee who is eligible to
make an Employee Contribution, or an Elective Deferral (if the Employer takes
such contributions into account in the calculation of the Contribution
Percentage), or to receive a Matching Contribution (including forfeitures) or a
Qualified Matching Contribution. If an Employee Contribution is required as a
condition of participation in the Plan, any Employee who would be a Participant
in the Plan if such Employee made such a contribution shall be treated as an
eligible Participant on behalf of whom no Employee Contributions are made.
(8) "Employee Contribution" shall mean any contribution made to the
Plan by or on behalf of a Participant that is included in the Participant's
gross income in the year in which made and that is maintained under a separate
account to which earnings and losses are allocated.
(9) "Matching Contribution" shall mean an Employer Contribution made
to this or any other defined contribution plan on behalf of a Participant on
account of an Employee Contribution made by such Participant, or on account of a
Participant's elective deferral under a cash or deferred plan maintained by the
Employer.
(10) "Relevant Actual Deferral Percentage And Relevant Actual
Contribution Percentage" shall mean the Actual Deferral Percentage of the group
of Non-Highly Compensated
4-13
<PAGE>
Employees eligible under the cash or deferred arrangement subject to Code
Section 401(k) for the Plan Year, and/or the Actual Contribution Percentage of
the group of Non-Highly compensated Employees eligible under the plan subject to
Code Section 401(m) for the Plan Year beginning with or within the Plan Year of
the cash or deferred arrangement subject to Code Section 401(k).
4.13 DETERMINATION OF EXCESS AGGREGATE CONTRIBUTIONS
-----------------------------------------------
(a) In computing the Average Contribution Percentage, the Employer shall
take into account, and include as Contribution Percentage Amounts, Qualified
Non-elective Contributions under this Plan or any other plan of the Employer, as
provided by regulations.
(b) The amount of Qualified Non-elective Contributions that are made under
Section 4.14 of this Plan and taken into account as Contribution Percentage
Amounts for purposes of calculating the Average Contribution Percentage, subject
to such other requirements as may be prescribed by the Secretary of the
Treasury, shall be such Qualified Non-elective Contributions that are needed to
meet the Average Contribution Percentage test stated in Section 4.12(a) of the
Plan.
(c) The amount of Elective Deferrals made under Section 4.4(a) of the Plan
and taken into account as Contribution Percentage Amounts for purposes of
calculating the Average Contribution Percentage, subject to such other
requirements as may be prescribed by the Secretary of the Treasury, shall be all
Elective Deferrals available after satisfying the Actual Deferral Percentage
test or such Elective Deferrals that are needed to meet the Average Contribution
Percentage test stated in Section 4.12(a) of the Plan and/or the 1.25 rule or a
combination of the foregoing.
(d) By written election of the Employer, Forfeitures of Excess Aggregate
Contributions shall either be applied to reduce Employer contributions or
allocated, after all other forfeitures under the Plan to each Participant's
Matching Contribution Account in the ratio which each Participant's Compensation
for the Plan Year bears to the total Compensation of all Participants for such
Plan Year.
(e) The amount of excess aggregate contributions for a Highly Compensated
Employee under the Plan shall be subject to the requirements of Code Section
401(m) and shall be determined in the following manner:
(i) First, the actual contribution ratio of the of the Highly
Compensated Employee with the highest actual contribution ratio is reduced to
the extent necessary to satisfy the actual contribution percentage test or cause
such ratio to equal the actual contribution ratio of the Highly Compensated
Employee with the next highest ratio.
(ii) Second, this process shall be repeated until the actual
contribution percentage test is satisfied. The amount of excess aggregate
contributions for a Highly Compensated Employee is then equal to the total of
the Employee Contributions, and other
4-14
<PAGE>
contributions taken into account for the actual contribution percentage test
minus the product of the Employee's contribution ratio as determined above the
Employee's Compensation.
(f) In the case of a Highly Compensated Employee whose actual contribution
ratio is determined under the family aggregation rules, the determination of the
amount of excess aggregate contribution shall be made as follows:
(i) If the Highly Compensated Employee's actual contribution ratio is
determined by combining the contributions and Compensation of all family
members, then the actual contribution ratio is reduced in accordance with the
"leveling" method described in Section 4.13(e) and the excess aggregate
contributions for the family unit are allocated among the family member in
proportion to the contribution of each family member that have been combined.
(ii) If the Highly Compensated Employee's actual contribution ratio is
determined by combining the contribution and compensation of only those family
members who are highly compensated without regard to family aggregation, then
the actual contribution ratio is reduced in accordance with the "leveling"
method but not below the actual contribution ratio of eligible non-highly
compensated family members. Excess aggregate contributions are determined by
taking into account the contributions of the eligible family members who are
highly compensated without regard to family aggregation and are allocated among
such members in proportion to their contributions. If further reduction of the
actual contribution ratio is required, excess aggregate contributions resulting
from this reduction are determined by taking into account the contributions of
all eligible family members and are allocated among such family members in
proportion to their contributions.
(g) DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS
----------------------------------------------
Notwithstanding any other provision of this Plan, Excess Aggregate
Contributions, plus any income and minus any loss allocable thereto, shall be
forfeited, if forfeitable. Or if not forfeitable, shall be distributed no later
than the last day of each Plan Year to Participants to whose accounts such
Excess Aggregate Contributions were allocated for the preceding Plan Year.
Excess Aggregate Contributions of Participants who are subject to the family
member aggregation rules shall be allocated among the family members in
proportion to the Employee and Matching Contributions (or amounts treated as
Matching Contributions) of each family member that is combined to determine the
combined ACP. If such Excess Aggregate Contributions are distributed more than
2-1/2 months after the last day of the Plan Year in which such excess amounts
arose, a ten (10) percent excise tax will be imposed on the Employer maintaining
the Plan with respect to those amounts. Excess Aggregate Contributions shall be
treated as Annual Additions under the Plan. Furthermore, the distribution (or
forfeiture, if applicable) of excess aggregate contributions shall be made on
the basis of the respective portions of such amounts attributable to each Highly
Compensated Employee.
(h) Determination of Income or Loss: Excess Aggregate Contributions shall
be adjusted for any income or loss up to the date of distribution. The income
or loss allocable to Excess Aggregate Contributions shall be determined using
(i) or (ii) as a reasonable method.
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<PAGE>
Income or loss allocable to the period between the end of the taxable year and
the date of distributions may be disregarded or may be determined using the
method described in (iii). The method chosen shall be: (1) nondiscriminatory;
(2) used for all the Plan's corrective distributions for the Plan Year; and (3)
for purposes of (2)(ii) of this Section, used for allocating income to
Participant's Accounts. The reasonable methods are:
(i) The income or loss allocable to Excess Aggregate Contributions
is the sum of: (1) income or loss allocable to the Participant's Employee
Voluntary (After-Tax) Contribution Account, Matching Contribution Account,
Qualified Matching Contribution Account (if any, and if all amounts therein are
not used in the ADP test) and, if applicable, Qualified non-elective
Contribution Account and Elective Deferral Account for the Plan Year multiplied
by a fraction, the numerator of which is such Participant's Excess Aggregate
Contributions for the year and the denominator is the Participant's Account
Balance attributable to Contribution Percentage Amounts without regard to any
income or loss occurring during such Plan Year.
(ii) The income or loss allocable to Excess Aggregate Contributions
shall be determined by first calculating the total allocable income for the Plan
Year attributable to Participant's Employee Voluntary (After-Tax) Contribution
Account, Matching Contribution Account, Qualified Matching Contribution Account
(if any, and if all amounts therein are not used in the ADP test) and, if
applicable, Qualified non-elective Contribution Account and Elective Deferrals,
then multiplying the total allocable income by a fraction. The numerator of the
fraction is the total excess amount distributable to the highly compensated
employee and the denominator shall be the sum of the Participant's Account
Balance attributable to Elective Deferrals, determined as of the beginning of
the Plan Year.
(iii) Safe Harbor Method of Determining Gap Period Income: The
Employer may choose to determine the income during the period between the end of
the Plan Year and the date of distribution under the methods in this sub-section
or sub-sections (i) or (ii) above, or such income may be disregarded in
determining income or loss.
Gap Income allocable can be determined by using ten percent
(10%) of the income allocable to Excess Aggregate Contributions for the Plan
Year multiplied by the number of whole calendar months between the end of the
Plan Year and the date of distribution, counting the month of distribution if
distribution occurs after the 15th of such month.
(i) Forfeitures of Excess Aggregate Contributions: Forfeitures of Excess
Aggregate Contributions may either be reallocated to the accounts of Employees
or applied to reduce Employer contributions.
(j) Accounting for Excess Aggregate Contributions: Excess Aggregate
Contributions shall be forfeited, if forfeitable or distributed on a pro rata
basis from the Participant's Employee Contribution Account, Matching
Contribution Account, and Qualified Matching Contribution Account (and, if
applicable, the Participant's Qualified Non-elected Contribution Account or
Elective Deferral Account, or both).
4-16
<PAGE>
(k) Definitions:
"Excess Aggregate Contributions" shall mean, with respect to any Plan
Year, the excess of:
(i) The aggregate Contribution Percentage Amounts taken into account
in computing the numerator of the Contribution Percentage actually made on
behalf of Highly Compensated Employees for such Plan Year, over
(ii) The maximum Contribution Percentage Amounts permitted by the
Average Contribution Percentage test (determined by reducing contributions made
on behalf of Highly Compensated Employees in order of their Contribution
Percentages beginning with the highest of such percentages).
4.14 QUALIFIED NON-ELECTIVE CONTRIBUTIONS
------------------------------------
(a) The Non-elective Contribution, if any, made by the Employer according
to Section 1.3(d) above, may (at the direction of the Plan Administrator) become
a Qualified Non-elective Contribution in part or in whole.
(b) In addition, in lieu of distributing Excess Contributions as provided
in Section 4.8(a) of the Plan, or Excess Aggregate Contributions as provided in
Section 4.13(a) of the Plan, and to the extent elected by the Employer in the
Plan, the Employer may make Qualified Non-elective Contributions on behalf of
Non-highly Compensated Employees that are sufficient to satisfy either the
Actual Deferral Percentage test or the Average Contribution Percentage Test, or
both, pursuant to regulations under the Code.
(c) Eligibility to Receive an Allocation of Qualified Non-elective
--------------------------------------------------------------
Contributions
- -------------
An Employer may, through resolution of the Board or Employer
certification, choose the following method of allocating Qualified Non-elective
Contributions as an alternative to the method chosen in Section 1.3(d):
The Qualified Non-elective Contribution shall be allocated to Non-
highly Compensated Employees (based on their Compensation credited during the
Plan Year, ranked in descending order) in the following manner: First the
lesser of the amount needed to satisfy the Actual Deferral Percentage Test or
the amount which does not exceed Code Section 415 limits shall be allocated to
the Participant with the least amount of Compensation in the Plan Year. Second,
this procedure shall be repeated for only as many Non-highly Compensated
Employees as shall be needed to satisfy the Actual Deferral Percentage Test."
(d) Definition: "Qualified Non-elective Contributions" shall mean
contributions (other than Matching Contributions or Qualified Matching
Contributions) made by the Employer and allocated to Participants' accounts that
the Participants may not elect to receive in cash until distributed from the
Plan; that are nonforfeitable when made; and that are distributable only in
4-17
<PAGE>
accordance with the distribution provisions that are applicable to Elective
Deferrals and Qualified Matching Contributions.
4.15 NONFORFEITABILITY AND VESTING
-----------------------------
The Participant's account balance derived from Elective Deferrals,
Qualified Non-elective Contributions, Employee Contributions, and Qualified
Matching Contributions is nonforfeitable. Separate accounts for Elective
Deferrals, Qualified Non-elective Contributions, Employee Contributions,
Matching Contributions, and Qualified Matching Contributions will be maintained
for each Participant. Each account will be credited with the applicable
contributions and earnings thereon. Matching Contributions (including Qualified
Matching Contributions) may be forfeited if the contribution to which they
relate are Excess Deferrals Excess Contributions, or Excess Aggregate
Contributions.
4.16 DISTRIBUTION REQUIREMENTS
-------------------------
(a) Elective Deferrals, Qualified Non-elective Contributions, and
Qualified Matching Contributions, and income allocable to each are not
distributable to a Participant or his or her Beneficiary or Beneficiaries, in
accordance with such Participant's or Beneficiary or Beneficiaries election,
earlier than upon separation from service, death, retirement or Total
Disability.
(b) Such amounts may also be distributed upon:
(1) Termination of the Plan without the establishment of another
defined contribution plan, other than an employee stock ownership plan (as
defined in Section 4975(e)(7) or Section 409 of the Code) or a simplified
employee pension plan as defined in Section 408(k).
(2) The disposition by a corporation to an unrelated corporation of
substantially all of the assets (within the meaning of Section 409(d)(2) of the
Code) used in a trade or business of such corporation if such corporation
continues to maintain this Plan after the disposition, but only with respect to
Employees who continue employment with the corporation acquiring such assets.
(3) The disposition by a corporation to an unrelated entity of such
corporation's interest in a subsidiary (within the meaning of Section 409(d)(3)
of the Code) if such corporation continues to maintain this Plan, but only with
respect to Employees who continue employment with such subsidiary.
(4) The attainment of age 59-1/2.
(5) The hardship of the Participant as described in Section 11.9.
(c) All distributions that may be made pursuant to one or more of the
forgoing distributable events are subject to the Spousal and Participant consent
requirements (if applicable) contained in Sections 411(a)(11) and 417 of the
Code. In addition, distributions after
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<PAGE>
March 31, 1988, that are triggered by any of the first three events enumerated
above must be made in a lump sum.
4.17 PARTICIPANTS' ACCOUNTS
----------------------
(a) The Committee shall open and maintain an Employer Contribution Account
and, if applicable, an Employer Matching Account for each Participant to which
it shall credit the proper allocated share of the annual contributions made to
the Trust by the Employer (not including contributions pursuant to Section
4.2(a), herein,) and the earnings, losses, increases or decreases of the total
Trust Fund as herein provided.
(b) The Committee shall open and maintain a separate and distinct Employee
Contribution Account for each Participant to which it shall credit the amount of
the contributions made to the Trust by the Participant and the earnings, losses,
increases or decreases thereon. The value of the Participant's Employee
Contribution Account shall be entirely nonforfeitable.
(c) The Committee shall open and maintain a separate and distinct Employee
Deferral Account for each Participant to which it shall credit amounts equal to
the Compensation deferred by the Participant pursuant to Section 4.2(a), and the
earnings, losses, increases or decreases therein. The value of the
Participant's Employee Deferral Account shall be entirely nonforfeitable.
(d) The maintenance of individual accounts is only for accounting purposes
and, unless otherwise specifically provided herein or in the Trust Agreement, a
segregation of the assets of the Trust Fund to each account shall not be
required. The allocations, credits and notifications shall not vest in any
Participant any right, title or interest in the Trust, except at the time or
times and upon the terms and conditions herein provided.
(e) If the Plan permits Participant directed accounts in Section 1.6(a),
each Participant will direct the Trustee(s) as to the type of investment to be
purchased with the Participant's account. The Trustee(s) may decline to
implement participant instructions which would generate income that would be
taxable to the Plan. The Trustee(s) may charge a Participant's Account for the
reasonable expenses of carrying out the Participant's instructions. Otherwise,
each Employee will have a ratable interest in all assets of the Trust. To the
extent that the Participant directs the investment of his Account(s), the Plan
Administrator shall not have any fiduciary responsibility with respect to such
investments.
In the event that the Plan permits Participants to direct the
investment of their Accounts in some limited fashion (i.e. Plan Administrator
offers a selection of four investment funds in which Participants may determine
what percentage of their Account(s) shall be invested in each of the four
investments), such limited investment direction shall not release the Plan
Administrator or other Plan Fiduciary from liability or responsibility for such
investments.
4-19
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4.18 ALLOCATIONS TO PARTICIPANTS' ACCOUNTS
-------------------------------------
(a) Employer Contributions under Section 4.2(a) shall be allocated to the
respective Deferred Income Accounts in an amount equal to Participant deferrals
under Section 4.4(a), credited with Trust Fund gains, losses, increases or
decreases therein. Allocations shall not be dependent upon participation in the
Plan as of any date subsequent to the date of allocation.
(b) Employer Contributions and other amounts described in Section 4.2(b)
for each Plan Year shall be allocated to the Employer Contribution Account and,
if applicable, the Employer Matching Account of each Participant who is eligible
to receive a contribution under Section 1.3. The Employer Contribution shall be
allocated as provided for in Section 1.3 or Section 4.18(c).
Notwithstanding the foregoing or any provisions in Article One or this
Plan to the contrary, if the Plan would fail to meet the coverage requirements
under Code Section 410(b) for the Plan Year and the correction procedures
described in Section 1.3 of Article One shall be implemented in regard to
Matching or Non-elective contributions, then the following rules shall apply in
operation of this section:
(1) The specific Non-Highly Compensated Participants who shall become
eligible under the terms of the last paragraph of Section 1.3(c)(4) and/or
Section 1.3(d)(3)(ii) shall be those who are actively employed on the last day
of the Plan Year.
(2) If after application of paragraph (1) above, Code Section 410(b)
is still not satisfied, then the group of Participants eligible to share in the
Employer's contribution and Forfeitures for the Plan Year shall be further
expanded to include the minimum number of Non-Highly Compensated Participants
who are not actively employed on the last day of the Plan Year.
(c) If the Employer has chosen to allow permitted disparity in the Plan
(i.e. integrate the Plan) as specified in Section 1.3(d), Employer
Contributions for the Plan Year will be allocated to Participants' accounts as
follows:
STEP ONE: Contributions and forfeitures will be allocated to each
Participant's account in the ratio that the sum of each Participant's total
Compensation bears to all Participants' total Compensation, but not in excess of
3% of each Participant's Compensation.
STEP TWO: Any contributions and forfeitures remaining after the
allocation in Step One will be allocated to each Participant's Account in the
ratio that each Participant's Compensation for the Plan Year in excess of the
integration level bears to the excess Compensation of all Participants, but not
in excess of 3%.
STEP THREE: Any contributions and forfeitures remaining after the
allocation in Step Two will be allocated to each Participant's Account in the
ratio that the sum of each Participant's total Compensation and Compensation in
excess of the Integration Level bears to
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the sum of all Participants total Compensation and Compensation in excess of the
Integration Level, but not in excess of the maximum profit sharing disparity
rate.
STEP FOUR: Any remaining Employer Contributions or forfeitures will
be allocated to each Participant's account in the ratio that each Participant's
total Compensation for that year bears to all Participants' total Compensation
for that year.
The integration level shall be equal to the taxable wage base or such
lesser amount elected by the Employer in Section 1.3(d). The taxable wage base
("TWB") is the maximum amount of earnings which may be considered wages for a
year under Section 3121 (a)(1) of the Code in effect as of the beginning of the
Plan Year.
Compensation shall mean Compensation as defined in Section 2.9 of the
Plan.
The maximum profit sharing disparity rate is equal to the lesser of:
(1) 2.7%; or
(2) the applicable percentage determined in accordance with the table
below -
If the Integration Level:
is more but not more the applicable percentage
than than is:
$0 X* 2.7%
X*ofTWB 80%ofTWB 1.3%
80% of TWB Y** 2.4%
*X = the greater of $10,000 or 20 percent of the TWB.
**Y = any amount more than 80% of the TWB but less than 100%
of the TWB.
If the Integration Level used is equal to the taxable wage base,
the applicable percentage is 2.7%.
If the Plan is Top-heavy for any Plan Year, Employer
Contributions for the Plan Year plus any forfeitures must be allocated to
Participants' accounts so that each Participant receives the percentage of
Compensation as indicated in Section 1.3(d) or the highest percentage allocated
to a Key Employee, if less.
For Plan Years in which the Plan is not Top-Heavy, Step One and
Step Two above shall not apply and the applicable percentage shown above as the
maximum profit-
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<PAGE>
sharing disparity rate shall be increased by 3% (e.g. the applicable percentage
for an Integration level equal to the taxable wage base shall be 5.7%, instead
of 2.7%).
In the event that the Employer sponsors more than one plan which
involves permitted disparity (integration), then the maximum disparity allowance
shall not exceed one hundred percent (100%). In the alternative an Employer may
elect to only allow permitted disparity in one of the plans sponsored by such
Employer.
(d) As of each allocation date, the Committee shall determine the fair
market value of the net Trust Fund assets, excluding the Employer's contribution
due to the Trustee as of that date and any amounts which are distributable to
Participants whose participation has terminated on or before such allocation
date. Any increase or decrease in the fair market value of such asset as of the
preceding allocation date shall be allocated to the Participant's Account(s) of
each Employee who is a party-in-interest on such allocation date. The Employer
and the Committee do not to any extent warrant or represent that the value of a
Participant's Account at any time will equal the amount previously allocated
thereto.
(e) The Participant's Account(s) of a Participant whose participation is
terminated on other than an allocation date shall be valued as provided for in
Section 1.5(g). The percentage thus determined shall be applied to the Accounts
of all Participants who terminate following the selected valuation date and
before the next valuation date.
(f) Subject to Sections 1.3(c)(7) and 1.3(d)(5), all amounts held by the
Trustee representing the forfeited interest of a former Participant shall be
retained in the Trust Fund and allocated in accordance with Sections 1.3(c)(6)
and 1.3(d)(4) hereof. Such allocation of the forfeited interest shall be made
on the allocation date following the date that such nonvested interest is
forfeited. A nonvested Interest shall be forfeited (become a Forfeiture) for
purposes of this Section 4.18(f) on one of the following dates: (1) the date
upon which the Participant terminates employment; (2) the date upon which a
terminated Participant incurs a one-year Break in Service; (3) the date upon
which a terminated Participant incurs five consecutive one-year Breaks in
Service; or (4) the Anniversary Date following or coincident with the date upon
which the Participant terminates employment. In the event that the former
Participant is rehired by the Employer and makes repayment in accordance with
Section 11.11, the forfeited amount shall be restored to such Participant's
Account from current Forfeitures or from contributions by the Employer.
(g) If through mistake a Participant either receives an allocation or does
not receive an allocation, the mistake shall be rectified upon the next
allocation following the discovery of the mistake. If an allocation was not
made, the Participant's account shall receive an allocation which shall include
the amount which should have been allocated plus an amount which will make the
Participant's account whole. If an allocation was made in an amount which
exceeds the amount which should have been made, the Participant's account will
be reduced by the appropriate amount.
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<PAGE>
4.19 LIMITATIONS OF BENEFITS AND CONTRIBUTIONS
-----------------------------------------
(a) If the Participant does not participate in, and has never participated
in another qualified plan maintained by the Employer or a welfare benefit fund,
as defined in Section 419(e) of the Code maintained by the Employer, or an
individual medical account, as defined in Section 415(l)(2) of the Code,
maintained by the Employer, which provides an annual addition as defined in
Section 2.5, the amount of Annual Additions which may be credited to the
Participant's account for any Limitation Year will not exceed the lesser of the
maximum permissible amount or any other limitation contained in this Plan. If
the Employer contribution that would otherwise be contributed or allocated to
the Participant's account would cause the Annual Additions for the Limitation
Year to exceed the maximum permissible amount, the amount contributed or
allocated will be reduced so that the Annual Additions for the Limitation Year
will equal the maximum permissible amount.
(b) Prior to determining the Participant's actual 415 Compensation for the
Limitation Year, the Employer may determine the maximum permissible amount for a
Participant on the basis of a reasonable estimation of the Participant's 415
Compensation for the Limitation Year, uniformly determined for all Participants
similarly situated.
(c) As soon as is administratively feasible after the end of the
Limitation Year, the maximum permissible amount for the Limitation Year will be
determined on the basis of the Participant's actual 415 Compensation for the
Limitation Year.
(d) If pursuant to Section 4.19(c), or as a result of the allocation of
forfeitures, there is an excess Annual Addition amount, the excess will be
disposed of using one of the following methods:
(1) Any Excess deferrals, to the extent they would reduce the excess
amount, will be returned to the Participant and such returned Excess deferrals
shall not be used in the Actual Deferral Percentage Test in Section 4.6; or
(2) Any nondeductible voluntary Employee contributions, to the extent
they would reduce the excess amount, will be returned to the Participant; or
(3) If the Participant is covered by the Plan at the end of the
Limitation Year: (i) Employee Deferrals relating to the present Plan Year shall
be returned within a one year period following the relevant Plan Year end;
and/or (ii) the excess Annual Addition amount in the Participant's account will
be used to reduce Employer Contributions (including any allocation of
forfeitures) for such Participant in the next Limitation Year, and each
succeeding Limitation Year if necessary.
(4) If the Participant is not covered by the Plan at the end of a
Limitation Year, the excess amount will be held unallocated in a suspense
account. The suspense account will be applied to reduce current or succeeding
Employer Contributions (including allocation of any forfeitures) for all
remaining Participants in the next Limitation Year, and each succeeding
Limitation Year if necessary;
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<PAGE>
(5) If a suspense account is in existence at any time during a
Limitation Year pursuant to this Section, the suspense account will not
participate in the allocation of the Trust's investment gains and losses. If a
suspense account is in existence at any time during a particular Limitation
Year, all amounts in the suspense account must be allocated and reallocated to
Participants' accounts before any Employer Contributions or any Employee
contributions may be made to the Plan for that Limitation Year. Excess amounts
may not be distributed to Participants or former Participants.
(e) This Section applies, if in addition to this Plan, the Participant is
covered under another qualified defined contribution plan maintained by the
Employer, a welfare benefit fund, as defined in Section 419(e) of the Code
maintained by the Employer or an individual medical account, as defined in
Section 415(l)(2) of the Code, maintained by the Employer, which provides an
annual addition as defined in Section 2.5, during any Limitation Year. The
Annual Additions which may be credited to a Participant's account under this
Plan for any such Limitation Year will not exceed the maximum permissible amount
reduced by the Annual Additions credited to a Participant's account under the
other plans and welfare benefit funds for the same Limitation Year. If the
Annual Addition exceeds the maximum permissible amount, the annual addition will
be limited in accordance with Sections 4.19(i) through 4.19(k).
(f) The Annual Addition to a Participant's Account shall be automatically
frozen to preclude the possibility that the limitations imposed by Section
415(c) of the Code are exceeded.
(g) Prior to determining the Participant's actual 415 Compensation for the
Limitation Year, the Employer may determine the maximum permissible amount for a
Participant in the manner described in Section 4.19(b).
(h) As soon as is administratively feasible after the end of the
Limitation Year, the maximum permissible amount for the Limitation Year will be
determined on the basis of the Participant's actual 415 Compensation for the
Limitation Year .
(i) If, pursuant to Section 4.19(h) or as a result of the allocation of
forfeitures, a Participant's Annual Additions under this Plan and such other
plans would result in an excess amount for a Limitation Year, the excess amount
will be deemed to consist of the Annual Additions last allocated, except that
Annual Additions attributable to a welfare benefit fund or individual medical
account will be deemed to have been allocated first regardless of the actual
allocation date.
(j) If an excess amount was allocated to a Participant on an allocation
date of this Plan which coincides with an allocation date of another plan, the
excess amount attributed to this Plan will be the product of,
(1) the total excess amount allocated as of such date, times
(2) the ratio of (i) the Annual Additions allocated to the
Participant for the Limitation Year as of such date under this Plan to (ii) the
total Annual Additions allocated to the
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<PAGE>
Participant for the Limitation Year as of such date under this and all the other
qualified defined contribution plans.
(k) Any excess amount attributed to this Plan will be disposed of in the
manner described in Section 4.19(d).
(l) If the Employer maintains, or at any time maintained, a qualified
defined benefit plan covering any Participant in this Plan, the sum of the
Participant's Defined Benefit Plan Fraction and Defined Contribution Plan
Fraction will not exceed 1.0 in any Limitation Year. The Annual Additions which
may be credited to the Participant's account under this Plan for any Limitation
Year will be limited in accordance with Section 1.3(i).
(1) If the sum of such fractions exceeds 1.0 and neither plan has
either been terminated at any time Including the last day of the Limitation Year
in which the fractions exceed 1.0 or determined to be a multi-Employer plan
(within the meaning of Section 414(f) of the Code), the Employer may elect, in a
manner determined by the Commissioner of Internal Revenue Service, the plan that
is to be disqualified. Where a controlled group of businesses exist (within the
meaning of Section 414(b), (c) and (m) of the Code), the Employers within the
controlled or affiliated group may elect, in a manner determined by the
Commissioner of Internal Revenue Service, the plan that is disqualified.
However, such election is not effective unless made by all of the Employers
within the controlled or affiliated group. For purposes of this Section, the
elected plan is deemed disqualified in the year in which the fractions exceed
1.0.
(m) Definitions. The following definitions shall apply for purposes of
limitations of Benefits and Contributions:
(1) 415 Compensation or 415 Safe Harbor Compensation: A
Participant's earned income, wages, salaries, and fees for professional services
and other amounts received for personal services actually rendered in the course
of employment with the Employer maintaining the Plan (including, but not limited
to, commissions paid salesmen, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums, tips, bonuses, fringe
benefits, reimbursements and expense allowances) and excluding the following:
(i) Employer Contributions to a plan of deferred compensation
which are not includible in the Employee's gross income for the taxable year in
which contributed, or Employer Contributions under a simplified Employee pension
plan to the extent such contributions are deductible by the Employee, or any
distributions from a plan of deferred compensation;
(ii) Amounts realized from the exercise of a nonqualified stock
option, or when restricted stock (or property) held by the Employee either
becomes freely transferable or is no longer subject to a substantial risk of
forfeiture;
(iii) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option; and
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<PAGE>
(iv) Other amounts which received special tax benefits, or
contributions made by the Employer (whether or not under a salary reduction
agreement) towards the purchase of an annuity described in Section 403(b) of the
Code (whether or not the amounts are actually excludible from the gross income
of the Employee).
For Limitation Years beginning after December 31, 1991, for the
purposes of applying the limitations of this Article, Compensation for a
Limitation Year is the Compensation actually paid or includible in gross income
during such Limitation Year.
Notwithstanding the preceding sentence, Compensation for a Participant
in a defined contribution plan who is permanently and totally disabled (as
defined in Section 22(e)(3) of the Code) is the Compensation such Participant
would have received for the Limitation Year if the Participant had been paid at
the rate of Compensation paid immediately before becoming permanently and
totally disabled; such imputed Compensation for the disabled Participant may be
taken into account only if the Participant is not a Highly Compensated Employee
(as defined in Section 414(q) of the Code) and contributions made on behalf of
such Participant are nonforfeitable when made.
(2) Defined contribution dollar limitation: $30,000 or if greater,
one-fourth of the defined benefit dollar limitation set forth in Section
415(b)(1) of the Code as in effect for the Limitation Year.
(3) Employer: For purposes of this Article, Employer shall have the
same meaning as in Section 2.21.
(4) Excess amount: The excess of the Participant's Annual Additions
for the Limitation Year over the maximum permissible amount.
(5) Highest Average Compensation: The average Compensation for the three
consecutive Years of Service with the Employer that produces the highest
average. A Year of Service with the Employer is the twelve (12) consecutive
month period defined in Section 2.52.
(6) Limitation Year: A calendar year, or the twelve (12) consecutive month
period elected by the Employer in Section 1.1(e). All qualified plans maintained
by the Employer must use the same Limitation Year. If the Limitation Year is
amended to a different twelve (12) consecutive month period, the new Limitation
Year must begin on a date within the Limitation Year in which the amendment is
made.
(7) Master or Prototype Plan: A plan the form of which is the subject of a
favorable opinion letter from the Internal Revenue Service.
(8) Maximum permissible amount: The maximum annual addition that may be
contributed or allocated to a Participant's account under the Plan for any
Limitation Year shall not exceed the lesser of:
(i) the defined contribution dollar limitation, or
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<PAGE>
(ii) 25 percent of the Participant's Compensation for the Limitation
Year.
The Compensation limitation referred or in Section 4.19(m)(8)(ii)
shall not apply to any contribution for medical benefits (within the meaning of
Section 401(h) or Section 419A(f)(2) of the Code) which is otherwise treated as
an annual addition under Section 415(l)(1) or 419A(d)(2) of the Code.
If a short Limitation Year is created because of an amendment changing
the Limitation Year to a different twelve (12) consecutive month period, the
maximum permissible amount for such year will not exceed the defined
contribution dollar limitation multiplied by the following fraction:
Number of months in the short Limitation Year
---------------------------------------------
twelve (12)
(9) Projected Annual Benefit: The annual retirement benefit (adjusted to
an actuarially equivalent straight life annuity if such benefit is expressed in
a form other than a straight life annuity or Qualified Joint and Survivor
Annuity) to which the Participant would be entitled under the terms of the Plan
assuming:
(i) the Participant will continue employment until Normal Retirement
Age under the Plan (or current age, if later), and
(ii) the Participant's Compensation for the current Limitation Year
and all other relevant factors used to determine benefits under the Plan will
remain constant for all future Limitation Years.
4.20 ROLLOVER CONTRIBUTIONS
----------------------
If permitted in Article One, Section 1.3(f), the Plan may accept any
amounts received by a Participant from another qualified plan, either directly
within sixty (60) days after such receipt or through the medium of an individual
retirement account, provided that such individual retirement account contains no
assets other than those allowed by law for a tax-free rollover contribution.
Such amounts shall be held by the Trustee and a separate accounting shall be
made for them. All such amounts shall be fully vested and their value shall be
paid to the Participant in the manner the Participant elects at the time the
Participant is entitled to a distribution of benefits hereunder. Amounts so
received by the Plan shall not be counted when determining whether the
limitations on contributions and benefits set forth in Section 4.19 has been
exceeded. Rollover or transferred assets and the income or other property
derived therefrom may be held and administered by the Trustee in a segregated
Trust account. All such amounts may be withdrawn by the Participant at any
time.
4.21 DIRECT TRANSFERS
----------------
If permitted in Article One, Section 1.3(g), the Plan may accept any
amounts transferred directly to it by another qualified retirement plan
qualified pursuant to Code Section 401, or
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<PAGE>
through the medium of an individual retirement account provided that such
individual retirement account contains no assets other than those allowed by law
for a tax free rollover or transfer of assets. All such amounts may be withdrawn
by the Participant at any time. Notwithstanding the foregoing sentence, elective
deferrals [as defined in Code Section 402(g)] transferred into this Plan
directly from another qualified Code Section 401(k) cash or deferred arrangement
may not be withdrawn until a distributable event occurs pursuant to the
requirements of Section 4.16 of the Plan.
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<PAGE>
ARTICLE FIVE
VESTING OF EMPLOYER CONTRIBUTIONS
5.1 FULL VESTING
The full amount credited to a Participant's Account shall be nonforfeitable
when the Participant attains Normal Retirement Age or when the Participant's
participation terminates by death, a judicial declaration of the Participant's
incompetence, Total Disability, or upon termination or partial termination of
the Plan. Any amount credited to a Participant's Account attributable to the
Employer's Contribution for the Plan Year in which occurs termination for one of
the reasons enumerated in the foregoing sentence shall also be completely
nonforfeitable at the time of such contribution. Employee contributions and
earnings thereon will be nonforfeitable at all times. Any amount credited to a
Participant's Deferred Income Account, if any, will be nonforfeitable. In the
event of a complete discontinuance of contributions under the Plan, the Account
Balance of each affected Participant will be nonforfeitable.
A Participant shall not fail to attain Normal Retirement Age on the earlier
of: (a) the time a Plan Participant attains Normal Retirement Age as specified
in Section 1.5(a) of the Plan, or (b) the later of: (i) the time a Plan
Participant attains age 65, or (ii) the fifth anniversary of the time a Plan
Participant commenced participation in the Plan.
5.2 INCREMENTAL VESTING
Except as otherwise provided herein, a Participant's Account shall vest in
accordance with the vesting schedule set forth in Section 1.4(b).
For Plan Years in which the Plan is deemed to be a Top-Heavy Plan, a
Participant's Account shall vest in accordance with the Top-Heavy Vesting
Schedule provided for under Section 1.4(b)(4).
5.3 YEAR OF SERVICE RULES - VESTING
Subject to the provisions of Section 1.2(d), when computing the period of
service under the Plan for purposes of determining a Participant's vested
interest in the Participant's account, all of the Participant's Years of Service
with the Employer shall be taken into account except as follows:
(a) A Year of Service which is not required to be taken into account by
reason of a Break in Service shall be disregarded.
(b) In the case of a Participant who has incurred a one (1) year Break in
Service, Years of Service before such break will not be taken into account until
the Participant has completed a Year of Service after such Break in Service.
(c) In the case of a Participant who has five (5) or more consecutive one
(1) year Breaks in Service all service after such Breaks in Service will be
disregarded for the purpose of
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<PAGE>
vesting the Employer-derived Account Balance that accrued before such Breaks in
Service. Such Participant's pre-break service will count in vesting the post-
break Employer-derived Account Balance only if either:
(1) such Participant has any nonforfeitable interest in the Account
Balance attributable to Employer Contributions at the time of separation from
service; or
(2) upon returning to service the number of consecutive one (1) year
Breaks in Service is less than the number of Years in Service.
Separate accounts will be maintained for the Participant's pre-break and
post-break Employer-derived Account Balance. Both accounts will share in the
earnings and losses of the fund.
(d) If the Plan makes a distribution to a Participant at a time when the
Participant is less than one hundred percent (100%) vested in the Participant's
Employer-derived benefits and there is no five (5) consecutive one (1) year
Breaks in Service prior to a "relevant time" subsequent to such distribution,
(1) A separate account will be established for the Participant's
interest in the Plan as of the time of distribution, and
(2) At any relevant time the Participant's vested portion of the
separate account will not be less than an amount ("X") determined by the
following formula:
X = P(AB + (R X D)) - (R X D), where
P = vested percentage at the relevant time
AB = Account Balance at the relevant time
D = amount of distribution
R = ratio of the Account Balance at the relevant time to
the Account Balance after distribution.
(e) In the case of a Participant who has no vested right in Employer-
derived benefits at the time the Participant incurs a Break in Service, Years of
Service completed by such Participant before such break shall not be taken into
account for purposes of determining the nonforfeitable percentage of the
Participant's right to Employer-derived benefits if at such time the number of
consecutive one-year Breaks in Service included in the Participant's most recent
Break in Service equals or exceeds the greater of five (5) or the aggregate
number of the Participant's Years of Service, whether or not consecutive,
completed before such break. In computing the aggregate number of Years of
Service prior to the Break in Service, Years of Service which are disregarded
under this Section by reason of any prior Break in Service shall be disregarded.
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<PAGE>
5.4 EFFECT OF CERTAIN CASH-OUT
(a) For purposes of determining the Participant's Account Balance under
the Plan, the Plan shall disregard Years of Service performed by the Participant
with respect to which the Participant has received a distribution of the present
value of the Participant's entire nonforfeitable benefit if such distribution
was no more than Three Thousand Five Hundred Dollars ($3,500.00) (or an amount
permitted under regulations prescribed by the Secretary of Treasury) or a
distribution of the present value of the Participant's nonforfeitable benefit
attributable to such service which the Participant elected to receive. A
Participant who has no nonforfeitable benefit shall be considered to be "cashed-
out" for all purposes upon termination of employment.
Any distribution under this Section 5.4(a) which exceeds $3,500.00
shall be subject to the consent of the Participant and, if any, the
Participant's Spouse. If the Account Balance at the time of any distribution
exceeds $3,500.00, then the Account Balance at any subsequent time shall be
deemed to exceed $3,500.00 and such subsequent distribution shall be subject to
the written consent of the Participant and the Participant's Spouse, if
applicable.
(b) In order for a distribution to be considered a "cash out" under this
Plan, a Participant receiving such distribution must have terminated employment
with the Employer. All Participants who have been "cashed-out" under the
provision of Section 5.4(a) above, shall have the opportunity to repay the full
amount of the distribution upon resumption of employment with the Employer in
accordance with the provisions of Section 11.11 herein.
(c) If a distribution is made at a time when a Participant has a
nonforfeitable right to less than 100 percent of the Account Balance derived
from Employer Contributions and the Participant may increase the nonforfeitable
percentage in the account:
(1) A separate account will be established for the Participant's
interest in the Plan as of the time of the distribution, and
(2) At any relevant time the Participant's nonforfeitable portion of
the separate account will be equal to an amount ("X") determined by the formula:
X = P(AB + (R x D)) - (R x D)
For purposes of applying the formula: P is the nonforfeitable percentage at
the relevant time, AB is the Account Balance at the relevant time, D is the
amount of the distribution, and R is the ratio of the Account Balance at the
relevant time to the Account Balance after distribution.
5.5 VESTING COMPUTATION PERIOD
The vesting computation period shall mean the twelve consecutive-month
period (or its equivalent) as defined in Article One. Hours of Service completed
within each Vesting Computation Period shall be used when determining whether a
Participant has completed a Year of Service or has incurred a Break in Service
for purposes of this Article.
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<PAGE>
Notwithstanding the foregoing, in the event that a Year of Service for
Eligibility or Vesting is based on Elapsed Time using a 365-day period of
service, then the Vesting Computation Period shall mean Year of Service as
defined in Article One, Section 1.1.
In the event of a short Plan Year, there shall be overlapping Vesting
Computation Periods. The first Vesting Computation Period shall begin on the
first day of the short Plan Year and end twelve months thereafter and the
overlapping Vesting Computation Period shall begin on the first day of the new
Plan Year and end on the last day of the new Plan Year.
5.6 AMENDMENT TO VESTING SCHEDULE
(a) If the vesting schedule of this Plan is amended, the new vesting
schedule shall satisfy the requirements set forth in Code Section 411(a)(2)(A),
(B) or (C) for all Years of Service.
(b) If the vesting schedule of this Plan is amended, then in the case of
an Employee who is a Participant on the date the amendment is adopted or the
date the amendment is effective, if later, the vested percentage of the
Participant's right to the Participant's Employer-derived benefit, determined as
of such date, shall not be less than the Participant's percentage computed under
the Plan without regard to such amendment.
(c) If the Plan's vesting schedule is amended, or the Plan is amended in
any way that directly or indirectly affects the computation of the Participant's
nonforfeitable percentage or if the Plan is deemed amended by an automatic
change to or from a top-heavy vesting schedule, each Participant with at least
three (3) Years of Service with the Employer may elect, within a reasonable
period after the adoption of the amendment or change, to have the nonforfeitable
percentage computed under the Plan without regard to such amendment or change.
For Participants who do not have at least one (1) Hour of Service in any Plan
Year beginning after December 31, 1988, the preceding sentence shall be applied
by substituting "five (5) Years of Service" for "three (3) Years of Service"
where such language appears.
The period during which the election may be made shall commence with the
date the amendment is adopted or deemed to be made and shall end on the latest
of:
(1) 60 days after the amendment is adopted;
(2) 60 days after the amendment becomes effective; or
(3) 60 days after the Participant is issued written notice of the
amendment by the Employer or Committee.
(d) No amendment to the Plan shall be effective to the extent that it has
the effect of decreasing a Participant's Account Balance. Notwithstanding the
preceding sentence, a Participant's Account Balance may be reduced to the extent
permitted under Section 412(c)(8) of the Code. For purposes of this Section
5.6(c), a Plan amendment which has the effect of decreasing a Participant's
Account Balance or eliminating an optional form of benefit, with
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respect to benefits attributable to service before the amendment shall be
treated as reducing an Account Balance. Furthermore, if the vesting schedule of
this Plan is amended, in the case of an Employee who is a Participant as of the
later of the date such amendment is adopted or the date it becomes effective,
the nonforfeitable percentage (determined as of such date) of such Employee's
Employer-derived Account Balance will not be less than the percentage computed
under this Plan without regard to such amendment.
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ARTICLE SIX
THE ADMINISTRATIVE COMMITTEE
6.1 COMMITTEE MEMBERSHIP
The Plan shall be administered by an Administrative Committee appointed by
and serving at the pleasure of the Employer. Any Employee may serve as a member
of the Committee, although members need not be Employees. Any member of the
Committee may be removed by the Employer, and members shall hold office until
resignation, death, removal or disqualification. Vacancies in the Committee
arising for whatever reason shall be filled by the Employer as soon as is
reasonably possible after the vacancy occurs, and until a new appointment is
made the remaining member or members shall have full authority to act. The
Employer shall file with the Trustee written notice of the names of the members
of the Committee together with specimen signatures, and as changes take place in
membership, that fact and the names and specimen signatures of the new members
shall be filed by the Employer with the Trustee.
6.2 COMMITTEE ACTION
The Committee shall choose a Secretary who shall keep minutes of the
Committee's proceedings and all data, records and documents pertaining to the
Committee's administration of the Plan. The Committee shall act by a majority of
its members at the time in office and such action may be taken by a vote either
at a meeting or in writing without a meeting. The Committee may by such majority
action authorize its Secretary or any one or more of its members to execute any
document or documents on behalf of the Committee, in which event the Committee
shall notify the Trustee in writing of such action and the name or names of
those so designated. The Trustee thereafter shall accept and rely conclusively
upon any direction or document executed by such Secretary, member or members as
representing action by the Committee until the Committee files with the Trustee
a written revocation of such designation.
6.3 ADMINISTRATIVE RULES
The Committee shall exercise all discretionary powers in the administration
of any matters which come under its functions and may, from time to time,
formulate such rules for the administration of the Plan as it may deem necessary
so long as such rules are not inconsistent with the terms of the Plan itself.
6.4 POWERS OF THE COMMITTEE
The Committee, on behalf of the Participants and their Beneficiaries, is
hereby designated as the Named Fiduciary referred to in Section 402(a) of ERISA.
The Committee shall enforce the Plan in accordance with its terms, shall be
charged with the general administration of the Plan, and shall have all powers
necessary to accomplish those objectives, including, but not by way of
limitation, the following:
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(a) To determine all questions relating to the eligibility of Employees to
participate;
(b) To compute and certify to the Trustee the amount and kind of benefit
payable to Participants and their Beneficiaries;
(c) To authorize all disbursements by the Trustee from the Trust Fund;
(d) To maintain all the records necessary for the administration of the
Plan other than those maintained by the Trustee;
(e) To make and publish such rules for the regulation of the Plan as are
not inconsistent with the terms hereof;
(f) To authorize the Trustee to purchase contracts of life insurance on
the lives of Key Employees whose death might adversely affect the earnings of
the Employer. Any such contract shall be owned by the Trustee, and any and all
benefits, including any amounts payable upon the death of the insured Employee,
shall be payable to the Trustee and considered as an investment for the benefit
of the Trust as a whole;
(g) To authorize the Trustee to purchase, for the benefit of the
individual Participants, contracts of life insurance or annuities on an annual
or single premium basis at retirement or prior thereto, and on such terms and
conditions as the Committee may prescribe.
(h) To direct the Trustee to sell any assets held in the Trust and to
direct the Trustee in all respects concerning investments to be made with funds
available to the Trust for that purpose.
(i) To accept service of legal process on behalf of the Plan.
(j) To file with the appropriate government agency (or agencies) the
annual report, plan description, summary plan description, and other pertinent
documents which may be duly requested.
(k) To furnish each Employee and each beneficiary receiving benefits
hereunder a summary plan description explaining the Plan.
(l) To file such terminal and supplementary reports as may be necessary in
the event of termination of the Plan; and to allocate the assets of the Plan
available to provide benefits to Employees in the event the Plan should
terminate.
6.5 EMPLOYMENT OF ADVISERS
The Committee may, in its discretion, employ agents, brokers, attorneys
(including attorneys for the Employer), accountants, investment counsel, or such
other assistants as it may deem proper to discharge its responsibilities, and
the Employer agrees to pay all fees and expenses incurred in connection
therewith. However, such fee may be paid by the Trustee upon written direction
of the Committee.
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6.6 INFORMATION TO BE COMMUNICATED
In order to enable the Committee to perform its functions, the Employer
shall supply full and timely information to the Committee, including all
pertinent facts as the Committee may require. The Committee shall advise the
Trustee of such of the foregoing facts as may be pertinent to the Trustee's
administration of the Plan.
6.7 COMPENSATION AND INDEMNITY
(a) The members of the Committee shall serve without compensation for
their services thereunder. All expenses of the Committee shall be paid by the
Employer or by the Plan, and the Employer shall furnish the Committee with such
clerical and other assistance as is necessary in the performance of its duties.
(b) The Employer shall indemnify and hold harmless the members of the
Committee from and against any and all liabilities, claims, demands, costs and
expenses (including attorneys' fees), arising out of an alleged breach in the
performance of their fiduciary duties under the Plan and under ERISA, other than
such liabilities, claims, demands, costs and expenses as may result from the
gross negligence or willful misconduct of such persons. The Employer shall have
the right, but not the obligation, to conduct the defense of such persons in any
proceeding to which this Paragraph applies. In lieu of the foregoing, the
Employer may satisfy its obligations under this Paragraph through the purchase
of a policy or policies of insurance providing equivalent protection.
6.8 DUTY OF CARE
In discharging each of the duties and responsibilities assigned to it under
this Plan, the Committee shall act solely in the interests of the Participants
and Beneficiaries of the Plan and with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent man acting in a like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims. In the exercise of any
discretion, the Committee shall not discriminate in favor of Participants who
are officers, stockholders or Highly Compensated Employees. No member of the
Committee may participate in any decision which involves solely the member's
interest as a Participant separate and distinct from the member's status as a
member of the group of Participants.
6.9 ESTABLISHMENT OF FUNDING POLICY
The Committee from time to time shall establish a funding policy and method
for the Plan which is consistent with the objectives of the Plan and the
requirements of ERISA. The funding policy and method, as established and amended
from time, shall be communicated to the Trustee in order that the Trustee may
coordinate the investment policies of the Trust Fund consistent with such
funding policy and method.
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ARTICLE SEVEN
THE TRUST AGREEMENT
7.1 TRUST AGREEMENT
The Employer shall enter into a Trust Agreement to effectuate the purposes
of the Plan as it may be in force from time to time. The duties,
responsibilities and powers of the Trustee shall be limited as specifically
provided in the Plan and the Trust Agreement.
7.2 RELATIONSHIP OF COMMITTEE AND TRUSTEE
(a) The Committee shall direct the administration of the Plan and the
Trustee shall follow the written directions of the Committee, or any member of
the Committee who shall be designated from time to time, which are communicated
to the Trustee. The Committee shall notify the Trustee of any changes in the
membership of the Committee. The Trustee shall follow directions of the member
whose authority to act on behalf of the Committee was last certified to the
Trustee, regardless of changes in membership of the Committee. Any direction or
notification by the Committee or member thereof to the Trustee shall be
effective upon delivery in writing to the Trustee.
(b) If it is necessary to perform some act hereunder and there is neither
direction in this Plan nor direction of the Committee on file with the Trustee,
and no such direction can be obtained after reasonable inquiry, the Trustee
shall have full power and direction to act.
(c) The Employer will indemnify and hold harmless the Trustee of and from
any liability, loss, cost or expense arising from or in any way connected with
its acting upon a direction of the Committee, or failing to act because of the
lack of any direction from the Committee where the Trustee has no duty to act in
the absence of direction from the Committee.
(d) The Trustee shall have no duty to enforce collection or payment to it
of any contribution nor to determine or verify the accuracy thereof.
7.3 RULE AGAINST PERPETUITIES
Unless sooner terminated in accordance with other provisions of this Plan,
the Plan and Trust Agreement shall in any event terminate upon the death of the
last survivor of such of the Participants who are living on the day of execution
of this Plan.
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ARTICLE EIGHT
THE INSURANCE COMPANY
8.1 INSURER NOT A PARTY HERETO
No Insurer issuing a life insurance policy in connection with this Plan
shall be deemed to be a party hereto.
8.2 NOTIFICATION OF CHANGES IN PLAN
The Insurer may assume, in dealing with the Trustee, that no modification
or alteration has been made in the terms of the Plan until notice of such
modification or alteration has been given to the Insurer.
8.3 OWNERSHIP OF POLICIES
The Insurer shall deal with the Trustee as owner of all policies and shall
accept the signature of the Trustee in connection with any application, changes
or any action under the policies. The Insurer is authorized at all times to deal
with the Trustee of the Plan.
8.4 ACTION OF INSURER
No such Insurer shall be required to concern itself with the terms of this
Plan or question any action of the Trustee and/or of the Committee, or be
responsible to see that any action of the Trustee and/or the Committee is
authorized by the terms of this Plan.
8.5 EXECUTION OF DOCUMENTS
Any and all certificates or other documents requiring signature of the
Trustee shall be executed in its name as Trustee. Any documents which may
require the signature of the Committee shall be executed in its name by a
majority of its members thereof or by any member thereof who has been authorized
to sign on its behalf under the terms of this Plan. When so executed, any such
documents may be received by the Insurer as conclusive evidence of any of the
matters mentioned in this Plan, and the Insurer shall be fully protected in
taking or permitting any action to be taken on the strength thereof and shall
incur no liability or responsibility for so doing.
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ARTICLE NINE
TYPE OF INSURANCE CONTRACT
9.1 PURCHASE OF CONTRACT
(a) If permitted by the provisions of Section 1.6(c), and in the event
that the Committee elects life insurance as a Plan investment, the Trustee, as
directed by the Committee, shall purchase at standard rates individual level-
premium whole life insurance or term insurance contracts.
(b) The Trustee shall apply for and will be the owner of any insurance
contract purchased under the terms of this Plan. The insurance contract(s) must
provide that proceeds will be payable to the Trustee, however the Trustee shall
be required to pay over all proceeds of the contract(s) to the Participant's
designated Beneficiary in accordance with the distribution provisions of this
Plan. A Participant's spouse will be the designated Beneficiary of the proceeds
in all circumstances unless a qualified election has been made in accordance
with Section 12.2(a), Joint and Survivor Annuity Requirements, if applicable. In
the event of any conflict between the terms of this Plan and the terms of any
insurance contract purchased hereunder, the Plan provisions shall control.
9.2 UNINSURABLE PARTICIPANTS
For each Participant who is found by the Insurer to be uninsurable or not
insurable at standard rates, the Trustee, as directed by the Committee, shall
purchase either a similar life insurance contract for the same amount of premium
but containing a lesser death benefit as specified in a schedule attached to the
contract, or a retirement annuity contract on the life of such Participant with
a death benefit on death before Normal Retirement Date in an amount equal to the
total of premiums paid or the cash surrender value of such contract, whichever
is greater.
9.2.1 VOLUNTARY WAIVER OF INSURANCE CONTRACT
--------------------------------------
Once eligible, a Participant may voluntarily elect to waive his
right to purchase or to have insurance purchased on his life in the Plan. A
Participant shall be deemed to waived his right to insurance in the event that
he (or his spouse, if applicable) refuses to execute a waiver form and fails to
comply with the requirements of the insurer for issuance of an insurance
contract.
Upon the death of a Participant who has waived (or deemed to have
waived) his right under this section, the designated Beneficiary shall only be
entitled to receive an amount equal to the Participant's Accounts.
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9.3 APPLICATION FOR CONTRACTS
The original applications for contract or contracts to be issued hereunder
shall be made to the insurer as designated by the employer. the employer, in its
sole discretion, may thereafter designate any insurance company to which
subsequent applications may be made. the type of such contracts or any features
thereof or supplements or additions thereto shall be determined by the
committee. the failure of the employer to obtain any contract applied for shall
not give rise to any right, claim or benefit to any employee. the contract or
contracts shall be applied for by the employer at or on the effective date and
by the trustee at any anniversary date as directed by the committee.
9.4 PAYMENT OF PREMIUMS
The Trustee shall be under no duty to pay premiums on contracts of life
insurance or annuities held by the Trustee as an investment hereunder unless
adequate funds are available therefor, and only upon direction by the Committee.
When the Committee directs the Trustee to make such premium payments, the
Committee shall direct the Trustee with respect to the source of funds for such
payment.
9.5 APPLICATION OF DIVIDENDS
(a) If the Plan is a fully insured Plan, any dividends or credits earned
on insurance contracts will be applied, within the taxable year of the Employer
in which received or within the next succeeding taxable year, toward the next
premium due before any further Employer Contributions are so applied.
(b) If the Plan is a Trusteed Plan, any dividends or credits earned on
insurance contracts will be allocated to the Participant's account derived from
Employer Contributions for whose benefit the contract is held.
9.6 PARTICIPANT'S ELECTION
Subject to Section 1.6(c) and Section 9.1, each Participant may direct the
Committee with respect to the amount, if any, of each contribution made by the
Employer on behalf of said Participant which shall be applied to the purchase,
as an investment and for the benefit of said Participant, of a life insurance
contract or contracts. Upon such direction, the Committee shall direct the
Trustee to pay premiums and apply for and secure said life insurance contract or
contracts, subject to the restrictions provided herein and provided that the
total premiums paid or due for life insurance on the life of any Participant
shall not exceed the amounts stated in Section 9.8 of this Plan. A new
Participant may give direction in writing upon entry into the Plan, and an
existing Participant shall give direction in writing within the thirty (30) day
period preceding the Anniversary Date of the Plan. These directions may be
changed, amended or revoked only by a further direction in writing in the same
manner as the initial direction aforesaid and the initial direction shall remain
in effect until changed, amended or revoked. Upon the failure of said
Participant to give direction, the Committee shall make its own determination as
to the amount,
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if any, of the Employer's Contribution made on behalf of said Participant which
shall be so applied.
9.7 DISTRIBUTION OF INSURANCE CONTRACTS
Subject to Article Twelve, Joint and Survivor Annuity Requirements, the
contracts on a Participant's life will be converted to cash or an annuity or
distributed to the Participant upon commencement of benefits.
9.8 LIMITATIONS
(a) The Administrator shall limit the premiums invested in ordinary life
insurance on the life of each Participant to less than fifty percent (50%) of
the aggregate of all contributions and Forfeitures allocated to each such
Participant's Accounts.
(b) The Administrator shall limit the premiums invested in term life
insurance on the life of each Participant to less than twenty-five percent (25%)
of the aggregate of all contributions and Forfeitures allocated to each such
Participant's Accounts.
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ARTICLE TEN
APPLICATIONS FOR BENEFITS
10.1 APPLICATION PROCEDURE
Participants should submit applications for benefits under the Plan to the
Committee at the principal office of the Employer. Applications for benefits
should be in writing on the forms prescribed by the Committee and must be signed
by the Participant and the Participant's spouse (if applicable), or in the case
of a death benefit, by the Beneficiary or legal representative of the deceased
Participant. The Committee reserves the right to require that the Participant
furnish proof of his age and that of his joint annuitant, if any, prior to
processing any application. Each application shall be acted upon and approved or
disapproved within sixty (60) days following its receipt by the Committee. In
the event any application for benefits is denied in whole or in part, the
Committee shall notify the applicant in writing of such denial and of the
applicant's right to a review of such denial, and shall set forth in a manner
calculated to be understood by the applicant specific reasons for such denial,
specific references to pertinent Plan provisions on which the denial is based, a
description of any additional material or information necessary for the
applicant to perfect the application, an explanation of why such material or
information is necessary, and an explanation of the Plan's review procedure.
10.2 REVIEW PROCEDURE
Any person or duly authorized representative whose application for
benefits is denied in whole or in part may appeal from such denial to the
Committee for a review of the decision by submitting to the Committee, within
sixty (60) days after receiving written notice of the denial of the application
for benefits, a written statement requesting a review of the application for
benefits by the Committee, setting forth all of the grounds upon which the
request for a review is based and any facts in support thereof, and setting
forth any issues or comments which the applicant deems pertinent to the
application.
10.3 COMMITTEE ACTION
(a) The Committee shall meet from time to time to review applications for
benefits submitted pursuant to this Article. The Committee shall act upon each
application within sixty (60) days following receipt of the applicant's request
for review by the Committee, unless special circumstances require an extension.
Such extension cannot extend beyond one hundred twenty (120) days after receipt
of the appeal by the Committee. If the Committee fails to act within sixty (60)
days or, if special circumstances extend it to one hundred twenty (120) days,
the application will be treated as denied and the applicant may appeal for a
review.
(b) The Committee shall make a full and fair review of each such
application and any written materials submitted by the applicant or the Employer
in connection therewith, and may require the Employer or the applicant to submit
such additional facts, documents, or other evidence as the Committee, in its
sole discretion, deems necessary or advisable in making such a review. On the
basis of this review, the Committee shall make an independent determination of
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the applicant's eligibility for benefits under the Plan. The decision of the
Committee on any application for benefits shall be final and conclusive upon all
persons if supported by the substantial evidence in the record.
(c) In the event the Committee denies an application in whole or in part,
the applicant shall be given written notice of the decision setting forth in a
manner calculated to be understood by the applicant the specific reasons for
such denial and specific references to the pertinent Plan provisions upon which
the Committee based its decision.
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ARTICLE ELEVEN
DISTRIBUTION OF BENEFITS
11.1 RETIREMENT BENEFITS
When a Participant reaches his Early Retirement Date or Normal Retirement
Date, the Participant shall be entitled to retirement income and benefits which
shall be based upon the value of the Participant's Account(s). Participants who
meet the service requirement for Early Retirement but who separate from service
prior to satisfying the age requirement, shall be entitled to receive the
benefit when the age requirement is satisfied.
11.2 MODES OF DISTRIBUTION
The Trustee, when so directed by the Committee, shall make distribution in
a form provided for in Section 1.5(e), provided that each such mode shall have
the same present value. The alternative modes of settlement are:
(a) A cash lump sum. However, a Participant's benefit may not be cashed
out without the Participant's written consent if the present value of any
Participant's nonforfeitable Account Balance exceeds Three Thousand Five Hundred
Dollars ($3,500.00), and if such benefits are paid in the form of a cash lump
sum, the provisions of Section 11.12 hereof shall apply. The Three Thousand Five
Hundred Dollars ($3,500.00) shall be determined by using both employer and
employee contributions, but not accumulated deductible contributions.
Any distribution under Section 5.4(a) which exceeds $3,500.00 shall be
subject to the consent of the Participant and, if any, the Participant's Spouse.
If the Account Balance at the time of any distribution exceeds $3,500.00, then
the Account Balance at any subsequent time shall be deemed to exceed $3,500.00
and such subsequent distribution shall be subject to the written consent of the
Participant and the Participant's Spouse, If applicable.
(b) Substantially equal installments with or without a period certain,
payable not less frequently than annually. However, the benefits to which the
Participant is entitled must be paid over a period not exceeding the life
expectancy of the Participant determined at the date of the Participant's
retirement or the joint life expectancy of the Participant and a designated
Beneficiary. If the distribution is to be made in the form of installments, the
Committee may direct the Trustee to segregate in a separate account an amount
equal to the lump sum value and to invest it in United States obligations or to
deposit it in an interest-bearing savings account of any bank, including the
Trustee's own banking department, or to deposit it in an interest-bearing
savings account of a federal savings and loan association. If a separate
segregated account is established, any interest received thereon shall be
distributed with the final installment of benefits. In the event a Participant
dies prior to complete distribution of the Participant's installments, the
Participant's Beneficiary shall be entitled to the balance.
(c) An annuity payable over the life of the Participant or the joint
lives of the Participant and a designated Beneficiary with or without a period
certain.
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(d) A nontransferable deferred annuity contract purchased from a legal
reserve life insurance company selected by the Committee, which provides for
annuity payments to commence at the Participant's Normal Retirement Date. Any
annuity contract distributed herefrom must be nontransferable and the terms of
any annuity contract purchased and distributed by this Plan to a Participant or
spouse shall comply with the requirements of this Plan.
(e) Upon written request of the Participant or the Participant's
Beneficiary, shares issued by a regulated investment company registered under
the Investment Company Act of 1940, or shares of stock listed on a national
stock exchange.
(f) Upon written request of the Participant or the Participant's
Beneficiary, approved by the Committee, in kind or any assets held by the
Trustee as an investment, or partly in cash and partly in kind.
11.3 LATE RETIREMENT
A Participant may remain in the employ of the Employer and, if he remains
in the employ of the Employer, shall continue to be entitled to
benefits/contributions according to the terms of this Plan beyond the Normal
Retirement Date. If a Participant elects, he may commence distribution from the
Plan at Normal Retirement Age.
11.4 TERMINATION PRIOR TO RETIREMENT
(a) If a Participant ceases to be employed by the Employer for any
reason other than retirement, military service, or death, the Committee shall
certify that fact to the Trustee, giving the date of such termination. In this
event, the Participant shall have a vested right in the account held for the
Participant's benefit as determined under Article Five hereof. The benefits to
which the Participant is entitled shall be provided by the value of the
Participant's Account. The benefits shall only be distributed to the Participant
under the provisions of Section 1.5(h). The cash surrender value of any
insurance contracts insuring the Participant's life must be included in the
value of the Participant's account.
(b) The Trustee shall, as directed by the Committee, assign, transfer
and set over to such Participant all contracts on the Participant's life in such
form or with such endorsements, if any, as the Committee may, in Its discretion,
direct, restricting the Participant to surrender, assign or otherwise realize
cash on the contract or contracts prior to the Participant's Normal Retirement
Date.
(c) If the Participant and the Participant's spouse elect not to receive
benefits in a form having the effect of a Qualified Joint and Survivor Annuity
or a Qualified Pre-Retirement Annuity, the Committee shall direct the Trustee to
distribute the amount required from the Participant's Account, subject to the
provisions of Sections 1.5(e) and 11.2 of this Plan.
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11.5 LEAVE OF ABSENCE AND MILITARY SERVICE
(a) A Participant on temporary absence from the service of the Employer
may, for purposes of this Article, be deemed to have continued in the employ of
the Employer during such absence, provided such absence does not continue for a
period longer than one (1) year, and further provided that such Participant
shall pay all premiums necessary to keep policies in the Participant's account
effective during such absence, if any are required. In granting temporary leaves
of absence, the Employer shall not discriminate between the various
Participants.
(b) A Participant on temporary absence from the service of the Employer
because of service in the Armed Forces of the United States shall be deemed to
be continued in the employ of the Employer during such absence, provided that
such Participant shall pay all premiums necessary to keep policies in the
Participant's account effective during such absence, if any are required.
(c) If any Employee or Participant on military leave voluntarily fails to
return to employment within ninety (90) days after the Employee's or the
Participant's discharge from the service, such facts shall be treated as though
the Employee or the Participant had voluntarily left the employment of the
Employer as of the date of discharge. In the event of death during such military
service leave, it shall be treated as though the Employee or the Participant had
died during employment with the Employer, and in the event of any Total
Disability arising from military service, such disability shall be treated as
though it were a Total Disability arising during employment, and all of the
Participant's rights under the Plan shall become fully vested as of the date of
inability to return to employment.
11.6 VALUE OF BENEFITS
Any payment to any Participant, the Participant's Beneficiary or legal
representative, in accordance with the provisions of the Plan, shall to the
extent thereof be in full satisfaction of all claims hereunder against the
Trustee, the Committee and the Employer, any of whom may require such
Participant, Beneficiary or legal representative, as a condition precedent to
such payment, to execute a receipt therefor in such form as shall be determined
by the Trustee, the Committee or the Employer, as the case may be. The Employer
does not guarantee the Trustee, the Participants, former Participants or their
Beneficiaries against loss of or depreciation in the value of any right or
benefit that any of them may acquire under the terms of this Plan. All the
benefits payable hereunder shall be paid or provided for solely from the Trust
and the Employer does not assume any liability or responsibility therefor .
11.7 COMMENCEMENT OF BENEFITS
Unless the Participant elects otherwise, distribution of benefits will
begin as soon as administratively feasible but no later than the 60th day after
the latest of the close of the Plan Year in which:
(1) the Participant attains age 65 (or Normal Retirement Age, if
earlier);
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(2) occurs the 10th anniversary of the year in which the Participant
commenced participation in the Plan; or,
(3) the Participant terminates service with the Employer.
Notwithstanding the foregoing, the failure of a Participant and spouse to
consent to a distribution while a benefit is immediately distributable, within
the meaning of Section 12.8 of the Plan, shall be deemed to be an election to
defer commencement of payment of any benefit sufficient to satisfy this Section.
A Participant who elects to defer receipt of benefits may not do so to the
extent that such deferral creates a death benefit that is more than incidental.
11.8 DISTRIBUTION OF BENEFIT RULES
(a) GENERAL RULES.
-------------
(1) Subject to Article Twelve, Joint and Survivor Annuity
Requirements, the requirements of this Article shall apply to any distribution
of a Participant's interest and will take precedence over any inconsistent
provisions of this Plan. Unless otherwise specified, the provisions of this
Article apply to calendar years beginning after December 31, 1984.
(2) All distributions required under this Article shall be determined
and made in accordance with the proposed regulations under Section 401(a)(9),
including the minimum distribution incidental benefit requirement of Section
1.401(a)(9)-2 of the proposed regulations.
(b) REQUIRED BEGINNING DATE. The entire interest of a Participant must be
-----------------------
distributed or begin to be distributed no later than April 1st of the calendar
year following the calendar year in which the Participant attains age 70-1/2.
(c) LIMITS ON DISTRIBUTION PERIODS. As of the first distribution calendar
------------------------------
year, distributions, if not made in a single-sum, may only be made over one of
the following periods (or a combination thereof):
(1) the life of the Participant,
(2) the life of the Participant and a designated Beneficiary,
(3) a period certain not extending beyond the life expectancy of the
Participant, or
(4) a period certain not extending beyond the joint and last
survivor expectancy of the Participant and a designated Beneficiary.
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(d) DEATH DISTRIBUTION PROVISIONS.
-----------------------------
(1) Distribution beginning before death. If the Participant dies
-----------------------------------
after distribution of the Participant's interest has begun, the remaining
portion of such interest will continue to be distributed at least as rapidly as
under the method of distribution being used prior to the Participant's death.
(2) Distribution beginning after death. If the Participant dies
----------------------------------
before distribution of the Participant's interest begins, distribution of the
Participant's entire interest shall be completed by December 31 of the calendar
year containing the fifth anniversary of the Participant's death except to the
extent that an election is made to receive distributions in accordance with
11.8(d)(2)(i) or 11.8(d)(2)(ii) below:
(i) if any portion of the Participant's interest is payable to
a designated Beneficiary, distributions may be made over the life or over a
period certain not greater than the life expectancy of the designated
Beneficiary commencing on or before December 31st of the calendar year
immediately following the calendar year in which the Participant died;
(ii) if the designated Beneficiary is the Participant's
surviving spouse, the date distributions are required to begin in accordance
with Section 11.8(d)(2)(i) above shall not be earlier than the later of (1)
December 31st of the calendar year immediately following the calendar year in
which the Participant died and (2) December 31st of the calendar year in which
the Participant would have attained age 70-1/2.
(iii) If the Participant has not made an election pursuant to
this Section 11.8(d)(2) by the time of the Participant's death, the
Participant's designated Beneficiary must elect the method of distribution no
later than the earlier of (1) December 31st of the calendar year in which
distributions would be required to begin under this Section, or (2) December
31st of the calendar year which contains the fifth anniversary of the date of
death of the Participant. If the Participant has no designated Beneficiary, or
if the designated Beneficiary does not elect a method of distribution,
distribution of the Participant's entire interest must be completed by December
31st of the calendar year containing the fifth anniversary of the Participant's
death.
(3) For purposes of Section 11.8(d)(2) above, if the surviving spouse
dies after the Participant, but before payments to such spouse begin, the
provisions of Section 11.8(d)(2), with the exception of Section 11.8(d)(2)(ii)
therein, shall be applied as if the surviving spouse were the Participant.
(4) For purposes of this Section 11.8(d), any amount paid to a child
of the Participant will be treated as if it had been paid to the surviving
spouse if the amount becomes payable to the surviving spouse when the child
reaches the age of majority.
11.9 HARDSHIP WITHDRAWALS
Subject to the options chosen in Article One, Section 1.5(k) in the event
a Participant incurs a "hardship" prior to the occurrence of an event allowing
distribution from this Plan, he
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<PAGE>
may request a withdrawal from his Employee Deferral Account (including, if
applicable, any earnings credited to a Participant's Account as of the end of
the last Plan Year ending before July 1, 1989), for the following reasons:
a) Medical expenses (not covered by insurance, described in Code Section
213(d)) incurred by the Participant, the Participant's spouse, or any dependents
(as defined in Code Section 152) of the Participant or necessary medical
expenses for aforementioned persons to obtain medical care (described in Section
213(d) of the Code).
b) Purchase (excluding mortgage payments) of a principal residence for
the Participant.
c) Payment of tuition and related educational expenses for the next
twelve months of post-secondary education for the Participant, the Participant's
spouse, or any dependents of the Participant (as defined in Code Section 152).
d) Payment of a sum of money in order to prevent the eviction of the
Participant from his principal residence or foreclosure on the mortgage of the
Participant's principal residence.
e) Funeral expenses. The amount of the hardship withdrawal may include
any amounts necessary to pay any federal, state or local income taxes or
penalties reasonably anticipated to result from such hardship distribution.
A Participant must file a written request for a withdrawal and establish,
to the satisfaction of the Administrator, that he has a financial need. A
financial need shall be deemed established if the following conditions exist:
a) The distribution is not in excess of the amount of the immediate and
heavy financial need of the Participant; and,
b) The Participant has obtained all distributions, other than hardship
distributions, and all nontaxable funds (nontaxable at the time of the loan)
available through the provisions relating to Participants loans, if permitted in
Article One of the Plan; and
c) The Participant agrees and elects in a written agreement that all
Employee Deferral Contributions shall be suspended for a 12-month period after
the receipt of the hardship distribution; and
d) The Participant agrees that Employee Deferral Contributions during the
tax year immediately following the taxable year of the withdrawal may not exceed
the $7,000 limit (as adjusted by the Secretary of the Treasury) less the amount
of the Participant's Employee Savings Contributions made during the taxable year
of the hardship distribution.
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11.10 IN-SERVICE DISTRIBUTIONS - WITHDRAWAL OF EMPLOYER CONTRIBUTIONS
(1) If permitted by Section 1.5(i), the Committee may at any time
permit any Participant to request in writing a withdrawal from the Participant's
Account.
(a) A request for a withdrawal shall be made, in writing, to the
Administrator. The Administrator shall have absolute discretion in approving or
denying the request and shall act in a uniform, and non-discriminatory manner.
Any such request received by the Administrator shall be acted upon within sixty
(60) days of actual receipt.
(b) The withdrawal shall not exceed the vested amount of the
Participant's Account. Any amount withdrawn must have been in the Participant's
Account and in the Trust for at least two (2) full years. If a Participant has
sixty (60) months of Plan participation, he may withdraw monies in the Trust
that have been in the Trust for less than a two (2) year period.
(c) In the event the Administrator grants a request for such
withdrawal, the Participant shall continue his participation in the Plan
uninterrupted.
(d) If an in-service distribution shall only be permitted in the
event of a hardship, the requirements set forth in Section 11.9 shall apply.
(2) If permitted by Section 1.5(j), a Participant may request a
distribution subject to the provisions of Section 1.5(j) notwithstanding the
provisions of Section 11.10(1).
11.11 LOANS TO PARTICIPANTS
(a) If loans to Participants are permitted by the provisions of Section
1.6(b), loans shall be made available to all Participants and beneficiaries on a
reasonably equivalent basis. Loans to Participants shall be governed by the
written policies and procedures adopted by the Employer.
(b) Loans shall not be made available to Highly Compensated Employees
(as defined in Section 414(q) of the Code) in any amount greater than the amount
made available to other Employees.
(c) Loans must be adequately secured and bear a reasonable interest
rate.
(d) A Participant must obtain the written consent of the Participant's
spouse, if any, to use of the Account Balance as security for the loan. Spousal
consent shall be obtained no earlier than the beginning of the 90-day period
that ends on the date on which the loan is to be so secured. The consent must be
in writing, must acknowledge the effect of the loan, and must be witnessed by a
Plan representative or notary public. Such consent shall thereafter be binding
with respect to the consenting spouse or any subsequent spouse with respect to
that loan. A new consent shall be required if the Account Balance is used for
renegotiation, extension, renewal, or other revision of the loan.
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<PAGE>
(e) If a valid spousal consent has been obtained in accordance with
Section 11.10(d), then, notwithstanding any other provision of this Plan, the
portion of the Participant's vested Account Balance used as a security interest
held by the Plan by reason of a loan outstanding to the Participant shall be
taken into account for purposes of determining the amount of the Account Balance
payable at the time of death or distribution, but only if the reduction is used
as repayment of the loan.
(f) No loan to any Participant or Beneficiary can be made to the extent
that such loan when added to the outstanding balance of all other loans to the
Participant or Beneficiary would exceed the lesser of (a) $50,000 reduced by the
excess (if any) of the highest outstanding balance of loans during the one-year
period ending on the day before the loan is made, over the outstanding balance
of loans from the Plan on the date the loan is made, or (b) one-half the present
value of the nonforfeitable Account Balance of the Participant or, if greater,
the total Account Balance up to $10,000.
(1) For the purpose of the above limitation, all loans from all plans
of the Employer and other members of a group of Employers described in Sections
414(b), 414(c), and 414(m) of the Code are aggregated.
(2) Furthermore, any loan shall by its terms require that repayment
(principal and interest) be amortized in level payments, not less frequently
than quarterly. All loans must be repaid over a period not extending beyond
five years from the date of the loan, unless such loan is used to acquire
dwelling unit which within reasonable time (determined at the time the loan is
made) will be used as the principal residence of the Participant.
(3) An assignment or pledge of any portion of the Participant's
interest in the Plan and a loan, pledge, or assignment with respect to any
insurance contract purchased under the Plan, will be treated as a loan under
this Paragraph.
(4) Notwithstanding the foregoing, the Plan may make a loan for more
than $50,000, however, such a loan shall limited by the Participant's vested
interest in such Plan and shall be deemed a taxable event.
(g) The Committee shall be responsible for administering the loan program
and shall establish written procedures for the application process for loans,
the basis on which loans will be approved or denied, the procedure for
determining a reasonable rate of interest, the limitations on amount or type of
loans offered, the types of collateral which may secure a loan, and the events
constituting default and the steps that will be taken to preserve the Plan
assets in the event of default.
11.12 REPAYMENT OF DISTRIBUTED BENEFITS
(a) Any Participant who has received a distribution of the vested interest
in his account due to the termination of employment with the Employer may repay
the full amount of such distribution to the Plan if:
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<PAGE>
(1) the distribution was received in a Plan Year which commenced after
December 31, 1975;
(2) the distribution was less than the present value of the
Participant's Account Balance when distributed;
(3) the Participant resumes employment with the Employer covered under
the Plan; and
(4) the Participant repays the full amount of distribution before the
earlier of five (5) years after the first date on which the Participant is
subsequently re-employed by the Employer, or the close of the first period of
five (5) consecutive one-year Breaks in Service commencing after the
distribution.
Upon repayment of the distributed benefits, the Participant's Account
Balances shall be recomputed by taking into account service performed by the
Participant to which the repaid benefits are attributable, to the extent such
service had been disregarded in determining the Account Balances because of the
distribution.
(c) No repayments under this Section shall be subject to the limitation on
contributions stated in Section 4.19 of this Plan.
(d) In the event of any other withdrawal, the repayment period shall be
five (5) years after the date of the withdrawal.
11.13 TOTAL DISABILITY
If a Participant suffers a Total Disability, said Participant shall be
fully vested in his Participant Account and the Committee may either make a
distribution in any mode described in Section 1.5(e) or may defer payment until
the Participant's Normal Retirement Date.
11.14 CASH-OUTS
In the event the value of a Participant's vested Account Balance derived
from Employer and Employee contributions exceeds (or at any time exceeded)
$3,500, any distribution of such Account Balance would be subject to Section 5.4
and 12.8 of the Plan.
However, in the event that the value of a Participant's vested Account
Balance derived from Employer and Employee contributions does not exceed (or at
any time exceeded) $3,500, and the account balance is immediately distributable,
the Account Balance may be distributed to the Participant upon termination of
employment.
11.15 DIRECT ROLLOVER OF DISTRIBUTION
(a) This Section applies to distributions made on or after January 1,
1993. Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a distributee's election under this Section, a distributee may
elect, at the time and in the manner
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<PAGE>
prescribed by the Administrator, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan specified by the
distributee in a direct rollover.
(b) Definitions. The following definitions shall apply for purposes of
-----------
this Section:
(1) Eligible rollover distribution: An eligible rollover distribution
------------------------------
is any distribution of all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution does not include: any
distribution that is one of a series of substantially equal periodic payments
(not less frequently than annually) made for the life (or life expectancy) of
the distributee or the joint lives (or joint life expectancies) of the
distributee and the distributee's designated Beneficiary, or for a specified
period of ten years or more; any distribution to the extent such distribution is
required under Code Section 401(a)(9); and the portion of any distribution that
is not includible in gross income (determined without regard to the exclusion
for net unrealized appreciation with respect to employer securities).
(2) Eligible retirement plan: An eligible retirement plan is an
------------------------
individual retirement account described in Code Section 408(a), an individual
retirement annuity described in Code Section 408(b), an annuity plan described
in Code Section 403(a) or a qualified trust described in Code Section 401(a),
that accepts the distributee's eligible rollover distribution. However, in the
case of an eligible rollover distribution to the surviving spouse, an eligible
retirement plan is an individual retirement account or individual retirement
annuity.
(3) Distributee: A distributee includes an Employee or former
-----------
Employee. In addition, the Employee's or former Employee's surviving spouse and
the Employee's or former Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code Section
414(p), are distributees with regard to the interest of the spouse or former
spouse.
(4) Direct rollover: A direct rollover is a payment by the Plan to
---------------
the eligible retirement plan specified by the distributee.
11.16 DISTRIBUTIONS PURSUANT TO A QUALIFIED DOMESTIC RELATIONS ORDER
Notwithstanding any provisions in the Plan and this Article Eleven to the
contrary, all distributions under this Plan and Trust shall be subject to the
rights given to an "alternate payee" under a Qualified Domestic Relations Order
(defined in Section 16.3 of the Plan). A distribution to an "alternate payee"
shall be permitted upon the determination of qualification of a domestic
relations order by the Plan Administrator in accordance with the established
policy, regardless of whether or not there is a distributable event for the
Participant. Such distribution may take place upon the "earliest retirement
age," or if the policy permits, in the event that the Participant has not
reached the earliest retirement age, pursuant to Code Section 414(p)(10). No
amendment to the Plan shall be necessary to implement the rights of an alternate
payee, in accordance with the foregoing; provided that the qualified order does
not specifically require the Plan to be amended for special circumstances (for
example, permitting the alternate payee to have individual investment direction
of a segregated account).
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<PAGE>
ARTICLE TWELVE
ANNUITY ELECTION
12.1 APPLICATION OF ARTICLE
The provisions of this Article shall apply to any Participant who is
credited with at least one Hour of Service with the Employer on or after August
23, 1984, and such other Participants as provided in Section 12.1.
12.2 QUALIFIED JOINT AND SURVIVOR ANNUITY
If annuities are permitted as a form of benefit pursuant to Section 1.5(e)
and unless an optional form of benefit is selected within the election period
described in the second paragraph of Section 12.4(a)1, a married Participant's
vested Account Balance will be paid in the form of a Qualified Joint and
Survivor Annuity and an unmarried Participant's vested Account Balance will be
paid in the form of a life annuity. The Participant may elect to have such
annuity distributed upon attainment of the earliest retirement age under the
Plan. Notwithstanding the foregoing, if this Plan accepts a transfer from
another qualified plan which must be paid in the form of an annuity, such
transferred amount will be paid as an annuity.
12.3 QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY
Unless an optional form of benefit has been selected within the election
period pursuant to a qualified election, if a Participant dies before the
annuity starting date then the Participant's vested Account Balance shall be
applied toward the purchase of an annuity for the life of the surviving spouse.
The surviving spouse may elect to have such annuity distributed within a
reasonable period after the Participant's death.
12.4 DEFINITIONS FOR PURPOSES OF SURVIVOR ANNUITIES
(a) Election period: For purposes of the Pre-retirement Survivor Annuity,
---------------
the period which begins on the first day of the Plan Year in which the
Participant attains age 35 and ends on the date of the Participant's death. If
a Participant separates from service prior to the first day of the Plan Year in
which age 35 is attained, with respect to the Account Balance as of the date of
separation, the election period shall begin on the date of separation.
For purposes of the Qualified Joint and Survivor Annuity, the election
period shall mean the ninety (90) day period prior to the Annuity Starting Date.
Pre-age 35 waiver: A Participant who will not yet attain age 35 as of
-----------------
the end of any current plan year may make a special qualified election to waive
the Qualified Pre-retirement Survivor Annuity for the period beginning on the
date of such election and ending on the first day of the Plan Year in which the
Participant will attain age 35. Such election shall not be valid unless the
Participant receives a written explanation of the Qualified Pre-retirement
Survivor Annuity in such terms as are comparable to the explanation required
under Section 12.5(a).
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<PAGE>
Qualified Pre-retirement Survivor Annuity coverage will be automatically
reinstated as of the first day of the Plan Year in which the Participant attains
age 35. Any new waiver on or after such date shall be subject to the full
requirements of this Article.
(b) Earliest retirement age: The earliest date on which, under the Plan,
-----------------------
the Participant could elect to receive retirement benefits.
(c) Qualified election: A waiver of a Qualified Joint and Survivor
------------------
Annuity or a Qualified Pre-retirement Survivor Annuity. Any waiver of a
Qualified Joint and Survivor Annuity or a Qualified Pre-retirement Survivor
Annuity shall not be effective unless: (1) the Participant's spouse consents in
writing to the election; (2) the Participant has designated a specific
Beneficiary, including any class of beneficiaries or any contingent
beneficiaries, which may not be changed without spousal consent (or the spouse
expressly permits designations by the Participant without any further spousal
consent); (3) the spouse's consent acknowledges the effect of the election; and
(4) the spouse's consent is witnessed by a Plan representative or notary public.
Additionally, a Participant's waiver of the Qualified Joint and Survivor Annuity
shall not be effective unless the election designates a form of benefit payment
which may not be changed without spousal consent (or the spouse expressly
permits designations by the Participant without any further spousal consent). If
it is established to the satisfaction of a Plan representative that there is no
spouse or that the spouse cannot be located, a waiver will be deemed a qualified
election.
Any consent by a spouse obtained under this provision (or
establishment that the consent of a spouse may not be obtained) shall be
effective only with respect to such spouse. A consent that permits designations
by the Participant without any requirement of further consent by such spouse
must acknowledge that the spouse has the right to limit consent to a specific
Beneficiary, and a specific form of benefit where applicable, and that the
spouse voluntarily elects to relinquish either or both of such rights. A
revocation of a prior waiver may be made by a Participant without the consent of
the spouse at any time before the commencement of benefits. The number of
revocations shall not be limited. No consent obtained under this provision
shall be valid unless the Participant has received notice as provided in Section
12.5 below.
(d) Spouse (surviving spouse): The spouse or surviving spouse of the
------
Participant, provided that a former spouse will be treated as the spouse or
surviving spouse and a current spouse will not be treated as the spouse or
surviving spouse to the extent provided under a qualified domestic relations
order as described in Section 414(p) of the Code.
(1) Notwithstanding the above, a Qualified Joint and Survivor Annuity,
or a Qualified Pre-retirement Survivor Annuity, will not be provided unless the
Participant and spouse had been married throughout the one (1) year period
ending on the earlier of (i) the Participant's "annuity starting date," or (ii)
the date of the Participant's death; provided, however, that if a Participant
marries within one (1) year before the "annuity starting date," and the
Participant and the Participant's spouse in such marriage have been married for
at least a one (1) year period ending on or before the date of the Participant's
death, such Participant and such
12-2
<PAGE>
spouse shall be treated as having been married throughout the one (1) year
period ending on the Participant's "annuity starting date."
(e) Annuity starting date: The first day of the first period for which an
---------------------
amount is paid as an annuity or any other form.
(f) Vested Account Balance: The aggregate value of the Participant's
----------------------
vested Account Balances derived from Employer and Employee contributions
(including rollovers), whether vested before or upon death, including the
proceeds of insurance contracts, if any, on the Participant's life. The
provisions of this Article shall apply to a Participant who is vested in amounts
attributable to Employer Contributions, Employee contributions (or both) at the
time of death or distribution.
(g) Applicable Election Period: In the case of an election to waive the
--------------------------
Qualified Joint and Survivor Annuity form of benefit, the Annuity Election
Period, or in the case of an election to waive the Qualified Pre-retirement
Survivor Annuity form of benefit, the Survivor Annuity Election Period.
12.5 NOTICE REQUIREMENTS
(a) In the case of a Qualified Joint and Survivor Annuity, the Committee
shall, no less than 30 days and no more than 90 days prior to the annuity
starting date, provide each Participant a written explanation of: (i) the terms
and conditions of a Qualified Joint and Survivor Annuity; (ii) the Participant's
right to make and the effect of an election to waive the Qualified Joint and
Survivor Annuity form of benefit; (iii) the rights of a Participant's spouse;
and (iv) the right to make, and the effect of, a revocation of a previous
election to waive the Qualified Joint and Survivor Annuity.
(b) In the case of a Qualified Pre-retirement Survivor Annuity as
described in Section 12.3 of this Article, the Committee shall provide each
Participant within the applicable period for such Participant, a written
explanation of the Qualified Pre-retirement Survivor Annuity in such terms and
in such manner as would be comparable to the explanation provided for meeting
the requirements of Section 12.5(a) applicable to a Qualified Joint and Survivor
Annuity.
(c) The applicable period for a Participant is whichever of the following
periods ends last: (i) the period beginning with the first day of the Plan Year
in which the Participant attains age 32 and ending with the close of the Plan
Year preceding the Plan Year in which the Participant attains age 35; (ii) a
reasonable period ending after the individual becomes a Participant; (iii) a
reasonable period ending after the Annuity is no longer fully subsidized; (iv) a
reasonable period ending after this Article first applies to the Participant.
Notwithstanding the foregoing, notice must be provided within a reasonable
period ending after separation from service in the case of a Participant who
separates from service before attaining age 35.
(d) For purposes of applying the preceding Section 12.5(c), a reasonable
period ending after the enumerated events described in (ii), (iii) and (iv) is
the end of the two-year period beginning one year prior to the date the
applicable event occurs, and ending one year after
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<PAGE>
that date. In the case of a Participant who separates from service before the
Plan Year in which age 35 is attained, notice shall be provided within the two-
year period beginning one year prior to separation and ending one year after
separation. If such a Participant thereafter returns to employment with the
Employer, the applicable period for such Participant shall be redetermined.
(e) Notwithstanding the other requirements of this Section 12.5, the
respective notices prescribed by this Section need not be given to a Participant
if (1) the Plan fully subsidizes: the costs of a Qualified Joint and Survivor
Annuity or Qualified Pre-retirement Survivor Annuity and does not allow a
married Participant to designate a nonspouse beneficiary. For purposes of this
Section, a plan fully subsidizes the costs of a benefit if no increase in cost,
or decrease in benefits to the Participant may result from the Participant's
failure to elect another benefit.
(f) Effective January 1, 1994, if a distribution is one to which Code
Sections 401(a)(11) and 417 do not apply, such distribution may commence less
than 30 days after the notice required under IRS Reg. Section 1.411(a)-11(c) is
given, provided that:
(1) the Plan Administrator clearly informs the Participant that the
Participant has a right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect a distribution (and,
if applicable, a particular distribution option), and
(2) the Participant, after receiving the notice, affirmatively elects
a distribution.
12.6 SAFE HARBOR RULES
(a) This Section shall apply to a Participant in a profit sharing plan,
and to any distribution, made on or after the first day of the first Plan Year
beginning after December 31, 1988, from or under a separate account attributable
solely to accumulated deductible Employee contributions, as defined in Section
72(o)(5)(B) of the Code, and maintained on behalf of a Participant in a money
purchase pension plan, (including a target benefit plan) if the following
conditions are satisfied: (1) the Participant does not or cannot elect payments
in the form of a life annuity; and (2) on the death of a Participant, the
Participant's vested account balance will be paid to the Participant's surviving
spouse, but if there is no surviving spouse, or if the surviving spouse has
consented in a manner conforming to a qualified election, then to the
Participant's designated Beneficiary. The surviving spouse may elect to have
distribution of the vested account balance commence within the 90-day period
following the date of the Participant's death. The account balance shall be
adjusted for gains or losses occurring after the Participant's death in
accordance with the provisions of the Plan governing the adjustment of account
balances for other types of distributions. This Section shall not be operative
with respect to a Participant in a profit sharing plan if the plan is a direct
or indirect transferee of a defined benefit plan, money purchase plan, a target
benefit plan, stock bonus, or profit sharing plan which is subject to the
survivor annuity requirements of Section 401(a)(11) and Section 417 of the Code.
If this Section is operative, then the provisions of this Article, other than
Section 12.7, shall be inoperative.
12-4
<PAGE>
(b) The Participant may waive the spousal death benefit described in this
Section at any time provided that no such waiver shall be effective unless it
satisfies the conditions (described in Section 12.4(c)) that would apply to the
Participant's waiver of the Qualified Pre-retirement Survivor Annuity.
(c) For purposes of this Section, vested account balance shall mean, in
the case of a money purchase pension plan or a target benefit plan, the
Participant's separate account balance attributable solely to accumulated
deductible Employee contributions within the meaning of Section 72(o)(5)(B) of
the Code. In the case of a profit sharing plan, vested account balance shall
have the same meaning as provided in Section 12.4(f).
12.7 TRANSITIONAL RULES
(a) Any living Participant not receiving benefits on August 23, 1984, who
would otherwise not receive the benefits prescribed by the previous Sections of
this Article must be given the opportunity to elect to have the prior Sections
of this Article apply if such Participant is credited with at least one Hour of
Service under this Plan or a predecessor Plan in a Plan Year beginning on or
after January 1, 1976, and such Participant had at least ten (10) years of
vesting service when the Participant separated from service.
(b) Any living Participant not receiving benefits on August 23, 1984, who
was credited with at least one Hour of Service under this Plan or a predecessor
plan on or after September 2, 1974, and who is not otherwise credited with any
service in a Plan Year beginning on or after January 1, 1976, must be given the
opportunity to have the Participant's benefits paid in accordance with Section
12.7(d) of this Article.
(c) The respective opportunities to elect (as described in Section 12.7(a)
and Section 12.7(b) above) must be afforded to the appropriate Participants
during the period commencing on August 23, 1984, and ending on the date benefits
would otherwise commence to said Participants.
(d) Any Participant who has elected pursuant to Section 12.7(b) of this
Article and any Participant who does not elect under Section 12.7(a) or who
meets the requirements of Section 12.7(a) except that such Participant does not
have at least ten (10) years of vesting service when the Participant separates
from service, shall have the Participant's benefits distributed in accordance
with all of the following requirements if benefits would have been payable in
the form of a life annuity:
(1) Automatic joint and survivor annuity. If benefits in the form of
------------------------------------
a life annuity become payable to a married Participant who:
(i) begins to receive payments under the Plan on or after Normal
Retirement Age; or
(ii) dies on or after Normal Retirement Age while still working
for the Employer; or
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<PAGE>
(iii) begins to receive payments on or after the qualified early
retirement age; or
(iv) separates from service on or after attaining Normal
Retirement Age (or the qualified early retirement age) and after satisfying the
eligibility requirements for the payment of benefits under the Plan and
thereafter dies before beginning to receive such benefits;
then such benefits will be received under this Plan in the form
of a Qualified Joint and Survivor Annuity, unless the Participant has elected
otherwise during the election period. The election period must begin at least 6
months before the Participant attains qualified early retirement age and end not
more than 90 days before the commencement of benefits. Any election hereunder
will be in writing and may be changed by the Participant at any time.
(2) Election of early survivor annuity. A Participant who is
----------------------------------
employed after attaining the qualified early retirement age will be given the
opportunity to elect, during the election period, to have a survivor annuity
payable on death. If the Participant elects the survivor annuity, payments under
such annuity must not be less than the payments which would have been made to
the spouse under the Qualified Joint and Survivor Annuity if the Participant had
retired on the day before the Participant's death. Any election under this
provision will be in writing and may be changed by the Participant at any time.
The election period begins on the later of (1) the 90th day before the
Participant attains the qualified early retirement age, or (2) the date on which
participation begins, and ends on the date the Participant terminates
employment.
(3) For purposes of this Section 12.7(d):
(i) Qualified early retirement age is the latest of:
(a) the earliest date, under the Plan, on which the
Participant may elect to receive retirement benefits,
(b) the first day of the 120th month beginning before the
Participant reaches Normal Retirement Age, or
(c) the date the Participant begins participation.
(ii) Qualified Joint and Survivor Annuity is an annuity for the
life of the Participant with an survivor annuity for the life of the spouse as
described in Section 2.41 of Article Two.
12.8 CASH-OUTS
(a) If the value of a Participant's vested account balance derived from
Employer and Employee contributions exceeds (or at the time of any prior
distribution exceeded) $3,500, and the account balance is immediately
distributable, the Participant and the Participant's spouse (or where either the
Participant or the spouse has died, the survivor) must consent to any
distribution
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of such account balance. The consent of the Participant and the Participant's
spouse shall be obtained in writing within the 90-day period ending on the
annuity starting date. The annuity starting date is the first day of the first
period for which an amount is paid as an annuity or any other form. The
Committee shall notify the Participant and the Participant's spouse of the right
to defer any distribution until the Participant's account balance is no longer
immediately distributable. Such notification shall include a general description
of the material features, and an explanation of the relative values of, the
optional forms of benefit available under the Plan in a manner that would
satisfy the notice requirements of Section 417(a)(3) of the Code, and shall be
provided no less than 30 days and no more than 90 days prior to the annuity
starting date.
(b) Notwithstanding the foregoing, only the Participant need consent to
the commencement of a distribution in the form of a Qualified Joint and Survivor
Annuity while the account balance is immediately distributable. (Furthermore, if
payment in the form of a Qualified Joint and Survivor Annuity is not required
with respect to the Participant pursuant to Section 12.2 of the Plan, only the
Participant need consent to the distribution of an account balance that is
immediately distributable.) Neither the consent of the Participant nor the
Participant's spouse shall be required to the extent that a distribution is
required to satisfy Section 401(a)(9) or Section 415 of the Code. In addition,
upon termination of this Plan if the Plan does not offer an annuity option
(purchased from a commercial provider), the Participant's account balance may,
without the Participant's consent, be distributed to the Participant or
transferred to another defined contribution plan (other than an Employee stock
ownership plan as defined in Section 4975(e)(7) of the Code) within the same
controlled group.
(c) An account balance is immediately distributable if any part of the
account balance could be distributed to the Participant (or surviving spouse)
before the Participant attains (or would have attained if not deceased) the
later of Normal Retirement Age or age 62.
(d) For purposes of determining the applicability of the foregoing consent
requirements to distribution made before the first day of the first Plan Year
beginning after December 31, 1988, the Participant's vested account balance
shall not include amounts attributable to accumulated deductible Employee
contributions within the meaning of Section 72(o)(5)(B) of the Code.
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ARTICLE THIRTEEN
PAYMENTS UPON DEATH
13.1 SELECTION OF BENEFICIARY
If the Participant does not designate a Beneficiary, then the Committee
shall select a Beneficiary in accord with the provisions of Section 2.6 to
receive proceeds payable upon the death of such Participant and shall select any
available method of payment. If the Beneficiary designated by the Participant
is other than the Participant's spouse, the Participant must furnish to the
Committee the written consent of the Participant's spouse in accordance with
Section 12.4(c) of the Plan.
13.2 PROCEDURE UPON DEATH
(a) Subject to Article One, upon the death of a Participant, or a
terminated or retired Participant for whom benefits are still held hereunder by
the Trustee, the Beneficiary or legal representative of the decedent shall make
an application for benefits to the Committee. If the application for benefits
is granted, the Committee shall cooperate with the Beneficiary so that the
Beneficiary may receive the benefits so held by the Trustee for such present or
former Participant and shall suitably direct the Trustee as to the action to be
taken by the Trustee hereunder. If the death of a Participant occurs prior to
the Participant's Normal Retirement Date and before receipt of any payment
hereunder, the benefit payable to the surviving spouse or other Beneficiary
designated in accordance with the terms of the Plan shall be (i) the amount
payable under any insurance and annuity contracts, and (ii) an amount equal to
the Participant's Account and Employee Contribution Account not attributable to
such insurance or annuity contracts. Such death benefit shall be incidental and
shall take into account amounts paid as a Qualified Pre-Retirement Survivor
Annuity or a Qualified Joint and Survivor Annuity, if applicable under the Plan.
(b) The Committee shall direct the Trustee to distribute the benefits so
determined to the Beneficiary designated, if any, otherwise to the surviving
spouse of the deceased Participant, if any, otherwise to the executor or
administrator of the Participant's estate in a form equivalent to a Qualified
Pre-retirement Survivor Annuity, unless otherwise elected in accordance with
Article Twelve hereof. If so elected, then such distribution shall be in the
form of an optional mode in accordance with Section 11.2 of the Plan.
(c) If the Participant dies after distribution of the Participant's
interest has commenced, the remaining portion of such interest will continue to
be distributed at least as rapidly as under the method of distribution being
used prior to the Participant's death.
(d) If the Participant dies before distribution of the Participant's
interest commences, the Participant's entire interest will be distributed no
later than five (5) years after the Participant's death unless distribution is
made in accordance with the following options:
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(i) if any portion of the Participant's interest is payable to a
designated Beneficiary, distributions may be made in substantially equal
installments over the life or life expectancy of the designated Beneficiary
commencing no later than one (1) year after the Participant's death;
(ii) if the designated Beneficiary is the Participant's surviving
spouse, the date distributions are required to begin in accordance with (i)
above shall not be earlier than the date on which the Participant would have
attained age seventy and one-half (70-1/2), and, if the spouse dies before
payments begin, subsequent distributions shall be made as if the spouse had been
the Participant.
(e) For purposes of Section 13.2(d) above, payments will be calculated by
use of the return multiples specified in Section 1.72-9 of the Regulations under
the Code. Life expectancy of a surviving spouse may be recalculated annually,
however, in the case of any other designated Beneficiary, such life expectancy
will be calculated at the time payment first commences without further
recalculation.
(f) For purposes of this Section, any amount paid to a child of the
Participant will be treated as if it had been paid to the surviving spouse if
the amount becomes payable to the surviving spouse when the child reaches the
age of majority.
13.3 PAYMENT OF TAXES
If the whole or any portion of the Trust Fund shall become liable for the
payment of any income, estate, inheritance or other tax, charge or assessment
which the Trustee may be required to pay, the Trustee is hereby authorized to
pay any such tax, charge or assessment from any money or other property held for
the account of the person whose interest in the Trust Fund is still liable. At
least ten (10) days prior to any such payment, the Trustee shall notify the
Committee in writing of its intention to make such payment, and the Trustee may
require such receipts, releases or other document from the taxing authority as
it may deem necessary.
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ARTICLE FOURTEEN
SPECIAL RULES FOR TOP-HEAVY PLANS
14. CONTINGENT RULES
If the Plan is or becomes top-heavy in any Plan Year beginning after
December 31, 1983, the provisions of Sections 14.1(a), 14.1(d) and 14.1(h) will
supersede any conflicting provisions in the Plan.
(a) For any Plan Year in which this Plan is top-heavy, the minimum vesting
schedule of Section 1.4(c) will automatically apply to the Plan. In no event
shall the vesting schedule in Section 1.4(c) fail to satisfy the requirements of
Code Section 416(b). The minimum vesting schedule applies to all benefits
within the meaning of Section 411(a)(7) of the Code except those attributable to
Employee contributions, including benefits accrued before the Effective Date of
Section 416 and benefits accrued before the Plan became top-heavy. Further, no
decrease in a Participant's nonforfeitable percentage may occur in the event the
Plan's status as top-heavy changes for the Plan Year. However, this Section
does not apply to the account balances of any Employee who does not have an Hour
of Service after the Plan has Initially become top-heavy and such Employee's
vested account balance attributable to Employer Contributions and forfeitures
will be determined without regard to this Paragraph.
(b) Except to the extent inconsistent with the provisions of this Section,
the rules of Article Five shall apply for purposes of this Section. All Account
Balances must be subject to the minimum vesting schedule including benefits
accrued before January 1, 1984 and benefits accrued before the Plan becomes a
Top-Heavy Plan.
(c) In any Plan Year in which the Plan ceases to be a Top-Heavy Plan, the
vesting schedule may change to the vesting schedule set forth in Section 1.4(b)
herein. However, any portion of the Account Balance that was nonforfeitable
before the Plan ceased to be a Top-Heavy Plan must remain nonforfeitable and any
Participant with three (3) or more Years of Service must be given the option of
remaining under the prior minimum vesting schedule set forth in this Article.
An election by the Participant will be in accordance with the period provided
under Section 5.6 of this Plan.
(d) Except as otherwise provided in Sections 14.1(f) and 14.1(g) below, the
Employer Contributions and forfeitures allocated on behalf of any Participant
who is not a Key Employee shall not be less than the lesser of the amount set
forth in Section 1.3(j) or in the case where the Employer has no defined benefit
plan which designates this Plan to satisfy Section 401 of the Code, the largest
percentage of Employer Contributions and forfeitures, which is allocated on
behalf of any Key Employee for that year. The minimum allocation is determined
without regard to any Social Security contribution. This minimum allocation
shall be made even though, under other Plan provisions, the Participant would
not otherwise be entitled to receive an allocation, or would have received a
lesser allocation for the year because of (i) the Participant's failure to
complete 1,000 Hours of Service (or any equivalent provided in the Plan), or
(ii) the Participant's
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failure to make mandatory Employee contributions to the Plan, or (iii)
Compensation less than a stated amount.
(e) For purposes of computing the minimum allocation, Compensation shall
mean 415 Compensation as defined in Section 4.19(m)(1) of the Plan. However,
the Employer may elect, on a uniform, consistent and nondiscriminatory basis, to
define Compensation for purposes of this Section 14.1(e) as W-2 Compensation.
For purposes of determining who is a Key Employee, Compensation shall
be defined as Code Section 415(c)(3) compensation, including within such
compensation amounts contributed by the Employer pursuant to a cash or deferred
arrangement.
(f) The provision in Section 14.1(d) above shall not apply to any
Participant who was not employed by the Employer on the last day of the Plan
Year unless otherwise required by Section 1.3(c)(5) and Section 1.3(d)(3).
(g) The provision in 14.1(d) above shall not apply to any Participant to
the extent the Participant is covered under any other plan or plans of the
Employer and the Employer has provided in Section 1.3(e) that the minimum
allocation or benefit requirement applicable to Top-Heavy Plans will be met in
the other plan or plans.
(1) For purposes of this subsection, all defined contribution plans
required to be included in an Aggregation Group shall be treated as one plan.
(2) This Paragraph shall not apply if the Plan is required to be
included in an Aggregation Group and the Plan enables a defined benefit plan
required to be included in such group to meet the requirements of Section
401(a)(4) or Section 410 of the Code.
(3) All Employer Contributions attributable to salary reduction,
Participant deferral or similar arrangement shall be taken into account in
determining minimum contributions under this Section.
(h) With respect to limitation on Compensation, the Plan meets the
requirements of this Paragraph if the Compensation of each Participant taken
into account under the Plan does not exceed the first Two Hundred Thousand
Dollars ($200,000.00) for each Top-Heavy Plan Year.
(i) The limitation on Compensation shall be automatically adjusted in
accordance with Regulations under Section 416 of the Code.
(j) The minimum allocation required (to the extent required to be
nonforfeitable under Section 416(b) of the Code) may not be forfeited under
Section 411(a)(3)(B) or 411(a)(3)(D) of the Code.
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14.2 NO IMPUTED SOCIAL SECURITY BENEFITS
A Top-Heavy Plan shall not be treated as meeting the minimum vesting and
benefit requirements under this Article unless such Plan meets the requirements
without taking into account contributions or benefits under Chapters 2 or 21 of
the Code, Title II of the Social Security Act, or any other Federal or State
law.
14.3 COORDINATION OF TWO OR MORE PLANS OF EMPLOYER
A minimum contribution equal to the amount stated in Section 1.3(k) shall
be made for all eligible Non-Key Employees. In the event that no election has
been made under Section 1.3(k), where the Employer maintains a defined benefit
plan and a defined contribution plan, Non-Key Employees who participate under
both plans will be entitled to a guaranteed minimum contribution equal to five
percent (5%) of Compensation from the defined contribution plan on a non-
integrated basis; however, if no defined contribution plan is maintained by the
Employer, or if the required defined contribution plan contribution is less than
five percent (5%) of Compensation, then Non-Key Employees will be entitled to
guaranteed minimum benefits from the Employer's defined benefit pension plan.
14.4 BENEFITS NOT TAKEN INTO ACCOUNT FOR PURPOSES OF DETERMINING WHETHER SUCH
PLAN IS A TOP-HEAVY PLAN
In determining whether such Plan is a Top-Heavy Plan (or whether any
Aggregation Group which includes such Plan is a Top-Heavy Group), the following
benefits shall not be taken into account:
(a) Except to the extent provided in Regulations under the Code, any
rollover contribution (or similar transfer) initiated by the Participant and
made after December 31, 1983, to a Plan shall not be taken into account with
respect to the transferee Plan; and
(b) If any Participant is a Non-Key Employee with respect to the Plan for
any Plan Year, but such Participant was a Key Employee with respect to such Plan
for any prior Plan Year, the account of such Participant shall not be taken into
account.
14.5 ADJUSTMENT TO SECTION 415 LIMITATIONS FOR TOP-HEAVY PLANS
In any Plan Year in which the Plan is a Top-heavy Plan, and the Employer
maintains both a defined benefit and a defined contribution plan, the Plan
fractions, as set forth in the definitions of Defined Benefit Plan Fraction and
Defined Contribution Plan Fraction hereof, shall be applied by substituting
"1.0" for "1.25."
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14.6 EXCEPTION WHERE BENEFITS FOR KEY EMPLOYEES DO NOT EXCEED 90% OF TOTAL
BENEFITS AND ADDITIONAL CONTRIBUTIONS ARE MADE FOR NON-KEY EMPLOYEES
Plan Section 14.5 Shall not apply with respect to any Plan Year in which
the Plan is a Top-Heavy Plan if the requirements of Sections 14.6(a) and 14.6(b)
below are met with respect to this Plan:
(a) With respect to minimum benefit requirements, the Employer
Contributions for the Plan Year for each Participant who is a Non-key Employee
shall not be less than four percent (4%) of such Participant's Compensation.
Except to the extent inconsistent with the provisions of this subsection,
the rules of Section 14.1 of this Plan shall apply for purposes of this
subsection.
(b) With respect to minimum total benefits for Key Employees, the Plan
will meet the requirements of this Section if the Plan would not be a Top-Heavy
Plan if "90%" were substituted for "60%" each place it appears in the definition
of Top-Heavy Plan herein.
14.7 TRANSITIONAL RULE
If, but for this Section, Section 14.5 would begin to apply with respect
to any Plan Year in which the Plan is a Top-Heavy Plan, the application of
Section 14.5 shall be suspended with respect to any Participant so long as there
are no Employer Contributions, forfeitures or voluntary nondeductible
contributions allocated to such Participant.
14.8 TOP-HEAVY DEFINITIONS
(a) Top-heavy ratio:
---------------
(1) If the Employer maintains one or more defined contribution plans
(including any simplified employee pension plan) and the Employer has not
maintained any defined benefit plan which during the 5-year period ending on the
Determination Date(s) has or has had accrued benefits, the top-heavy ratio for
this Plan alone or for the required or permissive Aggregation Group as
appropriate is a fraction, the numerator of which is the sum of the account
balances of all Key Employees as of the Determination Date(s) (including any
part of any account balance distributed in the 5-year period ending on the
Determination Date(s)), and the denominator of which is the sum of all account
balances (including any part of any account balance distributed in the 5-year
period ending on the Determination Date(s)), both computed in accordance with
Section 416 of the Code and the regulations thereunder. Both the numerator and
denominator of the top-heavy ratio are increased to reflect any contribution not
actually made as of the Determination Date, but which is required to be taken
into account on that date under Section 416 of the Code and the regulations
thereunder.
(2) If the Employer maintains one or more defined contribution plans
(including any simplified employee pension plan) and the Employer maintains or
has maintained
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one or more defined benefit plans which during the 5-year period ending on the
Determination Date(s) has or has had any accrued benefits, the top-heavy ratio
for any required or permissive Aggregation Group as appropriate is a fraction,
the numerator of which is the sum of account balances under the aggregated
defined contribution plan or plans for all Key Employees, determined in
accordance with (a) above, and the present value of accrued benefits under the
aggregated defined benefit plan or plans for all Key Employees as of the
Determination Date(s), and the denominator of which is the sum of the account
balances under the aggregated defined contribution plan or plans for all
Participants, determined in accordance with (a) above, and the present value of
accrued benefits under the defined benefit plan or plans for all Participants as
of the Determination Date(s), all determined in accordance with Section 416 of
the Code and the regulations thereunder. The accrued benefits under a defined
benefit plan in both the numerator and denominator of the top-heavy ratio are
increased for any distribution of an accrued benefit made in the five-year
period ending on the Determination Date.
(3) For purposes of (a) and (b) above the value of account balances
and the present value of accrued benefits will be determined as of the most
recent valuation date that falls within or ends with the twelve (12) month
period ending on the Determination Date, except as provided in Section 416 of
the Code and the Regulations thereunder for the first and second plan years of a
defined benefit plan. The account balances and accrued benefits of a
Participant (1) who is not a Key Employee but who was a Key Employee in a prior
year, or (2) who has not been credited with at least one Hour of Service with
any Employer maintaining the Plan at any time during the 5-year period ending on
the Determination Date will be disregarded. The calculation of the top-heavy
ratio, and the extent to which distributions, rollovers, and transfers are taken
into account will be made in accordance with Section 416 of the Code and the
Regulations thereunder. Deductible Employee contributions will not be taken
into account for purposes of computing the top-heavy ratio. When aggregating
Plans the value of account balances and accrued benefits will be calculated with
reference to the Determination Dates that fall within the same calendar year.
The accrued benefit of a Participant other than a Key Employee
shall be determined under (a) the method, if any, that uniformly applies for
accrual purposes under all defined benefit plans maintained by the Employer, or
(b) if there is no such method, as if such benefit accrued not more rapidly than
the slowest accrual rate permitted under the fractional rule of Section
411(b)(1)(C) of the Code.
(4) Permissive Aggregation Group: The required Aggregation Group of
Plans plus any other plan or plans of the Employer which, when considered as a
group with the required Aggregation Group, would continue to satisfy the
requirements of Sections 401(a)(4) and 410 of the Code.
(5) Required Aggregation Group: (1) Each qualified plan of the
Employer in which at least one Key Employee participates or participated at any
time during the determination period (regardless of whether the Plan has
terminated), and (2) any other qualified plan of the Employer which enables a
plan described in (1) to meet the requirements of Sections 401(a)(4) or 410 of
the Code.
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(6) Determination Date: For any Plan Year subsequent to the first
Plan Year, the last day of the preceding Plan Year. For the first Plan Year of
the Plan, the last day of that year.
(7) Top-Heavy Group: Any Aggregation Group if the sum (as of the
Determination Date) of (i) the present value of the cumulative accrued benefits
for Key Employees under all defined benefit plans included in such group, and
(ii) the aggregate of the accounts of Key Employees under all defined
contribution plans included in such group, exceed sixty percent (60%) of a
similar sum determined for all Employees, excluding former Key Employees. For
purposes of determining the present value of the cumulative benefit for any
Participant, or the amount of the account of any Participant, such present value
or amount shall be determined in accordance with Regulations issued by the
Department of Treasury and such present value or amount shall be increased by
the aggregate distributions made with respect to such Participant under the Plan
during the five (5) year period ending on the Determination Date.
Account balances shall be determined as of the most recent
valuation date occurring within a twelve (12) month period ending on the
Determination Date and shall be adjusted for contributions due or made as of the
Determination Date.
If an Aggregation Group includes two (2) or more defined benefit
plans, the same actuarial assumptions must be used with respect to all such
plans and must be specified in such plans.
(8) Top-heavy Plan shall mean for any Plan Year beginning after
December 31, 1983, this Plan is top-heavy if any of the following conditions
exists:
(i) if the top-heavy ratio for this Plan exceeds 60 percent
and this Plan is not part of any required Aggregation Group or permissive
Aggregation Group of plans, or
(ii) if this Plan is part of a required Aggregation Group of
plans but not part of a permissive Aggregation Group and the top-heavy ratio for
the group or plans exceeds sixty (60) percent, or
(iii) if this Plan is part of a required Aggregation Group and
part of a permissive Aggregation Group of plans and the top-heavy ratio for the
permissive Aggregation Group exceeds 60 percent.
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ARTICLE FIFTEEN
AMENDMENT, TERMINATION AND MERGER
15.1 AMENDMENT OF PLAN
The Employer shall have the right to amend this Plan from time to time,
and to amend or cancel any amendments. Such amendments shall be stated in an
instrument in writing, executed by the Employer in the same manner as this Plan.
This Plan shall be amended in the manner and at the time therein set forth, and
all Participants shall be bound thereby, subject to the following:
(a) No amendment shall cause any of the assets of the Trust to be used for
or diverted to purposes other than for the exclusive benefit of Participants or
their Beneficiaries. The Trustee may however direct that assets be used to pay
reasonable expenses of the Trust.
(b) No amendment shall have any retroactive effect which deprives any
Participant of any benefit already vested, except that such changes, if any, as
may be required to permit the Plan to meet the requirements of the Code, or of
the corresponding provisions of any subsequent revenue law, may be made to
assure the deductibility for tax purposes of any Employer Contributions.
(c) No amendment shall have the effect of reducing early retirement
benefits or other optional retirement benefits under the Plan accrued to the
date of the amendment for any Participant who at any time on or after the
amendment satisfied the pre-amendment conditions for such benefits.
(d) No amendment shall have the effect of eliminating "Code Section
411(d)(6) protected benefits" without preserving such benefits as of the later
of the adoption or effective date of such amendment.
(e) No amendment shall create or effect any discrimination in favor of
Participants who are officers, shareholders or Highly Compensated Employees.
(f) No amendment shall increase the duties or liabilities of the Trustee
without the Trustee's written consent.
(g) No amendment shall decrease a Participant's Account balance or
eliminate an optional mode of distribution except to the extent permitted under
Section 412(c)(8) of the Code.
15.2 DISCONTINUANCE AND TERMINATION
(a) This Plan is irrevocable and it is the expectation of the Employer
that this Plan and the payment of contributions hereunder will be continued
indefinitely, but continuance of the Plan is not assumed as a contractual
obligation of the Employer, and the right is reserved at any time to reduce,
suspend or discontinue contributions hereunder. In the event of a complete
discontinuance of Employer Contributions, each Participant shall have a one
hundred percent (100%) vested interest in his Account.
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(b) The Employer may terminate this Plan at any time upon fifteen (15)
days' written notice to the Trustee. Upon termination, or partial termination,
of the Plan or upon complete discontinuance of contributions to the Plan, the
entire interest of each of the Participants shall immediately vest one hundred
percent (100%). The Trustee shall, with reasonable promptness, liquidate all
assets remaining in the Trust. Upon the liquidation of all assets and after
deducting estimated expense for liquidation and distribution, the Committee
shall make the allocations required under Article Four, where applicable, with
the same effect as though the date of completion of liquidation was an
Anniversary Date of the Plan. Following these allocations, the Trustee shall
promptly distribute to each former Participant a benefit equal to the amount
credited to the Participant's accounts as of the date of completion of
liquidation, after receipt of appropriate instructions from the Committee.
15.3 MERGER AND CONSOLIDATION
In the event that this Plan merges or consolidates with, or transfers its
assets or liabilities to, any other qualified plan of deferred compensation, no
Participant shall, solely on account of such merger, consolidation or transfer,
be entitled to a benefit on the day following such event which is less than the
benefit to which the Participant was entitled on the day preceding such event.
For the purpose of this Section, the benefit to which a Participant is entitled
shall be calculated based upon the assumption that a Plan termination and
distribution of assets occurred on the day as of which the amount of the
Participant's entitlement is being determined.
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ARTICLE SIXTEEN
MISCELLANEOUS PROVISIONS
16.1 LIMITATION ON EMPLOYEES' RIGHTS
Participation in this Plan shall not give any Employee the right to be
retained in the Employer's employ or any right or interest in the Plan or Trust
other than as herein provided. The Employer reserves the right to dismiss any
Employee without any liability for any claim either against the Plan or Trust,
except to the extent provided herein, or against the Employer.
16.2 NON-ASSIGNABILITY
(a) The policies and benefits hereunder are intended for the protection of
the Participants and their Beneficiaries. No retirement income insurance or
annuity policy or Trust property shall be transferable except by the Trustee as
directed by the Committee. No part of or interest in or under this Trust shall
be transferable or assignable in any manner, either by voluntary or involuntary
act of such Employee or Beneficiary or by operation of law, nor shall the same
be liable or be taken for any debt, liability, contract or any other obligation
of any such Employee or Beneficiary, except that the Committee may permit the
voluntary, revocable assignment of up to ten percent (10%) of any benefit
payment by any Participant who is receiving benefits under the Plan.
(b) No benefit or interest available hereunder will be subject to
assignment or alienation, either voluntarily or involuntarily. The preceding
sentence shall also apply to the creation, assignment, or recognition of a right
to any benefit payable with respect to a Participant pursuant to a domestic
relations order, unless such order is determined to be a qualified domestic
relations order, as defined in Section 414(p) of the Code, or any domestic
relations order entered before January 1, 1985.
16.3 QUALIFIED DOMESTIC RELATIONS ORDERS
(a) In the case of any domestic relations order, regardless of whether
such order is a "qualified domestic relations order," within the meaning of
Section 414(p) of the Code, received by the Plan, the Committee shall notify the
Participant to whom the order relates and any "alternate payee" of the receipt
of such order and the Plan's procedures for determining whether such order is a
"qualified domestic relations order", within the meaning of Section 414(p) of
the Code. Within eighteen 18 months after receipt of such order, the Committee
shall determine whether such order is a "qualified domestic relations order,"
within the meaning of Section 414(p) of the Code, and shall notify the
Participant to whom the order relates and each "alternate payee" of such
determination.
(b) During any period in which the issue of whether a domestic relations
order is a "qualified domestic relations order," within the meaning of Section
414(p) of the Code, is being determined (by the Committee, by a court of
competent jurisdiction or otherwise), the Committee shall direct the Trustee to
segregate in a separate account in the Plan or in an escrow account the
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amounts which would have been payable to the "alternate payee" during such
period if the order had been determined to be a "qualified domestic relations
order," within the meaning of Section 414(p) of the Code. Such segregation is
not required for amounts that would not otherwise be paid during the period of
the determination.
(c) If, within eighteen (18) months after receipt by the Plan of a
domestic relations order, the order (or modification thereof) is determined to
be a "qualified domestic relations order," within the meaning of Section 414(p)
of the Code, the Committee shall direct the Trustee to pay the amounts
segregated pursuant to Section 16.3(b) (plus any interest thereon) to the person
or persons entitled thereto. If, however, within such eighteen (18) month period
(i) it is determined that such order is not a "qualified domestic relations
order," within the meaning of Section 414(p) of the Code, or (ii) the issue as
to whether such order is a "qualified domestic relations order" is not resolved,
the Committee may direct the Trustee: (1) to return the segregated amounts to
the Participant's (Non-alternate payee) Account(s) - in the case of an active
Participant; (2) to set up an account for the benefit of the alternate payee for
such money until such time the issue is resolved; or, (3) to pay the amounts
segregated pursuant to Section 16.3(b) (plus any interest thereon) to the person
or persons who would have been entitled to such amounts if there had been no
order, subject to the payee executing a release exempting the Plan and Trust
from any future obligations resulting from the domestic relations proceedings.
Any determination that an order is a "qualified domestic relations order" which
is made after the close of such eighteen (18) month period shall be applied
prospectively only.
(d) The Committee shall establish reasonable procedures to determine
whether domestic relations orders are "qualified domestic relations orders,"
within the meaning of Section 414(p) of the Code, and to administer
distributions under "qualified domestic relations orders". Such procedures (i)
shall be in writing, (ii) shall provide for the notification, at the address
included in the domestic relations order, of each person specified in a domestic
relations order as entitled to payment of benefits under the Plan of such
procedures promptly upon receipt of the Plan of the domestic relations order and
(iii) shall permit an "alternative payee" to designate a representative for
receipt of copies of notices that are sent to the "alternate payee" with respect
to a domestic relations order.
(e) To the extent provided in any "qualified domestic relations order,"
within the meaning of Section 414(p) of the Code, the former spouse of a
Participant shall be treated as a surviving spouse of such Participant for
purposes of Sections 12.2 through Section 12.7 of this Plan (relating to
Qualified Pre-retirement Survivor Annuities and Qualified Joint and Survivor
Annuities) and, if married to the Participant for at least one (1) year, the
surviving spouse shall be treated as meeting the requirements of Section 12.4(d)
of this Plan.
(f) Special Definitions - For purposes of this Section 16.3, the following
terms are defined as follows:
(1) "Alternate payee" shall mean any spouse, former spouse, child or
other dependent of a Participant who is recognized by a domestic relations order
as having a right to
16-2
<PAGE>
receive all, or a portion, of the Account Balances payable under this Plan with
respect to such Participant.
(2) "Domestic relations order" shall mean any judgment, decree or
order (including approval of a property settlement agreement) which (A) relates
to the provision of child support, alimony payments, or marital property rights
to a spouse, former spouse, child, or other dependent of a Participant and (B)
is made pursuant to a State domestic relations law (including a community
property law).
(3) "Qualified domestic relations order" shall mean a domestic
relations order which creates or recognizes the existence of an alternate
payee's right to, or assigns to an alternate payee the right to, receive all or
a portion of the Account Balances payable with respect to a Participant under
this Plan and which meets the requirements set forth in Sections 414(p)(2) and
(3) of the Code.
16.4 CONTINUATION OF BUSINESS
In the event of the termination of the business conducted by the Employer
for any reason, this Trust may be terminated unless a successor to such
business, by whatever form or manner results, notifies the Trustee and all of
the Participants that it elects to continue this Plan and Trust, in which event
it shall continue without the necessity of executing a supplemental agreement.
The successor shall thereupon succeed to all rights, powers and duties of the
Employer hereunder, and the employment of any Participant who is continued in
the employ of such successor shall not be deemed to have terminated or severed
for any purpose hereunder. Notwithstanding the foregoing, the Trustee shall
have the right at any time to require any such successor to execute a
supplemental agreement continuing the Plan and Trust.
16.5 CONTRIBUTIONS NOT RECOVERABLE
(a) It shall be impossible at any time prior to the satisfaction of all
liabilities with respect to Participants and their Beneficiaries for any part of
the principal or income to be used for, or diverted to, purposes other than the
exclusive benefit of Participants or their Beneficiaries. Under no
circumstances or conditions whatsoever shall any Trust revert to or inure to the
Employer's interest prior to the satisfaction of all liabilities under this
Plan. Any cash or property of any kind in this Trust which is not payable to a
Participant or to the Participant's Beneficiary or estate shall be applied by
the Trustee toward the payment of the next succeeding premiums as they may
become due. However, the Trustee may pay reasonable expenses relating to plan
administration from the Trust assets.
(b) Any contribution made by the Employer because of a mistake of fact may
be returned to the Employer within one year of the contribution.
(c) The Employer reserves the right to recover at termination of the Plan
and Trust any balance remaining in the Trust which is due to erroneous actuarial
computation. Further, amounts properly allocated to a suspense account may be
returned to the Employer upon termination.
16-3
<PAGE>
(d) In the event that the Commissioner of Internal Revenue determines that
the Plan is not initially qualified under the Code, any contribution made
incident to that initial qualification by the Employer must be returned to the
Employer within one year after the date the initial qualification is denied, but
only if the application for the qualification is made by the time prescribed by
law for filing the Employer's return for the taxable year in which the Plan is
adopted, or such later date as the Secretary of the Treasury may prescribe.
16.6 PAYMENTS TO DISABLED PERSONS
The Trustee may make payments or assign policies to Participants or
Beneficiaries under disability by making said payment or assigning said policies
to the conservator or guardian of the persons of such Employees or Beneficiaries
without the intervention of any Court, and the Trustee is hereby exonerated of
and from all liability or responsibility for or by reason thereof.
16.7 FIDUCIARY RESPONSIBILITY
(a) Each Fiduciary of the Plan shall discharge the Fiduciary's duties
solely in the interests of the Participants and their Beneficiaries. Each
Fiduciary of the Plan shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent man acting in a like
capacity and familiar with such matters would use in conducting an enterprise of
like character and with like aims. Fiduciaries shall diversify Plan assets to
minimize risk of large losses, unless under the circumstances it is clearly
prudent not to do so.
(b) A Fiduciary of the Plan shall be liable for the breach of the
Fiduciary standard of conduct by another Fiduciary if the Fiduciary knowingly
participates in a breach of such standard committed by the other Fiduciary. A
Fiduciary of the Plan shall be liable for breach of the Fiduciary standard of
conduct by another Fiduciary of the Plan if the Fiduciary knowingly undertakes
to conceal a breach committed by the other.
Except as otherwise allowed by law or provided in this Plan, a
Fiduciary shall not cause the Plan to engage in a transaction if such
transaction is not exempt from the prohibited transaction rules of ERISA and if
the Fiduciary knows or should know that such transaction constitutes a direct or
indirect:
(1) Sale or exchange, or leasing, of any property between the Plan
and a Party-in-Interest;
(2) Lending of money or other extension of credit between the Plan
and a Party-in-Interest;
(3) Furnishing of goods, services, or facilities between the Plan and
a Party-in-Interest;
(4) Transfer to, or use by or for the benefit of, a Party-in-
Interest, of any assets of the Plan; or
16-4
<PAGE>
(5) Acquisition, on behalf of the Plan, of any Employer security or
Employer real property in violation of Section 407(a) of ERISA.
(d) Except as otherwise allowed by law or provided in this Plan, a
Fiduciary shall not:
(1) Deal with the assets of the Plan in the Fiduciary's own interest
or for the Fiduciary's own account;
(2) In the fiduciary, individual or in any other capacity, act in any
transaction involving the Plan on behalf of a party (or represent a party) whose
interests are adverse to the interests of the Plan or the interests of the
Plan's Participants or Beneficiaries; or
(3) Receive any consideration for the Fiduciary's personal account
from any party dealing with the Plan in connection with a transaction involving
the assets of the Plan.
16.8 CONDITIONAL CONTRIBUTIONS
Notwithstanding anything to the contrary herein contained, as of July 1,
1976, contributions of the Employer shall be, and hereby are, made subject to
the conditions that (i) the Plan and Trust qualify as a tax exempt Plan under
Section 401 of the Code and (ii) such contributions are deductible under Section
404 of the Code. In the event that it is determined that the Plan and Trust
shall not so qualify, any contribution of the Employer made while the Plan and
Trust shall not have qualified shall be repaid to the Employer, in whole or in
part, by the Trustee within one (1) year after the date of the denial of
qualification of the Plan and Trust. In the event that there is a determination
that a deduction for the Employer's contribution shall be disallowed, the excess
of such contribution over the amount that would have been contributed had there
not occurred a mistake in determining the deductibility of the contribution
shall be repaid to the Employer, in whole or in part, by the Trustee, within one
(1) year after the disallowance of the deduction. In the case of a contribution
of the Employer which is made by reason of mistake of fact, the excess of such
contribution over the amount that would have been contributed had there not
occurred a mistake of fact shall be repaid to the Employer, in whole or in part,
by the Trustee, within one (1) year after the payment of the contribution. With
respect to contributions for which a deduction is disallowed (or could be
disallowed) or made by reason of mistake of fact, (i) earnings attributable to
the excess contribution shall not be returned to the Employer, (ii) losses
attributable thereto shall reduce the amount to be repaid and (iii) if the
repayment of the excess would cause the balance of a Participant's account to be
reduced to less than the amount of the Participant's account had the excess
contributions not been made, the amount of the repayment shall be limited to the
excess of the excess contribution over the amount of the Participant's account
had the excess contribution not been made. Any amounts repaid to the Employer
by the Trustee pursuant to this Paragraph shall be repaid without liability
therefor on the part of the Trustee, to any Participant, Beneficiary or any
other person whomsoever.
16-5
<PAGE>
16.9 FORFEITURE OF BENEFITS UPON FAILURE TO LOCATE RECIPIENT
In the event that the Committee, after reasonable effort, is unable to
locate a Participant or Beneficiary entitled to a distribution of benefits
hereunder, the Committee shall direct the Trustee that the amount that would
otherwise be distributable be treated as a forfeiture. Should such Participant
or Beneficiary subsequently notify the Committee of such individual's location
and apply for benefits in accordance with Article Ten of the Plan, said
Participant or Beneficiary may reclaim the amount which had been treated as a
forfeiture hereunder. When said application to reclaim benefits is approved, the
Committee shall direct that such amount, not including gains and losses that
would otherwise be attributable thereto, be reinstated on behalf of such
Participant or Beneficiary from Employer Contributions for the first Plan Year
following such reclaim for which Employer Contributions are made. Distribution
of such amount shall be made in accordance with Article Eleven of the Plan.
16.10 PARTICIPATING EMPLOYERS
Notwithstanding anything herein to the contrary, with the consent of the
Employer and Trustee, any other corporation or entity, whether an Affiliated
Employer or not, may adopt this Plan and all of the provisions hereof, and
participate herein and be known as a Participating Employer, by properly
executing a document evidencing said intent and will of such Participating
Employer to participate and by meeting the requirements set forth herein:
(a) Each Participating Employer shall be required to select the same
provisions as those selected by the Employer other than the Plan Year, the
Fiscal Year, and such other items that must, by necessity, vary among employers.
(b) Each such Participating Employer shall be required to use the same
Trustee as provided in this Plan, or amendments thereto.
(c) The transfer of any Participant from or to an Employer participating
in this Plan, whether he be an Employee of the Employer or a Participating
Employer, shall not affect such Participant's rights under the Plan, and all
amounts credited to such Participant's Accounts as well as his accumulated
service time with the transferor or predecessor, and his length of participation
in the Plan, shall continue to his credit. The Participating Employer to which
the Employee is transferred shall thereupon become obligated hereunder with
respect to such Employee in the same manner as was the Participating Employer
from whom the Employee was transferred.
(d) Any expenses of the Plan which are to be paid by the Employer or
reimbursed to the Trust by the Employer shall be paid by each Participating
Employer in the same proportion that the total amount standing to the credit of
all Participants employed by such Employer bears to the total standing to the
credit of all Participants.
(e) Each Participating Employer shall be deemed to be a part of this Plan
and, unless indicated to the contrary, shall authorize the initial adopting
Employer to act as its agent.
16-6
<PAGE>
(f) Amendment of this Plan by the Employer at any time when there shall be
a Participating Employer hereunder shall only be by the written action of each
and every Participating Employer and with the consent of the Trustee where such
consent is necessary in accordance with the terms of the Plan.
(g) Any Participating Employer shall be permitted to discontinue or revoke
its participation in the Plan at any time. The Participating Employer must
deliver such notice of discontinuance or revocation in writing to the Trustee.
The Trustee shall thereafter take such action as shall be necessary to transfer
the Trust assets allocable to the Participants of such Participating Employer to
the new retirement Trust established for such assets. No such transfer of assets
shall be made in the event the newly established plan would eliminate or reduce
any "Section 411(d)(6) protected benefits". In the event that the Participating
Employer has not established a successor retirement trust, the assets allocable
to the Participants of such Participating Employer shall be maintained in this
Trust and distributed in accordance with Article Eleven hereof.
(h) In the event a Participating Employer, which is a member of an
affiliated group (as defined in Code Section 1504), is prevented from making a
contribution which it would otherwise would have made under the Plan, then
pursuant to Code Section 404(a)(3)(B), so much of the contribution of such
Participating Employer may be made up by other Participating Employers, as may
be decided by such other Employers. The Participating Employer(s) on whose
behalf a contribution shall be made under this Section 16.10(h) shall not be
required to reimburse the contributing Participating Employer(s).
16.11 HEADINGS NO PART OF AGREEMENT
Headings and subheadings in this Plan are inserted for convenience of
reference only. They constitute no part of the Plan.
16.12 INSTRUMENT IN COUNTERPARTS
This Agreement has been executed in several counterparts, each of which
shall be deemed an original, and said counterparts shall constitute but one and
the same Instrument, which may be sufficiently evidenced by any one counterpart.
16.13 SUCCESSORS AND ASSIGNS
This Plan shall inure to the benefit of, and be binding upon, the parties
hereto and their successors and assigns.
16.14 GENDER
The masculine gender shall include the feminine, and where appropriate, the
singular shall include the plural or the plural may be read as the singular.
16-7
<PAGE>
16.15 STATE LAW GOVERNS
This Plan, and its corresponding Trust shall be construed, administered and
governed in all respects under and by the laws of the State or Commonwealth in
which the Employer's principal office is located, to the extent not pre-empted
by federal law. If any provisions are susceptible to more than one
interpretation, such Interpretation shall be given thereto as is consistent with
this Plan being a qualified Plan of deferred compensation within the meaning of
the Code, or corresponding provisions of subsequent revenue laws. If any
provisions of this instrument shall be held by a court of competent jurisdiction
to be invalid or unenforceable, the remaining provisions hereof shall continue
to be fully effective.
16-8
<PAGE>
Internal Revenue Service Department of the Treasury
District Director
EP/EO Division
2 Cupania Circle
Monterey Park, CA 91755-7406
Date: April 22, 1994 Advisory Letter Number:
V1950129
Dun & Bradstreet Pension Services Type of Plan:
3415 Sepulveda Blvd., Suite 800 401(k) Plan
Los Angeles, CA 90034 Person to Contact:
David L. Beckerman
Telephone Number:
213-725-0164
Refer Reply to:
EP/EO:TB:TSS:DLB
Dear Applicant:
We have reviewed the amendment to your specimen document identified above
as part of our Volume Submitter Program. It is our opinion that the amended
document meets the requirements of the Internal Revenue Code as amended by the
Tax Reform Act of 1986.
This opinion may change based on the release of temporary and/or final
regulations or other enhancements of the tax law, which would affect deferred
compensation plans issued after the date of this letter. In the event this
occurs, you will be notified by this office of the need for amendments to your
document.
This letter relates only to the amendment to the form of the plan. It is
not a determination of any other amendment or of the form of the plan as a
whole, or on the effect of other Federal or local statutes.
This letter covers the provisions of Revenue Procedure 92-41.
The acceptability of the form of this document does not constitute a
determination of the qualification of an adopting employer's plan under section
401(a) of the Internal Revenue Code, or of the exemption of the related trust or
custodial account under section 501(a). The qualification of the adopting
employer may also be affected by the options or variables selected by the
employer.
An employer adopting this specimen document who wants such a determination
and reliance on the volume submitter letter must file Form 5307, Short Form
Application For Determination For Employee Benefit Plan, with the Key District
Director. Adopting employers must individually amend the plan to remain in
compliance. A copy of this letter must be
<PAGE>
submitted with each application. Any alteration made to the specimen document
after the date of this letter must be indicated in a cover letter.
This letter supersedes our letter dated May 29, 1991.
If you have any questions, please contact the person whose name and
telephone number are shown above.
Sincerely,
Chief, Technical Branch
EP/EO Division
Los Angeles Key District
-2-
<PAGE>
EXECUTION
---------
To record the adoption of this Plan, the Employer has caused this Plan to
be executed on this 31st day of December, 1995.
Applied Micro Circuits Corporation
By: /s/ JOEL HOLLIDAY
----------------------------
By: __________________________
_______________________
Counsel for the Company
<PAGE>
RESOLUTION OF THE BOARD OF DIRECTORS
OF
APPLIED MICRO CIRCUITS CORPORATION
I, Joel O. Holliday, do hereby certify that I am the duly elected and
acting Secretary of Applied Micro Circuits Corporation, a Corporation; that the
following is a true and correct copy of action of the Board of Directors taken
at a special meeting held on the 25th day of March __, 1996, at which meeting
all Directors were then and there present and voting; said Resolution pertaining
to the amendment of the Applied Micro Circuits Corporation 401(k) Employee
Savings and Retirement Plan ("Plan") and its corresponding Trust; that said
Resolution is in full force and effect and has not been amended as of the date
of this Certificate, to wit:
RESOLVED, that, due to a clerical error in the preparation of the
documents adopted on December 31, 1995, the Amendment effective January 1,
1995 to the Plan be, and the same hereby is, adopted in the form attached
hereto;
FURTHER RESOLVED, that the proper officers of the Corporation be, and
they hereby are, authorized and directed to execute all forms and documents
(including the amendment instrument attached hereto) and to perform such
other acts as they, in their discretion, deem necessary or desirable to
effectuate the intent of the foregoing resolutions, and to secure approval
from the proper government agency, if necessary, to the effect that the
Plan, as so amended, continues to satisfy the requirements of Section
401(a) of the Internal Revenue Code of 1986, as amended.
WHEREOF, I have hereunto set my hand this 25th day of March, 1996.
APPLIED MICRO CIRCUITS CORPORATION
By: /s/ JOEL HOLLIDAY
---------------------------------
Joel Holliday
Title: V.P. Finance & Administration
-----------------------------
<PAGE>
AMENDMENT
TO THE
APPLIED MICRO CIRCUITS CORPORATION
401(K) EMPLOYEE SAVINGS AND RETIREMENT PLAN
Pursuant to action of the Board of Directors of Applied Micro Circuits
Corporation ("Employer") taken on March 25, 1996, it is hereby agreed that, due
to a clerical error in the preparation of the documents adopted on December 31,
1995, the Applied Micro Circuits Corporation 401(k) Employee Savings and
Retirement Plan and its corresponding Trust shall be amended to conform to the
original plan specifications as follows:
The first paragraph of Section 1.3(a) shall be amended to read:
"COMPENSATION shall mean the total compensation paid to each Participant,
------------
but shall exclude commissions, bonuses, and auto allowances."
The effective date of this Amendment shall be January 1, 1995.
DATED this 25th day of March, 1996
APPLIED MICRO CIRCUITS CORPORATION
By: /s/ JOEL HOLLIDAY
--------------------------------
Joel Holliday
Title: V.P. Finance & Administration
-----------------------------
<PAGE>
RESOLUTION OF THE BOARD OF DIRECTORS
OF
APPLIED MICRO CIRCUITS CORPORATION
I, Joel O. Holliday , do hereby certify that I am the duly elected and
acting Secretary of Applied Micro Circuits Corporation, a California
Corporation; that the following is a true and correct copy of action of the
Board of Directors taken at a special meeting held on the 31st day of March,
1995, at which meeting all Directors were then and there present and voting;
said Resolution pertaining to the amendment of the Applied Micro Circuits
Corporation 401(k) Employee Savings And Retirement Plan ("Plan") to add the
model language on annual compensation limit under Rev. Proc. 94-13 to comply
with IRC Section 401(a)(17) as amended by OBRA `93; that said Resolution is in
full force and effect and has not been amended as of the date of this
Certificate, to wit:
RESOLVED, that the Amendment effective January 1, 1994 to the Plan be, and
the same hereby is, adopted in the form attached hereto;
FURTHER RESOLVED, that the proper officers of the Corporation be, and they
hereby are, authorized and directed to execute all forms and documents
(including the amendment instrument attached hereto) and to perform such
other acts as they, in their discretion, deem necessary or desirable to
effectuate the intent of the foregoing resolutions, and to secure approval
from the proper government agency, if necessary, to the effect that the
Plan, as so amended, continues to satisfy the requirements of Section
401(a) of the Internal Revenue Code of 1986, as amended.
WHEREOF, I have hereunto set my hand this 31st day of March 1995.
APPLIED MICRO CIRCUITS CORPORATION
By: /s/ JOEL HOLLIDAY
--------------------------------
Title: V.P. Finance & Administration
-----------------------------
<PAGE>
AMENDMENT
TO THE
APPLIED MICRO CIRCUITS CORPORATION
401(K) EMPLOYEE SAVINGS AND RETIREMENT PLAN
Pursuant to action of Applied Micro Circuits Corporation (herein referred
to as "Employer") or its Board of Directors taken on the ____ day of
________19__, it is hereby agreed that the Applied Micro Circuits Corporation
Savings And Retirement Plan shall be amended to add the model language under
Rev. Proc. 94-13 to comply with IRC Section 401(a)(17).
Section I.(k) shall be amended by the addition of the following paragraph
as follows:
"In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan
Years beginning on or after January 1, 1994, the annual Compensation of
each Employee taken into account under the Plan shall not exceed the OBRA
`93 annual compensation limit. The OBRA `93 annual compensation limit is
$150,000, as adjusted by the Commissioner for increases in the cost of
living in accordance with Code Section 401(a)(17)(B). The cost-of-living
adjustment in effect for a calendar year applies to any period, not
exceeding 12 months, over which Compensation is determined (determination
period) beginning in such calendar year. If a determination period consists
of fewer than 12 months, the OBRA `93 annual compensation limit shall be
multiplied by a fraction, the numerator of which is the number of months in
the determination period, and the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in this
Plan to the limitation under Code Section 401(a)(17) shall mean the OBRA
`93 annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into account in
determining an Employee's benefits accruing in the current Plan Year, the
Compensation for that prior determination period is subject to the OBRA `93
annual compensation limit in effect for that prior determination period.
For this purpose, for determination periods beginning before the first day
of the first Plan Year beginning on or after January 1, 1994, the OBRA `93
annual compensation limit is $150,000."
The effective date of this Amendment shall be January 1, 1994.
DATED this ___ day of __________, ____.
APPLIED MICRO CIRCUITS CORPORATION
By:_________________________
Title:______________________
<PAGE>
CERTIFICATE
OF
THE
EMPLOYER
Applied Micro Circuits Corporation, the Sponsoring Employer of the Applied
Micro Circuits Corporation 401(k) Employee Savings and Retirement Plan hereby
adopts the attached Participant Loan Policy in compliance with the Final
Regulations issued by the Department of Labor and Section 72(p) of the Internal
Revenue Code.
For the Employer:
By:__________________________________ Date:___________________
Approved By Plan Administrator:
By:__________________________________ Date:___________________
Approved By Loan Administrator:
By:__________________________________ Date:___________________
<PAGE>
Internal Revenue Service DEPARTMENT OF THE TREASURY
District Director
2 Cupania Circle
Monterey Park, CA 91755
Employer Identification Number:
Date: Nov. 19, 1996 94-2586591
File Folder Number
Applied Micro Circuits Corporation 331015326
6195 Lusk Boulevard Person to Contact:
San Diego, CA 92121 LINDA J. HELTON
Contact Telephone Number:
213-725-2531
Plan Name:
APPLIED MICRO CIRCUITS CORPORATION
EE SAVINGS & RETIREMENT PLAN
Plan Number: 001
Dear Applicant:
We have made a favorable determination on your plan, identified above,
based on the information supplied. Please keep this letter in your permanent
records.
Continued qualification of the plan under its present form will depend on
its effect in operation. (See section 1.401-1(b) (3) of the Income Tax
Regulations.) We will review the status of the plan in operation periodically.
The enclosed document explains the significance of this favorable
determination letter, points out some features that may affect the qualified
status of your employee retirement plan, and provides information on the
reporting requirements for your plan. It also describes some events that
automatically nullify it. It is very important that you read the publication.
This letter relates only to the status of your plan under the Internal
Revenue Code. It is not a determination regarding the effect of other federal or
local statutes.
This determination letter is applicable for the amendment(s) adopted on 12-
31-95, 03-27-96.
This determination letter is also applicable for the amendment(s) adopted
on 10-16-91, 03-31-95.
This plan has been mandatorily disaggregated, permissively aggregated, or
restructured to satisfy the nondiscrimination requirements.
<PAGE>
This plan satisfies the nondiscrimination in amount requirement of section
1.401 (a) (4)-l(b)(2) of the regulations on the basis of a design-based safe
harbor described in the regulations.
This letter is issued under Rev. Proc. 93-39 and considers the amendments
required by the Tax Reform Act of 1986 except as otherwise specified in this
letter.
This plan satisfies the nondiscriminatory current availability requirements
of section 1.401(a)(4)-4(b) of the regulations with respect to those benefits,
rights, and features that are currently available to all employees in the plan's
coverage group. For this purpose, the plan's coverage group consists of those
employees treated as currently benefiting for purposes of demonstrating that the
plan satisfies the minimum coverage requirements of section 410(b) of the Code.
This letter may not be relied upon with respect to whether the plan
satisfies the qualification requirements as amended by the Uruguay Round
Agreements Act, Pub. L. 103-465.
The information on the enclosed addendum is an integral part of this
determination. Please be sure to read and keep it with this letter.
We have sent a copy of this letter to your representative as indicated in
the power of attorney.
If you have questions concerning this matter, please contact the person
whose name and telephone number are shown above.
This plan also satisfies the requirements of Code section 401(k).
Sincerely yours,
Steven A. Jensen
District Director
Enclosure(s):
Publication 794
Addendum
-2-
<PAGE>
EXHIBIT 10.7
APPLIED MICRO CIRCUITS CORPORATION
5502 Oberlin Drive
San Diego, California 92121
____________________
CONVERTIBLE PREFERRED STOCK, SERIES 1 and SERIES 2,
PURCHASE AGREEMENT
As of December 8, 1983
____________________
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
SECTION 1 Authorization, Purchase and Sale of the Shares................... 1
1.1 Authorization of the Shares....................................... 1
1.2 Sale and Purchase of the Shares................................... 1
SECTION 2 Closing, Payment and Delivery.................................... 2
2.1 Closing Date and Place of Closing................................. 2
2.2 Payment and Delivery.............................................. 2
SECTION 3 Representations and Warranties of the Company.................... 2
3.1 Organization and Standing; Articles and By-laws................... 2
3.2 Corporate Power................................................... 3
3.3 Subsidiaries...................................................... 3
3.4 Capitalization.................................................... 3
3.5 Authorization..................................................... 3
3.6 Financial Information............................................. 4
3.7 Outstanding Debt.................................................. 4
3.8 Absence of Undisclosed Liabilities................................ 4
3.9. Absence of Certain Changes....................................... 5
3.10 Taxes............................................................ 5
3.11 Contracts; Insurance............................................. 5
3.12 Shareholders, Directors and Officers; Indebtedness............... 6
3.13 Litigation and Bankruptcy Proceedings............................ 7
3.14 Consents......................................................... 7
3.15 Title to Properties; Liens and Encumbrances...................... 7
3.16 Leases........................................................... 7
3.17 Business of the Company.......................................... 8
3.18 Franchises, Licenses, Trademarks, Patents and Other Rights....... 8
3.19 Issuance Taxes................................................... 8
3.20 Offering......................................................... 8
3.21 Compliance with Other Instruments................................ 8
3.22 Employees........................................................ 9
3.23 Registration Rights.............................................. 9
3.24 Disclosure....................................................... 9
SECTION 4 Representations and Warranties of Purchasers..................... 9
4.1 Experience........................................................ 9
4.2 Investment........................................................ 9
4.3 Rule 144.......................................................... 9
4.4 Access to Data.................................................... 10
<PAGE>
SECTION 5 Conditions to Closing of Purchasers.............................. 10
5.1 Representations and Warranties Correct............................ 10
5.2 Performance....................................................... 10
5.3 Opinion of Company's Counsel...................................... 10
5.4 Legal Investment.................................................. 10
5.5 Compliance Certificate............................................ 10
5.6 Proceedings and Documents......................................... 10
5.7 Invention Assignment and Secrecy Agreements....................... 11
5.8 Qualifications.................................................... 11
5.9 Restated Articles of Incorporation................................ 11
5.10 Minimum Investment............................................... 11
5.11 Amendment of By-Laws............................................. 11
5.12 Key Man Life Insurance........................................... 11
5.13 Legal Fees....................................................... 11
5.14 Notice of Limited Offering Exemption............................. 11
5.15 Amendment to Debenture Purchase Agreement........................ 12
SECTION 6 Conditions to Closing of Company................................. 12
6.1 Representations................................................... 12
6.2 Legal Investment.................................................. 12
6.3 Minimum Investment................................................ 12
SECTION 7 Covenants of the Company......................................... 12
7.1 Access and Information............................................ 12
7.2 Right of First Refusal............................................ 14
7.3 Prompt Payment of Taxes, etc...................................... 15
7.4 Maintenance of Properties and Leases.............................. 16
7.5 Insurance......................................................... 16
7.6 Key Man Life Insurance............................................ 16
7.7 Accounts and Records.............................................. 16
7.8 Independent Accountants........................................... 16
7.9 Compliance with Requirements of Governmental Authorities.......... 17
7.10 Maintenance of Corporate Existence, etc.......................... 17
7.11 Availability of Common Stock for Conversion...................... 17
7.12 Invention Assignment and Secrecy Agreements...................... 17
7.13 Further Stock Issuances.......................................... 17
7.14 Use of Proceeds.................................................. 17
7.15 Regulation D Filing.............................................. 17
7.16 Notice of Record Dates........................................... 17
7.17 Notice of Limited Offering Exemption............................. 18
7.18 Certain Restrictions............................................. 18
7.19 Compliance by Subsidiaries....................................... 19
SECTION 8 Restrictions on Transferability of Securities; Compliance with
Securities Act................................................... 19
8.1 Restrictions on Transferability................................... 19
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8.2 Certain Definitions............................................... 19
8.3 Restrictive Legend................................................ 20
8.4 Notice of Proposed Transfers...................................... 21
8.5 Requested Registration............................................ 21
8.6 Company Registration.............................................. 23
8.7 Expenses of Registration.......................................... 24
8.8 Registration on Form S-2 or Form S-3.............................. 25
8.9 Registration Procedures........................................... 25
8.10 Indemnification.................................................. 26
8.11 Information by Holder............................................ 27
8.12 Limitations on Registration of Issues of Securities.............. 27
8.13 Rule 144 Reporting............................................... 28
8.14 Transfer or Assignment of Registration Rights.................... 28
8.15 "Market Stand-off" Agreement..................................... 28
SECTION 9 Miscellaneous.................................................... 29
9.1 Governing Law..................................................... 29
9.2 Survival.......................................................... 29
9.3 Successors and Assigns............................................ 29
9.4 Entire Agreement; Amendment....................................... 29
9.5 Notices, etc...................................................... 29
9.6 Delays or Omissions............................................... 30
9.7 Rights; Separability.............................................. 30
9.8 Agent's Fees...................................................... 30
9.9 Information Confidential.......................................... 30
9.10 Expenses......................................................... 31
9.11 Titles and Subtitles............................................. 31
9.12 Counterparts..................................................... 31
9.13 California Qualification......................................... 31
SCHEDULES AND EXHIBITS
Schedule of Series 1 Purchasers
Schedule of Series 2 Purchasers
Schedule of Exceptions to Representations and Warranties
Exhibit A - Restated Articles of Incorporation
Exhibit B - Opinion of Luce, Forward, Hamilton & Scripps
Exhibit C - Form of Invention Assignment and Secrecy Agreement and Invention
and Secrecy Agreement
Exhibit D - Second Amendment to 8% Convertible Subordinated Debentures Due
1988 Purchase Agreement, Security Agreement and Debenture
Instrument, As Amended By the Amendment Agreement
-iv-
<PAGE>
CONVERTIBLE PREFERRED STOCK, SERIES 1 AND SERIES 2,
---------------------------------------------------
PURCHASE AGREEMENT
------------------
AGREEMENT made as of the 8th day of December, 1983, by and among APPLIED
MICRO CIRCUITS CORPORATION (the "Company"), a California corporation having
offices at 5502 Oberlin Drive, San Diego, California 92121, and each of the
persons severally listed on the Schedule of Series 1 Purchasers and the Schedule
of Series 2 Purchasers attached hereto (collectively, the "Schedule of
Purchasers"). The persons listed on the Schedule of Purchasers are sometimes
hereinafter referred to as the "Purchasers" and individually as a "Purchaser."
WHEREAS, the Company desires to issue and sell, and the Purchasers desire
to purchase, certain securities of the Company;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and conditions herein contained, the Company and each Purchaser, severally and
not jointly, hereby agree as follows:
SECTION 1
Authorization, Purchase and Sale of the Shares
----------------------------------------------
1.1 Authorization of the Shares. The Company has, or before the Closing
---------------------------
(as hereinafter defined) will have, authorized the sale and issuance of up to
four hundred ten thousand (410,000) shares (the "Series 1 Shares") of its
Preferred Stock, Series 1 ("Series 1 Preferred") and up to two hundred eighty-
five thousand eight hundred (285,800) shares (the "Series 2 Shares") of its
Preferred Stock, Series 2 ("Series 2 Preferred") having the respective rights,
restrictions, privileges and preferences as set forth in the Restated Articles
of Incorporation of the Company (the "Restated Articles") attached to this
Agreement as Exhibit A. Both Series 1 Shares and Series 2 Shares are sometimes
hereinafter collectively referred to as the "Shares," and the Series 1 Preferred
and the Series 2 Preferred are sometimes hereinafter collectively referred to as
the "Preferred."
1.2 Sale and Purchase of the Shares. At the Closing (as defined in
-------------------------------
Section 2.1 hereof), and subject to the terms and conditions hereof and in
reliance upon the representations, warranties and agreements contained herein,
the Company will issue and sell (i) to the Purchasers listed on the Schedule of
Series 1 Purchasers and each such Purchaser will purchase from the Company the
number of Series 1 Shares set forth opposite its name in the column entitled
"Total Shares" on the Schedule of Series 1 Purchasers at the price of $21.00 per
share in the total amount set forth opposite its name in the column labelled
"Total Investment" and (ii) to the Purchasers listed on the Schedule of Series 2
Purchasers and each such Purchaser will purchase from the Company the number of
Series 2 Shares set forth opposite its name in the column entitled "Total
Shares" on the Schedule of Series 2 Purchasers at the price of $21.00 per share
in the total amount set forth opposite its name in the column labelled "Total
Investment."
<PAGE>
SECTION 2
Closing, Payment and Delivery
-----------------------------
2.1 Closing Date and Place of Closing. The closing of the purchase and
---------------------------------
sale of the Shares hereunder (the "Closing") in the amounts and to the persons
specified in the Schedule of Purchasers shall be held immediately following the
execution and delivery of this Agreement (the "Closing Date"). The place of the
Closing (including the place of delivery to the Purchasers by the Company of the
certificates evidencing all Shares being purchased and the place of payment to
the Company by the Purchasers of the purchase price therefor) shall be at the
offices of Luce, Forward, Hamilton & Scripps, 110 West A Street, San Diego
California, or such other place as a majority in interest of the Purchasers
shall designate by notice to the Company given at least five (5) business days
prior to the Closing Date.
2.2 Payment and Delivery. At the Closing, (i) each Purchaser of Series
--------------------
1 Shares will pay for such shares by surrender of the Company's 8% Convertible
Subordinated Debentures due 1988 (the "Debentures") held by such Purchaser for
cancellation of a principal amount equal to the amount set forth next to such
Purchaser's name on the Schedule of Series 1 Purchasers under the column "Total
Investment" and (ii) each Purchaser of Series 2 Shares will pay for such Shares
in cash or by check, wire transfer, cancellation of indebtedness or such other
form of payment as shall be mutually agreed upon by the Company and that
Purchaser, the amount set forth opposite its name in the column labelled "Total
Investment" on the Schedule of Series 2 Purchasers; and the Company will deliver
to each Purchaser a certificate or certificates representing the number of
Series 1 and Series 2 Shares purchased as set forth opposite such Purchaser's
name in the column labelled "Total Shares" on the Schedule of Series 1
Purchasers and the Schedule of Series 2 Purchasers.
SECTION 3
Representations and Warranties of the Company
---------------------------------------------
The Company hereby represents and warrants to the Purchasers as follows,
except as set forth on the "Schedule of Exception" delivered to the Purchasers
prior to the execution hereof and attached hereto.
3.1 Organization and Standing; Articles and By-laws. The Company is a
-----------------------------------------------
corporation duly organized and existing under the laws of the State of
California and is in good standing under such laws. The Company has requisite
corporate power to own properties owned by it and to conduct business as being
conducted by it and as contemplated by the Company's Confidential Private
Placement Memorandum dated October 20, 1983 and the Supplement thereto dated as
of November 10, 1983 with respect to the sale of the Shares (collectively
referred to as the "Memorandum"). The Company is duly qualified to do business
as a foreign corporation in good standing in each jurisdiction in which the
character and location of its properties (owned or leased) or the nature of its
business requires such qualification, except for such jurisdictions where the
failure to so qualify would not materially and adversely affect
-2-
<PAGE>
the business, operations or financial conditions of the Company. The Company has
furnished special counsel to the Purchasers with true, correct and complete
copies of its Restated Articles of Incorporation, By-Laws and all amendments to
each to date and will furnish copies of any such documents to any Purchaser who
so requests. Prior to the Closing, the Restated Articles shall have been
properly adopted by all necessary corporate action and the Company shall have
properly filed the Restated Articles with the Secretary of State of California.
3.2 Corporate Power. The Company has all requisite corporate power to
---------------
enter into this Agreement and will have at the Closing Date all requisite
corporate power to sell the Shares and to carry out and perform its obligations
under the terms of this Agreement.
3.3 Subsidiaries. The Company has no subsidiaries and does not own of
------------
record or beneficially any capital stock or equity interest or investment in any
corporation, association or business entity.
3.4 Capitalization. Immediately prior to the Closing, the Company's
--------------
authorized capital stock will consist of (a) Twenty-five million (25,000,000)
shares of Common Stock (the "Common Stock"), of which 1,288,918 shares will be
issued and outstanding immediately prior to the Closing, and (b) Four hundred
ten thousand (410,000) shares of Series 1 Preferred shares and Three hundred
thousand (300,000) shares of Series 2 Preferred, no shares of which will be
issued and outstanding prior to the Closing. All the aforesaid issued and
outstanding shares will have been duly authorized and validly issued, will be
fully paid and non-assessable, and have been offered, issued, sold and delivered
by the Company in compliance with applicable federal and state securities laws.
An aggregate of 12,666,334 shares of Common Stock have been reserved for
issuance upon conversion of the Preferred. There are no outstanding preemptive,
conversion or other rights, options, warrants or agreements granted or issued by
or binding upon the Company for the purchase or acquisition of any shares of its
capital stock, except with respect to the Preferred in accordance with the
provisions of this Agreement, Debentures in the aggregate principal amount of
$8,583,015 outstanding prior to the Closing which are convertible into an
aggregate of 9,809,191 shares of Common Stock and other than as set forth in the
Schedule of Exceptions. To the best of the Company's knowledge and belief, no
shareholder has granted options or other rights to purchase any securities of
the Company from such shareholder other than as set forth in the Schedule of
Exceptions hereto. The Company holds no shares of its capital stock in its
treasury.
3.5 Authorization. All corporate action on the part of the Company, its
-------------
directors and shareholders necessary for the authorization, execution, delivery
and performance by the Company of this Agreement and the consummation of the
transactions contemplated herein, and for the authorization, issuance and
delivery of the Shares and of the Common Stock issuable upon conversion thereof
has been taken or will be taken prior to the Closing. This Agreement is a valid
and binding obligation of the Company, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization and moratorium laws
and other laws of general application affecting enforcement of creditors' rights
generally and principles of equity relating to specific enforcement of this
Agreement. The execution, delivery and performance by
-3-
<PAGE>
the Company of this Agreement and compliance therewith and the issuance and sale
of the Shares and Common Stock issuable upon conversion of the Shares will not
result in any violation of and will not conflict with, or result in a breach of
any of the terms of, or constitute a default under, any provision of state or
Federal law to which the Company is subject, the Restated Articles or the
Company's By-Laws, as amended, or any mortgage, indenture, agreement,
instrument, judgment, decree, order, rule or regulation or other restriction to
which the Company is a party or by which it is bound, or result in the creation
of any mortgage, pledge, lien, encumbrance or charge upon any of the properties
or assets of the Company pursuant to any such term. No shareholder or other
person has any preemptive rights or rights of first refusal by reason of the
issuance of the Shares, except as set forth in the Schedule of Exceptions and
all such rights, if any, have been complied with or validly waived. The Shares,
when issued in compliance with the provisions of this Agreement, will be validly
issued, fully paid and nonassessable, and will be free of any liens, charges or
encumbrances subject to applicable bankruptcy, insolvency, reorganization and
moratorium laws and other laws of general application affecting enforcement of
creditors' rights generally. The shares of Common Stock issuable upon conversion
of the Shares have been duly and validly reserved and not subject to any
preemptive rights or rights of first refusal not waived or validly complied with
and, upon issuance, will be validly issued, fully paid and nonassessable.
3.6 Financial Information. The audited financial statements of the
---------------------
Company as of March 31, 1983, and the unaudited interim financial statements as
of September 30, 1983 and the respective notes thereto, included in the
Memorandum, a copy of which has been delivered to each Purchaser (collectively,
the "Financial Statements"), including the balance sheet as of September 30,
1983 (the "Balance Sheet") and a Statement of Income for the six month period
ended September 30, 1983 (the "Income Statement"), present fairly the financial
position and results of operations of the Company at the dates and for the
periods to which they relate, have been prepared in accordance with generally
accepted accounting principles consistently followed throughout the periods
involved and show all material liabilities, absolute or contingent, of the
Company required to be recorded thereon in accordance with generally accepted
accounting principles as at the respective dates thereof.
3.7 Outstanding Debt. The Company has no outstanding indebtedness for
----------------
borrowed money except as reflected on the Balance Sheet and is not a guarantor
or otherwise contingently liable for any such indebtedness. There exists no
default under the provisions of any instrument evidencing such indebtedness or
of any agreement relating thereto.
3.8 Absence of Undisclosed Liabilities. The Company has no material
----------------------------------
liabilities (fixed or contingent, including without limitation any tax
liabilities due or to become due) which are not fully reflected or provided for
on the Balance Sheet, except as listed on the Schedule of Exceptions. The
Company does not know of any material liability of any nature, direct or
indirect, contingent or otherwise, or in any amount not adequately reflected or
reserved against in the Balance Sheet, except as set forth on the Schedule of
Exceptions.
-4-
<PAGE>
3.9. Absence of Certain Changes. Except to the extent described in the
--------------------------
Schedule of Exceptions, since September 30, 1983 there has not been:
(a) any material adverse change in the condition, assets, liabilities
or business of the Company from that shown on the Balance Sheet;
(b) any damage, destruction or loss of any of the properties or assets
of the Company (whether or not covered by insurance) materially adversely
affecting the business or plans of the Company;
(c) any declaration, setting aside or payment or other distribution in
respect of any of the Company's capital stock, or any direct or indirect
redemption, purchase or other acquisition of any of such stock by the Company;
or
(d) any labor dispute, or to the Company's knowledge or belief, any
event or condition of any character, materially adversely affecting the business
or plans of the Company.
3.10 Taxes. The Company has filed or will file within the time
-----
prescribed by law (including extensions of time approved by the appropriate
taxing authority) all tax returns and reports required to be filed with the
United States Internal Revenue Service and with the State of California, and
(except to the extent that the failure to file would not have a material adverse
effect on the condition or operations of the Company) with all other
jurisdictions where such filing is required by law; and the Company has paid, or
made adequate provision in the Balance Sheet for the payment of, all taxes,
interest, penalties, assessments or deficiencies shown to be due or claimed to
be due on or in respect of such tax returns and reports. The Company knows of
(i) no other tax returns or reports which are required to be filed which have
not been so filed and (ii) no unpaid assessment for additional taxes for any
fiscal period or any basis thereof. The Company's federal income tax returns
have not been audited by the Internal Revenue Service.
3.11 Contracts; Insurance. Except as set forth in the Schedule of
--------------------
Exceptions, the Company has no currently existing contract, obligation
commitment (written or oral) of any material nature pursuant to which the
Company's obligations exceed $100,000 or which has a term greater than five
years, including without limitation the following:
(a) Employment, bonus or consulting agreements, pension, profit
sharing, deferred compensation, stock bonus, retirement, stock option, stock
purchase, phantom stock or similar plans, including agreements evidencing rights
to purchase securities of the Company and agreements among shareholders and the
Company;
(b) Loan or other agreements, notes, indentures, or instruments
relating to or evidencing indebtedness for borrowed money, or mortgaging,
pledging or granting or creating a lien or security interest or other
encumbrance on any of the Company's property or any agreement or instrument
evidencing any guaranty by the Company of payment or performance by any other
person;
-5-
<PAGE>
(c) Agreements with dealers, sales representatives, brokers or other
distributors, jobbers, advertisers or sales agencies;
(d) Agreements with any labor union or collective bargaining
organization or other labor agreements;
(e) Any contract or series of contracts with the same person for the
furnishing or purchase of machinery, equipment, goods or services, including
without limitation agreements with processors and subcontractors;
(f) Any indenture, agreement or other document (including private
placement brochures) relating to the sale or repurchase of shares;
(g) Any joint venture contract or arrangement or other agreement
involving a sharing of profits or expenses to which the Company is a party;
(h) Agreements limiting the freedom of the Company to compete in any
line of business or in any geographic area or with any person;
(i) Agreements providing for disposition of the business, assets or
shares of the Company, agreements of merger or consolidation to which the
Company is a party or letters of intent with respect to the foregoing;
(j) Agreements involving or letters of intent with respect to the
acquisition of the business, assets or shares of any other business; and
(k) Insurance policies.
The Company has complied with all the material provisions of all said
contracts, obligations, and commitments and is not in default of any such
provision thereunder.
The Company maintains insurance which is adequate to protect the Company
against the risks involved in the business conducted by it as is customarily
maintained by well-managed companies engaged in similar activities.
3.12 Shareholders, Directors and Officers; Indebtedness. Set forth on
--------------------------------------------------
the Schedule of Exceptions is a correct and complete list or description of all
indebtedness of the Company to its officers, directors or shareholders or any of
their respective relatives and of all indebtedness of such persons to the
Company. To the best of the Company's knowledge and belief, none of the
officers, significant employees or consultants of the Company, or their
respective spouses or relatives, owns directly or indirectly, individually or
collectively, a material interest in any entity which is a competitor, customer
or supplier of (or has any existing contractual relationship with) the Company.
-6-
<PAGE>
3.13 Litigation and Bankruptcy Proceedings.
-------------------------------------
(a) There is neither pending nor, to the Company's knowledge and
belief, threatened any action, suit, proceeding or claim, or any basis therefor
or threat thereof, whether or not purportedly on behalf of the Company, to which
the Company is or may be named as a party or its property is or may be subject
and in which an unfavorable outcome, ruling or finding might have a material
adverse effect on the condition, financial or otherwise, or operations of the
Company; and the Company has no knowledge of any unasserted claim, the assertion
of which is likely and which, if asserted, will seek damages, an injunction or
other legal, equitable, monetary or nonmonetary relief which, if granted, would
have a material adverse effect on the condition, financial or otherwise, or
operations of the Company.
(b) The Company has not admitted in writing its inability to pay its
debts generally as they become due, filed or consented to the filing against it
of a petition in bankruptcy or a petition to take advantage of any insolvency
act, made an assignment for the benefit of creditors, consented to the
appointment of a receiver for itself or for the whole or any substantial part of
its property, or had a petition in bankruptcy filed against it, been adjudicated
a bankrupt, or filed a petition or answer seeking reorganization or arrangement
under the Federal bankruptcy laws or any other law or statute of the United
States of America or any other jurisdiction.
3.14 Consents. All consents, approvals, qualifications, orders,
--------
approvals or authorizations of, or filings with, any governmental authority,
including the Commissioner of Corporations of the State of California, required
in connection with the Company's valid execution, delivery and performance of
this Agreement, and the offer, sale and issuance of the Shares by the Company,
the conversion of the Shares, the issuance of Common Stock upon conversion of
the Shares, the adoption of the Second Amendment to 8% Convertible Subordinated
Debentures Due 1988 Purchase Agreement, Security Agreement and Debenture
Instrument, As Amended By The Amendment Agreement in the form of Exhibit D
hereto (the "Debenture Amendment"), and the consummation of any other
transaction contemplated on the part of the Company hereby, shall have been duly
obtained and shall be effective on and as of the Closing, except the recording
of the Restated Articles with the Secretary of State of the State of California,
the filing referred to in Section 7.17 hereof, notices of sale required to be
filed pursuant to Regulation D under the Securities Act of 1933, and except such
filings as have been made prior to the Closing.
3.15 Title to Properties; Liens and Encumbrances. The Company does not
-------------------------------------------
have any ownership interest in real property. The Company has a valid and
indefeasible ownership interest in all the property and assets recorded on the
Balance Sheet, free from all pledges, liens, security interests, conditional
sale agreements, encumbrances or charges, except as shown on the Balance Sheet
or listed on the Schedule of Exceptions.
3.16 Leases. The Company's material lease obligations are disclosed in
------
the Financial Statements and there has been no material change in such
obligations since September 30, 1983.
-7-
<PAGE>
The Company enjoys peaceful and undisturbed possession under all its material
leases of real or personal property, all such leases are valid and subsisting
and none of them is in default in any material respect.
3.17 Business of the Company. The Company has no knowledge or belief
-----------------------
that (i) there is pending or threatened any claim or litigation against or
affecting the Company contesting its right to produce, manufacture, sell or use
any product, process; method, substance, part or other material presently
produced, manufactured, sold or used or planned to be produced, manufactured,
sold or used by the Company in connection with the operations of the Company; or
(ii) there exists, or there is pending or planned, any patent, invention,
device, application or principle, or any statute, rule, law, regulation,
standard or code which would materially adversely affect the condition,
financial or otherwise, or the operations of the Company. The Company currently
intends to engage in the business of the same general type as described in the
Memorandum.
3.18 Franchises, Licenses, Trademarks, Patents and Other Rights. The
----------------------------------------------------------
Company has all franchises, permits, certificates, authorizations, licenses and
other similar authority required by law or governmental regulations from all
applicable Federal, state or local authorities and any other regulatory
authorities or necessary for the conduct of its business as now being conducted
by it and as planned to be conducted, the lack of which could materially and
adversely affect the operations or condition, financial or otherwise, of the
Company, and it is not in default in any material respect under any of such
franchises, permits, certificates, authorizations, licenses or other similar
authority. The Company possesses all patents, patent rights, trademarks,
trademark rights, trade names, trade name rights and copyrights necessary to
conduct its business as now being conducted and as planned to be conducted
without conflict with or infringement upon any valid rights of others and the
lack of which could materially and adversely affect the operations or condition,
financial or otherwise, of the Company, and has not received any notice of
infringement upon or conflict with the asserted rights of others.
3.19 Issuance Taxes. All taxes imposed by law in connection with the
--------------
issuance, sale and delivery of the Shares shall have been fully paid, and all
laws imposing such taxes shall have been fully complied with, prior to the
Closing Date.
3.20 Offering. Subject in part to the truth and accuracy of the
--------
Purchasers' representations set forth in this Agreement, the offer, sale and
issuance of the Shares and the Common Stock issuable upon conversion of the
Shares as contemplated by this Agreement are exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act",
which term shall include any successor federal statute), and from the
qualification requirements of the California Corporate Securities Law of 1968,
as amended, and neither the Company nor anyone acting on its behalf will take
any action hereafter that would cause the loss of such exemptions.
3.21 Compliance with Other Instruments. The Company is not in violation
---------------------------------
of any term of its Articles of Incorporation as amended prior to the adoption of
the Restated Articles, the
-8-
<PAGE>
Restated Articles or its By-Laws, as amended. The Company is not in violation of
any term of any mortgage, indenture, contract, agreement, instrument, judgment,
decree, order, statute, rule or regulation to which the Company is subject and a
violation of which would have a material adverse effect on the condition,
financial or otherwise, or operations of the Company.
3.22 Employees. To the best of the Company's knowledge and belief, no
---------
employee of the Company is, or is now expected to be, in violation of any term
of any employment contract, patent disclosure agreement, non-competition
agreement, or any other contract or agreement or any restrictive covenant
relating to the right of any such employee to be employed by the Company because
of the nature of the business conducted or to be conducted by the Company or to
the use of trade secrets or proprietary information of others, and the
employment of the Company's employees does not subject the Company or any
Purchaser to any liability. The Company does not have any collective bargaining
agreement covering any of its employees.
3.23 Registration Rights. Except as set forth in the Schedule of
-------------------
Exceptions and as provided for in this Agreement, the Company is not under any
obligation to register (as defined in Section 8.2 below) any of its currently
outstanding securities or any of its securities which may hereafter be issued.
3.24 Disclosure. This Agreement, the Schedule of Exceptions, the
----------
Memorandum and the Financial Statements delivered to the Purchasers do not
contain any untrue statement of a material fact and do not omit to state a
material fact necessary in order to make the statements contained therein or
herein not misleading in the light of the circumstances under which they were
made.
SECTION 4
Representations and Warranties of Purchasers
--------------------------------------------
Each Purchaser represents and warrants to the Company, severally and not
jointly, and only as to himself or itself, as follows:
4.1 Experience. He or it is experienced in evaluating and investing in
----------
newly organized, high technology companies such as the Company.
4.2 Investment. He or it is acquiring the Shares for investment or its
----------
own account and not with the view to, or for resale in connection with, any
distribution thereof. He or it understands that the Shares and the shares of
Common Stock issuable upon conversion of the Shares have not been registered
under the Securities Act by reason of specified exemption from the registration
provisions of the Securities Act which depends upon, among other things, the
bona fide nature of his or its investment intent as expressed herein.
4.3 Rule 144. He or it acknowledges that the Shares must be held
--------
indefinitely unless they are subsequently registered under the Act or an
exemption from such registration is available. He or it has been advised or is
aware of the provisions of Rule 144 promulgated under
-9-
<PAGE>
the Act, which permits limited resale of shares purchased in a private placement
subject to the satisfaction of certain conditions, including, among other
things: the availability of certain current public information about the
Company, the resale occurring not less than two years after a party has
purchased and paid for the security to be sold, the sale being through a
"broker's transaction" and the number of shares being sold during any three-
month period not exceeding specified limitations.
4.4 Access to Data. He or it has had an opportunity to discuss the
--------------
Company's business, management and financial affairs with its management and has
had the opportunity to review the Company's facilities.
SECTION 5
Conditions to Closing of Purchasers
-----------------------------------
The obligation of each Purchaser to purchase the Shares to be purchased at
the Closing is subject to the fulfillment to their satisfaction on or prior to
the Closing Date of each of the following conditions:
5.1 Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by the Company in Section 3 hereof shall be true and correct in
all material respects when made, and shall be true and correct in all material
respects on the Closing Date with the same force and effect as if they had been
made on and as of the Closing Date.
5.2 Performance. All covenants, agreements and conditions contained in
-----------
this Agreement to be performed or complied with by the Company on or prior to
the Closing Date shall have been performed or complied with in all respects.
5.3 Opinion of Company's Counsel. Each Purchaser shall have received
----------------------------
from Luce, Forward, Hamilton & Scripps, counsel to the Company, an opinion
addressed to it, dated the Closing Date, and in substantially the form attached
as Exhibit B hereto.
5.4 Legal Investment. At the time of the Closing, the purchase of the
----------------
Shares to be purchased by each Purchaser hereunder shall be legally permitted by
all laws and regulations to which the Purchasers and the Company are subject.
5.5 Compliance Certificate. The Company shall have delivered to each
----------------------
Purchaser a certificate of the President of the Company, dated the Closing Date,
certifying to the fulfillment of the conditions specified in Sections 5.1 and
5.2 of this Agreement.
5.6 Proceedings and Documents. All corporate and other proceedings in
-------------------------
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be satisfactory in substance and
form to each Purchaser and its counsel.
-10-
<PAGE>
5.7 Invention Assignment and Secrecy Agreements. Each person employed
-------------------------------------------
by the Company who has access to proprietary information concerning the Company
shall have executed and delivered to the Company either an Invention Assignment
and Secrecy Agreement or an Invention and Secrecy Agreement, the forms of which
are annexed hereto as Exhibit C.
5.8 Qualifications. The Company shall have received a permit from the
--------------
Commissioner of Corporations of the State of California qualifying the offer and
sale of the Shares and the Common Stock issuable upon conversion of the Shares
pursuant to this Agreement and authorizing the Debenture Amendment, which permit
shall be effective on and as of the Closing. In addition, all other
authorizations, approvals, notices or permits, if any, of any governmental
authority or regulatory body that are required in connection with the lawful
issuance and sale of the Shares pursuant to this Agreement, the conversion of
the Shares into Common Stock, the issuance of such Common Stock upon such
conversion, the approval of the Debenture Amendment and the consummation of all
the transactions contemplated hereby shall have been duly obtained and shall be
effective on and as of the Closing.
5.9 Restated Articles of Incorporation. The Restated Articles shall
----------------------------------
have been approved by all necessary corporate action and filed with the
Secretary of State of the State of California and shall be in full force and
effect.
5.10 Minimum Investment. At the Closing, the Purchasers shall purchase
------------------
Series 1 Shares and Series 2 Shares in aggregate purchase prices of not less
than $8,153,864 and $4,000,000, respectively.
5.11 Amendment of By-Laws. The Company shall have amended its By-Laws
--------------------
to provide that persons owning 20% or more of the Preferred and the Common Stock
issued upon conversion of the Preferred, or any combination thereof, can call
special meetings of shareholders and special meetings of the Board of Directors
and that 25% of the directors can call special meetings of the Board of
Directors.
5.12 Key Man Life Insurance. The Company agrees that it will obtain
----------------------
with financially sound and reputable insurers term life insurance on the lives
of such officers and employees of the Company in such amounts as the majority of
the members of the Board of Directors shall determine.
5.13 Legal Fees. The Company will pay the legal fees, disbursements and
----------
office charges and expenses of Reavis & McGrath, special counsel to the
Purchasers, with respect to this Agreement and the transactions contemplated
hereby.
5.14 Notice of Limited Offering Exemption. The Company shall have
------------------------------------
completed and executed a "Notice of Transaction pursuant to Corp. Code
25102(f)" in form suitable for filing with the Commissioner of Corporations of
the State of California, or will have received a permit from the Commissioner of
Corporations in lieu thereof with respect to the Shares and the shares of Common
Stock issuable upon conversion of the Shares.
-11-
<PAGE>
5.15 Amendment to Debenture Purchase Agreement. The 8% Convertible
-----------------------------------------
Subordinated Debentures due 1988 Purchase Agreement shall be amended in
accordance with the form of Debenture Amendment attached hereto as Exhibit D and
the Debenture Amendment shall be in full force and effect.
SECTION 6
Conditions to Closing of Company
--------------------------------
The Company's obligation to sell the Shares to be purchased at the Closing
is subject to the fulfillment to its satisfaction on or prior to the Closing
Date of each of the following conditions:
6.1 Representations. The representations made by the Purchasers
---------------
pursuant to Section 4 hereof shall be true and correct when made and shall be
true and correct on the Closing Date.
6.2 Legal Investment. At the time of the Closing, the conditions set
---------------
forth in Sections 5.8, 5.9, 5.10, 5.11 and 5.15 shall have occurred and the
purchase of the Shares to be purchased by the Purchasers hereunder shall be
legally permitted by all laws and regulations to which each Purchaser and the
Company are subject.
6.3 Minimum Investment. At the Closing, the Purchasers shall purchase
------------------
Series 1 Shares and Series 2 Shares in aggregate purchase prices of not less
than $8,153,864 and $4,000,000, respectively.
SECTION 7
Covenants of the Company
------------------------
The Company hereby covenants and agrees, so long as any Purchaser owns any
Shares or any shares of Common Stock issued upon conversion of Preferred, as
follows:
7.1 Access and Information. Until the earlier to occur of (i) the date
----------------------
on which the Company is subject to the reporting requirements of Section 13(a)
of the Securities Exchange Act of 1934, as amended, or (ii) the date on which
quotations for the Common Stock of the Company are reported by the automated
quotations system operated by the National Association of Securities Dealers,
Inc., or by an equivalent quotations system, the Company will permit any
Purchaser who owns (or has been designated as the representative of holders of)
Series 1 Shares (or shares of Common Stock issued upon conversion thereof) in
the aggregate purchase price of $250,000 or more, or Series 2 Shares (or shares
of Common Stock issued upon conversion thereof) in the aggregate purchase price
of $250,000 or more, or any combination thereof, to visit and inspect any of the
properties of the Company, including its books of account, and to discuss its
affairs, finances and accounts with the Company's officers and its independent
public accountants, all at such reasonable times and as often as any such person
may reasonably request, and the Company will deliver the reports described
below:
-12-
<PAGE>
(a) To all Purchasers of the Shares, as soon as practicable after the
end of each fiscal year of the Company, and in any event within ninety (90) days
thereafter, a consolidated balance sheet of the Company and its subsidiaries, if
any, as at the end of such fiscal year, and consolidated statements of income
and sources and applications of funds of the Company and its subsidiaries, if
any, for such year, prepared in accordance with generally accepted accounting
principles consistently applied and setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable detail and
certified by independent public accountants of recognized national standing
selected by the Company;
(b) To each Purchaser who owns (or has been designated as the
representative of holders of) Series 1 Shares (or shares of Common Stock issued
upon conversion thereof) in the aggregate purchase price of $250,000 or more, or
Series 2 Shares (or shares of Common Stock issued upon conversion thereof) in
the aggregate purchase price of $250,000 or more, or any combination thereof, as
soon as practicable after the end of the first, second and third quarterly
accounting periods in each fiscal year of the Company, and in any event within
forty-five (45) days thereafter, a consolidated balance sheet of the Company and
its subsidiaries, if any, as of the end of each such quarterly period, and
consolidated statements of income and sources and applications of funds of the
Company and its subsidiaries for such period and for the current fiscal year to
date, prepared in accordance with generally accepted accounting principles
consistently applied and setting forth in comparative form the figures for the
corresponding periods of the previous fiscal year, subject to changes resulting
from year-end audit adjustments, all in reasonable detail and certified by the
principal financial or accounting officer of the Company;
(c) To each Purchaser who owns (or has been designated as the
representative of holders of) Series 1 Shares (or shares of Common Stock issued
upon conversion thereof) in the aggregate purchase price of $250,000 or more, or
Series 2 Shares (or shares of Common Stock issued upon conversion thereof) in
the aggregate purchase price of $250,000 or more, or any combination thereof, as
soon as practicable after the end of each month and in any event within thirty
(30) days thereafter, a consolidated balance sheet of the Company and its
subsidiaries, if any, as at the end of such month, and consolidated statements
of income and of sources and applications of funds of the Company and its
subsidiaries, for each month and for the current fiscal year of the Company to
date, prepared in accordance with generally accepted accounting principles
consistently applied, together with a comparison of such statements to the
Company's operating plan then in effect and approved by its Board of Directors,
and certified, subject to changes resulting from year-end audit adjustments, by
the principal financial or accounting officer of the Company; and
(d) To any Purchaser described in subparagraph (c) above, upon the
written request of any such person, as soon as available (but in any event
within sixty (60) days after the commencement of its fiscal year) a summary of
the financial plan of the Company, as contained in its operating plan approved
by the Company's Board of Directors. Any material changes in such financial
plan shall be furnished as promptly as practicable after such changes have been
approved by the Board of Directors.
-13-
<PAGE>
In connection with the receipt of information to be provided in
accordance herewith to the Purchasers, the Purchasers agree to use their best
efforts to keep all such information confidential; provided, that a Purchaser
shall not be restricted from the use of such information in a manner customary
in the conduct of such Purchaser's business or in the management of its
investments. The Purchasers agree that, upon request by the Company, they will
enter into a confidentiality agreement with the Company upon such reasonable
terms as are consistent with the foregoing.
The foregoing provisions of this Section 7.1 shall not be in
limitation of any rights which a Purchaser may have with respect to the books
and records of the Company and its subsidiaries, or to inspect their properties
or discuss their affairs, finances and accounts, under the laws of the
jurisdictions in which they are incorporated.
7.2 Right of First Refusal. The Company hereby grants to each Purchaser
----------------------
the right of first refusal to purchase, pro rata, all (or any part) of New
Securities (as defined in this Section 7.2) which the Company may, from time to
time, propose to sell and issue. A Purchaser's pro rata share, for purposes of
this right of first refusal, is the ratio of the number of shares of Common
Stock which have been issued or are issuable upon conversion of all the Shares
purchased by such Purchaser under this Agreement to the sum the total number of
shares of Common Stock which have been issued upon conversion and the total
number of shares of Common Stock then issuable upon conversion of all then
outstanding Shares. Each Purchaser shall have a right of over-allotment such
that if any Purchaser fails to exercise his right hereunder to purchase his pro
rata portion of New Securities, the other Purchasers may purchase the non-
purchasing Purchaser's portion on a pro rata basis (allocated equitably on the
basis of the other Purchasers' relative holdings of shares of Common Stock
issued or issuable upon conversion of the Shares and indications of interest on
the applicable subscriptions) within five (5) days from the date such non-
purchasing Purchaser fails to exercise his right hereunder to purchase his pro
rata share of New Securities. This right of first refusal shall be subject to
the following provisions:
(a) "New Securities" shall mean any capital stock (including the
Common Stock or the Preferred) of the Company whether now authorized or not, and
rights, options or warrants to purchase capital stock, and securities of any
type whatsoever that have voting rights or are, or may become, convertible into
capital stock; provided that the term "New Securities" shall not include (i)
securities purchased under this Agreement; (ii) securities offered to the public
pursuant to a registration statement filed pursuant to the Securities Act; (iii)
securities issued pursuant to the acquisition of another corporation by the
Company by merger, purchase of substantially all the assets or other
reorganization whereby the Company owns not less than fifty-one percent (51%) of
the voting power of such corporation; (iv) any borrowings, direct or indirect,
from financial institutions or other persons by the Company, whether or not
presently authorized, including any type of loan or payment evidenced by any
type of debt instrument, provided such borrowings do not have any equity
features, including warrants, options or other rights to purchase capital stock,
and are not convertible into capital stock of the Company; (v) securities issued
to employees, constituting Management Stock (as such term is defined in
-14-
<PAGE>
Section 7.13 hereof); or (vi) securities issued upon voluntary or involuntary
conversion of, or in exchange for, outstanding securities of the Company.
(b) In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Purchaser written notice of its intention,
describing the type of New Securities, the price and the general terms upon
which the Company proposes to issue the same. Each Purchaser shall have thirty
(30) days from the date of receipt of any such notice to agree to purchase the
Purchaser's pro rata share of such New Securities for the price and upon the
general terms specified in the notice by giving written notice to the Company
and stating therein the quantity of New Securities to be purchased.
(c) In the event the Purchasers fail to exercise the right of first
refusal within said thirty (30) day period and after the expiration of the 5-day
period for the exercise of the over-allotment provisions of this Section 7.2,
the Company shall have one hundred twenty (120) days thereafter to sell or enter
into an agreement (pursuant to which the sale of New Securities covered thereby
shall be closed, if at all, within one hundred twenty (120) days from the date
of said agreement) to sell the New Securities respecting which the Purchasers'
option was not exercised, at a price and upon general terms no more favorable to
the purchases thereof than specified in the Company's notice. In the event the
Company has not sold within said 120-day period or entered into an agreement to
sell the New Securities within said 120-day period (or sold and issued New
Securities in accordance with the foregoing within one hundred twenty (120) days
from the date of said agreement), the Company shall not thereafter issue or sell
any New Securities, without first offering such securities to the Purchasers in
the manner provided above.
(d) The right of first refusal granted under this Agreement shall
expire upon the closing of the first sale of Common Stock of the Company to the
public at an aggregate offering price of at least two times the aggregate amount
paid for the Shares, which sale is effected pursuant to a registration statement
filed with, and declared effective by, the Securities and Exchange Commission
(the "Commission") under the Securities Act, with gross proceeds to the Company
as seller of not less than $10,000,000.
(e) The right of first refusal set forth in this Section 7.2 may be
assigned by any Purchaser to a transferee or assignee in a transaction not
involving a public offering; provided that the Company is given written notice
at the time of or within a reasonable time after said transfer, stating the name
and address of said transferee or assignee and identifying the Purchaser whose
right is being assigned; and provided further that the transferee or assignee of
such right is not deemed by the Board of Directors of the Company, in its
reasonable judgment, to be a competitor of the Company; and provided further
that the transferee or assignee of such rights assumes the obligations of such
Purchaser under this Section 7.2.
7.3 Prompt Payment of Taxes, etc. The Company will promptly pay and
----------------------------
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company or any subsidiary; provided,
however, that any such tax, assessment, charge or levy
-15-
<PAGE>
need not be paid if the validity thereof shall currently be contested in good
faith by appropriate proceedings and if the Company shall have set aside on its
books adequate reserves with respect thereto required to be established by
generally accepted accounting principles, and provided, further, that the
Company will pay all such taxes, assessments, charges or levies forthwith upon
the commencement of proceedings to foreclose any lien which may have attached as
security therefor. The Company will promptly pay or cause to be paid when due,
or in conformance with customary trade terms, all other indebtedness incident to
operations of the Company, unless such indebtedness is being contested in good
faith, in which case the Company will establish an appropriate reserve to the
extent required by generally accepted accounting principles.
7.4 Maintenance of Properties and Leases. The Company will keep its
------------------------------------
properties and those of its subsidiaries in good repair, working order and
condition, reasonable wear and tear excepted, and from time to time make all
needful and proper repairs, renewals, replacements, additions and improvements
thereto; and the Company and its subsidiaries will at all times comply with each
provision of all leases to which any of them is a party or under which any of
them occupies property if the breach of such provision might have a material
adverse effect on the condition, financial or otherwise, or operations of the
Company.
7.5 Insurance. The Company will keep its assets and those of its
---------
subsidiaries which are of an insurable character insured by financially sound
and reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in the Company's line of business, in
amounts sufficient to prevent the Company or any subsidiary from becoming a co-
insurer and not in any event less than 100% of the insurable value of the
property insured; and the Company will maintain, with financially sound and
reputable insurers, insurance against other hazards and risks and liability to
persons and property to the extent and in the manner customary for companies in
similar businesses similarly situated.
7.6 Key Man Life Insurance. The Company will cause the term life
----------------------
insurance required by Section 5.12 hereof to be maintained upon the terms and
conditions set forth therein, as determined by a majority of the members of the
Board of Directors.
7.7 Accounts and Records. The Company will keep true records and books
--------------------
of account in which full, true and correct entries will be made of all dealings
or transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis.
7.8 Independent Accountants. The Company will retain independent public
-----------------------
accountants of recognized national standing who shall certify the Company's
financial statements at the end of each fiscal year. In the event the services
of the independent public accountants, so selected, or any firm of independent
public accounts hereafter employed by the Company are terminated, the Company
will promptly thereafter notify the Purchasers and will request the firm of
independent public accountants whose services are terminated to deliver to the
Purchasers a letter of such firm setting forth the reasons for the termination
of their services. In the event of such termination, the Company will promptly
thereafter engage another such firm
-16-
<PAGE>
of independent public accountants. In its notice to the Purchasers, the Company
shall state whether the change of accountants was recommended or approved by the
Board of Directors or any committee thereof.
7.9 Compliance with Requirements of Governmental Authorities. The
--------------------------------------------------------
Company shall duly observe and conform to all valid requirements of governmental
authorities relating to the conduct of their businesses or to their properties
or assets.
7.10 Maintenance of Corporate Existence, etc. The Company shall maintain
---------------------------------------
in full force and effect its corporate existence, rights and franchises and all
licenses and other rights to use patents, processes, licenses, trademarks, trade
names or copyrights owned or possessed by it or any subsidiary and deemed by the
Company to be necessary to the conduct of their business.
7.11 Availability of Common Stock for Conversion. The Company will, from
-------------------------------------------
time to time, in accordance with the laws of the state of its incorporation,
increase the authorized amount of Common Stock if at any time the number of
shares of Common Stock remaining unissued and available for issuance shall be
insufficient to permit conversion of all the then outstanding shares of
Preferred.
7.12 Invention Assignment and Secrecy Agreements. The Company and each
-------------------------------------------
person hereafter employed by it with access to confidential information will
enter into an Invention and Secrecy Agreement in substantially the form of
Exhibit C hereto.
7.13 Further Stock Issuances. Other than the Preferred contemplated by
-----------------------
this Agreement, the Company will not issue any of its capital stock, or grant an
option to purchase any of its capital stock, after September 30, 1983, except
that (i) the Company may issue, or grant options to purchase, up to an aggregate
of 4,010,811 shares of Common Stock to employees of the Company or a subsidiary
("Management Stock") and (ii) securities may be issued upon the conversion of
outstanding convertible securities.
7.14 Use of Proceeds. The Company will use the proceeds from the sale of
---------------
the Shares for general corporate purposes and in accordance with the plans set
forth in the Memorandum.
7.15 Regulation D Filing. The Company will file on a timely basis all
-------------------
notices of sale required to be filed with the Securities and Exchange Commission
pursuant to Regulation D under the Securities Act and simultaneously furnish
copies of each report of sale to special counsel for the Purchasers and each
Purchaser who so requests in writing.
7.16 Notice of Record Dates. In the event of any setting by the Company
----------------------
of a record of the holders of any class of securities (other than the Preferred)
for the purpose of determining the holders thereof who are entitled to receive
any dividend or other distribution, the Company shall mail to each Purchaser at
least twenty (20) days prior to such record date, specified herein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend or distribution.
-17-
<PAGE>
<TABLE>
<CAPTION>
# in (S)7.13
Total # on Pg. 13 of Purchase
Option Plan to Articles Agreement
------------ ------------ ------------
<S> <C> <C> <C> <C>
9/30/93 - Option Plan 4,008,000 4,008,000
-----------------
- Option exercised as of 9/30/89 497,189
----------
- Unexercised/ungranted options 3,510,811 3,510,811
12/8/83 - Additional options added to Pool as
part of financing 12/8/83 500,000 500,000
---------- ----------
- Total as of 12/8/83 4,508,000 4,010,811
1/31/85 - Shareholder consent to
(a) Increase option pool 750,000 750,000
(b) Provided 25K shares to consultant 25,000
---------- ----------
- Total as of 1/31/85 5,258,000 4,785,811
3/27/87 - Shareholder approval to increase
option pool 350,000 350,000
---------- ----------
- Total as of 1/31/85 5,608,000 5,135,811 5,135,811
9/14/87 Shareholder approval to increase
option pool (Part of financing of 9/16) 1,300,000 1,300,000 4,201,365*
---------- ----------
- Total as of 9/1487 6,908,000 6,435,111
- Total option pool (6,908,000)
less options outstanding 9/31/87
(2,706,635)
Net available 4,201,365
As of 9/14/87
</TABLE>
______________________
*This method created a 25,000 "discrepancy" between the Articles # of total
"allowable" shares and the (S)7.13 limit (list the 25K shares)
-----
7 17 Notice of Limited Offering Exemption. If required by law, promptly
------------------------------------
after the Closing, but in no event later than thirty (30) days after the Closing
Date, the Company shall file the Notice referred to in Section 5.14 hereof with
the California Commissioner of Corporations.
7.18 Certain Restrictions. Without the prior written consent of the
--------------------
holders of at least a majority of the total number of shares of Common Stock
issued or issuable upon conversion of all the Shares, the Company (a) will not
sell, lease or otherwise dispose of a material portion of its assets other than
in the ordinary course of business; (b) will not sell or otherwise dispose of
any stock of any subsidiary; and (c) will not permit any subsidiary to become a
party to any
-18-
<PAGE>
merger, consolidation, reorganization, acquisition or commitment to take any
action; provided, that a subsidiary of the Company may be merged into or
consolidated with another subsidiary of the Company.
7 19 Compliance by Subsidiaries. The Company will cause any subsidiary
--------------------------
it may organize in the future to comply fully with the provisions of this
Section 7 to the same extent as if such subsidiary or subsidiaries were the
Company.
SECTION 8
Restrictions on Transferability of
Securities; Compliance with Securities Act
------------------------------------------
8.1 Restrictions on Transferability. The Shares and the Common Stock
-------------------------------
issued upon conversion of the Shares shall not be transferable, except upon the
conditions specified in this Section 8, which conditions are intended to insure
compliance with the provisions of the Securities Act or, in the case of Section
8.14 hereof, to assist in an orderly distribution. Each Purchaser will cause
any proposed transferee of Shares or Common Stock issued on conversion of the
Shares held by that Purchaser to agree to take and hold those securities subject
to the provisions and upon the conditions specified in this Section 8.
8.2 Certain Definitions. As used in this Section 8, the following terms
-------------------
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Restricted Securities" shall mean the securities of the Company required
to bear or bearing the legend set forth in Section 8.3 hereof.
"Registrable Securities" shall mean (i) shares of Common Stock issued or
issuable upon the conversion of Preferred and (ii) any Common Stock issued in
respect of securities issued pursuant to the conversion of Shares upon any stock
split, stock dividend, recapitalization or similar event.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company in
compliance with Sections 8.5 and 8.6 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, and the expense of any
special audits or accounting services incident to or required by
-19-
<PAGE>
any such registration (but excluding the compensation of regular employees of
the Company, which shall be paid in any event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for any Holder.
"Holder" shall mean any holder of the outstanding Shares or Registrable
Securities which have not been sold to the public.
"Initiating Holders" shall mean any Purchasers or their assignees under
Section 8.14 hereof.
8.3 Restrictive Legend. Each certificate representing (i) the Shares,
------------------
or (ii) shares of the Company's Common Stock issued upon conversion of
Preferred, or (iii) any other securities issued in respect of Preferred or the
Common Stock issued upon conversion of Preferred, upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted or unless the securities evidenced by such
certificate shall have been registered under the Securities Act) be stamped or
otherwise imprinted with a legend in the following form (in addition to any
legend required under applicable state securities laws):
THESE SECURITIES AND THE SHARES OF COMMON STOCK OF APPLIED MICRO CIRCUITS
CORPORATION (THE "COMPANY") INTO WHICH THESE SECURITIES ARE CONVERTIBLE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR ANY STATE
SECURITIES LAWS. THEY MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, ASSIGNED
OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO
THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN
OPINION OF LUCE, FORWARD, HAMILTON & SCRIPPS OR REAVIS & MCGRATH OR OTHER
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
THE COMPANY'S PURCHASE AGREEMENT DATED AS OF DECEMBER 8 , 1983 WITH THE
PURCHASERS (AS IDENTIFIED THEREIN) CONTAINS ADDITIONAL PROVISIONS
PERTAINING TO THE TRANSFER OF, AND RIGHTS ASSOCIATED WITH, THESE SECURITIES
AND SUCH COMMON STOCK. A COPY OF SUCH AGREEMENT IS AVAILABLE FOR
INSPECTION AT THE COMPANY'S PRINCIPAL OFFICES.
Upon request of a holder of such a certificate, the Company shall remove
the foregoing legend from the certificate or issue to such holder a new
certificate therefor free of any transfer legend, if, with such request, the
Company shall have received either the opinion referred to in Section 8.4(i) or
the "no-action" letter referred to in Section 8.4(ii) to the effect that any
transfer by such holder of the securities evidenced by such certificate will not
violate the Securities Act and applicable state securities laws.
-20-
<PAGE>
8.4 Notice of Proposed Transfers. The holder of each certificate
----------------------------
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 8.4. Prior to any proposed
transfer of any Restricted Securities (other than under circumstances described
in Sections 8.5 and 8.6), the holder thereof shall give written notice to the
Company of such holder's intention to effect such transfer. Each such notice
shall describe the manner and circumstances of the proposed transfer in
sufficient detail, and shall be accompanied (except in transactions in
compliance with Rule 144) by either (i) a written opinion of Reavis & McGrath or
Luce, Forward, Hamilton & Scripps or other legal counsel who shall be reasonably
satisfactory to the Company, addressed to the Company and reasonably
satisfactory in form and substance to the Company's counsel, to the effect that
the proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act, or (ii) a "no action" letter from the
Commission to the effect that the distribution of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, where-upon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the holder to the
Company. Each certificate evidencing the Restricted Securities transferred as
above provided shall bear the appropriate restrictive legend set forth in
Section 8.3 above, except that such certificate shall not bear such restrictive
legend if the opinion of counsel or "no-action" letter referred to above is to
the further effect that such legend is not required in order to establish
compliance with any provisions of the Securities Act.
8.5 Requested Registration.
----------------------
(a) Request for Registration. If the Company shall receive from
------------------------
Initiating Holders a written request that the Company effect any registration
with respect to all or a part of the Registrable Securities and (i) if such
request is made before the Company has had its initial underwritten public
offering, provided such request is made by the holders of not less than 67% of
the total number of shares of Common Stock issued or issuable upon conversion of
the Shares; or (ii) if such request is made after the Company has already had an
initial underwritten public offering, provided such request is made by the
holders of not less than 40% of the total number of shares of Common Stock
issued or issuable upon conversion of the Shares, the Company will:
(i) promptly give written notice of the proposed registration to
all other Holders; and
(ii) as soon as practicable, use its diligent best efforts to
effect such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request given
within thirty (30) days after receipt of such written notice from the
-21-
<PAGE>
Company; provided, that the Company shall not be obligated to effect, or to take
any action to effect, any such registration pursuant to this Section 8.5:
(A) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification or compliance, unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act or applicable rules or regulations thereunder; or
(B) After the Company has effected two such registrations
pursuant to this Section 8.5(a) and such registrations have been declared or
ordered effective and the sales of such Registrable Securities shall have
closed.
(C) If the written demand results in the Company's initial
underwritten public offering, at least $10,000,000 in Common Stock must be sold
by the Initiating Holders. If the written request does not result in the
Company's initial underwritten public offering, a minimum of $5,000,000 in
Common Stock must be sold by the Initiating Holders.
Subject to the foregoing clauses (A), (B) and (C), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable, after receipt of the request or requests of
the Initiating Holders.
The registration statement filed pursuant to the request of the
Initiating Holders may, subject to the provisions of Section 8.5(b) below,
include other securities of the Company which are held by officers or directors
of the Company or which are held by persons who, by virtue of agreements with
the Company, are entitled to include their securities in any such registration.
(b) Underwriting. 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
Section 8.5 and the Company shall include such information in the written notice
referred to in Section 8.5(a)(i) above. The right of any Holder to registration
pursuant to Section 8.5 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting (unless otherwise mutually agreed by a majority in interest of
the Initiating Holders and such Holder with respect to such participation and
inclusion) to the extent provided herein. A Holder may elect to include in such
underwriting all or a part of the Registrable Securities he holds.
If officers or directors of the Company holding other securities of
the Company shall request inclusion in any registration pursuant to Section 8.5,
or if holders of securities of the Company who are entitled, by contract with
the Company, to have securities included in such a registration (the "Other
Shareholders") request such inclusion, the Initiating Holders shall, on behalf
of all Holders, offer to include the securities of such officers, directors and
Other
-22-
<PAGE>
Shareholders in the underwriting and may condition such offer on their
acceptance of the further applicable provisions of this Section 8. The Company
shall (together with all Holders, officers, directors and Other Shareholders
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders and reasonably acceptable to the Company.
Notwithstanding any other provision of this Section 8.5, if the representative
advises the Initiating Holders in writing that marketing factors require a
limitation on the number of shares to be underwritten, the securities of the
Company held by officers or directors (other than Registrable Securities) of the
Company shall be excluded from such registration to the extent so required by
such limitation and if a limitation of the number of shares is still required,
the Initiating Holders shall so advise all Holders of Registrable Securities and
Other Shareholders whose securities would otherwise be underwritten pursuant
hereto, and the number of shares of Registrable Securities and other securities
that may be included in the registration and underwriting shall be allocated
among all such Holders and Other Shareholders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities and other
securities which they had requested to be included in such registration at the
time of filing the registration statement. No Registrable Securities or any
other securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. If any Holder of
Registrable Securities, officer, director or Other Shareholder who has requested
inclusion in such registration as provided above disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the underwriter and the Initiating Holders. The securities so
withdrawn shall also be withdrawn from registration. If the underwriter has not
limited the number of Registrable Securities or other securities to be
underwritten, the Company may include its securities for its own account in such
registration if the underwriter so agrees and if the number of Registrable
Securities and other securities which would otherwise have been included in such
registration and underwriting will not thereby be limited.
8.6 Company Registration.
--------------------
(a) If the Company shall determine to register any of its securities
either for its own account or the account of a security holder or holders
exercising their respective demand registration rights, other than a
registration relating solely to employee benefit plans, or a registration
relating solely to a Commission Rule 145 transaction, or a registration on any
registration form which does not permit secondary sales or does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities, the Company
will:
(i) promptly give to each Holder written notice thereof (which
shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other state
securities laws); and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable
-23-
<PAGE>
Securities specified in a written request or requests, made by any Holder within
fifteen (15) days after receipt of the written notice from the Company described
in clause (i) above, except as set forth in Section 8.6(b) below. Such written
request may specify all or a part of a Holder's Registrable Securities.
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 8.6(a)(i). In such event the right of any Holder to
registration pursuant to Section 8.6 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the Other Shareholders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for underwriting by
the Company. Notwithstanding any other provision of this Section 8.6, if the
underwriter determines that marketing factors require a limitation on the number
of shares to be underwritten, and (a) if such registration is the first
registered offering of the Company's securities to the public, the underwriter
may (subject to the allocation priority set forth below) exclude from such
registration and underwriting some or all of the Registrable Securities which
would otherwise be underwritten pursuant hereto, and (b) if such registration is
other than the first registered offering of the sale of the Company's securities
to the public, the underwriter may (subject to the allocation priority set forth
below) limit the number of Registrable Securities to be included in the
registration and underwriting to not less than fifty percent (50%) of the
securities included therein (based on aggregate market values). The Company
shall so advise all holders of securities requesting registration, and the
number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated in the following manner. The
securities of the Company held by officers and directors of the Company (other
than Registrable Securities) shall be excluded from such registration and
underwriting to the extent required by such limitation, and, if a limitation on
the number of shares is still required, the number of shares that may be
included in the registration and underwriting shall be allocated among all such
Holders and Other Shareholders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities and other securities which they had
requested to be included in such registration at the time of filing the
registration statement. If any Holder of Registrable Securities or any officer,
director or Other Shareholder disapproves of the terms of any such underwriting,
he may elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
8.7 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to this
Section 8 shall be borne by the Company, and all Selling Expenses shall be borne
by the holders of the securities so registered pro rata on the basis of the
number of their shares so registered; provided, however, that the Company shall
not be required to pay any Registration Expenses if, as a result of the
withdrawal of a request for registration by Initiating Holders, the registration
statement does not become
-24-
<PAGE>
effective, in which case the Holders and Other Shareholders requesting
registration shall bear such Registration Expenses pro rata on the basis of the
number of their shares so included in the registration request, and provided,
further, that if a sale is not concluded once a request for registration is
made, such registration shall be counted as a registration pursuant to Section
8.5(a)(ii)(B).
8.8 Registration on Form S-2 or Form S-3. The Company shall use its
------------------------------------
best efforts to qualify for registration on Form S-2 and Form S-3 or any
comparable or successor form or forms; and to that end the Company shall
register (whether or not required by law to do so) the Common Stock under the
Exchange Act in accordance with the provisions of that Act following the
effective date of the first registration of any securities of the Company on
Form S-1 or Form S-18 or any comparable or successor form or forms. After the
Company has qualified for the use of either Form S-2 or Form S-3 or both, in
addition to the rights contained in the foregoing provisions of this Section 8,
the Holders of Registrable Securities shall have the right to request
registrations on Form S-2 or Form S-3 (such requests shall be in writing and
shall state the number of shares of Registrable Securities to be disposed of and
the intended methods of disposition of such shares by such Holder or Holders).
8.9 Registration Procedures. In the case of each registration effected
-----------------------
by the Company pursuant to Section 8, the Company will keep each Holder advised
in writing as to the initiation of each registration and as to the completion
thereof. At its expense, the Company will:
(a) Keep such registration effective for a period of one hundred
twenty (120) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs; provided, however, that (i) such 120-day periods shall be extended for a
period of time equal to the period the Holder refrains from selling any
securities included in such registration in accordance with provisions in
paragraph 8.15 hereof; and (ii) in the case of any registration of Registrable
Securities on Form S-3 which are intended to be offered on a continuous or
delayed basis, such 120-day period shall be extended, if necessary, to keep the
registration statement effective until all such Registrable Securities are sold,
provided that Rule 415, or any successor rule under the Securities Act, permits
an offering on a continuous or delayed basis, and provided further that
applicable rules under the Securities Act governing the obligation to file a
post-effective amendment, permit, in lieu of filing a post-effective amendment
which (y) includes any prospectus required by Section l0(a)(3) of the Securities
Act or (z) reflects facts or events representing a material or fundamental
change in the information set forth in the registration statement, the
incorporation by reference of information required to be included in (y) and (z)
above to be contained in periodic reports filed pursuant to Section 13 or 15(d)
of the Exchange Act in the registration statement;
(b) Furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request; and
(c) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 8.5 hereof, the Company will
enter into any underwriting
-25-
<PAGE>
agreement reasonably necessary to effect the offer and sale of Common Stock,
provided such underwriting agreement contains customary underwriting provisions
and provided further that if the underwriter so requests the underwriting
agreement will contain customary contribution provisions.
8.10 Indemnification.
---------------
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, and each person controlling such Holder, with respect to
which registration, qualification or compliance has been effected pursuant to
this Section 8, and each underwriter, if any, and each person who controls any
underwriter, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other document (including any related registration statement,
notification or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of the Securities Act or
any rule or regulation thereunder applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each such Holder,
each of its officers, directors and partners, and each person controlling such
Holder, each such underwriter and each person who controls any such underwriter,
for any legal and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission based upon written information furnished to the
Company by such Holder or underwriter and stated to be specifically for use
therein.
(b) Each Holder and Other Shareholder will, if Registrable Securities
held by him are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers and each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of the Securities Act and the
rules and regulations thereunder, each other such Holder and Other Shareholder
and each of their officers, directors and partners, and each person controlling
such Holder or Other Shareholder, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and such Holders, Other Shareholders,
directors, officers, partners, persons, underwriters or control persons for any
legal or any other expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is
-26-
<PAGE>
made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to the Company by such Holder or Other Shareholder and stated to be specifically
for use therein; provided, however, that the obligations of such Holders and
Other Shareholders hereunder shall be limited to an amount equal to the proceeds
to each such Holder or Other Shareholder of securities sold as contemplated
herein.
(c) Each party entitled to indemnification under this Section 8.10
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 8. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation. Each Indemnified Party
shall furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
8.11 Information by Holder. Each Holder of Registrable Securities, and
---------------------
each Other Shareholder holding securities included in any registration, shall
furnish to the Company such information regarding such Holder or Other
Shareholder and the distribution proposed by such Holder or Other Shareholder as
the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Section 8.
8.12 Limitations on Registration of Issues of Securities. From and
---------------------------------------------------
after the date of this Agreement, the Company shall not enter into any agreement
with any holder or prospective holder of any securities of the Company giving
such holder or prospective holder the right to require the Company to initiate
any registration of any securities of the Company, provided that this Section
8.12 shall not limit the right of the Company to enter any agreements with any
holder or prospective holder of any securities of the Company giving such holder
or prospective holder the right to require the Company, upon any registration of
any of its securities, to include, among the securities which the Company is
then registering, securities owned by such holder; and provided further that a
majority of the representatives of the Purchasers on the Board of Directors may
waive the requirement that the Company not enter into any agreement giving a
holder of any securities of the Company the right to require the Company to
initiate registration of any securities of the Company. Any right given by the
Company to any holder or prospective
-27-
<PAGE>
holder of the Company's securities in connection with the registration of
securities shall be conditioned such that it shall be consistent with the
provisions of this Section 8 and with the rights of the Holders provided in this
Agreement.
8.13 Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may permit the sale of
the Restricted Securities to the public without registration, the Company agrees
to:
(a) Make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act, at all times from
and after ninety (90) days following the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act at any time after it has become subject to
such reporting requirements;
(c) So long as a Purchaser owns any Restricted Securities, furnish to
the Purchaser forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 (at any time from and
after ninety (90) days following the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
so filed as a Purchaser may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Purchaser to sell any such securities
without registration.
8.14 Transfer or Assignment of Registration Rights. The rights to cause
---------------------------------------------
the Company to register securities granted to any Holder by the Company under
Sections 8.5, 8.6 and 8.8 may be transferred or assigned by any Holder to a
transferee or assignee, provided that the Company is given written notice at the
time of or within a reasonable time after said transfer or assignment, stating
the name and address of said transferee or assignee and identifying the
securities with respect to which such registration rights are being transferred
or assigned, and provided further that the transferee or assignee of such rights
is not deemed by the Board of Directors of the Company, in its reasonable
judgment, to be a competitor of the Company; and provided further that the
transferee or assignee of such rights assumes the obligations of such Purchaser
under this Section 8.
8.15 "Market Stand-off" Agreement. Each Purchaser agrees, if requested
----------------------------
by the Company and an underwriter of Common Stock (or other securities) of the
Company, not to sell or otherwise transfer or dispose of any Common Stock (or
other securities) of the Company held by it during the ninety (90) day period
following the effective date of a registration statement of the Company filed
under the Securities Act, provided that:
-28-
<PAGE>
(a) such agreement only applies to the first such registration
statement of the Company including securities to be sold on its behalf to the
public in an underwritten offering; and
(b) all Holders, Other Shareholders and officers and directors of the
Company enter into or are contractually obligated to enter into similar
agreements.
Such agreement shall be in writing in a form satisfactory to the Company
and such underwriter. The Company may impose stop-transfer instructions with
respect to the shares (or securities) subject to the foregoing restriction until
the end of said ninety (90) day period.
SECTION 9
Miscellaneous
-------------
9.1 Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of California.
9.2 Survival. The representations, warranties, covenants and agreements
-------
made herein shall survive (i) any investigation made by or on behalf of any
Purchaser and (ii) the Closing.
9.3 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto; provided, however, the Company may not assign its rights
hereunder.
9.4 Entire Agreement; Amendment. This Agreement (including the
--------------------------
Schedules and Exhibits hereto) and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof. Neither this Agreement nor any
term hereof may be amended, waived, discharged or terminated, except by a
written instrument signed by the Company and the Purchasers; provided, however,
that holders of sixty percent (60%) or more of the Shares sold under this
Agreement or such number of shares of Common Stock issued upon conversion of
those sixty percent (60%) of the Shares, or any combination thereof, may by
written instrument waive or modify any term or condition which operates for the
benefit of the Purchasers, but in no event shall the obligation of any Purchaser
hereunder to purchase Shares be increased, except upon the written consent of
such Purchaser.
9.5 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be mailed by first-class mail,
postage prepaid, or delivered either by hand or by messenger, addressed (a) if
to a Purchaser, as indicated on the Schedule of Purchasers attached hereto, or
at such other address as such Purchaser shall have furnished to the Company in
writing, or (b) if to any other holder of any Shares or any Common Stock issued
upon conversion of Shares, at such address as such holder shall have furnished
the Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the
-29-
<PAGE>
address of the last holder thereof who has so furnished an address to the
Company, or (c) if to the Company, at its address set forth at the beginning of
this Agreement, or at such other address as the Company shall have furnished to
you and each such other holder in writing.
9.6 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any holder of any Shares, upon any breach or default
of the Company under this Agreement, shall impair any such right, power or
remedy of such holder 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 theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder 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 to any holder, shall be
cumulative and not alternative.
9.7 Rights; Separability. Unless otherwise expressly provided herein,
--------------------
each Purchaser's rights hereunder are several rights, not rights jointly held
with any of the other Purchasers. In case any provision of the Agreement shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
9.8 Agent's Fees.
------------
(a) The Company hereby agrees to indemnify and to hold each Purchaser
harmless of and from any liability for any commission or compensation in the
nature of an agent's fee to any broker or other person or firm (and the costs
and expenses of defending against such liability or asserted liability) arising
from any act by the Company or any of its employees or representatives.
(b) Each Purchaser (i) represents and warrants that it has retained no
finder or broker in connection with the transactions contemplated by this
Agreement and (ii) hereby agrees to indemnify and to hold the Company and the
other Purchasers harmless from any liability for any commission or compensation
in the nature of an agent's fee to any broker or other person or firm (and the
costs and expenses of defending against such liability or asserted liability)
for which it, or any of its employees or representatives, are responsible.
9.9 Information Confidential. Each Purchaser acknowledges that the
------------------------
information received by it pursuant hereto may be confidential and for its use
only, and it will not use such confidential information in violation of the
Exchange Act or reproduce, disclose, disseminate or make any use of such
information to any other person (other than your employees or agents having a
need to know the contents of such information, and your attorneys), except in
connection with the exercise of rights under this Agreement, unless the Company
has made such information available to the public generally or the Purchaser is
required to disclose such information by a governmental body.
-30-
<PAGE>
9.10 Expenses. The Company shall bear its own expenses and legal fees
--------
incurred on its behalf with respect to this Agreement and the transactions
contemplated hereby, and the Company will pay the legal fees, disbursements and
office expenses and charges, of Reavis & McGrath with respect to this Agreement
and the transactions contemplated hereby to the extent provided in Section 5.13
hereof.
9.11 Titles and Subtitles. The titles of the paragraphs and
--------------------
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
9.12 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
9.13 California Qualification. The sale of the securities which are the
------------------------
subject of this Agreement has not been qualified with the Commissioner of
Corporations of the State of California and the issuance of such securities or
the payment or receipt of any part of the consideration therefor prior to such
qualification is unlawful. The rights of all parties with respect to such
securities are expressly conditioned upon such qualification being obtained.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first written above.
APPLIED MICRO CIRCUITS CORPORATION
By:
----------------------------------
President
PURCHASERS:
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
-31-
<PAGE>
SCHEDULE OF SERIES 1 PURCHASERS
-------------------------------
<TABLE>
<CAPTION>
Principal Amount
Total of Debentures Total
Name and Address Shares Being Tendered Investment
- ------------------------ -------------------- ----------------------- --------------------
<S> <C> <C> <C>
TOTAL
----------------------
</TABLE>
<PAGE>
TOTAL SCHEDULE OF SERIES 2 PURCHASERS
-------------------------------------
<TABLE>
<CAPTION>
Total Total
Name and Address Shares Investment
- -------------------------------------- --------------------- -----------------------
<S> <C> <C>
TOTAL
----------------------
</TABLE>
<PAGE>
SCHEDULE OF EXCEPTIONS
----------------------
The following list of exceptions refers to the paragraphs of the Applied
Micro Circuits Corporation, Convertible Preferred Stock, Series 1 and Series 2,
Purchase Agreement dated as of December 8, 1983.
Paragraph
Reference
- ---------
3.4 As of October 31, 1983, options to purchase 3,352,147 common
shares were outstanding to certain employees of the Company
pursuant to the "1982 Employee Incentive Stock Option Plan of
Applied Micro Circuits Corporation" ("ISO Plan"). The exercise
price of these options is twelve and one half cents ($.125) per
share. As of October 31, 1983, 227,307 of these outstanding
options were exercisable. Additionally at that date there were
options for 121,654 shares which were authorized under the ISO
Plan but had not been granted. The outstanding options become
exercisable over the next 5 years. As outlined in the Memorandum,
after the completion of the present financing, management will
request that up to 500,000 additional options be authorized for
future grants. The number of outstanding common shares may change
slightly by the Closing Date if some currently outstanding
options are exercised between October 31, 1983 and the Closing
Date.
3.6 The Company's largest order (in the amount of $5.5 million, of
which $3.0 million was released as of 10/31/83) is from a
military customer. Pursuant to government procurement
regulations, this customer's purchase order was issued at a "not-
to-exceed" price to permit shipments and acceptance and payment
to proceed pending approval of the standard government cost
justification documentation. AMCC carries this order in backlog
at the "not-to-exceed" prices and has reported major sales in
September and October, 1983 based on these "not-to-exceed"
prices. The customer has also paid the September invoices as
submitted. The Company does not feel that any material price
adjustment will be made as a result of the final fixed price to
be negotiated based on the cost disclosure information.
3.8 The Company leases facilities in San Diego and Cupertino. These
lease obligations are not reflected on the Balance Sheet.
<PAGE>
3.11 See disclosure of facilities leases in 3.16 below.
3.11(a) See disclosure of stock options in 3.4 above.
3.11(b) The existing outstanding 8% Convertible Subordinated Debentures
have been disclosed elsewhere.
3.11(c) The Company has agreements with various sales representatives
which provide for sales commissions generally ranging from five
(5) to ten (10) percent of sales in the representatives
territory. These are agreements that are typical in the industry.
-2-
<PAGE>
3.11(e) Outstanding Contractual Commitments
-------------------------------------
As of November 11, 1983 the following
contractual commitments were outstanding.
<TABLE>
<CAPTION>
Vendor Item/Service P.O. Value
- ------ ------------ --------------
<S> <C> <C>
Cambridge Instruments, Inc. Scanning Electron Microscope $ 99,190
Kyocera International, Inc. 64 1d. package for WINGS 333,850
Kyocera International, Inc. 84 PGA package for TULIP 151,630
Zylin Corporation Metal Etch System 255,000
Fairchild Test Systems Sentry 20 Test System 920,500
Signetics Corporation Junction Isolated Wafers 793,100
Daisy Workstations 110,000
Arrowhead Industrial Water D.I. Water
5 yr. contract with
54 months remaining at $5,000/month 270,000
Master Images Blanket order for masks 265,000
Pantronix Corporation Contract assembly service 125,000
Union Carbide Bulk gases (H2, 02, N2)
5 yr. contract with 56 months
remaining at $7,500/mo. 412,500
Applied Materials Oxide Etch System 338,875
Ultratech Stepper 3 projection stepper (orders for 2
are cancellable at no charge until
6/84) $1,006,200
</TABLE>
Note: B. A. Leasing, see Section 3.15.
Building Leases, see Section 3.16.
-3-
<PAGE>
3.11(h) Thomson Agreement
-----------------
AMCC has established Thomson-EFCIS as a nontransferrable European
second source for Thomson Group needs as well as Thomson-EFCIS
external markets. AMCC will not enter into a second source
agreement for the Q700 family of a similar scope with any third
party semiconductor manufacturer in France over the 5-year
contract period which commenced June 1982.
3.12 As of October 31, 1983, non-recourse promissory notes to the
Company were outstanding in the total amount of $338,960,
representing the purchase price for 11,308 shares of common stock
issued to employees under the Company's Key Employee Stock
Purchase Plan.
The Company currently subcontracts its PC board layout work to
Southland Engineering, a company owned by an AMCC engineer.
Competitive bids are reviewed routinely for this ongoing effort
which is estimated to approximate $11,000 annually.
The Company also subcontracts certain engineering prototype
assembly work to United Semiconductor Assembly, a company
partially owned by a Quality Assurance employee. Competitive bids
are reviewed routinely for this on-going effort, which is
estimated to approximate $4,000 annually.
3.13 On December 7, 1982, a customer, International Telemetrics, Ltd.
filed a complaint against the Company alleging breach of contract
and other related claims. These claims derived from a contract
between International Telemetrics and the Company and involved
engineering design work for an integrated circuit for an
electronic metronome. The amount of this design contract was
approximately $10,000. The aggregate amount claimed in the
complaint is $1,510,000. The Company does not believe that there
is substance to the claims, or that a material liability will
result from this lawsuit.
3.15 As part of the $2 million lease line with B.A. Leasing, AMCC has
agreed to maintain as collateral for the lease payments, cash
equivalent instruments to be held by Bank of America, in the
amount of 12 months of future lease payments. As of September 30,
1983 and November 11, 1983, such collateral amounted to
approximately $301,000. This amount of the Company's cash and
cash equivalents are restricted. These collateral amounts will be
increased as the amount of leased equipment is increased. The
collateral will be
-4-
<PAGE>
released as certain levels of profitability, and lease payment
coverage ratios are met. This collateral will be released during
fiscal 1985 if the Company's projections are met.
3.16 The Company leases a 21,000 square foot facility at 5502 Oberlin
Drive in San Diego, in which its offices and manufacturing are
located. This lease is for 10 years from May, 1983, with initial
monthly payments of approximately $17,500, which payments will be
subject to inflation-related increases. This lease is for the
land, building and a portion of the leasehold improvements.
In November, 1983, the Company signed a lease for an additional
13,643 square foot facility at 5501 Oberlin Drive in San Diego,
into which its engineering, design, and administrative offices
will be relocated in approximately January 1984. The lease term
is for three years with renewal options and monthly payments of
approximately $11,000, which payments will be subject to
inflation-related increases. The lease is for land, building and
the majority of required leaseholder improvements. Additional
leasehold improvements of approximately $67,000 will be installed
and paid for in cash by the Company.
The Company leases 2,000 square feet of space in Cupertino, CA at
a cost of $2,094 per month and this lease expires in May, 1984.
This space is not currently used by AMCC and is being sublet to a
tenant at a monthly rent of $2,094.
The Company has a $2 million equipment lease line with B.A.
Leasing, a Bank of America affiliate, approximately $1.2 million
of which was utilized as of September 30, 1983. The Company is
currently completing negotiations for an additional $4.0 million
lease line (for a total of $6.0 million) arranged through B.A.
Leasing. These leases are reflected on the Company's balance
sheet as they are concluded. The Company subleases approximately
$600,000 of equipment from Solitron Devices. Solitron has
asserted that certain additional lease payments are due from
AMCC. The Company disputes this allegation, believes that it is
without merit, and feels that there will be no material liability
that will result from this allegation.
3.17 The Company has been given notice by Motorola and AT&T that they
believe AMCC may be infringing certain patents held by their
respective companies. The Company is evaluating the patent
infringement claims and feels that there will be no material
liability that will result from these claims. The purpose of the
contacts by
-5-
<PAGE>
these companies was to sign AMCC as a licensee of patents
covering processes and circuits that may be used by AMCC. Such
licensing agreements at modest royalty rates are typical in the
industry and if AMCC were to enter such licensing agreements,
they would not constitute a material liability to AMCC.
3.18 See Patent discussion in Section 3.17.
3.32 The currently outstanding Debentures have certain registration
rights.
-6-
<PAGE>
SCHEDULE OF EXCEPTIONS
----------------------
The following list of exceptions refers to the paragraphs of the Applied
Micro Circuits Corporation, Convertible Preferred Stock, Series 1 and Series 2,
Purchase Agreement dated as of December 8, 1983.
Paragraph
Reference
- ---------
3.4 As of October 31, 1983, options to purchase 3,352,147 common
shares were outstanding to certain employees of the Company
pursuant to the "1982 Employee Incentive Stock Option Plan of
Applied Micro Circuits Corporation" ("ISO Plan"). The exercise
price of these options is twelve and one half cents ($.125) per
share. As of October 31, 1983, 227,307 of these outstanding
options were exercisable. Additionally at that date there were
options for 121,654 shares which were authorized under the ISO
Plan but had not been granted. The outstanding options become
exercisable over the next 5 years. As outlined in the Memorandum,
after the completion of the present financing, management will
request that up to 500,000 additional options be authorized for
future grants. The number of outstanding common shares may change
slightly by the Closing Date if some currently outstanding
options are exercised between October 31, 1983 and the Closing
Date.
3.6 The Company's largest order (in the amount of $5.5 million, of
which $3.0 million was released as of 10/31/83) is from a
military customer. Pursuant to government procurement
regulations, this customer's purchase order was issued at a "not-
to-exceed" price to permit shipments and acceptance and payment
to proceed pending approval of the standard government cost
justification documentation. AMCC carries this order in backlog
at the "not-to-exceed" prices and has reported major sales in
September and October, 1983 based on these "not-to-exceed"
prices. The customer has also paid the September invoices as
submitted. The Company does not feel that any material price
adjustment will be made as a result of the final fixed price to
be negotiated based on the cost disclosure information.
3.8 The Company leases facilities in San Diego and Cupertino. These
lease obligations are not reflected on the Balance Sheet.
3.11 See disclosure of facilities leases in 3.16 below.
-7-
<PAGE>
3.11(a) See disclosure of stock options in 3.4 above.
3.11(b) The existing outstanding 8% Convertible Subordinated Debentures
have been disclosed elsewhere.
3.11(c) The Company has agreements with various sales representatives
which provide for sales commissions generally ranging from five
(5) to ten (10) percent of sales in the representative's
territory. These are agreements that are typical in the industry.
-8-
<PAGE>
3.11(e) Outstanding Contractual Commitments
-----------------------------------
As of November 11, 1983 the following
contractual commitments were outstanding.
<TABLE>
<CAPTION>
Vendor Item/Service P.O. Value
- ------ ------------ --------------
<S> <C> <C>
Cambridge Instruments, Inc Scanning Electron Microscope $ 99,190
Kyocera International, Inc 64 1d. package for WINGS 333,850
Kyocera International, Inc. 84 PGA package for TULIP 151,630
Zylin Corporation Metal Etch System 255,000
Fairchild Test Systems Sentry 20 Test System 920,500
Signetics Corporation Junction Isolated Wafers 793,100
Daisy Workstations 110,000
Arrowhead Industrial Water D.I. Water
5 yr. contract with
54 months remaining at $5,000/month 270,000
Master Images Blanket order for masks 265,000
Pantronix Corporation Contract assembly service 125,000
Union Carbide Bulk gases (H2, 02, N2)
5 yr. contract with 56 months
remaining at $7,500/mo. 412,500
Applied Materials Oxide Etch System 338,875
Ultratech Stepper 3 projection stepper
(orders for 2 are cancellable
at no charge until 6/84) $1,006,200
</TABLE>
Note: B. A. Leasing, see Section 3.15.
Building Leases, see Section 3.16.
-9-
<PAGE>
3.11(h) Thomson Agreement
-----------------
AMCC has established Thomson-EFCIS as a nontransferrable European
second source for Thomson Group needs as well as Thomson-EFCIS
external markets. AMCC will not enter into a second source
agreement for the Q700 family of a similar scope with any third
party semiconductor manufacturer in France over the 5-year
contract period which commenced June 1982.
3.12 As of October 31, 1983, non-recourse promissory notes to the
Company were outstanding in the total amount of $338,960,
representing the purchase price for 11,308 shares of common stock
issued to employees under the Company's Key Employee Stock
Purchase Plan.
The Company currently subcontracts its PC board layout work to
Southland Engineering, a company owned by an AMCC engineer.
Competitive bids are reviewed routinely for this ongoing effort
which is estimated to approximate $11,000 annually.
The Company also subcontracts certain engineering prototype
assembly work to United Semiconductor Assembly, a company
partially owned by a Quality Assurance employee. Competitive bids
are reviewed routinely for this on-going effort, which is
estimated to approximate $4,000 annually.
3.13 On December 7, 1982, a customer, International Telemetrics, Ltd.
filed a complaint against the company alleging breach of contract
and other related claims. These claims derived from a contract
between International Telemetrics and the Company and involved
engineering design work for an integrated circuit for an
electronic metronome. The amount of this design contract was
approximately $10,000. The aggregate amount claimed in the
complaint is $1,510,000. The Company does not believe that there
is substance to the claims, or that a material liability will
result from this lawsuit.
3.15 As part of the $2 million lease line with B.A. Leasing, AMCC has
agreed to maintain as collateral for the lease payments, cash
equivalent instruments to be held by Bank of America, in the
amount of 12 months of future lease payments. As of September 30,
1983 and November 11, 1963, such collateral amounted to
approximately $301,000. This amount of the Company's cash and
cash equivalents are restricted. These collateral amounts will be
increased as the amount of leased equipment is increased. The
collateral will be
-10-
<PAGE>
released as certain levels of profitability, and lease payment
coverage ratios are met. This collateral will be released during
fiscal 1985 if the Company's projections are met.
3.16 The Company leases a 21,000 square foot facility at 5502 Oberlin
Drive in San Diego, in which its offices and manufacturing are
located. This lease is for 10 years from May, 1983, with initial
monthly payments of approximately $17,500, which payments will be
subject to inflation-related increases. This lease is for the
land, building and a portion of the leasehold improvements.
In November, 1983, the Company signed a lease for an additional
13,643 square foot facility at 5501 Oberlin Drive in San Diego,
into which its engineering, design, and administrative offices
will be relocated in approximately January 1984. The lease term
is for three years with renewal options and monthly payments of
approximately $11,000, which payments will be subject to
inflation-related increases. The lease is for land, building and
the majority of required leaseholder improvements. Additional
leasehold improvements of approximately $67,000 will be installed
and paid for in cash by the Company.
The Company leases 2,000 square feet of space in Cupertino, CA at
a cost of $2,094 per month and this lease expires in May, 1984.
This space is not currently used by AMCC and is being sublet to a
tenant at a monthly rent of $2,094.
The Company has a $2 million equipment lease line with B.A.
Leasing, a Bank of America affiliate, approximately $1.2 million
of which was utilized as of September 30, 1983. The Company is
currently completing negotiations for an additional $4.0 million
lease line (for a total of $6.0 million) arranged through B.A.
Leasing. These leases are reflected on the Company's balance
sheet as they are concluded. The Company subleases approximately
$600,000 of equipment from Solitron Devices. Solitron has
asserted that certain additional lease payments are due from
AMCC. The Company disputes this allegation, believes that it is
without merit, and feels that there will be no material liability
that will result from this allegation.
3.17 The Company has been given notice by Motorola and AT&T that they
believe AMCC may be infringing certain patents held by their
respective companies. The Company is evaluating the patent
infringement claims and feels that there will be no material
liability that will result from these claims. The purpose of the
contacts by
-11-
<PAGE>
these companies was to sign AMCC as a licensee of patents
covering processes and circuits that may be used by AMCC. Such
licensing agreements at modest royalty rates are typical in the
industry and if AMCC were to enter such licensing agreements,
they would not constitute a material liability to AMCC.
3.18 See Patent discussion in Section 3.17.
3.32 The currently outstanding Debentures have certain registration
rights.
-12-
<PAGE>
EXHIBIT 10.8
APPLIED MICRO CIRCUITS CORPORATION
5502 OBERLIN DRIVE
SAN DIEGO, CALIFORNIA 92121
__________________________
CONVERTIBLE PREFERRED STOCK SERIES 3
PURCHASE AGREEMENT
As of September 16, 1987
__________________________
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
SECTION 1 - Authorization, Purchase and Sale of the Shares.................. 1
1.1 Authorization of the Shares........................................ 1
1.2 Sale and Purchase of the Shares.................................... 1
SECTION 2 - Closing, Payment and Delivery................................... 1
2.1 Closing Date and Place of Closing.................................. 1
2.2 Payment and Delivery............................................... 2
SECTION 3 - Representations and Warranties of the Company................... 2
3.1 Organization and Standing; Certificate and Bylaws.................. 2
3.2 Corporate Power.................................................... 2
3.3 Subsidiaries....................................................... 3
3.4 Capitalization..................................................... 3
3.5 Authorization...................................................... 3
3.6 Financial Information.............................................. 4
3.7 Outstanding Debt................................................... 4
3.8 Absence of Undisclosed Liabilities................................. 4
3.9 Absence of Certain Changes......................................... 4
3.10 Taxes............................................................. 5
3.11 Contracts; Insurance.............................................. 5
3.12 Shareholders, Directors and Officers; Indebtedness................ 7
3.13 Litigation and Bankruptcy Proceedings............................. 7
3.14 Consents.......................................................... 7
3.15 Title to Properties; Liens and Encumbrances....................... 8
3.16 Leases............................................................ 8
3.17 Business of the Company........................................... 8
3.18 Franchises, Licenses, Trademarks, Patents and Other Rights........ 8
3.19 Issuance Taxes.................................................... 8
3.20 Offering.......................................................... 8
3.21 Compliance with Other Instruments................................. 9
3.22 Employees......................................................... 9
3.23 Registration Rights............................................... 9
3.24 Disclosure........................................................ 9
3.25 Invention Assignment and Secrecy Agreements....................... 9
3.26 Distributions or Sale of Assets................................... 9
3.27 Certain Transactions.............................................. 10
3.28 Labor Agreements and Actions...................................... 10
SECTION 4 - Representations and Warranties of Purchasers.................... 10
4.1 Experience......................................................... 10
4.2 Investment......................................................... 10
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
PAGE
----
4.3 Rule 144........................................................... 10
4.4 Access to Data..................................................... 11
4.5 Preexisting Relationship; Business Experience...................... 11
4.6 Ability to Bear Risk............................................... 11
4.7 Accredited Investor................................................ 11
SECTION 5 - Conditions to Closing of Purchasers............................. 11
5.1 Representations and Warranties Correct............................. 11
5.2 Performance........................................................ 11
5.3 Opinion of Company's Counsel....................................... 12
5.4 Legal Investment................................................... 12
5.5 Compliance Certificate............................................. 12
5.6 Proceedings and Documents.......................................... 12
5.7 Authorizations..................................................... 12
5.8 Restated Certificate of Incorporation.............................. 12
5.9 Minimum Investment................................................. 12
5.10 Key Man Life Insurance............................................ 12
5.11 Legal Fees........................................................ 12
5.12 Notice of Limited Offering Exemption.............................. 12
5.13 Registration Rights............................................... 13
5.14 Resignation....................................................... 13
SECTION 6 - Conditions to Closing of Company................................ 13
6.1 Representations.................................................... 13
6.2 Legal Investment................................................... 13
6.3 Minimum Investment................................................. 13
SECTION 7 - Covenants of the Company........................................ 13
7.1 Access and Information............................................. 13
7.2 Right of First Refusal............................................. 15
7.3 Prom first Payment of Taxes, etc................................... 16
7.4 Maintenance of Properties and Leases............................... 17
7.5 Insurance.......................................................... 17
7.6 Key Man Life Insurance............................................. 17
7.7 Accounts and Records............................................... 17
7.8 Independent Accountants............................................ 17
7.9 Compliance with Requirements of Governmental Authorities........... 18
7.10 Maintenance of Corporate Existence, etc........................... 18
7.11 Availability of Common Stock for Conversion....................... 18
7.12 Invention Assignment and Secrecy Agreements....................... 18
7.13 Further Stock Issuances........................................... 18
7.14 Use of Proceeds................................................... 18
7.15 Regulation D Filing............................................... 18
7.16 Notice of Record Dates............................................ 18
-ii-
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
PAGE
----
7.17 Notice of Limited Offering Exemption.............................. 19
7.18 Certain Restrictions.............................................. 19
7.19 Compliance by Subsidiaries........................................ 19
SECTION 8 - Restrictions on Transferability of Securities; Compliance with
Securities Act.............................................................. 19
8.1 Restrictions on Transferability.................................... 19
8.2 Certain Definitions................................................ 19
8.3 Restrictive Legend................................................. 20
8.4 Notice of Proposed Transfers....................................... 21
8.5 Requested Registration............................................. 21
8.6 Company Registration............................................... 24
8.7 Expenses of Registration........................................... 25
8.8 Registration on Form S-2 or Form S-3............................... 25
8.9 Registration Procedures............................................ 26
8.10 Indemnification................................................... 27
8.11 Information by Holder............................................. 28
8.12 Limitations on Registration of Issues of Securities............... 28
8.13 Rule 144 Reporting................................................ 29
8.14 Transfer or Assignment of Registration Rights..................... 29
8.15 "Market Stand-Off" Agreement...................................... 29
SECTION 9 - Miscellaneous................................................... 30
9.1 Governing Law...................................................... 30
9.2 Survival........................................................... 30
9.3 Successors and Assigns............................................. 30
9.4 Entire Agreement; Amendment........................................ 30
9.5 Notices, etc....................................................... 31
9.6 Delays or Omissions................................................ 31
9.7 Rights; Separability............................................... 31
9.8 Agent's Fees....................................................... 31
9.9 Information Confidential........................................... 32
9.10 Expenses.......................................................... 32
9.11 Titles and Subtitles.............................................. 32
9.12 Counterparts...................................................... 32
9.13 Aggregation....................................................... 32
-iii-
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
PAGE
----
Schedule of Purchasers
Schedule of Exceptions to Representations and Warranties
Exhibit A - Amended and Restated Certificate of Incorporation
Exhibit B - Form of Invention Assignment and Secrecy Agreement and Invention
and Secrecy Agreement
Exhibit C - Rule 501(a) of Regulation D
Exhibit D - Opinion of Luce, Forward, Hamilton & Scripps
-iv-
<PAGE>
CONVERTIBLE PREFERRED STOCK SERIES 3
------------------------------------
PURCHASE AGREEMENT
------------------
AGREEMENT made as of the 16th day of September 1987, by and among APPLIED
MICRO CIRCUITS CORPORATION (the "Company"), a California corporation having
offices at 5502 Oberlin Drive, San Diego, California 92121, and each of the
persons severally listed on the Schedule of Purchasers attached hereto (the
"Schedule of Purchasers"). The persons listed on the Schedule of Purchasers are
sometimes hereinafter referred to as the "Purchasers" and individually as a
"Purchaser."
WHEREAS, the Company desires to issue and sell, and the Purchasers desire
to purchase, certain securities of the Company;
NOW, THEREFORE, in consideration of the promises and the mutual covenants
and conditions herein contained, the Company and each Purchaser, severally and
not jointly, hereby agree as follows:
SECTION 1
Authorization, Purchase and Sale of the Shares
----------------------------------------------
1.1 Authorization of the Shares. The Company has, or before the Closing
---------------------------
(as hereinafter defined) will have, authorized the sale and issuance of up to
Five hundred ninety-one thousand nine hundred and sixty-four (591,964) shares
(the "Series 3 Shares") of its Preferred Stock, Series 3 ("Series 3 Preferred")
having the respective rights, restrictions, privileges and preferences as set
forth in the Amended and Restated Certificate of Incorporation of the Company
(the "Restated Certificate") attached to this Agreement as Exhibit A. The
Series 3 Shares are sometimes hereinafter referred to as the "Shares," and the
Series 1, Series 2 and Series 3 Preferred Stock of the Company are sometimes
hereinafter collectively referred to as the "Preferred."
1.2 Sale and Purchase of the Shares. At the Closing (as defined in
-------------------------------
Section 2.1 hereof), and subject to the terms and conditions hereof and in
reliance upon the representations, warranties and agreements contained herein,
the Company will issue and sell to the Purchasers listed on the Schedule of
Purchasers and each such Purchaser will purchase from the Company the number of
Series 3 Shares set forth opposite its name in the column entitled "Total
Shares" on the Schedule of Purchasers at the price of $21.00 per share in the
total amount set forth opposite its name in the column labeled "Total
Investment."
SECTION 2
Closing, Payment and Delivery
-----------------------------
2.1 Closing Date and Place of Closing. The closing of the purchase an
---------------------------------
sale of the Shares hereunder (the "Closing") in the amounts and to the persons
specified in the Schedule of
<PAGE>
Purchasers shall be held immediately following the execution and delivery of
this Agreement (the "Closing Date"). The place of the Closing (including the
place of delivery to the Purchasers by the Company of the certificates
evidencing all Shares being purchased and the place of payment to the Company by
the Purchasers of the purchase price therefor) shall be at the offices of Luce,
Forward, Hamilton & Scripps, 4250 Executive Square, La Jolla, California, or
such other place as a majority in interest of the Purchasers shall designate by
notice to the Company given at least five (5) business days prior to the Closing
Date.
2.2 Payment and Delivery. At the Closing, each Purchaser of Series 3
--------------------
Shares will pay for such shares by surrender of the Company's 8 1/2% Promissory
Notes (the "Notes") held by such Purchaser for cancellation of a principal
amount equal to the amount set forth next to such purchaser's name on the
Schedule of Purchasers under the column "Principal Amount of Notes Being
Tendered" and/or by cash or by check, wire transfer, cancellation of other
indebtedness or such other form of payment or combination thereof as shall be
mutually agreed upon by the Company and each respective Purchaser. The Company
will deliver to each Purchaser a certificate or certificates representing the
number of Series 3 Shares purchased as set forth opposite such Purchaser's name
in the column labeled "Total Shares" on the Schedule of Purchasers.
SECTION 3
Representations and Warranties of the Company
---------------------------------------------
The Company hereby represents and warrants to the Purchasers as follows,
except as set forth on the "Schedule of Exceptions" delivered to the Purchasers
prior to the execution hereof and attached hereto.
3.1 Organization and Standing; Certificate and Bylaws. The Company is a
-------------------------------------------------
corporation duly organized and existing under the laws of the State of Delaware
and is in good standing under such laws. The Company has requisite corporate
power to own the properties owned by it and to conduct business as being
conducted by it and as contemplated by the Company's Confidential Private
Placement Memorandum dated June 10, 1987, and the Supplement thereto dated
August 28, 1987, with respect to the sale of the Shares (collectively the
"Memorandum"). The Company is duly qualified to do business as a foreign
corporation in good standing in each jurisdiction in which the character and
location of its properties (owned or leased) or the nature of its business
requires such qualification, except for such jurisdictions where the failure to
so qualify would not materially and adversely affect the business, operations or
financial condition of the Company. The Company has furnished special counsel
to the Purchasers with true, correct and complete copies of its Certificate of
Incorporation, Bylaws and all amendments to each to date. Prior to the Closing,
the Restated Certificate shall have been properly adopted by all necessary
corporate action and the Company shall have properly filed the Restated
Certificate with the Secretary of State of Delaware.
3.2 Corporate Power. The Company has all requisite corporate power to
---------------
enter into this Agreement and will have at the Closing Date all requisite
corporate power to sell the Shares and to carry out and perform its obligations
under the terms of this Agreement.
-2-
<PAGE>
3.3 Subsidiaries. The sole subsidiary of the Company is AMCC (Europe)
------------
Ltd. ("Subsidiary"). The Subsidiary is a corporation duly organized and
validly existing under the laws of the United Kingdom and is in good standing
under such laws. All of the shares of capital stock of the Subsidiary have been
duly and validly authorized and issued and, with the exception of one qualifying
share beneficially owned for the benefit of the Company by Joel O. Holliday,
Vice President, Finance and Administration of the Company, all of such shares of
capital stock are held beneficially and of record by the Company, free and clear
of any liens or encumbrances. The Company has no other subsidiaries and does
not own of record or beneficially any capital stock or equity interest or
investment in any corporation, association or business entity.
3.4 Capitalization. Immediately prior to the Closing, the Company's
--------------
authorized capital stock will consist of (i) Twenty-eight million (28,000,000)
shares of Common Stock (the "Common Stock"), of which 3,475,386 shares are
currently issued and outstanding, and) (b) 1,350,000 shares of Preferred Stock,
including: (i) Four hundred ten thousand (410,000) shares of Preferred Stock,
Series 1 ("Series 1 Preferred"), of which 408,692 shares are currently issued
and outstanding, (ii) Three hundred thousand (300,000) shares of Preferred
Stock, Series 2 ("Series 2 Preferred"), 238,096 shares of which are currently
issued and outstanding, and (iii) Five hundred ninety-one thousand nine hundred
and sixty-four (591,964) shares of Series 3 Preferred, no shares of which will
be issued and outstanding prior to the Closing. All the aforesaid issued and
outstanding shares will have been duly authorized and validly issued, will be
fully paid and nonassessable, and have been offered, issued, sold and delivered
by the Company in compliance with applicable federal and state securities laws.
An aggregate of 19,424,747 shares of Common Stock have been reserved for
issuance upon conversion of the Series 1 Preferred, Series 2 Preferred and
Series 3 Preferred. There are no outstanding preemptive, conversion or other
rights, options, warrants or agreements granted or issued by or binding upon the
Company for the purchase or acquisition of any shares of its capital stock,
except with respect to the Series 3 Preferred in accordance with the provisions
of this Agreement and with respect to the Series 1 and Series 2 Preferred as set
forth in the Schedule of Exceptions. To the best of the Company's knowledge and
belief, no shareholder has granted options or other rights to purchase any
securities of the Company from such shareholder other than as set forth in the
Schedule of Exceptions hereto. The Company holds no shares of its capital stock
in its treasury.
3.5 Authorization. All corporate action on the part of the Company, its
-------------
directors and shareholders necessary for the authorization, execution, delivery
and performance by the Company of this Agreement and the consummation of the
transactions contemplated herein, and for the authorization, issuance and
delivery of the Shares and of the Common Stock issuable upon conversion thereof
has been taken or will be taken prior to the Closing. This Agreement is a valid
and binding obligation of the Company, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization and moratorium laws
and other laws of general application affecting enforcement of creditors rights
generally and principles of equity relating to specific enforcement of this
Agreement. The execution, delivery and performance by the Company of this
Agreement and compliance therewith and the issuance and sale of the Shares and
Common Stock issuable upon conversion of the Shares will not result in any
violation of and will not conflict with, or result in a breach of any of the
material terms of, or
-3-
<PAGE>
constitute a default under, any provision of state or Federal law to which the
Company is subject, the Company's Certificate of Incorporation, or Bylaws, as
amended, or any mortgage, indenture, agreement, instrument, judgment, decree,
order, rule or regulation or other restriction to which the Company is a party
or by which it is bound, or result in the creation of any mortgage, pledge,
lien, encumbrance or charge upon any of the properties or assets of the Company
pursuant to any such term. No shareholder or other person has any preemptive
rights or rights of first refusal by reason of the issuance of the Shares,
except as set forth in the Schedule of Exceptions and all such rights, if any,
have been complied with or validly waived. The Shares, when issued in compliance
with the provisions of this Agreement, will be validly issued, fully paid and
nonassessable, and will be free of any liens, charges or encumbrances subject to
applicable bankruptcy, insolvency, reorganization and moratorium laws and other
laws of general application affecting enforcement of creditors rights generally.
The shares of Common Stock issuable upon conversion of the Shares have been duly
and validly reserved and are not subject to any preemptive rights or rights of
first refusal not waived or validly complied with and, upon issuance, will be
validly issued, fully paid and nonassessable.
3.6 Financial Information. The audited financial statements of the
---------------------
Company as of March 31, 1987, and the unaudited interim financial statements as
of July 31, 1987 and the respective notes thereto, included in the Memorandum, a
copy of which has been delivered to each Purchaser (collectively, the "Financial
Statements"), including the balance sheet as of July 31, 1987 (the "Balance
Sheet") and a Statement of Income for the four month period ended July 31, 1987
(the "Income Statement"), present fairly the financial position and results of
operations of the Company at the dates and for the periods to which they relate,
have been prepared in accordance with generally accepted accounting principles
consistently followed throughout the periods involved and show all material
liabilities, absolute or contingent, of the Company required to be recorded
thereon in accordance with generally accepted accounting principles as at the
respective dates thereof.
3.7 Outstanding Debt. The Company has no outstanding indebtedness or
----------------
borrowed money except as reflected on the Balance Sheet or as set forth on the
Schedule of Exceptions and is not a guarantor or otherwise contingently liable
for any such indebtedness. There exists no material default under the
provisions of any instrument evidencing such indebtedness or of any agreement
relating thereto.
3.8 Absence of Undisclosed Liabilities. The Company has no material
----------------------------------
liabilities (fixed or contingent, including without limitation any tax
liabilities due or to become due) which are not fully reflected or provided for
on the Balance Sheet, except as listed on the Schedule of Exceptions. The
Company does not know of any material liability of any nature, direct or
indirect, contingent or otherwise, or in any amount not adequately reflected or
reserved against in the Balance Sheet, except as set forth on the Schedule of
Exceptions.
3.9 Absence of Certain Changes. Except to the extent described in the
--------------------------
Schedule of Exceptions, since July 31, 1987 there has not been:
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<PAGE>
(a) any material adverse change in the condition, assets, liabilities
or business of the Company from that shown on the Balance Sheet;
(b) any damage, destruction or loss of any of the properties or assets
of the Company (whether or not covered by insurance) materially and adversely
affecting the business or plans of the Company;
(c) any declaration, setting aside or payment or other distribution in
respect of any of the Company's capital stock, or any direct or indirect
redemption, purchase or other acquisition of any of such stock by the Company;
(d) any labor dispute, or to the Company's knowledge or belief, any
event or condition of any character, materially and adversely affecting the
business or plans of the Company;
(e) any material change or amendment to any material contract or
arrangement by which the Company or any of its assets or properties is subject
or is bound; or
(f) any material change in any compensation arrangement or agreement
with any employee.
3.10 Taxes. The Company has filed or will file within the time
-----
prescribed by law (including extensions of time approved by the appropriate
taxing authority) all tax returns and reports required to be filed with the
United States Internal Revenue Service and with the State of California, and
(except to the extent that the failure to file would not have a material adverse
effect on the condition or operations of the Company) with all other
jurisdictions where such filing is required by law; and the Company has paid, or
made adequate provision in the Balance Sheet for the payment of, all taxes,
interest, penalties, assessments or deficiencies shown to be due or claimed to
be due on or in respect of such tax returns and reports. The Company knows of
(i) no other tax returns or reports which are required to be filed which have
not been so filed and (ii) no unpaid assessment for additional taxes for any
fiscal period or any basis thereof. The Company's federal income tax returns
have not been audited by the Internal Revenue Service.
3.11 Contracts; Insurance. Except as set forth in the Schedule of
--------------------
Exceptions, the Company has no currently existing contract, obligation or
commitment (written or oral) of any material nature pursuant to which the
Company's obligations exceed $100,000 or which has a term greater than five
years, including without limitation the following:
(a) Employment, bonus or consulting agreements, pension, profit
sharing, deferred compensation, stock bonus, retirement, stock option, stock
purchase, phantom stock or similar plans, including agreements evidencing rights
to purchase securities of the Company and agreements among shareholders and the
Company;
(b) Loan or other agreements, notes, indentures, or instruments
relating to or evidencing indebtedness for borrowed money, or mortgaging,
pledging or granting or creating a lien or security interest or other
encumbrance on any of the Company's property or any
-5-
<PAGE>
agreement or instrument evidencing any guaranty by the Company of payment or
performance by any other Person;
(c) Agreements with dealers, sales representatives, brokers or other
distributors, jobbers, advertisers or sales agencies;
(d) Agreements with any labor union or collective bargaining
organization or other labor agreements;
(e) Any contract or series of contracts with the same person for the
furnishing or purchase of machinery, equipment, goods or services, including
without limitation agreements with processors and subcontractors;
(f) Any indenture, agreement or other document (including private
placement brochures) relating to the sale or repurchase of shares;
(g) Any joint venture contract or arrangement or other agreement
involving a sharing of profits or expenses to which the Company is a party;
(h) Agreements limiting the freedom of the Company to compete in any
line of business or in any geographic area or with any person;
(i) Agreements providing for disposition of the business, assets or
shares of the Company, agreements of merger or consolidation to which the
Company is a party or letters of intent with respect to the foregoing;
(j) Agreements involving or letters of intent with respect to the
acquisition of the business, assets or shares of any other business; and
(k) Insurance policies.
(1) Agreements, understandings, contracts or proposed transactions to
which the Company is a party or by which it is bound which may involve the
license of any patent, copyright, trade secret or other proprietary right to or
from the Company.
The Company has complied with all the material provisions of all said
contracts, obligations, and commitments and is not in default of any such
provision thereunder.
The Company maintains insurance which is adequate to protect the Company
against the risks involved in the business conducted by it as is customarily
maintained by well-managed companies engaged in similar activities. The Company
has in full force and effect fire and casualty insurance policies, with extended
coverage, sufficient in amount (subject to reasonable deductibles) to allow it
to replace any of its properties that might be damaged or destroyed.
The Company is not a party to and is not bound by any contract, agreement
or instrument, or subject to any restriction under its Certificate of
Incorporation, which adversely affects its
-6-
<PAGE>
business as now conducted or as proposed to be conducted, its properties or its
financial condition.
3.12 Shareholders, Directors and Officers; Indebtedness. Set forth on
--------------------------------------------------
the Schedule of Exceptions is a correct and complete list or description of all
indebtedness of the Company to its officers, directors or shareholders or any of
their respective relatives and of all indebtedness of such persons to the
Company. To the best of the Company's knowledge and belief, none of the
officers, significant employees or consultants of the Company, or their
respective spouses or relatives, owns directly or indirectly, individually or
collectively, a material interest in any entity which is a competitor, customer
or supplier of (or has any existing contractual relationship with) the Company.
3.13 Litigation and Bankruptcy Proceedings.
-------------------------------------
(a) There is neither pending nor, to the Company's knowledge and
belief, threatened any action, suit, proceeding or claim, or any basis therefor
or threat thereof, whether or not purportedly on behalf of the Company, to which
the Company is or may be named as a party or its property is or may be subject
and in which an unfavorable outcome, ruling or finding might have a material
adverse effect on the condition, financial or otherwise, or operations of the
Company; and the Company has no knowledge of any unasserted claim, the assertion
of which is likely and which, if asserted, will seek damages, an injunction or
other legal, equitable, monetary or nonmonetary relief which, if granted, would
have a material adverse effect on the condition, financial or otherwise, or
operations of the Company, nor is the Company aware of any basis for the
foregoing.
(b) The Company has not admitted in writing its inability to pay its
debts generally as they become due, filed or consented to the filing against it
of a petition in bankruptcy or a petition to take advantage of any insolvency
act, made an assignment for the benefit of creditors, consented to the
appointment of a receiver for itself or for the whole or any substantial part of
its property, or had a petition in bankruptcy filed against it, been adjudicated
a bankrupt, or filed a petition or answer seeking reorganization or arrangement
under the Federal bankruptcy laws or any other law or statute of the united
States of America or any other jurisdiction.
3.14 Consents. All consents, approvals, qualifications, orders,
--------
approvals or authorizations of, or filings with, any governmental authority
required in connection with the Company's valid execution, delivery and
performance of this Agreement, and the offer, sale and issuance of the Shares by
the Company, the conversion of the Shares and the consummation of any other
transaction contemplated on the part of the Company hereby, shall have been duly
obtained and shall be effective on and as of the Closing, except the filing
referred to in Section 7.17 hereof, notices of sale required to be filed
pursuant to Regulation D under the Securities Act of 1933, filings required by
the State securities laws of jurisdictions other than California in which the
Purchasers reside and except such filings as have been made prior to the
Closing.
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<PAGE>
3.15 Title to Properties; Liens and Encumbrances. The Company does not
-------------------------------------------
have any ownership interest in real property. The Company has a valid and
indefeasible ownership interest in all the property and assets recorded on the
Balance Sheet, free from all pledges, liens, security interests, conditional
sale agreements, encumbrances or charges, except as shown on the Balance Sheet
or listed on the Schedule of Exceptions.
3.16 Leases. The Company's material lease obligations are disclosed in
------
the Financial Statements and there has been no material change in such
obligations since July 31, 1987. The Company enjoys peaceful and undisturbed
possession under all its material leases of real or personal property, all such
leases are valid and subsisting and none of them is in default in any material
respect.
3.17 Business of the Company. The Company has no knowledge or belief
-----------------------
that (i) there is pending or threatened any claim or litigation against or
affecting the Company contesting its right to produce, manufacture, sell or use
any product, process, method, substance, part or other material presently
produced, manufactured, sold or used or planned to be produced, manufactured,
sold or used by the Company in connection with the operations of the Company; or
(ii) there exists, or there is pending or planned, any patent, invention,
device, application or principle, or any statute, rule, law, regulation,
standard or code which would materially adversely affect the condition,
financial or otherwise, or the operations of the Company. The Company currently
intends to engage in the business of the same general type as described in the
Memorandum.
3.18 Franchises, Licenses, Trademarks, Patents and Other Rights. The
----------------------------------------------------------
Company has all franchises, permits, certificates, authorizations, licenses and
other similar authority required by law or governmental regulations from all
applicable Federal, state or local authorities and any other regulatory
authorities or necessary for the conduct of its business as now being conducted
by it and as planned to be conducted, the lack of which could materially and
adversely affect the operations or condition, financial or otherwise, of the
Company, and it is not in default in any material respect under any of such
franchises, permits, certificates, authorizations, licenses or other similar
authority. The Company possesses all patents, patent rights, trademarks,
trademark rights, trade names, trade name rights and copyrights necessary to
conduct its business as now being conducted and as planned to be conducted
without conflict with or infringement upon any valid rights of others and the
lack of which could materially and adversely affect the operations or condition,
financial or otherwise, of the Company, and has not received any notice of
infringement upon or conflict with the asserted rights of others.
3.19 Issuance Taxes. All taxes imposed by law in connection with the
--------------
issuance, sale and delivery of the Shares shall have been fully paid, and all
laws imposing such taxes shall have been fully complied with, prior to the
Closing Date.
3.20 Offering. Subject in part to the truth and accuracy of the
--------
Purchasers' representations set forth in this Agreement, the offer, sale and
issuance of the Shares and the Common Stock issuable upon conversion of the
Shares as contemplated by this Agreement are exempt from the registration
requirements of the Securities Act of 1933, as amended (the
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<PAGE>
"Securities Act", which term shall include any successor federal statute), and
from the qualification requirements of the California Corporate Securities Law
of 1968, as amended, and neither the Company nor anyone acting on its behalf
will take any action hereafter that would cause the loss of such exemptions.
3.21 Compliance with Other Instruments. The Company is not in violation
---------------------------------
of any term of its Certificate of Incorporation as amended prior to the adoption
of the Restated Certificate, the Restated Certificate or its Bylaws, as amended.
The Company is not in violation of any term of any mortgage, indenture,
contract, agreement, instrument, judgment, decree, order, statute, rule or
regulation to which the Company is subject and a violation of which would have a
material adverse effect on the condition, financial or otherwise, or operations
of the Company.
3.22 Employees. To the best of the Company's knowledge and belief, no
---------
employee of the Company is, or is now expected to be, in violation of any term
of any employment contract, patent disclosure agreement, non-competition
agreement, or any other contract or agreement or any restrictive covenant
relating to the right of any such employee to be employed by the Company because
of the nature of the business conducted or to be conducted by the Company or to
the use of trade secrets or proprietary information of others, and the
employment of the Company's employees does not subject the Company or any
Purchaser to any liability. The Company does not have any collective bargaining
agreement covering any of its employees
3.23 Registration Rights. Except as set forth in the Schedule of
-------------------
Exceptions and as provided for in this Agreement, the Company is not under any
obligation to register (as defined in Section 8.2 below) any of its currently
outstanding securities or any of its securities which may hereafter be issued.
3.24 Disclosure. The Company has provided each Purchaser with all
----------
information which such Purchaser has requested for deciding whether to purchase
the Series 3 Preferred Stock and all information which the Company believes is
reasonably necessary to enable each Purchaser to make such decision. This
Agreement, the Schedule of Exceptions, the Memorandum and the Financial
Statements delivered to the purchasers do not contain any untrue statement of a
material fact and do not omit to state a material fact necessary in order to
make the statements contained therein or herein not misleading in the light of
the circumstances under which they were made.
3.25 Invention Assignment and Secrecy Agreements. Each person employed
-------------------------------------------
by the Company who has access to proprietary information concerning the Company
has executed and delivered to the Company either an Invention Assignment and
Secrecy Agreement or an Invention and Secrecy Agreement, the forms of which are
annexed hereto as Exhibit B.
3.26 Distributions or Sale of Assets. The Company has not (i) paid or
-------------------------------
declared any dividends or authorized or made any distribution upon or with
respect to any class or series of its capital stock, or (ii) exchanged or
otherwise disposed of any material assets or rights, other than the sale of its
inventory in the ordinary course of business.
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<PAGE>
3.27 Certain Transactions. The Company has not engaged in the past
--------------------
three (3) months in any discussion (i) with any representative of any
corporation or corporations regarding the consolidation or merger of the Company
with or into any such corporation or corporations, (ii) with any corporation,
partnership, association or other business entity or any individual regarding
the sale, coveyance or disposition of all or substantially all of the assets of
the Company or a transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the Company is disposed of, or
(iii) regarding any other form of acquisition, liquidation, dissolution or
winding up of the Company.
3.28 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its employees. The Company is not
aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company, nor does the Company
have a present intention to terminate the employment of any of the foregoing.
The employment of each officer and, to the best of the Company's knowledge, each
employee of the Company is terminable at the will of the Company.
SECTION 4
Representations and Warranties of Purchasers
--------------------------------------------
Each Purchaser represents and warrants to the Company, severally and not
jointly, and only as to himself or itself, as follows:
4.1 Experience. He or it is experienced in evaluating and investing in
----------
newly organized, high technology companies such as the Company.
4.2 Investment. He or it is acquiring the Shares for Investment for his
----------
or its own account and not with the view to, or for resale in connection with,
any distribution thereof. He or it understands that the Shares and the shares
of Common Stock issuable upon conversion of the Shares have not been registered
under the Securities Act by reason of a specified exemption from the
registration provisions of the Securities Act which depends upon, among other
things, the bona fide nature of his or its investment intent as expressed
herein.
4.3 Rule 144. He or it acknowledges that the Shares must be held
--------
indefinitely unless they are subsequently registered under the Act or an
exemption from such registration is available. He or it has been advised or is
aware of the provisions of Rule 144 promulgated under the Securities Act, which
permits limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things, the
availability of
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<PAGE>
certain current public information about the Company, the resale occurring not
less than two years after a party has purchased and paid for the security to be
sold, the sale being through a "broker's transaction" and the number of shares
being sold during any three-month period not exceeding specified limitations.
4.4 Access to Data. He or it has had an opportunity to discuss the
--------------
Company's business, management and financial affairs with its management and has
had the opportunity to examine the Company's facilities.
4.5 Preexisting Relationship; Business Experience. He or it has either
---------------------------------------------
(i) a preexisting personal or business relationship with the Company or any of
its officers, directors or controlling persons of a nature and duration as would
allow him or it to be aware of the character, business acumen, general business
and financial circumstances of the Company or of the person with whom such
relationship exists, or (ii) by reason of his or its business or financial
experience or the business or financial experience of his or its professional
advisor(s) who is (are) unaffiliated with and is (are) not compensated by the
Company or any affiliate or selling agent of the Company, directly or
indirectly, has the capacity to protect his or its interests in connection with
the purchase of the Shares of the Company and Common Stock issuable upon
conversion thereof.
4.6 Ability to Bear Risk. He or it is able to bear the economic risk of
--------------------
his or its investment in the Shares of the Company and the Common Stock issuable
upon conversion thereof.
4.7 Accredited Investor. He or it is an accredited investor as that
-------------------
term is defined in Rule 501(a) of Regulation D under the Securities Act, a copy
of which is attached hereto as Exhibit C.
SECTION 5
Conditions to Closing of Purchasers
-----------------------------------
The obligation of each Purchaser to purchase the Shares to be purchased at
the Closing is subject to the fulfillment to their satisfaction on or prior to
the Closing Date of each of the following conditions:
5.1 Representations and Warranties Correct. The representations an
--------------------------------------
warranties made by the Company in Section 3 hereof shall be true and correct in
all material respects when made, and shall be true and correct in all material
respects on the Closing Date with the same force and effect as if they had been
made on and as of the Closing Date.
5.2 Performance. All covenants, agreements and conditions contained in
-----------
this Agreement to be performed or complied with by the Company on or prior to
the Closing Date shall have been performed or complied with in all respects.
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<PAGE>
5.3 Opinion of Company's Counsel. Each Purchaser shall have received
----------------------------
from Luce, Forward, Hamilton & Scripps, counsel to the Company, an opinion
addressed to it, dated the Closing Date, and in substantially the form attached
as Exhibit D hereto.
5.4 Legal Investment. At the time of the Closing, the purchase of the
----------------
Shares to be purchased by each Purchaser hereunder shall be legally permitted by
all laws and regulations to which the Purchasers and the Company are subject.
5.5 Compliance Certificate. The Company shall have delivered to each
----------------------
Purchaser a certificate of the President of the Company, dated the Closing Date,
certifying to the fulfillment of the conditions specified in Sections 5.1 and
5.2 of this Agreement.
5.6 Proceedings and Documents. All corporate and other proceedings in
-------------------------
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be satisfactory in substance and
form to each Purchaser and its counsel.
5.7 Authorizations. All authorizations, approvals, notices or permits,
--------------
if any, of any governmental authority or regulatory body that are required in
connection with the lawful issuance and sale of the Shares pursuant to this
Agreement, the conversion of the Shares into Common Stock, the issuance of such
Common Stock upon such conversion and the consummation of all the transactions
contemplated hereby shall have been duly obtained and shall be effective on and
as of the Closing.
5.8 Restated Certificate of Incorporation. The Restated Certificate
-------------------------------------
shall have been approved by all necessary corporate action and filed with tile
Secretary of State of the State of Delaware and shall be in full force and
effect.
5.9 Minimum Investment. At the Closing, the Purchasers shall purchase
------------------
Series 3 Shares for an aggregate purchase price of not less than $10,000,000.
5.10 Key Man Life Insurance. The Company agrees that it will obtain
----------------------
with financially sound and reputable insurers term life insurance on the lives
of such officers and employees of the Company in such amounts as the majority of
the members of the Board of Directors shall determine.
5.11 Legal Fees. Company will pay the legal fees, disbursements and
----------
office charges and expenses of Brobeck, Phleger & Harrison special counsel to
the Purchasers, with respect to this Agreement and the transactions contemplated
hereby.
5.12 Notice of Limited Offering Exemption. The Company shall have
------------------------------------
completed and executed a "Notice of Transaction pursuant to Corp. Code
25102(f)" in form suitable for filing with the Commissioner of Corporations of
the State of California with respect to the Shares and the shares of Common
Stock issuable upon conversion of the Shares.
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<PAGE>
5.13 Registration Rights. Registration rights of holders of Series 1
-------------------
Preferred and Series 2 Preferred shall have been modified to provide for rights
identical to those set forth in Section 8 hereof.
5.14 Resignation. One current director of the Company shall have
-----------
submitted his resignation to the Company.
SECTION 6
Conditions to Closing of Company
--------------------------------
The Company's obligation to sell the Shares to be purchased at the Closing
is subject to the fulfillment to its satisfaction on or prior to the Closing
Date of each of the following conditions:
6.1 Representations. The representations made by the Purchasers
---------------
pursuant to Section 4 hereof shall be true and correct when made and shall be
true and correct on the Closing Date.
6.2 Legal Investment. At the time of the Closing, the conditions set
----------------
forth in Sections 5.8, 5.9 and 5.10 shall have occurred and the purchase of the
Shares to be purchased by the Purchasers hereunder shall be legally permitted by
all laws and regulations to which each Purchaser and the Company are subject.
6.3 Minimum Investment. At the Closing, the Purchasers shall purchase
------------------
Series 3 Shares for an aggregate purchase price of not less than $10,000,000.
SECTION 7
Covenants of the Company
------------------------
The Company hereby covenants and agrees, so long as any Purchaser owns any
Shares or any shares of Common Stock issued upon conversion of the Shares, as
follows:
7.1 Access and Information. Until the earlier to occur of (i) the date
----------------------
on which the Company is subject to the reporting requirements of Section 13(a)
of the Securities Exchange Act of 1934, as amended, or (ii) the date on which
quotations for the Common Stock of the Company are reported by the automated
quotations system operated by the National Association of Securities Dealers,
Inc., or by an equivalent quotations system, the Company will permit any
Purchaser who owns (or has been designated as the representative of holders of)
Series 3 Shares (or shares of Common Stock issued upon conversion thereof) in
the aggregate purchase price of $250,000 or more to visit and inspect any of the
properties of the Company, including its books of account, and to discuss its
affairs, finances and accounts with the Company's officers and its independent
public accountants, all at such reasonable times and as often as any such person
may reasonably request, and the Company will deliver the reports described
below:
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<PAGE>
(a) To all Purchasers of the Shares, as soon as practicable after the
end of each fiscal year of the Company, and in any event within ninety (90) days
thereafter, a consolidated balance sheet of the Company and its subsidiaries, if
any, as at the end of such fiscal year, and consolidated statements of income
and sources and applications of funds of the Company and its subsidiaries, if
any, for such year, prepared in accordance with generally accepted accounting
principles consistently applied and setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable detail and
certified by independent public accountants of recognized national standing
selected by the Company;
(b) To each Purchaser who owns (or has been designated as the
representative of holders of) Series 3 Shares (or shares of Common Stock issued
upon conversion thereof) in the aggregate purchase price of $250,000 or more as
soon as practicable after the end of the first, second and third quarterly
accounting periods in each fiscal year of the Company, and in any event within
forty-five (45) days thereafter, a consolidated balance sheet of the Company and
its subsidiaries, if any, as of the end of each such quarterly period, and
consolidated statements of income and sources and applications of funds of the
Company and its subsidiaries for such period and for the current fiscal year to
date, prepared in accordance with generally accepted accounting principles
consistently applied and setting forth in comparative form the figures for the
corresponding periods of the previous fiscal year, subject to changes resulting
from year-end audit adjustments, all in reasonable detail and certified by the
principal financial or accounting officer of the Company;
(c) To each Purchaser described in subparagraph (b) above, as soon as
practicable after the end of each month and in any event within thirty (30) days
thereafter, a consolidated balance sheet of the Company and its subsidiaries, if
any, as of the end of such month, and consolidated statements of income and of
sources and applications of funds of the Company and its subsidiaries, for each
month and for the current fiscal year of the Company to date, prepared in
accordance with generally accepted accounting principles consistently applied,
together with a comparison of such statements to the Company's operating plan
then in effect and approved by its Board of Directors, and certified, subject to
changes resulting from year-end audit adjustments, by the principal financial or
accounting officer of the Company; and
(d) To any Purchaser described in subparagraph (b) above, upon the
written request of any such person, as soon as available (but in any event
within sixty (60) days after the commencement of its fiscal year) a summary of
the financial plan of the Company, as contained in its operating plan approved
by the Company's Board of Directors. Any material changes in such financial
plan shall be furnished as promptly as practicable after such changes have been
approved by the Board of Directors.
In connection with the receipt of information to be provided in accordance
herewith to the Purchasers, the Purchasers agree to use their best efforts to
keep all such information confidential, provided that a Purchaser shall not be
restricted from the use of such information in a manner customary in the conduct
of such Purchaser's business or in the management of its investments. The
Company shall not be obligated to provide access to any information which it
reasonably considers to be a trade secret or similar confidential information
unless the requesting
-14-
<PAGE>
Purchaser shall consent to terms and conditions reasonably calculated to
preserve the proprietary or confidential nature of the information.
The foregoing provisions of this Section 7.1 shall not be in limitation of
any rights which a Purchaser may have with respect to the books and records of
the Company and its subsidiaries, or to inspect their properties or discuss
their affairs, finances and accounts, under the laws of the jurisdictions in
which they are incorporated.
7.2 Right of First Refusal. The Company hereby grants to each Purchaser
----------------------
the right of first refusal to purchase, pro rata with the holders of Series 1
and Series 2 Preferred, all (or any part) of New Securities (as defined in this
Section 7.2) which the Company may, from time to time, propose to sell and
issue. For purposes of this Section 7.2, "Purchaser" includes any general
partners and affiliates of a Purchaser. A Purchaser shall be entitled to
allocate the right of first refusal hereby granted it among itself, its partners
and affiliates, as it deems appropriate. A Purchaser's pro rata share, for
purposes of this right of first refusal, is the ratio of the number of shares of
Common Stock which have been issued or are issuable upon conversion of all the
Shares purchased by such Purchaser under this Agreement to the sum of the total
number of shares of Common Stock which have been issued upon conversion and the
total number of shares of Common Stock then issuable upon conversion of all then
outstanding shares of Preferred. Each Purchaser shall have a right of over-
allotment such that if any Purchaser fails to exercise his right hereunder to
purchase his pro rata portion of New Securities, the other Purchasers may
purchase the non-purchasing Purchaser's portion on a pro rata basis (allocated
equitably on the basis of the other Purchasers' relative holdings of shares of
Common Stock issued or issuable upon conversion of the Preferred and indications
of interest on the applicable subscriptions) within ten (10) days from the date
such non-purchasing Purchaser fails to exercise his right hereunder to purchase
his pro rata share of New Securities, provided, that the Company shall provide
prompt notice of such failure to exercise the right of first refusal after which
such ten (10) day period shall begin. This right of first refusal shall be
subject to the following provisions:
(a) "New Securities" shall mean any capital stock (including the
Common Stock or the Preferred) of the Company whether now authorized or not, and
rights, options or warrants to purchase capital stock, and securities of any
type whatsoever that have voting rights or are, or may become, convertible into
capital stock; provided that the term "New Securities" shall not include (i)
securities purchased under this Agreement; (ii) securities offered to the public
pursuant to a registration statement filed pursuant to the Securities Act; (iii)
securities issued pursuant to the acquisition of another corporation by the
Company by merger, purchase of substantially all the assets or other
reorganization whereby the Company owns not less than fifty-one percent (51%) of
the voting power of such corporation; (iv) any borrowings, direct or indirect,
from financial institutions or other persons by the Company, whether or not
presently authorized, including any type of loan or payment evidenced by any
type of debt instrument, provided such borrowings do not have any equity
features, including warrants, options or other rights to purchase capital stock,
and are not convertible into capital stock of the Company; (v) securities
constituting Management Stock (as such term is defined in Section 7.13 hereof);
(vi) securities issued upon voluntary or involuntary conversion of, or in
exchange for,
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<PAGE>
outstanding securities of the Company, including, but not limited to, shares of
Common Stock issued upon conversion of the Preferred or (vii) warrants to
purchase an aggregate of 20,534 shares of the Series 3 Preferred to be issued to
holders of the Notes (the "Warrants"); or (viii) the shares of Series 3
Preferred issued upon exercise of the Warrants, including shares of Common Stock
issuable upon conversion thereof.
(b) In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Purchaser written notice of its intention,
describing the type of New Securities, the price and the general terms upon
which the Company proposes to issue the same. Each Purchaser shall have thirty
(30) days from the date of receipt of any such notice to agree to purchase the
Purchaser's pro rata share of such New Securities for the price and upon the
general terms specified in the notice by giving written notice to the Company
and stating therein the quantity of New Securities to be purchased.
(c) In the event the Purchasers fail to exercise the right of first
refusal within said thirty (30) day period and after the expiration of the 5-day
period for the exercise of the over-allotment provisions of this Section 7.2,
the Company shall have one hundred twenty (120) days thereafter to sell or enter
into an agreement (pursuant to which the sale of New Securities covered thereby
shall be closed, if at all, within one hundred twenty (120) days from the date
of said agreement), to sell the New Securities respecting which the Purchasers
option was not exercised, at a price and upon general terms no more favorable to
the purchasers thereof than specified in the Company's notice. In the event the
Company has not sold within said 120-day period or entered into an agreement to
sell the New Securities within said 120-day period (or sold and issued New
Securities in accordance with the foregoing within one hundred twenty (120) days
from the date of said agreement), the Company shall not thereafter issue or sell
any New Securities, without first offering such securities to the Purchasers in
the manner provided above.
(d) The right of first refusal granted under this Agreement shall
expire upon the closing of the first sale of Common Stock of the Company to the
public at or above a per share offering price of at least $4.20 which sale is
effected pursuant to a registration statement filed with, and declared effective
by, the Securities and Exchange Commission (the "Commission") under the
Securities Act, with gross proceeds to the Company as seller of not less than
$10,000,000.
(e) The right of first refusal set forth in this Section 7.2 may be
assigned by any Purchaser to a transferee or assignee in a transaction not
involving a public offering; provided that the Company is given written notice
at the time of or within a reasonable time after said transfer, stating the name
and address of said transferee or assignee and identifying the purchaser whose
right is being assigned; and provided further that the transferee or assignee of
such right is not deemed by the Board of Directors of the Company, in its
reasonable judgment, to be a competitor of the Company; and provided further
that the transferee or assignee of such rights assumes the obligations of such
Purchaser under this Section 7.2.
7.3 Prompt Payment of Taxes, etc. The Company will promptly pay and
-----------------------------
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and
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<PAGE>
governmental charges or levies imposed upon the income, profits, property or
business of the Company or any subsidiary; provided, however, that any such tax,
assessment, charge or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect thereto
required to be established by generally accepted accounting principles, and
provided, further, that the Company will pay all such taxes, assessments,
charges or levies forthwith upon the commencement of proceedings to foreclose
any lien which may have attached as security therefor. The Company will promptly
pay or cause to be paid when due, or in conformance with customary trade terms,
all other indebtedness incident to operations of the Company, unless such
indebtedness is being contested in good faith, in which case the Company will
establish an appropriate reserve to the extent required by generally accepted
accounting principles.
7.4 Maintenance of Properties and Leases. The Company will keep its
------------------------------------
properties and those of its subsidiaries in good repair, working order and
condition, reasonable wear and tear excepted, and from time to time make all
needful and proper repairs, renewals, replacements, additions and improvements
thereto; and the Company and its subsidiaries will at all times comply with each
provision of all leases to which any of them is a party or under which any of
them occupies property if the breach of such provision might have a material
adverse effect on the condition, financial or otherwise, or operations of the
Company.
7.5 Insurance. The Company will keep its assets and those of its
---------
subsidiaries which are of an insurable character insured by financially sound
and reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in the Company's line of business, in
amounts sufficient to prevent the Company or any subsidiary from becoming a co-
insurer and not in any event less than 100% of the insurable value of the
property insured; and the Company will maintain, with financially sound and
reputable insurers, insurance against other hazards and risks and liability to
persons and property to the extent and in the manner customary for companies in
similar businesses similarly situated.
7.6 Key Man Life Insurance. The Company will cause the term life
----------------------
insurance required by Section 5.10 hereof to be maintained upon the terms and
conditions set forth therein, as determined by a majority of the members of the
Board of Directors.
7.7 Accounts and Records. The Company will keep true records and books
--------------------
of account in which full, true and correct entries will be made of all dealings
or transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis.
7.8 Independent Accountants. The Company will retain independent public
-----------------------
accountants of recognized national standing who shall certify the Company's
financial statements at the end of each fiscal year. In the event the services
of the independent public accountants, so selected, or any firm of independent
public accounts hereafter employed by the Company are terminated, the Company
will promptly thereafter notify the Purchasers and will request the firm of
independent public accountants whose services are terminated to deliver to the
Purchasers a letter of such firm setting forth the reasons for the termination
of their services.
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<PAGE>
In the event of such termination, the Company will promptly thereafter engage
another such firm of independent public accountants. In its notice to the
Purchasers, the Company shall state whether the change of accountants was
recommended or approved by the Board of Directors or any committee thereof.
7.9 Compliance with Requirements of Governmental Authorities. The
--------------------------------------------------------
Company shall duly observe and conform to all valid requirements of governmental
authorities relating to the conduct of their businesses or to their properties
or assets.
7.10 Maintenance of Corporate Existence, etc. The Company shall
----------------------------------------
maintain in full force and effect its corporate existence, rights and franchises
and all licenses and other rights to use patents, processes, licenses,
trademarks, trade names or copyrights owned or possessed by it or any subsidiary
and deemed by the Company to be necessary to the conduct of their business.
7.11 Availability of Common Stock for Conversion. The Company will,
-------------------------------------------
from time to time, in accordance with the laws of the state of its
incorporation, increase the authorized amount of Common Stock if at any time the
number of shares of Common Stock remaining unissued and available for issuance
shall be insufficient to permit conversion of all the then outstanding shares of
Preferred.
7.12 Invention Assignment and Secrecy Agreements. The Company and each
-------------------------------------------
person hereafter employed by it with access to confidential information will
enter into an Invention and Secrecy Agreement in substantially the form of
Exhibit B hereto.
7.13 Further Stock Issuances. Other than the Series 3 Preferred
-----------------------
contemplated by this Agreement, the Company will not issue any of its capital
stock, or grant an option to purchase any of its capital stock, after July 31,
1987, except that (i) the Company may issue, or grant options to purchase, up to
an aggregate of 4,201,365 shares of Common Stock to employees, officers,
directors, consultants or other persons performing services for the Company or a
subsidiary pursuant to any stock option plan or arrangement approved by the
Board of Directors ("Management Stock"), (ii) securities may be issued upon the
conversion of outstanding convertible securities, (iii) the Company may issue
the Warrants, and (iv) shares of Series 3 Preferred, including shares of Common
Stock issuable upon the conversion thereof, may be issued upon exercise of the
Warrants.
7.14 Use of Proceeds. The Company will use the proceeds from the sale
---------------
of the Shares for general corporate purposes and in accordance with the plans
set forth in the Memorandum.
7.15 Regulation D Filing. The Company will file on a timely basis all
-------------------
notices of sale required to be filed with the Securities and Exchange Commission
pursuant to Regulation D under the Securities Act and simultaneously furnish
copies of each report of sale to special counsel for the Purchasers and each
Purchaser who so requests in writing.
7.16 Notice of Record Dates. In the event of any setting by the Company
----------------------
of a record of the holders of any class of securities (other than the Preferred)
for the purpose of determining the holders thereof who are entitled to receive
any dividend or other distribution, the Company
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<PAGE>
shall mail to each Purchaser at least twenty (20) days prior to such record
date, specified herein, a notice specifying the date on which any such record is
to be taken for the purpose of such dividend or distribution.
7.17 Notice of Limited Offering Exemption. Promptly after the Closing,
------------------------------------
but in no event later than thirty (30) days after the Closing Date, the Company
shall file the Notice referred to in Section 5.12 hereof with the California
Commissioner of Corporations.
7.18 Certain Restrictions. Without the prior written consent of the
--------------------
holders of at least a majority of the total number of shares of Common Stock
issued or issuable upon conversion of all the Shares, the Series 1 Preferred and
the Series 2 Preferred, taken as a class, the Company (a) will not sell, lease
or otherwise dispose of a material portion of its assets other than in the
ordinary course of business; (b) will not sell or otherwise dispose of any stock
of any subsidiary; and (v) will not permit any subsidiary to become a party to
any merger, consolidation, reorganization, acquisition or commitment to take any
action; provided, that a subsidiary of the Company may be merged into or
consolidated with another subsidiary of the Company.
7.19 Compliance by Subsidiaries. The Company will cause any subsidiary,
--------------------------
whether now in existence or which it may organize or acquire in the future, to
comply fully with the provisions of this Section 7 to the same extent as if such
subsidiary or subsidiaries were the Company.
SECTION 8
Restrictions on Transferability of
----------------------------------
Securities; Compliance with Securities Act
------------------------------------------
8.1 Restrictions on Transferability. The Shares and the Common Stock
-------------------------------
issued upon conversion of the Shares shall not be transferable, except upon the
conditions specified in this Section 8, which conditions are intended to insure
compliance with the provisions of the Securities Act or, in the case of Section
8.14 hereof, to assist in an orderly distribution. Each Purchaser will cause
any proposed transferee of Shares or Common Stock issued on conversion of the
Shares held by that Purchaser to agree to take and hold those securities subject
to the provisions and upon the conditions specified in this Section 8.
8.2 Certain Definitions. As used in this Section 8, the following terms
-------------------
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Restricted Securities" shall mean the securities of the Company
required to bear or bearing the legend set forth in Section 8.3 hereof.
"Registrable Securities" shall mean (i) shares of Common Stock issued
or issuable upon the conversion of Series 1 Preferred, the Series 2 Preferred
and the Series 3 Preferred and
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<PAGE>
(ii) any Common Stock issued in respect of securities issued pursuant to the
conversion of the Shares, the Series 1 Preferred or the Series 2 Preferred upon
any stock split, stock dividend, recapitalization or similar event.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses incurred by the
Company in compliance with Sections 8.5 and 8.6 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses, and the
expense of any special audits or accounting services incident to or required by
any such registration (but excluding the compensation of regular employees of
the Company, which shall be paid in any event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for any Holder.
"Holder" shall mean any holder of the outstanding Shares or
Registrable Securities which have not been sold to the public.
"Initiating Holders" shall mean any Purchasers or their transferees or
assignees under Section 8.14 hereof, any persons listed on the Schedule of
Series 1 Purchasers or Schedule of Series 2 Purchasers attached to the
Convertible Preferred Stock Series 1 and Series 2 Purchase Agreement dated
December 8, 1983 between the Company and the persons listed on such schedules
(the "Series 1 and Series 2 Agreement") or the transferees or assignees of such
persons under Section 8.14 of the Series 1 and Series 2 Agreement.
8.3 Restrictive Legend. Each certificate representing (i) the Shares,
------------------
or (ii) shares of the Company's Common Stock issued upon conversion of
Preferred, or (iii) any other securities issued in respect of Preferred or the
Common Stock issued upon conversion of preferred, upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted or unless the securities evidenced by such
certificate shall have been registered under the Securities Act) be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required under applicable state securities laws):
THESE SECURITIES AND THE SHARES OF COMMON STOCK OF APPLIED MICRO
CIRCUITS CORPORATION (THE "COMPANY") INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
NOR ANY STATE SECURITIES LAWS. THEY MAY NOT BE PLEDGED, SOLD, OFFERED
FOR SALE, ASSIGNED OR TRANSFERRED IN
-20-
<PAGE>
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED. THE COMPANY'S PURCHASE AGREEMENT DATED
AS OF SEPTEMBER 16, 1987 WITH THE PURCHASERS (AS IDENTIFIED THEREIN)
--
CONTAINS ADDITIONAL PROVISIONS PERTAINING TO THE TRANSFER OF, AND
RIGHTS ASSOCIATED WITH, THESE SECURITIES AND SUCH COMMON STOCK. A COPY
OF SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE COMPANY'S
PRINCIPAL OFFICES.
Upon request of a holder of such a certificate, the Company shall remove
the foregoing legend from the certificate or issue to such holder a new
certificate therefor free of any transfer legend, if, with such request, the
Company shall have received either the opinion referred to in Section 8.4(i) or
the "no-action" letter referred to in Section 8.4(ii) to the effect that any
transfer by such holder of the securities evidenced by such certificate will not
violate the Securities Act and applicable state securities laws.
8.4 Notice of Proposed Transfers. The holder of each certificate
----------------------------
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provision of this Section 8.4. Prior to any proposed transfer
of any Restricted Securities (other than under circumstances described in
Sections 8.5 and 8.6), the holder thereof shall give written notice to the
Company of such holder's intention to effect such transfer. Each such notice
shall describe the manner and circumstances of the proposed transfer in
sufficient detail, and shall be accompanied (except in transactions in
compliance with Rule 144) by either (i) a written opinion of legal counsel
addressed to the Company and reasonably satisfactory in form and substance to
the Company's counsel, to the effect that the proposed transfer of the
Restricted Securities may be effected without registration under the Securities
Act, or (ii) a "no action" letter from the Commission to the effect that the
distribution of such securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, whereupon the holder of such Restricted Securities shall be entitled to
transfer such Restricted Securities in accordance with the terms of the notice
delivered by the holder to the Company. Each certificate evidencing the
Restricted Securities transferred as above provided shall bear the appropriate
restrictive legend set forth in Section 8.3 above, except that such certificate
shall not bear such restrictive legend if the opinion of counsel or "no-action"
letter referred to above is to the further effect that such legend is not
required in order to establish compliance with any provisions of the Securities
Act.
8.5 Requested Registration.
----------------------
(a) Request for Registration. If the Company shall receive from
------------------------
Initiating Holders a written request that the Company effect any registration
with respect to all or a part of
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<PAGE>
the Registrable Securities and (i) if such request is made before the Company
has had its initial underwritten public offering, provided such request is made
by the holders of not less than 67% of the total number of shares of Common
Stock issued or issuable upon conversion of the Shares, the Series 1 Preferred
and the Series 2 Preferred, or (ii) if such request is made after the Company
has already had an initial underwritten public offering, provided such request
is made by the holders of not less than 40% of the total number of shares of
Common Stock issued or issuable upon conversion of the Shares, the Series 1
Preferred and the Series 2 Preferred, the Company will:
(i) promptly give written notice of the proposed registration to
all other Holders; and
(ii) as soon as practicable, use its diligent best efforts to
effect such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, effecting appropriate
qualification or registration under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any Holder or Holders joining in such request
as are specified in a written request given within thirty (30) days after
receipt of such written notice from the Company; provided, that the Company
shall not be obligated to effect, or to take any action to effect, any such
registration pursuant to this Section 8.5:
(A) In any particular jurisdiction in which the Company would
be required to execute a general consent to service of process in effecting such
registration, qualification or compliance, unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act or applicable rules or regulations thereunder; or
(B) After the Company has effected two such registrations
pursuant to this Section 8.5(a) and such registrations have been declared or
ordered effective and the sales of the Registrable Securities registered
thereunder shall have closed.
(C) If the written demand results in the Company's initial
underwritten public offering, at least $10,000,000 in Common Stock must be sold
by the Initiating Holders. If the written request does not result in the
Company's initial underwritten public offering, a minimum of $5,000,000 in
Common Stock must be sold by the Initiating Holders.
Subject to the foregoing clauses (A), (B) and (C) the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable, after receipt of the request or requests of
the Initiating Holders.
The registration statement filed pursuant to the request of the Initiating
Holders may, subject to the provisions of Section 8.5(b) below, include other
securities of the Company which
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<PAGE>
are held by officers or directors of the Company or which are held by persons
who, by virtue of agreements with the Company, are entitled to include their
securities in any such registration.
(b) Underwriting. If the Initiating Holders intend to distribute
------------
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
Section 8.5 and the Company shall include such information in the written notice
referred to in Section 8.5(a)(i) above. The right of any Holder to registration
pursuant to Section 8.5 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting (unless otherwise mutually agreed by a majority in interest of
the Initiating Holders and such Holder with respect to such participation and
inclusion) to the extent provided herein. A Holder may elect to include in such
underwriting all or a part the Registrable Securities he holds.
If officers or directors of the Company holding other securities of the
Company shall request inclusion in any registration pursuant to Section 8.5, or
if holders of securities of the Company who are entitled, by contract with the
Company, to have securities included in such a registration (the "Other
Shareholders") request such inclusion, the Initiating Holders shall, on
behalf of all Holders, offer to include the securities of such officers,
directors and Other Shareholders in the underwriting and may condition such
offer on their acceptance of the further applicable provisions of this Section
8. The Company shall (together with all Holders, officers, directors and Other
Shareholders proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected for such underwriting by a majority
in interest of the Initiating Holders and reasonably acceptable to the Company.
Notwithstanding any other provision of this Section 8.5, if the representative
advises the Initiating Holders in writing that marketing factors require a
limitation on the number of shares to be underwritten, the securities of the
Company held by officers or directors (other than Registrable Securities) of the
Company shall be excluded from such registration to the extent so required by
such limitation and if a limitation of the number of shares is still required,
the Initiating Holders shall so advise all Holders of Registrable Securities and
Other Shareholders whose securities would otherwise be underwritten pursuant
hereto, and the number of shares of Registrable Securities and other securities
that may be included in the registration and underwriting shall be allocated
among all such Holders and Other Shareholders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities and other
securities which they had requested to be included in such registration at the
time of filing the registration statement. No Registrable Securities or any
other securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. If any Holder of
Registrable Securities, officer, director or Other Shareholder who has requested
inclusion in such registration as provided above disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the underwriter and the Initiating Holders. The securities so
withdrawn shall also be withdrawn from registration. If the underwriter has not
limited the number of Registrable Securities or other securities to be
underwritten, the Company may include its securities for its own account in such
registration if the underwriter so agrees and if
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<PAGE>
the number of Registrable Securities and other securities which would otherwise
have been included in such registration and underwriting will not thereby be
limited.
8.6 Company Registration.
--------------------
(a) If the Company shall determine to register any of its securities
either for its own account or the account of a security holder or holders
exercising their respective demand registration rights, other than a
registration relating solely to employee benefit plans, or a registration
relating solely to a Commission Rule 145 transaction, or a registration on any
registration form which does not permit secondary sales or does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities, the Company
will:
(i) promptly give to each Holder written notice thereof (which
shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other state
securities laws); and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance) and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made by any Holder within thirty (30) days after receipt of the
written notice from the Company described in clause (i) above, except as set
forth in Section 8.6(b) below. Such written request may specify all or a part of
a Holder's Registrable Securities.
(b) Underwriting. If the registration of which the Company gives
------------
notice is for registered public offering involving an underwriting, the Company
shall so advise the Holders as a part of the written notice given pursuant to
Section 8.6(a)(i). In such event the right of any Holder to registration
pursuant to Section 8.6 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and the Other Shareholders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for underwriting by the Company.
Notwithstanding any other provision of this Section 8.6, if the underwriter
determines that marketing factors require a limitation on the number of shares
to be underwritten, and (a) if such registration is the first registered
offering of the Company's securities to the public, the underwriter may (subject
to the allocation priority set forth below) exclude from such registration and
underwriting some or all of the Registrable Securities which would otherwise be
underwritten pursuant hereto, and (b) if such registration is other than the
first registered offering of the sale of the Company's securities to the public,
the underwriter may (subject to the allocation priority set forth below) limit
the number of Registrable Securities to be included in the registration and
underwriting to not less than fifty percent (50%) of the securities included
therein (based on aggregate market values). The Company shall so advise all
holders of securities requesting registration, and the number of shares of
securities that are entitled to be included in the registration and underwriting
shall be allocated in the following manner. The
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<PAGE>
securities of the Company held by officers and directors of the Company (other
than Registrable Securities) shall be excluded from such registration and
underwriting to the extent required by such limitation, and, if a limitation on
the number of shares is still required, the number of shares that may be
included in the registration and underwriting shall be allocated among all such
Holders and Other Shareholders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities and other securities which they had
requested to be included in such registration at the time of filing the
registration statement. If any Holder of Registrable Securities or any officer,
director or Other Shareholder disapproves of the terms of any such underwriting,
he may elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
8.7 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to this
Section 8 shall be borne by the Company, and all Selling Expenses shall be borne
by the holders of the securities so registered pro rata on the basis of the
number of their shares so registered; provided, however, that the Company shall
not be required to pay any Registration Expenses if, as a result of the
withdrawal of a request for registration by Initiating Holders, the registration
statement does not become effective, in which case the Holders and Other
Shareholders requesting registration shall bear such Registration Expenses pro
rata on the basis of the number of their shares so included in the registration
request, unless such withdrawal results from a material and adverse change in
the business or financial condition of the Company, in which case the Initiating
Holders and Other Shareholders requesting registration may elect to either (i)
bear such Registration Expenses pro rata or (ii) have such registration counted
as a registration pursuant to Section 8.5(a)(ii)(B); and provided, further, that
if a sale is not concluded once a request for registration is made, such
registration shall be counted as a registration pursuant to Section
8.5(a)(ii)(B).
8.8 Registration on Form S-2 or Form S-3. The Company shall use its
------------------------------------
best efforts to qualify for registration on Form S-2 and Form S-3 or any
comparable or successor form or forms; and to that end the Company shall
register (whether or not required by law to do so) the Common Stock under the
Exchange Act in accordance with the provisions of that Act following the
effective date of the first registration of any securities of the Company on
Form S-1 or Form S-18 or any comparable or successor form or forms. After the
Company has qualified for the use of either Form S-2 or Form S-3 or both, in
addition to the rights contained in the foregoing provisions of this Section 8,
the Holders of Registrable Securities shall have the right to request
registrations on Form S-2 or Form S-3 (such requests shall be in writing and
shall state the number of shares of Registrable Securities to be disposed of and
the intended methods of disposition of such shares by such Holder or Holders),
and the Company will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are
-25-
<PAGE>
specified in such request, together with all or such portion of the Registrable
Securities of any other Holder or Holders joining in such request as are
specified in a written request given within 30 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 8.8: (1) if Form S-2 or Form S-3 is not available for
such offering by the Holders; or (2) 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 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 8.8 shall not be counted as
demands for registration or registrations effected pursuant to Section 8.5.
8.9 Registration Procedures. In the case of each registration effected
-----------------------
by the Company pursuant to Section 8, the Company will keep each Holder advised
in writing as to the initiation of each registration and as to the completion
thereof. At its expense, the Company will:
(a) Keep such registration effective for a period of one hundred
twenty (120) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs; provided, however, that (i) such 120-day periods shall be extended for a
period of time equal to the period the Holder refrains from selling any
securities included in such registration in accordance with provisions in
paragraph 8.15 hereof; and (ii) in the case of any registration of Registrable
Securities on Form S-3 which are intended to be offered on a continuous or
delayed basis, such 120-day period shall be extended, if necessary, to keep the
registration statement effective until all such Registrable Securities are sold,
provided that Rule 415, or any successor rule under the Securities Act permits
an offering on a continuous or delayed basis, and provided further that
applicable rules under the Securities Act governing the obligation to file a
post-effective amendment, permit, in lieu of filing a post effective amendment
which (y) includes any prospectus required by Section 10(a)(3) of the Securities
Act or (z) reflects facts or events representing a material or fundamental
change in the information set forth in the registration statement, the
incorporation by reference of information required to be included in (y) and (z)
above to be contained in periodic reports filed pursuant to Section 13 or 15(d)
of the Exchange Act in the registration statement;
(b) Furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request; and
(c) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 8.5 hereof, the Company will
enter into any underwriting agreement reasonably necessary to effect the offer
and sale of Common Stock, provided such underwriting agreement contains
customary underwriting provisions and provided further that if the underwriter
so requests the underwriting agreement will contain customary contribution
provisions.
-26-
<PAGE>
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such securities or blue sky laws of
such jurisdictions as shall reasonably be requested by the Holders, provided,
that the Company shall not be obligated to effect any such registration or
qualification in any jurisdiction in which it would be required to qualify to do
business or to execute a general consent to service of process.
8.10 Indemnification.
---------------
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, and each person controlling such Holder, with respect to
which registration, qualification or compliance has been effected pursuant to
this Section 8, and each underwriter, if any, and each person who controls any
underwriter, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other document (including any related registration statement,
notification or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of the Securities Act,
the Securities Exchange Act of 1934 or applicable state securities laws or any
rule or regulation thereunder applicable to the Company and relating to action
or inaction required of the Company in connection with any such registration,
qualification or compliance, and will reimburse each such Holder, each of its
officers, directors and partners, and each person controlling such Holder, each
such underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission based upon written information furnished to the
Company by such Holder or underwriter and stated to be specifically for use
therein.
(b) Each Holder and Other Shareholder will, if Registrable Securities
held by him are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers and each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of the Securities Act and the
rules and regulations thereunder, each other such Holder and Other Shareholder
and each of their officers, directors and partners, and each person controlling
such Holder or Other Shareholder, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and such Holders, Other Shareholders,
directors, officers, partners, persons, underwriters or control persons for any
legal or any other expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is
-27-
<PAGE>
made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to the Company by such Holder or Other Shareholder and stated to be specifically
for use therein; provided, however, that the obligations of such Holders and
Other Shareholders hereunder shall be limited to an amount equal to the proceeds
to each such Holder or Other Shareholder of securities sold as contemplated
herein.
(c) Each party entitled to indemnification under this Section 8.10
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 8. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation. Each Indemnified Party
shall furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
(d) The obligations of the Company and the Holders under this Section
8.10 shall survive the completion of any offering of Registrable Securities in a
registration under this Section 8.
8.11 Information by Holder. Each Holder of Registrable Securities, and
---------------------
each Other Shareholder holding securities included in any registration, shall
furnish to the Company such information regarding such Holder or Other
Shareholder and the distribution proposed by such Holder or Other Shareholder as
the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Section 8.
8.12 Limitations on Registration of Issues of Securities. From and
---------------------------------------------------
after the date of this Agreement, the Company shall not enter into any agreement
with any holder or prospective holder of any securities of the Company giving
such holder or prospective holder the right to require the Company to initiate
any registration of any securities of the Company, provided that this Section
8.12 shall not limit the right of the Company to enter any agreements with any
holder or prospective holder of any securities of the Company giving such holder
or prospective holder the right to require the Company, upon any registration of
any of its securities, to include, among the securities which the Company is
then registering, securities owned by such holder; and provided further that a
majority of the representatives of the Purchasers on the Board of
-28-
<PAGE>
Directors may waive the requirement that the Company not enter into any
agreement giving a holder of any securities of the Company the right to require
the Company to initiate registration of any securities of the Company. Any right
given by the Company to any holder or prospective holder of the Company's
securities in connection with the registration of securities shall be
conditioned such that it shall be consistent with the provisions of this Section
8 and with the rights of the Holders provided in this Agreement.
8.13 Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may permit the sale of
the Restricted Securities to the public without registration, the Company agrees
to:
(a) Make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act, at all times from
and after ninety (90) days following the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act at any time after it has become subject to
such reporting requirements;
(c) So long as a Purchaser owns any Restricted Securities, furnish to
the Purchaser forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 (at any time from and
after ninety (90) days following the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
so filed as a Purchaser may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Purchaser to sell any such securities
without registration.
8.14 Transfer or Assignment of Registration Rights. The rights to cause
---------------------------------------------
the Company to register securities granted to Holder by the Company under
Sections 8.5, 8.6 and 8.8 may be transferred or assigned by any Holder to a
transferee or assignee, provided that the Company is given written notice at the
time of or within a reasonable time after said transfer or assignment, stating
the name and address of said transferee or assignee and identifying the
securities with respect to which such registration rights are being transferred
or assigned, and provided further that the transferee or assignee of such rights
is not deemed by the Board of Directors of the Company in its reasonable
judgment, to be a competitor of the Company; and provided further that the
transferee or assignee of such rights assumes the obligations of a Purchaser
under this Section 8.
8.15 "Market Stand-Off" Agreement. Each Purchaser agrees, if requested
---------------------------
by the Company and an underwriter of Common Stock (or other securities) of the
Company, not to sell or otherwise transfer or dispose of any Common Stock (or
other securities) of the Company held by it during the period specified by the
Company and the underwriters following the effective date of a registration
statement of the Company filed under the Securities Act, provided that:
-29-
<PAGE>
(a) such agreement only applies to the first such registration
statement of the Company including securities to be sold on its behalf to the
public in an underwritten offering; and
(b) all Holders, Other Shareholders and officers and directors of the
Company enter into or are contractually obligated to enter into similar
agreements.
Such agreement shall be in writing in a form satisfactory to the Company
and such underwriter, provided, that the terms of this Section 8.15 shall be
enforceable notwithstanding the absence of a written agreement. The Company may
impose stop-transfer instructions with respect to the shares (or securities)
subject to the foregoing restriction until the end of said ninety (90) day
period.
SECTION 9
Miscellaneous
-------------
9.1 Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California.
9.2 Survival. The representations, warranties, covenants and agreements
--------
made herein shall survive (i) any investigation made by or on behalf of any
Purchaser and (ii) the Closing.
9.3 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto; provided, however, the Company may not assign its rights
hereunder.
9.4 Entire Agreement; Amendment. This Agreement (including the
---------------------------
Schedules and Exhibits hereto) and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof. Neither this Agreement nor any
term hereof may be amended, waived, discharged or terminated, except by a
written instrument signed by the Company and the purchasers; provided, however,
that the holders of sixty percent (60%) or more of the Shares sold under this
Agreement and the shares of Series 1 and Series 2 Preferred sold under the
Preferred Stock, Series 1 and Series 2, Purchase Agreement dated December 8,
1983, acting together as a class, such number of shares of Common Stock issued
upon conversion of those sixty percent (60%) of the Preferred, or any
combination thereof, may by written instrument waive or modify any term or
condition set forth in Section 7 hereof which operates for the benefit of the
Purchasers; and provided further, that the terms and conditions of Section 8
hereof which operate for the benefit of the Purchasers may, by written
instrument, be waived or modified by the holders of sixty percent (60%) or more
of the Registrable Securities, as defined therein. Any other term or condition
hereof which operates for the benefit of the Purchasers may, by written
instrument, be modified by the holder of sixty percent (60%) or more of the
Shares purchased under this Agreement, but in no event shall the
-30-
<PAGE>
obligation of any Purchaser hereunder to purchase Shares be increased, except
upon the written consent of such Purchaser.
9.5 Notices, etc. All notices and other communications required or
-------------
permitted hereunder shall be in writing and shall be mailed by first-class mail,
postage prepaid, or delivered either by hand or by messenger, addressed (a) if
to a Purchaser, as indicated on the Schedule of Purchasers attached hereto, or
at such other address as such Purchaser shall have furnished to the Company in
writing, or (b) if to any other holder of any Shares or any Common Stock issued
upon conversion of Shares, at such address as such holder shall have furnished
the Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder thereof who has so
furnished an address to the Company, or (c) if to the Company, at its address
set forth at the beginning of this Agreement, or at such other address as the
Company shall have furnished to you and each such other holder in writing.
9.6 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any holder of any Shares, upon any breach or default
of the Company under this Agreement, shall impair any such right, power or
remedy of such holder 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 theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder 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 to any holder, shall be
cumulative and not alternative.
9.7 Rights; Separability. Unless otherwise expressly provided herein,
--------------------
each Purchaser's rights hereunder are several rights, not rights jointly held
with any of the other Purchasers. In case any provision of the Agreement shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
9.8 Agent's Fees.
------------
(a) The Company hereby agrees to indemnify and to hold each Purchaser
harmless of and from any liability for any commission or compensation in the
nature of an agent's fee to any broker or other person or firm (and the costs
and expenses of defending against such liability or asserted liability) arising
from any act by the Company or any of its employees or representatives.
(b) Each Purchaser (i) represents and warrants that it has retained no
finder or broker in connection with the transactions contemplated by this
Agreement and (ii) hereby agrees to indemnify and to hold the Company and the
other Purchasers harmless from any liability for any commission or compensation
in the nature of an agent's fee to any broker or other person or firm (and the
costs and expenses of defending against such liability or asserted liability)
for which it, or any of its employees or representatives, are responsible.
-31-
<PAGE>
9.9 Information Confidential. Each Purchaser acknowledges that the
------------------------
information received by it pursuant hereto may be confidential and for its use
only, and it will not use such confidential information in violation of the
Exchange Act or reproduce, disclose, disseminate or make any use of such
information to any other person (other than your employees or agents having a
need to know the contents of such information, and your attorneys), except in
connection with the exercise of rights under this Agreement, unless the Company
has made such information available to the public generally or the Purchaser is
required to disclose such information by a governmental body.
9.10 Expenses. The Company shall bear its own expenses and legal fees
--------
incurred on its behalf with respect to this Agreement and the transactions
contemplated hereby, and the Company will pay the legal fees, disbursements and
office expenses and charges, of special counsel to the Purchasers with respect
to this Agreement and the transactions contemplated hereby to the extent
provided in Section 5.13 hereof.
9.11 Titles and Subtitles. The titles of the paragraphs and
--------------------
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
9.12 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
9.13 Aggregation. All shares of Preferred Stock held or acquired by
-----------
affiliated entities or persons may be aggregated for the purpose of determining
the availability of rights under this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first written above.
APPLIED MICRO CIRCUITS CORPORATION
By:
------------------------------------------
Albert J. Martinez, President
PURCHASERS
---------------------------------------------
---------------------------------------------
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<PAGE>
Modification of Section 7.2
Effective 12/13/90 the preferred shareholders waived their rights of first
refusal pursuant to this Section 7.2 of the Preferred Stock Purchase Agreement
with respect to an additional 1,100,000 shares of common stock issuable pursuant
to the grant of options to employees, officers and persons performing services
for the Company. This is in addition to the waiver with respect to 750,000
shares effective 10/19/89.
See Stockholder meeting of 12/13/90.
<PAGE>
Modification of Section 7.2
Effective 10/19/89 the preferred shareholders waived their rights of first
refusal pursuant to this Section 7.2 of the Preferred Stock Purchase Agreement
with respect to up to 750,000 shares of common stock, issuable pursuant to the
grant of warrants, options, or other stock acquisition rights subsequent to
10/19/89.
See preferred shareholder consent letter of September 29, 1989, effective as of
October 19, 1989.
<PAGE>
Modification of Section 7.13
Effective 12/13/90 the preferred shareholders waived their rights to limit the
issuance of additional equity, with respect to 1,100,000 shares of common stock.
This is in addition to the waiver with respect to 750,000 shares effective
10/19/89.
See Stockholder meeting of 12/13/90.
<PAGE>
Modification of Section 7.13
Effective 10/19/89 the preferred shareholders waived their rights to limit the
issuance of additional equity, with respect to 750,000 shares of common stock.
See preferred shareholder consent letter dated September 29, 1989 and effective
as of October 19, 1989.
<PAGE>
EXHIBIT 10.9
LEASE
ADI MESA PARTNERS - AMCC, L.P., A CALIFORNIA LIMITED PARTNERSHIP
Landlord
APPLIED MICRO CIRCUITS CORPORATION,
A DELAWARE CORPORATION
Tenant
<PAGE>
TABLE OF CONTENTS
ARTICLE I
TERM OF LEASE
<TABLE>
<S> <C>
1.1 Initial Term............................................................... 1
1.2 Option to Extend........................................................... 1
ARTICLE II
CONSTRUCTION OF THE IMPROVEMENTS
2.1 The Improvements........................................................... 2
2.2 Plans and Specifications................................................... 2
2.3 Substantial Completion of the Improvements................................. 5
2.4 Delay in Substantial Completion or Lease Execution......................... 6
2.5 Liquidated Damages for Delay in Substantial Completion..................... 6
2.6 Building Permit for the Improvements....................................... 7
2.7 Construction Warranties.................................................... 7
2.8 Condition of Demised Premises; Limited Warranty............................ 7
2.9 Tenant Improvement Allowance; Tenant Responsibility........................ 7
2.10 Responsibility for Excess Shell Costs and Excess Tenant Improvement Costs.. 8
2.11 Contractor................................................................. 9
2.12 Tenant's Entry Into the Building Prior to Substantial Completion........... 9
ARTICLE III
RENT
3.1 Base Rent.................................................................. 10
3.2 Base Rent During Option Term............................................... 10
3.3 Additional Obligations; Additional Rent.................................... 12
3.4 Delinquent Rental Payments................................................. 12
ARTICLE IV
USED OF DEMISED PREMISES
4.1 Permitted Use.............................................................. 12
4.2 Preservation of Demised Premises........................................... 13
4.3 Hazardous Substances....................................................... 13
</TABLE>
<PAGE>
ARTICLE V
PAYMENT OF TAXES, ASSESSMENTS, ETC.
<TABLE>
<S> <C>
5.1 Payment of Impositions.................................................. 15
5.2 Tenant's Right to Contest Impositions................................... 16
5.3 Levies and Other Taxes.................................................. 16
5.4 Evidence of Payment..................................................... 16
5.5 Escrow for Taxes and Assessments........................................ 17
5.6 Landlord's Right to Contest Impositions................................. 17
ARTICLE VI
INSURANCE
6.1 Casualty Insurance...................................................... 17
6.2 Public Liability Insurance.............................................. 18
6.3 Other Insurance......................................................... 18
6.4 Certain Insurance Provisions............................................ 18
6.5 Waiver of Subrogation................................................... 19
6.6 Tenant's Indemnification of Landlord.................................... 19
6.7 Unearned Premiums....................................................... 19
6.8 Blanket Insurance Coverage.............................................. 19
6.9 Landlord's Liability Insurance Coverage................................. 19
ARTICLE VII
UTILITIES
7.1 Payment of Utilities.................................................... 19
7.2 Additional Charges...................................................... 19
7.3 Landlord's Responsibility for Utility Hook-Up Charges and Fees.......... 20
ARTICLE VIII
REPAIRS AND MAINTENANCE OF DEMISED PREMISES
8.1 Tenant's Responsibilities............................................... 20
8.2 Landlord's Responsibilities............................................. 20
8.3 Sharing of Expenses of Capital Items.................................... 20
8.4 Tenant's Waiver of Claims Against Landlord.............................. 21
8.5 Prohibition Against Waste............................................... 21
</TABLE>
<PAGE>
ARTICLE IX
COMPLIANCE WITH APPLICABLE LAWS AND RESTRICTIONS
<TABLE>
<S> <C>
9.1 Compliance with Applicable Laws and Restrictions...................... 21
9.2 Tenant's Obligations.................................................. 22
9.3 Tenant's Right to Contest Laws and Ordinances......................... 22
ARTICLE X
MERCHANIC'S LIENS AND OTHER LIENS
10.1 Mechanic's Liens...................................................... 22
10.2 Landlord's Indemnification............................................ 23
10.3 Removal of Liens...................................................... 23
10.4 Equipment and Trade Fixtures.......................................... 23
ARTICLE XI
LANDLORD'S PERFORMANCE OF TENANT'S OBLIGATIONS........................ 23
ARTICLE XII
DEFAULTS OF TENANT
12.1 Events of Default..................................................... 24
12.2 Landlord's Remedies................................................... 24
12.3 Right to Collect Rent as Due.......................................... 25
12.4 New Lease Following Termination....................................... 25
12.5 Cumulative Rights; No Waiver.......................................... 25
12.6 Surrender of Demised Premises......................................... 25
12.7 Interest on Unpaid Amounts............................................ 26
ARTICLE XIII
DESTRUCTION AND RESTORATION
13.1 Destruction and Restoration........................................... 26
13.2 Application of Insurance Proceeds..................................... 26
13.3 Continuance of Tenant's Obligations................................... 27
13.4 Availability of Insurance Proceeds.................................... 27
13.5 Completion of Restoration............................................. 27
13.6 Termination of Lease.................................................. 27
</TABLE>
<PAGE>
ARTICLE XIV
CONDEMNATION
<TABLE>
<S> <C>
14.1 Condemnation of Entire Demised Premises................................ 28
14.2 Partial Condemnation/Termination of Lease.............................. 28
14.3 Partial Condemnation/Continuation of Lease............................. 29
14.4 Continuance of Obligations............................................. 29
14.5 Adjustment of Rent..................................................... 29
ARTICLE XV
ASSIGNMENT, SUBLETTING, ETC.
15.1 Restriction on Transfer................................................ 30
15.2 Transfer to Affiliates; Sale or Merger................................. 30
15.3 Restriction Against Further Assignment................................. 31
15.4 Tenant's Failure to Comply............................................. 31
ARTICLE XVI
SUBORDINATION, NONDISTURBANCE,
NOTICE TO MORTGAGEE AND ATTORNMENT
16.1 Subordination by Tenant................................................ 31
16.2 Landlord's Default..................................................... 31
16.3 Attornment............................................................. 32
ARTICLE XVII
SIGNS..................................... 33
ARTICLE XVIII
FINANCIAL STATEMENTS OF TENANT....................... 33
ARTICLE XIX
CHANGES AND ALTERATIONS........................... 33
ARTICLE XX
MISCELLANEOUS PROVISIONS
20.1 Entry by Landlord...................................................... 35
20.2 Exhibition of Demised Premises......................................... 35
</TABLE>
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<TABLE>
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20.3 Indemnification by Tenant............................................ 35
20.4 Notices.............................................................. 36
20.5 Quiet Enjoyment...................................................... 36
20.6 Landlord's Continuing Obligations.................................... 36
20.7 Estoppel............................................................. 37
20.8 Delivery of Corporate Documents...................................... 37
20.9 Memorandum of Lease.................................................. 38
20.10 Severability......................................................... 38
20.11 Successors and Assigns............................................... 38
20.12 Captions............................................................. 38
20.13 Relationship of Parties.............................................. 38
20.14 Entire Agreement..................................................... 38
20.15 No Merger............................................................ 38
20.16 Possession and Use................................................... 38
20.17 Surrender of Demised Premises........................................ 38
20.18 Holding Over......................................................... 38
20.19 Survival............................................................. 39
20.20 Broker's Commission.................................................. 39
20.21 Applicable Law....................................................... 39
20.22 Counterparts......................................................... 39
20.23 Attorneys' Fees...................................................... 39
Exhibit "A"
LEGAL DESCRIPTION OF PROPERTY........................40
Exhibit "B"
PRELIMINARY PLANS AND SPECIFICATIONS.....................41
Exhibit "C"
TENANT IMPROVEMENTS BUDGET ESTIMATE......................42
Exhibit "D"
MEMORANDUM OF LEASE.............................43
</TABLE>
<PAGE>
LEASE
THIS LEASE ("Lease") is made this 29th day of October, 1996, by and
between ADI MESA PARTNERS-AMCC, L.P., a California limited partnership
("Landlord"), and APPLIED MICRO CIRCUITS CORPORATION, a Delaware corporation
("Tenant").
WITNESSETH:
"LAND" means an approximately 5.0 acre-sized parcel of land situated
in the Lusk Mira Mesa Business Park East II, Unit 2, in San Diego, California,
together with any appurtenant easements, which shall be a separate legal parcel
created from a portion of the property which is described in Exhibit "A"
-----------
attached hereto and made a part hereof, and which is located on Sequence Drive
in San Diego, California. Landlord is currently pursuing creation of such
separate legal parcel.
"BUILDING" means the headquarters, research and development, assembly,
light manufacturing and distribution facility, which shall consist of
approximately 90,000 square feet (as measured in accordance with the method
established by the American Industrial Real Estate Association for measuring the
"gross" size of buildings of similar type and character, provided that up to 300
square feet of "drip-line" may be included in such calculation) and which shall
be constructed on the Land by Landlord in accordance with the Preliminary Plans
and Specifications and the Plans and Specifications, as those terms are defined
in Section 2.2 of this Lease.
"IMPROVEMENTS" means the Building and all improvements, machinery,
equipment, fixtures and other property, real, personal or mixed (except Tenant's
trade fixtures, machinery and equipment) installed or constructed on the Land or
in the Building by Landlord (including, without limitation, the parking facility
and other site improvements and landscaping), together with all additions,
alterations and replacements thereof.
"DEMISED PREMISES" means the Land and the Improvements.
Landlord, for and in consideration of the rents, covenants and
agreements hereinafter reserved, mentioned and contained on the part of Tenant,
its successors and assigns, to be paid, kept, observed and performed under this
Lease, hereby leases, rents, lets and demises to Tenant, and upon and subject to
the conditions and limitations expressed in this Lease, Tenant takes and hires
from Landlord, the Demised Premises.
ARTICLE I
TERM OF LEASE
1.1 Initial Term. This Lease shall be effective and binding upon the
------------
parties hereto upon mutual execution hereof (the "EFFECTIVE DATE"). The term of
this Lease (the "INITIAL TERM") shall commence upon the Commencement Date and
shall end one hundred twenty (120) months after the Commencement Date (as
defined below) of the Improvements, subject to extension pursuant to Section
1.2, below. The "COMMENCEMENT DATE" (as that term is used in this Lease) shall
mean the date upon which Substantial Completion (as defined in Section 2.3
below) of the Improvements occurs. Substantial Completion of the Improvements
and the Commencement Date are currently anticipated to be September 18, 1997
(the "TARGET COMMENCEMENT DATE"); provided, however, that in no event shall the
Commencement Date occur (or be deemed to occur) prior to September 18, 1997. In
-----
the event the Commencement Date is September 18, 1997, the Initial Term of this
Lease would end on September 17, 2007.
1.2 Option to Extend. Tenant shall have two (2) options to extend (the
----------------
"EXTENSION OPTIONS") the Initial Term for consecutive five- (5) year periods
(the foregoing option terms shall be referred to hereinafter sometimes as the
"OPTION TERMS"), by delivering a binding written notice of exercise to Landlord
("Extension Notice"), so that Landlord receives the EXTENSION NOTICE with
respect to the first Option Term at least three hundred sixty (360) days prior
to the end of the Initial Term and with respect to the second Option Term, at
least three hundred sixty (360) days prior to the end of the first Option Term.
Tenant may exercise the Extension Options only if this Lease is in full force
and effect and there is no uncured Event of Default, or any breach of Tenant's
obligations under this Lease which with the passage of time or the giving of
notice, or both, would constitute an Event of Default if not cured within any
applicable cure period (an "Incipient Default"), at the time of exercise of the
right of renewal or at the time of the commencement of the Option Term, but
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Landlord shall have the right at its sole discretion to waive the non-default
conditions herein; provided, however, that if an Event of Default or Incipient
Default exists at the time Tenant exercises the Extension Option and Landlord
does not elect to waive, Landlord shall provide written notice to Tenant of the
existence and nature of such Event of Default or Incipient Default and Tenant
shall be allowed an amount of time to cure such Event of Default or Incipient
Default as is otherwise provided for curing defaults of that type under this
Lease, and, if timely cured, Tenant's exercise of the Extension Option shall be
reinstated effective as of the time of exercise. The Initial Term, together with
any Option Term, are referred to in this Lease as the "Term."
ARTICLE II
CONSTRUCTION OF THE IMPROVEMENTS
2.1 The Improvements. Landlord agrees to furnish all of the material,
----------------
labor and equipment for the construction of the Improvements in a good and
workmanlike manner in conformance with the Plans and Specifications (as defined
in Section 2.2) and in compliance with all covenants, conditions and
restrictions to which the Land is subject and all then applicable building laws,
ordinances, orders, rules, regulations and requirements of all federal, state
and municipal governments with jurisdictional authority over the development of
the Land and the construction of the Improvements, including, but not limited
to, the Americans With Disabilities Act and Title 24 (the "APPLICABLE LAND USE
LAWS AND RESTRICTIONS"). Landlord shall use its diligent, best efforts to
achieve Substantial Completion of the Improvements by the Target Commencement
Date.
2.2 Plans and Specifications. The Plans and Specifications for the
------------------------
development of the Property and the construction of the Improvements shall be
developed on a "two-track" basis, with one "track" related to the creation of
Plans and Specifications for the Shell Improvements (as defined in Section
2.9(a) hereof) and a second "track" related to the creation of Plans and
Specifications for the Tenant Improvements (as defined in Section 2.9(b)
hereof).
(a) Shell Improvements Plans and Specifications. The Plans and
-------------------------------------------
Specifications for the development of the Shell Improvements shall be developed
as follows:
(i) As used in this Lease, the term "Shell Improvements Plans and
Specifications" shall mean collectively the "Preliminary Plans and
Specifications," the "Shell Improvements Schematic Design Drawings," the "Shell
Improvements Design Development Drawings", the "Shell Improvements Construction
Drawings" (all as defined herein), and all related plans, drawings,
specifications and notes. The Shell Improvements Plans and Specifications shall
be prepared by Landlord in compliance with all Applicable Land Use Laws and
Regulations.
(ii) Landlord and Tenant have agreed on a set of preliminary plans
and specifications for the Shell Improvements prepared by Pacific Cornerstone
Associates which (i) describe and depict the Shell Improvements, (ii) specify
the components of the Shell Improvements, and (iii) preliminarily depict the
Tenant Improvements. These preliminary plans and specifications (the
'Preliminary Plans and Specifications') are attached to this Lease as Exhibit
"B" and Landlord and Tenant intend that they shall serve as the basis upon which
the Shell Improvements Plans and Specifications will be prepared and finalized,
in accordance with the provisions of this Section 2.2 (a).
(iii) As soon as is reasonably possible following execution of this
Lease, Landlord shall submit to Tenant reasonably detailed and dimensioned 1/8
scale preliminary schematic design drawings ('SHELL IMPROVEMENTS SCHEMATIC
DESIGN DRAWINGS') for the Shell Improvements elements of the Demised Premises
consistent with the Preliminary Plans and Specifications. Within five (5)
business days after Landlord delivers to Tenant the Shell Improvements Schematic
Design Drawings, Tenant shall deliver to Landlord written notice of its approval
or disapproval thereof. Tenant shall not unreasonably withhold its approval of
the Shell Improvements Schematic Design Drawings or use the approval process as
a vehicle for expanding the scope of the Shell Improvements. If Tenant
disapproves any portion of the Shell Improvements Schematic Design Drawings,
then Tenant shall specifically and in writing (a) approve those portions which
are acceptable to Tenant and (b) disapprove those portions which are not
acceptable to Tenant, specifying the reasons for such disapproval and describing
in detail the change Tenant requests for each item disapproved. In the event the
Shell Improvements Schematic Design Drawings have not been fully approved by
Tenant, and Tenant and Landlord are unable to resolve the basis for Tenant's
disapproval after good faith efforts to do so over a period of five (5) business
days after delivery of Tenant's notice disapproving the Schematic Shell
Improvements Design Drawings, Landlord shall have the right to terminate this
Lease by giving Tenant written notice of its election to do so.
4
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(iv) As soon. as is reasonably possible following approval of the
Shell Improvements Schematic Design Drawings, Landlord shall submit to Tenant
reasonably detailed preliminary construction drawings for the Shell Improvements
elements of the Demised Premises ("Shell Improvements Design Development
Drawings"). Within five (5) business days after Tenant receives the Shell
Improvements Design Development Drawings, Tenant shall deliver to Landlord
written notice of Tenant's approval or disapproval of the Shell Improvements
Design Development Drawings. Tenant shall not unreasonably withhold its approval
of the Shell Improvements Design Development Drawings or use the approval
process as a vehicle for expanding the scope of the Shell Improvements. If
Tenant disapproves any portion of the Shell Improvements Design Development
Drawings, then Tenant shall specifically and in writing (a) approve those
portions which are acceptable to Tenant and (b) disapprove those portions which
are not acceptable to Tenant, specifying the reasons for such disapproval and
describing in detail the change Tenant requests for each item disapproved. In
the event the Shell Improvements Design Development Drawings have not been fully
approved by Tenant, and Tenant and Landlord are unable to resolve the basis for
Tenant's disapproval after good faith efforts to do so over a period of five (5)
business days after delivery of Tenant's notice disapproving the Shell
Improvements Design Development Drawings, Landlord shall have the right to
terminate this Lease by giving Tenant written notice of its election to do so.
(v) As soon as is reasonably possible following approval of the
Shell Improvements Design Development Drawings, Landlord shall submit to Tenant
1/4 or 1/8 scale construction drawings for the Shell Improvements elements of
the Demised Premises ("Construction Drawings"). These Construction Drawings
shall include all information reasonably necessary to construct the Shell
Improvements. Within five (5) business days after Tenant receives the Shell
Improvements Construction Drawings, Tenant shall deliver to Landlord written
notice of Tenant's approval or disapproval of the Shell Improvements
Construction Drawings. Tenant shall not unreasonably withhold its approval of
the Shell Improvements Construction Drawings or use the approval process as a
vehicle for expanding the scope of the Shell Improvements. If Tenant disapproves
any portion of the Shell Improvements Construction Drawings, then Tenant shall
specifically and in writing (a) approve those portions which are acceptable to
Tenant and (b) disapprove those portions which are not acceptable to Tenant,
specifying the reasons for such disapproval and describing in detail the change
Tenant requests for each item disapproved. In the event the Shell Improvements
Construction Drawings have not been fully approved by Tenant, and Tenant and
Landlord are unable to resolve the basis for Tenant's disapproval after good
faith efforts to do so over a period of five (5) business days after delivery of
Tenant's notice disapproving the Shell Improvements Construction Drawings,
Landlord shall have the right to terminate this Lease by giving Tenant written
notice of its election to do so.
(vi) Upon approval of the Shell Improvements Construction Drawings,
the Shell Improvements Plans and Specifications shall be deemed approved by
Landlord and Tenant and shall, thereafter, be the Shell Improvements element of
the Plans and Specifications for the construction of the Improvements.
(b) Tenant Improvements Plans and Specifications. The Plans and
--------------------------------------------
Specifications for the development of the Tenant Improvements shall be developed
as follows:
(i) As used in this Lease, the term "Tenant Improvements Plans and
Specifications" shall mean collectively the "Preliminary Plans and
Specifications," the "Tenant Improvements Schematic Design Drawings," the
"Tenant Improvements Design Development Drawings", the "Tenant Improvements
Construction Drawings" (all as defined herein), and all related plans, drawings,
specifications and notes. The Tenant Improvements Plans and Specifications shall
be prepared by Landlord in compliance with all Applicable Land Use Laws and
Regulations.
(ii) As soon as is reasonably possible following execution of this
Lease, Landlord shall submit to Tenant reasonably detailed and dimensioned 1/8
scale preliminary schematic design drawings ("TENANT IMPROVEMENTS SCHEMATIC
DESIGN DRAWINGS") for the Tenant Improvements elements of the Demised Premises
consistent with the Preliminary Tenant Improvements Plans and Specifications.
Within five (5) business days after Landlord delivers to Tenant the Tenant
Improvements Schematic Design Drawings, Tenant shall deliver to Landlord written
notice of its approval or disapproval thereof. Tenant shall not unreasonably
withhold its approval of the Tenant Improvements Schematic Design Drawings. If
Tenant disapproves any portion of the Tenant Improvements Schematic Design
Drawings, then Tenant shall specifically and in writing (a) approve those
portions which are acceptable to Tenant and (b) disapprove those portions which
are not acceptable to Tenant, specifying the reasons for such disapproval and
describing in detail the change Tenant requests for each item disapproved. In
the event the Tenant Improvements Schematic Design Drawings have not been fully
approved by Tenant, and Tenant and Landlord are unable to resolve the basis for
Tenant's disapproval after good faith efforts to do so over a period of five (5)
business days after delivery of Tenant's notice disapproving the Tenant
Improvements Schematic Design Drawings, Landlord shall have the right to
terminate this Lease by giving Tenant written
5
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notice of its election to do so.
(iii) As soon as is reasonably possible following approval of the
Tenant Improvements Schematic Design Drawings, Landlord shall submit to Tenant
reasonably detailed preliminary construction drawings for the Tenant
Improvements elements of the Demised Premises ("Tenant Improvements Design
Development Drawings"). Within five (5) business days after Tenant receives the
Tenant Improvements Design Development Drawings, Tenant shall deliver to
Landlord written notice of Tenant's approval or disapproval of the Tenant
Improvements Design Development Drawings. Tenant shall not unreasonably withhold
its approval of the Tenant Improvements Design Development Drawings. If Tenant
disapproves any portion of the Tenant Improvements Design Development Drawings,
then Tenant shall specifically and in writing (a) approve those portions which
are acceptable to Tenant and (b) disapprove those portions which are not
acceptable to Tenant, specifying the reasons for such disapproval and describing
in detail the change Tenant requests for each item disapproved. In the event the
Tenant Improvements Design Development Drawings have not been fully approved by
Tenant, and Tenant and Landlord are unable to resolve the basis for Tenant's
disapproval after good faith efforts to do so over a period of five (5) business
days after delivery of Tenant's notice disapproving the Tenant Improvements
Design Development Drawings, Landlord shall have the right to terminate this
Lease by giving Tenant written notice of its election to do so.
(iv) As soon as is reasonably possible following approval of the
Tenant Improvements Design Development Drawings, Landlord shall submit to Tenant
1/4 or 1/8 scale construction drawings for the Tenant Improvements elements of
the Demised Premises ("Construction Drawings"). These Construction Drawings
shall include all information reasonably necessary to construct the Tenant
Improvements. Within five (5) business days after Tenant receives the Tenant
Improvements Construction Drawings, Tenant shall deliver to Landlord written
notice of Tenant's approval or disapproval of the Tenant Improvements
Construction Drawings. Tenant shall not unreasonably withhold its approval of
the Tenant Improvements Construction Drawings. If Tenant disapproves any portion
of the Tenant Improvements Construction Drawings, then Tenant shall specifically
and in writing (a) approve those portions which are acceptable to Tenant and (b)
disapprove those portions which are not acceptable to Tenant, specifying the
reasons for such disapproval and describing in detail the change Tenant requests
for each item disapproved. In the event the Tenant Improvements Construction
Drawings have not been fully approved by Tenant, and Tenant and Landlord are
unable to resolve the basis for Tenant's disapproval after good faith efforts to
do so over a period of five (5) business days after delivery of Tenant's notice
disapproving the Tenant Improvements Construction Drawings, Landlord shall have
the right to terminate this Lease by giving Tenant written notice of its
election to do so.
(v) Upon approval of the Tenant Improvements Construction Drawings,
the Tenant Improvements Plans and Specifications shall be deemed approved by
Landlord and Tenant and shall, thereafter, be the Tenant Improvements element of
the Plans and Specifications for the construction of the Improvements.
(vi) During the process of preparing and reviewing the Tenant
Improvements Schematic Design Drawings, Tenant Improvements Design Development
Drawings and Tenant Improvements Construction Drawings, Landlord shall
reasonably cooperate with Tenant, and Landlord shall cause its contractor and
design professionals to reasonably cooperate with Tenant, in Tenant's efforts to
control the cost of the Tenant Improvements through "value engineering." Nothing
in this subsection (vii) nor related to the "value engineering" of the Tenant
Improvements shall extend the dates by which Tenant must review the plans and
specifications delivered to it under this Section 2.2 or otherwise delay the
completion of the Tenant Improvements Plans and Specifications.
(c) Final Plans and Specifications. The final Shell Improvements
------------------------------
Plan and Specifications and the final Tenant Improvements Plans and
Specifications are sometimes collectively referred to in this Lease as the
"Plans and Specifications" and shall be the final plans and specifications for
the development of the Improvements. Tenant shall not assume any liability for
defects in the design of the Shell Improvements or the Tenant Improvements as a
result of Tenant's involvement in the process described in this Section 2.2 and
shall not diminish Landlord's responsibilities under this Lease for any such
defects.
2.3 Substantial Completion of the Improvements.
------------------------------------------
(a) "Substantial Completion" of the Improvements shall be deemed to
have occurred on the earlier to occur of when (i) (A) the Improvements have been
completed in conformance with the Plans and Specifications, subject to the
completion of "punch-list" items (the "Punchlist") identified by Landlord and
Tenant as described in Section 2.3(c) below ("punch-list items" being defined to
mean minor items needing correction or repair which do not or will not
materially interfere with Tenant's use and enjoyment of the Building), (B) the
parking facilities to which Tenant is entitled under this
6
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Lease have been completed other than as identified on the Punchlist, (C) all
systems of the Building are in good working order, and (D) Tenant can physically
and legally occupy the Demised Premises (e.g., a permanent Certificate of
Occupancy or temporary certificate of occupancy which is subsequently converted
into or replaced without any lapse by a permanent certificate of occupancy
("CERTIFICATE OF OCCUPANCY") has been issued for the Demised Premises by the
City of San Diego ("City")), or (ii) the Improvements would have been so
completed and Tenant legally entitled to occupy the Demised Premises but for any
Tenant-Caused Delays in Landlord (A) achieving Substantial Completion or (B) or
obtaining the Certificate of Occupancy. Landlord shall deliver to Tenant a copy
of any Certificate of Occupancy issued by City for the Demised Premises promptly
upon receipt. Landlord will use its best efforts to (i) keep Tenant informed on
a monthly basis following execution of this Lease of the anticipated
Commencement Date, and (ii) provide Tenant with no less than thirty (30) days
advance notice of the actual Commencement Date. Landlord shall deliver to Tenant
a certificate from the Architect (as defined below) certifying Substantial
Completion of the Improvements on or before the Commencement Date.
(b) "TENANT-CAUSED DELAY" shall be defined as (i) the failure of
Tenant, its officers, directors, partners, agents, employees, or contractors to
(A) perform some act or pay some amount within the time provided in this Lease,
or (B) approve or reasonably disapprove any draft of the Plans and
Specifications within the time period specified in Section 2.2 above, (ii) any
change to the Plans and Specifications requested by Tenant, including both
during preparation of the Plans and Specifications and during construction of
the Demised Premises, including as a result of Tenant's efforts to control
Tenant Improvements Cost through "value engineering" (as provided in Section
2.2(b)(vii) hereof) (a "TENANT CHANGE ORDER"), or (iii) any other act or
omission by Tenant, its officers, directors, partners, agents, employees, or
contractors to the extent it causes a delay in Substantial Completion or in the
issuance of the Certificate of Occupancy (including, without a limitation, a
delay caused by a delay in finalization of the Plans and Specifications);
provided, however, that Landlord shall have given written notice to Tenant of
the number of days of Tenant-Caused Delay due to such requested Tenant Change
Order. Tenant may revoke a Tenant Change Order if it notifies Landlord of such
revocation within two (2) business days following receipt of Landlord's written
notice. Landlord shall notify Tenant in writing of the occurrence of any Tenant-
Caused Delay within two (2) business days after learning of the same. If
Landlord fails to timely notify Tenant of an event which would otherwise be a
Tenant-Caused Delay, the Tenant-Caused Delay shall not commence until such
notice is delivered.
(c) On or immediately before the Commencement Date, Landlord and
Tenant shall conduct a walk-through inspection of the Demised Premises and shall
jointly prepare the Punchlist which shall be a list of items which have not been
completed in substantial conformance with the Plans and Specifications that need
to be corrected. Landlord shall cause such items to be corrected within thirty
(30) days thereafter, provided, however, if, by the nature of such punch-list
item, more than thirty (30) days is required to effect such correction, Landlord
shall not be in default hereunder if such correction is commenced within such
thirty (30) day period and is diligently pursued to completion. Approximately
thirty (30) days following the Commencement Date, Landlord and Tenant shall
again conduct a walk-through inspection to determine if any remaining punch-list
items require correction, and Landlord shall cause all such corrective work to
be undertaken and completed promptly thereafter. If, thereafter, Landlord fails
to diligently pursue completion of the Punchlist items with due diligence, and
such failure continues for five (5) days after notice from Tenant, Tenant may
complete such items and offset the reasonable cost thereof against Base Rent and
Additional Rent.
(d) Tenant shall not be liable to Landlord for the payment of Base
Rent, Additional Rent (as hereinafter defined) or any other amount to be paid by
Tenant under this Lease (except as specifically provided elsewhere in this
Lease) until the Commencement Date. The failure of Tenant to take possession of
or to occupy the Demised Premises on or after the Commencement Date shall not
serve to relieve Tenant of its obligations or delay Tenant's obligation to pay
Rent, Additional Rent, or any other amount to be paid by Tenant to Landlord
under this Lease.
(e) If the Commencement Date has not occurred by the Target
Commencement Date, as such Target Commencement Date may be extended pursuant to
Section 2.4, below) Landlord shall not be liable for any damages caused thereby,
except as provided in Section 2.5, below, and this Lease shall remain in full
force, except as provided in Section 2.5 below.
2.4 Delay in Substantial Completion or Lease Execution. Landlord
--------------------------------------------------
shall diligently proceed with the construction of the Improvements and complete
the same and deliver possession thereof to Tenant on the Target Commencement
Date, provided, however, to the extent (i) a Tenant-Caused Delay, or (ii) a
Force Majeure (as defined below), results in a delay in Substantial Completion
of the Improvements, the Target Commencement Date shall be extended for the
amount of time the Substantial Completion of the Improvements is delayed
thereby. "FORCE MAJEURE" shall be defined as any factor or condition which is
outside the control of either Tenant or Landlord and for which neither could
have reasonably been anticipated or expected to plan, including, without
limitation, (i) unusually inclement weather, or inclement weather which occurs
at unusual times, (ii) other acts of God, (iii) labor disputes, (iv) casualties,
(v) embargo,
7
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(vi) governmental restrictions, (vii) shortages of fuel, labor, or building
materials, (viii) civil unrest, (ix) action or non-action of public utilities,
or of local, state or federal governments which delay the Substantial Completion
of the Demised Premises, and (x) action or non-action of local, state or federal
governments which prevent, prohibit or stop construction of the Demised
Premises. Notwithstanding the foregoing, (A) those events described in
subsections (iii), (v), (vi), (vii), (ix) and (x) of the preceding sentence will
constitute Force Majeure events only if they are generally applicable to the
construction industry in San Diego, and (B) no Force Majeure event, or any
combination thereof, will result in a delay in the Target Commencement Date for
more than thirty (30) days, other than those described in subsections (ii),
(viii) and (x) of the preceding sentence. Landlord shall give written notice to
Tenant of the estimated number of days of delay due to Force Majeure within two
(2) business days after Landlord learns of such delay. If Landlord fails to
timely notify Tenant of an event which would otherwise be a delay due to Force
Majeure, the Force Majeure delay shall not commence until such notice is
delivered.
2.5 Liquidated Damages for Delay in Substantial Completion. If the
------------------------------------------------------
Commencement Date has not occurred (or been deemed to have occurred) by the
Target Commencement Date, as it may be adjusted as described in Section 2.4,
above, then Landlord shall pay Tenant liquidated damages of Two Thousand Five
Hundred Dollars ($2,500) per day for each day the Commencement Date is delayed
beyond the Target Commencement Date (as adjusted pursuant to Section 2.4, above)
for up to six (6) months after the Target Commencement Date (as adjusted
pursuant to Section 2.4, above). Such liquidated damages shall be paid within
thirty (30) days after the end of each month of delay beyond the Target
Commencement Date. In addition to Tenant's rights to such liquidated damages,
Tenant shall have the right to terminate this Lease if the delay in the
Commencement Date beyond the Target Commencement Date (as adjusted pursuant to
Section 2.4, above) exceeds six (6) months in length. If Tenant elects not to
terminate this Lease at that time, (i) Landlord's liability for such delay shall
be limited to the liquidated damages already paid or accrued, (ii) Landlord
shall not be liable for any additional liquidated damages, and (iii) Landlord
shall have no liability for damages related to the additional delay unless such
delay is caused by Landlord's intentional misconduct. If Tenant elects not to
terminate this Lease at the end of such six (6) month period, Landlord shall
endeavor to achieve Substantial Completion of the Demised Premises with due
diligence, provided Tenant may terminate the Lease at any time thereafter, which
termination shall be effective ninety (90) days following delivery by Tenant to
Landlord of a written notice of such termination, unless Substantial Completion
and the Commencement Date occurs within such ninety (90) day period, in which
case the termination notice shall be deemed withdrawn and of no further force or
effect. If the Commencement Date has not occurred (or been deemed to have
occurred) by one (1) year after the Target Commencement Date (as that date may
be adjusted pursuant to Section 2.4, above), either Tenant or Landlord (provided
that Landlord may only so terminate this Lease if the delay is not within
Landlord's reasonable control), upon written notice to the other, may terminate
the Lease. If Landlord fails to timely pay Tenant the liquidated damages, Tenant
may, in addition to its other rights and remedies, offset the amount thereof
against any rent or other amount due hereunder to Landlord.
LANDLORD AND TENANT AGREE THAT TENANT'S ACTUAL DAMAGES IN
THE EVENT OF A DELAY IN THE COMMENCEMENT DATE BEYOND THE
TARGET COMMENCEMENT DATE (AS ADJUSTED PURSUANT TO SECTION
2.4, ABOVE), WOULD BE EXTREMELY DIFFICULT OR IMPRACTICABLE
TO DETERMINE AND THAT THE AMOUNTS DESIGNATED ABOVE AS
LIQUIDATED DAMAGES PAYABLE BY LANDLORD TO TENANT IN SUCH
EVENTS ARE EACH REASONABLE AMOUNTS TO BE SET AS DAMAGES FOR
SUCH EVENTS UNDER THE CIRCUMSTANCES EXISTING AT THE TIME
THIS LEASE HAS BEEN ENTERED INTO. IN CONSIDERATION OF THE
PAYMENT OF LIQUIDATED DAMAGES, TENANT SHALL BE DEEMED TO
HAVE WAIVED ALL OTHER CLAIMS FOR DAMAGES OR RELIEF AT LAW
OR IN EQUITY DUE TO SUCH DELAY INCLUDING ANY RIGHTS TO
SPECIFIC PERFORMANCE TENANT MAY OTHERWISE HAVE.
Tenant: ____________ Landlord:___________
2.6 Building Permit for the Improvements. Landlord shall be
------------------------------------
responsible (at its sole cost and expense) for obtaining from any relevant and
jurisdictional governmental authority necessary (generally an "Authority"), all
governmental approvals including a building permit for the construction of the
Improvements ("Building Permit"). If a change to the Plans and Specifications or
Approved Working Drawings is required by the Authority, such change shall be
made to the Plans and Specifications or Approved Working Drawings by Landlord.
Tenant shall not unreasonably withhold its consent to any such change.
2.7 Construction Warranties. Landlord shall obtain the
-----------------------
manufacturer's warranties for the elements or
8
<PAGE>
systems which are part of the Demised Premises and which are customarily given
by such manufacturers without additional cost to Landlord and warranties and
guaranties from the contractors and subcontractors with respect to the
Improvements and which are customarily given by such contractors and
subcontractors without additional cost to Landlord. Landlord shall assign to
Tenant (or, should Tenant not be legally capable of doing so itself, at Tenant's
expense, prosecute on Tenant's behalf), on a non-exclusive basis, all statutory
and contractual warranties and guaranties to which Landlord is entitled in
connection with the Demised Premises, express or implied, including, without
limitation the warranties arising under any construction contract between
Landlord and Landlord's contractors and/or subcontractors involved in the
construction of the Demised Premises. Other than the assignment to Tenant of
such warranties, or as otherwise specifically provided in this Lease, Landlord
shall have no obligation or responsibility to Tenant, or its successors, with
respect to any condition of the Improvements. Landlord, at no cost or expense to
Landlord, shall cooperate with Tenant in the enforcement by Tenant, at Tenant's
sole cost and expense, of any such warranties or guaranties.
2.8 Condition of Demised Premises; Limited Warranty. Except as
-----------------------------------------------
specifically provided in this Section 2.8, Landlord makes no warranties or
representations with regard to the Demised Premises, or any portion thereof, and
Tenant shall accept the Demised Premises in the condition in which they are
delivered on the Commencement Date, provided that (i) the Demised Premises shall
be constructed in (A) conformance with the Plans and Specifications and Approved
Working Drawings, and (B) conformance with all Applicable Land Use Laws and
Restrictions then in effect and (ii) for the Term of this Lease, the
Improvements shall be free of latent defects in design and construction of the
Demised Premises, including, without limitation, the drainage of surface water
runoff from adjacent properties, and Landlord shall be responsible, at
Landlord's sole cost and expense, for the prompt and diligent repair of any such
latent defects which manifest themselves during the Term.
2.9 Tenant Improvement Allowance; Tenant Responsibility.
---------------------------------------------------
(a) Landlord shall be responsible for constructing, entirely at its
expense, subject to the provisions of Section 3.3 of this Lease, the Shell
Improvements (as that term is defined below). The Shell Improvements shall
consist of (and the term "SHELL IMPROVEMENTS" shall be used in this Lease to
mean) those components of the Demised Premises which are identified in the
Preliminary Plans and Specifications, which are attached to this Lease, and
ultimately in the final Plans and Specifications, as elements of the basic
Building shell or specifically as "Shell Improvements," land, land preparation
and landscaping or as otherwise mutually identified by Landlord and Tenant, in
writing, concurrent with or subsequent to the execution of this Lease, including
all utilities (including fiber optic cabling) stubbed to the Building. The Base
Rent specified in this Lease includes Landlord's obligation to complete and
deliver to Tenant the Shell Improvements in accordance with this Lease. The cost
of constructing the Shell Improvements are referred to in this Lease as the
"SHELL IMPROVEMENTS COST." Shell Improvements Cost shall include a developer fee
of $2.00 per square foot, payable to Landlord, or an affiliate (with no direct
obligation to Tenant to pay such fee).
(b) Landlord shall be responsible for constructing, subject to the
provisions of this Section 2.9 and 2.10, the Tenant Improvements (as that term
is defined below). The Tenant Improvements shall consist of (and the term
"TENANT IMPROVEMENTS" shall be used in this Lease to mean) those portions of the
Demised Premises which are not identified in the Preliminary Plans and
Specifications (or ultimately the final Plans and Specifications) as part of the
Shell Improvements, or as otherwise mutually identified by Landlord and Tenant,
in writing, concurrent with or subsequent to the execution of this Lease.
(c) Landlord shall provide an allowance to be applied by Landlord
towards paying the costs of designing and constructing the Tenant Improvements
(the "TENANT IMPROVEMENTS COST"), which shall be comprised of (i) fees and
reimbursables for project programming, design, architecture and engineering,
reimbursables, (ii) One Hundred Forty Six Thousand Dollars ($146,000) in leasing
commissions and (iii) the direct construction cost (excluding any overhead or
profit to Landlord or any affiliate) of the Tenant Improvements paid to the
Contractor (as defined below) or others performing such construction work. The
allowance shall be in the amount of Two Million Three Hundred Seventy Thousand
Dollars ($2,370,000) (the "ALLOWANCE"). The Allowance shall not be used, nor
shall Shell Improvements include, the costs of building signage, security
systems, specialized cabling (except as set forth above) or Tenant's moving
expenses, such items being Tenant's sole financial responsibility; provided,
however, that Tenant may utilize the Allowance to pay for building signage to
the extent there is Allowance remaining available and unused after paying all
other Tenant Improvement Costs.
(d) In the event that the Allowance is insufficient in amount to pay
the Tenant Improvements Costs, Tenant shall pay such excess as Tenant's Share
pursuant to the procedure set forth in Section 2.10 below.
9
<PAGE>
(e) Upon execution of this Lease and again, upon submittal of the
Tenant Improvements Schematic Design Drawings, the Tenant Improvements Design
Development Drawings, and the Tenant Improvements Construction Drawings,
Landlord shall also provide Tenant with an estimate of the Tenant Improvements
Cost. An estimate of the Tenant Improvements Cost which has been prepared based
on the Preliminary Plans and Specifications, is attached to this Lease as
Exhibit "C" (the "TENANT IMPROVEMENTS BUDGET ESTIMATE"). Within fifteen (15)
days prior to the commencement of construction of the Improvements, and no less
than monthly thereafter during the course of construction of the Improvements,
Landlord shall deliver to Tenant a revised Tenant Improvements Budget Estimate,
whether reflecting an increase or a decrease in the Tenant Improvement Costs,
together with an explanation in reasonable detail of the cause of such cost
change and an accounting of actual costs to date ("PERIODIC COST REPORT").
Additionally, prior to any Tenant Change Order being effective, Landlord will
provide Tenant with an estimate of the cost of said Tenant Change Order and
obtain Tenant's prior approval thereof, which Tenant shall grant or withhold
within two (2) business days following receipt of such estimated Tenant Change
Order cost. In addition, Landlord shall deliver a Period Cost Report to Tenant
no later than five (5) business days after Landlord learns of a material change
affecting the Tenant Improvements Budget Estimate. Similarly, Landlord shall
provide Tenant with an estimate of the cost of any Tenant-Caused Delay claimed
by Landlord as soon as reasonably possible after Landlord learns of the Tenant-
Caused Delay.
2.10 Responsibility for Excess Shell Costs and Excess Tenant
-------------------------------------------------------
Improvement Costs.
- ------------------
(a) The Base Rent has been determined based on the assumption (i) that
the Preliminary Plans and Specifications will not be materially altered at
Tenant's request during the preparation of the final Plans and Specifications,
(ii) that the final Plans and Specifications will not be altered as a result of
Tenant Change Orders, and (iii) that no costs will be incurred in connection
with the construction of the Demised Premises resulting from Tenant-Caused
Delays.
(b) Tenant shall be directly responsible, as additional rent, for any
increases in the cost to Landlord of the construction of the Shell Improvements
(including financing costs), (A) subject to section 2.9(e) above, resulting
directly from Tenant Change Orders and which have not been offset by savings
resulting directly from Tenant Change Orders, or (B) subject to section 2.9(e)
above, resulting directly from Tenant-Caused Delays ("EXCESS SHELL COSTS"). Each
Periodic Cost Report and the Final Cost Report (as defined below), shall include
notification of any Excess Shell Costs and shall include reasonably detailed
documentation supporting the determination of such Excess Shell Cost. Tenant
shall pay the Excess Shell Costs to Landlord (i)upon commencement of
construction, if Landlord has notified Tenant of Excess Shell Costs prior
thereto, (ii) if later, within ten (10) business days after notification to
Tenant by Landlord of any Excess Shell Costs in a Periodic Cost Notice, (iii)
within ten (10) business days after the Final Cost Report, if such report
includes Excess Shell Costs which have not been previously paid to Landlord, or
(iv) as otherwise required by Landlord's construction lender.
(c) Tenant shall be responsible, as additional rent, for any Tenant
Improvements Costs to the extent they exceed the Allowance ("EXCESS TENANT
IMPROVEMENTS COSTS"). Tenant shall pay the Excess Tenant Improvements Costs to
Landlord upon the earlier to occur of (i) funding of Landlord's construction
loan or commencement of construction, whichever is later, if the then applicable
Tenant Improvements Budget Estimate reflects that the Allowance will be
insufficient to fully fund the Tenant Improvements Costs anticipated to be
incurred as of that date, provided that date shall not be before December 1,
1996, (ii) within ten (10) business days after notification to Tenant by
Landlord that it has determined, in a periodic review of the Tenant Improvements
Costs during construction of the Tenant Improvements, pursuant to subsection
2.9|e), above, that the Allowance will be insufficient to cover all the Tenant
Improvements Costs anticipated to be incurred, or (iii) within ten (10) business
days after Landlord has notified Tenant that it has made a final determination,
pursuant to subsection (g), below, that the Allowance is insufficient to cover
all the Tenant Improvements Costs which have been incurred, or (iv) as otherwise
required by Landlord's construction lender, but in no event before December 1,
1996.
(d) Landlord shall deposit the funds paid to it by Tenant under
subsections (b) or (c) of this Section 2.10 in its construction loan control
account with the construction Lender (as that term is defined in Section 3.4
hereof) and those funds shall be applied to the cost of construction of the
Shell Improvements and Tenant Improvements as provided under Landlord's
construction loan.
(e) Within ninety (90) days following Substantial Completion of the
Improvements, Landlord shall calculate, and report to Tenant, in writing, (i)
the final Shell Improvements Cost and the final Tenant Improvements Cost, and
(ii) the amount of any Excess Shell Costs or Excess Tenant Improvements Costs
(the "FINAL COST REPORT"). In the event that there is an amount which has not
been paid by Tenant at the time of such final determination (i.e. Excess Shell
Improvements Costs or Excess Tenant Improvements Costs) then Tenant shall pay
such additional amount to Landlord
10
<PAGE>
within ten (10) business days following such final determination.
(f) If the Final Cost Report, shows that the amounts previously paid
by Tenant under subsections (b) and (c) of this Section 2.10 exceeded the final
amount of Excess Shell Improvements Costs or Excess Tenant Improvements Costs,
as the case may be (i.e. Tenant has paid to Landlord more than was ultimately
needed), then such overpayment shall be refunded to Tenant within ten (10)
business days following delivery to Tenant of such Final Cost Report. In any
event, whether additional amounts are owed or a refund is due, within ten (10)
business days following the delivery to Tenant of the Final Cost Report,
Landlord shall pay to Tenant any amount equal to the the product of (i) the
amount paid to Landlord by Tenant under subsections (b)(i) and (c)(i) of this
Section 2.10, (ii) multiplied by five percent (.05), (iii) divided by two (2).
(g) All of the Periodic Cost Reports and the Final Cost Report shall
include reasonably detailed supporting explanations and documentation. Landlord
shall maintain accurate and complete books and records of all Shell Improvement
Costs and Tenant Improvement Costs. Tenant shall have the right to inspect,
audit and copy such books and records at Landlord's office in San Diego,
California.
2.11 Contractor. Reno Contracting, Inc., a California corporation
----------
("Contractor"), shall act as the general contractor for the construction of the
Shell Improvements and the Tenant Improvements. Contractor's contract shall be
on a "cost-plus" basis, with Contractor entitled to (i) reimbursement for direct
insurance expenses and direct "G&A" or "General Conditions" expenses, as
provided in the Estimated Budget and (ii) a profit of no more than five percent
(5%). Landlord shall cause the Contractor to bid each component of the
Improvements to at least three (3) qualified subcontractors and, unless Landlord
and Tenant agree otherwise, shall select the lowest qualified bidder. Tenant
shall have the right to approve the list of subcontractors to be solicited for
bids and to designate subcontractors to participate in the bidding process.
Tenant shall also have the right to select subcontractors to perform components
of the Improvements if Tenant agrees to pay any Excess Shell Costs or Excess
Tenant Improvements Costs attributable to such election, provided such
subcontractor is reasonably acceptable to Landlord and Contractor.
2.12 Tenant's Entry Into the Building Prior to Substantial
-----------------------------------------------------
Completion. Provided that Tenant and its agents, employees and contractors
- ----------
do not materially interfere with the Contractor's work on the Demised Premises
(any such interference constituting a basis for a Tenant-Caused Delay), Landlord
shall allow and shall require the Contractor to allow, Tenant and Tenant's
agents, employees and contractors access to the Building prior to Substantial
Completion of the Improvements so that Tenant may install its furniture, trade
fixtures, data and telecommunications wiring and equipment, photocopy equipment
and other business equipment in the Building. Prior to Tenant's entry into the
Building as permitted by the terms of this Section 2.12, Tenant shall arrange a
schedule with Landlord and the Contractor in order to coordinate the timing of
Tenant's entry with the actions of the Contractor. Prior to any such entry,
Tenant or its agents and contractors (as applicable) shall provide evidence of
insurance reasonably satisfactory to Landlord. Tenant acknowledges that Section
20.3 below shall apply with respect to any and all claims which may arise as a
result of the entry by Tenant, its agents, employees and contractors on the
Demised Premises in accordance with this Section 2.12. Tenant's responsibilities
under Section 7.1 of this Lease shall commence upon such early occupancy as
opposed to the Commencement Date.
ARTICLE III
RENT
3.1 Base Rent. In consideration of the lease of the Demised Premises
---------
evidenced by this Lease, Tenant covenants to pay Landlord, without previous
demand therefor and without any right of set-off or deduction whatsoever except
as expressly provided in this Lease, at the office of Landlord at:
ADI Mesa Partners - AMCC, L.P.
c/o The Allen Group
4365 Executive Drive, Suite 850
San Diego, CA 92121-2130
Attention: Mr. Steven L. Black
or at such other place as Landlord may from time to time designate in writing, a
rental for the Initial Term of this Lease as hereinafter set forth, payable
monthly, in advance, in equal installments as hereinafter set forth, with the
first payment due on the Commencement Date, and continuing on the first day of
each month thereafter for the succeeding months during the balance of the Term
("Base Rent").
11
<PAGE>
<TABLE>
<CAPTION>
Period Annual Base Rent Monthly Base Rent
- ------ ---------------- -----------------
<S> <C> <C>
Months 1-36 $847,858 $70,655
Months 37-72 $889,358 $74,113
Months 73-108 $931,358 $77,613
Months 109-120 $973,858 $81,155
</TABLE>
In the event the Commencement Date occurs on other than the first
(1st) day of a month, the amount of the first and last monthly payment of Base
Rent shall be apportioned to account for the fact that the last month of the
Initial Term shall be less than a full calendar month.
3.2 Base Rent During Option Term. The Base Rent during the Option
----------------------------
Term ("OPTION TERM BASE RENT") shall be an amount equal to the greater of (i)
ninety five percent (95%) of the then fair market rental value of the Demised
Premises ("FAIR MARKET RENTAL VALUE"), as stated on a monthly basis and
determined pursuant to this Section 3.2, or (ii) the Base Rent during the last
month of the Initial Term, multiplied by 1.05. The Option Term Base Rent shall
be increased to an amount equal to 1.04 times the then applicable Option Term
Base Rent, as may have been previously adjusted pursuant to this Section 3.2,
every twenty-four (24) months during the Option Term. Upon receipt by Landlord
of Tenant's Extension Notice under Section 1.2, above, Landlord and Tenant shall
meet in an effort to negotiate, in good faith, the Option Term Base Rent which
shall become effective as of the first day of the Option Term ("OPTION TERM
COMMENCEMENT DATE"). If Landlord and Tenant have not agreed upon the Option Term
Base Rent within thirty (30) days after the delivery of Tenant's Extension
Notice, the Option Term Base Rent shall be determined as follows:
(a) Landlord and Tenant shall attempt to agree in good faith upon a
single appraiser not later than thirty-five (35) days after delivery of Tenant's
Extension Notice. If Landlord and Tenant are unable to agree upon a single
appraiser within such time period, then Landlord and Tenant shall each appoint
one appraiser not later than five (5) days after the deadline for selecting a
single appraiser. Landlord and Tenant shall each give written notice to the
other as to the name of the appraiser it has selected, as soon as the selection
is made. Within ten (10) days thereafter, the two appointed appraisers shall
appoint a third appraiser. All appraisers shall be independent from, and
disinterested in, both Landlord and Tenant.
(b) The only task which the appraiser(s) shall perform shall be
forming and reporting to Landlord and Tenant an opinion of the Fair Market
Rental Value of the Demised Premises for use in determining the Option Term Base
Rent.
(c) If either Landlord or Tenant fails to appoint its appraiser within
the prescribed time period, the single appraiser appointed shall determine the
Fair Market Rental Value of the Demised Premises. If both parties fail to
appoint appraisers within the prescribed time periods, then the first appraiser
thereafter selected by a party shall determine the Fair Market Rental Value of
the Demised Premises.
(d) Each party shall bear the cost of its own appraiser and the
parties shall share equally the cost of any single or third appraiser, if
applicable. All appraisers so designated herein shall have at least five (5)
years' experience in the appraisal of commercial properties similar to the
Demised Premises in San Diego County, California and shall be members of
professional organizations such as MAI or its equivalent.
(e) For the purpose of such appraisal and this subsection (d), the
term "Fair Market Rental Value" shall mean the price that a ready and willing
single tenant would pay, as of the Option Term Commencement Date, as annual rent
to a ready and willing landlord of a property comparable to the Demised Premises
on the terms of this Lease, if such property were exposed for lease on the open
market for a reasonable period of time. A "COMPARABLE PROPERTY" shall mean a
headquarters, assembly and research and development facility located in the
northern portion of the City of San Diego, California (the "MARKET AREA"), with
improvements similar in age and character to the Demised Premises, which has
been improved with the tenant improvements comparable to those constructed in
the Demised Premises; provided, however, that the appraisal shall disregard the
value of the equipment which Tenant is entitled to remove at the expiration or
termination of the Term of this Lease. The appraiser shall give appropriate
consideration to all relevant factors, including, without limitation, (i)the
fact that this Lease is a "triple net" lease, (ii)rental concessions and tenant
improvement allowances generally being offered by landlords of comparable
properties, (iii) the age of the Improvements, (iv) the condition of the Demised
Premises on the assumption that Tenant has complied with its obligations to
maintain and repair the Demised Premises, (v)rental market conditions then in
existence, (vi) whether Landlord will or will not be required to pay a real
estate brokerage commission in connection with Tenant's exercise of the
Extension Option, and (vii) the fact that the Tenant will be accepting the
Demised Premises in an "As-Is" condition.
12
<PAGE>
(f) If a single appraiser is chosen, then such appraiser shall
determine the Fair Market Rental Value of the Demised Premises. Otherwise, the
Fair Market Rental Value of the Demised Premises shall be the arithmetic average
of the two (2) appraisals which are closest in amount, and the third appraisal
shall be disregarded.
(g) Landlord and Tenant shall instruct the appraiser(s), in writing,
to complete their written determination of the Fair Market Rental Value not
later than thirty (30) days after their selection. If the Fair Market Rental
Value has not been determined by such date, then the Fair Market Rental Value
shall be determined thereafter, and if it has not been determined by the Option
Term Commencement Date, then Tenant shall continue to pay Landlord monthly
installments of Annual Rent in the amount applicable to the Demised Premises
immediately prior to the Option Term Commencement Date until the Fair Market
Rental Value is determined. When the Fair Market Rental Value of the Demised
Premises is determined, Landlord shall deliver notice thereof to Tenant, and
Tenant shall pay to Landlord, within ten (10) days after receipt of such notice,
the difference between the monthly installments of Base Rent actually paid by
Tenant to Landlord subsequent to the Option Term Commencement Date and the new
monthly installments of Base Rent which are determined to have been actually
owing during such period in accordance with this Section 3.2.
(h) On or before the date which is fifteen (15) months prior to the
expiration of the Initial Term or the first Option Term, as the case may be,
Tenant may deliver to Landlord a notice that it intends to exercise an Extension
Option provided in Section 1.2 hereof (a "PRE-EXERCISE NOTICE"). If a Pre-
Exercise Notice is timely delivered by Tenant, the provisions of this Section
3.2 regarding the determination of the Option Term Base Rent shall be
implemented as if Tenant had delivered the Extension Notice pursuant to Section
1.2. If the Option Term Base Rent has not been determined in accordance with
this Section 3.2 on or before the date which is three hundred sixty (360) days
prior to the end of the Initial Term or the first Option Term, as the case may
be, then when it is thereafter determined, Tenant shall have the option, to be
exercised within two (2) business days after notice of such determination is
given to Tenant, of (i) delivering to Landlord a written notice rescinding
Tenant's Pre-Exercise Notice (i.e. electing not to extend the Lease), in which
case the Initial Term or the first Option Term, as the case may be, shall be
extended to the date which is three hundred sixty (360) days after the date such
rescission notice is delivered, or (ii) delivering its Extension Notice, in
which case such Extension Notice shall be deemed timely delivered in accordance
with Section 1.2. If the Option Term Base Rent has been determined in accordance
with this Section 3.2 prior to the date which is three hundred sixty (360) days
prior to the end of the Initial Term or the first Option Term, as the case may
be, then provisions of this subsection (h) shall not apply. If the provisions of
this subsection (h) apply, and Tenant fails to deliver either a rescission
notice or the Extension Notice, Tenant shall be deemed to have rescinded the
Pre-Exercise Notice and not to have timely delivered the Extension Notice.
3.3 Additional Obligations; Additional Rent. The Base Rent shall be
----------------------------------------
absolutely "net" to Landlord so that this Lease shall yield to Landlord the Base
Rent specified in Section 3.1 and that all Impositions, insurance premiums,
utility charges, maintenance, repair and replacement expenses, all expenses
relating to compliance with all present or future applicable governmental laws,
rules and regulations, and all other costs, fees, charges, expenses,
reimbursements and obligations of every kind and nature whatsoever relating to
the Demised Premises which may arise or become due during the term or by reason
of events occurring during the term of this Lease (all such items being
sometimes referred to as "ADDITIONAL OBLIGATIONS") shall be paid or discharged
by Tenant, except to the extent they are expressly the responsibility of
Landlord under this Lease. To the extent the following are the obligations of
Tenant under this Lease, Tenant hereby agrees to indemnify, defend and save
Landlord harmless from and against such Impositions, insurance premiums, utility
charges, maintenance, repair and replacement expenses, all expenses relating to
compliance with all present and future governmental laws, rules and regulations
becoming effective during the Term, and all other costs, fees, charges,
expenses, reimbursements and obligations referred to above. Any amounts referred
to in this Lease as additional rent (including, without limitation, the
Additional Obligations) are referred to collectively as "ADDITIONAL RENT."
3.4 Delinquent Rental Payments. All payments of Base Rent and
---------------------------
Additional Rent shall be payable without previous demand therefor and without
any right of set-off or deduction whatsoever (except as expressly provided in
this Lease), and in case of nonpayment of any item of Additional Rent by Tenant
when the same is due, Landlord shall have, in addition to all its other rights
and remedies, all of the rights and remedies available to Landlord under the
provisions of this Lease or by law in the case of nonpayment of Base Rent. The
performance and observance by Tenant of all the terms, covenants, conditions and
agreements to be performed or observed by Tenant hereunder shall be performed
and observed by Tenant at Tenant's sole cost and expense. Any installment of
Base Rent or Additional Rent or any other charges payable by Tenant under the
provisions hereof which shall not be paid within five (5) days after they are
due shall, (i) be subject to a late charge of five percent (5%) of the amount
due and not timely paid, and (ii) bear interest from the date when such payment
was due at the lesser of (A) the default rate of interest under Landlord's most
senior debt obligation encumbering the Demised Premises, or (B) an annual rate
of eighteen percent (18%) per annum, but in no event in excess of the maximum
lawful rate permitted to be charged by Landlord against Tenant. Said rate of
interest is sometimes hereinafter referred to as the "MAXIMUM RATE OF INTEREST."
Notwithstanding the foregoing provisions of this
13
<PAGE>
Section 3.4, if any mortgagee under any mortgage, beneficiary under any deed of
trust, or ground lessor under any ground lease, which encumbers the Land (a
"LENDER"), imposes fees, charges, penalties or interest on Landlord for late
payments under such instrument which fees, charges, penalties or interest are
less in amount than those described in this Section 3.4, Landlord will not
impose any late payment charge or interest which is greater than the amounts
charged by such Lender.
ARTICLE IV
USE OF DEMISED PREMISES
4.1 Permitted Use. Tenant intends to use the Demised Premises
--------------
primarily as a corporate headquarters, research and development, assembly, light
manufacturing and distribution facility and related lawful purposes, and they
shall be used for no other purpose without first securing the prior written
consent of Landlord, which consent shall not be unreasonably withheld. Tenant
shall not use or occupy the same, or knowingly permit them to be used or
occupied, contrary to any statute, rule, order, ordinance, requirement or
regulation applicable thereto, or in any manner which would violate any
certificate of occupancy affecting the same, or which would make void or
voidable any insurance then in force with respect thereto (provided Tenant has
received a copy of the policy) or which would make it impossible to obtain fire
or other insurance thereon required to be furnished hereunder by Tenant, or
which would cause structural injury to the improvements, or which would
constitute a public or private nuisance or waste, and Tenant agrees that it will
promptly, upon discovery of any such use, take all necessary steps to compel the
discontinuance of such use.
4.2 Preservation of Demised Premises. Tenant shall not use, or permit
---------------------------------
the Demised Premises, or any portion thereof, to be used by Tenant, any third
party or the public in such manner as might reasonably tend to impair Landlord's
title to the Demised Premises, or any portion thereof, or in such manner as
might reasonably make possible a claim or claims of adverse usage or adverse
possession by the public, as such, or third persons, or of implied dedication of
the Demised Premises, or any portion thereof. Nothing contained in this Lease,
and no action or inaction by Landlord, shall be deemed or construed to mean that
Landlord has granted to Tenant any right, power or permission to do any act or
make any agreement that may create, or give rise to or be the foundation for any
right, title, interest, lien, charge or other encumbrance upon the estate of
Landlord in the Demised Premises other than as expressly set forth in this
Lease.
4.3 Hazardous Substances.
---------------------
(a) Subject to Section 4.3(f), Tenant shall at all times and in all
respects comply with all federal, state and local laws, ordinances and
regulations ("HAZARDOUS MATERIALS LAWS") relating to the industrial hygiene,
environmental protection or the use, analysis, generation, manufacture, storage,
presence, disposal or transportation of any oil, flammable explosives, asbestos,
urea formaldehyde, polychlorinated biphenyIs, radioactive materials or waste, or
other hazardous, toxic, contaminated or polluting materials, substances or
wastes, including without limitation any "hazardous substances," "hazardous
wastes," "hazardous materials" or toxic substances" under any such laws,
ordinances or regulations (collectively, "HAZARDOUS MATERIALS") at the Demised
Premises.
(b) Subject to Section 4.3(f), Tenant shall at its own expense procure
(other than a certificate of occupancy), maintain in effect and comply with all
conditions of any and all permits, licenses and other governmental and
regulatory approvals required for Tenant's use of the Demised Premises,
including, without limitation, discharge of (appropriately treated) materials or
waste into or through any sanitary sewer system serving the Demised Premises.
Tenant shall in all respects handle, treat, deal with and manage any and all
Hazardous Materials in, on, under or about the Demised Premises in complete
conformity with all applicable Hazardous Materials Laws and prudent industry
practices regarding the management of such Hazardous Materials. Subject to
Section 4.3[f), all reporting obligations imposed by Hazardous Materials Laws
are solely the responsibility of Tenant. Upon expiration or earlier termination
of this Lease and subject to Section 4.3(f), Tenant shall cause all Hazardous
Waste Materials (as defined in 22 CCR 66261.3) to be removed from the Demised
Premises and transported for use, storage or disposal in accordance with and in
complete compliance with all applicable Hazardous Materials Laws. Tenant shall
not take any remedial action in response to the presence of any Hazardous
Materials in, on, about or under the Demised Premises or in any Improvements
situated on the Land other than in the normal course of Tenant's business
operations as now contemplated in accordance with all Hazardous Materials Laws
or as necessitated by emergency considerations in accordance with all applicable
Hazardous Materials Laws, nor enter into any settlement agreement, consent
decree or other compromise in respect to any claims relating to any Hazardous
Materials in any way connected with the Demised Premises or the Improvements on
the Land without first notifying Landlord of Tenant's intention to do so and
affording Landlord ample opportunity to appear, intervene or otherwise
appropriately assert and protect Landlord's interest with respect thereto. In
addition, at Landlord's request, at
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the expiration of the term of this Lease, Tenant shall remove all tanks or
fixtures which were placed on the Demised Premises during the term of this Lease
and which contain, have contained or are contaminated with Hazardous Waste
Materials.
(c) Tenant shall immediately notify Landlord in writing of (i) any
enforcement, cleanup, removal or other governmental or regulatory action
instituted, completed or threatened pursuant to any Hazardous Materials Laws;
(ii) any claim made or threatened by any person against Landlord or the Demised
Premises relating to damage, contribution, cost recovery, compensation, loss or
injury resulting from or claimed to result from any Hazardous Materials; and
(iii) any non-routine reports made to any environmental agency arising out of or
in connection with any Hazardous Materials in, on or about the Demised Premises
or with respect to any Hazardous Materials removed from the Demised Premises,
including any complaints, notices, warnings, reports or asserted violations in
connection therewith. Tenant shall also provide to Landlord, as promptly as
possible, and in any event within five (5) business days after Tenant first
receives or sends the same, copies of all claims, reports, complaints, notices,
warnings or asserted violations from any governmental agency of any Hazardous
Materials Laws relating in any way to the Demised Premises or Tenant's use
thereof. Upon written request of Landlord (to enable Landlord to defend itself
from any claim or charge related to any Hazardous Materials Laws), Tenant shall
promptly deliver to Landlord notices of hazardous waste manifests reflecting the
legal and proper disposal of all such Hazardous Materials removed from the
Demised Premises. Subject to Section 4.3(f), all such manifests shall list the
Tenant or its agent as a responsible party and in no way shall attribute
responsibility for any such Hazardous Materials to Landlord.
(d) Subject to Section 4.3(f), Tenant shall indemnify, defend (with
counsel reasonably acceptable to Landlord), protect and hold Landlord and each
of Landlord's officers, directors, partners, shareholders, affiliates,
employees, agents, attorneys, successors and assigns free and harmless from and
against any and all claims, liabilities, damages, costs, penalties, forfeitures,
losses or expenses (including attorneys' fees) for death or injury to any person
or damage to any property whatsoever (including water tables and atmosphere) to
the extent arising or resulting in whole or in part, directly or indirectly,
from the presence or discharge of Hazardous Materials in, on, under, upon or
from the Demised Premises or the Improvements located thereon or from the
transportation or disposal of Hazardous Materials to or from the Demised
Premises to the extent brought onto the Demised Premises by Tenant whether
knowingly or unknowingly, the standard herein being one of strict liability. For
purposes of the indemnity provided herein, any act or omission of Tenant or its
agents, employees, contractors or subcontractors (whether or not they are
negligent, intentional, willful or unlawful) shall be strictly attributable to
Tenant. Subject to Section 4.3(f), Tenant's obligations hereunder shall include,
without limitation, and whether foreseeable or unforeseeable, all costs of any
required or necessary repairs, clean-up or detoxification or decontamination of
the Demised Premises or the Improvements, and the presence and implementation of
any closure, remedial action or other required plans in connection therewith,
and shall survive the expiration of or early termination of the term of this
Lease. For purposes of the indemnity provided herein, any acts or omissions of
Tenant or its employees, agents, customers, sublessees, assignees, contractors
or subcontractors (whether or not they are negligent, intentional, willful or
unlawful) shall be strictly attributable to Tenant.
(e) Landlord may, at its expense, commission an environmental audit of
the Demised Premises at any time after prior written notice thereof to Tenant;
provided that such environmental audit does not unreasonably interfere with
Tenant's use of the Demised Premises, or any portion thereof, and provided
further that Landlord indemnifies, defends and holds harmless Tenant and its
officers, agents, employees and customers from and against any loss, liabilities
or damages to Tenant's machinery, equipment, fixtures and personal property, and
all liability, loss or damage arising from an injury to the property of Tenant,
or its officers, agents, employees or customers, and any death or personal
injury to any person or persons to the extent arising out of such environmental
audit except for liability, loss or damage caused by Tenant's gross negligence
or willful misconduct. However, should Tenant breach any of its obligations set
forth in this Section 4.3 in a manner that may expose Landlord to liability, and
Landlord provides written notice to Tenant of the reasonable basis upon which it
believes it has been exposed to liability, then Landlord shall have the right to
require Tenant to undertake and submit to Landlord an environmental audit from
an environmental company reasonably acceptable to Landlord, which audit shall
evidence Tenant's compliance with this Section 4.3.
(f) Landlord represents and warrants that as of the date of this Lease
there are, and as of the Commencement Date there will be, no Hazardous Materials
located on the Demised Premises, other than an as required for the normal
operation of the Demised Premises and in accordance with all Hazardous Materials
Laws. Landlord shall indemnify, defend (with counsel reasonably acceptable to
Tenant), protect and hold Tenant and each of Tenant's officers, directors,
partners, shareholders, affiliates, employees, agents, attorneys, successors and
assigns free and harmless from and against any and all claims, liabilities,
damages, costs, penalties, forfeitures, losses or expenses (including attorneys'
fees) for death or injury to any person or damage to any property whatsoever
(including water tables and atmosphere) arising or resulting in whole or in
part, directly or indirectly, from the presence of Hazardous Materials in, on,
under, upon
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or from the Demised Premises or the Improvements located thereon prior to the
Commencement Date, or from the transportation or disposal of Hazardous Materials
to or from the Demised Premises to the extent caused by Landlord whether
knowingly or unknowingly, the standard being one of strict liability.
For purposes of the indemnity provided herein, any act or omission of
Landlord or its agents, employees, contractors or subcontractors (whether or not
they are negligent, intentional, willful or unlawful) shall be strictly
attributable to Landlord. Subject to Section 4.3(f), Landlord's obligations
hereunder shall include, without limitation, and whether foreseeable or
unforeseeable, all costs of any required or necessary repairs, clean-up or
detoxification or decontamination of the Demised Premises or the Improvements,
and the presence and implementation of any closure, remedial action or other
required plans in connection therewith, and shall survive the expiration of or
early termination of the term of this Lease.
(g) The obligations of Landlord and Tenant under this Section 4.3
shall survive the expiration or earlier termination of this Lease.
ARTICLE V
PAYMENT OF TAXES, ASSESSMENTS, ETC.
5.1 Payment of Impositions.
-----------------------
(a) Except as provided to the contrary in this Section 5.1 below,
Tenant covenants and agrees to pay during the Term of this Lease, as Additional
Rent, and before any fine, penalty, interest or cost may be added thereto for
the nonpayment thereof, all real estate taxes, regular or special assessments,
water rates and charges, sewer rates and charges, including any sum or sums
payable for present or future sewer or water capacity, (except as set forth in
Section 2.6 above) charges for public utilities, street lighting, excise levies,
licenses, permits, inspection fees, other governmental charges and all other
charges or burdens of whatsoever kind and nature (including costs, fees and
expenses of complying with any restrictive covenants to which the Land is
subject as of the date of this Lease or similar agreements to which the Demised
Premises are subject, incurred in the use, occupancy, ownership, operation,
leasing or possession of the Demised Premises), without particularizing by any
known name or by whatever name hereafter called, and whether any of the
foregoing be general or special, ordinary or extraordinary, foreseen or
unforeseen (all of which are sometimes herein referred to as "IMPOSITIONS"),
which at any time during the Term may have been or may be assessed or levied on
the Demised Premises or any portion thereof or any appurtenance thereto, rents
or income therefrom, and such easements or rights as may now or hereafter be
appurtenant or appertain to the use of the Demised Premises. Tenant shall pay
the current portions of all special (or similar) assessments which during the
Term of this Lease shall be laid, assessed, levied or imposed upon or become
payable or become a lien upon the Demised Premises or any portion thereof;
provided, however, that if by law any special assessment is payable (without
default) or, at the option of the owner, may be paid (without default) in
installments (whether or not interest shall accrue on the unpaid balance of such
special assessment), Tenant may (and shall only be obligated to) pay the same,
in installments as the same respectively become payable and before any fine,
penalty, interest or cost may be added thereto for the nonpayment of any such
installment and the interest thereon. Notwithstanding the generality of the
foregoing, Tenant shall not be responsible (and Landlord shall pay prior to
delinquency) for Impositions charged by any association which includes the Land
to the extent the amount of the Impositions therefrom exceeds the amount which
Tenant would have incurred had Tenant performed the work and provided the
services performed or provided by the association.
(b) Notwithstanding the foregoing provisions of Section 5.1 (a),
Tenant shall not be responsible for (and Landlord shall pay prior to
delinquency) any increase in ad valorem property taxes or other taxes which
might result from the sale or other transfer (deemed a change of ownership for
California tax purposes) of the Demised Premises during the Term of the Lease to
the extent such increase results from the fact that the assessed value of the
Demised Premises exceeds the total cost (including the direct and indirect costs
(including the costs of permits, fees and professional services) of the Land,
Shell Improvements and Tenant Improvements) of the Demised Premises. Payment of
any taxes, assessments or similar charges which are directly related to the
acquisition of the Land or the construction of the Improvements or Demised
Premises will be Landlord's financial responsibility.
(c) Landlord shall pay all installments of special assessments
(including interest accrued on the unpaid balance) which are payable for periods
prior to the Commencement Date and after the termination date of the Term of
this Lease. Landlord will deliver to Tenant the tax bills at least thirty (30)
days prior to any delinquency date. Tenant shall pay all real estate taxes,
whether heretofore or hereafter levied or assessed upon the Demised Premises or
any portion
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thereof, which are due and payable for periods during the Term of this Lease.
Landlord shall pay all real estate taxes which are payable for periods prior to
the Commencement Date and after the termination date of the Term of this Lease.
Provisions herein to the contrary notwithstanding, Landlord shall pay that
portion of the real estate taxes and installments of special assessments due and
payable in respect to the Demised Premises during the year in which the Initial
Term commences and the year in which the Term ends which the number of days in
said year not within the Term of this Lease bears to 365, and Tenant shall pay
the balance of said current real estate taxes and current installments of
special assessments during said years.
5.2 Tenant's Right to Contest Impositions. Tenant shall have the right
--------------------------------------
at its own expense to contest the amount or validity, in whole or in part, of
any Imposition by appropriate proceedings diligently conducted in good faith;
provided, however, if the payment of such Imposition is necessary to properly
appeal such Imposition, Tenant shall pay such imposition before delinquency;
and, provided further, if there is then an uncured Event of Default hereunder,
Tenant shall have first deposited with Landlord cash or a certificate of deposit
payable to Landlord issued by a national bank or federal savings and loan
association in the amount of the Imposition so contested and unpaid, together
with all interest and penalties which may accrue in Landlord's reasonable
judgment in connection therewith, and all charges that may or might be assessed
against or become a charge on the Demised Premises or any portion thereof during
the pendency of such proceedings. If there is then in an uncured Event of
Default hereunder and if during the continuance of such proceedings, Landlord
shall, from time to time, reasonably deem the amount deposited, as aforesaid,
insufficient, Tenant shall, upon demand of Landlord, make additional deposits of
such additional sums of money or such additional certificates of deposit as
Landlord may reasonably request. If Tenant is required to make such additional
deposits hereunder and Tenant fails to make same, the amount theretofore
deposited may be applied by Landlord to the payment, removal and discharge of
such Imposition, and the interest, fines and penalties in connection therewith,
and any costs, fees (including attorneys' fees) and other liability (including
costs incurred by Landlord) accruing in any such proceedings. Upon the
termination of any such proceedings, Tenant shall pay the amount of such
Imposition or part thereof, if any, as finally determined in such proceedings,
the payment of which may have been deferred during the prosecution of such
proceedings, together with any costs, fees, including attorneys' fees, interest,
penalties, fines and other liability in connection therewith, and upon such
payment, if Landlord had previously received any amounts or certificates as a
deposit, Landlord shall return all amounts or certificates deposited with it
with respect to the contest of such Imposition, as aforesaid, or, at the written
direction of Tenant, Landlord shall make such payment out of the funds on
deposit with Landlord and the balance, if any, shall be returned to Tenant.
Tenant shall be entitled to the refund of any Imposition, penalty, fine and
interest thereon received by Landlord which has been paid by Tenant or which has
been paid by Landlord but for which Landlord has been previously reimbursed in
full by Tenant. Landlord shall not be required to join in any proceedings
referred to in this Section 5.2 unless the provisions of any law, rule or
regulation at the time in effect shall require that such proceedings be brought
by or in the name of Landlord, in which event Landlord shall join in such
proceedings or permit the same to be brought in Landlord's name upon compliance
with such conditions as Landlord may reasonably require. Landlord shall not
ultimately be subject to any liability for the payment of any fees, including
attorneys' fees, costs and expenses in connection with such proceedings. Tenant
agrees to pay all such fees (including reasonable attorneys' fees), costs and
expenses or, on demand, to make reimbursement to Landlord for such payment for
fees reasonably incurred by Landlord in connection with such proceedings as
provided above. During the time when any such certificate of deposit is on
deposit with Landlord, and prior to the time when the same is returned to Tenant
or applied against the payment, removal or discharge of Impositions, as above
provided, Tenant shall be entitled to receive all interest paid thereon. Cash
deposits shall not bear interest.
5.3 Levies and Other Taxes. If, at any time during the Term of this
-----------------------
Lease, any method of taxation shall be such that there shall be levied, assessed
or imposed on Landlord, or on the Base Rent or Additional Rent, or on the
Demised Premises, or any portion thereof, a capital levy, gross receipts tax,
transaction privilege tax or other tax on the rents received therefrom or a
franchise tax, or an assessment, levy or charge measured by or based in whole or
in part upon such rents, Tenant covenants to pay and discharge the same, it
being the intention of the parties hereto that the rent to be paid hereunder,
shall be paid to Landlord absolutely net, without deduction or charge of any
nature whatsoever, foreseeable or unforeseeable, ordinary or extraordinary, or
of any nature, kind or description, except as in this Lease otherwise expressly
provided. Nothing in this Lease contained shall require Tenant to pay any
municipal, state or federal net income, franchise, or excess profits taxes
assessed against Landlord, or any municipal, state or federal capital levy,
estate, succession, inheritance or transfer taxes of Landlord, or corporation
franchise taxes imposed upon any corporate owner of the fee of the Demised
Premises nor shall anything in this Lease require Tenant to pay any income tax
of Landlord or any tax in the nature of income and/or franchise tax or in Iieu
of income tax.
5.4 Evidence of Payment. Tenant covenants to furnish Landlord, within
--------------------
thirty (30) days after Landlord requests the same, official receipts of the
appropriate taxing authority, or other appropriate proof reasonably satisfactory
to Landlord, evidencing the payment of the same. The certificate, advice or bill
of the appropriate official designated by law to make or issue the same or to
receive payment of any Imposition or other tax, assessment, levy or charge may
be relied upon by Landlord as sufficient evidence that such Imposition or other
tax, assessment, levy or charge is due and unpaid at
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the time of the making or issuance of such certificate, advice or bill.
5.5 Escrow for Taxes and Assessments. At Landlord's written demand
---------------------------------
after any Event of Default (as hereinafter defined) and for as long as such
Event of Default is uncured, Tenant shall pay to Landlord the known or estimated
yearly real estate taxes and assessments payable with respect to the Demised
Premises in monthly payments equal to one-twelfth (1/12) of the known or
estimated yearly real estate taxes and assessments next payable with respect to
the Demised Premises. From time to time, Landlord may re-estimate the amount of
real estate taxes and assessments, and in such event Landlord shall notify
Tenant, in writing, of such re-estimate and fix future monthly installments for
the remaining period prior to the next tax and assessment due date in an amount
sufficient to pay the re-estimated amount over the balance of such period after
giving credit for payments made by Tenant on the previous estimate. If the total
monthly payments made by Tenant pursuant to this Section 5.5 shall exceed the
amount of payments necessary for said taxes and assessments, such excess shall
be credited on subsequent monthly payments of the same nature; but if the total
of such monthly payments so made under this paragraph shall be insufficient to
pay such taxes and assessments when due, then Tenant shall pay to Landlord such
amount as may be necessary to make up the deficiency. Payment by Tenant of real
estate taxes and assessments under this Section 5.5 shall be considered as
performance of such obligation under the provisions of Section 5.1 hereof.
5.6 Landlord's Right to Contest Impositions. In addition to the right
----------------------------------------
of Tenant under Section (S).2 to contest the amount or validity of Impositions,
Landlord shall also have the right, but not the obligation, to contest the
amount or validity, in whole or in part, of any Impositions not contested by
Tenant, by appropriate proceedings conducted in the name of Landlord or in the
name of Landlord and Tenant. If Landlord elects to contest the amount or
validity, in whole or in part, of any Impositions, such contests by Landlord
shall be at Landlord's expense; provided, however, that if the amounts payable
by Tenant for Impositions are reduced (or if a proposed increase in such amounts
is avoided or reduced) by reason of Landlord's contest of Impositions, Tenant
shall reimburse Landlord for the costs reasonably incurred by Landlord in
contesting such Impositions, but such reimbursements shall not be in excess of
the amount saved by Tenant.
ARTICLE VI
INSURANCE
6.1 Casualty Insurance. Tenant, at its sole cost and expense, shall
-------------------
obtain and continuously maintain in full force and effect during the Term of
this Lease, commencing with the Commencement Date (subject to the provisions of
Section 2.12), policies of insurance covering the Building constructed,
installed or located on the Demised Premises naming the Landlord as an
additional insured, against (a) loss or damage by fire; (b) loss or damage from
such other risks or hazards now or hereafter embraced by an "Extended Coverage
Endorsement," including, but not limited to, windstorm, hail, explosion,
vandalism, riot and civil commotion, damage from vehicles, smoke damage, water
damage and debris removal; (c)loss for flood if the Demised Premises are in a
designated flood or flood insurance area and if such coverage is required by
Landlord's lender, (d) loss or damage caused by earthquake (but only if required
by a Lender) subject to standard deductibles (provided, however, that (i) Tenant
shall not be required to maintain earthquake insurance if it is not reasonably
obtainable and (ii) Tenant's financial responsibility for the premium associated
with earthquake insurance shall not exceed $50,000 per year during the Initial
Term or any Option Term); and (e) loss or damage from such other risks or
hazards of a similar or dissimilar nature which are now or may hereafter be
customarily insured against with respect to improvements similar in
construction, design, general location, use and occupancy to the Improvements.
If the premium associated with earthquake insurance exceeds $50,000.00 per year,
Landlord shall have the option to either pay the excess premium over and above
such $50,000.00 amount or delete the requirement that Tenant obtain earthquake
coverage. At all times, such insurance coverage shall be in an amount equal to
one hundred percent (100%) of the then "Full Replacement Cost" of the
Improvements. "FULL REPLACEMENT COST" shall be interpreted to mean the cost of
replacing the Improvements, without deduction for depreciation or wear and tear,
including costs attributable to improvements or upgrades in the Improvements
required by changes in laws and regulations governing zoning, public access and
accommodation, workplace conditions, public health or safety or similar matter,
and it shall include to the extent reasonably obtainable a reasonable sum for
architectural, engineering, legal, administrative and supervisory fees connected
with the restoration or replacement of the Improvements in the event of damage
thereto or destruction thereof. If a sprinkler system shall be located in the
Improvements, sprinkler leakage insurance shall be procured and continuously
maintained by Tenant at Tenant's sole cost and expense. Any deductible, self-
insured retention or similar limitation on coverage shall be submitted to
Landlord for its prior written approval, which shall be granted or withheld in
Landlord's reasonable discretion.
6.2 Public Liability Insurance. From and after the Commencement Date,
---------------------------
Tenant, at its sole cost and
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expense, shall obtain and continuously maintain in full force and effect
comprehensive general liability insurance against any loss, liability or damage
on, about or relating to the Demised Premises, or any portion thereof, with
limits of not less than One Million Dollars ($1,000,000), with "umbrella" or
excess liability coverage of not less than Four Million Dollars ($4,000,000)
coverage on an occurrence basis. Any such insurance obtained and maintained by
Tenant shall name Landlord as an additional insured therein or shall include a
"loss payee" endorsement in favor of Landlord, and shall be obtained and
maintained from and with a reputable and financially sound insurance company
authorized to issue such insurance in the state in which the Demised Premises
are located. Such insurance shall to the extent reasonably obtainable
specifically insure (by contractual liability endorsement) Tenant's obligations
under Section 20.3 of this Lease.
6.3 Other Insurance.
----------------
(a) During the Term of this Lease, commencing with the Commencement
Date, Tenant, at its sole cost and expense, shall obtain and continuously
maintain in full force and effect boiler and pressure vessel (including, but not
limited to, pressure pipes, steam pipes and condensation return pipes)
insurance, provided the Building contains a boiler or other pressure vessel or
pressure pipes. Landlord shall be named as an additional insured or loss payee
in such policy or policies of insurance.
(b) During the Term of this Lease commencing with the Commencement
Date, Tenant, at its sole cost and expense, shall obtain and continuously
maintain, in full force and effect, loss of use and business interruption
coverage for the payment for no less than one (1) year of (i) the Base Rent and
(ii) those Impositions which will continue to be payable even during a period
when the Demised Premises are not operational.
(c) During the Term of this Lease, Tenant, at its sole cost and
expense, shall obtain and continuously maintain in full force and effect such
other insurance in such amounts against other insurable hazards which at the
time are commonly insured against in the case of premises and/or buildings or
improvements similar in construction, design, general location, use and
occupancy to the Demised Premises if required by Landlord's construction or
permanent lenders; provided, however, that this Section 6.3(c) is not intended
to, and shall not, supersede the cap on Tenant's financial responsibility for
earthquake insurance premiums specified in Section 6.1(d)(ii), above.
6.4 Certain Insurance Provisions. All policies of insurance required
-----------------------------
by Section 6.1 shall contain deductibles which are no higher than those which
are customarily maintained for casualty and liability insurance in connection
with facilities similar to the Demised Premises and provide that the proceeds
thereof shall be payable to Landlord and if Landlord so requests shall also be
payable to any contract purchaser of the Demised Premises and the holder of any
mortgages now or hereafter becoming a lien on the fee of the Demised Premises,
or any portion thereof, as the interest of such purchase or holder appears
pursuant to a standard named insured or mortgagee clause or as an additional
insured. Tenant shall not, on Tenant's own initiative or pursuant to request or
requirement of any third party, take out separate insurance concurrent in form
or contributing in the event of loss with that required in Section 6.1 hereof,
unless Landlord is named therein as an additional insured with loss payable as
provided in Section 6.1. Tenant shall immediately notify Landlord whenever any
such separate insurance is taken out and shall deliver to Landlord original
certificates evidencing the same.
Each policy required under this Article VI shall have attached thereto
(a) an endorsement that such policy shall not be cancelled and that the coverage
under such policy will not be materially changed without at least thirty (30)
days prior written notice to Landlord, and (b) to the extent reasonably
obtainable an endorsement to the effect that the insurance as to the interest of
Landlord shall not be invalidated by any act or neglect of Landlord or Tenant.
All policies of insurance shall be written with companies reasonably
satisfactory to Landlord and licensed in the state in which the Demised Premises
are located. Such certificates of insurance shall be in a form reasonably
acceptable to Landlord and shall be delivered to Landlord upon the Commencement
Date and, prior to expiration of such policy, new certificates of insurance
shall be delivered to Landlord not less than twenty (20) days prior to the
expiration of the then current policy term.
Insurance required hereunder shall be obtained from companies duly
licensed to transact business in the state of California, and maintaining during
the policy term a "General Policyholders Rating" of at least "A-" and financial
category rating of "Class VII" in "Best's Insurance Guide."
6.5 Waiver of Subrogation. Landlord and Tenant hereby mutually waive
----------------------
any and all rights of recovery against one another for real or personal property
loss or damage occurring to the Demised Premises, or any part thereof, or any
personal property therein from perils insured against under the insurance
maintained hereunder for the benefit of the respective parties, and to the
extent the proceeds of such insurance are actually recovered, and each shall use
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commercially reasonable efforts to assure that such insurance permits waiver of
liability and contains a waiver of subrogation.
6.6 Tenant's Indemnification of Landlord. Tenant may maintain
-------------------------------------
insurance coverage upon all personal property of Tenant or the personal property
of others kept, stored or maintained on the Demised Premises against loss or
damage by fire, windstorm or other casualties or causes for such amount as
Tenant may desire. To the extent Tenant maintains such insurance, Tenant agrees
that such policies shall, to the extent obtainable, name Landlord as an
"additional insured" and contain a waiver of subrogation clause as to Landlord.
6.7 Unearned Premiums. Upon expiration or other termination of the
------------------
Term of this Lease, the unearned premiums upon any insurance policies or
certificates thereof lodged with Landlord by Tenant shall, subject to the
provisions of Article XIII hereof, be payable to Tenant, provided that an Event
of Default does not then exist (or if an Event of Default does then exist, any
excess over the amount required to cure such default shall be so payable to
Tenant).
6.8 Blanket Insurance Coverage. Nothing in this Article VI shall
---------------------------
prevent Tenant from taking out insurance of the kind and in the amount provided
for under the preceding paragraphs of this Article VI under a blanket insurance
policy or policies (and certificates thereof reasonably satisfactory to Landlord
shall be delivered to Landlord) which may cover other properties owned, leased
or operated by Tenant as well as the Demised Premises; provided, however, that
any such policy of blanket insurance of the kind provided for shall (a) specify
therein the amounts thereof exclusively allocated to the Demised Premises (or
Tenant shall furnish Landlord and the holder of any fee mortgage with a written
statement from the insurers under such policies specifying the amounts of the
total insurance exclusively allocated to the Demised Premises), and (b) not
contain any clause which would result in the insured thereunder being required
to carry any insurance with respect to the property covered thereby in an amount
not less than any specific percentage of the Full Replacement Cost of such
property in order to prevent the insured therein named from becoming a co-
insurer of any loss with the insurer under such policy; and further provided,
however, that such policies of blanket insurance shall, as respects the Demised
Premises, contain the various provisions required of such an insurance policy by
the foregoing provisions of this Article VI.
6.9 Landlord's Liability Insurance Coverage. Landlord, at its sole
----------------------------------------
cost and expense, shall obtain and continuously maintain in full force and
effect during the Term of this Lease, commencing with the Commencement Date,
comprehensive general liability insurance in such amounts as it shall deem
reasonably appropriate.
ARTICLE VII
UTILITIES
7.1 Payment of Utilities. During the Term of this Lease, Tenant shall
---------------------
pay, when due, all charges of every nature, kind or description for utilities
furnished to the Demised Premises or chargeable against the Demised Premises,
including all charges for water, sewage, heat, gas, light, garbage, electricity,
telephone, steam, power, or other public or private utility services.
7.2 Additional Charges. In the event that any charge or fee is
-------------------
required after the Commencement Date by the state in which the Demised Premises
are located, or by any agency, subdivision or instrumentality thereof, or by any
utility company furnishing services or utilities to the Demised Premises, as a
condition precedent to furnishing or continuing to furnish utilities or services
to the Demised Premises, such charge or fee shall be deemed to be a utility
charge payable by Tenant. The provisions of this Section 7.2 shall include, but
not be limited to, any charges or fees for future water or sewer capacity to
serve the Demised Premises, any charges for the underground installation of gas
or other utilities or services subsequent to the installation thereof, and other
charges relating to the extension of or change in the facilities necessary to
provide the Demised Premises with adequate utility services. In the event that
Landlord has paid any such charge or fee after the Commencement Date, Tenant
shall reimburse Landlord for such utility charge.
7.3 Landlord's Responsibility for Utility Hook-Up Charges and Fees.
---------------------------------------------------------------
Notwithstanding anything contained in this Article VII to the contrary, (a) as
of the Commencement Date, all utilities contemplated by the Improvements shall
be hooked-up and fully operational and functional to the Demised Premises and
all capacity, hookup and similar charges (except to the extent they constitute
Excess Shell Costs or Excess Tenant Improvement Costs) shall have been paid by
Landlord; and (b) if any utility or service charge or fee related to capital
improvements made during the Term of this Lease, whose tax depreciable life
extends beyond the termination date of this Lease, Tenant shall only pay the pro
rata portion of
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such charge or fee to the extent that such tax depreciable life is within the
Term of this Lease.
ARTICLE VIII
REPAIRS AND MAINTENANCE OF DEMISED PREMISES
8.1 Tenant's Responsibilities. Except to the extent specifically
--------------------------
identified as Landlord's responsibility in Section 8.2, below, Tenant shall, at
its own expense, keep the Demised Premises, and every part thereof, including,
but not by way of limitation, the grounds, landscaped areas, truck parking and
loading and dock areas, the roof surface and roof membrane (but only as to
routine and ongoing maintenance), drainage swales, gutters, downspouts, glass,
interior and exterior portions of the Building, and the plumbing, heating, air-
conditioning, wiring, elevators and other mechanical systems therein, the
facilities thereof and all sidewalks, parking areas, driveways, passageways and
alleys adjacent thereto and other appurtenances thereunto belonging, in good
order, appearance, condition and repair (reasonable wear and tear excepted),
free of obstructions, dirt, and rubbish, and so as to comply fully and at all
times with all present and future applicable governmental laws, rules and
regulations, consistent with other comparable business and industrial parks in
the Market Area. Tenant agrees to make all replacements and repairs to the
Demised Premises necessary to maintain the Demised Premises in the condition
described in the preceding sentence. Tenant, at its own expense, shall also seal
(paint) the exterior of the Building periodically during the Term (including any
Option Term) of this Lease in accordance with the recommendations of the
manufacturer of the material used for the exterior of said Building, Tenant
shall maintain regular service contracts for all of the Demised Premises' (i)
HVAC system, and (ii) elevator(s), and shall, upon Landlord's request, provide
Landlord copies of such contracts or any other maintenance or service contracts
maintained by Tenant with respect to the Demised Premises. Any such contract
shall be terminable by Tenant (or its successors, including Landlord or a
Lender) on not less than thirty (30) days notice to the contractor or shall
provide that it does not bind a Lender. All repairs, replacements and renewals
shall be at least equal in quality and class to the original work. Because
Tenant is undertaking the responsibility for most aspects of the ongoing
maintenance of the Demised Premises, Tenant waives the provisions of California
Civil Code Sections 1 941 and 1942 with respect to Landlord's obligations for
tenantability of the Demised Premises and Tenant's right to make repairs and
deduct the expenses of such repairs from Rent. When used in this Article VIII,
"repairs" shall include all necessary replacements, renewals, alterations,
additions and betterments.
8.2 Landlord's Responsibilities. Landlord shall, at its own expense,
----------------------------
repair any failure in the structural elements of the roof, all exterior and
load-bearing walls (except for painting of the exterior walls, which shall be
Tenant's responsibility), the Building foundation and for keeping all
underground utilities in good order, condition and repair. In addition, Landlord
shall be responsible, at Landlord's sole cost and expense, for the prompt and
diligent repair of any latent defects in design and construction of the Demised
Premises which manifest themselves during the Term, including, but not limited
to, latent defects in the design and/or construction of the drainage system
constructed on the Demised Premises as part of the Improvements. Landlord shall
not charge Tenant for any property management fees during the Term of the Lease.
8.3 Sharing of Expenses of Capital Items. Certain items of repair and
-------------------------------------
maintenance which are Tenant's responsibility under Section 8.1, may, under
generally acceptable accounting principles consistently applied, be considered
to have a reasonable useful life which would extend beyond the end of the Term
(a "CAPITAL ITEM"). Landlord and Tenant shall share the expenses associated with
such Capital Items, as follows:
(a) Tenant shall pay all expenses related to Capital Items.
(b) At any time Tenant intends to incur an expense related to a
Capital Item, Tenant shall notify Landlord, in writing, and Landlord shall
approve or disapprove such expenditure, which approval shall not be unreasonably
withheld or delayed. Landlord shall not be required to approve any expenditure
which is not required for the maintenance and operation of the Demised Premises.
(c) At that time, Landlord and Tenant shall also agree on the "useful"
life of the Capital Item and, shall determine a level per-year useful life
allocation (the "Useful Life Allocation") of financial responsibility for that
Capital Item. By way of example only, financial responsibility for a Capital
Item which requires the expenditure of $50,000 and which has a five-year
"useful" life would be assigned a $10,000 per year Useful Life Allocation.
(d) The Useful Life Allocation shall be applied to the item of expense
related to the Capital Item, until the full amount of such expense has been
amortized, although Tenant shall have the responsibility for paying all expenses
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related to Capital Items when incurred.
(e) If, at the end of the Term of Lease, including any Option Term,
there remains any unamortized Useful Life Allocation(s), Landlord shall, within
thirty (30) days after the end of the Term, refund to Tenant, such unamortized
Useful Life Allocations, in cash.
8.4 Tenant's Waiver of Claims Against Landlord. Except as provided in
-------------------------------------------
Article II, Section 8.2 and Article XIII of this Lease, or as expressly provided
under any other provision hereof, Landlord shall not be required to furnish any
services or facilities or to make any repairs or alterations in, about or to the
Demised Premises or any improvements hereafter erected thereon. Subject to the
requirements of Article II, Section 8.2 and Article XIII of this Lease, or as
expressly provided under any other provision hereof, Tenant hereby assumes the
full and sole responsibility for the condition, operation, repair, replacement,
maintenance and management of the Demised Premises and all improvements
hereafter erected thereon, and Tenant hereby waives any rights created by any
law now or hereafter in force to make repairs to the Demised Premises or
improvements hereafter erected thereon at Landlord's expense.
8.5 Prohibition Against Waste. Tenant shall not do or suffer any
--------------------------
waste, damage, disfigurement or injury to the Demised Premises, or any
improvements hereafter erected thereon, or to the fixtures or equipment therein,
or permit or suffer any overloading of the floors or other use of the
Improvements that would place an undue stress on the same or any portion thereof
beyond that for which the same was designed.
ARTICLE IX
COMPLIANCE WITH APPLICABLE LAWS AND RESTRICTIONS
9.1 Compliance with Applicable Laws and Restrictions. Subject to
-------------------------------------------------
Landlord's obligations under Article II, Section 8.2 and Article XlII of this
Lease, or as expressly provided under any other provision hereof, throughout the
Term of this Lease, and at Tenant's sole cost and expense (except as provided in
Sections 2.8 and 8.3 above), Tenant shall promptly comply or cause compliance
with or remove or cure any violation caused by Tenant of any and all present and
future laws, rules and regulations applicable to the Demised Premises
(including, without limitation, those reflected on the Preliminary Title Report
prepared by First American Title Company, dated October 9, 1996), and the
appropriate departments, commissions, boards, associations and officers
enforcing them, and the orders, rules and regulations of the Board of Fire
Underwriters where the Demised Premises are situated, or any other governmental
body now or hereafter constituted exercising lawful or valid authority over the
Demised Premises, or any portion thereof, or exercising authority with respect
to the use or manner of use of the Demised Premises, whether or not the
compliance, curing or removal of any such violation and the costs and expenses
necessitated thereby shall have been foreseen or unforeseen, ordinary or
extraordinary, and whether or not the same shall be presently within the
contemplation of Landlord or Tenant or shall involve any change of governmental
policy or require structural or extraordinary repairs, alterations or additions
by Tenant and irrespective of the costs thereof. Tenant shall also comply with,
observe and perform all provisions and requirements of all policies of insurance
at any time in force with respect to the Demised Premises and required to be
obtained and maintained under the terms of Article VI hereof, and Tenant shall
comply with all development permits issued by governmental authorities issued in
connection with development of the Demised Premises, copies of which shall be
supplied to Tenant by Landlord promptly after issuance. In addition to the
matters of record to which the Demised Premises are subject as of the date of
this Lease, Tenant acknowledges that, prior to the Commencement Date, the
Demised Premises will become subject to a Reciprocal Easement Agreement the
purpose of which will be to establish certain access and maintenance rights and
obligations with regard to driveway, fire suppression and storm drain facilities
shared by the Demised Premises and the property which is located adjacent to the
Demised Premises, provided that Landlord shall obtain Tenant's approval of such
Reciprocal Easement Agreement prior to the Demised Premises becoming subject
thereto, and to any other modifications to the matters of record to which the
Demised Premises are subject and which would have an affect on Tenant's use and
enjoyment of the Demised Premises, which approval shall not be unreasonably
withheld.
9.2 Tenant's Obligations. Notwithstanding that it may be usual and
---------------------
customary for Landlord to assume responsibility and performance of any or all of
the obligations set forth in this Article IX, and notwithstanding any order,
rule or regulation directed to Landlord to perform, subject to the provisions of
Article II, Section 8.2 and Article XIII of this Lease, Tenant hereby assumes
such obligations because, by nature of this Lease, or as expressly provided
under any other provision hereof, the rents and income derived from this Lease
by Landlord are "net" rentals not to be diminished by any expense incident to
the ownership, occupancy, use, leasing or possession of the Demised Premises or
any portion
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thereof (except as expressly provided in this Lease).
9.3 Tenant's Right to Contest Laws and Ordinances. After prior
----------------------------------------------
written notice to Landlord, Tenant, at its sole cost and expense and without
cost or expense to Landlord, shall have the right to contest the validity or
application of any Applicable Laws or Restrictions in the name of Tenant or
Landlord, or both, by appropriate legal proceedings diligently conducted but
only if compliance with the terms of any such law or ordinance pending the
prosecution of any such proceeding, may legally be delayed without incurring of
any lien, charge or liability of any kind against the Demised Premises, or any
portion thereof, and without subjecting Landlord or Tenant to any liability,
civil or criminal, for failure so to comply therewith until the final
determination of such proceeding; provided, however, if any lien, charge or
civil liability would be incurred by reason of any such delay, Tenant
nevertheless, on the prior written consent of Landlord, which consent shall not
be unreasonably withheld, may contest as aforesaid and delay as aforesaid,
provided that such delay would not subject Tenant or Landlord to criminal
liability and Tenant (a) furnishes Landlord security, reasonably satisfactory to
Landlord, against any loss or injury by reason of any such contest or delay, (b)
prosecutes the contest with due diligence and in good faith, and (c) agrees to
indemnify, defend and hold harmless Landlord and the Demised Premises from any
charge, liability or expense whatsoever. The security furnished to Landlord by
Tenant shall be in the form of a cash deposit or a Certificate of Deposit issued
by a national bank or federal savings and loan association payable to Landlord.
Said deposit shall be held, administered and distributed in accordance with the
provisions of Section 5.2 hereof relating to the contest of the amount or
validity of any Imposition.
If necessary or proper to permit Tenant so to contest the validity or
application of any such law or ordinance, Landlord shall, at Tenant's sole cost
and expense, including reasonable attorneys' fees incurred by Landlord, execute
and deliver any appropriate papers or other documents; provided, however, that
Landlord shall not be required to execute any document or consent to any
proceeding which would result in the imposition of any cost, charge, expense or
penalty on Landlord or the Demised Premises.
ARTICLE X
MECHANIC'S LIENS AND OTHER LIENS
10.1 Mechanic's Liens.
----------------------
(a) Tenant shall keep the Demised Premises free from any liens
arising out of work performed, materials furnished and obligations incurred by
Tenant. Tenant covenants and agrees that any mechanic's lien filed against the
Demised Premises for work claimed to have been done for, or materials claimed to
have been furnished to, Tenant shall be discharged by Tenant, by bond or
otherwise, within thirty (30) days after the filing thereof, at the sole cost
and expense of Tenant. This provision does not apply to any claim or lien
arising out of the original construction of the Demised Premises by Landlord
pursuant to this Lease.
(b) Tenant shall have the right to contest with due diligence the
validity or amount of any lien or claimed lien created by Tenant if Tenant shall
give to Landlord such security as Landlord may reasonably require to insure
payment thereof and prevent any sale, foreclosure or forfeiture of the Demised
Premises or any portion thereof by reason of such nonpayment. On final
determination of the lien or claim for lien, Tenant shall immediately pay any
judgment rendered with all proper costs and charges and shall have the lien
released or judgment satisfied at Tenant's own expense, and if Tenant shall fail
to do so, Landlord may at its option, pay any such final judgment and clear the
Demised Premises therefrom. If Tenant shall fail to contest with due diligence
the validity or amount of any such lien or claimed lien created by Tenant, or to
give Landlord security as hereinabove provided, Landlord may, but shall not be
required to, contest the validity or amount of any such lien or claimed lien or
settle or compromise the same without inquiring into the validity of the claim
or the reasonableness of the amount thereof. Should any lien be filed against
the Demised Premises or should any action of any character affecting the title
thereto be commenced, Tenant shall give to Landlord written notice thereof as
soon as notice of such lien or action comes to the knowledge of Tenant.
(c) Should Tenant fail to discharge any such lien, Landlord may, at
Landlord's election, pay such claim or post a bond or otherwise provide security
to eliminate the lien as a claim against title, and the cost thereof shall be
immediately due from Tenant as Additional Rent. Tenant shall not suffer or
permit any mechanic's lien or other lien to be filed against the Demised
Premises, or any portion thereof, by reason of work, labor, skill, services,
equipment or materials supplied or claimed to have been supplied to the Demised
Premises at the request of Tenant, or anyone holding the Demised Premises, or
any portion thereof, through or under Tenant.
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(d) All materialmen, contractors, artisans, mechanics, laborers and
any other person now or hereafter furnishing any labor, services, materials,
supplies or equipment to Tenant with respect to the Demised Premises, or any
portion thereof, are hereby charged with notice that they must look exclusively
to Tenant to obtain payment for the same. Notice is hereby given that Landlord
shall not be liable for any labor, services, materials, supplies, skill,
machinery, fixtures or equipment furnished or to be furnished to Tenant upon
credit, and that no mechanic's lien or other lien for any such labor, services,
materials, supplies, machinery, fixtures or equipment shall attach to or affect
the estate or interest of Landlord in and to the Demised Premises or any portion
thereof.
10.2 Landlord's Indemnification. The provisions of Section 10.1 above
--------------------------
shall not apply to any mechanic's lien or other lien for labor, services,
materials, supplies, machinery, fixtures or equipment furnished to the Demised
Premises in the performance of Landlord's obligations to construct the
Improvements required by the provisions of Article II hereof or in the
performance of Landlord's other obligations under this Lease, and Landlord does
hereby agree to indemnify and defend Tenant against and save Tenant and the
Demised Premises and any portion thereof harmless from all losses, costs,
damages, expenses, liabilities and obligations, including, without limitation,
reasonable attorneys' fees resulting from the assertion, filing, foreclosure or
other legal proceedings with respect to any such mechanic's lien or other lien.
10.3 Removal of Liens. Except as otherwise provided for in this
----------------
Article X, Tenant shall not create, permit or suffer, and shall promptly
discharge and satisfy of record, any other lien, encumbrance, charge, security
interest or other right or interest which shall be or become a lien,
encumbrance, charge or security interest upon the Demised Premises, or any
portion thereof, or the income therefrom, or on the interest of Landlord or
Tenant in the Demised Premises, or any portion thereof, if such lien,
encumbrance, charge, security interest or other right or interest shall result
from the actions of Tenant or others acting on the behalf of or for Tenant
(other than Landlord).
10.4 Equipment and Trade Fixtures. Landlord expressly waives and
-----------------------------
disclaims any lien which it may have by statute or otherwise on the equipment
and trade fixtures which Tenant brings to the Demised Premises. In addition,
Landlord acknowledges that Tenant may, from time to time, offer all or portions
of such equipment and trade fixtures as collateral for obligations to lenders.
Landlord will promptly execute such reasonable documentation as Tenant may
request in order to evidence to any such lender Landlord's lack of any claim to
such equipment and trade fixtures.
ARTICLE XI
LANDLORD'S PERFORMANCE OF TENANT'S OBLIGATIONS
In the event Tenant fails to pay or discharge any Additional
Obligation, Landlord may, but shall not be obligated to, in addition to its
remedies in an Event of Default, provide a factually correct written notice of
such failure, and if Tenant still fails to cure such failure within ten (10)
days after Tenant's receipt of such notice, Landlord may pay or perform the
same, and in that event Tenant shall within ten (10) days after invoice
reimburse Landlord therefor (together with interest at the Maximum Rate of
Interest from the date Landlord made such payment), which amount shall be deemed
Additional Rent; provided, however, that Landlord shall be entitled to pay such
amount without prior notice to Tenant if Landlord reasonably believes that any
further delay would expose Landlord or the Demised Premises to (i) civil or
criminal penalties, (ii) a potential default under a mortgage, deed of trust or
similar obligation, or (iii) lack of insurance coverage as required hereunder,
or is otherwise an emergency. Nothing herein contained shall be deemed as a
waiver or release of Tenant from any obligation of Tenant contained in this
Lease.
ARTICLE Xll
DEFAULTS OF TENANT
12.1 Events of Default. Any one or more of the following events shall
------------------
be an event of default by Tenant ("EVENT OF DEFAULT") under this Lease:
(a) Tenant fails to pay any Base Rent or Additional Rent or any other
sum required by this Lease to be paid by Tenant, within five (5) business days
after the same is due and payable;
(b) Tenant fails to perform or comply with any other term hereof, and
such failure shall continue for more than thirty (30) days after notice thereof
from Landlord, and Tenant shall not within such period commence with due
24
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diligence and thereafter dispatch the curing of such default, or, having so
commenced, shall thereafter fail or neglect to prosecute or complete with due
diligence and dispatch the curing of such default;
(c) Tenant makes a general assignment for the benefit of creditors or
admits in writing its inability to pay its debts as they become due or files a
petition in bankruptcy, or is adjudicated as bankrupt or insolvent, or files a
petition seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statutes,
law or regulation, or files an answer admitting or fails to reasonably contest
the material allegations of a petition filed against it in any such proceeding,
or seeks or consents to or acquiesces in the appointment of any trustee,
receiver or liquidator of Tenant or any material part of its properties
(provided, however, that this Section 12.1 (c) shall apply only to the extent it
is enforceable under applicable law); or
(d) Within ninety (90) days after the commencement of any proceeding
against Tenant seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, such proceeding has not been dismissed, or
if, within ninety (90) days after the appointment without the consent or
acquiescence of Tenant of any trustee, receiver or liquidator of Tenant or of
any material part of its properties, such appointment has not been vacated
(provided, however, that this Section 12.1 (d) shall apply only to the extent it
is enforceable under applicable law); or
(e) Tenant permits the abandonment or nonoccupancy of the entire
Demised Premises (except for temporary vacancies or portions thereof, or to the
extent caused by damage, destruction or condemnation).
12.2 Landlord's Remedies. Upon the occurrence of an Event of Default,
--------------------
Landlord, at its option, without further notice or demand to Tenant, shall have,
in addition to all other rights and remedies provided in this Lease, at law or
in equity, the option to pursue any one or more of the following remedies, each
and all of which shall be cumulative and nonexclusive, without any notice or
demand whatsoever:
(a) Terminate this Lease, in which event Tenant shall immediately
surrender the Demised Premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which it may have for
possession or arrearages in Base Rent or Additional Rent, enter upon and take
possession of the Demised Premises and expel or remove Tenant and any other
person who may be occupying the Demised Premises or any part thereof, without
being liable for prosecution or any claim or damages therefor; and Landlord may
recover from Tenant the following:
(i) The worth at the time of award of any unpaid Base Rent and
Additional Rent which has been earned at the time of such termination; plus
(ii) The worth at the time of award of the amount by which the
unpaid Base Rent and Additional 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 Base Rent and Additional 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; and
(v) 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 Section 12.2 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 subsections
(i) and (ii), above, the "WORTH AT THE TIME OF AWARD" shall be computed at the
Maximum Rate of Interest. As used in subsection (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%). Nothing herein shall be deemed to relieve Landlord of its
obligation to mitigate its damages following an Event of Default.
12.3 Right to Collect Rent as Due. Landlord shall have the remedy
-----------------------------
described in California Civil Code Section 1951.4 (Landlord may continue lease
in effect after Tenant's breach and abandonment and recover rent as it
25
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becomes due, if Tenant 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 Base Rent and Additional Rent as
they become due.
12.4 New Lease Following Termination. In the event Landlord elects to
--------------------------------
terminate this Lease and relet the Premises, it may execute any new lease in its
own name. Tenant hereunder shall have no right or authority whatsoever to
collect any Base Rent, Additional Rent or other sums from such tenant. The
proceeds of any such reletting shall be applied as follows:
(a) First, to the payment of any indebtedness other than Base
Rent or Additional Rent due hereunder from Tenant to Landlord, including
but not limited to storage charges or brokerage commissions owing from
Tenant to Landlord as the result of such reletting;
(b) Second, to the payment of the costs and expenses of
reletting the Premises, including alterations and repairs which Landlord
deems reasonably necessary and advisable, and reasonable attorneys' fees
incurred by Landlord in connection with the retaking of the Demised
Premises and such reletting;
(c) Third, to the payment of Base Rent, Additional Rent and
other charges due and unpaid hereunder; and
(d) Fourth, to the payment of future Base Rent, Additional
Charges and other damages payable by Tenant under this Lease.
12.5 Cumulative Rights; No Waiver. All rights, options and remedies of
-----------------------------
Landlord contained in this Lease shall be construed and held to be non-exclusive
and cumulative. Landlord shall have the right to pursue any or all of such
remedies or any other remedy or relief which may be provided by law, whether or
not stated in this Lease. No waiver of any Event of Default of Tenant hereunder
shall be implied from the acceptance by Lender of any payments due hereunder
(except with respect to the amount so collected) or any omission by Landlord
party to take any action on account of such Event of Default if such Event of
Default persists or is repeated, and no express waiver shall affect defaults
other than as specified in said waiver.
12.6 Surrender of Demised Premises. Upon any expiration or termination
------------------------------
of this Lease, Tenant shall quit and peaceably surrender the Demised Premises
and all portions thereof to Landlord, and Landlord may, upon or at any time
after any such expiration or termination and without further notice, enter upon
and reenter the Demised Premises and all portions thereof and possess and
repossess itself thereof by force, summary proceeding, ejectment or otherwise,
and may dispossess Tenant and remove Tenant and all other persons and property
from the Demised Premises and all portions thereof and may have, hold and enjoy
the Demised Premises and the right to receive all rental and other income of and
from the same.
12.7 Interest on Unpaid Amounts. If Tenant shall commit an Event of
---------------------------
Default, Landlord may cure the same, but shall not be required to do so, as
provided in, and subject to, Section 11.1 above, and in exercising any such
right, may employ counsel and pay necessary and incidental costs and expenses,
including reasonable attorneys' fees. All reasonable sums so paid by Landlord,
and all reasonable and necessary costs and expenses, including reasonable
attorneys' fees, in connection with the performance of any such act by Landlord,
together with interest thereon at the Maximum Rate of Interest from the date of
making such expenditure by Landlord, shall be deemed Additional Rent hereunder
and, except as is otherwise expressly provided herein, shall be payable to
Landlord within ten (10) days after written demand, and Tenant covenants to pay
any such sum or sums, with interest as aforesaid, and Landlord shall have, in
addition to any other right or remedy of Landlord, the same rights and remedies
in the event of nonpayment thereof by Tenant as in the case of default by Tenant
in the payment of monthly Base Rent. Landlord shall not be limited in the proof
of any damages which Landlord may claim against Tenant arising out of or by
reason of Tenant's failure to provide and keep in force insurance as aforesaid,
to the amount of the insurance premium or premiums not paid or not incurred by
Tenant, and which would have been payable upon such insurance, but Landlord
shall also be entitled to recover as damages for such breach the uninsured
amount of any loss (to the extent of any deficiency between the dollar limits of
insurance required by the provisions of this Lease and the dollar limits of the
insurance actually carried by Tenant) and reasonable costs and expenses,
including reasonable attorneys' fees, suffered or incurred by reason thereof
occurring during any period when Tenant shall have failed or neglected to
provide insurance as aforesaid.
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ARTICLE XIII
DESTRUCTION AND RESTORATION
13.1 Destruction and Restoration. Tenant covenants and agrees that, in
----------------------------
case of damage to or destruction of the Improvements during the Term, whether by
fire or otherwise, Tenant shall make funds available to Landlord and Landlord
shall promptly restore, repair, replace and rebuild the same as nearly as
possible to the condition that the same were in immediately prior to such damage
or destruction with such changes or alterations as may be reasonably acceptable
to Landlord and Tenant or required by Applicable Land Use Laws and Restrictions
then in effect. Tenant shall immediately give Landlord written notice of such
damage or destruction upon Tenant's or any assignee's or subtenant's knowledge
of the occurrence thereof and specify in such notice, in reasonable detail, the
extent thereof. Such restorations, repairs, replacements, rebuilding, changes
and alterations, including the cost of temporary repairs for the protection of
the Demised Premises, or any portion thereof, pending completion thereof are
sometimes hereinafter referred to as the "RESTORATION." Landlord shall be
entitled to recover all "soft" costs incurred in connection with Landlord's
performance of the Restoration including a fee competitive with others providing
similar services. The Restoration shall be carried on and completed in
accordance with the provisions and conditions of Section 13.2 hereof. If the
amount of the insurance proceeds recovered from the policy or policies
maintained (or required to be maintained) by Tenant, as described in Article VI
of this Lease, is reasonably deemed insufficient by a qualified contractor,
reasonably acceptable to Tenant and Landlord (or Landlord's lender, as the case
may be) to complete the Restoration of such Improvements (exclusive of Tenant's
personal property and trade fixtures which shall be restored, repaired or
rebuilt, at Tenant's discretion, out of Tenant's separate funds), except as
provided in this Section 1 3.1 below, Tenant shall, upon request of Landlord (or
by Landlord's lender, as the case may be), deposit with Landlord (or Landlord's
lender, if required) a cash deposit equal to the reasonable estimate of the
amount necessary to complete the Restoration of such Improvements less the
amount of such insurance proceeds available. Notwithstanding the foregoing, if
Landlord is prohibited from effecting the Restoration of the Demised Premises
due to applicable governmental laws, rules or regulations then in effect,
Landlord shall not be required to effect such Restoration. In such an event, any
insurance proceeds shall be paid to, and may be retained by, Landlord or
Landlord's lender, as the case may be, and this Lease, and all obligations of
the parties hereunder (except those which expressly survive the termination
hereof) shall terminate.
13.2 Application of Insurance Proceeds. All monies recovered from the
----------------------------------
insurance policy or policies maintained (or required to be maintained) by
Tenant, shall be paid directly to Landlord (or held by Landlord's lender, if
required) on account of such damage or destruction. Such amounts, less the
reasonable costs, if any, incurred by Landlord in recovering such funds, shall
be applied to the payment of the costs of the Restoration and shall be paid out
from time-to-time as the Restoration progresses upon the written request of
Tenant, accompanied by a certificate of the architect or a qualified
professional engineer in charge of the Restoration stating that as of the date
of such certificate (a) the sum requested is justly due to the contractors,
subcontractors, materialmen, laborers, engineers, architects, or persons, firms
or corporations furnishing or supplying work, labor, services or materials for
such Restoration, and when added to all sums previously paid out does not exceed
the value of the Restoration performed to the date of such certificate by all of
said parties; (b) except for the amount, if any, stated in such certificates to
be due for work, labor, services or materials, there is no outstanding
indebtedness known to the person signing such certificate, after due inquiry,
which is then due for work, labor, services or materials in connection with such
Restoration, which, if unpaid, might become the basis of a mechanic's lien or
similar lien with respect to the Restoration or a lien upon the Demised
Premises, or any portion thereof; and (c) the costs, as estimated by the person
signing such certificate, of the completion of the Restoration required to be
done subsequent to the date of such certificate in order to complete the
Restoration do not exceed the sum of the remaining insurance monies, plus the
amount deposited by the parties (as applicable) after payment of the sum
requested in such certificate.
If the insurance monies and such other sums, if any, deposited with
Landlord (or with Landlord's lender) pursuant to Section 13.1 hereof, shall be
insufficient to pay the entire costs of the Restoration, Tenant agrees to pay
any deficiency promptly upon demand. Upon completion of the Restoration and
payment in full thereof by Tenant, Landlord shall, within a reasonable period of
time, turn over to Tenant all insurance monies or other monies then remaining
upon the parties' joint, good-faith determination that the Restoration has been
paid for in full and the damaged or destroyed Building and other Improvements
repaired, restored or rebuilt as nearly as possible to the condition they were
in immediately prior to such damage or destruction, or with such changes or
alterations as may be made in conformity with Section 13.1 and Article XIX
hereof.
13.3 Continuance of Tenant's Obligations. Except as provided for in
------------------------------------
this Section 13.3 and in Section 13.6, no destruction of or damage to the
Demised Premises, or any portion thereof, by fire, casualty or otherwise shall
permit
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Tenant to surrender this Lease or shall relieve Tenant from its liability to pay
to Landlord the Base Rent and Additional Rent payable under this Lease or from
any of its other obligations under this Lease, and Tenant waives any rights now
or hereafter conferred upon Tenant by present or future law or otherwise to quit
or surrender this Lease or the Demised Premises, or any portion thereof, to
Landlord or to any suspension, diminution, abatement or reduction of rent on
account of any such damage or destruction, including, without limitation, the
provisions of California Civil Code Sections 1932(2) and 1933(4).
13.4 Availability of Insurance Proceeds. To the extent that any
-----------------------------------
insurance monies which would otherwise be payable and used in the Restoration of
the damaged or destroyed Improvements are paid to any mortgagee of Landlord and
applied in payment of or reduction of the sum or sums secured by any such
mortgage or mortgages made by Landlord on the Demised Premises, Landlord shall
make available, for the purpose of Restoration of such Improvements, an amount
equal to the amount payable to its mortgagee out of such proceeds, and such sum
shall be applied in the manner provided in Section 13.2 hereof.
13.5 Completion of Restoration. The foregoing provisions of this
--------------------------
Article XIII apply only to damage or destruction of the Improvements by fire,
casualty or other cause occurring after the Commencement Date. Any such damage
or destruction occurring prior to such time shall be restored, repaired,
replaced and rebuilt by Landlord.
13.6 Termination of Lease.
---------------------
(a) For purposes of this Lease, the term "THRESHOLD AMOUNT"
shall mean an amount equal to the product of (i) One Million Dollars
($1,000,000.00) multiplied by (ii) a fraction, the numerator of which is
the number of months from the date of damage or destruction until the
expiration of the Term of this Lease, and the denominator of which is
eighteen (18); and the term "THRESHOLD PERIOD" shall mean the product of
(a) one hundred eighty (180) days multiplied by a fraction, the numerator
of which is the number of months from the date of such damage or
destruction until the date of expiration of the Term of this Lease, and the
denominator of which is eighteen (18).
(b) If, within eighteen (18) months prior to the expiration of
the Term of this Lease, the Improvements shall be destroyed or damaged to
such an extent that the Restoration thereof is reasonably estimated to cost
more than the Threshold Amount to complete, Tenant and Landlord shall, as
soon as reasonably possible following such event of damage or destruction,
compute the amount of the insurance proceeds available from the insurance
required to be maintained by Tenant under this Lease and the amount, if
any, over and above the net proceeds of such insurance which will be
necessary for such Restoration, as determined by a qualified contractor,
reasonably acceptable to Tenant and Landlord (or Landlord's Lender, as the
case may be), which latter amount is hereinafter referred to as the "EXCESS
COST." Within five (5) business days following the determination of the
Excess Cost, Tenant shall notify Landlord, in writing, whether Tenant is
willing to pay to such Excess Cost to restore such damage or destruction
for occupancy by Tenant. If Tenant notifies Landlord that it is willing to
pay such Excess Cost, it shall do so in accordance with the provisions of
Sections 13.1, 13.2 and 13.3 hereof.
(c) If, within eighteen (18) months prior to the expiration of
the Term of this Lease, the Improvements shall be destroyed or damaged to
such an extent that, in the opinion of a reasonably qualified contractor
selected by Landlord and Tenant, the Restoration shall take longer than the
Threshold Period to complete, Tenant shall be entitled to notify Landlord,
in writing, of such fact, which notice shall be accompanied by a detailed
statement of the nature and extent of such damage or destruction and the
estimated period of Restoration.
(d) If (i) Tenant elects not to pay the Excess Cost, as
described under subsection (b), above, or (ii) if the period of Restoration
as estimated by the contractor selected by Landlord and Tenant exceeds the
Threshold Period, then Tenant shall have the option, within thirty (30)
days after Tenant's notice to Landlord, to surrender the Demised Premises
to Landlord by a notice, in writing, addressed to Landlord, specifying such
election; provided, however, if Landlord elects to pay such Excess Cost,
which election shall be made within ten (10) business days after Tenant
notifies Landlord of its election not to pay the Excess Cost, then Tenant
shall not have the right to terminate this Lease pursuant to subsection (i)
of this subsection (d) and, provided Tenant has not elected to terminate
this Lease under subsection (ii) of this subsection (d), Landlord shall pay
such Excess Cost. If Tenant terminates this Lease in accordance with this
subsection (d), the applicable notice shall be accompanied by (A) Tenant's
payment of the balance of the Base Rent and Additional Rent due for the
remainder of the term of this Lease and other charges hereafter specified
in this Section 13.6, or, in the alternative, (B) reasonably satisfactory
evidence (e.g. a certificate from the insurer) that the loss of use and
business interruption
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insurance Tenant is required to maintain shall be paid by the insurer
directly to Landlord in an amount equal to the lesser of (x) if more than
one (1) year of the Term remains, the Base Rent and Additional Rent
provided under this Lease for no less than one (1) year, or (y) the Base
Rent and Additional Rent provided under this Lease for the remainder of the
Term.
(e) In such an event Landlord shall be entitled to the proceeds
of all insurance required to be maintained by Tenant under Section 6.1
above (other than proceeds related to trade fixtures, furniture, equipment
and other personal property of Tenant) and Tenant shall execute all
documents reasonably requested by Landlord to allow such proceeds to be
paid to Landlord or as Landlord may otherwise direct (e.g., to Landlord's
lender).
ARTICLE XIV
CONDEMNATION
14.1 Condemnation of Entire Demised Premises. If, during the Initial
----------------------------------------
Term of this Lease or any extension or renewal thereof, the entire Demised
Premises or the entire Building shall be taken as the result of the exercise of
the power of eminent domain (hereinafter referred to as the "Proceedings"), this
Lease and all right, title and interest of Tenant hereunder shall cease and come
to an end on the date of vesting of title pursuant to such Proceedings.
In any taking of the Demised Premises, or any portion thereof, whether
or not this Lease is terminated as in this Article provided, Tenant shall not be
entitled to any portion of the award for the taking of the Demised Premises or
damage to the Improvements, except as otherwise provided in Section 14.3 with
respect to the restoration of the Improvements, and Tenant hereby waives any
right it now has or may have under present or future law to receive any separate
award of damages for its interest in the Demised Premises or any portion
thereof, except that Tenant shall have, nevertheless, the limited right to prove
in the Proceedings and to receive any award which may be made for damages to or
condemnation of Tenant's movable trade fixtures and equipment, for goodwill and
for Tenant's relocation costs in connection therewith.
14.2 Partial Condemnation/Termination of Lease. If, during the Term of
------------------------------------------
this Lease an amount less than the entire Demised Premises shall be taken in
such Proceedings with the result that it will materially and adversely interfere
with Tenant's enjoyment and intended use (as described in Section 4.1, hereof),
as reasonably determined by Tenant, Tenant may, at its option, terminate this
Lease as to the remainder of the Demised Premises. Tenant shall not have the
right to terminate this Lease pursuant to the preceding sentence unless (a) the
business of Tenant conducted in the portion of the Demised Premises taken cannot
reasonably be carried on with substantially the same utility and efficiency in
the remainder of the Demised Premises, and (b) Tenant (or Landlord for Tenant)
cannot construct or secure on the Demised Premises substantially similar space
to the space so taken and as a substantially integrated whole with the remaining
portion of the Demised Premises. Such termination as to the remainder of the
Demised Premises shall be effected by notice in writing given not more than
sixty (60) days after the date of vesting of title in such Proceedings, and
shall specify a date no more than sixty (60) days after the giving of such
notice as the date for such termination. Upon the date specified in such notice,
the Term of this Lease, and all right, title and interest of Tenant hereunder,
shall cease and come to an end. If this Lease is terminated as provided in this
Section 14.2, Landlord shall be entitled to and shall receive the total award
made in such Proceedings, Tenant hereby assigning any interest in such award,
damages, and compensation to Landlord, and Tenant hereby waiving any right
Tenant now has or may have under present or future law to receive any separate
award of damages for its interest in the Demised Premises or any portion thereof
or its interest in this Lease, except as otherwise provided in Section 14.1. The
right of Tenant to terminate this Lease as provided in this Section 14.2, shall
not cure or otherwise release Tenant from any then existing breach of Tenant's
performance of any of the terms, covenants or conditions of this Lease on its
part to be performed. In the event that Tenant elects not to terminate this
Lease as to the remainder of the Demised Premises, the rights and obligations of
Landlord and Tenant shall be governed by the provisions of Section 14.3 hereof.
14.3 Partial Condemnation/Continuation of Lease. If this Lease is not
-------------------------------------------
terminated as provided in Section 14.2 hereof, then this Lease shall, upon
vesting of title in the Proceedings, terminate as to the parts so taken, and
Tenant shall have no claim or interest in the award, damages, consequential
damages and compensation, or any part thereof except as otherwise provided in
Section 14.1, Tenant hereby waiving any right Tenant now has or may have under
present or future law to receive any separate award of damages for its interest
in the Demised Premises or any portion thereof or its interest in this Lease,
except as otherwise provided in Section 14.1 and except that Tenant shall have
the right to apply to Landlord for reimbursement as hereinafter provided from
such funds as specified in this Section 14.3. The net amount of the award (after
deduction of all costs and expenses, including attorneys' fees) shall be held by
Landlord (or Landlord's
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lender) and applied as hereinafter provided. Landlord, in such case, covenants
and agrees, at Landlord's sole cost and expense promptly to restore that portion
of the Improvements on the Demised Premises not so taken to a complete
architectural and mechanical unit for the use and occupancy of Tenant as
provided in this Lease. In the event that the net amount of the award (after
deduction of all costs and expenses, including attorneys' fees) that may be
received by Landlord in any such Proceedings for physical damage to the
Improvements as a result of such taking, and held by Landlord (or Landlord's
lender) for restoration of the Demised Premises, is insufficient to pay all
costs of such restoration work, Landlord shall pay the difference. Tenant shall
not be liable for any additional sum.
14.4 Continuance of Obligations. In the event of any termination of
---------------------------
this Lease or any part thereof as a result of any such Proceedings, Tenant shall
pay to Landlord all Base Rent, all Additional Rent and other charges payable
hereunder with respect to that portion of the Demised Premises so taken in such
Proceedings with respect to which this Lease shall have terminated justly
apportioned to the date of such termination. From and after the date of vesting
of possession in such Proceedings, Tenant shall continue to pay the Base Rent,
Additional Rent and other charges payable hereunder as in this Lease provided to
be paid by Tenant, subject to an abatement of a just and proportionate part of
the Base Rent according to the extent and nature of such taking as provided for
in Sections 14.3 and 14.5 hereof in respect to the Demised Premises remaining
after such taking.
14.5 Adjustment of Rent. In the event of a partial taking of the
-------------------
Demised Premises under Sections 14.2 or 14.3 hereof in which case this Lease is
not terminated, the Base Rent for the period from and after the date of vesting
of title in such Proceedings, until the termination of this Lease, shall be
reduced to a sum equal to the product of the Base Rent provided for herein
multiplied by a fraction, the numerator of which is the value of the Demised
Premises after such taking and after the same shall have been restored to a
complete architectural unit, and the denominator of which is the value of the
Demised Premises prior to such taking.
ARTICLE XV
ASSIGNMENT, SUBLETTING, ETC.
15.1 Restriction on Transfer. Tenant shall not sublet the Demised
------------------------
Premises or any portion thereof, nor assign, mortgage, pledge, transfer or
otherwise encumber or dispose of this Lease or any interest therein, or in any
manner assign, mortgage, pledge, transfer or otherwise encumber or dispose of
its interest or estate in the Demised Premises or any portion thereof without
obtaining Landlord's prior written consent in each and every instance. For
purposes of this Article XV, an assignment shall not be deemed to include any
sale or similar transfer of any stock in Tenant in a public offering. Landlord's
consent to an assignment or subletting under this Section 15.1 shall not be
unreasonably withheld or delayed, provided the following conditions are complied
with:
(a) Any assignment of this Lease shall transfer to the assignee
all of Tenant's right, title and interest in this Lease and all of Tenant's
estate or interest in the Demised Premises.
(b) At the time of any assignment or subletting and at the time
Tenant requests Landlord's written consent thereto, this Lease must be in
full force and effect without any uncured Event of Default or Incipient
Default thereunder on the part of Tenant.
(c) Any such assignee shall assume, by written, recordable
instrument, in form and content satisfactory to Landlord, the due
performance of all of Tenant's obligations under this Lease from and after
the time of the effective date of the assignment, and such assumption
agreement shall state that the same is made by the assignee for the express
benefit of Landlord as a third party beneficiary thereof. A copy of the
assignment and assumption agreement, both in form and content satisfactory
to Landlord, fully executed and acknowledged by assignee, together with a
certified copy of a properly executed corporate resolution (if the assignee
be a corporation) authorizing the execution and delivery of such assumption
agreement, shall be sent to Landlord ten (10) days after the effective date
of such assignment.
(d) In the case of a subletting, a copy of any sublease fully
executed and acknowledged by Tenant and the sublessee shall be mailed to
Landlord ten (10) days after to the effective date of such subletting,
which sublease shall be in form and content acceptable to Landlord.
(e) Each sublease permitted under this Section 15.1 shall
contain provisions to the effect that (i) such sublease is only for actual
use and occupancy by the sublessee; (ii) such sublease is subject and
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subordinate to all of the terms, covenants and conditions of this Lease and
to all of the rights of Landlord thereunder; and (iii) in the event this
Lease shall terminate before the expiration of such sublease, the sublessee
thereunder will, at Landlord's option, attorn to Landlord and waive any
rights the sublessee may have to terminate the sublease or to surrender
possession thereunder as a result of the termination of this Lease.
(f) Any and all compensation paid to Tenant, in whatever form, in
consideration of such assignment or subletting, including any differential
between Base Rent and rent paid to Tenant by such assignee or subtenant, or
any assignment fee or any other amount which can be attributed to the
assignment or subletting, shall be paid directly by such assignee or
subtenant to Landlord; provided, however, that Tenant shall Tenant be
entitled to deduct from such compensation the amount of any (i) leasing
commissions it has incurred in connection with such assignment or
subletting, (ii) the direct cost of improvements constructed and paid for
by Tenant in connection with such assignment or subletting, provided such
improvements have been made in accordance with the terms of this Lease
(including, without limitation, requirements for Landlord's approval and
that they be completed on a lien-free basis), and (iii) the actual cost of
similar concessions actually made by Tenant in connection with such
assignment or subletting.
(g) Tenant agrees to pay on behalf of Landlord any and all
reasonable costs of Landlord, including reasonable attorneys' fees paid or
payable to outside counsel, occasioned by such assignment or subletting,
but not to exceed One Thousand Dollars ($1,000.00).
15.2 Transfer to Affiliates; Sale or Merger. Notwithstanding the
---------------------------------------
foregoing provisions of Section 1 5.1, Tenant shall be permitted to assign or
sublet the Demised Premises or Tenant's rights under this Lease, without
Landlord's prior consent, to (i) an entity in which Tenant, directly or
indirectly, owns or beneficially controls more than fifty percent (50%) of the
outstanding voting interests, (ii) an entity which directly or indirectly owns
or beneficially controls more than fifty percent (50%) of the outstanding voting
interests of Tenant, (iii) an entity, the outstanding voting interests of which
are directly or indirectly owned by the same persons or entities which own or
beneficially control the outstanding voting interests of Tenant (each, a "Sister
Entity"), (iv) an entity in which a Sister Entity owns or beneficially controls
more than fifty percent (50%) of the outstanding voting interests, or (v) an
entity deemed to have been assigned the Lease through a sale of Tenant's stock
or assets or through merger with Tenant, provided, that in any such case Tenant
shall be required to give Landlord written notice of that assignment or
subletting within thirty (30) days thereafter, including written evidence of the
identity of the assignee or sublessee (actual or deemed) and its affiliation
with Tenant. Tenant shall not be entitled to share in any profits Tenant might
obtain as a result of an authorized assignment or sublet of the Demised Premises
and Tenant shall arrange for any such profits which might otherwise be paid to
Tenant by such assignee or sublessee to be paid directly to Landlord.
15.3 Restriction Against Further Assignment. Notwithstanding anything
---------------------------------------
contained in this Lease to the contrary and notwithstanding any consent by
Landlord to any sublease of the Demised Premises or any portion thereof or to
any assignment of this Lease or of Tenant's interest or estate in the Demised
Premises, except as provided in Section 15.2 above, no sublessee shall assign
its sublease nor further sublease the Demised Premises or any portion thereof,
and no assignee shall further assign its interest in this Lease or its interest
or estate in the Demised Premises or any portion thereof, nor sublease the
Demised Premises or any portion thereof, without Landlord's prior written
consent in each and every instance, which consent shall not be unreasonably
withheld or unduly delayed. No such assignment or subleasing shall relieve
Tenant from any of Tenant's obligations contained in this Lease.
15.4 Tenant's Failure to CompIy. Tenant's failure to comply with all
---------------------------
of the foregoing provisions and conditions of this Article XV shall, at
Landlord's option, render any purported assignment or subletting null and void
and of no force and effect.
ARTICLE XVI
SUBORDINATION, NONDISTURBANCE,
NOTICE TO MORTGAGEE AND ATTORNMENT
16.1 Subordination by Tenant. This Lease and all rights of Tenant
------------------------
therein and all interest or estate of Tenant in the Demised Premises or any
portion thereof shall be subject and subordinate to the lien of any mortgage,
deed of trust, security instrument or other document of like nature
(collectively, "MORTGAGE"), which at any time after the date of this Lease may
be placed upon the Demised Premises or any portion thereof, and to each and
every advance made under any such Mortgage. Tenant agrees at any time hereafter,
to execute and deliver to Landlord any instruments, releases
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or other documents that may be reasonably required for the purpose of subjecting
and subordinating this Lease to the lien of any such Mortgage. It is agreed,
nevertheless, that so long as an Event of Default does not exist, that such
subordination agreement or other instrument, release or document shall not
interfere with, hinder or molest Tenant's right to quiet enjoyment under this
Lease, shall not modify the terms of this Lease, nor the right of Tenant to
continue to occupy the Demised Premises and all portions thereof, and to conduct
its business thereon in accordance with the covenants, conditions, provisions,
terms and agreements of this Lease. The lien of any such Mortgage shall not
cover Tenant's trade fixtures or other personal property located in or on the
Demised Premises. Landlord shall deliver to Tenant a commercially reasonably
nondisturbance agreement executed by all lenders having a lien on the Demised
Premises on the Commencement Date as a condition precedent in Tenant's favor,
and from each future lender as a condition to Tenant's subordination or
attornment hereunder.
16.2 Landlord's Default. In the event of any act or omission of
------------------
Landlord constituting a default by Landlord, other than Landlord's failure to
have the Improvements substantially completed on a timely basis as provided in
Article II and to make the same fully available to Tenant as therein provided,
Tenant shall not exercise any remedy until Tenant has given Landlord and any
mortgagee whose name and address have been previously provided to Tenant prior
written notice of such act or omission and until a 30-day period of time to
allow Landlord or the mortgagee to remedy such act or omission shall have
elapsed following the giving of such notice; provided, however, if such act or
omission cannot with due diligence and in good faith be remedied within such 30-
day period, Landlord and/or mortgagee shall be allowed such further period of
time as may be reasonably necessary provided that it shall have commenced
remedying the same with due diligence and in good faith within said 30-day
period. In the event any act or omission of Landlord which constitutes a
Landlord's default hereunder results in an immediate threat of bodily harm to
Tenant's employees, agents or invitees or damage to Tenant's property, or
exposes Tenant to criminal liability, Tenant may proceed to cure the default
without prior notice to Landlord or its mortgagee; provided, however, in that
event Tenant shall give written notice to Landlord and its mortgagee as soon as
possible after commencement of such cure. Nothing herein contained shall be
construed or interpreted as requiring any mortgagee to remedy such act or
omission.
16.3 Attornment. Subject to Section 16.1 above, if any mortgagee shall
-----------
succeed to the rights of Landlord under this Lease or to ownership of the
Demised Premises, whether through possession or foreclosure or the delivery of a
deed to the Demised Premises, then, upon the written request of such mortgagee
so succeeding to Landlord's rights hereunder, Tenant shall attorn to and
recognize such mortgagee as Tenant's landlord under this Lease, and shall
promptly execute and deliver any instrument that such mortgagee may reasonably
request to evidence such attornment (whether before or after making of the
mortgage). In the event of any other transfer of Landlord's interest hereunder,
upon the written request of the transferee and Landlord, Tenant shall attorn to
and recognize such transferee as Tenant's landlord under this Lease and shall
promptly execute and deliver any instrument that such transferee and Landlord
may reasonably request to evidence such attornment.
ARTICLE XVII
SIGNS
Tenant shall be allowed prominent Building and monument signage during
the Term of this Lease, provided that such sign or signs (a) do not cause any
structural damage or other material damage to the Building; (b) comply with and
do not violate applicable governmental laws, ordinances, rules or regulations;
(c) comply with and do not violate any existing restrictions affecting the
Demised Premises and which are of a matter of record as of the date of this
Lease; (d) are compatible with the architecture of the Building and the
landscaped area adjacent thereto, and (e) the design, size and location of such
signs have been mutually approved by Landlord and Tenant, which approval shall
not be unreasonably withheld or delayed. The cost of such signs shall not be
funded from the Tenant Improvement Allowance and shall be entirely Tenant's
separate expense, except as provided in Section 2.9(c).
ARTICLE XVIII
FINANCIAL STATEMENTS OF TENANT
From time to time, at Landlord's request, Tenant shall provide
Landlord with Tenant's most recent financial statements in form and content
reasonably satisfactory to Landlord and Landlord's lenders (which, if Tenant is
an entity which files periodic financial disclosures to securities regulatory
authorities, shall be those which are periodically filed with those
authorities). Landlord may provide copies of those financial statements to
current and prospective lenders, investors
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and buyers, identified in writing to Tenant, for examination and review.
Landlord shall keep all such financial statements strictly confidential and may
provide copies of such financial statements to such other parties only upon
receiving in return a covenant from each recipient that such recipient shall
keep the financial statements confidential except with the prior written consent
of Tenant.
ARTICLE XIX
CHANGES AND ALTERATIONS
Tenant shall have the right at any time, and from time to time during
the Term of this Lease, to make such changes and alterations, structural or
otherwise, to the Building, improvements and fixtures hereafter erected on the
Demised Premises as Tenant shall deem necessary or desirable in connection with
the requirements of its business, which changes and alterations (other than
changes or alterations of Tenant's movable trade fixtures and equipment) shall
be made in all cases subject to the following conditions, which Tenant covenants
to observe and perform:
(a) Permits. No change or alteration shall be undertaken until Tenant
--------
shall have procured and paid for, so far as the same may be required from time
to time, all municipal, state and federal permits and authorizations of the
various governmental bodies and departments having jurisdiction thereof, and
Landlord agrees to join in the application for such permits or authorizations
whenever such action is necessary, all at Tenant's sole cost and expense,
provided such applications do not cause Landlord to become liable for any cost,
fees or expenses.
(b) Compliance with Plans and Specifications. Before commencement of
-----------------------------------------
any change, alteration, restoration or construction (hereinafter sometimes
referred to as "Work") involving in the aggregate an estimated cost of more than
Fifty Thousand and No/100ths Dollars ($50,000) or which, in Landlord's
reasonable judgment, would materially alter the mechanical, structural or
electrical components of the Demised Premises, Tenant shall (i) furnish Landlord
with detailed plans and specifications of the proposed change or alteration;
(ii)obtain Landlord's prior written consent, which consent shall not be
unreasonably withheld; (iii) obtain Landlord's prior written approval of a
licensed architect or licensed professional engineer selected and paid for by
Tenant who shall approve any such work (hereinafter referred to as "ALTERATIONS
ARCHITECT OR ENGINEER"); (iv) obtain Landlord's prior written approval (which
shall not be unreasonably withheld or delayed) of detailed plans and
specifications prepared and approved in writing by said Alterations Architect or
Engineer and of each amendment and change thereto, and (v) for any Work
involving in the aggregate an estimated cost of more than One Hundred Thousand
Dollars ($100,000), furnish to Landlord a surety company performance bond issued
by a surety company licensed to do business in the state in which the Demised
Premises are located and reasonably acceptable to Landlord in an amount equal to
the estimated cost of such work guaranteeing the completion thereof within a
reasonable time thereafter (1) free and clear of all mechanic's liens or other
liens, encumbrances, security interests and charges, and (2) in accordance with
the plans and specifications approved by Landlord. Tenant shall retain
Contractor as the general contractor for the build-out of any portion of the
Demised Premises which are left in "shell" condition as of the Commencement
Date, provided Contractor's contract is on substantially the same terms as
described in Section 2.11 of this Lease.
(c) Value Maintained. Any change or alteration shall, when completed,
-----------------
be of such character so as not to reduce the value of the Demised Premises or
the Building to which such change or alteration is made below its value or
utility to Landlord immediately before such change or alteration, nor shall such
change or alteration reduce the area or cubic content of the Building to use
without Landlord's express written consent.
(d) Compliance with Laws. All Work done in connection with any change
--------------------
or alteration shall be done promptly and in a good and workmanlike manner and in
compliance with all building and zoning laws of the place in which the Demised
Premises are situated, and in compliance with all laws, ordinances, orders,
rules, regulations and requirements of all federal, state and municipal
governments and appropriate departments, commissions, boards and officers
thereof, and in accordance with the orders, rules and regulations of the Board
of Fire Underwriters where the Demised Premises are located or any other body
exercising similar functions. The cost of any such change or alteration shall be
paid in cash so that the Demised Premises and all portions thereof shall at all
times be free of liens for labor and materials supplied to the Demised Premises
or any portion thereof. The Work or any change or alteration shall be prosecuted
with reasonable dispatch, delays due to strikes, lockouts, acts of God,
inability to obtain labor or materials, governmental restrictions or similar
causes beyond the control of Tenant excepted. Tenant or Tenant's contractor or
subcontractor shall obtain and maintain at its sole cost and expense during the
performance of the Work workers' compensation insurance covering all persons
employed in connection with the Work and with respect to which death or injury
claims could be asserted against Landlord or Tenant or against the Demised
Premises or any interest therein,
33
<PAGE>
together with comprehensive general liability insurance for the mutual benefit
of Landlord and Tenant with limits of not less than One Million Dollars
($1,000,000.00) in the event of injury to one person, Three Million Dollars
($3,000,000.00) in respect to any one accident or occurrence, and Five Hundred
Thousand Dollars ($500,000.00) for property damage, and the fire insurance with
"extended coverage" endorsement required by Section 6.1 hereof shall be
supplemented with "builder's risk" insurance on a completed value form or other
comparable coverage on the Work if the cost of such work will be in excess of
Fifty Thousand Dollars ($50,000.00). All such insurance shall be in a company or
companies authorized to do business in the state in which the Demised Premises
are located and reasonably satisfactory to Landlord, and all such policies of
insurance or certificates of insurance shall be delivered to Landlord endorsed
"Premium Paid" by the company or agency issuing the same, or with other evidence
of payment of the premium satisfactory to Landlord.
(e) Property of Landlord. All improvements and alterations (other
---------------------
than Tenant's movable trade fixtures, furniture and equipment) made or installed
by Tenant shall, immediately upon completion or installation thereof, become the
property of Landlord without payment therefor by Landlord, and shall be
surrendered to Landlord on the expiration of the Term of this Lease unless and
to the extent Tenant is required or permitted to remove the same upon
termination or expiration of the Term as provided in subsection (g), below, in
which event they shall become the property of Tenant, provided that Tenant shall
be required to restore the Demised Premises in accordance with Section 19(g),
below.
(f) Location of Improvements. No change, alteration, restoration or
-------------------------
new construction shall be in, or connect the Improvements with, any property,
building or other improvement located outside the boundaries of the parcel of
land described in Exhibit "A" attached hereto, nor shall the same obstruct or
-----------
interfere with any existing easement.
(g) Removal of Improvements. As a condition to granting approval for
------------------------
any changes or alterations, Landlord may require Tenant, by written notice to
Tenant given at or prior to the time of granting such approval, to remove any
improvements, additions or installations installed by Tenant in the Demised
Premises at Tenant's sole cost and expense at the end of the term of this Lease
and repair and restore any damage caused by the installation and removal of such
improvements, additions, or installations; provided, however, the only
improvements, additions or installations which Tenant shall remove shall be
those specified in such notice. All improvements, additions or installations
installed by Tenant which did not require Landlord's prior approval shall be
removed by Tenant as provided for in this Section 19(g), unless such
improvements, additions or installations do not adversely affect Landlord's
ability to re-lease the Demised Premises. Prior to making any improvements,
additions or alterations that do not require Landlord's approval, Tenant may
request Landlord to specify whether Landlord considers such improvements,
additions or installations to be of the type that would adversely affect
Landlord's ability to re-lease the Demised Premises if not removed by Tenant.
Notwithstanding anything to the contrary contained herein, Tenant shall have the
right to remove any improvements, additions or alterations installed by Tenant
and at its expense (specifically not including any of the original Tenant
Improvements) upon expiration or earlier termination of the Term so long as
Tenant repairs any damage caused by such removal at its sole cost and expense
and returns the applicable portion of the Demised Premises to its original
condition prior to the installation of such improvement, addition or alteration.
(h) Reasonable Consent. All consents required of Landlord under this
------------------
Article XIX shall not be unreasonably withheld by Landlord.
(i) Notice to Landlord. Regardless of whether Landlord's consent is
-------------------
required to any change or alteration to the Demised Premises made or to be made
by Tenant, such changes or alterations shall not be commenced until two (2)
business days notice after Landlord has received notice from Tenant stating the
date such changes or alterations are to commence so that Landlord can post and
record an appropriate notice of nonresponsibility.
ARTICLE XX
MISCELLANEOUS PROVISIONS
20.1 Entry by Landlord. Tenant agrees to permit Landlord and
------------------
authorized representatives of Landlord to enter upon the Demised Premises at all
reasonable times during ordinary business hours upon at least two (2) business
day's advance notice to Tenant for the purpose of inspecting the same and making
any repairs required to be made thereto by Landlord under the terms of this
Lease, or as required to be made thereto by Tenant under the terms of this Lease
provided that Landlord shall have first given written notice to Tenant to make
such repairs and Tenant shall have failed to make such repairs within thirty
(30) days after notice; provided, however, Tenant shall be allowed such further
period of time as may be provided in Section 12.1(b); and, provided further,
that Landlord shall be allowed to enter upon the Demised Premises during an
emergency. Nothing herein contained shall imply any duty upon the part of
Landlord to
34
<PAGE>
do any such work which, under any provision of this Lease, Tenant may be
required to perform, and the performance thereof by Landlord shall not
constitute a waiver of Tenant's default in failing to perform the same. Landlord
may, during the progress of any work, keep and store upon the Demised Premises
all necessary materials, tools and equipment in areas designated by Tenant.
Landlord shall not in any event be liable for inconvenience, annoyance,
disturbance, loss of business or other damage to Tenant by reason of making such
repairs or the performance of any such work in or about the Demised Premises or
on account of bringing material, supplies and equipment into, upon or through
the Demised Premises during the course thereof, and the obligations of Tenant
under this Lease shall not be thereby affected in any manner whatsoever; except
that Landlord shall use its best efforts to not unreasonably interfere with
Tenant's use of the Demised Premises, or any portion thereof, by reason of
Landlord's making such repairs or the performance of any such work in or about
the Demised Premises or on account of bringing materials, supplies and equipment
into, upon or through the Demised Premises during the course thereof. Tenant may
accompany Landlord on any inspection or entry by Landlord.
20.2 Exhibition of Demised Premises. Landlord is hereby given the
-------------------------------
right during usual business hours upon at least two (2) business days' advance
notice to Tenant at any time during the Term of this Lease to enter upon the
Demised Premises and to exhibit the same for the purpose of mortgaging or
selling the same. During the final year of the Term, Landlord shall be entitled
(i) to display on the Demised Premises in such manner as to not unreasonably
interfere with Tenant's business, signs reasonably approved as to design and
location by Tenant indicating that the Demised Premises are for rent and/or sale
and suitably identifying Landlord or its agent, and (ii) upon at least two (2)
business days' advance notice to Tenant, to exhibit the Demised Premises to
prospective tenants.
20.3 Indemnification by Tenant. To the fullest extent allowed by law,
--------------------------
Tenant shall at all times indemnify, defend and hold Landlord harmless against
and from any and all claims by or on behalf of any person or persons, firm or
firms, corporation or corporations, arising from the conduct or management, or
from any work or things whatsoever done in or about the Demised Premises during
the Term of this Lease, other than as a result of the negligence or willful
misconduct of Landlord or its officers, agents, employees, contractors or
subcontractors, or as a result of Landlord's breach of its obligations under
this Lease, and Tenant shall further indemnify, defend and hold Landlord
harmless against and from any and all claims arising during the Term of this
Lease from any condition of the Improvements (other than defects in construction
of the initial Improvements or other items Landlord is required to repair or
maintain), or of any passageways or space therein, other than as a result of the
negligence or willful misconduct of Landlord or its officers, employees, agents,
contractors or subcontractors or as a result of Landlord's breach of its
obligations under this Lease, or arising from any act or gross negligence of
Tenant, its agents, servants, employees or licenses, or arising from any
accident, injury or damage whatsoever caused to any person, firm or corporation
occurring during the Term of this Lease in or about the Demised Premises, other
than as a result of the negligence or willful misconduct of Landlord or its
officers, employees, agents, contractors or subcontractors, or as a result of
Landlord's breach of its obligations under this Lease, and from and against all
costs, attorneys' fees, expenses and liabilities incurred in or about any such
claim or action or proceeding brought thereon; and in case any action or
proceeding be brought against Landlord by reason of any such claim, Tenant, upon
notice from Landlord, covenants to defend such action or proceeding by counsel
reasonably satisfactory to Landlord subject to the requirements of Tenant's
insurer. Tenant's obligations under this Section 20.3 shall be insured by
contractual liability endorsement on Tenant's policies of insurance required
under the provisions of Section 6.2 hereof to the extent reasonably obtainable.
20.4 Notices. All notices, demands and requests which may be or are
--------
required to be given, demanded or requested by either party to the other shall
be in writing, and shall be sent by United States registered or certified mail,
postage prepaid, by an independent overnight courier service marked for next
business day delivery, or by telephonic facsimile transmission with automatic
written time and date confirmation of delivery transmitted between the hours of
9:00 a.m. and 5:00 p.m. (time zone of recipient, but only if confirmed within
two (2) business days by receipt of a mailed or personally delivered copy), and
addressed as follows:
To Landlord:
ADI Mesa Partners - AMCC, L.P.
c/o The Allen Group
4365 Executive Drive, Suite 850
San Diego, California 92122-2130
Attention: Mr. Steven L. Black
Facsimile: 619-550-1935
35
<PAGE>
To Tenant:
Applied Micro Circuits Corporation
61 95 Lusk Boulevard
San Diego, California 92121-2793
Attention: Mr. Joel O. Holliday
Facsimile: 619-535-6800
or at such other place as a party hereto may from time to time designate by
written notice thereof to the other. Notices, demands and requests which shall
be served upon Landlord by Tenant, or upon Tenant by Landlord, in the manner
aforesaid, shall be deemed received three (3) days after delivery to United
States mail, one (1) business day after delivery to an overnight courier
service, or at the time such notice, demand or request shall be transmitted by
facsimile (if confirmed as written above).
20.5 Quiet Enjoyment. Landlord covenants and agrees that Tenant, upon
---------------
paying the Base Rent and Additional Rent and upon observing and keeping the
covenants, agreements and conditions of this Lease on its part to be kept,
observed and performed, shall lawfully and quietly hold, occupy and enjoy the
Demised Premises (subject to the provisions of this Lease) during the Term of
this Lease without hindrance or molestation by Landlord or by any person or
persons claiming under Landlord.
20.6 Landlord's Continuing Obligations. The term "Landlord," as used
---------------------------------
in this Lease, so far as covenants or obligations on the part of Landlord are
concerned, shall be limited to mean and include only the owner or owners at the
time in question of the fee of the Demised Premises, and in the event of any
transfer or transfers or conveyance, the then grantor shall be automatically
freed and relieved from and after the date of such transfer or conveyance of all
liability as respects the performance of any covenants or obligations on the
part of Landlord contained in this Lease thereafter to be performed, provided
that any funds in the hands of such landlord or the then grantor at the time of
such transfer, in which Tenant has an interest, shall be turned over to the
grantee, and any amount then due and payable to Tenant by Landlord or the then
grantor under any provision of this Lease, shall be paid to Tenant, and further
provided that the new Landlord expressly assumes in writing for the benefit of
Tenant all obligations of Landlord under this Lease. The covenants and
obligations contained in this Lease on the part of Landlord shall, subject to
the aforesaid, be binding on Landlord's successors and assigns during and in
respect of their respective successive periods of ownership. Nothing herein
contained shall be construed as relieving Landlord of its obligations under
Article II of this Lease or releasing Landlord from any obligation to complete
the cure of any breach by Landlord during the period of its ownership of the
Demised Premises. However, Tenant agrees to look solely to Landlord's interest
in the Land, the Building and the Improvements for the recovery of any judgment
from Landlord, it being agreed that, if Landlord is a partnership, Landlord's
partners, whether general or limited, or if Landlord is a corporation, its
directors, officers and shareholders, shall never be personally liable for any
such judgments or damages. Notwithstanding the foregoing, Landlord and its
general partner, Allen Development, Inc., a California corporation, shall be
fully and personally liable for claims by Tenant relating to Landlord's
obligations under Sections 2.1 (The Improvements), 2.5 (Liquidated Damages for
Delay in Substantial Completion) and 2.8 (Condition of Demised Premises; Limited
Warranty).
20.7 Estoppel. Tenant shall, without charge at any time and from time
--------
to time, within ten (10) business days after written request by Landlord,
certify by written instrument, duly executed, acknowledged and delivered to any
mortgagee, assignee of a mortgagee, proposed mortgagee, purchaser or proposed
purchaser, or any other person dealing with Landlord or the Demised Premises:
(a) That this Lease (and all guaranties, if any) is unmodified
and in full force and effect (or, if there have been modifications, that
the same is in full force and effect, as modified and stating the
modifications);
(b) The dates to which the Base Rent or Additional Rent have been
paid in advance.
(c) Whether or not there are then existing any breaches or
defaults by such party or the other party known by such party under any of
the covenants, conditions, provisions, terms or agreements of this Lease,
and specifying such breach or default, if any, or any set-offs or defenses
against the enforcement of any covenant, condition, provision, term or
agreement of this Lease (or of any guaranties) upon the part of Landlord or
Tenant (or any guarantor), as the case may be, to be performed or complied
with (and, if so, specifying the same and the steps being taken to remedy
the same); and
(d) Such other statements or certificates as Landlord or any
mortgagee may reasonably request.
36
<PAGE>
It is the intention of the parties hereto that any statement delivered
pursuant to this Section 20.7 may be relied upon by any of such parties dealing
with Landlord or the Demised Premises. Failure by Tenant to timely respond to
such request shall be deemed Tenant's certification of the accuracy of such
matters.
20.8 Delivery of Corporate Documents. In the event that Tenant is a
-------------------------------
corporation or similar business entity (e.g., limited partnership, limited
liability company or limited liability partnership), Tenant shall, without
charge to Landlord, at any time and from time to time within ten (10) business
days after written request by Landlord, deliver to Landlord, in connection with
any proposed sale or mortgage of the Demised Premises, the following instruments
and documents:
(a) Certificate of Good Standing in the state of incorporation of
Tenant and in the state in which the Demised Premises are located issued by the
appropriate state authority and bearing a current date;
(b) A copy of Tenant's articles of incorporation and by-laws (or
partnership or operating agreement, as the case may be) and any amendments or
modifications thereof certified by the secretary or assistant secretary (or
managing partner or member, as the case may be) of Tenant;
(c) A written and certified confirmation from the secretary or
assistant secretary (or managing partner or member, as the case may be) that (i)
this Lease has been duly authorized' by all necessary corporate action and is a
valid and binding agreement enforceable in accordance with its terms; and (ii)
Tenant is a duly organized and validly existing corporation under the laws of
its state of incorporation, is duly authorized to carry on its business, and is
in good standing under the laws of the state in which the Demised Premises are
located, if different from the state of incorporation.
20.9 Memorandum of Lease. Concurrently with their execution and
-------------------
delivery of this Lease, the parties shall execute, acknowledge and deliver to
each other, a Memorandum of Lease in the form attached hereto as Exhibit "D" and
-----------
made a part hereof. Such Memorandum of Lease may be recorded by either party, at
their sole cost and expense.
20.10 Severability. If any covenant, condition, provision, term or
------------
agreement of this Lease shall, to any extent, be held invalid or unenforceable,
the remaining covenants, conditions, provisions, terms and agreements of this
Lease shall not be affected thereby, but each covenant, condition, provisions,
term or agreement of this Lease shall be valid and in force to the fullest
extent permitted by law.
20.11 Successors and Assigns. The covenants and agreements herein
----------------------
contained shall bind and inure to the benefit of Landlord, its successors and
assigns, and Tenant and its permitted successors and assigns.
20.12 Captions. The caption of each article of this Lease is for
--------
convenience and reference only, and in no way defines, limits or describes the
scope or intent of such article or of this Lease.
20.13 Relationship of Parties. This Lease does not create the
-----------------------
relationship of principal and agent, partnership, joint venture, or any
association or relationship between Landlord and Tenant, the sole relationship
between Landlord and Tenant being that of landlord and tenant.
20.14 Entire Agreement. All preliminary and contemporaneous
----------------
negotiations are merged into and incorporated in this Lease. This Lease,
together with the exhibits attached hereto, contains the entire agreement
between the parties and shall not be modified or amended in any manner except by
any instrument in writing executed by the parties hereto.
20.15 No Merger. There shall be no merger of this Lease or of the
---------
leasehold estate created by this Lease with any other estate or interest in the
Demised Premises by reason of the fact that the same person, firm, corporation
or other entity may acquire, hold or own, directly or indirectly, (a) this Lease
or the leasehold interest created by this Lease or any interest therein, and (b)
any such other estate or interest in the Demised Premises, or any portion
thereof. No such merger shall occur unless and until all persons, firms,
corporations or other entities having an interest (including a security
interest) in (1) this Lease or the leasehold estate created thereby, and (2) any
such other estate or interest in the Demised Premises, or any portion thereof,
shall join in a written instrument expressly affecting such merger and shall
duly record the same.
20.16 Possession and Use. Tenant acknowledges that the Demised
------------------
Premises are the property of Landlord and that Tenant has only the right to
possession and use thereof upon the covenants, conditions, provisions, terms and
agreements set forth in this Lease.
37
<PAGE>
20.17 Surrender of Demised Premises. Subject to the other provisions
-----------------------------
of this Lease, at the expiration of the Term of this Lease, Tenant shall
surrender the Demised Premises in the same condition as they were in upon
delivery of possession thereto at the Commencement Date, reasonable wear and
tear, casualty and condemnation excepted, and shall surrender all keys to the
Demised Premises to Landlord at the place then fixed for the payment of Base
Rent, and shall inform Landlord of all combinations on locks, safes and vaults,
if any. Tenant shall at such time remove all of its property therefrom and all
alterations and improvements placed thereon by Tenant if so requested by
Landlord, or otherwise allowed, subject to Sections 19(e) and (g). Tenant shall
repair any damage to the Demised Premises caused by such removal, and any and
all such property not so removed shall, at Landlord's option, become the
exclusive property of Landlord or be disposed of by Landlord, at Tenant's cost
and expense, without further notice to or demand upon Tenant, subject to
applicable law and Sections 19(e) and (g).
All property of Tenant not removed on or before the last day of the
Term of this Lease shall be deemed abandoned in accordance with, and subject to,
applicable law.
20.18 Holding Over. In the event Tenant remains in possession of the
------------
Demised Premises after expiration of this Lease and without the execution of a
new lease, it shall be deemed to be occupying the Demised Premises as a tenant
from month-to-month, subject to all the provisions, conditions and obligations
of this Lease insofar as the same can be applicable to a month-to-month tenancy,
except that the Base Rent shall be escalated to one hundred and twenty-five
percent (125%) of the then current Base Rent for the Demised Premises for the
first three (3) months of such tenancy and one hundred fifty percent (150%) of
such amount thereafter, and from and after such three (3) month period, Tenant
shall indemnify, defend and hold Landlord harmless against loss or liability
resulting from the delay by Tenant in so surrendering the Demised Premises,
including without limitation any claim made by any succeeding occupant founded
on such delay. Tenant's obligation to observe or perform this covenant shall
survive the expiration or other termination of this Lease.
20.19 Survival. All obligations of either party (together with
--------
interest or money obligations at the Maximum Rate of Interest) accruing prior to
expiration of the Term of this Lease shall survive the expiration or other
termination of this Lease.
20.20 Broker's Commission. Tenant and Landlord represent that they
-------------------
have dealt only with (i) The Irving Hughes Group, Inc., and (ii) CB Commercial
Real Estate Group, Inc., as brokers in connection with this Lease. Landlord
shall be responsible for paying the commissions owing to such brokers under
separate written agreements between Landlord and such brokers in the amount of
Three Hundred Seventy Six Thousand Dollars ($376,000), which shall be shared
equally between them. Tenant and Landlord will indemnify, defend and hold the
other harmless from and against any loss, cost or expense, including, but not
limited to, reasonable attorneys' fees and court costs, resulting from any claim
for a fee or commission by any other broker or finder resulting from their own
actions.
20.21 Applicable Law. This Lease shall be governed and interpreted in
--------------
accordance with the laws of the State of California.
20.22 Counterparts. This Lease may be executed in one or more
------------
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute a single instrument.
20.23 Attorneys' Fees. In the event of any litigation, arbitration,
---------------
mediation or any other action taken by either party to this Lease to enforce any
provision of this Lease, enforce any remedy available upon default under this
Lease, or seek a declaration of the rights of a party under this Lease, the
prevailing party shall be entitled to recover in such action such attorneys'
fees and costs as may be reasonably incurred, including, without limitation, the
costs of reasonable investigation, preparation and professional or expert
consultation, travel expenses, costs on appeal, court reporter fees and
expenses, incurred by reason of such litigation, arbitration or other action.
All other attorneys' fees and cost relating to this Agreement and the
transactions described herein shall be borne by the party incurring the same.
38
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto have caused this Lease
to be duly executed as of the day and year first above written.
LANDLORD:
ADI MESA PARTNERS - AMCC, L.P.,
a California limited partnership
By: Allen Development, Inc.,a California corporation
Its General Partner
By:
----------------------------------
Steven L. Black
Its: President
TENANT:
APPLIED MICRO CIRCUITS CORPORATION,
A Delaware Corporation
By:
----------------------------------
JOEL O. HOLLIDAY
Its: Vice President, Finance and Administration
By: Allen Development, Inc., a Califoration Corporation
Its General Partner
By: /s/ S L Black
------------------------
Steven L. Black
Its: President
TENANT:
APPLIED MICRO CIRCUITS CORPORATION,
a Delaware corporation
By: /s/ Joel O. Holliday
--------------------------
Joel O. Holliday
Its: Vice President, Finance and Administartion
39
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION OF PROPERTY
Parcel 2 of Parcel Map No. 17755 in the City of San Diego, County of
San Diego, State of California, filed in the Office of the County Recorder of
San Diego County September 17, 1996, as File No. 1996-474607 of Official
Records.
A-1
<PAGE>
EXHIBIT "B"
PRELIMINARY PLANS AND SPECIFICATIONS
PACIFIC
CORNERSTONE
ARCHITECTS, INC.
LEASE EXHIBIT B
SHELL BUILDING & SITEWORK
OUTLINE SPECIFICATIONS
A
BUILD-TO-SUIT
FOR
AMCC
OCTOBER 17, 1996
PACIFIC CORNERSTONE ARCHITECTS, INC.
8810 REHCO ROAD, SUITE 'C'
SAN DIEGO, CA 92121
(619) 677-9880
B-1
<PAGE>
PROJECT DATA
PROJECT: AMCC
Parcel 2 of Parcel Map 17755
LOCATION: Lusk/Mira Mesa Business Park East II, Unit 2
DATE: May 6, 1996
July 30, 1996 AND REVISED OCTOBER 17, 1996
1. Construction Type IIIN - Tilt Up Concrete and steel Frame with Glass
Curtainwall
2. Number of Stories One Story with Mezzanine
3. Use Office, Manufacturing, Warehouse
4. Use Zone Planned Industrial Development #88-0499
5. Square Footage 89,190 sf
(Gross)
6. Est. Site Area 4.901 acres (gross)
7. Est. Site Coverage 42%
8. Parking Data 297 cars (3.33/1000)
9. Loading Provide one 12'x14' grade level door
10.Trash and Recycling Provide two enclosures for two standard (4'x7') trash
bins.
11. Floor Height 14'-0"
12. Clear Height 9'-12' ceiling height in manufacturing area
9'-23' ceiling height in office area
24' clear in warehouse
13. Panel Height 34' to parapet
14. Drive Aisle Widths 24'/26' as shown
15. Fire Sprinklers Fully Fire Sprinklered to serve a density of .33 GPM
over the most remote 3,000
s.f. of Warehouse area and .15/2000 s.f. at Office
areas with provision for .33
gpm over 3,000 sf
16. Skylights Provide one (1) 8x8 at lobby and six (6) 4x8 acrylic
skylights in the open office
areas. Any additional skylights shall be included
within the T.I. allowance
17.Electrical 277/480 3000 amp, 3 phase, 4 wire service
DESCRIPTION: The project consists of a build-to-suit on Lot 2.
SCOPE: All building improvements shall be complete in every
respect as defined by, but not limited to, the content of
the schematic drawings and outline
B-2
<PAGE>
specifications. AMCC is making a move toward an "open
interactive teaming" environment from its current
compartmentalized atmosphere. An emphasis will be placed on
flexible space where natural light, vision to outdoors and
white board meeting areas will be important to a desirable
workplace.
CODES: The building shall be Type III non-rated, B occupancy. All
construction shall conform to local and state codes and
regulations in effect at the time of construction. All
placement of concrete, reinforcing steel in masonry units
and/or concrete and all field weld plates and field welding
shall be inspected by an independent testing laboratory.
VALUE
ENGINEERING: Contractor(s) are encouraged to provide value engineering
alternates to the attention of the Architect for review and
consideration.
DIVISION I GENERAL REQUIREMENTS
All work shall be in conformance with all applicable codes
and regulations. Contractor shall be responsible for
coordination of all work to be performed and for
conformance to the contract documents.
DIVISION 2 SITEWORK
Earthwork Provide all grading and reshaping of existing site as
required to achieve conformance with new finish grade
elevations. A balanced site is assumed.
Site Utilities Provide all sewer, gas, water, storm drain, electrical,
telephone and cable television services as required.
Irrigation All landscaped areas to be fully irrigated and be operated
by a central automatic controller. Proposed parkway
landscaping is included. Provide planter drainage per
minimum design guideline standards.
Landscaping Provide plant material and soil amendments per minimum
guidelines standards.
Walkway Finishes Provide an allowance of 8000 s.f. of natural color, 4"
nominal thickness over natural grade Finishes enhanced
paving. Enriched paving at entry plaza and patio area as
shown on landscape plan. Finishes to be selected by
Architect.
Asphalt Concrete Asphalt concrete paving over class II crushed aggregate
base minimum thickness to be 3" A.C. over 5" base at
parking; 31/=" A.C. over 6" base at drives and 4" A.C. over
7" base at heavy truck traffic areas; 6" concrete with #3
at 24" O.C. at truck areas, or as specified per soils
report. Provide sand seal finish.
Paving Curb Mow Strips All curb and gutters shall be constructed of concrete in
accordance to City of San Diego & Standards.
B-3
<PAGE>
DIVISION 3 CONCRETE
Foundations Continuous and pad footings of reinforced concrete at slab
on grade, columns and shear walls as required.
Floors Slab-on-grade minimum 6" thick 3,000 P.S.I., concrete slab
on grade, reinforced with #3 rebar at 18" o.c., over 4"
sand. Include visqueen at all areas.
Walls 61/2" minimum thick, natural color, reinforced concrete
tilt-up panels with 3/4" deep recesses and reveals.
Sandblasted and/or painted finish where indicated on the
drawings.
Columns 1'-0'x3'-0" natural color, concrete columns. Paint to match
building.
Trash Enclosures 6'-0" high tilt-up concrete with finish to match buildings.
Mechanical 9'-0" high tilt-up concrete with finish to match building,
Iouvers and Iouvered gates as required by mechanical
equipment. Enclosures
DIVISION 4 MASONRY
Split faced natural color concrete as required for
retaining wall. Deep strike and flush strike joints for
pattern in the stacked bond arrangement. (See civil and
architectural drawings.)
DIVISION 5 METALS
Columns 7"x7" steel columns, base plates and connection as
required.(bay spacing per plan)
Miscellaneous Metals Concrete panel embeds, steel guards and metal pipe crash
posts, steel roof access ladder and trash enclosure
hardware will be provided under this section of work. (See
Division 7 for roof access hatch).
Preformed Metal
Sidings Provide 22 gauge galvanized steel siding with ribbed
pattern P-13 by Curoco or equal for trash enclosure gate
covering.
Roof Screen None provided. Roof screening to be achieved by building
parapet.
Metal Roof 24 ga. galvalum standing seam metal roof over one layer,
5/8" duraboard substrate. Framing per structural drawings.
DIVISION 6 WOOD AND PLASTICS
Glue Laminated
Lumber & Wood
Trusses All major roof framing to consist of members as determined
by contractor. Size and length as required. All lumber to
comply with regulations as specified in rough carpentry
regulations below.
B-4
<PAGE>
Roof 1/2" nominal plywood over 2 x 6's at 24" o.c. panelized
roof system.
Rough Carpentry All soffit-framing, roof framing and bracing shall conform
to applicable requirements for lumber grading as specified
in West Coast Lumber Inspection Bureau Grading and Dressing
Rule No. 16, the Western Wood Products Association, and the
American Plywood Association. In addition to complying with
applicable codes and regulation, comply with pertinent
recommendations contained in the 1994 edition of the UBC.
Finish Carpentry Included in Tenant Improvement Allowance.
DIVISION 7 MOISTURE AND THERMAL PROTECTION
Membrane All roofs shall have a four-ply fiberglass built-up roofing
system with capsheet (i.e., Manville Roofing specification
roofing 4 GNC). Provide 10 year guarantee/maintenance plan.
Building/Sound
& Thermal
Insulation Included in Tenant Improvement Allowance.
Roof Drainage Provide internal roof and overflow drains. Roof drains to
connect to below grade storm drain where accessible or
daylight at face of curb or building wall in loading areas.
Minimum roof slope to be 1/4" per foot.
Sealants Utilize silicone base sealant at all glazing conditions.
Concrete panel joints are to receive polyurethane sealant
with 1" polyurethane backer rod. Sealants used in walking
surfaces shall be polyurethane type. Colors to be selected
by Architect/Tenant.
Sheet Metal Provide all sheet metal work for the building, complete;
including reglets, and counter flashings for roofing.
Materials to be galvanized sheet metal, 24 gauge minimum
thickness.
Roof Accessories Provide roof hatch by "Bilco" Type S-20 (2'-6" X 3'-0").
Locate in telephone room.
Skylights Provide twenty nine (29) skylights by Bristol Fiberlite
Industries model. 4896 ALCMDD (4'-0" x 8'-0") at
conditioned areas. Skylight at Lobby to be (3) 8 x 8
pyramid type double dome skylights by Bristol Fiberlite
Industries. Additional skylights to be included in the
Tenant Improvement Allowance.
Draft Curtains Included in Tenant Improvement Allowance.
DIVISION 8 DOORS AND WINDOWS
Custom Interior
Doors Included in Tenant Improvement Allowance.
Entry Doors Provide (1) pair of herculite doors at lobby. Provide total
of 2 pair and 10 single 3'-0" X 8'-10" X 1-3/4" narrow
stile aluminum and glass system. Frame finish to be as
specified in "Aluminum Framing" below.
B-5
<PAGE>
Steel Doors Provide 18-gauge 3'-0" X 8'-10"X 1-3/4" hollow metal steel
doors, frames and stops. Prime and paint (see Division 9,
painting). At all manufacturing areas typical.
All fire-rated doors and frames to comply with UBC sec.
4306
All fire-rated doors and entry doors shall be equipped with
closers.
Hardware All builder's hardware shall be 626 finish (satin stainless
steel finish). Lock and latch sets shall be equal to
Schlage Series L, Full mortise with lever handle design.
All fire rated doors and storefront entry doors shall be
equipped with closures. All hardware shall meet state Title
24 requirements for handicapped accessibility. Provide 12"
high satin stainless kick plates at toilet room doors.
Overhead Coiling
Doors Provide one (1) 12'x14' overhead coiling doors, constructed
of 20-gauge minimum slats. Provide hand-operated chain
drive opening and closing mechanism. Prime and paint (see
Division 9, painting).
Aluminum Framing All extruded aluminum sections shall be 2"x 4-1/2" off-set
flush glazed (silicone butt joint) system. Interior finish
to be black silicone polyester powder coat. Exterior custom
color finish to be factory applied, oven baked, Color to be
selected by the Architect/Owner.
Exterior Glass
& Glazing Glass to be noted on drawings from the following
categories: Curtain Wall Glass: 1/4" High Performance.
Storefront Glass: 1/4" Greylite 14% by PPG Industries.
Glass selections are for general reference only. See plans
for specific glass types and locations.
Interior Glass
& Glazing Included in Tenant Improvement Allowance.
DIVISION 9 FINISHES
Carpeting Included in Tenant Improvement Allowance.
Vinyl Flooring Included in Tenant Improvement Allowance.
Interior Painting Included in Tenant Improvement Allowance.
Wood Caps Included in Tenant Improvement Allowance.
Exterior Wall Finish Concrete tilt-up panels and concrete columns to receive
painted finish. Reveals to be smoothed finished.
B-6
<PAGE>
Metal Framing & Furring Steel studs shall be 16,20 and 25 gauge as indicated on
drawings or required. Drywall furring channels shall be 25
gauge "hat" sections. Backing plates shall be 1/8" steel of
proper size to accommodate fastenings and shall be welded
to 20 gauge steel studs, See drawings for specific size and
locations,
Gypsum & Drywall Provide gypsum wallboard at designated locations as
required in Shell Building. Board thickness to be 5/8" at
vertical and 5/8" at horizontal surface applications, In
areas requiring fire ratings, wall board shall be 5/8"
"Type X". In areas subject to moisture, use water resistant
(WR) gypsum board. All gypsum board surfaces shall be
finished as smooth wall to receive a Lo-GIo satin sheen
type paint.
Ceramic Tile Included in Tenant Improvement Allowance.
Slate Tile Included in Tenant Improvement Allowance.
Exterior Soffits Soffits to be constructed from 5/8" moisture resistant
gypsum board. Provide 1/8" thick plaster skim coat. Color
by Architect. Provide allowance of 300 s.f. in Shell
Building.
Suspended
Acoustical Ceilings Included in Tenant Improvement Allowance.
Warehouse Floors Included in Tenant Improvement Allowance.
DIVISION 10 SPECIALTIES
Toilet Accessories Included in Tenant Improvement Allowance.
Window Coverings Included in Tenant Improvement Allowance.
Monument Signage Included in Tenant Improvement Allowance.
Signage Provide all site and building signage necessary for proper
identification of handicapped parking areas, fire lanes and
building address and identification.
Fire Extinguishers Provide as required by Code as part of the Shell Building.
DIVISIONS 11
Lunch Room
Equipment All lunch room and related food preparation appliances to
be provided by Tenant.
Athletic Equipment All athletic and recreational equipment to be provided by
Tenant.
Projection Screen Included in the Tenant Improvement Allowance.
DIVISION 12
Furnishings All interior and exterior desks, tables, chairs, system
furniture, whiteboards, etc. to be provided by Tenant.
B-7
<PAGE>
DIVISION 13 NOT USED
DIVISION 14 NOT USED
DIVISION 15 MECHANICAL
Shell Plumbing Provide water stubbed to building and one single sewer line
extending the length of the building.
Fire Protection
System Provide on-site fire hydrants as required by local
jurisdictions. Entire Shell Building to be fire sprinklered
with a density of .33 GPM over the most remote 3,000 square
feet of warehouse area and .15/2000 sf in all other areas
with provision for .33 gpm over 3,000 sf.
Gas Service Stubbed pending design.
Utilities Owner to pay for water and sewer hookups.
Heating,
Ventilating
& Air Conditioning Included in Tenant Improvement Allowance.
Nitrogen Tank
and Piping Tank provided by Tenant. All gas piping, fittings, etc
included in Tenant Improvement Allowance.
DIVISION 16 ELECTRICAL
General Shell electrical work shall include a complete service and
distribution system of metering facilities, conduit,
conductors, main switch board, sub-panels, branch circuits,
and exterior lighting fixtures.
Main service to the building to be 277/480 volt 3 phase 4
wire 3000 amp. minimum voltage.
Building Power
and Lighting Electric room and telephone room will be provided. Provide
electrical per plans and outline.
Electrical work shall include a pull section and main
switchgear, conduit, conductors, main switch board, house
panel, branch circuits, lighting fixtures, wall switches,
receptacles, etc. as required for outdoor lighting.
Power for Equipment Included in Tenant Improvement Allowance.
Installation All electrical work to be in accordance with applicable
codes. All necessary outlets, conduit, wiring, trenching,
and concrete encasing shall be provided as required.
Interior Lighting Included in Tenant Improvement Allowance.
B-8
<PAGE>
Exterior Lighting Provide low pressure sodium pole mounted light fixtures on
24" diameter concrete bases as required throughout the
surface parking areas. Use formliner to avoid candy
striping. No candy striping will be allowed.
Provide low pressure sodium wall mounted light fixtures at
rear of building for truck doors only. Provide incandescent
round bollard fixtures and upright fixtures at walkways and
landscape areas.
A system of outdoor landscape, illumination fixtures shall
be provided. Future power for security systems shall be
provided.
Telephone & Data
Communications Included in Tenant Improvement Allowance.
Security System Tenant to provide all necessary devices, conduit, wiring,
access door hardware, etc., for installation, operation and
monitoring of a security system.
UPS system A UPS system to be provided by Tenant, if required.
Fire Suppression
@ Computer Room Special fire suppression system to be provided by Tenant,
if required.
END OF OUTLINE SPECIFICATIONS
B-9
<PAGE>
EXHIBIT "C"
TENANT IMPROVEMENTS BUDGET ESTIMATE
<PAGE>
EXHIBIT 10.10
MIRA MESA BUSINESS PARK
STANDARD SINGLE-TENANT CENTER LEASE
ARTICLE ONE
BASIC TERMS
This Article One contains the Basic Terms of this lease between the
Landlord and Tenant named below. Other Articles, Sections and Paragraphs of
this Lease referred to in this Article One explain and define the Basic Terms
and are to be read in conjunction with the Basic Terms.
Section 1.01 - Date of Lease. April 8, 1992
----------------------------
Section 1.02 - Landlord. MIRA MESA BUSINESS PARK JOINT VENTURE NO. 326162,
-----------------------
a Joint Venture
Address of Landlord: 5897, Oberlin Drive, Suite 204, San Diego, CA
92121
Section 1.03 - Tenant. APPLIED MICRO CIRCUITS CORPORATION, a California
----------------------
Corporation.
Address of Tenant: 5502 Oberlin Drive, San Diego, CA 92121
Section 1.04 - Premises. 5502 Oberlin Drive / Lots 12 & 13 of Lusk
-----------------------
Industrial Park, Unit I, in the City of San Diego, San Diego California,
consisting Of 20,771 square feet of office and industrial space, shown on the
Site Plan attached hereto as Exhibit "A".
Section 1.05 - Lease Term. - Six (6) years beginning on April 1, 1992 or
-------------------------
such other date as specified in this Lease, and ending on March 31, 1998
Section 1.06 - Permitted Uses. (See Section 5.01) General offices, the
-----------------------------
Production, assembly and warehousing of semiconductor products and related
activities, general manufacturing, and research and development.
Section 1.07 - Tenant's Guarantor (If none, So State) None.
---------------------------------
Section 1.08 - Initial Security Deposit. (See Section 3.03 and Paragraph
----------------------------------------
13.03(c)) Seventeen Thousand Four Hundred Fifty and no/100 Dollars
($ 17,450 00 * ),* on account.
Section 1.09 - Vehicle Parking Space Allocated to Tenant. N/A
--------------------------------------------------------
Section 1.10 - Rent and Other Charges Payable by Tenant.
-------------------------------------------------------
(a) Base Rent. Twelve Thousand Four Hundred Sixty Two & 60/100
---------
Dollars ($12,462.60 ) per month for the first 24 months, as provided in Section
3.01, and shall be increased on the twenty fifth (25th) lease month to
$13,501.15 per month for the next 24 months of the Lease Term; and on the forty-
ninth lease month to $14,539.70 per month for the remainder of the Lease Term
months (the "Adjustment Months") after the Commencement Date.
1
<PAGE>
(b) Other Periodic Payments - (i) Real Property Taxes. (See Section
4.02); (ii) Utilities (See Section 4.03); (iii) Insurance Premiums (See Section
4.04); (iv) Common Area Expense (See Section 4.05). The initial monthly common
area charge is to be based upon estimates by Landlord of monthly operating costs
under paragraph (4.05d); and (v) Repairs and Alterations (See Article Six).
Section 1.11 - Riders. The following Riders are attached to and made
---------------------
a part of this Lease: (If none, so state.) None.
ARTICLE 2
LEASE TERM
Section 2.01 - Lease of Premises For Lease Term. Landlord leases the
------------------------------------------------
Premises to Tenant and Tenant leases the Premises from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.05 above and shall
begin and end on the dates specified in Section 1.05 above, unless the beginning
or end of the lease Term is changed under any provision of this lease. The
"Commencement Date" shall be the date specified in Section 1.05 above for the
beginning of the Lease Term, unless advanced or delayed under any provision of
this Lease.
Section 2.02 -DELETED
---------------------
Section 2.03 - Early Occupancy. If Tenant occupies the Premises prior to
------------------------------
the Commencement Date, tenant's occupancy of the Premises shall be subject to
all of the provisions of this Lease. Early occupancy of the premises, shall not
advance the expiration date of this Lease. Tenant shall pay Base Rent and all
other charges specified in this Lease for the early occupancy period.
Section 2.04 - Holding Over. Tenant shall vacate the Premises upon the
---------------------------
expiration or earlier termination of this lease. Tenant shall reimburse
Landlord for and indemnify Landlord against usual and customary damages
recognized by law and incurred by Landlord from any delay by Tenant in vacating
the Premises. If Tenant does not vacate the Premises upon the expiration or
earlier termination of this Lease and Landlord thereafter accepts rent from
Tenant, Tenant's occupancy of the Premises shall be a "month-to-month" tenancy,
subject to all the terms of this Lease applicable to a month-to-month tenancy,
except that the Base Rent then in effect shall be increased by twenty-five
percent (25%).
ARTICLE THREE
BASE RENT
Section 3.01 - Time and Manner of Payment. Upon execution of this Lease,
-----------------------------------------
Tenant shall pay Landlord the Base Rent in the amount stated in Paragraph
1.10(a) above for the first month of the Lease Term. On the first day of each
month thereafter, Tenant shall pay Landlord the Base Rent, in advance, without
offset, deduction or prior demand. The Base Rent shall be payable at Landlord's
address or at such other place as Landlord may designate in writing. Landlord
does hereby grant to Tenant the right to abate the payment of $6,231.30 per
month of the Rent which would otherwise be due under the Lease, for the period
of six (6) months commencing on April 1, 1992 and ending on September 30, 1992,
amounting to the total sun of Thirty-seven Thousand Three Hundred Eighty-seven
and 80/100 Dollars ($37,387.80).
Section 3.02 - Cost of Living Increases. The Base Rent for any option
---------------------------------------
period adjusted by way of increase every twenty-four (24) months commencing on
the first day of the twenty-fifth (25th) month of the
2
<PAGE>
option period, shall be in proportion to the increase in the Index which has
occurred between the first month of the option period and the first Adjustment
Month in which the Base Rent is to be increased, and in the second and
succeeding Adjustment Months. in proportion to the increase in the Index which
has occurred between the immediately preceding Adjustment Month and the
Adjustment Month for which the Base Rent increase is being calculated. Landlord
shall notify Tenant of each increase by delivering a written statement setting
forth (i) the Index for the first month of the option period, with respect to
the first Adjustment Month Base Rent increase, or the Index for the immediately
preceding Adjustment Month, with respect to the second and succeeding rental
adjustments; (ii) the Index for the Adjustment Month in which the Base Rent is
to be increased; (iii) the percentage increase between those two Indices; and
(iv) the new Base Rent amount. The Base Rent shall not be reduced from the last
previous adjusted Base Rent by reason of any decrease in the Index Tenant shall
pay the new Base Rent from its effective date until the next Adjustment Month.
Landlord's notice may be given after the effective date of the increase since
the Index for the appropriate month may be unavailable on the effective date. In
such event, Tenant shall pay Landlord the necessary rental adjustment for the
months elapsed between the effective date of the increase and Landlord's notice
of such increase within ten (10) days after Landlord's notice. If the format or
components of the Index are materially changed after the Date of Lease, Landlord
shall substitute an index which is published by the Bureau of Labor Statistics
or similar agency and which is most nearly equivalent to the Index in effect on
the Date of Lease. Landlord shall notify Tenant of the substituted index, which
shall be used to calculate the increase In the Base Rent unless Tenant objects
in writing within fifteen (15) days after receipt of Landlord's notice. If
Tenant objects, the substitute index shall be determined in accordance with the
rules and regulations of the American Arbitration Association. The cost of such
arbitration shall be borne equally by Landlord and Tenant.
Section 3.03 -DELETED
---------------------
Section 3.04 - Termination: Advance Payments. Upon termination of this
--------------------------------------------
Lease under Article Seven (Damage or Destruction), Article Eight (Condemnation)
or any other termination not resulting from Tenant's default, and after Tenant
has vacated the Premises in the manner required by this Lease, an equitable
adjustment shall be made concerning advance rent and any other advance payments
made by Tenant to Landlord, and Landlord shall refund the unused portion of the
Security Deposit to Tenant or Tenant's Successor. Notwithstanding the terms
contained in this Section 3.04, the Security Deposit shall be applied pursuant
to California Civil Code Section 1950.7.
ARTICLE FOUR
OTHER CHARGES PAYABLE BY TENANT
Section 4.01 - Additional Rent. All charges payable by Tenant other than
------------------------------
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
all Additional Rent shall be paid with the next monthly installment of Base
Rent. The term "rent" shall mean Base Rent and Additional Rent.
Section 4.02 - Real Property Taxes.
-----------------------------------
(a) Payment of Taxes. Tenant shall pay to Landlord the real property
----------------
tax on the Premises during the Lease Term. Such tax for any partial year of the
Lease Term shall be prorated on a time basis. Landlord shall notify Tenant in
writing of the real property taxes and immediately upon receipt of the tax bill
furnish Tenant with a copy of the tax bill. Tenant shall pay the real property
taxes semi-annually to Landlord not later than thirty (30) days before the
taxing authority's delinquency date. Landlord shall
3
<PAGE>
reimburse or credit the account of Tenant for any real property taxes by Tenant
covering any period of time prior to or after the Lease Term. If Tenant fails to
pay any such taxes, Landlord may pay the same, in which case Tenant shall repay
such amount to Landlord with Tenant's next monthly payment of rent, together
with interest at the rate set forth in Section 4.07 of the Lease. Further, if
Tenant fails to pay any such taxes, Landlord may declare that the collection of
real property taxes as a portion of the Operating Expenses is to be reinstated
pursuant to Paragraphs 4.05(d) and 4.05(e) of the Lease, by delivering to Tenant
a revised estimate and bill for Operating Expenses which reflects monthly real
property tax installments. Tenant shall retain the right, at its sole cost, to
challenge any real property tax on the Premises upon compliance with challenge
procedures of the taxing authority imposing the tax, and Landlord shall execute
any documents it deems necessary for Tenant to maintain such a challenge.
(b) Definition of "Real Property Tax". "Real property tax" means:
--------------------------------
(i) any fee, license fee, license tax, business license fee, commercial rental
tax, levy, charge, assessment, penalty or tax imposed by any taxing authority
against the Premises; (ii) any tax on the Landlord's right to receive, or the
receipt of rent or income from the Premises or against Landlord's business of
leasing the Premises; (iii) any tax or charge for fire protection, streets,
sidewalks, road maintenance, refuse or other services provided by any
governmental agency; (iv) any tax imposed upon this transaction, or based upon a
re-assessment due to a change in ownership or transfer of all or part of
Landlord's interest in the Premises; and (v) any charge or fee replacing any tax
previously included within the definition of real property tax. "Real Property
tax" does not, however, include Landlord's federal or state income, franchise,
inheritance or estate taxes. Real Property Tax shall not include the increased
amount of any tax based upon reassessment of the Premises due to a change in
ownership or transfer of all or part of Landlord's interest in the Premises
occurring during the first sixty (60) months of the Lease Term. Commencing in
the 61st month of the Lease Term and continuing until the end of the Lease Term,
excluding any extension period, "Real Property Tax" shall include the increased
amount of any tax based upon a reassessment of the Premises due to a single
change in ownership of transfer of Landlord's interest. Subsequent increases in
the amount of the tax due to any additional change in ownership or transfer of
interest, occurring from the 61st month through the end of the Lease Term, shall
not be included within the meaning of "Real Property Tax"
(c) Personal Property Taxes
----------------------------
(i) Tenant shall pay all taxes charged against trade
fixtures, furnishings, equipment or any other personal
property belonging to Tenant. Tenant shall exercise its best
efforts to have personal property taxed separately from the
Premises.
(ii) If any of Tenant's personal property is taxed with the
Premises, Tenant shall pay Landlord the taxes for the
personal property in the same manner as provided for the
payment of real property taxes in Paragraph 4.02(a), above.
Tenant shall retain the right, at its sole cost, to
challenge any real property tax on the Premises upon
compliance with challenge procedures of the taxing authority
imposing the tax, and Landlord shall execute any documents
it deems reasonably necessary for Tenant to maintain such a
challenge.
Section 4.03 - Utilities. Tenant shall pay, directly to the appropriate
------------------------
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Premises.
Section 4.04 - Insurance Premiums.
---------------------------------
4
<PAGE>
(a) Liability Insurance. During the Lease Term, Tenant shall
-------------------
maintain apolicy of comprehensive public liability insurance, at Tenant's
expense, insuring Landlord and Tenant against liability arising out of the
ownership, use, occupancy or maintenance of the Premises and all common areas.
The Initial amount of such insurance shall be at least $3,000,000 combined
single limit bodily injury, personal Injury, death and property damage liability
per occurrence, and shall be subject to periodic increase based upon inflation,
increased liability awards, recommendation of professional insurance advisers,
and other relevant factors. However, the amount of such insurance shall not
limit Tenant's liability nor relieve Tenant of any obligation hereunder. The
policy shall contain cross-liability endorsements if applicable, and shall
insure Tenant's performance of the provisions of Section 5.04 with respect to
indemnification for bodily Injury or property damage. Such policy shall contain
a provision which prohibits cancellation or modification of the policy except
upon thirty (30) days' prior written notice to Landlord. Tenant may discharge
its obligations under this Paragraph by naming Landlord as an additional insured
under a policy of comprehensive liability insurance maintained by Tenant and
containing the coverage and provisions described in this Paragraph. Tenant shall
deliver a copy of such policy or certificate (or a renewal thereof) to Landlord
prior to the Commencement Date and prior to the expiration of any such policy
during the Lease Term. If Tenant fails to maintain such policy, Landlord may
elect to maintain such insurance at Tenant's expense. Landlord may also elect to
maintain, at Landlord's expense, a Landlord's protective liability endorsement
with respect to the Premises. Tenant shall, at Tenant's expense, maintain such
other liability insurance as Tenant deems necessary to protect Tenant.
Notwithstanding the terms contained in this Paragraph, the requirement that the
policy of comprehensive public liability insurance insure Tenant's performance
of the indemnity provisions of Sections 5.04(c) and (d) of the Lease, shall not
include any obligation on the part of Tenant to maintain a policy insuring
Tenant's actual performance of the Lease, including the payment of rent. The
coverage requirements of Section 5.04 with respect to the acts and omissions of
Tenant shall extend only to such costs, claims and liability as are generally
considered to be within the broadest scope of comprehensive public liability
insurance.
(b) Property Insurance. During the Lease Term, Landlord shall
------------------
maintain at Tenant's expense, as provided in Section 4.04(c), policies of
property liability insurance covering loss of or damage to the Premises and all
common areas, in an amount not less than eighty percent (80%) of the replacement
value of the Premises, to include the building shell (general office and
warehouse improvements), landscaping, irrigation, and all other interior and
exterior improvements constructed by Landlord. Said Tenant expense shall
represent Landlord's cost of maintaining such insurance. Tenant shall have the
right to maintain, at its own cost, a separate policy or policies of property
damage liability insurance in the amount of the replacement value of all
improvements in and to the Premises constructed by Tenant. If Tenant maintains
such a separate policy of insurance, Tenant shall be required to name Landlord
as an additional insured and to deliver to Landlord a certificate evidencing the
existence, amounts and named insureds of such policy or policies. Such policies
shall provide standard "all risk" protection as that term is used in the
insurance industry, and any other perils which Landlord deems necessary
excluding flood and earthquake, unless same are required by the beneficiary of a
first trust deed encumbering the Premises. Tenant shall, at Tenant's expense,
maintain such primary or additional insurance on its fixtures, equipment and
building improvements as Tenant deems necessary to protect its interest. Tenant
shall not do or permit to be done anything which invalidates any such insurance
policies. If Tenant maintains a separate policy of insurance, Tenant shall name
Landlord, as an additional insured and deliver to Landlord a certificate
evidencing the existence, amounts and named insured of such policy or policies.
Landlord and Tenant each hereby agree to release and relieve the other, and
waive their entire right of recovery against the other for loss or damage
arising out of or incident to the perils to be insured against under this
Paragraph 4.04(b), and occurring in or about the Premises. Landlord and Tenant
shall give notice to the respective insurance carriers that the foregoing mutual
waiver of subrogation is contained in this Lease.
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(c) Payment of Premiums: Insurance Policies: Tenant shall pay
---------------------------------------
Landlord the amount of the insurance premiums for all policies maintained by
Landlord under Paragraph 4.04(b), including the full amount, if any, by which
such insurance premiums may increase over the Lease Term, whether such
increases result from the nature of Tenant's occupancy, any act or omission of
Tenant, the requirement of any lender referred to in Article Eleven
(Protection of Lenders), the increased value of the Premises, general rate
increases or increases in the amount of insurance carried or the percentage of
insured value. Tenant shall pay Landlord the amount of such premium in
accordance with Paragraphs 4.05(d) and 4.05(e). If the Lease Term expires
before the expiration of the insurance period, Tenant's liability shall be
prorated on an annual basis.
Section 4.05 - Common Area operation. Use and Expenses.
-------------------------------------------------------
(a) Common Area Defined. All areas within the exterior boundaries
-------------------
of the Premises, including without limiting the generality of the foregoing,
parking areas, driveways, truckways, delivery passages, loading docks,
sidewalks. ramps, landscaped and planted areas, exterior stairways, retaining
walls, fences, signs and other areas and improvements provided by Landlord for
the use of Tenant and Tenant's employees and invitees, shall be deemed "common
areas". Landlord may make changes at any time and from time to time in the size,
shape, location, number and extent of the common areas or any of them, so far as
necessary for the maintenance and repair of the common, areas or other property
owned by Landlord, and without the consent of Tenant so long as such changes do
not interfere with Tenant's permitted use of the Premises. No such change shall
entitle Tenant to any abatement of rent.
(b) Operation and Maintenance of Common Area.
-----------------------------------------
(i) Landlord's Obligation. Landlord agrees to operate,
---------------------
maintain and repair during the Lease Term all landscaping
and landscape irrigation systems within the common areas.
(ii) Tenant's Obligation. Tenant shall operate, maintain
-------------------
and repair during the Lease Term all common areas excluding
landscaping and landscape irrigation systems. Tenant's
obligation shall include general maintenance, repair and
replacement, cleaning, lighting, repaving, resurfacing,
painting, trash removal, security, fire protection,
compliance with the requirements of any federal, state or
local government agency regulating the Premises, and
contributions to necessary reserves for repair and
replacement of portions of the common area which Tenant is
required to maintain and repair. Tenant shall perform its
obligation to repair and maintain the common area in
conformance with (i) the Covenants, Conditions and
Restrictions for the Lusk/Mira Mesa Industrial Park,
recorded in the Office of the San Diego County Recorder,
California, (ii) the Architectural Standards/Association
Rules of the Lusk/Mira Mesa Industrial Park Association, a
California nonprofit corporation, and (iii) rules and
regulations for repair and maintenance of common areas as
may be prescribed from time to time by Landlord. In the
event that Tenant fails, refuses or neglects to maintain and
repair promptly and adequately its obligation as herein
specified, Landlord may, but shall not be required to do so,
undertake or complete such acts of maintenance, repair and
replacement of the common area as Landlord deems necessary,
without prior notice and at Tenant's sole cost and expense.
At Landlord's option, Tenant shall reimburse Landlord for
all costs and expenses of Landlord thereby incurred in
either of the following manners: (i) Payment within twenty
(20) days after receipt by Tenant from Landlord of a
statement setting forth such costs and expenses, or (ii) the
estimated monthly cost to Landlord for providing
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such maintenance and repair services shall be included as a
portion of the Operating Expenses, defined in Paragraph
4.05(d)(i) below, and paid by Tenant pursuant to Paragraph
4.05(e) below. Such costs and expenses shall be deemed to be
Additional Rent.
(a) Use of Common Areas. The use and occupancy by Tenant of
-------------------
the Premises shall include the use of common areas.
(b) Operating Expenses. Tenant shall pay to Landlord all
------------------
costs and expenses (the "Operating Expenses") incurred by Landlord in the
performance of its obligation for the operation, management , repair and
maintenance of the Premises (including the common areas) during the Lease Term.
Such expenses shall include, without limitation, the following: (i) expenses
incurred by Landlord pursuant to Articles Four and Six of this Lease; (ii)
expenses incurred by Landlord in connection with the Premises for general
landscaping, gardening and irrigation maintenance and repair; (iii)
contributions toward any reasonable reserves for repairs and replacements of
those portions of the Premises which Landlord is required to maintain and repair
under this Lease and the actual, cost of any repair or replacement in excess of
the amount of any such reserve therefor; (iv) all charges, surcharges and other
levies imposed by, and all costs (whether or not capital in nature) of
compliance with the requirements of any federal, state or local government
agency regulating the Premises; (v) regular and special assessments levied by
the Lusk/Mira Mesa Industrial Park Association against the Premises.
Notwithstanding the terms contained in this Paragraph, in no event shall the
Common Area expenses increase by more than four percent (4%) per annum, on a
cumulative basis, during the Lease Term, as defined in Section 4.05. Landlord
shall notify Tenant annually in writing of the collection and application of
funds for such reserves described in subparagraph (iii) above.
(c) Billing and Payment of Operating Expenses Tenant shall retain
-----------------------------------------
the right, at its sole cost, to challenge any real property tax on the Premises
upon compliance with challenge procedures of the taxing authority imposing the
tax, and Landlord shall execute any documents it deems reasonably necessary for
Tenant to maintain such a challenge.
(i) Notice. Landlord shall notify Tenant at least annually of the
------
Operating Expenses. The notice shall include a written estimate of
Operating Expenses for the coming period, which period shall be for a
number of full calendar months not to exceed twelve (12) in number,
and shall also include the estimated Operating Expenses for the coming
period divided by the number of calendar months in the period, which
shall be the amount of each installment which Tenant shall thereafter
be required to pay on account of Operating Expenses until Tenant is
notified of a different amount.
(ii) Time of Payment. Tenant shall pay to Landlord (without
---------------
demand), on or before the first (1st) day of each calendar month of
the Lease Term, Tenant's monthly installment of Operating Expenses as
shown on the notice which Tenant has most recently received from
Landlord pursuant to subparagraph (i) above or at Landlord's option as
actually incurred and billed by Landlord, either in advance or in
arrears, from time to time, but not more often than monthly. These
item shall be deemed to be Additional Rent and the failure of Tenant
to pay any such installment on or before such due date, and without
any deduction or offset, shall carry with it the same consequences as
Tenant's failure to pay rent under this Lease.
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(iii) Estimated Operating Expenses. Until Tenant has received its
----------------------------
first notification from Landlord pursuant to subparagraph (i) above,
Tenant shall pay its monthly installments of the initial Common area
charge set forth in Article One of this lease.
(iv) Annual Adjustment. Subsequent to the end of each calendar year,
-----------------
Landlord shall furnish Tenant with a statement of the actual amount of
Operating Expenses for the preceding calendar year. If the total
amount paid by Tenant is less than the actual amount due from Tenant,
Tenant shall pay to Landlord the difference within twenty (20) days
after the date of the statement. Any excess of the amount paid by
Tenant aver the actual due from Tenant shall be credited against
installments of Operating Expenses thereafter due from Tenant.
(v) Revised Estimates. Nothing contained in this Section shall be
-----------------
construed to limit the right of Landlord from time to time during any
calendar year to revise its estimates of the Operating Expenses and to
(i) submit a revised bill to Tenant containing increased monthly
installments to be payable by Tenant for the remainder of such period
pursuant to this Section; and/or (ii) to bill Tenant for the
difference between the aggregate amount of the monthly installments
for the preceding months of the period which would have been payable
by Tenant hereunder if based upon the revised estimates and the
aggregate amount of the monthly installments for the preceding months
payable by Tenant on the due date for each such installment. If
Landlord elects to proceed pursuant to clause (ii) of the preceding
sentence, Tenant shall pay to Landlord the amount shown on any such
bill within ten (10) days of Tenant's receipt thereof.
(vi) Taxes. The taxes payable by Tenant to Landlord under this
-----
Section and Section 4.02 of this Lease which are levied or assessed
for the fiscal tax year in which the Lease Term commenced, or which
are levied or assessed for the fiscal tax year in which the lease Term
expires, shall be prorated. Landlord shall have the right to notify
Tenant of any amount payable by Tenant to Landlord for taxes payable
to Landlord in accordance with this Section. Landlord may notify
Tenant prior to Landlord's receipt of assessment notices and/or tax
statements or bills covering any and all taxes. In the event that the
amount of any tax for any fiscal tax year is not known to Landlord at
the time of any of Landlord's notices to Tenant, Landlord may estimate
the amount and base the notice upon the estimated amount. Landlord and
Tenant shall adjust the estimated amount in accordance with the
provisions of subparagraph (v) above when the actual amount of the tax
is known to Landlord.
Section 4.06 - Late Charges. Tenant's failure to pay rent promptly may
---------------------------
cause Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but
are not limited to, processing and accounting charges and late charges which may
be imposed on Landlord by any ground lease, mortgage or trust deed encumbering
the Premises. Therefore, if Landlord does not receive any rent payment within
ten (10) days after it becomes due, Tenant shall pay Landlord a late charge
equal to six percent, (6%) of the overdue amount. The parties agree that such
late charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of such late payment.
Section 4.07 - Interest on Past Due Obligations. Any amount owed by Tenant
-----------------------------------------------
to Landlord which is not paid when due shall bear interest at the maximum rate
allowed by law, not to exceed the discount rate of the Federal Reserve Bank of
San Francisco, plus five percent (5%), from the due date of such amount.
However, interest shall not be payable on late charges to be paid by Tenant
under this Lease. The payment of interest on such amounts shall not excuse or
cure any default by Tenant under this Lease.
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ARTICLE FIVE
USE OF PREMISES
Section 5.01 - Permitted Uses. Tenant may use the Premises only for the
-----------------------------
Permitted Uses set forth in Section 1.06 above.
Section 5.02 - Manner of Use. The Covenants, Conditions and Restrictions
----------------------------
of Lusk Industrial Park are attached to, and made a part of, this lease. Tenant
shall not cause or permit the Premises to be used in any way which constitutes a
violation of any law, ordinance, governmental regulation or order, or any
Covenants, Conditions and Restrictions, or any amendment, supplement or
restatement thereof, recorded against the real property of which the Premises
are a part, which interferes with the rights of tenants of the development of
which the Premises are a part, or which constitutes a nuisance or waste. Tenant
shall obtain and pay for all permits, including a Certificate of Occupancy,
required for Tenant's occupancy of the Premises and shall promptly take all
substantial and non-substantial actions necessary to comply with all applicable
statutes, ordinances, rules, regulations, orders, covenants, conditions and
restrictions of record, and requirements regulating the use by Tenant of the
Premises, including the Occupational Safety and Health Act.
Section 5.03 - Signs and Auctions. Tenant shall not place any signs on or
---------------------------------
about the Premises or common areas without Landlord's prior written consent,
which consent shall not be unreasonably withheld. Tenant shall not conduct or
permit any auctions or sales at the Premises.
Section 5.04 - Indemnity. Tenant shall indemnify Landlord against and hold
------------------------
Landlord harmless from any and all costs, claim or liability arising from: (a)
Tenant's use of the Premises; (b) the conduct of Tenant's business or anything
else done or permitted by Tenant to be done in or about the Premises; (c) any
breach or default in the performance of Tenant's obligations under this lease;
(d) any misrepresentation or breach of warranty by Tenant under this lease; or
(e) other acts or omissions of Tenant. Tenant shall defend Landlord against any
such cost, claim or liability at Tenant's expense with counsel reasonably
acceptable to Landlord or, at Landlord's election, Tenant shall reimburse
Landlord for any reasonable legal fees or costs incurred by Landlord in
connection with any such claim. As a material part of the consideration to
Landlord, Tenant hereby assumes all risk of damage to property or injury to
persons in or about the Premises arising from any cause, except for any damage
to property or injury to persons arising from acts or omissions of Landlord, and
Tenant hereby waives all claims in respect thereof against Landlord, except for
any claim arising out of Landlord's gross negligence or willful misconduct, to
the extent not covered by insurance provided under the term of this lease.
Landlord shall indemnify Tenant against and hold Tenant harmless from any and
all costs, claims or liability arising form the negligent acts or intentional
misconduct of Landlord, to the extent not covered by insurance provided under
the terms of the Lease. Landlord shall indemnify Tenant against and hold Tenant
harmless from any and all costs, claims or liability arising from the negligent
acts or intentional misconduct of Landlord, to the extent not covered by
insurance provided under the terms of the lease. Billing and Payment of
----------------------
Operating Expenses. Tenant shall retain the right, at its sole cost to
- -----------------------------------------------------------------------
challenge any real property tax on the Premises upon compliance with challenge
- ------------------------------------------------------------------------------
procedures of reasonably necessary for Tenant to maintain such a challenge.
- ---------------------------------------------------------------------------
Section 5.05 - Landlord's Access. Landlord or its agents may enter the
--------------------------------
Premises at all reasonable times to show the Premises to potential buyers,
investors or tenants or other parties, or for any other purpose Landlord deems
necessary, provided that, Tenant has given its consent to such entry, after
being given reasonable notice, except in the case of an emergency. Tenant shall
not unreasonably withhold its consent. Tenant may refuse entry where such entry
would disrupt essential operations. Landlord may also place
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customary "For Sale" or "For Lease" signs on the Premises which do not
unreasonably interfere with Tenant's permitted use of the Premises, upon written
approval from Tenant which shall not be unreasonably withheld.
Section 5.06 - Quiet Possession. If Tenant pays the rent and complies with
-------------------------------
all other terms of this lease, Tenant may occupy and enjoy the Premises for the
full lease Term, subject to the provisions of this Lease.
ARTICLE SIX
CONDITION OF PREMISES: MAINTENANCE, REPAIRS AND ALTERATIONS
Section 6. 01 - Existing Conditions. Tenant accepts the Premises in their
-----------------------------------
condition as of the execution of this Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Tenant acknowledges
that neither Landlord nor any agent of Landlord has made any representation, as
to the condition of the Premises or the suitability of the Premises for Tenant's
intended use.
Section 6.02 - Exemption Of Landlord from Liability. Landlord shall not be
---------------------------------------------------
liable for any damage or injury to any person, business (or any loss of income
therefrom), goods, wares, merchandise or other property of Tenant, Tenant's
employees, invitees, customers or any other person, in or about the Premises,
whether such damage or injury is caused by or results from: (a) fire, steam,
electricity, water, gas or rain; (b) the breakage, leakage, obstruction or other
defects of pipes, sprinklers, wires. appliances, plumbing, air conditioning or
lighting fixtures or any other cause; or (c) conditions arising in or about the
Premises, or from other sources or places. Landlord shall not be liable for any
such damage or injury even though the cause of or the means of repairing such
damage or injury are not accessible to Tenant. The provisions of this Section
6.02 shall not, however, exempt Landlord from liability for Landlord's
negligence or willful misconduct, to the extent not covered by insurance that is
provided under the terms of this Lease.
Section 6.03 - Tenant's Obligations.
------------------------------------
(a) Except for the obligations of Landlord under Paragraph
4.05(b), Tenant shall keep in good order, condition and repair the Premises and
every part, structural and nonstructural (whether or not such portion of the
Premises requiring repair, or the means of repairing the same are reasonably or
readily accessible to Tenant, and whether or not the need for such repairs
occurs as a result of Tenant's use, any prior use, the elements or the age of
such portion) including, without limiting the generality of the foregoing, all
plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities and equipment within the Premises, fixtures, walls (interior and
exterior), floors, windows, doors, plate glass and skylights located within the
Premises, and all common areas, driveways, parking areas, truck ways, delivery
passages, loading docks, sidewalks, ramps, exterior stairways, retaining walls,
fences, signs and other areas and improvements of the Premises.
(b) If Tenant fails, refuses or neglects to perform its
obligations under this Section 6.03, Landlord may, but shall not be required to
do so, perform such obligations on Tenant's behalf as Landlord deems necessary
to put the Premises in good order, condition and repair, without prior notice
and at Tenant's sole cost and expense. At Landlord's option, Tenant shall
reimburse Landlord all costs and expenses of landlord thereby incurred in either
of the following manners: (i) payment within 20 days after receipt by Tenant
from Landlord of a statement setting forth such costs and expenses, or (ii) the
estimated monthly cost to Landlord for performing such obligation of Tenant
shall be included as a portion of the Operating
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Expenses, defined in Paragraph 4.05(d)(i) above, and paid by Tenant pursuant to
Paragraph 4.05(e) above. Such costs and expenses shall be deemed to be
Additional Rent.
Section 6.04 - Landlord's Obligations. Except for the obligations of
-------------------------------------
Landlord under Paragraph 4.05(b), Article Seven (Damage or Destruction) and
Article Eight (Condemnation), it is intended by the parties hereto that Landlord
have no obligation, in any manner whatsoever, to repair and maintain the
Premises and the common areas nor the equipment therein, whether structural or
nonstructural, all of which obligations are intended to be that of the Tenant
under Section 6.03 hereof. Tenant, expressly waives the benefit of any statute
now or hereinafter in effect which would otherwise afford Tenant the right to
make repairs at Landlord's expense or to terminate this Lease because of
landlord's failure to keep the Premises and the common areas in good order,
condition and repair.
Section 6.05 - Alterations, Additions, Improvements and Repairs.
----------------------------------------------------------------
(a) Tenant shall not make any alterations, additions,
improvements or repairs to the Premises without Landlord's prior written
consent, except for nonstructural alterations which do not exceed Three Hundred
Thousand Dollars ($300,000.00) cumulative total cost over the Lease Term, and
which are not visible from the outside of the Premises. Landlord may require
Tenant to provide demolition and/or lien and completion bonds in form and amount
satisfactory to Landlord. Tenant shall promptly remove any alterations,
additions, improvements or repairs constructed in violation of this Paragraph
6.05(a) upon Landlord's written request. All alterations, additions,
improvements and repairs will be accomplished in a good and workmanlike manner,
in conformity with all applicable laws and regulations, and by a contractor
approved by Landlord. Upon completion of any such work, including any
improvements undertaken by Tenant prior to the Commencement Date, Tenant shall
provide Landlord with "as-built" plans, copies of all construction contracts,
and proof of payment for all labor and materials. The parties recognize that
substantial interior alterations and improvements will be made from time to time
by Tenant during the course of the Lease Term. Landlord shall not unreasonably
withhold its consent to such alterations and improvements.
(b) Tenant shall pay when due all claims for labor and material
furnished to the Premises. Tenant shall give Landlord at least ten (10) days'
prior written notice of the commencement of any work on the Premises. Landlord
may elect to record and post notices of non-responsibility on the Premises.
Section 6.06 - Condition upon Termination. Upon the termination of this
-----------------------------------------
Lease, Tenant shall surrender the Premises to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under any provision of this Lease. However,
Tenant shall not be obligated to repair any damage which Landlord is required to
repair under Article Seven (Damage or Destruction). In addition, Landlord may
require Tenant to remove any alterations, additions or improvements or any
portion thereof, other than the original Tenant improvements constructed and to
restore the Premises to their prior condition, all at Tenant's expense.
Landlord shall exercise this right to require removal by Tenant upon the earlier
of: (a) Landlord's issuance of written consent to make alteration, additional
improvements or repairs; (b) if Landlord's consent is not required, thirty (30)
days after Tenant's delivery of "as-built" plans to Landlord; or (c) if
Landlord's consent is not requested and Tenant fails to provided Landlord with
"as-built" plans at any time prior to the termination of the Lease. All
alterations, additions and improvements which Landlord has not required Tenant
to remove shall become landlord's property and shall be surrendered to Landlord
upon the termination of this Lease, except that Tenant may remove any of
Tenant's trade fixtures, personal property, machinery or equipment which can be
removed without material damage to the Premises. Tenant shall repair, at
Tenant's expense, any damage to the Premises caused by the removal of any such
trade fixtures, personal property, machinery or equipment.
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In no event, however, shall Tenant remove any of the following materials or
equipment without Landlord's prior written consent: any power wiring or power
panels; lighting or lighting fixtures; wall coverings; drapes, blinds or other
window coverings; carpets or other floor coverings; heaters, air conditioners or
any other heating or air conditioning equipment; fencing or security gates; or
other similar building operating equipment and decorations.
ARTICLE SEVEN
DAMAGE OR DESTRUCTION
Section 7.01 - Partial Damage to Property. Tenant shall notify Landlord in
-----------------------------------------
writing immediately upon the occurrence of any damage to the Premises. For
purposes of this Lease, partial damage shall be defined to include destruction
of or damage to the Premises, the repair of which would cost 33-1/3% or less of
the replacement cost. If the Premises are only partially damaged and if the
proceeds received by Landlord from the insurance policies described in Paragraph
4.04(b) are sufficient to pay for the necessary repairs, this Lease shall remain
in effect and Landlord shall repair the damage as soon as reasonably possible.
Landlord may elect to repair any damage to Tenant's fixtures, equipment, or
improvements. If the insurance proceeds received by Landlord are not sufficient
to pay the entire cost of repair, or if the damage was due to a cause not
covered by the insurance policies which Landlord maintains under Paragraph
4.04(b), Landlord may elect to (a) repair the damage as soon as reasonably
possible in which case this Lease shall remain in full force and effect, or (b)
terminate this Lease as of the date the damage occurred. Landlord shall notify
Tenant within thirty (30) days after receipt of notice of the occurrence of the
damage, whether Landlord elects to repair the damage or terminate this Lease.
If Landlord elects to repair the damage and if the damage was due to an act or
omission of Tenant, Tenant shall pay Landlord upon demand the difference between
the actual cost of repair and any insurance proceeds received by Landlord. If
Landlord elects to terminate this lease, Tenant way elect to continue this Lease
in full force and effect, in which case Tenant shall repair any damage to the
Premises and any building in which the Premises are located. Tenant shall pay
the cost of such repairs, except that, Landlord shall deliver to Tenant
insurance proceeds received by Landlord for the damage repaired by Tenant.
Disbursement of insurance proceeds shall be according to the same terms and
procedures provided under Section 7.02. Tenant shall give landlord written
notice of such election within ten (10) days after receiving Landlord's
termination notice. If the damage to the Premises occurs during the last six
(6) months of the Lease Term, Landlord may elect to terminate this Lease as of
the date the damage occurred regardless of the sufficiency of any insurance
proceeds. In such event, Landlord shall not be obligated to repair or restore
the Premises and Tenant shall have no right to continue this Lease. Landlord
shall notify Tenant of its election, within thirty (30) days after receipt of
notice of the occurrence of the damage.
Section 7.02 - Total or Substantial Destruction. For purposes of this
-----------------------------------------------
Lease, total or substantial destruction shall be defined to include destruction
of or damage to the Premises, the repair of which would cost in excess of 33-
1/3% of the replacement cost. If the Premises are totally or substantially
destroyed by any cause whatsoever, or if the Premises are in a building which is
substantially destroyed (even though the Premises are not totally or
substantially destroyed), this Lease shall terminate as of the date the
destruction occurred regardless of whether Landlord receives any insurance
proceeds. However, if the Premises can be rebuilt within one (1) year after the
date of destruction, Landlord may elect to rebuild the Premises at Landlord's
own expense, in which case, this Lease shall remain in full force and effect.
Landlord shall notify Tenant of such election within thirty (30) days after the
occurrence of total or substantial destruction. If the Premises are totally or
substantially destroyed, and Landlord does not elect to rebuild within thirty
(30) days of the occurrence of the destruction and Tenant may elect to continue
to Lease in full force and effect, in which case Tenant shall repair any damage
to the Premises at Tenant's expense. Tenant shall make its
12
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election within thirty (30) days after the date of Landlord's notice. Provided
that Landlord gives timely notice to Tenant, as required, of its election not to
rebuild, Tenant shall have one (1) year from the date of destruction to complete
the rebuilding of the Premises. Disbursement of any insurance proceeds shall be
made to Tenant in stages during the course of rebuilding, or in accordance with
such other procedure as may be the policy of the insurer, and shall be subject
to Landlord's right to demand customary assurances that the work to date has
been completed according to plans and specifications, and lien free. If the
destruction was caused by an act or omission of Tenant, Tenant shall pay
Landlord the difference between the actual cost of rebuilding and any insurance
proceeds received by Landlord.
Section 7.03 - Temporary Reduction of Rent. If the Premises are partially
------------------------------------------
destroyed or damaged and Landlord or Tenant repairs or restores the Premises
pursuant to the provisions of this Article Seven, the Base Rent payable during
the period of such damage, repair and/or restoration shall be reduced according
to the degree, if any, to which Tenant's use of the Premises is impaired.
However, the reduction shall not exceed the sum of one year's payment of Base
Rent. Except for such possible reduction in Base Rent, Tenant shall not be
entitled to any compensation, reduction, or reimbursement from Landlord as a
result of any damage, destruction, repair, or restoration of or to the Premises.
If the Premises are totally destroyed and Landlord or Tenant rebuilds pursuant
to the provisions of Article 7, the Base Rent payable during the period of
destruction of rebuilding shall be reduced according to the degree to which
Tenant's use of the Premises is impaired. However, the reduction shall neither
exceed the sum of the (1) year's payment of Base Rent nor continue for a period
in excess of one (1) year after the date of destruction.
Section 7.04 - Waiver. Tenant waives the protection of any statute, code
---------------------
or judicial decision which grants a tenant the right to terminate a lease in the
event of the substantial destruction of the leased property. Tenant agrees that
the provisions of Section 7.02 above shall govern the rights and obligations of
Landlord and Tenant in the event of any substantial or total destruction to the
Premises.
ARTICLE EIGHT
CONDEMNATION
If all or any portion of the Premises are taken under the power of eminent
domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
If more than twenty percent (20%) of the floor area of the building in which the
Premises are located, or which is located on the Premises, is taken, either
Landlord or Tenant may terminate this Lease as of the date the authority takes
title or possession, by delivering written notice to the other within ten (10)
days after receipt of written notice of such taking (or in the absence of such
written notice to the other within ten (10) days after the condemning authority
takes possession). If neither Landlord nor Tenant terminates this Lease, this
lease shall remain in effect as to the portion of the Premises not taken, except
that the Base Rent shall be reduced in proportion to the reduction in the floor
area of the Premises. Any Condemnation award or payment shall be distributed in
the following order: (a) first, to any ground lessor, mortgagee or, under a deed
of trust encumbering the Premises, the amount of its interest in the Premises;
and (b) second, to Landlord, the remainder of such award, whether as
compensation for reduction in the value of the leasehold, the taking of the fee,
or otherwise. If this Lease is not terminated, Landlord shall repair any damage
to the Premises caused by the Condemnation, except that Landlord shall not be
obligated to repair any damage for which Tenant has been reimbursed by the
condemning authority. If the severance damages received by Landlord are not
sufficient to pay for such repair, Landlord shall have the right to either
terminate this lease or make such repair at Landlord's expense. Tenant shall be
entitled to the amount of any award specifically designated
13
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by the condemning authority as compensation for loss or damage to (i) the value
of Tenant's right of occupancy of the Premises under the Lease; (ii) Tenant's
unamortized leasehold improvements and (iii) depreciation to, and the cost of
removal of, Tenant's personal property and fixtures.
ARTICLE NINE
ASSIGNMENT AND SUBLETTING
Section 9.01 - Landlord's Consent Required. No portion, of the Premises or
------------------------------------------
of Tenant's interest in this Lease may be acquired by any other person or
entity, whether by assignment, mortgage, sublease, transfer, operation of law,
or act of Tenant, without Landlord's prior written consent, except as provided
in Section 9.02 below. Landlord shall grant or withhold its consent as provided
in Section 9.04 below. Any attempted transfer without consent shall be void and
shall constitute a non-curable breach of this Lease. If Tenant is a
partnership, any cumulative transfer of more than twenty percent (20%) of the
partnership interests shall require Landlord's consent.
Section 9.02 Tenant's Affiliate. Tenant may assign this lease or sublease
-------------------------------
the Premises, without Landlord's consent, to any corporation which controls, is
controlled by or is under common control with Tenant, or to any corporation
resulting from the merger of or consolidation with Tenant ("Tenant's
Affiliate"). In such case, any Tenant's Affiliate shall assume in writing all
of Tenant's obligations under this lease.
Section 9.03 - No Release of Tenant. No transfer permitted by this Article
-----------------------------------
Nine, whether with or without Landlord's consent, shall release Tenant or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article Nine. Consent to one transfer
is not a consent to any subsequent transfer. If Tenant's transferee defaults
under this lease, Landlord may proceed directly against the transferee.
Landlord, shall obtain Tenant's consent to subsequent assignments of
modifications of this lease by Tenant's transferee which consent shall not be
unreasonably withheld.
Section 9.04 Landlord's Election. Tenant's request for consent to any
--------------------------------
transfer described in Section 9.01 above shall be accompanied by a written
statement setting forth the details of the proposed transfer, including the
name, business and financial condition of the prospective transferee, financial
details of the proposed transfer (e.g., the term of and rent and security
deposit payable under any assignment or sublease), and any other information
Landlord deems relevant. Landlord shall have the right (a) to withhold consent,
if reasonable; (b) to grant consent; or (c) if the transfer is a sublease of the
Premises or an assignment of this Lease, to condition its consent on the written
agreement of all parties that Landlord shall receive a one-half share of any
rent to be paid by the assignee or sub-tenant which is in excess of the rent
paid by Tenant under the terms of the Lease. Such one-half share shall be
deemed Additional Rent for purposes of the Lease.
Section 9.05 - No Merger. No merger shall result from Tenant's sublease of
------------------------
the Premises under this Article Nine, Tenant's surrender of this Lease or the
termination of this lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord thereunder.
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ARTICLE TEN
DEFAULTS: REMEDIES
Section 10.01 - Covenants and Conditions. Tenant's performance of each of
----------------------------------------
Tenant's obligations under this Lease is a option as wall as a covenant.
Tenant's right to continue in possession of the Premises is conditioned upon
such performance. Time is of the essence in the performance of all covenants
and conditions.
Section 10.02 - Defaults. Tenant shall be in material default under this
------------------------
Lease:
(a) If Tenant abandons the Premises or if Tenant's vacation of the
Premises results in the cancellation of any insurance described in Section 4.04.
(b) If Tenant fails to pay rent or any other charges required to be paid
by Tenant, as and when due, and such failure continues for a period of three (3)
days after receipt of written notice from Landlord to Tenant.
(c) If Tenant fails to perform any of Tenant's non-monetary obligations
under this Lease for a period of thirty (30) days after written notice from
Landlord; provided that if more than thirty (30) days are required to complete
such performance, Tenant shall not be in default if Tenant commences such
performance within the thirty (30) day period and thereafter diligently pursues
its completion.
(d) (i) If Tenant makes a general assignment or general arrangement for
the benefit of creditors; (ii) if a petition for adjudication of bankruptcy or
for reorganization or rearrangement is filed by or against Tenant and is not
dismissed within ninety (90) days; (iii) if a trustee or receiver is appointed
to take possession of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease and possession is not restored to
Tenant within forty-five (45) days; or (iv) if substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this Lease is
subjected to attachment, execution or other judicial seizure which is not
discharged within forty-five (45) days. If a court of competent jurisdiction
determines that any of the acts described in this subparagraph (d) is not a
default under this Lease, and a trustee is appointed to take possession (or if
Tenant remains a debtor in possession) and such trustee or Tenant transfers
Tenant's interest hereunder, then Landlord shall receive, as Additional Rent,
the difference between the rent (or any other consideration) paid in connection
with such assignment or sublease and the rent payable by Tenant hereunder.
Section 10.03 - Remedies. On the occurrence of any material default by
------------------------
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(a) Terminate Tenant's right to possession of the Premises by any lawful
means, in which case this lease shall terminate and Tenant shall immediately
surrender possession of the Premises to Landlord. In such event, Landlord shall
be entitled to recover from Tenant all damages incurred by Landlord by reason of
Tenant's default, including (i) the worth at the time of the award of the unpaid
Base Rent, Additional Rent and other charges which had been earned at the time
of the termination; (ii) the worth at the time of the award of the amount by
which the unpaid Base Rent, Additional Rent and other charges which would have
been earned after termination until the time of the award exceeds the amount of
such rental loss that Tenant proves could have been reasonably avoided; (iii)
the worth at the time of the award of the amount by which the unpaid Base Rent,
Additional Rent and other charges which would have been paid for the balance of
the term after the time of
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award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; and (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, including, but not limited to, any costs or expenses
incurred by Landlord in maintaining or preserving the Premises after such
default, the cost of recovering possession of the Premises, expenses of
reletting, including necessary renovation or alteration of the Premises,
Landlord's reasonable attorneys' fees incurred in connection therewith, and any
real estate commission paid or payable. As used in subparts (i) and (ii) above,
the "worth at the time of the award" is computed by allowing interest on unpaid
amounts at the maximum lawful rate. As used in subpart (iii) above, the "worth
at the time of the award" is computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of the award, plus
1%. If Tenant shall have abandoned the Premises, Landlord shall have the option
of (i) retaking possession of the Premises and recovering from Tenant the amount
specified in this Paragraph 10.03(a), or (ii) proceeding under Paragraph
10.03(b);
(b) Maintain Tenant's right to possession, in which case this lease
shall continue in effect whether or not Tenant shall have abandoned the
Premises. In such event, Landlord shall be entitled to enforce all of Landlord's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder;
(c) Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the state in which the Premises are
located.
Section 10.04 - Cumulative Remedies. Landlord's exercise of any right or
-----------------------------------
remedy shall not prevent it from exercising any other right or remedy.
ARTICLE ELEVEN
PROTECTION OF LENDERS
Section 11.01 - Subordination. Landlord shall not have the right to
-----------------------------
subordinate this Lease to any ground lease, deed of trust or mortgage
encumbering the Premises, any advances made on the security thereof and any
renewals, modifications, consolidations, replacements or extensions thereof,
whenever made or recorded subsequent to the date hereof, unless the ground
lessor, beneficiary of the Deed of Trust or mortgage agrees that Tenant's right
to quiet possession of the Premises during the Lease Term shall not be disturbed
if Tenant pays the rent and performs all of Tenant's obligations under this
lease and is not otherwise in default. If any ground lessor, beneficiary or
mortgagee elects to have this Lease prior to the lien of its ground lease, deed
of trust or mortgage and gives written notice thereof to Tenant, this Lease
shall be deemed prior to such ground lease, deed of trust or mortgage whether
this Lease is dated prior or subsequent to the date of said ground lease, deed
of trust or mortgage or the date of recording thereof. The Lease shall be
subordinate to the lien of the permanent loan Deed of Trust in favor of the
Northwestern Life Insurance Company, Beneficiary, to be recorded against the
Premises prior to the Commencement Date of the Lease, and Tenant agrees to
execute such customary documents as may be necessary to effect said
subordination.
Section 11.02 - Attornment. If Landlord's interest in the Premises are
--------------------------
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the premises and recognize such transferee
or successor as Landlord under this Lease provided that such transferee agrees
that Tenant's right to quiet possession of the
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Premises during the Lease Term shall not be disturbed if Tenant pays rent and
performs all of Tenant's obligations under the Lease and is not otherwise in
default.
Section 11.03 - Signing of Documents. Tenant shall sign and deliver any
------------------------------------
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant fails to do so within fifteen
(15) business days after written request, Tenant hereby makes, constitutes and
irrevocably appoints Landlord or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
Section 11.04 - Estoppel Certificates.
--------------------------------------
(a) Upon Landlord's written request, Tenant shall execute,
acknowledge and deliver to Landlord a written statement certifying: (i) that
none of the terms or provisions of this Lease have been changed (or if they have
been changed, stating how they have been changed); ii) that this lease has not
been, canceled or terminated; (iii) the last date of payment of the Base Rent
and other charges and the time period covered by such payment; and (iv) that
Landlord is not in default under this Lease (or, if Landlord is claimed to be in
default, stating why). Tenant's certification that Landlord is not in default
under the Lease shall be limited to defaults which are known, to the best of
Tenant's knowledge, and shall not constitute a waiver of any default by Landlord
not known to Tenant. Tenant shall deliver such statement to Landlord within
fifteen (15) days after Landlord's request. Any such statement by Tenant may be
given by Landlord to any prospective purchaser or encumbrancer of the Premises.
Such purchaser or encumbrancer may rely conclusively on such statement as true
and correct.
(b) If Tenant does not deliver such statement to Landlord within such
fifteen day period, Landlord, and any prospective purchaser or encumbrancer may
conclusively presume and rely upon, the following facts: (i) that the term and
provisions of this lease have not been changed except as otherwise represented
by Landlord; (ii) that this Lease has not been canceled or terminated except as
otherwise represented by Landlord; (iii) that not more than one (1) month's Base
Rent or other charges have been paid in advance; and (iv) that landlord is not
in default under this lease. In such event, Tenant shall be estopped from
denying the truth of such facts. The presumption and reliance of a prospective
purchaser or encumbrancer that Landlord is not in default under the Lease shall
be limited to defaults which are known to the best of Tenant's knowledge.
(c) Upon Tenant's written request, Landlord shall execute,
acknowledge and deliver to Tenant written statement certifying: (i) that none of
the terms of the Lease have been changed (or if they have been changed stating
how they have been changed); (ii) that the Lease has not been canceled or
terminated; (iii) the last date of payment of the Base Rent and other charges in
the time period covered by such payment; and (iv) that, to the best of
Landlord's knowledge and without waiving any default not known to Landlord,
Tenant is not in default under the Lease (or, if Tenant is claimed to be in
default, stating why). Landlord shall deliver such statement to Tenant within
fifteen (15) business days after Tenant's request. Tenant may use such statement
for whatever purpose it deems appropriate.
(d) If Landlord does not deliver the statement described above to
Tenant within such fifteen-business-day following facts: (i) that the terms and
conditions of this Lease have not changed except as otherwise represented by
Tenant; (ii) that this Lease has not been canceled or terminated except as
otherwise represented by Tenant; and (iii) that, to the best of Landlord's
knowledge, Tenant is not in default under the Lease.
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Section 11.05 - Tenant's Financial Condition. Within fifteen (15) business
--------------------------------------------
days after written request from Landlord, Tenant shall deliver to Landlord
Tenant's most recent fiscal year and financial statement or the current annual
financial statement of any assignee or subtenant. Tenant shall deliver to any
lender designated by Landlord any financial statement required by such lender to
facilitate the financing or refinancing of the Premises. Tenant represents and
warrants to Landlord that (a) each such financial statement is a true and
accurate statement as of the date of such statement. Within fifteen (15)
business days from the date hereof, Tenant shall deliver to Landlord a copy of
Tenant's most recent quarterly financial report.
ARTICLE TWELVE
LEGAL COSTS
Section 12.01 - Legal Proceedings. Tenant shall reimburse Landlord, upon
---------------------------------
demand for any reasonable attorney fees and costs incurred by Landlord from any
claim or litigation for which Landlord is required to retain legal counsel in
order to protect its rights as owner of the Premises. Furthermore, if any action
for breach or to enforce the provisions of this Lease is commenced, the court in
such action shall award to the party in whose favor a judgment is entered, a
reasonable sum as attorneys' fees and costs. Such attorneys' fees and costs
shall be paid by the losing party in such action. Tenant shall also indemnify
Landlord against and hold Landlord harmless from all costs, expenses, demands
and liability incurred by Landlord if Landlord becomes or is made a party to any
claim or action (a) instituted by Tenant, or by any third party against Tenant;
(b) for foreclosure of any lien for labor or material furnished to or for Tenant
or such other person; (c) otherwise arising out of or resulting from any act or
transaction of Tenant or such other person; or (d) necessary to protect
Landlord's interest under this Lease in a bankruptcy proceeding, or other
proceeding under Title 11 of the United States Code, as amended. Tenant shall
defend Landlord against any such claim or action at Tenant's expense with
counsel reasonably acceptable to Landlord or, at Landlord's election, Tenant
shall reimburse landlord for any legal fees or costs incurred by landlord in any
such claim or action.
Section 12.02 - Landlord's Consent Tenant shall pay Landlord's reasonable
----------------------------------
out of pocket attorney's fees incurred in connection with Tenant's request for
Landlord's consent under Article Nine (Assignment and Subletting), or in
connection with any other act which Tenant proposes to do and which requires
Landlord's consent.
ARTICLE THIRTEEN
MISCELLANEOUS PROVISIONS
Section 13.01 - Non-Discrimination. Tenant promises, and it is a
-----------------------------------
condition to the continuance of this lease, that there will be no discrimination
against, or segregation of, any person or group of persons on the basis of race,
color, sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Premises or any portion thereof.
Tenant shall not be held in default under the Lease for violation of this
Section 13.01 unless a court of competent jurisdiction finds that Tenant has
engaged in discrimination and, in addition, Tenant fails to provide reasonable
means to remedy past discrimination and to assure that the past discrimination
will not continue.
Section 13.02 - Waiver of Subrogation. Landlord and Tenant each hereby
-------------------------------------
waive any and all rights of recovery against the other, or against the officers,
employees, agents or representatives of the other, for loss
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of or damage to its property or the property of others under its control, if
such loss or damage is covered by any insurance policy in force (whether or not
described in this Lease) at the time of such loss or damage. Upon obtaining the
policies of insurance described herein, Landlord and Tenant shall give notice to
the insurance carrier or carriers of the foregoing mutual waiver of subrogation.
Section 13.03 - Landlord's Liability: Certain Duties.
----------------------------------------------------
(a) As used in this Lease, the term Landlord means only the current
owner or owners of the fee title to the Premises or the leasehold estate under a
ground lease of the Premises at the time in question. Each Landlord is obligated
to perform the obligations of Landlord under this lease only during the time
such Landlord owns such interest or title. Any Landlord who transfers its title
or interest is relieved of all liability with respect to the obligations of
Landlord under this Lease to be performed on or after the date of transfer.
However, each Landlord shall deliver to its transferee all funds previously paid
by Tenant if such funds have not yet been applied under the term of this lease.
Any Landlord who obtains title or interest from a transferor subject to the
obligations of the Lease shall take such title or interest subject to all
obligations upon Landlord established under the Lease and shall recognize and
fully credit funds prior to any predecessor Landlord or Tenant.
(b) Tenant shall give written notice of any failure by Landlord to
perform any of its obligations under this Lease to Landlord and to any ground
lessor, mortgagee or beneficiary under any deed of trust encumbering the
Premises whose name and address have been furnished to Tenant in writing.
Landlord shall not be in default under this Lease unless Landlord (or such
ground lessor, mortgagee or beneficiary) fails to cure such non-performance
within thirty (30) days after receipt of Tenant's notice. However, if such
nonperformance reasonably requires more than thirty (30) days to cure, Landlord
shall not be in default if such cure is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
(c) Upon the execution of this Lease, Tenant shall deposit with
Landlord a cash Security Deposit in the amount set forth in Section 1.08 above.
Landlord may apply all or part of the Security Deposit to any unpaid rent or
other charges due from Tenant or to cure any other defaults of Tenant. if
Landlord uses any part of the Security Deposit, Tenant shall restore the
Security Deposit to its full amount within ten (10) days after Landlord's
written request. Tenant's failure to do so shall be a material default under
this Lease. No interest shall be paid on the Security Deposit. Landlord shall
not be required to keep the Security Deposit separate from its other amounts and
no trust relationship is created with respect to the Security Deposit.
Section 13.04 - Severability. A determination by a court of competent
----------------------------
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this lease, which shall remain in full force and effect.
Section 13.05 - Interpretation. The captions of the Articles or Sections
------------------------------
of this Lease are to assist the parties in reading this Lease and are not a part
of the term or provisions of this Lease. Whenever required by the context of
this Lease, the singular shall include the plural and the plural shall include
the singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Premises with Tenant's expressed or
implied permission.
Section 13.06 - Incorporation of Prior Agreements: Modifications. This
----------------------------------------------------------------
Lease is the only agreement between the parties pertaining to the lease of the
Premises and no other agreements are effective. All
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amendments to this Lease shall be in writing and signed by all parties. Any
other attempted amendment shall be void.
Section 13.07 - Notices. All notices required or permitted under this
-----------------------
Lease shall be in writing and shall be personally delivered or sent by certified
mail, return-receipt-requested, postage prepaid. Notices to Tenant shall be
delivered to the address specified in Section 1.03 above, except that upon
Tenant's taking possession of the Premises, the Premises shall be Tenant's
address for notice purposes. Notices to Landlord shall be delivered to the
address specified in Section 1.02 above. All notices shall be effective upon
delivery. Either party may change its notice address upon written notice to the
other party.
Section 13.08 - Waivers. All waivers must be in writing and signed by the
-----------------------
waiving party. Landlord's failure to enforce any provision of this lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.09 - No Recordation. Tenant shall not record this Lease without
------------------------------
prior written consent from landlord. However, Landlord and Tenant agree that
concurrent with the execution of the Lease, the parties shall execute a "short
form" memorandum of this Lease to be recorded within ten (10) days of its
execution. The short form memorandum of this lease shall be prepared by the
party requesting the recordation, and approved by both parties, which approval
shall not be unreasonably withheld.
Section 13.10 - Binding Effect: Choice of Law. This Lease binds any party
---------------------------------------------
who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interest of Tenant's successor are acquired in accordance with the
terms of this Lease. The laws of the State of California shall govern this
Lease.
Section 13.11 - Corporate Authority: Partnership Authority. If Tenant is a
----------------------------------------------------------
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person signing this Lease for Tenant represents and warrants that he is a
general partner of the partnership, that he has full authority to sign for the
partnership and that this Lease binds the partnership and all general partners
of the partnership. Tenant shall give written notice to Landlord of any general
partner's withdrawal or addition. Within thirty (30) days after this Lease is
signed, Tenant shall deliver to Landlord a copy of Tenant's recorded statement
of partnership or certificate of limited partnership.
Section 13.12 - Joint and Several Liability. All parties signing this
-------------------------------------------
lease as Tenant shall be jointly and severally liable for all obligations of
Tenant.
Section 13.13 Force Majeure If either party to the Lease cannot for a
-----------------------------
period of up to six (6)months perform any of its obligations due to events
beyond its control, the time provided for performing such obligations shall be
extended by a period of time equal to the duration of such events, not to exceed
six (6) months for such delay. Events beyond the party's control include, but
are not limited to. acts of God, war, civil commotion, labor disputes, strikes,
fire, flood, or other casualty, shortage of labor or material, government
regulation or restriction and weather conditions. The provisions of this
paragraph shall not operate to excuse Tenant from prompt payment of rent as
required under the terms of the Lease. If such
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delay shall continue for a period in excess of six (6) months, then Tenant may
terminate the Lease if such delay shall constitute a substantial interference
with Tenant's right to quiet possession of the Premises, and Landlord may
terminate the Lease if such delay prevents the performance of Tenant's
obligations under the Lease.
Section 13.14 - Title Insurance. Tenant shall have the right to request
-------------------------------
and receive, at Tenant's sole cost, a leasehold policy of title insurance from
Title Insurance and Trust Company, insuring Tenant's leasehold as of the
Commencement Date in a manner approved by Tenant. If requested by Tenant at the
time of the execution of the Lease, and at Tenant's sole cost, Landlord shall
request that a preliminary title report on the Premises be immediately delivered
to Tenant by Title Insurance and Trust Company.
ARTICLE FOURTEEN
HAZARDOUS SUBSTANCES
Section 14.01 - Hazardous Substances The term "Hazardous Substance(s)" as
------------------------------------
used in the Lease, is defined as follows: Any element, compound, mixture,
solution, particle or substance, which presents danger or potential danger for
damage or injury to health, welfare or to the environment including, but not
limited to:
(a) Those substances which are inherently or potentially radioactive,
explosive, ignitable, corrosive, reactive, carcinogenic or toxic; and
(b) Those substances which have been recognized as dangerous or
potentially dangerous to health, welfare or to the Environment by any federal,
municipal, state, county or other governmental or quasi-governmental authority
and/or any department or agency thereof.
Section 14.02 - Tenant's Indemnity Obligations. Tenant represents and
----------------------------------------------
warrants to Landlord that at all times during the term of the Lease and any
extensions or renewals thereof, Tenant shall:
(a) Promptly comply, at Tenant's own cost and expense, with all laws,
orders, rules, regulations, certificates of occupancy, or other requirements, as
the same now exist or may hereafter be enacted, amended or promulgated, of any
federal, municipal, state, county or other governmental or quasi-governmental
authorities and/or any department or agency thereof relating to the
manufacturing, processing, distributing, using, producing, treating, storing
(above or below ground level), disposing of Hazardous Substance(s) by Tenant or
its agents and employees on or about the Premises;
(b) Indemnify and hold landlord, its agents and employees, harmless
from any and all demands, claims, causes of action, penalties, liabilities,
judgments, damages (including consequential damages) and expenses including,
without limitation, court costs and reasonable attorneys' fees incurred by
Landlord as a result of (i) Tenant's failure or unreasonable delay in properly
complying with such law, order, rule, regulation, certificate of occupancy or
other requirement referred to in Section 14.02(a) above, or (ii) any adverse
effect which results from the presence of any Hazardous Substance(s) in or about
the Premises, where Tenant or Tenant's agents, employees, contractors,
subtenants or lease assignees, with or without Tenant's consent has caused,
either intentionally or unintentionally, Hazardous Substance(s) to be released,
discharged, emitted, or disposed of on or about the Premises in violation of
applicable law. If any action or proceeding is brought against Landlord,
Landlord's agents or employees by reason of any such claim, Tenant, upon notice
from Landlord, will defend such claim at Tenant's expense with counsel
reasonably
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satisfactory to Landlord. This indemnification by Tenant of Landlord shall
survive the termination of the lease;
(c) Promptly disclose to Landlord by delivering, in the manner
prescribed for delivery of notice in the Lease, a copy of any forms,
submissions, notices, reports, or other written documentation ("Communications")
alleging that the Premises are contaminated by a Hazardous Substance(s) in or
about the Premises, whether such communications are delivered to Tenant or are
requested of Tenant by any federal, municipal, state, county or other government
or quasi-governmental authority and/or any department or agency thereof; and
(d) Notwithstanding any other provisions of the Lease, (i) allow
Landlord, and Landlord's agents, access and the right to enter and inspect the
Premises for the presence of any Hazardous Substance(s), at any reasonable time
and in a reasonable manner so as not to distract Tenant's enjoyment of the
premises and after reasonable notice to Tenant; and (ii) in the event a release
of Hazardous Substance(s) occurs on or affects the Premises, Tenant shall Permit
Landlord or Landlord's agents to enter the Premises at a reasonable time and in
a reasonable manner so as not to distract Tenant's enjoyment of the premises and
after reasonable notice to Tenant, to inspect, monitor, take emergency or long
term remedial action, discharge Tenant's obligations hereunder if Tenant has
failed to do so, or take any other action to restore the Premises to its
original condition.
(e) If all or any portion of the Premises should become unsuitable
for Tenant's use as a consequence of the presence of any Hazardous Substance not
released, emitted or discharged to the Premises by Tenant or its agents,
employees or contractors, then Tenant shall be entitled to an abatement of all
Rent and additional Rent payable hereunder to the extent of the interference
with Tenant's use of the Premises occasioned thereby and, if such interference
cannot be corrected or the damage resulting therefrom repaired so that the
Premises will be reasonably suitable for Tenant's intended use within (one
hundred twenty (120) days following the occurrence of such event, then Tenant
also shall be entitled to terminate this Lease by delivery of written notice of
termination to Landlord within thirty (30) days following the date on which the
Premises becomes unsuitable for Tenant's use as provided above.
Compliance by Tenant with any provision of this Section 14.02 shall not be
deemed a waiver of any other provision hereof. Without limiting the foregoing,
Landlord's consent to the Presence of any Hazardous Substance(s) shall not
relieve Tenant of its indemnity obligations under the term of this Section
14.02.
ARTICLE 15
FIRST OPTION TO EXTEND
Tenant shall have the right to extend the Lease immediately upon the
expiration of the Lease Term as set forth herein, provided that Tenant has not
at any time during the Lease Term been in default of any obligation for the
payment of rent under the Lease or committed any act or omission to act
constituting a material breach of the Lease. The extension shall be for a
period of five (5) years, and hereinafter referred to as the "First Option
Period." Tenant shall give written notice of exercise of the option ("Option
Notice") to Landlord no earlier than one hundred and twenty (120) days and no
later than ninety (90) days prior to the expiration of the Lease Term ("Notice
Period"). If Tenant fails to exercise this option to extend during the Notice
Period, Tenant's option to extend shall be deemed to be extinguished upon the
expiration of the Notice Period.
22
<PAGE>
EXHIBIT 10.11
APPLIED MICRO CIRCUITS CORPORATION
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT, is made as of January 30, 1992 between APPLIED
MICRO CIRCUITS CORPORATION, a Delaware corporation (the "Pledgee"), and Roger A.
Smullen ("Pledgor").
RECITALS
--------
Pursuant to Pledgor's election to purchase 291,450 shares of the Common
Stock of Pledgee (the "Shares") under the Stock Option Agreement dated March 21,
1983 (the "Option Agreement"), between Pledgor and Pledgee under Pledgor's 1982
Employee Incentive Stock Option Plan, and Pledgor's election under the terms of
the Option Agreement to pay for the Shares with his promissory note (the
"Note"), Pledgor has purchased the Shares at a price of $0.125 per share, for an
aggregate purchase price of $36,431.25.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of the
---------------------------------------------
transfer of the Shares to Pledgor under the Option Agreement, Pledgor, pursuant
to the Commercial Code of the State of California, hereby pledges all of the
Shares (herein sometimes referred to as the "Collateral") represented by
certificate number 612, duly endorsed in blank or with executed stock powers,
and herewith delivers said certificate to the Secretary of Pledgee
("Pledgeholder"), who shall hold said certificate subject to the terms and
conditions of this Security Agreement.
The pledged stock (together with an executed blank stock assignment for use
in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the option
Agreement, and the Pledgeholder shall not encumber or dispose of such Shares
except in accordance with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to inter
---------------------------------------
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
(a) Payment of Indebtedness. Pledgor will pay the principal sum of
-----------------------
the Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
(b) Encumbrances. The Shares are free of all other encumbrances,
------------
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
<PAGE>
(c) Margin Regulations. In the event that Pledgee's Common Stock
------------------
becomes margin-listed by the Federal Reserve Board subsequent to the execution
of this Security Agreement, and Pledgee is classified as a "lender" within the
meaning of the regulations under Part 207 of Title 12 of the Code of Federal
Regulations ("Regulations G"), Pledgor agrees to cooperate with Pledgee in
making any amendments to the Note or providing any additional collateral as may
be necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
-------------
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that, during the term of the pledge,
-----------------
any stock dividend, reclassification, readjustment or other changes declared or
made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Warrants and Rights. In the event that, during the term of the pledge,
-------------------
subscription warrants or other rights or options shall be issued in connection
with the Shares, such rights, warrants and options shall be the property of
Pledgor and, if exercised by Pledgor, all new stock and other securities so
acquired by Pledgor as it relates to the pledged Shares then held by
Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares.
6. Default. Pledgor shall be deemed to be in default of the Note and of
-------
this Security Agreement in the event:
(a) Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or
(b) Pledgor fails to perform any of the covenants set forth in the
Option Agreement or contained in this Security Agreement for a period of 10 days
after written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue his remedies under the California
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules under
---------------------
Regulation G, there shall be released from this pledge a portion of the Shares
held by Pledgeholder hereunder upon payments of the principal of the Note. The
number of Shares that shall be released shall be that number of full Shares that
bears the same proportion to the initial number
<PAGE>
of Shares pledged hereunder as the payment of principal bears to the initial
full principal amount of the Note.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
----------------------------------------
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The pledge of Shares herein shall continue until the payment of
----
all indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor, subject to the provisions for prior release of
a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
----------
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the event of Default.
11. Pledgeholder Liability. In the absence of willful or gross negligence,
-----------------------
Pledgeholder shall not be labile to any party for any of his acts, or omissions
to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
-----------------------------------
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the terms
---------------------
of this Security Agreement shall be binding on their respective successors and
assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall
be deemed to include, for all purposes, the respective designees, successors,
assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
-------------
governed under the laws of the State of California.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Security
Agreement as of the day and year first above written.
PLEDGOR:
______________________________________________
(Signature)
______________________________________________
(Typed or Printed Name)
PLEDGEE: APPLIED MICRO CIRCUITS CORPORATION
a Delaware corporation
By:___________________________________________
Title:________________________________________
PLEDGEHOLDER:
______________________________________________
Secretary of Pledgor
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT, is made as of January 30, 1992 between APPLIED
MICRO CIRCUITS CORPORATION, a Delaware corporation (the "Pledgee"), and Roger A.
Smullen ("Pledgor").
RECITALS
--------
Pursuant to Pledgor's election to purchase 10,000 shares of the Common
Stock of Pledgee (the "Shares") under the Stock Option Agreement dated November
26, 1981 (the "Option Agreement"), between Pledgor and Pledgee under Pledgor's
1982 Employee Incentive Stock Option Plan, and Pledgor's election under the
terms of the Option Agreement to pay for the Shares with his promissory note
(the "Note"), Pledgor has purchased the Shares at a price of $0.30 per share,
for an aggregate purchase price of $3,000.00.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of the
---------------------------------------------
transfer of the Shares to Pledgor under the Option Agreement, Pledgor, pursuant
to the Commercial Code of the State of California, hereby pledges all of the
Shares (herein sometimes referred to as the "Collateral") represented by
certificate number 614, duly endorsed in blank or with executed stock powers,
and herewith delivers said certificate to the Secretary of Pledgee
("Pledgeholder"), who shall hold said certificate subject to the terms and
conditions of this Security Agreement.
The pledged stock (together with an executed blank stock assignment for use
in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the option
Agreement, and the Pledgeholder shall not encumber or dispose of such Shares
except in accordance with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to inter
---------------------------------------
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
(a) Payment of Indebtedness. Pledgor will pay the principal sum of
-----------------------
the Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
(b) Encumbrances. The Shares are free of all other encumbrances,
------------
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
<PAGE>
(c) Margin Regulations. In the event that Pledgee's Common Stock
------------------
becomes margin-listed by the Federal Reserve Board subsequent to the execution
of this Security Agreement, and Pledgee is classified as a "lender" within the
meaning of the regulations under Part 207 of Title 12 of the Code of Federal
Regulations ("Regulations G"), Pledgor agrees to cooperate with Pledgee in
making any amendments to the Note or providing any additional collateral as may
be necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
-------------
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that, during the term of the pledge,
-----------------
any stock dividend, reclassification, readjustment or other changes declared or
made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Warrants and Rights. In the event that, during the term of the pledge,
-------------------
subscription warrants or other rights or options shall be issued in connection
with the Shares, such rights, warrants and options shall be the property of
Pledgor and, if exercised by Pledgor, all new stock and other securities so
acquired by Pledgor as it relates to the pledged Shares then held by
Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares.
6. Default. Pledgor shall be deemed to be in default of the Note and of
-------
this Security Agreement in the event:
(a) Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or
(b) Pledgor fails to perform any of the covenants set forth in the
Option Agreement or contained in this Security Agreement for a period of 10 days
after written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue his remedies under the California
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules
----------------------
under Regulation G, there shall be released from this pledge a portion of the
Shares held by Pledgeholder hereunder upon payments of the principal of the
Note. The number of Shares that shall be released shall be that number of full
Shares that bears the same proportion to the initial number
<PAGE>
of Shares pledged hereunder as the payment of principal bears to the initial
full principal amount of the Note.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
----------------------------------------
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The pledge of Shares herein shall continue until the payment of
----
all indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor, subject to the provisions for prior release of
a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
----------
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the event of Default.
11. Pledgeholder Liability. In the absence of willful or gross negligence,
----------------------
Pledgeholder shall not be labile to any party for any of his acts, or omissions
to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
-----------------------------------
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the terms
---------------------
of this Security Agreement shall be binding on their respective successors and
assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall
be deemed to include, for all purposes, the respective designees, successors,
assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
-------------
governed under the laws of the State of California.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Security
Agreement as of the day and year first above written.
PLEDGOR:
______________________________________________
(Signature)
______________________________________________
(Typed or Printed Name)
PLEDGEE: APPLIED MICRO CIRCUITS CORPORATION
a Delaware corporation
By:___________________________________________
Title:________________________________________
PLEDGEHOLDER:
______________________________________________
Secretary of Pledgor
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT, is made as of January 30, 1992 between APPLIED
MICRO CIRCUITS CORPORATION, a Delaware corporation (the "Pledgee"), and Roger A.
Smullen ("Pledgor").
RECITALS
--------
Pursuant to Pledgor's election to purchase 20,000 shares of the Common
Stock of Pledgee (the "Shares") under the Stock Option Agreement dated January
14, 1988 (the "Option Agreement"), between Pledgor and Pledgee under Pledgor's
1982 Employee Incentive Stock Option Plan, and Pledgor's election under the
terms of the Option Agreement to pay for the Shares with his promissory note
(the "Note"), Pledgor has purchased the Shares at a price of $0.30 per share,
for an aggregate purchase price of $6,000.00.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of the
---------------------------------------------
transfer of the Shares to Pledgor under the Option Agreement, Pledgor, pursuant
to the Commercial Code of the State of California, hereby pledges all of the
Shares (herein sometimes referred to as the "Collateral") represented by
certificate number 613, duly endorsed in blank or with executed stock powers,
and herewith delivers said certificate to the Secretary of Pledgee
("Pledgeholder"), who shall hold said certificate subject to the terms and
conditions of this Security Agreement.
The pledged stock (together with an executed blank stock assignment for use
in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the option
Agreement, and the Pledgeholder shall not encumber or dispose of such Shares
except in accordance with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to inter
---------------------------------------
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
(a) Payment of Indebtedness. Pledgor will pay the principal sum of
-----------------------
the Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
(b) Encumbrances. The Shares are free of all other encumbrances,
------------
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
<PAGE>
(c) Margin Regulations. In the event that Pledgee's Common Stock
------------------
becomes margin-listed by the Federal Reserve Board subsequent to the execution
of this Security Agreement, and Pledgee is classified as a "lender" within the
meaning of the regulations under Part 207 of Title 12 of the Code of Federal
Regulations ("Regulations G"), Pledgor agrees to cooperate with Pledgee in
making any amendments to the Note or providing any additional collateral as may
be necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
-------------
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that, during the term of the pledge,
-----------------
any stock dividend, reclassification, readjustment or other changes declared or
made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Warrants and Rights. In the event that, during the term of the
-------------------
pledge, subscription warrants or other rights or options shall be issued in
connection with the Shares, such rights, warrants and options shall be the
property of Pledgor and, if exercised by Pledgor, all new stock and other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares.
6. Default. Pledgor shall be deemed to be in default of the Note and
-------
of this Security Agreement in the event:
(a) Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or
(b) Pledgor fails to perform any of the covenants set forth in the
Option Agreement or contained in this Security Agreement for a period of 10 days
after written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue his remedies under the California
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules
----------------------
under Regulation G, there shall be released from this pledge a portion of the
Shares held by Pledgeholder hereunder upon payments of the principal of the
Note. The number of Shares that shall be released shall be that number of full
Shares that bears the same proportion to the initial number
<PAGE>
of Shares pledged hereunder as the payment of principal bears to the initial
full principal amount of the Note.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
----------------------------------------
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The pledge of Shares herein shall continue until the payment of
----
all indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor, subject to the provisions for prior release of
a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
----------
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the event of Default.
11. Pledgeholder Liability. In the absence of willful or gross negligence,
----------------------
Pledgeholder shall not be labile to any party for any of his acts, or omissions
to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
-----------------------------------
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the
---------------------
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
-------------
governed under the laws of the State of California.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Security
Agreement as of the day and year first above written.
PLEDGOR:
______________________________________________
(Signature)
______________________________________________
(Typed or Printed Name)
PLEDGEE: APPLIED MICRO CIRCUITS CORPORATION
a Delaware corporation
By:___________________________________________
Title:________________________________________
PLEDGEHOLDER:
______________________________________________
Secretary of Pledgor
<PAGE>
EXHIBIT 10.12
APPLIED MICRO CIRCUITS CORPORATION
THIRD AMENDMENT TO PROMISSORY NOTE
THIS THIRD AMENDMENT TO PROMISSORY NOTE (the "Amendment"), effective as of
January 30, 1997, is entered into by and between Applied Micro Circuits
Corporation, a California corporation (the "Company"), and Roger A. Smullen
("Optionee"), and is entered into with respect to the Promissory Note (the
"Note") dated as of January 30, 1992, pursuant to which the Company loaned
Optionee an aggregate principal amount of $6,000.
The parties wish to amend the Note.
NOW, THEREFORE, the Company and Optionee hereby agree as follows:
1. The principal and accrued interest under the Note shall be due and
payable in full on January 30, 1998.
2. Interest shall accrue on the unpaid principal balance of the Note
following the date of this Amendment at the rate of 5.91% per annum,
compounded annually (the minimum applicable federal rate necessary to
avoid imputation of interest as a result of this Amendment).
3. Except as expressly modified herein, the Note shall remain in full
force and effect .
4. This Amendment may be signed in one or more counterparts, each of
which shall be deemed an original and all of which, taken together,
shall be deemed one and the same document.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
APPLIED MICRO CIRCUITS CORPORATION
BY: [SIGNATURE] [SIGNATURE]
----------- -----------
Roger A. Smullen
TITLE:___________________________
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
THIRD AMENDMENT TO PROMISSORY NOTE
THIS THIRD AMENDMENT TO PROMISSORY NOTE (the "Amendment"), effective as of
January 30, 1997, is entered into by and between Applied Micro Circuits
Corporation, a California corporation (the "Company"), and Roger A. Smullen
("Optionee"), and is entered into with respect to the Promissory Note (the
"Note") dated as of January 30, 1992, pursuant to which the Company loaned
Optionee an aggregate principal amount of $3,000.
The parties wish to amend the Note.
NOW, THEREFORE, the Company and Optionee hereby agree as follows:
1. The principal and accrued interest under the Note shall be due
and payable in full on January 30, 1998.
2. Interest shall accrue on the unpaid principal balance of the Note
following the date of this Amendment at the rate of 5.91% per annum,
compounded annually (the minimum applicable federal rate necessary to
avoid imputation of interest as a result of this Amendment).
3. Except as expressly modified herein, the Note shall remain in
full force and effect .
4. This Amendment may be signed in one or more counterparts, each of
which shall be deemed an original and all of which, taken together,
shall be deemed one and the same document.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
APPLIED MICRO CIRCUITS CORPORATION
BY: [SIGNATURE] [SIGNATURE]
---------------- ----------------
Roger A. Smullen
TITLE:_______________________
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
THIRD AMENDMENT TO PROMISSORY NOTE
THIS THIRD AMENDMENT TO PROMISSORY NOTE (the "Amendment"), effective as of
January 30, 1997, is entered into by and between Applied Micro Circuits
Corporation, a California corporation (the "Company"), and Roger A. Smullen
("Optionee"), and is entered into with respect to the Promissory Note (the
"Note") dated as of January 30, 1992, pursuant to which the Company loaned
Optionee an aggregate principal amount of $36,431.25.
The parties wish to amend the Note.
NOW, THEREFORE, the Company and Optionee hereby agree as follows:
1. The principal and accrued interest under the Note shall be due and
payable in full on January 30, 1998.
2. Interest shall accrue on the unpaid principal balance of the Note
following the date of this Amendment at the rate of 5.91% per annum,
compounded annually (the minimum applicable federal rate necessary to
avoid imputation of interest as a result of this Amendment).
3. Except as expressly modified herein, the Note shall remain in full
force and effect .
4. This Amendment may be signed in one or more counterparts, each of
which shall be deemed an original and all of which, taken together,
shall be deemed one and the same document.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
APPLIED MICRO CIRCUITS CORPORATION
BY: [SIGNATURE] [SIGNATURE]
------------------ ------------------
Roger A. Smullen
TITLE:__________________________
<PAGE>
EXHIBIT 10.13
LOAN AGREEMENT SECURED BY SHARES
--------------------------------
This Loan Agreement ("Agreement") dated effective as of May 1, 1996, is by
and between APPLIED MICRO CIRCUITS CORPORATION, a Delaware corporation (the
"Company"), and DAVID M. RICKEY (the "Borrower").
The Borrower desires to borrow and the Company is willing to lend to the
Borrower the amount of $750,000 on a secured basis under the terms and
conditions of this Agreement.
The Company and the Borrower agree as follows:
1. The Loan. Subject to the terms and conditions contained herein, the Company
--------
will lend to the Borrower the amount of $750,000 (the "Loan").
2. The Note. In consideration of the Company's delivery of the Loan, the
--------
Borrower will execute a promissory note (the "Note") in the form attached
hereto as Exhibit A in the principal amount of the Loan and bearing
interest at the minimum applicable Federal rate.
3. Pledge Agreement. The Borrower will additionally execute the pledge
----------------
agreement in the form attached hereto as Exhibit B (the "Pledge Agreement")
as security for the Borrower's obligation to repay the Loan, and will
deliver, or cause to be delivered, 46,500 shares of Advanced Micro Devices
Common Stock to be pledged under the terms and conditions of the Pledge
Agreement (the "Shares") to the Company or its designee as pledgeholder of
the Shares, together with such other documents of assignment and other
documents as may be reasonably requested by the Company.
4. Representations of Borrowers. The Borrower hereby makes the following
----------------------------
representations and warranties to the Company, and acknowledges that the
Company is re lying on such representations in making the Loan:
a) The Borrower has good and marketable title to the Shares free and
clear of all security interests, liens, encumbrances and rights of
others.
b) The consent of no other party or entity is required to grant the
security interests in the Shares as provided for in this Agreement.
The creation of the security interest referenced herein, and
performance of the obligations of Borrower hereunder, will not violate
or cause a conflict with any other agreement to which Borrower is a
party, or to which the Shares are subject. Borrower will perform all
obligations of Borrower in connection with the Loan, and a default
thereunder will constitute a default hereunder.
c) Other than the Loan, there are no security interests or liens on the
Shares that could be perfected or obtained by filing a financing
statement or
1
<PAGE>
notice with any state filing office.
d) There are no actions, proceedings, claims or disputes pending or, to
the Borrower's knowledge, threatened against or affecting the Borrower
or the Shares except as disclosed to the Company in writing prior to
the date of this Agreement.
5. Salary Deductions. To the extent permitted by law, the Company may, but
-----------------
shall not be obligated to, offset from Borrower's salary, bonuses, vacation
pay or other amounts due to Borrower from the Company, any amounts due and
payable by the Borrower under the Note.
6. No Employment Rights. Nothing contained in this Agreement or in any of the
--------------------
attachments or exhibits hereto is intended or shall be construed to confer
upon the Borrower any rights to employment or continued employment with the
Company, or shall alter in any way the nature of Borrower's current
employment with the Company.
7. Successors and Assigns. This Agreement shall inure to the benefit of the
----------------------
respective heirs, personal representatives, successors and assigns of the
parties hereto. The Borrower may not assign his rights and/or duties under
this Agreement to a third party without the prior written consent of the
Company, which may be withheld in its sole discretion.
8. Governing Law. This Agreement and all acts and transactions pursuant hereto
-------------
and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of
California.
9. Entire Agreement. This Agreement constitutes the entire agreement of the
----------------
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings related to such subject matter.
10. Modification. This Agreement shall not be amended without the written
------------
consent of both parties hereto.
11. Severability. In the event that any provision hereof becomes or is declared
------------
by a court of competent jurisdiction to be illegal, unenforceable or void,
this Agreement shall continue in full force and effect without said
provision.
12. Construction. This Agreement is the result of negotiations between and has
------------
been reviewed by each of the parties hereto and their respective counsel;
accordingly, this Agreement shall be deemed to be the product of all of the
parties hereto, and no ambiguity shall be construed in favor of or against
any one of the parties hereto. The Borrower acknowledges that the Company
has made no representation or warranty to the Borrower concerning the
income tax consequences of the Loan, and the Borrower shall be solely
responsible for
2
<PAGE>
ascertaining and bearing such tax consequences.
13. 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.
14. Notices. Any notice required or permitted by this Agreement shall be in
-------
writing and shall be personally delivered or sent by prepaid registered or
certified mail, return receipt requested, addressed to the other party at
the address shown below or at such other address for which such party gives
notice hereunder. Notices sent by mail shall be deemed to have been given
72 hours after deposit in the United States mail.
15. Counterparts. This Agreement may be executed in two or more counterparts,
------------
each of which shall be deemed an original and all of which together shall
constitute one instrument.
16. Further Acts. Each party hereto agrees to execute, acknowledge and deliver
------------
or to cause to have executed, acknowledged and delivered, such other and
further instruments and documents as may reasonably be requested by the
other to carry out the purposes of this Agreement.
17. Voluntary Execution; Legal Counsel. This Agreement and the exhibits hereto
-------------------
are executed voluntarily and without any duress or undue influence on the
part or behalf of the parties hereto, with the full intent of creating the
obligations and security interests described herein and therein. The
parties acknowledge that: (a) they have read this agreement and the
exhibits hereto; (b) they have been represented in the preparation,
negotiation, and execution of this Agreement and exhibits hereto by legal
counsel of their own choice or they have voluntarily declined to seek such
counsel; (c) they understand the terms and consequences of this Agreement
and the exhibits hereto and of the obligations and security interests they
create; and (d) they are fully aware of the legal and binding effect of
this Agreement and the exhibits hereto.
18 Survival. Each of the obligations of Borrower hereunder, and the liability
--------
of Borrower for any failure of the representations or warranties set forth
herein to be accurate and complete, shall survive the closing of the Loan
described herein for the entire term of the Loan.
The undersigned have executed this Agreement as of the date first written
above.
3
<PAGE>
BORROWER:
COMPANY:
[SIGNATURE]
- -----------
DAVID M. RICKEY APPLIED MICRO CIRCUITS
CORPORATION, a Delaware corporation
Address: ______________ By: [SIGNATURE]
--------------------
______________
Title: _________________
Address: 6195 Lusk Blvd.
San Diego, CA 92121
4
<PAGE>
EXHIBIT A
---------
NON-RECOURSE NOTE SECURED BY PLEDGE AGREEMENT
May 1,1996
1. Obligation. For value received, DAVID M. RICKEY (the "Borrower")
-----------
promises to pay to APPLIED MICRO CIRCUITS CORPORATION, a Delaware corporation
(the "Company"), the sum of $750,000 (the "Loan"), together with interest on the
unpaid principal hereof from the date hereof at the rate of 5.76% per annum,
compounded annually.
2. Payment. Principal and interest shall be due and payable in full on
--------
May 1, 1999 unless accelerated as provided in Section 3 below. Payments of
principal and interest shall be made in lawful money of the United States of
America and shall be credited first to the accrued interest, with the remainder
applied to principal. Prepayment of the Loan may be made at any time without
penalty.
3. Acceleration of Obligation. The Loan shall immediately become due and
---------------------------
payable in full upon the earliest of the following: (i) an event of default
under the Loan Agreement (the "Loan Agreement") between the Company and the
Borrower dated as of May 1, 1996 relating to the indebtedness represented
hereby, this promissory note, or the Pledge Agreement (the "Pledge Agreement")
between the Company and the Borrower dated as of May 1, 1996; (ii) in the event
any required payment hereunder or under any other promissory note delivered by
the Borrowers to the Company is not made when due; (iii) in the event of a
voluntary or involuntary termination of David Rickey's employment with the
Company for any reason, with or without cause (including death or disability);
or (iv) May 1, 1999. In addition, if Borrower sells any portion of the Shares
(as defined below), an equal portion of the original principal amount of the
Loan shall immediately become due and payable, together with all interest
accrued on such principal portion.
4. Security. This Note shall be secured by the Pledge Agreement, pursuant
---------
to which the Borrowers shall pledge 46,500 shares of Common Stock of Advanced
Micro Devices (the "Shares") as security for Borrower's obligations under this
Note. Except as otherwise provided herein, the Loan shall be non-recourse.
5. Non-Recourse. This note is non-recourse.
-------------
6. Governing Law; Waiver. This Note shall be governed by and construed in
----------------------
accordance with the laws of California, without reference to conflict of laws
principles. The Borrower waives presentment, notice of nonpayment, notice of
dishonor, protest, demand and diligence.
5
<PAGE>
7. Attorneys' Fees. If suit is brought for collection of this Note, the
---------------
Borrower agrees to pay all reasonable expenses, including attorneys' fees,
incurred by the Company in connection therewith whether or not such suit is
prosecuted to judgment.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as of
the date and year first above written.
[SIGNATURE]
__________________________________
David M. Rickey
2
<PAGE>
EXHIBIT B
---------
PLEDGE AGREEMENT
This Agreement is entered into as of May 1, 1996, by and between Applied
Micro Circuits Corporation, Inc., a Delaware corporation (the "Company"), and
David M. Rickey ("Pledgor").
The Company and Pledgor have entered into a loan agreement (the "Loan
Agreement") dated as of the date hereof. In consideration of the mutual promises
contained herein and in the Loan Agreement, and as an inducement to the Company
to lend Pledgor funds as provided for in the Loan Agreement, Pledgor wishes to
grant the security interest provided for herein, to secure the Obligations (as
defined below).
The parties agree as follows:
1. Creation of Security Interest. Pursuant to the provisions of the
-----------------------------
California Commercial Code, Pledgor hereby grants to the Company, and the
Company hereby accepts, a present security interest in the certain shares as
collateral to secure the payment of Pledgor's obligations to the Company under
the Loan Agreement and the promissory note (the "Note") delivered to the Company
pursuant thereto (the "Obligations"). Pledgor herewith delivers to the Company
Common Stock of Advanced Micro Devices certificate No. Shares held in AMCC name
in Paine Webber Account No. K025126-77 representing a total of 46,500 shares of
the Company's Common Stock, together with a stock power in the form attached
hereto as Attachment A, duly executed (with the date and number of shares left
blank) by Pledgor. For purposes of this Agreement, the Shares pledged hereby
shall hereinafter be collectively referred to as the "Collateral."
2. Representations and Warranties. Pledgor hereby represents and warrants
------------------------------
to the Company that Pledgor has good title (both of record and beneficially) to
the Collateral, free and clear of all claims, pledges and liens or encumbrances
of every nature whatsoever, and that Pledgor has the right to pledge the
Collateral as provided herein. Pledgor further agrees not to grant or create,
nor attempt to grant or create, any security interest, claim, lien, pledge or
other encumbrance with respect to the Collateral until the entire principal sum
due under the Loan Agreement has been paid in full.
3. Default. An Event of Default shall be deemed to occur under this
-------
Agreement and the Loan shall immediately become due and payable in full upon (a)
nonpayment of the Obligations, or any portion thereof, when due; (b)
nonperformance of any covenant agreed to be performed by the Pledgor under this
Agreement, the Loan Agreement or the Note or any other obligation of Borrowers
to the Company in connection with funds borrowed from the Company; (c) sale,
transfer, or disposition of the Collateral or any interest therein without the
written consent of the Company, except as provided in the Note; or (d)
assignment by the Pledgor for the benefit of creditors, or admission in writing
of his inability to pay his debts as they become due, or filing a voluntary
petition
1
<PAGE>
in bankruptcy, or adjudication as a bankrupt or insolvent, or filing any
petition or answer seeking any reorganization, arrangement, composition,
readjustment, dissolution or similar relief under any present or future statute,
law or regulation, or filing any answer admitting or failing to deny the
material allegations of a petition filed against them for any such relief.
4. Rights on Default. Upon an Event of Default, the Company and its
------------------
assigns shall have full power to sell, assign and deliver the whole or any part
of the Collateral at any broker's exchange or elsewhere, at public or private
sale, at the option of the Company or its assigns, in order to satisfy any part
of the Obligations. On any such public sale, the Company and its assigns may
purchase all or any part of the Collateral. In addition, at its sole option, the
Company may elect to retain the Collateral in satisfaction of Obligations, in
accordance with the provisions and procedures set forth in the California
Commercial Code.
5. Additional Remedies. The rights and remedies granted to the Company
--------------------
herein upon an Event of Default shall be in addition to all the rights, powers
and remedies of the Company under the California Commercial Code and applicable
law and such rights, powers and remedies shall be exercisable by the Company
with respect to all of the Collateral. The Company's reasonable expenses of
holding the Collateral, preparing it for resale or other disposition, and
selling or otherwise disposing of the Collateral, including attorneys' fees and
other legal expenses, will be deducted from the proceeds of any sale or other
disposition and will be included in the amounts Pledgor must tender to redeem
the Collateral. All rights, powers and remedies of the Company shall be
cumulative and not alternative. Any forbearance or failure or delay by the
Company in exercising any right, power or remedy hereunder shall not be deemed
to be a waiver of any such fight, power or remedy and any single or partial
exercise of any such right, power or remedy hereunder shall not preclude the
further exercise thereof.
6. Dividends; Voting. All dividends hereinafter declared on or payable
-----------------
with respect to the Collateral during the term of this pledge (excluding only
ordinary cash dividends, which shall be payable to Pledgor so long as there has
not occurred an Event of Default) shall be immediately delivered to the Company
to be held in pledge hereunder. Pledgor shall be entitled to receive cash
dividends so long as there has not occurred an Event of Default. Notwithstanding
this Agreement, Pledgor shall be entitled to vote any Shares comprising the
Collateral, subject to any proxies granted by Pledgor.
7. Adjustments. In the event that during the term of this pledge, any
-----------
stock dividend, reclassification, readjustment, stock split or other change is
declared or made with respect to the Collateral, or if warrants or any other
rights or options are issued in connection with the Collateral, all new,
substituted and/or additional shares or other securities issued by reason of
such change or by reason of the exercise of such warrants, rights or options,
shall be immediately pledged to the Company to be held under the terms of this
Agreement in the same manner as the Collateral is held hereunder.
2
<PAGE>
8. Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
the respective heirs, personal representatives, successors and assigns of the
parties hereto.
9. Governing Law. This Agreement and all acts and transactions pursuant
-------------
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of
California.
10. Entire Agreement. This Agreement constitutes the entire agreement of
----------------
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings related to such subject matter.
11. Modification. This Agreement shall not be amended without the written
------------
consent of both parties hereto.
12. Severability. In the event that any provision hereof becomes or is
------------
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
13. Construction. This Agreement is the result of negotiations between and
------------
has been reviewed by each of the parties hereto and their respective counsel;
accordingly, this Agreement shall be deemed to be the product of all of the
parties hereto, and no ambiguity shall be construed in favor of or against any
one of the parties hereto.
14. 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.
15. Notices. Any notice required or permitted by this Agreement shall be
-------
in writing and shall be personally delivered or sent by prepaid registered or
certified mail, return receipt requested, addressed to the other party at the
address shown below or at such other address for which such party gives notice
hereunder. Notices sent by mail shall be deemed to have been given 72 hours
after deposit in the United States mail.
16. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
The parties have executed this Agreement as of the date first written
above.
3
<PAGE>
BORROWER: COMPANY:
[SIGNATURE] APPLIED MICRO CIRCUITS
CORPORATION, a Delaware
_________________________________ corporation
DAVID M. RICKEY
By: [SIGNATURE]
-----------
Title: _________________
Address: ______________ Address: 6195 Lusk Blvd.
San Diego, CA 92121
_______________
4
<PAGE>
ATTACHMENT A
------------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
____________( ) shares of the Common Stock of Applied Micro Devices
standing in my name on the books of such corporation,
represented by Certificate No. _______ herewith, and does hereby
irrevocably constitute and appoint ______________ to transfer such stock on the
books of such corporation with full power of substitution in the premises.
Dated: ,19 _______.
Signature:
[SIGNATURE]
-----------
David M. Rickey
This Assignment Separate from Certificate was executed in conjunction with
the terms of a Pledge Agreement between the above assignor and Applied Micro
Circuits Corporation dated May 1, 1996.
1
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
INCENTIVE STOCK OPTION
EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT
Applied Micro Circuits Corporation
6195 Lusk Blvd.
San Diego, CA 92121-2793
Attention: Corporate Secretary
THIS AGREEMENT is made between David M. Rickey (the "Purchaser") and Applied
Micro Circuits Corporation, a Delaware corporation (the "Company") as of July
----
23, 1997.
- --------
RECITALS
--------
(1) Pursuant to the exercise of a stock option granted to the Purchaser
under the Company's 1992 Stock Option Plan (the "Plan"), and pursuant to the
Incentive Stock Option Agreement (the "Option Agreement") dated as of April 9,
--------
1997 by and between the Company and the Purchaser, the Purchaser has elected to
- ----
purchase shares 100,000 (the "Shares").
-------
(2) As set forth in the Option Agreement and the Plan, this Agreement
grants the Company a right of first refusal to purchase the Shares upon certain
conditions.
1. Company's Right of First Refusal. Before any Shares held by Purchaser
---------------------------------
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) 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 Shares (the
"Offered Price"), and the Holder shall offer the Shares at the Offered Price to
the Company or its assignee(s).
(b) At any time within 30 days after receipt of the Notice, the Company
and/or its assignee(s) may, by giving written notice to the Holder, elect to
purchase all, but not less than all, of the Shares proposed to be transferred to
any one or more of the Proposed Transferees, at the purchase price determined in
accordance with subsection (c) below.
(c) 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
<PAGE>
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 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) 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 and provided further that any such sale or
other transfer is effected in accordance with any applicable securities laws and
the Proposed Transferee agrees in writing that the provisions of this Section
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) Anything to the contrary contained in this Section notwithstanding,
the transfer of any or all of the Shares during the Purchaser's lifetime or on
the Purchaser's death by will or intestacy to the Purchaser's immediate family
or a trust for the benefit of the Purchaser's immediate family shall be exempt
from the provisions of this Section, "Immediate Family" as used herein shall
mean spouse, lineal descendant or antecedent, father, mother, brother or sister.
In such case, the transferee or other recipient shall receive and hold the
Shares so transferred subject to the provisions of this Section, and there shall
be no further transfer of such Shares except in accordance with the terms of
this Section.
(g) The Right of First Refusal shall terminate as to any Shares 90 days
after 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 1933 Act.
2. Transferability of the Shares.
------------------------------
(a) Purchaser hereby authorizes and directs the Secretary of the
Company, or such other person designated by the Company, to transfer the Shares
from Purchaser to the Company. Purchaser further authorizes the Company to
refuse, or to cause its transfer agent to refuse, to transfer any stock
attempted to be transferred in violation of this Agreement.
(b) The certificate or certificates evidencing any of the shares
purchased hereunder shall be endorsed with a legend substantially as follows
(together with any other
<PAGE>
legend(s) restricting the transfer of the Unvested Shares necessary or
appropriate under applicable Federal or State securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY
IN ACCORDANCE WITH THE TERMS OF AN OPTION AGREEMENT AND A RESTRICTED
STOCK PURCHASE AGREEMENT PURSUANT TO WHICH SUCH SHARES WERE PURCHASED,
COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF THE CORPORATION."
(c) The Company, or its designee, shall not be liable for any act it
may do or omit to do with respect to holding the Unvested Shares in escrow and
while acting in good faith and in the exercise of its judgment.
3. Ownership, Voting Rights, Duties. This Agreement shall not affect in
---------------------------------
any way the ownership, voting rights or other rights or duties of Purchaser,
except as specifically provided herein.
4. Market Standoff Agreement. Purchaser hereby agrees that if so
--------------------------
requested by the Company or any representative of the underwriters in connection
with any registration of the offering of any securities of the Company under the
1933 Act, Purchaser shall not sell or otherwise transfer any Shares or other
securities of the Company during the 180-day period following the effective date
of a registration statement of the Company filed under the 1933 Act; provided,
however, that such restriction shall only apply to the first two registration
statements of the Company to become effective under the 1933 Act which include
securities to be sold on behalf of the Company to the public in an underwritten
public offering under the 1933 Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such 180-day period.
5. Delivery of Payment. Purchaser herewith delivers to the Company full
--------------------
payment for the exercise of the Shares, by check rendered to the Company in the
amount of $ -0-, and by delivery to the Company of Purchaser's full recourse
---
promissory note (the "Note") for the balance of the purchase price, if any, in
the form attached here to as Exhibit A-4, bearing interest at the then current
minimum applicable federal rate.
6. Security Interest.
------------------
With respect to the Note, the parties agree to the following:
(a) The Note shall become payable in full upon the earlier of voluntary
or involuntary termination or cessation of employment of Purchaser with the
Company for any reason, or the completion of vesting. Purchaser agrees that if a
bankruptcy or insolvency proceeding is instituted by or against it, or if a
receiver if appointed for the property of Purchaser, or if Purchaser makes an
assignment for the benefit of creditors, the entire amount unpaid on the Note
shall become immediately due and payable.
<PAGE>
(b) Purchaser shall deliver to the Secretary of the Company
(hereinafter referred to as the "Pledge Holder") all certificates representing
the Shares purchased with the Note and an executed blank assignment separate
from certificate in the form attached hereto as Exhibit A-1, for use in
transferring all or a portion of said Shares to the Company if, as and when
required under this Section 6 or under any other provision of this Agreement.
(c) As security for the payment of the Note and any renewal, extension
or modification thereof, Purchaser hereby grants to the Company a security
interest in and pledges with and delivers to the Company Purchaser's Shares
purchased with the Note (sometimes referred to herein as the "Collateral").
Purchaser shall not sell, withdraw, pledge, substitute or otherwise dispose of
all or any part of the Collateral without the prior written consent of the
Company.
(d) In the event of any foreclosure of the security interest, the
Company may sell the Collateral at a private sale or may repurchase the
Collateral itself. The parties agree that, prior to the establishment of a
public market for the Shares of the Company, the securities laws affecting sale
of the Shares make a public sale of the Collateral commercially unreasonable.
The parties further agree that the repurchasing of said Shares by the Company,
or by any person to whom the Company may have assigned its rights hereunder, is
commercially reasonable if made at a price determined by the Board of Directors
in its discretion, fairly exercised, representing what would be the fair market
value of the Shares reduced by any limitation on transferability, whether due to
the size of the block of Shares or the restrictions of applicable securities
laws.
(e) In the event of default in payment when due of any indebtedness
under Purchaser's Note, or in the event that Purchaser fails to perform any of
the covenants set forth in the Option Agreement or in this Agreement for a
period of ten days after written notice thereof from the Company, the Company
may elect then, or at any time thereafter, to exercise all rights available to a
secured party under the California Commercial Code including the right to sell
the Collateral at a private or public sale or repurchase the Shares as provided
above. The proceeds of any sale shall be applied in the following order:
(1) To pay all reasonable expenses of the Company in enforcing
this Agreement, including without limitation reasonable
attorney's fees and legal expenses incurred by the Company.
(2) In satisfaction of the remaining indebtedness under
Purchaser's Note.
(3) To Purchaser, any remaining proceeds.
(f) Upon full payment by Purchaser of all amounts due on the Note,
Pledge Holder shall deliver to Purchaser all Shares in Pledge Holder's
possession belonging to Purchaser, and Pledge Holder shall thereupon be
discharged of all further obligations hereunder. The Shares purchased for cash
shall be delivered to Purchaser upon request.
<PAGE>
7. Notices. Notices required hereunder shall be given in person or by
--------
first class mail to the address of Purchaser shown on the records of the
Company, and to the Company at its principal executive office.
8. Survival of Terms. This Agreement shall apply to and bind Purchaser
------------------
and the Company and their respective permitted assignees and transferees, heirs,
legatees, executors, administrators and legal successors.
9. Tax Consequences. The Purchaser understands that upon the sale of
-----------------
shares acquired upon exercise of an incentive stock option at least two years
after the grant of the option and at least one year after exercise of the
option, any gain will be taxed to the Purchaser as long-term capital gain, which
under current law is taxed at the same rates as ordinary income. If these
holding periods are not satisfied, the Purchaser will recognize ordinary income
on the date of disposition. However, there may also be tax consequences to the
Purchaser under the alternative minimum tax in the year of exercise or in the
year that certain restrictions imposed on the shares lapse (i.e., the year the
stock is fully vested).
Such restrictions include the Company's right to repurchase unvested shares
at cost in the event of termination of employment, and, include the potential
liability of any "insider" (as defined below) of the Company to forfeit to the
Company any profits from any purchase and sale of Common Stock of the Company
within a six month period, pursuant to Section 16(b) of the Securities Exchange
Act of 1934, as amended.
If unvested shares (i.e., shares subject to a repurchase option of the
Company) are purchased upon exercise of an incentive stock option, or if shares
are purchased by a Purchaser who could be subject to suit under Section 16(b) of
the Securities Exchange Act of 1934 in the event Purchaser disposed of such
shares, and the Purchaser subsequently disposes of such shares prior to the
expiration of the two-year and one-year holding periods, under proposed
regulations issued by the Internal Revenue Service the shares will be treated as
if they had been acquired by the Purchaser pursuant to a nonstatutory option.
See "Nonstatutory Options" below. It may be possible for a Purchaser to file a
"protective" election with the Internal Revenue Service under Section 83(b)
within 30 days after the date of exercise of an incentive stock option.
However, the Internal Revenue Service has never considered the question of
whether a Section 83(b) election can be filed with respect to the exercise of
an incentive stock option, and there can be no assurance that any such
"protective" election, even if properly and timely filed, would be recognized as
effective by the Internal Revenue Service. Therefore, a Purchaser should
consult such Purchaser's own tax advisor prior to exercising an incentive stock
option with respect to unvested shares, or prior to any exercise of an incentive
stock option in the event that Purchaser could be subject to Section 16(b) of
the Securities Exchange Act of 1934 upon disposing of such shares, concerning
the advisability of filing a "protective" election under Section 83(b) of the
Code.
A Section 83(b) election also commences the Purchaser's holding period in
the acquired property (for capital gain purposes) and affects the
characterization of gain or loss incurred upon disposition of such property.
Capital losses are allowed against up to $3,000 of ordinary income,
<PAGE>
and the excess of net long-term capital loss over net short-term capital gain
is allowed in full for this purpose. In addition, the existence of capital
gains or losses will affect the limitation or the deductibility of a Purchaser's
investment interest. The Purchaser understands that the tax consequences of
exercising an option and disposing of shares acquired thereunder depend on the
Purchaser's individual circumstances. Purchaser represents that Purchaser has
had the opportunity to consult a tax advisor and is not relying upon the Company
for tax advice in this regard.
10. Representations. The Purchaser has had the opportunity to review with
---------------- ----------------------------------------------------
such Purchaser's own tax advisors the federal, state, local and foreign tax
- ---------------------------------------------------------------------------
consequences of this investment and the transactions contemplated by this
- -------------------------------------------------------------------------
Agreement. The Purchaser is relying solely on such advisors and not on any
- ---------------------------------------------------------------------------
statements or representations of the Company or any of its agents. The
- -----------------------------------------------------------------------
Purchaser understands that Purchaser (and not the Company) shall be responsible
- -------------------------------------------------------------------------------
for such Purchaser's own tax liability that may arise as a result of this
- -------------------------------------------------------------------------
investment or the transactions contemplated by this Agreement.
- --------------------------------------------------------------
11. Governing Law. This Agreement shall be governed by and construed and
--------------
enforced in accordance with the laws of the State of California. Purchaser
represents that Purchaser has read this Agreement and is familiar with its terms
and provisions.
Purchaser hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Board upon any questions arising under this Agreement.
IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set forth
above.
APPLIED MICRO CIRCUITS CORPORATION
a Delaware corporation
By: /s/ [signature]
---------------------------------------------
Joel O. Holliday
Title: Vice President, Finance & Administration
PURCHASER
/s/ [signature]
------------------------------------------------
David M. Rickey
<PAGE>
EXHIBIT A-1
-----------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, hereby sell, assign and transfer unto Applied Micro
Circuits Corporation (__________) shares of the Common Stock of Applied Micro
Circuits Corporation standing in my name of the books of said corporation
represented by Certificate No. _____ herewith and do hereby irrevocably
constitute and appoint____________to transfer said stock on the books of the
within-named corporation with full power of substitution in the premises.
Dated:
/s/ [signature]
----------------------------
David M. Rickey
This Assignment Separate from Certificate was executed in conjunction with the
terms of a Restricted Stock Purchase Agreement between the above assignor and
Applied Micro Circuits Corporation dated April 9, 1997.
-------------
<PAGE>
EXHIBIT A-2
-----------
CONSENT OF SPOUSE
I, Jan E. Nielsen, spouse of David M. Rickey, have read and approved the
foregoing Agreement. In consideration of granting of the right to my spouse to
purchase shares of Applied Micro Circuits Corporation as set forth in the
Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the
exercise of any rights under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights under such
Agreement or in any shares issued pursuant thereto under the community property
laws of the State of California or similar laws relating to marital property in
effect in the state of our residence as of the date of the signing of the
foregoing Agreement.
Dated: July 23, 1997
/s/ [signature]
---------------------------
Jan E. Nielsen
<PAGE>
EXHIBIT A-3
-----------
INCENTIVE STOCK OPTION ELECTION UNDER SECTION 83(B)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer ("Taxpayer") has acquired property pursuant to the
exercise of an incentive stock option within the meaning of Section 422 of the
Code. Taxpayer hereby elects, pursuant to Section 83(b) of the Code and subject
to the limitations set forth herein (1) to include in the computation of such
Taxpayer's alternative minimum taxable income for the current taxable year an
amount equal to the excess of the fair market value of the property described
below (as of the time of transfer) over the amount paid for such property.
1. The name, address, Social Security number and taxable year of Taxpayer and
such Taxpayer's spouse are as follows:
Name: David M. Rickey Taxpayer: David M. Rickey
Spouse: Jan E. Nielsen
Address: 15629 Boulder Mountain Road
Poway, CA 92064
Social Security No.: Taxpayer: ###-##-####
Spouse: ###-##-####
Taxable Year: 1997
2. The property with respect to which the election is made is 100,000 shares of
-------
the Common Stock of Applied Micro Circuits Corporation, a Delaware corporation
(the Company ).
3. The date on which the property was transferred is: July 23, 1997.
-------------
4. The property is subject to the restrictions checked below:
[_] the right of the Company to repurchase the property at the initial
purchase price in the event that Taxpayer ceases to perform substantial services
for the Company within a certain period of time;
[_] restrictions imposed by Section 16(b) of the Securities Exchange Act of
1934, as amended.
<PAGE>
5. The fair market value of the property at the time of transfer, determined
without regard to any restriction other than a restriction which by its terms
will never lapse, was $.35.
----
6. The amount (if any) paid for the property was $.35.
----
Taxpayer has submitted a copy of this statement to the Company and to the IRS
Service Center where Taxpayer files such Taxpayer's federal income tax returns.
A copy will also be filed with Taxpayer's federal income tax return for the
taxable year to which this election relates.
The transferee of the property is the person performing the services in
connection with the transfer of the property.
This election is made to the same effect, and with the same limitations, for
purposes of any applicable state statute corresponding to Section 83(b) of the
Code.
Taxpayer understands that the foregoing election may not be revoked except with
the consent of the Commissioner.
Dated: July 23, 1997
/s/ [signature]
-----------------------------
David M. Rickey
The undersigned spouse of Taxpayer joins in this election.
Dated: July 23, 1997
/s/ [signature]
-----------------------------
Jan E. Nielsen
<PAGE>
EXHIBIT A-4
-----------
PROMISSORY NOTE
$35,000 July 23, 1997
------
At the times hereinafter stated, for value received, the undersigned
promises to pay APPLIED MICRO CIRCUITS CORPORATION, a Delaware corporation (the
"Company"), the sum of $35,000, with interest from the date hereof at a rate of
6.54% per annum, compounded semiannually, on the unpaid balance of said
principal sum. Said principal and interest shall be due and payable on the
earlier of April 9, 2001 or termination of the employment of the undersigned by
the Company.
Principal and interest are payable in lawful money of the United States of
America. AT ANY TIME, THE PRIVILEGE IS RESERVED TO PAY MORE THAN THE SUM DUE.
Should the interest not be so paid, it shall be added to the principal and
thereafter bear interest at the rate payable on the principal hereof, but such
unpaid interest so compounded shall not exceed an amount equal to simple
interest on the unpaid principal at the maximum rate permitted by law. Should
default be made in the payment of any installment of principal or interest when
due, then the whole sum of principal and interest shall become immediately due
and payable at the option of the holder of this Note. Should suit be commenced
to collect this Note or any portion thereof, such sum as the Court may deem
reasonable shall be added hereto as attorneys' fees. The makers and endorsers
have severally waived presentment for payment, protest, notice of protest, and
notice of non-payment of this Note.
This Note, which is full recourse, is secured by a pledge of certain shares
of Common Stock of the Company and is subject to the terms of a Purchaser's
Common Stock Purchase Agreement between the maker and the Company.
/s/ [SIGNATURE]
-----------------------------
David M. Rickey
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT
Applied Micro Circuits Corporation
6195 Lusk Blvd.
San Diego, CA 92121-2793
Attention: Corporate Secretary
THIS AGREEMENT is made between David Rickey (the "Purchaser") and Applied Micro
Circuits Corporation, a Delaware corporation (the "Company") as of July 23,
--------
1997.
- -----
RECITALS
--------
(1) Pursuant to the exercise of a stock option granted to the
Purchaser under the Company's 1992 Stock Option Plan (the "Plan"), and pursuant
to the Incentive Stock Option Agreement (the "Option Agreement") dated as of
February 12, 1996 by and between the Company and the Purchaser, the Purchaser
- -----------------
has elected to purchase 380,952 of those shares which have become vested under
--------
the vesting schedule set forth in Section 3(i) of the Option Agreement ("Vested
Shares") and 761,904 shares which have not yet vested under such schedule
-------
("Unvested Shares") (the "Shares").
(2) As set forth in the Option Agreement and the Plan, this Agreement
gives the Company the right to repurchase at cost the Unvested Shares in the
event of a termination of the Purchaser's employment or consultancy with the
Company prior to the date upon which they would have vested under the Option
Agreement and also grants the Company a right of first refusal to purchase the
Shares upon certain conditions.
1. Company's Option to Repurchase. If the Purchaser's employment or
------------------------------
consultancy with the Company is terminated for any reason (a "Termination"), the
Company (or its assignee under this Agreement) shall have the right and option
to purchase from the Purchaser, or the Purchaser's legal representative, as the
case may be (the "Company Option"), at the price paid by Purchaser for such
shares (the "Option Price"), up to that number of shares which would, if the
option had not been so exercised, have been unvested as of the date of
termination. The Option Agreement and the Plan are hereby incorporated by
reference and made a part of this Agreement.
2. Procedure for Exercise of Company Option.
----------------------------------------
(i) Upon the occurrence of a Termination, the Company may exercise the
Company Option by delivering personally or by first class mail, to Purchaser (or
such Purchaser's transferee or legal representative, as the case may be), within
60 days of the Termination, a notice in writing indicating the Company's
intention to exercise the Company Option and setting forth a date for closing
(the "Closing") not later than thirty (30) days from the mailing of such notice.
The Closing shall take place at the Company's principal executive offices. At
the Closing, the holder of the certificates for the
<PAGE>
Unvested Shares being transferred shall deliver the stock certificate or
certificates evidencing the Unvested Shares, and the Company shall deliver the
purchase price therefor.
(ii) Whenever the Company shall have the right to purchase the
Unvested Shares pursuant to this Agreement, the Company may, upon written notice
to the Purchaser, assign to one or more persons the right to exercise all or
part of the Company's purchase rights. Each such assignee shall have the right
to exercise such right in its own name and for its own account. If the Company
Option is assigned by the Company and the fair market value of the shares, as
determined by the Board of Directors of the Company, exceeds the repurchase
price, and such assignee exercises the Company Option, then the assignee shall
pay to the Company the difference between the fair market value of the shares
repurchased and the aggregate repurchase price.
(iii) If the Company does not elect to exercise the Company Option
conferred above by giving the requisite notice within sixty (60) days following
the Termination, the Company Option shall terminate.
3. Termination of Company Option. The Company Option provided for in
-----------------------------
Section 1 of this Agreement shall terminate upon the first date on which there
are no longer any Unvested Shares which are the subject of the Company Option.
4. Company's Right of First Refusal. Before any Shares held by Purchaser
--------------------------------
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) 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 Shares (the
"Offered Price"), and the Holder shall offer the Shares at the Offered Price to
the Company or its assignee(s).
(b) At any time within 30 days after receipt of the Notice, the
Company and/or its assignee(s) may, by giving written notice to the Holder,
elect to purchase all, but not less than all, of the Shares proposed to be
transferred to any one or more of the Proposed Transferees, at the purchase
price determined in accordance with subsection (c) below.
(c) 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 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
-2-
<PAGE>
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(e) 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 and provided further that any such sale or
other transfer is effected in accordance with any applicable securities laws and
the Proposed Transferee agrees in writing that the provisions of this Section
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) Anything to the contrary contained in this Section
notwithstanding, the transfer of any or all of the Shares during the Purchaser's
lifetime or on the Purchaser's death by will or intestacy to the Purchaser's
immediate family or a trust for the benefit of the Purchaser's immediate family
shall be exempt from the provisions of this Section, "Immediate Family" as used
herein shall mean spouse, lineal descendant or antecedent, father, mother,
brother or sister. In such case, the transferee or other recipient shall
receive and hold the Shares so transferred subject to the provisions of this
Section, and there shall be no further transfer of such Shares except in
accordance with the terms of this Section.
(g) The Right of First Refusal shall terminate as to any Shares 90
days after 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 1933 Act.
5. Transferability of the Shares; Escrow.
-------------------------------------
(a) Purchaser hereby authorizes and directs the Secretary of the
Company, or such other person designated by the Company, to transfer the Shares
from Purchaser to the Company. Purchaser further authorizes the Company to
refuse, or to cause its transfer agent to refuse, to transfer any stock
attempted to be transferred in violation of this Agreement.
(b) Except as required to effectuate the exercise of the Company
Option, none of the Unvested Shares which are subject to the Company Option
under Section 1 may be sold, transferred, pledged, hypothecated or otherwise
disposed of by Purchaser. The certificate or certificates evidencing any of the
shares purchased hereunder shall be endorsed with a legend substantially as
follows (together with any other legend(s) restricting the transfer of the
Unvested Shares necessary or appropriate under applicable Federal or State
securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN OPTION AGREEMENT AND A RESTRICTED
STOCK PURCHASE AGREEMENT PURSUANT TO WHICH SUCH SHARES WERE PURCHASED,
COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF THE CORPORATION."
-3-
<PAGE>
(c) To ensure the availability for delivery of the Purchaser's
Unvested Shares upon repurchase by the Company pursuant to the Company Option
under Section 1, the Purchaser shall, upon execution of this Agreement, deliver
and deposit with the Secretary of the Company, or such other person designated
by the Company, the share certificates representing the Unvested Shares.
Purchaser shall further deliver to the Company a stock power, duly endorsed in
blank, attached hereto as Exhibit A-1, that will be used only in accordance with
-----------
the transfer of Shares pursuant to the Company Option and the Right of First
Refusal. The Unvested Shares shall be held by the Secretary in escrow, until
such time as the Company's rights of repurchase pursuant to the Company Option
no longer are in effect. As a further condition to the Company's obligations
under this Agreement, the spouse of Purchaser, if any, shall execute and deliver
to the Company the Consent of Spouse attached hereto as Exhibit A-2.
-----------
(d) The Company, or its designee, shall not be liable for any act it
may do or omit to do with respect to holding the Unvested Shares in escrow and
while acting in good faith and in the exercise of its judgment.
(e) Transfer or sale of said Unvested Shares is subject to
restrictions on transfer imposed by any applicable State and Federal securities
laws. Any transferee shall hold such Unvested Shares subject to all the
provisions hereof and shall acknowledge the same by signing a copy of this
Agreement.
6. Ownership, Voting Rights, Duties. This Agreement shall not affect in
--------------------------------
any way the ownership, voting rights or other rights or duties of Purchaser,
except as specifically provided herein.
7. Adjustment of Unvested Shares. The Unvested Shares subject to this
-----------------------------
Agreement shall be proportionately adjusted for any increase or decrease in the
number of issued shares of the Company, resulting from a subdivision or
consolidation of shares or the payment of a stock dividend or any other increase
or decrease in the number of said shares effected without receipt of
consideration by the Company.
8. Market Standoff Agreement. Purchaser hereby agrees that if so
-------------------------
requested by the Company or any representative of the underwriters in connection
with any registration of the offering of any securities of the Company under the
1933 Act, Purchaser shall not sell or otherwise transfer any Shares or other
securities of the Company during the 180-day period following the effective date
of a registration statement of the Company filed under the 1933 Act; provided,
however, that such restriction shall only apply to the first two registration
statements of the Company to become effective under the 1933 Act which include
securities to be sold on behalf of the Company to the public in an underwritten
public offering under the 1933 Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such 180-day period.
9. Delivery of Payment. Purchaser herewith delivers to the Company full
-------------------
payment for the exercise of the Shares by delivery to the Company of Purchaser's
full recourse promissory note in the principal amount of $ 399,999.60 (the
----------
"Note") in the form attached here to as Exhibit A-4, bearing interest at the
then current minimum applicable federal rate.
-4-
<PAGE>
10. Security Interest.
-----------------
With respect to the Note, the parties agree to the following:
(a) The Note shall become payable in full upon the earlier of
voluntary or involuntary termination or cessation of employment of Purchaser
with the Company for any reason, or the completion of vesting. Purchaser agrees
that if a bankruptcy or insolvency proceeding is instituted by or against it, or
if a receiver if appointed for the property of Purchaser, or if Purchaser makes
an assignment for the benefit of creditors, the entire amount unpaid on the Note
shall become immediately due and payable.
(b) Purchaser shall deliver to the Secretary of the Company
(hereinafter referred to as the "Pledge Holder") all certificates representing
the Shares purchased with the Note and an executed blank assignment separate
from certificate in the form attached hereto as Exhibit A-1, for use in
transferring all or a portion of said Shares to the Company if, as and when
required under this Section 6 or under any other provision of this Agreement.
(c) As security for the payment of the Note and any renewal, extension
or modification thereof, Purchaser hereby grants to the Company a security
interest in and pledges with and delivers to the Company Purchaser's Shares
purchased with the Note (sometimes referred to herein as the "Collateral").
Purchaser shall not sell, withdraw, pledge, substitute or otherwise dispose of
all or any part of the Collateral without the prior written consent of the
Company.
(d) In the event of any foreclosure of the security interest, the
Company may sell the Collateral at a private sale or may repurchase the
Collateral itself. The parties agree that, prior to the establishment of a
public market for the Shares of the Company, the securities laws affecting sale
of the Shares make a public sale of the Collateral commercially unreasonable.
The parties further agree that the repurchasing of said Shares by the Company,
or by any person to whom the Company may have assigned its rights hereunder, is
commercially reasonable if made at a price determined by the Board of Directors
in its discretion, fairly exercised, representing what would be the fair market
value of the Shares reduced by any limitation on transferability, whether due to
the size of the block of Shares or the restrictions of applicable securities
laws.
(e) In the event of default in payment when due of any indebtedness
under Purchaser's Note, or in the event that Purchaser fails to perform any of
the covenants set forth in the Option Agreement or in this Agreement for a
period of ten days after written notice thereof from the Company, the Company
may elect then, or at any time thereafter, to exercise all rights available to a
secured party under the California Commercial Code including the right to sell
the Collateral at a private or public sale or repurchase the Shares as provided
above. The proceeds of any sale shall be applied in the following order:
(1) To pay all reasonable expenses of the Company in enforcing
this Agreement, including without limitation reasonable
attorney's fees and legal expenses incurred by the Company.
(2) In satisfaction of the remaining indebtedness under
Purchaser's Note.
-5-
<PAGE>
(3) To Purchaser, any remaining proceeds.
(f) Upon full payment by Purchaser of all amounts due on the Note,
Pledge Holder shall deliver to Purchaser all Shares in Pledge Holder's
possession belonging to Purchaser, and Pledge Holder shall thereupon be
discharged of all further obligations hereunder. The Shares purchased for cash
shall be delivered to Purchaser upon request.
11. Notices. Notices required hereunder shall be given in person or by
-------
first class mail to the address of Purchaser shown on the records of the
Company, and to the Company at its principal executive office.
12. Survival of Terms. This Agreement shall apply to and bind Purchaser
-----------------
and the Company and their respective permitted assignees and transferees, heirs,
legatees, executors, administrators and legal successors.
13. Section 83(b) Election. Purchaser understands that Section 83(a) of
----------------------
the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
----
income for a nonstatutory stock option and as alternative minimum taxable income
for an incentive stock option the difference between the amount paid for the
Shares and the fair market value of the Shares as of the date any restrictions
on the Shares lapse. In this context, "restriction" means the right of the
-----------
Company to buy back the Shares pursuant to the Repurchase Option set forth in
Section 3(a) of this Agreement. Purchaser understands that Purchaser may elect
to be taxed at the time the Shares are purchased, rather than when and as the
Repurchase Option expires, by filing an election under Section 83(b) (an "83(b)
-----
Election") of the Code with the Internal Revenue Service within 30 days from the
- --------
date of purchase. Even if the fair market value of the Shares at the time of
the execution of this Agreement equals the amount paid for the Shares, the
election must be made to avoid income and alternative minimum tax treatment
under Section 83(a) in the future. Purchaser understands that failure to file
such an election in a timely manner may result in adverse tax consequences for
Purchaser. Purchaser further understands that an additional copy of such
election form should be filed with his or her federal income tax return for the
calendar year in which the date of this Agreement falls. Purchaser acknowledges
that the foregoing is only a summary of the effect of United States federal
income taxation with respect to purchase of the Shares hereunder, and does not
purport to be complete. Purchaser further acknowledges that the Company has
directed Purchaser to seek independent advice regarding the applicable
provisions of the Code, the income tax laws of any municipality, state or
foreign country in which Purchaser may reside, and the tax consequences of
Purchaser's death. The form for making this election is attached as Exhibit A-3
-----------
hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY
AND NOT THE COMPANY'S TO TIMELY FILE THE ELECTION UNDER SECTION 83(B), EVEN IF
THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON
THE PURCHASER'S BEHALF.
14. Tax Consequences. The Purchaser understands that upon the sale of
----------------
shares acquired upon exercise of an incentive stock option at least two years
after the grant of the option and at least one year after exercise of the
option, any gain will be taxed to the Purchaser as long-term capital gain, which
under current law is taxed at the same rates as ordinary income. If these
holding periods are not satisfied, the Purchaser will recognize ordinary income
on the date of disposition. However, there may
-6-
<PAGE>
also be tax consequences to the Purchaser under the alternative minimum tax in
the year of exercise or in the year that certain restrictions imposed on the
shares lapse (i.e., the year the stock is fully vested).
Such restrictions include the Company's right to repurchase unvested shares
at cost in the event of termination of employment, and, include the potential
liability of any "insider" (as defined below) of the Company to forfeit to the
Company any profits from any purchase and sale of Common Stock of the Company
within a six month period, pursuant to Section 16(b) of the Securities Exchange
Act of 1934, as amended.
If unvested shares (i.e., shares subject to a repurchase option of the
Company) are purchased upon exercise of an incentive stock option, or if shares
are purchased by a Purchaser who could be subject to suit under Section 16(b) of
the Securities Exchange Act of 1934 in the event Purchaser disposed of such
shares, and the Purchaser subsequently disposes of such shares prior to the
expiration of the two-year and one-year holding periods, under proposed
regulations issued by the Internal Revenue Service the shares will be treated as
if they had been acquired by the Purchaser pursuant to a nonstatutory option.
See "Nonstatutory Options" below. It may be possible for a Purchaser to file a
"protective" election with the Internal Revenue Service under Section 83(b)
within 30 days after the date of exercise of an incentive stock option.
However, the Internal Revenue Service has never considered the question of
whether a Section 83(b) election can be filed with respect to the exercise of an
incentive stock option, and there can be no assurance that any such "protective"
election, even if properly and timely filed, would be recognized as effective by
the Internal Revenue Service. Therefore, a Purchaser should consult such
Purchaser's own tax advisor prior to exercising an incentive stock option with
respect to unvested shares, or prior to any exercise of an incentive stock
option in the event that Purchaser could be subject to Section 16(b) of the
Securities Exchange Act of 1934 upon disposing of such shares, concerning the
advisability of filing a "protective" election under Section 83(b) of the Code.
A Section 83(b) election also commences the Purchaser's holding period in
the acquired property (for capital gain purposes) and affects the
characterization of gain or loss incurred upon disposition of such property.
Capital losses are allowed against up to $3,000 of ordinary income, and the
excess of net long-term capital loss over net short-term capital gain is allowed
in full for this purpose. In addition, the existence of capital gains or losses
will affect the limitation or the deductibility of a Purchaser's investment
interest.
The Purchaser understands that the tax consequences of exercising an option
and disposing of shares acquired thereunder depend on the Purchaser's individual
circumstances. Purchaser represents that Purchaser has had the opportunity to
consult a tax advisor and is not relying upon the Company for tax advice in this
regard.
15. Representations. The Purchaser has had the opportunity to review with
--------------- ----------------------------------------------------
such Purchaser's own tax advisors the federal, state, local and foreign tax
- ---------------------------------------------------------------------------
consequences of this investment and the transactions contemplated by this
- -------------------------------------------------------------------------
Agreement. The Purchaser is relying solely on such advisors and not on any
- ---------------------------------------------------------------------------
statements or representations of the Company or any of its agents. The
- -----------------------------------------------------------------------
Purchaser understands that Purchaser (and not the Company) shall be responsible
- -------------------------------------------------------------------------------
for such Purchaser's own tax liability that may arise as a result of this
- -------------------------------------------------------------------------
investment or the transactions contemplated by this Agreement.
- -------------------------------------------------------------
-7-
<PAGE>
16. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of California.
Purchaser represents that Purchaser has read this Agreement and is familiar
with its terms and provisions. Purchaser hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Agreement.
IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set
forth above.
APPLIED MICRO CIRCUITS CORPORATION
a Delaware corporation
By: /s/ [signature]
--------------------------------------
Title: Vice President Finance &
Administration
PURCHASER
/s/ [signature]
-----------------------------------------
David M. Rickey
-8-
<PAGE>
EXHIBIT A-1
-----------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, hereby sell, assign and transfer unto ______________
_______________________________________________________________________________
(________) shares of the Common Stock of Applied Micro Circuits Corporation
standing in my name of the books of said corporation represented by Certificate
No. _____ herewith and do hereby irrevocably constitute and appoint __________
___________________ to transfer said stock on the books of the within-named
corporation with full power of substitution in the premises.
Dated:
Signature:
/s/ [SIGNATURE]
---------------------------------------
David M. Rickey
This Assignment Separate from Certificate was executed in conjunction with
the terms of a Restricted Stock Purchase Agreement between the above assignor
and Applied Micro Circuits Corporation dated February 12, 1996.
-----------------
-9-
<PAGE>
EXHIBIT A-2
-----------
CONSENT OF SPOUSE
I, Jan E. Nielsen, spouse of David Rickey, have read and approved the
foregoing Agreement. In consideration of granting of the right to my spouse to
purchase shares of Applied Micro Circuits Corporation as set forth in the
Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the
exercise of any rights under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights under such
Agreement or in any shares issued pursuant thereto under the community property
laws of the State of California or similar laws relating to marital property in
effect in the state of our residence as of the date of the signing of the
foregoing Agreement.
Dated: July 23, 1997
/s/ [SIGNATURE]
---------------------------------------
Jan E. Nielsen
<PAGE>
EXHIBIT A-3
-----------
INCENTIVE STOCK OPTION ELECTION UNDER SECTION 83(b)
---------------------------------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer ("Taxpayer") has acquired property pursuant to the
exercise of an incentive stock option within the meaning of Section 422 of the
Code. Taxpayer hereby elects, pursuant to Section 83(b) of the Code and subject
to the limitations set forth herein (1) to include in the computation of such
Taxpayer's alternative minimum taxable income for the current taxable year an
amount equal to the excess of the fair market value of the property described
below (as of the time of transfer) over the amount paid for such property.
1. The name, address, Social Security number and taxable year of Taxpayer and
such Taxpayer's spouse are as follows:
Name: Taxpayer: David M. Rickey
Spouse: Jan E. Nielsen
Address: 15629 Boulder Mountain Road
Poway, CA 92064
Social Security No.: Taxpayer: ###-##-####
Spouse: ###-##-####
Taxable Year: 1997
2. The property with respect to which the election is made is 1,142,856 shares
----------
of the Common Stock of Applied Micro Circuits Corporation, a Delaware
corporation ( the "Company" ).
3. The date on which the property was transferred is: July 23, 1997
4. The property is subject to the restrictions checked below:
[_] the right of the Company to repurchase the property at the initial
purchase price in the event that Taxpayer ceases to perform substantial
services for the Company within a certain period of time;
[_] restrictions imposed by Section 16(b) of the Securities Exchange
Act of 1934, as amended.
5. The fair market value of the property at the time of transfer, determined
without regard to any restriction other than a restriction which by its
terms will never lapse, was $.35.
---
6. The amount (if any) paid for the property was $ .35.
----
<PAGE>
Taxpayer has submitted a copy of this statement to the Company and to the IRS
Service Center where Taxpayer files such Taxpayer's federal income tax returns.
A copy will also be filed with Taxpayer's federal income tax return for the
taxable year to which this election relates. The transferee of the property is
the person performing the services in connection with the transfer of the
property.
This election is made to the same effect, and with the same limitations, for
purposes of any applicable state statute corresponding to Section 83(b) of the
Code.
Taxpayer understands that the foregoing election may not be revoked except with
- -------------------------------------------------------------------------------
the consent of the Commissioner.
- -------------------------------
Dated: July 23, 1997
/s/ [SIGNATURE]
--------------------------------
David M. Rickey
The undersigned spouse of Taxpayer joins in this election.
Dated: July 23, 1997
/s/ [SIGNATURE]
--------------------------------
Jan E. Nielsen
-2-
<PAGE>
EXHIBIT A-4
-----------
PROMISSORY NOTE
$ 399,999.60 July 23, 1997
----------
At the times hereinafter stated, for value received, the undersigned
promises to pay APPLIED MICRO CIRCUITS CORPORATION, a Delaware corporation (the
"Company"), the sum of $399,999.60, with interest from the date hereof at a rate
----------
of 5.98% per annum, compounded semiannually, on the unpaid balance of said
principal sum. Said principal and interest shall be due and payable on the
earlier of February 12, 2000 or termination of the employment of the undersigned
by the Company.
Principal and interest are payable in lawful money of the United
States of America. AT ANY TIME, THE PRIVILEGE IS RESERVED TO PAY MORE THAN THE
SUM DUE.
Should the interest not be so paid, it shall be added to the principal and
thereafter bear interest at the rate payable on the principal hereof, but such
unpaid interest so compounded shall not exceed an amount equal to simple
interest on the unpaid principal at the maximum rate permitted by law. Should
default be made in the payment of any installment of principal or interest when
due, then the whole sum of principal and interest shall become immediately due
and payable at the option of the holder of this Note. Should suit be commenced
to collect this Note or any portion thereof, such sum as the Court may deem
reasonable shall be added hereto as attorneys' fees. The makers and endorsers
have severally waived presentment for payment, protest, notice of protest, and
notice of non-payment of this Note.
This Note, which is full recourse, is secured by a pledge of certain shares of
Common Stock of the Company and is subject to the terms of a Purchaser's Common
Stock Purchase Agreement between the maker and the Company.
/s/ [SIGNATURE]
--------------------------------
David M. Rickey
<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
PURCHASER : David M. Rickey
SELLER : APPLIED MICRO CIRCUITS CORPORATION
COMPANY : APPLIED MICRO CIRCUITS CORPORATION
SECURITY : COMMON STOCK
AMOUNT : 1,142,856
DATE : July 23, 1997
In connection with the purchase of the above-listed Securities, I, the
Purchaser, represent to the Seller and to the Company the following:
(a) I am aware of the Company's business affairs and financial
condition, and have acquired sufficient information about the Company to reach
an informed and knowledgeable decision to acquire the Securities. I am
purchasing these Securities for my own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act of 1933, as amended (the "Securities
Act").
(b) I understand that the Securities 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 my
investment intent as expressed herein. In this connection, I understand that,
in the view of the Securities and Exchange Commission (the "SEC"), the statutory
basis for such exemption may be unavailable if my 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.
(c) I further understand that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from registration is otherwise available. Moreover, I understand that the
Company is under no obligation to register the Securities. In addition, I
understand 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 for
the Company.
(d) I am 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 issuance of the Securities, such issuance will be exempt from
registration under the Securities Act. In the event the Company later becomes
subject to the reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, ninety (90) days thereafter the securities exempt under
-2-
<PAGE>
Rule 701 may be resold, subject to the satisfaction of certain of the conditions
specified by Rule 144, including among other things: (1) the sale 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, and the amount of securities being
sold during any three month period not exceeding the limitations specified in
Rule 144(e), if applicable. Notwithstanding this paragraph (d), I acknowledge
and agree to the restrictions set forth in paragraph (e) hereof.
In the event that the Company does not qualify under Rule 701 at the
time of issuance of the Securities, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires
among other things: (1) the availability of certain public information about the
Company, (2) the resale occurring not less than two years after the party has
purchased, and made full payment for, within the meaning of Rule 144, the
securities to be sold; and, in the case of an affiliate, or of a non-affiliate
who has held the securities less than three years, (3) the sale 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 the amount of securities being sold during any three
month period not exceeding the specified limitations stated therein, if
applicable.
(e) I agree, in connection with the Company's initial underwritten
public offering of the Company's securities, (1) not to sell, make short sale
of, loan, grant any options for the purchase of, or otherwise dispose of any
shares of Common Stock of the Company held by me (other than those shares
included in the registration) without the prior written consent of the Company
or the underwriters managing such initial underwritten public offering of the
Company's securities for one hundred eighty (180) days from the effective date
of such registration, and (2) I further agree to execute any agreement
reflecting (1) above as may be requested by the underwriters at the time of the
public offering, provided however that the officers and directors of the Company
-----------------
who own the stock of the Company also agree to such restrictions.
(f) I further understand that in the event all of the applicable
requirements of Rule 144 or Rule 701 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 Rule 144 and
Rule 701 are not exclusive, the Staff of the SEC has expressed its opinion that
persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 or Rule 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.
(g) I understand 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. I have
read the applicable Commissioner's Rules with respect to such restriction, a
copy of which is attached. Dated this 23rd day of July, 1997.
Signature of Purchaser:
/s/ [SIGNATURE]
--------------------------------------
David M. Rickey
-3-
<PAGE>
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CEDE
----------------------------------------------------
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: Restriction on Transfer. [a) The issuer of any security upon
---------------------------
which a restriction on transfer has been imposed pursuant to Sections 260.102.6,
260.141.10 or 260.534 shall cause a copy of this section to be delivered to each
issuee or transferee of such security at the time the certificate evidencing the
security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a sale or
transfer of such security, or any interest therein, without the prior written
consent of the Commissioner (until this condition is removed pursuant to Section
260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of the
Code or Section 260.105.14 of these rules;
(4) to the transferror's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferror or the transferror's
ancestors, descendants, or spouse; or to a transferee by a trustee or custodian
for the account of the transferee or the transferee's ancestors. descendants or
spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer Licensed under the Code (either acting
as such or as a finder) to a resident of a foreign state, territory or country
who is neither domiciled in this state to the knowledge of the broker-dealer,
nor actually present in this state if the sale of such securities is not in
violation of any securities Law of the foreign state, territory or country
concerned;
(8) to a broker-dealer Licensed under the Code in a principal transaction,
or as an underwriter or member of an underwriting syndicate or selling group;
(9) if the interest sold or transferred is a pledge or other lien given by
the purchaser to the seller upon a sale of the security for which the
Commissioner's written Consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113 or
25121 of the Code, of the securities to be transferred, provided that no order
under Section 25140 or Subdivision (a) of Section 25143 is in effect with
respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such corporation, or
by a wholly owned subsidiary of a corporation to such corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or 25113 of
the c ode, provided that no order under Section 25140 or Subdivision (a) of
Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who are
neither domiciled nor actually present in this state;
(14) to the State controller pursuant to the unclaimed Property Law or to
the administrator of the unclaimed property Law of another state;
(15) by the State Controller pursuant to the Unclaimed Property Law or by
the administrator of the unclaimed property Law of another state if, in either
such case, such person (i) discloses to potential purchasers at the sale that
transfer of the securities is restricted under this rule, (ii) delivers to each
purchaser a copy of this rule, and (iii) advises the Commissioner of the name of
each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities; or
(17) by way of an offer and sale of outstanding securities in an issuer
transaction that is subject to the qualification requirement of Section 25110 of
the Code but exempt from that qualification requirement by subdivision (f) of
Section 25102;
provided that any such transfer is on the condition that any certificate
evidencing the security issued to such transferee shall contain the Legend
required by this section.
<PAGE>
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a Legend, prominently stamped or printed
thereon in capital Letters of not Less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT
Applied Micro Circuits Corporation
6195 Lusk Boulevard
San Diego, CA 92121-2793
Attention: Corporate Secretary
THIS AGREEMENT is made between David Rickey (the "Purchaser") and Applied
Micro Circuits Corporation, a Delaware corporation (the "Company") as of July
----
23, 1997.
- ---------
RECITALS
(1) Pursuant to the exercise of a stock option granted to the Purchaser
under the Company's 1992 Stock Option Plan (the "Plan"), and pursuant to the
Nonstatutory Stock Option Agreement (the "Option Agreement") dated as of
February 12, 1996 by and between the Company and the Purchaser, the Purchaser
- ------------------
has elected to purchase 19,408 of these shares which have become vested under
-------
the vesting schedule set forth in Section 3(i) of the Option Agreement ("Vested
Shares") and 38,096 shares which have not yet vested under such schedule
-------
("Unvested Shares") (the "Shares").
(2) As set forth in the Option Agreement and the Plan, this Agreement
grants the Company the right to repurchase at cost the Unvested Shares in the
event of a termination of the Purchaser's employment or consultancy with the
Company prior to the date upon which they would have vested under the Option
Agreement and also a right of first refusal to purchase the Shares upon certain
conditions.
1. Company's Option to Repurchase. If the Purchaser's employment or
------------------------------
consultancy with the Company is terminated for any reason (a "Termination"), the
Company (or its assignee under this Agreement) shall have the right and option
to purchase from the Purchaser, or the Purchaser's legal representative, as the
case may be (the "Company Option"), at the price paid by Purchaser for such
shares (the "Option Price"), up to that number of shares which would, if the
option had not been so exercised, have been unvested as of the date of
termination. The Option Agreement and the Plan are hereby incorporated by
reference and made a part of this Agreement.
2. Procedure for Exercise of Company Option.
----------------------------------------
(i) Upon the occurrence of a Termination, the Company may exercise the
Company Option by delivering personally or by first class mail, to Purchaser (or
such Purchaser's transferee or legal representative, as the case may be), within
60 days of the Termination, a notice in writing indicating the Company's
intention to exercise the Company Option and setting forth a date for closing
(the "Closing") not later than thirty (30) days from the
-1-
<PAGE>
mailing of such notice. The Closing shall take place at the Company's principal
executive offices. At the Closing, the holder of the certificates for the
Unvested Shares being transferred shall deliver the stock certificate or
certificates evidencing the Unvested Shares, and the Company shall deliver the
purchase price therefor.
(ii) Whenever the Company shall have the right to purchase the
Unvested Shares pursuant to this Agreement, the Company may, upon written notice
to the Purchaser, assign to one or more persons the right to exercise all or
part of the Company's purchase rights. Each such assignee shall have the right
to exercise such right in its own name and for its own account. If the Company
Option is assigned by the Company and the fair market value of the shares, as
determined by the Board of Directors of the Company, exceeds the repurchase
price, and such assignee exercises the Company Option, then the assignee shall
pay to the Company the difference between the fair market value of the shares
repurchased and the aggregate repurchase price.
(iii) If the Company does not elect to exercise the Company Option
conferred above by giving the requisite notice within sixty (60) days following
the Termination, the Company Option shall terminate.
3. Termination of Company Option. The Company Option provided for in
-----------------------------
Section 1 of this Agreement shall terminate upon the first date on which there
are no longer any Unvested Shares which are the subject of the Company Option.
4. Company's Right of First Refusal. Before any Shares held by Purchaser
--------------------------------
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) 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 Shares (the
"Offered Price"), and the Holder shall offer the Shares at the Offered Price to
the Company or its assignee(s).
(b) At any time within 30 days after receipt of the Notice, the
Company and/or its assignee(s) may, by giving written notice to the Holder,
elect to purchase all, but not less than all, of the Shares proposed to be
transferred to any one or more of the Proposed Transferees, at the purchase
price determined in accordance with subsection (c) below.
(c) 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.
-2-
<PAGE>
(d) 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) 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 and provided further that any such sale or
other transfer is effected in accordance with any applicable securities laws and
the Proposed Transferee agrees in writing that the provisions of this Section
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) Anything to the contrary contained in this Section
notwithstanding, the transfer of any or all of the Shares during the Purchaser's
lifetime or on the Purchaser's death by will or intestacy to the Purchaser's
immediate family or a trust for the benefit of the Purchaser's immediate family
shall be exempt from the provisions of this Section. "Immediate Family" as used
herein shall mean spouse, lineal descendant or antecedent, father, mother,
brother or sister. In such case, the transferee or other recipient shall
receive and hold the Shares so transferred subject to the provisions of this
Section, and there shall be no further transfer of such Shares except in
accordance with the terms of this Section.
(g) The Right of First Refusal shall terminate as to any Shares 90
days after 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 1933 Act.
5. Transferability of the Shares; Escrow
-------------------------------------
(a) Purchaser hereby authorizes and directs the Secretary of the
Company, or such other person designated by the Company, to transfer the Shares
from Purchaser to the Company. Purchaser further authorizes the Company to
refuse, or to cause its transfer agent to refuse, to transfer any stock
attempted to be transferred in violation of this Agreement.
(b) Except as required to effectuate the exercise of the Company
Option, none of the Unvested Shares which are subject to the Company Option
under Section 1 may be sold, transferred, pledged, hypothecated or otherwise
disposed of by Purchaser. The certificate or certificates evidencing any of the
shares purchased hereunder shall be endorsed with a legend substantially as
follows (together with any other legend(s) restricting the transfer of the
Unvested Shares necessary or appropriate under applicable Federal or State
securities laws):
-3-
<PAGE>
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN OPTION AGREEMENT AND A RESTRICTED
STOCK PURCHASE AGREEMENT PURSUANT TO WHICH SUCH SHARES WERE PURCHASED,
COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF THE CORPORATION."
(c) To ensure the availability for delivery of the Purchaser's
Unvested Shares upon repurchase by the Company pursuant to the Company Option
under Section 1, the Purchaser shall, upon execution of this Agreement, deliver
and deposit with the Secretary of the Company, or such other person designated
by the Company, the share certificates representing the Unvested Shares.
Purchaser shall further deliver to the Company a stock power, duly endorsed in
blank, attached hereto as Exhibit A-1, that will be used only in accordance with
-----------
the transfer of Shares pursuant to the Company Option and the Right of First
Refusal. The Unvested Shares shall be held by the Secretary in escrow, until
such time as the Company's rights of repurchase pursuant to the Company Option
no longer are in effect. As a further condition to the Company's obligations
under this Agreement, the spouse of Purchaser, if any, shall execute and deliver
to the Company the Consent of Spouse attached hereto as Exhibit A-2.
-----------
(d) The Company, or its designee, shall not be liable for any act it
may do or omit to do with respect to holding the Unvested Shares in escrow and
while acting in good faith and in the exercise of its judgment.
(e) Transfer or sale of said Unvested Shares is subject to
restrictions on transfer imposed by any applicable State and Federal securities
laws. Any transferee shall hold such Unvested Shares subject to all the
provisions hereof and shall acknowledge the same by signing a copy of this
Agreement.
6. Ownership, Voting Rights, Duties. This Agreement shall not affect in
--------------------------------
any way the ownership, voting rights or other rights or duties of Purchaser,
except as specifically provided herein.
7. Adjustment of Unvested Shares. The Unvested Shares subject to this
-----------------------------
Agreement shall be proportionately adjusted for any increase or decrease in the
number of issued shares of the Company, resulting from a subdivision or
consolidation of shares or the payment of a stock dividend or any other increase
or decrease in the number of said shares effected without receipt of
consideration by the Company.
8. Market Standoff Agreement. Purchaser hereby agrees that if so
-------------------------
requested by the Company or any representative of the underwriters in connection
with any registration of the offering of any securities of the Company under the
1933 Act, Purchaser shall not sell or otherwise transfer any Shares or other
securities of the Company during the 180-day period following the effective date
of a registration statement of the Company filed under the 1933 Act; provided,
however, that such restriction shall only apply to the first two registration
statements of the Company to become effective under the 1933 Act which include
securities to be sold on
-4-
<PAGE>
behalf of the Company to the public in an underwritten public offering under the
1933 Act. The Company may impose stop-transfer instructions with respect to
securities subject to the foregoing restrictions until the end of such 180-day
period.
9. Delivery of Payment. Purchaser herewith delivers to the Company full
-------------------
payment for the exercise of the Shares by delivery to the Company of Purchaser's
full recourse promissory note in the principal amount of $20,000.40 (the "Note")
----------
in the form attached hereto as Exhibit A-4, bearing interest at the then current
minimum applicable federal rate.
10. Security Interest.
-----------------
With respect to the Note, the parties agree to the following:
(a) The Note shall become payable in full upon the earlier of
voluntary or involuntary termination or cessation of employment of Purchaser
with the Company for any reason, or the completion of vesting. Purchaser agrees
that if a bankruptcy or insolvency proceeding is instituted by or against it, or
if a receiver if appointed for the property of Purchaser, or if Purchaser makes
an assignment for the benefit of creditors, the entire amount unpaid on the Note
shall become immediately due and payable.
(b) Purchaser shall deliver to the Secretary of the Company
(hereinafter referred to as the "Pledge Holder") all certificates representing
the Shares purchased with the Note and an executed blank assignment separate
from certificate in the form attached hereto as Exhibit A-1, for use in
transferring all or a portion of said Shares to the Company if, as and when
required under this Section 6 or under any other provision of this Agreement.
(c) As security for the payment of the Note and any renewal, extension
or modification thereof, Purchaser hereby grants to the Company a security
interest in and pledges with and delivers to the Company Purchaser's Shares
purchased with the Note (sometimes referred to herein as the "Collateral").
Purchaser shall not sell, withdraw, pledge, substitute or otherwise dispose of
all or any part of the Collateral without the prior written consent of the
Company.
(d) In the event of any foreclosure of the security interest, the
Company may sell the Collateral at a private sale or may repurchase the
Collateral itself. The parties agree that, prior to the establishment of a
public market for the Shares of the Company, the securities laws affecting sale
of the Shares make a public sale of the Collateral commercially unreasonable.
The parties further agree that the repurchasing of said Shares by the Company,
or by any person to whom the Company may have assigned its rights hereunder, is
commercially reasonable if made at a price determined by the Board of Directors
in its discretion, fairly exercised, representing what would be the fair market
value of the Shares reduced by any limitation on transferability, whether due to
the size of the block of Shares or the restrictions of applicable securities
laws.
(e) In the event of default in payment when due of any indebtedness
under Purchaser's Note, or in the event that Purchaser fails to perform any of
the covenants set forth in
-5-
<PAGE>
the Option Agreement or in this Agreement for a period of ten days after written
notice thereof from the Company, the Company may elect then, or at any time
thereafter, to exercise all rights available to a secured party under the
California Commercial Code including the right to sell the Collateral at a
private or public sale or repurchase the Shares as provided above. The proceeds
of any sale shall be applied in the following order:
(1) To pay all reasonable expenses of the Company in enforcing
this Agreement, including without limitation reasonable
attorney's fees and legal expenses incurred by the Company.
(2) In satisfaction of the remaining indebtedness under
Purchaser's Note.
(3) To Purchaser, any remaining proceeds.
(f) Upon full payment by Purchaser of all amounts due on the Note,
Pledge Holder shall deliver to Purchaser all Shares in Pledge Holder's
possession belonging to Purchaser, and Pledge Holder shall thereupon be
discharged of all further obligations hereunder. The Shares purchased for cash
shall be delivered to Purchaser upon request.
11. Notices. Notices required hereunder shall be given in person or by
-------
first class mail to the address of Purchaser shown on the records of the
Company, and to the Company at its principal executive office.
12. Survival of Terms. This Agreement shall apply to and bind Purchaser
-----------------
and the Company and their respective permitted assignees and transferees, heirs,
legatees, executors, administrators and legal successors.
13. Section 83(b) Election. The Purchaser understands that Section 83 of
----------------------
the Internal Revenue Code taxes as ordinary income the difference between the
amount paid for the Shares and the fair market value of the Shares as of the
date any restrictions on the Shares lapse. In this context, "restriction" means
the right of the Company to buy back the stock pursuant to the Company Option
and/or, with respect to officers, directors and 10% stockholders, "restriction"
also means the six-month period after the date hereof during which such
officers, directors and 10% stockholders are subject to suit under Section 16(b)
of the Securities Exchange Act of 1934, as amended. The Purchaser understands
that Purchaser may elect to be taxed at the time the Shares are purchased rather
than when and as the Purchase Option or six-month period expires by filing with
the Internal Revenue Code, within 30 days from the date of purchase. The form
for making this election is attached as Exhibit A-3 hereto. HOWEVER, THE
CHANGES IN THE TAX RATES IMPLEMENTED BY THE TAX REFORM ACT OF 1986 NECESSITATE
REVIEW OF PURCHASER'S SPECIFIC SITUATION TO DETERMINE HOW THE PURCHASER'S
ULTIMATE TAX LIABILITY MIGHT BE AFFECTED AS A RESULT OF FILING AN ELECTION UNDER
SECTION 83(b).
-6-
<PAGE>
THE PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY AND
NOT THE COMPANY'S TO TIMELY FILE THE ELECTION UNDER SECTION 83(b), EVEN IF THE
PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO HAKE THIS FILING ON THE
PURCHASER'S BEHALF.
14. Representations. The Purchaser has had the opportunity to review with
--------------- ----------------------------------------------------
such Purchaser's own tax advisors the federal, state, local and foreign tax
- ---------------------------------------------------------------------------
consequences of this investment and the transactions contemplated by this
- -------------------------------------------------------------------------
Agreement. The Purchaser is relying solely on such advisors and not on any
- ---------------------------------------------------------------------------
statements or representations of the Company or any of is agents. The Purchaser
- --------------------------------------------------------------------------------
understands that Purchaser (and not the Company) shall be responsible for such
- ------------------------------------------------------------------------------
Purchaser's own tax liability that may arise as a result of this investment or
- ------------------------------------------------------------------------------
the transactions contemplated by this Agreement.
- -----------------------------------------------
15. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of California.
Purchaser represents that Purchaser has read this Agreement and is familiar
with its terms and provisions. Purchaser hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Agreement.
-7-
<PAGE>
IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set
forth above.
APPLIED MICRO CIRCUITS CORPORATION a Delaware
corporation
By: /s/ [SIGNATURE]
---------------------------------------------
Title: Vice President, Finance & Administration
PURCHASER
/s/ [SIGNATURE]
------------------------------------------------
David M. Rickey
-8-
<PAGE>
EXHIBIT A-1
-----------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, hereby sell, assign and transfer unto _____________
______________________________________________________________________________
(___________) shares of the Common Stock of Applied Micro Circuits Corporation
standing in my name of the books of said corporation represented by Certificate
No. ___ herewith and do hereby irrevocably constitute and appoint ____________
_______________________ to transfer said stock on the books of the within-named
corporation with full power of substitution in the premises.
Dated:
Signature:
/s/ [SIGNATURE]
----------------------------------
David M. Rickey
This Assignment Separate from Certificate was executed in conjunction with
the terms of a Restricted Stock Purchase Agreement between the above assignor
and Applied Micro Circuits Corporation dated February 12, 1996.
------------------
-9-
<PAGE>
EXHIBIT A-2
-----------
CONSENT OF SPOUSE
I, Jan E. Nielsen, spouse of David Rickey, have read and approved the
foregoing Agreement. In consideration of granting of the right to my spouse to
purchase shares of Applied Micro Circuits Corporation as set forth in the
Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the
exercise of any rights under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights under such
Agreement or in any shares issued pursuant thereto under the community property
laws of the State of California or similar laws relating to marital property in
effect in the state of our residence as of the date of the signing of the
foregoing Agreement.
Dated: July 23, 1997
----------------------------------
Jan E. Nielsen
-1-
<PAGE>
EXHIBIT A-3
------------
ELECTION UNDER SECTION 83(b) OF
--------------------------------
THE INTERNAL REVENUE CODE OF 1986
---------------------------------
The undersigned Taxpayer hereby elects, pursuant to the provisions of the
federal income tax law noted above, to include in gross income for the
Taxpayer's current taxable year, as compensation for services, the excess, if
any, of the fair market value of the property described below at the time of
transfer over the amount paid for such property.
1. The name, address, Social Security number and taxable year of Taxpayer and
such Taxpayer's spouse are as follows:
Name: Taxpayer: David M. Rickey
Spouse: Jan E. Nielsen
Address: 15629 Boulder Mountain Road
Poway, CA 92064
Social Security No.: Taxpayer: ###-##-####
Spouse: ###-##-####
Taxable Year: 1997
2. The property with respect to which the election is made is described as
follows: 57,144 shares of Common Stock of Applied Micro Circuits
------
Corporation, a Delaware corporation (the "Company"), which is Taxpayer's
-------
employer or the corporation for whom the Taxpayer has performed services.
3. The date on which the shares were transferred was July 23, 1997.
--------------
4. The shares are subject to the following restrictions: The Company may
repurchase all or a portion of the shares at the Taxpayer's original
purchase price under certain conditions at the time of Taxpayer's
termination of employment or services.
5. The fair market value of the shares (without regard to restrictions other
than restrictions which by their terms will never lapse) was $.35 per share
---
at the time of transfer.
6. The amount paid for such shares was $.35 per share.
---
7. The Taxpayer has submitted a copy of this statement to the Company as the
Taxpayer's employer or the corporation for whom the Taxpayer has performed
services.
-1-
<PAGE>
This Election must be filed with the Internal Revenue Service ("IRS") (at the
office where the taxpayer files annual income tax returns) within 30 days after
---------------
the date of transfer of the property, and must also be filed with the taxpayer's
income tax returns for the calendar year above stated. The Election cannot be
revoked without the consent of the IRS.
Dated: July 23, 1997
/s/ [SIGNATURE]
----------------------------------
David M. Rickey
The undersigned spouse of Taxpayer joins in this election.
Dated: July 23, 1997
/s/ [SIGNATURE]
----------------------------------
Jan E. Nielsen
-2-
<PAGE>
EXHIBIT A-4
-----------
PROMISSORY NOTE
$20,000.40 July 23, 1997
--------- -------------
At the times hereinafter stated, for value received, the undersigned
promises to pay APPLIED MICRO CIRCUITS CORPORATION, a Delaware corporation (the
"Company"), the sum of $ 20,000.40, with interest from the date hereof at a rate
---------
of 5.98% per annum, compounded semiannually, on the unpaid balance of said
principal sum. Said principal and interest shall be due and payable on the
earlier of February 12, 2000 or termination of the employment of the
undersigned by the Company.
Principal and interest are payable in lawful money of the United
States of America. AT ANY TIME, THE PRIVILEGE IS RESERVED TO PAY MORE THAN THE
SUM DUE.
Should the interest not be so paid, it shall be added to the principal and
thereafter bear interest at the rate payable on the principal hereof, but such
unpaid interest so compounded shall not exceed an amount equal to simple
interest on the unpaid principal at the maximum rate permitted by law. Should
default be made in the payment of any installment of principal or interest when
due, then the whole sum of principal and interest shall become immediately due
and payable at the option of the holder of this Note. Should suit be commenced
to collect this Note or any portion thereof, such sum as the Court may deem
reasonable shall be added hereto as attorneys' fees. The makers and endorsers
have severally waived presentment for payment, protest, notice of protest, and
notice of non-payment of this Note.
This Note, which is full recourse, is secured by a pledge of certain shares of
Common Stock of the Company and is subject to the terms of a Purchaser's Common
Stock Purchase Agreement of even date herewith between the maker and the
Company.
/s/ [SIGNATURE]
----------------------------------
David Rickey
-1-
<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
PURCHASER : David M. Rickey
SELLER : APPLIED MICRO CIRCUITS CORPORATION
COMPANY : APPLIED MICRO CIRCUITS CORPORATION
SECURITY : COMMON STOCK
AMOUNT : 57,144
DATE : July 23, 1997
In connection with the purchase of the above-listed Securities, I, the
Purchaser, represent to the Seller and to the Company the following:
(a) I am aware of the Company's business affairs and financial
condition, and have acquired sufficient information about the Company to reach
an informed and knowledgeable decision to acquire the Securities. I am
purchasing these Securities for my own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act of 1933, as amended (the "Securities
Act").
(b) I understand that the Securities 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 my
investment intent as expressed herein. In this connection, I understand that,
in the view of the Securities and Exchange Commission (the "SEC"), the statutory
basis for such exemption may be unavailable if my 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.
(c) I further understand that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from registration is otherwise available. Moreover, I understand that the
Company is under no obligation to register the Securities. In addition, I
understand 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 for
the Company.
(d) I am 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
-1-
<PAGE>
offering subject to the satisfaction of certain conditions. Rule 701 provides
that if the issuer qualifies under Rule 701 at the time of issuance of the
Securities, such issuance will be exempt from registration under the Securities
Act. In the event the Company later becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter the securities exempt under Rule 701 may be resold,
subject to the satisfaction of certain of the conditions specified by Rule 144,
including among other things: (1) the sale 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, and the amount of securities being sold during any three
month period not exceeding the limitations specified in Rule 144(e), if
applicable. Notwithstanding this paragraph (d), I acknowledge and agree to the
restrictions set forth in paragraph (e) hereof.
In the event that the Company does not qualify under Rule 701 at the
time of issuance of the Securities, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires
among other things: (1) the availability of certain public information about the
Company, (2) the resale occurring not less than two years after the party has
purchased, and made full payment for, within the meaning of Rule 144, the
securities to be sold; and, in the case of an affiliate, or of a non-affiliate
who has held the securities less than three years, (3) the sale 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 the amount of securities being sold during any three
month period not exceeding the specified limitations stated therein, if
applicable.
(e) I agree, in connection with the Company's initial underwritten
public offering of the Company's securities, (1) not to sell, make short sale
of, loan, grant any options for the purchase of, or otherwise dispose of any
shares of Common Stock of the Company held by me (other than those shares
included in the registration) without the prior written consent of the Company
or the underwriters managing such initial underwritten public offering of the
Company's securities for one hundred eighty (180) days from the effective date
of such registration, and (2) I further agree to execute any agreement
reflecting (1) above as may be requested by the underwriters at the time of the
public offering, provided however that the officers and directors of the Company
-----------------
who own the stock of the Company also agree to such restrictions.
(f) I further understand that in the event all of the applicable
requirements of Rule 144 or Rule 701 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 Rule 144 and
Rule 701 are not exclusive, the Staff of the SEC has expressed its opinion that
persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 or Rule 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.
-2-
<PAGE>
(g) I understand 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. I have
read the applicable Commissioner's Rules with respect to such restriction, a
copy of which is attached. Dated this 23rd day of July, 1997.
Signature of Purchaser:
/s/ [SIGNATURE]
----------------------------------
David M. Rickey
<PAGE>
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
----------------------------------------------------
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11. Restriction on Transfer. (a) The issuer of any security upon
---------- -----------------------
which a restriction on transfer has been imposed pursuant to Sections 260.102.6,
260.141.10 or 260.534 shall cause a copy of this section to be delivered to each
issuee or transferee of such security at the time the certificate evidencing the
security is delivered to the issuee or transferee.
(b] It is unlawful for the holder of any such security to consummate a sale or
transfer of such security, or any interest therein, without the prior written
consent of the Commissioner (until this condition is removed pursuant to section
260.141.12 of these rules), except:
(1] to the issuer;
(2] pursuant to the order or process of any court;
(3] to any person described in Subdivision (1) of Section 25102 of the
Code or Section 260.105.14
of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or
custodian for the account of the transferee or the transferee's ancestors.
descendants or spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer Licensed under the Code (either acting
as such or as a finder) to a resident of a foreign state, territory or country
who is neither domiciled in this state to the knowledge of the broker-dealer,
nor actually present in this state if the sale of such securities is not in
violation of any securities Law of the foreign state, territory or country
concerned;
(8) to a broker-dealer Licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other Lien given
by the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113 or
25121 of the Code, of the securities to be transferred, provided that no order
under Section 251/,0 or Subdivision (a) of Section 251/.3 is in effect with
respect to such qualification;
(11) by a corporation to a wholly obtained subsidiary of such corporation,
or by a wholly owned subsidiary of a corporation to such corporation,
(12) by way of an exchange qualified under Section 25111. 25112 or 25113
of the Cede, provided that no order under Section 251/,0 or Subdivision (a) of
Section 251/,3 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who are
neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or to
the administrator of the unclaimed property law of another state;
(15) by the State Controller pursuant to the Unclaimed Property Law or by
the administrator of the unclaimed property law of another state if, in either
such case. such person (i) discloses to potential purchasers at the sale that
transfer of the securities is restricted under this rule, (ii) delivers to
each purchaser a copy of this rule, and (iii) advises the Commissioner of the
name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities; or
(17) by way of an offer and sale of outstanding securities in an issuer
transaction that is subject to the qualification requirement of Section 25110
of the Code but exempt from that qualification requirement by subdivision (f)
of Section 25102;
provided that any such transfer is on the condition that any certificate
evidencing the security issued to such transferee shall contain the Legend
required by this section.
(c) The certificates representing a[t such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital Letters of not Less than 10-point size, reading as follows:
<PAGE>
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
<PAGE>
EXHIBIT 10.14
FULL RECOURSE
UNSECURED PROMISSORY NOTE
$53,000 San Diego, California
February 12, 1996
FOR VALUE RECEIVED, the undersigned promises to pay APPLIED MICRO CIRCUITS
CORPORATION, a Delaware corporation, or order, at San Diego, California, the
principle sum of $53,000 with interest from the date hereof on the unpaid
principal balance of this note at the rate of 5.32% per annum, compounded
annually. The principle amount of this note plus all accrued interest shall be
repaid on or before February 12, 1999.
All payments shall be made in lawful currency of the United States of
America. If action is instituted on this Note, the undersigned promises to pay
such sum as the court may adjudge as attorneys' fees.
The undersigned reserves the right to repay the principal and interest, or
any portion thereof, at any time, without penalty, and upon prepayment, interest
shall be adjusted accordingly.
In the event of the undersigned ceases to be an employee of APPLIED MICRO
CIRCUITS CORPORATION, for any reason, the holder hereof may, at its election,
declared the entire balance of principle and interest thereon immediately due
and payable, together with attorneys' fees and costs; provided, however that
such election shall be made within ninety (90) days after the date the
undersigned ceases to be an employee of APPLIED MICRO CIRCUITS CORPORATION.
This note is unsecured.
This Note shall be governed by and construed in accordance with the laws of
the State of California.
Executed this 12th day of February, 1996 at San Diego, California.
[SIGNATURE]
- -------------------------
David Rickey
2-12-96
- -------------------------
Date
<PAGE>
NON-RECOURSE NOTE SECURED BY PLEDGE AGREEMENT
May 1,1996
1. Obligation. For value received, DAVID M. RICKEY (the "Borrower")
-----------
promises to pay to APPLIED MICRO CIRCUITS CORPORATION, a Delaware corporation
(the "Company"), the sum of $750,000 (the "Loan"), together with interest on the
unpaid principal hereof from the date hereof at the rate of 5.76% per annum,
compounded annually.
2. Payment. Principal and interest shall be due and payable in full on
--------
May 1, 1999 unless accelerated as provided in Section 3 below. Payments of
principal and interest shall be made in lawful money of the United States of
America and shall be credited first to the accrued interest, with the remainder
applied to principal. Prepayment of the Loan may be made at any time without
penalty.
3. Acceleration of Obligation. The Loan shall immediately become due and
---------------------------
payable in full upon the earliest of the following: (i) an event of default
under the Loan Agreement (the "Loan Agreement") between the Company and the
Borrower dated as of May 1, 1996 relating to the indebtedness represented
hereby, this promissory note, or the Pledge Agreement (the "Pledge Agreement")
between the Company and the Borrower dated as of May 1, 1996; (ii) in the event
any required payment hereunder or under any other promissory note delivered by
the Borrowers to the Company is not made when due; (iii) in the event of a
voluntary or involuntary termination of David Rickey's employment with the
Company for any reason, with or without cause (including death or disability);
or (iv) May 1, 1999. In addition, if Borrower sells any portion of the Shares
(as defined below), an equal portion of the original principal amount of the
Loan shall immediately become due and payable, together with all interest
accrued on such principal portion.
4. Security. This Note shall be secured by the Pledge Agreement, pursuant
---------
to which the Borrowers shall pledge 46,500 shares of Common Stock of Advanced
Micro Devices (the "Shares") as security for Borrower's obligations under this
Note. Except as otherwise provided herein, the Loan shall be non-recourse.
5. Non-Recourse. This note is non-recourse.
-------------
6. Governing Law; Waiver. This Note shall be governed by and construed in
----------------------
accordance with the laws of California, without reference to conflict of laws
principles. The Borrower waives presentment, notice of nonpayment, notice of
dishonor, protest, demand and diligence.
2
<PAGE>
7. Attorneys' Fees. If suit is brought for collection of this Note, the
---------------
Borrower agrees to pay all reasonable expenses, including attorneys' fees,
incurred by the Company in connection therewith whether or not such suit is
prosecuted to judgment.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as of
the date and year first above written.
[SIGNATURE]
__________________________________
David M. Rickey
3
<PAGE>
FULL RECOURSE
UNSECURED PROMISSORY NOTE
REAL ESTATE BRIDGE LOAN
$12,391.64 San Diego, California
April 1, 1997
FOR VALUE RECEIVED, the undersigned promises to pay APPLIED MICRO CIRCUITS
CORPORATION, a Delaware corporation, at San Diego, California, the principle sum
of $12,391.64 with interest from the date hereof on the unpaid principal balance
of this note at the rate of 5.91% per annum, compounded annually. The principle
amount of this note plus all accrued interest shall be due and payable on March
31, 1998.
All payments shall be made in lawful currency of the United States of
America. If action is instituted on this Note, the undersigned promises to pay
such sum as the court may adjudge as attorneys' fees.
The undersigned reserves the right to repay the principal and interest, or
any portion thereof, at any time, without penalty, and upon prepayment, interest
shall be adjusted accordingly.
In the event of the undersigned ceases to be an employee of APPLIED MICRO
CIRCUITS CORPORATION, for any reason, the holder hereof may, at its election,
declared the entire balance of principle and interest thereon immediately due
and payable, together with attorneys' fees and costs; provided, however, that
such election shall be made within ninety (90) days after the date the
undersigned ceases to be an employee of APPLIED MICRO CIRCUITS CORPORATION.
This note is unsecured.
This Note shall be governed by and construed in accordance with the laws of
the State of California.
Executed this 1st day of April, 1997 at San Diego, California.
[SIGNATURE]
- ----------------------------
David Rickey
2-12-96
- ----------------------------
Date
<PAGE>
PROMISSORY NOTE
$20,000 July 23, 1997
------
At the times hereinafter stated, for value received, the undersigned
promises to pay APPLIED MICRO CIRCUITS CORPORATION, a Delaware corporation (the
"Company"), the sum of $20,000.40, with interest from the date hereof at a rate
----------
of 5.98% per annum, compounded semiannually, on the unpaid balance of said
principal sum. Said principal and interest shall be due and payable on the
earlier of February 12, 2000 or termination of the employment of the
undersigned by the Company.
Principal and interest are payable in lawful money of the United States of
America. AT ANY TIME, THE PRIVILEGE IS RESERVED TO PAY MORE THAN THE SUM DUE.
Should the interest not be so paid, it shall be added to the principal and
thereafter bear interest at the rate payable on the principal hereof, but such
unpaid interest so compounded shall not exceed an amount equal to simple
interest on the unpaid principal at the maximum rate permitted by law. Should
default be made in the payment of any installment of principal or interest when
due, then the whole sum of principal and interest shall become immediately due
and payable at the option of the holder of this Note. Should suit be commenced
to collect this Note or any portion thereof, such sum as the Court may deem
reasonable shall be added hereto as attorneys' fees. The makers and endorsers
have severally waived presentment for payment, protest, notice of protest, and
notice of non-payment of this Note.
This Note, which is full recourse, is secured by a pledge of certain shares
of Common Stock of the Company and is subject to the terms of a Purchaser's
Common Stock Purchase Agreement between the maker and the Company.
/s/ David Rickey
-----------------------------
David Rickey
<PAGE>
PROMISSORY NOTE
$35,000 July 23, 1997
------
At the times hereinafter stated, for value received, the undersigned
promises to pay APPLIED MICRO CIRCUITS CORPORATION, a Delaware corporation (the
"Company"), the sum of $35,000, with interest from the date hereof at a rate of
6.54% per annum, compounded semiannually, on the unpaid balance of said
principal sum. Said principal and interest shall be due and payable on the
earlier of April 9, 2001 or termination of the employment of the undersigned by
the Company.
Principal and interest are payable in lawful money of the United States of
America. AT ANY TIME, THE PRIVILEGE IS RESERVED TO PAY MORE THAN THE SUM DUE.
Should the interest not be so paid, it shall be added to the principal and
thereafter bear interest at the rate payable on the principal hereof, but such
unpaid interest so compounded shall not exceed an amount equal to simple
interest on the unpaid principal at the maximum rate permitted by law. Should
default be made in the payment of any installment of principal or interest when
due, then the whole sum of principal and interest shall become immediately due
and payable at the option of the holder of this Note. Should suit be commenced
to collect this Note or any portion thereof, such sum as the Court may deem
reasonable shall be added hereto as attorneys' fees. The makers and endorsers
have severally waived presentment for payment, protest, notice of protest, and
notice of non-payment of this Note.
This Note, which is full recourse, is secured by a pledge of certain shares
of Common Stock of the Company and is subject to the terms of a Purchaser's
Common Stock Purchase Agreement between the maker and the Company.
/s/ David M. Rickey
-----------------------------
David M. Rickey
<PAGE>
PROMISSORY NOTE
$399,999.60 July 23, 1997
- -----------
At the times hereinafter stated, for value received, the undersigned
promises to pay APPLIED MICRO CIRCUITS CORPORATION, a Delaware corporation (the
"Company"), the sum of $399,999.60, with interest from the date hereof at a rate
-----------
of 5.98% per annum, compounded semiannually, on the unpaid balance of said
principal sum. Said principal and interest shall be due and payable on the
earlier of February 12, 2000 or termination of the employment of the undersigned
by the Company.
Principal and interest are payable in lawful money of the United States of
America. AT ANY TIME, THE PRIVILEGE IS RESERVED TO PAY MORE THAN THE SUM DUE.
Should the interest not be so paid, it shall be added to the principal and
thereafter bear interest at the rate payable on the principal hereof, but such
unpaid interest so compounded shall not exceed an amount equal to simple
interest on the unpaid principal at the maximum rate permitted by law. Should
default be made in the payment of any installment of principal or interest when
due, then the whole sum of principal and interest shall become immediately due
and payable at the option of the holder of this Note. Should suit be commenced
to collect this Note or any portion thereof, such sum as the Court may deem
reasonable shall be added hereto as attorneys' fees. The makers and endorsers
have severally waived presentment for payment, protest, notice of protest, and
notice of non-payment of this Note.
This Note, which is full recourse, is secured by a pledge of certain shares
of Common Stock of the Company and is subject to the terms of a Purchaser's
Common Stock Purchase Agreement between the maker and the Company.
/s/ David M. Rickey
-----------------------------
David M. Rickey
<PAGE>
EXHIBIT 10.15
Amendment to the PATENT LICENSE AGREEMENT between
Motorola, Inc. and Applied Micro Circuits Corporation Effective
January 1, 1988
Motorola, Inc., having an office at 1303 East Algonquin Road, Schaumburg,
Illinois 60196 and Applied Micro Circuits Corporation, having an office at 6195
Lusk Boulevard, San Diego, California 92121 hereby agree to amend the above-
identified agreement as follows.
1. Section 4.1, line 3; delete "1992" and insert "[ * ]."
2. Directly after Section 4.1.3, insert new Section 4.1.4 as follows.
"For 1993, [ * ] U.S. Dollars [ * ]."
3. Section 4.2.2, line 1; after "1988," insert "with the exception of
1993."
4. Section 4.3, line 3; after "made" insert "with the exception of 1993
for which the payment is due May 15, 1994".
5. Section 4.5, line 2; delete the account number and insert "38491386."
6. Section 5.1, line 2; delete "1992" and insert "[ * ]."
7. All other terms and conditions of the Agreement remain the same.
Indicating their agreement to the forgoing, the parties hereto have
executed this Amendment in duplicate.
Motorola, Inc. Applied Micro Circuits Corporation
By: /s/ [signature] By: /s/ [signature]
--------------------------- ---------------------------------
Title: Vice President and Title: V.P., Finance & Admin.
----------------------- ------------------------------
Intellectual Property
----------------------- ------------------------------
Licensing Counsel
----------------------- ------------------------------
Date: April 7, 1994 Date: April 20, 1994
----------------------- ------------------------------
[*] = 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>
PATENT LICENSE AGREEMENT
------------------------
THIS AGREEMENT is effective as of the 1st day of January, 1988 by and
between MOTOROLA, INC., a Delaware corporation having an office at 5005 East
McDowell Road, Phoenix, Arizona 85008 (hereinafter called "MOTOROLA"), and
APPLIED MICRO CIRCUITS CORPORATION, a corporation of California having an office
at 6195 Lusk Boulevard, San Diego, California 92121 (hereinafter called "AMCC").
WHEREAS, MOTOROLA owns and has, or may have, rights in various patents
issued, and applications for patents pending, in various countries of the world
as to which AMCC desires to acquire licenses as hereinafter provided, and
WHEREAS, AMCC owns and has, or may have, rights in various patents issued,
and applications for patents pending, in various countries of the world as to
which MOTOROLA desires to acquire licenses as hereinafter provided, and
WHEREAS, AMCC and MOTOROLA are engaged in continuing research, development
and engineering in regard to LICENSED PRODUCTS (as hereinafter defined) and have
programs for the patenting of inventions resulting therefrom,
NOW THEREFORE, in consideration of the mutual covenants and conditions
hereinafter set forth, it is agreed as follows:
Section 1 - DEFINITIONS
-----------------------
1.1 SUBSIDIARY(IES) means a corporation, company, or other entity
more than fifty percent (50%) of whose outstanding shares or securities
(representing the right to vote for the election of directors or other managing
authority) are, now or hereafter, owned or controlled, directly or indirectly by
a party hereto, but such corporation, company, or other entity shall be deemed
to be a SUBSIDIARY only so long as such ownership or control exists.
1.2 SEMICONDUCTIVE MATERIAL means any material whose conductivity is
intermediate to that of metals and insulators at room temperature and whose
conductivity, over some temperature range, increases with increases in
temperature. Such material shall include but not be limited to refined
products, reaction products, reduced products, mixtures and compounds.
1.3 INTEGRATED CIRCUIT STRUCTURE means an integral unit consisting
primarily of a plurality of active and/or passive circuit elements associated
on, or in, a unitary body of SEMICONDUCTIVE MATERIAL for performing electrical
or electronic functions and, if provided therewith, such unit includes housing
and/or supporting means therefor.
1.4 SEMICONDUCTOR ELEMENT means a device other than an INTEGRATED
CIRCUIT STRUCTURE consisting primarily of a body of
<PAGE>
SEMICONDUCTIVE MATERIAL having a plurality of electrodes associated therewith,
whether or not said body consists of a single SEMICONDUCTIVE MATERIAL or of a
multiplicity of such materials, and whether or not said body includes one or
more layers or other regions (constituting substantially less than the whole of
said body) of a material or materials which are of a type other than
SEMICONDUCTIVE MATERIAL and, if provided therewith, such device includes housing
and/or supporting means therefor.
1.5 MANUFACTURING APPARATUS means as to each party hereto, any
instrumentality or aggregate of instrumentalities primarily designed for use in
the fabrication of that party's LICENSED PRODUCTS (as hereinafter defined).
1.6 FUNCTIONAL ASSEMBLY(IES) means a plurality of active and/or
passive elements for generating, receiving, transmitting, storing, transforming
or acting in response to an electrical signal.
1.7 MICROPROCESSOR(S) means one or more INTEGRATED CIRCUIT STRUCTURES
containing functional elements including registers, control logic, decision
logic, and input-output circuitry appropriately coupled to interconnections
which may include internal buses such as data buses, address buses, or control
buses and having a capability of executing temporarily or permanently stored
program instructions or microinstructions; and which may also have included on
said INTEGRATED CIRCUIT STRUCTURES, memory, clocks, input-output interface
circuitry, or other electronic functions ordinarily associated with or connected
to central processing units.
1.8 INPUT-OUTPUT ADAPTOR(S) means one or more INTEGRATED CIRCUIT
STRUCTURES which are adapted to provide an interface between a MICROPROCESSOR
and any instrumentality or aggregate of instrumentalities adapted to compute,
classify, process, transmit, receive, retrieve, originate, switch, store,
display, manifest, measure, detect, record, reproduce, handle, or utilize any
form of information, intelligence or data for business, scientific, control or
other purposes, but shall not include such instrumentality or aggregate of
instrumentalities, per se.
1.9 VARISTOR MATERIALS AND DEVICES means a non-linear electrical
device comprising dispersed mixtures of insulating and conducting phases and
materials therefor and, if provided therewith, such device includes housing
and/or supporting means therefor. VARISTOR MATERIALS AND DEVICES does not
include materials or devices primarily for use with voltage magnitudes
substantially higher than voltage magnitudes customarily employed with the other
items listed within the definition of LICENSED PRODUCTS.
1.10 CIRCUIT OR SYSTEM means one or more FUNCTIONAL ASSEMBLY(IES)
whether or not combined with one or more active and/or passive elements for
performing electrical or electronic functions, whether or not a housing and/or
supporting means for said circuitry is included.
-2-
<PAGE>
1.11 ELECTRICAL METHOD means a method or steps for using FUNCTIONAL
ASSEMBLY(IES) whether or not combined with one or more active and/or passive
element(s), for performing electrical or electronic function(s).
1.12 MOTOROLA SEMICONDUCTOR PRODUCTS SECTOR means a MOTOROLA existing
business unit now consisting of an International Semiconductor Group, a
Microprocessor Products Group, a MOS Memory Products Group, a Standard Logic and
Analog Integrated Circuits Group, an Application Specific Integrated Circuits
Division and a Discrete and Special Technologies Group having major
manufacturing facilities located in Phoenix, Arizona; Mesa, Arizona; and Austin,
Texas; Toulouse, France; Aizu and Sendai, Japan; and East Kilbride, Scotland;
making and/or developing products falling within the definition of LICENSED
PRODUCTS (as hereinafter defined). This definition of the MOTOROLA
SEMICONDUCTOR PRODUCTS SECTOR also includes the predecessor MOTOROLA business
unit of said Groups taken singularly or in combination and/or said Division and
any MOTOROLA future business unit acquired or derived from, by separation or
merger, irrespective of appellation, said Groups taken singularly or in
combination and/or said Division.
1.13 MOTOROLA PATENTS means all classes or types of patents, utility
models, design patents and applications for the aforementioned of all countries
of the world, which are issued, published or filed prior to the date of
expiration or termination of this Agreement, and which arise out of inventions
made solely by one or more employees of the MOTOROLA SEMICONDUCTOR PRODUCTS
SECTOR and under which and to the extent to which and subject to the conditions
under which the MOTOROLA SEMICONDUCTOR PRODUCTS SECTOR may have, as of the
EFFECTIVE DATE of this Agreement, or may thereafter during the term of this
Agreement acquire the right to grant licenses or rights of the scope granted
herein without the payment of royalties or other consideration to third persons,
except for payments to third persons for inventions made by said third persons
while engaged by MOTOROLA. In no event shall the term MOTOROLA PATENTS include
or encompass patents on inventions made by employees of MOTOROLA while in the
employ of groups or operations of MOTOROLA other than the MOTOROLA SEMICONDUCTOR
PRODUCTS SECTOR, except in accordance with Section 3.6; and in no event shall
MOTOROLA PATENTS include (i) any one or more of the following three patents of
MOTOROLA which relate to circuitry for electronic organs: 3,535,430; 3,546,355;
and 3,610,803.
1.14 AMCC SEMICONDUCTOR PRODUCTS SECTOR means AMCC's existing
semiconductor business now consisting of a Gate Array Group having a
manufacturing facility in San Diego, California; making and/or developing
products falling within the definition of LICENSED PRODUCTS (as hereinafter
defined). This definition of the AMCC SEMICONDUCTOR PRODUCTS SECTOR also
includes any AMCC future semiconductor business whether or not derived from, by
separation or merger, irrespective of appellation, said Gate Array Group.
1.15 AMCC PATENTS means all classes or types of patents, utility
models, design patents and applications for the aforementioned of all countries
of the world, which are issued, published or filed prior to the date of
expiration or termination of this Agreement, and
-3-
<PAGE>
which arise out of inventions made by one or more employees of AMCC
SEMICONDUCTOR PRODUCTS SECTOR and under which and to the extent to which and
subject to the conditions under which the AMCC SEMICONDUCTOR PRODUCTS SECTOR may
have, as of the EFFECTIVE DATE of this Agreement, or may thereafter during the
term of this Agreement acquire the right to grant licenses or rights of the
scope granted herein without the payment of royalties or other consideration to
third persons, except for payments to third persons for inventions made by said
third persons while engaged by AMCC. In no event shall the term AMCC PATENTS
include or encompass patents on inventions made by employees of AMCC while in
the employ of groups of operations of AMCC other than the AMCC SEMICONDUCTOR
PRODUCTS SECTOR, except in accordance with Section 3.7.
1.16 The term MOTOROLA PATENTS and AMCC PATENTS does not include any
patent, utility model, or design patent on an invention which is an
instrumentality or aggregate of instrumentalities for the purpose of converting
solar energy to electricity, to heat, or to reactable chemical products, nor
shall such term include any patent, utility model, or design patent for an
invention on a method or material used for or in such an instrumentality or
aggregate of instrumentalities.
1.17 LICENSED MOTOROLA PRODUCT(S) or LICENSED AMCC PRODUCT(S), as the
case may be, means any one or more of the following items, whether or not an
item is incorporated in more comprehensive equipment:
1.17.1 SEMICONDUCTIVE MATERIAL(S);
1.17.2 INTEGRATED CIRCUIT STRUCTURE(S);
1.17.3 SEMICONDUCTOR ELEMENT(S);
1.17.4 FUNCTIONAL ASSEMBLY(IES);
1.17.5 VARISTOR MATERIAL(S) AND DEVICE(S);
1.17.6 CIRCUIT(S) and SYSTEM(S);
1.17.7 CIRCUIT(S) and SYSTEM(S) employing an ELECTRICAL
METHOD(S);
1.17.8 MICROPROCESSOR(S); and
1.17.9 INPUT-OUTPUT ADAPTORS.
1.18 EFFECTIVE DATE means the date entered on Page 1 hereof.
1.19 NET SEMICONDUCTOR SALES of AMCC means internal transfers or
sales of finished semiconductor products and the total of all prices at which
all the customers of AMCC were billed in the usual course of business including
all packing material, boxes, cartons,
-4-
<PAGE>
crates, and all contents thereof, and less sales taxes, excise taxes and similar
taxes levied in respect to such sales.
Section 2 - MUTUAL RELEASES
---------------------------
2.1 MOTOROLA hereby releases, acquits and forever discharges AMCC for
any time prior to the EFFECTIVE DATE, from any and all claims or liability for
infringement or alleged infringement of any MOTOROLA PATENTS, under which a
license or a right is herein granted by MOTOROLA to or for AMCC.
2.2 AMCC hereby releases, acquits and forever discharges MOTOROLA for
any time prior to the EFFECTIVE DATE, from any and all claims or liability for
infringement or alleged infringement of any AMCC PATENTS under which a license
or a right is herein granted by AMCC to or for MOTOROLA.
Section 3 - GRANTS
------------------
3.1 AMCC hereby grants for the term of this Agreement to MOTOROLA a
[ * ] license throughout the world under AMCC PATENTS without the right to sub-
license:
3.1.1 to import, make, use, lease, sell, or otherwise dispose
of LICENSED MOTOROLA PRODUCTS and to practice any process or method involved in
the manufacture or use thereof, and
3.1.2 to make, use and have made MANUFACTURING APPARATUS and to
practice any process or method involved in the use thereof.
3.2 MOTOROLA hereby grants for the term of this Agreement to AMCC a
[*] license throughout the world under MOTOROLA PATENTS without the right to
sub-license:
3.2.1 to import, make, use, lease, sell or otherwise dispose of
LICENSED AMCC PRODUCTS and to practice any process or method involved in the
manufacture or use thereof, and
3.2.2 to make, use and have made MANUFACTURING APPARATUS and to
practice any process or method involved in the use thereof.
3.3 Notwithstanding the provisions of Section 3.2, in no event shall
the license granted to AMCC include the right to make, use, or sell any product
which substantially utilizes the instruction set of, or is substantially
compatible with the programmer's model of, any MICROPROCESSOR product designed
and sold by MOTOROLA; or which is substantially compatible with the register set
of any INPUT-OUTPUT ADAPTOR sold by MOTOROLA, including but not limited to the
products of the M68XX, M68XXX, M1468XX or M68HCXX families of MICROPROCESSORS
and INPUT-OUTPUT ADAPTOR, or which incorporate
[*] = 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.
-5-
<PAGE>
such MICROPROCESSOR or INPUT-OUTPUT ADAPTOR products as elements of their
structure. However, AMCC shall have the right, subject to all copyright and mask
work rights owned or controlled by MOTOROLA and subject to the above limitations
of this Section, to develop and manufacture original designs of products
performing substantially the same functions as any MOTOROLA MICROPROCESSOR or
INPUT-OUTPUT ADAPTOR products.
3.4 AMCC grants to the users of LICENSED MOTOROLA PRODUCTS which are
imported, sold, leased or otherwise disposed of by MOTOROLA not in contravention
of the license herein granted to MOTOROLA, a worldwide, non-exclusive and
royalty-free immunity from suit under AMCC PATENTS, covering the use, whether
direct or contributory, during the term of this Agreement of such LICENSED
MOTOROLA PRODUCTS, provided that such royalty-free immunity for the user shall
extend only under those AMCC PATENTS licensed hereunder and only to the use or
sale of those particular LICENSED MOTOROLA PRODUCTS which the user obtained from
MOTOROLA.
3.5 MOTOROLA grants to the users of LICENSED AMCC PRODUCTS which are
imported, sold, leased or otherwise disposed of by AMCC not in contravention of
the license herein granted to AMCC, a worldwide, non-exclusive and royalty-free
immunity from suit under MOTOROLA PATENTS, covering the use, whether direct or
contributory, during the term of this Agreement of such LICENSED AMCC PRODUCTS,
provided that such royalty-free immunity for the user shall extend only under
those MOTOROLA PATENTS licensed hereunder and only to the use or sale of those
particular LICENSED AMCC PRODUCTS which the user obtained from AMCC.
3.6 MOTOROLA shall have the right to extend the release and grants of
Sections 2.2, 3.1 and 3.4, respectively, to any MOTOROLA SUBSIDIARY(IES) if such
SUBSIDIARY(IES) consents to extend the definition of MOTOROLA PATENTS in Section
1.13 to include inventions made solely by employees of that SUBSIDIARY(IES).
3.7 AMCC shall have the right to extend the release and grants of
Sections 2.1, 3.2 and 3.5, respectively, to any AMCC SUBSIDIARY(IES) if such
SUBSIDIARY(IES) consents to extend the definition of AMCC PATENTS in Section
1.15 to include inventions made by employees of that SUBSIDIARY(IES).
3.8 No licenses under any copyrights or mask work rights of either
MOTOROLA or AMCC are granted under this Agreement.
Section 4 - PAYMENTS
--------------------
4.1 In partial consideration of the rights granted by MOTOROLA under
Section 3, for the period beginning on the EFFECTIVE DATE and extending to
December 31, 1992, AMCC agrees to pay MOTOROLA the following payments:
-6-
<PAGE>
4.1.1 For 1988, [ * ] U.S. Dollars [ * ] plus whichever of the
following is the least, but in no event shall the following be less than zero:
4.1.2 [ * ] percent of [ * ] U.S. Dollars [ * ]; or
4.1.3 the percentage (%) increase in the NET SEMICONDUCTOR
SALES OF AMCC for 1988 with respect to 1987 multiplied by [ * ] U.S. Dollars
[ * ].
4.2.2 For each year subsequent to 1988, the amount of payment
is equal to the payment for the year immediately preceding the year for which
payment is being made plus whichever of the following is the least, but in no
event shall the following be less than zero:
4.2.2.1 [ * ] percent of the payment for the year
immediately preceding the year for which payment is being made; or
4.2.2.2 the [ * ] in the NET SEMICONDUCTOR SALES of
AMCC for the year for which payment is being made with respect to the
immediately preceding year, multiplied by the payment for such immediately
preceding year.
4.2.3 For example, the amount of payment for 1989 equals the
amount of payment for 1988 plus the lesser of either [ * ] of the amount
of payment for 1988, or the percentage increase in the NET SEMICONDUCTOR SALES
(NSS) of AMCC for 1989 with respect to 1988, i.e. (1989 NSS) - (1988 NSS),
----------------------
(1988 NSS)
multiplied by the amount of payment for 1988.
4.3 The payment for 1988 is due on January 31, 1989. Each yearly
payment for each year subsequent to 1988 is due by January 31 of the year
following the year for which payment is being made with the exception of 1993
for which the payment is due May 15, 1994.
4.3.1 For example, the payment for 1989 is due on January 31,
1990.
4.4 Any payment hereunder which shall be delayed for more than thirty
(30) days beyond the due date shall be subject to an interest charge of [ * ]
on the unpaid balance payable in United States currency until paid. The
foregoing payment of interest shall not affect MOTOROLA's right to terminate in
accordance with Section 5.
4.5 Payments hereunder made to MOTOROLA's New York City account at
CITIBANK #38491386 Citicorp Center, 153 E. 53rd Street, New York, New York
10043. Notice of payments shall be sent by AMCC to MOTOROLA's address in
Section 6.10.
4.6 In the event and at such time that AMCC or a SUBSIDIARY of AMCC
sublicensed hereunder acquires or is acquired by, directly or indirectly, at any
time during the
[*] = 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.
-7-
<PAGE>
term of this Agreement, another existing operation or operations or a part or
parts thereof which manufactures products within the definition of LICENSED
PRODUCTS but not previously licensed under the MOTOROLA PATENTS, where such
operation or operations together with all previous acquisitions of nonlicensed
production after the date of this Agreement have, as measured in fair market
value at the times of acquisition, an aggregate annual gross production of
LICENSED PRODUCTS used, sold, or otherwise put into use totaling not more than
[ * ] of covered sales under this Agreement, then AMCC agrees to
notify MOTOROLA promptly of any such acquisitions and it is agreed and
understood that the production resulting from such acquisitions up to such
[ * ] will be deemed to be licensed under this Agreement and
subject to all of its terms and conditions without payment of further
consideration than provided for herein. To the extent that the annual aggregate
gross production of LICENSED PRODUCTS used, sold or otherwise put into use
exceeds such [ * ] for such existing operation or operations not
previously licensed under MOTOROLA PATENTS, the parties hereto will consider
extending this license to cover said annual aggregate gross production of
LICENSED PRODUCTS in excess of [ * ] produced by such unlicensed
operation, operations, or parts thereof and will negotiate the terms of such an
extension of this license; provided, however, that if an acquiror of AMCC is
unable, despite good faith negotiations, to reach agreement with MOTOROLA with
respect to said extension of this license, the rights of AMCC and its successors
under this agreement shall not be adversely affected. By virtue of the
acquisition of AMCC and AMCC's rights under this license agreement an acquiror
is not being granted a license from MOTOROLA for any of its other products, and
the acquiror is not granting any license rights to MOTOROLA.
Section 5 - TERM AND TERMINATION AND ASSIGNABILITY
--------------------------------------------------
5.1 The term of this Agreement shall be from the EFFECTIVE DATE until
[ * ] unless earlier terminated as elsewhere provided in this Agreement.
5.2 In the event of any breach of this Agreement by either party
hereto (including AMCC's obligation to make payments under Section 4), if such
breach is not corrected within forty-five (45) days after written notice
describing such breach, this Agreement may be terminated forthwith by further
written notice to that effect from the party noticing the breach.
5.3 Either party hereto shall also have the right to terminate this
Agreement forthwith by giving written notice of termination to the other party
at any time, upon or after:
5.3.1 the filing by such other party of a petition in bankruptcy
or insolvency; or
5.3.2 any adjudication that such other party is bankrupt or
insolvent; or
5.3.3 the filing by such other party of any legal action or
document seeking reorganization, readjustment or arrangement of its business
under any law relating to bankruptcy or insolvency; or
[*] = 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.
-8-
<PAGE>
5.3.4 the appointment of a receiver for all or substantially all
of the property of such other party; or
5.3.5 the making by such other party of any assignment for the
benefit of creditors; or
5.3.6 the institution of any proceedings for the liquidation or
winding up of such other party's business or for the termination of its
corporate charter.
5.4 In the event of termination of this Agreement by one party
pursuant to Section 5.2, the licenses and rights granted to or for the benefit
of that one party hereto and its SUBSIDIARIES under MOTOROLA PATENTS or AMCC
PATENTS, as the case may be, depending upon who is the party doing the
terminating, shall survive such termination and shall extend for the full term
of this Agreement, but the licenses and rights granted to or for the benefit of
the other party shall terminate as of the date termination takes effect.
5.5 At such time as is mutually agreeable, at the written request of
either party hereto to the other party hereto, but in no event less than six (6)
months prior to the expiration of this Agreement, the parties hereto shall
discuss the possible extension of or the renewal of the term of this Agreement,
including the possible amendment of the provisions thereof.
5.6 The rights or privileges provided for in this Agreement may be
assigned or transferred by either party only with the prior written consent of
the other party and with the authorization or approval of any governmental
authority as then may be required, except to a successor in ownership of all or
substantially all of the assets of the assigning party but such successor,
before such assignment or transfer is effective, shall expressly assume in
writing to the other party the performance of all of the terms and conditions of
this Agreement to be performed by the assigning party.
Section 6 - MISCELLANEOUS PROVISIONS
------------------------------------
6.1 Each of the parties hereto represents and warrants that it has
the right to grant to or for the benefit of the other the rights and licenses
granted hereunder in Sections 2 and 3.
6.2 Nothing contained in this Agreement shall be construed as:
6.2.1 restricting the right of MOTOROLA or any of its
SUBSIDIARIES to make, use, sell, lease or otherwise dispose of any particular
product or products not herein licensed;
6.2.2 restricting the right of AMCC or any of its SUBSIDIARIES
to make, use, sell, lease or otherwise dispose of any particular product or
products not herein licensed;
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<PAGE>
6.2.3 an admission by AMCC of, or a warranty or representation
by MOTOROLA as to, the validity and/or scope of the MOTOROLA PATENTS, or a
limitation on AMCC to contest, in any proceeding, the validity and/or scope
thereof;
6.2.4 an admission by MOTOROLA of, or a warranty or
representation by AMCC as to, the validity and/or scope of the AMCC PATENTS, or
a limitation on MOTOROLA to contest, in any proceeding, the validity and/or
scope thereof;
6.2.5 conferring any license or other right, by implication,
estoppel or otherwise, under any patent application, patent or patent right,
except as herein expressly granted under the MOTOROLA PATENTS, and the AMCC
PATENTS;
6.2.6 conferring any license or right with respect to any
trademark, trade or brand name, a corporate name of either party or any of their
respective SUBSIDIARIES, or any other name or mark, or contraction, abbreviation
or simulation thereof;
6.2.7 imposing on MOTOROLA any obligation to institute any suit
or action for infringement of any MOTOROLA PATENTS, or to defend any suit or
action brought by a third party which challenges or concerns the validity of any
MOTOROLA PATENTS licensed under this Agreement;
6.2.8 imposing upon AMCC any obligation to institute any suit or
action for infringement of any AMCC PATENTS, or to defend any suit or action
brought by a third party which challenges or concerns the validity of any AMCC
PATENTS licensed under this Agreement;
6.2.9 a warranty or representation by MOTOROLA that any
manufacture, use, sale, lease or other disposition of LICENSED AMCC PRODUCTS
will be free from infringement of any patent other than the MOTOROLA PATENTS
licensed herein;
6.2.10 a warranty or representation by AMCC that any
manufacture, use, sale, lease or other disposition of LICENSED MOTOROLA PRODUCTS
will be free from infringement of any patent other than the AMCC PATENTS
licensed herein;
6.2.11 imposing on either party any obligation to file any
patent application or to secure any patent or maintain any patent in force; or
6.2.12 an obligation on either party to furnish any
manufacturing or technical information under this Agreement except as the same
is specifically provided for herein.
6.3 No express or implied waiver by either of the party to this
Agreement of any breach of any term, condition or obligation of this Agreement
by the other party shall be construed as a waiver of any subsequent breach of
that term, condition or obligation or of any other term, condition or obligation
of this Agreement of the same or of a different nature.
-10-
<PAGE>
6.4 Anything contained in this Agreement to the contrary
notwithstanding, the obligations of the parties hereto shall be subject to all
laws, both present and future, of any Government having jurisdiction over either
party hereto, and to orders or regulations of any such Government, or any
department, agency, or court thereof, and acts of war, acts of public enemies,
strikes, or other labor disturbances, fires, floods, acts of God, or any causes
of like or different kind beyond the control of the parties, and the parties
hereto shall be excused from any failure to perform any obligation hereunder to
the extent such failure is caused by any such law, order, regulation, or
contingency but only so long as said law, order, regulation or contingency
continues.
6.5 The captions used in this Agreement are for convenience only, and
are not to be used in interpreting the obligations of the parties under this
Agreement.
6.6 This Agreement and the performance of the parties hereunder shall
be construed in accordance with and governed by the laws of the State of
Illinois.
6.7 If any term, clause, or provision of this Agreement shall be
judged to be invalid, the validity of any other term, clause, or provision shall
not be affected; and such invalid term, clause, or provision shall be deemed
deleted from this Agreement.
6.8 This Agreement sets forth the entire Agreement and understanding
between the parties as to the subject matter hereof and merges all prior
discussions between them, and neither of the parties shall be bound by any
conditions, definitions, warranties, understandings or representations with
respect to such subject matter other than as expressly provided herein or as
duly set forth on or subsequent to the date hereof in writing and signed by a
proper and duly authorized officer or representative of the party to be bound
thereby.
6.9 The parties hereto shall keep this Agreement confidential and
shall not now or hereafter divulge this Agreement or any part thereof to any
third party except:
6.9.1 with the prior written consent of the other party; or
6.9.2 to any governmental body having jurisdiction to request
and to read the same; or
6.9.3 as otherwise may be required by law or legal processes; or
6.9.4 to legal counsel representing either party.
6.10 All notices required or permitted to be given hereunder shall be
in writing and shall be valid and sufficient if dispatched by registered
airmail, postage prepaid, in any post office in the United States, addressed as
follows:
-11-
<PAGE>
6.10.1 If to MOTOROLA:
Motorola Inc.
1303 East Algonquin Road
Schaumburg, Illinois 60196
Attention: Vice President for Patents,
Trademarks & Licensing
6.10.2 If to AMCC:
Applied Micro Circuits Corporation
6195 Lusk Boulevard
San Diego, California 92121
Attention: Director of Corporate Planning
6.10.3 The date of receipt of such a notice shall be the date for the
commencement of the running of the period provided for in such notice, or the
date at which such notice takes effect, as the case may be.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
duplicate.
MOTOROLA, INC. APPLIED MICRO CIRCUITS CORPORATION
By /s/ [signature] By /s/ [signature]
------------------------------------- --------------------------------
Title Vice President Title V.P.
---------------------------------- -----------------------------
-13-
<PAGE>
EXHIBIT 10.16
December 1, 1993
Mr. Joel O. Holliday
Vice President
Finance & Administration
Applied Micro Circuits Corp.
6195 Lusk Boulevard
San Diego, CA 92121-2793
Re: Patent License for Fiber Channel Standard dated as of March 1, 1991
Dear Mr. Holliday:
In response to the request in your letter of November 17, IBM proposes to amend
the referenced agreement between AMCC and IBM to add to the definition of
Licensed Patents therein, US Patents Nos. [ * ] and [ * ] . Further,
Section 6 Payments will be amended to recite the one-time payable fee for the
--------
grant of rights under these two (2) additional patents.
I will also take this opportunity to update the address to which any notices or
requests for patent license matter should be sent to IBM. For these purposes,
the following amendment is proposed:
In Section 1.1, insert after "U.S. Patent No. [ * ]," the following phrase,
"U.S. Patent No. [ * ] and U.S. Patent No. [ * ],";
In Section 6.1, substitute for the phrase "[ * ]," the phrase "[ * ] has been
paid by LICENSEE and received by IBM at execution of this Agreement." "Such sum"
shall be replaced by "The balance of [ * ]" and
"Agreement" shall be replaced by "amendment."; and
In Section 9.1.1, replace "2000 Purchase Street" and "Purchase, New York 10577"
with "P.O. Box 10501" and "Stamford, Connecticut 06904-2501."
[*] = 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>
Applied Micro Circuits Corporation
Patent License Agreement of March 1, 1991
Amendment 1
Page 2
If you concur with this proposed amendment, please indicate such concurrence by
signing both copies of this letter. Please return one such signed copy to me
along with the check for [ * ] made payable to "IBM Corporation."
Sincerely,
John W. Lowe
Program Manager, Licensing
For Applied Micro Circuits Corporation:
Signature /s/ Joel O. Holiday
------------------------------------
Name (Print) Joel O. Holiday
---------------------------------
Title V.P.
----------------------------------------
Date 12/20/93
-----------------------------------------
[*] = 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>
AGREEMENT dated as of March 1, 1991 between INTERNATIONAL BUSINESS MACHINES
CORPORATION, a New York corporation (hereinafter called IBM), and APPLIED MICRO
CIRCUITS CORPORATION, a California corporation (hereinafter called LICENSEE).
IBM has the right to license others under certain U.S. and non-U.S. patent
rights, and LICENSEE desires to acquire a [ * ] license under such patent
rights, for use in respect of Products (as hereafter defined) which conform to
any interim or to the final specification for the FC-1 protocol of the Fiber
Channel Standard promulgated by the American National Standards Institute
(hereinafter "ANSI");
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, IBM and LICENSEE agree as follows:
Section 1. Definitions
-----------
1.1 "Licensed Patents" shall mean U.S. Patent No. [ * ], any
and all non-U.S. counterparts thereof and any and all patents related to any of
the foregoing as a division, continuation, reissue or extension.
1.2 "Product" shall mean any instrumentality or aggregate of
instrumentalities primarily designed to implement or otherwise conform to any
interim or to the final specification of the FC-l protocol for the Fiber Channel
Standard promulgated by ANSI, or any revision of such final specification as may
be promulgated, from time to time, by ANSI.
Section 2. License
-------
2.1 IBM hereby grants to LICENSEE and its majority-owned
subsidiaries a [ * ] license under the Licensed Patents to make, have made, use,
lease, sell and/or otherwise transfer Products.
2.2 No license is granted to LICENSEE by IBM, either directly or by
implication, estoppel or otherwise;
2.2.1 under any patents other than the Licensed Patents.
2.2.2 with respect to any item other than Products,
notwithstanding that such other item may incorporate Products;
2.2.3 for the combination of Products with any other items,
including other items provided by LICENSEE; or
2.2.4 for the use of any combination set forth in
Section 2.2.3.
[*] = 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>
Section 3. Immunity
--------
3.1 IBM, on behalf of itself and its majority-owned subsidiaries,
hereby grants to end users of Products manufactured, leased, sold or otherwise
transferred by LICENSEE or any of its sublicensed majority-owned subsidiaries, a
royalty-free immunity from suit with respect to any claim of a Licensed Patent
only to use such Products.
Section 4. Release
-------
4.1 IBM hereby irrevocably releases LICENSEE and its subsidiaries
which are majority-owned subsidiaries as of the date of this Agreement, and its
and their respective customers, mediate and immediate, of and from any and all
claims of infringement of the Licensed Patents, which claims have been or might
have been made by IBM before the date of this Agreement with respect to any
Products made, used, leased, sold or otherwise transferred by or for LICENSEE or
any of its majority-owned subsidiaries and which would have been licensed had
the same been made, used, leased, sold and/or otherwise transferred or practiced
after the date of this Agreement.
Section 5. Term
----
5.1 The term of this Agreement shall be from the date first written
above until the expiration of the last to expire of the Licensed Patents.
Section 6. Payments
--------
6.1 As full consideration for the license, immunity and release
granted hereunder, LICENSEE shall pay to IBM the total sum of [ * ] dollars
[ * ]. Such sum shall become due upon the signing of this Agreement
by both parties, and shall be rendered by cashier's check, made payable to "IBM
Corporation".
Section 7. Option
------
7.1 LICENSEE, on behalf of itself and its majority-owned
subsidiaries, hereby grants to IBM an option to acquire a [ * ] license under
any patent(s) which LICENSEE or any of such subsidiaries has a right to license
during the term of this Agreement and which claims an invention required by IBM
to make, use and sell Products. Such license shall be of the [ * ] and on [ * ].
However, if LICENSEE has [ * ].
[*] = 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>
Section 8. Warrant
-------
8.1 IBM represents and warrants that it has the full right and
power to grant the license set forth in Section 2, the immunity set forth in
Section 3, and the release set forth in Section 5, with respect to Licensed
Patents.
8.2 IBM represents and warrants that there are no outstanding
agreements, assignments or encumbrances inconsistent with the provisions of any
license, immunity or release granted hereunder or with any other provision of
this Agreement.
8.3 IBM makes no other representations or warranties, express or
implied, nor does IBM assume any liability in respect of any infringement of any
patents or other rights of third parties arising from the operation of LICENSEE
and/or any of its customers under the license and/or immunity herein granted.
Section 9. Payments and Other Communications
---------------------------------
9.1 Any payment or other communication required or permitted to be
made or given to either party hereto pursuant to this Agreement shall be
sufficiently made or given on the date of mailing if sent to such party by
registered or certified mail, postage prepaid, addressed to it at its address
set forth below, or to such other address as it shall designate by written
notice given to the other party:
9.1.1 In the case of IBM,
IBM Director of Commercial Relations
International Business Machines Corporation
2000 Purchase Street
Purchase, New York 10577
9.1.2 In the case of LICENSEE,
Vice President, Corporate Planning
Applied Micro Circuits Corporation
6195 Lusk Boulevard
San Diego, California 92121-1792
Section 10. Assignments
-----------
10.1 LICENSEE shall not have the right, without prior written
approval of IBM, to assign any license or right granted hereunder. Any such
attempted assignment shall be null and void.
10.2 IBM shall not assign any of the Licensed Patents unless such
assignment is made subject to the terms and conditions of this Agreement. Any
attempted assignment in derogation of any of such terms and conditions shall be
null and void.
-3-
<PAGE>
Section 11. Applicable Law
--------------
11.1 This Agreement shall be construed, and the legal relations
between the parties hereto shall be determined, in accordance with the law of
the State of New York.
Section 12. Know-How and Trade Secrets
--------------------------
12.1 No license or other right is granted herein to either party,
directly or by implication, estoppel or otherwise, with respect to any trade
secrets or know-how, and no such license or other right shall arise from the
consummation of this Agreement or from any acts, statements or dealings leading
to such consummation. In addition, neither party is required hereunder to
furnish or disclose to the other any technical or other information whatsoever.
Section 13. Miscellaneous
-------------
13.1 Nothing contained in this Agreement shall be construed as:
13.1.1 a warranty or representation by IBM as to the
validity or scope of any of the Licensed Patents;
13.1.2 a warranty or representation by IBM that any
manufacture, use, lease, sale and/or transfer and/or practice of any invention
disclosed and/or claimed in any of the Licensed Patents will be free from
infringement of any patent(s) other than the Licensed Patents;
13.1.3 a warranty or representation by IBM as to the
technical or commercial viability of any invention(s), or any embodiment(s)
thereof, described and/or claimed in any of the Licensed Patents;
13.1.4 imposing on LICENSEE any obligation, or conferring
on LICENSEE any right, to institute any action or suit against a third party for
infringement or to defend any action or suit brought by a third party which
challenges or concerns the validity of any of the Licensed Patents;
13.1.5 restricting the right of LICENSEE or any of its
subsidiaries to make, have made, use, have used, lease, sell and/or to transfer
any machine, manufacture or composition of matter and/or to practice any process
not herein licensed;
13.1.6 conferring any license or right with respect to any
trademark, trade or brand name, the corporate name or other designation
(including the contraction or simulation of any of the foregoing) of either
party or any of its subsidiaries; and each party hereto agrees not to use the
existence of this Agreement or the rights granted hereunder in any promotional
activity without the express written approval of the other party;
13.1.7 prohibiting IBM from licensing any third party under
one or more of the Licensed Patents.
-4-
<PAGE>
13.2 IBM shall have no obligation hereunder to institute any
action or suit against a third party for infringement of any of the Licensed
Patents or to defend any action or suit brought by a third party which
challenges or concerns the validity of any of the Licensed Patents.
13.3 This Agreement will not be binding upon the parties until it
has been signed hereinbelow by or on behalf of each party, in which event it
shall be effective as of the date first written above. No amendment or
modification hereof shall be valid or binding upon the parties unless made in
writing and signed as aforesaid. This Agreement sets forth the entire agreement
and understanding between the parties with respect to the Licensed Patents and
merges all prior discussions between them, and neither of the parties shall be
bound by any conditions, definitions, warranties, understandings, or
representations with respect to the Licensed Patents other than as expressly
provided herein or as duly set forth on, or subsequent to, the date hereof in
writing and signed by the party bound thereby or its duly authorized
representative.
13.4 If any provision or provisions of this Agreement shall be
held to be invalid, illegal or unenforceable, the validity, legality or
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
13.5 The headings of the several Sections are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed on their behalf as of the date first above written.
APPLIED MICRO CIRCUITS INTERNATIONAL BUSINESS
CORPORATION MACHINES CORPORATION
By /s/ Laurence H. Marty By /s/ H. G. Figueroa
------------------------------ --------------------------------
H. G. Figueroa
Vice President
Name Laurence H. Marty
----------------------------
Title VP Corporate Planning
---------------------------
-5-
<PAGE>
EXHIBIT 10.17
LICENSE AGREEMENT ("Agreement") with an Effective Date of June 1, 1997
between INTERNATIONAL BUSINESS MACHINES CORPORATION, a New York corporation
("IBM"), and APPLIED MICRO CIRCUITS CORPORATION, a Delaware corporation
("AMCC").
IBM has the right to license others under the patents listed in Exhibit 1
(the "Licensed Patents"). AMCC desires to acquire a [*] license under the
Licensed Patents for Products as defined below. In consideration of the
premises and mutual covenants herein contained, IBM and AMCC agree as follows:
SECTION 1. DEFINITIONS
-----------
1.1 "Patented Portion" shall mean that portion of a Product which:
(a) embodies or uses all the elements or steps recited in any one
claim of one Licensed Patent; or
(b) is manufactured by use of all the steps recited in any one claim
of one Licensed Patent.
1.2 "Products" shall mean integrated circuits for producing a [ * ]. Any
instrumentality or aggregate of instrumentalities primarily designed for use in
the fabrication (including testing) of a product licensed herein shall not be
considered to be a Product.
1.3 "Selling Price" shall mean the [ * ] selling price to [ * ] , and the
[ * ] selling price [ * ].
1.4 "Subsidiary" shall mean a corporation, company or other entity:
(a) more than fifty percent (50%) of whose outstanding shares or
securities (representing the right to vote for the election of directors or
other managing authority) are, now or hereafter, owned or controlled, directly
or indirectly, by a party hereto, or
(b) which does not have outstanding shares or securities, as may be
the case in a partnership, joint venture or unincorporated association, but more
than fifty percent (50%) of whose ownership interest representing the right to
make the decisions for such corporation, company or other entity is now or
hereafter, owned or controlled, directly or indirectly, by a party hereto, but
such corporation, company or other entity shall be deemed to be a Subsidiary
only so long as such ownership or control exists.
SECTION 2. LICENSE
-------
2.1 IBM grants to AMCC and its Subsidiaries a [*] license under the
Licensed Patents to make, use, import, offer to sell, sell and otherwise
transfer Products. The license as to any Subsidiary shall terminate on the date
such Subsidiary ceases to be a Subsidiary. Additionally, subject to Section
2.4, IBM grants to AMCC and its Subsidiaries a [*]
[*] = 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>
license under the Licensed Patents the right to have AMCC's Products made by
another manufacturer for the use and/or lease, sale or other transfer only by
AMCC.
2.2 No license is granted pursuant to Section 2.1 with respect to any
particular Product, unless:
(a) a Licensed Patent defines a Patented Portion of said Product;
(b) said Licensed Patent is identified in a report as covering said
Product; and
(c) either the royalty attributable to said Product is paid as
required by Section 4.2, or a late payment of said royalty is made and accepted
by IBM pursuant to Section 4.4.
2.3 No license, immunity or other right is granted under this Agreement,
either directly or by implication, estoppel, or otherwise:
(a) other than under the Licensed Patents;
(b) to have licensed products made by a third party (other than as
provided in Section 2.4);
(c) with respect to any item other than a licensed Product
notwithstanding that such other item may incorporate one or more licensed
Products; or
(d) to parties acquiring any item from AMCC or its Subsidiaries for
the combination of such acquired item with any other item, including other items
provided by AMCC or its Subsidiaries, or for the use of any such combination
even if such acquired item has no substantial use other than as part of such
combination.
2.4 The license to have Products made granted in Section 2.1 to AMCC:
(a) shall only apply when the specifications for AMCC's Products were
created by AMCC (either solely or jointly with one or more third parties);
(b) shall only be under claims of Licensed Patents, the infringement
of which would be necessitated by compliance with such specifications;
(c) shall not be under claims for a method or process unless such
method or process is based upon technology created by AMCC (either solely or
jointly with one or more third parties); and
(d) shall not apply to any Products in the form manufactured or
marketed by said other manufacturer prior to AMCC furnishing said
specifications.
Unless AMCC informs IBM to the contrary, AMCC shall be deemed to have
authorized said other manufacturer to make AMCC's Products under the license
granted to
-2-
<PAGE>
AMCC in Section 2.1 when the condition specified in Section 2.4(a) is fulfilled.
In response to a written request identifying a Product and a manufacturer, AMCC
shall in a timely manner inform IBM of the quantity of such Product, if any,
manufactured by such manufacturer pursuant to the license granted in Section
2.1.
SECTION 3
. PAYMENT
-------
3.1 AMCC shall pay a royalty for each Product which contains a patented
Portion at a rate computed at [*] of the Selling Price of such Product.
For the purposes of this Section 3.1, a Licensed Patent and its
corresponding patents in other countries, listed in Exhibit 1, shall be deemed
to be one Licensed Patent.
3.2 [ * ] royalties shall be paid by AMCC with respect to Products which
AMCC purchases from a third party licensed under all of the Licensed Patents to
sell such Products, and for which Products a royalty or other consideration was
paid to IBM.
3.3 AMCC shall pay to IBM the sum of [*] dollars [*] upon execution of
this Agreement. No portion of said sum shall be returnable, but the whole of
said sum shall be creditable against royalties payable by AMCC under the
provisions of this Section 3.
3.4 If AMCC purchases from a third party portions of a Product and
combines such portions with each other and/or with other portions such that the
combination is itself a Product which includes a Patented Portion not fully
included in any individual purchased portion, then royalty shall be due for the
combination in accordance with this Section 3, whether or not said third party
is authorized by IBM to sell said purchased portions.
SECTION 4. ACCRUALS, RECORDS, REPORTS AND OTHER INFORMATION
------------------------------------------------
4.1 Royalties shall accrue when a Product, with respect to which royalty
payments are required by this Agreement, is first sold or otherwise transferred
(including, sold or otherwise transferred to IBM or any of its Subsidiaries), or
first used in each country of use, by or for AMCC or any of its Subsidiaries.
4.2 AMCC shall pay all royalties and other payments due hereunder in US
dollars. All royalties for an accounting period computed in other currencies
shall be converted into United States dollars at the exchange rate for bank
transfers from such currency to US dollars as quoted by the head office of
Citibank N.A., New York, USA, at the close of banking on the last day of such
accounting period (or the first business day thereafter if such last day is a
non-business day).
4.3 AMCC's accounting period shall be semiannual and shall end on the
last day of each June and December during the term of this Agreement. Within
thirty (30) days after the end of each such period, AMCC shall furnish to IBM a
written report containing the information
[*] = 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-
<PAGE>
specified in Section 4.5 and shall pay to IBM all unpaid royalties accrued
hereunder through the end of each such period.
4.4 IBM may accept a late payment provided such payment includes all
overdue royalties plus interest. The interest on any overdue royalty or other
payment shall be calculated commencing on the date such royalty or other payment
became due, using an annual rate which is the greater of ten percent (10%) or
one percentage point higher than the prime interest rate as quoted by the head
office of Citibank N.A., New York, USA at the close of banking on such date, or
on the first business day thereafter if such date falls on a non-business day.
If such interest rate exceeds the maximum legal rate in the jurisdiction where a
claim therefor is being asserted, the interest rate shall be reduced to such
maximum legal rate.
4.5 AMCC's written report shall be certified by an officer of AMCC and
shall contain the following information:
(a) a description of each type of Product, the quantity sold or
otherwise transferred during the accounting period, and the sum of the Selling
Prices for such quantity;
(b) identification of each Licensed Patent covering each such Product;
(c) the amount of royalties due for each type of Product; and
(d) the aggregate amount of all royalties due.
In the event that any of Sections 4.5(a) through 4.5(d) do not apply
to an accounting period, AMCC shall so indicate. In the event no royalties are
due, AMCC's report shall so state.
4.6 For the purpose of determining obligations under IBM patents, AMCC
shall, within thirty (30) days of a written request by IBM:
(a) provide to or make available for inspection by IBM or its designee
any Product or a copy of any materials relevant to any Product identified by
IBM;
(b) sell, license or otherwise transfer and deliver to IBM any Product
at any time offered for sale or transferred by AMCC; and
(c) provide to IBM or its designee access to those manufacturing
processes used by AMCC in the manufacture of Products, subject to the terms and
conditions of a mutually agreeable signed confidentiality agreement.
4.7 AMCC shall keep records in accordance with generally accepted
accounting principles and in sufficient detail to permit the determination of
royalties due IBM. Such records shall include, but not be limited to, detailed
records supporting the information provided under Section 4.5. Such records
shall be kept for four (4) years following the submission of the related report.
-4-
<PAGE>
Upon written notice for an audit, AMCC shall permit auditors designated by
IBM, together with such legal and technical support as IBM deems necessary, to
examine, during ordinary business hours, records, materials, and manufacturing
processes of AMCC for the purpose of verifying compliance with this Agreement.
Each party shall pay the costs that it incurs in the course of the audit.
However, in the event that the audit establishes underpayment greater than five
percent (5%) of the royalties due, AMCC shall reimburse IBM for the cost of the
audit; provided, however, such reimbursement shall not exceed the amount of the
-------- -------
underpayment.
SECTION 5. TERM OF AGREEMENT; TERMINATION
------------------------------
5.1 The term of this Agreement shall be from the Effective Date until the
expiration of the last to expire of the Licensed Patents, unless earlier
terminated under the provisions of this Agreement.
5.2 AMCC may terminate the license granted herein, in whole or as to any
specified Licensed Patent by giving notice in writing to IBM; provided,
--------
however, that termination of the license as to any specified Licensed Patent
- -------
shall include termination of the license as to all corresponding Licensed
Patents in other countries. Any such termination shall be irrevocable.
5.3 IBM shall have the right to terminate this Agreement, or the license
granted hereunder, if AMCC fails, at any time to:
(a) maintain records which meets the requirements of Section 4.7;
(b) make a report which meets the requirements of Section 4.5;
(c) pay any accrued royalties;
(d) make any other payment required herein; or
(e) permit an audit pursuant to Section 4.7; and
if AMCC does not cure such failure within sixty (60) days after mailing of
written notice from IBM to AMCC specifying the nature of such failure. IBM's
termination of this Agreement or of the license shall be effective upon written
notice of termination.
5.4 No termination of this Agreement or the license granted hereunder
shall relieve AMCC of any obligation or liability accrued hereunder prior to
such termination.
5.5 In the event that more than fifty percent (50%) of AMCC's outstanding
shares or securities (representing the right to vote for the election of
directors or other managing authority) are now, or hereafter become, owned or
controlled, directly or indirectly, by a third party, AMCC's license shall
terminate unless IBM agrees otherwise in a signed writing, which shall not be
unreasonably withheld.
-5-
<PAGE>
SECTION 6. OPTION GRANTED
--------------
6.1 AMCC grants to IBM, the right to obtain a license to make, use,
import, offer to sell, sell and otherwise transfer any information handling
system product. Said license shall be [*]. Said right shall be with respect to
any patent under which AMCC or any of its Subsidiaries has the right to grant
licenses to unaffiliated third parties at any time on or before the Effective
Date and shall be limited to a number equivalent to the number of Licensed
Patents licensed hereunder.
SECTION 7. MEANS OF PAYMENT AND COMMUNICATION
----------------------------------
7.1 Payment shall be made by check mailed to the IBM address specified in
Section 7.2, or by electronic funds transfer to the following account:
IBM, Director of Licensing
The Bank of New York
48 Wall Street
New York, New York 10286
Credit Account No. 890-0209-674
ABA No. 0210-0001-8
7.2 Notices and other communications shall be sent by facsimile or by
registered or certified mail to the following address and shall be effective
upon mailing:
For IBM: For AMCC:
Director of Licensing Mr. Joel O. Holliday
IBM Corporation VP, Finance & Administration
500 Columbus Avenue APPLIED MICRO CIRCUITS CORPORATION
Thornwood, New York 10594 6195 Lusk Boulevard
Facsimile: (914) 742-6737 San Diego, CA 92121-2793
Facsimile: (619) 535-6800
SECTION 8. MISCELLANEOUS
-------------
8.1 AMCC shall not assign this Agreement, assign or sublicense any rights
under it, or delegate any of its obligations. Any attempt to do so shall be
void.
8.2 Both parties agree not to use or refer to this Agreement or any of its
provisions in any promotional activity.
8.3 IBM shall not have any obligation hereunder to institute any action or
suit against third parties for infringement of any Licensed Patents or to defend
any action or suit brought by a third party which challenges or concerns the
validity of Licensed Patents. AMCC shall not have any right to institute any
action or suit against third parties for infringement of any Licensed Patents.
-6-
<PAGE>
8.4 IBM represents and warrants that it has the full right and power to
grant the license set forth in Section 2. IBM MAKES NO REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, NOR SHALL IBM HAVE ANY LIABILITY, IN RESPECT OF
ANY INFRINGEMENT OF PATENTS OR OTHER RIGHTS OF THIRD PARTIES DUE TO LICENSEE'S
OPERATION UNDER THE LICENSE HEREIN GRANTED.
8.5 This Agreement shall not be binding upon the parties until it has been
signed hereinbelow by or on behalf of each party. No amendment or modification
hereof shall be valid or binding upon the parties unless made in writing and
signed as aforesaid.
8.6 If any section of this Agreement is found by competent authority to be
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such section in every other respect and the
remainder of this Agreement shall continue in effect so long as the Agreement
still expresses the intent of the parties. However, if the intent of the
parties cannot be preserved, this Agreement shall be either renegotiated or
terminated.
8.7 This Agreement shall be construed, and the legal relations between the
parties hereto shall be determined, in accordance with the law of the State of
New York, USA, as such law applies to contracts signed and fully performed in
such State.
8.8 The headings of sections are inserted for convenience of reference
only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
This Agreement, including its Exhibit, embodies the entire understanding of
the parties with respect to the Licensed Patents, and replaces any prior oral or
written communications between them.
Agreed to: Agreed to
APPLIED MICRO INTERNATIONAL BUSINESS
CIRCUITS CORPORATION MACHINES CORPORATION
By: /s/ JOEL O. HOLLIDAY By: /s/ M.C. PHELPS, JR.
--------------------------- ---------------------------
Joel O. Holliday M.C. Phelps, Jr.
Vice President, Vice President
Finance & Administration
-7-
<PAGE>
EXHIBIT 1
"Licensed Patents" shall mean the following patents, applications or
patents issuing from such applications, and all patents which are reissues,
divisions, continuations, or extensions of any of the following patents:
<TABLE>
<CAPTION>
Country Patent Number Issue Date
- ------- ------------- ----------
<S> <C> <C>
United States US [*] [*]
Canada CA [*] [*]
European EP [*] [*]
Germany DE [*] [*]
</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>
[LOGO OF AMCC APPEARS HERE]
EXHIBIT 10.18
January 30, 1996
Mr. David Rickey
Re: OFFER OF EMPLOYMENT
-------------------
Dear David:
APPLIED MICRO CIRCUITS CORPORATION ("AMCC") is pleased to offer you a position
in our Company as President and CEO. The following are the basic terms:
1. Compensation:
------------
Your bi-weekly salary will be $10,576.90, which equated to $275,000.00
annually. A $75,000.00 hiring bonus (net of all taxes) will be paid on the
first day of employment. You will be given an annual bonus determined by
the Board of Directors in its discretion based on AMCC performance and
targeted at $60,000.00.
2. Stock Options:
-------------
You will be granted options to purchase 1,200,00 shares pursuant to AMCC's
current 1992 Stock Option Plan, and AMCC's Stock Option Agreement. The
options will vest at the rate of 300,000 shares one year after you commence
employment and 75,000 shares each three months thereafter, subject to
continued employment. All stock options offered, and all terms of the
option and repurchase agreements (including option price), are contingent
upon final approval by AMCC's Board of Directors. The option price
established by the Board has recently been $.35 per share, and AMCC intends
to take action to cause the options to be granted with an exercise price of
$.35 per share.
The issuance of the options is also contingent upon the approval of
an increase in the available stock option shares by the California
Commissioner of Corporations.
All options will vest in the event of an acquisition of AMCC by merger or
sale of assets. If AMCC is acquired, and the per share value is less than
$2.00 per share, then additional compensation will be provided to make up
the difference between $2.00 per share and the per share merger/sale price
as determined by AMCC's Board of Directors.
<PAGE>
3. Benefits:
--------
You will be entitled to AMCC standard Medical, Dental and Life Insurance
benefits, as well as supplemental Medical and Dental Insurance to cover
deductibles, copayments and non-covered medical expenses at 100%.
AMCC will also pay the premiums on a Life insurance policy for
$2,000,000.00.
4. Prior Relocation Expenses:
-------------------------
AMCC will reimburse you against any claims made by your prior employer for
repayment of up to $120,000.00 of "grossed up" relocation payments, for
which you may be deemed liable.
5. Relocation:
----------
AMCC will reimburse your reasonable relocation expenses (including closing
costs on sale of your existing residence and purchase of a new residence,
temporary living expenses, mortgage expense on your exiting residence while
unoccupied prior to sale, losses on sale of your existing residence and
moving expenses) up to a maximum of $130,000, the reimburse amount to be
grossed up for tax purposes.
6. Loans:
-----
AMCC will reinstate the loan previously made to you in the principal
amount of $53,000.00 at the applicable federal interest rate, with
principal and interest to repaid on or before February 28, 1999. Recently,
the minimum applicable federal interest rate for loans of 3 years or less,
with interest compounded annually, has been 5.50%.
AMCC will provide a loan for $750,000.00 at the minimum applicable federal
interest rate. The principal and interest will be due in 3 years. This note
will be secured by NexGen stock (or post-merger AMD Stock) received by you
pursuant to the exercise of your NexGen options, with a value of the
collateral of at least 120% of the principal amount of the loan as of the
date of the loan. This note shall be non-recourse to you personally.If you
elect to sell any portion of the collateral, you will repay an equivalent
portion of the principal amount of the loan, together with all accrued
interest on such portion.
AMCC will provide a real estate bridge loan for a down payment on
a San Diego home for up to $150,000.00. Said note shall be unsecured, but
with full recourse to you, and will bear interest at the minimum applicable
federal interest rate.
7. Start Date:
----------
On or before February 28, 1996. Your employment with AMCC shall be "at
will" and terminable by either you or the Company at any time for any
reason, with or without cause, and with or without notice.
-2-
<PAGE>
Dave, we look forward to a very rewarding and mutually beneficially association.
This agreement is our entire agreement and supersedes any prior agreements or
understandings.
Sincerely,
APPLIED MICRO CIRCUITS CORPORATION
/s/ Roger Smullen
Roger Smullen
Chairman of the Board
Agreed and understood.
/s/ David M. Rickey
- -----------------------
David Rickey
-3-
<PAGE>
EXHIBIT 10.19
INTRODUCTION
------------
This Agreement is made and entered into by and between Alcatel Network
Systems, Inc., a corporation organized and existing under the laws of the State
of Delaware, having a place of business at 1225 N. Alma Rd., Richardson, Texas
75081, (hereinafter called "Alcatel") and Applied Micro Circuits Corporation a
corporation organized and existing under the laws of the State of Delaware,
having its principal office and place of business at 6195 Lusk Blvd., San Diego,
California 92121 (hereinafter called "AMCC"), AMCC and Alcatel sometimes being
hereinafter referred to collectively as "Parties" and individually as "Party".
RECITALS
--------
WHEREAS, Alcatel has a patent relating to [*]; and
WHEREAS, AMCC wishes to be licensed under Alcatel's patent, so that AMCC
may make, use and sell products, as described herein; and
WHEREAS, Alcatel is willing to provide AMCC with a license under
Alcatel's patent, to the extent and upon the terms and conditions herein set
forth;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties agree as follows:
[*] = 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>
ARTICLE I
---------
DEFINITIONS
-----------
A. "Licensed Products" shall mean any of the items specified in Schedule A
covered by a subsisting and unexpired claim of the Licensed Patent and any
version thereof which is so covered. Schedule A may be amended from time to
time by mutual agreement of the Parties.
B. "The Licensed Patent" shall mean U.S. Patent [*], issued August 13, 1995 to
[*]
C. "Net Sales Price" shall mean AMCC's selling price to its customers, F.O.B.
AMCC's factory.
D. "Sale(s) or Sold" shall mean any disposition of Licensed Products for value.
ARTICLE II
----------
LICENSE
-------
A. License Grant.
-------------
1. Alcatel grants to AMCC a [*] license under the Licensed Patent to make,
use and sell the Licensed Products throughout the United States of
America.
2. The right to make Licensed Products shall include the right to have
all or any portion of the Licensed Products made for AMCC by third
parties.
3. Any Licensed Product that is sold by AMCC during the term of this
Agreement and for which a royalty has been paid according to the
provisions of this Agreement may be used or sold again without
permission of, or payment of any additional royalty to Alcatel.
B. Grantback. AMCC hereby grants Alcatel a [*] license to make, use, and sell
---------
any invention which is an improvement or modification of the subject matter
of the Licensed Patent.
C. Sublicensing. AMCC shall not have the right to sublicense the rights granted
------------
by Alcatel hereinabove to any third party, except as expressly authorized
herein.
D. Retention of Rights. The rights granted to AMCC hereunder are
-------------------
[*], and Alcatel specifically retains the right to itself to carry out the
activities licensed to AMCC [*].
[*] = 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>
ARTICLE III
-----------
COMPENSATION
------------
A. Price and Payment.
-----------------
1. License Fee. For the license and rights granted under Article II., AMCC
-----------
agrees to pay Alcatel, upon the signing of this Agreement, the lump
sum amount of [*] as a non-refundable license fee.
2. Royalty. AMCC shall pay to Alcatel a running royalty amounting to [*]
-------
percent [*] of the Net Sales Price of each unit of Licensed Products
Sold by AMCC during the term of this Agreement.
4. Royalty Payments. The first royalty period shall extend from the
----------------
effective date of this Agreement to August 13, 2002, and each six
month period after the effective date until the termination of this
Agreement shall be a royalty period. Within one (1) month following
the close of each royalty period, royalties shall be paid on all Sales
made during that royalty period. Payments shall be made at such office
of Alcatel as Alcatel shall specify. Each payment shall be accompanied
by a statement signed by an authorized representative of AMCC as being
accurate to the best of such representative's knowledge, showing the
number of units of Licensed Products sold during the royalty period,
the total of the Net Sales Prices of the Licensed Products sold, and
the amount of the payment to Alcatel on account thereof.
B. Records and Reports. AMCC shall keep reasonable records, files and accounts
-------------------
containing all data reasonably required for the full computation and
verification of sums payable under this Agreement, which records shall be
subject to audit by Alcatel or its representative during normal business
hours for a period of four (4) years following the end of the calendar year
in which the record was created.
C. Alcatel's Obligation Dependent on Payment. All of Alcatel's obligations
-----------------------------------------
under this Agreement are specifically dependent upon AMCC making all
payments hereunder as scheduled.
D. Taxes. Any turnover, registration, withholding or other tax or fee which
-----
might be imposed on payments to be made hereunder, by any United States
governmental entity whether national, state or local, shall be borne and
paid by AMCC.
[*] = 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>
ARTICLE IV
----------
LIABILITY
---------
A. Warranties and Representations.
------------------------------
1. Alcatel warrants that it has the right to grant the rights licensed
hereunder.
2. AMCC has not requested and Alcatel has not agreed to provide any
technical, manufacturing or other information in support of AMCC's
plan to make the Licensed Products. Accordingly Alcatel makes no
warranty of AMCC's ability to successfully make, use or sell Licensed
Products in exercising the rights granted in this Agreement.
3. Alcatel does not warrant that the exercise of the rights granted
herein will be free from infringement of any patents, copyrights or
any other rights of third parties.
4. THE FOREGOING PROVISIONS OF THIS ARTICLE ARE IN LIEU OF ALL OTHER
WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WHETHER ARISING
BY LAW, CUSTOMER OR CONDUCT.
B. Indemnity. AMCC shall indemnify and hold Alcatel harmless against all loss,
---------
damage or liability, including costs, expenses and attorney fees which may
be incurred on account of any third party suit, claim, judgment or demand
made against Alcatel in any way connected with the exercise of the rights
granted under this Agreement by AMCC or any of its successors, assigns,
agents or customers. In the event any suit, claim, judgment or demand is
asserted or threatened, as to which Alcatel will seek indemnification
hereunder, AMCC shall have the absolute right to defend against, settle,
compromise, or otherwise dispose of said suit, claim, judgment or demand
including but without 1imitation thereto, the right to contest or litigate
the same through counsel of its own choosing, and Alcatel shall cooperate
with AMCC fully with respect thereto at no cost or expense to Alcatel.
C. Consequential Damages. In no event shall either Party be liable for
---------------------
indirect, incidental, consequential, or special damages hereunder, however
caused.
ARTICLE V
---------
TERM AND TERMINATION FOR DEFAULT
--------------------------------
A. Effective Date. This Agreement shall become effective immediately upon the
--------------
date when the last of the follow actions have occurred:
1. Execution of this Agreement by both Parties,
2. AMCC has remitted to Alcatel the initial payment stated in Article
III.A.1 hereof.
<PAGE>
B. Term. Unless otherwise terminated as provided herein, this Agreement shall
----
continue in full force and effect for the life of the Licensed Patent. Any
termination of this Agreement prior to the expiration of the Licensed Patent
terminates the licenses granted herein.
C. Termination.
-----------
1. AMCC may terminate this Agreement upon one (1) month's notice to
Alcatel, subject to the fulfillment of all of AMCC's obligations
hereunder.
2. In the case of a material breach of this Agreement by either Party,
the other Party shall have the right, without limitation of any other
right it may have on account of such failure, to terminate this
Agreement by giving two (2) months written notice of its intention
and specifying the cause for default, provided, however, that the
defaulting Party shall have the right to avoid such termination by
remedying such breach within such notice period.
3. Upon termination of this Agreement by Alcatel for AMCC's default as
provided herein, AMCC shall have the right to complete any existing
and outstanding contracts pursuant to the licenses granted hereunder.
AMCC may also dispose of any previously manufactured Licensed Products
held in its inventory as of the date of such termination. Any such
completion or disposal will be subject to payment of royalties as
provided elsewhere in this Agreement.
4. Termination of this Agreement shall not excuse AMCC's obligations to
make payment of sums due and payable at the time of termination under
the provisions of this Agreement. For so long as such payments are due
or alleged to be due, relevant provisions of the Agreement shall
remain in force.
ARTICLE V
---------
MISCELLANEOUS
-------------
A. Notices. Any notice or correspondence required to be given by either Party
-------
to the other Party hereto may be delivered personally or sent by prepaid
registered mail, addressed to the other Party as set forth below, or at
such other address as may be agreed to in writing by the Parties, and such
notice shall be deemed to have been given upon such delivery or sending.
If to Alcatel: Alcatel Network Systems, Inc.
1225 N. Alma Rd.
Richardson, Texas 75081
Attn: R. D. Cunningham, M/S 401-107
If to AMCC: Applied Micro Circuits Corporation
6195 Lusk Blvd.
San Diego, CA 92121
Attn: Buck Marty, Vice-Pres., Corp. Planning
B. Choice of Law. This Agreement shall be construed and the rights of
-------------
the Parties shall be governed by the laws of the State of Texas as the same
would be applied to transactions between residents of the State and without
regard to the State's conflict of laws principles.
<PAGE>
C. Disputes.
--------
1. If any claim or controversy arises out of, or relates to, this
Agreement, the Parties shall make a good faith attempt to resolve the
matter through representatives of their management.
2. In the event that the claim or controversy cannot otherwise be settled
by such an attempt, the Parties agree to attempt in good faith to
resolve such claim or controversy, prior to litigation, by mediation
or other mutually acceptable alternative dispute resolution method.
3. Nothing herein shall prohibit either Party from seeking judicial
relief, if such party would be substantially prejudiced by a failure
to act during the time that such good faith efforts are being made to
resolve the claim or controversy.
E. Trademarks. AMCC shall have no right to use the name "Alcatel" or any
----------
trademark of Alcatel.
F. Assignment. This Agreement may not be assigned by either Party without the
----------
prior written consent of the other Party, although Alcatel may assign the
Agreement to any person or organization acquiring a business to which the
Licensed Products is related.
G. Release of Information. Neither Party shall make any press release,
----------------------
advertisement or official public statement concerning the existence of this
Agreement or its contents without the express written consent of the other
Party.
H. Entire Agreement. This agreement is the entire and only Agreement
-----------------
between the Parties hereto with respect to the subject matter hereof, and
all prior or contemporaneous Agreements, representations, understandings,
negotiations, and the like are superseded hereby.
I. Amendments. Neither this Agreement nor any provision thereof may be
----------
released, discharged, waived, abandoned, or modified in any manner, except
by an instrument in writing signed on behalf of both of the Parties hereto
by their duly authorized officers or representatives.
J. Relationship of Parties. This Agreement shall not constitute a
-----------------------
partnership, joint venture, pooling arrangement or agency, or formal
business entity between the Parties hereto, nor shall either of the
Parties hold itself out as such, nor shall either of the Parties be bound
or become liable because of any representation, action or omission of the
other, and the rights and obligations of the Parties sall be limited to
those expressly set forth herein.
K. Waiver. No waiver of any breach of any provision of this Agreement shall
------
constitute a waiver of any other breach of the same or any other provision
hereof, and no waiver shall be effective unless made in writing.
<PAGE>
L. Captions; Headings. The headings of articles, sections and other
------------------
subdivisions hereof are inserted only for the purpose of convenient
reference, and they may not adequately or accurately describe the contents
of the paragraphs which they head. Such headings shall not be deemed to
govern, limit, modify, or in any other manner affect, the scope, meaning
or intent of the provisions of this Agreement or any part or portion
thereof, nor shall they otherwise be given any legal effect.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized representatives on the dates indicated.
ALCATEL NETWORK SYSTEMS, INC.
By: /s/ P.G. Kampas
---------------------------------------
Printed Name: P. G. Kampas
-----------------------------
Title: Manager, Contracts
------------------------------------
Date: September 21, 1992
-------------------------------------
APPLIED MICRO CIRCUITS CORPORATION
By: /s/ Laurence H. Marty
---------------------------------------
Printed Name: Laurence H. Marty
-----------------------------
Title: Vice President, Corporate Planning
------------------------------------
Date: October 19, 1992
------------------------------------
<PAGE>
SCHEDULE A
Licensed Products
1. [*]
2. [*]
3. All standard products developed using above [*].
[*] = 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>
AMENDMENT NO. 1
---------------
PATENT LICENSE
BETWEEN
ALCATEL NETWORK SYSTEMS, INC.
AND
APPLIED MICRO CIRCUITS CORPORATION
FOR
U. S. PATENT [*]
The purpose of this amendment is to revise ARTICLE III, COMPENSATION, sub
paragraph A.4. entitled "Royalty Payments" to provide for the first royalty
period to be from the effective date of contract until 31 March 1993. Each
successive royalty period shall be every six (6) months thereafter to August 13,
2002.
All other terms and conditions except as heretofore revised shall remain in full
force and effect.
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be
effective as of the day and year last below written.
ALCATEL NETWORK SYSTEMS, INC. APPLIED MICRO CIRCUITS CORPORATION
By: /s/ P.G. Kampas By: /s/ Laurence H. Marty
--------------------------- ------------------------------
Printed Name: P. G. Kampas Printed Name: Laurence H. Marty
----------------- --------------------
Title. Manager, Contracts Title: Vice President
----------------------- --------------------------
Date: 9 February 1993 Date: February 13, 1993
------------------------- ----------------------------
[*] = 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>
EXHIBIT 11.1
COMPUTATION OF PRO FORMA EARNINGS PER SHARE
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED SEPTEMBER
MARCH 31, 30,
1997 1997
---------- ----------
<S> <C> <C>
Net income............................................... $6,316 $5,934
Average common shares outstanding........................ 5,004 5,539
Net effect of dilutive common share equivalents based on
the treasury stock method............................... 12,829 12,897
Adjustments to reflect requirements of the Securities and
Exchange Commission (Effect of SAB 83).................. 1,187 1,187
------ ------
Pro forma shares outstanding............................. 19,020 19,623
------ ------
Pro forma net income per share reflecting requirements of
the SEC................................................. $ 0.33 $ 0.30
====== ======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS CONTAINED
IN THE COMPANY'S REGISTRATION STATEMENT ON FORM S-1 EXPECTED TO BE FILED ON
ON ABOUT OCTOBER 9, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1998
<PERIOD-START> APR-01-1996 APR-01-1997
<PERIOD-END> MAR-31-1997 SEP-30-1997
<CASH> 5,488 2,041
<SECURITIES> 8,109 9,361
<RECEIVABLES> 8,618 10,159
<ALLOWANCES> (200) (350)
<INVENTORY> 7,530 7,961
<CURRENT-ASSETS> 30,243 31,121
<PP&E> 38,701 41,740
<DEPRECIATION> (27,933) (29,413)
<TOTAL-ASSETS> 41,814 44,382
<CURRENT-LIABILITIES> 10,879 12,168
<BONDS> 0 0
0 0
12 11
<COMMON> 50 64
<OTHER-SE> 27,681 30,043
<TOTAL-LIABILITY-AND-EQUITY> 41,814 44,382
<SALES> 57,468 35,208
<TOTAL-REVENUES> 57,468 35,208
<CGS> 30,057 16,534
<TOTAL-COSTS> 30,057 16,534
<OTHER-EXPENSES> 20,209 12,578
<LOSS-PROVISION> 198 154
<INTEREST-EXPENSE> 29 (151)
<INCOME-PRETAX> 6,975 6,093
<INCOME-TAX> 659 159
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,316 5,934
<EPS-PRIMARY> 0.33 0.30
<EPS-DILUTED> 0 0
</TABLE>
