<PAGE>
As filed with the Securities and Exchange Commission on June 1, 2000
Registration No. 333-37372
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT No. 1
To
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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APPLIED MICRO CIRCUITS CORPORATION
(Exact name of registrant as specified in its charter)
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<TABLE>
<CAPTION>
Delaware 3674 94-2586591
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
APPLIED MICRO CIRCUITS CORPORATION
6290 Sequence Drive, San Diego, California 92121
Telephone: (858) 450-9333
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
WILLIAM E. BENDUSH
Vice President, Finance and Administration, and
Chief Financial Officer
APPLIED MICRO CIRCUITS CORPORATION
6290 Sequence Drive, San Diego, California 92121
Telephone: (858) 450-9333
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<S> <C>
D. BRADLEY PECK, ESQ. KNOX BELL, ESQ.
COOLEY GODWARD llp GRAY CARY WARE & FREIDENRICH llp
4365 Executive Drive, Suite 1100 4365 Executive Drive, Suite 1600
San Diego, California 92121 San Diego, California 92121
Telephone: (858) 550-6000 Telephone: (858) 677-1400
</TABLE>
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Approximate date of commencement of proposed sale to the public:
As promptly as practicable after this Registration Statement becomes
effective and prior to the effective time of the proposed merger described in
this Registration Statement.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, 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, 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(b)
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. [_]
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that 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 pursuant to said Section
8(a), may determine.
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<PAGE>
PROSPECTUS/CONSENT SOLICITATION STATEMENT
TO THE STOCKHOLDERS OF YUNINETWORKS, INC.
Merger Proposed--Your Consent is Very Important
Each of the board of directors of Applied Micro Circuits Corporation and
YuniNetworks, Inc. has approved the merger of a wholly owned subsidiary of
Applied Micro Circuits Corporation with and into YuniNetworks.
If the merger is completed, you will receive 0.091886864 of a share of
Applied Micro Circuits Corporation common stock for each share of common stock
of YuniNetworks you own or will own upon conversion of preferred stock of
YuniNetworks.
The board of directors of YuniNetworks recommends that the stockholders of
YuniNetworks approve the matters described in this document. Your consent is
very important.
YuniNetworks cannot complete the transaction contemplated by the merger
agreement unless YuniNetworks' stockholders approve the merger agreement.
Accordingly, please take the time to complete and mail the enclosed action by
written consent to YuniNetworks.
Assuming the required approvals of the stockholders of YuniNetworks are
received and other conditions to the merger are satisfied or waived, the
closing of the merger will occur.
The common stock of Applied Micro Circuits Corporation is listed on The
Nasdaq National Market under the trading symbol "AMCC." On May 31, 2000, the
last reported sale price for AMCC common stock was $99.25 per share.
You may consent to the merger if you own shares of preferred stock or common
stock of YuniNetworks as of the close of business on June 1, 2000.
This prospectus/consent solicitation statement provides you with detailed
information about the proposed merger. Applied Micro Circuits Corporation
provided the information concerning Applied Micro Circuits Corporation.
YuniNetworks provided the information concerning YuniNetworks.
We strongly urge you to read and consider carefully this prospectus/consent
solicitation statement in its entirety, including the matters referred to under
"Risk Factors" beginning at page 21.
Dr. Kenneth Yun
Chairman of the Board
Neither the Securities and Exchange Commission nor any state securities
regulators have approved the Applied Micro Circuits Corporation common
stock to be issued in the merger or determined if this prospectus/consent
solicitation statement is accurate or adequate. Any representation to the
contrary is a criminal offense.
We are first mailing or delivering this prospectus/consent solicitation
statement and the action by written consent on or about June 1, 2000.
The date of this prospectus/consent solicitation statement is June 1, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
FORWARD-LOOKING STATEMENTS................................................. 4
WHERE YOU CAN FIND MORE INFORMATION........................................ 4
QUESTIONS AND ANSWERS ABOUT THE MERGER..................................... 5
SUMMARY.................................................................... 6
PRICE RANGE OF COMMON STOCK................................................ 11
AMCC SUMMARY FINANCIAL INFORMATION......................................... 12
AMCC QUARTERLY FINANCIAL INFORMATION....................................... 13
YUNINETWORKS SUMMARY FINANCIAL INFORMATION................................. 14
COMPARATIVE PER SHARE DATA (UNAUDITED)..................................... 15
AMCC AND YUNINETWORKS UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS................................................................ 16
AMCC AND YUNINETWORKS UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE
SHEET..................................................................... 17
AMCC AND YUNINETWORKS UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF
OPERATIONS................................................................ 18
AMCC and YuniNetworks Notes to Unaudited Pro Forma Combined Condensed
Financial Statements.................................................... 19
RISK FACTORS............................................................... 21
Risks Relating to the Merger............................................. 21
Risks Relating to AMCC's and YuniNetworks' Business...................... 22
THE MERGER................................................................. 34
Background of the Merger................................................. 34
AMCC's Reasons for the Merger............................................ 35
YuniNetworks' Reasons for the Merger..................................... 36
Consideration to be Received in the Merger............................... 37
Procedures for Exchange of YuniNetworks' Stock Certificates.............. 37
Treatment of Options to Purchase YuniNetworks' Common Stock.............. 37
Stock Ownership Following the Merger..................................... 38
CERTAIN TERMS OF THE MERGER AGREEMENT...................................... 39
General.................................................................. 39
Representations and Warranties........................................... 39
Certain Covenants of the Parties......................................... 39
Conditions to the Merger................................................. 40
Indemnification.......................................................... 41
Termination.............................................................. 42
Expenses Relating to the Merger.......................................... 42
Escrow Agreement......................................................... 42
INTERESTS OF CERTAIN PERSONS IN THE MERGER AND RELATED AGREEMENTS.......... 44
Interests of Certain Persons in the Merger............................... 44
Voting Agreement......................................................... 44
</TABLE>
2
<PAGE>
TABLE OF CONTENTS--(Continued)
<TABLE>
<S> <C>
OTHER MATTERS RELATED TO THE MERGER....................................... 45
Material Federal Income Tax Consequences................................ 45
Restrictions on Resales of AMCC Common Stock by Affiliates of
YuniNetworks........................................................... 47
Accounting Treatment.................................................... 48
Appraisal Rights........................................................ 48
Appraisal Rights Procedures............................................. 48
AMCC BUSINESS............................................................. 51
AMCC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................... 57
AMCC MANAGEMENT AFTER THE MERGER.......................................... 63
Executive Officers and Directors........................................ 63
Director Compensation................................................... 66
Executive Compensation.................................................. 67
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........ 71
YUNINETWORKS BUSINESS..................................................... 73
YUNINETWORKS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................ 74
Overview................................................................ 74
Results of Operations................................................... 74
Liquidity and Capital Resources......................................... 75
DESCRIPTION OF AMCC CAPITAL STOCK......................................... 76
Notice of Stockholders' Meetings........................................ 76
Transfer Agent and Registrar............................................ 76
COMPARISON OF STOCKHOLDER RIGHTS.......................................... 77
General................................................................. 77
Size of the Board of Directors.......................................... 77
Classification of the Board of Directors................................ 77
Cumulative Voting....................................................... 77
Removal of Directors.................................................... 78
Filling Vacancies on the Board of Directors............................. 78
Amendment of AMCC Certificate and YuniNetworks Certificate.............. 79
Amendment of Bylaws..................................................... 79
Right to Call Special Meetings of Stockholders.......................... 79
Stockholder Action Without a Meeting.................................... 80
Dividends............................................................... 80
Preemptive Rights of Stockholders....................................... 80
Appraisal Rights........................................................ 80
Indemnification......................................................... 81
EXPERTS................................................................... 82
LEGAL MATTERS............................................................. 82
</TABLE>
The following appendices also constitute part of this prospectus/consent
solicitation statement:
A--Agreement and Plan of Merger and Reorganization
B--Section 262 of the General Corporation Law of the State of Delaware
C--Form of Voting Agreement
3
<PAGE>
FORWARD-LOOKING STATEMENTS
AMCC and YuniNetworks have each made forward-looking statements in this
document that are subject to risks and uncertainties. Forward-looking
statements include the information concerning possible or assumed future
results of operations of AMCC, YuniNetworks or the combined company. When used
in this prospectus/consent solicitation statement, the words "may", "intend",
"will", "should", "could", "potential", "expect", "anticipate", "believe",
"estimate", "plan", "predict", or "continue" and similar expressions, are
intended to identify forward-looking statements, although not all forward-
looking statements contain these identifying words. You should note that the
merger and an investment in AMCC common stock involve certain risks and
uncertainties that could affect the future financial results of AMCC. Some of
these risks include:
. risks related to the integration of AMCC and YuniNetworks;
. risks associated with the exchange ratio;
. risks associated with integrating the businesses and technologies of AMCC
and YuniNetworks;
. risks relating to the respective businesses of AMCC and YuniNetworks; and
. other risks and uncertainties discussed under "Risk Factors" and
elsewhere in this prospectus/consent solicitation statement.
WHERE YOU CAN FIND MORE INFORMATION
Applied Micro Circuits Corporation (AMCC) is a Delaware corporation. AMCC's
principal executive offices are located at 6290 Sequence Drive, San Diego,
California 92121, and its telephone number is (858) 450-9333.
YuniNetworks, Inc. is a Delaware corporation. YuniNetworks' principal
executive offices are located at 12780 High Bluff Drive, Suite 270, San Diego,
California 92130, and its telephone number is (858) 350-4010.
AMCC has filed a registration statement on Form S-4 with the SEC, of which
this prospectus/consent solicitation statement is a part. You may inspect and
copy such material at the public reference facilities maintained by the SEC at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the
SEC's regional offices at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048.
You may also obtain copies of such material from the SEC at prescribed rates by
writing to the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for more information on the public
reference rooms. You also can find AMCC's SEC filings at the SEC's website at
www.sec.gov.
AMCC and YuniNetworks are not incorporating any documents by reference in
this prospectus/consent solicitation statement.
You should rely only on the information provided in this prospectus/consent
solicitation statement (including the appendices of this prospectus/consent
solicitation statement) in considering how to vote your shares on the proposal
discussed herein. We have authorized no one to provide you with different
information. You should not assume that the information in this
prospectus/consent solicitation statement is accurate as of any date other than
the date on the front of this document.
----------------
This prospectus/consent solicitation statement contains trademarks and
registered trademarks of AMCC and other companies.
4
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: As a YuniNetworks stockholder, what will I receive in the merger?
A: You will receive 0.091886864 of a share of AMCC common stock in exchange
for each share of common stock of YuniNetworks that you own or will own upon
conversion of preferred stock of YuniNetworks. For example, if you own 1,000
shares of common stock of YuniNetworks, you will receive 91 shares of AMCC
common stock in exchange for your shares of common stock of YuniNetworks. No
fractional shares will be issued. You will receive cash for any fractional
share you would otherwise receive.
Q: Will I receive all of my AMCC common stock immediately following the
merger?
A: Of the AMCC shares you are entitled to receive, 10% will be placed into
an escrow account. Alternatively, you may deposit an amount of cash in the
escrow account equal to the value of the AMCC shares that would otherwise have
been deposited in the escrow account. The escrowed shares or cash will be used
to secure the pro rata indemnification obligations of the stockholders of
YuniNetworks under the merger agreement. Shares and cash that have not been
used to satisfy indemnification claims will be released to you on the first
anniversary of the merger unless indemnification claims made prior to the first
anniversary of the merger remain unresolved, in which case a portion of the
shares and cash will be retained to satisfy such claims.
Q: What happens to my options to purchase shares of YuniNetworks common
stock as a result of the merger?
A: Each option to purchase shares of YuniNetworks common stock will be
assumed by AMCC. The number of shares of AMCC common stock that you will be
entitled to acquire upon the exercise of your option will be equal to the
number of shares of YuniNetworks common stock subject to your option multiplied
by the exchange ratio. The per share exercise price of an assumed option will
be determined by dividing the exercise price of the option in effect
immediately prior to the merger by the exchange ratio. The resulting exercise
price is then rounded up to the nearest whole cent. For example, if you have an
option to purchase 1,000 shares of YuniNetworks common stock at an exercise
price of $0.05 per share, after the merger you will have an option to purchase
91 shares of AMCC common stock, at an exercise price of $0.55 per share.
Q: Do I have to do anything with my options?
A: No. Your options will be assumed as noted above and in accordance with
the terms of YuniNetworks' equity incentive plan.
Q: What are the tax consequences of the merger?
A: Subject to the discussion in "Material Federal Income Tax Consequences"
below, AMCC and YuniNetworks have structured the merger so that for federal
income tax purposes, YuniNetworks' stockholders will generally not recognize a
gain or a loss upon the receipt of solely AMCC common stock in the merger,
except with respect to cash received in lieu of fractional shares or in
connection with the exercise of appraisal rights. AMCC and YuniNetworks have
conditioned the merger on receipt of legal opinions regarding the tax
consequences of the merger.
Q: What should I do to consent to the Merger?
A: Sign, date and return the enclosed action by written consent to
YuniNetworks as soon as you can. A return envelope has been provided for your
convenience.
Q: Should I send in my YuniNetworks stock certificates now?
A: No. After the merger is completed, AMCC will send you written
instructions for exchanging your YuniNetworks' stock certificates.
Q: When do you expect the merger to be completed?
A: Assuming that AMCC and YuniNetworks satisfy or waive all of the other
conditions to closing contained in the merger agreement, the merger will occur
within 20 business days after receiving the consent of the required number of
stockholders of YuniNetworks to approve the merger.
5
<PAGE>
SUMMARY
This summary highlights selected information found in greater detail
elsewhere in this prospectus/consent solicitation statement. This summary does
not contain all of the information that is important to you. We urge you to
read the entire document (including the appendices) before you decide whether
to consent. The merger agreement is attached as Appendix A to this document. We
encourage you to read the merger agreement which is the legal document
governing the terms of the merger. We have included page references
parenthetically to direct you to a more complete description in this
prospectus/consent solicitation statement of the topics presented in this
summary. Unless the context requires otherwise, references to "we," "us," "our"
and "AMCC" refer to Applied Micro Circuits Corporation and its wholly owned
subsidiaries.
The Companies (pages 51 and 73)
Applied Micro Circuits Corporation
6290 Sequence Drive
San Diego, CA 92121
(858) 450-9333
AMCC designs, develops, manufactures and markets high-performance, high-
bandwidth silicon solutions for the world's optical networks. We offer
integrated circuit, or IC, products that enable the transport of voice and data
over fiber optic networks by utilizing a combination of high-frequency analog,
mixed-signal and digital design expertise coupled with system-level knowledge
and multiple silicon process technologies. Our customers include leading
communications equipment manufacturers such as Alcatel, Ciena, Cisco, Lucent,
Marconi Communications and Nortel as well as emerging communications systems
providers such as Cerent (recently acquired by Cisco), Juniper Networks,
Monterey Networks (recently acquired by Cisco), Nexabit (recently acquired by
Lucent) and Sycamore Networks.
Over the past decade, the volume of high speed data traffic across the
public communications network has grown significantly, reflecting the
increasing demand for Internet access, electronic mail communications,
electronic commerce, remote access by telecommuters and other network data
transmission services. The volume and complexity of transmitted data has led to
the increasing deployment of high-speed communications technologies such as
DWDM, SONET/SDH and ATM. Dense wave division multiplexing, or DWDM, is a
technology for increasing the bandwidth in fiber optic networks. The
synchronous optical network, or SONET, standard in North America and Japan, and
the synchronous digital hierarchy, or SDH, standard in the rest of the world,
are the standards for the transmission of signals over optical fiber.
Asynchronous transfer mode, or ATM, a transmission protocol complementary to
SONET/SDH, is optimized to handle the multiple protocols existing in today's
networks.
Enterprise networks (individual networks built by specific businesses) also
are rapidly being upgraded with higher bandwidth technologies, such as Gigabit
Ethernet. In addition, the Fibre Channel standard, which facilitates data
transmission at rates exceeding one gigabit per second, is a scalable method
for achieving high-speed, high-volume data transfer among workstations,
mainframes, data storage devices and other peripherals.
Our objective is to be the premier supplier of high-bandwidth silicon ICs
for the world's optical networks. Our strategies for achieving this objective
include:
. Focusing on high-growth, fiber optic-based network markets;
. Providing complete system solutions to our customers;
. Integrating higher levels of functionality into our semiconductor
products; and
. Leveraging our expertise in multiple silicon-process technologies to
provide cost-effective, optimized solutions.
6
<PAGE>
Our products target the SONET/SDH, ATM, Gigabit Ethernet and Fibre Channel
semiconductor markets. In addition, we recently introduced silicon ICs targeted
for DWDM systems. We provide our customers with complete silicon IC solutions
ranging from physical media dependent devices such as laser drivers and
physical layer products such as transceivers to overhead processor products
such as framers and mappers. Our products span data rates from OC-3, or 155
megabits per second, to OC-192, or 10 gigabits per second. We also supply
silicon ICs for the automated test equipment, or ATE, high-speed computing and
military markets.
We manufacture some products at our silicon wafer fabrication facility in
San Diego, California. We also use outside semiconductor wafer fabrication
facilities for the production of products designed on CMOS processes. Recently,
we introduced several new products using IBM's silicon germanium BiCMOS
process.
YuniNetworks, Inc.
12780 High Bluff Drive, Suite 270
San Diego, California 92130
(858) 350-4010
YuniNetworks develops scalable switch fabric solutions (devices that route
data through the network to its destination) with quality of service, or QOS,
support (the ability to adhere to service level agreements) to meet the
increasing demands for network bandwidth. YuniNetworks' switching architecture
allows for scalable switch fabric solutions with switching speeds from 10
gigabits to 4 terabits per second. YuniNetworks' architecture also provides QOS
for eight classes of service and thousands of traffic flows per port while
maintaining high switching speed. YuniNetworks is developing a family of
switching products for a wide range of applications from enterprise and storage
area networks to the Internet core.
Our Reasons for the Merger (pages 35 and 36)
AMCC. AMCC's board of directors approved the merger based upon a number of
factors, including the following:
. The combination of YuniNetworks' products currently under development
with AMCC's products will enable AMCC to offer its customers more
complete solutions;
. The products that YuniNetworks is currently developing will complement
AMCC's products because they are being designed to switch network traffic
at extremely high speeds and will have features tailored to several
networking protocols; and
. AMCC believes that YuniNetworks' products under development will be
superior to the products of YuniNetworks' competitors because, among
other things, YuniNetworks' products will include proprietary features
designed to maintain the integrity of data during transmission.
YuniNetworks. YuniNetworks' board of directors approved the merger based
upon a number of factors, including the following:
. After the merger, YuniNetworks will have access to the customer base of
AMCC and may benefit from increased distribution of YuniNetworks'
products that are under development;
. The value of AMCC common stock that YuniNetworks' stockholders will
receive in the merger represents a significant premium for YuniNetworks'
stockholders; and
. The merger may allow YuniNetworks' stockholders to liquidate their
investment sooner than they might have been able to if the merger did not
occur.
7
<PAGE>
Recommendation of the Board of YuniNetworks (page 37)
The board of directors of YuniNetworks believes that the merger is fair to,
and in the best interests of, YuniNetworks and its stockholders, and
unanimously recommends that the stockholders of YuniNetworks consent to the
merger.
What You Will Receive in the Merger (page 37)
In connection with the merger, the holders of YuniNetworks common stock or
shares of preferred stock convertible into common stock will receive
0.091886864 of a share of AMCC common stock for each share of common stock of
YuniNetworks they hold or will hold upon conversion of preferred stock of
YuniNetworks. Thus, if you hold 1,000 shares of common stock of YuniNetworks,
you will receive 91 shares of AMCC common stock. Of the amount you are entitled
to receive, however, 10% will be placed in an escrow account pursuant to the
escrow agreement, discussed below.
No fractional shares will be issued. Instead you will be paid in cash the
dollar amount, without interest, determined by multiplying the fraction by the
closing sales price of AMCC common stock as quoted on The Nasdaq National
Market on the day immediately prior to the date the closing of the merger
occurs.
Ownership of AMCC Following the Merger (page 38)
Assuming no exercise of appraisal rights, AMCC will issue 2,030,802 shares
of AMCC common stock for the outstanding shares of YuniNetworks stock and will
assume options to purchase 127,311 shares of AMCC common stock. Based upon
122,441,822 shares of AMCC common stock issued and outstanding as of
May 26, 2000, and assuming no exercise of outstanding options, warrants or
other rights to purchase AMCC common stock, the former holders of YuniNetworks
common and preferred stock would hold and have voting power with respect to
approximately 1.6%, and the stockholders of AMCC prior to the closing of the
merger would hold and have voting power with respect to approximately 98.4%, of
AMCC's total issued and outstanding shares of common stock after consummation
of the merger.
Required Consent (page 42)
The affirmative vote of a majority of shares of YuniNetworks common stock
and preferred stock, voting together as a single class, and the affirmative
vote of a majority of shares of YuniNetworks preferred stock, voting as a
separate class, is required to approve and adopt the merger agreement and
approve the merger.
Escrow Agreement (page 42)
Ten percent of the merger consideration to be received by each YuniNetworks'
stockholder will be placed into an escrow account pursuant to the terms of an
escrow agreement. The shares of AMCC common stock placed in the escrow account
will be used to secure the indemnification obligations of the stockholders of
YuniNetworks under the merger agreement. You may, however, elect to deliver
cash to the escrow agent in lieu of shares of AMCC common stock. If so, you
will be required to deliver to the escrow agent cash equal to value of the
shares of AMCC common stock that you otherwise would have delivered to the
escrow agent. Shares and cash that have not been used to satisfy claims will be
released to you on the first anniversary of the merger unless any
indemnification claims made prior to the first anniversary of the merger remain
unresolved, in which case a portion of the shares and cash will be retained to
satisfy such claims. A copy of the escrow agreement is attached to the merger
agreement as Exhibit D. We encourage you to read the escrow agreement since it
is the legal document that governs the disposition of the escrow account.
8
<PAGE>
Voting Agreement (page 44)
Dr. Kenneth Yun, Ms. Kay Yun and Raza Foundries Canada, Inc., a wholly owned
subsidiary of Raza Foundries, Inc. beneficially own in the aggregate 10,500,000
shares of YuniNetworks common stock and 10,000,000 shares of YuniNetworks
preferred stock, for an aggregate of 20,500,000 shares, or approximately 90% of
the total YuniNetworks stock outstanding as of the record date. Each of Dr.
Yun, Ms. Yun and Raza Foundries Canada has agreed to vote his, her or its
common stock in favor of the approval and adoption of the merger agreement and
the approval of the merger.
Interests of Certain Persons in the Merger (page 44)
In considering the recommendation of the board of directors of YuniNetworks
that you consent to the merger, you should be aware that S. Atiq Raza manages
Raza Foundries Canada, one of the principal stockholders of YuniNetworks. Mr.
Raza also serves on the boards of directors and is a stockholder of both
YuniNetworks and AMCC. To satisfy certain requirements of the Investment
Company Act of 1940, as amended, immediately prior to the closing of the
merger, Raza Foundries Canada will sell for cash 90% of its YuniNetworks' stock
to one or more financial institutions and 10% of its stock to AMCC. The cash
provided by AMCC will be deposited in the escrow account.
In addition, as a result of the merger, the vesting of certain of the shares
of YuniNetworks owned by Ms. Yun will accelerate. As a result, Mr. Raza and Ms.
Yun have interests in the merger that may be different from yours.
Conditions to the Merger (page 40)
AMCC and YuniNetworks will complete the merger only if a number of
conditions either are satisfied or waived, some of which include:
. AMCC's Form S-4 Registration Statement pertaining to the merger being
declared effective by the SEC;
. there being no restraining orders, injunctions and other orders
preventing the consummation of the merger or other legal requirements
that make the consummation of the merger illegal; and
. the holders of a majority of shares of YuniNetworks common stock and
preferred stock voting together as a single class, and the holders of a
majority of shares of the preferred stock voting together as a separate
class, shall have approved the merger.
In addition, AMCC may not have to complete the merger if more than 5% of the
holders of YuniNetworks common stock elect to pursue their appraisal rights
under Section 262 of the Delaware General Corporation Law or if the non-
interested holders of 75% of the outstanding shares of YuniNetworks entitled to
vote do not approve certain arrangements with respect to the compensation of
Dr. Kenneth Yun and Ms. Kay Yun that would not otherwise be deductible expenses
under Section 280G or Section 162 of the Internal Revenue Code of 1986, as
amended.
Tax Matters (page 45)
It is expected that the merger will constitute a tax-free reorganization for
federal income tax purposes and, accordingly, that no gain or loss will be
recognized for federal income tax purposes by the YuniNetworks' stockholders
upon conversion of their YuniNetworks' common stock in the merger (except with
respect to any cash received in the merger in lieu of any fractional share
interest of YuniNetworks' common stock or for dissenting shares). The
obligations of AMCC and YuniNetworks to consummate the merger are conditioned
on the receipt by AMCC of an opinion from Cooley Godward llp, and the receipt
by YuniNetworks of an opinion of Gray Cary Ware & Freidenrich llp, that the
merger constitutes a reorganization under Section 368 of the Internal Revenue
Code of 1986, as amended.
9
<PAGE>
Tax matters can be complicated, and the tax consequences of the merger to
you will depend on the facts of your own situation. You should consult your own
tax advisors to fully understand the tax consequences of the merger to you.
Accounting Treatment (page 48)
The merger will be accounted for as a "purchase" for financial reporting
purposes.
Appraisal Rights (page 48)
Under Delaware law, the holders of common stock of YuniNetworks will have
appraisal rights and may be entitled to receive cash equal to the fair market
value of their YuniNetworks common stock. To do so, they must follow the
procedures set forth under Section 262 of the General Corporation Law of the
State of Delaware. Section 262 is attached as Appendix B to this
prospectus/consent solicitation statement.
10
<PAGE>
PRICE RANGE OF COMMON STOCK
AMCC's common stock is listed on The Nasdaq National Market under the symbol
"AMCC." The following table shows, for the periods indicated, the high and low
reported sales prices per share of AMCC common stock on The Nasdaq National
Market. Share prices have been restated to reflect two-for-one stock splits
effected on each of September 9, 1999 and March 23, 2000.
<TABLE>
<CAPTION>
High Low
------- ------
<S> <C> <C>
Fiscal year ended March 31, 1999
First Quarter.............................................. $ 7.50 $ 4.41
Second Quarter............................................. $ 7.50 $ 3.22
Third Quarter.............................................. $ 10.16 $ 3.06
Fourth Quarter............................................. $ 11.69 $ 8.24
<CAPTION>
High Low
------- ------
<S> <C> <C>
Fiscal year ended March 31, 2000
First Quarter.............................................. $ 21.25 $10.28
Second Quarter............................................. $ 33.50 $19.06
Third Quarter.............................................. $ 64.19 $27.19
Fourth Quarter............................................. $158.87 $50.53
<CAPTION>
High Low
------- ------
<S> <C> <C>
Fiscal year ended March 31, 2001
First Quarter (through May 31, 2000)....................... $144.98 $71.50
</TABLE>
At March 31, 2000, there were approximately 663 holders of record of AMCC's
common stock.
There is no public market for YuniNetworks' capital stock. On May 31, 2000,
the closing sale price reported on The Nasdaq National Market for AMCC's common
stock was $99.25 per share. On April 18, 2000, the last full trading day prior
to the execution and delivery of the merger agreement, the closing sale price
reported on The Nasdaq National Market for AMCC's common stock was $107.25 per
share. Holders of YuniNetworks capital stock are encouraged to obtain a current
market quotation for AMCC's common stock.
Neither AMCC nor YuniNetworks has paid any cash dividends in the past, and
each currently intends to retain future earnings, if any, to fund the
development and growth of its business and not to pay any cash dividends in the
foreseeable future.
11
<PAGE>
AMCC SUMMARY FINANCIAL INFORMATION
The following consolidated financial information is derived from the AMCC
consolidated financial statements and should be read together with "AMCC
Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus/consent solicitation
statement.
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended March 31, December 31,
-------------------------------------------- -----------------
1995 1996 1997 1998 1999 1998 1999
------- ------- ------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Net revenues............ $46,950 $50,264 $57,468 $ 76,618 $105,000 $ 76,258 $115,303
Cost of revenues........ 27,513 34,169 30,057 34,321 37,937 28,415 34,818
------- ------- ------- -------- -------- -------- --------
Gross profit............ 19,437 16,095 27,411 42,297 67,063 47,843 80,485
Operating expenses:
Research and
development........... 10,108 8,283 7,870 13,268 22,472 16,194 21,829
Selling, general and
administrative........ 10,112 11,232 12,537 14,278 18,325 13,033 19,178
Merger-related costs... -- -- -- -- 2,350 -- --
------- ------- ------- -------- -------- -------- --------
Total operating
expenses............ 20,220 19,515 20,407 27,546 43,147 29,227 41,007
------- ------- ------- -------- -------- -------- --------
Operating income
(loss)................. (783) (3,420) 7,004 14,751 23,916 18,616 39,478
Interest income
(expense), net......... (358) (242) (29) 871 3,450 2,613 3,114
------- ------- ------- -------- -------- -------- --------
Income (loss) before
income taxes........... (1,141) (3,662) 6,975 15,622 27,366 21,229 42,592
Provision (benefit) for
income taxes........... (70) 32 659 406 10,233 7,457 14,597
------- ------- ------- -------- -------- -------- --------
Net income (loss)....... $(1,071) $(3,694) $ 6,316 $ 15,216 $ 17,133 $ 13,772 $ 27,995
------- ------- ------- -------- -------- -------- --------
Basic earnings (loss)
per share(1):
Earnings (loss) per
share................. $ (0.06) $ (0.20) $ 0.32 $ 0.36 $ 0.17 $ 0.14 $ 0.27
======= ======= ======= ======== ======== ======== ========
Shares used in
calculating basic
earnings (loss) per
share................. 17,460 18,264 20,024 42,376 98,056 97,136 104,728
======= ======= ======= ======== ======== ======== ========
Diluted earnings (loss)
per share(1):
Earnings (loss) per
share................. $ (0.02) $ (0.05) $ 0.09 $ 0.19 $ 0.16 $ 0.13 $ 0.24
======= ======= ======= ======== ======== ======== ========
Shares used in
calculating diluted
earnings (loss) per
share................. 68,776 69,576 71,628 81,176 109,720 108,792 115,860
======= ======= ======= ======== ======== ======== ========
<CAPTION>
March 31, December 31,
-------------------------------------------- -----------------
1995 1996 1997 1998 1999 1998 1999
------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Working capital......... $16,753 $13,977 $19,364 $ 77,417 $103,617 $ 97,600 $128,948
Total assets............ 40,180 37,836 41,814 112,834 150,655 138,893 192,383
Long-term debt and
capital lease
obligations, less
current portion........ 6,515 4,447 3,192 4,091 7,558 8,370 5,830
Total stockholders'
equity................. 24,805 21,512 27,743 91,634 121,694 116,018 160,474
</TABLE>
--------
(1) Adjusted to reflect two-for-one stock splits effected on each of September
9, 1999 and March 23, 2000. All share and per share information has been
restated to reflect these stock splits.
12
<PAGE>
AMCC QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------------------
June 31, Sept. 30, Dec. 31, March 31, June 31, Sept. 30, Dec. 31, March 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $17,053 $18,155 $19,666 $21,744 $23,814 $25,472 $26,972 $28,742
Cost of revenues........ 8,156 8,378 8,836 8,951 9,399 9,347 9,669 9,522
------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 8,897 9,777 10,830 12,793 14,415 16,125 17,303 19,220
Operating expenses:
Research and
development.......... 2,525 3,477 3,337 3,929 4,893 5,454 5,847 6,278
Selling, general and
administrative....... 3,339 3,391 3,530 4,018 4,164 4,296 4,573 5,292
Merger-related costs.. -- -- -- -- -- -- -- 2,350
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 5,864 6,868 6,867 7,947 9,057 9,750 10,420 13,920
------- ------- ------- ------- ------- ------- ------- -------
Operating income........ 3,033 2,909 3,963 4,846 5,358 6,375 6,883 5,300
Interest income, net.... 66 85 143 577 853 877 883 837
------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes.................. 3,099 2,994 4,106 5,423 6,211 7,252 7,766 6,137
Provision for income
taxes.................. 81 78 103 144 2,227 2,584 2,646 2,776
------- ------- ------- ------- ------- ------- ------- -------
Net income.............. $ 3,018 $ 2,916 $ 4,003 $ 5,279 $ 3,984 $ 4,668 $ 5,120 $ 3,361
======= ======= ======= ======= ======= ======= ======= =======
Earnings per share
(diluted)(1)........... $ 0.04 $ 0.04 $ 0.05 $ 0.06 $ 0.04 $ 0.04 $ 0.05 $ 0.03
======= ======= ======= ======= ======= ======= ======= =======
Shares used in
calculating diluted
earnings per share(1).. 75,764 74,376 81,532 93,028 106,660 109,184 110,476 112,560
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
--------------------------
Dec.
June 30, Sept. 30, 31,
1999 1999 1999
-------- --------- -------
<S> <C> <C> <C>
Net revenues........................................ $31,643 $37,898 $45,762
Cost of revenues.................................... 10,283 11,326 13,209
------- ------- -------
Gross profit........................................ 21,360 26,572 32,553
Operating expenses:
Research and development.......................... 6,354 7,194 8,281
Selling, general and administrative............... 5,569 6,548 7,061
Merger-related costs.............................. -- -- --
------- ------- -------
Total operating expenses......................... 11,923 13,742 15,342
------- ------- -------
Operating income.................................... 9,437 12,830 17,211
Interest income, net................................ 884 1,005 1,225
------- ------- -------
Income before income taxes.......................... 10,321 13,835 18,436
Provision for income taxes.......................... 3,535 4,738 6,324
------- ------- -------
Net income.......................................... $ 6,786 $ 9,097 $12,112
======= ======= =======
Earnings per share (diluted)(1)..................... $ 0.06 $ 0.08 $ 0.10
======= ======= =======
Shares used in calculating
diluted earnings per share(1)...................... 114,112 115,864 117,608
======= ======= =======
</TABLE>
--------
(1) Adjusted to reflect two-for-one stock splits effected on each of September
9, 1999 and March 23, 2000. All share and per share information has been
restated to reflect these stock splits.
13
<PAGE>
YUNINETWORKS SUMMARY FINANCIAL INFORMATION
The following summary financial data are derived from audited financial
statements included elsewhere in this prospectus/consent solicitation statement
and should be read in conjunction with "YuniNetworks Management's Discussion
and Analysis of Financial Condition and Results of Operations". The statement
of operations data for the period from YuniNetworks' inception on October 8,
1999 through March 31, 2000 and the balance sheet data at March 31, 2000 are
derived from audited financial statements included elsewhere in this
prospectus/consent solicitation statement.
<TABLE>
<CAPTION>
Period From
October 8, 1999 (Inception)
Through March 31, 2000
---------------------------
<S> <C>
Statement of Operations Data:
Operating expenses:
Research and development.......................... $ 757,751
Selling, general and administrative............... 252,583
-----------
Total operating expenses........................ 1,010,334
-----------
Loss from operations................................ (1,010,334)
Interest income (expense) and other, net............ 71,317
-----------
Net loss............................................ $ (939,017)
===========
Basic and diluted net loss per share................ $ (.10)
===========
Shares used in computing net loss per share......... 9,526,487
===========
<CAPTION>
March 31, 2000
---------------------------
<S> <C>
Balance Sheet Data:
Cash and cash equivalents........................... $ 4,482,172
Working capital..................................... 3,903,344
Total assets........................................ 5,356,808
Long-term obligations, less current portion......... --
Accumulated deficit................................. (939,017)
Total stockholders' equity.......................... 4,772,613
</TABLE>
14
<PAGE>
COMPARATIVE PER SHARE DATA (UNAUDITED)
The following table sets forth certain unaudited historical per share data
of AMCC and YuniNetworks and unaudited pro forma combined per share data. You
should read the information below with selected historical financial
information and the unaudited pro forma combined condensed financial
information included elsewhere in this prospectus/consent solicitation
statement. The pro forma combined condensed financial information is not
necessarily indicative of the operating results of future operations or the
actual results that would have occurred at the beginning of the period
presented.
<TABLE>
<CAPTION>
Period ended
December 31,
1999(1)
------------
<S> <C>
AMCC--Historical
Net income per share (diluted)............................ $0.24
Book value per share(2)................................... $1.48
YuniNetworks--Historical
Net loss per share(3)..................................... $0.00
Book value per share(4)................................... $0.25
Pro forma combined net income per share (diluted)
Pro forma net income per share(5)......................... $0.05
Equivalent pro forma net income per YuniNetworks
share(6)................................................. $0.00
Pro forma combined net book value per share
Pro forma net book value per share(7)..................... $3.04
Equivalent pro forma net book value per YuniNetworks
share(6)................................................. $0.28
</TABLE>
(1) The periods for which the per share data has been presented are the nine
months ended December 31, 1999 for AMCC and the period from October 8, 1999
(inception) through December 31, 1999 for YuniNetworks.
(2) The AMCC historical book value per share is calculated by dividing its
stockholders' equity at December 31, 1999, by the total outstanding shares
of common stock at December 31, 1999.
(3) The YuniNetworks historical net loss per share is calculated by dividing
its net loss for the period from October 8, 1999 (inception) through
December 31, 1999 by the aggregate of the outstanding common shares and the
outstanding convertible preferred shares on an as-if-converted basis.
(4) The YuniNetworks historical book value per share is calculated by dividing
its stockholders' equity at December 31, 1999 by the number of shares
described in (3) above.
(5) The pro forma combined net income per share is calculated by dividing the
pro forma net income by the pro forma number of shares outstanding, which
includes the shares and options to be issued or assumed in the merger and
assumes the shares issued in the merger had been outstanding from the
beginning of the period.
(6) The equivalent pro forma combined amounts are calculated by multiplying the
pro forma combined per share amounts by the exchange ratio of 0.091886864
per share of AMCC common stock for each YuniNetworks common stock
equivalent share.
(7) The pro forma combined net book value per share is calculated by dividing
the pro forma stockholders' equity by the pro forma number of shares
outstanding.
15
<PAGE>
AMCC AND YUNINETWORKS
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial information
gives effect to the acquisition by AMCC of YuniNetworks which will be accounted
for as a purchase. The unaudited pro forma combined condensed balance sheet is
based on the individual historical balance sheets of AMCC and YuniNetworks and
has been prepared to reflect the acquisition by AMCC of YuniNetworks as if the
acquisition had occurred as of December 31, 1999. The unaudited pro forma
combined condensed statement of operations is based on the individual
historical statements of operations of AMCC and YuniNetworks and combines the
results of operations of AMCC for the nine months ended December 31, 1999 with
the results of operations for YuniNetworks for the period from October 8, 1999
(inception) through December 31, 1999 as if the acquisition had occurred as of
October 8, 1999.
The pro forma combined condensed financial information is presented for
illustrative purposes only and is not necessarily indicative of the financial
position or operating results that would have been achieved if the acquisition
had been completed as of the beginning of the period presented, nor is it
necessarily indicative of the future financial position or operating results of
AMCC. The pro forma combined condensed financial information does not give
effect to any cost savings or restructuring and integration costs that may
result from the integration of AMCC's and YuniNetworks' operations. The costs
related to restructuring and integration have not yet been determined, and AMCC
expects to charge these costs to operations during the quarter incurred.
The unaudited pro forma combined condensed financial information should be
read in conjunction with the audited and unaudited financial statements and
accompanying notes of AMCC and YuniNetworks included elsewhere in this
prospectus/consent solicitation statement.
16
<PAGE>
AMCC AND YUNINETWORKS
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AT DECEMBER 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
AMCC YuniNetworks Adjustments Notes Combined
-------- ------------ ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash
equivalents.......... $ 22,774 $5,303 $ (8,971) (A) $ 19,106
Short-term
investments--
available-for-sale... 92,494 -- -- 92,494
Accounts receivable, net
of allowance........... 20,854 -- -- 20,854
Inventories............. 10,522 -- -- 10,522
Deferred income taxes... 4,273 -- -- 4,273
Notes receivable from
officers and
employees............ 100 -- -- 100
Other current assets.. 4,010 5 -- 4,015
-------- ------ -------- --------
Total current
assets............. 155,027 5,308 (8,971) 151,364
Property and equipment,
net.................... 33,999 112 34,111
Intangible assets....... -- -- 179,353 (B) 179,353
Other assets............ 3,357 18 -- 3,375
-------- ------ -------- --------
Total assets........ $192,383 $5,438 $170,382 $368,203
======== ====== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------
Current liabilities:
Accounts payable...... $ 8,239 $ 8 $ 750 (C) 8,997
Accrued payroll and
related expenses..... 6,589 -- -- 6,589
Other accrued
liabilities.......... 6,789 -- -- 6,789
Deferred revenue...... 2,316 -- -- 2,316
Current portion of
long-term debt....... 1,370 -- -- 1,370
Current portion of
capital lease
obligations.......... 776 -- -- 776
-------- ------ -------- --------
Total current
liabilities........ 26,079 8 750 26,837
Long-term debt, less
current portion........ 3,957 -- -- 3,957
Long-term capital lease
obligations, less
current portion........ 1,873 -- -- 1,873
Stockholders' equity:
Preferred stock, $0.01
par value: .......... -- 11 (11) (D), (E) --
Common stock, $0.01
par value: .......... 1,082 11 11 (D), (E) 1,104
Additional paid-in
capital.............. 112,273 5,774 204,556 (D), (E) 322,603
Deferred compensation,
net.................. (1,661) (290) -- (1,951)
Accumulated other
comprehensive loss... (274) -- -- (274)
Retained earnings..... 49,509 (76) (34,924) (F) 14,509
Notes receivable from
stockholders......... (455) -- -- (455)
-------- ------ -------- --------
Total stockholders'
equity............. 160,474 5,430 169,632 335,536
-------- ------ -------- --------
Total liabilities
and stockholders'
equity............. $192,383 $5,438 $170,382 $368,203
======== ====== ======== ========
</TABLE>
See accompanying notes to the unaudited pro forma combined condensed financial
information.
17
<PAGE>
AMCC AND YUNINETWORKS
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
AMCC YuniNetworks
9 months ended Inception to Pro forma Pro Forma
December 31, 1999 December 31, 1999 adjustments Notes Combined
----------------- ----------------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C>
Net revenues............ $115,303 $ -- $ -- $115,303
Cost of revenues........ 34,818 -- -- 34,818
-------- ---- -------- --------
Gross profit............ 80,485 -- -- 80,485
Operating expenses:
Research and
development.......... 21,829 58 -- 21,887
Selling, general and
administrative....... 19,178 24 -- 19,202
Amortization of
intangible assets.... -- -- 22,419 (G) 22,419
-------- ---- -------- --------
Total operating
expenses........... 41,007 82 22,419 63,508
-------- ---- -------- --------
Operating income........ 39,478 (82) (22,419) 16,977
Interest income, net.... 3,114 6 -- 3,120
-------- ---- -------- --------
Income before income
taxes.................. 42,592 (76) (22,419) 20,097
Provision for income
taxes.................. 14,597 -- -- 14,597
-------- ---- -------- --------
Net income.............. $ 27,995 $(76) $(22,419) $ 5,500
======== ==== ======== ========
Basic earnings per
share:
Earnings per share.... $ 0.27 $ 0.05
======== ========
Shares used in
calculating basic
earnings per share... 104,728 106,740
======== ========
Diluted earnings per
share:
Earnings per share.... $ 0.24 $ 0.05
======== ========
Shares used in
calculating diluted
earnings per share... 115,860 118,018
======== ========
</TABLE>
The above pro forma combined condensed statement of operations does not
include an estimated $35 million in-process research and development charge to
be recorded by AMCC in conjunction with the acquisition for the estimated fair
value of the in-process research and development of YuniNetworks.
See accompanying notes to the unaudited pro forma combined condensed financial
information.
18
<PAGE>
AMCC AND YUNINETWORKS
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. Pro Forma Basis of Presentation and Adjustments
The unaudited pro forma combined condensed financial information assumes the
acquisition by AMCC of YuniNetworks in a transaction to be accounted for as a
purchase. The unaudited pro forma combined condensed balance sheet is based on
the individual balance sheets of AMCC and YuniNetworks and has been prepared to
reflect the acquisition by AMCC of YuniNetworks as if the acquisition had
occurred as of December 31, 1999. The unaudited pro forma combined condensed
statement of operations is based on the individual statements of operations of
AMCC and YuniNetworks and combines the results of operations of AMCC for the
nine months ended December 31, 1999 with the results of operations of
YuniNetworks for the period from October 8, 1999 (inception) through December
31, 1999 as if the acquisition occurred as of October 8, 1999.
Under the terms of the merger agreement, in exchange for all YuniNetworks
shares of common and preferred stock and the assumption of stock options of
YuniNetworks, AMCC will issue an amount of its common stock equivalent to $300
million divided by the average closing price of its common stock for the five
trading days prior to the day the SEC declares the registration statement, of
which this prospectus/consent solicitation statement is a part, effective,
provided that, in no event shall the number of shares be greater than 2,250,000
or less than 1,750,000. Pursuant to a separate agreement, AMCC has agreed to
purchase 10% of the YuniNetworks' shares held by the majority stockholder of
YuniNetworks, Raza Foundries Canada, for cash at an adjusted price equivalent
to the price of AMCC stock immediately prior to the closing of the merger. Raza
Foundries Canada is managed by S. Atiq Raza, a board member and stockholder of
both YuniNetworks and AMCC.
AMCC estimates the purchase price to be approximately $219.3 million. For
purposes of determining this estimated purchase price, an exchange ratio
resulting in the maximum number of shares being issued was assumed. AMCC also
assumed that the value of the common stock issued in the merger will be $97.51
per share, the average closing price of AMCC's common stock for the three days
before and two days after the terms of the acquisition had been agreed to and
announced. The value of the options to be assumed is based on their estimated
fair value. Given these assumptions, AMCC would issue 2,012,190 shares of
common stock and assume options to purchase 145,807 shares of common stock. In
addition, AMCC has assumed that it would purchase 1,000,000 shares of
YuniNetworks preferred stock owned by Raza Foundries Canada for approximately
$9.0 million.
AMCC is in the process of conducting an evaluation of the intangible assets
to be acquired in order to allocate the purchase price in accordance with
Accounting Principle No. 16. Subject to adjustments when the evaluation is
updated, the purchase price was allocated as follows based upon management's
best estimate of the tangible and intangible assets, including acquired
technology and in-process research and development (in thousands):
<TABLE>
<S> <C>
Current assets acquired.......................................... $ 5,308
Property and equipment........................................... 112
Other assets..................................................... 18
In-process research and development.............................. 35,000
Goodwill......................................................... 179,353
Liabilities assumed.............................................. (8)
Liabilities for merger-related costs............................. (750)
Deferred compensation............................................ 290
--------
$219,323
========
</TABLE>
Adjustments will include changes in the value of the assets, liabilities and
deferred compensation between January 1, 2000 through the date the merger is
completed.
19
<PAGE>
2. Pro Forma Adjustments to Pro Forma Combined Condensed Financial Information
(A) Reflects cash used to purchase 10% of the YuniNetworks shares held by
Raza Foundries Canada, assumed to be $9.0 million.
(B) The residual amount of the purchase price over the net book value of
the assets and liabilities assumed and in-process research and
development charges has been allocated to intangible assets. The
intangible assets are expected to consist of assembled workforce and
goodwill.
(C) To increase the accrued expenses by $750,000 for acquisition-related
expenses such as legal, accounting, registration and miscellaneous
fees.
(D) To eliminate the YuniNetworks equity accounts.
(E) To reflect the value of the shares of AMCC common stock to be issued in
connection with the merger.
(F) To eliminate the YuniNetworks accumulated deficit of $76,000 and
reflect the charge for the YuniNetworks in-process research and
development.
(G) To record nine months of amortization expense of the acquired
intangibles related to the purchase of YuniNetworks based on a useful
life of six years.
20
<PAGE>
RISK FACTORS
You should carefully read the following risk factors and other information
contained in this prospectus/consent solicitation statement prior to deciding
whether to consent to the merger. Keep in mind that the risks described below
are not the only risks facing AMCC, YuniNetworks or the combined company.
Risks Relating to the Merger
You will receive 0.091886864 of a share of AMCC common stock for each share of
YuniNetworks common stock you own despite changes in market value of AMCC
common stock.
Upon completion of the merger, each share of YuniNetworks common stock will
be exchanged for 0.091886864 of a share of AMCC common stock. There will be no
adjustment for changes in the market price of AMCC common stock, and AMCC and
YuniNetworks are not permitted to abandon the merger or resolicit the vote of
its stockholders solely because of changes in the market price of AMCC common
stock. Accordingly, the specific dollar value of AMCC common stock to be
received by you upon completion of the merger will depend on the market value
of AMCC common stock at the time of the completion of the merger. The share
price of AMCC common stock is by nature subject to the general price
fluctuations in the market for publicly traded equity securities and has
experienced significant volatility. No prediction can be made as to the market
price of AMCC common stock after the completion of the merger.
Although AMCC and YuniNetworks anticipate that the merger will result in
benefits to the combined company, those benefits may not be realized.
AMCC and YuniNetworks entered into the merger agreement with the expectation
that the merger will result in benefits, including:
. combining complementary technologies permitting AMCC to provide products
with more complete solutions than AMCC can provide now;
. a combined company with greater financial, technological and human
resources to develop new products and providing greater sales and
marketing resources to help promote and sell the products YuniNetworks is
developing; and
. providing YuniNetworks with access to the customer base of AMCC and thus
increasing distribution of YuniNetworks' products under development.
However, achieving the benefits of the merger will depend in part on the
integration of the technology, operations and personnel of the two companies in
a timely and efficient manner so as to minimize the risk that the merger will
result in the loss of key employees or the continued diversion of the attention
of management.
In addition, synergies from the merger may not materialize. Integrating
sales of YuniNetworks' products under development into AMCC's business model
will involve risks that may jeopardize the success of the combined company. The
YuniNetworks' technology and products under development address a new market
for AMCC, namely the high-end router market, and YuniNetworks' switch fabric
and the products it is developing will be new products for AMCC. In order for
the merger to be successful, AMCC and YuniNetworks will have to integrate
successfully the new products with other AMCC products and platforms. This
integration will involve considerable technology and execution risk and may or
may not be successful.
The costs associated with the integration may be substantial. These costs
will negatively affect the combined company's operating results and may result
in a decrease in the market price of AMCC stock. AMCC cannot assure you that
AMCC and YuniNetworks will be successfully integrated or that any of the
anticipated benefits will be realized, and failure to do so could have a
material adverse effect on AMCC's business, financial condition and operating
results. Similarly, there can be no assurance that stockholders of the
21
<PAGE>
combined company will achieve greater value through share ownership of the
combined entity than they would have achieved as stockholders of AMCC or
stockholders of YuniNetworks as separate entities.
YuniNetworks' officers and directors have conflicts of interest that may have
influenced them to support or approve the merger.
The directors and officers of YuniNetworks participate in arrangements that
provide them with interests in the merger that are different from yours.
S. Atiq Raza manages Raza Foundries Canada, one of the principal
stockholders of YuniNetworks. Mr. Raza serves on the boards of directors and is
a stockholder of both YuniNetworks and AMCC.
Several employees and executive officers, namely Dr. Kenneth Yun, Ms. Kay
Yun, Mr. Peter Benschop, Mr. Jim Lew and Mr. Kevin James, as a condition to
closing the merger, are required to enter into employment and non-competition
agreements with AMCC that will become effective upon completion of the merger.
In addition, as a result of the merger, the vesting of certain shares of
YuniNetworks owned by Ms. Yun will accelerate.
In addition, as more fully described elsewhere in this prospectus/consent
solicitation statement, Dr. Yun, Ms. Yun and Raza Foundries Canada control
approximately 90% of the capital stock of YuniNetworks and have agreed to vote
their shares in favor of the merger and merger agreement. Accordingly, assuming
the other conditions to the merger are satisfied or waived and you do not
exercise your appraisal rights, you will participate in a merger in which these
parties have these interests and will receive these other benefits.
YuniNetworks stockholders should consider whether these interests and benefits
may have influenced these directors and officers to support or recommend the
merger.
Risks Relating to AMCC's and YuniNetworks' Businesses
AMCC's operating results may fluctuate because of a number of factors, many of
which are beyond its control.
If AMCC's operating results are below the expectations of public market
analysts or investors, then the market price of its common stock could decline.
Some of the factors that affect AMCC's quarterly and annual results, but which
are difficult to control or predict are:
. the reduction, rescheduling or cancellation of orders by customers,
whether as a result of stockpiling of AMCC's products or otherwise;
. fluctuations in the timing and amount of customer requests for product
shipments;
. fluctuations in manufacturing output, yields and inventory levels;
. changes in the mix of products that AMCC's customers buy;
. AMCC's ability to introduce new products and technologies on a timely
basis;
. the announcement or introduction of products and technologies by AMCC's
competitors;
. the availability of external foundry capacity, purchased parts and raw
materials;
. competitive pressures on selling prices;
. market acceptance of AMCC's products and of its customers' products;
. the amount and timing of costs associated with warranties and product
returns;
. the amount and timing of investments in research and development;
. the amount and timing of the cost associated with payroll taxes related
to stock option exercises;
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. the timing of depreciation and other expenses that AMCC expects to incur
in connection with any expansion of its manufacturing capacity;
. costs associated with acquisitions and the integration of acquired
operations;
. costs associated with compliance with applicable environmental
regulations or remediation;
. costs associated with litigation, including without limitation,
litigation or settlements relating to the use or ownership of
intellectual property;
. the ability of AMCC's customers to obtain components from their other
suppliers;
. general communications systems industry and semiconductor industry
conditions; and
. general economic conditions.
AMCC's expense levels are relatively fixed and are based, in part, on its
expectations of future revenues. AMCC is continuing to increase its operating
expenses for additional manufacturing capacity, personnel and new product
development. However, AMCC has limited ability to reduce expenses quickly in
response to any revenue shortfalls. Consequently, AMCC's business, financial
condition and operating results would be harmed if it does not achieve
increased revenues. AMCC can have revenue shortfalls for a variety of reasons,
including:
. significant pricing pressures that occur because of declines in average
selling prices over the life of a product;
. sudden shortages of raw materials or production capacity constraints that
lead its suppliers to allocate available supplies or capacity to
customers with resources greater than AMCC and, in turn, interrupt AMCC's
ability to meet its production obligations;
. fabrication, test or assembly capacity constraints for internally
manufactured devices which interrupt AMCC's ability to meet its
production obligations; and
. the reduction, rescheduling or cancellation of customer orders.
In addition, AMCC'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. Because AMCC does not
have substantial noncancellable backlog, AMCC typically plans its production
and inventory levels based on internal forecasts of customer demand which are
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 AMCC's outside suppliers and foundries, AMCC may order materials
in advance of anticipated customer demand. This advance ordering might result
in excess inventory levels or unanticipated inventory write-downs if expected
orders fail to materialize, or other factors render the customers' products
less marketable. Further, AMCC currently anticipates that an increasing portion
of its revenues in future periods will be derived from sales of application-
specific standard products, or ASSPs, as compared to application-specific
integrated circuits, or ASICs. Customer orders for ASSPs typically have shorter
lead times than orders for ASICs, which may make it increasingly difficult for
AMCC to predict revenues and inventory levels and adjust production
appropriately. If AMCC is unable to plan inventory and production levels
effectively, its business, financial condition and operating results could be
materially harmed.
If we do not successfully expand our manufacturing capacity on time, we may
face serious capacity constraints.
We currently manufacture a majority of our IC products at our wafer
fabrication facility located in San Diego, California, and we are currently
expanding this facility. We believe that when the expansion is completed we
will be able to satisfy our production needs from this fabrication facility
through fiscal 2001, although this date may vary depending on, among other
things, our rate of growth. We will be required to hire,
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train and manage additional production personnel in order to increase
production capacity as scheduled. In addition, to further expand our capacity
to fabricate wafers using a bipolar process, we entered into a foundry
agreement with a third party wafer fabrication facility. We will have to
install our fabrication processes at this foundry, qualify our processes at
this foundry and then ramp production volumes at this foundry. If we cannot
expand our capacity on a timely basis, we could experience significant capacity
constraints that could render us unable to meet customer demand or force us to
spend more to meet demand. In addition, the depreciation and other expenses
that we will incur in connection with the expansion of our manufacturing
capacity may harm our gross margin in any future fiscal period.
We are exploring alternatives for the further expansion of our manufacturing
capacity which would likely occur after fiscal year 2001, including:
. entering into strategic relationships to obtain additional capacity;
. building a new wafer fabrication facility; or
. purchasing a wafer fabrication facility.
Any of these alternatives could require a significant investment by us.
There can be no assurance that any of the alternatives for expansion of our
manufacturing capacity will be available on a timely basis or that we will be
able to manage our growth and effectively integrate our expansion into our
current operations.
The cost of any investment we may have to make to expand our manufacturing
capacity is expected to be funded through a combination of available cash, cash
equivalents and short-term investments, cash from operations and additional
debt, lease or equity financing. We may not be able to obtain the additional
financing necessary to fund the construction and completion of the new
manufacturing facility.
Expanding our current wafer fabrication facility, building a new wafer
fabrication facility or purchasing a wafer fabrication facility entails
significant risks, including:
. shortages of materials and skilled labor;
. unforeseen environmental or engineering problems;
. work stoppages;
. weather interferences; and
. unanticipated cost increases.
Any one of these risks could have a material adverse effect on the building,
equipping and production start-up of a new facility or the expansion of our
existing 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 expansion or new
facility and could reduce our anticipated revenues. Also, the timing of
commencement of operation of our expanded or new facility will depend upon the
availability, timely delivery, successful installation and testing of the
necessary process equipment. As a result of the foregoing and other factors,
our expanded or new facility may not be completed and in volume production
within its current budget or within the period currently scheduled.
Furthermore, we may be unable to achieve adequate manufacturing yields in our
expanded or new facility in a timely manner, and our revenues may not increase
commensurate with the anticipated increase in manufacturing capacity associated
with the expanded or new facility. In addition, in the future, we may be
required for competitive reasons to make additional capital investments in the
existing wafer fabrication facility or to accelerate the timing of the
construction of a new wafer fabrication facility in order to expedite the
manufacture of products based on more advanced manufacturing processes.
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Our operating results substantially depend on manufacturing output and yields,
which may not meet expectations.
We manufacture most of our semiconductors at our San Diego fabrication
facility. Manufacturing semiconductors requires manufacturing tools which are
unique to each product being produced. If one of these unique manufacturing
tools was damaged or destroyed, then our ability to manufacture the related
product would be impaired and our business would suffer until the tools were
repaired or replaced.
Our yields decline whenever a substantial percentage of wafers must be
rejected or a significant number of die on each wafer are nonfunctional. Such
declines can be caused by many factors, including minute levels of contaminants
in the manufacturing environment, design issues, defects in masks used to print
circuits on a wafer and difficulties in the fabrication process. The ongoing
expansion of the manufacturing capacity of our existing wafer fabrication
facility could increase the risk of contaminants in the facility. In addition,
many of these problems are difficult to diagnose, and are time consuming and
expensive to remedy and can result in shipment delays.
Difficulties associated with adapting our technology and product design to
the proprietary process technology and design rules of outside foundries also
can lead to reduced yields. The process technology of an outside foundry 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 may require
cooperation between ourselves and our manufacturer. In some cases this risk
could be compounded by the offshore location of certain of our manufacturers,
increasing the effort and time required to identify, communicate and resolve
manufacturing yield problems. In addition, manufacturing defects which we do
not discover during the manufacturing or testing process may lead to costly
product recalls.
We estimate 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. We have in the past, and may in the future from time to
time, take inventory write-downs as a result of decreases in manufacturing
yields. We may suffer periodic yield problems in connection with new or
existing products or in connection with the commencement of production in a new
or expanded manufacturing facility.
Because the majority of our costs of manufacturing are relatively fixed,
yield decreases can result in substantially higher unit costs and may result in
reduced gross profit and net income. In addition, yield decreases could force
us to allocate available product supply among customers, which could
potentially harm customer relationships.
A disruption in the manufacturing capabilities of our outside foundries would
negatively impact the production of certain of our products.
We rely on outside foundries for the manufacture of certain products,
including all of our products designed on CMOS processes and silicon germanium
processes. We generally do not have long-term wafer supply agreements with our
outside foundries that guarantee wafer or product quantities, prices or
delivery lead times. The outside foundries manufacture our products on a
purchase order basis. We expect that, for the foreseeable future, a single
foundry will manufacture certain products. Because establishing relationships
and ramping production with new outside foundries takes several months to over
a year, there is no readily available alternative source of supply for these
products. A manufacturing disruption experienced by one or more of our outside
foundries would impact the production of certain of our products for a
substantial period of time. Furthermore, the transition to the next generation
of manufacturing technologies at one or more of our outside foundries could be
unsuccessful or delayed.
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Our dependence on third-party manufacturing and supply relationships increases
the risk that we will not have an adequate supply of products to meet demand or
that our cost of materials will be higher than expected.
The risks associated with our dependence upon third parties which
manufacture, assemble or package certain of our products, include:
. reduced control over delivery schedules and quality;
. risks of inadequate manufacturing yields and excessive costs;
. the potential lack of adequate capacity during periods of excess demand;
. difficulties selecting and integrating new subcontractors;
. limited warranties on wafers or products supplied to us;
. potential increases in prices; and
. potential misappropriation of our intellectual property.
These risks may lead to increased costs or delay product delivery, which
would harm our profitability and customer relationships. We may encounter
similar risks if we hire subcontractors to test our products in the future.
If the subcontractors we use to manufacture our wafers or products discontinue
the manufacturing processes needed to meet our demands, or fail to upgrade
their technologies needed to manufacture our products, we may face production
delays.
Our wafer and product requirements typically represent a very small portion
of the total production of the third-party foundries. As a result, we are
subject to the risk that a producer will cease production on an older or lower-
volume process that it uses to produce our parts. Additionally, we cannot be
certain our external foundries will continue to devote resources to the
production of our products or continue to advance the process design
technologies on which the manufacturing of our products are based. Each of
these events could increase our costs and harm our ability to deliver our
products on time.
Due to an industry transition to six-inch and eight-inch wafer fabrication
facilities, there is a limited number of suppliers of the four-inch wafers that
we use to build products in our existing manufacturing facility, and we rely on
a single supplier for these wafers. Although we believe that we will have
sufficient access to four-inch wafers to support production in our existing
fabrication facility for the foreseeable future, we cannot be certain that our
current supplier will continue to supply us 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.
AMCC's and YuniNetworks' future success depends in part on the continued
service of their key design engineering, sales, marketing and executive
personnel and their ability to identify, hire and retain additional personnel.
Each of AMCC's and YuniNetworks' success depends in part upon its ability to
attract and retain highly qualified technical and management personnel. There
is intense competition for qualified personnel in each of AMCC's and
YuniNetworks' industries, in particular design engineers, and AMCC and
YuniNetworks may not be able to continue to attract and train engineers or
other qualified personnel necessary for the development of their businesses or
to replace engineers or other qualified personnel who may leave their employ in
the future. AMCC's and YuniNetworks' anticipated growth is expected to place
increased demands on their 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
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technical and management personnel could be significantly detrimental to AMCC's
and YuniNetworks' products and process development programs.
Periods of rapid growth and expansion could continue to place a significant
strain on AMCC's and YuniNetworks' limited personnel and other resources.
To manage expanded operations effectively, AMCC and YuniNetworks will be
required to continue to improve their operational, financial and management
systems and to successfully hire, train, motivate and manage their employees.
In addition, the integration of past and future potential acquisitions and the
expansion of AMCC's manufacturing capacity will require significant additional
management, technical and administrative resources. AMCC and YuniNetworks
cannot be certain that they will be able to manage their growth, and AMCC
cannot be certain that it will be able to effectively integrate a new or
expanded wafer fabrication facility into its current operations.
If the merger is not completed, YuniNetworks will be required to obtain
additional capital to fund operations, which if obtained, may result in
dilution to stockholders of YuniNetworks, or if not obtained, may have a
significant adverse effect on YuniNetworks' operations.
YuniNetworks has experienced operating losses since its inception in October
1999. YuniNetworks' operating losses have been and will continue to be
principally the result of costs associated with product development,
manufacturing, and sales and marketing activities. YuniNetworks will need to
obtain additional capital to fund operations in late 2000, which may result in
dilution to current stockholders. If YuniNetworks is unable to obtain the
necessary capital, it will be required to significantly curtail operations.
Our customers are concentrated, so the loss of one or more key customers could
significantly reduce our revenues and profits.
Historically, a relatively small number of customers has accounted for a
significant portion of our revenues in any particular period. For example, our
five largest customers accounted for approximately 71% of our revenues in
fiscal 2000. Sales to Nortel and its contract manufacturers accounted for
approximately 38% of our revenues in fiscal 2000. However, we have no long-term
volume purchase commitments from any of our major customers. We anticipate that
sales of products to relatively few customers will continue to account for a
significant portion of our revenues. If Nortel or another significant customer
overstocked our products, additional orders for our products could be harmed. A
reduction, delay or cancellation of orders from one or more significant
customers or the loss of one or more key customers could significantly reduce
our revenues and profits. We cannot assure you that our current customers will
continue to place orders with us, that orders by existing customers will
continue at current or historical levels or that we will be able to obtain
orders from new customers.
An important part of our strategy is to continue our focus on the market for
high-speed communications ICs. If we are unable to penetrate these markets
further, our revenues could stop growing and may decline.
Our markets frequently undergo transitions in which products rapidly
incorporate new features and performance standards on an industry-wide basis.
If our products are unable to support the new features or performance levels
required by OEMs in these markets, we 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. If we
fail to develop products with required features or performance standards, or if
we experience a delay as short as a few months in bringing a new product to
market, or if our customers fail to achieve market acceptance of their
products, our revenues could be significantly reduced for a substantial period.
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A significant portion of our revenues in recent periods has been, and is
expected to continue to be, derived from sales of products based on SONET, SDH
and ATM transmission standards. If the communications market evolves to new
standards, we may not be able to successfully design and manufacture new
products that address the needs of our customers or gain substantial market
acceptance. Although we have developed products for the Gigabit Ethernet and
Fibre Channel communications standards, volume sales of these products are
modest, and we may not be successful in addressing the market opportunities for
products based on these standards.
The markets of both AMCC and YuniNetworks are subject to rapid technological
change, so the success of AMCC and YuniNetworks depends heavily on their
ability to develop and introduce new products.
The markets for AMCC's and YuniNetworks' 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;
. increased integration with other functions; and
. rapid product obsolescence.
To develop new products for the communications markets, each of AMCC and
YuniNetworks must develop, gain access to and use leading technologies in a
cost-effective and timely manner and continue to develop technical and design
expertise. In addition, AMCC and YuniNetworks must have their products designed
into their customers' future products and maintain close working relationships
with key customers in order to develop new products, particularly for AMCC,
ASSPs, that meet customers' changing needs. AMCC and YuniNetworks also must
respond to changing industry standards, trends towards increased integration
and other technological changes on a timely and cost-effective basis. Further,
if AMCC or YuniNetworks fails to achieve design wins with key customers its
business will significantly suffer because once a customer has designed a
supplier's product into its system, the customer typically is extremely
reluctant to change its supply source due to significant costs associated with
qualifying a new supplier.
Products for communications applications, as well as for high-speed computing
applications, are based on industry standards that are continually evolving.
Each of AMCC's and YuniNetworks' ability to compete in the future will depend
on its ability to identify and ensure compliance with these evolving industry
standards. The emergence of new industry standards could render AMCC's and
YuniNetworks' products incompatible with products developed by major systems
manufacturers. As a result, AMCC and YuniNetworks could be required to invest
significant time and effort and incur significant expense to redesign their
products to ensure compliance with relevant standards. If AMCC's or
YuniNetworks' products are not in compliance with prevailing industry standards
for a significant period of time, AMCC and YuniNetworks could miss
opportunities to achieve crucial design wins. In addition, AMCC and
YuniNetworks may not be successful in developing or using new technologies or
in developing new products or product enhancements that achieve market
acceptance. AMCC's and YuniNetworks' pursuit of necessary technological
advances may require substantial time and expense.
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The markets in which AMCC and YuniNetworks compete are highly competitive and
subject to rapid technological change, price erosion and heightened
international competition.
The markets in which AMCC and YuniNetworks operate are highly competitive,
and AMCC and YuniNetworks expect that competition will increase in these
markets. In particular, the communications IC market is intensely competitive.
The ability of AMCC and YuniNetworks' to compete successfully in their 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;
. customer support;
. time-to-market;
. product performance;
. price;
. the efficiency of production;
. design wins;
. expansion of production of AMCC'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, AMCC's or YuniNetworks' competitors or customers may offer
enhancements to their existing products or offer new products based on new
technologies, industry standards or customer requirements including, but not
limited to, all optical networking systems, that are available to customers on
a more timely basis than comparable products from AMCC or YuniNetworks or that
have the potential to replace or provide lower-cost or higher performance
alternatives to AMCC's or YuniNetworks' products. The introduction of
enhancements or new products by competitors could render existing and future
products of AMCC or YuniNetworks obsolete or unmarketable. In addition, AMCC
expects that certain of its competitors and other semiconductor companies may
seek to develop and introduce products that integrate the functions performed
by AMCC's IC products on a single chip, thus eliminating the need for AMCC's
products.
In the communications markets, AMCC competes primarily against Conexant, Giga
(recently acquired by Intel), Hewlett-Packard, Lucent, Maxim, Philips, PMC-
Sierra, Sony, Texas Instruments, TriQuint and Vitesse. Some of these companies
use gallium arsenide process technologies for certain products. In addition, in
certain circumstances, most notably with respect to ASICs supplied to Nortel,
AMCC's customers or potential customers have internal IC manufacturing
capabilities.
We must develop or otherwise gain access to improved process technologies.
Our future success will depend, in large part, upon our ability to continue
to improve existing process technologies, to develop new process technologies,
including silicon germanium processes, and to adapt our process technologies to
emerging industry standards. In the future, we may be required to transition
one or more of our products to process technologies with smaller geometries,
other materials or higher speeds in order to reduce costs and/or improve
product performance. We may not be able to improve our process technologies and
develop or otherwise gain access to new process technologies, including, but
not limited to silicon
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germanium process technologies, in a timely or affordable manner. In addition,
products based on these technologies may not achieve market acceptance.
We expect revenues that are currently derived from non-communications markets
to decline in future periods.
We historically have derived significant revenues from product sales to
customers in the automated test equipment, or ATE, high-speed computing and
military markets and currently anticipate that we will continue to derive
revenues from sales to customers in these markets in the near term. However, we
are not currently funding product development efforts in these markets and as a
result we expect that revenues from products in these markets will decline in
future periods. In addition, the market for ATE and high-speed computing
IC products is subject to extreme price competition, and we may not be able to
reduce the costs of manufacturing high-speed computing IC products in response
to declining average selling prices. Even if we successfully utilize new
processes or technologies to reduce the manufacturing costs of our high-speed
computing products in a timely manner, our customers in the ATE and high-speed
computing markets may not purchase these products.
Further, we expect that certain competitors will seek to develop and
introduce products that integrate the functions performed by our ATE and high-
speed computing IC products on single chips. In addition, one or more of our
customers may choose to utilize discrete components to perform the functions
served by our 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 ATE and high-speed computing customers to purchase our IC products could be
eliminated.
We have in the past and may in the future make acquisitions which will involve
numerous risks. There is no assurance that we will be able to address these
risks successfully without substantial expense, delay or other operational or
financial problems.
The risks involved with acquisitions include:
. diversion of management's attention;
. failure to retain key personnel;
. amortization of acquired intangible assets;
. client dissatisfaction or performance problems with an acquired firm;
. cost associated with acquisitions and the integration of acquired
operations; and
. assumption of unknown liabilities, or other unanticipated events or
circumstances.
In addition, acquisitions accounted for using the pooling of interest methods
of accounting are subject to rules established by the Financial Accounting
Standards Board and the Securities and Exchange Commission. These rules are
complex and the interpretation of them is subject to change. Additionally, the
availability of pooling of interests accounting treatment for a business
combination depends in part upon circumstances and events occurring after the
effective time. The failure of a past business combination or a future
potential business combination that has been accounted for under the pooling of
interests accounting method to qualify for this accounting treatment would
materially harm our reported and future earnings and likely, the price of our
common stock.
Any of these risks could materially harm our business, financial condition
and results of operations. There can be no assurance that any business that we
acquire will achieve anticipated revenues and operating results.
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AMCC and YuniNetworks may not be able to protect their intellectual property
adequately.
AMCC and YuniNetworks rely in part on patents to protect their intellectual
property. There can be no assurance that the pending patent applications or any
future applications will be approved, or that any issued patents will provide
AMCC or YuniNetworks with competitive advantages or will not be challenged by
third parties, or that if challenged, will be found to be valid or enforceable,
or that the patents of others will not have an adverse effect on AMCC's or
YuniNetworks' ability to do business. Furthermore, others may independently
develop similar products or processes, duplicate the products or processes or
design around any patents that may be issued to AMCC or YuniNetworks.
To protect their intellectual property, AMCC and YuniNetworks also rely on
the combination of mask work protection under the Federal Semiconductor Chip
Protection Act of 1984, trademarks, copyrights, trade secret laws, employee and
third-party nondisclosure agreements and licensing arrangements. Despite these
efforts, AMCC and YuniNetworks cannot be certain that others will not
independently develop substantially equivalent intellectual property or
otherwise gain access to AMCC's or YuniNetworks' trade secrets or intellectual
property, or disclose such intellectual property or trade secrets, or that AMCC
and YuniNetworks can meaningfully protect their intellectual property.
AMCC and YuniNetworks could be harmed by litigation involving patents and
proprietary rights.
Litigation may be necessary to enforce AMCC's or YuniNetworks' intellectual
property rights, to determine the validity and scope of the proprietary rights
of others or to defend against claims of infringement or misappropriation. As a
general matter, the semiconductor industry is characterized by substantial
litigation regarding patent and other intellectual property rights. Such
litigation could result in substantial costs and diversion of resources,
including the attention of AMCC's or YuniNetworks' management and technical
personnel and could have a material adverse effect on AMCC's or YuniNetworks'
business, financial condition and results of operations. AMCC or YuniNetworks
may be accused of infringing the intellectual property rights of third parties.
AMCC and YuniNetworks have certain indemnification obligations to customers
with respect to the infringement of third-party intellectual property rights by
their products. AMCC and YuniNetworks cannot be certain that infringement
claims by third parties or claims for indemnification by customers or end users
of their products resulting from infringement claims will not be asserted in
the future or that such assertions, if proven to be true, will not harm their
businesses.
Any litigation relating to the intellectual property rights of third parties,
whether or not determined in AMCC's or YuniNetworks' favor or settled by either
AMCC or YuniNetworks, would at a minimum be costly. In the event of any adverse
ruling in any such litigation, AMCC or YuniNetworks could be required to pay
substantial 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. A
license might not be available on reasonable terms, or at all.
Our operating results are subject to fluctuations because we rely substantially
on foreign customers.
International sales (including sales to Canada) accounted for approximately
49% of revenues for the fiscal year 2000. International sales may increase in
future periods and may account for an increasing portion of our revenues. As a
result, an increasing portion of our 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;
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. difficulties in staffing and managing foreign subsidiary and branch
operations;
. difficulties in managing distributors;
. difficulties in obtaining governmental approvals for communications 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.
We are subject to the risks associated with the imposition of legislation and
regulations relating to the import or export of high technology products. We
cannot predict whether quotas, duties, taxes or other charges or restrictions
upon the importation or exportation of our products will be implemented by the
United States or other countries. Because sales of our 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 our 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 our results of operations. Some of our customer purchase orders
and agreements are governed by foreign laws, which may differ significantly
from United States laws. Therefore, we may be limited in our ability to enforce
our rights under such agreements and to collect damages, if awarded.
We could incur substantial fines or litigation costs associated with our
storage, use and disposal of hazardous materials.
We are 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 our manufacturing process.
Any failure to comply with present or future regulations could result in the
imposition of fines, the suspension of production or a cessation of operations.
In addition, these regulations could restrict our ability to expand our
facilities at the present location or construct or operate a new wafer
fabrication facility or could require us to acquire costly equipment or incur
other significant expenses to comply with environmental regulations or clean up
prior discharges. Since 1993, we have been named as a potentially responsible
party, along with a large number of other companies that used Omega Chemical
Corporation in Whittier, California to handle and dispose of certain hazardous
waste material. We are a member of a large group of potentially responsible
parties that has agreed to fund certain remediation efforts at the Omega site,
which efforts are ongoing. To date, our payment obligations with respect to
these funding efforts have not been material, and we believe that our future
obligations to fund these efforts will not have a material adverse effect on
our business, financial condition or operating results. Although we believe
that we are currently in material compliance with applicable environmental laws
and regulations, we cannot assure you that we are or will be in material
compliance with these laws or regulations or that our future obligations to
fund any remediation efforts, including those at the Omega site, will not have
a material adverse effect on our business.
Our ability to manufacture sufficient wafers to meet demand could be severely
hampered by a shortage of water or natural disasters.
We use significant amounts of water throughout our 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. AMCC
cannot be certain that near term reductions in water allocations to
manufacturers will not occur. Our existing wafer fabrication facility is, and a
potential new wafer fabrication facility may be, located in Southern California
and these facilities may be subject to natural disasters such as earthquakes or
floods. A significant natural disaster, such as an earthquake or flood, could
have a material adverse impact on our business, financial condition and
operating results.
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Our stock price is volatile.
The market price of our common stock has fluctuated significantly to date. In
the future, the market price of our common stock could be subject to
significant fluctuations due to general market conditions and in response to
quarter-to-quarter variations in:
. our anticipated or actual operating results;
. announcements or introductions of new products;
. technological innovations or setbacks by us or our competitors;
. conditions in the semiconductor, telecommunications, data communications,
ATE, high-speed computing or military markets;
. the commencement of litigation;
. changes in estimates of our performance by securities analysts;
. announcements of merger or acquisition transactions;
. other events or factors; and
. general economic and market conditions.
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 harm
the market price of our common stock. YuniNetworks' stockholders would be
subject to adverse consequences resulting from such fluctuations as they will
hold our common stock following the merger.
The anti-takeover provisions of our certificate of incorporation and of the
Delaware General Corporation Law may delay, defer or prevent a change of
control.
Our board of directors has the authority to issue up to 2,000,000 shares of
preferred stock and to determine the price, rights, preferences and privileges
and restrictions, including voting rights, of those shares without any further
vote or action by our stockholders. The rights of the holders of common stock
will be subject to, and may harmed 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, as the terms of the
preferred stock that might be issued could potentially prohibit our
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 our
stockholders.
If AMCC issues additional shares of stock in the future, it may have a dilutive
effect on your share ownership.
In April 2000, our board of directors approved, and intends to submit to our
stockholders for approval, an amendment to our certificate of incorporation
that increases the number of authorized shares of AMCC common stock by
450,000,000, to a total of 630,000,000 shares. The board of directors approved
this amendment to provide us with the flexibility to issue common stock for
proper corporate purposes, which may include making acquisitions through the
use of stock, adopting additional equity incentive plans and raising equity
capital. Any subsequent issuance of our common stock may result in immediate
dilution of your share ownership following the merger.
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THE MERGER
This section of the prospectus/consent solicitation statement describes
material aspects of the proposed merger. While we believe that the description
covers the material terms of the merger, this summary may not contain all of
the information that is important to you. You should read this entire document
including the appendices for a more complete understanding of the merger.
Background of the Merger
During the period commencing in October 1999, AMCC's executive management
held numerous discussions regarding strategic acquisitions which would enable
AMCC to continue increasing its revenues and share of the networking market.
During these discussions, our executive management reviewed presentations and
analysis regarding potential high-growth sectors in the networking market. As a
result of these discussions, AMCC's executive management decided to enter into
discussion with companies which design high speed switch fabric products--
devices which route data through the network to its destination.
During a meeting of AMCC's Board of Directors on January 27, 2000, Stephen
Smith, AMCC's Vice President of Business Development, provided the directors
with information regarding various companies which were, and are, designing
switch fabric products. Subsequent to the meeting, S. Atiq Raza, a member of
AMCC's board of directors, gave Mr. Smith the names of several companies to add
to the list of those presented at the meeting.
Thereafter, AMCC entered into discussions with several companies that
produce switch fabric products. On January 31, 2000, Mr. Smith contacted Kay
Yun, President and Chief Executive Officer of YuniNetworks, to inquire as to
YuniNetworks' interest in a strategic transaction between AMCC and
YuniNetworks. Between January 31, 2000 and February 4, 2000, Mr. Smith and Ms.
Yun had several conversations regarding strategic synergies between the two
companies, and both agreed that further discussions between representatives of
YuniNetworks and AMCC should ensue.
On February 17, 2000, Dr. Kenneth Yun, Founder, Chief Technical Officer and
Chairman of YuniNetworks, and Ms. Yun met with AMCC executives and managers at
the AMCC offices in San Diego. During the meeting, the parties discussed the
strategic direction and current results of AMCC and in some detail the features
and development schedule of the YuniNetworks switch fabric product design. The
parties also discussed in general terms possible synergies between
YuniNetworks' switch fabric products and AMCC's IC products.
On February 24, 2000, Dr. Yun and Ms. Yun met with executives and managers
at AMCC's offices in San Diego to discuss YuniNetworks' switch fabric products'
design, features and development schedule in further detail.
During the period from February 24, 2000 through March 15, 2000, Mr. Smith
and David Janisch, Director of Partnerships, Mergers and Acquisitions of AMCC,
and Dr. Yun and Ms. Yun of YuniNetworks continued to have telephone discussions
and meetings to discuss a possible merger between the two companies. Some of
these meetings also were attended by other members of management of the
respective companies.
After reviewing the results of these meetings, and similar meetings with
other companies which design switch fabric products, AMCC's executive
management concluded that YuniNetworks' switch fabric products that are
currently under development were superior to other designs and were
complementary to AMCC's other products. Accordingly, AMCC decided to enter into
exclusive negotiations with YuniNetworks.
During the period from March 15, 2000 through March 26, 2000,
representatives of each of AMCC and YuniNetworks, including AMCC's legal and
financial advisors and YuniNetworks' legal advisors, had several meetings and
telephone conferences to negotiate the terms and conditions of the proposed
merger.
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On March 27, 2000, the parties entered into a letter of intent, in which
YuniNetworks agreed to a six-week period of exclusive negotiation with AMCC,
and in which certain terms of a proposed merger were preliminarily set forth.
During the period from March 27, 2000, through April 5, 2000,
representatives of each of AMCC and YuniNetworks, including AMCC's legal and
financial advisors and YuniNetwork's legal advisors, had several meetings and
telephone conferences to negotiate the terms and conditions of the merger
agreement and other transactions related to the merger.
On April 5, 2000, a special telephonic meeting of the board of directors of
AMCC was held, at which the management of AMCC presented to the board of
directors a summary of terms of the proposed merger with YuniNetworks. Counsel
for AMCC also reviewed with the board of directors certain terms regarding the
proposed transaction, and disclosed in detail the ownership interest in
YuniNetworks (directly and indirectly) of certain executives and directors of
AMCC. After discussion, the AMCC board of directors approved the terms of the
merger and authorized management of AMCC to execute final documents relating to
the merger. Mr. Raza did not participate in the discussion concerning the
merger and merger agreement and abstained from voting with the board of
directors with respect to such matters.
Thereafter, between April 5 and April 18, 2000, the parties continued to
negotiate the merger agreement. On April 18, 2000, at a special telephonic
meeting of the board of directors of AMCC, AMCC's executive management updated
the board of directors regarding the status of negotiations with YuniNetworks
and outlined to the board of directors the material terms of the proposed
merger with YuniNetworks. After discussion, the AMCC board of directors
approved the merger and authorized the management of AMCC to enter into the
merger agreement and execute all documents relating to the transaction. Mr.
Raza again did not participate in these discussions and abstained from voting
with the board of directors with respect to such matters.
On April 18, 2000, AMCC, OLI Acquisition Corp., a wholly owned subsidiary of
AMCC, and YuniNetworks executed the merger agreement. The parties also executed
and delivered related ancillary documents.
AMCC's Reasons for the Merger
In the course of reaching its decisions to approve the merger proposal, the
AMCC board of directors consulted with AMCC's legal and financial advisors as
well as with AMCC's senior management. The board considered a number of
strategic factors associated with YuniNetworks' business and opportunities
presented by combining the two companies, including:
. the ability of YuniNetworks to develop switch fabric products with
advanced technology and the projected demand for switch fabric products
upon the standardization of these products;
. the combination of the complementary technologies that will allow AMCC to
provide more complete solutions than AMCC can provide now;
. YuniNetworks' switch fabric technology will complement AMCC's higher
speed and lower speed networking products;
. the superiority of YuniNetworks' switch fabric products under development
over switch fabric products currently on the market due to their QOS
features, which are designed to maintain data integrity during
transmission.
After considering the foregoing factors, the AMCC board unanimously
determined that the potential benefits of the merger outweighed any benefits of
seeking an alternative acquisition or trying to develop its own switch fabric
products.
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In analyzing the proposed merger, none of the factors listed above was
viewed by the AMCC's board of directors as determinative, and AMCC'S board of
directors did not quantify or assign weight to any of the factors. Rather, the
board made its determination based upon the total mix of information available
to it. Moreover, individual members of the board may have assigned different
values to different factors.
YuniNetworks' Reasons for the Merger
The decision of the YuniNetworks' board of directors to enter into the
merger agreement with AMCC and to recommend that YuniNetworks' stockholders
approve the merger agreement, the merger and the transactions associated with
it was the result of careful consideration by the board of directors of
YuniNetworks of a range of strategic alternatives, including potential business
combinations with companies other than AMCC, and the pursuit of a long-term
independent business strategy for YuniNetworks that might involve an initial
public offering of its stock.
During the course of its deliberations, the board of directors of
YuniNetworks considered a number of factors that the board of directors
believes make the merger attractive to YuniNetworks' stockholders and could
contribute to the success of the combined companies, including:
. The merger will offer the stockholders of the combined company the
potential benefits described above under the heading "AMCC's Reasons for
the Merger;"
. The merger would result in a combined company with greater financial,
technological and human resources to develop new products and greater
sales and marketing resources to help promote and sell YuniNetworks'
products that are currently under development;
. YuniNetworks will have access to the customer base of AMCC without having
to take the risks of a start-up company in establishing a customer base
and may benefit from increased distribution of YuniNetworks' products
that are currently under development;
. The broad expertise of the AMCC management team and the significant
marketing resources of AMCC will contribute to stronger product planning
and operational execution as YuniNetworks' products are put into
production;
. The value of the shares of AMCC common stock that the YuniNetworks
stockholders will receive in the merger represents a significant premium
for YuniNetworks' stockholders; and
. The merger may allow YuniNetworks' stockholders to achieve liquidity of
their investment sooner than they might otherwise have been able to
realize because AMCC common stock is publicly traded while YuniNetworks
common stock is not and is subject to federal and state resale
restriction laws.
In addition, YuniNetworks' board of directors considered a number of
potentially negative factors relating to the merger, including the following:
. the number of shares of AMCC common stock issuable in the merger to
YuniNetworks' stockholders and option holders;
. the risk that expected benefits of the merger may not be realized;
. the risk that YuniNetworks may find it more difficult to attract and hire
skilled employees;
. the volatility of the market price of the common stock of AMCC and other
companies within its industry;
. the risk that management's attention may be diverted from YuniNetworks'
business operations; and
. the other risks described in this prospectus/consent solicitation
statement under "Risk Factors."
After considering the potential advantages and disadvantages of the merger,
the YuniNetworks board of directors unanimously determined that the potential
benefits of the merger outweighed the benefits of remaining a stand-alone
entity.
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Based on the foregoing, the board of directors of YuniNetworks believes that
the merger is fair to, and in the best interests of, YuniNetworks and its
stockholders and unanimously recommends that the stockholders of YuniNetworks
consent to the merger. The consent of the stockholders holding a majority of
the YuniNetworks common stock and preferred stock outstanding on the record
date voting as a class and the consent of the stockholders holding a majority
of the YuniNetworks preferred stock outstanding on the record date voting as a
class are required to approve and adopt the merger agreement and approve the
merger.
In analyzing the proposed merger, the board of directors of YuniNetworks did
not view any single factor as determinative and did not quantify or assign
weight to any of the factors. Rather, the board of directors made its
determination based upon the total mix of information available to it. In
addition, individual members of the board of directors may have assigned
different values to different factors.
Consideration to be Received in the Merger
YuniNetworks Stock. If the merger is consummated, the holders of the
majority of the outstanding shares of YuniNetworks preferred stock will have
approved the conversion of each share of YuniNetworks preferred stock
outstanding immediately prior to the merger into one share of YuniNetworks
common stock. This will be done to ensure that the holders of the YuniNetworks
preferred stock receive the same pro rata share of the merger consideration as
the holders of the YuniNetworks common stock. Upon completion of the merger,
each share of YuniNetworks' common stock then outstanding will be converted
into the right to receive 0.091886864 of a share of AMCC common stock (exchange
ratio). The number of shares of AMCC common stock issuable in the merger will
be proportionately adjusted for any stock split, stock dividend, reverse stock
split, reclassification, recapitalization or similar transaction undertaken by
AMCC.
No fractional shares. No fractional shares of AMCC common stock will be
issued in connection with the merger. Instead of a fraction of a share, a
holder of YuniNetworks stock will receive payment in cash, without interest,
determined by multiplying the fraction that would have been received by the
closing sales price per share of YuniNetworks' common stock, as quoted on The
Nasdaq National Market, on the day immediately prior to the merger.
Procedures for Exchange of YuniNetworks Stock Certificates
When the merger is completed, AMCC will mail you a letter of transmittal and
instructions for surrendering YuniNetworks' stock certificates in exchange for
AMCC stock certificates. When you deliver your YuniNetworks' certificates to
AMCC, along with a properly executed letter of transmittal and any other
required documents, your YuniNetworks' certificates will be canceled and you
will receive AMCC stock certificates representing the number of whole shares of
AMCC common stock to which you are entitled under the merger agreement. You
will receive cash for any fractional share of AMCC common stock to which you
would have otherwise been entitled.
If your YuniNetworks' stock certificate has been lost, stolen or destroyed,
AMCC may require you to provide an appropriate affidavit and deliver a bond as
indemnity against any claim that may be made against AMCC or YuniNetworks with
respect to your lost, stolen or destroyed membership certificate.
You should not surrender your YuniNetworks stock certificates for exchange
until you receive a letter of transmittal from AMCC.
Treatment of Options to Purchase YuniNetworks' Common Stock
When the merger is completed, all outstanding options to purchase
YuniNetworks' common stock shall be assumed by AMCC in accordance with the
merger agreement. Upon the merger:
. Each option to purchase shares of YuniNetworks' common stock
automatically will become an option to purchase that number of shares of
AMCC common stock equal to the number of shares of
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YuniNetworks' common stock subject to the YuniNetworks option immediately
prior to the completion of the merger multiplied by the exchange ratio,
rounding down to the nearest whole share of AMCC common stock; and
. The exercise price for each share of AMCC common stock issuable upon the
exercise of the assumed YuniNetworks option will be determined by
dividing the per share exercise price in effect immediately prior to the
merger by the exchange ratio, rounding up to the nearest whole cent.
Any restriction on the exercise of a YuniNetworks option will continue in
full force and effect and no further restrictions on such options will be
imposed by AMCC.
Stock Ownership Following the Merger
Assuming no exercise of appraisal rights, AMCC will issue 2,030,802 shares
of AMCC common stock for the outstanding shares of YuniNetworks stock and will
assume options to purchase 127,311 shares of AMCC common stock. Based upon
122,441,822 shares of AMCC common stock issued and outstanding as of May 26,
2000 and assuming no exercise of options, warrants or other rights to purchase
AMCC common stock, the former holders of YuniNetworks common and preferred
stock would hold and have voting power with respect to approximately 1.6%, and
the stockholders of AMCC prior to the closing of the merger would hold and
have voting power with respect to approximately 98.4%, of AMCC's total issued
and outstanding shares of common stock after consummation of the merger.
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CERTAIN TERMS OF THE MERGER AGREEMENT
The following is a summary of the material provisions of the merger
agreement. However, the following is not a complete statement of all provisions
of the merger agreement. AMCC and YuniNetworks urge you to read the entire
merger agreement, which is attached as Annex A to this prospectus/consent
solicitation statement. This summary is qualified in its entirety by reference
to the full text of the merger agreement.
General
The merger agreement provides for the merger of YuniNetworks with OLI
Acquisition Corp. (OLI), a wholly owned subsidiary of AMCC. As a result of the
merger, YuniNetworks will be the surviving entity in the merger and will become
a wholly owned subsidiary of AMCC. The former stockholders of YuniNetworks will
become stockholders of AMCC. The merger will be completed upon the filing of a
certificate of merger with the Secretary of State of the State of Delaware.
Representations and Warranties
The merger agreement contains customary representations and warranties of
YuniNetworks, AMCC and OLI relating to the respective businesses of the
parties. The representations and warranties of YuniNetworks expire one year
after the completion of the merger. The representations and warranties of AMCC
and OLI expire upon the completion of the merger.
Any breaches of or exceptions to the representations and warranties of
YuniNetworks may serve as the basis for indemnification claims brought by AMCC
against the YuniNetworks stockholders. As discussed below, the YuniNetworks
stockholders will be required to indemnify AMCC if these representations were
not true in all material respects on April 18, 2000, the date the merger
agreement was executed, or if they are not true on the closing date of the
merger. On the closing date of the merger, YuniNetworks will be required to
deliver a certificate certifying that these representations and warranties are
true as of the closing date of the merger.
Certain Covenants of the Parties
Conduct of the Parties Prior to the Closing of the Merger
The merger agreement obligates YuniNetworks to conduct its business in the
ordinary course before the merger becomes effective and imposes some
limitations on the operations of YuniNetworks during that time. These
limitations include agreements by YuniNetworks not to take any of the following
actions without the prior written consent of AMCC:
. declare or pay dividends or make any other distribution in respect of any
shares of capital stock or other securities;
. sell, issue or authorize the issuance of, with certain exceptions, any
equity or other securities;
. amend or waive any of its rights under, or permit the acceleration of
vesting of, outstanding options;
. amend its organizational documents;
. become a party to an acquisition transaction, recapitalization,
reclassification of shares of capital stock or other securities or
ownership interests in itself;
. conduct a stock split, reverse stock split or similar transaction with
respect to the shares of its capital stock;
. make any significant capital expenditure prior to completion of the
merger;
. amend or prematurely terminate, or waive any material right or remedy
under, any material contract;
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. with certain exceptions, acquire, sell, lease or license any right or
other asset from or to any other entity;
. lend money to any entity, or incur or guarantee any indebtedness for
borrowed money;
. with certain exceptions, establish or adopt any employee benefit plan,
pay bonuses, or increase salaries payable to, any directors, officers or
employees;
. hire any new employee; or
. commence or settle any legal proceeding.
Limitations on Discussing and Encouraging Other Transaction Proposals
YuniNetworks has agreed, upon the signing of the merger agreement, to
terminate all inquiries, contacts, discussions or negotiations with any third
party with respect to any disposition of a material portion of its assets,
certain issuances or disposition of its securities, or any merger,
consolidation or similar transaction. In addition, YuniNetworks has agreed not
to solicit, encourage or otherwise facilitate any discussions or negotiations
that may lead to an acquisition proposal, and has agreed not to accept any
acquisition proposal or offer from any third party.
Employee Benefits for Employees of YuniNetworks
Once the merger is completed, YuniNetworks will terminate its employee plans
and will ensure that none of its employees or former employees have any rights
under those plans and that any of its liabilities under those plans are fully
extinguished at no cost to YuniNetworks.
Conditions to the Merger
The obligations of YuniNetworks and AMCC to complete the merger are subject
to the following conditions:
. No law, regulation, injunction or other order may be enacted or issued
which has the effect of making the merger illegal or otherwise
prohibiting completion of the merger substantially on the terms contained
in the merger agreement;
. The shares of AMCC's common stock to be issued in the merger will have
been approved for listing (subject to notice of issuance) on The Nasdaq
National Market;
. AMCC's Form S-4 Registration Statement must have become effective and no
stop order will have been issued by the SEC;
. The holders of a majority of shares of YuniNetworks common stock and
preferred stock voting together as a single class, and the holders of a
majority of shares of the preferred stock voting together as a separate
class, shall have approved the merger;
. A representative of YuniNetworks' stockholders and AMCC shall enter into
an escrow agreement providing for the deposit into escrow of 10% of the
shares of common stock of AMCC received by YuniNetworks' stockholders or
an equivalent amount of cash to secure the indemnification obligations of
YuniNetworks stockholders;
. The representations and warranties made by either AMCC or YuniNetworks in
the merger agreement must be accurate in all material respects, and an
officer of each company will have delivered a certificate to the other
company certifying that such condition has been satisfied;
. All of the covenants and obligations of either AMCC or YuniNetworks will
have been complied with in all material respects, and an officer of each
company will have delivered a certificate to the other company certifying
that such condition has been satisfied; and
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. Each of Cooley Godward llp and Gray Cary Ware & Freidenrich llp will have
delivered the legal opinions required to be delivered by them under the
terms of the merger agreement.
The obligation of AMCC to consummate the merger is further conditioned upon
the following:
. No more than 5% of the holders of YuniNetworks common stock (assuming the
conversion of all preferred stock to common stock) shall have elected to
pursue their appraisal rights under Section 262 of the Delaware General
Corporation Law;
. The non-interested holders of 75% of the outstanding shares of
YuniNetworks entitled to vote shall have approved certain arrangements
with respect to the compensation of Dr. Kenneth Yun and Ms. Kay Yun that
would not otherwise be deductible expenses under Section 280G or Section
162 of the Internal Revenue Code of 1986, as amended;
. Each of Dr. Kenneth Yun, Ms. Kay Yun and certain key employees shall have
entered into an employment agreement with AMCC, and certain specified
employees shall remain employed with YuniNetworks;
. All present and former employees, consultants and independent contractors
will have executed confidential invention and assignment agreements;
. No lawsuit, action or proceeding shall be pending or threatened by any
governmental entity, other entity or person challenging the merger;
. All consents, terminations and assignments that are required in
connection with the merger will have been obtained;
. AMCC will have received a statement that conforms to the requirements of
Section 1.897-2(h)(1)(i) of the U.S. Treasury Regulations, and
YuniNetworks will have delivered to the Internal Revenue Service the
required notification under such regulations;
. Certain YuniNetworks stockholders will have executed a release that will
release AMCC and YuniNetworks from any claims any such stockholder might
have against AMCC or YuniNetworks; and
. Each of the directors of YuniNetworks will have resigned as of the
effective time of the merger.
Indemnification
Under the merger agreement, if the merger is completed, the stockholders of
YuniNetworks have agreed to indemnify AMCC against losses resulting from:
. the inaccuracy or breach of any representation or warranty of
YuniNetworks made in the merger agreement or any related document
provided by YuniNetworks to AMCC in connection with the merger; and
. the breach of, or failure to perform, any covenant or agreement of
YuniNetworks made in the merger agreement.
The stockholders of YuniNetworks will not have liability to AMCC in
connection with the breach of representations and warranties unless written
notice is provided to AMCC within one year of the closing date of the merger
asserting an indemnification claim. YuniNetworks' stockholders will have no
liability with respect to any matters until the total of all losses to AMCC
exceed $500,000, in which event the stockholders shall be obligated to
indemnify AMCC for all such losses. If the total amount of the losses exceeds
$500,000 and a portion of the losses arose from matters that were disclosed to
AMCC prior to the closing of the merger, then YuniNetworks' stockholders shall
only be liable for 50% of such losses. The indemnification obligation of the
YuniNetworks' stockholders will be secured by the escrow of 10% of the merger
consideration and is
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capped at this amount. Any indemnification claims will be paid from the escrow
account on a pro rata basis with respect to each YuniNetworks' stockholder.
Termination
The merger agreement provides YuniNetworks and AMCC with rights to terminate
the agreement in certain circumstances prior to the closing of the merger. AMCC
may terminate the agreement prior to closing for the following reasons:
. if AMCC reasonably determines that the timely satisfaction of the
conditions to its obligation to close the merger have become impossible
(other than due to AMCC's or OLI's failure to perform);
. if any of the conditions to AMCC's obligation to close the merger have
not been satisfied by the scheduled closing time;
. if any of YuniNetworks' representations or warranties were materially
inaccurate or have become materially inaccurate, or YuniNetworks has
breached any covenant contained in the merger agreement, provided that
AMCC may not terminate the merger agreement if YuniNetworks cures such
inaccuracy or breach within 15 days after receiving written notice from
AMCC of such inaccuracy or breach; or
. if the closing has not taken place prior to June 30, 2000 (other than due
to AMCC's failure to perform).
YuniNetworks may terminate the merger agreement prior to closing for the
following reasons:
. if YuniNetworks reasonably determines that the timely satisfaction of the
conditions to its obligation to close the merger have become impossible
(other than due to YuniNetworks' failure to perform);
. if any of the conditions to YuniNetworks' obligation to close the merger
have not been satisfied by the scheduled closing time;
. if any of AMCC's representations or warranties were materially inaccurate
or have become materially inaccurate, or AMCC has breached any covenant
contained in the merger agreement, provided that YuniNetworks may not
terminate the merger agreement if AMCC cures such inaccuracy or breach
within 15 days after receiving written notice from YuniNetworks of such
inaccuracy or breach; or
. if the closing has not taken place prior to June 30, 2000 (other than due
to YuniNetworks' failure to perform).
All of these rights will expire upon the closing of the merger.
Expenses Relating to the Merger
Generally, all fees and expenses incurred in connection with the merger
agreement and the transactions contemplated by the merger agreement will be
paid by the party incurring those expenses, whether or not the merger is
consummated. However, any fees or expenses incurred by YuniNetworks in excess
of $150,000 shall be paid from funds deposited into the escrow fund established
to secure the indemnification obligations of YuniNetworks' stockholders.
Requisite Consent
The affirmative vote of a majority of shares of YuniNetworks common stock
and preferred stock, voting together as a single class, and the affirmative
vote of a majority of shares of YuniNetworks preferred stock, voting as a
separate class, is required to approve and adopt the merger agreement and
approve the merger.
Escrow Agreement
Pursuant to the terms of the merger agreement, 10% of the AMCC common stock
issued in connection with the merger will be held by the Bank of New York as
escrow agent to secure the indemnification
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obligations of the stockholders of YuniNetworks under the merger agreement,
pursuant to the terms of the escrow agreement, the form of which is attached to
the merger agreement as Exhibit D. Alternatively, a YuniNetworks stockholder
may elect to deliver cash to fund the escrow in lieu of shares of AMCC common
stock. If any YuniNetworks stockholder elects to deliver cash, such
YuniNetworks stockholder must give written notice of its election to do so at
least ten days prior to the closing and must deliver to the escrow agent prior
to the closing cash equal in value to the shares of AMCC common stock that such
YuniNetworks' stockholder otherwise would have delivered to the escrow agent.
The aggregate maximum value of the claims that the YuniNetworks stockholders
may be required to satisfy pursuant to their indemnification obligations is
limited to the amount held in the escrow account.
The shares of AMCC common stock and any cash deposited in the escrow account
will be released to the YuniNetworks stockholders on the first anniversary of
the completion of the merger unless any indemnification claims made by AMCC
against YuniNetworks prior to the first anniversary of the closing remain
unresolved. If an indemnification claim is pending and unresolved on the first
anniversary of the completion of the merger, the escrow agent will retain an
amount equal to 110% of the indemnification claim until the claim is resolved.
Upon resolution of the claim, the balance of the shares of AMCC common stock
and cash held in escrow and not used to satisfy the claim or claims will be
returned to the YuniNetworks stockholders. Any and all dividends, whether in
cash or otherwise, on shares of AMCC common stock held in escrow will remain in
escrow until the escrow is distributed to the YuniNetworks stockholders.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER AND RELATED AGREEMENTS
Interests of Certain Persons in the Merger
In considering the recommendations of the board of directors of YuniNetworks
with respect to the merger, you should be aware that certain members of
YuniNetworks' board of directors have interests in the merger that may be
deemed to be in addition to those of the stockholders of YuniNetworks
generally. S. Atiq Raza manages Raza Foundries Canada, one of the principal
stockholders of YuniNetworks. Mr. Raza serves on the boards of directors, and
is a stockholder of, both AMCC and YuniNetworks. In connection with this
transaction, immediately prior to the closing of the merger, for the purpose of
complying with certain Investment Company Act requirements, Raza Foundries
Canada will sell for cash 90% of its shares of YuniNetworks' common stock to
one or more financial institutions and 10% of its shares of YuniNetworks common
stock to AMCC. The financial institutions may sell short shares of AMCC common
stock approximately equal to the number of shares of AMCC common stock they
would receive upon the closing of the merger and exchange of shares. The cash
received by Raza Foundries Canada from the sale of YuniNetworks shares to AMCC
will be deposited in the escrow fund.
In addition, as a result of the merger the vesting of certain of the shares
of YuniNetworks owned by Ms. Kay Yun will accelerate.
The board of directors of YuniNetworks was aware of these interests and
considered them in approving the merger agreement, the merger and the related
transactions.
Voting Agreement
Dr. Kenneth Yun, Ms. Kay Yun and Raza Foundries Canada, each a stockholder
of YuniNetworks, beneficially own in the aggregate 10,500,000 shares of
YuniNetworks common stock and 10,000,000 shares of preferred stock, for an
aggregate of 20,500,000 shares, representing approximately 90% of the
outstanding common stock of YuniNetworks (on an as converted basis) as of the
date of this prospectus/consent solicitation statement, and in connection with
the merger each has entered into a voting agreement with AMCC. Under the terms
of the voting agreement, each of these YuniNetworks stockholders has agreed to
vote all of his, her or its shares of YuniNetworks stock in favor of the
approval and adoption of the merger agreement and the approval of the merger.
Each of Dr. Yun, Ms. Yun and Raza Foundries Canada has granted to AMCC an
irrevocable proxy to vote all of his, her or its shares of YuniNetworks stock
consistent with the terms of the voting agreement. As a result of these voting
agreements, holders of approximately 90% of the outstanding shares of
YuniNetworks' preferred stock and approximately 89% of the outstanding shares
of YuniNetworks' common stock have agreed to vote in favor of the merger. The
voting agreement terminates upon the earlier to occur of the consummation of
the merger or the termination of the merger agreement. AMCC is not required to
consummate the merger if more than 5% of YuniNetworks stockholders elect to
pursue their appraisal rights.
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OTHER MATTERS RELATED TO THE MERGER
Material Federal Income Tax Consequences
The following discussion summarizes the material U.S. federal income tax
considerations of the merger that are expected to apply generally to
YuniNetworks stockholders upon an exchange of their YuniNetworks common stock
for AMCC common stock in the merger. This summary is based upon current
provisions of the Internal Revenue Code, existing Treasury regulations and
current administrative rulings and court decisions, all of which are subject to
change. Any change, which may or may not be retroactive, could alter the tax
consequences to AMCC, YuniNetworks or the stockholders of YuniNetworks as
described in this summary. No attempt has been made to comment on all federal
income tax consequences of the merger that may be relevant to particular
holders, including holders:
. who do not hold their shares as capital assets;
. who are subject to special tax rules such as financial institutions,
dealers in securities, foreign persons, mutual funds, insurance companies
or tax-exempt entities;
. who are subject to the alternative minimum tax provisions of the Internal
Revenue Code;
. who acquired their shares in connection with stock option or stock
purchase plans or in other compensatory transactions;
. who hold their shares as a hedge or as part of a hedging, straddle or
other risk reduction strategy; and
. whose shares are qualified small business stock for purposes of Sections
1202 and 1045 of the Internal Revenue Code.
In addition, the following discussion does not address the tax consequences
of the merger under state, local or foreign tax laws. Furthermore, the
following discussion does not address (i) the tax consequences of transactions
effectuated before, after or at the same time as the merger, whether or not
they are in connection with the merger, including, without limitation,
transactions in which YuniNetworks shares are acquired or AMCC shares are
disposed of, (ii) the tax consequences to holders of options issued by
YuniNetworks which are assumed, exercised or converted, as the case may be, in
connection with the merger or (iii) the tax consequences of the receipt of AMCC
shares other than in exchange for YuniNetworks shares.
Accordingly, holders of YuniNetworks common stock are advised and expected
to consult their own tax advisers regarding the U.S. federal income tax
consequences of the merger in light of their personal circumstances and the
consequences under state, local and foreign tax laws.
As a condition to the consummation of the merger, Cooley Godward llp and
Gray Cary Ware & Freidenrich llp must render tax opinions that the merger will
constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code (a "Reorganization"). The tax opinions discussed in this
section assume and are conditioned upon the following:
. that all representations, warranties and statements made or agreed to by
AMCC, OLI and YuniNetworks, their managements, employees, officers,
directors and stockholders in connection with the merger, including, but
not limited to, those set forth in the merger agreement (including the
exhibits thereto) and the tax representation letters delivered to such
counsel by AMCC, OLI and YuniNetworks are true and accurate at all
relevant times;
. that original documents submitted to such counsel (including signatures
thereto) are authentic, documents submitted to such counsel as copies
conform to the original documents, and that all of these documents have
been (or will be by the effective time) duly and validly executed and
delivered where due execution and delivery are a prerequisite to the
effectiveness of these documents;
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. that all covenants contained in the merger agreement (including exhibits
thereto) and the tax representation letters, described above, are
performed without waiver or breach of any material provision of these
covenants;
. that the merger will be reported by AMCC and YuniNetworks on their
respective U.S. federal income tax returns in a manner consistent with
the opinions rendered by such counsel; and
. that any representation or statement made "to the best of knowledge" or
similarly qualified is correct without that qualification.
No ruling from the Internal Revenue Service has been or will be requested in
connection with the merger. In addition, stockholders of YuniNetworks should be
aware that the tax opinions discussed in this section are not binding on the
IRS, the IRS could adopt a contrary position and a contrary position could be
sustained by a court.
Subject to the assumptions and limitations discussed above and the section
below entitled "Other Consideration", it is the opinion of Cooley Godward llp,
tax counsel to AMCC, and Gray Cary Ware & Freidenrich llp, tax counsel to
YuniNetworks, that:
. the merger will be treated for federal income tax purposes as a
Reorganization;
. AMCC, OLI Acquisition Corp. and YuniNetworks will each be a party to the
Reorganization;
. AMCC, OLI Acquisition Corp. and YuniNetworks will not recognize any gain
or loss solely as a result of the merger;
. stockholders of YuniNetworks will not recognize any gain or loss upon the
receipt of solely AMCC common stock for their YuniNetworks common stock,
other than with respect to cash received in lieu of fractional shares of
AMCC common stock;
. the aggregate basis of the shares of AMCC common stock received by a
YuniNetworks stockholder in the merger (including any fractional share
deemed received) will be the same as the aggregate basis of the shares of
YuniNetworks common stock surrendered in exchange therefor;
. the holding period of the shares of AMCC common stock received by a
YuniNetworks stockholder in the merger will include the holding period of
the shares of YuniNetworks common stock surrendered in exchange therefor;
and
. a stockholder of YuniNetworks who receives cash in lieu of a fractional
share will recognize gain or loss equal to the difference, if any,
between such stockholder's basis in the fractional share and the amount
of cash received. Such gain or loss will be a capital gain or loss.
Other Consideration. Even if the merger qualifies as a Reorganization, a
recipient of AMCC common stock would recognize income to the extent that, for
example, any such shares were determined to have been received in exchange for
services, to satisfy obligations or in consideration for anything other than
the YuniNetworks common stock surrendered. Generally, such income is taxable as
ordinary income upon receipt.
In addition, to the extent that YuniNetworks stockholders were treated as
receiving, directly or indirectly, consideration other than AMCC common stock
in exchange for such stockholder's YuniNetworks common stock, gain or loss
would have to be recognized. If, for example, a YuniNetworks stockholder were
to receive (or be deemed to receive) both cash and stock in the merger, such
stockholder would recognize gain in the amount of cash received, limited
however, by such stockholder's total gain on the merger (which is the
difference between (i) the sum of the cash and the fair market value of the
AMCC common stock received by such stockholder in the merger and (ii) such
stockholder's basis in its YuniNetworks common stock exchanged therefore). A
stockholder's recognized gain under such circumstances would be capital gain,
assuming the stockholder held his, her or its YuniNetworks common stock as a
capital asset at the time of the merger, provided that the payment is neither
essentially equivalent to a dividend within the meaning of Section 302 of
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the Code nor has the effect of a dividend within the meaning of Section
356(a)(2) of the Code and provided further that YuniNetworks is not a
"collapsible corporation" as described in Section 341 of the Code. If a loss,
rather than a gain, resulted from the application of the stockholder's cost
basis for the stock surrendered against the total consideration received, that
loss would not be recognized. The aggregate tax basis of any AMCC common stock
received by a YuniNetworks stockholder receiving both cash and stock in the
merger generally would be equal to the adjusted basis of the YuniNetworks
common stock surrendered in exchange therefor, less the cash received in the
merger plus the gain recognized by such stockholder in the merger.
If a YuniNetworks stockholder were to receive (or be deemed to receive)
solely cash in exchange for his, her or its YuniNetworks common stock
surrendered in the merger, such stockholder would generally recognize capital
gain or loss (provided such stock was held as a capital asset at the time of
the merger), measured by the difference between the stockholder's basis in such
stock and the amount of cash received, provided that such stockholder owned no
shares of capital stock of YuniNetworks (either actually or constructively
within the meaning of Section 318 of the Code) immediately after the merger.
Backup Withholding. With respect to a cash payment received by a
YuniNetworks stockholder in lieu of a fractional share of AMCC common stock, a
noncorporate stockholder of YuniNetworks may be subject to backup withholding
at a rate of 31%. However, backup withholding will not apply to a stockholder
who either (i) furnishes a correct taxpayer identification number and certifies
that he or she is not subject to backup withholding by completing the
substitute Form W-9 that will be included as part of the transmittal letter, or
(ii) otherwise proves to AMCC and its exchange agent that the stockholder is
exempt from backup withholding.
Reporting Requirements. Each YuniNetworks stockholder that receives AMCC
common stock in the merger will be required to file a statement with his or her
federal income tax return setting forth his or her basis in the YuniNetworks
common stock surrendered and the fair market value of the AMCC common stock and
cash, if any, received in the merger, and to retain permanent records of these
facts relating to the merger.
Dissenting Stockholders. A dissenting stockholder of YuniNetworks common
stock who perfects appraisal rights will generally be treated as having
received a distribution in redemption of his or her stock subject to the
provisions and limitations of Sections 302 and 356(a)(2) of the Code. While the
tax consequences of such a redemption depend on a stockholder's particular
circumstances, a dissenting stockholder who, after the merger, does not own
(actually or constructively) any capital stock of either YuniNetworks or AMCC
will generally recognize gain or loss with respect to a share of YuniNetworks
stock equal to the difference between the amount of cash received and his or
her basis in such share. This gain or loss should be capital gain or loss,
provided such share is held as a capital asset.
Consequences of IRS Challenge. A successful challenge by the IRS to the
Reorganization status of the merger would result in significant adverse tax
consequences to the YuniNetworks stockholders. YuniNetworks stockholders would
recognize taxable gain or loss with respect to each share of YuniNetworks
common stock surrendered equal to the difference between each stockholder's
basis in such share and the fair market value, as of the Effective Time, of the
AMCC common stock received in exchange therefor. In such event, a YuniNetworks
stockholder's aggregate basis in the AMCC common stock so received would equal
its fair market value, and the holding period of such stock would begin the day
after the effective date of the merger.
Restrictions on Resales of AMCC Common Stock by Affiliates of YuniNetworks
The shares of AMCC common stock to be received by the stockholders of
YuniNetworks in connection with the merger have been registered under the
Securities Act and, except as set forth in this paragraph, may be traded
without restriction. The shares of AMCC common stock to be issued in connection
with the merger and received by persons who may be deemed to be "affiliates"
(as that term is defined in Rule 144 under the Securities Act) of YuniNetworks
prior to the merger may be resold by them only in transactions permitted by
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the resale provisions of Rule 145 under the Securities Act or as otherwise
permitted under the Securities Act or pursuant to existing registration rights.
Accounting Treatment
AMCC will account for the merger using the purchase method of accounting,
which means that the assets and liabilities of YuniNetworks, including
intangible assets, will be recorded at their fair value and the results of
operations of YuniNetworks, will be included in AMCC's results from the date of
acquisition.
Appraisal Rights
The Delaware General Corporation Law grants appraisal rights in the merger
to the holders of YuniNetworks common and preferred stock. Under the Delaware
General Corporation Law, YuniNetworks stockholders may object to the merger and
demand in writing that YuniNetworks pay the fair value of their shares. Fair
value takes into account all relevant factors but excludes any appreciation or
depreciation in anticipation of the applicable merger. Stockholders who elect
to exercise appraisal rights must comply with all of the procedures to preserve
those rights. We have attached a copy of Section 262 of the Delaware General
Corporation Law (which sets forth the appraisal rights) as Appendix B to the
prospectus/consent solicitation statement.
Section 262 sets forth the required procedure a stockholder requesting
appraisal must follow. Making sure that you actually perfect your appraisal
rights can be complicated. The procedural rules are specific and must be
followed completely. Failure to comply with the procedure may cause a
termination of your appraisal rights. We are providing you only a summary of
your rights and the procedure. The following information is qualified in its
entirety by the provisions of Section 262. Please review Section 262 for the
complete procedure. Neither AMCC nor YuniNetworks will give you any notice
other than as described in this prospectus/consent solicitation statement and
as required by the Delaware General Corporation Law.
Appraisal Rights Procedures
If you are a YuniNetworks stockholder and you wish to exercise your
appraisal rights, you must satisfy the provisions of Section 262 of the
Delaware General Corporation Law. Section 262 requires, in part, the following:
. Your written demand for appraisal: You must deliver a written demand for
appraisal to YuniNetworks on or before the vote is taken by action by
written consent. This written demand for appraisal must be separate from
the action by written consent. In other words, failure to return the
action by written consent or returning the action by written consent with
a notation on it will not alone constitute demand for appraisal.
. You refrain from voting for approval of the merger: You must not vote for
approval of the merger agreement. If you return a properly executed
action by written consent or otherwise vote in favor of the merger
agreement, your right to appraisal will terminate, even if you previously
filed a written demand for appraisal.
. You continuously hold your YuniNetworks shares: You must continuously
hold your shares of YuniNetworks stock from the date you make the demand
for appraisal through the closing of the merger. You should read the
paragraphs below for more details on making a demand for appraisal.
A written demand for appraisal of YuniNetworks stock is only effective if it
is signed by, or for, the stockholder of record who owns such shares at the
time the demand is made. The demand must be signed as the stockholder's name
appears on its stock certificate(s). If you are the beneficial owner of
YuniNetworks stock but not the stockholder of record, you must have the
stockholder of record sign a demand for appraisal.
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If you own YuniNetworks stock in a fiduciary capacity, such as a trustee,
guardian, or custodian, you must disclose the fact that you are signing the
demand for appraisal in that capacity.
If you own YuniNetworks stock with more than one person, such as in a joint
tenancy or tenancy in common, all of the owners must sign, or have signed for
them, the demand for appraisal. An authorized agent, which could include one or
more of the joint owners, may sign the demand for appraisal for a stockholder
of record; however, the agent must expressly disclose who the stockholder of
record is and that he is signing the demand as that stockholder's agent.
If you are a record owner, such as a broker, who holds YuniNetworks stock as
a nominee for others, you may exercise a right of appraisal with respect to the
shares held for one or more beneficial owners, while not exercising such right
for other beneficial owners. In such a case, you should specify in the written
demand the number of shares as to which you wish to demand appraisal. If you do
not expressly specify the number of shares, we will assume that your written
demand covers all the shares of YuniNetworks stock that are in your name.
If you are a YuniNetworks stockholder, you should address the written demand
to YuniNetworks, Inc., 12780 High Bluff Drive, Suite 270, San Diego, California
92130, Attention: Kay Yun. It is important that YuniNetworks receive all
written demands before the vote concerning the merger agreement is taken. As
explained above, this written demand should be signed by, or on behalf of, the
stockholder of record. The written demand for appraisal should specify the
stockholder's name and mailing address, the number of shares of stock owned,
and that the stockholder is thereby demanding appraisal of such stockholder's
shares.
If you fail to comply with any of these conditions and the merger becomes
effective, you will only be entitled to receive the merger consideration
provided in the merger agreement.
Written Notice: Within ten days after the closing of the merger,
YuniNetworks must give written notice that the merger has become effective to
each stockholder who has fully complied with the conditions of Section 262.
Petition with the Chancery Court: Within 120 days after the closing of the
merger, either YuniNetworks or any stockholder who has complied with the
conditions of Section 262, may file a petition in the Delaware Court of
Chancery. This petition should request that the chancery court determine the
value of the shares of YuniNetworks stock held by all of the stockholders who
are entitled to appraisal rights. If you intend to exercise your rights of
appraisal, you should file such a petition in the chancery court. YuniNetworks
has no intentions at this time to file such a petition. Because YuniNetworks
has no obligation to file such a petition, if you do not file such a petition
within 120 days after the closing, you will lose your rights of appraisal.
Withdrawal of Demand: If you change your mind and decide you no longer want
appraisal rights, you may withdraw your demand for appraisal rights at any time
within 60 days after the closing of the merger. You may also withdraw your
demand for appraisal rights after 60 days after the closing of the merger, but
only with the written consent of YuniNetworks. If you withdraw your demand for
appraisal rights, you will receive the merger consideration provided in your
merger agreement.
Request for Appraisal Rights Statement: If you have complied with the
conditions of Section 262, you are entitled to receive a statement from
YuniNetworks. This statement will set forth the number of shares that have
demanded appraisal rights, and the number of stockholders who own those shares.
In order to receive this statement, you must send a written request to
YuniNetworks within 120 days after the closing of the merger. After the merger,
YuniNetworks has ten days after receiving a request to mail the statement to
the stockholder.
Chancery Court Procedures: If you properly file a petition for appraisal in
the chancery court and deliver a copy to YuniNetworks, YuniNetworks will then
have 20 days to provide the chancery court with a list of the names and
addresses of all stockholders who have demanded appraisal rights and have not
reached an
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agreement with YuniNetworks as to the value of their shares. The chancery court
will then send notice to all of the stockholders who have demanded appraisal
rights. If the chancery court decides it is appropriate, it has the power to
conduct a hearing to determine whether the stockholders have fully complied
with Section 262 of the Delaware General Corporation Law and whether they are
entitled to appraisal rights under that section. The chancery court may also
require you to submit your stock certificates to the Registry in Chancery so
that it can note on the certificates that an appraisal proceeding is pending.
If you do not follow the chancery court's directions, you may be dismissed from
the proceeding.
Appraisal of Chancery Shares: After the chancery court determines which
stockholders are entitled to appraisal rights, the chancery court will appraise
the shares of stock. To determine the fair value of the shares, the chancery
court will consider all relevant factors except for any appreciation or
depreciation due to the anticipation or accomplishment of the merger. After the
chancery court determines the fair value of the shares, it will direct
YuniNetworks to pay that value to the stockholders who are entitled to
appraisal rights. The chancery court can also direct YuniNetworks to pay
interest, simple or compound, on that value if the chancery court determines
that interest is appropriate. In order to receive the fair value for your
shares, you must surrender your stock certificates to YuniNetworks.
The chancery court could determine that the fair value of shares of
YuniNetworks stock is more than, the same as, or less than the merger
consideration. In order words, if you demand appraisal rights, you could
receive less consideration than you would under the merger agreement.
Costs and Expenses of Appraisal Proceeding: The costs and expenses of the
appraisal proceeding may be assessed against YuniNetworks and the stockholders
participating in the appraisal proceeding, as the chancery court deems
equitable under the circumstances. You can request that the chancery court
determine the amount of interest, if any, YuniNetworks should pay on the value
of stock owned by stockholders entitled to the payment of interest. You may
also request that the chancery court allocate the expense of the appraisal
action incurred by any stockholder pro rata against the value of all of the
shares entitled to appraisal.
Loss of Stockholder's Rights: If you demand appraisal rights, after the
closing of the merger you will not be entitled to:
. vote your shares of stock, for any purpose, for which you have demanded
appraisal rights;
. receive payment of dividends or any other distribution with respect to
such shares, except for dividends or distributions, if any, that are
payable to holders of record as of a record date prior to the effective
time of the merger; or
. receive the payment of the consideration provided for in the merger
agreement.
However, you can regain these rights if no petition for an appraisal is
filed within 120 days after the closing of the merger, or if you deliver to
YuniNetworks a written withdrawal of your demands for an appraisal and your
acceptance of the merger, either within 60 days after the closing of the merger
or with the written consent of YuniNetworks. As explained above, these actions
will also terminate your appraisal rights. However, an appraisal proceeding in
the chancery court cannot be dismissed unless the chancery court approves. The
chancery court may condition its approval upon any terms that it deems just.
If you fail to comply strictly with these procedures you will lose your
appraisal rights. Consequently, if you wish to exercise your appraisal rights,
we strongly urge you to consult a legal advisor before attempting to exercise
your appraisal rights.
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AMCC BUSINESS
We design, develop, manufacture and market high-performance, high-bandwidth
silicon solutions for the world's optical networks. We offer integrated
circuit, or IC, products that enable the transport of voice and data over
fiber optic networks by utilizing a combination of high-frequency analog,
mixed-signal and digital design expertise coupled with system-level knowledge
and multiple silicon process technologies. Our customers include leading
communications equipment manufacturers such as Alcatel, Ciena, Cisco, Lucent,
Marconi Communications and Nortel as well as emerging communications systems
providers such as Cerent (recently acquired by Cisco), Juniper Networks,
Monterey Networks (recently acquired by Cisco), Nexabit (recently acquired by
Lucent) and Sycamore Networks.
Our objective is to be the premier supplier of high-bandwidth silicon ICs
for the world's optical networks. Our strategies for achieving this objective
include:
. Focusing on high-growth, fiber optic-based network markets;
. Providing complete system solutions to our customers;
. Integrating higher levels of functionality into our semiconductor
products; and
. Leveraging our expertise in multiple silicon-process technologies to
provide cost-effective, optimized solutions.
Our products target the SONET/SDH, ATM, Gigabit Ethernet and Fibre Channel
semiconductor markets. In addition, we recently introduced silicon ICs
targeted for DWDM systems. We provide our customers with complete silicon IC
solutions ranging from physical media dependent devices such as laser drivers
and physical layer products such as transceivers to overhead processor
products such as framers and mappers. Our products span data rates from OC-3,
or 155 megabits per second, to OC-192, or 10 gigabits per second. We also
supply silicon ICs for the automated test equipment, or ATE, high-speed
computing and military markets.
We manufacture some products at our silicon wafer fabrication facility in
San Diego, California. We also use outside semiconductor wafer fabrication
facilities for the production of products designed on CMOS processes.
Recently, we introduced several new products using IBM's silicon germanium
BiCMOS process.
Products
We have several types of IC products categorized by the type of signals
they utilize. These categories are:
Analog Layer: Our analog layer ICs typically work in conjunction with the
lasers or photo diodes that provide the electrical-to-optical and optical-to-
electrical signal conversions. These ICs include various amplifiers that take
very weak electrical signals (e.g. a few millivolts) and increase them for use
at the higher digital signal level (e.g. hundreds of millivolts). Our analog
layer products transmit signals at rates ranging from 1 to 10 Gbps.
Mixed Signal Layer: Our mixed signal ICs transmit and receive data to and
from the analog layer in a very high-speed serial format (up to 10 Gbps) and
reduce overall system "noise." This low noise capability permits the
transmission of data over greater distances with fewer errors. Our mixed
signal ICs also convert data from the analog layer to the digital layer and
vice versa.
Digital Layer: Our digital layer ICs transmit and receive data to and from
the mixed signal layer in a parallel format and are used predominately in
systems such as very high-speed transmission equipment, add-drop multiplexers,
digital and optical cross-connects, edge and core routers and DWDM. After
transmitting and receiving the data, these ICs then perform a number of
additional functions including framing, terminating the overhead, performance
monitoring, forward error correction and mapping the data payload to/from the
transmission format. These ICs then send the data either directly to a switch
fabric product which routes the
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data to its destination, or to a network processor which further processes the
data prior to forwarding it to a switch fabric product.
Product Processes
We utilize our high-performance, high density IC design expertise and
systems knowledge, together with our internal bipolar and BiCMOS processes and
external (outside foundries) CMOS and SiGe processes to design and manufacture
products that are tailored to our customers' needs.
Transition from ASICs to ASSPs
Application specific integrated circuits (ASICs) are custom products which
are designed by or for only one customer, and can be sold only to that one
customer. Application specific standard products (ASSPs), on the other hand,
are standardized products which are designed for, and can be used by, several
customers. ASSPs generally can be designed and brought to market in a shorter
time-period. Accordingly, companies which manufacture networking systems have
been using fewer ASICs and more ASSPs. Most of AMCCs products are ASSPs, and we
believe that the trend towards greater usage of ASSP's in communication network
systems will continue.
Technology
Design of High-Performance Digital and Mixed Signal ICs
Mixing digital and analog signals poses difficult challenges for IC
designers, particularly at high frequencies. We have obtained significant
expertise in mixed signal IC design and VLSI digital design through the
development of multiple generations of products. We can and have leveraged this
expertise and developed skills and processes which permitted us to create high
gate count digital chips that have overcome a complex problem in IC design by
integrating analog logic and high frequency logic.
Systems and Architecture Expertise
We believe that our systems architects, design engineers and technical
marketing and applications engineers have a thorough understanding of the fiber
optic communications systems for which we design and build ASSPs. We
substantially expanded this expertise into the higher layers of the
communication system with the acquisition of Cimaron. Using this systems
expertise, we develop semiconductor devices to meet OEMs' high-bandwidth
systems requirements. By understanding the systems into which our products are
designed, we believe that we are better able to anticipate and develop optimal
solutions based on the various cost, power and performance trade-offs faced by
our customers and to develop more comprehensive, interoperable solutions.
Process Technology
We utilize our own internal wafer fabrication facility and have developed
and produced multiple generations of cost-effective, high-performance bipolar
and BiCMOS processes. The proven silicon-based process technologies employed by
us have not required the highly capital-intensive facilities needed by certain
advanced microprocessor, memory or CMOS ASIC suppliers. In addition, we have
obtained access to other advanced CMOS and SiGe BiCMOS processes through
foundry relationships. The SiGe BiCMOS process results in products which
process data at a faster rate than products manufactured by the use of pure
CMOS processes, and use less power than products manufactured by the use of
non-CMOS processes. These advantages make the SiGe BiCMOS process uniquely
suited for our physical layer and Physical Media Dependent products. We believe
that through the use of internal and external process technologies, we are able
to provide an optimal mix of cost and performance for the targeted application.
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Research and Development
Our research and development expertise and efforts are focused on the
development of high-performance digital and mixed-signal ASSPs for fiber optic
communications applications. We also develop, design and test methodologies
that are optimized for these applications. We have, and continue to make,
significant investments in advanced CAD tools to leverage our design
engineering staff, reduce design cycle time and increase first-time design
correctness. AMCC's research and development expenses in fiscal years 1998,
1999 and 2000 were $13.3 million, $22.5 million and $32.8 million,
respectively, which were 17.3%, 21.4% and 19.0%, respectively, of revenues for
such periods.
Manufacturing
Wafer Fabrication
We manufacture certain of our products at our four-inch wafer fabrication
facility in San Diego, California. We believe that our wafer fabrication
facility has competitive yields, cycle times and costs, produces large die at
acceptable yields and provides operational flexibility by permitting the
production of multiple products in variable lot sizes. We are currently running
several different bipolar and BiCMOS processes in this facility.
In addition, AMCC currently utilizes four outside foundries, AMI
Semiconductor (AMI), IBM, Kawasaki CSI Japan (Kawasaki) and Taiwan
Semiconductor Manufacturing Corporation (TSMC) for the production of products
designed on CMOS processes, and we are utilizing IBM for SiGe BiCMOS processes.
We do not plan to fabricate our own CMOS wafers.
Components and Raw Materials
We purchase all of our "raw" silicon wafers from Wacker Siltronic
Corporation. While most silicon wafers now being supplied to the semiconductor
industry are larger than four inches, we believe that Wacker Siltronic will
continue to supply our needs for the foreseeable future. We also carry a
significant inventory of raw wafers to cushion any interruption in supply. We
purchase our ceramic packages from Kyocera America and NTK Ceramics and our
plastic packaging from Amkor and ASAT. See "Risk Factors."
Assembly and Test
We assemble prototypes and modest production volumes of specific products in
our internal assembly facility in San Diego, California. Most of our 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 us 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.
Sales and Marketing
We sell our products principally through a direct sales organization
consisting of a network of independent manufacturers' representatives in
specified territories that work under the direction of our direct sales force
and distributors.
The direct sales force is technically trained and is supported by
applications engineers in the field as well as applications and design
engineers at our headquarters. We believe that this "engineering-intensive"
relationship with our customers results in strong, long-term customer
relationships beneficial to both us and our customers. We augment this
strategic account sales approach with domestic and foreign distributors, which
service primarily smaller accounts purchasing ASSPs.
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In North America, our direct sales effort are supported by 18 independent
manufacturers' representatives and one distributor. Internationally, we sell
our products through 11 distributors and 2 independent manufacturers'
representatives in Europe and 8 distributors throughout the rest of the world.
During the years ended March 31, 1998, 1999 and 2000, 21%, 20% and 38%,
respectively, of net revenues were from Nortel and its contract manufacturers.
In 1998, 1999 and 2000, purchases through Insight Electronics, our domestic
distributor, accounted for 11%, 13% and 17% of net revenues, respectively.
Additionally, in 1999, Raytheon Systems Co. accounted for 16% of net revenues.
No other customer accounted for more than 10% of revenues in any period. In
fiscal 1998, 1999 and 2000, approximately 23%, 24% and 23% of our revenues were
derived from sales to customers located outside of North America.
Our sales headquarters is located in San Diego, California. We maintain
sales offices in Andover, Massachusetts; Raleigh, North Carolina; Plano, Texas;
San Jose, California; Munich, Germany; Milan, Italy; Tokyo, Japan; and Paris,
France.
Backlog
Our sales are made primarily pursuant to standard purchase orders for the
delivery of products. Quantities of our products to be delivered and delivery
schedules are frequently revised to reflect changes in customers' needs, and
customer orders generally can be canceled or rescheduled without significant
penalty to the customer. For these reasons, our backlog as of any particular
date is not representative of actual sales for any succeeding period, and we
therefore believe that backlog is not a good indicator of future revenue. Our
backlog for products requested to be shipped and non-recurring engineering
services to be completed in the next six months was $86.1 million on March 31,
2000, compared to $38.2 million on March 31, 1999. See "Risk Factors."
Proprietary Rights
We rely in part on patents to protect our intellectual property. We have
been issued 23 patents in the United States and one patent in Canada, which
patents principally cover certain aspects of the design and architecture of our
IC products. In addition, we have 35 patent applications pending in the United
States Patent and Trademark Office. There can be no assurance that our pending
patent applications or any future applications will be approved, or that any
issued patents will provide us with competitive advantages or will not be
challenged by third parties or that if challenged, will be found to be valid or
enforceable, or that the patents of others will not have an adverse effect on
our ability to do business. Furthermore, there can be no assurance that others
will not independently develop similar products or processes, duplicate our
products or processes or design around any patents that may be issued to us.
To protect our intellectual property, we also rely on a combination of mask
work protection under the Federal Semiconductor Chip Protection Act of 1984,
trademarks, copyrights, trade secret laws, employee and third-party
nondisclosure agreements and licensing arrangements. A mask work refers to the
intangible information content of the set of masks or mask databases used to
make a semiconductor chip product. Despite these efforts, there can be no
assurance that others will not independently develop substantially equivalent
intellectual property or otherwise gain access to our trade secrets or
intellectual property, or disclose such intellectual property or trade secrets,
or that we can meaningfully protect our intellectual property. A failure by us
to meaningfully protect our intellectual property could have a material adverse
effect on our 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.
We in the past have been, and in the future may be, notified that we may be
infringing the intellectual property rights of third parties. We have certain
indemnification obligations to customers with respect to the infringement of
third party intellectual property rights by our products. There can be no
assurance that infringement claims by third parties or claims for
indemnification by customers or end users of our products resulting from
infringement claims will not be asserted in the future or that such
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assertions, if proven to be true, will not materially adversely affect our
business, financial condition or operating results. In the event of any adverse
ruling in any such matter, we 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 our ability to
market our products, any delays and costs associated with redesigning our
products or payments of license fees to third parties or any failure by us to
develop or license a substitute technology on commercially reasonable terms
could have a material adverse effect on our business, financial condition and
operating results. See "Risk Factors."
Environmental Matters
We are 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 our manufacturing process.
Any failure to comply with present or future regulations could result in the
imposition of fines on us, the suspension of production or a cessation of
operations. In addition, such regulations could restrict our ability to expand
our facility at its present location or construct or operate our planned wafer
fabrication facility or could require us to acquire costly equipment or incur
other significant expenses to comply with environmental regulations or clean up
prior discharges. In this regard, since 1993, we have 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. We are 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, our payment obligations with
respect to such funding efforts have not been material, and we believe that our
future obligations to fund such efforts will not have a material adverse effect
on our business, financial condition or operating results. Although we believe
that we are currently in material compliance with applicable environmental laws
and regulations, there can be no assurance that we are or will be in material
compliance with such laws or regulations or that our future obligations to fund
any remediation efforts, including those at the Omega site, will not have a
material adverse effect on our business, financial condition or operating
results. See "Risk Factors."
Employees
As of March 31, 2000, we had 477 full-time employees: 45 in administration,
156 in engineering and product development, 195 in operations and 81 in
marketing and sales. Our ability to attract and retain qualified personnel is
essential to its continued success. None of our employees is represented by a
collective bargaining agreement, nor have we ever experienced any work
stoppage. We believe our employee relations are good. Loss of the services of,
or failure to recruit, key design engineers or other technical and management
personnel could be significantly detrimental to our product and process
development programs or otherwise have a material adverse effect on our
business, financial condition, and operating results.
Properties
Our executive offices, marketing and engineering functions are located in
San Diego, California in a 90,000 square foot building that is leased under a
lease that expires in 2007. In addition we have secured a long-term lease for a
60,000 square foot building beginning in October 2000, which when occupied,
will serve as our principal engineering headquarters. Our manufacturing
facilities are located in a 21,000 square foot building in San Diego. We lease
the facility under a lease that expires in 2003, but provides us with an option
to extend the lease for one additional five year period. In May 1999, we
acquired a parcel of land as a site for a potential new wafer fabrication
facility. This parcel of land is located approximately one-quarter mile from
our headquarters in San Diego, California. The land currently does not have any
improvements, and there are no current plans to commence building on the land.
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We lease additional space for sales offices and design centers in Andover,
Massachusetts; Raleigh, North Carolina; Plano, Texas; San Jose, California;
Edina, Minnesota; Munich, Germany; Milan, Italy; Tokyo, Japan and Paris,
France. Through acquisitions completed subsequent to March 31, 2000, we also
have office space in Kanata, Canada, and Irvine, California.
Legal Proceedings
From time to time, we may be involved in litigation relating to claims
arising out of our operations in the normal course of business. As of the date
of this prospectus/consent solicitation statement, we are not engaged in any
legal proceedings that are expected, individually or in the aggregate, to have
a material adverse effect on our business, financial condition or operating
results.
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AMCC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with AMCC's
consolidated financial statements and related notes and the other financial
information included elsewhere in this prospectus/consent solicitation
statement. This discussion contains forward-looking statements that involve
risks and uncertainties. AMCC's actual results could differ materially from the
results contemplated by these forward-looking statements as a result of certain
factors, including those discussed below and elsewhere in this
prospectus/consent solicitation statement, particularly under the heading "Risk
Factors."
Results of Operations
Comparison of the Three and Nine Months Ended December 31, 1998 to the Three
and Nine Months Ended December 31, 1999.
Net Revenues. Net revenues for the three months and nine months ended
December 31, 1999 were $45.8 million and $115.3 million representing increases
of 70% and 51%, respectively, over net revenues of $27.0 million and $76.3
million for the three months and nine months ended December 31, 1998,
respectively. Revenues from sales of communications products increased to 83%
and 79% of net revenues for the three months and nine months ended December 31,
1999, respectively, from 55% and 53% of net revenues for the three months and
nine months ended December 31, 1998, respectively. This increase reflects both
unit growth in shipments of existing products, as well as the introduction of
new products for these markets. Revenues from sales of non-communications
products, consisting of the ATE, high-speed computing and military products,
decreased to 17% and 21% of net revenues during the three months and nine
months ended December 31, 1999, respectively, from 45% and 47% of net revenues
for the three months and nine months ended December 31, 1998, respectively.
Sales to Nortel, including its contract manufacturers, accounted for 40% and
36% of net revenues for the three months and nine months ended December 31,
1999, respectively, as compared to 20% and 18% for the three months and nine
months ended December 31, 1998, respectively. Sales to Insight Electronics,
Inc., our domestic distributor, accounted for 16% and 15% of net revenues for
the three months and nine months ended December 31, 1999, respectively compared
to 17% and 13% in the three months and nine months ended December 31, 1998,
respectively. Sales to Raytheon Systems Co. (including shipments of $1.0
million and $4.8 million for the three months and nine months ended
December 31, 1999 relating to the partial fulfillment of an end-of-life order)
accounted for 2% and 4% of net revenues for the three months and nine months
ended December 31, 1999, respectively, compared to 14% and 13% for the three
months and nine months ended December 31, 1998. Sales outside of North America
accounted for 27% and 25% of net revenues for the three months and nine months
ended December 31, 1999 respectively, as compared to 21% and 25% for the three
months and nine months ended December 31, 1998, respectively.
Gross Margin. Gross margin was 71.1% and 69.8% for the three months and nine
months ended December 31, 1999, respectively, as compared to 64.2% and 62.7%
for the three months and nine months ended December 31, 1998, respectively. The
increase in gross margin resulted from the increased utilization of our wafer
fabrication facility. Our gross margin is primarily impacted by factory
utilization, wafer yields, product mix and the timing of depreciation expense
and other costs associated with expanding our manufacturing capacity. Although
we do not expect our gross margin to continue to increase at the rates
reflected above, our strategy is to maximize factory utilization whenever
possible, maintain or improve our manufacturing yields, and focus on the
development and sale of high-performance products that can have higher gross
margins. There can be no assurance, however, that we will be successful in
achieving these objectives or that the trend of increasing gross margins will
continue. In addition, these factors can vary significantly from quarter to
quarter, which would likely result in fluctuations in quarterly gross margin
and net income.
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Research and Development. Research and development (R&D) expenses increased
to $8.3 million, or 18.1% of net revenues, and increased to $21.8 million, or
18.9% of net revenues for the three months and nine months ended December 31,
1999, respectively from $5.8 million, or 21.7% of net revenues, and from $16.2
million, or 21.2% of net revenues for the three months and nine months ended
December 31, 1998, respectively. The increase in R&D expenses was due to
accelerated new product and process development efforts, an increase in
personnel costs as a result of additional R&D personnel and an increase in
engineering hardware and software expenses. We believe that a continued
commitment to R&D is vital to maintain a leadership position with innovative
communications products. Accordingly, we expect R&D expenses to increase in
absolute dollars in the future. Currently, R&D expenses are primarily focused
on the development of products and processes for the communications market, and
we expect to continue this focus.
Selling, General and Administrative. Selling, general and administrative
(SG&A) expenses were $7.1 million or 15.4% of net revenues and $19.2 million or
16.6% of net revenues, for the three months and nine months ended December 31,
1999, respectively compared to $4.6 million or 17.0% of net revenues and $13.0
million or 17.1% of net revenues, for the three months and nine months ended
December 31, 1998, respectively. The increase in SG&A expenses in absolute
dollars for the three months and nine months ended December 31, 1999, primarily
reflected increased compensation and travel costs related to additional sales
and administrative personnel, increases in legal and accounting costs and
increases in product promotion expenses. We expect SG&A expenses to increase in
the future due principally to additional staffing in AMCC's sales and marketing
departments, as well as increased spending on information technology and
increased product promotion expenses.
Operating Margin. Our operating margin increased to 37.6% and 34.2% of net
revenues for the three months and nine months ended December 31, 1999,
respectively, compared to 25.5% and 24.4% for the three months and nine months
ended December 31, 1998, respectively, principally as a result of the increase
in gross margin and the decrease in the R&D and SG&A expenses as a percentage
of revenue.
Interest Income, net. Interest income, net increased to $1.2 million for the
three months ended December 31, 1999 from $883,000 for the three months ended
December 31, 1998 and increased to $3.1 million for the nine months ended
December 31, 1999 from $2.6 million for the nine months ended December 31,
1998. This increase was due principally to higher interest income from larger
cash and short-term investment balances.
Income Taxes. Our estimated annual effective tax rate used for the nine
months ended December 31, 1999 was 34.3%, compared to an effective tax rate of
35.1% for the nine months ended December 31, 1998. This decrease in our
estimated effective tax rate is a result of a decrease in our estimated
effective state tax rate and the utilization of certain tax credits.
Deferred Compensation. In connection with the grant of certain stock options
to employees during the six months ended September 30, 1997, we 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.
Additionally, during the year ended March 31, 1999, we recorded deferred
compensation of $2.5 million related to restricted stock and options granted to
founders and employees of Cimaron. Such amounts are 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
three months and nine months ended December 31, 1999 was $154,000 and $462,000;
respectively compared to $72,000 and $193,000 for the three months and nine
months ended December 31, 1998. We currently expect to record amortization of
deferred compensation with respect to these restricted stock and option grants
of approximately $611,000, $521,000, $412,000, $330,000 and $180,000 during the
fiscal years ending March 31, 2000, 2001, 2002, 2003 and 2004, respectively.
Backlog. Our sales are made primarily pursuant to standard purchase orders
for the delivery of products. Quantities of the our products to be delivered
and delivery schedules are frequently revised to reflect changes in
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customer needs, and customer orders can be canceled or rescheduled without
significant penalty to the customer. For these reasons, the backlog as of any
particular date is not representative of actual sales for any succeeding
period, and therefore we believe that backlog is not a good indicator of future
revenue. Our backlog for products requested to be shipped and nonrecurring
engineering services to be completed in the next six months was $62.1 million
on December 31, 1999, compared to $38.3 million on December 31, 1998. Included
in backlog at December 31, 1999 is $4.4 million remaining on the Raytheon
Systems Co. end-of-life buy for integrated circuits used in its high-speed
radar systems.
Comparison of the Year Ended March 31, 1999 to the Year Ended March 31, 1998
Net Revenues. Net revenues for the year ended March 31, 1999 were
approximately $105.0 million, representing an increase of 37% over net revenues
of approximately $76.6 million for the year ended March 31, 1998. Revenues from
sales of communications products increased 56% in the year ended March 31, 1999
from $36.6 million or 48% of net revenues for the year ended March 31, 1998 to
$57.3 million or 55% of net revenues for the year ended March 31, 1999,
reflecting unit growth in shipments of existing products, as well as the
introduction of new products for these markets. Revenues from sales of non-
communications products to other markets, consisting of the ATE, high-speed
computing and military markets, decreased from 52% of net revenues for the year
ended March 31, 1998, to 45% of net revenues for the year ended March 31, 1999,
although revenues from sales of these non-communications products increased in
absolute dollars. The increase in absolute dollars in revenues attributed to
these non-communications products was primarily due to $10.0 million of
shipments in the year ended March 31, 1999, relating to the partial fulfillment
of an end-of-life order from Raytheon Systems Co. Total sales to Raytheon
Systems Co. accounted for 16% of net revenues in the year ended March 31, 1999
and were less than 10% of net revenues in the year ended March 31, 1998. Sales
to Nortel accounted for 20% and 21% of net revenues for the years ended March
31, 1999 and 1998, respectively. In the years ended March 31, 1999 and 1998,
Insight Electronics, Inc., our domestic distributor, accounted for 13% or 11%
of net revenues, respectively. Sales outside of North America accounted for 24%
and 23% of net revenues for the years ended March 31, 1999 and 1998,
respectively.
Gross Margin. Gross margin was 63.9% for the year ended March 31, 1999, as
compared to 55.2% for the year ended March 31, 1998. The increase in gross
margin resulted from increased utilization of our wafer fabrication facility.
Research and Development. R&D expenses increased 69% to approximately $22.5
million, or 21.4% of revenues, for the year ended March 31, 1999, from
approximately $13.3 million, or 17.3% of net revenues, for the year ended March
31, 1998. The substantial increase in R&D expenses was due to our acquisition
of Cimaron, which incurred approximately $2.5 million of R&D expenses, and
accelerated new product and process development efforts, including a $3.2
million increase in compensation costs, and a $3.9 million increase in
prototyping and outside contractor costs.
Selling, General and Administrative. SG&A expenses were approximately $18.3
million, or 17.5% of revenues, for the year ended March 31, 1999, as compared
to approximately $14.3 million, or 18.6% of net revenues, for the year ended
March 31, 1998. The increase in SG&A expenses for the year ended March 31, 1999
was primarily due to a $2.1 million increase in personnel costs, a $500,000
increase in commissions earned by third-party sales representatives, a $500,000
increase in product promotion expenses and, a $400,000 increase in legal and
accounting costs. A portion of such increases was due to our acquisition of
Cimaron. The decrease in SG&A expenses as a percentage of net revenues for the
year ended March 31, 1999 was a result of net revenues increasing more rapidly
than SG&A expenses.
Merger-related costs. In March 1999, AMCC acquired all of the outstanding
common stock and common stock equivalents of Cimaron in exchange for
approximately three million shares of our common stock. The acquisition has
been accounted for using the pooling-of-interests method of accounting. Costs
associated with this merger of $2.3 million or $0.02 per diluted share were
expensed in the quarter ended March 31, 1999.
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Operating Margin. Our operating margin increased to 22.8% of net revenues
for the year ended March 31, 1999, compared to 19.3% for the year ended March
31, 1998, principally as a result of the increase in gross margin and decrease
in SG&A expenses as a percentage of net revenues, partially offset by the
increase in R&D expenses as a percentage of net revenues.
Net Interest Income. Net interest income increased to $3.5 million for the
year ended March 31, 1999 compared to $871,000 for the year ended March 31,
1998. This increase was due principally to higher interest income from larger
cash and short-term investment balances generated from operations and the
proceeds from our public offerings completed during the second half of the year
ended March 31, 1998.
Income Taxes. AMCC's annual effective tax rate for the year ended March 31,
1999, which approximated statutory rates, was 37.4%, compared to an effective
tax rate of 2.6% for the year ended March 31, 1998. The effective tax rate for
the year ended March 31, 1998 was decreased from statutory rates due to the
reduction of a valuation allowance recorded against deferred tax assets for net
operating loss carryforwards and credits.
Diluted Earnings Per Share. Diluted earnings per share decreased 16% to
$0.16 in the year ended March 31, 1999, compared to $0.19 for the year ended
March 31, 1998. The decrease reflects the merger related costs of 2.3 million,
the increase in the effective tax rate, and the greater number of shares
outstanding due in part to the Cimaron acquisition, offset in part by the
increase in operating income in fiscal 1999.
Backlog. AMCC's backlog for products requested to be shipped and non-
recurring engineering services to be completed in the six months following
March 31, 1999 was $38.2 million on March 31, 1999, compared to $30.1 million
on March 31, 1998. Included in backlog at March 31, 1999 is the $9.3 million
balance of an order received from Raytheon Systems Co. related to an end-of-
life buy for integrated circuits used in its high speed radar systems.
Comparison of the Year Ended March 31, 1998 to the Year Ended March 31, 1997
Net Revenues. Net revenues for the year ended March 31, 1998 were
approximately $76.6 million, representing an increase of 33% over net revenues
of approximately $57.5 million for the year ended March 31, 1997. Revenues from
sales of communications products increased from 44% of net revenues for the
year ended March 31, 1997 to 48% of net revenues for the year ended March 31,
1998, reflecting unit growth in shipments of existing products, as well as the
introduction of new products for these markets. Revenues from sales of non-
communications products to other markets, consisting of the ATE, high-speed
computing and military markets, decreased from 56% of net revenues for the year
ended March 31, 1997, to 52% of net revenues for the year ended March 31, 1998,
although revenues from sales of these non-communications products increased in
absolute dollars. The increase in absolute dollars in revenues attributed to
these non-communications products was primarily due to an increase in shipments
of PCI bus products for high-speed computing applications and to increased
shipments of products to the ATE market. Sales to Nortel accounted for 21% and
20% of net revenues for the years ended March 31, 1998 and 1997, respectively.
In the year ended March 31, 1998, one other customer, Insight Electronics,
Inc., our domestic distributor, accounted for 11% of net revenues. Sales
outside of North America accounted for 23% and 21% of net revenues for the
years ended March 31, 1998 and 1997, respectively.
Gross Margin. Gross margin was 55.2% for the year ended March 31, 1998, as
compared to 47.7% for the year ended March 31, 1997. The significant increase
in gross margin primarily resulted from increased utilization of our wafer
fabrication facility, as well as a $1.1 million improvement in manufacturing
yields.
Research and Development. R&D expenses increased 69% to approximately $13.3
million, or 17.3% of net revenues, for the year ended March 31, 1998, from
approximately $7.9 million, or 13.7% of net revenues, for the year ended March
31, 1997. The increase in R&D expenses was due to accelerated new product and
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process development efforts including a $3.4 million increase in compensation
costs, and a $1.6 million increase in prototyping and outside contractor costs.
Selling, General and Administrative. SG&A expenses were approximately $14.3
million, or 18.6% of net revenues, for the year ended March 31, 1998, as
compared to approximately $12.5 million, or 21.8% of net revenues, for the year
ended March 31, 1997. The increase in SG&A expenses for the year ended March
31, 1998 was primarily due to a $700,000 increase in compensation costs and a
$600,000 increase in commissions earned by third-party sales representatives.
The decrease in SG&A expenses as a percentage of net revenues for the year
ended March 31, 1998 was a result of net revenues increasing more rapidly than
SG&A expenses.
Operating Margin. Our operating margin increased to 19.3% of net revenues
for the year ended March 31, 1998, compared to 12.2% for the year ended March
31, 1997, principally as a result of the increase in gross margin and decrease
in SG&A expenses as a percentage of net revenues, partially offset by the
increase in R&D expenses as a percentage of net revenues.
Net Interest Income. Net interest income increased to $871,000 for the year
ended March 31, 1998 from a net interest expense of $29,000 for the year ended
March 31, 1997. This increase was due principally to a $600,000 increase in
interest income resulting from larger cash and short-term investment balances
generated by the proceeds from our public offerings completed during the year
ended March 31, 1998, as well as a $300,000 decrease in interest expense
associated with outstanding capital lease and debt obligations.
Income Taxes. AMCC's annual effective tax rate for the year ended March 31,
1998 was 2.6%. This was due primarily to the reduction of a valuation allowance
recorded against deferred tax assets for net operating loss carryforwards and
credits in the prior two years. This reduction results from sufficient levels
of income for fiscal 1998, which made the realization of these deferred tax
assets more likely than not. The effective tax rate of 9.5% for the year ended
March 31, 1997 was attributable primarily to alternative minimum taxes AMT.
Diluted Earnings Per Share. Diluted earnings per share increased 111% to
$0.19 in the year ended March 31, 1998, compared to $0.09 for the year ended
March 31, 1997.
Liquidity and Capital Resources
Our principal source of liquidity as of December 31, 1999 consisted of
$115.3 million in cash, cash equivalents and short-term investments. Working
capital as of December 31, 1999 was $128.9 million, compared to $103.6 million
as of March 31, 1999. This increase in working capital was primarily due to net
cash provided by operating activities, partially offset by the purchase of
property and equipment.
For the nine months ended December 31, 1999, net cash provided by operating
activities was $41.6 million. Net cash provided by operating activities for the
nine months ended December 31, 1999 primarily reflected net income before
depreciation and amortization expense and increases in accounts payable, other
accrued liabilities and deferred revenue. For the years ended March 31, 1999,
1998 and 1997, net cash provided by operating activities was $22.0 million,
$16.9 million and $11.7 million, respectively. Net cash provided by operating
activities in fiscal 1999 primarily reflected net income before depreciation
and amortization expense plus increased accrued liabilities less increases in
accounts receivable and inventories. Net cash provided by operating activities
in fiscal 1998 primarily reflected net income before depreciation and
amortization expense plus increases in accounts payable and accrued liabilities
less increases in accounts receivable and deferred income taxes. Net cash
provided by operating activities in fiscal 1997 primarily reflected net income
before depreciation and amortization expense.
Capital expenditures totaled $16.7 million for the nine months ended
December 31, 1999 and included the payment of $3.7 million to complete the
purchase of land under a contract entered into in June 1998. Capital
expenditures and the purchase of other assets totaled $16.5 million, $11.6
million and $4.1 million for the years
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<PAGE>
ended March 31, 1999, 1998 and 1997, respectively, of which $6.7 million, $3.6
million and $1.2 million for the years ended March 31, 1999, 1998 and 1997,
respectively, were financed using debt or capital leases.
We are exploring alternatives for the expansion of our manufacturing
capacity, which would likely occur after fiscal year 2001, including further
expansion of our current wafer fabrication facility, building a new wafer
fabrication facility, purchasing a wafer fabrication facility, and/or entering
into strategic relationships to obtain additional capacity. Any of these
alternatives could require a significant investment by us and there can be no
assurance that any of the alternatives for expansion of our manufacturing
capacity will be available on a timely basis or at all.
In January 2000, we completed the public offering of approximately 12
million shares of common stock raising net proceeds of approximately $815
million. We intend to use the proceeds of the offering for working capital and
for general corporate purposes. In addition, we may use a portion of the
proceeds to acquire businesses or technologies.
We believe that our available cash, cash equivalents and short-term
investments, and cash generated from operations, will be sufficient to meet our
capital requirements for the next 12 months, although we could elect or could
be required to seek to raise additional capital during such period. There can
be no assurance that such additional debt or equity financing will be available
on commercially reasonable terms or at all.
Quantitative and Qualitative Disclosure About Market Risk
At December 31, 1999, our investment portfolio includes fixed-income
securities of $92.5 million. These securities are subject to interest rate risk
and will decline in value if interest rates increase. Due to the short duration
of our investment portfolio, an immediate 100 basis point increase in interest
rates would have no material impact on our financial condition or results of
operations.
We generally conduct business, including sales to foreign customers, in U.S.
dollars and as a result, have limited foreign currency exchange rate risk. The
effect of an immediate 10% change in foreign exchange rates would not have a
material impact on our financial condition or results of operations.
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<PAGE>
AMCC MANAGEMENT AFTER THE MERGER
Executive Officers and Directors
The following table sets forth the names of the members of the board of
directors and executive officers of AMCC, their ages and the positions held by
them with AMCC as of March 31, 2000. There will be no changes in our board of
directors upon the completion of the merger.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
David M. Rickey.............. 44 President, Chief Executive Officer and
Director
William E. Bendush........... 51 Vice President, Finance and
Administration, and Chief Financial
Officer and Secretary
Kenneth L. Clark............. 51 Vice President, Operations
Candace H. Kilburn........... 46 Vice President, Human Resources
Brent E. Little.............. 36 Vice President, Marketing
Gary D. Martin............... 48 Chief Technical Officer, Digital Products
Stephen M. Smith............. 41 Vice President, Business Development
Ramakrishna R. Sudireddy..... 33 Vice President, Digital Products
Thomas L. Tullie............. 35 Vice President, Sales
Gregory A. Winner............ 44 Vice President, Engineering
Roger A. Smullen, Sr.(1)..... 64 Chairman of the Board of Directors
William K. Bowes, Jr.(1)..... 73 Director
R. Clive Ghest(2)............ 62 Director
Franklin P. Johnson, Jr.(1).. 71 Director
S. Atiq Raza................. 50 Director
Arthur B. Stabenow(2)........ 61 Director
Harvey P. White(2)........... 66 Director
</TABLE>
--------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
There are no family relationships among any of the directors or executive
officers of AMCC.
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 AMCC'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 fabrication engineering
and manufacturing operations in both Ottawa, Canada and San Diego, California.
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.
William E. Bendush has served as the Vice President, Finance and
Administration, Chief Financial Officer and Secretary of AMCC since April 1999,
and upon completion of the merger, Mr. Bendush will become the Director, Chief
Executive Officer, Chief Financial Officer and Secretary of YuniNetworks. Mr.
Bendush came to AMCC from Silicon Systems Inc., where he served as Senior Vice
President and Chief Financial Officer from September 1986 to April 1999. Prior
to joining Silicon Systems Inc., Mr. Bendush held various financial
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<PAGE>
management positions at AM International, Gulf + Western Industries and Gould
Inc. Mr. Bendush received a B.A. from Northern Illinois University.
Kenneth L. Clark joined AMCC in November 1997 as Vice President, Operations.
Prior to joining AMCC, Mr. Clark worked at Integrated Device Technology, Inc.,
a semiconductor company, from February 1995 to October 1997, where he served as
Director, Fab Operations. From 1990 to 1995, Mr. Clark served in various senior
management positions including Director, Fab Operations at Silicon Systems,
Inc., a semiconductor company. From 1987 to 1990, Mr. Clark served as Director,
Fab Operations at National Semiconductor Corp. Mr. Clark has also held
manufacturing and engineering management positions at Cypress Semiconductor
Corp., Zymos, Inc., Micron Technology and American Microsystems, Inc. Mr. Clark
holds a B.S. in Physics from the University of Washington.
Candace H. Kilburn joined AMCC in 1996 with over 19 years human resources
management experience. Prior to joining AMCC, Ms. Kilburn served as Director of
Human Resources with Buck Knives Inc. from 1990 to 1996 where she was
responsible for international human resources. She has also held positions at
Handyman Corporation and Rohr Industries. Ms. Kilburn earned a B.S. in Business
Administration from the United States International University, and an M.B.A.
from Chapman University. She is designated as a Senior Professional in Human
Resources, a Certified Employee Benefits Specialist, and has two certificates
in Human Resources Management.
Brent E. Little joined AMCC in 1991. Prior to his current position as Vice
President of Marketing, he held several marketing management positions with
AMCC as the Director of Strategic Marketing, and Director of Marketing for ASIC
products. Prior to joining AMCC, he worked as the Business Development Manager
for Analysis and Technology, Inc., and worked with the U.S. Navy as a Project
Engineer. Mr. Little earned a B.S. in Electrical Engineering from the
University of California, Santa Barbara.
Gary D. Martin joined AMCC in March 1999 when AMCC acquired Cimaron
Communications. Before co-founding Cimaron in January 1998, Dr. Martin was a
design consultant, performing ASIC design services for Lucent Technologies, ATI
and Siltek. From 1995 to 1997, he was Vice President of Engineering and Chief
Technical Officer at ATI. Dr. Martin was employed by AT&T Bell Laboratories
from 1978 to 1995. During that time, he contributed to more than 20 ASIC
designs in SONET, ATM, PDH and error correction. Between 1987 and 1995, he was
Technical Manager for the SONET/ATM ASIC design group, and for the high-speed
modem design group. Dr. Martin contributed to the architecture and design of
AT&T's original SONET chip set, which was eventually used successfully in a
number of AT&T SONET products. From 1978 to 1987, as a Member of Technical
Staff, Dr. Martin was a system engineer and a digital design engineer. Dr.
Martin holds a master's degree and a doctorate in Electrical Engineering from
Stanford University, and bachelor's and master's degrees in Mechanical
Engineering from Oklahoma State University.
Stephen M. Smith joined AMCC as Vice President, Business Development in
October 1999. From May 1998 to October 1999 Mr. Smith worked at ST
Microelectronics, a semiconductor company, as the Director of the Micro-
Fluidics Business Unit located in San Diego, California. Additionally, Mr.
Smith worked for STM from January 1993 until May 1997 as the Director of
Finance, Region Americas located in Carrollton, Texas. From May 1997 to May
1998 Mr. Smith served as Vice President Finance for Vixel Corporation, a Fibre
Channel company. Previously, Mr. Smith spent 8 years with Nortel where he led
the finance teams in both Ottawa, Canada and San Diego, California. Mr. Smith
also worked in various finance positions with Motorola from 1982 to 1985. Mr.
Smith holds a B.S. degree from Arizona State University.
Ramakrishna R. Sudireddy joined AMCC in March 1999 when AMCC acquired
Cimaron Communications. Before co-founding Cimaron in January 1998, Mr.
Sudireddy founded Siltek Corporation in 1996, and served as its Vice President
of Research and Development until 1997. Siltek provided ATM and SONET design
services for such companies as Lucent Technologies, SGS Thomson, and Sun
Microsystems. From 1991 to 1996, Mr. Sudireddy was a Member of Technical Staff
at AT&T Bell Laboratories. While at Bell Labs, he was the chief architect and
lead designer for a number of highly complex ASICs. These ASICs
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<PAGE>
generally had hundreds of thousands of gates, and operated at speeds as high as
622 MHz. Mr. Sudireddy gained prominence for developing these ASICs more
efficiently (with as many as 30% fewer gates) and more quickly than
conventional methods within Bell Labs. Mr. Sudireddy has a master's degree in
Computer Engineering from the University of Massachusetts at Lowell, and a
bachelor's degree in Electrical Engineering from Nagarjuna University in
Guntur, India.
Thomas L. Tullie joined AMCC as Vice President, Sales in August 1996. Prior
to joining AMCC, 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.
Gregory A. Winner joined AMCC in November 1999. Mr. Winner came to AMCC from
Silicon Systems, Inc., where he was responsible for the advanced development of
integrated circuit products as their vice president of Product Development from
September 1982 to November 1999. Prior to that, he held various engineering
positions at Memorex, IBM and General Dynamics. Mr. Winner holds an M.S.E.E.
from Stanford University and a B.S.E.E degree from the University of
California, Los Angeles.
Roger A. Smullen, Sr. has served as the Chairman of AMCC's Board of
Directors since October 1982. Mr. Smullen has served as Acting Vice President,
Operations of the Company from August 1997 through October 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. Mr. Smullen is currently a director of Micro Linear
Corporation, a manufacturer of integrated circuits. He holds a B.S. in
Mechanical Engineering from the University of Minnesota.
William K. Bowes, Jr. has served as a director of AMCC 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, Lynx Therapeutics, Inc. and one privately-held U.S.
Venture Partners portfolio company. Mr. Bowes holds a B.A. from Stanford
University and an M.B.A. from Harvard Business School.
R. Clive Ghest has served as a director of AMCC 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.
Franklin P. Johnson, Jr. has served as a director of AMCC since April 1980.
He is the general partner of Asset Management Partners, a venture capital
limited partnership. Mr. Johnson has been a private venture capital investor
for more than five years. Mr. Johnson is 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.
S. Atiq Raza has served as a Director of AMCC since September 1999. Mr. Raza
is President and CEO of Raza Foundries, Inc., a company that builds and
operates broadband networking and communications companies which he founded in
October 1999. Mr. Raza was the President and Chief Operating Officer of
Advanced Micro Devices from January 1996 to March 1999. From October 1988 to
January 1996 he was with NexGen, Inc. where he held the positions of Chairman,
Chief Executive Officer and President. Prior to joining NexGen, Mr. Raza spent
15 years in various engineering and management positions including Vice
President Technology Centers at VLSI Technology Inc. Mr. Raza holds a
bachelor's degree from the University of London, and a master's degree from
Stanford University. He also serves on the board of directors of Procket
Networks, Inc., Nishan Systems and Mellanox Technologies, Ltd.
65
<PAGE>
Arthur B. Stabenow has served as a director of AMCC since July 1988. Mr.
Stabenow was Chairman, President and Chief Executive Officer of Micro Linear
Corporation, a manufacturer of integrated circuits, from April 1986 until his
retirement in January 1999. 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.
Harvey P. White has served as a director of AMCC since April 1999. Since
January 1999, Mr. White has been the President and CEO of Leap Wireless
International. Mr. White is one of the founders of Qualcomm and served as
President from May 1992 through June 1998. Prior to May 1992, he served as
Executive Vice President and Chief Operating Officer and was a Director of
Qualcomm since it began operations in July 1985 until September 1998. Mr. White
holds a bachelor's degree in economics from Marshall University.
Director Compensation
Nonemployee directors of AMCC receive a $12,000 annual fee and fees of $500
per meeting attended. Directors are also reimbursed for customary and usual
travel expenses incurred in connection with attendance at meetings of AMCC's
Board of Directors.
AMCC's 1997 Directors' Stock Option Plan (Directors Plan) provides that each
person who becomes a nonemployee director of AMCC will be granted (on the date
on which the optionee first becomes a nonemployee director of AMCC) a
nonstatutory stock option to purchase 50,000 shares of AMCC common stock.
Thereafter, on April 1 of each year (starting in 2000) for nonemployee
directors who were serving as of the date of the closing of the initial public
offering, which was declared effective on November 24, 1997, each nonemployee
director will be granted an option to purchase 50,000 shares of AMCC common
stock if on such date, he or she has served on the AMCC's Board of Directors
for at least six months.
In fiscal 2000, without taking into account the stock splits effected in
September 1999 and March 2000, Mr. White received an automatic grant of 12,500
shares at an exercise price of $49.1252 upon his appointment as a director in
April 1999. As adjusted for the stock split in September 1999, Mr. Raza
received an automatic grant of 25,000 shares at an exercise price of $54.375
upon his appointment as a Director in September 1999. These options vest over a
twelve-month period.
AMCC has agreed to indemnify each director and officer against certain
claims and expenses for which the director might be held liable in connection
with past or future services to AMCC and its subsidiaries. In addition, AMCC
maintains an insurance policy insuring it officers and directors against such
liabilities.
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Executive Compensation
Summary Compensation Table
The following table shows the compensation earned by (a) the individual who
served as AMCC's Chief Executive Officer during the fiscal year ended March 31,
2000, (b) the four other most highly compensated individuals who served as an
executive officer of AMCC during the fiscal year ended March 31, 2000; and
(c) the compensation received by each such individual for AMCC's two preceding
fiscal years (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
Securities
Other Annual Underlying All Other
Fiscal Salary Bonus Compensation Options Compensation
Name and Principal Position Year ($)(1) ($) ($)(2) (#)(3) ($)
--------------------------- ------ ------- ------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
David M. Rickey............ 2000 348,550 350,000(4) -- 2,640,000 3,120(5)
President and Chief 1999 315,453 110,000(6) -- -- 3,120(5)
Executive Officer 1998 300,014 212,900(7) -- 586,664 3,120(5)
Thomas L. Tullie........... 2000 268,473(8) 35,000(4) -- 270,000 --
Vice President, Sales 1999 249,199(9) 25,000(6) -- -- --
1998 219,556(10) 52,000(7) -- 293,332 --
William E. Bendush......... 2000 199,288(11) 100,000(4) -- 650,000 --
Vice President and Chief 1999 -- -- -- -- --
Financial Officer 1998 -- -- -- -- --
Kenneth L. Clark........... 2000 188,070 100,000(4) -- 270,000 --
Vice President, Operations 1999 181,770 35,000(6) 31,385(12) -- --
1998 64,211(13) 26,000(7) -- 520,000 --
Brent E. Little............ 2000 163,231 100,000(4) -- 400,000 --
Vice President, Marketing 1999 126,933 30,000(6) -- 300,000 --
1998 125,465 37,000(7) -- 89,328 --
</TABLE>
--------
(1) Includes pre-tax contributions to the AMCC 401(k) Plan.
(2) Excludes annual compensation which, for any named executive officer, did
not in aggregate exceed the lesser of $50,000 or ten percent of such named
executive officer's total annual salary and bonus for that year.
(3) Options granted in a given fiscal year may include grants based on the
officer's performance in the prior fiscal year and have been adjusted to
reflect the September 1999 and March 2000 two-for-one stock splits.
(4) Includes fiscal 2000 bonus paid in May 2000 (fiscal 2001).
(5) Includes annual premiums in the amount of $3,120 paid by AMCC on a term
life insurance policy.
(6) Includes fiscal 1999 bonus paid in April 1999 (fiscal 2000).
(7) Includes fiscal 1998 bonus paid in April 1998 (fiscal 1999).
(8) Includes commissions earned by Mr. Tullie in the amount of $107,521.
(9) Includes commissions earned by Mr. Tullie in the amount of $91,714, of
which $66,630 was paid to Mr. Tullie in fiscal 1999 and $25,084 was paid
to Mr. Tullie in fiscal 2000.
(10) Includes commissions earned by Mr. Tullie in the amount of $71,639, of
which $63,914 was paid to Mr. Tullie in fiscal 1998 and $7,725 was paid to
Mr. Tullie is fiscal 1999. Also includes a referral bonus in the amount of
$2,000.
(11) Includes a sign-on bonus in the amount of $25,000.
(12) Includes $27,985 paid to Mr. Clark in the form of relocation expenses and
a matching contribution in the amount of $3,390 that AMCC made on Mr.
Clark's behalf to the AMCC 401(k) Plan.
(13) Mr. Clark joined us in November 1997, and his annualized base salary for
the fiscal year ended March 31, 1998 was $175,000.
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<PAGE>
Employment, Severance and Change of Control Agreements
In January 1996, AMCC entered into a letter agreement with David M. Rickey,
AMCC's President and Chief Executive Officer, in connection with the
commencement of his employment. This agreement entitles Mr. Rickey to a salary
of $275,000 per year and term life insurance purchased by AMCC for the benefit
of Mr. Rickey's estate. Pursuant to the terms of the agreement, if AMCC enters
into certain change-of-control transactions, the vesting of the options to
purchase shares of AMCC's common stock granted in connection with the
commencement of Mr. Rickey's employment will accelerate and become exercisable
in full. In addition, the agreement provides that if AMCC is acquired and the
per share value of AMCC's common stock is less than $.75 per share, AMCC will
compensate Mr. Rickey for the difference between $.75 per share and the per
share merger or sale price determined by AMCC's Board of Directors. The letter
agreement provides that Mr. Rickey's employment is at will and terminable by
AMCC or Mr. Rickey for any reason, with or without cause, and with or without
notice.
In August 1996, AMCC entered into a letter agreement with Thomas L. Tullie,
AMCC's Vice President, Sales, in connection with the commencement of his
employment. Pursuant to the terms of the agreement, if AMCC enters into certain
change-of-control transactions, the vesting of the options to purchase shares
of AMCC's common stock granted in connection with the commencement of Mr.
Tullie's employment will accelerate and become exercisable in full.
In accordance with the terms of our 1992 Stock Option Plan (1992 Plan),
unless otherwise provided for a particular optionee pursuant to a separate
agreement, if AMCC enters into certain change-of-control transactions, any
option granted under our 1992 Plan to purchase shares of AMCC's common stock
shall vest and become immediately exercisable for the number of shares that
would otherwise be vested and exercisable under the terms of the option one
year after the date of the change-of-control transaction. This would apply to
options granted under the Plan to any of the Named Executive Officers.
Option Grants In Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants(1)
---------------------------------------------------
Potential Realizable
Value at Assumed
Number of Percent of Total Annual Rates of Stock
Securities Options Granted Exercise Price Appreciation For
Underlying to Employees in or Base Option Term(2)
Options Fiscal Year Price Expiration ----------------------
Name Granted (#) (%)(3) ($/sh)(4) Date 5% ($) 10% ($)
---- ----------- ---------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
David M. Rickey......... 640,000(5) 4.67 12.969 04/23/09 5,219,846 13,228,113
2,000,000 14.60 71.969 01/19/10 90,521,835 229,400,102
Thomas L. Tullie........ 120,000(5) 0.88 12.969 04/23/09 978,721 2,480,271
150,000 1.10 140.875 03/08/10 13,289,330 33,677,770
William E. Bendush...... 33,148 0.24 12.063 04/20/09 251,462 637,254
466,852 3.41 12.063 04/20/09 3,541,559 8,975,005
150,000 1.10 140.875 03/08/10 13,289,330 33,677,770
Kenneth L. Clark........ 120,000(5) 0.88 12.969 04/23/09 978,721 2,480,271
150,000 1.10 140.875 03/08/09 13,289,330 33,677,770
Brent E. Little......... 40,000(5) 0.29 12.969 04/23/09 326,240 826,757
160,000 1.17 20.375 08/03/09 2,048,067 5,188,979
200,000 1.46 140.875 03/08/10 17,719,106 44,903,694
</TABLE>
--------
(1) Consists of options granted pursuant to our 1992 Plan. Options granted
under the 1992 Plan to new hires generally become exercisable over four
years from the date of grant with one-fourth of the shares becoming
exercisable one year from the date of grant and the remaining shares
becoming exercisable on a monthly basis thereafter for the remaining 36
months. Options granted under the 1992 Plan to current employees generally
become exercisable on a monthly basis over a period of forty-eight months
from the date of grant. All figures have been adjusted to reflect AMCC's
September 1999 and March 2000 two-for-one stock splits.
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<PAGE>
(2) 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 Executive
Officers.
(3) An aggregate of 13,797,938 options to purchase shares of AMCC common stock
were granted during fiscal year ended March 31, 2000, of which 13,697,938
shares were granted to employees.
(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.
(5) Options granted in April 1999 in connection with the Named Executive
Officer's performance in fiscal year ended March 31, 1999.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
The following table sets forth certain information with respect to stock
options exercised by the Named Executive Officers during the fiscal year ended
March 31, 2000. In addition, the table sets forth the number of shares covered
by stock options as of the fiscal year ended March 31, 2000, and the value of
"in-the-money" stock options, which represents the positive spread between the
exercise price of a stock option and the market price of the shares subject to
such option at the end of the fiscal year ended March 31, 2000.
<TABLE>
<CAPTION>
Value of Unexercised
Shares Number of Unexercised Options In-the-Money Options at
Acquired Value at Fiscal Year End (#) Fiscal Year End ($)
on Exercise Realized ------------------------------- ----------------------------
Name (#) ($)(1) Exercisable/Unexercisable(2)(3) Exercisable/Unexercisable(4)
---- ----------- ---------- ------------------------------- ----------------------------
<S> <C> <C> <C> <C>
David M. Rickey......... 130,000 12,897,742 315,000/2,515,000 36,939,648/$235,296,538
Thomas L. Tullie........ 23,978 541,752 86,022/320,000 12,188,773/$ 25,249,214
William E. Bendush...... -- 0 125,004/524,996 17,250,615/$ 53,127,836
Kenneth L. Clark........ 165,834 5,290,176 26,666/450,000 3,873,872/$ 44,575,530
Brent E. Little......... 37,000 834,163 204,362/613,970 28,960,363/$ 58,454,369
</TABLE>
--------
(1) This value has been calculated based on the fair market value of AMCC's
common stock as of the date of exercise as determined by the closing price
of AMCC's stock on The Nasdaq National Market as of the date of exercise
minus the applicable per share exercise price or, in the case of a same-
day-sale of the option, by the actual sale price of the stock minus the
applicable per share exercise price.
(2) No stock appreciation rights (SARs) were outstanding during fiscal 2000.
(3) Options granted prior to March 27, 1998 under the 1992 Stock Option Plan
are generally exercisable, but subject to a right of repurchase pursuant to
the vesting schedule of each grant. Options granted on or after March 27,
1998 are exercisable only as to those shares that are vested. Accordingly,
the table reflects those options that are exercisable, not those options
that are vested.
(4) Based on the $150.063 per share closing price of AMCC's common stock on The
Nasdaq National Market on March 31, 2000, less the exercise price of the
options.
Transactions with Management
In January 1996, AMCC entered into a letter agreement with David M. Rickey,
AMCC's President and Chief Executive Officer, relating to Mr. Rickey's
employment and benefits in connection with certain change-of-control
transactions. See "Employment, Severance and Change of Control Agreements."
In August 1996, AMCC entered into a letter agreement with Thomas L. Tullie,
Vice President, Sales, relating to Mr. Tullie's employment and benefits in
connection with certain change-of-control transactions. See "Employment,
Severance and Change of Control Agreements."
In February 1996, AMCC entered into a loan arrangement with Mr. Rickey,
pursuant to which AMCC loaned to Mr. Rickey $150,000 (Note No. 1) and $53,000
(Note No. 2) at an annual interest rate of 5.32%.
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<PAGE>
Note No. 1 was a full recourse, unsecured real estate bridge loan with accrued
interest and principal payable upon the earlier of February 12, 1999 or the
sale of the house in which Mr. Rickey lived prior to relocating to San Diego to
accept employment as AMCC's President and Chief Executive Officer. Note No. 2
was the reinstatement of a loan which had been made previously to Mr. Rickey in
connection with the exercise of incentive stock options while serving as Vice
President, Manufacturing for AMCC. Note No. 2 was a full recourse, unsecured
promissory note with accrued interest and principal payable no later than
February 12, 1999. Note No. 1 and Note No. 2 may be declared payable in full by
AMCC in the event that Mr. Rickey ceases to be employed by AMCC. In May 1996,
AMCC entered into a loan agreement with Mr. Rickey pursuant to which AMCC
loaned $750,000 (Note No. 3) to Mr. Rickey at an interest rate of 5.76% per
annum compounded annually. The proceeds of the loan were used to exercise
options granted by Mr. Rickey's former employer, which were expiring as a
result of Mr. Rickey's termination of employment with the former employer in
order to join AMCC. The loan is evidenced by a non-recourse promissory note,
which is secured by 46,500 shares of common stock of Advanced Micro Devices,
Inc. The principal and accrued interest on
Note No. 3 were due and payable in full on May 1, 1999, unless accelerated in
whole or in part in the event of (i) a default under the loan agreement or
pledge agreement for Note No. 3, (ii) a default in payment under Note No. 3 or
any other promissory note issued to AMCC by Mr. Rickey, (iii) the voluntary or
involuntary termination of Mr. Rickey's employment with AMCC or (iv) the sale
of any portion of the common stock securing Note No. 3. Each of Note No. 1,
Note No. 2 and Note No. 3 were approved by the Board of Directors of AMCC
pursuant to the approval of Mr. Rickey's offer of employment with AMCC. In
September 1996, Mr. Rickey repaid approximately $142,000 of the principal on
Note No. 1, and in April 1997, 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 payment of the balance of the amount owing under Note No. 1.
In January 1999 and April 2000, the Board of Directors extended the due dates
on the notes by one year, as these notes became due. In August 1999, Mr. Rickey
repaid the $750,000 principal balance of Note No. 3 plus accrued interest of
approximately $150,000 in full. The current aggregate principal balance
outstanding under each note is as follows:
<TABLE>
<CAPTION>
Date of Extended Current
Principal Original Maturity Interest
Amount Note Date Rate
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Note No. 1.......................... $12,392 4/1/1997 3/31/2002 6.42%
Note No. 2.......................... $53,000 2/12/1996 2/12/2002 6.42%
</TABLE>
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 full recourse 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 were payable in
full in February 2000, February 2000 and April 2001, respectively. In January
2000 the Board of Directors extended the maturity dates of the first two notes
to February 2002 and the maturity date of the third note to April 2003. In May
2000, Mr. Rickey repaid the $400,000, $20,000 and $35,000 balances of each of
these notes, respectively, plus aggregate accrued interest of approximately
$85,000.
AMCC has entered into indemnification agreements with its officers and
directors containing provisions that may require AMCC, 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.
AMCC believes that all of the transactions set forth above were made on
terms no less favorable to AMCC than could have been obtained from unaffiliated
third parties. All future transactions, including loans, between AMCC 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 AMCC than could be obtained from unaffiliated third
parties.
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COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Except as otherwise noted, the following table sets forth information that
has been provided to AMCC with respect to the beneficial ownership of shares of
AMCC's common stock as of March 31, 2000 for (i) each person who is known by
AMCC to own beneficially more than five percent of the outstanding shares of
common stock, (ii) each director of AMCC, (iii) each of the executive officers
named in the Summary Compensation Table of this proxy/consent solicitation
(Named Executive Officers), and (iv) all directors and executive officers of
AMCC as a group.
<TABLE>
<CAPTION>
Percentage of Shares
Outstanding(3)
Number of Shares -----------------------
Beneficially Before After
Name and Address(1) Owned(2) Merger Merger
------------------- ---------------- ---------- ----------
<S> <C> <C> <C>
Morgan Stanley Dean Witter(4)....... 6,179,612 5.1% 5.0%
1221 Avenue of the Americas
New York, NY 10020
Roger A. Smullen, Sr.(5)............ 1,528,520 * *
David M. Rickey(6).................. 980,634 * *
Franklin P. Johnson, Jr.(7)......... 858,423 * *
Thomas L. Tullie(8)................. 442,420 * *
Brent E. Little(9).................. 259,879 * *
William K. Bowes, Jr.(10)........... 157,535 * *
William E. Bendush(11).............. 138,546 * *
Arthur B. Stabenow(12).............. 130,819 * *
R. Clive Ghest(13).................. 68,167 * *
Kenneth L. Clark(14)................ 46,840 * *
Harvey P. White(15)................. 62,167 * *
S. Atiq Raza(16).................... 29,166 * *
All directors and executive officers
as a group (17 persons)(17)........ 6,636,864 5.0% 4.9%
</TABLE>
--------
* Less than 1%.
(1) The address for AMCC's executive officers and directors is: c/o AMCC, 6290
Sequence Drive, San Diego, California 92121.
(2) The persons named in this table have sole voting and investment power with
respect to all shares of AMCC common stock shown as beneficially owned by
them, subject to community property laws where applicable and except as
indicated in the other footnotes to this table.
(3) In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of AMCC common stock subject
to options or warrants held by that person that are exercisable within 60
days after March 31, 2000 are deemed outstanding. Such shares, however,
are not deemed outstanding for the purpose of computing the percentage
ownership of any other person. Applicable percentages are based on
121,844,760 shares of AMCC common stock outstanding on March 31, 2000
together with applicable options for such stockholders.
(4) Information with respect the beneficial ownership of shares of AMCC common
stock is as of December 31, 1999.
(5) Includes 36,110 shares of AMCC common stock that are subject to repurchase
by us and 65,416 shares issuable upon the exercise of vested options.
(6) Includes 66,666 shares of AMCC common stock that are subject to repurchase
by us and 376,666 shares issuable upon the exercise of vested options.
(7) Includes 257,495 shares of AMCC common stock issuable upon the exercise of
vested options that are exercisable within 60 days of March 31, 2000. Also
includes 285,664 shares held by Mr. Johnson's wife. Mr. Johnson disclaims
beneficial ownership with respect to the shares held by his wife.
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<PAGE>
(8) Includes 55,555 shares of AMCC common stock that are subject to repurchase
by us and 94,980 shares issuable upon the exercise of vested options.
(9) Includes 236,915 shares of AMCC common stock issuable upon the exercise of
options that are exercisable within 60 days of March 31, 2000, of which
16,109 are subject to repurchase rights in favor of AMCC.
(10) Includes 22,800 shares of AMCC common stock owned by the William K. Bowes,
Jr. Foundation. Includes 107,495 shares of common stock issuable upon the
exercise of vested options that are exercisable within 60 days of March
31, 2000.
(11) Includes 138,546 shares of AMCC common stock issuable upon the exercise of
options that are exercisable within 60 days of March 31, 2000.
(12) Includes 4,167 shares of AMCC common stock issuable upon the exercise of
options that are exercisable within 60 days of March 31, 2000.
(13) Includes 57,055 shares of AMCC common stock issuable upon the exercise of
options that are exercisable within 60 days of March 31, 2000, of which
11,111 are subject to repurchase rights in favor of the Company.
(14) Includes 46,840 shares of AMCC common stock issuable upon the exercise of
vested options.
(15) Includes 62,167 shares of AMCC common stock issuable upon the exercise of
vested options.
(16) Includes 29,166 shares of AMCC common stock issuable upon the exercise of
vested options.
(17) Includes 273,135 shares of AMCC common stock that are subject to
repurchase by us. Includes 1,775,870 shares issuable upon the exercise of
options that are exercisable within 60 days of March 31, 2000, of which
27,220 are subject to repurchase rights in favor of AMCC.
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YUNINETWORKS BUSINESS
YuniNetworks develops scalable switch solutions with QOS support to meet the
significant and increasing demands for network bandwidth. Certain aspects of
the QOS support are made possible by technology licensed from the Regents of
the University of California. Under the terms of the license, YuniNetworks has
the exclusive right to commercially develop, use and sell products relating to
scalable switch design using earliest deadline first scheduling. YuniNetworks'
switching technology is well matched to terabit routers and Carrier Class ATM
(Asynchronous Transfer Mode) switch fabric applications with line bandwidth
between 1 and 4 terabits per second. YuniNetworks' target customer base is
comprised of the leading suppliers of these systems including Cisco, Nortel,
Lucent, Juniper Networks and many others. YuniNetworks believes that the use of
networks for communications will continue to grow rapidly but existing products
will be unable to meet the demands of high-speed data applications that are
driving network traffic growth. As traffic on networks continues to increase
exponentially, YuniNetworks believes that there is a growing need to provide
higher speed networking equipment with QOS support capability. YuniNetworks'
switching fabric technology is designed to fulfill these needs.
YuniNetworks' switching architecture is capable of wire speed scheduling to
support QOS for eight classes of service, including TDM (Time Division
Multiplexing) and thousands of flows per port. It is scalable from high-end,
multi-terabit applications downward to 10 gigabit applications, permitting the
development of a family of switching products. YuniNetworks believes that these
features and the speed of our switch fabric are important to YuniNetworks'
target customers.
YuniNetworks' current architecture provides a scalable switch fabric with
aggregate bandwidth from 10 gigabits to 4 terabits per second. The solution is
comprised of six custom ICs implemented in standard .18u CMOS technology, as
well as commercially available SRAMs and high-speed SERDES
(serializers/deserializers) chips. In addition, YuniNetworks' architecture
utilizes the newly developed and emerging low cost VCSEL (Vertical Cavity
Surface Emitting Laser) optical technology for backplane interconnect between
the switching elements.
Background of YuniNetworks
YuniNetworks was incorporated on October 8, 1999. YuniNetworks was founded by
Dr. Kenneth Yun and Ms. Kay Yun. Dr. Yun is a tenured professor at the
University of California, San Diego and has been doing research in high-speed
networking and VLSI design for over 10 years. He has also worked at companies
such as Intel, AMD, Hitachi, TRW and IBM. Ms. Yun is Dr. Yun's sister, and was
an investment banker at Goldman, Sachs & Co. for over 9 years.
YuniNetworks has assembled an experienced engineering team with ASIC design
and implementation, optical network, system design and firmware expertise to
develop its technology. YuniNetworks currently has 20 full time employees and
15 contractors, consultants and advisors.
From October through December 1999, Dr. Yun and Ms. Yun funded the operations
of YuniNetworks. In December 1999, the company raised $5.5 million by selling
shares of preferred stock to Raza Foundries, Inc. and the individual investors.
Raza Foundries, Inc. subsequently contributed its shares of preferred stock of
YuniNetworks to Raza Foundries Canada.
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YUNINETWORKS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with YuniNetworks'
financial statements and related notes and the other financial information
included elsewhere in this prospectus/consent solicitation statement. This
discussion contains forward-looking statements that involve risks and
uncertainties. YuniNetworks' actual results could differ materially from the
results contemplated by these forward-looking statements as a result of
certain factors, including those discussed below and elsewhere in this
prospectus/consent solicitation statement, particularly under the heading
"Risk Factors."
YuniNetworks was incorporated in Delaware in October 1999. Activities prior
to October 8, 1999, the beginning of YuniNetworks' operations, were not
significant. The discussion below is for the period from our inception on
October 8, 1999 to March 31, 2000.
Overview
Since YuniNetworks' inception in 1999, YuniNetworks has incurred costs to
develop YuniNetworks' technology, to recruit and train personnel for
YuniNetworks' engineering department and to establish an administrative
organization. As a result, YuniNetworks had an accumulated deficit of $939,000
as of March 31, 2000.
As YuniNetworks has granted stock options to attract and retain key
employees, YuniNetworks has recorded deferred compensation of $3.3 million
from October 8, 1999 to March 31, 2000. From October 8, 1999 to March 31,
2000, YuniNetworks recorded amortization expense for these options totaling
$176,000. The net deferred compensation as of March 31, 2000 was $3.1 million.
Results of Operations
Revenue--YuniNetworks recorded no revenue for the period from October 8,
1999 to March 31, 2000.
Research and Development--Research and development expenses consist
primarily of salaries and related expenses for personnel engaged in research
and development, fees paid to consultants and outside service providers,
hardware and software costs, other material costs, and other expenses related
to the design and development of our future products. Research and development
expenses were $758,000 for the period from October 8, 1999 to March 31, 2000.
YuniNetworks believes that a significant level of investment in product
research and development is required to remain competitive. Accordingly,
YuniNetworks expects to continue to devote substantial resources to product
research and development and we expect these expenses to increase in future
periods.
General and Administrative--General and administrative expenses consist
primarily of salaries and related expenses for executive, finance and
information technology personnel. General and administrative expenses were
$253,000 in the period from October 8, 1999 to March 31, 2000. YuniNetworks
expects administrative expenses will increase in the future as YuniNetworks
expands YuniNetworks' information infrastructure and operations to support
growing research and development operations.
Interest and Other Income--Interest and other income were $71,000 in the
period from October 8, 1999 to March 31, 2000.
Interest Expense--YuniNetworks recorded no interest expense for the period
from October 8, 1999 to March 31, 2000.
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Liquidity and Capital Resources
Since inception, YuniNetworks has financed its operations through private
sales of its capital stock. YuniNetworks' completed the issuance of preferred
stock at $0.50 per share in December 1999, which yielded YuniNetworks net cash
proceeds of approximately $5.5 million. Since the issuance of preferred stock
in December 1999, certain employees, consultants and contractors exercised
their options and purchased common stock, which yielded YuniNetworks proceeds
of $55,000.
At March 31, 2000, YuniNetworks maintained cash and cash equivalents of
approximately $4.5 million. From October 8, 1999 to March 31, 2000,
YuniNetworks used $860,000 in investing activities principally for the
acquisition of software and equipment and $194,000 to fund operating
activities.
Given YuniNetworks' rapid growth and continued operating losses,
YuniNetworks will need to obtain additional financing to cover its projected
cash flows over the next twelve months. Accordingly, if the merger with AMCC is
not completed, YuniNetworks will be required to seek additional equity or debt
financing from other third party investors to meet YuniNetworks anticipated
cash needs for working capital and capital expenditures for the next twelve
months.
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<PAGE>
DESCRIPTION OF AMCC CAPITAL STOCK
AMCC is authorized to issue 182,000,000 shares of its capital stock, which
are divided into two classes known as common stock and preferred stock,
respectively. The authorized number of shares of AMCC common stock consists of
180,000,000 shares, par value $0.01 per share, of which 122,322,169 shares were
issued and outstanding on May 1, 2000. The authorized number of shares of AMCC
preferred stock consists of 2,000,000 shares, par value $0.01 per share, of
which none were issued and outstanding on May 1, 2000. AMCC common stock is
listed on The Nasdaq National Market under the symbol "AMCC."
AMCC's Board of Directors has the power to (i) provide for the issuance of
preferred stock in one or more series; (ii) establish from time to time the
number of shares to be included in each such series; (iii) 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; and (iv) increase or decrease the number
of shares of any series subsequent to the issuance of shares of that series,
but not below the number of shares of such series then outstanding.
Voting Rights.
Each AMCC stockholder is entitled to one vote for each share of capital stock
held by such holder.
Dividends.
The directors of AMCC may declare and pay dividends upon the shares of its
capital stock out of funds of AMCC legally available for the declaration of
dividends.
Notice of Stockholders' Meetings
Except as otherwise required by law, the holder of each share of AMCC capital
stock is entitled to notice of any stockholders' meeting. Such notice shall be
sent to each stockholder entitled to vote not less than ten (10) nor more than
sixty (60) days before the date of the meeting.
Transfer Agent and Registrar
The stock transfer agent and registrar for our common stock is Harris Trust
Company of California. Effective June 30, 2000, the stock transfer agent and
registrar of our common stock will be Computershare Investor Services, L.L.C.
due to its acquisition of Harris Trust Company of California.
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<PAGE>
COMPARISON OF STOCKHOLDER RIGHTS
General
The rights of AMCC stockholders are governed by the AMCC Certificate of
Incorporation, as amended (AMCC Certificate), its Bylaws, as amended (AMCC
Bylaws) and the Delaware General Corporation Law. The rights of YuniNetworks
stockholders are governed by YuniNetworks' Certificate of Incorporation, as
amended (YuniNetworks Certificate), its Bylaws (YuniNetworks Bylaws) and the
Delaware General Corporation Law.
Upon consummation of the merger, the stockholders of YuniNetworks will become
stockholders of AMCC. The rights of the YuniNetworks stockholders differ from
the rights of the AMCC stockholders because the YuniNetworks charter documents
differ in certain material respects from the AMCC charter documents.
The following is a summary of the principal differences between the rights of
the YuniNetworks stockholders and the rights of the AMCC stockholders. Such
differences can be examined in full by reference to the respective charter
documents of YuniNetworks and AMCC.
Size of the Board of Directors
Under the AMCC Bylaws, the number of directors constituting the entire board
of directors may be changed by a resolution of the board of directors or a
resolution of the stockholders. No reduction of the authorized number of
directors shall have the effect of removing any director before such director's
term of office expires. The number of directors of AMCC is currently fixed at
eight.
Under the YuniNetworks Bylaws, the authorized number of directors of
YuniNetworks shall be fixed by the board of directors from time to time. The
number of directors of YuniNetworks is currently fixed at three.
Classification of the Board of Directors
The Delaware General Corporation Law permits, but does not require, a
classified board of directors, divided into as many as three classes with
staggered terms under which one-half or one-third of the directors are elected
for terms of two or three years, respectively.
Neither AMCC nor YuniNetworks provides for a classified board of directors.
Cumulative Voting
The YuniNetworks Bylaws and the YuniNetworks Certificate provide that no
person entitled to vote at an election for directors may cumulate votes to
which such person is entitled, unless, at the time of such election, the
corporation is subject to Section 2115(b) of the California General Corporation
Law. During such time or times that YuniNetworks is subject to Section 2115(b)
of the California General Corporation Law, every stockholder entitled to vote
at an election for directors may cumulate such stockholder's votes 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 such stockholder's shares are
otherwise entitled, or distribute the stockholder's votes on the same principle
among as many candidates as such stockholder desires. No stockholder, however,
shall be entitled to so cumulate such stockholder's votes unless (i) the names
of such candidate or candidates have been placed in nomination prior to the
voting and (ii) the stockholder has given notice at the meeting, prior to the
voting, of such stockholder's intention to cumulate such stockholder's votes.
If any stockholder has given proper notice to cumulate votes, all stockholders
may cumulate their votes for any candidates who have been properly placed in
nomination. Under cumulative voting, the candidates receiving the highest
number of votes, up to the number of directors to be elected, are elected.
The AMCC Certificate and Bylaws are silent as to cumulative voting. However,
stockholders will be entitled to cumulative voting as described above if the
corporation is subject to Section 2115(b).
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Removal of Directors
Under the AMCC Bylaws, unless otherwise restricted by statute, 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 AMCC 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.
Under the YuniNetworks Certificate, during such time or times that
YuniNetworks is subject to Section 2115(b) of the California General
Corporation Law, the board of directors or any individual director may be
removed from office at any time without cause by the affirmative vote of the
holders of at least a majority of the outstanding shares entitled to vote on
such removal. However, unless the entire board is removed, no individual
director may be removed when the votes cast against such director's removal, or
not consenting in writing to such removal, would be sufficient to elect that
director if voted cumulatively at an election which the same total number of
votes were cast (or, if such action is taken by written consent, all shares
entitled to vote were voted) and the entire number of directors authorized at
the time of such director's most recent election were then being elected. At
any time or times that YuniNetworks is not subject to Section 2115(b) of the
California General Corporation Law and subject to any limitations imposed by
law, the board of directors or any director may be removed from office at any
time (i) with cause by the affirmative vote of the holders of a majority of the
voting power of all then-outstanding shares of voting stock of YuniNetworks
entitled to vote at an election of directors or (ii) without cause by the
affirmative vote of the holders of 66- 2/3% of the voting power of all then-
outstanding shares of voting stock of YuniNetworks entitled to vote at an
election of directors.
Filling Vacancies on the Board of Directors
Under the Delaware General Corporation Law, vacancies may be filled by a
majority of the directors then in office (even though less than a quorum)
unless otherwise provided in the certificate of incorporation or bylaws. The
Delaware General Corporation Law further provides that if, at the time of
filling any vacancy, the directors then in office constitute less than a
majority of the board (as constituted immediately prior of any such increase),
the Delaware Court of Chancery may, upon application of any holder or holders
of at least ten percent of the total number of the outstanding stock having the
right to vote for directors, summarily order a special election be held to fill
any such vacancy or to replace directors chosen by the board of directors to
fill such vacancy.
The AMCC Bylaws provide that when one or more directors resigns and the
resignation is effective at a future date, a majority of the directors then in
office, including those who have resigned, shall have the power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective. Unless otherwise provided in the AMCC
Bylaws or the AMCC Certificate, vacancies and newly created directorships
resulting from an 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. Whenever the holders of any class or classes of
stock or series thereof are entitled to elect one or more directors, 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 AMCC should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee, fiduciary or guardian of a
stockholder, may call a special meeting of stockholders, or may apply to the
Court of Chancery for a decree summarily ordering an election as provided in
Section 211 of the Delaware General Corporation Law.
The YuniNetworks Bylaws provide that unless otherwise provided in the
YuniNetworks Certificate, any vacancies on the board of directors and any newly
created directorships resulting from any increase in the
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<PAGE>
number of directors shall, unless the board of directors determines by
resolution that any such vacancies or newly created directorships shall be
filled by stockholders, be filled only by the affirmative vote of a majority of
the directors then in office, even though less than a quorum of the board of
directors. Any director elected in accordance with the preceding sentence shall
hold office for the remainder of the full term of the director for which the
vacancy was created or occurred and until such director's successor shall have
been elected and qualified. At any time or times that YuniNetworks is subject
to (S)2115(b) of the California General Corporation Law, if, after the filling
of any vacancy, the directors then in office who have been elected by
stockholders shall constitute less than a majority of the directors then in
office, then (i) any holder or holders of an aggregate of 5% or more of the
total number of shares at the time outstanding having the right to vote for
those directors may call a special meeting of stockholders; or (ii) the
Superior Court of the proper county shall, upon application of such stockholder
or stockholders, summarily order a special meeting of the stockholders, to be
held to elect the entire board, all in accordance with Section 305(c) of the
California General Corporation Law, the term of office of any director shall
terminate upon that election of a successor.
Amendment of AMCC Certificate and YuniNetworks Certificate
The Delaware General Corporation Law requires approval by the holders of a
majority of the voting power of the corporation's common stock and a resolution
of the corporation's board of directors in order to amend the certificate of
incorporation. The affirmative vote of the holders of at least 66- 2/3% of the
voting power of all of the then outstanding shares of the voting stock, voting
together as a single class, is required to alter, amend or repeal the
provisions of the certificate of incorporation governing certain provisions
such as election and removal of directors, indemnification of directors and the
procedure for amending the certificate of incorporation.
The YuniNetworks Certificate provides that the YuniNetworks Certificate may
not be amended without the approval of the holders of at least a majority of
the preferred stock if such amendment would alter or change the rights,
preferences or privileges of the preferred stock.
Amendment of Bylaws
The AMCC Bylaws provide that the AMCC Bylaws may be amended by stockholders
entitled to vote; however, AMCC may confer the power to amend the AMCC Bylaws
upon the directors. The fact that such power has been so conferred does not
divest the stockholders of their power to amend the bylaws. The AMCC
Certificate states that the AMCC Bylaws may be altered or repealed by the board
of directors.
The YuniNetworks Bylaws provide that the YuniNetworks Bylaws may be amended
by stockholders entitled to vote; however, YuniNetworks may confer the power to
amend the YuniNetworks Bylaws upon the directors. The YuniNetworks Certificate
provides that the board of directors may amend the YuniNetworks Bylaws;
provided, however, that the stockholders may vote to change or repeal any
YuniNetworks Bylaw adopted by the board of directors. Further, no amendment or
supplement to the YuniNetworks Bylaws adopted by the board of directors shall
vary or conflict with any amendment or supplement thus adopted by the
stockholders.
Right to Call Special Meetings of Stockholders
Under the AMCC Bylaws, special meetings of the stockholders of AMCC may be
called at any time by (i) the board of directors, (ii) the chairman of the
board of directors or (iii) the president.
Under the YuniNetworks Bylaws, special meetings of the stockholders of
YuniNetworks may be called by (i) the chairman of the board of directors, (ii)
the chief executive officer, (iii) the board of directors pursuant to a
resolution adopted by a majority of the total number of authorized directors,
whether or not there exist any vacancies in previously authorized directorships
at the time any such resolution is presented to the board of directors for
adoption, or (iv) by the holders of shares entitled to cast not less than 10%
of the votes at the
79
<PAGE>
meeting, and shall be held at such place, on such date, and at such time as the
board of directors shall fix. At any time or times that YuniNetworks is subject
to Section 2115(b) of the California General Corporation Law, stockholders
holding 5% or more of the outstanding shares of YuniNetworks shall have the
right to call a special meeting of stockholders.
Stockholder Action Without a Meeting
Under Delaware General Corporation Law Section 228, unless otherwise provided
in the certificate of incorporation, any action required or permitted to be
taken at any annual or special meeting of the 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 and shall be delivered to the
corporation.
The AMCC stockholders may act by written consent because the AMCC Certificate
does not prohibit such action.
The YuniNetworks Bylaws provide that any action required by statute to be
taken at any annual or special meeting of the stockholders, or any action which
may be taken at any annual or special meeting of the 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.
Dividends
The AMCC Bylaws provide that the directors of AMCC, subject to any
restrictions contained in (i) the Delaware General Corporation Law or (ii) the
AMCC Certificate, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of AMCC capital
stock. The directors of AMCC may set apart out of the funds of AMCC 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 AMCC, and meeting
contingencies.
The YuniNetworks Bylaws provide that dividends upon the capital stock of
YuniNetworks, subject to the provisions of the YuniNetworks Certificate and
applicable law, if any, may be declared by the board of directors pursuant to
law at any regular or special meeting. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
YuniNetworks Certificate and applicable law. Before payment of any dividend,
there may be set aside out of any funds of YuniNetworks available for dividends
such sum or sums as the board of directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the board of directors shall think
conducive to the interests of YuniNetworks, and the board of directors may
modify or abolish any such reserve in the manner in which it was created.
Preemptive Rights of Stockholders
Neither the AMCC Certificate nor the YuniNetworks Certificate provide for
preemptive rights.
Appraisal Rights
Under the Delaware General Corporation Law, a stockholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to appraisal (or dissenters') rights pursuant to
which such shareholder may receive cash in the amount of the fair market value
of his or her shares in lieu
80
<PAGE>
of the consideration he or she would otherwise receive in the transaction. Such
rights are not available (i) with respect to the sale, lease or exchange of all
or substantially all of the assets of a corporation, (ii) with respect to a
merger or consolidation by a corporation, the shares of which are either listed
on a national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or are held of record by more than 2,000 holders if
such stockholders receive only shares of the surviving corporation or shares of
any other corporation which are either listed on a national securities exchange
or designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of
record by more than 2,000 holders, plus cash in lieu of fractional shares, or
(iii) to stockholders of a corporation surviving a merger if no vote of the
stockholders of the surviving corporation is required to approve the merger
because the merger agreement does not amend the existing certificate of
incorporation, each share of the surviving corporation outstanding prior to the
merger is an identical outstanding or treasury share after the merger, and the
number of shares to be issued in the merger does not exceed 20% of the shares
of the surviving corporation outstanding immediately prior to the merger and if
certain other conditions are met. Because AMCC's stock is designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc., AMCC stockholders are not
entitled to appraisal rights in this merger. See "Other Matters Related to the
Merger--Appraisal Rights."
Indemnification
The YuniNetworks Bylaws provide that YuniNetworks shall indemnify its
directors and officers to the fullest extent not prohibited by the Delaware
General Corporation Law or any other applicable law. However, YuniNetworks may
modify the extent of such indemnification by individual contracts with its
directors and officers, and YuniNetworks shall not be required to indemnify any
director or officer in connection with any proceeding (or part thereof)
initiated by such person under certain conditions. YuniNetworks shall also have
the power to indemnify its other employees and other agents as set forth in the
Delaware General Corporation Law or any other applicable law. The YuniNetworks
board of directors shall have the power to delegate the determination of
whether indemnification shall be given to any such person except executive
officers to such officers or other persons as the board of directors shall
determine. YuniNetworks shall advance, prior to the final disposition of the
proceeding, promptly following request therefor, all expenses incurred by any
director or officer in connection with the proceeding upon receipt of an
undertaking by or on behalf of such person to repay said amounts if it should
be determined ultimately that such person is not entitled to be indemnified
under the YuniNetworks Bylaws or otherwise.
The YuniNetworks Certificate provides that YuniNetworks is authorized to
provide indemnification of agents (as defined in Section 317 of the California
General Corporation Law) for breach of duty to the corporation and its
shareholders through bylaw provisions or through agreements with the agents, or
through shareholder resolutions, or otherwise, in excess of the indemnification
otherwise permitted by Section 317 of the California General Corporation Law,
subject, at any time or times that YuniNetworks is subject to Section 2115(b)
of the California General Corporation Law, to the limits on such excess
indemnification set forth in Section 204 of the California General Corporation
Law.
The AMCC Bylaws provide that AMCC shall, to the maximum extent permitted by
the Delaware General Corporation Law, indemnify each of its directors and
officers against expenses, including attorney 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 AMCC. AMCC shall have the power, to the maximum extent and in the
manner permitted by the Delaware General Corporation Law, to indemnify each of
its employees and agents, other than directors and officers. Expenses incurred
in defending any action or proceeding for which indemnification is required, or
for which indemnification is permitted following authorization thereof by the
board of directors shall be paid by AMCC in advance of the final disposition of
such action or proceeding upon receipt of an undertaking by or on behalf of the
indemnified
81
<PAGE>
party to repay such amount if it shall ultimately be determined that the
indemnified party is not entitled to be indemnified.
The AMCC Certificate provides that the liability of directors for monetary
damages for breach of fiduciary duty as a director shall be eliminated to the
fullest extent under applicable law. The AMCC Certificate also provides that
AMCC 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
AMCC or any predecessor of AMCC or serves or served at any other enterprise as
a director, officer or employee at the request of AMCC or any predecessor to
AMCC.
EXPERTS
Ernst & Young llp, independent auditors, have audited AMCC's consolidated
financial statements at March 31, 1999 and 1998, and for each of the three
years in the period ended March 31, 1999, as set forth in their report. AMCC's
consolidated financial statements are included in the prospectus/consent
solicitation statement and elsewhere in this Registration Statement in reliance
on Ernst & Young llp's report, given on their authority as experts in
accounting and auditing.
Ernst & Young llp, independent auditors, have audited YuniNetworks, Inc.'s
financial statements at March 31, 2000 and for the period from October 8, 1999
(inception) through March 31, 2000 as set forth in their report. YuniNetworks,
Inc.'s financial statements are included in the prospectus/consent solicitation
statement and elsewhere in this Registration Statement in reliance on Ernst &
Young llp's report, given on their authority as experts in accounting and
auditing.
LEGAL MATTERS
The validity of the shares of AMCC common stock offered hereby and certain
tax matters will be passed upon for AMCC by Cooley Godward llp, San Diego,
California. Certain tax matters concerning YuniNetworks will be passed upon for
YuniNetworks by Gray Cary Ware & Freidenrich llp.
Cooley Godward llp owns 52,500 shares of YuniNetworks common stock which will
convert into 4,824 shares of AMCC common stock in the merger.
82
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Applied Micro Circuits Corporation
Consolidated Financial Statements
Report of Ernst & Young llp, Independent Auditors....................... F-2
Consolidated Balance Sheets as of March 31, 1998 and 1999............... F-3
Consolidated Statement of Income for the fiscal years ended March 31,
1997, 1998 and 1999.................................................... F-4
Consolidated Statements of Stockholders' Equity for the fiscal years
ended March 31, 1997, 1998 and 1999.................................... F-5
Consolidated Statements of Cash Flows for the fiscal years ended March
31, 1997, 1998 and 1999................................................ F-6
Notes to Consolidated Financial Statements.............................. F-7
Interim Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at December 31, 1999 (unaudited)
and March 31, 1999..................................................... F-20
Condensed Consolidated Statements of Income (unaudited) for the three
months ended and nine months ended December 31, 1999 and 1998.......... F-21
Condensed Consolidated Statements of Cash Flows (unaudited) for the nine
months ended December 31, 1999 and 1998................................ F-22
Notes to Interim Condensed Consolidated Financial Statements
(unaudited)............................................................ F-23
YuniNetworks, Inc. Financial Statements
Report of Ernst & Young llp, Independent Auditors....................... F-25
Balance Sheet as of March 31, 2000...................................... F-26
Statement of Operations for the period from October 8, 1999 (inception)
through March 31, 2000................................................. F-27
Statement of Stockholders' Equity for the period ended March 31, 2000... F-28
Statement of Cash Flows for the period from October 8, 1999 (inception)
through March 31, 2000................................................. F-29
Notes to Financial Statements........................................... F-30
</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, 1998 and 1999, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended March 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Applied Micro Circuits Corporation at March 31, 1998 and 1999, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended March 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young llp
San Diego, California
April 21, 1999
except for the second paragraph of Note 1, as to which the date is
March 23, 2000
F-2
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
<TABLE>
<CAPTION>
March 31,
------------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents................................ $ 6,460 $ 13,530
Short-term investments--available-for-sale............... 61,436 73,010
Accounts receivable, net of allowance for doubtful
accounts of $350 and $177 at March 31, 1998 and 1999,
respectively............................................ 12,179 19,275
Inventories.............................................. 8,185 9,813
Deferred income taxes.................................... 3,882 4,573
Notes receivable from officer and employees.............. 87 815
Other current assets..................................... 2,297 4,004
-------- --------
Total current assets................................... 94,526 125,020
Property and equipment, net................................ 17,218 23,128
Other assets............................................... 1,090 2,507
-------- --------
Total assets........................................... $112,834 $150,655
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable......................................... $ 5,215 $ 5,131
Accrued payroll and related expenses..................... 5,057 4,689
Other accrued liabilities................................ 2,344 7,207
Deferred revenue......................................... 1,873 1,439
Current portion of long-term debt........................ 567 1,862
Current portion of capital lease obligations............. 2,053 1,075
-------- --------
Total current liabilities.............................. 17,109 21,403
Long-term debt, less current portions...................... 2,736 4,995
Long-term capital lease obligations, less current portion.. 1,355 2,563
Commitments and contingencies (Notes 7 and 11)
Stockholders' equity:
Preferred Stock, $0.01 par value:
Authorized shares--2,000, none issued and outstanding... -- --
Common Stock, $0.01 par value:
Authorized shares--180,000..............................
Issued and outstanding shares--90,144 and 106,448 at
March 31, 1998 and 1999, respectively.................. 901 1,064
Additional paid-in capital............................... 85,984 101,727
Deferred compensation, net............................... (472) (2,123)
Accumulated other comprehensive income (loss)............ -- (33)
Retained earnings........................................ 5,722 21,514
Notes receivable from stockholders....................... (501) (455)
-------- --------
Total stockholders' equity............................. 91,634 121,694
-------- --------
Total liabilities and stockholders' equity............. $112,834 $150,655
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Year Ended March
31
-------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Net revenues......................................... $57,468 $76,618 $105,000
Cost of revenues..................................... 30,057 34,321 37,937
------- ------- --------
Gross profit......................................... 27,411 42,297 67,063
Operating expenses:
Research and development........................... 7,870 13,268 22,472
Selling, general and administrative................ 12,537 14,278 18,325
Merger-related costs............................... -- -- 2,350
------- ------- --------
Total operating expenses......................... 20,407 27,546 43,147
------- ------- --------
Operating income..................................... 7,004 14,751 23,916
Interest income (expense), net....................... (29) 871 3,450
------- ------- --------
Income before income taxes........................... 6,975 15,622 27,366
Provision for income taxes........................... 659 406 10,233
------- ------- --------
Net income........................................... $ 6,316 $15,216 $ 17,133
======= ======= ========
Basic earnings per share:
Earnings per share................................. $ 0.32 $ 0.36 $ 0.17
======= ======= ========
Shares used in calculating basic earnings per
share............................................. 20,024 42,376 98,056
======= ======= ========
Diluted earnings per share:
Earnings per share................................. $ 0.09 $ 0.19 $ 0.16
======= ======= ========
Shares used in calculating diluted earnings per
share............................................. 71,628 81,176 109,720
======= ======= ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Convertible
Preferred Accumulated Notes
Stock Common Stock Additional Other Retained Receivable Total
-------------- --------------- Paid-In Deferred Comprehensive Earnings From Stockholders'
Shares Amount Shares Amount Capital Compensation Income (Loss) (Deficit) Stockholders Equity
------ ------ ------- ------ ---------- ------------ ------------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31,
1996............... 1,223 $ 12 19,872 $ 198 $ 36,822 $ -- $ -- $(15,444) $ (76) $ 21,512
Issuance of stock
pursuant to
exercise of stock
options........... -- -- 372 3 39 -- -- -- -- 42
Repurchase of
common stock...... -- -- (144) -- (38) -- -- (107) -- (145)
Payments on
notes............. -- -- -- -- -- -- -- -- 18 18
Net income........ -- -- -- -- -- -- -- 6,316 -- 6,316
------ ---- ------- ------ -------- ------- ---- -------- ----- --------
Balance, March 31,
1997............... 1,223 12 20,100 201 36,823 -- -- (9,235) (58) 27,743
Issuance of
common stock, net
of issuance
costs............. -- -- 20,156 202 51,791 -- -- -- -- 51,993
Conversion of
convertible
preferred stock
to common stock... (1,051) (11) 42,868 429 (418) -- -- -- -- --
Issuance of stock
pursuant to
exercise of stock
options........... -- -- 6,808 69 806 -- -- -- (455) 420
Net exercise of
warrants.......... -- -- 212 -- -- -- -- -- -- --
Payments on
notes............. -- -- -- -- -- -- -- -- 12 12
Repurchase of
convertible
preferred stock... (172) (1) -- -- (3,617) -- -- (259) -- (3,877)
Deferred
compensation
related to stock
options........... -- -- -- -- 599 (599) -- -- -- --
Amortization of
deferred
compensation...... -- -- -- -- -- 127 -- -- -- 127
Net income........ -- -- -- -- -- -- -- 15,216 -- 15,216
------ ---- ------- ------ -------- ------- ---- -------- ----- --------
Balance, March 31,
1998............... -- -- 90,144 901 85,984 (472) -- 5,722 (501) 91,634
Issuance of stock
upon formation of
Cimaron........... -- -- 9,376 93 4,571 (230) -- -- -- 4,434
Issuance of
common stock
under employee
stock purchase
plans ............ -- -- 1,668 17 3,162 -- -- -- -- 3,179
Issuance of stock
pursuant to
exercise of stock
options........... -- -- 5,260 53 2,484 (964) -- -- -- 1,573
Tax benefit of
disqualifying
dispositions...... -- -- -- -- 4,209 -- -- -- -- 4,209
Payment on
notes............. -- -- -- -- -- -- -- -- 46 46
Deferred
compensation
related to stock
options and
restricted
stock............. -- -- -- -- 1,317 (1,317) -- -- -- --
Amortization of
deferred
compensation...... -- -- -- -- -- 860 -- -- -- 860
Adjustment for
change in Cimaron
Communications
Corporation's
year end.......... -- -- -- -- -- -- -- (1,341) -- (1,341)
Comprehensive
Income:
Net income...... -- -- -- -- -- -- -- 17,133 -- 17,133
Unrealized loss
on short-term
investments, net
of tax benefit.. -- -- -- -- -- -- (33) -- -- (33)
Total
comprehensive
income............ -- -- -- -- -- -- -- -- -- 17,100
------ ---- ------- ------ -------- ------- ---- -------- ----- --------
Balance, March 31,
1999............... -- $ -- 106,448 $1,064 $101,727 $(2,123) $(33) $ 21,514 $(455) $121,694
====== ==== ======= ====== ======== ======= ==== ======== ===== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
------------------------------
1997 1998 1999
-------- --------- ---------
<S> <C> <C> <C>
Operating Activities
Net income.................................... $ 6,316 $ 15,216 $ 17,133
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............... 5,185 5,174 7,045
Write-offs of inventories................... 452 600 180
Amortization of deferred compensation....... -- 127 860
Loss on disposals of property............... -- -- 221
Adjustment for change in Cimaron year end... -- -- (1,341)
Changes in operating assets and liabilities:
Accounts receivables...................... 1,058 (3,761) (7,096)
Inventories............................... (1,146) (1,255) (1,808)
Other current assets...................... (116) (1,607) (678)
Accounts Payable.......................... (1,553) 2,787 (84)
Accrued payroll and other accrued
liabilities.............................. 1,562 2,418 8,704
Deferred income taxes..................... -- (3,882) (691)
Deferred revenue.......................... (25) 1,067 (434)
-------- --------- ---------
Net cash provided by operating
activities............................. 11,733 16,884 22,011
Investing Activities
Proceeds from sales and maturities of short-
term investments............................. 7,944 66,547 187,787
Purchase of short-term investments............ (11,512) (119,874) (199,394)
Repayments and (advances) on notes receivable
from officers and employees.................. (608) (366) 262
Purchase of property, equipment and other
assets....................................... (2,855) (11,342) (16,490)
-------- --------- ---------
Net cash used for investing activities.. (7,031) (65,035) (27,835)
Financing Activities
Proceeds from issuance of common stock, net... 42 52,413 9,062
Repurchase of common stock.................... (145) -- --
Repurchase of convertible preferred stock..... -- (3,877) --
Payments on notes receivable from
stockholders................................. 18 12 46
Payments on capital lease obligations......... (2,824) (2,691) (2,110)
Payments on long-term debt.................... (582) (37) (792)
Proceeds from equipment financed under capital
leases....................................... -- -- 2,342
Issuance of long-term debt.................... -- 3,303 4,346
-------- --------- ---------
Net cash provided by (used for)
financing activities................... (3,491) 49,123 12,894
Net increase in cash and cash
equivalents............................ 1,211 972 7,070
Cash and cash equivalents at beginning of
year......................................... 4,277 5,488 6,460
-------- --------- ---------
Cash and cash equivalents at end of year...... $ 5,488 $ 6,460 $ 13,530
======== ========= =========
Supplemental disclosure of cash flow
information:
Cash paid for:
Interest.................................. $ 656 $ 380 $ 542
======== ========= =========
Income taxes.............................. $ 770 $ 3,251 $ 4,274
======== ========= =========
</TABLE>
Supplemental schedule of noncash investing and financing activities. Capital
lease obligations of approximately $1.2 million and $282,000 were incurred
during fiscal years 1997 and 1998, respectively. During the fiscal year 1998,
notes were received for the exercise of stock options totaling $455,000.
See accompanying notes.
F-6
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Business
The Company designs, develops, manufactures and markets high-performance,
high-bandwidth silicon solutions for the world's optical networks.
Basis of Presentation
On September 1, 1999, the Company's stockholders approved an increase in the
number of authorized shares of common stock to 180,000,000. On September 9,
1999 and again on March 23, 2000, the Company effected a two-for-one stock
split (in the form of a 100% stock dividend); accordingly, all prior share and
per share amounts in these financial statements have been restated to reflect
the stock split.
The consolidated financial statements include all the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation. On March 17
1999, the Company acquired Cimaron Communications Corporation ("Cimaron") in a
business combination accounted for as a pooling-of-interests. Cimaron, which
also designs and develops high-bandwidth silicon solutions for communications
equipment manufacturers, became a wholly owned subsidiary of the Company
through the exchange of approximately 12 million shares of the Company's common
stock for all the outstanding stock and stock options of Cimaron. The
accompanying financial statements for fiscal 1999 have been prepared as if the
companies had been combined for the full year, and as more fully discussed in
Note 2, the prior year financial statements did not require restatement as a
result of this business combination.
Cash, Cash Equivalents and Short-Term Investments
Cash and cash equivalents consist of money market type funds and highly
liquid debt instruments with original maturities of three months or less at the
date of acquisition. 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 Company classifies its short-term investments as "Available-for-Sale"
and records such assets at the estimated fair value with unrealized gains and
losses excluded from earnings and reported, net of tax, in comprehensive
income. The basis for computing realized gains or losses is by specific
identification.
F-7
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following is a summary of available-for-sale securities (in thousands):
<TABLE>
<CAPTION>
Gross
Unrealized
------------ Estimated Fair
Amortized Cost Gains Losses Value
-------------- ----- ------ --------------
<S> <C> <C> <C> <C>
At March 31, 1999:
U.S. treasury securities and
obligations of
U.S. government agencies...... $21,740 $22 $72 $21,690
U.S. corporate debt
securities.................... 51,321 16 17 51,320
------- --- --- -------
$73,061 $38 $89 $73,010
======= === === =======
At March 31, 1998:
U.S. treasury securities and
obligations of
U.S. government agencies...... $15,908
U.S. corporate debt
securities.................... 45,528
-------
$61,436
=======
</TABLE>
The estimated fair value of the short term investments was equal to the
amortized cost at March 31, 1998.
Available-for-sale securities by contractual maturity are as follows (in
thousands):
<TABLE>
<CAPTION>
March 31,
1999
---------
<S> <C>
Due in one year or less........................................... $48,918
Due after one year through two years.............................. 16,775
Greater than two years............................................ 7,317
-------
$73,010
=======
</TABLE>
Fair Value of Financial Instruments
The carrying value of cash equivalents, short-term investments, accounts
receivable, accounts payable, accrued liabilities and long term debt
approximates fair value.
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 and 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.
F-8
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 or 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 useful life of
the asset. Property and equipment under capital leases are recorded at the net
present value of the minimum lease payments and are amortized over the useful
life of the assets. Leased assets purchased at the expiration of the lease term
are capitalized at acquisition cost.
Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to Be Disposed Of", the Company records impairment losses on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amounts. SFAS No. 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. Through March 31, 1999,
the Company has not experienced any such impairments.
Advertising Cost
Advertising costs are expensed as incurred.
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 subject to terms of sale
allowing for price protection and right of return on products unsold by the
distributor are deferred until the distributor's ability to return the products
or its' rights to price protection lapse or have been limited. 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 both the margin on shipments of
products to distributors that will be recognized when the distributors ship the
products to their customers or the right of return has lapsed and billings in
excess and estimated earnings on uncompleted engineering design contracts.
F-9
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 SFAS 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. Under SFAS 123 compensation cost is determined using
the fair value of stock-based compensation determined as of the grant date, and
is recognized over the periods in which the related services are rendered. The
statement also permits companies to elect to continue using the current
implicit value accounting method specified in APB 25 to account for stock-based
compensation and disclose in the footnotes to the financial statements the pro
forma effect of using the fair value method for its stock based compensation.
Reclassification
Certain prior period amounts have been reclassified to conform to the
current period presentation.
Earnings Per Share
Earnings per share are computed in accordance with SFAS No. 128 "Earnings
Per Share." Basic earnings per share are computed using the weighted average
number of common shares outstanding during each period. Diluted earnings per
share includes the dilutive effect of common shares potentially issuable upon
the exercise of stock options.
The reconciliation of shares used to calculate basic and diluted earnings
per share consists of the following (in thousands):
<TABLE>
<CAPTION>
March 31,
---------------------
1997 1998 1999
------ ------ -------
<S> <C> <C> <C>
Shares used in basic earnings per share
computations--weighted average common shares
outstanding........................................ 20,024 42,376 98,056
Effect of assumed conversion of Preferred Stock from
date of issuance................................... 51,312 29,736 --
Net effect of dilutive common share equivalents
based on treasury stock method..................... 292 9,064 11,664
------ ------ -------
Shares used in diluted earnings per share
computations....................................... 71,628 81,176 109,720
====== ====== =======
</TABLE>
F-10
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
New Accounting Standards
Effective April 1, 1998, the Company adopted SFAS No. 130 "Reporting
Comprehensive Income" and SFAS No. 131. "Segment Information". SFAS No. 130
requires that all components of comprehensive income, including net income, be
reported in the financial statements in the period in which they are
recognized. Comprehensive income is defined as the change in equity during a
period from transactions and other events and circumstances from non-owner
sources. Net income and other comprehensive income, including unrealized gains
and losses on investments is reported, net of their related tax effect, to
arrive at comprehensive income. SFAS No. 131 amends the requirements for public
enterprises to report financial and descriptive information about its
reportable operating segments. Operating segments, as defined in SFAS No. 131,
are components of an enterprise for which separate financial information is
available and is evaluated regularly by the Company in deciding how to allocate
resources and in assessing performance. The financial information is required
to be reported on the basis that is used internally for evaluating the segment
performance. The Company believes it operates in one business and operating
segment.
2. Acquisitions
On March 17, 1999, AMCC acquired all of the outstanding common stock and
common stock equivalents of Cimaron in exchange for approximately 12 million
shares of the Company's common stock. The acquisition has been accounted for
using the pooling-of-interests method of accounting. Prior to the combination,
Cimaron, which was incorporated on January 2, 1998, had a fiscal year end of
December 31, 1998. In recording the business combination, Cimaron's results of
operations for the fiscal year ended December 31, 1998 were combined with
AMCC's for the fiscal year ended March 31, 1999. Cimaron's net sales and net
loss for the three month period ended March 31, 1999 were $110,000 and
$(1,341,000), respectively. In accordance with Accounting Principles Board
Opinion No. 16 ("APB No. 16"), Cimaron's results of operations and cash flows
for the three month period ended March 31, 1999 have been added directly to the
retained earnings and cash flows of AMCC and excluded from reported fiscal 1999
results of operations.
The combined Company realized a charge in the fourth quarter of fiscal 1999
of approximately $3.1 million related to the estimated costs of the merger.
Approximately $700,000 of these total merger costs were incurred by Cimaron and
are not reflected in the Company's results of operations for the fourth quarter
of fiscal 1999 because they are included in Cimaron's results of operations
which are reflected as a charge directly to retained earnings.
In April 1998, the Company acquired Ten Mountains Design which designs and
develops high bandwidth analog devices for communications equipment suppliers
and optical module manufacturers. The purchase price was approximately $330,000
and resulted in recording intangible assets of approximately $280,000 which
will be amortized over three years. The financial statements include the
results of operations for Ten Mountains Design from the date of acquisition.
F-11
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Certain Financial Statement Information
<TABLE>
<CAPTION>
March 31,
------------------
1998 1999
-------- --------
<S> <C> <C>
Inventories (in thousands):
Finished goods......................................... $ 1,817 $ 975
Work in-process........................................ 5,161 7,688
Raw materials.......................................... 1,207 1,150
-------- --------
$ 8,185 $ 9,813
======== ========
Property and equipment (in thousands):
Machinery and equipment................................ $ 25,983 $ 34,413
Leasehold improvements................................. 7,476 7,641
Computers, office furniture and equipment.............. 13,219 16,654
-------- --------
46,678 58,708
Less accumulated depreciation and amortization........... (29,460) (35,580)
-------- --------
$ 17,218 $ 23,128
======== ========
Other accrued liabilities (in thousands):
Income taxes payable................................... $ 888 $ 3,329
Accrued merger-related costs........................... -- 1,893
Other.................................................. 1,456 1,985
-------- --------
$ 2,344 $ 7,207
======== ========
</TABLE>
The cost and accumulated amortization of machinery and equipment under
capital leases at March 31, 1999 were approximately $10.5 million and $8.5
million, respectively ($10.0 million and $7.2 million, at March 31, 1998,
respectively). Amortization of assets held under capital leases is included
with depreciation expense.
During the years ended March 31, 1997, 1998 and 1999, the Company earned
interest income of $627,000, $1,252,000 and $3,992,000, respectively, and
incurred interest expense of $656,000, $381,000 and $542,000, respectively.
4. Long Term Debt
During fiscal 1999, the Company had an equipment line of credit with a bank
which expired on March 31, 1999. Borrowings of $7.1 million under the line of
credit were converted into term notes, with payments totaling $141,000, payable
over 53 to 60 months, and interest rates between 6.44% to 7.42%. At March 31,
1999, $6.3 million was outstanding on the notes.
On July 31, 1998, the Company entered into an equipment line of credit with
a bank. The line of credit provided for borrowings of up to $1,000,000 at the
bank's prime rate plus 0.5% (8.25% at March 31, 1999). The Company paid off the
outstanding balance of $565,000 including accrued interest on April 1, 1999.
F-12
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Principal maturities of the notes payable at March 31, 1999 are as follows:
<TABLE>
<S> <C>
Year ending March 31, (in thousands):
2000............................................................... $1,862
2001............................................................... 1,394
2002............................................................... 1,495
2003............................................................... 1,603
2004............................................................... 503
------
$6,857
======
</TABLE>
5. Stockholders' Equity
Stock Offerings
In December 1997, the Company completed an initial public offering of its
common stock. The offering raised net proceeds to the Company of approximately
$25.1 million. In March 1998, the Company completed a secondary public offering
of common stock in which the Company raised net proceeds of approximately
$26.9 million.
Convertible Preferred Stock
On April 24, 1997 the Board authorized the Company to repurchase up to $4.0
million of Convertible Preferred Stock, with priority given to the holders of
Convertible Preferred Stock that submitted 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. In connection with the initial
public offering, all then outstanding shares of Convertible Preferred Stock
immediately converted into 42,869,268 shares of common stock.
Preferred Stock
In November 1997, the Certificate of Incorporation was amended to allow 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 restriction 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 of the designation of such series, without further vote
or action by the stockholders.
Stock Options and Other Stock Awards
The Company's 1992 Stock Option Plan ("1992 Plan") provides for the granting
of incentive and nonqualified 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. In addition, certain officers, employees and
directors have been granted nonqualified stock options. The Company's 1982
Employee Incentive Stock Option Plan expired in 1992.
In connection with the Company's acquisition of Cimaron, the Company assumed
options and other stock awards granted under Cimaron's 1998 Stock Incentive
Plan ("The Incentive Plan") covering 2,628,612 shares of common stock at a
weighted average exercise price of $.06 per share. The terms of the plan
provides for the granting of options, restricted stock, or other stock based
awards ("stock awards") to employees, officers, directors, consultants and
advisors. Generally, the stock awards are granted at prices at least equal to
the fair
F-13
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
value of the Company's common stock on the date of grant. A total of 4,065,460
shares of common stock were authorized for issuance under the Incentive Plan.
At March 31, 1999, 2,257,432 restricted shares had been issued under the
Incentive Plan.
Options and other stock awards under the 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, at the
Company's option, until such ownership rights have vested or exercisable upon
vesting. Vesting generally occurs over four to five years. At March 31, 1998
and 1999, 2,607,368 and 3,478,504 shares of common stock were subject to
repurchase, respectively.
Pursuant to an employment agreement entered into during January 1996,
between the Company and an executive, the Company granted an option to purchase
3,200,000 shares of the Company's common stock at $0.13 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 266,668 additional options issued in April 1997 were
exercised in July 1997. The exercise was paid for with various notes, which
aggregated $455,000 and bear interest at rates between 5.98% and 6.54%, and are
due at the earlier of February 12, 2000 ($420,000) and April 9, 2001 ($35,000)
or the termination of employment.
Pro forma information regarding net income and net income per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
statement. The fair value of the options was estimated at the date of grant
using the minimum value method for grants prior to the initial public offering
and the Black Scholes method for grants after the initial public offering using
the following weighted average assumptions for fiscal year 1997 and 1998; risk
free interest rate of 6%; an expected option life of four years; no annual
dividends, and an expected volatility of .92 (used only for the options valued
using the Black Scholes method). For options granted in fiscal year 1999, the
fair value of the options was estimated at the date of the grant using the
following assumptions; risk free interest rate of 6%; an expected life of four
to five years; no annual dividends and an expected volatility of .89.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized ratably to expenses over the vesting period of such
options. The effects of applying SFAS No. 123 for pro forma disclosure purposes
are not likely to be representative of the effects on pro forma net income in
future years because they do not take into consideration pro forma compensation
expenses related to grants made prior to 1996.
The Company's pro forma information follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended
March 31,
----------------------
1997 1998 1999
------ ------- -------
<S> <C> <C> <C>
Net income:
As reported....................................... $6,316 $15,216 $17,133
Pro forma......................................... $6,225 $14,856 $13,202
Earnings per share:
As reported:
Basic........................................... $ 0.32 $ 0.36 $ 0.17
Diluted......................................... $ 0.09 $ 0.19 $ 0.16
Pro forma:
Basic........................................... $ 0.31 $ 0.35 $ 0.13
Diluted......................................... $ 0.09 $ 0.18 $ 0.12
Weighted fair value of options granted during the
year............................................... $ 0.04 $ 1.71 $ 5.27
</TABLE>
F-14
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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,
--------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 6,760,640 $0.13 11,369,172 $0.13 10,729,804 $1.72
Granted............... 5,829,140 0.13 7,195,492 2.50 6,080,564 4.62
Exercised............. (370,720) 0.11 (6,806,480) 0.13 (5,258,324) 0.30
Forfeited............. (849,888) 0.13 (1,028,380) 0.16 (858,668) 2.08
---------- ----- ---------- ----- ---------- -----
Outstanding at end of
year................... 11,369,172 $0.13 10,729,804 $1.72 10,693,376 $4.03
========== ===== ========== ===== ========== =====
Vested at end of year... 3,407,056 $0.13 2,540,200 $0.15 2,714,460 $1.81
========== ===== ========== ===== ========== =====
</TABLE>
The following is a further breakdown of the options outstanding at March 31,
1999:
<TABLE>
<CAPTION>
Range of Number Weighted Average Weighted Average
Exercise Price Outstanding Remaining Contractual Life Exercise Price
-------------- ----------- -------------------------- ----------------
<S> <C> <C> <C>
$0.03-$ 0.25........ 4,174,640 7.60 $0.13
$0.98-$ 2.07........ 807,704 8.51 $1.92
$2.08-$ 5.91........ 2,663,096 9.03 $5.64
$5.92-$10.91........ 3,047,936 9.60 $8.53
$0.03-$10.91........ 10,693,376 8.60 $4.03
</TABLE>
From April 1, 1997 through September 30, 1997, the Company recorded deferred
compensation expense for the difference between the exercise price and the 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
period. This deferred compensation aggregates to $599,000, which is being
amortized ratably over the four year vesting period of the related options.
Additionally, during the year ended March 31, 1999, the Company recorded
deferred compensation related to restricted stock and stock options granted to
founders and employees of Cimaron of $2.5 million. Such amount is being
amortized over the related vesting period, generally five years. Amortization
of deferred compensation during fiscal years 1998 and 1999 was $127,000 and
$860,000, respectively.
Employee Stock Purchase Plans
The Company's 1997 Employee Stock Purchase Plan (the "1997 Purchase Plan")
was adopted by the Board of Directors on October 6, 1997, and was subsequently
approved by the stockholders. A total of 1.6 million shares of common stock are
reserved for issuance under the 1997 Purchase Plan. At March 31, 1999,
1,575,496 shares had been issued under the 1997 Purchase Plan.
The Company's 1998 Employee Stock Purchase Plan (the "1998 Purchase Plan")
was approved by the stockholders on August 4, 1998. A total of 1.6 million
shares are authorized for issuance under the 1998 Purchase Plan. At March 31,
1999, 93,232 shares had been issued under the 1998 Purchase Plan.
Under the terms of the plans, purchases are made semiannually on January 31
and July 31 and the purchase price of the common stock is equal to 85% of the
fair market value of the common stock on the first or last day of the offering
period, whichever is lower.
F-15
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, and was subsequently
approved by the stockholders. A total of 800,000 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.
At March 31, 1999, no shares had been issued under the Directors' Plan.
Common Shares Reserved for Future Issuance
At March 31, 1999, the Company has the following shares of common stock
reserved for issuance upon the exercise of equity instruments:
<TABLE>
<S> <C>
Stock Options:
Issued and outstanding.......................................... 10,693,376
Authorized for future grants.................................... 6,899,140
Stock purchase plans.............................................. 1,531,272
----------
19,123,788
==========
</TABLE>
6. Income Taxes
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended
March 31,
---------------------
1997 1998 1999
---- ------- -------
<S> <C> <C> <C>
Current:
Federal............................................. $380 $ 3,606 $ 9,860
State............................................... 279 682 1,064
---- ------- -------
Total current..................................... 659 4,288 10,924
Deferred:
Federal............................................. -- (3,558) (362)
State............................................... -- (324) (329)
---- ------- -------
Total deferred.................................... -- (3,882) (691)
---- ------- -------
$659 $ 406 $10,233
==== ======= =======
</TABLE>
F-16
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The provision for income taxes reconciles to the amount computed by applying
the federal statutory rate (35%) to income before income taxes as follows (in
thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
----------------------------------------
1997 1998 1999
------------ ------------ ------------
$ % $ % $ %
------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Tax at federal statutory rate..... $ 2,441 35% $ 5,468 35% $ 9,578 35%
Increase (decrease) in valuation
allowance of deferred tax
assets........................... (2,343) (34) (5,094) (32) -- --
Foreign sales corporation......... -- -- (309) (2) (387) (1)
Federal alternative minimum tax... 380 5 -- -- -- --
State taxes, net of federal
benefit.......................... 181 3 233 1 478 1
Federal tax credits............... -- -- (281) (2) (1,216) (5)
Merger costs and deferred
compensation..................... -- -- -- -- 763 3
Other............................. -- -- 389 3 1,017 4
------- --- ------- --- ------- ---
$ 659 9% $ 406 3% $10,233 37%
======= === ======= === ======= ===
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
for federal and state income taxes as of March 31, 1998 and 1999 are as shown
below. At March 31, 1998, the effective tax rate is computed based on a full
reduction of the valuation allowance and realization of the deferred tax asset.
<TABLE>
<CAPTION>
March 31,
-------------
1998 1999
------ ------
<S> <C> <C>
Deferred tax assets (in thousands):
Inventory write-downs and other reserves................... $1,814 $1,850
Net operating loss carryforwards........................... -- 1,719
Capitalization of inventory and research and development
costs..................................................... 242 313
Research and development credit carryforwards.............. 898 298
Depreciation and amortization.............................. 242 --
State income taxes......................................... 239 47
Other credit carryforwards................................. 447 447
------ ------
Total deferred tax assets................................ 3,882 4,674
Deferred tax liabilities:
Depreciation and amortization.............................. -- 101
------ ------
Net deferred tax assets.................................. $3,882 $4,573
====== ======
</TABLE>
At March 31, 1999, the Company has federal alternative minimum tax and
federal and state research and development tax credit carryforwards of
approximately $447,000, $195,000 and $103,000, respectively, which will begin
to expire in 2007 unless previously utilized. The Company also has federal and
state net operating loss carryforwards of approximately $4,043,000 which will
expire in 2018 and 2003, respectively, unless previously utilized. These net
operating loss carryforwards are the result of the operating losses generated
by the Company's subsidiary, Cimaron, prior to the acquisition. Under Internal
Revenue Code Section 382 and 383, the Company's use of its tax loss
carryforwards and tax credit carryforwards could be limited in the event of
certain cumulative changes in the Company's stock ownership.
F-17
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Commitments
In July 1998, the Company acquired the right to purchase, in the form of a
ground lease, a parcel of land as a site for a potential new wafer fabrication
facility. This parcel of land is located approximately one quarter mile from
the Company's headquarters in San Diego, California. The Company has made
payments of $1.0 million related to this transaction. In December 1998, the
Company exercised its right to acquire the land which commits the Company to
take title to the land by May 31, 1999 upon payment of an additional
$3.7 million.
The Company leases certain of its facilities under long-term operating
leases which expire at various dates through 2011. The lease agreements
frequently include renewal provisions, which require the Company to pay taxes,
insurance and maintenance costs and contain escalation clauses based upon
increases in the Consumer Price Index or defined rent increases. The Company
also leases certain software under noncancellable operating leases expiring
through 2002.
Annual future minimum lease payments, including machinery and equipment
under capital leases as of March 31, 1999 are as follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
--------- -------
<S> <C> <C>
Fiscal Year Ending March 31,
2000................................................... $ 3,473 $1,332
2001................................................... 3,713 907
2002................................................... 4,581 765
2003................................................... 4,052 478
2004................................................... 1,998 835
Thereafter............................................. 6,155 --
------- ------
Total minimum lease payments......................... $23,972 4,317
=======
Less amount representing interest........................ 679
------
Present value of remaining minimum capital lease payments
(including current portion of $1,075)................... $3,638
======
</TABLE>
Rent expense (including short-term leases and net of sublease income) for
the years ended March 31, 1997, 1998, and 1999 was $1.2 million, $1.2 million,
and $1.4 million, respectively. Sublease income was $208,000, $119,000 and $0
for the years ended March 31, 1997, 1998 and 1999, respectively.
8. Related Party Transactions
At March 31, 1998 and 1999, the Company had outstanding notes receivables
from an officer of $1,065,000, and $915,000, respectively. These notes bear
interest at the rates of 4.62% to 5.76%, and are due at the earlier of one to
three years from the date of the note or termination of employment with the
Company.
9. 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
F-18
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
service, provided that after five years of service all past and subsequent
employer contributions are 100% vested. The contributions charged to operations
totaled $318,000, $412,000 and $573,000 for the years ended March 31, 1997,
1998 and 1999, respectively.
10. Significant Customer and Geographic Information
During the years ended March 31, 1997, 1998, and 1999, 20%, 21% and 20%,
respectively, of net revenues were from Nortel. In 1998 and 1999, Insight
Electronics, the Company's domestic distributor, accounted for 11% and 13% of
net revenues. Additionally, in 1999, Raytheon Systems Co. accounted for 16% of
net revenues. No other customer accounted for more than 10% of revenues in any
period.
Net revenues by geographic region were as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
---------------------------
1997 1998 1999
---------------------------
<S> <C> <C> <C>
Net revenues:
United States.................................. $ 34,424 $ 44,448 $ 61,760
Canada......................................... 10,943 14,204 18,011
Europe and Israel.............................. 8,216 13,773 18,136
Asia........................................... 3,885 4,193 7,093
-------- -------- ---------
$57,468 $ 76,618 $ 105,000
======== ======== =========
</TABLE>
11. Contingencies
The Company is party to various claims and legal actions arising in the
normal course of business, including notification of possible infringement on
the intellectual property rights of third parties. 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 liquidity; however, there can be
no assurance that the ultimate resolution of these matters will not have a
material impact on the Company's results of operations in any period.
F-19
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
------------ ---------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 22,774 $ 13,530
Short-term investments--available-for-sale............ 92,494 73,010
Accounts receivable, net of allowance for doubtful
accounts of $318 and $177 at December 31, 1999
(unaudited) and March 31, 1999, respectively......... 20,854 19,275
Inventories........................................... 10,522 9,813
Deferred income taxes................................. 4,273 4,573
Notes receivable from officers and employees.......... 100 815
Other current assets.................................. 4,010 4,004
-------- --------
Total current assets................................ 155,027 125,020
Property and equipment, net............................. 33,999 23,128
Other assets............................................ 3,357 2,507
-------- --------
Total assets........................................ $192,383 $150,655
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 8,239 $ 5,131
Accrued payroll and related expenses.................. 6,589 4,689
Other accrued liabilities............................. 6,789 7,207
Deferred revenue...................................... 2,316 1,439
Current portion of long-term debt..................... 1,370 1,862
Current portion of capital lease obligations.......... 776 1,075
-------- --------
Total current liabilities........................... 26,079 21,403
Long-term debt, less current portion.................... 3,957 4,995
Long-term capital lease obligations, less current
portion................................................ 1,873 2,563
Stockholders' equity:
Preferred Stock, $0.01 par value:
2,000 shares authorized, none issued and
outstanding......................................... -- --
Common Stock, $0.01 par value:
Authorized shares--180,000
Issued and outstanding shares--108,236 December 31,
1999 (unaudited) and 106,448 at March 31, 1999...... 1,082 1,064
Additional paid-in capital............................ 112,273 101,727
Deferred compensation, net............................ (1,661) (2,123)
Accumulated other comprehensive loss.................. (274) (33)
Retained earnings..................................... 49,509 21,514
Notes receivable from stockholders.................... (455) (455)
-------- --------
Total stockholders' equity.......................... 160,474 121,694
-------- --------
Total liabilities and stockholders' equity.......... $192,383 $150,655
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-20
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------- ------------------
1999 1998 1999 1998
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Net revenues............................ $ 45,762 $ 26,972 $ 115,303 $ 76,258
Cost of revenues........................ 13,209 9,669 34,818 28,415
--------- --------- --------- --------
Gross profit............................ 32,553 17,303 80,485 47,843
Operating expenses:
Research and development.............. 8,281 5,847 21,829 16,194
Selling, general and administrative... 7,061 4,573 19,178 13,033
--------- --------- --------- --------
Total operating expenses............ 15,342 10,420 41,007 29,227
--------- --------- --------- --------
Operating income........................ 17,211 6,883 39,478 18,616
Interest income, net.................... 1,225 883 3,114 2,613
--------- --------- --------- --------
Income before income taxes.............. 18,436 7,766 42,592 21,229
Provision for income taxes.............. 6,324 2,646 14,597 7,457
--------- --------- --------- --------
Net income.............................. $ 12,112 $ 5,120 $ 27,995 $ 13,772
========= ========= ========= ========
Basic earnings per share:
Earnings per share.................... $ 0.11 $ 0.05 $ 0.27 $ 0.14
========= ========= ========= ========
Shares used in calculating basic
earnings per share................... 106,238 99,204 104,728 97,136
========= ========= ========= ========
Diluted earnings per share:
Earnings per share.................... $ 0.10 $ 0.05 $ 0.24 $ 0.13
========= ========= ========= ========
Shares used in calculating diluted
earnings per share................... 117,608 110,476 115,860 108,792
========= ========= ========= ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-21
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Operating Activities
Net income.............................................. $ 27,995 $ 13,772
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 5,802 5,060
Amortization of deferred compensation................. 462 193
Changes in assets and liabilities:
Accounts receivable................................. (1,579) (5,023)
Inventories......................................... (709) (1,507)
Other assets........................................ (956) 258
Accounts payable.................................... 3,108 (1,473)
Accrued payroll and other accrued liabilities....... 6,320 5,163
Deferred income taxes............................... 300 295
Deferred revenue.................................... 877 (298)
--------- ---------
Net cash provided by operating activities......... 41,620 16,440
Investing Activities
Proceeds from sales and maturities of short-term
investments............................................ 92,870 136,245
Purchase of short-term investments...................... (112,595) (143,102)
Notes receivable from officers and employees............ 815 262
Purchase of property and equipment...................... (16,673) (11,988)
--------- ---------
Net cash used for investing activities............ (35,583) (18,583)
Financing Activities
Proceeds from issuance of common stock, net............. 5,737 6,572
Repurchase of restricted stock.......................... (11) --
Payments on capital lease obligations................... (989) (1,759)
Proceeds from long-term debt............................ -- 3,784
Payments on stockholders notes.......................... -- 46
Payments on long-term debt.............................. (1,530) (483)
--------- ---------
Net cash provided by financing activities............. 3,207 8,160
--------- ---------
Net increase in cash and cash equivalents............. 9,244 6,017
Cash and cash equivalents at beginning of period........ 13,530 6,460
--------- ---------
Cash and cash equivalents at end of period.............. $ 22,774 $ 12,477
========= =========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest............................................ $ 495 $ 373
========= =========
Income taxes........................................ $ 9,620 $ 2,505
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-22
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
Interim Financial Information (unaudited)
The accompanying unaudited interim condensed financial statements of Applied
Micro Circuits Corporation (the "Company" or "AMCC") have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The accompanying financial statements reflect all
adjustments (consisting of normal recurring accruals) which are, in the opinion
of management, considered necessary for a fair presentation of the results for
the interim periods presented. Interim results are not necessarily indicative
of results for a full year. The Company has experienced significant quarterly
fluctuations in operating results and it expects that these fluctuations in
sales, expenses and net income or losses will continue.
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 inventories, 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.
On September 1, 1999, the Company's stockholders approved an increase in the
authorized number of shares of common stock authorized to 180,000,000. On
September 9, 1999 and again on March 23, 2000, the Company effected a two-for-
one stock split (in the form of a 100% stock dividend); accordingly, all prior
share and per share amounts in these Interim Condensed Consolidated Financial
Statements have been restated to reflect the stock split.
The financial statements and related disclosures have been prepared with the
presumption that users of the interim financial information have read or have
access to the audited financial statements for the preceding fiscal year.
Accordingly, these financial statements should be read in conjunction with the
audited financial statements and the related notes thereto contained in the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended March 31, 1999.
2. Earnings Per Share
The reconciliation of shares used to calculate basic and diluted earnings
per share consists of the following (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------- -----------------
1999 1998 1999 1998
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Shares used in basic earnings per
share computations-- weighted average
common shares outstanding............ 106,238 99,204 104,728 97,136
Net effect of dilutive common share
equivalents based on the treasury
stock method......................... 11,370 11,272 11,132 11,656
--------- --------- -------- --------
Shares used in diluted earnings per
share computations................... 117,608 110,476 115,860 108,792
========= ========= ======== ========
</TABLE>
F-23
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Certain Financial Statement Information
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
------------ ---------
<S> <C> <C>
Inventories (in thousands):
Finished goods...................................... $ 2,890 $ 975
Work in-process..................................... 6,486 7,688
Raw materials....................................... 1,146 1,150
------- ------
$10,522 $9,813
======= ======
</TABLE>
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
------------ ---------
<S> <C> <C>
Property and equipment (in thousands):
Machinery and equipment............................ $ 42,015 $ 33,280
Leasehold improvements............................. 7,802 7,641
Computers, office furniture and equipment.......... 19,573 16,654
Land............................................... 4,808 1,133
-------- --------
74,198 58,708
Less accumulated depreciation and amortization....... (40,199) (35,580)
-------- --------
$ 33,999 $ 23,128
======== ========
</TABLE>
4. Comprehensive Income
The components of comprehensive income, net of tax, are as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
December 31, December 31,
--------------- ----------------
1999 1998 1999 1998
------- ------ ------- -------
<S> <C> <C> <C> <C>
Net income................................ $12,112 $5,120 $27,995 $13,772
Change in net unrealized loss on
available-for-sale investments........... (67) -- (241) --
------- ------ ------- -------
Comprehensive income...................... $12,045 $5,120 $27,754 $13,772
======= ====== ======= =======
</TABLE>
Accumulated other comprehensive loss presented in the accompanying
consolidated condensed balance sheets consists of the accumulated net
unrealized loss on available-for-sale investments.
5. Contingencies
The Company is party to various claims and legal actions arising in the
ordinary course of business, including notification of possible infringement on
the intellectual property rights of third parties. In addition, 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 group of PRPs that has agreed to fund certain
remediation efforts at the Omega site. The Company has accrued approximately
$50,000 for its contributions to such efforts. 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 effect on the Company's financial position or liquidity;
however, there can be no assurance that the ultimate resolution of these
matters will not have a material averse effect on the Company's results of
operations in any period.
F-24
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
YuniNetworks, Inc.
We have audited the accompanying balance sheet of YuniNetworks, Inc. (a
development stage company) as of March 31, 2000 and the related statements of
operations, stockholders' equity and cash flows for the period from October 8,
1999 (inception) to March 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of YuniNetworks, Inc. (a
development stage company) at March 31, 2000, and the results of its operations
and its cash flows for the period from October 8, 1999 (inception) to March 31,
2000, in conformity with accounting principles generally accepted in the United
States.
/s/ Ernst & Young llp
San Diego, California
April 19, 2000
F-25
<PAGE>
YUNINETWORKS, INC.
(a development stage company)
BALANCE SHEET
March 31, 2000
<TABLE>
<S> <C>
ASSETS
------
Current assets:
Cash and cash equivalents........................................ $ 4,482,172
Prepaid expenses and other current assets........................ 5,367
-----------
Total current assets......................................... 4,487,539
Property and equipment, net........................................ 739,015
Other assets....................................................... 130,254
-----------
Total assets................................................. $ 5,356,808
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable................................................. $ 536,729
Other accrued liabilities........................................ 47,466
-----------
Total current liabilities.................................... 584,195
===========
Commitments (Note 3)
Stockholders' equity:
Preferred stock, $.001 par value: 15,000,000 shares authorized;
Series A preferred stock:
Issued and outstanding--11,000,000 at March 31, 2000;
Liquidation preference--$5,500,000............................. 11,000
Common stock, $0.001 par value: 35,000,000 shares authorized;
Issued and outstanding--11,503,333 shares at March 31, 2000..... 11,504
Additional paid in capital....................................... 8,826,807
Deferred compensation............................................ (3,137,681)
Deficit accumulated during development stage..................... (939,017)
-----------
Total stockholders' equity................................... 4,772,613
-----------
Total liabilities and stockholders' equity................... $ 5,356,808
===========
</TABLE>
See accompanying notes.
F-26
<PAGE>
YUNINETWORKS, INC.
(a development stage company)
STATEMENT OF OPERATIONS
For the period from October 8, 1999 (inception) through March 31, 2000
<TABLE>
<S> <C>
Operating expenses:
Research and development....................................... $ 757,751
General and administrative..................................... 252,583
-----------
Loss from operations......................................... (1,010,334)
Interest income.................................................. 71,317
-----------
Net loss......................................................... $ (939,017)
===========
Basic and diluted net loss per share............................. $ (.10)
===========
Weighted average shares used in computations of basic and diluted
net loss per share.............................................. 9,526,487
===========
</TABLE>
See accompanying notes.
F-27
<PAGE>
YUNINETWORKS, INC.
(a development stage company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
accumulated
Preferred stock Common stock Additional during Total
------------------ ------------------ paid in Deferred development stockholders'
Shares Amount Shares Amount capital compensation stage equity
---------- ------- ---------- ------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of founders
common stock at $0.001
per share for cash on
October 8, 1999........ -- $ -- 10,612,500 $10,613 $ -- $ -- $ -- $ 10,613
Issuance of Series A
preferred stock at
$0.50 per share for
cash, net of issuance
costs of $19,311 on
December 21, 1999...... 11,000,000 11,000 -- -- 5,469,689 -- -- 5,480,689
Issuance of common stock
at $0.05 per share for
cash on February 15,
2000................... -- -- 125,000 125 6,125 -- -- 6,250
Issuance of common stock
at $0.05 per share for
cash on March 31,
2000................... -- -- 50,000 50 2,450 -- -- 2,500
Exercise of stock
options................ -- -- 715,833 716 35,076 -- -- 35,792
Deferred compensation
related to stock
options................ -- -- -- -- 3,313,467 (3,313,467) -- --
Amortization of deferred
compensation........... -- -- -- -- -- 175,786 -- 175,786
Net loss................ (939,017) (939,017)
---------- ------- ---------- ------- ---------- ----------- --------- ----------
Balance at March 31,
2000................... 11,000,000 $11,000 11,503,333 $11,504 $8,826,807 $(3,137,681) $(939,017) $4,772,613
========== ======= ========== ======= ========== =========== ========= ==========
</TABLE>
See accompanying notes.
F-28
<PAGE>
YUNINETWORKS, INC.
(a development stage company)
STATEMENT OF CASH FLOWS
For the period from October 8, 1999 (inception) through March 31, 2000
<TABLE>
<S> <C>
Operating activities
Net loss.......................................................... $ (939,017)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................... 120,824
Amortization of deferred compensation........................... 175,786
Changes in operating assets and liabilities:
Prepaid expenses and other current assets..................... (5,367)
Other assets.................................................. (130,254)
Accounts payable.............................................. 536,729
Other accrued liabilities..................................... 47,466
----------
Net cash used in operating activities....................... (193,833)
Investing activities
Purchases of property and equipment............................... (859,839)
----------
Net cash used in investing activities....................... (859,839)
Financing activities
Issuance of common stock for exercise of stock options............ 35,792
Issuance of preferred stock....................................... 5,480,689
Issuance of common stock.......................................... 19,363
----------
Net cash provided by financing activities................... 5,535,844
----------
Net increase in cash and cash equivalents......................... 4,482,172
Cash and cash equivalents at beginning of period............ --
----------
Cash and cash equivalents at end of period.................. $4,482,172
==========
</TABLE>
See accompanying notes.
F-29
<PAGE>
YUNINETWORKS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Description of Business
YuniNetworks, Inc. (the "Company") was organized under the laws of the State
of Delaware. The Company specializes in providing scalable terabit switching
fabric technology.
As of March 31, 2000, the Company has not initiated its commercial
operations, accordingly, the Company is considered to be in the development
stage.
Basis of Presentation
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. This basis of accounting contemplates
the recovery of the Company's assets and the satisfaction of its liabilities in
the normal course of business. Since inception, the Company has been engaged in
organizational activities, including recruiting personnel, establishing office
facilities, research and development and obtaining financing. Through March 31,
2000, the Company has incurred accumulated losses of $939,017. Successful
completion of the Company's development program and its transition to attaining
profitable operations is dependent upon obtaining financing adequate to
complete its product development and the successful market introduction of its
products and services. In December 1999, the Company raised proceeds of
$5,500,000 from the sale of shares of Series A preferred stock. Management
believes that these funds will be adequate to meet the Company's working
capital requirements through March 31, 2001.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and reported amounts of expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash, money market funds and other
highly liquid investments with a maturities of three months or less from the
date of purchase. As of March 31, 2000, the Company has not experienced any
losses on its cash and cash equivalents.
Fair Value of Financial Instruments
The carrying value of cash, cash equivalents, accounts payable and accrued
liabilities approximates fair value.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets (one to five
years).
F-30
<PAGE>
YUNINETWORKS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Long-Lived Assets
The Company investigates potential impairments of its long-lived assets when
there is evidence that events or changes in circumstances may have made
recovery of an asset's carrying value unlikely. An impairment loss is
recognized when the sum of the expected undiscounted future cash flows is less
than the carrying amount of the asset. The Company has not identified any such
losses.
Research and Development
Research and development costs are expensed as incurred.
Stock Options
SFAS No. 123, Accounting for Stock-Based Compensation, and EITF 96-18,
Accounting for Equity Instruments that are Issued to Other than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services, establishes the
use of the fair value based method of accounting for stock-based compensation
arrangements, under which compensation cost is determined using the fair value
of the stock determined as of the grant date, and is recognized over the
periods in which the related services are rendered. Deferred compensation for
options granted to non-employees has been determined in accordance with SFAS
No. 123 and EITF 96-18 as the fair value of the consideration received or the
fair value of the equity instruments issued, whichever is more reliably
measured. Deferred charges for options granted to non-employees are
periodically remeasured as the underlying options vest. SFAS No. 123 also
permits companies to elect to continue using the intrinsic value accounting
method specified in Accounting Principles Board (APB) Opinion No. 25 to account
for stock-based compensation. The Company has decided to retain the intrinsic
value based method, and has disclosed the pro forma effect of using the fair
value based method to account for its stock-based compensation.
Deferred compensation for options and warrants granted to non-employees has
been determined at the grant date in accordance with SFAS No. 123 and EITF No.
96-18, Accounting for Equity Instruments That are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling Goods or Services, and
has been recorded at the fair value of the consideration received or the fair
value of the equity instruments issued, whichever is more reliably measured.
Such deferred compensation is recognized over the period the related services
are rendered.
Comprehensive Income
The Company has adopted SFAS No. 130, Reporting Comprehensive Income, which
requires that all components of comprehensive income, including net income, be
reported in the financial statements in the period in which they are
recognized. Comprehensive income is defined as the change in equity during a
period from transactions and other events and circumstances from non-owner
sources. Net income (loss) and other comprehensive income, including foreign
currency translation adjustments, and unrealized gains and losses on
investments, shall be reported, net of their related tax effect, to arrive at
comprehensive income (loss). Comprehensive loss for the period ended March 31,
2000 did not differ from reported net loss.
F-31
<PAGE>
YUNINETWORKS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Net Loss Per Share
The Company computes net loss per share in accordance with SFAS No. 128,
Earnings Per Share, and SEC Staff Accounting Bulletin (or SAB) No. 98. Under
the provisions of SFAS No. 128, basic net income (loss) per share is computed
by dividing the net income (loss) for the period by the weighted average number
of common shares outstanding during the period. Diluted net income (loss) per
share is computed by dividing the net income (loss) for the period by the
weighted average number of common and common equivalent shares outstanding
during the period. For purpose of this calculation, common stock subject to
repurchase by the Company and options are considered common stock equivalents.
As the Company reported a loss for the period ended March 31, 2000, all common
stock equivalents have been excluded from the computation since the effect
would be antidilutive.
Under the provision of SAB No. 98, common shares issued for nominal
consideration, if any, would be included in the per share calculations as if
they were outstanding for all periods presented. No common shares have been
issued for nominal consideration.
Income Taxes
Current income tax expense or benefit is the amount of income taxes expected
to be payable or refundable for the current year. A deferred income tax asset
or liability is computed for the expected future impact of differences between
the financial reporting and tax basis of assets and liabilities and for the
expected future tax benefit to be derived from tax credits and loss
carryforwards. Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized.
Recently Issued Accounting Standards
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments and hedging activities. The Statement will
require the recognition of all derivatives on the Company's balance sheet at
fair value. The Financing Accounting Standards Board has subsequently delayed
implementation of the standard for the financial years beginning after June 15,
2000. The Company expects to adopt the new Statement effective April 1, 2001.
The impact on the Company's financial statements is not expected to be
material.
2. Property and Equipment
Property and equipment is summarized as follows at March 31, 2000:
<TABLE>
<S> <C>
Purchased software................................................ $ 669,447
Furniture and fixtures............................................ 46,854
Computer equipment................................................ 143,538
---------
859,839
Less accumulated depreciation and amortization.................... (120,824)
---------
$ 739,015
=========
</TABLE>
F-32
<PAGE>
YUNINETWORKS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Commitments
The Company leases its facilities under operating leases which expire in
December 2002. Rent expense was $48,856 for the period from October 8, 1999
(inception) through March 31, 2000. At March 31, 2000 annual minimum future
payments under the operating leases are as follows:
<TABLE>
<CAPTION>
Operating
Lease
---------
<S> <C>
2000............................................................... $176,893
2001............................................................... 200,481
2002............................................................... 154,543
--------
Total future lease payments...................................... $531,917
========
</TABLE>
The Company licensed certain patent rights from the University of
California. Under the terms of the agreement, the Company paid an initial
license fee of $75,000 and to maintain the rights must make annual payments of
$10,000 on each March 14, 2001 and 2002 and $40,000 on each March 14 thereafter
for the life of the patents. Additionally, the Company must pay to the
University of California a stated portion of any sublicense revenues or
royalties earned by the Company from the patented technology.
4. Stockholders' Equity
Common Stock
Founders and employees have purchased 11,090,833 shares (including 590,833
from option exercises of common stock at prices ranging from $.001 and $.05 per
share, 9,997,083 of which are subject to repurchase as of March 31, 2000). The
Company has the option to repurchase, at the original price, unvested shares in
the event of termination of employment. Shares issued under these agreements
generally vest over four years. In March 2000, the Company entered into new
employment agreements with two of its founders whereby 10,500,000 shares of
common stock purchased by such founders upon the formation of the Company
became subject to vesting restrictions. The Company has entered into an
employment agreement with one of the founders whereby a portion of the unvested
founder's stock will automatically become vested upon a change in control, as
defined. A total of 2,750,000 shares are subject to the acceleration
provisions. The actual percent which is accelerated is dependent upon the sales
price of the Company and the date of sale and can range from a minimum of 50%
to a maximum of 100%.
Stock Options
The Company adopted the 1999 Equity Incentive Plan (the "Plan") and reserved
3,387,500 shares of common stock for grants under the Plan. The Plan provides
for the grant of incentive and nonstatutory stock options, stock bonuses and
rights to purchase restricted stock to employees, directors or consultants of
the Company. The Plan provides that incentive stock options will be granted
only to employees at no less than the fair value of the Company's common stock
(no less than 85% of the fair value for nonstatutory stock options), as
determined by the Board of Directors at the date of the grant. Options
generally vest 25% one year from date of grant and ratably each month
thereafter for a period of 36 months and expire up to ten years from date of
grant.
Certain option grants under the Plan are subject to an early exercise
provision. Common shares obtained on early exercise of unvested options are
subject to repurchase by the Company at the original issue price and will vest
according to the respective option agreement. At March 31, 2000 there were
590,833 exercised shares outstanding due to early exercise of the options which
are subject to repurchase by the Company.
F-33
<PAGE>
YUNINETWORKS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
A summary of the Company's stock option activity, and related information
for the period ended March 31, 2000 follows:
<TABLE>
<CAPTION>
Weighted-
Average
Options Exercise Price
--------- --------------
<S> <C> <C>
Outstanding at October 8, 1999..................... -- $ --
Granted.......................................... 2,437,300 0.05
Exercised........................................ (715,833) 0.05
Cancelled........................................ -- --
--------- -----
Outstanding at March 31, 2000...................... 1,721,467 $0.05
========= =====
</TABLE>
The weighted-average fair value of options granted during the period ended
March 31, 2000 was $0.05 and the weighted-average remaining contractual life of
these options is 9.5 years.
Pro forma information regarding net income is required by SFAS No. 123, and
has been determined as if the Company had accounted for its employee stock
options under the fair value method of SFAS 123. The fair value for these
options was estimated at the dates of grant using the minimum value option
pricing model with the following weighted-average assumptions: (a) weighted
average risk-free interest rate of 6.25%, (b) expected dividend yield of 0%,
and (c) five year estimated life of the options.
The effect of applying the minimum value of SFAS 123 to the stock options
for the period ended March 31, 2000, was not materially different from the
reported amount. Therefore, such pro forma information is not presented herein.
The effects of applying Statement 123 for pro forma disclosure is not likely to
be representative of the pro forma effect on net income in future years.
Deferred Compensation
Through March 31, 2000, the Company recorded deferred compensation for the
difference between the price per share of restricted stock issued or the
exercise price of stock options granted and the deemed fair value for financial
statement presentation purposes of the Company's common stock at the date of
issuance or grant. The deferred compensation will be amortized over the vesting
period of the related restricted stock or options, which is generally four
years.
Convertible Preferred Stock
In December 1999, the Company issued an aggregate of 11,000,000 shares of
Series A preferred stock with net proceeds of $5,480,689. The holders of the
Series A preferred stock are entitled to receive cash dividends at a rate of
seven percent of the original purchase price per annum. The dividends on
preferred stock are noncumulative and payable when and if declared by the Board
of Directors.
The holders of the Series A preferred stock may at any time elect to convert
any or all shares into common shares of the Company at the then applicable
conversion rate, subject to certain antidilutive adjustments. Each share is
automatically converted into common stock, at the then applicable conversion
rate, upon the closing of a firmly underwritten public offering of shares of
common stock of the Company at a total offering not less than $20,000,000. As
of March 31, 2000 each share of preferred stock is convertible into one share
of common stock. Each holder of Series A preferred stock is entitled to one
vote for each share of common stock into which such convertible preferred share
would convert.
F-34
<PAGE>
YUNINETWORKS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The holders of Series A preferred stock are entitled to receive liquidation
preferences in an amount equal to such shares original purchase price plus all
declared and unpaid dividends, prior and in preference to any distribution of
assets to the holders of common stock.
Shares Reserved for Future Issuance
The following common stock is reserved for future issuance as of March 31:
<TABLE>
<CAPTION>
2000
----------
<S> <C>
Conversion of preferred stock..................................... 11,000,000
Stock options issued and outstanding.............................. 1,721,467
Authorized for future grants...................................... 950,200
Common stock authorized for sale, not issued...................... 240,000
----------
13,911,667
==========
</TABLE>
5. Income Taxes
At March 31, 2000, the Company has federal and state tax net operating loss
carryforwards of approximately $686,000 and $343,000, respectively. The federal
and state tax loss carryforwards will begin expiring in 2019 and 2007,
respectively, unless previously utilized.
Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use of
the Company's net operating loss and credit carryforwards may be limited in the
event of a cumulative change in ownership of more than 50% within a three year
period; however, the Company does not believe that this will significantly
impact the utilization of the tax carryforwards.
Significant components of the Company's deferred tax assets as of March 31,
2000 are shown below. A valuation allowance has been recognized to offset the
deferred tax assets as realization of such assets is uncertain.
<TABLE>
<CAPTION>
March 31,
2000
---------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards................................ $ 260,000
---------
Total deferred tax assets..................................... 260,000
Valuation allowance for deferred tax assets....................... (260,000)
---------
Net deferred taxes............................................ $ --
=========
</TABLE>
6. Subsequent Events
On April 18, 2000, the Company entered into a definitive agreement to be
acquired by Applied Micro Circuits Corporation ("AMCC") Under the terms of the
agreement, AMCC will issue up to 2,250,000 shares of its common stock for all
outstanding shares of the Company's preferred stock and common stock, including
shares issuable upon exercise of outstanding options.
F-35
<PAGE>
APPENDIX A
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among:
Applied Micro Circuits Corporation,
a Delaware corporation;
OLI Acquisition Corp.,
a Delaware corporation;
and
YuniNetworks, Inc.,
a Delaware corporation.
----------------
Dated as of April 18, 2000
----------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
SECTION 1. Description of Transaction.................................... A-1
1.1 Merger of Merger Sub into the Company............................. A-1
1.2 Effect of the Merger.............................................. A-1
1.3 Closing; Effective Time........................................... A-1
1.4 Certificate of Incorporation and Bylaws; Directors and Officers... A-2
1.5 Conversion of Shares.............................................. A-2
1.6 Employee Stock Options............................................ A-3
1.7 Closing of the Company's Transfer Books........................... A-4
1.8 Exchange of Certificates.......................................... A-4
1.9 Appraisal Rights.................................................. A-5
1.10 Escrow of Parent Common Stock..................................... A-5
1.11 Tax Consequences.................................................. A-6
1.12 Accounting Treatment.............................................. A-6
1.13 Further Action.................................................... A-6
SECTION 2. Representations and Warranties of the Company................. A-6
2.1 Due Organization; No Subsidiaries; Etc............................ A-6
2.2 Certificate of Incorporation and Bylaws; Records.................. A-7
2.3 Capitalization, Etc............................................... A-7
2.4 Financial Statements.............................................. A-8
2.5 Absence of Changes................................................ A-8
2.6 Title to Assets................................................... A-9
2.7 Bank Accounts; Receivables........................................ A-10
2.8 Equipment; Leasehold.............................................. A-10
2.9 Proprietary Assets................................................ A-10
2.10 Contracts......................................................... A-12
2.11 Liabilities; Fees, Costs and Expenses............................. A-13
2.12 Compliance with Legal Requirements................................ A-14
2.13 Governmental Authorizations....................................... A-14
2.14 Tax Matters....................................................... A-14
2.15 Employee and Labor Matters; Benefit Plans......................... A-15
2.16 Environmental Matters............................................. A-17
2.17 Insurance......................................................... A-17
2.18 Related Party Transactions........................................ A-17
2.19 Legal Proceedings; Orders......................................... A-18
2.20 Authority; Binding Nature of Agreement............................ A-18
2.21 Non-Contravention; Consents....................................... A-18
2.22 Customers......................................................... A-19
</TABLE>
A-i
<PAGE>
TABLE OF CONTENTS--(Continued)
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
2.23 Product Development................................................ A-19
2.24 Full Disclosure.................................................... A-20
2.25 Section 83(b) Elections............................................ A-20
SECTION 3. Representations and Warranties of Parent and Merger Sub........ A-20
3.1 Corporate Existence and Power...................................... A-20
3.2 Authority; Binding Nature of Agreement............................. A-20
3.3 Capitalization..................................................... A-20
3.4 SEC Filings; Financial Statements.................................. A-21
3.5 No Conflict........................................................ A-21
3.6 Valid Issuance..................................................... A-21
SECTION 4. Certain Covenants of the Company............................... A-21
4.1 Access and Investigation........................................... A-21
4.2 Operation of the Company's Business................................ A-21
4.3 Notification; Updates to Disclosure Schedule....................... A-23
4.4 No Negotiation..................................................... A-24
SECTION 5. Additional Covenants of the Parties............................ A-24
5.1 Filings and Consents............................................... A-24
5.2 Registration Statement; Information Statement...................... A-24
5.3 Public Announcements............................................... A-25
5.4 Best Efforts....................................................... A-25
5.5 Tax Matters........................................................ A-25
5.6 Employment and Noncompetition Agreements........................... A-25
5.7 Termination of Agreements.......................................... A-26
5.8 Employee Retention................................................. A-26
5.9 Release............................................................ A-26
5.10 Termination of Employee Plans...................................... A-26
5.11 FIRPTA Matters..................................................... A-26
SECTION 6. Conditions Precedent to Obligations of Parent and Merger Sub... A-26
6.1 Accuracy of Representations........................................ A-26
6.2 Performance of Covenants........................................... A-27
6.3 Stockholder Approval............................................... A-27
6.4 Consents........................................................... A-27
6.5 Agreements and Documents........................................... A-27
6.6 Listing............................................................ A-28
6.7 No Restraints...................................................... A-28
6.8 No Governmental Litigation......................................... A-28
6.9 No Other Litigation................................................ A-28
</TABLE>
A-ii
<PAGE>
TABLE OF CONTENTS--(Continued)
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
6.10 Termination of Employee Plans...................................... A-28
6.11 FIRPTA Compliance.................................................. A-28
6.12 Employees and Consultants of the Company........................... A-28
6.13 Assignments........................................................ A-28
6.14 Effectiveness of Registration Statement............................ A-28
6.15 HSR Act............................................................ A-29
SECTION 7. Conditions Precedent to Obligations of the Company............. A-29
7.1 Accuracy of Representations........................................ A-29
7.2 Performance of Covenants........................................... A-29
7.3 Documents.......................................................... A-29
7.4 Stockholder Approval............................................... A-29
7.5 Listing............................................................ A-29
7.6 No Restraints...................................................... A-29
7.7 Effectiveness of Registration Statement............................ A-29
7.8 HSR Act............................................................ A-29
SECTION 8. Termination.................................................... A-30
8.1 Termination Events................................................. A-30
8.2 Termination Procedures............................................. A-30
8.3 Effect of Termination.............................................. A-31
SECTION 9. Indemnification, Etc........................................... A-31
9.1 Survival of Representations, Etc................................... A-31
9.2 Indemnification.................................................... A-31
9.3 Threshold; Pre-Closing Damages..................................... A-32
9.4 Limited Recourse; Limit on Liability............................... A-32
9.5 No Contribution.................................................... A-32
9.6 Defense of Third Party Claims...................................... A-32
9.7 Exercise of Remedies by Indemnitees Other Than Parent.............. A-33
9.8 Fraud.............................................................. A-33
SECTION 10. Miscellaneous Provisions...................................... A-33
10.1 Company Stockholders' Representative............................... A-33
10.2 Further Assurances................................................. A-34
10.3 Fees and Expenses.................................................. A-34
10.4 Attorneys' Fees.................................................... A-35
10.5 Notices............................................................ A-35
10.6 Time of the Essence................................................ A-36
10.7 Headings........................................................... A-36
10.8 Counterparts....................................................... A-36
</TABLE>
A-iii
<PAGE>
TABLE OF CONTENTS--(Continued)
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
10.9 Governing Law..................................................... A-36
10.10 Successors and Assigns............................................ A-36
10.11 Remedies Cumulative; Specific Performance......................... A-36
10.12 Waiver............................................................ A-36
10.13 Amendments........................................................ A-36
10.14 Severability...................................................... A-36
10.15 Parties in Interest............................................... A-36
10.16 Entire Agreement.................................................. A-36
10.17 Construction...................................................... A-37
</TABLE>
A-iv
<PAGE>
AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("Agreement") is made
and entered into as of April 18, 2000, by and among: APPLIED MICRO CIRCUITS
CORPORATION, a Delaware corporation ("Parent"); OLI ACQUISITION CORP., a
Delaware corporation and a wholly owned subsidiary of Parent ("Merger Sub");
and YUNINETWORKS, INC., a Delaware corporation (the "Company"). Certain other
capitalized terms used in this Agreement are defined in Exhibit A.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger of Merger
Sub into the Company (the "Merger") in accordance with this Agreement and the
Delaware General Corporation Law (the "DGCL"). Upon consummation of the Merger,
Merger Sub will cease to exist, and the Company will become a wholly owned
subsidiary of Parent.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). For accounting purposes, it is intended that the Merger
be treated as a "purchase."
C. This Agreement has been approved by the respective boards of directors of
Parent, Merger Sub and the Company and has been adopted by Parent, as the sole
stockholder of Merger Sub.
D. Simultaneously with the execution of this Agreement, and as an inducement
to Parent to enter into this Agreement, Parent and selected stockholders of the
Company are entering into a Voting Agreement (the "Voting Agreement") pursuant
to which such stockholders have, among other things, agreed, upon the terms and
subject to the conditions thereof, to vote their Company Common Stock (as
defined below) in favor of the Merger.
AGREEMENT
The parties to this Agreement agree as follows:
SECTION 1. Description of Transaction.
1.1 Merger of Merger Sub into the Company. Upon the terms and subject to
the conditions set forth in this Agreement, at the Effective Time (as defined
in Section 1.3), Merger Sub shall be merged with and into the Company, and the
separate existence of Merger Sub shall cease. The Company will continue as the
surviving corporation in the Merger (the "Surviving Corporation").
1.2 Effect of the Merger. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the DGCL.
1.3 Closing; Effective Time. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Cooley Godward LLP 4365 Executive Drive, Suite 1100, San Diego, California
92121 at 8:00 a.m. on a date to be designated by Parent which shall not be more
than 20 business days after the date on which the condition set forth in
Section 6.3 is satisfied (or waived by Parent); provided, however, that if any
condition set forth in Section 6 or 7 has not been satisfied as of the date so
designated by Parent, then Parent may, by delivering a written extension notice
to the Company, extend the time of the Closing for a period of up to 60 days.
(The time and date as of which the Closing is required to take place pursuant
to this Section 1.3, as such time and date may be extended by Parent in
accordance with this Section 1.3, is referred to in this Agreement as the
"Scheduled Closing Time," and the date on which the
A-1
<PAGE>
Closing actually takes place is referred to in this Agreement as the "Closing
Date.") Contemporaneously with or as promptly as practicable after the Closing,
a properly executed certificate of merger conforming to the requirements of the
DGCL shall be filed with the Secretary of State of the State of Delaware. The
Merger shall become effective at the time such certificate of merger is filed
with the Secretary of State of the State of Delaware (the "Effective Time").
Parent shall give at least four business days advance notice to the Company of
the scheduled Closing Date.
1.4 Certificate of Incorporation and Bylaws; Directors and Officers. Unless
otherwise determined by Parent prior to the Effective Time:
(a) the Certificate of Incorporation of the Surviving Corporation shall be
amended and restated as of the Effective Time to conform to Exhibit B;
(b) the Bylaws of the Surviving Corporation immediately after the Effective
Time shall be the Bylaws of Merger Sub as in effect immediately prior to the
Effective Time; and
(c) the directors and officers of the Surviving Corporation immediately
after the Effective Time shall be the individuals listed on Exhibit C.
1.5 Conversion of Shares.
(a) By action of the holders of a majority of the outstanding shares of
Series A preferred stock of the Company, each share of Series A Preferred Stock
of the Company outstanding immediately prior to the Effective Time shall be
converted into that number of shares of Company Common Stock into which one
share of Series A Preferred Stock of the Company is convertible immediately
prior to the Effective Time.
(b) Subject to Sections 1.8(a), 1.9 and 1.10, at the Effective Time, by
virtue of the Merger and without any further action on the part of Parent,
Merger Sub, the Company or any stockholder of the Company:
(i) each share of Company Common Stock outstanding immediately prior to
the Effective Time (other than such shares described in Section 1.5(b)(ii))
shall be converted into the right to receive that fraction of a share of
the common stock of Parent ("Parent Common Stock") equal to the "Applicable
Fraction" (as defined in Section 1.5(c)(i)), it being understood that
certain of the shares of Parent Common Stock issuable pursuant to this
Section 1.5(b)(i) shall be held in escrow in accordance with Section 1.10;
(ii) each share of Company Common Stock outstanding immediately prior to
the Effective Time that is (A) held by the Company as treasury stock or (B)
owned by Parent or any Subsidiary of Parent shall be cancelled, and no
payment shall be made with respect thereto;
(iii) each share of the common stock of Merger Sub outstanding
immediately prior to the Effective Time shall be converted into one share
of common stock of the Surviving Corporation.
(c) For purposes of this Agreement:
(i) The "Applicable Fraction" shall be the fraction: (A) having a
numerator equal to the Parent Merger Shares (as defined in Section
1.5(c)(ii)), and (B) having a denominator equal to the Fully Diluted
Company Share Amount (as defined in Section 1.5(c)(iv). If, between the
date that the Merger Share Price (as defined in Section 1.5(c)(iii)) is
determined and the Effective Time, the outstanding shares of Parent Common
Stock shall have been changed into a different number of shares or a
different class by reason of any reclassification, stock split, reverse
stock split, stock dividend, recapitalization or other similar transaction,
then the Applicable Fraction shall be correspondingly adjusted.
(ii) The "Parent Merger Shares" shall be the number of shares of Parent
Common Stock determined by dividing $300,000,000 by the Merger Share Price;
provided, however, that in no event shall the number of Parent Merger
Shares exceed 2,250,000; and provided further that in no event shall the
number of
A-2
<PAGE>
Parent Merger Shares be less than 1,750,000. If, between the date of this
Agreement and the date that the Merger Share Price is determined, the
outstanding shares of Parent Common Stock shall have been changed into a
different number of shares or a different class by reason of any
reclassification, stock split, reverse stock split, stock dividend,
recapitalization or other similar transaction, then the maximum and minimum
number of Parent Merger Shares set forth in the preceding sentence shall be
correspondingly adjusted.
(iii) The "Merger Share Price" shall be the average of the closing sales
price of one share of Parent Common Stock as quoted on the Nasdaq on each
of the five consecutive trading days immediately preceding the date that
the Form S-4 Registration Statement (as defined in Section 5.2(a)) is
declared effective by the SEC.
(iv) The "Fully Diluted Company Share Amount" shall be the sum of (A)
the aggregate number of shares of Company Common Stock outstanding
immediately prior to the Effective Time (including the aggregate number of
shares of Company Common Stock into which the shares of Series A preferred
stock of the Company outstanding immediately prior to the Effective Time
have converted, any shares of Company Common Stock that are subject to a
repurchase option or risk of forfeiture under any restricted stock purchase
agreement or other agreement, and any shares of Company Common Stock
described in Section 1.5(b)(ii)), (B) the aggregate number of shares of
Company Common Stock issuable pursuant to all Company Options outstanding
immediately prior to the Effective Time, and (C) the aggregate number of
shares of Company Common Stock issuable pursuant to warrants, options,
convertible securities and any other rights to acquire shares of Company
Common Stock outstanding immediately prior to the Effective Time.
(v) The "Merger Consideration" receivable by a holder of capital stock
of the Company shall consist of (A) the shares of Parent Common Stock
issuable to such holder in accordance with Section 1.5(b) upon the
surrender of the certificate or certificates representing capital stock of
the Company held by such holder and (B) the right of such holder to receive
cash in lieu of fractional shares of Parent Common Stock in accordance with
Section 1.8(a).
(d) If any shares of Company Common Stock outstanding immediately prior to
the Effective Time are unvested or are subject to a repurchase option, risk of
forfeiture or other condition under any applicable restricted stock purchase
agreement or other agreement with the Company, then the shares of Parent Common
Stock issued in exchange for such shares of Company Common Stock will also be
unvested and subject to the same repurchase option, risk of forfeiture or other
condition, and the certificates representing such shares of Parent Common Stock
may accordingly be marked with appropriate legends. The Company shall take all
action that may be necessary to ensure that, from and after the Effective Time,
Parent is entitled to exercise any such repurchase option or other right set
forth in any such restricted stock purchase agreement or other agreement.
1.6 Employee Stock Options. At the Effective Time, each then outstanding
Company Option (as defined in Section 2.3(b)) and each other outstanding option
to purchase Common Stock of the Company issued in accordance with the terms of
this Agreement, whether vested or unvested, shall be assumed by Parent in
accordance with the terms (as in effect as of the date of this Agreement) of
such Company Stock Option Plan under which such Company Option was issued and
the stock option agreement by which such Company Option is evidenced. All
rights with respect to Company Common Stock under outstanding Company Options
shall thereupon be converted into rights with respect to Parent Common Stock.
Accordingly, from and after the Effective Time, (a) each Company Option assumed
by Parent may be exercised solely for shares of Parent Common Stock, (b) the
number of shares of Parent Common Stock subject to each such assumed Company
Option shall be equal to the number of shares of Company Common Stock that were
subject to such Company Option immediately prior to the Effective Time
multiplied by the Applicable Fraction, rounded down to the nearest whole number
of shares of Parent Common Stock, (c) the per share exercise price for the
Parent Common Stock issuable upon exercise of each such assumed Company Option
shall be determined by dividing the exercise price per share of Company Common
Stock subject to such Company Option, as in effect immediately prior to the
Effective Time, by the Applicable Fraction, and rounding the resulting exercise
price
A-3
<PAGE>
up to the nearest whole cent, and (d) except as set forth in Part 1.6(d) of the
Company Disclosure Schedule, all restrictions on the exercise of each such
assumed Company Option shall continue in full force and effect, and the term,
exercisability, vesting schedule and other provisions of such Company Option
shall otherwise remain unchanged; provided however, that each such assumed
Company Option shall, in accordance with its terms, be subject to further
adjustment as appropriate to reflect any stock split, reverse stock split,
stock dividend, recapitalization or other similar transaction effected by
Parent after the Effective Time. The Company and Parent shall take all action
that may be necessary (under the Company Stock Option Plan and otherwise) to
effectuate the provisions of this Section 1.6.
1.7 Closing of the Company's Transfer Books. At the Effective Time, holders
of certificates representing shares of capital stock of the Company that were
outstanding immediately prior to the Effective Time shall cease to have any
rights as stockholders of the Company, and the stock transfer books of the
Company shall be closed with respect to all shares of such capital stock of the
Company outstanding immediately prior to the Effective Time. No further
transfer of any such shares of capital stock of the Company shall be made on
such stock transfer books after the Effective Time. If, after the Effective
Time, a valid certificate previously representing any shares of capital stock
of the Company (a "Company Stock Certificate") is presented to the Surviving
Corporation or Parent, such Company Stock Certificate shall be canceled and
shall be exchanged as provided in Section 1.8.
1.8 Exchange of Certificates.
(a) As soon as practicable after the Effective Time, Parent will send to
each of the registered holders of Company Stock Certificates a letter of
transmittal in customary form and containing such provisions as Parent may
reasonably specify and instructions for use in effecting the surrender of
Company Stock Certificates in exchange for the Merger Consideration. Upon
surrender of a Company Stock Certificate to Parent for exchange, together with
a duly executed letter of transmittal and such other documents as may be
reasonably required by Parent, Parent shall (i) deliver to the holder of such
Company Stock Certificate a certificate representing 90% of the number of
shares of Parent Common Stock that such holder has the right to receive
pursuant to Section 1.5, and (ii) deliver to the Escrow Agent under the Escrow
Agreement (as defined below) on behalf of such holder a certificate in the name
of the Escrow Agent representing 10% of the number of shares of Parent Common
Stock that such holder has the right to receive pursuant to Section 1.5,
provided that the certificates representing Parent Common Stock to be delivered
to the holder of a Company Stock Certificate under clause (i) above and to the
Escrow Agent under clause (ii) above shall, in each case, represent only whole
shares of Parent Common Stock and in lieu of any fractional shares to which
such holder would otherwise be entitled, after combining any fractional
interests of such holder into as many whole shares as is possible, the holder
of such Company Stock Certificate shall be paid in cash an amount equal to the
sum of (1) the dollar amount (rounded to the nearest whole cent) determined by
multiplying the Closing Sales Price (as defined below) by the fraction of a
share of Parent Common Stock that would otherwise be deliverable to such holder
under clause (i) above and (2) the dollar amount (rounded to the nearest whole
cent) determined by multiplying the Closing Sales Price by the fraction of a
share of Parent Common Stock that would otherwise be deliverable to the Escrow
Agent under clause (ii) above. Notwithstanding the foregoing, a holder of a
Company Stock Certificate may elect to deliver cash to the Escrow Agent in lieu
of the shares of Parent Common Stock required by Section 1.8(a)(ii) by giving
written notice to the Parent at least ten (10) days prior to Closing. Each such
holder shall be required to deliver or cause to be delivered to the Escrow
Agent no later than the Closing cash equal to the Closing Sales Price
multiplied by the number of shares of Parent Common Stock that otherwise would
have been delivered to the Escrow Agent with respect to such holder. As used in
this Agreement, the "Closing Sales Price" shall mean the closing sales price of
one share of Parent Common Stock as quoted on the Nasdaq on the last trading
day immediately preceding the Closing Date. All Company Stock Certificates so
surrendered shall be canceled. Until surrendered as contemplated by this
Section 1.8, each Company Stock Certificate shall be deemed, from and after the
Effective Time, to represent only the right to receive the Merger Consideration
in accordance with this Agreement. If any Company Stock Certificate shall have
been lost, stolen or destroyed, Parent may, in its discretion and as a
condition precedent to the issuance of
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any certificate representing Parent Common Stock or the payment of cash in lieu
of fractional shares, require the owner of such lost, stolen or destroyed
Company Stock Certificate to provide an appropriate affidavit and to deliver a
bond (in such sum as Parent may reasonably direct) as indemnity against any
claim that may be made against Parent or the Surviving Corporation with respect
to such Company Stock Certificate.
(b) No dividends or other distributions declared or made with respect to
Parent Common Stock with a record date after the Effective Time shall be paid
to the holder of any unsurrendered Company Stock Certificate with respect to
the shares of Parent Common Stock represented thereby, and no cash payment in
lieu of any fractional share shall be paid to any such holder, until such
holder surrenders such Company Stock Certificate in accordance with this
Section 1.8 (at which time such holder shall be entitled to receive all such
dividends and distributions and such cash payment).
(c) Parent and the Surviving Corporation shall be entitled to deduct and
withhold from any consideration payable or otherwise deliverable to any holder
or former holder of capital stock of the Company pursuant to this Agreement
such amounts as Parent or the Surviving Corporation may be required to deduct
or withhold therefrom under the Code or under any provision of state, local or
foreign tax law. To the extent such amounts are so deducted or withheld, such
amounts shall be treated for all purposes under this Agreement as having been
paid to the Person to whom such amounts would otherwise have been paid.
(d) Neither Parent nor the Surviving Corporation shall be liable to any
holder or former holder of capital stock of the Company for any shares of
Parent Common Stock (or dividends or distributions with respect thereto), or
for any cash amounts, delivered to any public official pursuant to any
applicable abandoned property, escheat or similar law.
1.9 Appraisal Rights.
(a) Notwithstanding anything in this Agreement to the contrary, shares of
capital stock of the Company held by a holder who, pursuant to Section 262 of
the DGCL or any successor provision, has the right to demand and properly
demands an appraisal of such shares of capital stock of the Company
("Dissenting Shares"), shall not be converted into the right to receive Parent
Common Stock as set forth in Section 1.5, unless such holder fails to perfect
or otherwise loses such holder's right to such appraisal, if any. If, after the
Effective Time, such holder fails to perfect or loses any such right to
appraisal, such holder's Dissenting Shares shall be treated as having been
converted as of the Effective Time into the right to receive the Merger
Consideration. At the Effective Time, any holder of Dissenting Shares shall
cease to have any rights with respect thereto, except the rights provided in
Section 262 of the DGCL or any successor provision and as provided in the
immediately preceding sentence. The Company shall give prompt notice to Parent
of any demands received by the Company for appraisal of shares of capital stock
of the Company and the opportunity to participate in all negotiations and
proceedings with respect to any such demand. Except to the extent otherwise
required by the DGCL, the Company shall not make any payment or settlement
offer prior to the Effective Time with respect to any such demand unless Parent
shall have consented in writing to such payment or settlement offer.
1.10 Escrow of Parent Common Stock. Upon the Closing, (i) on behalf of the
holders of the Company's Stock Certificates, Parent shall deliver the shares of
Parent Common Stock to be delivered to the Escrow Agent pursuant to Section
1.8(a)(ii) (the "Escrow Shares") to Harris Trust Company of California as
escrow agent (the "Escrow Agent"), and (ii) any holder of a Company Stock
Certificate electing to fund the escrow obligation with cash rather than Escrow
Shares pursuant to Section 1.8, shall deliver such cash to the Escrow Agent
(the "Escrow Cash"). The Escrow Agent shall hold the Escrow Shares and the
Escrow Cash (collectively, the "Escrow Fund") as collateral to secure the
rights of the Indemnitees under Section 9 hereof. The Escrow Fund shall be held
pursuant to the provisions of an escrow agreement substantially in the form of
Exhibit D (the "Escrow Agreement"). The Escrow Shares will be represented by a
certificate or certificates issued in the name of the Escrow Agent and the
Escrow Cash shall be held in an interest-bearing account. The Escrow Fund shall
be held by the Escrow Agent for a period of one year from the Closing Date (the
"Escrow
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Period"); provided, however that in the event any Indemnitee has made a claim
under Section 9 prior to the end of the Escrow Period, then the Escrow Period
shall continue until such claim is fully and finally resolved. In the event
that this Agreement is adopted by the Company's stockholders, then all such
stockholders shall, without any further act of any Company stockholder, be
deemed to have consented to and approved (i) the use of the Escrow Fund as
collateral to secure the rights of the Indemnitees under Section 9 in the
manner set forth herein and in the Escrow Agreement, and (ii) the appointment
of the Company Stockholders' Representative (as defined in Section 10.1) as the
representative under the Escrow Agreement of the Persons receiving Merger
Consideration under this Agreement and as the attorney-in-fact and agent for
and on behalf of each such Person (other than holders of Dissenting Shares).
1.11 Tax Consequences. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of
the Code. The parties to this Agreement hereby adopt this Agreement as a "plan
of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of
the United States Treasury Regulations.
1.12 Accounting Treatment. For accounting purposes, the Merger is intended
to be treated as a "purchase."
1.13 Further Action. If, at any time after the Effective Time, any further
action is determined by Parent to be necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation or Parent with
full right, title and possession of and to all rights and property of Merger
Sub and the Company, the officers and directors of the Surviving Corporation
and Parent shall be fully authorized (in the name of Merger Sub, in the name of
the Company and otherwise) to take such action.
SECTION 2. Representations and Warranties of the Company
The Company represents and warrants, to and for the benefit of the
Indemnitees, as follows:
2.1 Due Organization; No Subsidiaries; Etc.
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all necessary
power and authority: (i) to conduct its business in the manner in which its
business is currently being conducted; (ii) to own and use its assets in the
manner in which its assets are currently owned and used; and (iii) to perform
its obligations under all Company Contracts.
(b) Except as set forth in Part 2.1(b) of the Company Disclosure Schedule,
the Company has not conducted any business under or otherwise used, for any
purpose or in any jurisdiction, any fictitious name, assumed name, trade name
or other name, other than the name "YuniNetworks, Inc."
(c) The Company is not and has not been required to be qualified,
authorized, registered or licensed to do business as a foreign corporation in
any jurisdiction other than the jurisdictions identified in Part 2.1(c)(i) of
the Company Disclosure Schedule, except where the failure to be so qualified,
authorized, registered or licensed has not had and will not have a Material
Adverse Effect on the Company. The Company is in good standing as a foreign
corporation in each of the jurisdictions identified in Part 2.1(c)(ii) of the
Company Disclosure Schedule.
(d) Part 2.1(d) of the Company Disclosure Schedule accurately sets forth (i)
the names of the members of the Company's board of directors, (ii) the names of
the members of each committee of the Company's board of directors, and (iii)
the names and titles of the Company's officers.
(e) The Company does not own any controlling interest in any Entity and,
except for the equity interests identified in Part 2.1(e) of the Company
Disclosure Schedule, the Company has never owned, beneficially or otherwise,
any shares or other securities of, or any direct or indirect equity interest
in, any Entity. The Company has not agreed and is not obligated to make any
future investment in or capital contribution to any
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Entity. The Company has not guaranteed and is not responsible or liable for any
obligation of any of the Entities in which it owns or has owned any equity
interest.
2.2 Certificate of Incorporation and Bylaws; Records. The Company has
delivered to Parent accurate and complete copies of: (1) the Company's
certificate of incorporation and bylaws, including all amendments thereto; (2)
the stock records of the Company; and (3) except as set forth in Part 2.2 of
the Company Disclosure Schedule, the minutes and other records of the meetings
and other proceedings (including any actions taken by written consent or
otherwise without a meeting) of the stockholders of the Company, the board of
directors of the Company and all committees of the board of directors of the
Company. There have been no formal meetings or other proceedings of the
stockholders of the Company, the board of directors of the Company or any
committee of the board of directors of the Company that are not fully reflected
in such minutes or other records. There has not been any material violation of
any of the provisions of the Company's certificate of incorporation or bylaws,
and the Company has not taken any action that is inconsistent in any material
respect with any resolution adopted by the Company's stockholders, the
Company's board of directors or any committee of the Company's board of
directors. The books of account, stock records, minute books and other records
of the Company are accurate, up-to-date and complete in all material respects,
and have been maintained in accordance with prudent business practices.
2.3 Capitalization, Etc.
(a) The authorized capital stock of the Company consists of: (i) 35,000,000
shares of Common Stock ($.001 par value per share), of which 11,870,833 shares
have been issued and are outstanding as of the date of this Agreement; and (ii)
15,000,000 shares of Preferred Stock ($.001 par value per share), 11,000,000 of
which have been designated "Series A preferred stock," all of which have been
issued and are outstanding as of the date of this Agreement. As of the date
hereof and as of the Effective Time, each outstanding share of Series A
Preferred Stock of the Company is and shall be convertible into one share of
Company Common Stock. All of the outstanding shares of Company Common Stock,
and Series A preferred stock of the Company have been duly authorized and
validly issued, and are fully paid and non-assessable. All outstanding shares
of Company Common Stock, and Series A preferred stock of the Company, and all
outstanding Company Options, have been issued and granted in compliance with
(i) all applicable securities laws and other applicable Legal Requirements, and
(ii) all requirements set forth in applicable Contracts. Part 2.3(a) of the
Company Disclosure Schedule provides an accurate and complete description of
the terms of each repurchase option which is held by the Company and to which
any shares of capital stock of the Company is subject.
(b) The Company has reserved 3,387,500 shares of Company Common Stock for
issuance under the Company Stock Option Plan, of which options to purchase
1,584,800 shares are outstanding as of the date of this Agreement. Part 2.3(b)
of the Company Disclosure Schedule accurately sets forth, with respect to each
option to purchase Common Stock of the Company outstanding as of the date
hereof (whether vested or unvested) (the "Company Options"): (i) the name of
the holder of such Company Option; (ii) the total number of shares of Company
Common Stock that are subject to such Company Option and the number of shares
of Company Common Stock with respect to which such Company Option is
immediately exercisable; (iii) the date on which such Company Option was
granted and the term of such Company Option; (iv) the vesting schedule for such
Company Option; (v) the exercise price per share of Company Common Stock
purchasable under such Company Option; and (vi) whether such Company Option has
been designated an "incentive stock option" as defined in Section 422 of the
Code. Except as set forth in Part 2.3(b) of the Company Disclosure Schedule,
there is no: (i) outstanding subscription, option, call, warrant or right
(whether or not currently exercisable) to acquire any shares of capital stock
or other securities of the Company; (ii) outstanding security, instrument or
obligation that is or may become convertible into or exchangeable for any
shares of capital stock or other securities of the Company; (iii) Contract
under which the Company is or may become obligated to sell or otherwise issue
any shares of its capital stock or any other securities of the Company; or (iv)
to the knowledge of the Company, condition or circumstance that may give rise
to or provide a basis for the assertion of a claim by any Person to the effect
that such Person is entitled to acquire or receive any shares of capital stock
or other securities of the Company.
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(c) The Company has no Subsidiaries.
(d) Except as set forth in Part 2.3(d) of the Company Disclosure Schedule,
the Company has never repurchased, redeemed or otherwise reacquired any shares
of capital stock or other securities of the Company. All securities so
reacquired by the Company were reacquired in compliance with (i) the applicable
provisions of the DGCL and all other applicable Legal Requirements, and (ii)
all requirements set forth in applicable restricted stock purchase agreements
and other applicable Contracts.
2.4 Financial Statements.
(a) The Company has delivered to Parent the following financial statements
and notes (collectively, the "Company Financial Statements"):
(i) The unaudited balance sheets of the Company as of December 31, 1999,
and the related unaudited profit and loss statements and statement of cash
flows of the Company for the period from inception to December 31, 1999;
and
(ii) the unaudited balance sheet of the Company as of March 31, 2000
(the "Unaudited Interim Balance Sheet"), and the related unaudited profit
and loss statement of the Company for the three months then ended.
(b) The Company Financial Statements are accurate and complete in all
material respects and present fairly the financial position of the Company as
of the respective dates thereof and the results of operations and (in the case
of the financial statements referred to in Section 2.4(a)(i)) cash flows of the
Company for the periods covered thereby. The Company Financial Statements have
been prepared substantially in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods covered (except
that such financial statements do not contain footnotes and are subject to
normal and recurring year-end audit adjustments, which will not, individually
or in the aggregate, be material in magnitude).
2.5 Absence of Changes. Except as set forth in Part 2.5 of the Company
Disclosure Schedule, since March 31, 2000:
(a) there has not been any material adverse change in the Company's
business, condition, assets, liabilities, operations, financial performance or
prospects, and, to the knowledge of the Company, no event has occurred that
will, or could reasonably be expected to, have a Material Adverse Effect on the
Company;
(b) there has not been any material loss, damage or destruction to, or any
material interruption in the use of, any of the Company's assets (whether or
not covered by insurance);
(c) the Company has not declared, accrued, set aside or paid any dividend or
made any other distribution in respect of any shares of capital stock of the
Company, and has not repurchased, redeemed or otherwise reacquired any shares
of capital stock or other securities of the Company;
(d) the Company has not sold, issued or authorized the issuance of (i) any
capital stock or other securities of the Company (except for Company Common
Stock issued upon the exercise of outstanding Company Options), (ii) any option
or right to acquire any capital stock or any other securities of the Company
(except for Company Options described in Part 2.3 of the Company Disclosure
Schedule), or (iii) any instrument convertible into or exchangeable for any
capital stock or other securities of the Company;
(e) the Company has not amended or waived any of its rights under, or
permitted the acceleration of vesting under, (i) any provision of any Company
Stock Option Plan, (ii) any provision of any agreement evidencing any
outstanding Company Option, (iii) any restricted stock purchase agreement, or
(iv) any employment agreement;
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(f) there has been no amendment to the Company's certificate of
incorporation or bylaws, and the Company has not effected or been a party to
any Acquisition Transaction, recapitalization, reclassification of shares,
stock split, reverse stock split or similar transaction;
(g) the Company has not formed any subsidiary or acquired any equity
interest or other interest in any other Entity;
(h) the Company has not made any capital expenditure which, when added to
all other capital expenditures made on behalf of the Company since March 31,
2000, exceeds $50,000;
(i) the Company has not (i) entered into or permitted any of the assets
owned or used by it to become bound by any Contract that is or would
constitute a Material Contract (as defined in Section 2.10(a)), or
(ii) amended or prematurely terminated, or waived any material right or remedy
under, any such Contract;
(j) the Company has not (i) acquired, leased or licensed any right or other
asset from any other Person, (ii) sold or otherwise disposed of, or leased or
licensed, any right or other asset to any other Person, or (iii) waived or
relinquished any right, except for immaterial rights or other immaterial
assets acquired, leased, licensed or disposed of in the ordinary course of
business and consistent with the Company's past practices;
(k) the Company has not written off as uncollectible, or established any
extraordinary reserve with respect to, any account receivable or other
indebtedness;
(l) the Company has not made any pledge of any of its assets or otherwise
permitted any of its assets to become subject to any Encumbrance, except for
pledges of immaterial assets made in the ordinary course of business and
consistent with the Company's past practices;
(m) the Company has not (i) lent money to any Person (other than pursuant
to routine travel advances made to employees in the ordinary course of
business), or (ii) incurred or guaranteed any indebtedness for borrowed money;
(n) the Company has not (i) established or adopted any Employee Benefit
Plan, (ii) paid any bonus or made any profit-sharing or similar payment to, or
increased the amount of the wages, salary, commissions, fringe benefits or
other compensation or remuneration payable to, any of its directors, officers
or employees, or (iii) hired any new employee;
(o) the Company has not changed any of its methods of accounting or
accounting practices in any respect;
(p) the Company has not made any Tax election;
(q) the Company has not commenced or settled any Legal Proceeding;
(r) the Company has not entered into any material transaction or taken any
other material action outside the ordinary course of business or inconsistent
with its past practices, other than entering into this Agreement and the
agreements and transactions contemplated hereby; and
(s) the Company has not agreed or committed to take any of the actions
referred to in clauses "(c)" through "(r)" above.
2.6 Title to Assets.
(a) The Company owns, and has good, valid and marketable title to, all
assets purported to be owned by it, including: (i) all assets reflected on the
Unaudited Interim Balance Sheet; (ii) all assets referred to in Parts 2.1, 2.7
and 2.9 of the Company Disclosure Schedule and all of the Company's rights
under the Material Contracts; and (iii) all other assets reflected in the
Company's books and records as being owned by the
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Company. Except as set forth in Part 2.6(a) of the Company Disclosure Schedule,
all of said assets are owned by the Company free and clear of any liens or
other Encumbrances, except for (x) any lien for current taxes not yet due and
payable, and (y) minor liens that have arisen in the ordinary course of
business and that do not (in any case or in the aggregate) materially detract
from the value of the assets subject thereto or materially impair the
operations of the Company.
(b) Part 2.6(b) of the Company Disclosure Schedule identifies all assets
that are material to the business of the Company and that are being leased or
licensed to or by the Company. All such leases and licenses are valid and
enforceable against the parties thereto.
2.7 Bank Accounts; Receivables.
(a) Part 2.7(a) of the Company Disclosure Schedule provides accurate
information with respect to each account maintained by or for the benefit of
the Company at any bank or other financial institution including the name of
the bank or financial institution, the account number and the balance as of the
date hereof.
(b) Part 2.7(b) of the Company Disclosure Schedule provides an accurate and
complete breakdown and aging of all accounts receivable, notes receivable and
other receivables of the Company as of March 31, 2000. Except as set forth in
Part 2.7(b) of the Company Disclosure Schedule, all existing accounts
receivable of the Company (including those accounts receivable reflected on the
Unaudited Interim Balance Sheet that have not yet been collected and those
accounts receivable that have arisen since March 31, 2000 and have not yet been
collected) (i) represent valid obligations of customers of the Company arising
from bona fide transactions entered into in the ordinary course of business,
and (ii) are current and, to the Company's knowledge, are collectible in full
when due, without any counterclaim or set off (net of an allowance for doubtful
accounts not to exceed $20,000 in the aggregate).
2.8 Equipment; Leasehold.
(a) All material items of equipment and other tangible assets owned by or
leased to the Company are adequate for the uses to which they are being put,
are in good condition and repair (ordinary wear and tear excepted) and are
adequate for the conduct of the Company's business in the manner in which such
business is currently being conducted.
(b) The Company does not own any real property or any interest in real
property, except for the leasehold created under the real property lease
identified in Part 2.10 of the Company Disclosure Schedule.
2.9 Proprietary Assets.
(a) Part 2.9(a)(i) of the Company Disclosure Schedule sets forth, with
respect to each Proprietary Asset owned by the Company and registered with any
Governmental Body or for which an application has been filed with any
Governmental Body, (i) a brief description of such Proprietary Asset, and (ii)
the names of the jurisdictions covered by the applicable registration or
application. Part 2.9(a)(ii) of the Company Disclosure Schedule identifies and
provides a brief description of all other Proprietary Assets owned by the
Company that are material to the business of the Company. Part 2.9(a)(iii) of
the Company Disclosure Schedule identifies and provides a brief description of,
and identifies any ongoing royalty or payment obligations in excess of $10,000
with respect to, each Proprietary Asset that is licensed or otherwise made
available to the Company by any Person (the "Licensed Assets") and is material
to the business of the Company, and identifies the Contract under which such
Proprietary Asset is being licensed or otherwise made available to the Company.
The Company has good, valid and marketable title to all of the Company
Proprietary Assets other than Licensed Assets, free and clear of all
Encumbrances, except for (i) any lien for current taxes not yet due and
payable, and (ii) minor liens that have arisen in the ordinary course of
business and that do not (individually or in the aggregate) materially detract
from the value of the assets subject thereto or materially impair the
operations of the Company. The Company has a valid right to use, license and
otherwise exploit all Licensed Assets and, except as set forth in Part
2.9(a)(iii) of the Company Disclosure Schedule, any rights thereunder will not
be
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affected by the Company entering into this Agreement and the agreements and
transactions contemplated hereby. Except as set forth in Part 2.9(a)(iv) of the
Company Disclosure Schedule, the Company has not developed jointly with any
other Person any Company Proprietary Asset that is material to the business of
the Company with respect to which such other Person has any rights. Except as
set forth in Part 2.9(a)(v) of the Company Disclosure Schedule, there is no
Company Contract (with the exception of end user license agreements in the form
previously delivered by the Company to Parent) pursuant to which any Person has
any right (whether or not currently exercisable) to use, license or otherwise
exploit any Company Proprietary Asset.
(b) The Company has taken reasonable measures and precautions to protect and
maintain the confidentiality, secrecy and value of all material Company
Proprietary Assets (except Company Proprietary Assets whose value would be
unimpaired by disclosure). Without limiting the generality of the foregoing,
except as set forth in Part 2.9(b) of the Company Disclosure Schedule, (i) all
current and former employees of the Company who are or were involved in, or who
have contributed to, the creation or development of any material Company
Proprietary Asset have executed and delivered to the Company an agreement
(containing no exceptions to or exclusions from the scope of its coverage) that
is substantially identical to the form of Proprietary Information and
Inventions Agreement previously delivered by the Company to Parent, and (ii)
all current and former consultants and independent contractors to the Company
who are or were involved in, or who have contributed to, the creation or
development of any material Company Proprietary Asset have executed and
delivered to the Company an agreement (containing no exceptions to or
exclusions from the scope of its coverage) that is substantially identical to
the form of Proprietary Information and Inventions Agreement or equivalent
previously delivered to Parent. No current or former employee, officer,
director, stockholder, consultant or independent contractor of or to the
Company has any right, claim or interest in or with respect to any Company
Proprietary Asset.
(c) To the knowledge of the Company: (i) all patents, trademarks, service
marks and copyrights held by the Company are valid, enforceable and subsisting;
(ii) none of the Company Proprietary Assets and no Proprietary Asset that is
currently being developed by the Company (either by itself or with any other
Person) infringes, misappropriates or conflicts with any Proprietary Asset
owned or used by any other Person; (iii) none of the products that are or have
been designed, created, developed, assembled, manufactured or sold by the
Company is infringing, misappropriating or making any unlawful or unauthorized
use of any Proprietary Asset owned or used by any other Person, the Company has
all rights and licenses reasonably necessary in order to make, have made, use
or sell these products to an unlimited number of parties, and none of such
products has at any time infringed, misappropriated or made any unlawful or
unauthorized use of, and the Company has not received any notice or other
communication (in writing or otherwise) of any actual, alleged, possible or
potential infringement, misappropriation or unlawful or unauthorized use of,
any Proprietary Asset owned or used by any other Person; (iv) no other Person
is infringing, misappropriating or making any unlawful or unauthorized use of,
and no Proprietary Asset owned or used by any other Person infringes or
conflicts with, any material Company Proprietary Asset.
(d) The Company Proprietary Assets constitute all the Proprietary Assets
necessary to enable the Company to conduct its business in the manner in which
such business has been and is being conducted. The Company has not (i) licensed
any of the material Company Proprietary Assets to any Person on an exclusive
basis, or (ii) entered into any covenant not to compete or Contract limiting
its ability to exploit fully any material Company Proprietary Assets or to
transact business in any market or geographical area or with any Person.
(e) Except as set forth in Part 2.9(e)(i) of the Company Disclosure
Schedule, the Company has not disclosed or delivered to any Person, or
permitted the disclosure or delivery to any escrow agent or other Person, of
any Company Source Code. To the Company's knowledge, no event has occurred, and
no circumstance or condition exists, that (with or without notice or lapse of
time) will, or could reasonably be expected to, result in the disclosure or
delivery to any Person of any Company Source Code. Part 2.9(e)(ii) of the
Company Disclosure Schedule identifies each Contract pursuant to which the
Company has deposited or is required to deposit with an escrowholder or any
other Person any Company Source Code, and further describes
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whether the execution of this Agreement or the consummation of any of the
transactions contemplated hereby could reasonably be expected to result in the
release or disclosure of any Company Source Code.
(f) To the Company's knowledge, except with respect to demonstration or
trial copies, no product, system, program or software module designed,
developed, sold, licensed or otherwise made available by the Company to any
Person contains any "back door," "time bomb," "Trojan horse," "worm," "drop
dead device," "virus" or other software routines or hardware components
designed to permit unauthorized access or to disable or erase software,
hardware or data without the consent of the user.
2.10 Contracts.
(a) Part 2.10(a) of the Company Disclosure Schedule identifies:
(i) each Company Contract relating to the employment of, or the
performance of services by, any employee, consultant or independent
contractor;
(ii) each Company Contract relating to the acquisition, transfer, use,
development, sharing or license of any technology or any Proprietary Asset;
(iii) each Company Contract imposing any restriction on the Company's
right or ability (A) to compete with any other Person, (B) to acquire any
product or other asset or any services from any other Person, to sell any
product or other asset to or perform any services for any other Person or
to transact business or deal in any other manner with any other Person, or
(C) develop or distribute any technology;
(iv) each Company Contract creating or involving any agency
relationship, distribution arrangement or franchise relationship;
(v) each Company Contract relating to the acquisition, issuance or
transfer of any securities;
(vi) each Company Contract relating to the creation of any Encumbrance
with respect to any asset of the Company;
(vii) each Company Contract involving or incorporating any guaranty, any
pledge, any performance or completion bond, any indemnity or any surety
arrangement;
(viii) each Company Contract creating or relating to any partnership or
joint venture or any sharing of revenues, profits, losses, costs or
liabilities;
(ix) each Company Contract relating to the purchase or sale of any
product or other asset by or to, or the performance of any services by or
for, any Related Party (as defined in Section 2.18);
(x) each Company Contract constituting or relating to a Government
Contract or Government Bid;
(xi) any other Company Contract that was entered into outside the
ordinary course of business or was inconsistent with the Company's past
practices;
(xii) any other Company Contract that has a term of more than 60 days
and that may not be terminated by the Company (without penalty) within 60
days after the delivery of a termination notice by the Company;
(xiii) any other Company Contract that contemplates or involves (A) the
payment or delivery of cash or other consideration in an amount or having a
value in excess of $10,000 in the aggregate, or (B) the purchase or sale of
any product, or performance of services by or to the Company having a value
in excess of $10,000 in the aggregate; and
(xiv) each Company Contract constituting a commitment of any Person to
purchase products (including products in development) of the Company.
(Company Contracts in the respective categories described in clauses "(i)"
through "(xiv)" above are referred to in this Agreement as "Material
Contracts.")
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(b) The Company has delivered to Parent accurate and complete copies of all
written Material Contracts, including all amendments thereto. Part 2.10(b) of
the Company Disclosure Schedule provides an accurate description of the terms
of each Material Contract that is not in written form. Each Contract identified
in Part 2.10(a) and Part 2.10(b) of the Company Disclosure Schedule is valid
and in full force and effect, and, to the knowledge of the Company, is
enforceable by the Company in accordance with its terms.
(c) Except as set forth in Part 2.10(c) of the Company Disclosure Schedule:
(i) the Company has not violated or breached, or committed any default
under, any Company Contract, and, to the knowledge of the Company, no other
Person has violated or breached, or committed any default under, any
Company Contract;
(ii) to the knowledge of the Company, no event has occurred, and no
circumstance or condition exists, that (with or without notice or lapse of
time) will, or could reasonably be expected to, (A) result in a violation
or breach of any of the provisions of any Company Contract, (B) give any
Person the right to declare a default or exercise any remedy under any
Company Contract, (C) give any Person the right to accelerate the maturity
or performance of any Company Contract, or (D) give any Person the right to
cancel, terminate or modify any Company Contract;
(iii) since the Company's inception, the Company has not received any
notice or other communication regarding any actual or possible violation or
breach of, or default under, any Company Contract; and
(iv) the Company has not waived any of its material rights under any
Material Contract.
(d) No Person is renegotiating, or has a right pursuant to the terms of any
Company Contract to renegotiate, any amount paid or payable to the Company
under any Material Contract or any other material term or provision of any
Material Contract.
(e) The Material Contracts collectively constitute all of the Contracts
necessary to enable the Company to conduct its business in the manner in which
its business is currently being conducted.
(f) Part 2.10(f) of the Company Disclosure Schedule identifies and provides
a brief description of each proposed Material Contract as to which any bid,
offer, award, written proposal, term sheet or similar document has been
submitted or received by the Company since inception.
(g) Part 2.10(g) of the Company Disclosure Schedule provides an accurate
description and breakdown of the Company's backlog under Company Contracts.
2.11 Liabilities; Fees, Costs and Expenses.
(a) The Company has no accrued, contingent or other liabilities of any
nature, either matured or unmatured (whether or not required to be reflected in
financial statements in accordance with GAAP, and whether due or to become
due), except for: (i) liabilities identified as such in the "liabilities"
column of the Unaudited Interim Balance Sheet; (ii) accounts payable or accrued
salaries that have been incurred by the Company since March 31, 2000 in the
ordinary course of business and consistent with the Company's past practices;
(iii) liabilities under the Material Contracts, to the extent the nature and
magnitude of such liabilities can be specifically ascertained by reference to
the text of such Company Contracts; and (iv) the liabilities identified in Part
2.11(a) of the Company Disclosure Schedule.
(b) The total amount of all fees, costs and expenses incurred by or for the
benefit of the Company in connection with (a) the due diligence conducted by
the Company with respect to the Merger, (b) the negotiation, preparation and
review of this Agreement (including the Company Disclosure Schedule) and all
agreements, certificates, opinions and other instruments and documents
delivered or to be delivered in connection with the transactions contemplated
by this Agreement, (c) the preparation and submission of any
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filing or notice required to be made or given in connection with any of the
transactions contemplated by this Agreement and the obtaining of any Consent
required to be obtained in connection with any transactions contemplated
hereby, do not in the aggregate exceed $150,000.
2.12 Compliance with Legal Requirements. The Company is, and has at all
times since its inception been, in compliance with all applicable Legal
Requirements, except where the failure to comply with such Legal Requirements
has not had and will not have a Material Adverse Effect on the Company. Except
as set forth in Part 2.12 of the Company Disclosure Schedule, since its
inception the Company has not received any notice or other communication from
any Governmental Body regarding any actual or possible violation of, or failure
to comply with, any Legal Requirement.
2.13 Governmental Authorizations. Part 2.13 of the Company Disclosure
Schedule identifies each material Governmental Authorization held by the
Company, and the Company has delivered to Parent accurate and complete copies
of all Governmental Authorizations identified in Part 2.13 of the Company
Disclosure Schedule. The Governmental Authorizations identified in Part 2.13 of
the Company Disclosure Schedule are valid and in full force and effect, and
collectively constitute all Governmental Authorizations necessary to enable the
Company to conduct its business in the manner in which its business is
currently being conducted. The Company is, and at all times since its inception
has been, in substantial compliance with the terms and requirements of the
respective Governmental Authorizations identified in Part 2.13 of the Company
Disclosure Schedule. Since the date of its inception, the Company has not
received any notice or other communication from any Governmental Body regarding
(a) any actual or possible violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (b) any actual or possible
revocation, withdrawal, suspension, cancellation, termination or modification
of any Governmental Authorization.
2.14 Tax Matters.
(a) All Tax Returns required to be filed by or on behalf of the Company with
any Governmental Body with respect to any taxable period ending on or before
the Closing Date (the "Company Returns") (i) have been or will be filed on or
before the applicable due date (including any extensions of such due date), and
(ii) have been, or will be when filed, accurately and completely prepared in
all material respects in compliance with all applicable Legal Requirements. All
amounts shown on the Company Returns to be due on or before the Closing Date
have been or will be paid on or before the Closing Date. The Company has
delivered to Parent accurate and complete copies of all Company Returns filed
which have been requested by Parent.
(b) The Company Financial Statements fully accrue all actual and contingent
liabilities for unpaid Taxes with respect to all periods through the dates
thereof in accordance with generally accepted accounting principles. The
Company will establish, in the ordinary course of business and consistent with
its past practices, reserves adequate for the payment of all unpaid Taxes for
the period from March 31, 2000 through the Closing Date, and the Company will
disclose the dollar amount of such reserves to Parent on or prior to the
Closing Date.
(c) No Company Return relating to income Taxes has ever been examined or
audited by any Governmental Body. Except as set forth in Part 2.14(c) of the
Company Disclosure Schedule, there have been no examinations or audits of any
Company Return. The Company has delivered to Parent accurate and complete
copies of all audit reports and similar documents (to which the Company has
access) relating to the Company Returns. Except as set forth in Part 2.14(c) of
the Company Disclosure Schedule, no extension or waiver of the limitation
period applicable to any of the Company Returns has been granted (by the
Company or any other Person), and no such extension or waiver has been
requested from the Company.
(d) Except as set forth in Part 2.14(d) of the Company Disclosure Schedule,
no claim or Proceeding is pending or, to the knowledge of the Company, has been
threatened against or with respect to the Company in respect of any Tax. There
are no unsatisfied liabilities for Taxes (including liabilities for interest,
additions to tax and penalties thereon and related expenses) with respect to
any notice of deficiency or similar document
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received by the Company with respect to any Tax (other than liabilities for
Taxes asserted under any such notice of deficiency or similar document which
are being contested in good faith by the Company and with respect to which
adequate reserves for payment have been established). There are no liens for
Taxes upon any of the assets of the Company except liens for current Taxes not
yet due and payable. The Company has not entered into or become bound by any
agreement or consent pursuant to Section 341(f) of the Code. The Company has
not been, and the Company will not be, required to include any adjustment in
taxable income for any tax period (or portion thereof) pursuant to Section 481
or 263A of the Code or any comparable provision under state or foreign Tax laws
as a result of transactions or events occurring, or accounting methods
employed, prior to the Closing.
(e) Except as set forth in Part 2.14(e) of the Company Disclosure Schedule,
there is no agreement, plan, arrangement or other Contract covering any
employee or independent contractor or former employee or independent contractor
of the Company that, considered individually or considered collectively with
any other such Contracts, will, or could reasonably be expected to, give rise
directly or indirectly to the payment of any material amount that would not be
deductible pursuant to Section 280G or Section 162 of the Code. The Company is
not, and has never been, a party to or bound by any tax indemnity agreement,
tax sharing agreement, tax allocation agreement or similar Contract.
2.15 Employee and Labor Matters; Benefit Plans.
(a) Part 2.15(a) of the Company Disclosure Schedule identifies each salary,
bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance pay, termination pay, hospitalization, medical, life or other
insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement (collectively, the "Plans") sponsored,
maintained, contributed to or required to be contributed to by the Company for
the benefit of any employee of the Company ("Employee"), except for Plans which
would not require the Company to make payments or provide benefits having a
value in excess of $25,000 in the aggregate. Part 2.15(a) of the Company
Disclosure Schedule sets forth the citizenship status of every employee of the
Company (whether such employee is a United States citizen or otherwise) and,
with respect to non-United States citizens, identifies the visa or other
similar permit under which such employee is working for the Company and the
dates of issuance and expiration of such visa or other similar permit.
(b) Except as set forth in Part 2.15(b) of the Company Disclosure Schedule,
the Company does not maintain, sponsor or contribute to, and, to the knowledge
of the Company, has not at any time in the past maintained, sponsored or
contributed to, any employee pension benefit plan (as defined in Section 3(2)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
whether or not excluded from coverage under specific Titles or Merger Subtitles
of ERISA) for the benefit of Employees or former Employees (a "Pension Plan").
(c) The Company maintains, sponsors or contributes only to those employee
welfare benefit plans (as defined in Section 3(1) of ERISA, whether or not
excluded from coverage under specific Titles or Merger Subtitles of ERISA) for
the benefit of Employees or former Employees which are described in Part
2.15(c) of the Company Disclosure Schedule (the "Welfare Plans"), none of which
is a multiemployer plan (within the meaning of Section 3(37) of ERISA).
(d) With respect to each Plan, the Company has delivered to Parent:
(i) an accurate and complete copy of such Plan (including all amendments
thereto);
(ii) an accurate and complete copy of the annual report, if required
under ERISA, with respect to such Plan for the last two years;
(iii) an accurate and complete copy of the most recent summary plan
description, together with each Summary of Material Modifications, if
required under ERISA, with respect to such Plan, and all material written
employee communications relating to such Plan;
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(iv) if such Plan is funded through a trust or any third party funding
vehicle, an accurate and complete copy of the trust or other funding
agreement (including all amendments thereto) and accurate and complete
copies the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts relating to such Plan,
including service provider agreements, insurance contracts, minimum premium
contracts, stop-loss agreements, investment management agreements,
subscription and participation agreements and recordkeeping agreements; and
(vi) an accurate and complete copy of the most recent determination
letter received from the Internal Revenue Service with respect to such Plan
(if such Plan is intended to be qualified under Section 401(a) of the
Code).
(e) The Company is not required to be, and, to the knowledge of the Company,
has never been required to be, treated as a single employer with any other
Person under Section 4001(b)(1) of ERISA or Section 414(b), (c), (m) or (o) of
the Code. The Company has never been a member of an "affiliated service group"
within the meaning of Section 414(m) of the Code. To the knowledge of the
Company, the Company has never made a complete or partial withdrawal from a
multiemployer plan, as such term is defined in Section 3(37) of ERISA,
resulting in "withdrawal liability," as such term is defined in Section 4201 of
ERISA (without regard to subsequent reduction or waiver of such liability under
either Section 4207 or 4208 of ERISA).
(f) The Company does not have any plan or commitment to create any
additional Welfare Plan or any Pension Plan, or to modify or change any
existing Welfare Plan or Pension Plan (other than to comply with applicable
law) in a manner that would affect any Employee.
(g) Except as set forth in Part 2.15(g) of the Company Disclosure Schedule,
no Welfare Plan provides death, medical or health benefits (whether or not
insured) with respect to any current or former Employee after any such
Employee's termination of service (other than (i) benefit coverage mandated by
applicable law, including coverage provided pursuant to Section 4980B of the
Code, (ii) deferred compensation benefits accrued as liabilities on the
Unaudited Interim Balance Sheet, and (iii) benefits the full cost of which are
borne by current or former Employees (or the Employees' beneficiaries)).
(h) With respect to each of the Welfare Plans constituting a group health
plan within the meaning of Section 4980B(g)(2) of the Code, the provisions of
Section 4980B of the Code ("COBRA") have been complied with in all material
respects.
(i) Each of the Plans has been operated and administered in all material
respects in accordance with applicable Legal Requirements, including but not
limited to ERISA and the Code.
(j) Each of the Plans intended to be qualified under Section 401(a) of the
Code has received a favorable determination from the Internal Revenue Service,
and the Company is not aware of any reason why any such determination letter
should be revoked.
(k) Except as set forth in Part 2.15(k) of the Company Disclosure Schedule,
neither the execution, delivery or performance of this Agreement, nor the
consummation of the Merger or any of the other transactions contemplated by
this Agreement, will result in any payment (including any bonus, golden
parachute or severance payment) to any current or former Employee or director
of the Company (whether or not under any Plan), or materially increase the
benefits payable under any Plan, or result in any acceleration of the time of
payment or vesting of any such benefits.
(l) Part 2.15(l) of the Company Disclosure Schedule contains a list of all
salaried employees of the Company as of the date of this Agreement, and
correctly reflects, in all material respects, their salaries, any other
compensation payable to them (including compensation payable pursuant to bonus,
deferred compensation or commission arrangements), their dates of employment
and their positions. The Company is
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not a party to any collective bargaining contract or other Contract with a
labor union involving any of its Employees. All of the Company's employees are
"at will" employees.
(m) Part 2.15(m) of the Company Disclosure Schedule identifies each Employee
who is not fully available to perform work because of disability or other leave
and sets forth the basis of such leave and the anticipated date of return to
full service.
(n) The Company is in compliance in all material respects with all
applicable Legal Requirements and Contracts relating to employment, employment
practices, wages, bonuses and terms and conditions of employment, including
employee compensation matters.
(o) Except as set forth in Part 2.15(o) of the Company Disclosure Schedule,
the Company has good labor relations, and has no reason to believe that (i) the
consummation of the Merger or any of the other transactions contemplated by
this Agreement will have a material adverse effect on the Company's labor
relations, or (ii) any of the Company's employees intends to terminate his or
her employment with the Company.
2.16 Environmental Matters. The Company is in compliance in all material
respects with all applicable Environmental Laws, which compliance includes the
possession by the Company of all permits and other Governmental Authorizations
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof. The Company has not received any notice or other
communication (in writing or otherwise), whether from a Governmental Body,
citizens group, employee or otherwise, that alleges that the Company is not in
compliance with any Environmental Law, and, to the knowledge of the Company,
there are no circumstances that may prevent or interfere with the Company's
compliance with any Environmental Law in the future. To the knowledge of the
Company, no current or prior owner of any property leased or controlled by the
Company has received any notice or other communication (in writing or
otherwise), whether from a Governmental Body, citizens group, employee or
otherwise, that alleges that such current or prior owner or the Company is not
in compliance with any Environmental Law. All Governmental Authorizations
currently held by the Company pursuant to Environmental Laws are identified in
Part 2.16 of the Company Disclosure Schedule. (For purposes of this Section
2.16: (i) "Environmental Law" means any federal, state, local or foreign Legal
Requirement relating to pollution or protection of human health or the
environment (including ambient air, surface water, ground water, land surface
or subsurface strata), including any law or regulation relating to emissions,
discharges, releases or threatened releases of Materials of Environmental
Concern, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Materials of
Environmental Concern; and (ii) "Materials of Environmental Concern" include
chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and
petroleum products and any other substance that is now or hereafter regulated
by any Environmental Law or that is otherwise a danger to health, reproduction
or the environment.)
2.17 Insurance. Part 2.17 of the Company Disclosure Schedule identifies all
insurance policies maintained by, at the expense of or for the benefit of the
Company and identifies any material claims made thereunder, and the Company has
delivered to Parent accurate and complete copies of the insurance policies
identified on Part 2.17 of the Company Disclosure Schedule. Each of the
insurance policies identified in Part 2.17 of the Company Disclosure Schedule
is in full force and effect. Since the Company's inception, the Company has not
received any notice or other communication regarding any actual or possible (a)
cancellation or invalidation of any insurance policy, (b) refusal of any
coverage or rejection of any claim under any insurance policy, or (c) material
adjustment in the amount of the premiums payable with respect to any insurance
policy.
2.18 Related Party Transactions. Except as set forth in Part 2.18 of the
Company Disclosure Schedule: (a) no Related Party has, and no Related Party has
at any time since the Company's inception had, any direct or indirect interest
in any material asset used in or otherwise relating to the business of the
Company; (b) no Related Party is, or has at any time since the Company's
inception been, indebted to the Company; (c) since the Company's inception, no
Related Party has entered into, or has had any direct or indirect financial
interest in,
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any material Contract, transaction or business dealing involving the Company;
(d) to the knowledge of the Company, no Related Party is competing, or has at
any time since the Company's inception competed, directly or indirectly, with
the Company; and (e) no Related Party has any claim or right against the
Company (other than rights under Company Options and rights to receive
compensation for services performed as an employee of the Company). (For
purposes of this Section 2.18 each of the following shall be deemed to be a
"Related Party": (i) each individual who is, or who has at any time since the
Company's inception been, an officer or director of the Company; (ii) each
member of the immediate family of each of the individuals referred to in clause
"(i)" above; and (iii) any trust or other Entity (other than the Company) in
which any one of the individuals referred to in clauses "(i)" and "(ii)" above
holds (or in which more than one of such individuals collectively hold),
beneficially or otherwise, a material voting, proprietary or equity interest.)
2.19 Legal Proceedings; Orders.
(a) Except as set forth in Part 2.19 of the Company Disclosure Schedule,
there is no pending Legal Proceeding, and to the knowledge of the Company, no
Person has threatened to commence any Legal Proceeding: (i) that involves the
Company or any of the assets owned or used by the Company or any Person whose
liability the Company has or may have retained or assumed, either contractually
or by operation of law; or (ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, the Merger
or any of the other transactions contemplated by this Agreement. To the
knowledge of the Company, except as set forth in Part 2.19(a) of the Company
Disclosure Schedule, no event has occurred, and no claim, dispute or other
condition or circumstance exists, that will, or that could reasonably be
expected to, give rise to or serve as a basis for the commencement of any such
Legal Proceeding.
(b) Except as set forth in Part 2.19(b) of the Company Disclosure Schedule,
no Legal Proceeding has ever been commenced by or has ever been pending against
the Company.
(c) There is no order, writ, injunction, judgment or decree to which the
Company, or any of the assets owned or used by the Company, is subject. To the
knowledge of the Company, no officer or other employee of the Company is
subject to any order, writ, injunction, judgment or decree that prohibits such
officer or other employee from engaging in or continuing any conduct, activity
or practice relating to the Company's business.
2.20 Authority; Binding Nature of Agreement. The Company has the absolute
and unrestricted right, power and authority to enter into and to perform its
obligations under this Agreement; and the execution, delivery and performance
by the Company of this Agreement have been duly authorized by all necessary
action on the part of the Company and its board of directors and this Agreement
and the Merger have been unanimously approved by the board of directors of the
Company. The affirmative vote of (i) a majority of the shares of Company Common
Stock and Series A preferred stock of the Company, voting together as a single
class (on an as-converted-basis), that are outstanding on the first date on
which a signed written consent of a Company stockholder approving this
Agreement is received by the Company, and (ii) a majority of the shares of
Series A preferred stock of the Company, voting as a separate class (on an as-
converted-basis), that are outstanding on the first date on which a signed
written consent of a Company stockholder approving this Agreement is received
by the Company, is the only vote of the stockholders of the Company needed to
approve and adopt this Agreement and approve the Merger and the transactions
contemplated hereby (the "Required Company Stockholder Vote"). This Agreement
constitutes the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive
relief and other equitable remedies.
2.21 Non-Contravention; Consents. Except as set forth in Part 2.21 of the
Company Disclosure Schedule, neither (1) the execution, delivery or performance
of this Agreement or any of the other agreements referred to in this Agreement,
nor (2) the consummation of the Merger or any of the other transactions
contemplated by this Agreement, will directly or indirectly (with or without
notice or lapse of time):
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(a) contravene, conflict with or result in a violation of (i) any of the
provisions of the Company's certificate of incorporation or bylaws, or (ii) any
resolution adopted by the Company's stockholders, the Company's board of
directors or any committee of the Company's board of directors;
(b) contravene, conflict with or result in a violation of, or give any
Governmental Body or other Person the right to challenge any of the
transactions contemplated by this Agreement or to exercise any remedy or obtain
any relief under, any Legal Requirement or any order, writ, injunction,
judgment or decree to which the Company, or any of the assets owned or used by
the Company, is subject;
(c) contravene, conflict with or result in a violation of any of the terms
or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by the Company or that otherwise relates to the Company's business
or to any of the assets owned or used by the Company;
(d) contravene, conflict with or result in a violation or breach of, or
result in a default under, any provision of any Company Contract that is or
would constitute a Material Contract, or give any Person the right to (i)
declare a default or exercise any remedy under any such Company Contract, (ii)
accelerate the maturity or performance of any such Company Contract, or (iii)
cancel, terminate or modify any such Company Contract; or
(e) result in the imposition or creation of any lien or other Encumbrance
upon or with respect to any asset owned or used by the Company (except for
minor liens that will not, in any case or in the aggregate, materially detract
from the value of the assets subject thereto or materially impair the
operations of the Company).
Except as set forth in Part 2.21 of the Company Disclosure Schedule, the
Company is not and will not be required to make any filing with or give any
notice to, or to obtain any Consent from, any Person in connection with (x) the
execution, delivery or performance of this Agreement or any of the other
agreements referred to in this Agreement, or (y) the consummation of the Merger
or any of the other transactions contemplated by this Agreement.
2.22 Customers. Part 2.22 of the Company Disclosure Schedule identifies each
Person that has committed (whether orally or in writing and whether pursuant to
an agreement or purchase order or otherwise) to purchase existing products or
services or products or services being developed by the Company, and sets forth
for each such Person the quantities or amounts of such products or services
that such Person has committed to purchase (the "Purchase Commitments") and
whether such commitment is oral or written. The Company has provided to Parent
true and complete copies of all documents evidencing such Purchase Commitments.
All such Purchase Commitments are in full force and effect, have not been
withdrawn, amended, modified or terminated and are enforceable by the Company
and, upon consummation of the Merger, will be enforceable by Parent, against
the other party to such Purchase Commitments. To the Company's knowledge, no
fact, condition or circumstance exists that would give any party the right to
withdraw, amend, modify or terminate any Purchase Commitment. No Person has
given any notice to the Company, and the Company has no reason to believe, that
any Person intends to withdraw, amend, modify or terminate any Purchase
Commitment.
2.23 Product Development. Part 2.23 of the Company Disclosure Schedule sets
forth for each product or service being developed by or on behalf of the
Company a true and correct development status, including the dates on which the
development of each such product or service is anticipated to be completed. To
the knowledge of the Company, no fact, condition or circumstance exists that
would materially impair or delay the development of any such products or
services. The Company has not entered into any agreement which restricts its
right to make, have made, use or sell to an unlimited number of third parties
any products currently contemplated by, designed by or designed on behalf of
the Company.
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2.24 Full Disclosure.
(a) This Agreement (including the Disclosure Schedule) does not, (i) contain
any representation, warranty or information that is false or misleading with
respect to any material fact, or (ii) omit to state any material fact or
necessary in order to make the representations, warranties and information
contained and to be contained herein and therein (in the light of the
circumstances under which such representations, warranties and information were
or will be made or provided) not false or misleading.
(b) The information supplied or to be supplied by the Company for inclusion
in the Information Statement will not, as of the date such information is
supplied or as of the date the Required Company Stockholder Vote is obtained,
(i) contain any statement that is inaccurate or misleading with respect to any
material fact, or (ii) omit to state any material fact necessary in order to
make such information (in the light of the circumstances under which it is
provided) not false or misleading.
2.25 Section 83(b) Elections. To the knowledge of the Company, all
individuals who have purchased shares of Company Common Stock under agreements
that provide for the vesting of such shares have filed timely elections under
Section 83(b) of the Code.
SECTION 3. Representations and Warranties of Parent and Merger Sub.
Parent and Merger Sub represent and warrant to the Company as follows:
3.1 Corporate Existence and Power. Each of Parent and Merger Sub is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, and has all corporate power required to conduct
its business as now conducted, and is duly qualified to do business and is in
good standing in each jurisdiction in which the conduct of its business or the
ownership or leasing of its properties requires such qualification, except
where the failure to be so qualified would not have a material adverse effect
on Parent's business, financial condition or results of operations.
3.2 Authority; Binding Nature of Agreement. Parent and Merger Sub have the
absolute and unrestricted right, power and authority to perform their
obligations under this Agreement; and the execution, delivery and performance
by Parent and Merger Sub of this Agreement (including the contemplated issuance
of Parent Common Stock in the Merger in accordance with this Agreement) have
been duly authorized by all necessary action on the part of Parent and Merger
Sub and their respective boards of directors. No vote of Parent's stockholders
is needed to adopt this Agreement or approve the Merger. This Agreement
constitutes the legal, valid and binding obligation of Parent and Merger Sub,
enforceable against them in accordance with its terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive
relief and other equitable remedies.
3.3 Capitalization. The authorized capital stock of Parent consists of: (i)
180,000,000 shares of Common Stock ($.01 par value per share), of which
122,034,634 shares have been issued and are outstanding as of April 14, 2000;
and (ii) 2,000,000 shares of Preferred Stock ($.01 par value per share), none
of which have been issued and are outstanding as of April 14, 2000. 26,899,463
shares of Parent Common Stock are reserved for issuance under Parent's 1992
Stock Option Plan, of which options to purchase 17,080,041 shares are
outstanding as of April 14, 2000, 791,666 shares of Parent Common Stock are
reserved for issuance under Parent's 1997 Directors' Stock Option Plan, of
which options to purchase 391,666 shares are outstanding as of April 14, 2000,
2,664 shares of Parent Common Stock are reserved for issuance under Parent's
1982 Employee Incentive Stock Option Plan, of which options to purchase 2,664
shares are outstanding as of April 14, 2000, 1,865,536 shares of Parent Common
Stock are reserved for issuance under Parent's Cimaron 1998 Stock Incentive
Plan, of which options to purchase 247,328 shares are outstanding as of April
14, 2000, 8,000,000 shares of Parent Common Stock are reserved for issuance
under Parent's 2000 Equity Incentive Plan, of which options to purchase
2,916,650 shares are outstanding as of April 14, 2000, and 53,328 shares of
Parent Common Stock are reserved for issuance under various stock option
agreements outstanding as of April 14, 2000. In addition, Parent has reserved
24,504 shares of Parent Common Stock for issuance under the
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1997 Employee Stock Purchase Plan and has reserved 1,244,856 shares of Parent
Common Stock for issuance under the 1998 Employee Stock Purchase Plan. Except
as set forth above and pursuant to this Agreement, there is no: (i) outstanding
subscription, option, call, warrant or right (whether or not currently
exercisable) to acquire any shares of the capital stock or other securities of
Parent; (ii) outstanding security, instrument or obligation that is or may
become convertible into or exchangeable for any shares of the capital stock or
other securities of Parent; or (iii) Contract under which Parent is or may
become obligated to sell or otherwise issue any shares of capital stock or any
other securities of Parent.
3.4 SEC Filings; Financial Statements.
(a) Parent has delivered to the Company accurate and complete copies
(excluding copies of exhibits) of each report, registration statement (on a
form other than Form S-8) and definitive proxy statement filed by Parent with
the SEC between January 1, 1999 and April 5, 2000 (the "Parent SEC Documents").
As of the time it was filed with the SEC (or, if amended or superseded by a
filing prior to April 5, 2000, then on the date of such filing): (i) each of
the Parent SEC Documents complied in all material respects with the applicable
requirements of the Securities Act or the Exchange Act (as the case may be);
and (ii) none of the Parent SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) The consolidated financial statements contained in the Parent SEC
Documents: (i) complied as to form in all material respects with the published
rules and regulations of the SEC applicable thereto; (ii) were prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods covered, except as may be indicated in
the notes to such consolidated financial statements and (in the case of
unaudited statements) as permitted by Form 10-Q of the SEC, and except that
unaudited financial statements may not contain footnotes and are subject to
year-end audit adjustments; and (iii) fairly present the consolidated financial
position of Parent as of the respective dates thereof and the consolidated
results of operations of Parent for the periods covered thereby.
3.5 No Conflict. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by Parent and Merger Sub
are not prohibited by, and will not violate or conflict with, any provision of
the certificate of incorporation or bylaws of Parent or Merger Sub.
3.6 Valid Issuance. Subject to Section 1.5(d), the shares of Parent Common
Stock to be issued pursuant to Section 1.5(b) will, when issued in accordance
with the provisions of this Agreement, be validly issued, fully paid and
nonassessable.
SECTION 4. Certain Covenants of the Company
4.1 Access and Investigation. During the period from the date of this
Agreement through the Effective Time (the "Pre-Closing Period"), the Company
shall, and shall cause its Representatives to: (a) provide Parent and Parent's
Representatives with reasonable access to the Company's Representatives,
personnel and assets and to all existing books, records, Tax Returns, work
papers and other documents and information relating to the Company; and (b)
provide Parent and Parent's Representatives with copies of such existing books,
records, Tax Returns, work papers and other documents and information relating
to the Company, and with such additional financial, operating and other data
and information regarding the Company, as Parent may reasonably request.
4.2 Operation of the Company's Business. During the Pre-Closing Period:
(a) the Company shall conduct its business and operations in the ordinary
course and in substantially the same manner as such business and operations
have been conducted prior to the date of this Agreement, except for activities
necessary or appropriate for the consummation of the transactions contemplated
by this Agreement, including taking any action that would result in the
acceleration of vesting of restricted stock under any existing employment
agreement;
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(b) the Company shall use its commercially reasonable efforts to preserve
intact its current business organization, keep available the services of its
current officers and employees and maintain its relations and good will with
all suppliers, customers, landlords, creditors, employees and other Persons
having business relationships with the Company;
(c) the Company shall keep in full force and effect all insurance policies
identified in Part 2.17 of the Company Disclosure Schedule;
(d) the Company shall cause its officers to report regularly by phone or in
person (but in no event less frequently than weekly) to the Parent's Vice
President of Business Development concerning the status of the Company's
business;
(e) the Company shall not declare, accrue, set aside or pay any dividend or
make any other distribution in respect of any shares of capital stock of the
Company, and shall not repurchase, redeem or otherwise reacquire any shares of
capital stock or other securities of the Company (except that the Company may
repurchase Company Common Stock from former employees pursuant to the terms of
existing restricted stock purchase agreements);
(f) except as set forth on Part 2.3(b) of the Company Disclosure Schedule,
the Company shall not sell, issue or authorize the issuance of (i) any capital
stock or other securities of the Company, (ii) any option or right to acquire
any capital stock or other securities of the Company, or (iii) any instrument
convertible into or exchangeable for any capital stock or other securities of
the Company (except that the Company shall be permitted to issue shares of
Company Common Stock (x) to employees and directors upon the exercise of
Company Options, and (y) upon the conversion of shares of Series A preferred
stock of the Company outstanding as of the date of this Agreement);
(g) the Company shall not amend or waive any of its rights under, or permit
the acceleration of vesting under, (i) any provision of any Company Stock
Option Plan, (ii) any provision of any agreement evidencing any outstanding
Company Option, or (iii) any provision of any restricted stock purchase
agreement (unless acceleration of vesting is required under any Company Stock
Option Plan, Company Option or other agreement);
(h) the Company shall not amend or permit the adoption of any amendment to
the Company's certificate of incorporation or bylaws, or effect or permit the
Company to become a party to any Acquisition Transaction, recapitalization,
reclassification of shares, stock split, reverse stock split or similar
transaction (except that the Company may issue shares of Company Common Stock
upon the conversion of shares of outstanding Series A Preferred of the Company
Stock);
(i) the Company shall not form any subsidiary or acquire equity interest or
other interest in any other Entity;
(j) except as set forth on Part 4.2(j) of the Company Disclosure Schedule,
the Company shall not make any capital expenditure, except for capital
expenditures that, when added to all other capital expenditures made on behalf
of the Company during the Pre-Closing Period, do not exceed $25,000 per month;
(k) except as set forth on Part 2.5(i) of the Company Disclosure Schedule,
the Company shall not (i) enter into, or permit any of the assets owned or used
by it to become bound by, any Contract that is or would constitute a Material
Contract, or (ii) amend or prematurely terminate, or waive any material right
or remedy under, any such Contract;
(l) except as set forth on Part 2.5(j) of the Company Disclosure Schedule,
the Company shall not (i) acquire, lease or license any right or other asset
from any other Person, (ii) sell or otherwise dispose of, or lease or license,
any right or other asset to any other Person, or (iii) waive or relinquish any
right, except for assets acquired, leased, licensed or disposed of by the
Company pursuant to Contracts that are not Material Contracts;
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(m) the Company shall not (i) lend money to any Person (except that the
Company may make routine travel advances to employees in the ordinary course of
business), or (ii) incur or guarantee any indebtedness for borrowed money;
(n) except as set forth in Part 4.2(n) of the Company Disclosure Schedule,
the Company shall not (i) establish, adopt or amend any Employee Benefit Plan,
(ii) pay any bonus or make any profit-sharing payment, cash incentive payment
or similar payment to, or increase the amount of the wages, salary,
commissions, fringe benefits or other compensation or remuneration payable to,
any of its directors, officers or employees, or (iii) hire any new employee
without first obtaining the written consent of Parent, such consent not to be
unreasonably withheld;
(o) the Company shall not change any of its methods of accounting or
accounting practices in any material respect;
(p) the Company shall not make any Tax election;
(q) the Company shall not commence or settle any material Legal Proceeding;
(r) the Company shall not agree or commit to take any of the actions
described in clauses "(e)" through "(q)" above.
Notwithstanding the foregoing, the Company may take any action described in
clauses "(e)" through "(r)" above if Parent gives its prior written consent to
the taking of such action by the Company, which consent will not be
unreasonably withheld (it being understood that Parent's withholding of consent
to any action will not be deemed unreasonable if Parent determines in good
faith that the taking of such action would not be in the best interests of
Parent or would not be in the best interests of the Company).
4.3 Notification; Updates to Disclosure Schedule.
(a) During the Pre-Closing Period, the Company shall promptly notify Parent
in writing of:
(i) the discovery by the Company of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes an inaccuracy in or breach of any
representation or warranty made by the Company in this Agreement;
(ii) any event, condition, fact or circumstance that occurs, arises or
exists after the date of this Agreement and that would cause or constitute
an inaccuracy in or breach of any representation or warranty made by the
Company in this Agreement if (A) such representation or warranty had been
made as of the time of the occurrence, existence or discovery of such
event, condition, fact or circumstance, or (B) such event, condition, fact
or circumstance had occurred, arisen or existed on or prior to the date of
this Agreement;
(iii) any breach of any covenant or obligation of the Company hereunder;
and
(iv) any event, condition, fact or circumstance that would make the
timely satisfaction of any condition set forth in Section 6 or Section 7
impossible or unlikely.
(b) If any event, condition, fact or circumstance that is required to be
disclosed pursuant to Section 4.3(a) requires any change in the Company
Disclosure Schedule, or if any such event, condition, fact or circumstance
would require such a change assuming the Company Disclosure Schedule were dated
as of the date of the occurrence, existence or discovery of such event,
condition, fact or circumstance, then the Company shall promptly deliver to
Parent an update to the Company Disclosure Schedule specifying such change. No
such update shall be deemed to supplement or amend the Company Disclosure
Schedule for the purpose of (i) determining the accuracy of any of the
representations and warranties made by the Company in this Agreement, or (ii)
determining whether any condition set forth in Section 6 has been satisfied.
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4.4 No Negotiation. During the Pre-Closing Period, the Company shall not,
and shall not authorize or permit any Representative of the Company to,
directly or indirectly:
(a) solicit or encourage the initiation of any inquiry, proposal or offer
from any Person (other than Parent) relating to a possible Acquisition
Transaction;
(b) participate in any discussions or negotiations or enter into any
agreement with, or provide any non-public information to, any Person (other
than Parent) relating to or in connection with a possible Acquisition
Transaction; or
(c) consider, entertain or accept any proposal or offer from any Person
(other than Parent) relating to a possible Acquisition Transaction.
The Company shall immediately cease and cause to be terminated any existing
discussions with any Person that relate to any Acquisition Transaction. The
Company shall promptly notify Parent in writing of any inquiry, proposal or
offer relating to a possible Acquisition Transaction that is received by the
Company during the Pre-Closing Period.
SECTION 5. Additional Covenants of the Parties
5.1 Filings and Consents. As promptly as practicable after the execution of
this Agreement, each party to this Agreement (a) shall make all filings (if
any) and give all notices (if any) required to be made and given by such party
in connection with the Merger and the other transactions contemplated by this
Agreement, and (b) shall use all commercially reasonable efforts to obtain all
Consents (if any) required to be obtained (pursuant to any applicable Legal
Requirement or Contract, or otherwise) by such party in connection with the
Merger and the other transactions contemplated by this Agreement. The Company
shall (upon request) promptly deliver to Parent a copy of each such filing
made, each such notice given and each such Consent obtained by the Company
during the Pre-Closing Period.
5.2 Registration Statement; Information Statement. As promptly as
practicable after the date of this Agreement, Parent and the Company shall
prepare and cause to be filed with the SEC a registration statement on Form S-4
with respect to the Parent Common Stock to be issued in the Merger (the "Form
S-4 Registration Statement"), in which an information statement to be sent to
the Company stockholders (the "Information Statement") will be included. Each
of Parent and the Company shall use its best efforts to cause the Form S-4
Registration Statement to comply with the rules and regulations promulgated by
the SEC, to respond promptly to any comments of the SEC or its staff and to
have the Form S-4 Registration Statement declared effective under the
Securities Act as promptly as practicable after it is filed with the SEC. The
Company shall promptly furnish to Parent all information concerning the Company
and the stockholders of the Company that may be required or reasonably
requested in connection with any action contemplated by this Section 5.2. If
any event relating to the Company occurs, or if the Company becomes aware of
any information that should be disclosed in an amendment or supplement to the
Form S-4 Registration Statement, then the Company shall promptly inform Parent
thereof and shall cooperate with Parent in filing such amendment or supplement
with the SEC and, if appropriate, in mailing such amendment or supplement to
the stockholders of the Company.
(a) Prior to the Effective Time, Parent shall use its best efforts to obtain
all regulatory approvals needed to ensure that the Parent Common Stock to be
issued in the Merger will be registered or qualified under the securities law
of every jurisdiction of the United States in which any registered holder of
capital stock of the Company has an address of record on the record date for
determining the stockholders entitled to notice of and to vote on this
Agreement and the Merger; provided, however, that Parent shall not be required
(i) to qualify to do business as a foreign corporation in any jurisdiction in
which it is not now qualified, or (ii) to file a general consent to service of
process in any jurisdiction.
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(b) The Company shall take all action necessary under all applicable Legal
Requirements to solicit the written consent of the stockholders of the Company
entitled to vote upon the adoption and approval of this Agreement and the
approval of the Merger and will, as promptly as practicable, mail to each
holder of capital stock of the Company a copy of the Information Statement, a
form of written consent and such other documents as Parent deems are necessary
to comply with applicable law or are otherwise reasonably appropriate. The
Company shall use its best efforts to ensure that the Required Company
Stockholder Vote will be obtained as promptly as practicable (and in any event
within 30 days) after the Information Statement is first sent to the
stockholders of the Company. The Company shall ensure that the Required Company
Stockholder Vote is solicited in compliance with all applicable Legal
Requirements.
(c) The board of directors of the Company shall unanimously recommend that
the Company's stockholders adopt and approve this Agreement and approve the
Merger. The Information Statement shall include a statement to the effect that
the board of directors of the Company has unanimously recommended that the
Company's stockholders adopt and approve this Agreement and approve the Merger.
Neither the board of directors of the Company nor any committee thereof shall
withdraw, amend or modify, or propose or resolve to withdraw, amend or modify,
in a manner adverse to Parent, the unanimous recommendation of the board of
directors of the Company that the Company's stockholders adopt and approve this
Agreement and approve the Merger. For purposes of this Agreement, said
recommendation of the board of directors of the Company shall be deemed to have
been modified in a manner adverse to Parent if said recommendation shall no
longer be unanimous. Notwithstanding the foregoing, but without limiting the
Company's liability to Parent for any breach of this Section 5.2(c), no
director of the Company shall be held accountable or have any liability,
directly or indirectly, for any breach of this covenant to the extent of any
contrary recommendation by such director made in reliance on the advice of
counsel that the director's fiduciary duties require a contrary recommendation.
5.3 Public Announcements. During the Pre-Closing Period, (a) the Company
shall not (and the Company shall not permit any of its Representatives to)
issue any press release or make any public statement regarding this Agreement
or the Merger, or regarding any of the other transactions contemplated by this
Agreement, without Parent's prior written consent, and (b) Parent will consult
with the Company prior to issuing any press release or making any public
statement regarding the Merger provided that nothing herein shall be deemed to
prohibit Parent from making any public disclosure Parent deems necessary or
appropriate under applicable laws after consultation with counsel.
5.4 Best Efforts. During the Pre-Closing Period, (a) the Company shall use
its best efforts to cause the conditions set forth in Section 6 to be satisfied
on a timely basis, and (b) Parent and Merger Sub shall use their best efforts
to cause the conditions set forth in Section 7 to be satisfied on a timely
basis.
5.5 Tax Matters. At or prior to the filing of the Form S-4 Registration
Statement, Parent and the Company shall deliver to Cooley Godward LLP and to
Gray Cary Ware & Freidenrich LLP, the applicable tax representation letters in
substantially the forms attached hereto as Exhibit E. Parent and the Company
shall use all reasonable efforts prior to the Effective Time to cause the
Merger to qualify as a tax-free reorganization under Section 368(a) of the
Code. Following delivery of the tax representations letters pursuant to the
first sentence of this Section 5.5, each of Parent and the Company shall use
its reasonable efforts to cause Cooley Godward LLP and Gray Cary Ware &
Freidenrich LLP, respectively, to deliver to it a tax opinion satisfying the
requirements of Item 601 of Regulation S-K promulgated under the Securities
Act. In rendering such opinions, as well as those opinions contemplated by
Sections 6.5(i) and 7.3(b) hereof, each of such counsel shall be entitled to
rely on the tax representation letters described in this Section 5.5.
5.6 Employment and Noncompetition Agreements.
(a) Simultaneously with the execution and delivery of this Agreement, Kay
Yun, Parent and the Company are executing an Employment and Noncompetition
Agreement (the "Kay Yun Employment Agreement") to be effective upon Closing,
whereby Kay Yun agrees, among other things, to remain employed by the Company
for
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six (6) months immediately following the Closing and not to compete with or
solicit employees from Parent for three (3) years immediately following the
Closing.
(b) Simultaneously with the execution and delivery of this Agreement, Dr.
Kenneth Yun, Parent and the Company are executing an Employment and
Noncompetition Agreement (the "Dr. Kenneth Yun Employment Agreement") to be
effective upon Closing, whereby Dr. Kenneth Yun agrees, among other things, to
remain employed by the Company for two (2) years immediately following the
Closing and not to compete with or solicit employees from Parent for three (3)
years immediately following the Closing.
(c) Simultaneously with the execution and delivery of this Agreement, Peter
Benschop, Jim Lew and Kevin James (together, the "Key Employees") are each
executing an Employment and Noncompetition Agreement with Parent and the
Company (together, the "Key Employee Employment Agreements") to be effective
upon the Closing, whereby each Key Employee agrees, among other things, to
remain employed by the Company for two (2) years immediately following the
Closing and not to compete with or solicit employees from Parent for a period
of time following termination under certain circumstances.
5.7 Termination of Agreements. Prior to the Closing, the Company and the
parties to the agreements listed on Exhibit F shall enter into agreements,
reasonably satisfactory in form and content to Parent (and conditioned and
effective upon the Closing), terminating all of such parties' rights under such
agreements.
5.8 Employee Retention. Unless Parent receives any contrary recommendations
from existing management of the Company, Parent expects that the current
employees of the Company will continue to be employees of the Company
immediately after the Effective Time. Accordingly, Parent and the Company shall
consult with each other with respect to the disclosure of the Merger to the
employees of the Company.
5.9 Release. At the Closing, each of the Company stockholders identified on
Exhibit G-1 shall execute and deliver to the Company a Release in the form of
Exhibit G-2.
5.10 Termination of Employee Plans. At the Closing, the Company shall
terminate the Company Stock Option Plan and all other employee benefit plans of
the Company and shall ensure that no employee or former employee of the Company
has any rights under any of such plans and that any liabilities of the Company
under such plans (including any such liabilities relating to services performed
prior to the Closing) are fully extinguished at no cost to the Company.
5.11 FIRPTA Matters. At the Closing, (a) the Company shall deliver to Parent
a statement (in such form as may be reasonably requested by counsel to Parent)
conforming to the requirements of Section 1.897- 2(h)(1)(i) of the United
States Treasury Regulations, and (b) the Company shall deliver to the Internal
Revenue Service the notification required under Section 1.897-2(h)(2) of the
United States Treasury Regulations.
SECTION 6. Conditions Precedent to Obligations of Parent and Merger Sub
The obligations of Parent and Merger Sub to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction or waiver, at or prior to the Closing, of each of the following
conditions:
6.1 Accuracy of Representations. Each of the representations and warranties
made by the Company in this Agreement and in each of the other agreements and
instruments delivered to Parent in connection with the transactions
contemplated by this Agreement shall have been accurate in all material
respects as of the date of this Agreement (without giving effect to any
"Material Adverse Effect" or other materiality qualifications, or any similar
qualifications, contained or incorporated directly or indirectly in such
representations and warranties), and shall be accurate in all material respects
as of the Closing Date as if made on the Closing Date (without giving effect to
any update to the Company Disclosure Schedule, and without giving effect to any
"Material Adverse Effect" or other materiality qualifications, or any similar
qualifications, contained or incorporated directly or indirectly in such
representations and warranties).
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6.2 Performance of Covenants. All of the covenants and obligations that the
Company is required to comply with or to perform at or prior to the Closing
shall have been complied with and performed in all material respects.
6.3 Stockholder Approval.
(a) This Agreement shall have been duly adopted by the Required Company
Stockholder Vote, and the holders of shares of Company capital stock
equivalent to no more than 5% of the Company Common Stock outstanding
immediately prior to the Effective Time (assuming the conversion of all Series
A preferred stock outstanding immediately prior to the Effective Time) shall
be entitled to have such shares treated as Dissenting Shares.
(b) Any agreement, plan, arrangement or other Contract disclosed pursuant
to Part 2.14(e) of the Company Disclosure Schedule shall have been approved by
the Company stockholders entitled to vote thereon so as to make all amounts
payable thereunder that would not be deductible under Section 280G or Section
162 of the Code absent such approval deductible under the applicable Code
section.
6.4 Consents. All Consents required to be obtained in connection with the
Merger and the other transactions contemplated by this Agreement (including
the Consents identified in Part 2.21 of the Company Disclosure Schedule) shall
have been obtained and shall be in full force and effect.
6.5 Agreements and Documents. Parent shall have received the following
agreements and documents, each of which shall be in full force and effect:
(a) the Kay Yun Employment Agreement executed by Kay Yun;
(b) the Dr. Kenneth Yun Employment Agreement executed by Dr. Kenneth Yun;
(c) the Key Employee Employment Agreement executed by the Key Employees;
(d) a Release in the form of Exhibit G-2, executed by the Company
stockholders identified on Exhibit G-1;
(e) confidential invention and assignment agreements reasonably
satisfactory in form and content to Parent executed by all employees and
former employees of the Company and by all consultants and independent
contractors and former consultants and former independent contractors to the
Company who have not already signed such agreements (including the individuals
identified in Part 2.9(b)(ii) of the Company Disclosure Schedule);
(f) estoppel certificates dated as of a date not more than five days prior
to the Closing Date and satisfactory in form and content to Parent, executed
by each of Highland Corporate Center, Inc., a Delaware corporation, and
Petrolsoft Corporation, a California corporation;
(g) a legal opinion of Gray Cary Ware & Freidenrich LLP, dated as of the
Closing Date, in the form of Exhibit H;
(h) a legal opinion of Cooley Godward LLP dated as of the Closing Date, to
the effect that the Merger will constitute a reorganization within the meaning
of Section 368 of the Code (it being understood that, in rendering such
opinion, such counsel may rely upon the tax representation letters referred to
in Section 5.6);
(i) written resignations of all directors of the Company, effective as of
the Effective Time;
(j) an Escrow Agreement in the form of Exhibit D, executed by the Company
Stockholders' Representative and the Escrow Agent;
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(k) a certificate signed on behalf of the Company by the Chief Executive
Officer and the Chief Financial Officer of the Company representing and
warranting that the conditions set forth in Sections 6.1 and 6.2 have been duly
satisfied (the "Company Compliance Certificate"); and
(l) evidence reasonably satisfactory to Parent of the termination of the
agreements listed on Exhibit F.
6.6 Listing. The shares of Parent Common Stock to be issued in the Merger
shall have been approved for quotation (subject to notice of issuance) on the
Nasdaq.
6.7 No Restraints. No temporary restraining order, preliminary or permanent
injunction or other order preventing the consummation of the Merger shall have
been issued by any court of competent jurisdiction and remain in effect, and
there shall not be any Legal Requirement enacted or deemed applicable to the
Merger that makes consummation of the Merger illegal.
6.8 No Governmental Litigation. There shall not be pending or threatened any
Legal Proceeding in which a Governmental Body is or is threatened to become a
party or is otherwise involved, and neither Parent nor the Company shall have
received any communication from any Governmental Body in which such
Governmental Body indicates the possibility of commencing any Legal Proceeding
or taking any other action: (a) challenging or seeking to restrain or prohibit
the consummation of the Merger or any of the other transactions contemplated by
this Agreement; (b) relating to the Merger and seeking to obtain from Parent or
any of its Subsidiaries, or the Company or any of its Subsidiaries, any damages
or other relief that may be material to Parent; (c) seeking to prohibit or
limit in any material respect Parent's ability to vote, receive dividends with
respect to or otherwise exercise ownership rights with respect to the stock of
the Company or any of its Subsidiaries; or (d) which would materially and
adversely affect the right of Parent or the Company or any of its Subsidiaries
to own the assets or operate the business of the Company or any of its
Subsidiaries.
6.9 No Other Litigation. There shall not be pending any Legal Proceeding in
which, in the reasonable judgment of Parent, there is a reasonable possibility
of an outcome that could have a Material Adverse Effect on the Company or any
of its Subsidiaries or a material adverse effect on Parent: (a) challenging or
seeking to restrain or prohibit the consummation of the Merger or any of the
other transactions contemplated by this Agreement; (b) relating to the Merger
and seeking to obtain from Parent or any of its Subsidiaries, or any of the
Company or any of its Subsidiaries, any damages or other relief that may be
material to Parent; (c) seeking to prohibit or limit in any material respect
Parent's ability to vote, receive dividends with respect to or otherwise
exercise ownership rights with respect to the stock of the Company or any of
its Subsidiaries; or (d) which would affect adversely the right of Parent or
the Company or any of its Subsidiaries to own the assets or operate the
business of the Company or any of its Subsidiaries.
6.10 Termination of Employee Plans. The Company shall have provided Parent
with evidence, reasonably satisfactory to Parent, as to the termination of the
benefit plans referred to in Section 5.10.
6.11 FIRPTA Compliance. Parent shall have received the statement referred to
in Section 5.11(a) and the Company shall have filed with the Internal Revenue
Service the notification referred to in Section 5.11(b).
6.12 Employees and Consultants of the Company. Each of the employees of the
Company listed on Exhibit J shall remain employed by the Company as of the
Closing Date; and each of the Company Contracts listed on Exhibit K relating to
the employment of, or the performance of services by, any employee, consultant
or independent contractor shall remain in full force and effect as of the
Closing Date.
6.13 Assignments. Company shall have obtained assignments to Parent of all
intellectual property rights under Company Contracts as required by Parent.
6.14 Effectiveness of Registration Statement. The Form S-4 Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued by the SEC with
respect to the Form S-4 Registration Statement.
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6.15 HSR Act. Any waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
SECTION 7. Conditions Precedent to Obligations of the Company
The obligations of the Company to effect the Merger and otherwise consummate
the transactions contemplated by this Agreement are subject to the satisfaction
or waiver, at or prior to the Closing, of the following conditions:
7.1 Accuracy of Representations. Each of the representations and warranties
made by Parent and Merger Sub in this Agreement shall have been accurate in all
material respects as of the date of this Agreement (without giving effect to
any materiality qualifications or similar qualifications contained or
incorporated directly or indirectly in such representations and warranties),
and shall be accurate in all material respects as of the Closing Date as if
made on the Closing Date (without giving effect to any materiality
qualifications or similar qualifications contained or incorporated directly or
indirectly in such representations and warranties).
7.2 Performance of Covenants. All of the covenants and obligations that
Parent and Merger Sub are required to comply with or to perform at or prior to
the Closing shall have been complied with and performed in all material
respects.
7.3 Documents. The Company shall have received the following documents:
(a) a legal opinion of Cooley Godward LLP, dated as of the Closing Date, in
the form of Exhibit I;
(b) a legal opinion of Gray Cary Ware & Freidenrich LLP, dated as of the
Closing Date, to the effect that the Merger will constitute a reorganization
within the meaning of Section 368 of the Code (it being understood that, in
rendering such opinion, such counsel may rely upon the tax representation
letters referred to in Section 5.6);
(c) an Escrow Agreement in the form of Exhibit D, executed by Parent and the
Escrow Agent; and
(d) a certificate signed on behalf of Parent by the Chief Executive Officer
and the Chief Financial Officer of Parent representing and warranting that the
conditions set forth in Sections 7.1 and 7.2 have been duly satisfied.
7.4 Stockholder Approval. This Agreement shall have been duly adopted and
approved, and the Merger shall have been duly approved by the Required Company
Stockholder Vote.
7.5 Listing. The shares of Parent Common Stock to be issued in the Merger
shall have been approved for quotation (subject to notice of issuance) on the
Nasdaq.
7.6 No Restraints. No temporary restraining order, preliminary or permanent
injunction or other order preventing the consummation of the Merger shall have
been issued by any court of competent jurisdiction and remain in effect, and
there shall not be any Legal Requirement enacted or deemed applicable to the
Merger that makes consummation of the Merger illegal.
7.7 Effectiveness of Registration Statement. The Form S-4 Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued by the SEC with
respect to the Form S-4 Registration Statement.
7.8 HSR Act. Any waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
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SECTION 8. Termination
8.1 Termination Events. This Agreement may be terminated prior to the
Closing:
(a) by Parent if Parent reasonably determines that the timely satisfaction
of any condition set forth in Section 6 has become impossible (other than as a
result of any failure on the part of Parent or Merger Sub to comply with or
perform any covenant or obligation of Parent or Merger Sub set forth in this
Agreement);
(b) by the Company if the Company reasonably determines that the timely
satisfaction of any condition set forth in Section 7 has become impossible
(other than as a result of any failure on the part of the Company to comply
with or perform any covenant or obligation set forth in this Agreement or in
any other agreement or instrument delivered to Parent);
(c) by Parent at or after the Scheduled Closing Time if any condition set
forth in Section 6 has not been satisfied by the Scheduled Closing Time;
(d) by Parent if any of the Company's representations and warranties
contained in this Agreement shall have been materially inaccurate as of the
date of this Agreement or shall have become materially inaccurate as of any
subsequent date (as if made on such subsequent date), or if any of the
Company's covenants contained in this Agreement shall have been breached in any
material respect; provided, however, that Parent may not terminate this
Agreement under this Section 8.1(d) on account of an inaccuracy in the
Company's representations and warranties that is waived by Parent or that is
curable by the Company or on account of a breach of a covenant by the Company
that is waived by Parent or that is curable by the Company unless the Company
fails to cure such inaccuracy or breach within 15 days after receiving written
notice from Parent of such inaccuracy or breach;
(e) by the Company at or after the Scheduled Closing Time if any condition
set forth in Section 7 has not been satisfied by the Scheduled Closing Time;
(f) by the Company if any of Parent's representations and warranties
contained in this Agreement shall have been materially inaccurate as of the
date of this Agreement or shall have become materially inaccurate as of any
subsequent date (as if made on such subsequent date), or if any of Parent's
covenants contained in this Agreement shall have been breached in any material
respect; provided, however, that the Company may not terminate this Agreement
under this Section 8.1(f) on account of an inaccuracy in Parent's
representations and warranties that is curable by Parent or on account of a
breach of a covenant by Parent that is curable by Parent unless Parent fails to
cure such inaccuracy or breach within 15 days after receiving written notice
from the Company of such inaccuracy or breach;
(g) by Parent if the Closing has not taken place on or before June 30, 2000
(other than as a result of any failure on the part of Parent to comply with or
perform any covenant or obligation of Parent set forth in this Agreement);
(h) by the Company if the Closing has not taken place on or before June 30,
2000 (other than as a result of the failure on the part of the Company to
comply with or perform any covenant or obligation set forth in this Agreement
or in any other agreement or instrument delivered to Parent); or
(i) by the mutual consent of Parent and the Company.
8.2 Termination Procedures. If Parent wishes to terminate this Agreement
pursuant to Section 8.1(a), Section 8.1(c), Section 8.1(d) or Section 8.1(g),
Parent shall deliver to the Company a written notice stating that Parent is
terminating this Agreement and setting forth a brief description of the basis
on which Parent is terminating this Agreement. If the Company wishes to
terminate this Agreement pursuant to Section 8.1(b), Section 8.1(e), Section
8.1(f) or Section 8.1(h), the Company shall deliver to Parent a written notice
stating that the Company is terminating this Agreement and setting forth a
brief description of the basis on which the Company is terminating this
Agreement.
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<PAGE>
8.3 Effect of Termination. If this Agreement is terminated pursuant to
Section 8.1, all further obligations of the parties under this Agreement shall
terminate; provided, however, that: (a) neither the Company nor Parent shall be
relieved of any obligation or liability arising from any inaccuracy or prior
breach by such party of any representation, warranty, covenant or other
provision of this Agreement; (b) the parties shall, in all events, remain bound
by and continue to be subject to the provisions set forth in Section 10 (other
than Sections 10.1 and 10.2); and (c) the Company shall, in all events, remain
bound by and continue to be subject to Section 5.3.
SECTION 9. Indemnification, Etc.
9.1 Survival of Representations, Etc.
(a) The representations and warranties made by the Company (including the
representations and warranties set forth in Section 2 and the representations
set forth in the Company Compliance Certificate) shall survive the Closing and
shall expire on the first anniversary of the Closing Date; provided, however,
that if, at any time prior to the first anniversary of the Closing Date, any
Indemnitee (acting in good faith) delivers to the Company Stockholders'
Representative a written notice alleging the existence of an inaccuracy in or a
breach of any of the representations and warranties made by the Company (and
setting forth in reasonable detail the basis for such Indemnitee's belief that
such an inaccuracy or breach may exist) and asserting a claim for recovery
under Section 9.2 based on such alleged inaccuracy or breach, then the claim
asserted in such notice shall survive the first anniversary of the Closing
until such time as such claim is fully and finally resolved. All
representations and warranties made by Parent and Merger Sub shall terminate
and expire as of the Effective Time, and any liability of Parent or Merger Sub
with respect to such representations and warranties shall thereupon cease.
(b) The representations, warranties, covenants and obligations of the
Company, and the rights and remedies that may be exercised by the Indemnitees,
shall not be limited or otherwise affected by or as a result of any information
furnished to, or any investigation made by or knowledge of, any of the
Indemnitees or any of their Representatives.
(c) For purposes of this Agreement, each statement or other item of
information set forth in the Company Disclosure Schedule or in any update to
the Company Disclosure Schedule shall be deemed to be a representation and
warranty made by the Company in this Agreement.
9.2 Indemnification.
(a) From and after the Closing Date (but subject to Section 9.1(a)), the
holders of Company Common Stock and the Company's Series A preferred stock
outstanding immediately prior to the Effective Time shall, jointly, hold
harmless and indemnify each Indemnitee from and against, and shall compensate,
reimburse and pay for, any Damages which are directly or indirectly suffered or
incurred by any Indemnitee or to which any Indemnitee may otherwise become
subject (regardless of whether or not such Damages relate to any third-party
claim) and which arise from or as a result of, or are directly or indirectly
connected with: (i) any inaccuracy in or breach of any representation or
warranty of the Company set forth in this Agreement (without giving effect to
any "Material Adverse Effect" or other materiality qualification or any similar
qualification contained or incorporated directly or indirectly in such
representation or warranty, and without giving effect to any update to the
Company Disclosure Schedule delivered by the Company to Parent prior to the
Closing) or in the Company Compliance Certificate; (ii) any inaccuracy in or
breach of any representation or warranty made by the Company in this Agreement
(without giving effect to any "Material Adverse Effect" or other materiality
qualification or any similar qualification contained or incorporated directly
or indirectly in such representation or warranty, and without giving effect to
any update to the Company Disclosure Schedule delivered by the Company to
Parent prior to the Closing) or in the Company Compliance Certificate as if
such representation or warranty were made on and as of the Closing Date, (iii)
any breach of any covenant or obligation of the Company (including the
covenants set forth in Sections 4 and 5); or (iv) any Legal Proceeding relating
to any
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<PAGE>
inaccuracy or breach of the type referred to in clauses "(i)" "(ii)" or "(iii)"
above (including any Legal Proceeding commenced by any Indemnitee for the
purpose of enforcing any of its rights under this Section 9).
(b) In the event the Surviving Corporation suffers, incurs or otherwise
becomes subject to any Damages as a result of or in connection with any
inaccuracy in or breach of any representation, warranty, covenant or
obligation, then (without limiting any of the rights of the Surviving
Corporation as an Indemnitee) Parent shall also be deemed, by virtue of its
ownership of the stock of the Surviving Corporation, to have incurred Damages
as a result of and in connection with such inaccuracy or breach.
9.3 Threshold; Pre-Closing Damages.
(a) No Indemnitee shall be entitled to indemnification pursuant to Section
9.2(a) for any inaccuracy in or breach of any of the Company's representations
and warranties set forth in this Agreement or the Company Compliance
Certificate until such time as the total amount of all Damages (including the
Damages arising from such inaccuracy or breach and all other Damages arising
from any other inaccuracies in or breaches of any representations or
warranties) that have been directly or indirectly suffered or incurred by any
one or more of the Indemnitees, or to which any one or more of the Indemnitees
has or have otherwise become subject, exceeds $500,000 in the aggregate,
provided that if the total amount of such Damages exceeds $500,000, then any
Indemnitee that has suffered or incurred any Damages shall be entitled to be
indemnified against and compensated, reimbursed and paid for all of such
Damages and not merely that portion of such Damages exceeding $500,000.
(b) If the total amount of all Damages exceeds $500,000, then to the extent
any such Damages, or a discrete portion thereof, arise from any inaccuracy in
or breach of any representation or warranty of the Company set forth in this
Agreement (without giving effect to any "Material Adverse Effect" or other
materiality qualification or any similar qualification contained or
incorporated directly or indirectly in such representation or warranty, and
without giving effect to any update to the Company Disclosure Schedule
delivered by the Company to Parent prior to the Closing) that is first
disclosed to Parent prior to the Closing in an update to the Company Disclosure
Schedule delivered by the Company to Parent ("Pre-Closing Damages"), the amount
of such Pre-Closing Damages (and only such Pre-Closing Damages) as to which any
Indemnitee shall be entitled to indemnification pursuant to this Section 9
shall be equal to 50% of such Pre-Closing Damages.
9.4 Limited Recourse; Limit on Liability. Subject to Section 9.3, in the
event any Indemnitee shall suffer any Damages for which such Indemnitee is
entitled to indemnification under this Section 9, such Indemnitee shall be
entitled to recover such Damages solely by obtaining that number of Escrow
Shares and Escrow Cash equal in value (as determined in accordance with the
terms and conditions of the Escrow Agreement) to the aggregate amount of such
Damages pursuant to the terms of the Escrow Agreement, and such recovery shall
be made from the Escrow Fund on a basis proportional to the Escrow Shares and
Escrow Cash contributed under the Escrow Agreement by or on behalf of each
Company stockholder. As set forth in the Escrow Agreement, the Company
stockholders shall have no liability for Damages in excess of the Escrow Fund
held under the Escrow Agreement.
9.5 No Contribution. The Company stockholders shall not have and shall not
exercise or assert (or attempt to exercise or assert), any right of
contribution, right of indemnity or other right or remedy against the Surviving
Corporation in connection with any indemnification obligation or any other
liability to which such stockholders may become subject under or in connection
with this Agreement or the Escrow Agreement.
9.6 Defense of Third Party Claims.
(a) In the event of the assertion or commencement by any Person of any claim
or Legal Proceeding (whether against the Surviving Corporation, against Parent
or against any other Person) with respect to which any of the Indemnitees may
be entitled to indemnification or any other remedy pursuant to this Section 9,
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<PAGE>
Parent shall promptly give the Company Stockholders' Representative and the
Escrow Agent written notice of such claim or Legal Proceeding (a "Claim")
provided, however, that any failure on the part of Parent to so notify the
Company Stockholders' Representative shall not limit any of the Indemnitees'
rights to indemnification under this Section 9 (except to the extent such
failure materially prejudices the defense of such Legal Proceeding).
(b) Within ten days of delivery of such written notice, the Company
Stockholders' Representative may elect (by written notice delivered to Parent)
to take all necessary steps properly to contest any Claim involving third
parties or to prosecute such Claim to conclusion or settlement. If the Company
Stockholders' Representative makes the foregoing election, an Indemnitee will
have the right to participate at its own expense in all proceedings. If the
Company Stockholders' Representative does not make such election within such
period or fails to diligently contest such Claim after such election, then the
Indemnitee shall be free to handle the prosecution or defense of any such
Claim, and will take all necessary steps to contest the Claim involving third
parties or to prosecute such Claim to conclusion or settlement, and will notify
the Company Stockholders' Representative of the progress of any such Claim,
will permit the Company Stockholders' Representative, at the sole cost of the
Company Stockholders' Representative, to participate in such prosecution or
defense and will provide the Company Stockholders' Representative with
reasonable access to all relevant information and documentation relating to the
Claim and the prosecution or defense thereof.
(c) Notwithstanding the foregoing, if a Claim includes Damages equal to an
amount in excess of the value of the Escrow Fund on the date of the Claim, or
relates to any Proprietary Assets or other intellectual property issues, Parent
shall have the right, at its election, to proceed with the defense of such
claim or Legal Proceeding on its own. In any case, the party not in control of
the Claim will cooperate with the other party in the conduct of the prosecution
or defense of such Claim.
(d) Neither party will compromise or settle any such Claim without the
written consent of either Parent (if the Company Stockholders' Representative
defends the Claim) or the Company Stockholders' Representative (if Parent or
other Indemnitees defend the Claim), such consent not to be unreasonably
withheld. Parent shall have the right, at its election, to proceed with the
defense of such claim or Legal Proceeding on its own. If Parent proceeds with
the defense of any such claim or Legal Proceeding all reasonable expenses
relating to the defense of such claim or Legal Proceeding shall be satisfied
first out of the Escrow Fund in the manner set forth in the Escrow Agreement
and then from the Company stockholders.
9.7 Exercise of Remedies by Indemnitees Other Than Parent. No Indemnitee
(other than Parent or any successor thereto or assign thereof) shall be
permitted to assert any indemnification claim or exercise any other remedy
under this Agreement or under the Escrow Agreement unless Parent (or any
successor thereto or assign thereof) shall have consented to the assertion of
such indemnification claim or the exercise of such other remedy.
9.8 Fraud. Notwithstanding any provision in this Agreement to the contrary,
the liability of a stockholder for fraud shall not be limited as set forth
above, and any claim with respect to such liability need not be presented
within the time limits set forth in Section 9.1(a) and shall be subject only to
applicable statutes of limitation.
SECTION 10. Miscellaneous Provisions
10.1 Company Stockholders' Representative.
(a) The stockholders of the Company, by adopting this Agreement and the
transactions contemplated hereby, hereby irrevocably appoint Kay Yun as their
agent and attorney-in-fact for purposes of Section 9 and the Escrow Agreement
(the "Company Stockholders' Representative"), and consent to the taking by the
Company Stockholders' Representative of any and all actions and the making of
any decisions required or permitted to be taken by her under the Escrow
Agreement (including, without limitation, the exercise of the
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<PAGE>
power to authorize delivery to Parent of the Escrow Fund in satisfaction of
claims by Parent, agree to, negotiate, enter into settlements and compromises
of and demand arbitration, and comply with orders of courts and awards of
arbitrators with respect to such claims, resolve any claim made pursuant to
Section 9; and take all actions necessary in the judgment of the Company
Stockholders' Representative for the accomplishment of the foregoing, hereby
accepts his appointment as the Company Stockholders' Representative for
purposes of Section 9 and the Escrow Agreement. Parent shall be entitled to
deal exclusively with the Company Stockholders' Representative on all matters
relating to Section 9 and the Escrow Agreement, and shall be entitled to rely
conclusively (without further evidence of any kind whatsoever) on any document
executed or purported to be executed on behalf of any Company stockholder by
the Company Stockholders' Representative, and on any other action taken or
purported to be taken on behalf of any Company stockholder by the Company
Stockholders' Representative, as fully binding upon such Company stockholder.
(b) If the Company Stockholders' Representative shall die, become disabled
or otherwise be unable to fulfill his responsibilities as agent of the Company
stockholders, then the Company stockholders on whose behalf the Escrow Fund was
contributed shall, within ten days after such death or disability, appoint a
successor representative reasonably satisfactory to Parent. Any such successor
shall become the "Company Stockholders' Representative" for purposes of Section
9, the Escrow Agreement and this Section 10.1. If for any reason there is no
Company Stockholders' Representative at any time, all references herein to the
Company Stockholders' Representative shall be deemed to refer to Dr. Kenneth
Yun.
(c) A Company Stockholders' Representative shall not be liable for any act
done or omitted hereunder as Company Stockholders' Representative while acting
in good faith and in the exercise of reasonable judgment. Company stockholders
on whose behalf the Escrow Fund was contributed to the escrow shall severally
indemnify each Company Stockholders' Representative and hold each Company
Stockholders' Representative harmless against any loss, liability or expense
incurred without gross negligence, bad faith or willful misconduct on the part
of such Company Stockholders' Representative and arising out of or in
connection with the acceptance or administration of such Company Stockholders'
Representative's duties hereunder, including the reasonable fees and expenses
of any legal counsel retained by such Company Stockholders' Representative.
(d) The Company Stockholders' Representative shall be entitled to rely upon
any order, judgment, certificate, demand, notice, instrument or other writing
delivered to it hereunder without being required to investigate the validity,
accuracy or content thereof nor shall the Company Stockholders' Representative
be responsible for the validity or sufficiency of this Agreement. In all
questions arising under this Agreement, the Company Stockholders'
Representative may rely on the advice of counsel, and for anything done,
omitted or suffered in good faith by the Company Stockholders' Representative
based on such advice, the Company Stockholders' Representative shall not be
liable to anyone.
10.2 Further Assurances. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request
(prior to, at or after the Closing) for the purpose of carrying out or
evidencing any of the transactions contemplated by this Agreement.
10.3 Fees and Expenses. Each party to this Agreement shall bear and pay all
fees, costs and expenses (including legal fees and accounting fees) that have
been incurred or that are incurred by such party in connection with the
transactions contemplated by this Agreement, including all fees, costs and
expenses incurred by such party in connection with or by virtue of (a) the
investigation and review conducted by Parent and its Representatives with
respect to the Company's business (and the furnishing of information to Parent
and its Representatives in connection with such investigation and review), (b)
the negotiation, preparation and review of this Agreement (including the
Company Disclosure Schedule) and all agreements, certificates, opinions and
other instruments and documents delivered or to be delivered in connection with
the transactions contemplated by this Agreement, (c) the preparation and
submission of any filing or notice required to be made or given in connection
with any of the transactions contemplated by this Agreement, and the obtaining
of any Consent required to be obtained in connection with any of such
transactions, and (d) the consummation of the
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<PAGE>
Merger; provided however, that, to the extent the total amount of all such
fees, costs and expenses incurred by or for the benefit of the Company
(including all such fees, costs and expenses incurred prior to the date of this
Agreement and including the amount of all special bonuses and other amounts
that may become payable to any officers of the Company or other Persons in
connection with the consummation of the transactions contemplated by this
Agreement) exceeds $150,000 in the aggregate, such fees, costs and expenses
shall be paid and satisfied the total of such fees, costs and expenses in
excess of $150,000 shall be satisfied from the Escrow Fund.
10.4 Attorneys' Fees. If any action or proceeding relating to this Agreement
or the enforcement of any provision of this Agreement is brought against any
party hereto, the prevailing party shall be entitled to recover reasonable
attorneys' fees, costs and disbursements (in addition to any other relief to
which the prevailing party may be entitled).
10.5 Notices. Any notice or other communication required or permitted to be
delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
if to Parent:
Applied Micro Circuits Corporation
6290 Sequence Drive
San Diego, CA 92121
Attn: William E. Bendush
Fax: (858) 535-6800
with copies to:
Applied Micro Circuits Corporation
6290 Sequence Drive
San Diego, CA 92121
Attn: General Counsel
Fax: (858) 535-6800
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121
Attn: D. Bradley Peck, Esq.
Fax: (858) 453-3555
if to the Company:
YuniNetworks, Inc.
12780 High Bluff Drive, Suite 270
San Diego, CA 92130
Fax: (858) 350-4020
with a copy to:
Gray Cary Ware & Freidenrich LLP
4365 Executive Drive, Suite 700
San Diego, CA 92121
Attn: Knox Bell, Esq.
Fax: (858) 677-1477
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<PAGE>
10.6 Time of the Essence. Time is of the essence of this Agreement.
10.7 Headings. The underlined headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
10.8 Counterparts. This Agreement may be executed in several counterparts,
each of which shall constitute an original and all of which, when taken
together, shall constitute one agreement.
10.9 Governing Law. This Agreement shall be construed in accordance with,
and governed in all respects by, the internal laws of the State of California
(without giving effect to principles of conflicts of laws).
10.10 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their successors and assigns (if any).
The Company shall not assign this Agreement or any rights or obligations
hereunder (by operation of law or otherwise) to any Person. Parent may freely
assign any or all of its rights under this Agreement (including its rights
under Section 9), in whole or in part, to any other Person without obtaining
the consent or approval of any other party hereto or of any other Person.
10.11 Remedies Cumulative; Specific Performance. The rights and remedies of
the parties hereto shall be cumulative (and not alternative). The parties to
this Agreement agree that, in the event of any breach or threatened breach by
any party to this Agreement of any covenant, obligation or other provision set
forth in this Agreement for the benefit of any other party to this Agreement,
such other party shall be entitled (in addition to any other remedy that may be
available to it) to (a) a decree or order of specific performance or mandamus
to enforce the observance and performance of such covenant, obligation or other
provision, and (b) an injunction restraining such breach or threatened breach.
10.12 Waiver. No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of
any Person in exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right, privilege or remedy
and no single or partial exercise of any such power, right, privilege or remedy
shall preclude any other or further exercise thereof or of any other power,
right, privilege or remedy. No Person shall be deemed to have waived any claim
arising out of this Agreement, or any power, right, privilege or remedy under
this Agreement, unless the waiver of such claim, power, right, privilege or
remedy is expressly set forth in a written instrument duly executed and
delivered on behalf of such Person; and any such waiver shall not be applicable
or have any effect except in the specific instance in which it is given.
10.13 Amendments. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
10.14 Severability. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
10.15 Parties in Interest. Except for the provisions of Sections 1.5, 1.6, 9
and 10.1, none of the provisions of this Agreement is intended to provide any
rights or remedies to any Person other than the parties hereto and their
respective successors and assigns (if any).
10.16 Entire Agreement. This Agreement and the other agreements referred to
herein set forth the entire understanding of the parties hereto relating to the
subject matter hereof and thereof and supersede all prior agreements and
understandings among or between any of the parties relating to the subject
matter hereof and thereof; provided, however, that the Mutual Non-Disclosure
Agreement executed by Parent and the
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Company on January 4, 2000 shall not be superseded by this Agreement and shall
remain in effect in accordance with its terms until the earlier of (a) the
Effective Time, or (b) the date on which such Mutual Non-Disclosure Agreement
is terminated in accordance with its terms.
10.17 Construction.
(a) For purposes of this Agreement, whenever the context requires: the
singular number shall include the plural, and vice versa; the masculine gender
shall include the feminine and neuter genders; the feminine gender shall
include the masculine and neuter genders; and the neuter gender shall include
the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the effect
that ambiguities are to be resolved against the drafting party shall not be
applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including," and
variations thereof, shall not be deemed to be terms of limitation, but rather
shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement to
"Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
The parties hereto have caused this Agreement to be executed and delivered
as of the date first set forth above.
APPLIED MICRO CIRCUITS CORPORATION
a Delaware corporation
By: /s/ Stephen M. Smith
-----------------------------------
OLI ACQUISITION CORP.
a Delaware corporation
By: /s/ Monte Reed
-----------------------------------
YUNINETWORKS, INC.
a Delaware corporation
By: /s/ Kay Yun
-----------------------------------
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<PAGE>
EXHIBITS
<TABLE>
<C> <S>
Exhibit A -- Certain definitions
-- Form of Amended and Restated Certificate of Incorporation of
Exhibit B Surviving Corporation
Exhibit C -- Directors and officers of Surviving Corporation
Exhibit D -- Escrow Agreement
Exhibit E -- Forms of tax representation letters
Exhibit F -- Termination of agreements
Exhibit G-1 -- Company Stockholders
Exhibit G-2 -- Form of Release
Exhibit H -- Form of legal opinion of Gray Cary Ware & Freidenrich LLP
Exhibit I -- Form of legal opinion of Cooley Godward LLP
-- Employees to remain employed by the Company as of the Closing
Exhibit J Date
Exhibit K -- Company Contracts to remain in effect as of the Closing Date
</TABLE>
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<PAGE>
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
Acquisition Transaction. "Acquisition Transaction" shall mean any
transaction involving:
(a) the sale, lease, exchange, transfer license, disposition or acquisition
of more than 20% of the assets of the Company's business or assets;
(b) the issuance, disposition or acquisition of (i) any capital stock or
other equity securities of the Company (other than Common Stock issued to
employees of the Company upon exercise of Company Options), (ii) any option,
call, warrant or right (whether or not immediately exercisable) to acquire any
capital stock or other equity securities of the Company, or (iii) any security,
instrument or obligation that is or may become convertible into or exchangeable
for any capital stock or other equity securities of the Company; or
(c) any merger, consolidation, business combination, reorganization or
similar transaction involving the Company.
Agreement. "Agreement" shall mean the Agreement and Plan of Merger and
Reorganization to which this Exhibit A is attached (including the Company
Disclosure Schedule), as it may be amended from time to time.
CCSL. "CCSL" shall mean the California Corporate Securities Law of 1968, as
amended.
Company Contract. "Company Contract" shall mean any Contract: (a) to which
the Company is a party; (b) by which the Company or any of its assets is or may
become bound or under which the Company has, or may become subject to, any
obligation; or (c) under which the Company has or may acquire any right or
interest.
Company Disclosure Schedule. "Company Disclosure Schedule" shall mean the
schedule (dated as of the date of the Agreement) delivered to Parent on behalf
of the Company.
Company Proprietary Asset. "Company Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to the Company or otherwise used by the
Company.
Company Source Code. "Company Source Code" shall mean any software and
hardware description language code that is a Company Proprietary Asset.
Company Stock Option Plan. "Company Stock Option Plan" shall mean the
Company's 1999 Equity Incentive Plan.
Consent. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
Contract. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan or legally binding commitment or undertaking of
any nature.
Damages. "Damages" shall include any loss, damage, injury, decline in value,
lost opportunity, liability, claim, demand, settlement, judgment, award, fine,
penalty, Tax, fee (including reasonable attorneys' fees), charge, cost
(including costs of investigation) or expense of any nature.
Encumbrance. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right,
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community property interest or restriction of any nature (including any
restriction on the voting of any security, any restriction on the transfer of
any security or other asset, any restriction on the receipt of any income
derived from any asset, any restriction on the use of any asset and any
restriction on the possession, exercise or transfer of any other attribute of
ownership of any asset).
Entity. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
Exchange Act. "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
Government Bid. "Government Bid" shall mean any quotation, bid or proposal
submitted to any Governmental Body or any proposed prime contractor or higher-
tier subcontractor of any Governmental Body.
Government Contract. "Government Contract" shall mean any prime contract,
subcontract, letter contract, purchase order or delivery order executed or
submitted to or on behalf of any Governmental Body or any prime contractor or
higher-tier subcontractor, or under which any Governmental Body or any such
prime contractor or subcontractor otherwise has or may acquire any right or
interest.
Governmental Authorization. "Governmental Authorization" shall mean any: (a)
permit, license, certificate, franchise, permission, clearance, registration,
qualification or authorization issued, granted, given or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement; or (b) right under any Contract with any Governmental Body.
Governmental Body. "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).
HSR Act. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
Indemnitees. "Indemnitees" shall mean the following Persons: (a) Parent; (b)
Parent's current and future affiliates (including the Surviving Corporation);
(c) the respective Representatives of the Persons referred to in clauses "(a)"
and "(b)" above; and (d) the respective successors and assigns of the Persons
referred to in clauses "(a)", "(b)" and "(c)" above.
Legal Proceeding. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry,
audit, examination or investigation commenced, brought, conducted or heard by
or before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
Legal Requirement. "Legal Requirement" shall mean any federal, state, local,
municipal, foreign or other law, statute, constitution, principle of common
law, resolution, ordinance, code, edict, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise put
into effect by or under the authority of any Governmental Body.
Material Adverse Effect. A violation or other matter will be deemed to have
a "Material Adverse Effect" on the Company if such violation or other matter
(considered together with all other matters that would constitute exceptions to
the representations and warranties set forth in the Agreement or in the Company
Compliance Certificate but for the presence of "Material Adverse Effect" or
other materiality qualifications, or any similar qualifications, in such
representations and warranties) has had or could have a material adverse
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effect on the Company's business, condition, prospects, assets, liabilities,
operations, financial performance customer relationships or Purchase
Commitments.
Nasdaq. "Nasdaq" shall mean the Nasdaq National Stock Market.
Person. "Person" shall mean any individual, Entity or Governmental Body.
Proprietary Asset. "Proprietary Asset" shall mean any: (a) patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, domain name, service mark
(whether registered or unregistered), service mark application, copyright
(whether registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program, invention, design, blueprint, engineering drawing,
proprietary product, technology, proprietary right or other intellectual
property right or intangible asset; or (b) right to use or exploit any of the
foregoing.
Representatives. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange Commission.
Securities Act. "Securities Act" shall mean the Securities Act of 1933, as
amended.
Subsidiary. Any Entity shall be deemed to be a "Subsidiary" of another
Person if such Person directly or indirectly owns, beneficially or of record,
(a) an amount of voting securities or other interests in such Entity that is
sufficient to enable such Person to elect at least a majority of the members of
such Entity's board of directors or other governing body, or (b) at least 50%
of the outstanding equity or financial interests of such Entity.
Tax. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax,
business tax, withholding tax or payroll tax), levy, assessment, tariff, duty
(including any customs duty), deficiency or fee, and any related charge or
amount (including any fine, penalty or interest), imposed, assessed or
collected by or under the authority of any Governmental Body.
Tax Return. "Tax Return" shall mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information
filed with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
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EXHIBIT B
FORM OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
YUNINETWORKS, INC.
Pursuant to the General Corporation Law of the State of Delaware,
YuniNetworks, Inc., hereby amends and restates its Certificate of Incorporation
as follows:
I.
The name of this corporation is YuniNetworks, Inc.
II.
The address of the registered office of the corporation in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle, and
the name of the registered agent of the corporation in the State of Delaware at
such address is The Corporation Trust Company.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
This corporation is authorized to issue only one class of stock, to be
designated Common Stock. The total number of shares of Common Stock presently
authorized is Three Thousand (3,000), each having a par value of one-tenth of
one cent ($0.001).
V.
A. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed by the Board
of Directors in the manner provided in the Bylaws.
B. Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may be
altered or amended or new Bylaws adopted by the stockholders entitled to vote.
The Board of Directors shall also have the power to adopt, amend or repeal
Bylaws.
VI.
A. The liability of the directors for monetary damages shall be eliminated
to the fullest extent under applicable law.
B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon the stockholders
herein are granted subject to this reservation.
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EXHIBIT D
FORM OF ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is entered into as of April ,
2000 by and among APPLIED MICRO CIRCUITS CORPORATION, a Delaware corporation
("Parent"), YUNINETWORKS, INC., a Delaware corporation (the "Company"), THE
BANK OF NEW YORK (the "Escrow Agent"), KAY YUN, an individual (the "Company
Stockholders' Representative") and each of the undersigned stockholders of the
Company (each a "Company Stockholder" and, collectively, the "Company
Stockholders"). Capitalized terms used in this Agreement and not otherwise
defined herein shall have the meanings given them in the Reorganization
Agreement (as defined below).
RECITALS
A. Parent, the Company, the Company Stockholders' Representative and OLI
Acquisition Corp. have entered into an Agreement and Plan of Merger and
Reorganization dated as of April 18, 2000 (the "Reorganization Agreement")
pursuant to which the Company will become a wholly-owned subsidiary of Parent.
B. The Reorganization Agreement provides that an escrow account will be
established as collateral for certain indemnification obligations owed to the
Parent or any other Indemnitee by the Company Stockholders under the
Reorganization Agreement.
C. The parties hereto desire to establish the terms and conditions pursuant
to which such escrow account will be established and maintained.
AGREEMENT
NOW, THEREFORE, the parties hereby agree as follows:
1. Escrow Account.
(a) Escrow of Shares; Cash. On the date of the Closing (the "Closing Date,"
the exact date of which Escrow Agent will be notified by Parent), Parent shall
deliver to the Escrow Agent a certificate or certificates issued in the name of
the Escrow Agent on behalf of the Company Stockholders listed on Attachment C
hereto equal in the aggregate to ( ) shares of Parent
Common Stock (the "Escrow Shares") together with three stock assignments duly
endorsed (with date and number of shares blank) for each certificate in the
form attached hereto as Attachment A (each a "Stock Assignment"); provided,
however, that if any Company Stockholder elects to deliver cash to the Escrow
Agent in lieu of shares of Parent Common Stock pursuant to Section 1.8(a) of
the Reorganization Agreement then such Company Stockholder shall deliver to the
Escrow Agent cash equal to the Closing Sales Price multiplied by the number of
shares of the Parent Common Stock that otherwise would have been delivered to
the Escrow Agent as Escrow Shares with respect to such Company Stockholders.
The Company Stockholders' Representative shall notify Escrow Agent in writing
by noon the previous business day of the amount of cash to be delivered on the
Closing Date. The Escrow Agent shall have no duty to verify any calculation
with respect to said cash. The aggregate amount of such cash delivered to the
Escrow Agent shall be referred to herein as the "Escrow Cash." With respect to
any Company Stockholder that fails to deliver the requisite amount of cash at
the Closing after having made the election specified in Section 1.8(a) of the
Reorganization Agreement, Parent shall be entitled to deliver shares of Parent
Common Stock to the Escrow Agent in accordance with the first sentence of this
Section 1(a). The Escrow Shares and the Escrow Cash shall be held as an escrow
fund as security for the Company's indemnification obligations with respect to
certain breaches of the representations and warranties contained in the
Reorganization Agreement and shall not be subject to any lien, attachment,
trustee process or any other
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judicial process of any creditor of any party hereto. The Escrow Agent agrees
to accept delivery of the Escrow Shares and the Escrow Cash and to hold the
Escrow Shares and the Escrow Cash in an escrow account (the "Escrow Account")
subject to the terms and conditions of this Agreement. The initial value of the
Escrow Account (the "Initial Value") shall be the value of the Escrow Cash plus
the value of the Escrow Shares (valued by multiplying (x) the number of Escrow
Shares and (y) the Closing Sales Price). The Escrow Agent shall have no duty to
make calculations with respect to the Initial Value.
(b) Dividends, Interest, Etc. Any securities distributable in respect of or
in exchange for any of the Escrow Shares, whether by way of stock dividend,
stock splits or otherwise, shall be delivered to the Escrow Agent together with
three Stock Assignments, who shall hold such securities in the Escrow Account.
Such securities shall be issued in the name of the Escrow Agent on behalf of
the Company Stockholders and shall be considered Escrow Shares for all purposes
hereof. Any cash dividend or property (other than securities) distributable to
the Company Stockholders in respect of the Escrow Shares shall be distributed
by Parent to the Company Stockholders' Representative, on behalf of the Company
Stockholders. The Escrow Cash shall be held in a money market fund and all
interest earned shall be distributed in accordance with Section 3 hereof.
(c) Voting of Shares. On any matter brought before the stockholders of
Parent for a vote, the Company Stockholders' Representative shall deliver
notice to the Escrow Agent ("Voting Notice") setting forth the manner in which,
in proportion to the votes cast by the Company Stockholders, the Escrow Agent
shall vote the Escrow Shares. The Company Stockholders' Representative shall
deliver such Voting Notice to the Escrow Agent at least five days prior to the
date of the taking of any vote of the stockholders of Parent (the "Voting
Notice Date"). The Escrow Agent shall have no obligation to vote any of the
Escrow Shares if no Voting Notice is received prior to the Voting Notice Date
or if such notice does not clearly set forth the manner in which the Escrow
Agent shall vote the Escrow Shares.
(d) Transferability. The interests of the Company Stockholders in the Escrow
Shares or Escrow Cash shall not be assignable or transferable by the Company
Stockholders, other than by operation of law or, in case of death of a Company
Stockholder during the term of this Agreement, by will or testament. Notice of
any such assignment or transfer by operation of law shall be given to the
Escrow Agent and Parent, and no such assignment or transfer shall be valid
until such notice is given.
(e) Escrow Agent's Power to Transfer. The Escrow Agent is hereby granted the
power to effect any transfer of the Escrow Shares or Escrow Cash permitted
under the terms of this Agreement.
2. Administration of Escrow Account. The Escrow Agent shall administer the
Escrow Account as follows:
(a) Delivery of Claim Notice. If any Indemnitee has incurred or suffered any
Damages resulting from, arising out of, relating to, in the nature of, or
caused by any of the circumstances set forth in Section 9 of the Reorganization
Agreement for which such Indemnitee is or may be entitled to indemnification
under the Reorganization Agreement, the Parent shall, on behalf of such
Indemnitee and on or prior to the Termination Date (as defined below), give
written notice of such claim (a "Claim Notice") to the Company Stockholders'
Representative and the Escrow Agent. Each Claim Notice shall state the basis
for such claim and the amount of Damages incurred or suffered by such
Indemnitee (the "Claimed Amount"), the number of Escrow Shares and Escrow Cash
equal to such amount of Damages, the name under which such Escrow Shares shall
be issued and delivery instructions for any distribution of Escrow Cash. No
Indemnitee shall make any claim for Damages after 12 months after the Closing
Date (the "Termination Date"). Attached hereto as Attachment B are the names,
titles and specimen signatures of each of the persons who are authorized, on
behalf of Parent to execute and deliver written notices and directions to the
Escrow Agent.
(b) Response Notice; Uncontested Claims. Within 10 days of the date a Claim
Notice was delivered to the Escrow Agent (in accordance with Section 9) (the
"Response Date"), the Company Stockholders' Representative shall provide to
Parent and to the Escrow Agent a written response (the "Response Notice") in
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which the Company Stockholders' Representative shall: (i) agree that the Escrow
Cash and Escrow Shares (valued at Fair Market Value as calculated pursuant to
Section 5 hereof) equal to the full Claimed Amount may be released from the
Escrow Account to the Indemnitee, (ii) agree that the Escrow Cash and Escrow
Shares (valued at Fair Market Value) equal to part, but not all, of the Claimed
Amount (the "Agreed Amount") may be released from the Escrow Account to the
Indemnitee or (iii) contest that any of the Escrow Cash or Escrow Shares may be
released from the Escrow Account to the Indemnitee. The Company Stockholders'
Representative may contest the release of Escrow Cash and Escrow Shares (valued
at Fair Market Value) equal to all or a portion of a Claimed Amount only based
upon a good faith belief that all or such portion of the Claimed Amount does
not constitute Damages for which the Indemnitee is entitled to indemnification
under the Reorganization Agreement. If no Response Notice is delivered by the
Company Stockholders' Representative to the Escrow Agent by the Response Date,
the Company Stockholders' Representative shall be deemed to have agreed that
Escrow Cash and the Escrow Shares (valued at Fair Market Value) equal to the
entire Claimed Amount may be released from the Escrow Account to the
Indemnitee.
(c) Uncontested Claim. If the Company Stockholders' Representative in the
Response Notice agrees or is deemed to have agreed that the Escrow Cash and
Escrow Shares (valued at Fair Market Value) equal to the Claimed Amount may be
released from the Escrow Account to the Indemnitee, the Escrow Agent shall, no
later than ten days after receipt or deemed receipt of the Response Notice,
transfer, deliver, and assign to such Indemnitee such amount of the Escrow Cash
and such number of Escrow Shares (valued at Fair Market Value) equal to the
Claimed Amount as provided in the Claim Notice (or such lesser amount and
number of Escrow Cash and Escrow Shares as is then held in the Escrow Account).
(d) Partially Contested Claims. If the Company Stockholders' Representative
in the Response Notice agrees that Escrow Cash and Escrow Shares (valued at
Fair Market Value) equal to part, but not all, of the Claimed Amount may be
released from the Escrow Account to such Indemnitee, the Escrow Agent shall, no
later than ten days after receipt of the Response Notice, transfer, deliver,
and assign to such Indemnitee such amount of the Escrow Cash and such number of
Escrow Shares (valued at Fair Market Value) equal to the Agreed Amount (or such
lesser amount and number of Escrow Cash or Escrow Shares as is then held in the
Escrow Account) and subject to reduction pursuant to Section 2(e).
(e) Contested Claims. If the Company Stockholders' Representative in the
Response Notice contests the release of all or part of the Escrow Cash and
Escrow Shares (valued at Fair Market Value) equal to all or part of the Claimed
Amount (the "Contested Amount"), the matter with respect to the Contested
Amount shall be settled by binding arbitration held in San Diego, California.
All claims shall be settled by three arbitrators in accordance with the
Commercial Arbitration Rules then in effect of the American Arbitration
Association (the "Rules"). The Company Stockholders' Representative and Parent
shall each designate one arbitrator within 15 days of the delivery of the
Response Notice contesting all or part of the Claimed Amount. Such designated
arbitrators shall mutually agree upon and shall designate a third arbitrator;
provided, however, that (i) in the event the two designated arbitrators fail to
reach agreement with respect to the designation of the third arbitrator within
15 days of delivery of the Response Notice, the third arbitrator shall be
appointed in accordance with the Rules and (ii) if either the Company
Stockholders' Representative or Parent fail to timely designate an arbitrator,
the dispute shall be resolved by the one arbitrator timely designated. There
shall be limited discovery prior to the arbitration hearing, subject to the
discretion of the arbitrators, as follows: (a) exchange of witness lists and
copies of documentary evidence and documents related to or arising out of the
issues to be arbitrated, (b) depositions of all party witnesses, and (c) such
other depositions as may be allowed by the arbitrators upon a showing of good
cause. Depositions shall be conducted in accordance with the California Code of
Civil Procedure. Each party shall pay its own costs and expenses (including
counsel fees) of any such arbitration. The Company Stockholders' Representative
and Parent shall pay the fees and expenses of their respectively designated
arbitrators and shall bear equally the fees and expenses of the third
arbitrator. The arbitrators shall decide the matter to be arbitrated pursuant
hereto within 60 days after the appointment of the last arbitrator. The
arbitrators' decision shall relate solely to whether Parent is entitled to
receive the Contested Amount (or a portion thereof) pursuant to the applicable
terms of the Reorganization Agreement and this
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Agreement. The final decision of the majority of the arbitrators shall be
furnished to the Company Stockholders' Representative, Parent and the Escrow
Agent in writing and shall constitute a conclusive determination of the issue
in question, binding upon the Company Stockholders' Representative, the Company
Stockholders, the Company, Parent and the Escrow Agent and shall not be
contested by any of them. Such decision may be used in a court of law only for
the purpose of seeking enforcement of the arbitrators' award. After delivery of
a Response Notice that the Claimed Amount is contested in whole or in part by
the Company Stockholders' Representative, the Escrow Agent shall continue to
hold in the Escrow Account an amount of the Escrow Cash and a number of Escrow
Shares (valued at Fair Market Value) equal to one hundred and ten percent
(110%) of the Contested Amount (up to the Escrow Cash and number of Escrow
Shares then available in the Escrow Account), notwithstanding the occurrence of
the Termination Date, until (x) delivery of a copy of a settlement agreement
executed by Parent and the Company Stockholders' Representative setting forth
instructions to the Escrow Agent as to release of the Escrow Cash and Escrow
Shares from the Escrow Account, if any, that shall be made with respect to the
Contested Amount, or (y) delivery of a copy of the final award of the majority
of the arbitrators setting forth instructions to the Escrow Agent as to the
release of the Escrow Cash and Escrow Shares from the Escrow Account, if any,
that shall be made with respect to the Contested Amount. The Escrow Agent shall
thereupon release the Escrow Cash and the Escrow Shares from the Escrow Account
(to the extent Escrow Shares are then held in the Escrow Account) in accordance
with such agreement or instructions and shall be fully protected when relying
on such agreement or instructions.
3. Release of Escrow Shares and Escrow Cash.
(a) Within 15 days after the Termination Date, the Escrow Agent shall
distribute (i) to the Company Stockholders' Representative, on behalf of the
Company Stockholders, all of the Escrow Shares then held in escrow, including
any shares received pursuant to stock splits, dividends or otherwise, (ii) to
the Company Stockholders Representative or, to such other account as is set
forth in a written notice to the Escrow Agent signed by the Company
Stockholders' Representative and the Company Stockholder on whose behalf such
cash was delivered in lieu of shares of Parent Common Stock pursuant to
Section1(a) hereof, and the Escrow Cash, including any interest earned thereon,
then held in escrow. Any interest earned on the Escrow Cash shall be
distributed to the Company Stockholders in proportion to their ownership of the
Escrow Cash within 15 days after the Termination Date. Notwithstanding the
foregoing, if any Claim Notice has been given and such claim has not yet been
resolved, the Escrow Agent shall retain in the Escrow Account after the
Termination Date an amount of the Escrow Cash and a number of Escrow Shares
(valued at Fair Market Value) equal to one hundred and ten percent (110%) of
the Claimed Amount or Contested Amount, as the case may be, which has not then
been resolved, upon the terms set forth in Section 2.
(b) Notwithstanding anything to the contrary in this Agreement, in no event
shall any amount that may become available hereunder due to either the
appreciation in value of the Escrow Shares, by stock split, dividend or
otherwise, or the accumulation of interest on the Escrow Cash, in excess of the
Initial Value, be made available for the payment of claims hereunder; and at
such time as the aggregate amount of Damages satisfied through the release of
the Escrow Cash and Escrow Shares under the terms of this Agreement equals the
Initial Value, this Agreement shall terminate and all of the Escrow Shares then
held in escrow and interest accumulated on the Escrow Cash shall be distributed
as provided in this Section 3. Parent and the Company Stockholders'
Representative shall provide joint written notice to the Escrow Agent of the
date this Agreement shall terminate pursuant to the preceding sentence.
(c) Any distribution of all or a portion of the Escrow Cash and the Escrow
Shares to the Company Stockholders' Representative, on behalf of the Company
Stockholders, shall be made in accordance with each Company Shareholder's
proportion of ownership of the Company as set forth in the shareholder register
contained in the minute book of the Company as at the Closing Date immediately
prior to the effectiveness of the Merger, a copy of which shall be provided by
the Company Stockholders' Representative to the Escrow Agent on the Closing
Date; provided, that any Company Stockholder who elected to deliver cash in
lieu of shares of Parent Common Stock pursuant to Section 1(a) hereof, shall
receive any such distribution only in cash; provided further, however, that the
Escrow Agent shall withhold the distribution of the portion of the
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Escrow Shares otherwise distributable to the Company Stockholders'
Representative, on behalf of any Company Stockholders who have not, according
to written notice provided by Parent to the Escrow Agent, prior to such
distribution, surrendered their respective Company Stock Certificates in
accordance with Section 1.8(a) of the Reorganization Agreement. Any such
withheld amounts shall be delivered to Parent promptly after the Termination
Date, and shall be delivered by Parent to the Company Stockholders'
Representative, on behalf of the Company Stockholders to whom such shares would
have otherwise been distributed upon surrender of their respective Company
Stock Certificates. Distributions to the Company Stockholders' Representative,
on behalf of the Company Stockholders, shall be made by mailing stock
certificates in the names of such holders to the address of the Company
Stockholders' Representative provided in Section 8 (or such other address as
may be provided in writing to the Escrow Agent and Parent by the Company
Stockholders' Representative). Upon receipt of the stock certificates, the
Company Stockholders' Representative shall promptly mail such certificates to
each Company Shareholder at their respective addresses shown on Attachment C
(or such other address as may be provided in writing to the Company
Stockholders' Representative).
(d) No fractional shares of Parent Common Stock shall be distributed to the
Company Stockholders pursuant to this Agreement. In lieu of any fractional
shares to which such Company Shareholder would otherwise be entitled, such
Company Shareholder shall be paid in cash an amount equal to the sum of the
dollar amount (rounded to the nearest whole cent) determined by multiplying the
Fair Market Value by the fraction of a share of Parent Common Stock that would
otherwise be deliverable to such Company Shareholder hereunder. As soon as
practicable after the Termination Date, Parent shall deposit cash into the
Escrow Account in a sufficient amount to pay all fractional shares in
accordance with this Section 3(d) along with a schedule listing the amount due
to each Company Shareholder.
4. Pro Rata Payments and Distributions. At any and all times that a payment,
transfer, distribution, release or holdback is required to be made pursuant to
this Agreement, the parties agree to direct the Escrow Agent to make the
payment, transfer, distribution, release or holdback in Escrow Cash and Escrow
Shares in the same ratio of value as the ratio of value of the Escrow Cash to
Escrow Shares that existed in the initial escrow account on the Closing Date.
5. Valuation of Escrow Shares. For purposes of this Agreement, the Fair
Market Value of the Escrow Shares shall be determined based upon the closing
price of Parent Common Stock on The Nasdaq National Stock Market on the date
the Claim Notice is delivered and such Fair Market Value of the Escrow Shares
shall be provided by Parent to the Escrow Agent simultaneously therewith.
6. Compensation.
(a) Parent shall pay Escrow Agent an annual fee of $6,000.00, payable upon
execution of this Agreement and thereafter on each anniversary date of this
Agreement. The annual fee shall not be pro-rated for any portion of a year.
(b) Parent shall be responsible for and shall reimburse Escrow Agent upon
demand for all expenses, disbursements and advances incurred or made by Escrow
Agent in connection with this Agreement.
7. Duties of Escrow Agent.
(a) The Escrow Agent shall be entitled to rely upon any order, judgment,
certificate, demand, notice, instrument or other writing delivered to it
hereunder without being required to investigate the validity, accuracy or
content thereof nor shall the Escrow Agent be responsible for the validity or
sufficiency of this Agreement. In all questions arising under this Agreement,
the Escrow Agent may rely on the advice of counsel, and for anything done,
omitted or suffered in good faith by the Escrow Agent based on such advice, the
Escrow Agent shall not be liable to anyone. The Escrow Agent shall not be
required to take any action hereunder involving any expense unless the payment
of such expense is made or provided for in a manner reasonably satisfactory
to it.
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(b) In the event conflicting demands are made or conflicting notices are
served upon the Escrow Agent with respect to the Escrow Cash or the Escrow
Shares, the Escrow Agent will have the absolute right, at the Escrow Agent's
election, to do either or both of the following: (i) resign as Escrow Agent so
a successor can be appointed pursuant to clause (e) of this Section 7, or (ii)
file a suit in interpleader and obtain an order from a court of competent
jurisdiction requiring the parties to interplead and litigate in such court
their several claims and rights among themselves. In the event such
interpleader suit is brought, the Escrow Agent will thereby be fully released
and discharged from all further obligations imposed upon it under this
Agreement, and Parent will pay the Escrow Agent all costs, expenses and
reasonable attorneys' fees expended or incurred by the Escrow Agent pursuant to
the exercise of the Escrow Agent's rights under this Section 7(b) (such costs,
fees and expenses will be treated as extraordinary fees and expenses for the
purposes of Section 6 hereof).
(c) The Escrow Agent shall be indemnified, jointly and severally, and held
harmless by the Parent, from and against any and all liability, including all
expenses reasonably incurred in its defense, to which the Escrow Agent shall be
subject by reason of any action taken or omitted or any investment or
disbursement of any part of the Escrow Account made by the Escrow Agent
pursuant to this Escrow Agreement, except as a result of the Escrow Agent's own
gross negligence or willful misconduct. The costs and expenses of enforcing
this right of indemnification also shall be paid by the Parent. This right of
indemnification shall survive the termination of this Escrow Agreement, and the
removal or resignation of the Escrow Agent.
(d) The Escrow Agent shall have no interest in the Escrow Cash or Escrow
Shares, but is serving as escrow holder only and having only possession
thereof.
(e) The Escrow Agent may resign as Escrow Agent at any time and for any
reason whatsoever. In the event the Escrow Agent desires to resign as Escrow
Agent under this Agreement, the Escrow Agent shall deliver a notice to Parent
and the Company Stockholders' Representative stating the date upon which such
resignation shall be effective; provided, however, that any such resignation
shall not be effective until at least the 30th day after Parent and the Company
Stockholders' Representative receive such notice. Upon the receipt of any such
notice from the Escrow Agent, Parent may appoint a successor escrow agent
without the consent of the Company Stockholders' Representative so long as such
successor is a bank or trust company with assets of at least $500 million, and
may appoint any other successor escrow agent with the consent of the Company
Stockholders' Representative, which consent shall not be unreasonably withheld.
In the case of the appointment of any successor escrow agent requiring the
consent of the Company Stockholders' Representative as set forth in the
preceding sentence, Parent and the Company Stockholders' Representative shall
deliver a written notice to the Escrow Agent designating the successor escrow
agent. Upon the effectiveness of the resignation of the Escrow Agent, the
Escrow Agent shall deliver the Escrow Cash and Escrow Shares to any successor
escrow agent properly designated hereunder, whereupon the Escrow Agent shall be
discharged from any and all further obligations arising hereunder. If upon the
effective date of resignation of the Escrow Agent a successor escrow agent has
not been duly designated, the Escrow Agent's sole responsibility after that
time shall be to retain and safeguard the Escrow Shares until receipt of a
designation of successor escrow agent or a final nonappealable order of a court
of competent jurisdiction.
8. Termination. This Agreement shall terminate upon the later of the
Termination Date or the release by the Escrow Agent of all of the Escrow Cash
and Escrow Shares in accordance with this Agreement.
9. Notices. All notices, instructions and other communications given
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (i) by registered or
certified mail, return receipt requested, postage prepaid, or (ii) via a
reputable nationwide overnight courier service, in each case to the address set
forth below. Any such notice, instruction or communication shall be deemed to
have been delivered three business days after it is sent prepaid, or one
business day after it is sent via a reputable nationwide overnight courier
service, except that notice to the Escrow Agent shall only be deemed given when
received by the Escrow Agent.
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<PAGE>
If to Parent:
APPLIED MICRO CIRCUITS CORPORATION
6290 Sequence Drive
San Diego, CA 92121
Attn: William E. Bendush
Fax: (858) 535-6800
With a copy to:
COOLEY GODWARD LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121
Attn: D. Bradley Peck, Esq.
Fax: (858) 453-3555
If to the Company Stockholders' Representative:
__________________________
__________________________
__________________________
__________________________
Fax: _____________________
If to the Escrow Agent:
THE BANK OF NEW YORK
101 Barclay Street
21 W/Escrow
New York, NY 10286
Attn: Carlos Luciano
Fax: (212) 815-7181
Any party may give any notice, instruction or communication in connection with
this Agreement using any other means (including personal delivery, facsimile or
ordinary mail), but no such notice, instruction or communication shall be
deemed to have been delivered unless and until it is actually received by the
party to whom it was sent. Any party may change the address to which notices,
instructions or communications are to be delivered by giving the other parties
to this Agreement notice thereof in the manner set forth in this Section 9.
10. Agent. For purposes of this Agreement, each of the Company Stockholders
hereby consents to the appointment of Kay Yun, as the Company Stockholders'
Representative and as attorney-in-fact for and on behalf of the Company
Shareholder, and the taking by the Company Stockholders' Representative of any
and all actions and the making of any decisions required or permitted to be
taken by him under this Agreement, including without limitation, the exercise
of the power to (i) authorize delivery to any Indemnitee of the Escrow Cash or
Escrow Shares in satisfaction of any Damages or Claimed Amounts, (ii) agree to
negotiate, enter into settlements and compromises with respect to such Damages
or Claimed Amounts, (iii) resolve any claims or disputes hereunder, and (iv)
take all actions necessary in the judgment of the Company Stockholders'
Representative for the accomplishment of the foregoing and all of the other
terms, conditions and limitations contained in this Agreement.
11. General.
(a) Governing Law. The validity, interpretation, construction, performance,
enforcement and remedies of or relating to this Agreement, and the rights and
obligations of the parties hereunder, shall be governed by the laws of the
State of New York without regard to principles of conflicts of laws, and any
and every legal or
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<PAGE>
other proceeding (including any arbitration proceedings conducted in accordance
with Section 2(e)) arising out of or in connection with this Agreement shall be
brought in the appropriate courts of San Diego, in the State of California,
each of the parties hereby consenting to the exclusive jurisdiction of said
courts for this purpose.
(b) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(c) Successor Escrow Agent. If the Escrow Agent consolidates with, merges or
converts into, or transfers all or substantially all of its corporate trust
business or assets to, another corporation or banking association, the
resulting surviving or transferee corporation without any further act shall be
the successor Escrow Agent, provided that such corporation be eligible under
this Agreement.
(d) Entire Agreement. Except as set forth in the Reorganization Agreement,
this Agreement constitutes the entire understanding and agreement of the
parties with respect to the subject matter of this Agreement and supersedes all
prior agreements or understandings, written or oral, between the parties with
respect to the subject matter hereof.
(e) Waivers. No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of
any Person in exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right, privilege or remedy
and no single or partial exercise of any such power, right, privilege or remedy
shall preclude any other or further exercise thereof or of any other power,
right, privilege or remedy. No Person shall be deemed to have waived any claim
arising out of this Agreement, or any power, right, privilege or remedy under
this Agreement, unless the waiver of such claim, power, right, privilege or
remedy is expressly set forth in a written instrument duly executed and
delivered on behalf of such Person; and any such waiver shall not be applicable
or have any effect except in the specific instance in which it is given.
(f) Amendment. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.
PARENT: APPLIED MICRO CIRCUITS CORPORATION
By: _________________________________
Name: _______________________________
Title: ______________________________
THE COMPANY: YUNINETWORKS, INC.
By: _________________________________
Name: _______________________________
Title: ______________________________
COMPANY STOCKHOLDERS' REPRESENTATIVE:
_____________________________________
ESCROW AGENT: THE BANK OF NEW YORK
By: _________________________________
Name: _______________________________
Title: ______________________________
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<PAGE>
ATTACHMENT A
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, hereby sells, assigns and transfers
unto , pursuant to the terms of that certain
Escrow Agreement, dated April , 2000, by and between the Applied Micro
Circuits Corporation, a Delaware corporation, YuniNetworks, Inc., a Delaware
corporation (the "Company"), the Company Stockholders' Representative and The
Bank of New York, as Escrow Agent (the "Agreement"),
( ) shares of Common Stock of the Company standing in the undersigned's
name on the books of the Company represented by Certificate No. and
does hereby irrevocably constitute and appoint the Company's Secretary attorney
to transfer said stock on the books of the Company with full power of
substitution in the premises. This Assignment may be used only in accordance
with and subject to the terms and conditions of the Agreement.
Dated: ______________________________
_____________________________________
(Signature)
_____________________________________
(Print Name)
INSTRUCTION: Please do not fill in any blanks other than the signature line.
The purpose of this Assignment is to enable the Company to exercise its
indemnification recovery rights set forth in the Agreement without requiring
additional signatures on the part of the Company stockholders.
Signature(s) Guaranteed
By: _________________________________
THE SIGNATURE(S) MUST BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION
PROGRAM). PURSUANT TO S.E.C. RULE
17AD-15.
A-51
<PAGE>
ATTACHMENT B
AUTHORIZED SIGNATORIES
For Applied Micro Circuits Corporation ("Parent") the following named
persons with title and specimen signature shown below:
<TABLE>
<CAPTION>
Name Title Signature
---------------------
<S> <C> <C>
---------------------
---------------------
---------------------
---------------------
</TABLE>
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<PAGE>
ATTACHMENT C
COMPANY STOCKHOLDERS
<TABLE>
<CAPTION>
Name
and
Address Taxpayer Identification Number
---------------------------------------
<S> <C>
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
</TABLE>
A-53
<PAGE>
APPENDIX B
DELAWARE GENERAL CORPORATION LAW
(S)262 Appraisal rights.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to s 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to s 251 (other than a merger effected pursuant to s 251(g)
of this title), s 252, s 254, s 257, s 258, s 263 or s 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of s 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to ss 251,
252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
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<PAGE>
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under s 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsection (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to s 228 or s
253 of this title, each consitutent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constitutent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constitutent corporation shall send a second notice before
the effective date of the merger or consolidation notifying each of the
holders of any class or series of stock of such constitutent corporation
that are entitled to appraisal rights of the effective date of the merger
or consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
B-2
<PAGE>
determining the stockholders entitled to receive either notice, each
constitutent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is received
by the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or
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<PAGE>
resulting corporation pursuant to subsection (f) of this section and who has
submitted such stockholder's certificates of stock to the Register in Chancery,
if such is required, may participate fully in all proceedings until it is
finally determined that such stockholder is not entitled to appraisal rights
under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
B-4
<PAGE>
APPENDIX C
FORM OF VOTING AGREEMENT
VOTING AGREEMENT, dated as of April 18, 2000 (this "Agreement"), between
APPLIED MICRO CIRCUITS CORPORATION, a Delaware corporation ("Parent"), and
(the "Holder").
WITNESSETH:
WHEREAS, Parent, YUNINETWORKS, INC., a Delaware corporation (the "Company"),
and OLI ACQUISITION CORP., a Delaware corporation and a wholly owned subsidiary
of Parent ("Merger Sub"), propose to enter into an Agreement and Plan of Merger
and Reorganization to be dated as of the date hereof (the "Merger Agreement;"
capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Merger Agreement), pursuant to which Merger Sub will be
merged with and into the Company (the "Merger"); and
WHEREAS, the Holder, individually or as trustee or custodian, is the
beneficial owner of the number and class of shares of the Company's Common
Stock (including rights to acquire the Company's Common Stock) or Preferred
Stock set forth opposite the Holder's name on Schedule I to this Agreement
(such shares, along with all other shares of capital stock of the Company
acquired by Holder subsequent to the date hereof, are referred to herein as the
"Subject Shares"); and
WHEREAS, as a condition of its entering into the Merger Agreement, Parent
has requested that the Holder agree, and the Holder has agreed, among other
things, to vote the Subject Shares and to grant Parent an irrevocable proxy to
vote the Subject Shares with respect to the Merger Agreement and the Merger
upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, agreements and covenants hereinafter set forth, and intending
to be legally bound hereby, the parties hereto hereby agree as follows:
1. Agreement to Vote Shares.
(a) Holder agrees that, prior to the Expiration Date (as defined in
Section 7), at every annual or special meeting of the stockholders of the
Company and at every continuation or adjournment thereof, and on every
action or approval by written consent of the stockholders of the Company in
lieu of any such meeting, in which in either case the Merger Agreement
and/or the Merger are being considered or voted on, the Holder shall cause
the Subject Shares to be voted in favor of (i) the approval and adoption of
the Merger Agreement and approval of the Merger, (ii) approval of the
Certificate of Merger, (iii) approval of the conversion of the outstanding
shares of the Company's Series A preferred stock into shares of the
Company's Common Stock, and (iv) any matter that could reasonably be
expected to facilitate the Merger. Prior to the Expiration Date, the Holder
shall not enter into any agreement or understanding with any Person to vote
or give instructions in any manner inconsistent with the preceding
sentence. The Holder may vote the Subject Shares on all other matters.
(b) No person executing this Agreement who is or becomes during the term
hereof a director of the Company, or any successor thereof, makes any
agreement or understanding herein in his or her capacity as such director.
The Holder signs solely in his or her capacity as the owner of the Subject
Shares.
2. Irrevocable Proxy. Concurrently with the execution of this Agreement, the
Holder is delivering to Parent a proxy with respect to the Subject Shares in
the form attached hereto as Exhibit A, which shall be irrevocable to the full
extent permitted by law.
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<PAGE>
3. No Solicitation. Except as set forth in the next sentence of this Section
4, Holder covenants and agrees that, during the period commencing on the date
of this Voting Agreement and ending on the Expiration Date (as hereinafter
defined), Holder shall not directly or indirectly, and shall not authorize or
permit any Affiliate of such Holder, directly or indirectly, to (a) solicit,
initiate or encourage (including by way of furnishing non-public information)
the submission or making or announcement of any Acquisition Transaction, (b)
take any other action to facilitate any inquiries or the making of any proposal
to effect an Acquisition Transaction, (c) approve, endorse or recommend any
Acquisition Transaction, (d) enter into any letter of intent or similar
document or any contract or other agreement contemplating or otherwise relating
to any Acquisition Transaction, (e) enter into discussions or negotiate with
any Person regarding an Acquisition Transaction, or (f) or authorize or permit
any of the Affiliates of Holder to take any such actions set forth in clauses
(a) through (e) above. Holder shall immediately cease any existing discussions
with any Person that relate to any Acquisition Transaction. [Notwithstanding
the foregoing, for purposes of this Section 3 an Acquisition Transaction shall
not include the Transfer (as defined in Section 6(b) below) of any Subject
Shares in compliance with Section 6(b) below.]
4. Representations and Warranties of the Holder. The Holder hereby
represents and warrants to Parent that:
(a) this Agreement has been duly executed and delivered by the Holder
and is the legal, valid and binding obligation of the Holder;
(b) no consent of any Governmental Entity, beneficiary, co-trustee or
other Person is necessary for the execution, delivery and performance of
this Agreement by the Holder;
(c) the Holder owns the Subject Shares free and clear of any Encumbrance
other than this Agreement and does not own, directly or indirectly, any
other shares of the Company's Common Stock or any option, warrant or other
right to acquire any shares of the Company's Common Stock, other than those
set forth on Schedule I;
(d) the Holder has the present power and right to vote all of the
Subject Shares; and
(e) except as provided herein, the Holder has not (i) granted any power-
of-attorney or other authorization or interest with respect to any of the
Subject Shares, (ii) deposited any of the Subject Shares into a voting
trust, or (iii) entered into any voting agreement or other arrangement with
respect to any of the Subject Shares.
5. Representations and Warranties of Parent. Parent hereby represents and
warrants to the Holder that:
(a) this Agreement has been duly executed and delivered by Parent, and
is the legal, valid and binding obligation of Parent; and
(b) no consent of any Governmental Entity, beneficiary, co-trustee or
other Person is necessary for the execution, delivery and performance of
this Agreement by Parent.
6. Covenants of the Holder. The Holder hereby agrees and covenants that:
(a) during the period between the date hereof and the Expiration Date,
any shares of capital stock of the Company (including, without limitation,
the Company's Common Stock) that the Holder purchases or with respect to
which the Holder otherwise acquires beneficial ownership (including by
reason of stock dividends, split-ups, recapitalizations, combinations,
exchanges of shares or the like) shall be considered Subject Shares and
subject to each of the terms and conditions of this Agreement;
(b) during the period between the date hereof and the Expiration Date,
Holder shall not cause or permit any Transfer (as defined below) of any of
the Subject Shares to be effected unless each Person to which any of such
Subject Shares, or any interest in any of such Subject Shares, is or may be
transferred shall have: (i) executed a counterpart of this Agreement and
proxy in the form attached hereto as Exhibit A; and (ii) agreed to hold
such Subject Shares (or interest in such Subject Shares) subject to all
terms and provisions of this Agreement. A Person shall have been deemed to
have effected a "Transfer" of such security if such Person directly or
indirectly, (i) sells, pledges, encumbers, grants an option with
C-2
<PAGE>
respect to, transfers or disposes of such security or any interest in such
security, or (ii) enters into an agreement or commitment contemplating the
grant of an option with respect to or sale, pledge, encumbrance, transfer
or disposition of such security or any interest therein; [provided,
however, that the sale, pledge, encumbrance, grant of an option with
respect to transfer or disposition of shares of Parent Common Stock
issuable as Merger Consideration for the Subject Shares pursuant to the
Merger Agreement, or the entry into an agreement a commitment with respect
to the foregoing, shall not be deemed to be a Transfer of Subject Shares
hereunder;]
(c) during the period between the date hereof and the Expiration Date,
Holder shall ensure that (i) none of the Subject Shares is deposited in a
voting trust; and (ii) no proxy is granted, and no voting agreement or
similar agreement is entered into, with respect to any of the Subject
Shares; and
(d) immediately after execution of this Agreement, Holder shall instruct
the Company to cause each certificate of Holder evidencing the Subject
Shares to bear a legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
EXCHANGED OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN
ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE VOTING AGREEMENT
DATED APRIL18, 2000, AS IT MAY BE AMENDED, EXECUTED BY THE
REGISTERED HOLDER OF THIS CERTIFICATE, A COPY OF WHICH IS ON
FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER.
7. Termination. This Agreement shall terminate on the earlier of (a) the
Effective Time, (b) at any time upon written notice by Parent to the Holder
terminating this Agreement, and (c) the date on which the Merger Agreement is
validly terminated (such earlier date being referred to herein as the
"Expiration Date").
8. Notices. All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, telecopy or by registered
or certified mail (postage prepaid, return receipt requested) or by overnight
courier to the respective parties at the following addresses (or at such other
address for a party as shall be specified in a notice given in accordance with
this Section 8):
if to Parent:
APPLIED MICRO CIRCUITS CORPORATION
6290 Sequence Drive
San Diego, CA 92121
Attn: William E. Bendush
Fax: (858) 535-6800
with a copy to:
COOLEY GODWARD LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121
Attn: D. Bradley Peck, Esq.
Fax: (858) 453-3555
if to the Holder:
____________________________
____________________________
____________________________
Attn: ______________________
Fax: _______________________
C-3
<PAGE>
with a copy to:
GRAY CARY WARE & FREIDENRICH LLP
4365 Executive Drive, Suite 700
San Diego, CA 92121
Attn: Knox Bell, Esq.
Fax: (858) 677-1477
9. Amendments; No Waivers.
(a) Any provision of this Agreement may be amended or waived prior to
the Expiration Date if, and only if, such amendment or waiver is in writing
and signed, in the case of an amendment, by Parent and the Holder or in the
case of a waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single
or partial exercise thereof preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
10. Expenses. All costs and expenses incurred in connection with this
Agreement shall be paid by the party incurring such cost or expense.
11. Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; and with respect to the Holder, his or her
respective heirs, legal representatives and permitted successors and assigns,
provided, that no party may assign, delegate or otherwise transfer any of its
rights or obligations under this Agreement without the prior written consent of
the other party hereto except that Parent may assign all or any of its rights
to any Affiliate thereof.
12. Non-Survival of Representations and Warranties. All representations,
warranties and agreements made by Holder and Parent in this Agreement shall
promptly terminate upon the Expiration Date.
13. Indemnification. Without in any way limiting any of the rights or
remedies otherwise available to Parent, Holder shall hold harmless and
indemnify Parent from and against any damages suffered or incurred by Parent
and that arise from any breach of any representation, warranty or agreement of
Holder contained herein.
14. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed an original, but all of which taken
together shall constitute one and the same agreement.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware governing agreements made
wholly within the State of Delaware, without reference to the principles of
conflict of laws.
16. Jury Trial Waiver. EACH PARTY HERETO HEREBY WAIVES ALL RIGHTS TO TRIAL
BY JURY IN ANY ACTION OR PROCEEDING INSTITUTED BY EITHER OF THEM AGAINST THE
OTHER WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT.
17. Specific Performance. The parties hereto agree that irreparable damage
would occur in the event any provision of this Agreement was not performed in
accordance with the terms hereof and that, in addition to any remedy to which
they are entitled at law or in equity, the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement without the need to
post a bond or prove special damages.
C-4
<PAGE>
18. Interpretation. The descriptive headings contained in this Agreement are
included for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement. When a reference is made in this
Agreement to a Section, such reference shall be to a Section of this Agreement
unless otherwise indicated. Whenever the words "include," "includes" or
"including" are used in this Agreement they shall be deemed to be followed by
the words "without limitation." The phrases "the date of this Agreement," "the
date hereof," and terms of similar import, unless the context otherwise
requires, shall be deemed to refer to April 18, 2000.
19. Entire Agreement. This Agreement and the related irrevocable proxy
constitutes the entire agreement between the parties with respect to the
subject matter hereof and supersedes all prior written and oral and all
contemporaneous agreements and understandings with respect to the subject
matter hereof. Each party acknowledges and agrees that no other party hereto
makes any representations or warranties, whether express or implied, other than
the express representations and warranties contained herein.
20. Severability. If any term or other provision of this Agreement is
determined to be invalid, illegal or incapable of being enforced by any rule of
law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated herein is not affected in any
manner materially adverse to any party hereto. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in a mutually
acceptable manner.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
C-5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, or caused this Agreement to be duly executed and delivered by their
respective authorized officers, as of the day and year first above written.
APPLIED MICRO CIRCUITS CORPORATION
By: _________________________________
Name: _______________________________
Title: ______________________________
THE HOLDER
By: _________________________________
Name: _______________________________
C-6
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Holder Number of Subject Shares; Options, Warrants, Etc.
------ -------------------------------------------------
<S> <C>
</TABLE>
C-7
<PAGE>
EXHIBIT A
IRREVOCABLE PROXY
The undersigned stockholder of YUNINETWORKS, INC., a Delaware corporation
(the "Company"), hereby irrevocably (to the full extent permitted by law)
appoints and constitutes Stephen Smith of Applied Micro Circuits Corporation, a
Delaware corporation ("Parent"), and David Mersten of Parent, in their
respective capacities as officers of Parent, and any individuals who shall
hereafter succeed to such offices, and Parent, and each of them, the attorneys
and proxies of the undersigned with full power of substitution and
resubstitution, to the extent of the undersigned's rights with respect to the
shares of the Company's Common Stock (as described in the Voting Agreement,
dated as of April 18, 2000 (the "Voting Agreement"), beneficially owned by the
undersigned, which shares are listed on the final page of this Irrevocable
Proxy, and any and all other shares and securities issued or issuable in
respect thereof on or after the date hereof or which the undersigned may
acquire after the date hereof (collectively, the "Shares"), until such time as
the Voting Agreement shall be terminated in accordance with its terms. Upon the
execution hereof, all prior proxies given by the undersigned with respect to
the Shares and any and all other shares or securities issued or issuable in
respect thereof on or after the date hereof are hereby revoked and no
subsequent proxies shall be given.
This proxy is irrevocable (to the full extent permitted by law), shall be
deemed to be coupled with an interest, and is granted in connection with the
Voting Agreement and in consideration of Parent entering into the Agreement and
Plan of Merger and Reorganization, dated as of April 18, 2000 (the "Merger
Agreement"), among Parent, OLI Acquisition Corp., a Delaware corporation and
wholly owned subsidiary of Parent, and the Company. This proxy shall terminate
on the Expiration Date (as defined in the Voting Agreement).
The attorneys and proxies named above shall be empowered at any time prior
to termination of the Voting Agreement to exercise all voting and other rights
( including, without limitation, the power to execute and deliver written
consents with respect to Shares) of the undersigned at every annual or special
meeting of the stockholders of the Company and at every continuation or
adjournment thereof, and on every action or approval by written consent of the
stockholders of the Company in lieu of any such meeting in favor of (i) the
approval and adoption of the Merger Agreement and approval of the Merger, (ii)
approval of the Certificate of Merger, (iii) approval of the conversion of the
outstanding shares of the Company's Series A preferred stock into shares of the
Company's Common Stock, and (iv) any matter that could reasonably be expected
to facilitate the Merger. The undersigned may vote the Shares on all other
matters.
Any obligation of the undersigned hereunder shall be binding upon heirs,
legal representatives, and permitted successors and assigns of the undersigned.
If any term or other provision of this proxy is determined to be invalid,
illegal or incapable of being enforced by any rule of law, or public policy,
all other conditions and provisions of this proxy shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated herein is not affected in any manner materially
adverse to any party hereto. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this proxy so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner.
This proxy is irrevocable.
Signature of Holder:
-----------------------------------
Print name of Holder:
Shares beneficially owned: shares of the Company's Common Stock
shares of the Company's Series A Preferred Stock
Dated: April , 2000
C-8
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 21. Exhibits and Financial Statements Schedule
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
2.1* Agreement and Plan of Merger and Reorganization by and among the
Registrant, OLI Acquisition Corp. and YuniNetworks, Inc. dated as of
April 18, 2000. Reference is made to Appendix A to the
prospectus/consent solicitation statement which is included in this
Registration Statement.**
3.1(1) Registrant's Amended and Restated Certificate of Incorporation, as
currently in effect.
3.2(2) Registrant's Bylaws, as amended, as currently in effect.
4.1(3) Form of Common Stock Certificate of Registrant.
5.1* Opinion of Cooley Godward llp.
8.1*** Tax opinion of Cooley Godward llp.
8.2*** Tax opinion of Gray Cary Ware & Freidenrich llp.
10.1* Form of Voting Agreement, dated as of April 18, 2000 by and between
Registrant and certain stockholders of YuniNetworks, Inc. Reference
is made to Appendix C of the prospectus/consent solicitation
statement which is included in this Registration Statement.
10.2*(+) License Agreement dated as of March 14, 2000, between YuniNetworks,
Inc. and The Regents Of The University Of California.
21.1* Subsidiaries of Registrant.
23.1*** Consent of Ernst & Young llp, Independent Auditors.
23.2*** Consent of Ernst & Young llp, Independent Auditors.
23.3* Consent of Cooley Godward llp. Reference is made to Exhibits 5.1 and
8.1.
23.4*** Consent of Gray Cary Ware & Freidenrich llp. Reference is made to
Exhibit 8.2.
24.1* Power of Attorney.
99.1* Form of action by written consent of the stockholders of
YuniNetworks, Inc.
</TABLE>
--------
(1) Incorporated by reference to Exhibit 3.2 filed with the Company's
Registration Statement (No. 333-37609) filed October 10, 1997, or with any
Amendment thereto, which registration statement became effective November
24, 1997.
(2) Incorporated by reference to Exhibit 3.4 filed with the Company's
Registration Statement (No. 333-37609) filed October 10, 1997, or with any
Amendment thereto, which registration statement became effective November
24, 1997.
(3) Incorporated by reference to Exhibit 4.1 filed with the Company's
Registration Statement (No. 333-37609) filed October 10, 1997, or with any
Amendment thereto, which registration statement became effective November
24, 1997.
* Previously filed.
** Schedules omitted pursuant to Regulation S-K, Item 601(b)(2) of the
Securities Act. Registrant undertakes to furnish such schedules to the
Commission supplementally upon request.
*** Filed herewith.
(+) Confidential treatment has been requested with respect to certain portions
of this Exhibit. Omitted portions have been filed separately with the
Commission.
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Diego, State of
California, on June 1, 2000.
APPLIED MICRO CIRCUITS CORPORATION
/s/ William E. Bendush
By: _________________________________
William E. Bendush,
Vice President, Finance and
Administration,
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment 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 Executive June 1, 2000
____________________________________ Officer, Director
David M. Rickey
/s/ William E. Bendush Vice President, Finance and June 1, 2000
____________________________________ Administration, and Chief
William E. Bendush Financial Officer (Principal
Financial and Accounting
Officer)
/s/ Roger A. Smullen, Sr.* Chairman of the Board of June 1, 2000
____________________________________ Directors
Roger A. Smullen, Sr.
/s/ William K. Bowes, Jr.* Director June 1, 2000
____________________________________
William K. Bowes, Jr.
/s/ R. Clive Ghest* Director June 1, 2000
____________________________________
R. Clive Ghest
/s/ Franklin P. Johnson, Jr.* Director June 1, 2000
____________________________________
Franklin P. Johnson, Jr.
/s/ S. Atiq Raza* Director June 1, 2000
____________________________________
S. Atiq Raza
/s/ Arthur B. Stabenow* Director June 1, 2000
____________________________________
Arthur B. Stabenow
/s/ Harvey P. White* Director June 1, 2000
____________________________________
Harvey P. White
*By: /s/ William E. Bendush
____________________________________
William E. Bendush
Attorney-in-Fact
</TABLE>
II-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
2.1* Agreement and Plan of Merger and Reorganization by and among the
Registrant, OLI Acquisition Corp. and YuniNetworks, Inc. dated as of
April 18, 2000. Reference is made to Appendix A to the
prospectus/consent solicitation statement which is included in this
Registration Statement.**
3.1(1) Registrant's Amended and Restated Certificate of Incorporation, as
currently in effect.
3.2(2) Registrant's Bylaws, as amended, as currently in effect.
4.1(3) Form of Common Stock Certificate of Registrant.
5.1* Opinion of Cooley Godward llp.
8.1*** Tax opinion of Cooley Godward llp.
8.2*** Tax opinion of Gray Cary Ware & Freidenrich llp.
10.1* Form of Voting Agreement, dated as of April 18, 2000 by and between
Registrant and certain stockholders of YuniNetworks, Inc. Reference
is made to Appendix C of the prospectus/consent solicitation
statement which is included in this Registration Statement.
10.2*(+) License Agreement dated as of March 14, 2000, between YuniNetworks,
Inc. and The Regents Of The University Of California.
21.1* Subsidiaries of Registrant.
23.1*** Consent of Ernst & Young llp, Independent Auditors.
23.2*** Consent of Ernst & Young llp, Independent Auditors.
23.3* Consent of Cooley Godward llp. Reference is made to Exhibits 5.1 and
8.1.
23.4*** Consent of Gray Cary Ware & Freidenrich llp. Reference is made to
Exhibit 8.2.
24.1* Power of Attorney.
99.1* Form of action by written consent of the stockholders of
YuniNetworks, Inc.
</TABLE>
--------
(1) Incorporated by reference to Exhibit 3.2 filed with the Company's
Registration Statement (No. 333-37609) filed October 10, 1997, or with any
Amendment thereto, which registration statement became effective November
24, 1997.
(2) Incorporated by reference to Exhibit 3.4 filed with the Company's
Registration Statement (No. 333-37609) filed October 10, 1997, or with any
Amendment thereto, which registration statement became effective November
24, 1997.
(3) Incorporated by reference to Exhibit 4.1 filed with the Company's
Registration Statement (No. 333-37609) filed October 10, 1997, or with any
Amendment thereto, which registration statement became effective November
24, 1997.
* Previously filed.
** Schedules omitted pursuant to Regulation S-K, Item 601(b)(2) of the
Securities Act. Registrant undertakes to furnish such schedules to the
Commission supplementally upon request.
*** Filed herewith.
(+) Confidential treatment has been requested with respect to certain portions
of this Exhibit. Omitted portions have been filed separately with the
Commission.
