----------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10 - Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
for the quarterly period ended June 28, 1998
[ ] Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
For the Transition Period From __ to __
Commission File Number 0-19084
PMC-Sierra, Inc.
(Exact name of registrant as specified in its charter)
A Delaware Corporation - I.R.S. NO. 94-2925073
105-8555 BAXTER PLACE
BURNABY, BRITISH COLUMBIA, V5A 4V7
CANADA
Telephone (604) 415-6000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes ___X____ No _______
Common shares outstanding at June 28, 1998 - 30,672,754
------------------------------------------------------
<PAGE>
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- Consolidated statements of operations
- Consolidated balance sheets
- Consolidated statements of cash flows
- Notes to consolidated financial statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Item 4. Submission of Matters to a Vote by Stockholders
Item 5. Other Information - Description of Capital Stock
Item 6. Exhibits and Reports on Form 8 - K
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
<TABLE>
PMC-Sierra, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share amounts)
(unaudited)
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- --------------------------
Jun 28, Jun 30, Jun 28, Jun 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net revenues $ 39,975 $ 34,064 $ 74,270 $ 67,638
Cost of revenues 9,895 9,613 18,030 19,464
------------- ------------- ------------ ------------
Gross profit 30,080 24,451 56,240 48,174
Other costs and expenses:
Research and development 7,820 5,308 13,836 11,348
Acquisition of in process research and development 50,846 - 50,846 -
Marketing, general and administrative 7,348 6,614 13,470 12,915
------------- ------------- ------------ ------------
Income (loss) from operations (35,934) 12,529 (21,912) 23,911
Interest income, net 750 232 1,574 157
------------- ------------- ------------ ------------
Income (loss) before provision for income taxes (35,184) 12,761 (20,338) 24,068
Provision for income taxes 5,639 3,829 10,836 6,656
------------- ------------- ------------ ------------
Net income (loss) $ (40,823) $ 8,932 $ (31,174) $ 17,412
============= ============= ============ ============
Basic net income (loss) per share $ (1.28) $ 0.29 $ (0.98) $ 0.56
============= ============= ============ ============
Diluted net income (loss) per share $ (1.28) $ 0.28 $ (0.98) $ 0.54
============= ============= ============ ============
Shares used to calculate:
Basic net income (loss) per share 31,829 30,918 31,677 30,846
Diluted net income (loss) per share 31,829 32,374 31,677 32,135
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
PMC-Sierra, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
Jun 28, Dec 28,
1998 1997
(unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 60,872 $ 27,906
Short-term investments - 41,334
Accounts receivable, net 20,858 15,103
Inventories 6,212 3,199
Prepaid expenses and other current assets 3,986 1,958
Short-term deposits for wafer fabrication capacity - 4,000
------------- -------------
Total current assets 91,928 93,500
Property and equipment, net 26,430 19,699
Goodwill and other intangible assets, net 14,626 8,635
Investments and other assets 4,517 4,424
Deposits for wafer fabrication capacity 23,120 23,120
------------- -------------
$ 160,621 $ 149,378
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 9,434 $ 7,421
Accrued liabilities 22,454 13,751
Accrued income taxes 10,154 8,780
Current portion of obligations under capital leases and long-term debt 5,093 4,652
Net liabilities of discontinued operations 249 301
------------- -------------
Total current liabilities 47,384 34,905
Deferred income taxes 3,958 4,023
Noncurrent obligations under capital leases and long-term debt 7,645 9,092
Special shares convertible into PMC common stock 8,758 10,793
Shareholders' equity:
Common stock, par value $0.001 30 30
Additional paid in capital 176,638 143,153
Accumulated deficit (83,792) (52,618)
------------- -------------
Total shareholders' equity 92,876 90,565
------------- -------------
$ 160,621 $ 149,378
============= =============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
PMC-Sierra, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<CAPTION>
Six Months Ended
--------------------------
Jun 28, Jun 30,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (31,174) $ 17,412
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,359 4,088
Acquisition of in process research and development 50,846 -
Changes in assets and liabilities
Accounts receivable (4,492) (3,048)
Inventories (2,458) 5,221
Prepaid expenses and other (1,754) (1,533)
Accounts payable and accrued expenses 8,925 1,838
Accrued restructuring costs - (7,569)
Net assets/liabilities associated with discontinued operations (52) (160)
------------ ------------
Net cash provided by operating activities 25,200 16,249
------------ ------------
Cash flows from investing activities:
Proceeds from sales/maturities of short-term investments 43,442 12,039
Purchases of short-term investments (2,108) (19,138)
Proceeds from refund of wafer fabrication deposits 4,000 -
Investments in other companies - (3,000)
Payment for purchase of Integrated Telecom Technology, Inc.,
net of cash acquired (27,165) -
Purchase of other in process research and development (1,419) -
Proceeds from sale of equipment - 2,483
Purchases of plant and equipment (9,636) (3,303)
------------ ------------
Net cash provided by (used in) investing activities 7,114 (10,919)
------------ ------------
Cash flows from financing activities:
Repayment of notes payable and long-term debt (116) (1,157)
Proceeds from sale/leaseback of equipment - 1,107
Principal payments under capital lease obligations (2,461) (2,004)
Proceeds from issuance of common stock 3,229 2,530
------------ ------------
Net cash provided by financing activities 652 476
------------ ------------
Net increase in cash and cash equivalents 32,966 5,806
Cash and cash equivalents, beginning of the period 27,906 35,038
------------ ------------
Cash and cash equivalents, end of the period $ 60,872 $ 40,844
============ ============
See notes to consolidated financial statements.
</TABLE>
PMC-SIERRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC").
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those
rules or regulations. The interim financial statements are unaudited, but
reflect all adjustments which are, in the opinion of management, necessary
to present a fair statement of results for the interim periods presented.
These financial statements should be read in conjunction with the financial
statements and the notes thereto in the Company's Annual Report on Form
10-K for the year ended December 28, 1997. The results of operations for
the three and six months ended June 28, 1998 are not necessarily indicative
of results to be expected in future periods.
2. On May 20, 1998, the Company acquired Integrated Telecom Technology, Inc.
("IGT") in exchange for total consideration of $55.0 million consisting of
cash paid to IGT stockholders of $17.8 million, cash paid to IGT creditors
of $9.0 million and the issuance of approximately 415,000 shares of common
stock and options to purchase approximately 214,000 shares of common stock.
The purchase price includes professional fees and other direct costs of the
acquisition totaling $850,000. IGT is a fabless semiconductor company
headquartered in Gaithersburg, MD with a development site in San Jose, CA.
IGT makes Asynchronous Transfer Mode (ATM) switching chipsets for wide area
network applications as well as ATM Segmentation-and-Reassembly and other
telecommunication chips.
The acquisition was recorded under the purchase method of accounting and
the results of operations of IGT and the fair value of acquired assets and
liabilities were included in the Company's financial statements beginning
on the acquisition date. Upon consummation of the transaction, IGT was
merged with a wholly owned subsidiary of the Company. In connection with
the purchase price allocation, the Company received an appraisal of the
intangible assets which indicated that approximately $49.4 million of the
purchase price was allocated to in-process research and development.
Because there can be no assurance that the Company will be able to
successfully complete the development and integration of IGT products or
that the acquired technology has any alternative future use, the acquired
in process research and development was expensed in the three months ended
June 28, 1998. In addition, the Company has recorded $5.3 million related
to other intangible assets, which will be amortized over their estimated
useful lives, ranging from three to seven years. The Company presented a
pro forma summary of this purchase acquisition on a Form 8-K/A filed on
June 22, 1998.
<PAGE>
The following table presents the unaudited pro forma results of operations
for informational purposes assuming that the Company had acquired IGT at
the beginning of the 1998 and 1997 fiscal years. This information may not
necessarily be indicative of the future combined results of operations of
the Company.
Six Months Ended
-------------------------
June 28, June 30,
1998 1997
(in thousands, except for per share amounts)
Net revenues $ 78,579 $ 74,305
Net income $ 15,431 $ 15,209
Basic net income per share: $ 0.48 $ 0.49
Diluted net income per share: $ 0.45 $ 0.46
The pro forma results of operations give effect to certain adjustments,
including amortization of purchased intangibles and goodwill. The $49.4
million charge for purchased in process technology has been excluded from
the pro forma results, as it is a material non-recurring charge.
3. On May 1, 1998 a subsidiary of the Company acquired certain technology for
cash consideration of $1.4 million. This technology has not reached
technological feasibility and has no alternative future use. Accordingly,
this amount is included in the in process research and development expensed
in the three months ended June 28, 1998.
4. The components of inventories are as follows (in thousands):
Jun 28, Dec 28,
1998 1997
(unaudited)
Work-in-progress $ 2,103 $ 2,316
Finished goods 4,109 883
-------------- --------------
$ 6,212 $ 3,199
============== ==============
<PAGE>
5. Recently Issued Accounting Standards
- - Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income".
SFAS No. 130 requires disclosure of comprehensive income in interim periods
and additional disclosures of the components of comprehensive income on an
annual basis. Comprehensive income includes all changes in equity during a
period except those resulting from investments by and distributions to the
Company's shareholders. For the quarters ended June 28, 1998 and June 30,
1997, there were no material differences between the Company's
comprehensive income and net income.
- - In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which establishes annual and interim
reporting standards for an enterprise's business segments and related
disclosures about its products, services, geographic areas and major
customers. Adoption of this statement will not impact the Company's
consolidated financial position, results of operations or cash flows. The
Company will adopt this statement in its financial statements for the year
ending December 27, 1998.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
consolidated financial statements and notes thereto included in Part I - Item 1
of this Quarterly Report and the audited consolidated financial statements and
notes thereto and Management's Discussion and Analysis in the Company's 1997
Annual Report to Shareholders.
During the second quarter, the Company acquired Integrated Telecom Technology,
Inc. ("IGT") in exchange for total consideration of $55.0 million consisting of
cash paid to IGT shareholders of $17.8 million, cash paid to IGT creditors of
$9.0 million and the issuance of approximately 415,000 shares of common stock
and options to purchase approximately 214,000 shares of common stock. IGT is a
fabless semiconductor company headquartered in Gaithersburg, MD with a
development site in San Jose, California. IGT makes Asynchronous Transfer Mode
(ATM) switching chipsets for wide area network applications as well as ATM
Segmentation-and-Reassembly and other telecommunication chips. The IGT
acquisition was recorded under the purchase method of accounting and the results
of operations of IGT and the fair value of acquired assets and liabilities were
included in the Company's financial statements beginning on May 20, 1998, the
acquisition date. Approximately $49.4 million of the purchase price was
allocated to in process research and development which was expensed in the three
months ended June 28, 1998. The Company presented a pro forma summary of this
purchase acquisition on a Form 8-K/A filed on June 22, 1998.
Certain statements in this Report constitute "forward-looking statements" with
the meaning of the federal securities laws. The actual results, performance, or
achievements of the Company may be materially different from those expressed or
implied by such forward-looking statements. Reference to the Company includes
its subsidiary PMC-Sierra Ltd., a Canadian corporation and its other
subsidiaries. The forward-looking statements include projections relating to
trends in markets, revenues, particularly expectations of long-term revenues,
gross margin, and future expenditures on research and development, marketing,
general and administrative expense and the year 2000 issue. The Company
undertakes no obligation to release revisions to forward-looking statements to
reflect subsequent events.
Results of Operations
Second Quarters of 1998 and 1997
Net Revenues ($000,000)
- -----------------------
Second Quarter
---------------------------
1998 1997 Change
Net revenues
Networking products $32.6 $21.3 53%
User Interface 7.4 12.8 ( 42%)
------------ ------------
Total net revenues $40.0 $34.1 17%
============ ============
Second quarter networking product revenue increased 53% over last year's second
quarter. During the second quarter the Company acquired Integrated Telecom
Technology, Inc. ("IGT") which accounted for $1.3 million of the $32.6 million
in networking product revenue.
<PAGE>
User interface revenue declined 42% in the second quarter compared to last
year's second quarter. All new product development related to user interface
products was discontinued following a third quarter 1996 strategic decision to
focus all of the Company's resources on networking products. Revenues related to
user interface products are expected to decline significantly in the coming
quarter but continue at meaningful levels into 1999.
Gross Profit ($000,000)
- -----------------------
Second Quarter
------------------------
1998 1997 Change
Gross profit $30.1 $24.5 23%
Percentage of net revenues 75% 72%
Gross profit increased in dollars and as a percentage of net revenues in the
second quarter compared to the prior year's second quarter. Increased sales of
higher gross margin networking products more than offset a decline in gross
profit due to lower revenues from the Company's user interface products.
The Company expects that networking gross profits as a percentage of networking
net revenues will decline if anticipated decreases in average selling prices of
existing networking products are not offset by commensurate reductions in
production costs. Gross margins associated with IGT products are, on average,
lower than the Company's internally developed networking products but higher
than user interface products.
<PAGE>
Operating Expenses and Charges ($000,000)
- -----------------------------------------
Second Quarter
-----------------------
1998 1997 Change
Research and development $7.8 $5.3 47%
Percentage of net revenues 20% 16%
In process research and development $50.8 -
Marketing, general & administrative $7.3 $6.6 11%
Percentage of net revenues 18% 19%
Research and development ("R&D") spending of $7.8 million in the second quarter
of 1998 is up significantly over last year's second quarter, both in dollars and
as a percentage of net revenues. In the near term the Company expects further
significant increases in the percentage of net revenues devoted to R&D spending
in order to respond to the array of opportunities presented by the growth of the
internet and data networking in general, as well as the convergence of voice and
data communications. Products developed by future incremental R&D spending will
be unlikely to result in incremental net revenues prior to the year 2000 because
of design and marketing lead times.
The Company incurs R&D expenditures in order to attain technological leadership
from a multi-year perspective. Such funding has resulted in fluctuations in R&D
spending from period to period in the past. The Company expects such
fluctuations, particularly when measured as a percentage of net revenues, to
occur in the future, primarily due to the timing of expenditures and changes in
the level of net revenues.
In process research and development expenses of $50.8 million were recorded in
the second quarter of 1998 with $49.4 million related to the acquisition of IGT
and $1.4 million related to the acquisition of technology which has not reached
technological feasibility and has no alternative future use.
Marketing, general & administration expenses were higher in the second quarter
of 1998 than the comparable period in 1997, but lower as a percentage of net
revenues. A substantial portion of the Company's marketing, general &
administrative expense is fixed in the short term. While it is the Company's
long term goal to reduce these costs as a percentage of net revenues during
periods of rising sales, a decline in net sales could cause these costs to
increase as a percentage of net revenues.
Interest Income (Expense), Net
- ------------------------------
Net interest income increased to $750,000 in the second quarter of 1998 from
$232,000 in last year's second quarter primarily due to higher cash balances
available to invest and earn interest and reduced interest expense due to a
lower level of capital leases.
<PAGE>
Provision for Income Taxes
- --------------------------
The provision for income taxes consists primarily of estimated taxes on Canadian
and other foreign operations.
First Six Months of 1998 and 1997
Net Revenues ($000,000)
- -----------------------
First six months
-------------------------------
1998 1997 Change
Net revenues
Networking products $60.5 $36.8 64%
User Interface 13.8 30.8 (55%)
-------------- --------------
Total net revenues $74.3 $67.6 10%
============== ==============
During the third quarter of 1996 the Company made a strategic decision to focus
on networking products and to discontinue development of user interface
products. Accordingly, the total increase in net revenues for the first half of
1998 compared to the prior year is 10%. Networking products grew from 54% of
total net revenues in the first half of 1997 to 81% in the first six months of
1998. All sales of the Company's products are denominated in U.S. dollars.
Gross Profit ($000,000)
- -----------------------
First six months
-------------------------
1998 1997 Change
Gross profit $56.2 $48.2 17%
Percentage of net revenues 76% 71%
Gross profit increased in both dollars and as a percentage of net revenues in
the first half of 1998 compared to the first half of 1997. Increased sales of
higher gross margin networking products more than offset the decline in gross
profit due to lower net revenues from the Company's User Interface products.
Operating Expenses and Charges ($000,000)
- -----------------------------------------
First six months
--------------------------
1998 1997 Change
Research and development $13.8 $11.3 22%
Percentage of net revenues 19% 17%
In process research and development $50.8 -
Marketing, general & administrative $13.5 $12.9 5%
Percentage of net revenues 18% 19%
<PAGE>
R&D expenses increased in both dollars and as a percentage of net revenues in
the first half of 1998 compared to the same period in 1997. All of the R&D
spending in 1998 and substantially all of the 1997 spending is related to the
Company's networking products.
Marketing, general & administrative expenses increased in dollars and decreased
as a percentage of net revenues in the first half of 1998 compared to the first
half of 1997.
Liquidity and Capital Resources
The Company's cash and cash equivalents and short term investments declined from
$69.2 million on December 28, 1997 to $60.9 million on June 28, 1998. During the
first six months of 1998 the Company's operating activities provided $25.2
million in cash. Significant investing activities included $27.2 million related
to the Company's purchase of IGT, $9.6 million of purchases of plant and
equipment and $1.4 million related to the purchase of other in process research
and development. During the first half of 1998 the Company received a refund of
$4.0 million of foundry deposits based on its 1997 wafer purchases.
As of June 28, 1998, the Company's principal sources of liquidity included cash
and cash equivalents of $60.9 million and an unused $15.0 million revolving
credit facility put in place during the quarter. The Company believes that
existing cash and cash equivalents, anticipated funds from operations and access
to its revolving line of credit will satisfy the Company's projected working
capital requirements, anticipated capital expenditures and capital lease
payments for the foreseeable future. The Company expects to purchase, or arrange
capital leases for approximately $10 - 12 million of new capital expenditures
over the balance of 1998.
The Company's future capital requirements will depend on many factors,
including, among others, product development and acquisitions of complementary
businesses, products or technologies. To the extent that existing resources and
the funds generated by future earnings are insufficient to fund the Company's
operations, the Company may need to raise additional funds through public or
private debt or equity financing. If additional funds are raised through the
issuance of equity securities, the percentage ownership of current shareholders
will be reduced and such equity securities may have rights, preferences or
privileges senior to those of the holders of the Company's Common Stock. No
assurance can be given that additional financing will be available or that, if
available, it can be obtained on terms favorable to the Company and its
stockholders. If adequate funds are not available, the Company may be required
to delay, limit or eliminate some or all of its proposed operations.
FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
THE COMPANY'S BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS ARE
SUBJECT TO A NUMBER OF RISKS, SOME OF WHICH ARE DESCRIBED BELOW. THE FACT THAT
SOME OF THE RISK FACTORS MAY BE THE SAME OR SIMILAR TO THOSE IN THE COMPANY'S
PAST SEC FILINGS MEANS ONLY THAT THE RISKS ARE PRESENT IN MULTIPLE PERIODS. THE
COMPANY BELIEVES THAT MANY OF THE RISKS DETAILED HERE AND IN THE COMPANY'S OTHER
SEC FILINGS ARE PART OF DOING BUSINESS IN THE FABLESS NETWORKING SEMICONDUCTOR
INDUSTRY AND WILL LIKELY BE PRESENT IN ALL PERIODS REPORTED. THE FACT THAT
CERTAIN RISKS ARE ENDEMIC TO THE INDUSTRY DOES NOT LESSEN THE SIGNIFICANCE OF
THE RISK.
<PAGE>
FLUCTUATIONS IN OPERATING RESULTS
The Company's quarterly and annual operating results may vary due to a number of
factors, including, among others, the timing of new product introductions,
decreased demand or average selling prices for products, market acceptance of
products, demand for products of the Company's customers, the general conditions
of the networking industry, the introduction of products or technologies by the
Company's competitors, competitive pressure on product pricing, the Company's
and its customers' inventory levels of the Company's products, product
availability from outside foundries, variations in manufacturing yields for the
Company's products, expenditures for new product and process development, the
acquisition of wafer fabrication and other manufacturing capacity, and the
acquisition of businesses, products or technologies. At various times in the
past, the Company's foundry and other suppliers have experienced lower than
anticipated yields that have adversely affected production and, consequently,
the Company. There can be no assurance that the Company's existing or future
foundry and other suppliers will not experience irregularities which could have
a material adverse effect on the Company. The Company from time to time may
order in advance of anticipated customer demand from its suppliers in response
to anticipated long lead times to obtain inventory and materials, which might
result in excess inventory levels if expected orders fail to materialize or
other factors render the Company's product or its customer's products less
marketable. The Company's ability to forecast sales of networking chips is
limited due to customer uncertainty regarding future demand for end-user
networking equipment and price competition in the market for networking
equipment. Any delay or cancellation of existing orders, or any decline in
projected future orders, by the Company's customers could have a material
adverse effect on the Company. Margins will vary depending on product mix. In
the longer term, the Company may experience declining gross profits as a
percentage of total net revenues if anticipated decreases in average selling
prices of existing networking products are not offset by commensurate reductions
in product costs, or by an offsetting increase in gross profit contribution from
new, higher gross margin, networking products. The Company is also affected by
the state and direction of the electronics industry and the economy in the
United States and other markets the Company serves. The occurrence of any of the
foregoing or other factors could have a material adverse effect on the Company.
Due to these factors, past results may not be indicative of future results.
TECHNOLOGICAL CHANGE
The markets for the Company's products are characterized by evolving industry
standards, rapid technological change and product obsolescence. Technological
change may be particularly pronounced in the developing markets for
communications semiconductor devices used in high-speed networks. The Company's
future success will be highly dependent upon the timely completion and
introduction of new products at competitive price and performance levels. The
success of new products depends on a number of factors, including proper
definition of such products, successful and timely completion of product
development and introduction to market, correct judgment with respect to product
demand, market acceptance of the Company's and its customers' products,
fabrication yields by the Company's independent foundries and the continued
ability of the Company to offer innovative new products at competitive prices.
Many of these factors are outside the control of the Company. There can be no
assurance that the Company will be able to identify new product opportunities
successfully, develop and bring to market new products, achieve design wins or
be able to respond effectively to new technological changes or product
announcements by others. A failure in any of these areas would have a material
and adverse affect on the Company.
The Company's current strategy is focused on high-speed networking interface
chips. Products for telecommunications and data communications applications are
based on industry standards that are continually evolving. Future transitions in
customer preferences could quickly make the Company's products obsolete. A
material part of the Company's products are in the ATM telecommunications and
networking market, which is in an early stage of development. The emergence and
adoption of new industry standards that compete with ATM or maintenance by the
industry of existing standards in lieu of new standards could render the
Company's ATM products unmarketable or obsolete. The market for ATM equipment
has not developed as rapidly as industry observers have predicted, and
alternative networking technologies such as "fast ethernet" and "gigabit
ethernet" have developed to meet consumer requirements. A substantial portion of
the Company's development efforts are focused on ATM and related products. Net
revenues derived from sales of ATM, T1/E1, DS3/E3 and SONET/SDH based products
amounted to 67% and 33% of the Company's total net revenues in 1997 and 1996,
respectively. As a result of the Company's 1996 restructuring, revenues from
non-networking products have declined significantly over the last several years,
making the Company's results depend primarily on networking products.
The Company, through a business combination, acquired in process research and
development and developed technology relating to ethernet switching in September
1996. Ethernet switching is a new product area for the Company and there can be
no assurance that announced products or products in development will have
correctly anticipated the needs of the networking industry or that they will
receive sufficient design wins to achieve commercial success.
Many of the Company's products under development are complex semiconductor
devices that require extensive design and testing before prototypes can be
manufactured. The integration of a number of functions in a single chip or in a
chipset requires the use of advanced semiconductor manufacturing techniques.
This can result in chip redesigns if the initial design does not permit
acceptable manufacturing yields. The Company's products are often designed for
customers who in many instances have not yet fully defined their hardware
products. Design delays or redesigns by these customers could in turn delay
completion or require redesign of the semiconductor devices needed for the final
hardware product. In this regard, many of the relevant standards and protocols
for products based on high speed networking technologies have not been widely
adopted or ratified by the relevant standard-setting bodies. Redesigns or design
delays often are required for both the hardware manufacturer's products and the
Company's chips as industry and customer standards, protocols or design
specifications are determined. Any resulting delay in the production of the
Company's products could have a material adverse effect on the Company.
<PAGE>
COMPETITION
The semiconductor industry is intensely competitive and is characterized by
rapid technological change and by price erosion. The industry consists of major
domestic and international semiconductor companies, many of which have
substantially greater financial and other resources than the Company. Emerging
companies also provide significant competition in this segment of the
semiconductor market. The Company believes that its ability to compete
successfully in this market depends on a number of factors, including, among
others, the price, quality and performance of the Company's and its competitors'
products, the timing and success of new product introductions by the Company,
its customers and its competitors, the emergence of new standards, the
development of technical innovations, the ability to obtain adequate
manufacturing capacity, the efficiency of production, the rate at which the
Company's customers design the Company's products into their products, the
number and nature of the Company's competitors in a given market, the assertion
of the Company's and its competitors' intellectual property rights and general
market and economic conditions.
The Company's competitors in this market include, among others, Cypress
Semiconductor, Dallas Semiconductor, Galileo Technology, Integrated Device
Technology, Level One Communications, Lucent Technologies, MMC Networks,
Rockwell International, Siemens, Texas Instruments, and Transwitch. The number
of competitors in this market and the technology platforms on which their
products will compete may change in the future. It is likely that over the next
few years additional competitors will enter the market with new products. These
new competitors may have substantially greater financial and other resources
than the Company. Competition among manufacturers of semiconductors like the
Company's products typically occurs at the design stage, where the customer
evaluates alternative design approaches that require integrated circuits.
Because of shortened product life cycles and design-in cycles in certain of the
Company's customers products, the Company's competitors have increasingly
frequent opportunities to achieve design wins in next generation systems. Any
success by the Company's competitors in supplanting the Company's products would
have a material adverse effect on the Company.
Historically, average selling prices ("ASPs") in the semiconductor industry have
decreased over the life of the particular product. The willingness of
prospective customers to design the Company's products into their products
depends to a significant extent upon the ability of the Company to price its
products at a level that is cost effective for such customers. If the Company is
unable to reduce its costs sufficiently to offset declines in ASPs or is unable
to introduce new higher performance products with higher ASPs, the Company would
be materially and adversely affected. Any yield or other production problems,
shortages of supply that increase the Company's manufacturing costs, or failure
to reduce manufacturing costs, would have a material adverse effect on the
Company.
ACCESS TO WAFER FABRICATION AND OTHER MANUFACTURING CAPACITY
The Company does not own or operate a wafer fabrication facility, and all of its
semiconductor device requirements are supplied by outside foundries.
Substantially all of the Company's semiconductor products are currently
manufactured by third party foundry suppliers. The Company's foundry suppliers
fabricate products for other companies and produce products of their own design.
The Company's reliance on independent foundries involves a number of risks,
including the absence of adequate capacity, the unavailability of or
interruptions in access to certain process technologies and reduced control over
delivery schedules, manufacturing yields and costs. In the event that these
foundries are unable or unwilling to continue to manufacture the Company's
products in required volumes, the Company will have to identify and qualify
acceptable additional or alternative foundries. This qualification process could
take six months or longer. No assurance can be given that any such source would
become available to the Company or that any such source would be in a position
to satisfy the Company's production requirements on a timely basis, if at all.
Any significant interruption in the supply of semiconductors to the Company
would result in the allocation of products to customers, which in turn could
have a material adverse effect on the Company.
All of the Company's semiconductor products are assembled by sub-assemblers in
Asia. Shortages of raw materials, political and social instability, disruptions
in the provision of services by the Company's assembly houses or other
circumstances that would require the Company to seek additional or alternative
sources of supply or assembly could lead to supply constraints or delays in the
delivery of the Company's products. Such constraints or delays may result in the
loss of customers or other adverse effects on the Company. The Company's
reliance on independent assembly houses involves a number of other risks,
including reduced control over delivery schedules, quality assurances and costs,
the possible discontinuance of such contractors' assembly processes and
fluctuations of regional economies. Any supply or other problems resulting from
such risks would have a material adverse effect on the Company.
<PAGE>
CUSTOMER CONCENTRATION
The Company has no long-term volume purchase commitments from any of its major
customers. The Company has only one customer that accounted for more than 10% of
its 1997 revenues, but depends on a limited number of customers for a major
portion of its revenues.
The reduction, delay or cancellation of orders from one or more significant
customers could have a material and adverse affect on the Company. Due to the
relatively short product life cycles in the telecommunications and data
communications markets, the Company would be materially and adversely affected
if one or more of its significant customers were to select devices manufactured
by one of the Company's competitors for inclusion in future product generations.
There can be no assurance that the Company's current customers will continue to
place orders with the Company, that orders by existing customers will continue
at the levels of previous periods, or that the Company will be able to obtain
orders from new customers. Loss of one or more of the Company's current
customers or a disruption in the Company's sales and distribution channels could
have a material and adverse affect on the Company.
INTERNATIONAL OPERATIONS
In fiscal years 1997, 1996 and 1995, international sales accounted for
approximately 30%, 53% and 39% of the Company's net revenues, respectively. The
Company's networking products must accommodate numerous worldwide communications
standards and sales to US based customers are often for products that they in
turn export worldwide. The Company expects that international sales will
continue to represent a significant portion of the Company's and its customers'
net revenues for the foreseeable future. The majority of the Company's
development, test, marketing and administrative functions occur in Canada. In
addition, substantially all of the Company's products are manufactured,
assembled and tested by independent third parties in Asia. Due to its reliance
on international sales and operations, the Company is subject to the risks of
conducting business outside of the United States. These risks include unexpected
changes in, or impositions of, legislative or regulatory requirements and policy
changes affecting the telecommunications and data communications markets, delays
resulting from difficulty in obtaining export licenses for certain technology,
tariffs, quotas, exchange rates and other trade barriers and restrictions,
longer payment cycles, greater difficulty in accounts receivable collection,
potentially adverse taxes, the burdens of complying with a variety of foreign
laws and other factors beyond the Company's control. The Company is also subject
to general geopolitical risks in connection with its international operations,
such as political, social and economic instability, potential hostilities and
changes in diplomatic and trade relationships. Sales of the Company's networking
products are denominated in U.S. dollars as are costs related to the manufacture
and assembly of products by the Company's Asian suppliers. Costs related to the
majority of the Company's development, test, marketing and administrative
functions are denominated in Canadian dollars. Selling costs are denominated in
a variety of currencies. As a result, the Company is subject to the risks of
currency fluctuations. There can be no assurance that one or more of the
foregoing factors will not have a material adverse effect on the Company.
<PAGE>
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon the continued
services of its key technical personnel, particularly those highly skilled at
the design and test functions involved in the development of high speed
networking products and related software. The competition for such employees is
intense. The Company has no employment agreements in place with these key
personnel. However, the Company from time to time issues shares of Common Stock
or options to purchase Common Stock of the Company subject to vesting. To the
extent shares purchased from or options granted by the Company have economic
value, these securities could create retention incentives. The loss of the
services of one or more of these key personnel, and any difficulties the Company
may experience in hiring qualified replacements, would have a material and
adverse affect on the Company.
PATENTS AND PROPRIETARY RIGHTS
The Company's ability to compete is affected by its ability to protect its
proprietary information. The Company relies on a combination of patents,
trademarks, copyrights, trade secret laws, confidentiality procedures and
licensing arrangements to protect its intellectual property rights. The Company
currently holds several patents and has a number of pending patent applications.
There can be no assurance that patents will be issued from any of the Company's
pending applications or that any claims allowed will be of sufficient scope or
strength, or be issued in all countries where the Company's products can be
sold, to provide meaningful protection or any commercial advantage to the
Company. In addition, competitors of the Company may be able to design around
the Company's patents. The laws of certain foreign countries in which the
Company's products are or may be developed, manufactured or sold, including
various countries in Asia, may not protect the Company's products or
intellectual property rights to the same extent as do the laws of the United
States and thus make the possibility of piracy of the Company's technology and
products more likely. There can be no assurance that the steps taken by the
Company to protect its proprietary information will be adequate to prevent
misappropriation of its technology or that the Company's competitors will not
independently develop technologies that are substantially equivalent or superior
to the Company's technology.
The semiconductor industry is characterized by vigorous protection and pursuit
of intellectual property rights or positions, which have resulted in significant
and often protracted and expensive litigation. The Company or its customers or
foundries have in the past, and may from time to time in the future, be notified
of claims that the Company may be infringing patents or other intellectual
property rights owned by third parties. If it is necessary or desirable, the
Company may seek licenses under patents or intellectual property rights. There
can be no assurance that licenses will be available or that the terms of any
offered license will be acceptable to the Company. Failure to obtain a license
from a third party for technology used by the Company could cause the Company to
incur substantial liabilities and to suspend the manufacture of products or the
use by the Company's foundry suppliers requiring the technology. In the past,
the Company's customers have been required to obtain licenses from and pay
royalties to third parties for the sale of systems incorporating the Company's
semiconductor devices. If this occurs in the future, the customers' businesses
may be materially and adversely affected, which in turn would have a material
and adverse affect on the Company. The Company has provided its customers with
indemnity up to the dollar amount of their purchases of any Company products
<PAGE>
found to be infringing on technology owned by third parties. Although the
Company discontinued the practice of indemnifying its customers in December of
1997, third party or customer claims may still be made against the Company with
respect to the infringement of the technology of third parties. Furthermore, the
Company may initiate claims or litigation against third parties for infringement
of the Company's proprietary rights or to establish the validity of the
Company's proprietary rights. Litigation by or against the Company could result
in significant expense to the Company and divert the efforts of the Company's
technical and management personnel, whether or not such litigation results in a
favorable determination for the Company. In the event of an adverse result in
any such litigation, the Company could be required to pay substantial damages,
cease the manufacture, use and sale of infringing products, spend significant
resources to develop non-infringing technology, discontinue the use of certain
processes or obtain licenses to the infringing technology. There can be no
assurance that the Company would be successful in such development or that such
licenses would be available on reasonable terms, or at all, and any such
development or license could require expenditures by the Company of substantial
time and other resources. Patent disputes in the semiconductor industry have
often been settled through cross-licensing arrangements. Because the Company
currently does not have a substantial portfolio of patents, the Company may not
be able to settle an alleged patent infringement claim through a cross-licensing
arrangement. Any successful third party claim against the Company or its
customers for patent or intellectual property infringement could have a material
adverse effect on the Company.
ACQUISITIONS
The Company's strategy may involve, in part, acquisitions of products,
technologies or businesses from third parties. Identifying and negotiating these
acquisitions may divert substantial management time away from the Company's
operations. An acquisition could absorb substantial cash resources, could
require the Company to incur or assume debt obligations, or could involve the
issuance of additional equity securities of the Company. The issuance of
additional equity securities could dilute, and could represent an interest
senior to the rights of, then outstanding PMC common stock. An acquisition which
is accounted for as a purchase, like the acquisition of the networking business
in 1994, the acquisition of certain assets of Bipolar Integrated Technology,
("Bit") in September 1996, and the recent acquisition of Integrated Telecom
Technology, Inc. could involve significant one-time write-offs, and could
involve the amortization of goodwill over a number of years, which would
adversely affect earnings in those years. Any acquisition will require attention
from the Company's management to integrate the acquired entity into the
Company's operations, may require the Company to develop expertise outside its
existing businesses and may result in departures of management of the acquired
entity. An acquired entity may have unknown liabilities, and its business may
not achieve the results anticipated at the time of the acquisition.
FUTURE CAPITAL NEEDS
The Company must continue to make significant investments in research and
development as well as capital equipment and expansion of facilities for
networking products. The Company's future capital requirements will depend on
many factors, including, among others, product development, investments in
working capital, and acquisitions of complementary businesses, products or
technologies. To the extent that existing resources and future earnings are
insufficient to fund the Company's operations, the Company may need to raise
additional funds through public or private debt or equity financings. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of current stockholders will be reduced and such equity
securities may have rights, preferences or privileges senior to those of the
holders of the Company's Common Stock. No assurance can be given that additional
financing will be available or that, if available, it can be obtained on terms
favorable to the Company and its stockholders. If adequate funds are not
available, the Company may be required to delay, limit or eliminate some or all
of its proposed operations, which could have a material adverse effect on the
Company.
<PAGE>
VOLATILITY OF STOCK PRICE
Factors such as announcements of the introduction of new products by the Company
or its competitors, quarterly fluctuations in the Company's financial results or
the financial results of other semiconductor companies or of companies in the
networking or personal computer industry, general conditions in the
semiconductor industry and conditions in the worldwide financial markets have,
in the past, caused the price of the Company's Common Stock to fluctuate
substantially, and may do so in the future. In addition, increases in the
Company's stock price and expansion of its price-to-earnings multiple may have
made it attractive to so-called momentum investors. Momentum investors are
generally thought to shift funds into and out of stocks rapidly, exacerbating
price fluctuations in either direction. The price of the Company's stock may
also be impacted by investor sentiment toward technology stocks, in general,
which often is unrelated to the operating performance of a specific company.
YEAR 2000 COMPUTER SYSTEMS ISSUES
The Company is aware of the issues associated with the limitations of the
programming code in many existing computer systems, whereby the computer systems
may not properly recognize date sensitive information as the next millennium
(year 2000) approaches. Systems that do not properly recognize such information
could generate erroneous data or cause a system to fail, resulting in
disruptions of the Company's operations. The Company has identified all
significant applications that will require modification to ensure year 2000
compliance. The Company uses commercially available standard software for its
critical operating and financial applications. One vendor of critical software
used by the Company has provided a program update, which is intended to rectify
the year 2000 issues related to this software. This update was installed in the
second quarter of 1998. Updates for the Company's other non-critical software
are available at the current time and, if new versions of the software are not
already purchased, are planned for installation in 1999. If the Company's
vendors' updates do not successfully rectify the year 2000 issues related to
their software, the Company could be forced to purchase a competing system that
is year 2000 compliant and incur installation and other costs in order to
mitigate the Year 2000 Issue. The installation of a replacement system for those
applications that are currently not year 2000 compliant is not anticipated to be
material to the Company's financial position or results of operations in any
given year. In the event that the current systems need to be entirely replaced,
the Company estimates that it would cost approximately $2 million to acquire and
implement new systems. Any new systems would be capitalized and subsequently
depreciated.
The Company's suppliers and customers are generally much larger organizations
than the Company with a greater number of suppliers and customers of their own.
The Company believes that many of its suppliers and customers have not completed
their own systems modification to be year 2000 compliant. The company has
received written communication from its critical suppliers that they have
developed an action plan to address the issues related to the year 2000. The
failure of significant suppliers or customers of the Company to become year 2000
compliant could have a material effect on the Company. Those consequences could
include the inability to receive product in a timely manner or lost sales
opportunities either of which could result in a material decline in the
Company's revenues and profits.
<PAGE>
PART II - OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On May 20, 1998 the Company issued 414,635 shares of its Common Stock to
stockholders of Integrated Telecom Technology, Inc. ("IGT") in connection with
the acquisition of IGT by the Company. The total consideration paid for the
acquisition of IGT was approximately $55 million, comprised of the shares
issued, cash payments and options to purchase 214,414 shares of the Company's
Common Stock that were issued to option holders of IGT and registered on a
registration statement on Form S-8.
The issuance of the shares was made as a non-public offering in reliance on the
exemption from registration under Section 4(2) of the Securities Act. The shares
were offered (without public solicitation) and issued to a limited number of
purchasers who represented their intention to acquire the shares for investment
only and not with a view to the distribution thereof. Appropriate legends were
affixed to the stock certificates. All the purchasers received, or had access
to, adequate information about the Company. On June 3, 1998 the Company filed a
registration statement on Form S-3 covering the resale of the shares, which was
later declared effective by the SEC.
Item 4. SUBMISSION OF MATTERS TO A VOTE BY STOCKHOLDERS
The Annual Meeting of Shareholders of PMC-Sierra, Inc. was held on May 27, 1998
for the purposes of electing directors of the Company, approving an amendment to
the Company's 1994 Incentive Stock Plan to increase the number of shares of
Common Stock reserved for issuance by 1,100,000 shares, approving an amendment
to the Company's 1991 Employee Stock Purchase Plan to increase the number of
shares of Common Stock reserved for issuance by 250,000 shares, approving an
amendment to the Company's 1994 Incentive Stock Plan to increase the number of
shares of Common Stock reserved for issuance on January 1 of each year
(beginning January 1, 1999) by the lesser of (i) 4% of the outstanding shares on
such date, (ii) 2,000,000 shares, or (iii) an amount determined by the Board of
Directors, approving an amendment to the Company's 1991 Employee Stock Purchase
Pan to increase the number of shares of Common Stock reserved for issuance on
January 1 of each year (beginning January 1, 1999) by the lesser of (i) 1% of
the outstanding shares on such date, (ii) 500,000 shares, or (iii) an amount
determined by the Board of Directors, approving an amendment to the Company's
Certificate of Incorporation to increase the authorized number of shares of
Common Stock by 50,000,000 shares to a total of 100,000,000 shares, and to
ratify the appointment of Deloitte & Touche LLP as the Company's independent
auditors for the 1998 fiscal year.
All nominees for directors were elected, both amendments to the Company's 1994
Incentive Stock Plan were approved, both amendments to the Company's 1991
Employee Stock Purchase Plan were approved, the amendment to the Company's
Certificate of Incorporation was approved, the appointment of Deloitte & Touche
LLP as the Company's independent auditors for the 1998 fiscal year was ratified.
The voting on each matter is set forth below:
To elect Directors of the Company to serve for the ensuing year and until the
next Annual meeting or the Election of their successors.
Nominee: For Withheld
- -------- --- --------
Robert L. Bailey 27,309,539 207,874
Alexandre Balkanski 27,306,059 207,874
Colin Beaumont 27,306,425 207,874
James V. Diller 27,296,448 207,874
Frank L. Marshall 27,308,622 207,874
Proposal to approve an amendment to the Company's 1994 Incentive Stock Plan
("Stock Plan") to increase the number of shares of Common Stock reserved for
issuance by 1,100,000 shares.
For Against Abstain Broker non-vote
- --- ------- ------- ---------------
13,731,099 9,697,435 38,895 4,046,698
<PAGE>
Proposal to approve an amendment to the company's 1991 Employee Stock Purchase
Plan ("ESPP") to increase the number of shares of Common Stock reserved for
issuance by 250,000 shares.
For Against Abstain Broker non-vote
- --- ------- ------- ---------------
22,775,442 212,906 479,081 4,046,698
Proposal to approve an annual increase to the Stock Plan (beginning January 1,
1999) by the lesser of 4% of the outstanding shares, 2,000,000 shares or as
determined by the Board.
For Against Abstain Broker non-vote
- --- ------- ------- ---------------
13,936,832 9,368,447 54,872 4,153,976
Proposal to approve an annual increase to the ESPP (beginning January 1, 1999)
by the lesser of 1% of the outstanding shares, 500,000 shares or as determined
by the Board.
For Against Abstain Broker non-vote
- --- ------- ------- ---------------
20,436,236 2,542,029 489,164 4,046,698
Proposal to approve an amendment to the Company's Certificate of Incorporation
to increase the number of authorized shares of Common Stock by 50,000,000 shares
to a total of 100,000,000 shares.
For Against Abstain Broker non-vote
- --- ------- ------- ---------------
25,607,352 1,320,392 479,105 107,278
Proposal to ratify the appointment of Deloitte & Touche LLP as the Company's
independent auditors for the 1998 fiscal year.
For Against Abstain Broker non-vote
- --- ------- ------- ---------------
27,039,636 10,964 463,527 0
<PAGE>
Item 5. OTHER INFORMATION - DESCRIPTION OF CAPITAL STOCK
DESCRIPTION OF CAPITAL STOCK
----------------------------
The authorized capital stock of the Company consists of 100,000,000 shares of
Common Stock, par value $0.001, and 5,000,000 shares of Preferred Stock, par
value $0.001.
The following summary of certain provisions of the Common Stock and Preferred
Stock does not purport to be complete though the Company believes it contains
all the material provisions, and is subject to, and qualified in its entirety
by, the provisions of the Company's Certificate of Incorporation and by the
provisions of applicable law.
Common Stock
- ------------
The Company's Common Stock is registered under Section 12(g) of the Exchange
Act. Subject to preferences that may be applicable to any outstanding Preferred
Stock which may be issued in the future, the holders of Common Stock are
entitled to receive ratably such non-cumulative dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. The Common Stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
available to the Common Stock. The holders of Common Stock are entitled to one
vote per share on all matters to be voted upon by the stockholders, except that
stockholders may, in accordance with Section 214 of the Delaware General
Corporation Law, cumulate their votes in the election of directors. In the event
of liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to liquidation preferences, if any, of Preferred Stock
which may be issued in the future. All outstanding shares of Common Stock are
fully paid and non-assessable.
Preferred Stock
- ---------------
Pursuant to the Company's Certificate of Incorporation, the Board of Directors
of the Company has the authority to issue up to 5,000,000 shares of Preferred
Stock in one or more series, to fix the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued series of Preferred
Stock, and to fix the number of shares constituting any series and the
designations of such series, without any further vote or action by the
stockholders. Such issued Preferred Stock could adversely effect the voting
power and other rights of the holders of Common Stock. The issuance of Preferred
Stock may also have the effect of delaying, deferring or preventing a change in
control of the Company. At present, there are no outstanding shares of Preferred
Stock.
Rights of Holders of Special Shares of PMC-Sierra, Ltd.
- -------------------------------------------------------
The Special Shares of PMC-Sierra, Ltd. are redeemable for Common Stock of the
Company. Special Shares do not have voting rights in the Company, but in all
other respects they represent the economic and functional equivalent of the
Common Stock of the Company for which they can be redeemed. Under applicable
law, each class of Special Shares will have class voting rights in certain
circumstances with respect to transactions that affect the rights of the class
and for certain extraordinary corporate transactions. Two kinds of Special
Shares are outstanding: A Special Shares and B Special Shares.
<PAGE>
Delaware Law
- ------------
Section 203 of the Delaware General Corporation Law, from which the Company has
not opted out in its Certificate of Incorporation, restricts certain "business
combinations" with "interested stockholders" for three years following the date
that a person or entity becomes an interested stockholder, unless the Company's
Board of Directors approves the business combination and/or certain other
requirements are met.
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
- 3.1C Certificate of Amendment to Certificate of Incorporation
of PMC-Sierra, Inc. filed on June 4, 1998.
- 10.23 Revolving Operating Line of Credit Agreement between
PMC-Sierra, Inc. and CIBC Inc. dated 21st day of May
1998.
- 10.24 Revolving Operating Line of Credit Agreement between
PMC-Sierra, Ltd. and CIBC dated 21st day of May, 1998
- 10.25 Pledge Agreement between PMC-Sierra, Inc. and CIBC Inc.
with respect to shares of PMC-Sierra Ltd. dated 11th day
of March, 1998.
- 10.26 Pledge Agreement between PMC-Sierra, Inc and CIBC, Inc.
with respect to shares of PMC-Sierra International Inc.
dated 27th day of April, 1998.
- 10.27 Guarantee Agreement between PMC-Sierra, Inc. and CIBC
dated 27th day of April, 1998.
- 10.28 1998 PMC-Sierra (Maryland), Inc. Stock Option Plan
- 11.1 Calculation of earnings per share
- 27 Financial Data Schedule
(b) Reports on Form 8-K -
- A Current Report on Form 8-K was filed on April 20, 1998 to
disclose the Company's signing of a definitive agreement dated
April 15, 1998 to purchase Integrated Telecom Technology, Inc.
- A Current Report on Form 8-K was filed on June 3, 1998 to
disclose the Company's completion of the purchase of
Integrated Telecom Technology, Inc. ("IGT"), together with
audited balance sheets of IGT as of December 31, 1996 and
December 31, 1997 and audited statements of operations,
stockholders' deficiency and cash flows for the years ended
December 31, 1996 and December 31, 1997.
- An amended Current Report on Form 8-K was filed on June 22,
1998 to file the unaudited balance sheet of IGT as of March 31
1998, the unaudited statements of operations and cash flows
for the 3 months ended March 31 1998 and March 31, 1997, the
unaudited combined balance sheet of the Company and IGT as of
March 31, 1998 and the unaudited pro forma combined statements
of operations for the 3 months ended March 31, 1998 and for
the year ended December 31, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PMC-SIERRA, INC.
(Registrant)
Date: August 12, 1998 /S/ JOHN W. SULLIVAN
--------------- ------------------------------
John W. Sullivan
Vice President, Finance
Chief Financial Officer
(Principal Accounting Officer)
CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF INCORPORATION OF
PMC-SIERRA, INC.
PMC-Sierra, Inc., a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), hereby certifies that:
1. The name of the Corporation is PMC-Sierra, Inc. The Corporation was
originally incorporated under the same name, and the original Certificate of
Incorporation was filed with the Secretary of State of the State of Delaware on
May 2, 1997.
2. The first paragraph of Article IV of the Certificate of
Incorporation of the Corporation shall be amended to read as follows:
"This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The Corporation
is authorized to issue a total of 105,000,000 shares. 100,000,000 shares shall
be Common Stock, par value $0.001, and 5,000,000 shares shall be Preferred
Stock, par value $0.001."
3. This Certificate of Amendment of the Corporation's Amended
Certificate of Incorporation has been duly adopted by the Corporation's board of
directors in accordance with Section 242 of the General Corporation Law of
Delaware.
4. This Certificate of Amendment of the Corporation's Amended
Certificate of Incorporation has been duly approved by the holders of a majority
of each class of outstanding stock of the Corporation entitled to vote thereon
in accordance with Sections 242 of the General Corporation Law of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to Certificate of Incorporation to be signed by Robert L. Bailey, its
President, on this 28th day of May, 1998.
PMC-SIERRA, INC.
By: /s/ Robert L. Bailey
---------------------------
Robert L. Bailey, President
CIBC INC.
425 Lexington Avenue
New York, NY 10017
Tel: 212-856-4000
CIBC Oppenheimer
May 21, 1998
PMC - Sierra, Inc.
105 - 8555 Baxter Place
Burnaby, B.C.
V5A 4V7
Attention: Mr. John Sullivan
Dear Sirs:
We, CIBC Inc., are pleased to establish the following credit for you, our
customer.
Committed Operating Line
Credit Limit: U.S. $15,000,000, less the U.S. equivalent of the
principal amount at the time of the liabilities of
PMC-Sierra Ltd., a Canadian corporation, ("PMC Ltd.")
in connection with its operating line facility pursuant
to the credit agreement issued by Canadian Imperial
Bank of Commerce ("CIBC") on or about the date hereof,
as amended and replaced from time to time, (the "CIBC
Credit Agreement").
Availability: May be availed by you by way of U.S. alternate base
rate loans, and/or LIBOR Loans and/or financial standby
letters of credit. Availments by way of U.S. alternate
base rate loans and/or LIBOR Loans will be limited to
minimum draws of $1,000,000.
Description and Rate: A revolving committed credit, for general business
purposes, having the following parts:
(1) U.S.alternate base rate loans. The Interest Rate
is as follows: U.S. Alternate Base Rate plus 0%
per year.
(2) U.S. dollar LIBOR loans. The Interest Rate is as
follows: LIBO Rate plus 1.0% per year.
(3) Financial standby letters of credit. The fees are
equal to 1% of the principal amount of the L/C,
plus out of pocket expenses.
<PAGE>
Letters of Credit: L/Cs may not have terms to expiry of more than 12
months or beyond the committed term of this Credit. Our
standard L/C documentation is also required. If we
issue an L/C, the available Credit Limit will be
reduced by 100% of the face amount of the L/C. If there
is a drawing under any L/C, you will forthwith upon
demand pay us the amount(s) drawn under the L/C. If you
do not pay us the amount demanded interest will accrue
on the amount drawn under the L/C at the Default
Interest Rate until the amount drawn under the L/C is
paid in full, unless you have made other arrangements
with us.
Repayment/Termination: Repayments of U.S. alternate base rate loans and/or
LIBOR Loans must be in minimum amounts of $1,000,000
or, if less, the then outstanding amount thereof.
This Credit will expire two years after the date of
this Agreement, except CIBC Inc. may from time to time
renew its commitment by an additional year; provided
that this Credit must be repaid in full immediately
upon, and further availments will cease to be available
upon, the earlier of the expiry of the committed term
of this Credit, the occurrence of an Event of Default,
or there having occurred (in our reasonable opinion) a
change in effective control of your company or PMC Ltd.
with respect to the power to elect the majority of the
Board of Directors of your company or PMC Ltd. ("Change
of Control").
<PAGE>
Standby Fee: A standby fee of 30 basis points per year, payable
monthly in arrears, will apply to the unused portion of
this Credit.
Security
Security: The following security is required:
Hypothecation: A pledge from you, hypothecating 65% of the issued and
outstanding voting shares in the capital of PMC Ltd.
and 65% of the issued and outstanding shares in the
capital of PMC - Sierra International, Inc.
Covenants
Financial Covenants: You will ensure that the following financial
covenants/requirements, tested at the end of each of
your fiscal quarters, are satisfied on the basis of
your consolidated financial statements:
<PAGE>
Quick Ratio: The Quick Ratio (cash or equivalents plus
accounts receivable plus the unused portion of this
Credit, divided by current liabilities) must not be
less than 0.8:1.
Debt to Effective Equity Ratio: The Debt to Effective
Equity Ratio (using the following definitions) must not
exceed 2:1.
Debt is defined as all debts and liabilities (whether
absolute or contingent, and including all lease
obligations which would be required to be disclosed on
your consolidated financial statements) excluding
deferred income taxes and excluding debt subordinated
and postponed to CIBC Inc. and CIBC (provided that all
the terms of which are satisfactory to such lenders).
Effective Equity is defined as the aggregate of:
(a) amounts paid up on issued and outstanding shares
of all classes;
(b) retained earnings;
(c) contributed surplus;
(d) debt subordinated and postponed to CIBC Inc. and
CIBC (provided that all the terms of which are
satisfactory to such lenders) to the prior
repayment and satisfaction of all debts and
liabilities pursuant to this Agreement, the CIBC
Credit Agreement and your guarantee thereunder;
plus
(e) Special Shares of PMC Ltd convertible into your
common stock;
minus all intangibles including, but not limited to
goodwill, copyrights, patents, trademarks, licences,
research and development costs, and deferred
development costs; provided that for the purposes of
this ratio, equity investments in non-affiliated
companies will not be treated as intangibles so long as
the combined total of all such investments does not
exceed $20,000,000 (or any higher amount agreed to in
this regard by us in writing).
Profitability: An operating loss must not be incurred
in two consecutive fiscal quarters.
Capital Expenditures (excluding acquisitions): Total
capital expenditures, excluding acquisitions permitted
below under "Restriction on Acquisitions", must not
exceed $16,000,000 in fiscal 1997, $20,000,000 in
fiscal 1998, and $25,000,000 in fiscal 1999 without our
prior written consent (which consent will not be
unreasonably withheld).
<PAGE>
Other Covenants: Restriction on Acquisitions: Neither you nor any of
your subsidiaries will make any material acquisitions
without our prior written consent, except, provided no
Event of Default exists nor will result from the
proposed acquisition during the fiscal quarter
immediately succeeding the fiscal quarter within which
the acquisition was made (calculated on the basis of
your financial statements on a consolidated basis
submitted for your fiscal quarter immediately preceding
the date of the acquisition), and provided there has
not been a Change of Control of your company or PMC
Ltd:
(a) you, or any of your subsidiaries, may make an
acquisition without our prior written consent if the
purchase price in respect of the proposed acquisition
does not exceed the Applicable Limit referred to below;
and
(b) if the purchase price in respect of the proposed
acquisition exceeds the Applicable Limit referred to
below, you, or any of your subsidiaries, may
nevertheless make the proposed acquisition if you first
provide proforma financial statements to us which take
into account the effect of the proposed acquisition and
all debt incurred or assumed in connection therewith,
and which demonstrate compliance with all financial
covenants/requirements set forth herein, both before
and after the proposed acquisition.
For the purposes hereof, the "Applicable Limit" means
$40,000,000 unless your Debt to Effective Equity Ratio
on a consolidated basis (exclusive of the acquisition)
exceeds 1:1, in which case the "Applicable Limit" means
$20,000,000.
Restriction on Divestments: Neither you nor any of your
subsidiaries will make any material business
divestment, other than for cash, without our prior
written consent. The cash proceeds from the material
divestment will be used in the first instance to retire
any outstanding borrowings/indebtedness under the
credit facilities established hereunder which, however,
may be readvanced or incurred subject to your continued
compliance with all of the terms and conditions of the
credit facilities provided for hereunder.
Restriction on Cash Dividends: You will not issue any
cash dividends without our prior written consent.
<PAGE>
Negative Pledge: Neither you nor any of your
subsidiaries will create or allow any Lien on any of
your/their present or future assets, nor will you/they
assign any right to any income, without our prior
written consent, except you/they are permitted to enter
into lease commitments or Purchase Money Liens on
normal commercial terms, in the ordinary course of
business up to $10,000,000 in each fiscal year,
provided no Event of Default exists nor will the
proposed transaction give rise to an Event of Default,
and provided there has not been a Change of Control of
your company or PMC Ltd.
Reporting Requirements: (1) Within 30 days of each quarter end, you will
provide us with a consolidated aged list of trade
accounts receivable, as of that quarter-end.
(2) Within 60 days of the end of each of the first,
second and third quarters, you will provide us with a
copy of your Form 10-Q, as of each quarter-end.
(3) Within 120 days of each fiscal year-end, you will
provide us with a copy of your Form 10-K as of that
year-end, which is to include a copy of your audited
consolidated year-end financial statements.
Other Provisions
Indemnity re Reserves,
Capital Adequacy, Etc. If the introduction or implementation of or any change
in or in the interpretation of, or any change in its
application to us of, any law or any regulation or
guideline issued by any central bank or other
governmental authority (whether or not having the force
of law), including without limitation any reserve or
special deposit requirement or any tax (other than tax
on our general income) or any capital requirement, has
(due to our compliance) the effect, directly or
indirectly, of (i) increasing the cost to us of
performing our obligations hereunder or under any L/C;
(ii) reducing any amount received or receivable by us
hereunder or our effective return hereunder or on our
capital; or (iii) causing us to make any payment or to
forgo any return based on any amount received or
receivable by us hereunder or in respect of any L/C;
then upon demand from time to time you will pay such
amount as shall compensate us for any such cost,
reduction, payment or forgone return. You will further
indemnify us for all out-of-pocket costs, losses and
expenses incurred by us in connection with any L/C and
agree that we will have no liability to you for any
reason in respect of any availment other than on
account of our gross negligence or wilful misconduct.
Any certificate of CIBC Inc. in respect of the
foregoing will be conclusive and binding upon you,
except for manifest error, provided that we shall
determine the amounts owing to us in good faith using
any reasonable averaging and attribution methods.
<PAGE>
Obligations re L/Cs if
Credit Terminated: You will pay to us on demand all of our contingent
liability in respect of (i) any L/C outstanding upon
any termination of this Credit and (ii) any L/C which
is the subject matter of any order, judgment,
injunction or other such determination restricting
payment by us under and in accordance with such L/C or
extending our liability under such L/C beyond the
expiration date stated therein (an "Order"). We agree
that we will, with respect to each such L/C, upon the
later of:
(a) the earlier of: (i) the date on which either the
orginal counterpart of such L/C is returned to us
for cancellation or we are released by the
beneficiary from any further obligations in
respect of such L/C; and, (ii) the expiry of such
L/C; and
(b) the date on which any final order, judgment or
other such determination has been rendered or
issued either terminating the applicable Order,
or permanently enjoining us from paying under
such L/C;
pay to you an amount equal to any excess of the amount
received by us hereunder in respect of our contingent
liability under such L/C (the "Received Amount") over
the total of amounts applied to reimburse us for
amounts paid by us under such L/C (CIBC Inc. having the
right to so appropriate such funds), together with an
additional amount computed by applying to the amount of
such excess from time to time a per annum rate equal to
3% per year less than the U.S. Alternate Base Rate.
Such additional amount shall be calculated daily on the
basis of a calendar year for the actual number of days
elapsed from and including the date of payment to us of
the Received Amount to (but not including) the date of
return to you of the excess.
Default Interest Rate: Currently 21% per year.
Next Scheduled Review
Date: May 31, 1999. Such that CIBC Inc. may renew its
commitment by an additional one year on mutually
agreeable terms.
Termination of Agreement
by Borrower: This Agreement may be terminated by you at any time
upon written notice to CIBC Inc. and upon payment and
satisfaction of all of your debts and liabilities,
absolute and contingent, to CIBC Inc. and CIBC.
Standard Credit Terms: The attached Schedule - Standard Credit Terms
(including the revisions indicated thereon in
bold-faced or struck-out text) forms part of this
Agreement.
Expenses and Costs: All reasonable out of pocket expenses incurred by us
(excluding any syndication or participation expenses)
will be for your account.
Amendment: This Agreement may only be amended by a document
executed by the party against whom enforcement of the
amendment is sought.
<PAGE>
Assignment: You may not assign this Agreement. We may assign or
grant participation in our rights and obligations
hereunder, with each such assignee or participant being
entitled to rely on all indemnities contained herein.
Governing Law: This agreement will be construed in accordance with the
laws of the State of New York.
Set-Off: Upon the occurrence of an Event of Default and so long
as the Event of Default exists, we may at any time and
from time to time, without notice to you (any such
notice being expressly waived), set-off and apply any
and all deposits (general or special) and any other
indebtedness at any time held by or owing by us to you
or for your credit or your account, against and on
account of any or all of your debts and liabilities to
us hereunder, whether or not then due, whether absolute
or contingent, and irrespective of the currency(ies) in
question.
Entire Agreement: In accordance with the scheduled review date set out in
the Credit Agreement dated March 11, 1998 issued by
CIBC Inc. to you the "Previous Credit Agreement", this
Agreement extends the Previous Credit Agreement and
restates the terms thereof as set out above. There are
no understandings, inducements, representations,
warranties, collateral agreements or conditions
affecting or supported by this Agreement other than as
expressed in this Agreement.
Accounting Terms
and GAAP: All accounting terms not otherwise defined have the
meanings assigned to them in accordance with GAAP. In
this Agreement, "GAAP" means generally accepted
accounting principles from time to time applicable in
the United States of America and approved by the
Financial Accounting Standards Board or any successor
thereto, as applied on a basis consistent with the
financial statements of the preceding fiscal period,
except as disclosed therein or where the inconsistency
is immaterial.
Successors: In this Agreement, any reference to a corporate entity
includes and is also a reference to any corporate
entity that is a successor to such entity, whether
immediate or derivative.
Currency: Unless otherwise indicated all dollar amounts referred
to in this Agreement are in lawful money of the United
States of America.
<PAGE>
Waivers of Jury Trial: CIBC Inc. and PMC - Sierra, Inc. hereby irrevocably and
unconditionally waive trial by jury in any legal action
or proceeding relating to this Agreement or any other
loan document and for any counterclaim therein.
Please indicate your acceptance of these terms by returning a signed copy
of this Agreement. If we do not receive a signed copy by June 12, 1998, then
this offer will expire.
Upon acceptance, this Agreement extends the Previous Credit Agreements and
restates the terms thereof, as set out above. Outstanding amounts (and security)
under the Previous Credit Agreement will be covered by this Agreement.
Yours truly,
CIBC Inc.
by: /S/ Howard A.Palmer
Howard A. Palmer
Authorized Signatory
Phone no.: (212) 856-3504
Fax no.: (212) 856-3761
Acknowledgement: The undersigned certifies that all information provided
to CIBC Inc. is true, and acknowledges receipt of a copy of, and accepts the
terms of, this Agreement (including the attached Schedule - Standard Credit
Terms).
Accepted this 10th day of June, 1998.
PMC - Sierra, Inc.
By:/S/ John W. Sullivan
Name: John W. Sullivan
Title: VP Finance
<PAGE>
Schedule - Standard Credit
Article 1 - General
1.1 Interest Rate. You will pay interest on each Credit at nominal rates per
year equal to:
(a) for amounts above the Credit Limit of a Credit or a part of a Credit
or for amounts that are not paid when due, the Default Interest Rate,
and
(b) for any other amounts, the rate specified in this Agreement.
1.2 Variable interest. Each variable interest rate provided for under this
Agreement will change automatically, without notice, whenever the Prime Rate or
the U.S. Alternate Base Rate, as the case may be, changes.
1.3 Payment of interest. Interest is calculated on the daily balance of the
Credit at the end of each day. Interest is due once a month, unless the
Agreement states otherwise and you will pay the interest when it is due. Unless
you have made other arrangements with us regarding the payment of interest, we
will be charging interest on overdue interest (which is known as compounding).
Unpaid interest continues to compound whether or not we have demanded payment
from you or started a legal action, or get judgment, against you.
1.4 Default Interest. To determine whether Default Interest is to be charged,
the following rules apply:
(a) Default Interest will be charged on the amount that exceeds the Credit
Limit of any particular Credit.
(b) If there are several parts of a Credit, Default Interest will be
charged if the Credit Limit of a particular part is exceeded. For
example, if Credit A's limit is $250,000, and the limit of one part is
$100,000 and the limit of that part is exceeded by $25,000, Default
Interest will be charged on that $25,000 excess, even if the total
amount outstanding under Credit A is less than $250,000.
1.5 Fees. You will pay CIBC Inc.'s fees for each Credit as outlined in the
Letter. You will also reimburse us for all reasonable fees (including legal
fees) and out-of-pocket expenses incurred in registering any security, and in
enforcing our rights under this Agreement or any security. We will automatically
debit your Operating Account for fee amounts owing.
<PAGE>
1.6 Our rights re demand Credits. At CIBC Inc., we believe that the
banker-customer relationship is based on mutual trust and respect. It is
important for us to know all the relevant information (whether good or bad)
about your business. CIBC Inc. is itself a business. Managing risks and
monitoring our customers' ability to repay is critical to us. We can only
continue to lend when we feel that we are likely to be repaid. As a result, if
you do something that jeopardizes that relationship, or if we no longer feel
that you are likely to repay all amounts borrowed, we may have to act. We may
decide to act, for example, because of something you have done, information we
receive about your business, or changes to the economy that affect your
business. Some of the actions that we may decide to take include requiring you
to give us more financial information, negotiating a change in the interest rate
or fees, or asking you to get further accounting assistance, put more cash into
the business, provide more security, or produce a satisfactory business plan. It
is important to us that your business succeeds. We may, however, at our
discretion, demand immediate repayment of any outstanding amounts under any
demand Credit. We may also, at any time and for any cause, cancel the unused
portion of any demand Credit. Under normal circumstances, however, we will give
you 30 days' notice of any of these actions.
1.7 Payments. If any payment is due on a day other than a Business Day, then
the payment is due on the next Business Day.
1.8 Applying money received. If you have not made payments as required by this
Agreement, or if you have failed to satisfy any term of this Agreement (or any
other agreement you have that relates to this Agreement), or at any time before
default but after we have given you appropriate notice, we may decide how to
apply any money that we receive. This means that we may choose which Credit to
apply the money against, or what mix of principal, interest, fees and overdue
amounts within any Credit will be paid.
1.9 Information requirements. We may from time to time reasonably require you
to provide further information about your business. We may require information
from you to be in a form acceptable to us. We will use your information only in
connection with the credits and will keep it confidential unless required to be
disclosed by law or court order.
1.10 Insurance. You will keep all your business assets and property insured (to
the full insurable value) against loss or damage by fire and all other risks
usual for property such as yours (plus for any other risks we may reasonably
require). If we ask, you will give us either the policies themselves or adequate
evidence of their existence. If your insurance coverage for any reason stops, we
may (but do not have to) insure the property. We will automatically debit your
Operating Account for these amounts. Finally, you will notify us immediately of
any loss or damage to the property.
<PAGE>
1.11 Environmental. You will carry on your business, and maintain your assets
and property, in accordance with all applicable environmental laws and
regulations. If (a) there is any release, deposit, discharge or disposal of
pollutants of any sort (collectively, a "Discharge") in connection with either
your business or your property, and we pay any fines or for any clean-up, or (b)
we suffer any loss or damage as a result of any Discharge, you will reimburse
CIBC Inc., its directors, officers, employees and agents for any and all losses,
damages, fines, costs and other amounts (including amounts spent preparing any
necessary environmental assessment or other reports, or defending any lawsuits)
that result. If we ask, you will defend any lawsuits, investigations or
prosecutions brought against CIBC Inc. or any of its directors, officers,
employees and agents in connection with any Discharge. Your obligation to us
under this section continues even after all Credits have been repaid and this
Agreement has terminated.
1.12 Consent to release information. We may from time to time give any credit
information about you to, or receive such information from, (a) any financial
institution, credit reporting agency, rating agency or credit bureau, (b) any
person, firm or corporation with whom you may have or propose to have financial
dealings, and (c)any person, firm or corporation in connection with any
dealings you have or propose to have with us. You agree that we may use that
information to establish and maintain your relationship with us and to offer any
services as permitted by law, including services and products offered by our
subsidiaries when it is considered that this may be suitable to you.
1.13 Our pricing policy: Fees, interest rates and other charges for your
banking arrangements are dependent upon each other. If you decide to cancel any
of these arrangements, you will have to pay us any increased or added fees,
interest rates and charges we determine and notify you of. These increased or
added amounts are effective from the date of the changes that you make.
1.14 Proof of debt. This Agreement provides the proof, between CIBC Inc. and
you, of the credit made available to you. There may be times when the type of
Credit you have requires you to sign additional documents. Throughout the time
that we provide you credit under this Agreement, our loan accounting records
will provide complete proof of all terms and conditions of your credit (such as
principal loan balances, interest calculations, and payment dates).
<PAGE>
1.15 Renewals of this Agreement. This Agreement will remain in effect for your
Credits for as long as they remain unchanged. We have shown a Next Scheduled
Review Date in the Letter. If there are no changes to the Credits this Agreement
will continue to apply, and you will not need to sign anything further. If there
are any changes, we will provide you with either an amending agreement, or a new
replacement Letter, for you to sign.
1.16 Confidentiality: The terms of this Agreement are confidential between you
and CIBC Inc.. You therefore agree not to disclose the contents of this
Agreement to anyone except your professional advisors or (as required by law)
any regulatory or governmental body, including, without limitation, the United
States Securities and Exchange Commission.
1.17 Pre-conditions. You may use the Credits granted to you under this
Agreement only if:
(a) we have received properly signed copies of all documentation that we
may reasonably require and which we have provided to you in connection
with the operation of your accounts and your ability to borrow and
give security;
(b) all the required security has been received and registered to our
satisfaction;
(c) any special provisions or conditions set forth in the Letter have been
complied with; and (d) if applicable, you have given us the required
number of days notice for a drawing under a Credit.
1.18 Notices. We may give you any notice in person or by telephone, or by
letter that is sent either by fax or by mail.
1.19 Use of the Operating Line. You will use your Operating Line only for your
business operating cash needs. You are responsible for all debits from the
Operating Account that you have either initiated (such as cheques, loan
payments, pre-authorized debits, etc.) or authorized us to make. Payments are
made by making deposits to the Operating Account. You may not at any time exceed
the Credit Limit. We may, without notice to you, return any debit from the
Operating Account that, if paid, would result in the Credit Limit being
exceeded, unless you have made prior arrangements with us. If we pay any of
these debits, you must repay us immediately the amount by which the Credit Limit
is exceeded.
<PAGE>
1.20 Foreign Currency Conversion. If this Agreement includes foreign currency
Credits, then currency changes may affect whether either the Credit Limit of any
Credit or the Overall Credit Limit has been exceeded.
(a) See section 1.4 for the general rules on how Default Interest is
calculated.
(b) To determine the Overall Credit Limit, all foreign currency amounts
are converted to U.S. dollars, even if the Credit Limits of any
particular Credits are quoted directly in a foreign currency (such as
Canadian dollars). No matter how the Credit Limit of a particular
Credit is quoted, therefore, currency fluctuations can affect whether
the Overall Credit Limit has been exceeded. For example, if Credits X
and Y have Credit Limits of US$100,000 and CDN$50,000, respectively,
with an Overall Credit Limit of US$135,000, if Credit X is at
US$90,000 and Credit Y is at CDN$45,000, Default Interest will be
charged only if, after converting the Cdn. dollar amount, the Overall
Credit Limit is exceeded.
(c) Whether the Credit Limit of a particular Credit has been exceeded will
depend on how the Credit Limit is quoted, as described below.
(d) If the Credit Limit is quoted as, for example, the Canadian dollar
equivalent of a U.S. dollar amount, daily exchange rate fluctuations
may affect whether that Credit Limit has been exceeded. If, on the
other hand, the Credit Limit is quoted in a foreign currency (for
example, directly in Cdn. dollars), whether that Credit Limit has been
exceeded is determined by reference only to the closing balance of
that Credit in that currency.
(e) For example, assume an outstanding balance of a Credit on a particular
day of CDN$200,000. If the Credit Limit is stated as "the Cdn. dollar
equivalent of US$140,000", then whether the Credit Limit of that
Credit has been exceeded will depend on the value of the U.S. dollar
on that day. If the conversion calculations determine that the
outstanding balance is under the Credit Limit, a drop in the value of
the U.S. dollar the next day (without any change in the balance) may
have the effect of putting that Credit over its Credit Limit. If, on
the other hand, the Credit Limit is stated as "CDN$200,000", the
Credit Limit is not exceeded, and a drop in the value of the dollar
the next day will not change that (although the Overall Credit Limit
may be affected).
(f) Conversion calculations are done on the closing daily balance of the
Credit. The conversion factor used is the mid-point between the buying
and selling rate offered by CIBC Inc. (or if such rates can not be
determined, the mid-point between such rates offered by CIBC) for that
currency on the conversion date.
1.21 Instalment Loans. The following terms apply to each Instalment Loan.
(a) Non-revolving loans. Unless otherwise stated in the Letter, any
Instalment Loan is non-revolving. This means that any principal
payment made permanently reduces the available Loan Amount. Any
payment we receive is applied first to overdue interest, then to
current interest owing, then to overdue principal, then to any fees
and charges owing, and finally to current principal.
<PAGE>
(b) Floating Rate Instalment Loans. Floating Rate Instalment Loans may
have either (i) blended payments or (ii) payments of fixed principal
amounts, plus interest, as described below.
(i) Blended payments. If you have a Floating Rate Loan that has
blended payments, the amount of your monthly payment is fixed
for the term of the loan, but the interest rate varies with
changes in the Prime or U.S. Alternate Base Rate (as the case
may be). If the Prime or U.S. Alternate Base Rate during any
month is lower than what the rate was at the outset, you may end
up paying off the loan before the scheduled end date. If,
however, the Prime or U.S. Alternate Base Rate is higher than
what it was at the outset, the amount of principal that is paid
off is reduced. As a result, you may end up still owing
principal at the end of the term because of these changes in the
Prime or U.S. Alternate Base Rate.
(ii) Payments of principal plus interest. If you have a Floating Rate
Loan that has regular principal payments, plus interest, the
principal payment amount of your Loan is due on each payment
date specified in the Letter. The interest payment is also due
on the same date, but it is debited from your Operating Account
one or two banking days later. Although the principal payment
amount is fixed, your interest payment will usually be different
each month, for at least one and possibly more reasons, namely:
the reducing principal balance of your loan, the number of days
in the month, and changes to the Prime Rate or U.S. Alternate
Base Rate (as the case may be).
(c) repayment. Unless otherwise agreed, the following terms apply to
prepayment of any Instalment Loan:
(i) Floating Rate Instalment Loans. You may prepay all or part of a
Floating Rate Instalment Loan (whether it is a Demand or a
Committed Loan) at any time without notice or penalty.
(ii) Fixed Rate Instalment Loans. You may prepay all or part of a
Fixed Rate Instalment Loan, on the following condition. You must
pay us, on the prepayment date, a prepayment fee equal to the
interest rate differential for the remainder of the term of the
Loan, in accordance with the standard formula used by CIBC Inc.
in these situations.
(d) Demand of Fixed Rate Demand Instalment Loans. If you have a Fixed Rate
Demand Instalment Loan and we make demand for payment, you will owe us
(i) all outstanding principal, (ii) interest, (iii) any other amount
due under this Agreement, and (iv) a prepayment fee. The prepayment
fee is equal to the interest rate differential for the remainder of
the term of the loan, in accordance with the standard formula used by
CIBC Inc. in these situations.
1.22 Notice of Default. You will promptly notify us of the occurrence of any
event that is an Event of Default (or any that would be an Event of Default if
the only thing required is either notice being given or time elapsing, or both).
<PAGE>
Article 1 - LIBO Rate Provisions
1.1 Definitions. In this Agreement, the following terms have the following
meanings:
"LIBO Rate" for any LIBOR Period means a rate of interest per year equal
to the rate at which we are prepared to offer, as at 11:00 a.m. (London, England
time) on the second LIBOR Business Day before the start of that LIBOR Period,
deposits to leading banks in London, England interbank eurocurrency market in an
amount of U.S. dollars similar to the amount of the applicable LIBOR Loan and
for a deposit period comparable to that LIBOR Period; except that, if we do not
receive proper or timely notice as required below but we permit your request,
then the LIBOR Rate for such LIBOR Period means the rate of interest per year as
determined by us (in our absolute discretion) and offered to you and immediately
accepted by you.
"LIBOR Business Day" means a Business Day on which U.S. dollar
transactions can be carried out between leading banks in the interbank
eurocurrency market in London, England and between CIBC Inc. and other leading
banks in New York City.
"LIBOR Loan" means a Fixed Rate Loan in U.S. dollars in whole multiples of
US$1,000,000 on which interest is calculated by reference to a LIBO Rate.
"LIBOR Period" means the period selected by you in accordance with this
Agreement for computing interest from time to time on a LIBOR Loan.
1.2 Availability. LIBOR Loans are available only in whole multiples of
US$1,000,000 each, for terms of one to six months.
1.3 Required Notice.
(a) You may draw down or roll over a LIBOR Loan, or convert another type
of Credit under this Agreement to a LIBOR Loan, or repay a LIBOR Loan,
but only as provided in this Article. Any such action must be done on
a LIBOR Business Day. Also, you must give notice (in the form we
require) to the CIBC Inc. Branch/Centre before 10:00 a.m. (local time
where the CIBC Inc. Branch/Centre is located). The notice must be
given on the third LIBOR Business Day before the requested date of
drawdown, rollover, conversion or repayment. You may roll over or
convert an existing LIBOR Loan only on the expiry of its LIBOR Period.
(b) If we do not receive proper or timely notice as required by the
preceding paragraph, we may (but we are not obliged to) decide what
you are permitted to do for that LIBOR Loan. We may, on the other
hand, simply roll over an existing LIBOR Loan at the end of its LIBOR
Period for a new LIBOR Loan with a new LIBOR Period determined by us.
<PAGE>
1.4 Maturity Limitation. The expiry date of a LIBOR Period for any LIBOR Loan
may not (a) be after a scheduled or required maturity or termination date for
that Credit or (b) conflict, in our opinion, with any scheduled or mandatory
repayment for that Credit.
1.5 Repayments. You may only repay all (but not part) of a LIBOR Loan, and
only on the last day of the LIBOR Period for that LIBOR Loan.
1.6 Interest Calculation and Payment. Interest at a LIBO Rate will be
calculated on the daily balance of each LIBOR Loan for the actual number of days
elapsed, on the basis of a 360 day year. You will pay interest on each LIBOR
Loan in arrears at the end of each LIBOR Period. If a LIBOR Period is greater
than three months, you will pay interest at the end of each three month period
during that LIBOR Period, except that overdue interest will be payable
immediately on demand. Overdue amounts in respect of a LIBOR Loan (including any
overdue interest) may at our option be either converted to another type of loan
(if available) under any Credit or considered to be a LIBOR Loan for one or more
LIBOR Periods as we may determine.
1.7 Interest Act. Each nominal rate of interest referenced to a LIBO Rate,
expressed as an annual rate for purposes of the Interest Act (Canada), is that
rate multiplied by the actual number of days in the calendar year in which the
rate is to be ascertained, and divided by 360.
1.8 Lack of LIBO Rate. At any time before the start of any LIBOR Period, we
might determine that (a) by reason of circumstances affecting the London,
England interbank eurocurrency market generally, adequate and fair means do not
exist for determining the LIBO Rate applicable for that LIBOR Period, or (b)
deposits in U.S. dollars are not in the ordinary course of business available to
CIBC Inc. in that market for deposit periods comparable to that LIBOR Period in
a total amount similar to that LIBOR Loan bearing interest at a rate no greater
than the LIBO Rate applicable to that LIBOR Loan. If we do, then from and after
that date, you may not roll over any existing LIBOR Loan at the end of its LIBOR
Period, or obtain any new LIBOR Loan. Our determination of any events under this
paragraph will be conclusive.
1.9 Illegality. If at any time we determine in good faith that any legal
requirement or any official directive or request (whether or not having the
force of law) by a central bank or other governmental authority will make it
unlawful or impossible for us to make, maintain or fund any LIBOR Loan, we will
notify you accordingly. Upon receiving such a notice, you will either (a) on the
last day of the LIBOR Period of any LIBOR Loan, if we can continue to maintain
that loan, or (b) immediately, if we cannot legally maintain that loan,
(1) pay us in full the then outstanding principal amount of each such LIBOR
Loan, together with all accrued interest, or
(2) convert that loan into another type of loan allowed under this Agreement.
For clarification, upon a payment or conversion of a LIBOR Loan made under
this section in the middle of its LIBOR Period, you will immediately on demand
compensate us as provided elsewhere in this Agreement. Our determination of any
matters under this paragraph will be conclusive.
<PAGE>
Article 2 - Definitions
2.1 Definitions. In this Agreement, the following terms have the following
meanings:
"Alternate Base Rate Loan" means a U.S. dollar loan on which interest is
calculated by reference to the U.S. Alternate Base Rate.
"Business Day" means any day (other than a Saturday or a Sunday) that the
CIBC Inc. Branch/Centre is open for business.
"CIBC Inc. Branch/Centre" means the CIBC Inc. branch or banking centre
noted on the first page of this Agreement, as changed from time to time by
agreement between the parties.
"Committed Loan" means a Loan (including an operating line) that is
repayable in full only upon the earlier of the expiry of the committed term of
the Loan, the occurrence of an Event of Default, or there having occurred (in
our reasonable opinion) a Change of Control of (as defined in the Letter) of
your company or PMC Ltd. Such a Loan may be either at a fixed or a floating rate
of interest.
"Credit" means any credit referred to in the Letter, and if there are two
or more parts to a Credit, "Credit" includes reference to each part.
"Credit Limit" of any Credit means the amount specified in the Letter as
its Credit Limit, and if there are two or more parts to a Credit, "Credit Limit"
includes reference to each such part.
"Default Interest Rate", unless otherwise defined in the Letter, means the
Standard Overdraft Rate.
"Demand Instalment Loan" means an Instalment Loan that is payable upon
demand. Such a Loan may be either at a fixed or a floating rate of interest.
"Event of Default" means, in connection with any Committed Loan (even if
that Loan has not yet been drawn), the occurrence of any of the following events
(or the occurrence of any other event of default described in this Agreement, in
any of the security documents or in any other agreement or document you have
signed with us):
(1) You do not pay, when due, any amount that you are required to pay us
under this Agreement or otherwise and such failure is not remedied
within 5 days after notice, or you do not perform any of your other
obligations to us under this Agreement or otherwise and any such
failure (if curable) is not remedied within 10 days after notice.
(2) Any part of the security terminates or is no longer in effect, without
our prior written consent.
(3) You cease to carry on your business in the normal course, or it
reasonably appears to us that that may happen.
(4) A representation that you have made (or deemed to have made in any
certificate or document delivered to CIBC hereunder) in this Agreement
or in any security agreement is incorrect or misleading in any
material respect.
<PAGE>
(5) (i) An actual or potential default or event of default occurs in
connection with any debt owed by you or by PMC Ltd (including any actual or
potential default or event of default under the CIBC Credit Agreement), with the
result that the payment of the debt has become, or is capable of becoming,
accelerated, or (ii) you do not make a payment when due in connection with any
such debt after the expiration of any applicable grace period. (This subsection
(5), however, applies only to amounts that we reasonably consider to be
material.)
(6) We believe, in good faith and upon commercially reasonable grounds, that
all or a material part of your property is or is about to be placed in jeopardy.
(7) The holder of a Lien or a receiver or similar official takes possession of
all or a material part of your property; or a distress, execution or other
similar process is levied against any such property.
(8) You (i) become insolvent; (ii) are unable generally to pay your debts as
they become due; (iii) make a proposal in bankruptcy, or file a notice of
intention to make such a proposal; (iv) make an assignment in bankruptcy; (v)
bring a court action to have yourself declared insolvent or bankrupt; or someone
else brings an action for such a declaration; or (vi) you default in payment or
breach any other material obligation to any of your other creditors.
(9) If you are a corporation, (i) you are dissolved; (ii) your shareholders or
members pass a resolution for your winding-up or liquidation; (iii) someone goes
to court seeking your winding-up or liquidation, or the appointment of an
administrator, conservator, receiver, trustee, custodian or other similar
official for you or for all or substantially all your assets; or (iv) you seek
protection under any statute offering relief against the company's creditors.
"Fixed Rate Instalment Loan" means an Instalment Loan that is also a Fixed
Rate Loan.
"Fixed Rate Loan" means any loan drawn down, converted or extended under a
Credit at an interest rate which was fixed for a term, instead of referenced to
a variable rate such as the Prime Rate or U.S. Alternate Base Rate, at the time
of such drawdown, conversion or extension. For purposes of certainty, a Fixed
Rate Loan includes a LIBOR Loan.
"Floating Rate Instalment Loan" means an Instalment Loan that is either a
Prime Rate Loan or an Alternate Base Rate Loan.
"Instalment Loan" means a loan that is repayable either in fixed
instalments of principal, plus interest, or in blended instalments of both
principal and interest. A Demand Instalment Loan is repayable on demand. A
Committed Instalment Loan is repayable only upon the occurrence of an Event of
Default.
"Letter" or "Agreement" means the letter agreement between you and CIBC
Inc. to which this Schedule and any other Schedules are attached and includes
the schedule(s).
"Letter of Credit" or "L/C" means a documentary or stand-by letter of
credit, a letter of guarantee, or a similar instrument in form and substance
satisfactory to us.
<PAGE>
"Lien" includes a mortgage, charge, lien, security interest or encumbrance
of any sort on an asset, and includes conditional sales contracts, title
retention agreements, capital trusts and capital leases.
"Normal Course Lien" means a Lien that (a) arises by operation of law or
in the ordinary course of business as a result of owning any such asset (but
does not include a Lien given to another creditor to secure debts owed to that
creditor) and (b), taken together with all other Normal Course Liens, does not
materially affect the value of the asset or its use in the business.
"Operating Account" means the account that you normally use for the
day-to-day cash needs of your business, and may be either or both of a U.S.
dollar and a Canadian dollar account.
"Prime Rate" means the variable reference rate of interest per year
declared by CIBC from time to time to be its prime rate for Canadian dollar
loans made by CIBC in Canada.
"Prime Rate Loan" means a Canadian dollar loan on which interest is
calculated by reference to Prime Rate.
"Purchase Money Lien" means a Lien incurred in the ordinary course of
business only to secure all or part of the purchase price of an asset, or to
secure debt used only to finance all or part of the purchase of the asset.
"Standard Overdraft Rate" means the variable reference interest rate per
year declared by CIBC Inc. from time to time to be its standard overdraft rate
on overdrafts in U.S. or Canadian dollar accounts maintained with CIBC Inc. in
the United States of America.
"U.S. Alternate Base Rate" means the variable reference interest rate per
year as declared by CIBC Inc. from time to time to be its base rate for U.S.
dollar commercial demand loans made by CIBC Inc. in the United States of
America, and means on any day a fluctuating rate of interest per year equal to
the highest of:
(a) the rate of interest most recently established by CIBC Inc. as its
base rate for U.S. dollar commercial demand loans made by CIBC Inc. in the
United States; and
(b) the "Federal Funds Rate" plus 0.5%, where the Federal Funds Rate
means, for any particular day, the variable rate of interest per year,
calculated on the basis of a year of 360 days, equal to the weighted average of
rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by Federal Funds brokers as released on the next
succeeding business day by the Federal Reserve Bank of New York;
Neither the U.S. Alternate Base Rate nor any component thereof is
necessarily intended to be the lowest rate of interest determined by CIBC Inc.
in connection with extensions of credit.
Commerce Place Commercial
Banking
400 Burrard St., 7th Floor
Vancouver, B.C
V6C 3A6
CIBC
May 21, 1998
PMC - Sierra Ltd.
105 - 8555 Baxter Place
Burnaby, B.C.
V5A 4V7
Attention: Mr. John Sullivan
Dear Sirs:
We, Canadian Imperial Bank of Commerce ("CIBC"), are pleased to
establish the following credits for you, our customer.
Credit A: Committed Operating Line
Credit Limit: U.S. $15,000,000, less the amount at the
time of the liabilities of PMC - Sierra,
Inc., a Delaware corporation, (the
"Guarantor") in connection with its
operating line facility pursuant to CIBC
Inc.'s credit agreement dated on or about
the date hereof, as amended and replaced
from time to time, (the "CIBC Inc. Credit
Agreement").
Availability: May be availed by you by way of current
account overdraft in Canadian and/or U.S.
Dollars, and/or Bankers' Acceptances in
Canadian Dollars, and/or L/C Acceptances,
and/or Canadian or U.S. Dollar or Foreign
Currency L/Cs, and/or LIBOR Loans and/or
financial or non-financial standby
letters of credit.
Description and Rate: A revolving committed credit, for general
business purposes, having the following
parts:
(1) U.S. dollar overdrafts and
L/C Acceptances. The Interest Rate is as
follows: U.S. Base Rate plus 0% per year.
(2) U.S. dollar LIBOR loans.
The Interest Rate is as follows: LIBOR
Rate plus 1.0% per year.
(3) Canadian Dollar overdrafts
and L\C Acceptances. The Interest Rate is
as follows: Prime Rate plus 0% per year.
(4) Canadian Dollar B/As. The
stamping fee is 123 basis points per
year.
<PAGE>
(5) Canadian and/or U.S. Dollar
or Foreign Currency L/Cs. The fees are
our standard L/C fees, minimum $150, plus
out of pocket expenses.
Letters of Credit: L/Cs may not have terms to expiry of more
than 12 months or beyond the committed
term of this Credit. Our standard L/C
documentation is also required. If we
issue an L/C, the available Credit Limit
will be reduced by 100% of the face
amount of the L/C. If there is a drawing
under any L/C, we will pay it by drawing
on your Operating Account, unless you
have made other arrangements with us.
Repayment/Termination: This Credit will expire two years after
the date of this Agreement, except CIBC
may from time to time renew its
commitment by an additional year;
provided that this Credit must be repaid
in full immediately upon, and further
availments will cease to be available
upon, the earlier of the expiry of the
committed term of this Credit, the
occurrence of an Event of Default, or
there having occurred (in our reasonable
opinion) a change in effective control of
your company or the Guarantor with
respect to the power to elect the
majority of the Board of Directors of
your company or the Guarantor ("Change of
Control").
Credit B: Foreign Exchange Contracts
Credit Limit: U.S. $4,000,000.
Description: You may enter into one or more spot,
forward or other foreign exchange rate
transactions with us and/or Wood Gundy
Inc. Your ability to make use of this
Credit will depend upon your outstanding
obligations under such transactions, as
determined by us. This facility is a
demand credit, provided that even if no
demand is made this facility must be
repaid in full when Credit A is required
to be repaid in full.
<PAGE>
Credit C: Cheque Credit
Credit Limit: U.S. $1,500,000.
Description: You may negotiate cheques at our Burnaby
and Vancouver Branches that we identify
for you in a total face amount each day
up to the Credit Limit of this Credit.
This facility is a demand credit,
provided that even if no demand is made
this facility must be repaid in full when
Credit A is required to be repaid in
full.
Security
Security: The following security is required:
Guarantee: Guarantee from the Guarantor in an amount
that is limited to U.S.$25,000,000 plus
interest, which guarantee will include a
"gross-up" clause.
<PAGE>
Covenants
Financial Covenants: You will ensure that the following
financial covenants/requirements, tested
at the end of each of the Guarantor's
fiscal quarters, are satisfied on the
basis of the consolidated financial
statements for the Guarantor:
Quick Ratio: The Quick Ratio (cash or
equivalents plus accounts receivable plus
the unused portion of Credit A, divided
by current liabilities) must not be less
than 0.8:1.
Debt to Effective Equity Ratio: The Debt
to Effective Equity Ratio (using the
following definitions) must not exceed
2:1.
Debt is defined as all debts and
liabilities (whether absolute or
contingent, and including all lease
obligations which would be required to be
disclosed on the Guarantor's consolidated
financial statements) excluding deferred
income taxes and excluding debt
subordinated and postponed to CIBC and
CIBC Inc. (provided that all of the terms
of which are satisfactory to such
lenders).
Effective Equity is defined as the
aggregate of:
(a) amounts paid up on issued and
outstanding shares of all classes;
(b) retained earnings;
(c) contributed surplus;
(d) debt subordinated and postponed
to CIBC and CIBC Inc. (in a manner and on
terms satisfactory to such lenders) to
the prior repayment and satisfaction of
all debts and liabilities pursuant to
this Agreement, the CIBC Inc. Credit
Agreement and the guarantee hereunder;
plus
(e) Special Shares of your company
convertible into the Guarantor's common
stock;
minus all intangibles including, but not
limited to goodwill, copyrights, patents,
trademarks, licences, research and
development costs, and deferred
development costs; provided that for the
purposes of this ratio, equity
investments in non-affiliated companies
will not be treated as intangibles so
long as the combined total of all such
investments does not exceed
U.S.$20,000,000 (or any higher amount
agreed to in this regard by us in
writing).
<PAGE>
Profitability: An operating loss must not
be incurred in two consecutive fiscal
quarters.
Capital Expenditures (excluding
acquisitions): Total capital
expenditures, excluding acquisitions
permitted below under "Restriction on
Acquisitions", must not exceed U.S.
$16,000,000 in fiscal 1997, U.S.
$20,000,000 in fiscal 1998, and U.S.
$25,000,000 in fiscal 1999 without our
prior written consent (which consent will
not be unreasonably withheld).
<PAGE>
Other Covenants: Restriction on Acquisitions: Neither the
Guarantor nor any of its subsidiaries
(including you) will make any material
acquisitions without our prior written
consent, except, provided no Event of
Default exists nor will result from the
proposed acquisition during the fiscal
quarter immediately succeeding the fiscal
quarter within which the acquisition was
made (calculated on the basis of the
financial statements of the Guarantor on
a consolidated basis submitted for the
fiscal quarter of the Guarantor
immediately preceding the date of the
acquisition), and provided there has not
been (in our reasonable opinion) a Change
of Control of your company or the
Guarantor:
(a) the Guarantor, or any of its
subsidiaries, may make an acquisition
without our prior written consent if the
purchase price in respect of the proposed
acquisition does not exceed the
Applicable Limit referred to below; and
(b) if the purchase price in respect of
the proposed acquisition exceeds the
Applicable Limit referred to below, the
Guarantor, or any of its subsidiaries,
may nevertheless make the proposed
acquisition if you first provide proforma
financial statements to us which take
into account the effect of the proposed
acquisition and all debt incurred or
assumed in connection therewith, and
which demonstrate compliance with all
financial covenants/requirements set
forth herein, both before and after the
proposed acquisition.
For the purposes hereof, the "Applicable
Limit" means U.S.$40,000,000 unless the
Debt to Effective Equity Ratio of the
Guarantor on a consolidated basis
(exclusive of the acquisition) exceeds
1:1, in which case the "Applicable Limit"
means U.S.$20,000,000.
Restriction on Divestments: Neither the
Guarantor nor any of its subsidiaries
(including you) will make any material
business divestment, other than for cash,
without our prior written consent. The
cash proceeds from the material
divestment will be used in the first
instance to retire any outstanding
borrowings/indebtedness under the credit
facilities established hereunder which,
however, may be readvanced or incurred
subject to your continued compliance with
all of the terms and conditions of the
credit facilities provided for hereunder.
<PAGE>
Negative Pledge: Neither the Guarantor
nor any of its subsidiaries (including
you) will create or allow any Lien on any
of their/your present or future assets,
nor will they/you assign any right to any
income, without our prior written
consent, except you/they are permitted to
enter into lease commitments or Purchase
Money Liens on normal commercial terms in
the ordinary course of business up to
U.S.$10,000,000 in each fiscal year,
provided no Event of Default exists nor
will the proposed transaction give rise
to an Event of Default, and provided
there has not been (in our reasonable
opinion) a Change of Control of your
company or the Guarantor.
Reporting Requirements: (1) Within 30 days of each quarter-end,
you will provide us with the Guarantor's
consolidated aged list of trade accounts
receivable as of that quarter-end.
(2) Within 60 days of the end of each of
the first, second and third quarters, you
will provide us with a copy of the
Guarantor's Form 10-Q, as of each
quarter-end.
(3) Within 120 days of each fiscal
year-end, you will provide us with a copy
of the Guarantor's Form 10-K as of that
year-end, which is to include a copy of
the Guarantor's audited consolidated
year-end financial statements.
Other Provisions
Indemnity re Reserves, If the introduction or implementation of
Capital Adequacy, Etc. or any change in or in the interpretation
of, or any change in its application to
us of, any law or any regulation or
guideline issued by any central bank or
other governmental authority (whether or
not having the force of law), including
without limitation any reserve or special
deposit requirement or any tax (other
than tax on our general income) or any
capital requirement, has (due to our
compliance) the effect, directly or
indirectly, of (i) increasing the cost to
us of performing our obligations
hereunder or under any B/A or L/C; (ii)
<PAGE>
reducing any amount received or
receivable by us hereunder or our
effective return hereunder or on our
capital; or (iii) causing us to make any
payment or to forgo any return based on
any amount received or receivable by us
hereunder or in respect of any B/A or
L/C; then upon demand from time to time
you will pay such amount as shall
compensate us for any such cost,
reduction, payment or forgone return. You
will further indemnify us for all
out-of-pocket costs, losses and expenses
incurred by us in connection with any B/A
or L/C and agree that we will have no
liability to you for any reason in
respect of any availment other than on
account of our gross negligence or wilful
misconduct. Any certificate of CIBC in
respect of the foregoing will be
conclusive and binding upon you, except
for manifest error, provided that we
shall determine the amounts owing to us
in good faith using any reasonable
averaging and attribution methods.
Obligations re L/Cs if Credit A You will pay to us on demand all of our
Terminated: contingent liability in respect of (i)
any L/C outstanding upon any termination
of Credit A and (ii) any L/C which is the
subject matter of any order, judgment,
injunction or other such determination
restricting payment by us under and in
accordance with such L/C or extending our
liability under such L/C beyond the
expiration date stated therein (an
"Order"). We agree that we will, with
respect to each such L/C, upon the later
of:
(a) the earlier of: (i) the date on
which either the original counterpart of
such L/C is returned to us for
cancellation or we are released by the
beneficiary from any further obligations
in respect of such L/C; and, (ii) the
expiry of such L/C; and
(b) the date on which any final
order, judgment or other such
determination has been rendered or issued
either terminating the applicable Order,
or permanently enjoining us from paying
under such L/C;
pay to you an amount equal to any excess
of the amount received by us hereunder in
respect of our contingent liability under
such L/C (the "Received Amount") over the
total of amounts applied to reimburse us
for amounts paid by us under such L/C
(CIBC having the right to so appropriate
such funds), together with an additional
amount computed by applying to the amount
of such excess from time to time a per
annum rate equal to 3% per year less than
the Prime Rate. Such additional amount
shall be calculated daily on the basis of
a calendar year for the actual number of
days elapsed from and including the date
of payment to us of the Received Amount
to (but not including) the date of return
to you of the excess.
<PAGE>
Default Interest Rate: Currently 21% per year.
Next Scheduled Review Date: May 31, 1999. Such that CIBC may renew
its commitment by an additional one year
on mutually agreeable terms.
Termination of Agreement by This Agreement may be terminated by you
Borrower: at any time upon written notice to CIBC
and upon payment and satisfaction of all
of your debts and liabilities, absolute
and contingent, to CIBC.
Standard Credit Terms: The attached Schedule - Standard Credit
Terms (including the revisions indicated
thereon in bold-faced or struck-out text)
forms part of this Agreement.
Expenses and Costs: All reasonable out of pocket expenses
incurred by us (excluding any syndication
or participation expenses) will be for
your account.
Amendment: This Agreement may only be amended by a
document executed by the party against
whom enforcement of the amendment is
sought.
Assignment: You may not assign this Agreement. We may
assign or grant participation in our
rights and obligations hereunder, with
each such assignee or participant being
entitled to rely on all indemnities
contained herein.
Governing Law: This Agreement will be construed in
accordance with the laws of the Province
of British Columbia and the laws of
Canada applicable therein.
Set-Off: Upon the occurrence of an Event of
Default and so long as the Event of
Default exists, we may at any time and
from time to time, without notice to you
(any such notice being expressly waived),
set-off and apply any and all deposits
(general or special) and any other
indebtedness at any time held by or owing
by us to you or for your credit or your
account, against and on account of any or
all of your debts and liabilities to us
hereunder, whether or not then due,
whether absolute or contingent, and
irrespective of the currency(ies) in
question.
<PAGE>
Entire Agreement: In accordance with the scheduled review
date set out in the Credit Agreement
dated March 11, 1998 issued by CIBC to
you the "Previous Credit Agreement", this
Agreement extends the Previous Credit
Agreement and restates the terms thereof
as set out above. There are no
understandings, inducements,
representations, warranties, collateral
agreements or conditions affecting or
supported by this Agreement other than as
expressed in this Agreement.
Accounting Terms and GAAP: All accounting terms not otherwise
defined have the meanings assigned to
them in accordance with GAAP. In this
Agreement, "GAAP" means generally
accepted accounting principles from time
to time applicable in the United States
of America and approved by the Financial
Accounting Standards Board or any
successor thereto, as applied on a basis
consistent with the financial statements
of the preceding fiscal period, except as
disclosed therein or where the
inconsistency is immaterial.
Successors: In this Agreement, any reference to a
corporate entity includes and is also a
reference to any corporate entity that is
a successor to such entity, whether
immediate or derivative.
Please indicate your acceptance of these terms by returning a signed copy of
this Agreement. If we do not receive a signed copy by June 12, 1998, then this
offer will expire.
Upon acceptance, this Agreement extends the Previous Credit Agreements and
restates the terms thereof, as set out above. Outstanding amounts (and security)
under the Previous Credit Agreement will be covered by this Agreement.
Yours truly,
Canadian Imperial Bank of Commerce
by: /S/ Tom Smith
-------------
Tom Smith
Relationship Manager
Knowledge Based Business
Phone no.: (604) 665-1610
Fax no.: (604) 665-1144
Acknowledgement: The undersigned certifies that all
information provided to CIBC is true, and
acknowledges receipt of a copy of, and
accepts the terms of, this Agreement
(including the attached Schedule -
Standard Credit Terms).
Accepted this 10th day of June, 1998.
PMC-Sierra Ltd.
By: /S/ John W. Sullivan
---------------------
Name: John W. Sullivan
----------------
Title: VP Finance
----------
<PAGE>
Schedule - Standard Credit
CIBC
6326-95/06
WP51CRED)
ARTICLE 1 - GENERAL
1.1 Interest Rate. You will pay interest on each Credit at nominal rates per
year equal to:
(a) for amounts above the Credit Limit of a Credit or a part of a Credit or
for amounts that are not paid when due, the Default Interest Rate, and
(b) for any other amounts, the rate specified in this Agreement.
1.2 Variable interest. Each variable interest rate provided for under this
Agreement will change automatically, without notice, whenever the Prime Rate or
the U.S. Base Rate, as the case may be, changes.
1.3 Payment of interest. Interest is calculated on the daily balance of the
Credit at the end of each day. Interest is due once a month, unless the
Agreement states otherwise. Unless you have made other arrangements with us, we
will automatically debit your Operating Account for interest amounts owing. If
your Operating Account is in overdraft and you do not deposit to the account an
amount equal to the monthly interest payment, the effect is that we will be
charging interest on overdue interest (which is known as compounding). Unpaid
interest continues to compound whether or not we have demanded payment from you
or started a legal action, or get judgment, against you.
1.4 Default Interest. To determine whether Default Interest is to be charged,
the following rules apply:
(a) Default Interest will be charged on the amount that exceeds the Credit
Limit of any particular Credit.
(b) If there are several parts of a Credit, Default Interest will be charged
if the Credit Limit of a particular part is exceeded. For example, if Credit A's
limit is $250,000, and the limit of one part is $100,000 and the limit of that
part is exceeded by $25,000, Default Interest will be charged on that $25,000
excess, even if the total amount outstanding under Credit A is less than
$250,000.
1.5 Fees. You will pay CIBC's fees for each Credit as outlined in the Letter.
You will also reimburse us for all reasonable fees (including legal fees) and
out-of-pocket expenses incurred in registering any security, and in enforcing
our rights under this Agreement or any security. We will automatically debit
your Operating Account for fee amounts owing.
1.6 Our rights re demand Credits. At CIBC, we believe that the banker-customer
relationship is based on mutual trust and respect. It is important for us to
know all the relevant information (whether good or bad) about your business.
CIBC is itself a business. Managing risks and monitoring our customers' ability
to repay is critical to us. We can only continue to lend when we feel that we
are likely to be repaid. As a result, if you do something that jeopardizes that
relationship, or if we no longer feel that you are likely to repay all amounts
borrowed, we may have to act. We may decide to act, for example, because of
something you have done, information we receive about your business, or changes
to the economy that affect your business. Some of the actions that we may decide
to take include requiring you to give us more financial information, negotiating
a change in the interest rate or fees, or asking you to get further accounting
assistance, put more cash into the business, provide more security, or produce a
satisfactory business plan. It is important to us that your business succeeds.
We may, however, at our discretion, demand immediate repayment of any
outstanding amounts under any demand Credit. We may also, at any time and for
any cause, cancel the unused portion of any demand Credit. Under normal
circumstances, however, we will give you 30 days' notice of any of these
actions.
1.7 Payments. If any payment is due on a day other than a Business Day, then the
payment is due on the next Business Day.
1.8 Applying money received. If you have not made payments as required by this
Agreement, or if you have failed to satisfy any term of this Agreement (or any
other agreement you have that relates to this Agreement), or at any time before
default but after we have given you appropriate notice, we may decide how to
apply any money that we receive. This means that we may choose which Credit to
apply the money against, or what mix of principal, interest, fees and overdue
amounts within any Credit will be paid.
1.9 Information requirements. We may from time to time reasonably require you to
provide further information about your business. We may require information from
you to be in a form acceptable to us. We will use your information only in
connection with the credits and will keep it confidential unless required to be
disclosed by law or court order.
1.10 Insurance. You will keep all your business assets and property insured (to
the full insurable value) against loss or damage by fire and all other risks
usual for property such as yours (plus for any other risks we may reasonably
require). If we ask, you will give us either the policies themselves or adequate
evidence of their existence. If your insurance coverage for any reason stops, we
may (but do not have to) insure the property. We will automatically debit your
Operating Account for these amounts. Finally, you will notify us immediately of
any loss or damage to the property.
1.11 Environmental. You will carry on your business, and maintain your assets
and property, in accordance with all applicable environmental laws and
regulations. If (a) there is any release, deposit, discharge or disposal of
pollutants of any sort (collectively, a "Discharge") in connection with either
your business or your property, and we pay any fines or for any clean-up, or (b)
we suffer any loss or damage as a result of any Discharge, you will reimburse
CIBC, its directors, officers, employees and agents for any and all losses,
damages, fines, costs and other amounts (including amounts spent preparing any
necessary environmental assessment or other reports, or defending any lawsuits)
that result. If we ask, you will defend any lawsuits, investigations or
prosecutions brought against CIBC or any of its directors, officers, employees
and agents in connection with any Discharge. Your obligation to us under this
section continues even after all Credits have been repaid and this Agreement has
terminated.
<PAGE>
1.12 Consent to release information. We may from time to time give any credit
information about you to, or receive such information from, (a) any financial
institution, credit reporting agency, rating agency or credit bureau, (b) any
person, firm or corporation with whom you may have or propose to have financial
dealings, and (c) any person, firm or corporation in connection with any
dealings you have or propose to have with us. You agree that we may use that
information to establish and maintain your relationship with us and to offer any
services as permitted by law, including services and products offered by our
subsidiaries when it is considered that this may be suitable to you.
1.13 Our pricing policy: Fees, interest rates and other charges for your banking
arrangements are dependent upon each other. If you decide to cancel any of these
arrangements, you will have to pay us any increased or added fees, interest
rates and charges we determine and notify you of. These increased or added
amounts are effective from the date of the changes that you make.
1.14 Proof of debt. This Agreement provides the proof, between CIBC and you, of
the credit made available to you. There may be times when the type of Credit you
have requires you to sign additional documents. Throughout the time that we
provide you credit under this Agreement, our loan accounting records will
provide complete proof of all terms and conditions of your credit (such as
principal loan balances, interest calculations, and payment dates).
1.15 Renewals of this Agreement. This Agreement will remain in effect for your
Credits for as long as they remain unchanged. We have shown a Next Scheduled
Review Date in the Letter. If there are no changes to the Credits this Agreement
will continue to apply, and you will not need to sign anything further. If there
are any changes, we will provide you with either an amending agreement, or a new
replacement Letter, for you to sign.
1.16 Confidentiality: The terms of this Agreement are confidential between you
and CIBC. You therefore agree not to disclose the contents of this Agreement to
anyone except your professional advisors or (as required by law) to any
regulatory or governmental body.
1.17 Pre-conditions. You may use the Credits granted to you under this Agreement
only if:
(a) we have received properly signed copies of all documentation that we may
reasonably require and which we have provided to you in connection with the
operation of your accounts and your ability to borrow;
(b) all the required security has been received and registered to our
satisfaction;
(c) any special provisions or conditions set forth in the Letter have been
complied with; and
(d) if applicable, you have given us the required number of days notice for a
drawing under a Credit.
1.18 Notices. We may give you any notice in person or by telephone, or by letter
that is sent either by fax or by mail.
1.19 Use of the Operating Line. You will use your Operating Line only for your
business operating cash needs. You are responsible for all debits from the
Operating Account that you have either initiated (such as cheques, loan
payments, pre-authorized debits, etc.) or authorized us to make. Payments are
made by making deposits to the Operating Account. You may not at any time exceed
the Credit Limit. We may, without notice to you, return any debit from the
Operating Account that, if paid, would result in the Credit Limit being
exceeded, unless you have made prior arrangements with us. If we pay any of
these debits, you must repay us immediately the amount by which the Credit Limit
is exceeded.
1.20 Foreign Currency Conversion. If this Agreement includes foreign currency
Credits, then currency changes may affect whether either the Credit Limit of any
Credit or the Overall Credit Limit has been exceeded.
(a) See section 1.4 for the general rules on how Default Interest is
calculated.
(b) To determine the Overall Credit Limit, all foreign currency amounts are
converted to Canadian dollars, even if the Credit Limits of any particular
Credits are quoted directly in a foreign currency (such as U.S. dollars). No
matter how the Credit Limit of a particular Credit is quoted, therefore,
currency fluctuations can affect whether the Overall Credit Limit has been
exceeded. For example, if Credits X and Y have Credit Limits of C$100,000 and
US$50,000, respectively, with an Overall Credit Limit of C$175,000, if Credit X
is at C$90,000 and Credit Y is at US$45,000, Default Interest will be charged
only if, after converting the US dollar amount, the Overall Credit Limit is
exceeded.
(c) Whether the Credit Limit of a particular Credit has been exceeded will
depend on how the Credit Limit is quoted, as described below.
(d) If the Credit Limit is quoted as, for example, the U.S. dollar equivalent
of a Canadian dollar amount, daily exchange rate fluctuations may affect whether
that Credit Limit has been exceeded. If, on the other hand, the Credit Limit is
quoted in a foreign currency (for example, directly in US dollars), whether that
Credit Limit has been exceeded is determined by reference only to the closing
balance of that Credit in that currency.
(e) For example, assume an outstanding balance of a Credit on a particular day
of US$200,000. If the Credit Limit is stated as "the US dollar equivalent of
C$275,000", then whether the Credit Limit of that Credit has been exceeded will
depend on the value of the Canadian dollar on that day. If the conversion
calculations determine that the outstanding balance is under the Credit Limit, a
drop in the value of the Canadian dollar the next day (without any change in the
balance) may have the effect of putting that Credit over its Credit Limit. If,
on the other hand, the Credit Limit is stated as "US$200,000", the Credit Limit
is not exceeded, and a drop in the value of the dollar the next day will not
change that (although the Overall Credit Limit may be affected).
<PAGE>
(f) Conversion calculations are done on the closing daily balance of the
Credit. The conversion factor used is the mid-point between the buying and
selling rate offered by CIBC for that currency on the conversion date.
1.21 Instalment Loans. The following terms apply to each Instalment Loan.
(a) Non-revolving loans. Unless otherwise stated in the Letter, any Instalment
Loan is non-revolving. This means that any principal payment made permanently
reduces the available Loan Amount. Any payment we receive is applied first to
overdue interest, then to current interest owing, then to overdue principal,
then to any fees and charges owing, and finally to current principal.
(b) Floating Rate Instalment Loans. Floating Rate Instalment Loans may have
either (i) blended payments or (ii) payments of fixed principal amounts, plus
interest, as described below.
(i) Blended payments. If you have a Floating Rate Loan that has blended
payments, the amount of your monthly payment is fixed for the term of the
loan, but the interest rate varies with changes in the Prime or U.S. Base
Rate (as the case may be). If the Prime or U.S. Base Rate during any month
is lower than what the rate was at the outset, you may end up paying off
the loan before the scheduled end date. If, however, the Prime or U.S.
Base Rate is higher than what it was at the outset, the amount of
principal that is paid off is reduced. As a result, you may end up still
owing principal at the end of the term because of these changes in the
Prime or U.S. Base Rate.
(ii) Payments of principal plus interest. If you have a Floating Rate Loan
that has regular principal payments, plus interest, the principal payment
amount of your Loan is due on each payment date specified in the Letter.
The interest payment is also due on the same date, but it is debited from
your Operating Account one or two banking days later. Although the
principal payment amount is fixed, your interest payment will usually be
different each month, for at least one and possibly more reasons, namely:
the reducing principal balance of your loan, the number of days in the
month, and changes to the Prime Rate or U.S. Base Rate (as the case may
be).
(c) Prepayment. Unless otherwise agreed, the following terms apply to
prepayment of any Instalment Loan:
(i) Floating Rate Instalment Loans. You may prepay all or part of a
Floating Rate Instalment Loan (whether it is a Demand or a Committed Loan)
at any time without notice or penalty.
(ii) Fixed Rate Instalment Loans. You may prepay all or part of a Fixed
Rate Instalment Loan, on the following condition. You must pay us, on the
prepayment date, a prepayment fee equal to the interest rate differential
for the remainder of the term of the Loan, in accordance with the standard
formula used by CIBC in these situations.
(d) Demand of Fixed Rate Demand Instalment Loans. If you have a Fixed Rate
Demand Instalment Loan and we make demand for payment, you will owe us (i) all
outstanding principal, (ii) interest, (iii) any other amount due under this
Agreement, and (iv) a prepayment fee. The prepayment fee is equal to the
interest rate differential for the remainder of the term of the loan, in
accordance with the standard formula used by CIBC in these situations.
1.22 Notice of Default. You will promptly notify us of the occurrence of any
event that is an Event of Default (or any that would be an Event of Default if
the only thing required is either notice being given or time elapsing, or both).
ARTICLE 1 - BANKERS' ACCEPTANCES
1.1 Definitions. In this Article, the following terms have the following
meanings:
"Bankers' Acceptance" or "B/A" means a Canadian dollar Draft that we have
accepted under this Agreement.
"Commerce Acceptance Rate" means the variable reference rate that we declare
from time to time as our stamping or acceptance fee for Drafts accepted by us.
"Draft" means, at any time, a blank bill of exchange within the meaning of the
Bills of Exchange Act drawn by the Customer on us (in satisfactory form), but
before we have accepted it.
1.2 Availability. B/As are available only with terms to maturity of between 30
and 180 days.
1.3 Minimum issue amount. You will present Drafts for acceptance in a minimum
amount of $1 million. We can change this minimum amount at any time by 30 days'
prior written notice.
1.4 Required Notice. You may either obtain a new advance by issuing a B/A
stamped by CIBC (including a rollover of an existing B/A) or you may convert an
amount outstanding under another Credit to issuance of a B/A on the following
terms. You must give us notice (in the form we require, including, when
applicable, the date of acceptance, the amount and the maturity date). Notice
must be given by 10:00 a.m. (local time where the CIBC Branch/Centre is located)
on the Business Day prior to the requested date of issuance. You must also give
us any other notice required by the Letter.
<PAGE>
1.5 Special Conditions.
(a) Draft Conditions. You will deliver to us the Drafts that you want us to
issue. Each Draft must (i) be in a whole multiple of C$100,000, (ii) be dated
the date of delivery (which will be the same date as the requested date you
notified us); (iii) mature on a Business Day; and (iv) be presented to the CIBC
Branch/Centre for acceptance by 12:00 noon on the date of delivery (unless you
have made prior arrangements in writing with us).
(b) Maturity Limitation. The maturity date of a Draft submitted to us for
acceptance may not (i) be after a scheduled or mandatory final maturity or
termination date for that Credit or (ii) conflict, in our opinion, with any
scheduled or mandatory repayment for that Credit.
(c) Conversion-To-Loan Limitation. You may only convert a B/A into a loan
otherwise allowed under this Agreement if the total of "A" plus "B" is less than
Prime Rate existing on that maturity date, where:
"A" is the annual discount rate quoted at 9:30 a.m. (Toronto time) by the
Toronto office of Wood Gundy Inc. as the discount rate at which it would
purchase a bankers' acceptance issued by CIBC having a term to maturity of
30 days, and
"B" is the annual stamping or acceptance rate applicable to a Draft
accepted by us under this Agreement, as determined on the maturity date of
that B/A.
In making these calculations, each of "A" and "B" is expressed as a percentage.
1.6 Stamping Fee. When we accept a Draft under this Agreement, you will pay us a
stamping fee, on the date of acceptance, in the amount as set out in the Letter.
The stamping fee will be calculated on the face amount of that Draft for the
number of days to maturity based on a 365 day year.
1.7 Reimbursement. B/As are negotiable instruments that are purchased in
financial markets at a discount. Market forces determine what the discount
amount for B/As is at any particular time. At maturity, the holder of a B/A
redeems it from CIBC. We then pay the holder the face amount. You will,
therefore, reimburse us at the maturity date for the face amount of all B/As
that we have accepted for you, unless you convert those amounts to another
Credit (assuming all proper notice has been given). If you do not reimburse us
or convert those amounts to another Credit, we may convert them to any type of
loan (if available) under any Credit.
1.8 Signatures and Safekeeping. All Drafts must either be signed by a properly
authorized signing officer or bear a mechanically reproduced facsimile signature
of that officer (subject to any prior written arrangements with us). Each Draft
and B/A bearing a facsimile signature of that officer will be as binding on you
as if it had been manually signed by that officer. This applies even for
individuals who may no longer be authorized or otherwise be an officer at any
time. You will compensate us for any loss or expense relating to any Draft or
B/A that we deal with under this Agreement. We need only exercise the same
degree of care in safekeeping executed Drafts delivered to us for future
acceptance as if they were CIBC's property and we were keeping them at the place
at which they are to be held.
1.9 Credit Cancellation. If your B/A Credit is terminated for any reason, we may
require you to pay us immediately on demand the appropriate reimbursement amount
for each B/A then outstanding. We will calculate the reimbursement amount in
accordance with standard practice in the banking industry in Canada. After
making this payment, (a) you will have no further liability for that B/A, and
(b) we will (i) become the sole party liable under the B/A, and (ii) compensate
you if you have to pay anyone else under that B/A.
1.10 Waiver. You will not claim any days of grace for the payment of a B/A. You
waive any defence to payment which might otherwise exist if for any reason a B/A
is held by us in our own right at its maturity.
1.11 Obligations Absolute. Your obligations for Drafts and B/As are
unconditional and irrevocable. You will perform your obligations strictly in
accordance with the provisions of this Agreement including, among other things,
(a) any lack of validity or enforceability of a Draft accepted by us as a B/A,
and (b) the existence of a claim, set-off, defence or other right which you may
have against the holder of a B/A, CIBC or another person.
ARTICLE 2 - LIBO RATE PROVISIONS
2.1 Definitions. In this Agreement, the following terms have the following
meanings:
"LIBO Rate" for any LIBOR Period means a rate of interest per year equal to the
rate at which we are prepared to offer, as at 11:00 a.m. (London, England time)
on the second LIBOR Business Day before the start of that LIBOR Period, deposits
to leading banks in London, England interbank eurocurrency market in an amount
of U.S. dollars similar to the amount of the applicable LIBOR Loan and for a
deposit period comparable to that LIBOR Period; except that, if we do not
receive proper or timely notice as required below but we permit your request,
then the LIBOR Rate for such LIBOR Period means the rate of interest per year as
determined by us (in our absolute discretion) and offered to you and immediately
accepted by you.
"LIBOR Business Day" means a Business Day on which U.S. dollar transactions can
be carried out between leading banks in the interbank eurocurrency market in
London, England and between CIBC and other leading banks in New York City.
<PAGE>
"LIBOR Loan" means a Fixed Rate Loan in U.S. dollars in whole multiples of
US$1,000,000 on which interest is calculated by reference to a LIBO Rate.
"LIBOR Period" means the period selected by you in accordance with this
Agreement for computing interest from time to time on a LIBOR Loan.
2.2 Availability. LIBOR Loans are available only in whole multiples of
US$1,000,000 each, for terms of one to six months.
2.3 Required Notice.
(a) You may draw down or roll over a LIBOR Loan, or convert another type of
Credit under this Agreement to a LIBOR Loan, or repay a LIBOR Loan, but only as
provided in this Article. Any such action must be done on a LIBOR Business Day.
Also, you must give notice (in the form we require) to the CIBC Branch/Centre
before 10:00 a.m. (local time where the CIBC Branch/Centre is located). The
notice must be given on the third LIBOR Business Day before the requested date
of drawdown, rollover, conversion or repayment. You may roll over or convert an
existing LIBOR Loan only on the expiry of its LIBOR Period.
(b) If we do not receive proper or timely notice as required by the preceding
paragraph, we may (but we are not obliged to) decide what you are permitted to
do for that LIBOR Loan. We may, on the other hand, simply roll over an existing
LIBOR Loan at the end of its LIBOR Period for a new LIBOR Loan with a new LIBOR
Period determined by us.
2.4 Maturity Limitation. The expiry date of a LIBOR Period for any LIBOR Loan
may not (a) be after a scheduled or required maturity or termination date for
that Credit or (b) conflict, in our opinion, with any scheduled or mandatory
repayment for that Credit.
2.5 Repayments. You may only repay all (but not part) of a LIBOR Loan, and only
on the last day of the LIBOR Period for that LIBOR Loan.
2.6 Interest Calculation and Payment. Interest at a LIBO Rate will be calculated
on the daily balance of each LIBOR Loan for the actual number of days elapsed,
on the basis of a 360 day year. You will pay interest on each LIBOR Loan in
arrears at the end of each LIBOR Period. If a LIBOR Period is greater than three
months, you will pay interest at the end of each three month period during that
LIBOR Period, except that overdue interest will be payable immediately on
demand. Overdue amounts in respect of a LIBOR Loan (including any overdue
interest) may at our option be either converted to another type of loan (if
available) under any Credit or considered to be a LIBOR Loan for one or more
LIBOR Periods as we may determine.
2.7 Interest Act. Each nominal rate of interest referenced to a LIBO Rate,
expressed as an annual rate for purposes of the Interest Act (Canada), is that
rate multiplied by the actual number of days in the calendar year in which the
rate is to be ascertained, and divided by 360.
2.8 Lack of LIBO Rate. At any time before the start of any LIBOR Period, we
might determine that (a) by reason of circumstances affecting the London,
England interbank eurocurrency market generally, adequate and fair means do not
exist for determining the LIBO Rate applicable for that LIBOR Period, or (b)
deposits in U.S. dollars are not in the ordinary course of business available to
CIBC in that market for deposit periods comparable to that LIBOR Period in a
total amount similar to that LIBOR Loan bearing interest at a rate no greater
than the LIBO Rate applicable to that LIBOR Loan. If we do, then from and after
that date, you may not roll over any existing LIBOR Loan at the end of its LIBOR
Period, or obtain any new LIBOR Loan. Our determination of any events under this
paragraph will be conclusive.
2.9 Illegality. If at any time we determine in good faith that any legal
requirement or any official directive or request (whether or not having the
force of law) by a central bank or other governmental authority will make it
unlawful or impossible for us to make, maintain or fund any LIBOR Loan, we will
notify you accordingly. Upon receiving such a notice, you will either (a) on the
last day of the LIBOR Period of any LIBOR Loan, if we can continue to maintain
that loan, or (b) immediately, if we cannot legally maintain that loan,
(1) pay us in full the then outstanding principal amount of each such LIBOR
Loan, together with all accrued interest, or
(2) convert that loan into another type of loan allowed under this Agreement.
For clarification, upon a payment or conversion of a LIBOR Loan made under this
section in the middle of its LIBOR Period, you will immediately on demand
compensate us as provided elsewhere in this Agreement. Our determination of any
matters under this paragraph will be conclusive.
ARTICLE 3 - DEFINITIONS
3.1 Definitions. In this Agreement, the following terms have the following
meanings:
"Base Rate Loan" means a U.S. dollar loan on which interest is calculated by
reference to the U.S. Base Rate.
"Business Day" means any day (other than a Saturday or a Sunday) that the CIBC
Branch/Centre is open for business.
"CIBC Branch/Centre" means the CIBC branch or banking centre noted on the first
page of this Agreement, as changed from time to time by agreement between the
parties.
<PAGE>
"Committed Loan" means a Loan (including an operating line)that is repayable in
full only upon the earlier of the expiry of the committed term of the Loan, the
occurrence of an Event of Default, or there having occurred (in our reasonable
opinion) a Change of Control (as defined in the Letter) of your company or the
Guarantor. Such a Loan may be either at a fixed or a floating rate of interest.
"Credit" means any credit referred to in the Letter, and if there are two or
more parts to a Credit, "Credit" includes reference to each part.
"Credit Limit" of any Credit means the amount specified in the Letter as its
Credit Limit, and if there are two or more parts to a Credit, "Credit Limit"
includes reference to each such part.
"Default Interest Rate", unless otherwise defined in the Letter, means the
Standard Overdraft Rate.
"Demand Instalment Loan" means an Instalment Loan that is payable upon demand.
Such a Loan may be either at a fixed or a floating rate of interest.
"Event of Default" means, in connection with any Committed Loan (even if that
Loan has not yet been drawn), the occurrence of any of the following events (or
the occurrence of any other event of default described in this Agreement, in any
of the security documents or in any other agreement or document you have signed
with us):
(1) You do not pay, when due, any amount that you are required to pay us under
this Agreement or otherwise and such failure is not remedied within 5 days after
notice, or you do not perform any of your other obligations to us under this
Agreement or otherwise and such failure (if curable) is not remedied within 10
days after notice.
(2) Any part of the security terminates or is no longer in effect, without our
prior written consent.
(3) You cease to carry on your business in the normal course, or it reasonably
appears to us that that may happen.
(4) A representation that you have made (or deemed to have made in any
certificate or document delivered to CIBC hereunder) in this Agreement or in any
security agreement is incorrect or misleading in any material respect.
(5) (i) An actual or potential default or event of default occurs in
connection with any debt owed by you or by the Guarantor (including any actual
or potential default or event of default under the CIBC Inc. Credit Agreement),
with the result that the payment of the debt has become, or is capable of
becoming, accelerated, or (ii) you do not make a payment when due in connection
with any such debt after the expiry of any applicable grace period. (This
subsection (5), however, applies only to amounts that we reasonably consider to
be material.)
(6) We believe, in good faith and upon commercially reasonable grounds, that
all or a material part of your property is or is about to be placed in jeopardy.
(7) The holder of a Lien or a receiver or similar official takes possession of
all or a material part of your property; or a distress, execution or other
similar process is levied against any such property.
(8) You (i) become insolvent; (ii) are unable generally to pay your debts as
they become due; (iii) make a proposal in bankruptcy, or file a notice of
intention to make such a proposal; (iv) make an assignment in bankruptcy; (v)
bring a court action to have yourself declared insolvent or bankrupt; or someone
else brings an action for such a declaration; or (vi) you default in payment or
breach any other material obligation to any of your other creditors.
(9) If you are a corporation, (i) you are dissolved; (ii) your shareholders or
members pass a resolution for your winding-up or liquidation; (iii) someone goes
to court seeking your winding-up or liquidation, or the appointment of an
administrator, conservator, receiver, trustee, custodian or other similar
official for you or for all or substantially all your assets; or (iv) you seek
protection under any statute offering relief against the company's creditors.
"Fixed Rate Instalment Loan" means an Instalment Loan that is also a Fixed Rate
Loan.
"Fixed Rate Loan" means any loan drawn down, converted or extended under a
Credit at an interest rate which was fixed for a term, instead of referenced to
a variable rate such as the Prime Rate or U.S. Base Rate, at the time of such
drawdown, conversion or extension. For purposes of certainty, a Fixed Rate Loan
includes a LIBOR Loan.
"Floating Rate Instalment Loan" means either an Instalment Loan that is either a
Prime Rate Loan or a Base Rate Loan.
"Instalment Loan" means a loan that is repayable either in fixed instalments of
principal, plus interest, or in blended instalments of both principal and
interest. A Demand Instalment Loan is repayable on demand. A Committed
Instalment Loan is repayable only upon the occurrence of an Event of Default.
"Letter" or "Agreement" means the letter agreement between you and CIBC to which
this Schedule and any other Schedules are attached and includes the schedule(s).
<PAGE>
"Letter of Credit" or "L/C" means a documentary or stand-by letter of credit, a
letter of guarantee, or a similar instrument in form and substance satisfactory
to us.
"L/C Acceptance" means a draft (as defined under the Bills of Exchange Act
(Canada)) payable to the beneficiary of a documentary L/C which the L/C
applicant or beneficiary, as the case may be, has presented to us for acceptance
under the terms of the L/C.
"Lien" includes a mortgage, charge, lien, security interest or encumbrance of
any sort on an asset, and includes conditional sales contracts, title retention
agreements, capital trusts and capital leases.
"Normal Course Lien" means a Lien that (a) arises by operation of law or in the
ordinary course of business as a result of owning any such asset (but does not
include a Lien given to another creditor to secure debts owed to that creditor)
and (b), taken together with all other Normal Course Liens, does not materially
affect the value of the asset or its use in the business.
"Operating Account" means the account that you normally use for the day-to-day
cash needs of your business, and may be either or both of a Canadian dollar and
a U.S. dollar account.
"Prime Rate" means the variable reference rate of interest per year declared by
CIBC from time to time to be its prime rate for Canadian dollar loans made by
CIBC in Canada.
"Prime Rate Loan" means a Canadian dollar loan on which interest is calculated
by reference to Prime Rate.
"Purchase Money Lien" means a Lien incurred in the ordinary course of business
only to secure all or part of the purchase price of an asset, or to secure debt
used only to finance all or part of the purchase of the asset.
"Standard Overdraft Rate" means the variable reference interest rate per year
declared by CIBC from time to time to be its standard overdraft rate on
overdrafts in Canadian or U.S. dollar accounts maintained with CIBC in Canada.
"U.S. Base Rate" means the variable reference interest rate per year as declared
by CIBC from time to time to be its base rate for U.S. dollar loans made by CIBC
in Canada.
SHARE PLEDGE
This Share Pledge dated as of March 11, 1998 made by PMC-SIERRA, INC. (the
"Corporation"), a corporation incorporated under the laws of Delaware, to and in
favour of CIBC INC. (the "Lender"), as lender under the Credit Agreement
hereinafter referred to.
WHEREAS:
A. The Corporation has entered into a credit agreement dated as of the date
hereof with the Lender (as such agreement may at any time or from time to time
be amended, supplemented or otherwise modified or restated, the "Credit
Agreement") and the Corporation has guaranteed by a guarantee dated as of the
date hereof all indebtedness, liabilities and obligations of PMC - Sierra Ltd.
("PMC") to Canadian Imperial Bank of Commerce ("CIBC") under a credit agreement
between PMC and CIBC dated as of the date hereof.
B. The Corporation is as at the date hereof the holder of all of the issued
and outstanding voting shares in the capital of PMC and has agreed to pledge in
favour of the Lender those shares described in Schedule A hereto (the shares in
Schedule A hereto are referred to, collectively, as the "Shares").
C. It is a condition of the advance of the said credit facilities by the
Lender to the Corporation that the Corporation execute and deliver this Share
Pledge together with the share certificates representing the Shares (the
"Certificates"), duly endorsed in blank for transfer, to and in favour of the
Lender as security for the payment and performance of all indebtedness,
liabilities and obligations of the Corporation to the Lender hereunder and under
the Credit Agreement as well as other dealings by which the Corporation may
become indebted or liable to the Lender in any manner whatsoever pursuant to the
Credit Agreement (the "Obligations").
NOW THEREFORE WITNESSETH that in consideration of these premises and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the Corporation, the Corporation covenants, declares and agrees
as follows:
1. Definitions. All terms defined in the Credit Agreement and not otherwise
defined herein or in the recitals hereto shall have the respective meanings
attributed to them in the Credit Agreement.
2. Pledge of Shares. The Corporation hereby assigns, mortgages, charges,
hypothecates and pledges to and deposits with the Lender, and grants to the
Lender a security interest in, the Shares and the Certificates together with all
replacements thereof, substitutions therefor, accretions thereto, interest
thereon and proceeds thereof, including, without limitation, any dividends,
income or revenue therefrom (the whole being herein called the "Pledge"), to be
held by the Lender as general and continuing collateral security for the payment
and performance of the Obligations.
3. Representations and Warranties. The Corporation represents and warrants to
the Lender that: (i) the Shares are free and clear of all mortgages, charges,
security interests, Liens and other encumbrances; (ii) the Corporation is the
beneficial owner of the Shares; and (iii) the Corporation is entitled to grant
the assignment and charges as provided for herein.
<PAGE>
4. Delivery of Certificates. The Certificates endorsed in blank for transfer
shall forthwith be delivered to and remain in the custody of the Lender or its
nominee. Upon an Event of Default or any other act which would permit the Lender
to demand payment of the Obligations, any or all Shares may, at the option of
the Lender, be registered in the name of the Lender or its nominee. The
Corporation covenants to deliver such stock powers and similar documents with
respect to the Shares as the Lender or its nominee may reasonably from time to
time request, satisfactory in form and substance to the Lender. If the charter
documents of PMC restrict the transfer of the Shares of such company, then the
Corporation shall also deliver to the Lender a resolution of the directors or
shareholders of such company consenting to the transfer(s) contemplated by this
Pledge.
5. Realization of the Shares. Upon the failure of the Corporation to pay or
perform any of the Obligations on demand or otherwise when due and payable or to
be performed, as the case may be or upon the occurrence of an Event of Default
or any other act which would permit the Lender to demand payment of the
Obligations, the Lender or its agent may realize upon or otherwise deal with or
dispose of the Shares by public or private sale, transfer or delivery or
exercise and enforce all rights and remedies of a holder of the Shares as if the
Lender were absolute owner thereof for such price in money or other
consideration and upon such terms and conditions as it deems best, the whole,
without notice to or control by the Corporation. Any such remedy may be
exercised separately or in combination and shall be in addition to and not in
substitution for any other rights the Lender may have, however created, provided
that the Lender shall not be bound to exercise any such right or remedy. The
Lender shall not be bound under any circumstances to realize upon the Shares and
neither the Lender nor its agents shall be responsible for any loss occasioned
by any sale or other dealing with the Shares permitted by and made in accordance
with law, or by the retention of or delay or failure to sell or otherwise deal
with or dispose of the Shares and the Lender is hereby released from all
responsibility for any depreciation in or loss in value which the Shares may
suffer.
6. Power of Attorney. From and after the date of an Event of Default or any
other act which would permit the Lender to demand payment of the Obligations,
the Corporation hereby authorizes and empowers the Lender or any officer thereof
as attorney for the Corporation to sign any transfer or other document necessary
to complete the transfer of any of the Shares. The Lender may grant time for
payment or any other indulgence, take and give up securities, and may compound
with, grant releases and discharges and otherwise deal with PMC and the
Corporation and with other persons and the Shares and Certificates as the Lender
may see fit without liability to the Corporation for any loss thereby occasioned
to the Corporation. So long as any amount remains unpaid in respect of the
Obligations after the occurrence of an Event of Default or any other act which
would permit the Lender to demand payment of the Obligations, the Corporation
hereby irrevocably appoints the Lender or any officer thereof as its attorney in
the name of the Corporation with full powers of substitution, but for the use
and benefit of the Lender, to do all such acts and take all such proceedings as
the Lender may from time to time think advisable to realize upon the Shares in
accordance with the terms hereof and to enforce the rights hereby assigned and
obtain possession of and realize upon the property hereby assigned.
<PAGE>
7. Dealing with the Shares and the Lien hereof. The Lender shall not be
obliged to exhaust its resources against the Corporation, PMC or any other
person or persons or against any other security it may hold in respect of the
Obligations before the Lender may realize upon or otherwise deal with the Shares
or Certificates in such manner as the Lender may consider desirable. The Lender
may grant extensions or other indulgences, take and give up securities, accept
compositions, grant releases and discharges and otherwise deal with PMC and the
Corporation and with other parties, sureties or securities as it may see fit
without prejudice to the Obligations or the rights of the Lender in respect of
this Pledge.
8. Costs of Realization. All costs and charges incurred by or on behalf of the
Lender with reference to the Shares or the realization thereof (including all
reasonable legal fees and disbursements, on a solicitor and own client basis,
all court costs and expenses of taking possession of, protecting and realizing
upon the security constituted by the Shares and the costs and charges in
connection with realizing, collecting, selling, transferring, delivering or
obtaining payment of the Shares) shall be added to and form a part of the
Obligations and shall be a first charge upon the proceeds of any such
realization, collection, sale, transfer, delivery or obtaining of payment.
9. Application of Moneys. Any proceeds of the Shares may be held in lieu of
Shares realized upon and may, as and when the Lender sees fit, be applied or
appropriated as the Lender may elect on account of the Obligations and the
balance, if any, shall be paid to the Corporation or as a court of competent
jurisdiction may direct. If there shall be a deficiency, then, the Corporation
shall remain liable for such deficiency and shall pay the amount of such
deficiency to the Lender forthwith.
10. Share Rights. Until such time, if ever, as this Pledge shall be discharged
and the Shares and Certificates released to the Corporation, the Lender shall be
entitled to receive and enjoy all dividends or other distributions made on or in
respect of the Shares and to exercise all option, conversion, voting or other
like rights attaching thereto but shall not be bound or required to collect any
interest, dividends, income or revenue payable in respect of any of the Shares
or vote in respect of the Shares, and the Lender shall not be responsible for
any loss occasioned by the exercise of any such rights or by failure to exercise
same. Any interest, dividends, income or revenue payable in respect of the
Shares, if received by the Corporation, shall forthwith be paid to the Lender.
Notwithstanding the foregoing, so long as no Event of Default has occurred or
any other act which would permit the Lender to demand payment of the Obligations
has occurred, and subject to the terms of the Credit Agreement, the Corporation
shall be entitled to receive and enjoy all dividends or other distributions made
on or in respect of the shares and to vote or refrain from voting the Shares at
any meeting, whether special or general, at which the holder of the Shares is
entitled to vote and will be entitled to take part in or consent to or refrain
from taking part in or consenting to any corporate or shareholder's action which
the holder of the Shares is entitled to take part in or consent; provided that
the exercise of such right to vote or to take part in or consent to any such
corporate or shareholder's action would not result in a contravention of any
covenant or agreement of the Corporation to the Lender hereunder or to the
Lender under the Credit Agreement or under any other agreement evidencing or
securing any of the Obligations.
<PAGE>
11. Share Alteration. In the event of any subdivision, consolidation, share
exchange, stock dividend, redivision, share issue or change in the capital of
PMC or other similar action during the period that this Pledge remains in effect
resulting in an increase in the number of voting shares held by any person, the
number of voting shares to be delivered by the Corporation to the Lender
pursuant to this Pledge shall be increased (the "Additional Shares") so that the
Lender will at all times have assigned, mortgaged, charged, hypothecated and
pledged hereunder, deposited with and a security interest in the lesser of (i)
65% (less any fractional values) of the issued and outstanding voting shares in
the capital of PMC and (ii) 100% of the issued and outstanding voting shares in
the capital of PMC held by the Corporation from time to time, and the
Corporation agrees to deliver such Additional Shares endorsed in blank for
transfer to the Lender and the Additional Shares shall form part of the Shares
and shall be subject to the charges and other provisions of this Pledge;
provided that the Corporation agrees at all times to maintain ownership of at
least 65% of the issued and outstanding voting shares in the capital of PMC from
time to time and a failure to maintain such level of ownership will be an Event
of Default (as such term is defined in the Credit Agreement).
12. Payment. Upon payment and performance of the Obligations, the Lender shall
release the Shares and the Certificates to the Corporation.
13. No Merger, etc. This Pledge shall not operate by way of merger of any of
the Obligations and no judgment recovered by the Lender shall operate by way of
merger of or in any way affect the security of the Shares and Certificates.
14. Supplemental Security. This Pledge and the Shares and Certificates are in
addition, without prejudice, and supplemental to and not in substitution for any
other security held or which may hereafter be held by the Lender.
15. Further Assurances. The Corporation shall from time to time, whether before
or after the Lender makes a demand for payment of the Obligations, do all such
acts and things and execute and deliver all such deeds, transfers, assignments
and instruments as the Lender may require for perfecting the security
constituted hereby or by the Shares, for facilitating the sale of or exercise by
the Lender of rights under the Shares in connection with any realization thereof
and for exercising all powers, authorities and discretions hereby conferred upon
the Lender.
16. Headings, etc. The division of this Pledge into sections and the insertion
of headings are for convenience of reference only and shall not affect the
interpretation hereof.
17. Governing Law. This Pledge shall be governed by and construed in accordance
with the laws of the Province of British Columbia and the laws of Canada
applicable therein and shall be treated in all respects as a British Columbia
contract (without reference to the choice of law rules). The Corporation
irrevocably submits to the courts of British Columbia in any action or
proceeding arising out of or relating to this Pledge, and irrevocably agrees
that all such actions and proceedings may be heard and determined in such
courts, and irrevocably waives, to the fullest extent possible, the defense of
an inconvenient forum.
18. Successors, etc. This Pledge shall enure to the benefit of the Lender and
its successors and assigns and shall be binding upon the Corporation and its
successors and permitted assigns. All rights of the Lender hereunder shall be
assignable in accordance with the terms of the Credit Agreement.
19. Severability. The invalidity or unenforceability of any provision of this
Pledge shall not affect the validity or enforceability of any other provision
hereof and any such invalid or unenforceable provision shall be deemed to be
severable from the other provisions hereof.
<PAGE>
20. Notices. All notices, requests, demands, directions and communications
("notices") hereunder shall be sent by telex, telecopy or similar means of
recorded communication or hand delivery, and shall be effective when hand
delivered or, in the case of telex, telecopy or similar means of recorded
communication, when received. All notices shall be given to the parties hereto
at the addresses set out in the Credit Agreement, or otherwise in accordance
with any unrevoked written direction of a party as to a change of address.
21. Incorporation of Schedules. Schedule A hereto shall, for all purposes
hereof, form an integral part of this Pledge.
22. Conflict. In the event of a conflict or inconsistency between the
provisions of this Pledge and the provisions of the Credit Agreement, the
provisions of the Credit Agreement shall prevail.
23. Acknowledgement of Receipt/Waiver. The Corporation acknowledges receipt of
an executed copy of this Pledge. The Corporation waives, to the extent permitted
by law, the right to receive a copy of any financing statement, financing change
statement or verification statement registered with or issued by any personal
property registry or other governmental body or agency thereof in connection
with this Pledge.
IN WITNESS WHEREOF the Corporation has duly executed this Share Pledge and
affixed its corporate seal under the hands of its proper officers duly
authorized for the purpose thereof as of the date first above written.
PMC-SIERRA, INC.
Per: /s/ John W. Sullivan, VP Finance
--------------------------------
Authorized Signatory
Signed and authorized on: April 27/98
<PAGE>
SCHEDULE A
CERTAIN VOTING SHARES OWNED BY THE CORPORATION
IN THE CAPITAL OF PMC-SIERRA LTD.
Description Certificate No. Number of Shares
----------- --------------- ----------------
Ordinary Shares 0-2 2,579,797
This Agreement is dated the 27 day of April , 1998 made BETWEEN PMC-Sierra,
Inc., a corporation incorporated and registered under the Laws of Delaware
(hereinafter referred to as the " Corporation") and CIBC Inc , a U.S. company
incorporated and registered under the laws of New York, United States of America
( hereinafter referred to as the "Lender").
WHEREAS:
A. The Corporation has entered into a credit agreement with the Lender dated
March 11, 1998 (as such agreement may from time to time be amended, supplemented
or otherwise modified or restated (hereinafter referred to as the "Credit
Agreement")
B. The Corporation is at the date hereof the holder of all the issued and
outstanding shares in the capital of PMC-Sierra International, Inc.( the
"Shares"), a company incorporated and registered in Barbados with its registered
office situate at c/o The Corporate Secretary Limited, Whitepark House, White
Park Road, St. Michael, Barbados (hereinafter referred to as the " Company");
C. It is a condition of the advance of the said credit facilities by the
Lender to the Corporation that the Corporation pledge to the Lender those Common
Shares in the capital of the Company described in Schedule A hereto ( the
"Pledged Shares") and execute and deliver this Agreement together with the share
certificates representing the Pledged Shares (the "Certificates") and a share
transfer form (the "Share Transfer Form"), duly executed by the Corporation in
blank, for transfer of the Pledged Shares to and in favour of the Lender as
security for the payment and performance of all indebtedness, liabilities and
obligations of the Corporation to the Lender hereunder and under the Credit
Agreement as well as other dealings by which the Corporation may become indebted
or liable to the Lender in any manner whatsoever pursuant to the Credit
Agreement (the "Obligations").
NOW THEREFORE WITNESSETH that in consideration of these premises and of
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged by the Corporation, the Corporation hereby covenants,
declares and agrees with the lender as follows:
1. All terms defined in the Credit Agreement and not otherwise defined herein
or in the recitals hereto shall have the respective meanings attributed to them
in the Credit Agreement.
2. The Corporation hereby pledges, assigns, mortgages, charges, hypothecates,
sets over unto and deposits with the Lender, and grants to the Lender a security
interest in, all of the Corporation's right, title and interest in and to the
Pledged Shares and the Certificates together with all replacements thereof and
substitutions therefor to be held by the Lender as a general and continuing
security for the payment and performance of the Obligations.
<PAGE>
3. The Corporation shall forthwith deliver to the Lender the Certificates and
the Share Transfer Form in blank, signed by the Corporation, as transferor, and
the same shall be retained by and remain in the custody of the Lender or its
nominee.
4. The Corporation shall also forthwith deliver to the Lender a certified copy
of a resolution of the directors of the Company consenting to the transfer(s)
contemplated by this Agreement.
5. Upon the failure of the Corporation to pay or perform any of the
Obligations on demand or otherwise when due and payable or to be performed, as
the case may be, or upon the occurrence of an Event of Default or any other act
which would permit the Lender to demand payment of the Obligations, the Lender
or its agent may realise upon or otherwise deal with or dispose of the Pledged
Shares by sale, transfer or delivery or exercise and enforce all rights and
remedies of the holder of the Pledged Shares as if the Lender were the absolute
owner thereof for such price in money or other consideration and upon such terms
and conditions as it deems best. Any such remedy may be exercised separately or
in combination and shall be in addition to and not in substitution for any other
rights the Lender may have, however created, provided that the Lender shall not
be bound to exercise any such right or remedy. The Lender shall not be bound
under any circumstances to realise upon the Pledged Shares and neither the
Lender nor its agents shall be responsible for any loss occasioned by any sale
or other dealing with the Pledged Shares permitted by and made in accordance
with applicable law or by the retention of or delay or failure to sell or
otherwise deal with or dispose of the Pledged Shares and the Lender is hereby
released from all responsibility for any depreciation in or loss in value which
may be occasioned in respect of the Pledged Shares.
6. Unless and until (i) an Event of Default or any other act which would
permit the Lender to demand payment of the Obligations shall have occurred and
(ii) written notice thereof shall have been given by the Lender to the
Corporation, the Corporation shall be entitled to execute any and all voting and
other consensual rights pertaining to the Pledge Shares and to give all
consents, waivers or ratifications in respect thereof and to receive notice of
and to attend all meetings of the shareholders of the Company to which, but for
the execution of this Agreement, the Corporation would have been entitled;
provided that no vote shall be cast or any consent waiver or ratification given
or any action taken which would violate or be inconsistent with any of the terms
of this Agreement or any document which the parties may execute in connection
with the Obligations or which would have the effect of impairing or prejudicing
the position or interest of the Lender. All such rights of the Corporation to
vote and to give consents, waivers and ratifications shall cease in case an
Event of Default or any other act which would permit the Lender to demand
payment of the Obligations shall occur and Section 9 hereof shall thereupon
become applicable.
7. Unless an Event of Default or any other act which would permit the Lender
to demand payment of the Obligations shall have occurred and subject to the
terms of the Credit Agreement:
(i) all cash dividends payable in respect of the Pledge Shares shall be
paid to the Corporation Provided that all cash dividends payable in
respect of the Pledged Shares which are determined by the Lender to
represent in whole or in part an extraordinary, liquidating or other
distribution in return of capital shall be paid (to the extent so
determined by the Lender to represent an extraordinary, liquidating
or other distribution in return of capital) to the Lender and
retained by the Lender as part of the Pledged Shares.
<PAGE>
(ii) The Corporation shall be entitled to receive all other or additional
stock or other securities or property paid or distributed by way of
dividend or otherwise in respect of the Pledged Shares.
(iii) Subject to Section 10, the Corporation shall be entitled to receive
directly:
(a) all other or additional stock or other securities or property
(including cash) paid or distributed by the Company in respect
of the Pledged Shares by way of stock-split, re-classification,
combination of shares or similar re- arrangement and
(b) all other or additional stock or other securities or property
(including cash) which may be paid in respect of the Pledged
Shares by reason of any consolidation, merger, amalgamation,
exchange of stock, conveyance of assets, liquidation or similar
corporate re-organisation.
8. All dividends, distributions or other payments received by the Corporation
or the Lender contrary to the provisions of Section 7 hereof shall be received
and held in trust by the Corporation or the Lender (as the case may be) for and
on behalf and for the benefit of each for the other and shall be segregated from
other property or fund and shall forthwith be paid over to the Lender or the
Corporation respectively (as the case may be) in the same form as so received
(with any endorsement).
9. In case an Event of Default or any other act which would permit the Lender
to demand payment of the Obligations shall have occurred, the Lender shall be
entitled to exercise all of the rights, powers and remedies (whether vested in
it by this Agreement or by law) for the protection and enforcement of its rights
in respect of the Pledged Shares and the Lender shall be entitled without
limitation, to exercise the following rights:
(i) to receive all amounts payable in respect of the Pledged Shares under
Section 7 hereof;
(ii) to transfer all or any part of the Pledge Shares into the Lender's
name or into the name of its nominee or nominees (the Lender hereby
agrees to promptly notify the Corporation and the Company after such
transfer; provided that the failure to give such notice shall not
affect the validity of such transfer);
(iii)subject to the giving of written notice to the Corporation in
accordance with Section 6 hereof, to vote all or any part of the
Pledged Shares (whether or not transferred into the name of the
Lender) and give all consents, waivers or ratifications in respect of
the Pledged Shares and otherwise act with respect thereto as though
it were the absolute owner thereof (the Corporation hereby
irrevocably constituting and appointing the Lender the proxy and
attorney-in-fact of the Corporation); and
<PAGE>
(iv) at any time and from time to sell, assign and deliver, or grant
options to purchase (subject to the Articles and bylaws and any
Unanimous Shareholders Agreement of the Company) all or any part of
the Pledged Shares.
10. In the event of any subdivision, consolidation, share exchange, stock
dividend, redivision, share issue or change in the capital of the Company or
other similar action during the period that this Agreement remains in effect
resulting in an increase in the number of issued and outstanding shares held by
any person in the capital of the Company, the number of shares to be delivered
by the Corporation to the Lender pursuant to this Agreement shall be increased
(the "Additional Shares") so that the Lender will at all times have pledged,
assigned, mortgaged, charged, hypothecated and deposited with and possess a
security interest in the lesser of (i) 65% of the issued and outstanding shares
in the capital of the Company and (ii) 100% of the issued and outstanding shares
in the capital of the Company held by the Corporation from time to time, and the
Corporation hereby agrees to deliver to the Lender the share certificates and
share transfer forms, duly signed by the Corporation, in respect of such
Additional Shares and the Additional Shares shall form part of the Pledged
Shares hereunder and shall be subject to the charges, terms and conditions of
this Agreement; and the Corporation hereby agrees at all times to maintain its
ownership of at least 65% of the issued and outstanding shares in the capital of
the Company and a failure to maintain such level of ownership will be an Event
of Default.
11. From and after the date of an Event of Default or any other act which
would permit the Lender to demand payment of the Obligations, the Corporation
hereby appoints, authorises and empowers the Lender as attorney for the
Corporation to sign any transfer or other document necessary to complete the
transfer of any of the Pledged Shares in accordance with the terms hereof. If
any amount should remain unpaid and outstanding in respect of the Obligations
after an Event of Default or any other act which would permit the Lender to
demand payment of the Obligations, the Corporation hereby irrevocably appoints
the Lender thereof as its attorney in the name of the Corporation with full
powers of substitution but for the use and benefit of the Lender, to do all such
acts and take all such proceedings as the Lender may from time to think
advisable to realise upon the Pledged Shares in accordance with the terms hereof
and to enforce the rights hereby assigned and obtain possession of and realise
upon the property hereby charged.
12. The Lender shall not be obliged to exhaust its resources against the
Corporation or any other person or persons or against any other security it may
hold in respect of the Obligations before the Lender may realise upon or
otherwise deal with the Pledged Shares or Certificates in such manner as the
Lender may consider desirable. The Lender may grant time for payment or any
other indulgence, take and give up securities, and may compound with, grant
releases and discharges and otherwise deal with the Corporation and with any
other person and the Pledged Shares and Certificates and Share Transfer Form as
the Lender may see fit without liability to the Corporation for any loss thereby
occasioned to the Corporation and prejudice to the Obligations or the rights of
the Lender in respect of this Agreement.
<PAGE>
13. All costs and charges incurred by or on behalf of the Lender with
reference to the Pledged Shares or the realisation thereof (including all
reasonable legal fees and disbursements, on a solicitor and own client basis,
all court costs and expenses of taking possession of, protecting and releasing
upon the security constituted by the Pledged Shares and the costs and charges in
connection with releasing, collecting, selling, transferring, delivering or
obtaining payment of the Pledged Shares) shall be added to and form a part of
the Obligations and shall be first charge upon the proceeds of any such
realisation, collection, sale, transfer, delivery or obtaining of payment.
14. Any proceeds of the Pledged Shares may be held in lieu of Pledged Shares
realised upon and may, as and when the Lender sees fit, be applied or
appropriated as the Lender may elect on account of the Obligations and the
balance, if any, shall be paid to the Corporation or as a court of competent
jurisdiction may direct. If there shall be a deficiency, the Corporation shall
remain liable for such deficiency and shall pay the amount of such deficiency to
the Lender forthwith.
15. Upon payment and performance of the Obligations, the Lender shall release
the Pledged Shares and the Certificates and the Share Transfer Forms to the
Corporation.
16. This Agreement shall not operate by way of merger of any of the
Obligations and no judgment recovered by the Lender shall operate by way of
merger of or in any way effect the security of the Pledged Shares and
Certificates.
17. This Agreement and the Pledged Shares and Certificates are, without
prejudice, in addition and supplemental to and not in substitution for any other
security held or which may hereafter be held by the Lender.
18. The Corporation hereby agrees that it will do such further acts and things
and execute and deliver to the Lender such additional assignments, agreements
and instruments as the Lender may reasonably require or deem advisable to carry
into effect the purposes of this Agreement or to further assure and confirm unto
the Lender its rights, powers and remedies hereunder.
19. The Corporation hereby covenants with the Lender as follows:
(i) on the date hereof the Corporation is the legal and beneficial owner
of record of 1,000 Common Shares in the capital of the Company, which
are all of the issued and outstanding shares in the capital of the
Company;
(ii) the Pledged Shares are under no pledge, lien, mortgage,
hypothecation, security interest, charge option or other encumbrance
whatsoever, except the lien, charge and security interest created by
this Agreement;
(iii)it has full power, authority and legal right to pledge all of the
Pledged Shares pursuant to this Agreement;
(iv) this Agreement has been duly authorised, executed and delivered by
the Corporation and constitutes the legal, valid and binding
obligation of the Corporation enforceable in accordance with its
terms; and
<PAGE>
(v) no consent of any other party (including without limitation, any
stockholder or creditor of the Corporation or any of its subsidiaries
or affiliates) is required to be obtained by the Corporation in
connection with the execution, delivery or performance of this
Agreement or in connection with the exercise of the rights and
remedies pursuant to this Agreement. Except that the Articles and By-
laws of the Company state that no shares in the capital of the
Company shall be transferred without the approval of the directors or
a committee of directors of the Company evidenced by written
resolution.
20. Immediately after the Obligations have been repaid to the Lender and all
other conditions in connection therewith satisfied and fulfilled by the
Corporation, this Agreement shall terminate and the Lender shall forthwith
execute and deliver to the Corporation a proper instrument or instruments
acknowledging the satisfaction of the Obligations owing to the Lender by the
Corporation and the termination of this Agreement and will duly release the
Corporation and the Pledged Shares from the security interest and charge hereby
created and re-assign transfer and deliver to the Corporation the Pledged
Shares.
21. The division of this Agreement into sections are for convenience of
reference only and shall not affect the interpretation hereof.
22. This Agreement shall be governed by and construed in accordance with the
laws of Barbados and the parties hereto hereby irrevocably submit to the
jurisdiction of the courts of Barbados in any action or proceeding arising out
of or relating to the Agreement and irrevocably agree that all such actions and
proceedings shall be heard and determined in such courts and irrevocably waive,
to the fullest extent possible, the defence of forum non conveniens.
23. This Agreement shall inure to the benefit of the Lender and its successors
and assigns and shall be binding upon the Corporation and its successors and
permitted assigns. All rights of the Lender hereunder shall be assignable in
accordance with the terms of the Credit Agreement.
24. The invalidity or enforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision hereof and any
such invalid or unenforceable provision shall be deemed to be several from the
other provisions hereof.
25. All notices hereunder shall be sent by telex, telecopy or similar means of
recorded communication or hand delivery, and shall be effective when hand
delivered or in the case of telex, telecopy or similar means of recorded
communication when received. All notices shall be given to the parties hereto at
the addresses set out in the Credit Agreement, or otherwise in accordance with
any unrevoked written direction of a party as to a change of address, given in
accordance with this section.
26. In the event of a conflict or inconsistency between the provisions of this
Agreement and the provisions of the Credit Agreement, the provisions of the
Credit Agreement shall prevail.
27. This Agreement shall be a continuing and running security to cover the
maximum sum of 16,000,000.00 dollars currency of the United States of America.
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement
April 27, 1998 the date first above written.
SIGNED on behalf of ) /S/ John W. Sullivan
PMC-SIERRA INC. by ) --------------------------------------
John Sullivan, Chief Financial Officer
<PAGE>
I, Daniel J McLeod of Vancouver, British Columbia Notary Public in and
for British Columbia do hereby CERIFY that on the day of the date hereof
personally appeared before me a male/female who identified himself/herself to be
the within-named the executing party to the within written Affidavit and did in
my presence sign and deliver the same as for his/her free and voluntary act and
deed.
IN TESTIMONY whereof I have unto set and subscribed my name and Seal of Office
this
day of July 10, 1998.
/S/ Daniel J. McLeod
--------------------
Notary Public
THE CORPORATE SEAL of )
CIBC INC was hereto set and affixed )
by the
Secretary thereof in the presence of: ) --------------------
Secretary
- -----------------------------
Director
- ------------------------------
Notary Public
I,
of
Notary Public in and for do hereby CERIFY that on the day of the
date hereof personally appeared before me a male/female who identified
himself/herself to be the within-named the executing party to the within written
Affidavit and did in my presence sign and deliver the same as for his/her free
and voluntary act and deed.
IN TESTIMONY whereof I have unto set and subscribed my name and Seal of Office
this
day of 1998.
----------------------------
Notary Public
400 Burrard Street
Vancouver, British Columbia, V6C 3A6
------------------------------------
CIBC GUARANTEE
For valuable consideration, I, the undersigned guarantor, agree with Canadian
Imperial Bank of Commerce ("CIBC") as follows:
1. Customer's Name. The name of the customer whose debts I am guaranteeing is:
PMC - SIERRA LTD., a company incorporated under the laws of Canada, (the
"Customer").
2. Guarantee. I guarantee payment to CIBC of all the Customer's Debts. My
liability under this Guarantee is:
(a) | | unlimited.
(b) |X| limited to the principal sum of Twenty Five Million Dollars in
U.S. Funds or the Equivalent Amount in Canadian Funds or any
combination of the two together plus interest and expenses in
accordance with Section 5.
NOTE: IF NEITHER BOX (a) NOR BOX (b) IS CHECKED OFF, OR IF BOTH ARE CHECKED
OFF, OR IF BOX (b) IS CHECKED OFF BUT NO FIGURE IS INSERTED IN THE
BLANK, THEN BOX (a) ALONE WILL BE CONSIDERED TO HAVE BEEN CHECKED OFF.
1. Governing Law. This Guarantee is governed by the laws of British Columbia
(the "Jurisdiction") (without reference to the choice of law rules.) I
irrevocably submit to the courts of the Jurisdiction in any action or
proceeding arising out of or relating to this Guarantee, and irrevocably
agree that all such actions and proceedings may be heard and determined in
such courts, and irrevocably waive, to the fullest extent possible, the
defense of an inconvenient forum. I agree that a judgment or order in any
such action or proceeding may be enforced in other jurisdictions in any
manner provided by law. Provided, however, that CIBC may serve legal process
in any manner permitted by law or may bring an action or proceeding against
me or my property or assets in the courts of any other jurisdiction. Without
limiting the generality of the foregoing, I hereby agree that service of all
writs, process and summonses in any suit, action or proceeding brought
against me under or in respect of this Guarantee in the Jurisdiction may be
made upon Blake, Cassels & Graydon, Barristers and Solicitors, Suite 2600
Three Bentall Centre, 595 Burrard Street, Vancouver, British Columbia
(Attention: Joanne Payne) and hereby irrevocably appoint Blake Cassels &
Graydon as my true and lawful attorney-in-fact in my name, place and stead
to accept such service of any and all writs, process and summonses, and
agree that the failure of Blake, Cassels and Graydon to give any notice of
any such service of process to me shall not impair or affect the validity of
such service or of any judgment based thereon.
4. Copy Received. I acknowledge having received a copy of this Guarantee.
NOTE: THE "ADDITIONAL TERMS AND CONDITIONS OF THIS GUARANTEE" ON THE
FOLLOWING PAGES FORM PART OF THIS GUARANTEE.
Dated April 27, 1998.
--------------
PMC - SIERRA, INC.
(a Delaware corporation)
---------------------------------
GUARANTOR'S NAME (RECORD IN FULL)
/S/ John W. Sullivan
-------------------------------------
AUTHORIZED SIGNATURE OFFICE:
105 - 8555 Baxter Place
-----------------------
GUARANTOR'S ADDRESS
Burnaby, B.C. V5A-4V7
-----------------------------------------------
(CITY/TOWN, PROVINCE/STATE AND POSTAL/ZIP CODE)
<PAGE>
ADDITIONAL TERMS AND CONDITIONS OF THIS GUARANTEE
5. Payment On Demand. I will immediately pay CIBC on demand:
(a) the amount (and in the currency) of the Customer's Debts (but if
Section 2(b) applies, subject to that limitation), plus any expenses
(including all legal fees and disbursements) incurred by CIBC in
enforcing any of CIBC's rights under this Guarantee; and
(b) interest (including interest on overdue interest, compounded monthly)
on unpaid amounts due under this Guarantee calculated from the date on
which those amounts were originally demanded until payment in full,
both before and after judgment, at the rates (and in the currency)
applicable to the corresponding Customer's Debts.
6. Making Demand. Demand and any other notices given under this Guarantee will
be conclusively considered to have been made upon me when the envelope
containing it, addressed to me (or, if there is more than one Person signing
this Guarantee, to any one of us) at the last address known to CIBC, is
deposited, postage prepaid, first class mail, in a post office, or is
personally delivered to that address. I will give CIBC immediate written
notice, addressed to the Manager of the Bank Office, of each and every
change of my address.
7. No Setoff or Counterclaim. I will make all payments required to be made
under this Guarantee without regard to any right of setoff or counterclaim
that I have or may have against the Customer or CIBC.
8. Application of Moneys Received. CIBC may apply all moneys received from me,
the Customer or any other Person (including under any Security that CIBC may
from time to time hold) upon such part of the Customer's Debts as CIBC
considers appropriate.
9. Exhausting Recourse. CIBC does not need to exhaust its recourse against the
Customer or any other Person or under any Security CIBC may from time to
time hold before being entitled to full payment from me under this
Guarantee.
10. Absolute Liability. My liability under this Guarantee is absolute and
unconditional. It will not be limited or reduced, nor will CIBC be
responsible or owe any duty (as a fiduciary or otherwise) to me, nor will
CIBC's rights under this Guarantee be prejudiced, by the existence or
occurrence (with or without my knowledge or consent) of any one or more of
the following events:
(a) any termination, invalidity, unenforceability or release by
CIBC of any of its rights against the Customer or against any
other Person or of any Security;
(b) any increase, reduction, renewal, substitution or other
change in, or discontinuance of, the terms relating to the
Customer's Debts or to any credit extended by CIBC to the
Customer; any agreement to any proposal or scheme of
arrangement concerning, or granting any extensions of time or
any other indulgences or concessions to, the Customer or any
other Person; any taking or giving up of any Security;
abstaining from taking, perfecting or registering any
Security; allowing any Security to lapse (whether by failing
to make or maintain any registration or otherwise); or any
neglect or omission by CIBC in respect of, or in the course
of, doing any of these things;
(c) accepting compositions from or granting releases or
discharges to the Customer or any other Person, or any other
dealing with the Customer or any other Person or with any
Security that CIBC considers appropriate;
(d) any unenforceability or loss of or in respect of any Security
held from time to time by CIBC from me, the Customer or any
other Person, whether the loss is due to the means or timing
of any registration, disposition or realization of any
collateral that is the subject of that Security or otherwise
due to CIBC's fault or any other reason;
(e) the death of the Customer; any change in the Customer's name;
or any reorganization (whether by way of amalgamation,
merger, transfer, sale, lease or otherwise) of the Customer
or the Customer's business;
(f) any change in my financial condition or that of the Customer
or any other Guarantor (including insolvency and bankruptcy);
(g) if I am or the Customer is a corporation, any change of
effective control, or if I am or the Customer is a
partnership, a dissolution or any change in the membership;
(h) any event, whether or not attributable to CIBC, that may be
considered to have caused or accelerated the bankruptcy or
insolvency of the Customer or any Guarantor, or to have
resulted in the initiation of any such proceedings;
<PAGE>
(i) CIBC's filing of any claim for payment with any
administrator, provisional liquidator, conservator, trustee,
receiver, custodian or other similar officer appointed for
the Customer or for all or substantially all of the
Customer's assets;
(j) any failure by CIBC to abide by any of the terms and
conditions of CIBC's agreements with, or to meet any of its
obligations or duties owed to, me, the Customer or any
Person, or any breach of any duty (whether as a fiduciary or
otherwise) that exists or is alleged to exist between CIBC
and me, the Customer or any Person;
(k) any incapacity, disability, or lack or limitation of status
or of the power of the Customer or of the Customer's
directors, managers, officers, partners or agents; the
discovery that the Customer is not or may not be a legal
entity; or any irregularity, defect or informality in the
incurring of any of the Customer's Debts; or
(l) any event whatsoever that might be a defence available to, or
result in a reduction or discharge of, me, the Customer or
any other Person in respect of either the Customer's Debts or
my liability under this Guarantee.
For greater certainty, I agree that CIBC may deal with me, the
Customer and any other Person in any manner without affecting my
liability under this Guarantee.
11. Principal Debtor. All moneys and liabilities (whether matured or unmatured,
present or future, direct or indirect, absolute or contingent) obtained from
CIBC will be deemed to form part of the Customer's Debts, notwithstanding
the occurrence of any one or more of the events described in Section 10(k).
I will pay CIBC as principal debtor any amount that CIBC cannot recover from
me as Guarantor immediately following demand as provided in this Guarantee.
12. No Liability for Negligence, etc. CIBC will not be liable to me for any
negligence or any breaches or omissions on the part of CIBC, or any of its
employees, officers, directors or agents, or any receivers appointed by
CIBC, in the course of any of its or their actions.
13. Continuing Guarantee. This is a continuing guarantee of the Customer's
Debts.
14. Terminating Further Liability. I may discontinue any further liability to
pay the Customer's Debts by written notice to the Bank Office. I will,
however, continue to be liable under this Guarantee for any of the
Customer's Debts that the Customer incurs up to and including the 30th day
after CIBC receives my notice.
15. Statement Conclusive. Except for demonstrable errors or omissions, the
amount appearing due in any account stated by CIBC or settled between CIBC
and the Customer will be conclusive as to that amount being due.
16. CIBC's Priority.
(a) If any payment made to CIBC by the Customer or any other Person is
subsequently rendered void or must otherwise be returned for any
reason, I will be liable for that payment (but if Section 2(b)
applies, subject to that limitation). Until all of CIBC's claims
against the Customer in respect of the Customer's Debts have been paid
in full, I will not require that CIBC assign to me any Security held,
or any other rights that CIBC may have, in connection with the
Customer's Debts, and I will not assert any right of contribution
against any Guarantor, or claim repayment from the Customer, for any
payment that I make under this Guarantee.
(b) If the Customer is bankrupt, or (if the Customer is a corporation)
liquidated or wound up, or if the Customer makes a bulk sale of any
assets under applicable law, or if the Customer proposes any
composition with creditors or any scheme of arrangement, CIBC will be
entitled to all dividends and other payments until CIBC is paid in
full, and I will remain liable under this Guarantee (but if Section
2(b) applies, subject to that limitation).
(c) If CIBC gives to any trustee in bankruptcy or receives a valuation of,
or retains, any Security that CIBC holds for payment of the Customer's
Debts, that will not be considered, as between CIBC and me, to be a
purchase of such Security or payment, satisfaction or reduction of the
Customer's Debts.
17. Assignment and Postponement of Claim. After an Event of Default (as defined
in the Credit Agreement) or any other act or event which would permit CIBC
to demand payment of the credit facilities established by CIBC in favour of
the Customer under the Credit Agreement, I postpone in favour of CIBC all
debts and liabilities that the Customer now owes or later may from time to
time owe to me in any manner until CIBC is paid in full. I further assign to
CIBC all such debts and liabilities, to the extent of the Customer's Debts,
until CIBC is paid in full. If I receive any moneys in payment of any of
such debts and liabilities, I will hold them in trust for, and will
immediately pay them to, CIBC without reducing my liability under this
Guarantee.
<PAGE>
18. Withholding Taxes. Unless a law requires otherwise, I will make all payments
under this Guarantee without deduction or withholding for any present or
future taxes of any kind. If a law does so require, I will pay to CIBC an
additional amount as is necessary to ensure CIBC receives the full amount
CIBC would have received if no deduction or withholding had been made.
Without limiting the generality of the foregoing I hereby understand and
agree that (i) the Customer's liability will be paid to CIBC strictly in
accordance with the terms and provisions of any agreement, express or
implied, which has been made or may hereafter be made or entered into by the
Customer, regardless of any law, regulation or decree, now or hereafter in
effect, which might in any manner affect any of the terms or provisions of
any such agreement or rights of CIBC as against the Customer with respect to
any of the Customer's Debts, or cause or permit to be invoked any alteration
in the time, amount or manner of payment of any of the Customer's Debts, and
(ii) in each instance when the Customer shall have agreed, relative to any
of the Customer's Debts, to pay or provide CIBC with any amount of money, if
such amount is not actually paid or provided as and when agreed, I will,
upon request, and as CIBC may elect, pay or provide the amount in the exact
currency and place as agreed by the Customer. All such payments shall be
made without set-off or counterclaim and free and clear of, and without
deduction for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees , deductions, withholdings or
restrictions or conditions of any nature whatsoever now or hereafter
imposed, levied, calculated, withheld or assessed by any country or any
political subdivision or taxing authority thereof or therein including, but
not limited to, the United States of America or any political subdivision or
taxing authority thereof or therein (all of the foregoing being referred to
herein as "Taxes"). If any Taxes are required to be withheld from any
amounts payable to CIBC, the amounts so payable to CIBC shall be increased
to the extent necessary to yield to CIBC (after payment of all Taxes)
interest and such other amounts payable hereunder at the rate or in the
amounts herein specified.
19. Judgment Currency. If for the purpose of obtaining or enforcing any judgment
on any matter under this Guarantee in any court in any jurisdiction, it
becomes necessary to convert into any other currency (such other currency
being hereinafter called the "Judgment Currency") an amount due in respect
of the Customer's Debts, then the conversion shall be made at the option of
CIBC at the Rate of Exchange prevailing either on the Banking Day before the
date of default or on the Banking Day before the day on which the judgment
is given (the date as of which such conversion is made being hereinafter
called the "Conversion Date"). If there is a change between the Rate of
Exchange in effect on the Conversion Date (or any other date which shall be
specified in any judgment or judicial award) and the Rate of Exchange in
effect on the date of payment, then I covenants and agrees to pay such
additional amounts, if any, but in any event not a lesser amount, as may be
necessary, together with the amount paid in the Judgment Currency converted
at the Rate of Exchange in effect on the date of payment, to produce the
amount in the currency of the said amount due in respect of the Customer's
Debts which could have been purchased with the amount of Judgment Currency
stipulated in the judgment or judicial award at the Rate of Exchange in
effect on the Conversion Date or such other date as specified in such
judgment or judicial award. Any amount due under this clause shall be due as
a separate and independent debt and shall not be affected by judgment being
obtained for amounts otherwise due under or in respect of the Customer's
Debts. For the purposes of this clause, "Banking Day" means any day except a
Saturday, a Sunday or a legal holiday for Canadian chartered banks in
Vancouver, British Columbia, and "Rate of Exchange" means, for any relevant
date and currency, the spot rate at which CIBC, in accordance with its
normal practise, is able on the relevant date to purchase such currency with
the Judgment Currency and includes any premium and costs of exchange payable
in connection with such purchase.
20. Consent to Disclose Information. CIBC may from time to time give credit
information about me to, or receive such information from, any credit
bureau, reporting agency or other Person, provided, however, that no
information will be released without my consent.
21. General. Any provision of this Guarantee that is void or unenforceable in a
jurisdiction is, as to that jurisdiction, ineffective to that extent without
invalidating the remaining provisions. If two or more Persons sign this
Guarantee, each Person's liability will be joint and several. This Guarantee
is in addition and without prejudice to any Security of any kind now or in
the future held by CIBC. There are no representations, collateral agreements
or conditions with respect to, or affecting my liability under, this
Guarantee other than as contained in this Guarantee.
<PAGE>
23. Definitions. In this Guarantee:
(a) "Bank Office" means the CIBC office noted on the first page of this
Guarantee, or such address as CIBC may, from time to time, advise me
in the manner provided in Section 6;
(b) "Canadian Funds" means lawful currency of Canada;
(c) "Credit Agreement" means the credit agreement dated March 11, 1998,
issued by CIBC to the Customer with respect to various credit
facilities to be established by CIBC in favour of the Customer, as
amended and replaced from time to time;
(d) "Customer's Debts" means the debts and liabilities that the Customer
has incurred or may incur with CIBC pursuant to the Credit Agreement
including, among other things, those in respect of dealings between
the Customer and CIBC, as well as any other dealings by which the
Customer may become indebted or liable to CIBC in any manner whatever
pursuant to such Credit Agreement, anywhere within or outside the
country;
(e) "Equivalent Amount in Canadian Funds" means at any time on any date
the amount in Canadian Funds which would result from the conversion of
U.S. Funds to Canadian Funds determined on the basis of CIBC's spot
buying rate for U.S. Funds against Canadian Funds (including any
premium and costs of exchange payable in connection with such a
purchase) on such date and at such time);
(f) "Guarantor" means any Person who has guaranteed or later guarantees to
CIBC any or all of the Customer's Debts, whether or not such Person
has signed this Guarantee or another document;
(g) "I", "me" and "my" mean the Person who has signed this Guarantee, and
if two or more Persons sign, each of them;
(h) "Person" includes a natural person, personal representative,
partnership, corporation, association, organization, estate, trade
union, church or other religious organization, syndicate, joint
venture, trust, trustee in bankruptcy, government and government body
and any other entity, and, where appropriate, specifically includes
any Guarantor;
(i) "Section" means a section or paragraph of this Guarantee;
(j) "Security" means any security held by CIBC as security for payment of
the Customer's Debts and includes, among other things, any and all
guarantees;
(k) "U.S. Funds" means lawful currency of the United States of America.
PMC-SIERRA, INC.
1998 PMC-SIERRA (MARYLAND), INC. STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this 1998 PMC-Sierra
(Maryland), Inc. Stock Option Plan are to provide for the substitution of stock
options granted pursuant to the 1996 Stock Plan of Integrated Telecom
Technology, Inc. ("IgT"), and to retain the best available personnel for
positions of substantial responsibility, and to promote the success of the
Company's business.
Options granted under the Plan may be Incentive Stock Options or
be Nonstatutory Stock Options, as determined by the Administrator at the time of
grant.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its Committees
as shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options are, or will be, granted under
the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Committee" means a committee of Directors appointed by
the Board in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means PMC-Sierra, Inc., a Delaware corporation.
(h) "Consultant" means any person, including an advisor,
engaged by the Company or a Parent or Subsidiary to render services to such
entity.
(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as
defined in Section 22(e)(3) of the Code.
<PAGE>
(k) "Employee" means any person, including Officers, employed
by the Company or any Parent or Subsidiary of the Company. A Service Provider
shall not cease to be an Employee in the case of (i) any bona-fide leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. Unless provided otherwise in the Option Agreement, if reemployment
upon expiration of a leave of absence approved by the Company is not so
guaranteed, on the 181st day of such leave any Incentive Stock Option held by
the Optionee shall cease to be treated as an Incentive Stock Option and shall be
treated for tax purposes as a Nonstatutory Stock Option. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(m) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading day prior
to the day of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended
to qualify as an Incentive Stock Option.
(p) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option grant. The
Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the
Plan.
<PAGE>
(s) "Option Agreement" means an agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby
outstanding options are surrendered in exchange for options with a lower
exercise price.
(u) "Optioned Stock" means the Common Stock subject to an
Option.
(v) "Optionee" means the holder of an outstanding Option
granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1998 PMC-Sierra (Maryland), Inc. Stock
Option Plan.
(y) "Service Provider" means an Employee including an
Officer, Consultant or Director.
(z) "Share" means a share of the Common Stock, as adjusted
in accordance with Section 12 of the Plan.
(aa) "Subsidiary" means a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section
12 of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is Two Hundred Fourteen Thousand Four Hundred Fourteen
(214,414) Shares. The Shares may be authorized, but unissued, or reacquired
Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated).
4. Administration of the Plan.
(a) Administration. The Plan shall be administered by (i)
the Board or (ii) a Committee, which committee shall be constituted to satisfy
Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions
of the Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to determine the Fair Market Value of the Common
Stock;
(ii) to select the Service Providers to whom Options
may be granted hereunder;
<PAGE>
(iii) to determine whether and to what extent Options
are granted hereunder;
(iv) to determine the number of shares of Common Stock
to be covered by each Option granted hereunder;
(v) to approve forms of agreement for use under the
Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder. Such
terms and conditions include, but are not limited to, the exercise price, the
time or times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vii) to reduce the exercise price of any Option to the
then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted;
(viii) to institute an Option Exchange Program;
(ix) to construe and interpret the terms of the Plan
and awards granted pursuant to the Plan;
(x) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;
(xi) to modify or amend each Option (subject to Section
14(b) of the Plan), including the discretionary authority to extend the
post-termination exercisability period of Options longer than is otherwise
provided for in the Plan;
(xii) to authorize any person to execute on behalf of
the Company any instrument required to effect the grant of an Option previously
granted by the Administrator;
(xiii) to determine the terms and restrictions applicable
to Options;
(xiv) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined. All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable; and
(xv) to make all other determinations deemed necessary
or advisable for administering the Plan.
<PAGE>
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options.
5. Eligibility. Options may be granted to Service Providers.
6. Limitation. Neither the Plan nor any Option shall confer upon an
Optionee any right with respect to continuing the Optionee's relationship as a
Service Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.
7. Term of Plan. The Plan shall become effective upon its adoption
by the Board. It shall continue in effect for ten (10) years, unless sooner
terminated under Section 14 of the Plan.
8. Term of Option. The term of each Option shall be stated in the
Option Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be determined by the
Administrator.
(b) Waiting Period and Exercise Dates. At the time an Option
is granted, the Administrator shall fix the period within which the Option may
be exercised and shall determine any conditions which must be satisfied before
the Option may be exercised.
(c) Form of Consideration. The Administrator shall determine
the acceptable form of consideration for exercising an Option, including the
method of payment. Such consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six months on the date of surrender, and (B) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised;
(v) consideration received by the Company under a
cashless exercise program implemented by the Company in connection with the
Plan;
(vi) a reduction in the amount of any Company liability
to the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
<PAGE>
(vii) such other consideration and method of payment for
the issuance of Shares to the extent permitted by Applicable Laws; or
(viii) any combination of the foregoing methods of
payment.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any
Option granted hereunder shall be exercisable according to the terms of the Plan
and at such times and under such conditions as determined by the Administrator
and set forth in the Option Agreement. An Option may not be exercised for a
fraction of a Share.
An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee. Until
the Shares are issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.
Exercising an Option in any manner shall decrease the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option, but only within such
period of time as is specified in the Option Agreement, and only to the extent
that the Option is vested on the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Option Agreement).
In the absence of a specified time in the Option Agreement, the Option shall
remain exercisable for three (3) months following the Optionee's termination.
If, on the date of termination, the Optionee is not vested as to his or her
entire Option, the Shares covered by the unvested portion of the Option shall
revert to the Plan. If, after termination, the Optionee does not exercise his or
her Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a
Service Provider as a result of the Optionee's Disability, the Optionee may
exercise his or her Option within such period of time as is specified in the
Option Agreement, to the extent the Option is vested on the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
the Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
<PAGE>
(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Notice of Grant), by the Optionee's estate or
by a person who acquires the right to exercise the Option by bequest or
inheritance, but only to the extent that the Option is vested on the date of
death. In the absence of a specified time in the Option Agreement, the Option
shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to his or
her entire Option, the Shares covered by the unvested portion of the Option
shall immediately revert to the Plan. The Option may be exercised by the
executor or administrator of the Optionee's estate or, if none, by the person(s)
entitled to exercise the Option under the Optionee's will or the laws of descent
or distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
11. Non-Transferability of Options.Unless determined otherwise by the
Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions as
the Administrator deems appropriate.
12. Adjustments Upon Changes in Capitalization, Dissolution, Merger
or Asset Sale.
(a) Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the number of shares of Common Stock
covered by each outstanding Option, and the number of shares of Common Stock
which have been authorized for issuance under the Plan but as to which no
Options have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such other
time and subject to such other conditions as shall be determined by the
Administrator.
<PAGE>
(c) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding Option shall (i) be assumed or an
equivalent option or right substituted by the successor corporation or a Parent
or Subsidiary of the successor corporation, (ii) upon written notice the to
Optionees, provide that all outstanding Options must be exercised, to the extent
then exercisable or be exercisable as a result of the merger or asset sale,
within a specified number of days of the date of such notice, at the end of
which notice period, outstanding Options shall terminate, or (iii) terminate all
outstanding Options in exchange for a cash payment equal to the excess of the
Fair Market Value of the Shares subject to such Options (to the extent then
exercisable or be exercisable as a result of the merger or asset sale) over the
exercise price thereof.
For the purposes of this paragraph, the Option shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned
Stock, immediately prior to the merger or sale of assets, the consideration
(whether stock, cash, or other securities or property) received in the merger or
sale of assets by holders of Common Stock for each Share held on the effective
date of the transaction (and if holders were offered a choice of consideration,
the type of consideration chosen by the holders of a majority of the outstanding
Shares); provided, however, that if such consideration received in the merger or
sale of assets is not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Option,
for each Share of Optioned Stock to be solely common stock of the successor
corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
13. Date of Grant. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend or terminate the Plan.
(b) Effect of Amendment or Termination. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to options
granted under the Plan prior to the date of such termination.
15. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) Investment Representations. As a condition to the exercise of
an Option the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required.
<PAGE>
16. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
17. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
PMC-Sierra, Inc.
CALCULATION OF EARNINGS PER SHARE
(in thousands, except for per share amounts)
(unaudited)
Three Months Ended
--------------------------
Jun 28, Jun 30,
1998 1997
Numerator:
Net income (loss) $ (40,823) $ 8,932
============ ===========
Denominator:
Basic weighted average common shares
outstanding (1) 31,829 30,918
------------ -----------
Effect of dilutive securities:
Stock options - 1,442
Stock warrants - 14
------------ -----------
Shares used in calculation of net income per share 31,829 32,374
============ ===========
Basic net income (loss) per share $ (1.28) $ 0.29
Diluted net income (loss) per share $ (1.28) $ 0.28
(1) PMC-Sierra, Ltd. Special Shares are included in the calculation of basic net
income per share.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q FILED FOR THE QUARTER ENDED JUNE 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-27-1998
<PERIOD-START> Dec-29-1997
<PERIOD-END> Jun-28-1998
<CASH> 60,872
<SECURITIES> 0
<RECEIVABLES> 20,858
<ALLOWANCES> 0
<INVENTORY> 6,212
<CURRENT-ASSETS> 91,928
<PP&E> 46,342
<DEPRECIATION> (19,912)
<TOTAL-ASSETS> 160,621
<CURRENT-LIABILITIES> 47,384
<BONDS> 0
0
0
<COMMON> 30
<OTHER-SE> 92,846
<TOTAL-LIABILITY-AND-EQUITY> 160,621
<SALES> 74,270
<TOTAL-REVENUES> 74,270
<CGS> 18,030
<TOTAL-COSTS> 18,030
<OTHER-EXPENSES> 78,152
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 519
<INCOME-PRETAX> (20,338)
<INCOME-TAX> 10,836
<INCOME-CONTINUING> (31,174)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (31,174)
<EPS-PRIMARY> (0.98)
<EPS-DILUTED> (0.98)
</TABLE>
