<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 1999
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PLX TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3674 94-3008334
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
390 POTRERO AVENUE
SUNNYVALE, CA 94086
(408) 774-9060
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SCOTT M. GIBSON
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
PLX TECHNOLOGY, INC.
390 POTRERO AVENUE
SUNNYVALE, CA 94086
(408) 774-9060
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
WILLIAM D. SHERMAN, ESQ. JEFFREY D. SAPER, ESQ.
STEPHEN J. SCHRADER, ESQ. J. ROBERT SUFFOLETTA, ESQ.
MORRISON & FOERSTER LLP WILSON SONSINI GOODRICH & ROSATI
755 PAGE MILL ROAD PROFESSIONAL CORPORATION
PALO ALTO, CA 94304 650 PAGE MILL ROAD
(650) 813-5600 PALO ALTO, CA 94304
(650) 493-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for same offering. [ ]
- ------------------
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
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PROPOSED
MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value.... 3,795,000 shares $8.00 $30,360,000 $8,441
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</TABLE>
(1) Includes 495,000 shares of Common Stock that the Underwriters have the
option to purchase from the Company to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED FEBRUARY 4, 1999
PROSPECTUS
3,300,000 SHARES
[LOGO]
PLX TECHNOLOGY, INC.
COMMON STOCK
------------------------
This is PLX Technology, Inc.'s initial public offering of common stock. The
under-writers are offering 3,300,000 shares.
We expect the public offering price to be $8.00 per share. Currently, no
public market exists for the shares. After pricing of the offering, we expect
that the common stock will trade on the Nasdaq National Market under the symbol
"PLXT."
INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Offering Price................................... $ $
Underwriting Discount................................... $ $
Proceeds, before expenses, to PLX....................... $ $
</TABLE>
The underwriters may also purchase up to an additional 495,000 shares at
the public offering price, less the underwriting discount, within 30 days from
the date of this prospectus to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares of common stock will be ready for delivery in New York, New York
on or about , 1999.
------------------------
MERRILL LYNCH & CO.
NATIONSBANC MONTGOMERY SECURITIES LLC
------------------------
The date of this prospectus is , 1999.
<PAGE> 3
PLX TECHNOLOGY
PCI and I(2)0 Silicon and Software Solutions
[Graphic of computer chips, books, a CD-ROM and computer circuitry with printed
computer code.]
GATE-FOLD PAGE ONE
PLX Technology provides semiconductor devices and related software that
accelerate the flow of data in embedded systems that transmit, store and process
data including networking telecommunications, imaging, storage and industrial
equipment.
Networking & Telecommunications
[vertical text] Imaging
[Graphic PLX Technology computer chip and representation of computer network
equipment]
GATE FOLD PAGE TWO
[vertical text] Industrial
Storage
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Use of Proceeds............................................. 13
Dividend Policy............................................. 13
Capitalization.............................................. 14
Dilution.................................................... 15
Selected Consolidated Financial Data........................ 16
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 18
Business.................................................... 25
Management.................................................. 39
Certain Transactions........................................ 47
Principal Stockholders...................................... 49
Description of Capital Stock................................ 51
Shares Eligible for Future Sale............................. 54
Underwriting................................................ 56
Legal Matters............................................... 58
Experts..................................................... 58
Additional Information...................................... 58
Glossary of Terms........................................... 59
Index to Consolidated Financial Statements.................. F-1
</TABLE>
<PAGE> 4
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties and assumptions about PLX, including:
- Our ability to identify trends in our target markets and to offer new
semiconductor devices that address the changing needs of our target
customers,
- Availability of production capacity at the fabrication facilities that
manufacture our products,
- Changes in our pricing policies and those of our competitors or
suppliers,
- Our ability to compete successfully against direct and indirect
competitors, and
- Growth in demand for embedded systems.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.
-------------------------
Each trademark, trade name or service mark appearing in this prospectus
belongs to its respective holder. Among the trademarks that we claim rights to
are PLX, PLXMon, PLXMon 98, I(2)O Manager, I(2)OMon, Data Pipe Architecture and
FlexPORT.
Unless otherwise specifically stated, the information in this prospectus
has been adjusted to reflect the automatic conversion of all outstanding shares
of preferred stock into shares of common stock, but does not take into account
the possible sale of additional shares of common stock to the underwriters by
certain of our stockholders pursuant to the underwriters' right to purchase
additional shares to cover over-allotments.
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.
We intend to furnish our stockholders with annual reports containing
financial statements audited by an independent accounting firm and quarterly
reports for the first three quarters of each fiscal year containing interim
unaudited financial information.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF OUR COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 5
PROSPECTUS SUMMARY
This summary is not complete and may not contain all of the information
that may be important to you. You should read the entire prospectus carefully,
including the financial data and related notes, before making an investment
decision. The terms "PLX," the "Company" and "we," as used in this prospectus,
refer to "PLX Technology, Inc." and its subsidiary and predecessors as a
combined entity, except where it is made clear that each term means only the
parent company.
PLX TECHNOLOGY
PLX is a leading developer and supplier of input/output (I/O) connectivity
solutions that accelerate and manage the transfer of data in high-performance
embedded systems. Our products are based on widely accepted industry standards
such as Peripheral Component Interconnect (PCI). The PLX solution consists of
three layers: semiconductor devices, software development kits and reference
design kits. Semiconductor devices offered by us represent a new class of
cost-effective integrated circuits called "I/O accelerators" and "I/O
processors" that simplify the development of high-performance I/O subsystems in
embedded applications and are compatible with microprocessors such as IBM's
PowerPC, Motorola's PowerPC, Intel's i960, IDT's MIPs and Hitachi's SH. Our
software development kits and reference design kits promote sales of these
semiconductor devices by lowering customers' development costs and by
accelerating their ability to bring new products to market.
More than 500 original equipment manufacturers (OEMs) use our semiconductor
devices in a wide variety of embedded applications including networking and
telecommunications, enterprise storage, imaging, and industrial. Customers
currently shipping products that incorporate our products include 3Com, Cisco
Systems, Compaq Computer, Hewlett-Packard, IBM, Lucent Technologies, Nortel
Networks, Siemens and Tektronix.
An embedded system is a function-specific computer that performs a
dedicated task or set of tasks and is incorporated into another product.
High-performance embedded systems, which are designed to transmit, store and
process information rapidly, are key components in complex electronic equipment
such as network routers and switches. Demand for these systems has dramatically
increased due to (i) the growth of the Internet and intranets, (ii) the
deployment of high-speed networking technologies and (iii) the proliferation of
multimedia applications. Manufacturers of these systems seek to maximize the
performance and minimize the cost of their increasingly complex products and are
rapidly adopting standard I/O architectures such as PCI, I(2)O and other
industry standards. Consequently, there is now a large demand for
standards-based I/O subsystem components, such as our semiconductor devices.
Our objective is to expand our leadership in I/O connectivity for
high-performance embedded systems by:
- focusing on high-growth markets, including networking and
telecommunications, enterprise storage, imaging and industrial,
- delivering comprehensive solutions, including semiconductor devices,
software development kits and reference design kits,
- extending our I/O subsystem technology leadership by integrating new
functions and I/O technologies,
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<PAGE> 6
- driving I/O subsystem standards for embedded applications, and
- strengthening and expanding our industry relationships.
PLX Technology, Inc. was incorporated in California on May 7, 1986. On
, 1999, our state of incorporation was changed to Delaware. Our
principal executive office is located at 390 Potrero Avenue, Sunnyvale,
California 94086, and our telephone number at this address is (408) 774-9060. We
maintain a World Wide Web site address at www.plxtech.com. The reference to this
World Wide Web site address does not constitute incorporation by reference of
the information contained therein.
THE OFFERING
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<S> <C>
Common stock offered.................. 3,300,000 shares
Common stock outstanding after this
offering............................ 21,650,551 shares(1)
Use of proceeds....................... We intend to use the offering proceeds
for working capital and general
corporate purposes.
Risk factors.......................... See "Risk Factors" on page 4 for a
discussion of factors you should
carefully consider before deciding to
invest in shares of the common stock.
Nasdaq National Market symbol......... PLXT
</TABLE>
- -------------------------
(1) Excludes 1,300,000 shares of common stock reserved for issuance under our
1998 Stock Incentive Plan, under which options to purchase 645,250 shares
were outstanding as of December 31, 1998 at a weighted average exercise
price of $4.91 per share, and 1,000,000 shares of our common stock reserved
for issuance under our 1999 Stock Incentive Plan under which no options were
outstanding as of December 31, 1998. In January 1999, our Board of Directors
approved the grant of options to purchase 591,250 shares at the initial
public offering price under our 1998 Stock Incentive Plan, to be effective
as of the offering. See "Management -- Stock Option Plans," "Description of
Capital Stock" and Note 6 to Consolidated Financial Statements.
2
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenues................ $ 4,043 $ 9,316 $ 9,813 $17,534 $26,276
Gross profit................ 2,238 3,805 5,287 10,558 16,605
Income from operations...... 49 1,016 893 1,991 3,383
Net income.................. 71 1,049 891 1,924 2,766
Historical basic net income
per share................. $ 0.02 $ 0.36 $ 0.28 $ 0.58 $ 0.77
Pro forma basic net income
per share(2).............. $ 0.16
Historical and pro forma
diluted net income per
share(2).................. $ 0.00 $ 0.06 $ 0.05 $ 0.11 $ 0.15
Shares used to compute
historical basic net
income per share.......... 2,848 2,897 3,137 3,293 3,586
Shares used to compute pro
forma basic net income per
share(2).................. 17,325
Shares used to compute
historical and pro forma
diluted net income per
share(2).................. 16,653 16,768 17,287 17,758 18,390
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------
AS
ACTUAL ADJUSTED(1)
------- --------------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 5,638 $29,490
Working capital........................................... 6,116 29,968
Total assets.............................................. 11,766 35,618
Long-term debt............................................ -- --
Total stockholders' equity................................ 7,760 31,612
</TABLE>
- -------------------------
(1) As adjusted to reflect the sale of 3,300,000 shares of our common stock,
based on an initial public offering price of $8.00 per share, the
application of the estimated net proceeds therefrom and the conversion of
all outstanding shares of our preferred stock into shares of common stock
upon the closing of the offering. See "Use of Proceeds."
(2) Pro forma information is based on the conversion of all outstanding shares
of our preferred stock into shares of common stock.
3
<PAGE> 8
RISK FACTORS
Investing in the common stock will provide you with an equity ownership
interest in PLX. As a PLX stockholder, you may be subject to risks inherent to
our business. The performance of your shares will reflect the performance of our
business relative to, among other things, the competition, general economic and
market conditions and industry conditions. The price of our stock may decline
and could lower the value of your investment. You should carefully consider the
following factors as well as other information contained in this prospectus
before deciding to invest in shares of the common stock.
OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY
Our quarterly operating results have fluctuated significantly in the past
and are expected to fluctuate significantly in the future based on a number of
factors, many of which are not in our control. Our operating expenses, which
include product development costs and selling, general and administrative
expenses, are relatively fixed in the short-term. If our revenues are lower than
we expect because we sell fewer semiconductor devices, delay the release of new
products or the announcement of new features, or for other reasons, we may not
be able to quickly reduce our spending in response.
Other circumstances that can affect our operating results include:
- the length of our sales cycle,
- our ability to develop, introduce and market new products and
technologies on a timely basis,
- the timing of significant orders, order cancellations and reschedulings,
- the cyclical nature of the semiconductor industry,
- changes in our pricing policies or those of our competitors or suppliers,
including decreases in unit average selling prices of our products,
- introduction of products and technologies by our competitors,
- shifts in our product mix toward lower margin products,
- the availability of production capacity at the fabrication facilities
that manufacture our products,
- purchasing patterns related to the Year 2000, and
- the availability and cost of materials to our suppliers.
These factors are difficult to forecast, and these or other factors could
adversely affect our business. Any shortfall in our revenues would have a direct
impact on our business. In addition, fluctuations in our quarterly results could
adversely affect the market price of our common stock in a manner unrelated to
our long-term operating performance.
OUR INDUSTRY IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE
The semiconductor industry is characterized by rapidly changing technology
and industry standards, along with frequent new product introductions. As a
particular product gets older, we often sell fewer units of that product at a
lower margin. Consequently, our future success depends on our ability to
identify trends in our target markets and to offer new semiconductor devices, as
well as other products and services, that address the changing needs of our
target customers.
4
<PAGE> 9
To establish market acceptance of a new semiconductor device, we must
dedicate significant resources to research and development, production and sales
and marketing. We incur substantial costs in developing, manufacturing and
selling a new product, which often significantly precede meaningful revenues
from the sale of such product. Consequently, new products can require
significant time and investment to achieve profitability. Prospective investors
should note that our efforts to introduce new semiconductor devices or other
products or services may not be successful or profitable. In addition, products
or technologies developed by others may render our products or technologies
obsolete or noncompetitive.
We record as expenses the costs related to the development of new
semiconductor devices and other products as these expenses are incurred. As a
result, our profitability from quarter to quarter and from year to year may be
adversely affected by the number and timing of our new product launches in any
period and the level of acceptance gained by such products.
WE DEPEND ON INDEPENDENT MANUFACTURERS AND FACE MANUFACTURING RISKS
We do not manufacture any of our semiconductor devices. Therefore, we are
referred to in the semiconductor industry as a "fabless" producer of
semiconductors. Consequently, we depend upon third party manufacturers to
produce semiconductors that meet our specifications. We currently have third
party manufacturers that can produce semiconductors which meet our needs.
However, as the semiconductor industry continues to progress to smaller
manufacturing and design geometries, the complexities of producing
semiconductors will increase. Decreasing geometries may introduce new problems
and delays that may affect product development and deliveries. Due to the nature
of the semiconductor industry and our status as a "fabless" semiconductor
company, we could encounter fabrication related problems that may affect the
availability of our semiconductor devices.
Furthermore, none of our semiconductor devices is currently manufactured by
more than one supplier. In the event that the supplier of a semiconductor device
was unable or unwilling to continue to manufacture this product in the required
volume, we would have to identify and qualify a substitute supplier. Introducing
new products or transferring existing products to a new third party manufacturer
or process may result in unforeseen device specification and operating problems.
These problems may affect product shipments and may be costly to correct.
Silicon fabrication capacity may also change, or the costs per silicon wafer may
increase. Manufacturing-related problems may have a material adverse effect on
our business.
THE MARKET IN WHICH WE OPERATE IS HIGHLY COMPETITIVE
Competition in the semiconductor industry is intense. If our main target
market, the embedded systems market, continues to grow, the number of
competitors may increase significantly. In addition, new semiconductor
technology may lead to new products that can perform similar functions as our
products. Certain of our competitors and other semiconductor companies may
develop and introduce products that integrate into a single semiconductor device
the functions performed by our semiconductor devices. This would eliminate the
need for our products in certain applications.
Competition in our markets comes from companies of various sizes, many of
which are significantly larger and have greater financial and other resources
than we do and thus can better withstand adverse economic or market conditions.
Our principal products
5
<PAGE> 10
compete with standard products from companies such as Anchor Chips, Applied
Micro Circuits, Galileo Technology, Tundra Semiconductor, and V3 Semiconductor.
In addition, Field Programmable Gate Array (FPGA) and Application Specific
Integrated Circuit (ASIC) devices can perform some or all of the functions of
our semiconductor devices. With the ASIC approach, a customer creates a custom
semiconductor device for a particular application. While this approach may lead
to lower unit production costs, it entails a large initial investment in
developing the custom device. The FPGA approach requires less design effort than
the ASIC approach, but it entails higher unit production costs which can be
prohibitive compared to ASICs or standard semiconductor devices. Accordingly, we
also experience indirect competition from leading ASIC suppliers, including IBM,
LSI Logic, NEC, and Toshiba, as well as from FPGA suppliers, including Altera,
Atmel, Lucent Technologies, Quicklogic, Vantis, and Xilinx.
As we start to sell our I/O processor products, we will compete with
established embedded microprocessor companies including Hitachi, IBM, IDT,
Intel, Motorola, NEC, and others. Many of these indirect competitors and
microprocessor companies have significantly greater financial, technical,
marketing and other resources than we.
We believe that the principal factors of competition in our business
include functionality, product performance, price, product innovation,
availability of development tools, customer service and reliability. We believe
that we compete favorably with respect to each of such factors. However, we
cannot assure you that we will be able to compete successfully in the future
against existing or new competitors, and increased competition may adversely
affect our business.
WE DEPEND ON ORIGINAL EQUIPMENT MANUFACTURERS
Our future success depends on electronic equipment manufacturers that
design our semiconductor devices into their systems. These manufacturers are
also known as original equipment manufacturers (OEMs). We must anticipate market
trends and the price, performance and functionality requirements of current and
potential future OEM customers and must successfully develop and manufacture
products that meet these requirements. In addition, we must meet the timing
requirements of these OEMs and must make products available to them in
sufficient quantities. These OEMs could develop products that provide the same
or similar functionality as one or more of our products and render such products
obsolete in their applications.
We do not have purchase agreements with our customers that contain minimum
purchase requirements. Instead, OEM customers purchase our products pursuant to
short-term purchase orders that may be canceled without charge. We believe that
in order to obtain broad penetration in the markets for our products, we must
maintain and cultivate relationships, directly or through our distributors, with
OEMs that are leaders in the embedded systems markets. Accordingly, we will
often incur significant expenditures in order to build relationships with OEMs
prior to volume sales of new products. If we fail to develop relationships with
additional OEMs, to have our products designed into new embedded systems or to
develop sufficient new products to replace products that have become obsolete,
our business would be materially adversely affected.
WE DEPEND ON GROWTH IN DEMAND FOR HIGH-PERFORMANCE EMBEDDED SYSTEMS
Demand for our products depends in large part on the development and
expansion of the high-performance embedded systems markets including networking
and telecommunications, enterprise storage, imaging and industrial applications.
The size and
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<PAGE> 11
rate of growth of these embedded systems markets may in the future fluctuate
significantly based on numerous factors. These factors include the adoption of
alternative technologies, capital spending levels and general economic
conditions. Demand for products that incorporate high-performance embedded
systems may not grow.
OUR PRODUCTS ARE COMPLEX
Our products are complex. While we test our products, these products may
still have errors, defects or bugs that we find only after commercial production
has begun. We have experienced such errors, defects and bugs in the past in
connection with new products.
Our customers may not purchase our products if the products have
reliability, quality or compatibility problems. This delay in acceptance can
make it more difficult to retain our existing customers and to attract new
customers. Moreover, product errors, defects or bugs can result in additional
development costs, diversion of technical and other resources from our other
development efforts, claims by our customers or others against us, or the loss
of credibility with our current and prospective customers. We may have to spend
significant amounts of capital and resources to address and fix problems in new
products.
We must continuously develop our products using new process technology with
smaller geometries to remain competitive on a cost and performance basis.
Migrating to new technologies is a challenging task requiring new design skills,
methods and tools and is difficult to achieve.
WE MUST MANAGE OUR GROWTH
We have experienced rapid growth which places a significant strain on our
limited personnel and other resources. To manage our expanded operations
effectively, we will need to further improve our operational, financial and
management systems. We will also need to successfully hire, train, motivate and
manage our employees. We may not be able to manage our growth effectively, which
could have a material adverse effect on our business. Also, we are seeking to
hire additional skilled development engineers, who are currently in short
supply. Our business could be adversely affected if we encounter delays in
hiring additional engineers.
WE DEPEND ON KEY PERSONNEL
Our success depends to a significant extent upon our senior management and
key technical and sales personnel. The loss of one or more of these employees
could have a material adverse effect on our business.
Our success also depends on our ability to attract and retain qualified
technical, sales and marketing, customer support, financial and accounting, and
managerial personnel. Competition for such personnel in the semiconductor
industry is intense, and we may not be able to retain our key personnel or to
attract, assimilate or retain other highly qualified personnel in the future. We
have experienced, and may continue to experience, difficulty in hiring and
retaining candidates with appropriate qualifications. If we do not succeed in
hiring and retaining candidates with appropriate qualifications, our business
could be materially adversely affected.
WE HAVE A LENGTHY SALES CYCLE
Our customers typically perform numerous tests and extensively evaluate our
products before incorporating them into their systems. The time required for
test, evaluation and
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<PAGE> 12
design of our products into the customer's equipment can range from six to
twelve months or more. It can take an additional six to twelve months or more
before a customer commences volume shipments of equipment that incorporates our
products. Because of this lengthy sales cycle, we may experience a delay between
the time when we increase expenses for research and development and sales and
marketing efforts and the time when we generate higher revenues, if any, from
such expenditures.
In addition, the delays inherent in our lengthy sales cycle raise
additional risks of customer decisions to cancel or change product plans. When
we achieve a design win, there can be no assurance that the customer will
ultimately ship products incorporating our products. Our business could be
materially adversely affected if a significant customer curtails, reduces or
delays orders during our sales cycle or chooses not to release products
incorporating our products.
WE DEPEND ON THIRD-PARTY DISTRIBUTORS
We depend on distributors to sell a significant portion of our products.
Some of our distributors also market and sell competing products. Distributors
may terminate their relationships with us at any time. Our future performance
will depend in part on our ability to attract additional distributors that will
be able to market and support our products effectively, especially in markets in
which we have not previously distributed our products. We may lose one or more
of our current distributors or may not be able to recruit additional or
replacement distributors. The loss of one or more of our major distributors
could have a material adverse effect on our business.
WE DEPEND UPON INDUSTRY STANDARDS
Substantially all of our revenues are derived from sales of products which
rely on the PCI standard. If the embedded systems markets move away from this
standard and begin using new standards, we may not be able to successfully
design and manufacture new products that use such new standards. There is also
the risk that new products we develop in response to new standards may not be
accepted in the market. In addition, the PCI standard is continuously evolving,
and we may not be able to modify our products to address new PCI specifications.
Any of these events would have a material adverse effect on our business.
WE DEPEND UPON THIRD PARTY RELATIONSHIPS
When marketing and selling our semiconductor devices, we believe we enjoy a
competitive advantage based on the availability of corresponding development
tools offered by third parties. We will lose this advantage if these third party
tool vendors cease to provide these tools for existing products or do not offer
them for our future products. This event could have a material adverse effect on
our business. We generally have no written agreements with such third parties,
and these parties could choose to stop providing these tools at any time.
WE HAVE LIMITED PROTECTION OF OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Our future success and competitive position depend upon our ability to
obtain and maintain certain proprietary technology used in our principal
products. Most of our current products include implementations of the PCI and
I(2)O industry standards, which are available to other companies. We currently
have no patents on any of our PCI or I(2)O products and rely instead on trade
secret protection. We have two patents on certain
8
<PAGE> 13
technology in our other products that expire in September 2007 and September
2014. In the future, we plan to seek patent protection when we feel it is
necessary.
Our existing or future patents may be invalidated, circumvented, challenged
or licensed to others. The rights granted thereunder may not provide competitive
advantages to us. In addition, our future patent applications may not be issued
with the scope of the claims sought by us, if at all. Furthermore, others may
develop technologies that are similar or superior to our technology, duplicate
our technology or design around the patents owned or licensed by us. In
addition, effective patent, trademark, copyright and trade secret protection may
be unavailable or limited in certain foreign countries. We cannot be sure that
steps taken by us to protect our technology will prevent misappropriation of
such technology.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights or positions. This often results in
significant and often protracted and expensive litigation. There is no
intellectual property litigation currently pending against us. However, we may
from time to time receive notifications of claims that we may be infringing
patents or other intellectual property rights owned by other third parties. If
it is necessary or desirable, we may seek licenses under such patents or
intellectual property rights. However, we cannot be sure that licenses will be
offered or that the terms of any offered licenses will be acceptable to us.
The failure to obtain a license from a third party for technology used by
us could cause us to incur substantial liabilities and to suspend the
manufacture or shipment of products or our use of processes requiring the
technology. Litigation could result in significant expenses to us, adversely
affect sales of the challenged product or technology and divert the efforts of
our technical and management personnel, whether or not such litigation is
determined in our favor. In the event of an adverse result in any such
litigation, we could be required to:
- pay substantial damages,
- cease the manufacture, use, sale or importation of infringing products,
- expend significant resources to develop or acquire non-infringing
technology, and
- discontinue the use of certain processes or obtain licenses to the
infringing technology.
We may not be successful in such development or acquisition, or such
licenses may not be available under reasonable terms, and any development,
acquisition or license could require expenditures by us of substantial time and
other resources. Any of these developments would have a material adverse effect
on our business.
THE SEMICONDUCTOR INDUSTRY IS CYCLICAL
Historically, the semiconductor industry has been characterized by
significant downturns and wide fluctuations in supply and demand. From time to
time, the industry has also experienced significant fluctuations in anticipation
of changes in general economic conditions. This cyclicality has led to
significant variances in product demand and production capacity. It has also
accelerated erosion of average selling prices per unit. We may experience
periodic fluctuations in our future financial results because of industry-wide
conditions.
9
<PAGE> 14
WE ARE SUBJECT TO RISKS ASSOCIATES WITH INTERNATIONAL BUSINESS ACTIVITIES
Sales outside of North America accounted for 21%, 22% and 34% of our
revenues in 1996, 1997 and 1998, respectively. We anticipate that these sales
may increase in future periods and may account for an increasing portion of our
revenues. Our international sales are subject to certain risks, including:
- difficulties in managing distributors,
- difficulties in staffing and managing foreign subsidiary and branch
operations,
- political and economic instability,
- foreign currency exchange fluctuations,
- difficulties in accounts receivable collections,
- potentially adverse tax consequences,
- timing and availability of export licenses,
- changes in regulatory requirements, tariffs and other barriers,
- difficulties in obtaining governmental approvals for telecommunications
and other products, and
- the burden of complying with complex foreign laws and treaties.
Although less than 10% of our revenues were attributable to sales in Asia
during 1998, the recent economic instability in certain Asian countries could
adversely affect our business, particularly to the extent that this instability
impacts the sales of products manufactured by our customers.
Because sales of our products have been denominated to date exclusively in
United States dollars, increases in the value of the United States dollar will
increase the price of our products so that they become relatively more expensive
to customers in the local currency of a particular country, leading to a
reduction in sales and profitability in that country.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH FAILURE OF COMPUTER SYSTEMS TO RECOGNIZE
YEAR 2000
We are highly dependent on our computer software programs and operating
systems in operating our business. We also depend on proper functioning of
computer systems of third parties, such as suppliers and customers. Any computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 instead of the year 2000. Although we have completed audits of our
internal systems, including our accounting, sales and technical support
automation system, and obtained assurances from our major suppliers and
customers that they have done the same, there can be no assurance that all
systems will function adequately. If they do not, the result could be a system
failure or miscalculation causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year 2000 Readiness
Disclosure."
10
<PAGE> 15
WE ARE SUBJECT TO RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
As part of our business strategy, we expect to review acquisition prospects
that would complement our existing product offerings, improve market coverage or
enhance our technological capabilities. We have no current agreements or
negotiations underway with respect to any acquisitions, and we may not be able
to locate suitable acquisition opportunities. Future acquisitions could result
in the following:
- potentially dilutive issuances of equity securities,
- large one-time write-offs,
- the incurrence of debt and contingent liabilities or amortization
expenses related to goodwill and other intangible assets,
- difficulties in the assimilation of operations, personnel, technologies,
products and the information systems of the acquired companies,
- diversion of management's attention from other business concerns, and
- risks of entering geographic and business markets in which we have no or
limited prior experience and potential loss of key employees of acquired
organizations.
Since we have not made any acquisitions in the past, we are not certain
that we will be able to successfully integrate any businesses, products,
technologies or personnel that may be acquired in the future. Our failure to do
so could have a material adverse effect on our business.
WE ARE CONTROLLED BY PRINCIPAL STOCKHOLDERS
Immediately after the offering, our executive officers, directors and other
principal stockholders will, in the aggregate, beneficially own approximately
45% of our outstanding common stock. The voting power of these stockholders,
under certain circumstances, could have the effect of delaying or preventing a
change in control of PLX. Commencing at the first annual meeting of stockholders
following the annual meeting of stockholders when we shall have had at least 800
stockholders, our stockholders will not be entitled to cumulate their votes in
the election of directors, and the holders of a majority of the common stock
present at a meeting of stockholders will be able to elect all of our directors.
WE HAVE ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION
Certain anti-takeover provisions of Delaware law and our Certificate of
Incorporation may make a change in control of PLX more difficult, even if a
change in control would be beneficial to the stockholders. These provisions may
allow the Board of Directors to prevent changes in the management and control of
PLX. Under Delaware law, our Board of Directors may adopt additional
anti-takeover measures in the future.
One anti-takeover provision that we have is the ability of our Board of
Directors to determine the terms of preferred stock and issue such preferred
stock without the approval of the holders of the common stock. Effective upon
the offering, our Certificate of Incorporation allows the issuance of up to
5,000,000 shares of preferred stock. At the time of the offering, there are no
shares of preferred stock outstanding. However, because the rights and
preferences of any series of preferred stock may be set by the Board of
Directors in its sole discretion without approval of the holders of the common
stock, the rights and preferences of this preferred stock may be superior to
those of the common stock. Accordingly, the rights of the holders of common
stock may be adversely affected.
11
<PAGE> 16
THERE ARE SUBSTANTIAL SHARES OF COMMON STOCK ELIGIBLE FOR FUTURE SALE
The market price of our common stock could drop as a result of sales of a
large number of shares of our common stock in the market after the offering, or
the perception that such sales could occur. These factors also could make it
more difficult for us to raise funds through future offerings of common stock.
There will be 21,650,551 shares of our common stock outstanding immediately
after the offering. Of these shares, the 3,300,000 shares sold in the offering
will be freely transferable without restriction or further registration under
the Securities Act, except for any shares purchased by "affiliates" of PLX, as
defined in Rule 144 under the Securities Act. The remaining 18,350,551 shares of
common stock outstanding will be "restricted securities" as defined in Rule 144.
These shares may be sold in the future without registration under the Securities
Act to the extent permitted by Rule 144 or an exemption under the Securities
Act.
In connection with the offering, our officers and directors and certain of
our stockholders holding a total of shares of common stock have
agreed that they will not sell any shares of common stock without the consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated for 180 days after the date
of this prospectus. The holders of an additional shares of common
stock have agreed that they will not sell any shares of common stock for 150
days after the date of this prospectus without our consent.
NO PRIOR PUBLIC MARKET HAS EXISTED FOR OUR SHARES
Prior to this offering, there has been no public market for our common
stock. The initial public offering price was determined through negotiations
between the underwriters and us. You may not be able to resell your shares at or
above the initial public offering price due to a number of factors, including
actual or anticipated fluctuations in our operating results, changes in
expectations as to our future financial performance, changes in financial
estimates of securities analysts, technological innovations by others, and the
operating and stock price performance of other comparable companies.
NEW INVESTORS WILL INCUR SUBSTANTIAL AND IMMEDIATE DILUTION
The present owners of our issued and outstanding shares of common stock
have acquired a controlling interest in PLX at a cost substantially less than
the price at which the investors in this offering may purchase their shares.
Therefore, the investors in this offering will bear a substantial portion of the
risk of loss. Investors in this offering will suffer immediate and substantial
dilution. See "Dilution."
To date, we have paid no dividends on our common stock. The payment of any
future dividends will be at the sole discretion of our Board of Directors. We do
not intend to pay dividends on our common stock in the foreseeable future, but
plan to retain any earnings for use in the operation of our business and to fund
future growth.
12
<PAGE> 17
USE OF PROCEEDS
Based on an assumed initial public offering price of $8.00 per share, our
net proceeds from the sale of the 3,300,000 shares of our common stock will be
approximately $23,852,000 ($27,534,800 if the underwriters over-allotment option
is exercised in full), after deduction of underwriting discounts and commissions
and estimated offering expenses payable by us.
The principal purposes of this offering are to increase our working
capital, to create a public market for our common stock, to facilitate future
access by us to public equity markets, and to provide increased visibility and
credibility to us. We intend to use the net proceeds primarily for general
corporate purposes, including working capital. We may, when and if the
opportunity arises, use an unspecified portion of the net proceeds to acquire or
invest in complementary businesses, products and technologies. We have no
present understandings, commitments or agreements with respect to any material
acquisition of, or investment in, third parties. Pending use of the net proceeds
for the above purposes, we intend to invest such funds in interest-bearing,
investment-grade securities.
DIVIDEND POLICY
We have never declared or paid dividends on our capital stock, and
currently we do not intend to pay dividends in the foreseeable future. We plan
to retain any earnings for use in the operation of our business and to fund
future growth.
13
<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of PLX as of December 31,
1998 (i) on an actual basis, (ii) on a pro forma basis to give effect to the
conversion of all outstanding shares of our preferred stock into common stock,
and (iii) on a pro forma, as adjusted basis to reflect the application of the
estimated net proceeds from the sale by PLX of the 3,300,000 shares of our
common stock hereby at an assumed initial public offering price of $8.00 per
share and after deducting estimated underwriting discounts and commissions and
estimated offering expenses and the conversion of all outstanding shares of our
preferred stock into common stock.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------
PRO FORMA
PRO AS
ACTUAL FORMA ADJUSTED
------ ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Stockholders' equity(1):
Preferred stock, $0.001 par value; 5,000,000 shares
authorized -- pro forma as adjusted, no shares
issued and outstanding -- actual, pro forma and
pro forma as adjusted........................... $ -- $ -- $ --
Redeemable convertible preferred stock, $0.001 par
value; 5,000,000 shares authorized, 4,868,738
shares designated, 4,579,636 shares issued and
outstanding -- actual; no shares issued and
outstanding -- pro forma and pro forma as
adjusted........................................ 5 -- --
Common stock, $0.001 par value; 30,000,000 shares
authorized, 4,611,643 shares issued and
outstanding -- actual; 18,350,551 shares issued
and outstanding -- pro forma; 21,650,551 shares
issued and outstanding -- pro forma as
adjusted(2)..................................... 5 18 22
Additional paid in capital......................... 5,616 5,608 29,456
Retained earnings.................................. 2,580 2,580 2,580
Deferred compensation.............................. (283) (283) (283)
Stockholders' notes receivable..................... (163) (163) (163)
------ ------ -------
Total stockholders' equity......................... 7,760 7,760 31,612
------ ------ -------
Total capitalization....................... $7,760 $7,760 $31,612
====== ====== =======
</TABLE>
- -------------------------
(1) Reflects our reincorporation in Delaware in 1999.
(2) Excludes 1,300,000 shares of common stock reserved for issuance under our
1998 Stock Incentive Plan, under which options to purchase 645,250 shares
were outstanding as of December 31, 1998 at a weighted average exercise
price of $4.91 per share, and 1,000,000 shares of common stock reserved for
issuance under our 1999 Stock Incentive Plan under which no options were
outstanding as of December 31, 1998. In January 1999, our Board of Directors
granted options to purchase 591,250 shares of our common stock at the
initial public offering price under our 1998 Stock Incentive Plan, effective
as of the offering. See "Management -- Stock Option Plans," "Description of
Capital Stock" and Note 6 to Consolidated Financial Statements.
14
<PAGE> 19
DILUTION
The pro forma net tangible book value of PLX at December 31, 1998 (after
giving effect to the conversion of all outstanding shares of our preferred stock
into shares of common stock upon completion of this offering) was approximately
$7,759,798, or $0.42 per share. Pro forma net tangible book value per share is
equal to our total tangible assets less our total liabilities, divided by the
total number of shares of our common stock outstanding (after giving effect to
the conversion of all outstanding shares of our preferred stock into shares of
common stock). After giving effect to the sale of 3,300,000 shares of our common
stock offered by PLX hereby at an assumed initial public offering price of $8.00
per share and after deducting estimated underwriting discounts and commissions
and estimated offering expenses payable by us, our as adjusted pro forma net
tangible book value at December 31, 1998 would have been approximately
$31,611,798, or $1.46 per share. This represents an immediate increase in net
tangible book value of $1.04 per share to existing stockholders and an immediate
dilution of $6.54 per share to new investors purchasing shares of our common
stock in this offering. The following table illustrates the per share dilution
to the new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $8.00
Pro forma net tangible book value per share at December
31, 1998............................................... $0.42
Increase per share attributable to this offering.......... 1.04
As adjusted pro forma net tangible book value per share
after the offering........................................ 1.46
-----
Dilution per share to new investors in this offering........ $6.54
=====
</TABLE>
The following table summarizes on a pro forma basis, as of December 31,
1998, the total number of shares of our common stock purchased from PLX, the
total cash consideration paid and the average price per share paid by the
existing stockholders and by the new investors in this offering (at an assumed
initial public offering price of $8.00 per share and before deducting estimated
underwriting discounts and commissions and our estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing
stockholders....... 18,350,551 84.8% $ 5,625,982 17.6% $0.31
New investors........ 3,300,000 15.2 26,400,000 82.4 8.00
---------- ----- ----------- -----
Total...... 21,650,551 100.0% $32,025,982 100.0%
========== ===== =========== =====
</TABLE>
The foregoing discussion and tables assume no exercise of any stock options
outstanding as of December 31, 1998. As of December 31, 1998, there were (i)
options outstanding to purchase a total of 645,250 shares of common stock at a
weighted average exercise price of $4.91 per share and (ii) 154,750 shares
reserved for future grant under our 1998 Stock Option Plan. To the extent that
any of these shares are issued, there will be further dilution to new investors.
See "Capitalization," "Management -- Stock Option Plans" and Note 6 of Notes to
Consolidated Financial Statements.
15
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements of PLX, including the
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this prospectus. The
consolidated statement of operations data for the years ended December 31, 1996,
1997 and 1998 and consolidated balance sheet data at December 31, 1997 and 1998
have been derived from the consolidated financial statements, that have been
audited by Ernst & Young LLP, independent auditors, included elsewhere in this
prospectus. The consolidated statement of operations for the years ended
December 31, 1995 and the consolidated balance sheet data at December 31, 1995
and 1996 were derived from the consolidated financial statements that have been
audited by Ernst & Young LLP, independent auditors, which are not included in
this prospectus. The consolidated statement of operations data for the year
ended December 31, 1994 and the consolidated balance sheet data at December 31,
1994 have been derived from unaudited consolidated financial statements not
included in this prospectus. The unaudited consolidated financial statements
have been prepared by us on a basis consistent with our audited consolidated
financial statements and, in management's opinion, include all adjustments,
necessary for a fair presentation of such information.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1994 1995 1996 1997 1998
------ ------ ------ ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net revenues........................... $4,043 $9,316 $9,813 $17,534 $26,276
Cost of revenues....................... 1,805 5,511 4,526 6,976 9,671
------ ------ ------ ------- -------
Gross profit........................... 2,238 3,805 5,287 10,558 16,605
Operating expenses:
Research and development............. 1,281 1,544 1,854 4,156 6,552
Selling, general and
administrative.................... 908 1,245 2,540 4,411 6,670
------ ------ ------ ------- -------
Total operating expenses..... 2,189 2,789 4,394 8,567 13,222
------ ------ ------ ------- -------
Income from operations................. 49 1,016 893 1,991 3,383
Interest income (expense) and other,
net.................................. 22 49 37 44 75
------ ------ ------ ------- -------
Income before income taxes............. 71 1,065 930 2,035 3,458
Provision for income taxes............. -- 16 39 111 692
------ ------ ------ ------- -------
Net income............................. $ 71 $1,049 $ 891 $ 1,924 $ 2,766
Historical basic net income per
share................................ $ 0.02 $ 0.36 $ 0.28 $ 0.58 $ 0.77
Pro forma basic net income per
share(1)............................. $ 0.16
Historical and pro forma diluted net
income per share(1).................. $ 0.00 $ 0.06 $ 0.05 $ 0.11 $ 0.15
Shares used to compute basic net income
per share............................ 2,848 2,897 3,137 3,293 3,586
Shares used to compute pro forma basic
net income per share(1).............. 17,325
Shares used to compute historical and
pro forma diluted net income per
share(1)............................. 16,653 16,768 17,287 17,758 18,390
</TABLE>
16
<PAGE> 21
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------
1994 1995 1996 1997 1998
------ ------ ------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............. $ 331 $1,444 $1,077 $ 2,701 $ 5,638
Working capital........................ 763 1,682 2,257 3,591 6,116
Total assets........................... 1,672 3,149 4,053 8,013 11,766
Long-term debt......................... -- -- -- -- --
Total stockholders' equity............. 919 1,989 2,909 4,889 7,760
</TABLE>
- -------------------------
(1) Calculated on a pro forma basis to give effect to the conversion of all
outstanding shares of our preferred stock into common stock.
17
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this prospectus.
The following discussion should be read in conjunction with our Consolidated
Financial Statements and related notes thereto included elsewhere in this
prospectus.
OVERVIEW
PLX was founded in 1986, and since 1994 we have focused on development of
I/O interface semiconductors and related software and development tools that are
used in systems incorporating the PCI bus architecture. Our revenues since 1996
have been derived predominantly from the sale of PCI semiconductor devices to a
large number of customers in a variety of applications including networking and
telecommunications, enterprise storage, imaging, industrial and other embedded
applications as well as in related adapter cards. We also generate revenues from
sales of our software and development tools.
We utilize a "fabless" semiconductor business model whereby we purchase
packaged and tested semiconductor devices from independent manufacturing
foundries. This approach allows us to focus on defining, developing, and
marketing our products and eliminates the need for us to invest large amounts of
capital in manufacturing facilities and work-in-process inventory.
We rely on a combination of direct sales personnel and distributors and
manufacturers' representatives throughout the world to sell a significant
portion of our products. We pay manufacturers' representatives a commission on
sales while we sell products to distributors at a discount from the selling
price. We recognize revenue at the time of product shipment to OEM customers.
Revenues from sales to distributors that are made under agreements which allow
the return of products unsold by the distributor are not recognized until the
distributor ships the product to its customer. See "Risk Factors -- We Depend on
Third-Party Distributors."
Our gross margins have fluctuated in the past and are expected to fluctuate
in the future due to changes in product mix, the position of our products in
their respective life cycles, and specific product manufacturing costs. Gross
margins on a specific product will typically decline over the life of the
product due to competitive pressures and volume pricing agreements.
The time period between initial customer evaluation and design completion
can range from six to twelve months or more. Furthermore, there is typically an
additional six to twelve month or greater period after design completion before
a customer commences volume production of equipment incorporating our products.
Due to such lengthy sales cycles and a lack of long term visibility into
customer production levels, we may experience significant fluctuations in new
orders from month to month. Consequently, if anticipated sales and shipments in
any quarter do not occur when expected, expenses and inventory levels could be
disproportionately high, and our results for that quarter and
18
<PAGE> 23
potentially future quarters would be materially and adversely affected. See
"Risk Factors -- We Have a Lengthy Sales Cycle."
RESULTS OF OPERATIONS
The following table summarizes historical results of operations as a
percentage of net revenues for the periods shown.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31,
-----------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Net revenues........................................... 100.0% 100.0% 100.0%
Cost of revenues....................................... 46.1 39.8 36.8
----- ----- -----
Gross profit........................................... 53.9 60.2 63.2
Expenses:
Research and development............................. 18.9 23.7 24.9
Selling, general and administrative.................. 25.9 25.2 25.4
----- ----- -----
Total operating expenses..................... 44.8 48.9 50.3
----- ----- -----
Operating income....................................... 9.1 11.3 12.9
Interest income (expense) and other, net............... 0.4 0.3 0.3
----- ----- -----
Income before income taxes............................. 9.5 11.6 13.2
Provision for income taxes............................. 0.4 0.6 2.6
----- ----- -----
Net income............................................. 9.1% 11.0% 10.6%
===== ===== =====
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
Net Revenues. Revenues consist of product revenues generated principally by
sales of our semiconductor devices. Revenues for 1998 were $26.3 million, an
increase of $8.8 million or 50% from 1997. Revenues for 1997 were $17.5 million,
an increase of $7.7 million or 79% from $9.8 million for 1996. In each year the
increase was primarily due to a higher volume of shipments of existing PCI
products to new and existing customers and to the introduction of new PCI
products.
Gross Profit. Gross profit represents net revenues less the cost of
revenues. Cost of revenues includes the cost of purchasing packaged
semiconductor devices from our independent foundries, our operating costs
associated with the procurement, storage, and shipment of products, as well as
royalty expenses paid on certain of our products. Gross profit for 1998 was
$16.6 million, an increase of $6.0 million or 57% from 1997. Gross profit for
1997 was $10.6 million, an increase of $5.3 million or 100% from $5.3 million
for 1996. Gross profit as a percentage of revenues was 63.2% in 1998, 60.2% in
1997 and 53.9% in 1996. In each year, the increase in absolute dollars was
primarily due to higher revenues. Gross margin as a percentage of revenues
increased in 1998 from 1997 and in 1997 from 1996 primarily due to lower product
costs and changes in product mix.
Research and Development Expenses. Research and development expenses
consist primarily of salaries and related costs of employees engaged in
research, design, and development activities. In addition, expenses for outside
engineering consultants and non-recurring engineering at our independent
foundries are included in research and development expenses. Research and
development expenses for 1998 were $6.6 million, an increase of $2.4 million or
57% from 1997. Research and development expenses for 1997
19
<PAGE> 24
were $4.2 million, an increase of $2.3 million or 121% from 1996 expenses of
$1.9 million. Research and development expenses as a percentage of revenues were
24.9% in 1998, 23.7% in 1997 and 18.9% in 1996. In each year, the increase in
absolute dollars was primarily due to the addition of personnel for the
development of new products and the enhancement of existing products, as well as
payments to outside consultants where specific resources were needed in the
development process. The increase in research and development expenses as a
percentage of revenues reflects an increase in the number of new semiconductor
products being developed by us as well as an increase in the number of new
development tools and software being developed. We expect that research and
development expenses in absolute dollars will likely increase in future periods.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist primarily of employee related expenses,
professional fees, trade show and other promotional expenses, and sales
commissions to manufacturers' representatives. Selling, general and
administrative expenses for 1998 were $6.7 million, an increase of $2.3 million
or 52% from 1997. Selling, general and administrative expenses for 1997 were
$4.4 million, an increase of $1.9 million or 76% from $2.5 million in 1996.
Selling, general and administration expenses as a percentage of revenues were
25.4% in 1998, 25.2% in 1997 and 25.9% in 1996. In each year, the increase in
absolute dollars principally reflected higher personnel related costs resulting
from an increase in sales and marketing personnel as well as increased sales
commissions from higher product revenues. We expect that selling, general and
administrative expenses in absolute dollars will likely increase in future
periods.
Deferred Compensation. In connection with the grant of certain restricted
stock and options to our employees during 1997 and 1998, we recorded aggregate
deferred compensation of $361,300, representing the difference between the
deemed value of our common stock for accounting purposes and the restricted
stock purchase price or stock option exercise price at the date of grant. Such
amount is presented as a reduction of stockholders' equity and amortized ratably
over the vesting period of the applicable stock grants. Amortization of deferred
compensation recorded in 1998 was $78,681. We currently expect to record
amortization of deferred compensation related to these stock grants of
approximately $20,000 per quarter through December 31, 2001.
Interest Income (Expense) and Other, Net. Interest and other income, net
reflects interest earned on average cash, cash equivalents and short-term
investment balances, less interest on our bank credit line. Interest and other
income, net for 1998 was $75,163. Interest and other income, net for 1997 was
$43,898, an increase of $6,883 or 19% from $37,015 in 1996. In each year, the
increase was primarily due to interest earned on higher levels of short-term
investments and cash balances.
Provision for Income Taxes. Income tax expenses as a percentage of pretax
income were 20%, 5% and 4%, for the years ended December 31, 1998, 1997 and
1996, respectively. Our effective tax rate in 1998 differs from the applicable
statutory rate primarily due to the benefit of research and development tax
credits and the realization of deferred tax assets. Our tax rates in 1997 and
1996 differ from the applicable statutory rate primarily due to the benefit of
net operating loss and research and development tax credit carryforwards. We
expect that the effective tax rate in future periods will increase from
historical rates.
20
<PAGE> 25
QUARTERLY RESULTS OF OPERATIONS
The following table presents selected quarterly financial information for
each quarter of 1997 and 1998. This information is unaudited but, in the opinion
of our management, reflects all adjustments (consisting only of normal recurring
adjustments) that we consider necessary for a fair presentation of this
information in accordance with generally accepted accounting principles. Such
quarterly results are not necessarily indicative of future results of
operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
(IN THOUSANDS)
---------------------------------------------------------------------------------
MAR 31, JUNE 30, SEPT 30, DEC 31, MAR 31, JUNE 30, SEPT 30, DEC 31,
1997 1997 1997 1997 1998 1998 1998 1998
------- -------- -------- ------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............................ $3,890 $3,605 $4,805 $5,234 $5,413 $5,626 $7,385 $7,852
Cost of revenues........................ 1,829 1,616 1,639 1,892 2,008 2,108 2,622 2,933
------ ------ ------ ------ ------ ------ ------ ------
Gross profit............................ 2,061 1,989 3,166 3,342 3,405 3,518 4,763 4,919
Expenses:
Research and development.............. 756 841 1,003 1,556 1,798 1,600 1,531 1,623
Selling, general and administrative... 836 983 1,168 1,424 1,448 1,568 1,686 1,968
------ ------ ------ ------ ------ ------ ------ ------
Total operating expenses................ 1,592 1,824 2,171 2,980 3,246 3,168 3,217 3,591
------ ------ ------ ------ ------ ------ ------ ------
Operating income........................ 469 165 995 362 159 350 1,546 1,328
Interest income (expense) and other
net................................... 10 11 9 14 14 14 19 28
------ ------ ------ ------ ------ ------ ------ ------
Income before income taxes.............. 479 176 1,004 376 173 364 1,565 1,356
Provision for (benefit from) income
taxes................................. 71 27 149 (136) 35 73 313 271
------ ------ ------ ------ ------ ------ ------ ------
Net income.............................. $ 408 $ 149 $ 855 $ 512 $ 138 $ 291 $1,252 $1,085
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET REVENUES THREE MONTHS ENDED
---------------------------------------------------------------------------------
MAR 31, JUNE 30, SEPT 30, DEC 31, MAR 31, JUNE 30, SEPT 30, DEC 31,
1997 1997 1997 1997 1998 1998 1998 1998
------- -------- -------- ------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues......................... 47.0 44.8 34.1 36.1 37.1 37.5 35.5 37.3
----- ----- ----- ----- ----- ----- ----- -----
Gross profit............................. 53.0 55.2 65.9 63.9 62.9 62.5 64.5 62.7
Expenses:
Research and development............... 19.4 23.3 20.9 29.7 33.2 28.4 20.7 20.7
Selling, general and administrative.... 21.5 27.3 24.4 27.1 26.8 27.9 22.8 25.1
----- ----- ----- ----- ----- ----- ----- -----
Total operating expenses....... 40.9 50.6 45.3 56.8 60.0 56.3 43.5 45.8
----- ----- ----- ----- ----- ----- ----- -----
Operating income......................... 12.1 4.6 20.6 7.1 2.9 6.2 21.0 16.9
Interest income (expense) and other
income, net............................ 0.3 0.3 0.2 0.3 0.3 0.2 0.3 0.4
----- ----- ----- ----- ----- ----- ----- -----
Income before income taxes............... 12.4 4.9 20.8 7.4 3.2 6.4 21.3 17.3
Provision for income taxes............... 1.8 0.7 3.1 (2.6) 0.6 1.3 4.2 3.5
----- ----- ----- ----- ----- ----- ----- -----
Net income............................... 10.6% 4.2% 17.7% 10.0% 2.6% 5.1% 17.1% 13.8%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
21
<PAGE> 26
Net Revenues. Revenues increased each quarter from the second quarter of
1997 through the fourth quarter of 1998 as a result of higher unit shipments of
our existing products and the introduction of new products. The decrease in net
revenues from $3.9 million in the first quarter of 1997 to $3.6 in million in
the second quarter of 1997 was primarily due to a reduction of unit shipments.
Gross Profit. Gross profit percentage fluctuated due to changes in product
mix and pricing concessions to higher volume customers. Gross profit increases
as a percentage of net revenues to 65.9% in the third quarter of 1997 and to
64.5% in the third quarter of 1998 were the result of lower product costs and
changes in product mix. The gross profit percentage in the fourth quarter of
1998 declined slightly to 62.7%, due primarily to changes in product mix.
Research and Development Expenses. Research and development expenses
increased in absolute dollars in each quarter from the first quarter of 1997
through the first quarter of 1998 primarily due to a significant increase in the
number of new product development programs including new software and
development tools. Research and development expenses as a percentage of net
revenues increased in each quarter from the first quarter of 1997 through the
first quarter of 1998, except for the third quarter of 1997. These increases
were due to the increased number of new product development programs relative to
product shipments. Research and development expenses as a percentage of net
revenues declined each quarter from the second quarter of 1998 through the
fourth quarter of 1998. This reduction was due primarily to reductions in
outside consulting and non-recurring engineering expenses and increased product
shipments.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased in absolute dollars through the fourth quarter
of 1998 as we expanded our infrastructure to accommodate higher unit shipments
and expanding operations. In addition, commissions to manufacturers'
representatives have increased with revenues and marketing expenses have
increased due to new product introductions.
Fluctuations in Quarterly Results. Our quarterly results of operations have
fluctuated significantly in the past and are expected to fluctuate significantly
in the future based on a number of factors, many of which are not in our
control. In particular, our results of operations have fluctuated in the past
due to, among other things, the length of our sales cycle; our ability to
develop, introduce and market new products and technologies on a timely basis;
the timing of significant orders, order cancellations and reschedulings; changes
in our pricing policies or those of our competitors or suppliers, including
decreases in unit average selling prices of our products; introduction of
products and technologies by our competitors; shifts in our product mix toward
lower margin products; the availability of production capacity at the
fabrication facilities that manufacture our products; purchasing patterns
related to the Year 2000; and the availability and cost of materials to our
suppliers. Our results of operations may also fluctuate in the future based on a
number of factors, including, but not limited to those listed above, as well as
general business conditions in the semiconductor industry; general economic
conditions; currency fluctuations; and our ability to expand and implement our
sales and marketing programs. As a result of the foregoing factors, we believe
period to period comparisons are not necessarily meaningful and should not be
relied upon as indicative of future results.
22
<PAGE> 27
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations through a combination of
private sales of equity securities and cash generated by operations. At December
31, 1998, we had $6.1 million in working capital and $5.6 million in cash and
cash equivalents. Our operating activities generated cash of $4.0 million in
1998, and of $2.6 million and $307,688 in 1997 and 1996, respectively. Cash
provided by operating activities in 1998, 1997, and 1996 was primarily
attributable to net income adjusted for depreciation.
Our investing activities used cash of $1.1 million in 1998 and $1.0 million
and $602,850 in 1997 and 1996, respectively. Such investing activities were
primarily for the purchase of capital equipment. Cash provided by financing
activities was approximately $26,000 in 1998 and $56,000 in 1997. Cash used in
financing activities was approximately $72,000 in 1996. The main source of cash
from financing activities in 1998 was the repayment of notes receivable from
stockholders. In 1996, cash was used to repay outstanding notes payable.
In February 1999, we signed a commitment letter with Comerica Bank for a
$1.5 million line of credit. Currently, this line of credit has not been
finalized and there are no amounts outstanding.
As of December 31, 1998, we had no material commitments outstanding.
We believe that the net proceeds of this offering, together with cash
generated from our operations and funds available under our credit facilities
will be sufficient to meet our capital requirements for at least the next twelve
months. Our future capital requirements will depend on many factors, including
the inventory levels we maintain, the level of investment we make in new
technologies and improvements to existing technologies, the levels of monthly
expenses required to launch new products. To the extent that the funds generated
by this offering, together with existing resources and future earnings, are
insufficient to fund our future activities, we may need to raise additional
funds through public or private financing. Additional funds may not be available
or, if available, we may not be able to obtain them on terms favorable to us and
our stockholders. See "Use of Proceeds."
YEAR 2000 READINESS DISCLOSURE
State of Readiness. We utilize a number of computer software programs and
operating systems across our entire organization, including applications used in
financial business systems and various administrative functions. To the extent
that our software applications contain source code that is unable to
appropriately interpret the upcoming Year 2000 and beyond, some level of
modification or replacement of such applications will be necessary. We believe
that our internal Year 2000 issues are limited to information technology (IT)
systems such as software programs and computer operating systems, and we are
working closely with the suppliers of such systems to ensure that all systems
are Year 2000 compliant. Employing a team made up of internal personnel, we have
completed our identification of IT systems that are not yet Year 2000 compliant
and have commenced modification or replacement of such systems as necessary. We
have also completed our assessment of the Year 2000 compliance issues presented
by our semiconductor hardware and software products. None of our hardware or
software products has Year 2000 issues that require product modification or
replacement.
23
<PAGE> 28
We are highly dependent on a few semiconductor foundry companies to produce
the majority of our products. To the extent that Year 2000 issues effect these
suppliers' ability to deliver product, we must review the suppliers plans for
Year 2000 compliance and satisfy ourselves that they have made the necessary
modifications to or replacements of their affected systems. We will rely
primarily on the suppliers' commitments to accomplish this task but have no
contractual commitment from the suppliers regarding Year 2000 issues.
Costs of Addressing Year 2000 Issues. Given the information known at this
time about our non-compliant systems, coupled with ongoing, normal
course-of-business efforts to upgrade or replace critical systems, as necessary,
we do not expect Year 2000 compliance costs to have any material adverse impact
on our business. We estimate that total costs for the Year 2000 compliance
assessment and remediation will not exceed $50,000. The costs of such assessment
and remediation will be paid out of general and administrative expenses.
Risks of Year 2000 Issues. In light of our assessment and remediation
efforts to date, and the planned, normal course-of-business upgrades, we believe
that any residual Year 2000 risk is limited to non-critical business
applications and support hardware. No assurance can be given, however, that all
of our systems will be Year 2000 compliant or that compliance will not have a
material adverse effect on our business. We also do not have any assurance that
the manufacturers who supply semiconductors for us will be Year 2000 compliant
with their internal systems; a reduction in the supply of product from these
suppliers could have a material adverse effect on our business.
Contingency Plans. We plan to develop a contingency plan for all operations
to address the most reasonably likely worst case scenarios regarding Year 2000
compliance. We expect such contingency plan to be completed by June 30, 1999.
FINANCIAL MARKET RISK
Our principal financial market risk relates to the interest rates
associated with our available-for-sale securities. At December 31, 1998, our
market risk related to these investments was immaterial and all such investments
had original maturities not exceeding 90 days.
24
<PAGE> 29
BUSINESS
The following discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
PLX is a leading developer and supplier of I/O connectivity solutions that
accelerate and manage the transfer of data in high-performance embedded systems.
Our products are based on widely accepted industry standards such as PCI. The
PLX solution consists of three layers: semiconductor devices, software
development kits and reference design kits. Semiconductor devices offered by us
represent a new class of cost-effective integrated circuits called "I/O
accelerators" and "I/O processors" that simplify the development of
high-performance I/O subsystems in embedded applications and are compatible with
microprocessors such as IBM's PowerPC, Motorola's PowerPC, Intel's i960, IDT's
MIPs and Hitachi's SH. Our software development kits and reference design kits
promote sales of these semiconductor devices by lowering customers' development
costs and by accelerating their ability to bring new products to market.
More than 500 OEMs use our semiconductor devices in a wide variety of
embedded applications including networking and telecommunications, enterprise
storage, imaging, and industrial. Customers currently shipping products that
incorporate our products include 3Com, Cisco Systems, Compaq Computer,
Hewlett-Packard, IBM, Lucent Technologies, Nortel Networks, Siemens and
Tektronix.
INDUSTRY BACKGROUND
An embedded system is a function-specific computer that performs a
dedicated task or set of tasks and is incorporated into another product.
Embedded systems are found in many common products and offer varying levels of
performance depending on each product's requirements. These products range from
low performance devices such as electronic toys and microwave ovens to very
complex, high-performance electronic equipment such as network routers and
switches. High-performance embedded systems offer increased data processing
capabilities and typically utilize one or more 32-bit or 64-bit microprocessors,
fast memories and peripherals, and sophisticated operating systems or control
code.
Demand for high-performance embedded systems, which are designed to
transmit, store and process information rapidly, has dramatically increased due
to (i) the growth of the Internet and intranets, (ii) the deployment of
high-speed networking technologies and (iii) the proliferation of multimedia
applications. Markets for electronic equipment that rely on high-performance
embedded systems include the following:
Networking and Telecommunications. Networking and telecommunications
applications include digital telephony, remote access servers, routers,
network switches and cable modem equipment. This market segment is growing
rapidly due to the rise of the Internet and the proliferation of high
bandwidth communication technologies such as Fast Ethernet, Gigabit
Ethernet, Asynchronous Transfer Mode (ATM), cable modem, and Digital
Subscriber Line (xDSL).
25
<PAGE> 30
Enterprise Storage. Enterprise storage applications include redundant array
of inexpensive disks (RAID) subsystems, automated tape libraries and file
servers. The growing use of multimedia applications and storage networks is
driving corporate demand for increased data storage capacity.
Imaging. Imaging applications include printers, copiers, medical
instrumentation and video and graphics equipment. The demand for better
image quality and faster performance, as well as connection of these
applications to high-speed networks, have increased their data processing
requirements.
Industrial. Industrial applications include a wide range of process control
computers and factory automation equipment. These products have high data
transfer rate requirements, are used to monitor and control complex
processes in real-time and are being increasingly attached to networks.
Manufacturers of products that rely on high-performance embedded systems
seek to maximize the performance and minimize the cost of their increasingly
complex products. In addition, these manufacturers must develop and bring new
products to market quickly to keep pace with technological advancements.
THE I/O SUBSYSTEM
A typical embedded system can be described in terms of four primary
functions: the host microprocessor, the memory, the peripherals and the I/O
subsystem. The host microprocessor is the primary control center for the system.
The memory acts as a storage area for instructions to be executed and data to be
processed. The peripherals enable connections between the system and other
external devices. The I/O subsystem is the circuitry and software that connects
these three other functions and allows for the transfer of instructions and data
among these functions. The I/O subsystem includes the system bus which is a
physical connection between these different functions. High-performance
electronic equipment can contain multiple embedded systems, each requiring a
separate I/O subsystem. The following diagram illustrates the major components
of a typical embedded system:
[DIAGRAM ILLUSTRATING THE MAJOR COMPONENTS OF A TYPICAL EMBEDDED SYSTEM.]
26
<PAGE> 31
To enable increased performance and functionality from computer systems,
semiconductor suppliers have historically focused on improving the operation of
peripherals, microprocessors and memories. The I/O subsystem must also improve
to keep pace with these improvements by transferring more information at faster
speeds.
As data transfer requirements for the I/O subsystem have increased, so has
its complexity. Complex I/O subsystems typically consist of elaborate system bus
control logic, I/O processors and related software. Until recently, complex I/O
subsystem components were costly and were included primarily in high-end
applications such as mainframe computers. Furthermore, the lack of widely
accepted I/O standards impeded the use of sophisticated I/O subsystems in other
than high-end applications. However, advances in semiconductor technology
combined with the widespread adoption of standards in embedded systems have
enabled the development of highly integrated semiconductor devices that can
better manage I/O subsystem performance at lower cost.
PENETRATION OF I/O STANDARDS IN EMBEDDED SYSTEMS
Until recently embedded systems manufacturers relied on a wide variety of
proprietary and a fragmented set of industry standard I/O architectures. For
example, many networking, imaging, storage and industrial applications employed
proprietary architectures to meet their specific performance and cost
requirements. A mix of standard buses such as VMEbus, Multibus and ISA was used
in some industrial, telecommunications and military applications. Embedded
system software was even more fragmented with many proprietary and application
specific software architectures in use. While embedded developers could take
advantage of many standard microprocessor, memory and peripheral components
supplied by external vendors, the lack of acceptable I/O standards forced many
to develop custom I/O subsystems internally, placing a heavy demand on
development resources.
The deployment of the PCI standard was one of the catalysts for the
widespread adoption of I/O standards in embedded systems. In the early 1990s, PC
manufacturers developed PCI, a new standard hardware architecture to connect the
major components of a PC at high speed. It offered up to a one hundred times
improvement in I/O data transfer rates over the previous architectures. By the
mid-1990s, PCI became the most widely used bus architecture in the PC market.
Consequently, most suppliers of peripheral semiconductor components used in PCs
adopted PCI as the standard system interface. PCI is now emerging as the
standard I/O architecture for many high-performance embedded systems because it
allows the use of low cost and state-of-the-art peripheral semiconductor
components developed for the PC market and provides a foundation for embedded
system interoperability. PCI also offers equivalent or superior performance to
the in-house developed standards of many embedded equipment suppliers.
Furthermore, the use of PCI enables faster time to market, lower development
cost and the ability to quickly integrate new I/O components.
Although the PCI standard has resolved many development issues relating to
I/O hardware architectures, software remains a challenge. The lack of standards
for I/O control software and the wide use of proprietary operating systems place
a significant demand on development resources. Consequently, embedded developers
are increasingly adopting standard operating systems with well-defined I/O
structures as opposed to developing their own software internally. Examples
include Windows NT, Windows CE and standard real time operating systems (RTOS)
from companies such as Wind River and Integrated Systems. In a related
development, a consortium of industry leaders
27
<PAGE> 32
approved a new specification, I(2)O, in 1997 to address software compatibility
and performance issues. I(2)O architecture enables more efficient use of the PCI
bus and can result in higher data transfer rates and thus increased embedded
system performance. Instead of designing proprietary software, developers can
use I(2)O architecture as a standard software architecture that reduces software
development time and costs. Furthermore, by using I(2)O architecture, embedded
system suppliers can more easily integrate third party system components,
thereby reducing development costs and improving time-to-market.
NEED FOR STANDARD I/O PRODUCTS AND COMPREHENSIVE I/O SOLUTIONS
Even with standard I/O specifications, design teams must still create the
circuitry and related software that implements these specifications. Designers
must also update their I/O subsystems to include frequent improvements in the
specifications.
Instead of developing all the hardware and software technology internally,
embedded systems developers seek to focus their scarce engineering resources on
the proprietary features of their products. By using standard or application
specific standard product (ASSP) semiconductor devices in the I/O subsystem
instead of using custom-designed devices they are able to implement the basic
framework of the system more easily and thereby reduce the I/O subsystem design
effort, providing faster time-to-market and lower development cost. Standard
products allow the design teams to concentrate their efforts on differentiating
hardware and software features. In addition to standard semiconductor devices,
embedded designers need several other design elements, such as data control
software, reference design kits and third-party development tools to complete
their development work in a timely manner.
Due to the availability and adoption of I/O standards by embedded
developers, there is now a large demand for I/O subsystem components based on
these standards.
THE PLX SOLUTION
PLX is a leading developer and supplier of I/O connectivity solutions that
accelerate and manage the data transfer in high-performance embedded systems.
Our solution consists of three layers: semiconductor devices, software
development kits and reference design kits. Development tools provided by third
parties support these design elements. Our products are designed for use in a
variety of high-performance embedded applications including networking and
telecommunications, enterprise storage, imaging and industrial. We focus on I/O
accelerators and I/O processors, which represent a new class of highly
integrated, cost-effective semiconductor devices that optimize the flow of data
and simplify the development of high-performance I/O subsystems. Our software
development kits and reference design kits promote sales of our semiconductor
devices by lowering customers' development costs and allowing them to bring new
products to market more quickly.
PLX products provide I/O connectivity solutions for PCI and I(2)O and other
industry standards. As new I/O standards evolve, we expect to support them where
appropriate. More than 500 OEMs use PLX semiconductor devices in a wide variety
of embedded systems applications. Customers currently shipping systems that
incorporate our products include 3Com, Cisco Systems, Compaq Computer,
Hewlett-Packard, IBM, Lucent Technologies, Nortel Networks, Siemens and
Tektronix.
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<PAGE> 33
STRATEGY
Our objective is to continue to be a leading developer and supplier of I/O
connectivity solutions for high-performance embedded systems. Key elements of
our strategy include the following:
Expand Leadership Positions in High-Growth Markets. We focus on high-growth
embedded systems markets including networking and telecommunications, enterprise
storage, imaging and industrial. Within these markets, there are many highly
differentiated applications with different design criteria such as product
function, performance, cost, power consumption, software, size limitations and
design support. The requirements of many of these differentiated applications
are addressed by our products, and we target those applications where we believe
we can attain a leadership position.
Deliver Comprehensive Solutions. Our three layer solution provides embedded
systems developers with a comprehensive, proven development environment to
simplify I/O subsystem design, enhance performance, reduce development costs and
accelerate time-to-market. This solution consists of semiconductor devices,
software development kits and reference design kits. These design elements are
supported by development tools provided by third parties. For example, our PCI
9080 I/O accelerator is supported by two software development kits and five
reference design kits which support microprocessors from Hitachi, IBM, IDT,
Intel, and Motorola.
Extend I/O Subsystem Technology Leadership. We offer our customers highly
integrated semiconductor devices and related software that incorporate many of
the latest advances in I/O technology. Our semiconductor devices and software
designs are based on a modular approach that enables quick adoption of new I/O
technologies and enhancements to existing I/O standards. We seek to integrate
additional I/O-related functions into our semiconductor devices to provide our
customers with increasing functionality at the same or lower costs. For example,
we are developing our IOP 480, a device that will integrate IBM's PowerPC core
with our PCI technology. We employ a team of engineers with considerable
expertise in embedded systems architectures, product definition, semiconductor
and software design and engineering to maintain our I/O subsystem technology
leadership.
Drive I/O Subsystem Standards for Embedded Applications. We believe that
our understanding of I/O technology trends and market requirements allows us to
bring to market more quickly new products that support the latest I/O
technologies. Through our participation in key industry groups responsible for
standards such as the PCI Special Interest Group, the PCI Industrial Computer
Manufacturers' Group and the I(2)O Special Interest Group, we are a leader in
defining new I/O standards.
Strengthen and Expand Industry Relationships. We work with industry leaders
in developing software development tools and marketing programs that promote the
use of each company's products. Key microprocessor partners include Hitachi,
IBM, IDT, Intel and Motorola, and key software partners include Integrated
Systems, Microsoft, Synopsys and Wind River. As a result of these relationships,
we enable embedded systems designers to choose the best products for their
particular applications while still employing our product as the core of their
I/O subsystem design.
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<PAGE> 34
CUSTOMERS
We supply our products to customers for a wide variety of high-performance
embedded systems applications including networking and telecommunications,
enterprise storage, imaging and industrial. We also have sales in other markets
such as the personal computer, server and consumer markets. The typical product
life cycle of a high performance embedded system is one to two years or more of
product development and initial marketing activity followed by two to five years
or more of volume production, assuming the product is successful in the market.
The embedded system design team typically selects the sole-source hardware and
software components early in the design cycle. Generally, the embedded system
will incorporate these same components throughout its product life because
changes require an expensive re-engineering effort. Therefore, when our products
are designed into an embedded system, they are likely to be used in that system
throughout its two to five year or more production life.
Our products are standard semiconductor devices that may be incorporated
into equipment used in several of our target markets. More than 500 OEMs
incorporate our semiconductor devices in their products. The following table
lists representative customers that purchased directly or through distributors
more than $100,000 of our products in 1998.
<TABLE>
<CAPTION>
NETWORKING AND
TELECOMMUNICATIONS ENTERPRISE STORAGE
- ----------------------------- -----------------------------
<S> <C>
3Com Compaq Computer
Artesyn Technologies IBM
Ascend Communications Network Appliance
Cabletron Systems IMAGING
Cisco Systems -----------------------------
Dialogic Hewlett-Packard
Digi International Kofax Image Products
Eicon Technology Optibase
Emulex Pinnacle Systems
Fore Systems Scitex
Gilat Satellite Networks Tektronix
IBM INDUSTRIAL
Intel -----------------------------
Interphase Siemens
Lucent Technologies Tektronix
Nortel Networks
Performance Technology
SDL
Shiva
</TABLE>
PRODUCTS
Our solution consists of three layers: semiconductor devices, software
development kits and reference design kits. Development tools provided by third
parties support these three design elements. Our semiconductor device products
include I/O accelerators and I/O processors, which are a new class of integrated
circuits designed to simplify the development of high-performance I/O
subsystems. The sales of these semiconductor devices account for a substantial
majority of our revenues. The other layers of our solution
30
<PAGE> 35
promote sales of our semiconductor devices by lowering customers' development
costs and allowing them to bring new products to market more quickly.
I/O Accelerators and I/O Processors. Our I/O accelerators are semiconductor
devices that incorporate high-level functions to accelerate movement of data
across a PCI bus and between one or more devices or subsystems that need to
communicate across the PCI bus. These products incorporate the Data Pipe
Architecture technology including some or all of the following features: PCI
interface, I(2)O interface, direct memory access (DMA) controllers, FIFOs and
local bus control logic. Our I/O accelerators address a range of applications
and provide flexible interfaces to a variety of processors including IBM's and
Motorola's PowerPC, Intel's i960, Hitachi's SH, IDT's MIPs, and Motorola's 68K
series. Customers also use these semiconductor devices in connection with
digital signal processors (DSPs) from Texas Instruments, Analog Devices and
others. The I/O accelerators can be connected with a wide range of peripheral
devices, including LAN, WAN, disk control and graphics.
We recently announced the IOP 480, our first I/O processor which combines
the Data Pipe Architecture technology with a PowerPC core and flexible memory
controller. An I/O processor is a microprocessor designed to manage I/O tasks
and move data efficiently. The I/O processor enhances overall system performance
by maximizing data flow and off-loading I/O tasks from the host processor. It
integrates, in one cost and space-saving device, many of the circuit elements
required for I/O management. Key features of the I/O processor include a PCI
system bus, a high-performance, low-cost microprocessor, efficient memory
management, flexible I/O interface, burst mode data transfers, intelligent
message passing support and efficient I/O transaction management. The IOP 480
will enable a more compact, power-efficient design with an architecture that is
suitable for a wide variety of embedded applications.
Software Development Kits. Our software development kits (SDKs) are
designed to simplify and accelerate the development of systems that incorporate
our semiconductor devices. For PCI technology we offer PCI SDK software, which
shortens the time needed to develop the software used to transfer data through a
PCI bus. It includes a set of API libraries that enables developers to execute
complex transactions with simple commands. The API libraries allow customers to
migrate their designs, with the same software interface, from our existing 32
bit I/O accelerators to our 64 bit I/O accelerators and I/O processor products.
This common interface allows customers to preserve their software investment
even as their designs evolve in complexity and as new I/O architectures are
deployed. The PCI SDK is applicable to both proprietary and standard operating
systems. Our SDK for I(2)O Architecture simplifies the development of software
for I(2)O architecture-based technology.
Reference Design Kits. We offer reference design kits that support the
development of systems incorporating PLX semiconductor devices. Designers use
the reference design kits to evaluate our semiconductor devices and to simplify
and accelerate product development. Each reference design kit includes a
development circuit board that designers can use to evaluate the PLX products
and also design their own system. These reference design kits also include
technical drawings, documentation and other design assistance tools. Current
reference design kits support IBM's PowerPC processors, Motorola's PowerQuicc
processors, Intel's i960 processors, IDT's MIPs processors and Hitachi's SH
processors.
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<PAGE> 36
To offer additional design support, we work with third party companies that
provide development tools for our customers. Although we receive no revenues
from these development tools, they promote sales of our semiconductor devices
because these tools often make it easier to develop embedded systems
incorporating our products. Examples include RTOS tools from Integrated Systems,
Wind River and Microsoft, development tools from IBM, Metaware and Diab Data and
modeling tools from Synopsys.
Our principal product offerings and functions include the following:
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------
CATEGORY PRODUCT DESCRIPTION
- -----------------------------------------------------------------------------
SEMICONDUCTOR DEVICES
- -----------------------------------------------------------------------------
32-bit Target I/O PCI 9050 - Enables connection of 8-,
Accelerators PCI 9052 16- and 32-bit peripherals
and ISA adapters to PCI.
- -----------------------------------------------------------------------------
32-bit Master I/O PCI 9060 - Provides the flexibility to
Accelerators PCI 9060ES connect with a wide range of
PCI 9060SD processors, peripherals and
PCI 9080 memory including Motorola
PCI 9054 PowerQuicc, Intel i960, IBM
PowerPC, Hitachi SH, IDT
MIPs and Texas Instruments
DSPs.
- -----------------------------------------------------------------------------
32-bit I/O IOP 480 - Incorporates PowerPC
Processors microprocessor and memory
(Announced, in controller in addition to a
development) 32- bit master I/O
accelerator.
- -----------------------------------------------------------------------------
64-bit/66 MHz I/O PCI 9610 - Provides the flexibility to
Accelerators connect with a wide range of
(Announced, in microprocessors, peripherals
development) and memory including
Motorola PowerQuicc,
PowerQuiccII, Intel i960,
IBM PowerPC, Hitachi SH, IDT
MIPs and Texas Instruments
DSPs.
- -----------------------------------------------------------------------------
SOFTWARE DEVELOPMENT KITS
- -----------------------------------------------------------------------------
PCI Software PCI SDK - Provides API library for
accelerating design of data
transport software.
- Includes development and
debugging utilities, sample
firmware and drivers.
- -----------------------------------------------------------------------------
I(2)O Software SDK for I(2)O - Enables rapid development of
Architecture I(2)O software.
- -----------------------------------------------------------------------------
REFERENCE DESIGN KITS
- -----------------------------------------------------------------------------
Reference Design Eight kits supporting a - Include evaluation boards,
Kits range of products PCI SDK software,
documentation and schematics
to assist system
development.
- -----------------------------------------------------------------------------
</TABLE>
32
<PAGE> 37
TECHNOLOGY
We believe that supplying high-performance I/O connectivity solutions for
I/O subsystems requires expertise in four areas: semiconductor design, software
technology, system design and industry standards.
Semiconductor Design. Our engineers have substantial expertise in
semiconductor design and have developed a comprehensive library of complex
functional blocks for use in semiconductor devices for I/O connectivity. As a
result of this expertise, we offer both innovative architectures and high levels
of integration. For example, our Data Pipe Architecture technology allows the
system developer flexibility and control over the PCI bus through features such
as intelligent DMA controllers with advanced scatter/gather features, unaligned
transfer control, dynamic endian swapping, dynamic local bus width control and
software messaging logic. In high-performance systems, the Data Pipe
Architecture technology enables data throughput that is several times faster
than non-optimized approaches. In addition, our semiconductor devices and
software designs are based on a modular approach that enables quick adoption of
new I/O technologies and enhancements to existing I/O standards. We continue to
integrate more functionality in our semiconductor devices to reduce cost,
improve performance, reduce size and simplify the customer's design effort.
Software Technology. We devote substantial engineering resources to the
development of software technology used to assist the system developer in
debugging hardware and creating data control software and drivers. The quality
and availability of these tools are key differentiating factors between PLX and
competing alternatives. We are now shipping, as part of our SDKs, our third
generation PCI debugger, PLXMon 98. We continue to enhance and expand our
software development kits, which contain a set of API libraries that software
developers use to create drivers and proprietary message passing software. Our
SDK for I(2)O Architecture was the first commercially available private platform
I(2)O software development kit. As an example of our software leadership, we
licensed our I(2)O software technology to Integrated Systems, a leading supplier
of embedded operating systems, for use in Integrated System's I(2)O products.
Our software expertise provides us with valuable insights into our customers'
software development issues, which aids the definition and development of future
semiconductor devices.
System Design. We employ a team of system level design engineers that are
dedicated to the development of reference design kits. These kits are
high-performance adapters and embedded systems that customers can use to assist
development of their products. Each of these reference design kits is a system
or adapter similar in complexity to those built by our customers. The system
design experience provides us valuable insights which we can use to improve
future semiconductor device and software products.
Industry Standards. Through our participation in the key industry groups
responsible for standards such as the PCI Special Interest Group, the I(2)O
Special Interest Group and the PCI Industrial Computer Manufacturers' Group, we
are a leader in defining new I/O standards. In addition, we are closely
monitoring new I/O technologies to determine their applicability to our embedded
market customer base.
The following diagram displays a typical embedded system incorporating PLX
I/O Accelerators, I/O Processors and Data Control Software. The I/O subsystem
depicted below includes buses, semiconductor devices and software for moving
data through the system. The example shows a host connected to three
peripherals. The host software and
33
<PAGE> 38
three sets of peripheral software shown on the right run on the corresponding
hardware on the left.
[DIAGRAM SHOWING A TYPICAL EMBEDDED SYSTEM INCORPORATING PLX I/O ACCELERATORS,
I/O PROCESSORS AND DATA CONTROL SOFTWARE.]
COMPETITION
Competition in the semiconductor industry is intense. If our main target
market, the embedded systems market, continues to grow, the number of
competitors may increase significantly. In addition, new semiconductor
technology may lead to new products that can perform similar functions as our
products.
Competition in the various markets served by us comes from companies of
various sizes, many of which are significantly larger and have greater financial
and other resources than we do and thus can better withstand adverse economic or
market conditions than we. Our principal products compete with standard products
from companies such as Anchor Chips, Applied Micro Circuits, Galileo Technology,
Tundra Semiconductor, and V3 Semiconductor.
FPGA and ASIC devices can perform some or all of the functions of the PLX
semiconductor devices. With the ASIC approach, a customer creates a custom
semiconductor device for a particular application. While this approach may lead
to lower unit production costs, it entails a large initial investment in
developing the custom device. The FPGA approach requires less design effort than
the ASIC approach, but it often entails higher unit production costs which can
be prohibitive compared to ASICs or standard semiconductor devices. Accordingly,
we also experience indirect competition from leading ASIC suppliers, including
IBM, LSI Logic, NEC, and Toshiba as well as from FPGA suppliers, including
Altera, Atmel, Lucent Technologies, Quicklogic, Vantis, and Xilinx. As we start
to sell our I/O processor products, we will compete with established embedded
microprocessor companies including Hitachi, IBM, IDT, Intel, Motorola and
others. Many of these indirect competitors and processor companies are large
companies that have significantly greater financial, technical, marketing and
other resources than we.
We believe that the principal factors of competition in our business
include functionality, product performance, price, product innovation,
availability of development tools, customer service and reliability. We believe
that we compete favorably with respect
34
<PAGE> 39
to each of such factors. However, we cannot assure you that we will be able to
compete successfully in the future against existing or new competitors, and
increased competition may adversely affect our business.
SALES, MARKETING AND TECHNICAL SUPPORT
Our sales and marketing strategy is to achieve design wins at leading
embedded systems companies in high-growth market segments. We market and sell
our products in the United States through a combination of direct regional sales
managers, a national distributor, and a network of independent manufacturers'
representatives. We maintain United States direct sales offices in Baltimore,
Boston, Chicago, Los Angeles, Raleigh and Sunnyvale.
Outside the United States, we have engaged a team of manufacturers'
representatives, stocking representatives and distributors to sell and market
our products. Our international network includes representatives in Australia,
Belgium, Denmark, France, Germany, Hong Kong, Israel, Japan, Korea, Norway,
Singapore, South Africa, Sweden, Taiwan, The Netherlands, and the United
Kingdom. We maintain a direct sales office in the United Kingdom to service
customers in Europe and the Middle East.
As of December 31, 1998, we employed 21 individuals in sales and marketing
and 9 in field and factory applications support. Sales in North America
represented 66%, 78% and 79% of product revenues for 1998, 1997 and 1996,
respectively. All sales to date have been denominated in U.S. dollars.
In 1998, sales to our exclusive United States distributor Unique
Technologies accounted for 22% of our revenues, and sales to a European
distributor, A2M, accounted for 11% of our revenues. Revenues related to sales
through distributors are expected to continue to account for a significant
portion of our total revenues. See "Risk Factors -- We Depend on Third-Party
Distributors."
In 1998, sales to IBM directly or through distributors accounted for 13% of
our revenues. In 1997, sales to no single customer accounted for 10% or more of
our total revenues.
Technical support to customers is provided through field and factory
applications engineers, technical marketing personnel and, if necessary, product
design engineers. Local field support is provided in person or by telephone. We
also use our World Wide Web site to provide product documentation and technical
support information. We believe that providing customers with comprehensive
product support is critical to remaining competitive in the markets we serve. In
addition, our close contact with customer design engineers provides valuable
input into existing product enhancements and next generation product
specifications.
RESEARCH AND DEVELOPMENT
Our future success will depend to a large extent on our ability to rapidly
develop and introduce new products and enhancements to our existing products
that meet emerging industry standards and satisfy changing customer
requirements. We have made and expect to continue to make substantial
investments in research and development and to participate in the development of
new and existing industry standards.
35
<PAGE> 40
Our research and development has been focused in three main areas: PCI I/O
accelerators and I/O processors, reference design kits and software development
kits. The majority of our engineers are involved in semiconductor device design
and verification, with the remaining engineers working on software and reference
design hardware. Before development of a new product commences, our marketing
managers work closely with research and development engineers and customers to
develop a comprehensive requirements specification. In addition, our marketing
managers and engineers review the applicable industry standards and incorporate
desired changes into the new product specification. After the product is
designed and commercially available, our engineers continue to work with various
customers on specific design issues to understand emerging requirements that may
be incorporated into future product generations or product upgrades.
Our research and development expenditures totaled $6.6 million in 1998 and
$4.2 million in 1997. Research and development expenses consist primarily of
salaries and related costs of employees engaged in research, design, and
development activities. In addition, expenses for outside engineering
consultants and non-recurring engineering at our independent foundries are
included in research and development expenses. As of December 31, 1998, there
were 31 employees engaged in research and development. We perform our research
and development activities at our headquarters in Sunnyvale, California. We are
seeking to hire additional skilled development engineers, who are currently in
short supply. Our business could be adversely affected if we encounter delays in
hiring additional engineers. See "Risk Factors -- We Must Manage Our Growth."
Our future performance depends on a number of factors, including our
ability to identify emerging technology trends in our target markets, define and
develop competitive new products in a timely manner, enhance existing products
to differentiate them from those of competitors and bring products to market at
competitive prices. The technical innovations and product development required
for us to remain competitive are inherently complex and require long development
cycles. We typically must incur substantial research and development costs
before the technical feasibility and commercial viability of a product can be
ascertained. We must also continue to make significant investments in research
and development in order to continually enhance the performance and
functionality of our products to keep pace with competitive products and
customer demands for improved performance. Revenues from future products or
product enhancements may not be sufficient to recover the development costs
associated with such products or enhancements. The failure to successfully
develop new products on a timely basis could have a material adverse effect on
our business. See "Risk Factors -- Our Industry is Characterized by Rapid
Technological Change."
MANUFACTURING
We have adopted a "fabless" semiconductor manufacturing model and outsource
all of our semiconductor manufacturing, assembly and testing. This approach
allows us to focus our resources on the design, development and marketing of
products and significantly reduces our capital requirements. We subcontract
substantially all of our semiconductor manufacturing to Seiko-Epson
Semiconductor in Japan and Taiwan Semiconductor Manufacturing Corporation in
Taiwan. In the second quarter of 1999, IBM will become an additional
manufacturing subcontractor for one of our principal new products. None of our
products is currently manufactured by more than one supplier, and all of our
products are expected to be single-source manufactured for the foreseeable
future. We must place orders two to four months in advance of expected delivery.
As a result, we have limited
36
<PAGE> 41
ability to react to fluctuations in demand for our products, which could cause
us to have an excess or a shortage of inventory of a particular product and
reduced product revenues.
In the event of a loss of, or a decision by us to change, a key supplier or
foundry, qualifying a new supplier or foundry and commencing volume production
would likely involve delay and expenses, resulting in lost revenues, reduced
operating margins and possible detriment to customer relationships. Since we
place our orders on a purchase order basis and do not have a long term volume
purchase agreement with any of our existing suppliers, any of these suppliers
may allocate capacity to the production of other products while reducing
deliveries to us on short notice. While we believe we currently have good
relationships with our foundries and adequate capacity to support our current
sales levels, there can be no assurance that adequate foundry capacity will be
available in the future on acceptable terms, if at all. See "Risk Factors -- We
Depend on Independent Manufacturers and Face Manufacturing Risks."
Our PCI devices are currently fabricated using a range of processes based
on several CMOS process technologies. We must continuously develop our devices
using new process technology with smaller geometries to remain competitive on a
cost and performance basis. Migrating to new technologies is a challenging task
requiring new design skills, methods and tools. We believe that the transition
of our products to smaller geometries will be important for us to remain
competitive. Our business could be materially adversely affected if any such
transition is delayed or inefficiently implemented. See "Risk Factors -- Our
Products are Complex."
INTELLECTUAL PROPERTY
Our future success and competitive position depend upon our ability to
obtain and maintain certain proprietary technology used in our principal
products. Most of our current products include implementations of the PCI and
I(2)O industry standards, which are available to other companies. We currently
have no patents on any of our PCI or I(2)O products and rely instead on trade
secret protection. We have two patents on certain technology in our other
products that expire in September 2007 and September 2014. In the future, we
plan to seek patent protection when we feel it is necessary.
Our existing or future patents may be invalidated, circumvented, challenged
or licensed to others. The rights granted thereunder may not provide competitive
advantages to us. In addition, our future patent applications may not be issued
with the scope of the claims sought by us, if at all. Furthermore, others may
develop technologies that are similar or superior to our technology, duplicate
our technology or design around the patents owned or licensed by us. In
addition, effective patent, trademark, copyright and trade secret protection may
be unavailable or limited in certain foreign countries. We cannot be sure that
steps taken by us to protect our technology will prevent misappropriation of
such technology.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights or positions. This often results in
significant and often protracted and expensive litigation. There is no
intellectual property litigation currently pending against us. However, we may
from time to time receive notifications of claims that we may be infringing
patents or other intellectual property rights owned by other third parties. If
it is necessary or desirable, we may seek licenses under such patents or
intellectual property rights. However, we cannot be sure that licenses will be
offered or that the terms of any offered licenses will be acceptable to us.
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<PAGE> 42
The failure to obtain a license from a third party for technology used by
us could cause us to incur substantial liabilities and to suspend the
manufacture or shipment of products or our use of processes requiring the
technology. Litigation could result in significant expenses to us, adversely
affect sales of the challenged product or technology and divert the efforts of
our technical and management personnel, whether or not such litigation is
determined in our favor. In the event of an adverse result in any such
litigation, we could be required to pay substantial damages, cease the
manufacture, use, sale or importation of infringing products, expend significant
resources to develop or acquire non-infringing technology, and discontinue the
use of certain processes or obtain licenses to the infringing technology. We may
not be successful in such development or acquisition, or such licenses may not
be available under reasonable terms, and any development, acquisition or license
could require expenditures by us of substantial time and other resources. Any of
these developments would have a material adverse effect on our business. See
"Risk Factors -- We Have Limited Protection of Our Intellectual Property and
Proprietary Rights."
FACILITIES
We lease two adjacent facilities in Sunnyvale, California, which have
approximately 20,000 square feet and 15,000 square feet pursuant to two leases
which expire in February 2001 and November 2004, respectively. These two
facilities comprise our headquarters and include our research and development,
sales and marketing and administration departments. We believe that our current
facilities will be adequate through 1999.
EMPLOYEES
As of December 31, 1998, we employed a total of 71 full-time employees,
including 31 engaged in research and development, 30 engaged in sales and
marketing, 4 engaged in manufacturing operations and 6 engaged in general
administration activities. We also from time to time employ part-time employees
and hire contractors. Our employees are not represented by any collective
bargaining agreement, and we have never experienced a work stoppage. We believe
that our employee relations are good.
LEGAL PROCEEDINGS
We may from time to time be a party to various litigation matters
incidental to the conduct of our business. As of the date of this prospectus,
there is no pending or threatened legal proceeding to which we are a party.
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<PAGE> 43
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors, their ages and their positions as of
December 31, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael J. Salameh........... 44 President and Director
Kenyon Mei, Ph.D............. 53 Vice President, Engineering
Scott M. Gibson.............. 40 Vice President, Finance, Chief Financial
Officer and Secretary
Mark R. Easley............... 43 Vice President, Marketing
Michael A. Hopwood........... 36 Vice President, Worldwide Sales
William E. Hart.............. 46 Vice President, Operations
D. James Guzy, Sr.(1)(2)..... 62 Chairman of the Board of Directors
Eugene Flath(2).............. 61 Director
Timothy Draper(1)............ 40 Director
Young K. Sohn(3)............. 42 Nominee Director
</TABLE>
- -------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Mr. Sohn has agreed to be nominated as director and is expected to be
elected to the Board of Directors immediately after the closing of the
offering.
Michael J. Salameh co-founded PLX and has served as our President and as a
member of the Board of Directors since the Company's inception in May 1986. From
1980 through 1986, Mr. Salameh was employed in various product marketing
management positions with Hewlett-Packard. Mr. Salameh received a B.S. in
Engineering and Applied Science from Yale University and an M.B.A. from Harvard
Business School.
Kenyon Mei, Ph.D., has served as our Vice President of Engineering since
joining us in August 1997. From 1985 through August 1997, Dr. Mei held various
senior level executive positions with Cirrus Logic, a semiconductor company,
including General Manager of the Personal Systems Division from 1992 through
July 1997 and Senior Vice President of Engineering from 1985 through 1991. Dr.
Mei received a B.S. and an M.S. in Electrical Engineering from the University of
California, Davis and a Ph.D. in Electrical Engineering from Stanford
University.
Scott M. Gibson has served as our Vice President of Finance and Chief
Financial Officer since joining us in October 1997. Mr. Gibson was employed by
YieldUP International, a semiconductor equipment manufacturer, as Vice President
and Chief Financial Officer from September 1995 through March 1997. Mr. Gibson
served as Vice President of Customer Service for Tencor Instruments, a
semiconductor equipment manufacturer, from April 1994 through June 1995. Mr.
Gibson was employed by Prometrix Corporation, a semiconductor equipment
manufacturer, as Vice President and Chief Financial Officer from April 1992
until its merger with Tencor Instruments in February 1994. Mr. Gibson received a
B.S. in Industrial Engineering from Iowa State University and an M.B.A. from the
University of Michigan Business School.
Mark R. Easley has served as our Vice President of Marketing since March
1996. From October 1993 through March 1996, he owned Mission Research
Enterprises
39
<PAGE> 44
Technical Sales, a manufacturers' representative company. From March 1986
through October 1993, Mr. Easley held various positions at Adaptec, a
semiconductor company including Director of Sales for Asia-Pacific and Japan
from July 1988 through October 1993 and Strategic Marketing Manager from March
1986 through June 1988. Mr. Easley is also a director of Sebring Systems, Inc.
Mr. Easley received a B.S. in Computer Science from Purdue University.
Michael A. Hopwood has served as our Vice President of Worldwide Sales
since 1995. From 1989 to 1995, he held a variety of other sales management
positions with our Company. From 1984 until 1989, Mr. Hopwood held various sales
positions at Intel, a semiconductor manufacturer. Mr. Hopwood received a B.S. in
Physics Engineering from Pacific Lutheran University.
William E. Hart has served as our Vice President of Operations since
January 1996. Between July 1993 and January 1996, he served as our Operations
Manager and Controller. From January 1992 to June 1993, Mr. Hart was employed by
Euphonix, a digital audio equipment company, as its production manager. From
November 1982 through December 1991, Mr. Hart was employed as a manufacturing
manager for NTX Communications, a computer company. Mr. Hart received a B.A.
from St. Mary's College and a Masters degree in Public Administration from
California State University, Hayward.
D. James Guzy, Sr. has been a director of PLX since 1986. Mr. Guzy is the
Chairman, President and CEO of SRC Computers, a developer of super-computer
systems. Since 1969, he has also served as the President of the Arbor Company, a
limited partnership involved in the electronics and computer industry. Mr. Guzy
is also a director of Cirrus Logic, Intel, Micro Component Technology, Novellus
Systems, Davis Selected Group of Mutual Funds and Alliance Capital Management
Technology Fund, and a member of the board of directors of several private
technology companies, including Sebring Systems. Mr. Guzy received a B.S. from
the University of Minnesota and an M.S. from Stanford University.
Eugene Flath has been a director of PLX since May 1989. Mr. Flath has been
a General Partner of Associated Venture Investors since February 1988 and a
Special General Partner of Applied Technology Investors since July 1994. Mr.
Flath also serves on the board of directors of several private companies. Mr.
Flath received a B.S. in Electrical Engineering and a B.S. in Naval Science from
the University of Wisconsin and an M.S. in Electrical Engineering from the
University of New Hampshire.
Timothy Draper has been a director of PLX since the 1986. Mr. Draper has
been a Managing Director of Draper Fisher Jurvetson, an investment company since
1992. Mr. Draper managed Draper Associates LP from 1986 to 1992. Mr. Draper
received a B.S. in Electrical Engineering from Stanford University and an M.B.A.
from Harvard Business School.
Young K. Sohn will become a member of our Board of Directors immediately
after completion of the offering. Since 1992, Mr. Sohn has held various
executive management positions at Quantum Corporation, a disk drive
manufacturer, most recently as the President of the Hard Disk Drive Business.
Prior to joining Quantum, Mr. Sohn was employed for nine years at Intel as a
Marketing and Sales Executive and Director of Worldwide Channel Marketing in
Intel's Reseller Channel organization. Mr. Sohn received a B.S. in Electrical
Engineering from the University of Pennsylvania and an M.B.A. from MIT's Sloan
School of Management.
40
<PAGE> 45
Officers are appointed by the Board of Directors. Pursuant to our
Certificate of Incorporation, directors are elected at our annual general
meeting of stockholders by a vote of the holders of a majority of the voting
power represented at such meeting. Each director holds office until the annual
general meeting of stockholders next following the annual general meeting at
which such director was elected or until his earlier resignation or removal. A
director may be re-elected for subsequent terms.
BOARD COMMITTEES
The Compensation Committee of the Board of Directors reviews and makes
recommendations to the Board regarding our compensation policies and all forms
of compensation to be provided to our executive officers and directors,
including annual salaries and bonuses and stock option and other incentive
compensation arrangements. In addition, the Compensation Committee reviews bonus
and stock compensation arrangements for all our other employees. The
Compensation Committee also administers our 1998 Stock Incentive Plan and 1999
Stock Incentive Plan. The current members of the Compensation Committee are
Messrs. Flath and Guzy.
The Audit Committee of the Board of Directors reviews and monitors our
corporate financial reporting and external audits, including our internal
control functions, the results and scope of the annual audit and other services
provided by our independent auditors and our compliance with legal matters that
have a significant impact on our financial reports. The Audit Committee also
consults with our management and our independent auditors prior to the
presentation of financial statements to stockholders and, as appropriate,
initiates inquiries into aspects of our financial affairs. In addition, the
Audit Committee has the responsibility to consider and recommend the appointment
of, and to review fee arrangements with, our independent auditors. The current
members of our Audit Committee are Messrs. Draper and Guzy.
DIRECTOR COMPENSATION AND OTHER ARRANGEMENTS
Non-employee directors of PLX receive for their service as directors cash
compensation in the amount of $4,000 upon election at the annual stockholders
meeting and $2,000 for each Board meeting that they attend. In addition, each
new non-employee director will receive an option to purchase 15,000 shares of
our common stock upon joining the Board of Directors. Each incumbent
non-employee director who has served on the Board for at least eleven months
will be granted an option to purchase an additional 5,000 shares of our common
stock after each annual stockholders' meeting. All options are immediately
exercisable upon grant. See "Stock Option Plans -- 1999 Stock Incentive Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors established a Compensation Committee in July 1990.
The Compensation Committee is currently comprised of Messrs. Flath and Guzy.
Neither of these individuals were at any time since the formation of PLX an
executive officer or employee of the Company. Prior to the establishment of the
Compensation Committee, all decisions relating to executive compensation were
made by the Board. For a description of the transactions between PLX and members
of the Compensation Committee and entities affiliated with such members. See
"Certain Transactions." None of our executive officers serves as a member of the
board of directors or compensation committee of any entity
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<PAGE> 46
which has one or more executive officers serving as a member of our Board of
Directors or Compensation Committee.
NO EMPLOYMENT CONTRACTS
None of our executive officers has an employment agreement with the
Company.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning the
compensation earned by our chief executive officer and certain of our other
executive officers (collectively, the "Named Officers") whose salary and bonus
exceeded $100,000 for services rendered in all capacities to PLX and our
subsidiary during the fiscal year ended December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------- -----------------
SHARES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS(1) OPTIONS(2)
--------------------------- -------- -------- -----------------
<S> <C> <C> <C>
Michael J. Salameh
President............................... $144,000 $101,258 150,000
Kenyon Mei, Ph.D.
Vice President, Engineering............. 210,000 87,202 0
Mark R. Easley
Vice President, Marketing............... 138,000 109,407 65,000
Michael A. Hopwood
Vice President, Worldwide Sales......... 124,000 96,953 25,000
Scott M. Gibson
Vice President, Finance................. 120,000 48,923 30,000
</TABLE>
- -------------------------
(1) Includes bonus amounts in the fiscal year earned, rather than in the fiscal
year in which each such bonus amount was paid.
(2) Stock options granted pursuant to the 1998 Plan.
42
<PAGE> 47
The following table sets forth certain information concerning grants to
purchase shares of our common stock to each of the Named Officers during fiscal
1998.
OPTION GRANTS IN FISCAL 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL RATES
NUMBER OF TOTAL OPTIONS OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES IN EXERCISE TERM(4)
OPTIONS FISCAL YEAR PRICE PER EXPIRATION ---------------------------
NAME GRANTED 1998(1) SHARE(2) DATE(3) 5% 10%
---- ---------- ------------- --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Salameh.... 150,000 22.79% $5.00 01/20/08 $471,671 $1,195,307
Kenyon Mei, Ph.D. .... -- -- -- -- -- --
Mark R. Easley........ 65,000 9.87 5.00 01/20/08 204,391 517,966
Michael A. Hopwood.... 25,000 3.80 5.00 01/20/08 78,612 199,218
Scott M. Gibson....... 30,000 4.56 5.00 01/20/08 94,334 239,061
</TABLE>
- -------------------------
(1) In fiscal year 1998, we granted options to employees to purchase an
aggregate of 658,250 shares.
(2) Each of these options was granted pursuant to our 1998 Plan and is subject
to the terms of such plan as described below. These options were granted at
an exercise price equal to the fair market value of our common stock as
determined by our Board of Directors on the date of the grant.
(3) Options may terminate before their expiration dates if the optionee's status
as an employee or consultant is terminated or upon the optionee's death or
disability.
(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
represent our estimate or projection of our future common stock prices.
STOCK OPTION PLANS
1986 RESTRICTED STOCK PURCHASE PROGRAM
On May 7, 1986, our Board of Directors approved a form of Restricted Stock
Purchase Agreement to be used to sell restricted shares of our common stock (the
"Restricted Stock") to our employees, officers and consultants. There was no
formal, written plan. From time to time, the Board of Directors reserved shares
of our common stock for grant under the program. From May 7, 1986 until November
13, 1997, a total of 4,387,060 shares of Restricted Stock were issued pursuant
to the program. The shares were issued at fair market value as determined by the
Board of Directors. The repurchase price of the restricted shares is the
original sales price. The shares are subject to a repurchase option in favor of
the Company (the "Repurchase Option") that expires over a period of four years
from the date of issuance. Under the program's standard vesting schedule, the
number of shares subject to the Repurchase Option is reduced as follows: (i) on
the first anniversary of the date of issuance, the number of shares subject to
the Repurchase Option is reduced by 25%; and (ii) each month thereafter, the
number of shares subject to the Repurchase Option is reduced by 2.083% of the
total Restricted Stock issued. As consideration for the issuance of such
Restricted Stock, each of the officers has paid 20% of the aggregate purchase
price of the Restricted Stock issued to him in cash and has executed a
promissory note (each, a "Note") for the remaining 80% of the aggregate
43
<PAGE> 48
purchase price. The Notes bear interest at a rate of 6% per annum and become due
and payable upon the earlier of (i) four years from the date of issuance or (ii)
the effectiveness of a registration statement pursuant to which the subject
securities may be offered and sold by such officers; provided, however, that in
the event the officers are restricted by the terms of market stand-off
agreements relating to the securities, amounts that would become due under the
Notes upon such registration are reduced to the amount that would be covered by
sale of shares allowed to be sold. The due dates of the loans did not extend
past the Repurchase Option of PLX. The Notes are full recourse and, in addition,
each of the executive officers has pledged the Restricted Stock as collateral to
secure the obligations under his Note. The program was terminated upon adoption
of our 1998 Incentive Stock Plan on January 15, 1998.
1998 STOCK INCENTIVE PLAN
Our 1998 Stock Incentive Plan (the "1998 Plan") was approved by the Board
of Directors on January 15, 1998 and by our stockholders on June 22, 1998. The
1998 Plan provides for the grant of options intended to qualify as "incentive
stock options" under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and nonqualified stock options. As of January 31, 1999, a
total of 1,300,000 shares of our common stock have been reserved for issuance
under the 1998 Plan. As of December 31, 1998, no shares of our common stock had
been issued upon exercise of options granted under the 1998 Plan, options to
purchase 645,250 shares were outstanding, and 154,750 shares remained available
for future grant. In January 1999, our Board of Directors approved the grant of
options to purchase an aggregate amount of 591,250 shares, to be effective as of
the offering. The Board of Directors or a committee designated by the Board has
the power, subject to the limitations contained in the 1998 Plan, to prescribe
the terms and conditions of any option granted under the 1998 Plan, including
the total number of shares to be offered to each optionee. The maximum term of
any stock option granted under the 1998 Plan is ten years, except that with
respect to incentive stock options granted to a person possessing more than 10%
of the combined voting power of the Company (a "10% Stockholder"), the term of
such stock options shall be for no more than five years. The exercise price of
incentive stock options granted under the 1998 Plan must be at least 100% of the
fair market value of our common stock on the grant date except that the exercise
price of incentive stock options granted to a 10% Stockholder must be at least
110% of such fair market value on the date of grant. The aggregate fair market
value on the date of grant of our common stock for which incentive stock options
are exercisable for the first time by an employee during any calendar year may
not exceed $100,000. In the event of a Change of Control (as defined in the 1998
Plan), all of the options granted under the 1998 Plan will terminate unless
assumed or substituted or except as provided otherwise in an individual option
agreement. The Board of Directors may amend the 1998 Plan at any time, except
that certain amendments require stockholder approval. The 1998 Plan will
terminate in January 2008, unless terminated earlier by the Board of Directors.
1999 STOCK INCENTIVE PLAN
Our 1999 Stock Incentive Plan (the "1999 Plan") was approved by the Board
of Directors on January 15, 1999 and by our stockholders in ,
1999, effective as of the effective date of the offering. The 1999 Plan permits
the grant of securities of the Company, including options intended to qualify as
"incentive stock options" under
44
<PAGE> 49
Section 422 of the Code, and nonqualified stock options to employees, officers,
directors, independent contractors and consultants; provided, however that
incentive stock options may be granted only to our employees. Initially
1,000,000 shares of common stock were reserved for issuance in connection with
the grant of options under the 1999 Plan. As of January 31, 1999 no options had
been awarded under the 1999 Plan.
The Board of Directors or a committee designated by the Board (the
"Administrator") is authorized to administer the 1999 Plan, including the
selection of persons to whom options may be granted and the interpretation and
implementation of the 1999 Plan. Options granted under the 1999 Plan will vest
and become exercisable as determined by the Administrator at the time of the
option grant. The term of each option will be as determined by the
Administrator; provided, however, that the maximum term of an option granted
under the 1999 Plan is ten years (five years in the case of an incentive stock
option granted to a 10% Stockholder). The aggregate fair market value, on the
date of grant, of our common stock for which incentive stock options are
exercisable for the first time by an employee during any calendar year may not
exceed $100,000. The exercise price of each option granted under the 1999 Plan
shall not be less than the fair market value of our common stock on the date of
grant (or not less than 110% of fair market value in the case of an incentive
stock option granted to a 10% Stockholder). In the event of a Change of Control
(as defined in the 1999 Plan), all of the options granted under the 1999 Plan
will terminate unless assumed or substituted or except as provided otherwise in
an individual option agreement. The 1999 Plan may be amended at any time by the
Board of Directors, although certain amendments require stockholder approval.
The 1999 Plan will terminate in January 2009, unless earlier terminated by the
Board.
Pursuant to the authority granted by the 1999 Plan, the Administrator has
adopted, concurrently with the approval of the 1999 Plan, the 1999 Non-Employee
Director Option Program (the "Non-Employee Director Program"). The Non-Employee
Director Program provides for the grant of non-qualified stock options to
non-employee directors upon election or appointment to the Board of Directors
and for annual non-qualified stock option grants thereafter. See
"Management -- Director Compensation and Other Arrangements."
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our Certificate of Incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that a director
of a corporation will not be personally liable for monetary damages for breach
of such individual's fiduciary duties as a director except for liability (i) for
any breach of such director's duty of loyalty to the Company or to its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases as provided in Section 174
of the Delaware General Corporation Law or (iv) for any transaction from which a
director derives an improper personal benefit.
Our Bylaws provide that the Company shall indemnify its directors and
executive officers and may indemnify its officers, employees and other agents to
the full extent permitted by law. We believe that indemnification under our
Bylaws covers at least negligence and gross negligence on the part of an
indemnified party. Our Bylaws also permit us to advance expenses incurred by an
indemnified party in connection with the defenses of any action or proceeding
arising out of such party's status or service as a director, officer or employee
or other agent of the Company upon an undertaking by such
45
<PAGE> 50
party to repay such advances if it is ultimately determined that such party is
not entitled to indemnification.
We have entered into separate indemnification agreements with each of our
directors and officers. These agreements require us, among other things, to
indemnify such director or officer, against expenses (including attorney's
fees), judgments, fines and settlements (collectively, "Liabilities") paid by
such individual in connection with any action, suit or proceeding arising out of
such individual's status or service as a director or officer of the Company
(other than Liabilities arising from willful misconduct or conduct that is
knowingly fraudulent or deliberately dishonest) and to advance expenses incurred
by such individual in connection with any proceeding against such individual
with respect to which such individual may be entitled to indemnification by the
Company. We believe that our Certificate of Incorporation and Bylaw provisions
and indemnification agreements are necessary to attract and retain qualified
persons as directors and officers. We also maintain directors' and officers'
liability insurance.
At present we are not aware of any pending litigation or proceeding
involving any director, officer, employee or agent of the Company in which
indemnification will be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification.
46
<PAGE> 51
CERTAIN TRANSACTIONS
SALE OF RESTRICTED STOCK TO EXECUTIVE OFFICERS
We have entered into Employee Stock Purchase Agreements with each of the
executive officers listed below which provide for the sale of shares of
restricted PLX common stock (the "Restricted Stock") to such officers subject to
a repurchase option on behalf of PLX (the "Repurchase Option"). The repurchase
price of the restricted shares is the original sales price. Except as noted
below, the number of shares subject to each Repurchase Option is reduced over a
period of four years as follows: (i) one year from the date of issuance, the
number of shares subject to the Repurchase Option is reduced by 25%; and (ii)
each month thereafter, the number of shares subject to the Repurchase Option is
reduced by 2.083% of the total Restricted Stock. As consideration for the
issuance of such Restricted Stock, each of the officers has paid 20% of the
aggregate purchase price of the Restricted Stock issued to him in cash and has
executed a promissory note (each, a "Note") for the remaining 80% of the
aggregate purchase price. The Notes bear interest at a rate of 6% per annum and
become due and payable upon the earlier of (i) four years from the date of
issuance or (ii) the effectiveness of a registration statement pursuant to which
the subject securities may be offered and sold by such officers; provided,
however, that in the event the officers are restricted by the terms of market
stand-off agreements relating to the securities, amounts that would become due
under the Notes upon such registration are reduced to the amount that would be
covered by sale of shares allowed to be sold. The due dates of the loans did not
extend past the Repurchase Option of PLX. The notes are full recourse and, in
addition, each of the executive officers has pledged the Restricted Stock as
collateral to secure the obligations under his Note.
<TABLE>
<CAPTION>
PRINCIPAL
PURCHASE NUMBER OF PRICE PER AMOUNT OF
NAME DATE SHARES SHARE NOTE NOTE DUE
---- ---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Kenyon Mei................ 08/01/1997 350,000 $0.15 $42,000 08/01/2001
Michael A. Hopwood........ 03/15/1996 46,000(1) $0.15 $ 6,900 03/15/2000
08/01/1997 35,000 $0.15 $ 4,200 08/01/2001
Scott M. Gibson........... 11/01/1997 110,000 $0.30 $26,400 10/14/2001
William E. Hart........... 03/15/1996 43,000(2) $0.15 $ 6,450 03/15/2000
08/01/1997 25,000(2) $0.15 $ 3,000 08/01/2001
Mark R. Easley............ 03/11/1996 75,000 $0.15 $11,250 03/11/2000
03/31/1997 70,000 $0.15 $ 8,400 06/01/2000
08/01/1997 40,000(3) $0.15 $ 4,800 08/01/2001
</TABLE>
- -------------------------
(1) The 46,000 shares of Restricted Stock issued to Mr. Hopwood vest as follows:
(i) on March 15, 1997, the number of shares of Restricted Stock subject to
the Repurchase Option was reduced by 9,000 shares; (ii) each month
thereafter until March 15, 1998, the number of shares subject to the
repurchase option was reduced by 750 shares; and (iii) each month thereafter
until March 15, 2000, the number of shares subject to the Repurchase Option
is reduced by 1,083.33 shares.
(2) The 43,000 shares of Restricted Stock issued to Mr. Hart on March 15, 1996
vest as follows: (i) on March 15, 1997, the number of shares of Restricted
Stock subject to the Repurchase Option was reduced by 9,000 shares; (ii) on
March 15, 1998, the number of shares subject to the Repurchase Option was
reduced by 750 shares, and (iii) each month thereafter until March 15, 2000,
the number of shares of Restricted
47
<PAGE> 52
Stock subject to the Repurchase Option is reduced by 1,166.67 shares. The 25,000
shares of Restricted Stock issued to Mr. Hart on August 1, 1997 vest as follows:
(i) on each of August 1, 1998, 1999 and 2000, the number of shares of Restricted
Stock subject to the Repurchase Option is reduced by 5,000 shares; and (ii)
on August 1, 2001, the number of shares of Restricted Stock subject to the
Repurchase Option is reduced by 10,000 shares.
(3) The 40,000 shares of Restricted Stock issued to Mr. Easley vest as follows:
(i) on August 1, 1998, the number of shares of Restricted Stock subject to
the Repurchase Option is reduced by 6,000 shares; and (ii) thereafter, the
number of shares subject to the Repurchase Option is reduced monthly in the
aggregate annual amounts of 6,000 shares in each of the next two years and
22,000 shares in the remaining year of vesting.
GRANT OF STOCK OPTIONS TO EXECUTIVE OFFICERS
Options to purchase the following amounts of shares were granted to our
executive officers in 1998 under the 1998 Plan: Michael J. Salameh, 150,000
shares; Mark R. Easley, 65,000 shares; Michael A. Hopwood, 25,000 shares; Scott
Gibson, 30,000 shares; William E. Hart, 15,000 shares. All of these options were
issued with an exercise price equal to $5.00 per share and vest, in the case of
Michael J. Salameh, over a period of forty-eight (48) months and, in the case of
the other executive officers, over a period of thirty-six (36) months, from the
date of grant.
Additionally, in January 1999, the Board of Directors approved options to
purchase the following amounts of shares to our executive officers under the
1998 Plan with an exercise price per share equal to the initial public offering
price: Michael J. Salameh, 163,000 shares; Mark R. Easley, 100,000 shares;
Michael A. Hopwood, 80,000 shares; Scott Gibson, 40,000 shares; William E. Hart,
40,000 shares. All of these options were approved by the Board of Directors
effective upon the offering. All options are immediately exercisable. Exercised
shares are subject to vesting at the rate of 25% of the shares granted on the
first anniversary of the grant and monthly thereafter.
INVESTMENT IN SEBRING SYSTEMS
On June 18, 1997, we purchased a total of 892,857 shares of Series A
Preferred Stock of Sebring Systems, Inc., a New York corporation ("Sebring"),
for an aggregate purchase price of $100,000. Immediately following the
investment, PLX held approximately 3.9% of the outstanding shares of Sebring.
Also, three related parties purchased a total of 22.06% of the then outstanding
shares of Sebring for an aggregate purchase price of $560,000. The related
parties are Arbor Company (a PLX stockholder, of which D. James Guzy, Sr., a
director of PLX, is the President), Draper Associates, L.P. (a PLX stockholder,
of which Timothy Draper, a director of PLX, is a General Partner) and Eugene J.
Flath (a director of PLX). Pursuant to the terms of the purchase and sale
documents relating to the above investment, D. James Guzy, Sr. was elected as a
director and Chairman of the Board of Directors of Sebring.
48
<PAGE> 53
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of December 31, 1998, and as adjusted to
reflect the sale of shares offered hereby, and the sale of our common stock by
certain of our stockholders to cover overallotments, if any, by (i) each person
(or group of affiliated persons) who is known by us to own beneficially more
than five percent of the outstanding shares of our common stock, (ii) each of
our Named Officers and directors, and (iii) all current officers and directors
as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OUTSTANDING
----------------------
5% BENEFICIAL OWNERS, DIRECTORS, NUMBER OF SHARES BEFORE THE AFTER THE
NOMINEES FOR DIRECTOR, NAMED OFFICERS BENEFICIALLY OWNED(1) OFFERING OFFERING
------------------------------------- --------------------- ---------- ---------
<S> <C> <C> <C>
Eugene Flath(2)........................... 2,579,826 14.1% 11.9%
AVI II.................................... 2,313,978 12.6 10.7
1 First Street #2
Los Altos, CA 94022
Timothy Draper(3)......................... 2,084,460 11.4 9.6
Arbor Company............................. 1,955,436 10.7 9.0
P.O. Box 128
Glenbrook, NV 89413
D. James Guzy, Sr.(4)..................... 1,955,436 10.7 9.0
Laurence Spitters(5)...................... 1,826,865 10.0 8.4
Draper Associates......................... 1,656,294 9.0 7.7
400 Seaport Court, Suite 250
Redwood City, CA 94063
LS & Co................................... 1,649,961 9.0 7.6
746 Webster Avenue
Palo Alto, CA 94301
Wei-Ti Liu................................ 966,021 5.3 4.5
Michael J. Salameh(6)..................... 798,483 4.3 3.7
Kenyon Mei, Ph.D.......................... 350,000 1.9 1.6
Mark R. Easley(7)......................... 250,000 1.4 1.2
Michael S. Hopwood(8)..................... 160,000 * *
Scott M. Gibson(9)........................ 140,000 * *
Young K. Sohn............................. 0 * *
All directors, nominees for director and
executive officers as a group (11
persons)(10)............................ 8,458,205 45.4% 38.6%
</TABLE>
- -------------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of our common stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of December 31, 1998
are deemed outstanding. Percentage of beneficial ownership is based upon
18,350,551 shares of our common stock outstanding prior to this offering
and 21,650,551 shares of our common stock outstanding after this offering,
as of December 31, 1998 and assuming no exercise of the underwriters'
overallotment option. To our knowledge, except as set forth in the
footnotes to this table and subject to applicable community property laws,
each
49
<PAGE> 54
person named in the table has sole voting and investment power with respect
to the shares set forth opposite such person's name.
(2) Includes (i) 2,313,978 shares held by AVI II and 39,423 shares held by AVI
PGF which are investments managed by AVI Management Partners II of which
Mr. Flath is a General Partner; and (ii) 75,027 shares held by AVI Partners
II NV and 151,398 shares held by AVI Partners NV which are investments
managed by AVI Management Partners of which Mr. Flath is a special limited
partner. Mr. Flath disclaims beneficial ownership of such shares except for
his proportional interest therein.
(3) Includes 1,656,294 shares held by Draper Associates L.P. of which Draper
Associates, Inc. is the General Partner. Mr. Draper is the President of
Draper Associates, Inc. Also includes 85,326 shares held by JABE LLC of
which Mr. Draper is a member and 342,840 shares held in trust for Mr.
Draper's minor children.
(4) Includes 1,955,436 shares held by Arbor Company of which Mr. Guzy, Sr. is
President.
(5) Includes 1,649,961 shares held by LS & Co. of which are deemed beneficially
owned by Mr. Spitters.
(6) Includes options to purchase 150,000 shares exercisable within 60 days of
December 31, 1998. Mr. Salameh has been granted an additional option to
purchase 163,000 shares which will be effective as of the date of this
offering. The option will be immediately exercisable. This option is not
reflected in the table.
(7) Includes options to purchase 65,000 shares exercisable within 60 days of
December 31, 1998. Mr. Easley has been granted an additional option to
purchase 100,000 shares which will be effective as of the date of this
offering. The option will be immediately exercisable. This option is not
reflected in the table.
(8) Includes options to purchase 25,000 shares exercisable within 60 days of
December 31, 1998. Mr. Hopwood has been granted an additional option to
purchase 80,000 shares which will be effective as of the date of this
offering. The option will be immediately exercisable. This option is not
reflected in the table.
(9) Includes options to purchase 30,000 shares exercisable within 60 days of
December 31, 1998. Mr. Gibson has been granted an additional option to
purchase 40,000 shares which will be effective as of the date of this
offering. The option will be immediately exercisable. This option is not
reflected in the table.
(10) Includes 6,619,722 shares indirectly held by various directors of PLX and
includes options to purchase 285,000 shares exercisable within 60 days of
December 31, 1998. See footnotes 2, 3, 4, 5 and 6.
50
<PAGE> 55
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Our authorized capital stock consists of 30,000,000 shares of common stock,
par value $0.001 per share, and 5,000,000 shares of preferred stock, par value
$0.001 per share. Upon consummation of this offering, no shares of preferred
stock and 21,650,551 shares of common stock (22,145,551 shares if the
underwriters' over-allotment option is exercised in full) will be outstanding.
The following summary is qualified in its entirety by reference to our
Certificate of Incorporation and Bylaws, copies of which are filed as exhibits
to the Registration Statement of which this prospectus is a part.
COMMON STOCK
As of December 31, 1998, there were 18,350,551 shares of our common stock
outstanding held of record by approximately 123 stockholders, including
13,738,908 shares that will be issued upon the automatic conversion of the
outstanding shares of our preferred stock into common stock upon the closing of
the offering. As of December 31, 1998, 800,000 shares of our common stock were
reserved for issuance pursuant to our Stock Option Plans. In January 1999, the
Board of Directors approved an increase to 1,300,000 shares. In January 1999,
the Board of Directors approved the 1999 Plan under which 1,000,000 shares of
our common stock are reserved for issuance. Upon completion of the offering,
there will be 21,650,551 shares of common stock outstanding.
The holders of our common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Commencing at the first annual
meeting of stockholders following the annual meeting of stockholders when PLX
shall have had at least 800 stockholders, the stockholders will not have
cumulative voting rights in the election of directors, and accordingly, holders
of more than 50% of the shares voting will be able to elect all of the
directors. Subject to preferences that may be applicable to any of our
outstanding preferred stock, the holders of our common stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Board of Directors out of funds legally available therefor. See "Dividend
Policy." In the event of liquidation, dissolution or winding up of the Company,
the holders of our common stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior distribution rights of
preferred stock, if any, then outstanding. Our common stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to our common stock. All outstanding shares
of our common stock are fully paid and nonassessable, and the shares of our
common stock to be issued upon completion of this offering will be fully paid
and nonassessable.
PREFERRED STOCK
As of the closing of this offering, no shares of our preferred stock will
be outstanding. Effective at such time and pursuant to our Certificate of
Incorporation, the Board of Directors will have the authority, without further
action by the stockholders, to issue the preferred stock in one or more series
and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series, without
further vote or action by the stockholders. The issuance of preferred stock may
have the effect of
51
<PAGE> 56
delaying, deferring or preventing a change in control of the Company without
further action by the stockholders and may adversely affect the voting and other
rights of the holders of our common stock. The issuance of preferred stock with
voting and conversion rights may have the effect of decreasing the market price
of our common stock, and may adversely affect the voting power of the holders of
our common stock, including the loss of voting control to others. At present, we
have no plans to issue any shares of preferred stock.
REGISTRATION RIGHTS
Pursuant to agreements between the Company and certain individuals (the
"Holders") who will become the holders of 13,738,908 shares of our common stock
(the "Registrable Securities") after the completion of this offering, the
Holders or their transferees are entitled to certain rights with respect to the
registration of such shares under the Securities Act. If we propose to register
any of our securities under the Securities Act, either for our own account or
the account of other security holders, the Holders are entitled to notice of
such registration and, subject to certain conditions and limitations, are
entitled to include such shares therein. In addition, at any time, the Holders
of at least 50% of the Registrable Securities may require us, on not more than
two occasions, to file a registration statement under the Securities Act with
respect to at least twenty percent (20%) of all of the outstanding Registrable
Securities (or a lesser percentage if the gross offering price would exceed $5.0
million). We are required to use our best efforts to effect such registration,
subject to certain conditions and limitations. Further, the Holders of such
Registrable Securities may require us to file additional registration statements
on Form S-3 when such form becomes available to us, subject to certain
conditions and limitations. The expenses incurred in connection with all of such
registrations (exclusive of selling expenses) will be borne by us.
CERTAIN ANTI-TAKEOVER, LIMITED LIABILITY AND INDEMNIFICATION PROVISIONS;
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
We are subject to Section 203 of the Delaware General Corporation Law, as
amended ("Section 203"), which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that such
stockholder became an interested stockholder, unless (i) prior to such date, the
board of directors of the corporation approved either the business combination
or the transaction that resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer, or (iii) on or subsequent
to such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder.
Section 203 defines business combinations to include (i) any merger or
consolidation involving the corporation or any majority-owned subsidiary of the
corporation and any
52
<PAGE> 57
other person or entity, (ii) subject to certain exceptions, any sale, transfer,
pledge or other disposition of 10% or more of the assets of the corporation or
any majority-owned subsidiary of the corporation involving the interested
stockholder, (iii) subject to certain exceptions, any transaction that results
in the issuance or transfer by the corporation or any majority-owned subsidiary
of the corporation of any stock of the corporation to the interested
stockholder, (iv) any transaction involving the corporation or any majority-
owned subsidiary of the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation or
any majority-owned subsidiary of the corporation beneficially owned by the
interested stockholder, or (v) the receipt by the interested stockholder of the
benefit of any loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation or any majority-owned subsidiary of the
corporation. In general, Section 203 defines an interested stockholder as any
entity or person beneficially owning 15% or more or the outstanding voting stock
of the corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is BankBoston, N.A.
The Transfer Agent's address is 150 Royall Street, Canton, Massachusetts and its
telephone number is (781) 575-2000.
53
<PAGE> 58
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, there will be 21,650,551 shares of our
common stock outstanding (assuming conversion of all outstanding shares of our
preferred stock, no exercise of the underwriters' over-allotment option and no
exercise of outstanding options under our Option Plans). Of such shares, the
3,300,000 shares sold in this offering will be freely transferable without
restriction or further registration under the Securities Act, except for any
shares held by an existing "affiliate" of the Company, as that term is defined
by the Securities Act (an "Affiliate"), which shares will be subject to the
resale limitations of Rule 144 adopted under the Securities Act.
As of the date of this prospectus, 18,350,551 "restricted shares" as
defined in Rule 144 will be outstanding. None of these shares will be eligible
for sale in the public market as of the Effective Date of this registration
statement (the "Effective Date"). Upon the expiration of agreements not to sell
entered into with us, 150 days after the Effective Date statement approximately
shares will become eligible for sale subject to compliance with Rule
144 and Rule 701. Beginning 180 days after the Effective Date approximately
additional shares will become eligible for sale subject to compliance
with Rule 144 and Rule 701 upon the expiration of agreements not to sell such
shares entered into between the underwriters and certain of our stockholders,
including the officers and directors. Restrictions pursuant to such agreements
not to sell may be waived by Merrill Lynch, Pierce, Fenner & Smith Incorporated.
See "Underwriting."
<TABLE>
<CAPTION>
SHARES ELIGIBLE
DAYS AFTER DATE OF THIS PROSPECTUS FOR SALE COMMENT
- ---------------------------------- --------------- -------
<S> <C> <C>
Upon Effectiveness............... Freely tradeable shares sold in
offering and shares saleable
under Rule 144(k) that are not
subject to 180-day lockup.
90 days.......................... Saleable under Rule 701; not
subject to repurchase by PLX.
150 days......................... PLX lockup released; shares
saleable under Rules 144 and
701.
180 days......................... Underwriter lockup released;
shares saleable under Rules 144
and 701.
Thereafter....................... Restricted securities held for
two years or less.
</TABLE>
In general, under Rule 144 as currently in effect, beginning 90 days after
the offering, a person (or persons whose shares are aggregated) who owns shares
that were purchased from us (or any Affiliate) at least one year previously,
including a person who may be deemed an Affiliate of the Company, is entitled to
sell within any three-month period a number of shares that does not exceed the
greater of (i) 1% of the then outstanding shares of our common stock (21,650,551
shares immediately after the offering) or (ii) the average weekly trading volume
of our common stock on the Nasdaq National Market during the four calendar weeks
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission (the "Commission"). Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about us. Any person (or persons whose shares are
aggregated) who is not deemed to have been an Affiliate of the Company at any
time during the 90 days preceding a sale, and who owns shares within the
definition of "restricted securities" under Rule 144 under the Securities Act
that were purchased from us (or any
54
<PAGE> 59
Affiliate) at least two years previously, would be entitled to sell such shares
under Rule 144(k) without regard to the volume limitations, manner of sale
provisions, public information requirements or notice requirements.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from us by our employees,
directors, officers, consultants or advisers prior to the date the issuer
becomes subject to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), pursuant to written compensatory benefit
plans or written contracts relating to the compensation of such persons. In
addition, the Commission has indicated that Rule 701 will apply to typical stock
options granted by an issuer before it becomes subject to the reporting
requirements of the Exchange Act, along with the shares acquired upon exercise
of such options (including exercises after the date of this prospectus).
Securities issued in reliance on Rule 701 are restricted securities and, subject
to the contractual restrictions described above, beginning 90 days after the
date of this prospectus, may be sold (i) by persons other than Affiliates,
subject only to the manner of sale provisions of Rule 144, and (ii) by
Affiliates under Rule 144 without compliance with its one-year holding period
requirement.
We have agreed not to offer, sell or otherwise dispose of any shares of our
common stock or any securities convertible into or exercisable or exchangeable
for our common stock or any rights to acquire our common stock for a period of
180 days after the date of this prospectus, without the prior written consent of
the representatives of the underwriters, subject to certain limited exceptions.
See "Underwriting."
After the offering, the holders of 13,738,908 shares of our common stock or
their respective transferees, will be entitled to certain rights with respect to
the registration of such shares under the Securities Act. See "Description of
Capital Stock -- Registration Rights." Registration of such shares under the
Securities Act would result in such shares becoming freely tradable without
restriction under the Securities Act (except for shares purchased by Affiliates)
immediately upon the effectiveness of such registration.
We intend to file a registration statement under the Securities Act
covering 2,300,000 shares of our common stock reserved for issuance under the
option plans. See "Management -- Stock Option Plans." Such registration
statement is expected to be filed within 90 days after the date of this
prospectus and will automatically become effective upon filing. Following such
filing, shares registered under such registration statement will, subject to the
lockup agreements, Rule 144 volume limitations applicable to Affiliates and the
lapsing of our repurchase rights, be available for sale in the open market upon
the exercise of vested options 90 days after the effective date of this
prospectus. At December 31, 1998, options to purchase 645,250 shares were issued
and outstanding under the Option Plans. In January 1999, the Board of Directors
approved the grant of options to purchase 591,250 shares at the initial public
offering price, to be effective at the offering.
55
<PAGE> 60
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and
NationsBanc Montgomery Securities LLC are acting as representatives (the
"Representatives") of each of the underwriters. Subject to the terms and
conditions set forth in the Purchase Agreement (the "Purchase Agreement") among
us and the underwriters, we have agreed to sell to each of the underwriters, and
each of the underwriters, severally and not jointly, has agreed to purchase from
us the number of shares of our common stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITERS ----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................
NationsBanc Montgomery Securities LLC.......................
--------
Total........................................
========
</TABLE>
In the Purchase Agreement, the several underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the shares of our
common stock being sold pursuant to the Purchase Agreement if any shares of our
common stock are purchased. Under certain circumstances, under the terms of the
Purchase Agreement, the commitments of the non-defaulting underwriters may be
increased or the Purchase Agreement may be terminated.
The Representatives have advised us that they propose initially to offer
the shares of our common stock to the public at the initial public offering
price set forth on the cover page of this prospectus, and to certain dealers at
such price less a concession not in excess of $ per share of common stock.
The underwriters may allow, and such dealers may reallow, a discount not in
excess of $ per share of common stock on sales to certain other dealers.
After the initial public offering, the public offering price, concession and
discount may be changed.
The Company has granted to the underwriters an option exercisable for 30
days after the date of this prospectus, to purchase up to an aggregate of an
additional 495,000 shares of common stock at the initial public offering price
set forth on the cover of this prospectus, less the underwriting discount. The
underwriters may exercise this option solely to cover over-allotments, if any,
made on the sale of our common stock offered hereby. To the extent that the
underwriters exercise this option, each underwriter will be obligated, subject
to certain conditions, to purchase a number of additional shares of our common
stock proportionate to such underwriter's initial amount reflected in the
foregoing table.
At our request, the underwriters have reserved approximately 100,000 shares
of our common stock for sale at the initial public offering price to our
employees, directors and other persons with relationships with PLX. The number
of shares of our common stock available for sale to the general public will be
reduced to the extent such persons purchase such reserved shares. Any reserved
shares which are not so purchased will be offered by the underwriters to the
general public on the same basis as the other shares offered hereby.
We have agreed for a period of 180 days after the date of this prospectus
not to directly or indirectly (i) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant for the sale of or otherwise dispose of or
transfer any shares of our common stock or securities convertible into or
exchangeable or exercisable for our common stock, whether now owned
56
<PAGE> 61
or thereafter acquired by the person executing the agreement or with respect to
which the person executing the agreement thereafter acquires the power of
disposition, or file any registration statement under the 1933 Act with respect
to any of the foregoing or (ii) enter into any swap or other agreement or any
other agreement that transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of our common stock whether any such swap or
transaction is to be settled by delivery of common stock or other securities, in
cash or otherwise, without the prior written consent of Merrill Lynch on behalf
of the underwriters. See "Shares Eligible for Future Sale."
Prior to this offering, there has been no market for our common stock. The
initial public offering price was determined through negotiations among us and
the Representatives. Among the factors considered by us and the Representatives
in determining the initial public offering price of our common stock, in
addition to prevailing market conditions, are the trading multiples of publicly
traded companies that the Representatives believe to be comparable to us,
certain financial information, the history of, and the prospects of, us and the
industry in which we compete, an assessment of our management, our past and
present operations, the prospects for, and timing of, our future revenues, the
present state of our development, the percentage interest of PLX being sold as
compared to the valuation for the entire Company and the above factors in
relation to market values and various valuation measures of other companies
engaged in activities similar to ours. There can be no assurance that an active
trading market will develop for our common stock or that our common stock will
trade in the public market subsequent to the offering at or above the initial
public offering price.
We have applied for a listing of our common stock on the Nasdaq National
Market under the symbol "PLXT."
The underwriters have advised us that they do not expect sales to accounts
over which the underwriters exercise discretionary authority to exceed five
percent of the total number of shares of our common stock offered by them.
We have agreed to indemnify the several underwriters against certain
liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect thereof.
Until the distribution of our common stock is completed, rules of the
Commission may limit the ability of the underwriters and certain selling group
members to bid for and purchase our common stock. As an exception to these
rules, the Representatives are permitted to engage in certain transactions that
stabilize the price of our common stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of our
common stock.
If the underwriters create a short position in our common stock in
connection with the offering, that is, if they sell more shares of common stock
than are set forth on the cover page of this prospectus, the representatives may
reduce that short position by purchasing common stock in the open market. The
Representatives may also elect to reduce any short position by exercising all or
part of the over-allotment option described above.
The Representatives may also impose a penalty bid on certain underwriters
and selling group members. This means that if the Representatives purchase
shares of our common stock in the open market to reduce the underwriters' short
position or to stabilize the price of our common stock, they may reclaim the
amount of the selling concession from the underwriters and selling group members
who sold those shares as part of the offering.
57
<PAGE> 62
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that it
discourages resales of our common stock.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
we nor any of the underwriters makes any representation that the Representatives
will engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.
LEGAL MATTERS
The validity of our common stock offered hereby will be passed upon for us
by Morrison & Foerster LLP, Palo Alto, California. Certain legal matters in
connection with the offering will be passed upon for the underwriters by Wilson
Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1997 and 1998, and for each of the three
years in the period ended December 31, 1998, included in this prospectus and
registration statement, as set forth in their report, which is included in this
prospectus and registration statement. The consolidated financial statements are
included in reliance on their report given upon their authority as experts in
accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Commission, Washington, D.C. 20549, a Registration
Statement on Form S-1 under the Securities Act with respect to our common stock
offered hereby. This prospectus does not contain all of the information set
forth in the registration statement and the exhibits and schedules to the
registration statement. For further information with respect to PLX and our
common stock offered hereby, reference is made to the Registration Statement and
the exhibits and schedules filed as a part of the Registration Statement.
Statements contained in this prospectus concerning the contents of any contract
or any other document are not necessarily complete; reference is made in each
instance to the copy of such contract or any other document filed as an exhibit
to the registration statement. Each such statement is qualified in all respects
by such reference to such exhibit. The registration statement, including
exhibits and schedules thereto, may be inspected without charge at the
Commission's principal office in Washington, D.C., and copies of all or any part
thereof may be obtained from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and at 7 World Trade Center, 13th Floor, New York, New
York 10048 after payment of fees prescribed by the Commission. The Commission
also maintains a World Wide Web site which provides online access to reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission at the address http://www.sec.gov.
58
<PAGE> 63
GLOSSARY
<TABLE>
<S> <C>
Architecture A particular methodology for bringing together and
utilizing selected computer hardware, systems software
and applications software to achieve an overall
objective.
Application Specific A broad term that refers to integrated circuits that are
Integrated Circuit custom, semi-custom or user-programmable.
(ASIC)
Bus A common pathway, or channel, between multiple devices.
Central Processing Unit The main processor of the computer.
(CPU)
Direct Memory Access Device which moves data between specified system memory
(DMA) Controller locations.
Embedded system A function-specific computer that performs a dedicated
task or set of tasks that is embedded in another
product.
Field Programmable Gate A semiconductor device whose logic function can be
Array (FPGA) programmed by the system manufacturer.
Integrated circuit (IC) Microelectronic semiconductor device consisting of many
interconnected transistors and other components.
Intelligent I/O (I(2)O) This standard was developed by the I(2)O Special
Interest Group to provide a common software messaging
standard for high-performance computers.
I/O accelerators Semiconductor devices that incorporate high-level
functions to enable efficient movement of data in
systems.
I/O processors Processors specifically designed to manage I/O tasks
efficiently.
I/O subsystem The circuitry and software that connects the
microprocessor, the memory and peripherals and allows
for the transfer of instructions and data among these
functions.
Internet Protocol (IP) The network layer protocol for the Internet protocol
suite.
Mbps Megabits per second (1,000,000 bps).
Peripheral Component This standard was developed by the PCI-SIG (Special
Interconnect (PCI) Interest Group) to provide a high performance, reliable
and cost-effective method of connecting high speed
devices together.
</TABLE>
59
<PAGE> 64
PLX TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Income........................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 65
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
PLX Technology, Inc.
We have audited the accompanying consolidated balance sheets of PLX
Technology, Inc. at December 31, 1997 and 1998, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
PLX Technology, Inc. at December 31, 1997 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
San Jose, California
January 14, 1999,
except for Note 11,
as to which the date is
March , 1999
------------------------
The following report is in the form that will be signed upon the approval
of the Certificate of Incorporation in the State of Delaware as discussed in
Note 11 to the Consolidated Financial Statements.
/s/ ERNST & YOUNG LLP
San Jose, California
January 14, 1999,
except for Note 11,
as to which the date is
January 25, 1999
F-2
<PAGE> 66
PLX TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY
------------------------ DECEMBER 31,
1997 1998 1998
---------- ----------- -------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents..................... $2,701,131 $ 5,638,369
Accounts receivable, net of allowance for
doubtful accounts of $158,648 in 1997 and
$173,284 in 1998........................... 2,558,751 2,072,760
Inventories................................... 1,213,413 1,344,346
Deferred tax assets........................... 191,000 735,000
Other current assets.......................... 51,099 332,270
---------- -----------
Total current assets............................ 6,715,394 10,122,745
Property and equipment, net..................... 1,162,642 1,514,693
Deposits and licenses........................... 135,453 129,039
---------- -----------
Total assets.................................... $8,013,489 $11,766,477
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $1,838,729 $ 1,600,931
Accrued compensation and benefits............. 389,407 724,273
Accrued commissions........................... 177,535 100,023
Deferred revenues............................. 292,343 592,470
Other accrued expenses........................ 315,142 546,618
Income tax payable............................ 111,000 442,364
---------- -----------
Total current liabilities....................... 3,124,156 4,006,679
Commitments
Stockholders' equity
Preferred stock, $0.001 par value:
Authorized shares -- 5,000,000 pro forma
Issued and outstanding shares -- none in
1997 and 1998 and pro forma.............. -- -- $ --
Redeemable convertible preferred stock, $0.001
par value:
Authorized shares -- 5,000,000 in 1997 and
1998 and none pro forma
Designated shares -- 4,868,738 in 1997
and 1998
Issued and outstanding shares -- 4,579,636
in 1997 and 1998 and none pro forma
Liquidation preference of $4,946,027 at
December 31, 1998........................ 4,580 4,580 --
Common stock, $0.001 par value:
Authorized shares -- 30,000,000 in 1997 and
1998
Issued and outstanding shares -- 4,659,416
in 1997 and 4,611,643 in 1998 and
18,350,511 pro forma..................... 4,660 4,612 18,351
Additional paid in capital.................... 5,500,367 5,616,790 5,607,631
Deferred compensation......................... (234,850) (282,619) (282,619)
Notes receivable for employee stock
purchases.................................. (199,014) (163,314) (163,314)
Retained earnings (accumulated deficit)....... (186,410) 2,579,749 2,579,749
---------- ----------- ----------
Total stockholders' equity...................... 4,889,333 7,759,798 $7,759,798
---------- ----------- ==========
Total liabilities and stockholders' equity...... $8,013,489 $11,766,477
========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 67
PLX TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues.............................. $ 9,813,499 $17,533,631 $26,276,201
Cost of revenues.......................... 4,526,402 6,975,659 9,671,384
----------- ----------- -----------
Gross margin.............................. 5,287,097 10,557,972 16,604,817
Operating expenses:
Research and development................ 1,854,213 4,155,809 6,552,187
Selling, general and administrative..... 2,540,056 4,411,312 6,669,634
----------- ----------- -----------
Total operating expenses.................. 4,394,269 8,567,121 13,221,821
----------- ----------- -----------
Income from operations.................... 892,828 1,990,851 3,382,996
Interest income and other, net............ 39,133 43,910 75,197
Interest expense.......................... (2,118) (12) (34)
----------- ----------- -----------
Income before income taxes................ 929,843 2,034,749 3,458,159
Provision for income taxes................ 38,514 110,355 692,000
----------- ----------- -----------
Net income................................ $ 891,329 $ 1,924,394 $ 2,766,159
=========== =========== ===========
Historical basic net income per share..... $ 0.28 $ 0.58 $ 0.77
=========== =========== ===========
Share used to compute historical basic per
share amounts........................... 3,137,446 3,292,560 3,586,250
----------- ----------- -----------
Historical diluted net income per share... $ 0.05 $ 0.11 $ 0.15
=========== =========== ===========
Shares used to compute historical diluted
per share amounts....................... 17,287,153 17,758,122 18,390,143
=========== =========== ===========
Pro forma basic net income per share...... $ 0.16
===========
Shares used to compute pro forma basic net
income per share........................ 17,325,158
===========
Pro forma diluted net income per share.... $ 0.15
===========
Shares used to compute pro forma diluted
net income per share.................... 18,390,143
===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 68
PLX TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES
REDEEMABLE RECEIVABLE
CONVERTIBLE FOR RETAINED
PREFERRED STOCK COMMON STOCK ADDITIONAL EMPLOYEE EARNINGS
------------------ ------------------ PAID IN DEFERRED STOCK (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION PURCHASES DEFICIT)
--------- ------ --------- ------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996...... 4,579,636 $4,580 3,039,216 $3,039 $4,991,717 $ -- $ (7,848) $(3,002,133)
Sales of common stock, net of
repurchases................. -- -- 352,117 352 54,839 -- (38,960) --
Warrants exercised related to
the guarantee of line of
credit...................... -- -- 224,583 225 10,068 -- -- --
Reduction of stockholder notes
receivable.................. -- -- -- -- -- -- 1,680 --
Net income.................... -- -- -- -- -- -- -- 891,329
--------- ------ --------- ------ ---------- --------- --------- -----------
Balance at December 31, 1996.... 4,579,636 4,580 3,615,916 3,616 5,056,624 -- (45,128) (2,110,804)
Sales of common stock, net of
repurchases................. -- -- 1,043,500 1,044 208,893 -- (153,886) --
Unearned compensation related
to stock options............ -- -- -- -- 234,850 (234,850) -- --
Net income.................... -- -- -- -- -- -- -- 1,924,394
--------- ------ --------- ------ ---------- --------- --------- -----------
Balance at December 31, 1997.... 4,579,636 4,580 4,659,416 4,660 5,500,367 (234,850) (199,014) (186,410)
Repurchase of common stock.... -- -- (47,773) (48) (10,027) -- -- --
Unearned compensation related
to stock options............ -- -- -- -- 126,450 (126,450) -- --
Amortization of unearned
compensation................ -- -- -- -- -- 78,681 -- --
Reduction of stockholder notes
receivable.................. -- -- -- -- -- -- 35,700 --
Net income.................... -- -- -- -- -- -- -- 2,766,159
--------- ------ --------- ------ ---------- --------- --------- -----------
Balance at December 31, 1998.... 4,579,636 $4,580 4,611,643 $4,612 $5,616,790 $(282,619) $(163,314) $ 2,579,749
========= ====== ========= ====== ========== ========= ========= ===========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance at January 1, 1996...... $1,989,355
Sales of common stock, net of
repurchases................. 16,231
Warrants exercised related to
the guarantee of line of
credit...................... 10,293
Reduction of stockholder notes
receivable.................. 1,680
Net income.................... 891,329
----------
Balance at December 31, 1996.... 2,908,888
Sales of common stock, net of
repurchases................. 56,051
Unearned compensation related
to stock options............ --
Net income.................... 1,924,394
----------
Balance at December 31, 1997.... 4,889,333
Repurchase of common stock.... (10,075)
Unearned compensation related
to stock options............ --
Amortization of unearned
compensation................ 78,681
Reduction of stockholder notes
receivable.................. 35,700
Net income.................... 2,766,159
----------
Balance at December 31, 1998.... $7,759,798
==========
</TABLE>
See accompanying notes.
F-5
<PAGE> 69
PLX TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1997 1998
----------- ---------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................. $ 891,329 $1,924,394 $ 2,766,159
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation......................... 248,832 455,449 736,628
Amortization of unearned
compensation...................... -- -- 78,681
Changes in operating assets and
liabilities:
Accounts receivable............... (1,066,080) (805,674) 485,991
Inventories....................... 158,068 (700,397) (130,933)
Deferred tax assets............... -- (191,000) (544,000)
Other current assets.............. (18,752) 7,110 (281,171)
Deposits and licenses............. 9,598 (117,743) 6,414
Accounts payable.................. (72,078) 1,244,161 (237,798)
Accrued compensation and
benefits........................ 99,723 274,779 334,866
Accrued commissions............... -- 94,116 (77,512)
Deferred revenues................. 16,908 239,163 300,127
Other accrued expenses............ 40,140 17,070 231,476
Income tax payable................ -- 111,000 331,364
----------- ---------- -----------
Net cash provided by operating
activities........................... 307,688 2,552,428 4,000,292
INVESTING ACTIVITIES
Purchase of property and equipment..... (602,850) (984,274) (1,088,679)
----------- ---------- -----------
Net cash used in investing
activities........................... (602,850) (984,274) (1,088,679)
FINANCING ACTIVITIES
Repayment of note payable.............. (100,000) -- --
Proceeds from sales of common stock,
net of repurchases................... 26,524 56,051 (10,075)
Repayment of stockholder notes
receivable........................... 1,680 -- 35,700
----------- ---------- -----------
Net cash provided by (used in)
financing activities................. (71,796) 56,051 25,625
----------- ---------- -----------
Increase (decrease) in cash and cash
equivalents.......................... (366,958) 1,624,205 2,937,238
Cash and cash equivalents at beginning
of year.............................. 1,443,884 1,076,926 2,701,131
----------- ---------- -----------
Cash and cash equivalents at end of
year................................. $ 1,076,926 $2,701,131 $ 5,638,369
=========== ========== ===========
SCHEDULE OF NONCASH ACTIVITIES
Common stock issued for notes
receivable........................... $ 38,960 $ 153,886 $ --
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest................. $ 2,118 $ 12 $ 34
Cash paid for income taxes............. $ 26,000 $ 190,000 $ 905,000
</TABLE>
See accompanying notes.
F-6
<PAGE> 70
PLX TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
PLX Technology, Inc. (the Company) develops and markets I/O
interconnectivity solutions that speed the transfer of data in high-performance
embedded systems. The Company's principal products are high performance
semiconductor devices, as well as related software development kits and
reference design kits. Semiconductor devices account for a significant portion
of the Company's net revenues.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its subsidiary. All intercompany transactions and balances have been
eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
The Company accounts for its investments in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (FAS 115). Under FAS 115, management determines the
appropriate classification of debt securities at the time of purchase and
reevaluates such designation as of each balance sheet date. At December 31,
1998, all debt securities are designated as available-for-sale.
Available-for-sale securities are carried at fair value with unrealized gains
and losses reported in a separate component of stockholders' equity. The
amortized cost of debt securities in this category is adjusted for the
amortization of premiums and the accretion of discounts to maturity. Such
amortization, as well as any interest earned on the securities, is included in
interest income, net. Realized gains and losses and declines in value judged to
be other-than-temporary on available-for-sale securities are included in
interest income and other, net. The cost of securities sold is based on the
specific identification method.
As of December 31, 1997 and 1998, the Company's available-for-sale
securities consisted of $1,394,119 and $3,817 of money market funds, $150,000
and $0 of treasury notes, and $0 and $3,980,195 of commercial paper,
respectively. There were no unrealized gains or unrealized losses as of December
31, 1997 or 1998. All such securities are included in cash and cash equivalents.
F-7
<PAGE> 71
PLX TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out method) or
market (net realizable value). Inventories were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
Raw materials................................. $ 48,337 $ --
Finished goods................................ 1,165,076 1,344,346
---------- ----------
Total............................... $1,213,413 $1,344,346
========== ==========
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of three to five years. Leasehold improvements are amortized using
the straight-line method over the shorter of the useful lives of the assets or
the terms of the leases.
The recoverability of the carrying amount of property and equipment is
assessed based on estimated future undiscounted cash flows and if impairment
exists the charge to operations is measured as the excess of the carrying amount
over the fair value of the assets. Based upon this method of assessing
recoverability, no asset impairment occurred in any of the years presented.
Property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
---------- -----------
<S> <C> <C>
Equipment and furniture...................... $1,216,898 $ 1,872,407
Purchased software........................... 731,257 1,164,427
---------- -----------
1,948,155 3,036,834
Accumulated depreciation..................... (785,513) (1,522,141)
---------- -----------
Net property and equipment................... $1,162,642 $ 1,514,693
========== ===========
</TABLE>
STOCK-BASED COMPENSATION
The Company accounts for its stock option and stock grant plans in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB Opinion No. 25), and has elected to follow the
disclosure-only alternative permitted by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123).
REVENUE RECOGNITION
Sales to original equipment manufacturers are recognized at the time of
product shipment. Recognition of sales to distributors, including international
distributors, is
F-8
<PAGE> 72
PLX TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
deferred until the product is resold by the distributors to end users. Net
revenues from the sale of software development kits is insignificant for all
years presented.
ADVERTISING EXPENSES
The Company accounts for advertising costs as expenses in the period in
which they are incurred. Advertising expenses for 1996, 1997, and 1998 were
$23,158, $28,508, and $70,311, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates and such
differences may be material to the financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (FAS 130). FAS 130 requires that all items
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The Company's comprehensive
net income was the same as its net income for the years ended December 31, 1996,
1997 and 1998.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (FAS 131). FAS 131 superseded Statement of Financial
Accounting Standards No. 14, "Financial Reporting for Segments of a Business
Enterprise." FAS 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. FAS 131 also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. The adoption of FAS 131 did not affect the Company's
results of operations or financial position, and did not affect the disclosure
of segment information (see Note 9).
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). FAS 133 provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. FAS 133 is effective for fiscal years beginning after June
15, 1999 and the Company believes that the adoption of FAS 133 will not have a
significant impact on the Company's operating results or cash flows.
F-9
<PAGE> 73
PLX TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. NET INCOME PER SHARE AND UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY
The Company follows the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share." Basic net income per share is computed
by dividing net income by the weighted average number of common shares
outstanding during the period. Diluted net income per share is calculated using
the weighted average number of outstanding shares of common stock plus dilutive
common stock equivalents.
In February 1998, the SEC issued Staff Accounting Bulletin No. 98 which
requires issuances of common stock, options and warrants for nominal
consideration in periods preceding an initial public offering to be included in
the calculations of earnings per share as if they were outstanding for all
periods presented. To date, the Company has had no issuances of common stock,
options, or warrants for nominal consideration.
If the offering contemplated by this prospectus is consummated, all of the
convertible preferred stock outstanding as of the closing date will
automatically be converted into 13,738,908 shares of common stock based on the
shares of convertible preferred stock outstanding at December 31, 1998. The
unaudited pro forma stockholders' equity reflects this conversion.
F-10
<PAGE> 74
PLX TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A reconciliation of shares used in the calculation of historical and pro
forma basic and diluted net income per share is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net income (numerator)...................... $ 891,329 $ 1,924,394 $ 2,766,159
=========== =========== ===========
Shares used in computing historical basic
net income per share (denominator)........ 3,137,446 3,292,560 3,586,250
=========== =========== ===========
Historical net income per share -- Basic.... $ 0.28 $ 0.58 $ 0.77
=========== =========== ===========
Outstanding weighted average number of
common shares............................. 3,137,446 3,292,560 3,586,250
Effective of dilutive securities:
Stock options............................. -- -- 9,000
Unvested restricted stock................. 410,799 726,654 1,055,985
Redeemable convertible preferred stock.... 13,738,908 13,738,908 13,738,908
----------- ----------- -----------
14,149,707 14,465,562 14,803,893
----------- ----------- -----------
Shares used in computing historical and pro
forma diluted net income per share
(denominator)............................. 17,287,153 17,758,122 18,390,143
=========== =========== ===========
Historical and pro forma net income per
share -- diluted.......................... $ 0.05 $ 0.11 $ 0.15
=========== =========== ===========
Shares used in computing historical basic
net income per share...................... 3,586,250
Adjustment to reflect the effect of the
assumed conversion of weighted average
shares of redeemable convertible preferred
stock outstanding......................... 13,738,908
-----------
Shares used in computing pro forma basic net
income per share.......................... 17,325,158
===========
Pro forma basic net income per share........ $ 0.16
===========
</TABLE>
3. CONCENTRATIONS OF CREDIT, CUSTOMER AND SUPPLIER RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents and trade
receivables. The Company generally invests its excess money in money market
funds, commercial paper of corporations with high credit ratings, and treasury
bills. The Company has not experienced any significant losses on its cash
equivalents. The Company performs ongoing credit evaluations of its customers
and generally requires no collateral. A relatively small number of customers and
resellers account for a significant percentage of the Company's revenues. The
Company expects that the sale of its products to a limited number of customers
and resellers may continue to account for a high percentage of revenues for the
foreseeable future. The Company analyzes the need for reserves for potential
credit losses and records reserves when necessary.
F-11
<PAGE> 75
PLX TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Currently, the Company relies on single source suppliers of materials for
the significant majority of its product inventory. As a result, should the
Company's current suppliers not produce and deliver inventory for the Company to
sell on a timely basis, operating results may be adversely impacted.
4. REDEEMABLE CONVERTIBLE PREFERRED STOCK
Shares of Series A, B, C, and D preferred stock are convertible at the
option of the stockholder into that number of shares of common stock as
determined by dividing $0.167, $0.333, $0.458, and $0.467, respectively, by a
conversion price as determined by the provisions in the Articles of
Incorporation, subject to antidilution provisions. At December 31, 1997 and
1998, each share of preferred stock would convert to common stock on a
three-for-one basis. Conversion is mandatory concurrent with a firm underwritten
public offering of not less than $10,000,000 with a per share price of not less
than $1.67. The preferred stockholders have voting rights equal to the voting
rights of the common stockholders on an as-if-converted basis.
Preferred stockholders are entitled to noncumulative dividends, when and if
declared by the Board of Directors, at an annual amount of $0.05, $0.10,
$0.1375, and $0.14 per share of Series A, B, C, and D preferred stock,
respectively. Such dividends have a preference over the payment of dividends on
common stock.
In the event of liquidation, the preferred stockholders are entitled to a
liquidation preference distribution of $0.50, $1.00, $1.375, and $1.40 per share
of Series A, B, C, and D preferred stock, respectively, plus all declared and
unpaid dividends. Aggregate liquidation preferences amounted to $4,946,027 at
December 31, 1997 and 1998.
The Company may, at the option of the Board of Directors, redeem the Series
A, B, C, or D convertible preferred stock at any time after written request by
the holders of at least 67% of any class of preferred stock outstanding. The
Company may redeem that class of preferred stock in whole or in part by paying
$0.50, $1.00, $1.375, and $1.40 per share of Series A, B, C, and D convertible
preferred stock, respectively, plus all declared but unpaid dividends.
At December 31, 1997 and 1998, 5,000,000 shares of redeemable convertible
preferred stock were authorized. At December 31, 1997 and 1998, designated,
issued, and outstanding redeemable convertible preferred stock by series was as
follows:
<TABLE>
<CAPTION>
SHARES
DESIGNATED ISSUED AND
SERIES SHARES OUTSTANDING
- ------ ---------- -----------
<S> <C> <C>
A............................................... 1,300,000 1,300,000
B............................................... 650,000 650,000
C............................................... 1,418,738 1,418,529
D............................................... 1,500,000 1,211,107
--------- ---------
Total........................................... 4,868,738 4,579,636
========= =========
</TABLE>
F-12
<PAGE> 76
PLX TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. COMMON STOCK
At December 31, 1998, common stock was reserved for future issuance as
follows:
<TABLE>
<S> <C>
Conversion of preferred stock:
Series A.............................................. 3,900,000
Series B.............................................. 1,950,000
Series C.............................................. 4,255,587
Series D.............................................. 3,633,321
Authorized for future option exercises..................... 800,000
----------
14,538,908
==========
</TABLE>
On May 7, 1986, the Board of Directors of PLX approved a form of Restricted
Stock Purchase Agreement to be used to sell restricted shares of the Company
common stock (the "Restricted Stock") to its employees, officers and
consultants. There was no formal, written plan. From time to time, the Board of
Directors reserved shares of its common stock for grant under the program. From
May 7, 1986 until November 13, 1997, a total of 4,387,060 shares of Restricted
Stock were issued pursuant to the program. The shares were issued at fair market
value as determined by the Board of Directors. The repurchase price of the
restricted shares is the original sales price. The shares are subject to a
repurchase option in favor of the Company (the "Repurchase Option") that expires
over a period of four years from the date of issuance. Under the program's
standard vesting schedule, the number of shares subject to the Repurchase Option
is reduced as follows: (i) on the first anniversary of the date of issuance, the
number of shares subject to the Repurchase Option is reduced by 25%; and (ii)
each month thereafter, the number of shares subject to the Repurchase Option is
reduced by 2.083% of the total Restricted Stock issued. As consideration for the
issuance of such Restricted Stock, each of the officers has paid 20% of the
aggregate purchase price of the Restricted Stock issued to him in cash and has
executed a promissory note (each, a "Note") for the remaining 80% of the
aggregate purchase price. The Notes bear interest at a rate of 6% per annum and
become due and payable upon the earlier of (i) four years from the date of
issuance or (ii) the effectiveness of a registration statement pursuant to which
the subject securities may be offered and sold by such officers; provided,
however, that in the event the officers are restricted by the terms of market
stand-off agreements relating to the securities, amounts that would become due
under the Notes upon such registration are reduced to the amount that would be
covered by sale of shares allowed to be sold. The due dates of the loans did not
extend past the Repurchase Option of the Company. The notes are full recourse
and, in addition, each of the executive officers has pledged the Restricted
Stock as collateral to secure the obligations under his Note. The program was
terminated upon adoption of our 1998 Incentive Stock Plan on January 15, 1998.
The Company's 1998 Stock Incentive Plan (the 1998 Plan) was approved by the
Board of Directors on January 15, 1998. The 1998 Plan provides for the grant of
both incentive and nonqualified stock options. A total of 800,000 shares of
common stock have been reserved for issuance under the 1998 Plan. The maximum
term of any stock option granted under the 1998 Plan is ten years, except that
with respect to incentive stock options granted to a person possessing more than
10% of the combined voting power of the Company (a 10% stockholder), the term of
such stock options shall be for no more than
F-13
<PAGE> 77
PLX TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
five years. The exercise price of incentive stock options granted under the 1998
Plan must be at least 100% of the fair market value of the common stock on the
grant date except that the exercise price of incentive stock options granted to
a 10% stockholder must be at least 110% of such fair market value on the date of
grant. The options generally vest over a period of three to four years.
Activity under the 1998 Plan is summarized as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------
OPTIONS AGGREGATE WEIGHTED
AVAILABLE NUMBER OF EXERCISE AVERAGE
FOR GRANT OPTIONS PRICE EXERCISE PRICE
--------- --------- ---------- --------------
<S> <C> <C> <C> <C>
Balance at January 1, 1998......... -- -- $ -- $ --
Options authorized............... 800,000 -- -- $ --
Options granted.................. (660,250) 660,250 3,246,250 $4.92
Options canceled................. 15,000 (15,000) (75,000) $5.00
-------- ------- ----------
Balance at December 31, 1998....... 154,750 645,250 $3,171,250 $4.91
======== ======= ==========
</TABLE>
The following table summarizes the information about options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$3.00..................... 27,500 9.08 years $3.00 27,500 $3.00
$5.00..................... 617,750 9.43 years $5.00 617,750 $5.00
------- -------
Total..................... 645,250 9.42 years $4.91 645,250 $4.91
======= =======
</TABLE>
As of December 31, 1998, there were 60,124 stock options vested at a
weighted average exercise price of $4.94 per share.
The Company has elected to follow APB Opinion No. 25 and related
interpretations in accounting for its stock grants since the alternative fair
market value accounting provided for under FAS 123 requires use of grant
valuation models that were not developed for use in valuing stock grants. Under
APB Opinion No. 25, as the exercise price of the Company's stock grants and
options equals the deemed fair value of the underlying stock on the date of
grant, no compensation expenses are recognized.
During the years ended December 31, 1997 and 1998, the Company recorded
aggregate deferred compensation of $361,300, representing the difference between
the grant price and the deemed fair value of the Company's common stock options
granted during these periods. The amortization of deferred compensation is
charged to operations and is amortized over the vesting period of the options,
which is typically four years. For the years ended December 31, 1997 and 1998,
the amortization expenses were $0 and $78,681, respectively.
F-14
<PAGE> 78
PLX TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Pro forma information regarding net income is required by FAS 123, which
also requires that the information be determined as if the Company has accounted
for grants subsequent to December 31, 1994 under a method specified by FAS 123.
The fair value of grants under the Agreements in 1996 and 1997 and of options
granted in 1998 was estimated at the date of grant using the minimum value
method with the following weighted average assumptions for 1996, 1997, and 1998:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Expected life of options (in years)................... 3.88 3.86 4.00
Dividend yield........................................ 0.00% 0.00% 0.00%
Risk-free interest rate............................... 5.40% 6.14% 4.95%
</TABLE>
If compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of FAS 123, then the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
-------- ---------- ----------
<S> <C> <C> <C>
Net income as reported..................... $891,329 $1,924,394 $2,766,159
Pro forma net income....................... $889,300 $1,917,575 $2,642,790
Net income per share as reported
Basic.................................... $ 0.28 $ 0.58 $ 0.77
Diluted.................................. $ 0.05 $ 0.11 $ 0.15
Pro forma net income per share
Basic.................................... $ 0.28 $ 0.58 $ 0.74
Diluted.................................. $ 0.05 $ 0.11 $ 0.14
</TABLE>
The weighted average grant date fair value for the Restricted Stock grants
during the year was $0.02 and $0.04 for 1996 and 1997, respectively. The
weighted average grant date fair value of options granted during 1998 was $0.86.
For purposes of pro forma disclosures, the minimum value of the stock
grants and stock options is deemed amortized over the grant vesting period.
Because FAS 123 is applicable only to stock grants subsequent to December 31,
1994, the pro forma effect will not be fully reflected until 2000.
6. RETIREMENT SAVINGS PLAN
The Company has a retirement savings plan, commonly known as a 401(k) plan,
that allows all full-time employees to contribute from 1% to 25% of their pretax
salary, subject to IRS limits. Beginning in 1996, the Company made a matching
contribution calculated at 50 cents on each dollar of the first 6% of
participant contributions. The Company's contributions to the 401(k) plan were
$17,250, $50,368, and $123,575 for 1996, 1997, and 1998, respectively. There are
six investment funds in which each employee may invest contributions in whole
percentage increments.
F-15
<PAGE> 79
PLX TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1996 1997 1998
------- -------- ----------
<S> <C> <C> <C>
Federal:
Current.................................... $37,714 $291,000 $1,235,000
Deferred................................... - (191,000) (544,000)
------- -------- ----------
37,714 100,000 691,000
State:
Current.................................... 800 10,355 1,000
Deferred................................... - - -
------- -------- ----------
800 10,355 1,000
------- -------- ----------
Total.............................. $38,514 $110,355 $ 692,000
======= ======== ==========
</TABLE>
The provision for income taxes differs from the amount of income taxes
determined by applying the U.S. statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- ----------
<S> <C> <C> <C>
Tax at the U.S. statutory rate.............. $325,000 $712,000 $1,210,000
Benefit of net operating losses............. (249,000) (502,000) -
Impact of temporary differences............. (48,000) 234,000 -
Research and development credits............ - (215,000) (226,000)
Adjustment of the valuation allowance....... - (191,000) (337,000)
Other....................................... 10,514 72,355 45,000
-------- -------- ----------
$ 38,514 $110,355 $ 692,000
======== ======== ==========
</TABLE>
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
--------- --------
<S> <C> <C>
Deferred tax assets:
Reserves and accruals not currently
deductible................................. $ 434,000 $683,000
Research credit carryforwards................. 70,000 -
Other individually immaterial items........... 94,000 52,000
--------- --------
Total deferred tax assets....................... 598,000 735,000
Valuation allowance for deferred tax assets..... (407,000) --
--------- --------
Net deferred tax assets......................... $ 191,000 $735,000
========= ========
</TABLE>
The valuation allowance decreased by $639,000 and $407,000 in 1997 and
1998, respectively.
8. LEASE COMMITMENTS
The Company leases its facilities under noncancelable lease agreements, and
rental expenses for all leases aggregated approximately $217,000, $264,000, and
$641,000 for the
F-16
<PAGE> 80
PLX TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
years ended December 31, 1996, 1997, and 1998, respectively. Future minimum
lease payments at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999............................................... $ 658,323
2000............................................... 685,040
2001............................................... 495,919
2002............................................... 473,458
2003............................................... 493,520
Beyond 2003........................................ 469,540
----------
Total minimum lease payments....................... $3,275,800
==========
</TABLE>
9. SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
The Company operates in one business segment, the sale of semiconductor
devices. The President has been identified as the Chief Operating Decision Maker
(CODM) because he has final authority over resource allocation decisions and
performance assessment. The CODM does not receive discrete financial information
about individual components.
Total net export revenues to regions outside of North America were
$2,047,781, $3,903,566, and $8,896,927 for the years ended December 31, 1996,
1997, and 1998, respectively. Revenues by geographic region were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Revenues:
North America........................ $7,765,718 $13,630,065 $17,379,274
Europe............................... 1,588,893 2,962,959 6,282,975
Asia................................. 458,888 940,607 2,613,952
---------- ----------- -----------
Total.................................. $9,813,499 $17,533,631 $26,276,201
========== =========== ===========
</TABLE>
For the year ended December 31, 1996, one customer, a related party,
accounted for 10% of net revenues. For the year ended December 31, 1997, no
customer accounted for more than 10% of net revenues. For the year ended
December 31, 1998, two customers accounted for more than 10% of net revenues.
One customer, a U.S. distributor, accounted for 22% of net revenues and another
customer, a European distributor, accounted for 11% of net revenues.
10. RELATED PARTY TRANSACTIONS
The Company and a customer are related parties because the chairman of the
Company's Board of Directors also serves on the customer's Board of Directors.
For the years ended December 31, 1996, 1997, and 1998, net revenues, which were
transacted at arms' length prices, to the customer were approximately $962,000,
$765,000, and $330,000, respectively.
The Company contributed $100,000 for research and development of a
semiconductor device developed by another company. This amount is included in
research and
F-17
<PAGE> 81
PLX TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
development expenses in the 1997 consolidated statement of income. The chairman
of the Company's Board of Directors is also the chairman of the other company.
11. SUBSEQUENT EVENTS
On January 25, 1999, the Company's Board of Directors approved the 1999
Stock Incentive Plan (the 1999 Plan). The 1999 Plan provides for the grant of
incentive and nonqualified stock options. A total of 1,000,000 shares of common
stock have been reserved for issuance under the 1999 Plan. The maximum term of
any stock option granted under the 1998 Plan is ten years, except that with
respect to incentive stock options granted to a person possessing more than 10%
of the combined voting power of the Company (a 10% Stockholder), the term of
such stock options shall be for no more than five years. The exercise price of
incentive stock options granted under the 1998 Plan must be at least 100% of the
fair market value of the common stock on the grant date except that the exercise
price of incentive stock options granted to a 10% Stockholder must be at least
110% of such fair market value on the date of grant.
On January 25, 1999, the Company's Board of Directors approved an increase
in the number of shares reserved for issuance under the 1998 Plan from 800,000
to 1,300,000.
On January 25, 1999, the Company's Board of Directors, subject to approval
of the Certificate of Incorporation by the State of Delaware, authorized the
reincorporation of the Company in Delaware. The par value of the preferred and
common stock is $0.001 per share. The Company's Certificate of Incorporation
will be amended to authorize 5,000,000 shares of preferred stock. The Board of
Directors has the authority to fix or alter the designations, powers,
preferences and rights of the shares of each such series. The Company's
reincorporation has been reflected in the consolidated financial statements for
all periods presented.
F-18
<PAGE> 82
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THROUGH AND INCLUDING , 1999 (THE 25TH DAY AFTER THE DATE OF
THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THESE SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
3,300,000 SHARES
[LOGO]
PLX TECHNOLOGY, INC.
COMMON STOCK
-----------------------
PROSPECTUS
-----------------------
MERRILL LYNCH & CO.
NATIONSBANC MONTGOMERY SECURITIES LLC
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 83
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the Registrant in connection with the
distribution of the securities being registered, other than underwriting
discounts and commissions, are as follows:
<TABLE>
<CAPTION>
AMOUNT*
--------
<S> <C>
Securities and Exchange Commission Filing Fee............... $ 8,441
NASD Filing Fee............................................. 3,536
Nasdaq National Market Listing Fee.......................... 95,000
Accounting Fees and Expenses................................ 150,000
Blue Sky Fees and Expenses.................................. 100,000
Legal Fees and Expenses..................................... 200,000
Transfer Agent and Registrar Fees and Expenses.............. 7,500
Printing Expenses........................................... 85,000
Miscellaneous Expenses...................................... 50,523
--------
Total............................................. $700,000
========
</TABLE>
- -------------------------
* All amounts are estimates except the SEC filing fee, the NASD filing fee and
the Nasdaq National Market listing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the General Corporate Law of the State of Delaware,
the Registrant has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Bylaws (Exhibit 3.2 hereto) also provide for mandatory indemnification of its
directors and executive officers, and permissive indemnification of its
employees and agents, to the fullest extent permissible under Delaware law.
The Registrant's Certificate of Incorporation (Exhibit 3.1 hereto) provides
that the liability of its directors for monetary damages shall be eliminated to
the fullest extent permissible under Delaware law. Pursuant to Delaware law,
this includes elimination of liability for monetary damages for breach of the
directors' fiduciary duty of care to the Registrant and its stockholders. These
provisions do not eliminate the directors' duty of care and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
non-monetary relief will remain available under Delaware law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to the Registrant, for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for any
transaction from which the director derived an improper personal benefit, and
for payment of dividends or approval of stock repurchases or redemptions that
are unlawful under Delaware law. The provision also does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
Prior to the effective date of the Registration Statement, the Registrant
will have entered into agreements with its directors and certain of its
executive officers that require the Registrant to indemnify such persons against
expenses, judgments, fines, settlements
II-1
<PAGE> 84
and other amounts actually and reasonably incurred (including expenses of a
derivative action) in connection with any proceeding, whether actual or
threatened, to which any such person may be made a party by reason of the fact
that such person is or was a director or officer of the Registrant or any of its
affiliated enterprises, provided such person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interests of
the Registrant and, with respect to any criminal proceeding, had no reasonable
cause to believe his or her conduct was unlawful. The indemnification agreements
also set forth certain procedures that will apply in the event of a claim for
indemnification thereunder.
The Registrant intends to obtain in conjunction with the effectiveness of
the Registration Statement a policy of directors' and officers' liability
insurance that insures the Company's directors and officers against the cost of
defense, settlement or payment of a judgment under certain circumstances.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the three year period from December 31, 1995 to December 31, 1998,
the Registrant has issued and sold the following unregistered securities:
1. The Registrant granted stock options to employees, directors and
consultants under its 1998 Plan covering an aggregate of 660,250 shares of
the Registrant's Common Stock, at exercise prices ranging from $3.00 to
$5.00 with an average of $4.92 per share.
2. The Registrant granted an aggregate of 1,374,727 shares of its
Common Stock to employees, directors and consultants pursuant to restricted
stock purchase agreements under the 1986 Restricted Stock Purchase Plan
(the "1986 Plan"), at purchase prices ranging from $0.0633 to $0.3000 with
an average of $0.1823 per share. The 1,374,727 shares were sold to 75
employees, directors and consultants for cash in the aggregate amount of
$68,776 and promissory notes in the aggregate amount of $275,104 pursuant
to restricted stock purchase agreements under the 1986 Plan.
3. The Registrant issued and sold an aggregate of 109,791 shares of
its Common Stock pursuant to the exercise of warrants with an exercise
price of $0.05 per share.
The sale and issuance of securities in the transactions described in
paragraphs 1 and 2 above were deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act or Regulation D
promulgated thereunder as transactions by an issuer not involving a public
offering, where the purchasers represented their intention to acquire securities
for investment only and not with a view to distribution and received or had
access to adequate information about the Registrant, or Rule 701 promulgated
thereunder in that they were offered and sold either pursuant to written
compensatory benefit plans or pursuant to a written contract relating to
compensation.
Appropriate legends were affixed to the stock certificates issued in the
above transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. No underwriters were employed in any of
the above transactions.
II-2
<PAGE> 85
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
The exhibits are as set forth in the Exhibit Index.
(b) FINANCIAL STATEMENT SCHEDULES
II -- Valuation and Qualifying Accounts
Schedules other than those listed above have been omitted since they are
not required or are not applicable or the required information is shown in the
financial statements or related notes. Columns omitted from schedules filed have
been omitted since the information is not applicable.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide the underwriters at the closing
specified in the Underwriting Agreement, certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-3
<PAGE> 86
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Sunnyvale, State of
California on the 3rd day of February, 1999.
PLX TECHNOLOGY, INC.
By: /s/ MICHAEL J. SALAMEH
-----------------------------------
Michael J. Salameh
President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael J. Salameh and Scott M. Gibson,
and each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and sign any
registration statement for the same offering covered by the Registration
Statement that is to be effective upon filing pursuant to Rule 462 promulgated
under the Securities Act of 1933, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MICHAEL J. SALAMEH President and Director February 3, 1999
- ------------------------------- (Principal Executive Officer)
Michael J. Salameh
/s/ SCOTT M. GIBSON Vice President, Finance, Chief February 3, 1999
- ------------------------------- Financial Officer and Secretary
Scott M. Gibson (Principal Financial and
Accounting Officer)
/s/ D. JAMES GUZY, SR. Director February 3, 1999
- -------------------------------
D. James Guzy, Sr.
/s/ TIMOTHY DRAPER Director February 3, 1999
- -------------------------------
Timothy Draper
/s/ EUGENE FLATH Director February 3, 1999
- -------------------------------
Eugene Flath
</TABLE>
II-4
<PAGE> 87
PLX TECHNOLOGY, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNT
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED TO COSTS END
DESCRIPTION OF PERIOD AND EXPENSES DEDUCTIONS(1) OF PERIOD
----------- ---------- ---------------- ------------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Deducted from asset accounts:
Allowance for doubtful accounts.... $ 49,110 $73,492 $(44,505) $ 78,097
Year ended December 1997
Deducted from asset accounts:
Allowance for doubtful accounts.... $ 78,097 $87,931 $ (7,380) $158,648
Year ended December 31, 1998
Deducted from asset accounts:
Allowance for doubtful accounts.... $158,648 $57,929 $(43,293) $173,284
</TABLE>
- ------------------------
(1) Uncollectible accounts written off, net of recoveries
II-5
<PAGE> 88
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ------- --------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Certificate of Incorporation of the Registrant.
3.2* Registrant's Bylaws.
4.1 Reference is made to Exhibit 3.1.
5.1 Opinion of Morrison & Foerster LLP as to the legality of the
Common Stock being registered.
10.1 Form of Indemnification Agreement between the Company and
each of its Officers and Directors.
10.2 1998 Stock Incentive Plan.
10.3 1999 Stock Incentive Plan.
10.4 Lease Agreement dated December 20, 1995 by and between Aetna
Life Insurance Company as Landlord and the Company as
Tenant.
10.5 Lease Agreement dated October 17, 1997 between The Arrillaga
Foundation and The Perry Foundation as Landlords and the
Company as Tenant, as amended.
10.6 Form of Restricted Stock Purchase Agreement used in
connection with the 1986 Restricted Stock Purchase Program.
10.7 Form of Pledge Agreement used in connection with the 1986
Restricted Stock Purchase Program.
10.8 Form of Promissory Note used in connection with the 1986
Restricted Stock Purchase Program.
23.1 Consent of Morrison & Foerster LLP. Reference is made to
Exhibit 5.1.
23.2 Consent of Ernst & Young LLP.
24.1 Powers of Attorney. Reference is made to the signature page
hereof.
27.1 Financial Data Schedule.
99.1 Consent of Nominee Director.
</TABLE>
- -------------------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 5.1
[MORRISON & FOERSTER LLP LETTERHEAD]
February 4, 1999
PLX Technology, Inc.
390 Potero Avenue
Sunnyvale, CA 94086
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form S-1
filed by PLX Technology, Inc., a California corporation (the "Company"), with
the Securities and Exchange Commission on February 4, 1999 (the "Registration
Statement"), relating to the registration under the Securities Act of 1933, as
amended, of up to 3,795,000 shares of the Company's common stock, $.001 par
value (the "Stock"), authorized but unissued shares being offered by the Company
(including up to 495,000 shares subject to the underwriters' over-allotment
option). The Stock is to be sold to the underwriters named in the Registration
Statement for resale to the public.
As counsel to the Company, we have examined the proceedings taken by the
Company in connection with the issuance and sale by the Company of up to
3,795,000 shares of Stock.
We are of the opinion that the shares of Stock to be offered and sold by
the Company have been duly authorized and, when issued and sold by the Company
in the manner described in the Registration Statement and in accordance with the
resolutions adopted by the Board of Directors of the Company, will be legally
issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us in the Registration
Statement, the prospectus constituting a part thereof and any amendments
thereto.
Very truly yours,
/s/ Morrison & Foerster LLP
<PAGE> 1
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is entered into, effective as of ______________
___, 1999, by and between PLX Technology, Inc., a Delaware corporation (the
"Company"), and __________________________ ("Indemnitee").
WHEREAS, it is essential to the Company to retain and attract as
directors and officers the most capable persons available;
WHEREAS, Indemnitee is a director and/or officer of the Company;
WHEREAS, both the Company and Indemnitee recognize the increased
risk of litigation and other claims currently being asserted against directors
and officers of corporations;
WHEREAS, the Certificate of Incorporation and Bylaws of the
Company require the Company to indemnify and advance expenses to its directors
and officers to the fullest extent permitted under Delaware law, and the
Indemnitee has been serving and continues to serve as a director and/or officer
of the Company in part in reliance on the Company's Certificate of Incorporation
and Bylaws; and
WHEREAS, in recognition of Indemnitee's need for (i) substantial
protection against personal liability based on Indemnitee's reliance on the
aforesaid Certificate of Incorporation and Bylaws, (ii) specific contractual
assurance that the protection promised by the Certificate of Incorporation and
Bylaws will be available to Indemnitee (regardless of, among other things, any
amendment to or revocation of the Certificate of Incorporation and Bylaws or any
change in the composition of the Company's Board of Directors or acquisition
transaction relating to the Company), and (iii) an inducement to provide
effective services to the Company as a director and/or officer, the Company
wishes to provide in this Agreement for the indemnification of and the advancing
of expenses to Indemnitee to the fullest extent (whether partial or complete)
permitted under Delaware law and as set forth in this Agreement, and, to the
extent insurance is maintained, to provide for the continued coverage of
Indemnitee under the Company's directors' and officers' liability insurance
policies.
NOW, THEREFORE, in consideration of the above premises and of
Indemnitee continuing to serve the Company directly or, at its request, with
another enterprise, and intending to be legally bound hereby, the parties agree
as follows:
<PAGE> 2
1. Certain Definitions:
(a) Board: the Board of Directors of the Company.
(b) Affiliate: any corporation or other person or entity that
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the person specified.
(c) Change in Control: shall be deemed to have occurred if (i)
any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"))(other than a trustee or
other fiduciary holding securities under an employee benefit plan of the Company
or a corporation owned directly or indirectly by the stockholders of the Company
in substantially the same proportions as their ownership of stock of the
Company, and other than any person holding shares of the Company on the date
that the Company first registers under the Act or any transferee of such
individual if such transferee is a spouse or lineal descendant of the transferee
or a trust for the benefit of the individual, his spouse or lineal descendants),
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
30% or more of the total voting power represented by the Company's then
outstanding Voting Securities, or (ii) during any period of two consecutive
years, individuals who at the beginning of such period constitute the Board and
any new director whose election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority of the Board, or (iii)
the stockholders of the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation that would
result in the Voting Securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity) at least 80% of the
total voting power represented by the Voting Securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation, or
(iv) the stockholders of the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company (in one
transaction or a series of transactions) of all or substantially all of the
Company's assets.
(d) Expenses: any expense, liability, or loss, including
attorneys' fees, judgments, fines, ERISA excise taxes and penalties, amounts
paid or to be paid in settlement, any interest, assessments, or other charges
imposed thereon, any federal, state, local, or foreign taxes imposed as a result
of the actual or deemed receipt of any payments under this Agreement, and all
other costs and obligations, paid or incurred in connection with investigating,
defending, being a witness in, participating in (including on appeal), or
preparing for any of the foregoing in, any Proceeding relating to any
Indemnifiable Event.
(e) Indemnifiable Event: any event or occurrence that takes place
either prior to or after the execution of this Agreement, related to the fact
that Indemnitee is or was a director or officer of the Company, or while a
director or officer is or was serving at the request of the Company as a
director, officer, employee, trustee, agent, or fiduciary of another
<PAGE> 3
foreign or domestic corporation, partnership, joint venture, employee benefit
plan, trust, or other enterprise, or was a director, officer, employee, or agent
of a foreign or domestic corporation that was a predecessor corporation of the
Company or of another enterprise at the request of such predecessor corporation,
or related to anything done or not done by Indemnitee in any such capacity,
whether or not the basis of the Proceeding is alleged action in an official
capacity as a director, officer, employee, or agent or in any other capacity
while serving as a director, officer, employee, or agent of the Company, as
described above.
(f) Independent Counsel: the person or body appointed in
connection with Section 3.
(g) Proceeding: any threatened, pending, or completed action,
suit, or proceeding (including an action by or in the right of the Company), or
any inquiry, hearing, or investigation, whether conducted by the Company or any
other party, that Indemnitee in good faith believes might lead to the
institution of any such action, suit, or proceeding, whether civil, criminal,
administrative, investigative, or other.
(h) Reviewing Party: the person or body appointed in accordance
with Section 3.
(i) Voting Securities: any securities of the Company that vote
generally in the election of directors.
2. Agreement to Indemnify.
(a) General Agreement. In the event Indemnitee was, is, or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, a Proceeding by reason of
(or arising in part out of) an Indemnifiable Event, the Company shall indemnify
Indemnitee from and against any and all Expenses to the fullest extent permitted
by law, as the same exists or may hereafter be amended or interpreted (but in
the case of any such amendment or interpretation, only to the extent that such
amendment or interpretation permits the Company to provide broader
indemnification rights than were permitted prior thereto). The parties hereto
intend that this Agreement shall provide for indemnification in excess of that
expressly permitted by statute, including, without limitation, any
indemnification provided by the Company's Certificate of Incorporation, its
Bylaws, vote of its stockholders or disinterested directors, or applicable law.
(b) Initiation of Proceeding. Notwithstanding anything in this
Agreement to the contrary, Indemnitee shall not be entitled to indemnification
pursuant to this Agreement in connection with any Proceeding initiated by
Indemnitee against the Company or any director or officer of the Company unless
(i) the Company has joined in or the Board has consented to the initiation of
such Proceeding; (ii) the Proceeding is one to enforce indemnification rights
under Section 5; or (iii) the Proceeding is instituted after a Change in Control
(other than a Change in Control approved by a majority of the directors on the
Board who were directors immediately prior to such Change in Control) and
Independent Counsel has approved its initiation.
2
<PAGE> 4
(c) Expense Advances. If so requested by Indemnitee, the Company
shall advance (within ten business days of such request) any and all Expenses to
Indemnitee (an "Expense Advance"); provided that (i) such an Expense Advance
shall be made only upon delivery to the Company of an undertaking by or on
behalf of the Indemnitee to repay the amount thereof if it is ultimately
determined that Indemnitee is not entitled to be indemnified by the Company, and
(ii) if and to the extent that the Reviewing Party determines that Indemnitee
would not be permitted to be so indemnified under applicable law, the Company
shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse
the Company) for all such amounts theretofore paid. If Indemnitee has commenced
or commences legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, as
provided in Section 4, any determination made by the Reviewing Party that
Indemnitee would not be permitted to be indemnified under applicable law shall
not be binding, and Indemnitee shall not be required to reimburse the Company
for any Expense Advance until a final judicial determination is made with
respect thereto (as to which all rights of appeal therefrom have been exhausted
or have lapsed). Indemnitee's obligation to reimburse the Company for Expense
Advances shall be unsecured and no interest shall be charged thereon.
(d) Mandatory Indemnification. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee has been successful
on the merits or otherwise in defense of any Proceeding relating in whole or in
part to an Indemnifiable Event or in defense of any issue or matter therein,
Indemnitee shall be indemnified against all Expenses incurred in connection
therewith.
(e) Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled.
(f) Prohibited Indemnification. No indemnification pursuant to
this Agreement shall be paid by the Company on account of any Proceeding in
which judgment is rendered against Indemnitee for an accounting of profits made
from the purchase or sale by Indemnitee of securities of the Company pursuant to
the provisions of Section 16(b) of the Securities Exchange Act of 1934, as
amended, or similar provisions of any federal, state, or local laws.
3. Reviewing Party. Prior to any Change in Control, the Reviewing Party
shall be any appropriate person or body consisting of a member or members of the
Board or any other person or body appointed by the Board who is not a party to
the particular Proceeding with respect to which Indemnitee is seeking
indemnification; after a Change in Control, the Independent Counsel referred to
below shall become the Reviewing Party. With respect to all matters arising
after a Change in Control (other than a Change in Control approved by a majority
of the directors on the Board who were directors immediately prior to such
Change in Control) concerning the rights of Indemnitee to indemnity payments and
Expense Advances under this Agreement or any other agreement or under applicable
law or the Company's Certificate of Incorporation or Bylaws now or hereafter in
effect relating to indemnification for Indemnifiable Events, the Company shall
seek legal advice only from Independent Counsel selected by
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Indemnitee and approved by the Company (which approval shall not be unreasonably
withheld), and who has not otherwise performed services for the Company or the
Indemnitee (other than in connection with indemnification matters) within the
last five years. The Independent Counsel shall not include any person who, under
the applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Company or Indemnitee in an
action to determine Indemnitee's rights under this Agreement. Such counsel,
among other things, shall render its written opinion to the Company and
Indemnitee as to whether and to what extent the Indemnitee should be permitted
to be indemnified under applicable law. The Company agrees to pay the reasonable
fees of the Independent Counsel and to indemnify fully such counsel against any
and all expenses (including attorneys' fees), claims, liabilities, loss, and
damages arising out of or relating to this Agreement or the engagement of
Independent Counsel pursuant hereto.
4. Indemnification Process and Appeal.
(a) Indemnification Payment. Indemnitee shall be entitled to
indemnification of Expenses, and shall receive payment thereof, from the Company
in accordance with this Agreement as soon as practicable after Indemnitee has
made written demand on the Company for indemnification, unless the Reviewing
Party has given a written opinion to the Company that Indemnitee is not entitled
to indemnification under applicable law.
(b) Suit to Enforce Rights. Regardless of any action by the
Reviewing Party, if Indemnitee has not received full indemnification within
thirty days after making a demand in accordance with Section 4(a), Indemnitee
shall have the right to enforce its indemnification rights under this Agreement
by commencing litigation in any court in the State of California or the State of
Delaware having subject matter jurisdiction thereof seeking an initial
determination by the court or challenging any determination by the Reviewing
Party or any aspect thereof. The Company hereby consents to service of process
and to appear in any such proceeding. Any determination by the Reviewing Party
not challenged by the Indemnitee shall be binding on the Company and Indemnitee.
The remedy provided for in this Section 4 shall be in addition to any other
remedies available to Indemnitee at law or in equity.
(c) Defense to Indemnification, Burden of Proof, and
Presumptions. It shall be a defense to any action brought by Indemnitee against
the Company to enforce this Agreement (other than an action brought to enforce a
claim for Expenses incurred in defending a Proceeding in advance of its final
disposition where the required undertaking has been tendered to the Company)
that it is not permissible under applicable law for the Company to indemnify
Indemnitee for the amount claimed. In connection with any such action or any
determination by the Reviewing Party or otherwise as to whether Indemnitee is
entitled to be indemnified hereunder, the burden of proving such a defense or
determination shall be on the Company. Neither the failure of the Reviewing
Party or the Company (including its Board, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action by Indemnitee that indemnification of the claimant is proper under the
circumstances because Indemnitee has met the standard of conduct set forth in
applicable law, nor an actual determination by the Reviewing Party or Company
(including its Board, independent legal counsel, or its stockholders) that the
Indemnitee had not met such applicable standard of conduct,
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shall be a defense to the action or create a presumption that the Indemnitee has
not met the applicable standard of conduct. For purposes of this Agreement, the
termination of any claim, action, suit, or proceeding, by judgment, order,
settlement (whether with or without court approval), conviction, or upon a plea
of nolo contendere, or its equivalent, shall not create a presumption that
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by applicable law.
5. Indemnification for Expenses Incurred in Enforcing Rights. The
Company shall indemnify Indemnitee against any and all Expenses that are
incurred by Indemnitee in connection with any action brought by Indemnitee for
(i) indemnification or advance payment of Expenses by the Company
under this Agreement or any other agreement or under applicable
law or the Company's Certificate of Incorporation or Bylaws now
or hereafter in effect relating to indemnification for
Indemnifiable Events, and/or
(ii) recovery under directors' and officers' liability insurance
policies maintained by the Company, but only in the event that
Indemnitee ultimately is determined to be entitled to such
indemnification or insurance recovery, as the case may be. In
addition, the Company shall, if so requested by Indemnitee,
advance the foregoing Expenses to Indemnitee, subject to and in
accordance with Section 2(c).
6. Notification and Defense of Proceeding.
(a) Notice. Promptly after receipt by Indemnitee of notice of the
commencement of any Proceeding, Indemnitee shall, if a claim in respect thereof
is to be made against the Company under this Agreement, notify the Company of
the commencement thereof; but the omission so to notify the Company will not
relieve the Company from any liability that it may have to Indemnitee, except as
provided in Section 6(c).
(b) Defense. With respect to any Proceeding as to which
Indemnitee notifies the Company of the commencement thereof, the Company will be
entitled to participate in the Proceeding at its own expense and except as
otherwise provided below, to the extent the Company so wishes, it may assume the
defense thereof with counsel reasonably satisfactory to Indemnitee. After notice
from the Company to Indemnitee of its election to assume the defense of any
Proceeding, the Company shall not be liable to Indemnitee under this Agreement
or otherwise for any Expenses subsequently incurred by Indemnitee in connection
with the defense of such Proceeding other than reasonable costs of investigation
or as otherwise provided below. Indemnitee shall have the right to employ legal
counsel in such Proceeding, but all Expenses related thereto incurred after
notice from the Company of its assumption of the defense shall be at
Indemnitee's expense unless: (i) the employment of legal counsel by Indemnitee
has been authorized by the Company, (ii) Indemnitee has reasonably determined
that there may be a conflict of interest between Indemnitee and the Company in
the defense of the Proceeding, (iii) after a Change in Control (other than a
Change in Control approved by a majority of the directors on the Board who were
directors immediately prior to such Change in Control), the
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employment of counsel by Indemnitee has been approved by the Independent
Counsel, or (iv) the Company shall not in fact have employed counsel to assume
the defense of such Proceeding, in each of which cases all Expenses of the
Proceeding shall be borne by the Company. The Company shall not be entitled to
assume the defense of any Proceeding brought by or on behalf of the Company or
as to which Indemnitee shall have made the determination provided for in (ii),
(iii) and (iv) above.
(c) Settlement of Claims. The Company shall not be liable to
indemnify Indemnitee under this Agreement or otherwise for any amounts paid in
settlement of any Proceeding effected without the Company's written consent,
such consent not to be unreasonably withheld; provided, however, that if a
Change in Control has occurred (other than a Change in Control approved by a
majority of the directors on the Board who were directors immediately prior to
such Change in Control), the Company shall be liable for indemnification of
Indemnitee for amounts paid in settlement if the Independent Counsel has
approved the settlement. The Company shall not settle any Proceeding in any
manner that would impose any penalty or limitation on Indemnitee without
Indemnitee's written consent. The Company shall not be liable to indemnify the
Indemnitee under this Agreement with regard to any judicial award if the Company
was not given a reasonable and timely opportunity, at its expense, to
participate in the defense of such action; the Company's liability hereunder
shall not be excused if participation in the Proceeding by the Company was
barred by this Agreement.
7. Establishment of Trust. In the event of a Change in Control (other
than a Change in Control approved by a majority of the directors on the Board
who were directors immediately prior to such Change in Control) the Company
shall, upon written request by Indemnitee, create a Trust for the benefit of the
Indemnitee and from time to time upon written request of Indemnitee shall fund
the Trust in an amount sufficient to satisfy any and all Expenses reasonably
anticipated at the time of each such request to be incurred in connection with
investigating, preparing for, participating in, and/or defending any Proceeding
relating to an Indemnifiable Event. The amount or amounts to be deposited in the
Trust pursuant to the foregoing funding obligation shall be determined by the
Independent Counsel. The terms of the Trust shall provide that (i) the Trust
shall not be revoked or the principal thereof invaded without the written
consent of the Indemnitee, (ii) the Trustee shall advance, within ten business
days of a request by the Indemnitee, any and all Expenses to the Indemnitee (and
the Indemnitee hereby agrees to reimburse the Trust under the same circumstances
for which the Indemnitee would be required to reimburse the Company under
Section 2(c) of this Agreement), (iii) the Trust shall continue to be funded by
the Company in accordance with the funding obligation set forth above, (iv) the
Trustee shall promptly pay to the Indemnitee all amounts for which the
Indemnitee shall be entitled to indemnification pursuant to this Agreement or
otherwise, and (v) all unexpended funds in the Trust shall revert to the Company
upon a final determination by the Independent Counsel or a court of competent
jurisdiction, as the case may be, that the Indemnitee has been fully indemnified
under the terms of this Agreement. The Trustee shall be chosen by the
Indemnitee. Nothing in this Section 7 shall relieve the Company of any of its
obligations under this Agreement. All income earned on the assets held in the
Trust shall be reported as income by the Company for federal, state, local, and
foreign tax purposes. The Company shall pay all costs of establishing and
maintaining the Trust and shall indemnify the Trustee against any and all
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expenses (including attorneys' fees), claims, liabilities, loss, and damages
arising out of or relating to this Agreement or the establishment and
maintenance of the Trust.
8. Non-Exclusivity. The rights of Indemnitee hereunder shall be in
addition to any other rights Indemnitee may have under the Company's Certificate
of Incorporation, Bylaws, applicable law, or otherwise; provided, however, that
this Agreement shall supersede any prior indemnification agreement between the
Company and the Indemnitee. To the extent that a change in applicable law
(whether by statute or judicial decision) permits greater indemnification than
would be afforded currently under the Company's Certificate of Incorporation,
Bylaws, applicable law, or this Agreement, it is the intent of the parties that
Indemnitee enjoy by this Agreement the greater benefits so afforded by such
change.
9. Liability Insurance. To the extent the Company maintains an insurance
policy or policies providing general and/or directors' and officers' liability
insurance, Indemnitee shall be covered by such policy or policies, in accordance
with its or their terms, to the maximum extent of the coverage available for any
Company director or officer.
10. Period of Limitations. No legal action shall be brought and no cause
of action shall be asserted by or on behalf of the Company or any Affiliate of
the Company against Indemnitee, Indemnitee's spouse, heirs, executors, or
personal or legal representatives after the expiration of two years from the
date of accrual of such cause of action, or such longer period as may be
required by state law under the circumstances. Any claim or cause of action of
the Company or its Affiliate shall be extinguished and deemed released unless
asserted by the timely filing and notice of a legal action within such period;
provided, however, that if any shorter period of limitations is otherwise
applicable to any such cause of action, the shorter period shall govern.
11. Amendment of this Agreement. No supplement, modification, or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be binding unless in the form of a writing signed by the party against
whom enforcement of the waiver is sought, and no such waiver shall operate as a
waiver of any other provisions hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver. Except as specifically provided herein,
no failure to exercise or any delay in exercising any right or remedy hereunder
shall constitute a waiver thereof.
12. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
13. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise received payment (under any
insurance policy, Bylaw, or otherwise) of the amounts otherwise indemnifiable
hereunder.
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14. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their respective
successors (including any direct or indirect successor by purchase, merger,
consolidation, or otherwise to all or substantially all of the business and/or
assets of the Company), assigns, spouses, heirs, and personal and legal
representatives. The Company shall require and cause any successor (whether
direct or indirect by purchase, merger, consolidation, or otherwise) to all,
substantially all, or a substantial part, of the business and/or assets of the
Company, by written agreement in form and substance satisfactory to Indemnitee,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform if no such
succession had taken place. The indemnification provided under this Agreement
shall continue as to Indemnitee for any action taken or not taken while serving
in an indemnified capacity pertaining to an Indemnifiable Event even though he
may have ceased to serve in such capacity at the time of any Proceeding.
15. Severability. If any provision (or portion thereof) of this
Agreement shall be held by a court of competent jurisdiction to be invalid,
void, or otherwise unenforceable, the remaining provisions shall remain
enforceable to the fullest extent permitted by law. Furthermore, to the fullest
extent possible, the provisions of this Agreement (including, without
limitation, each portion of this Agreement containing any provision held to be
invalid, void, or otherwise unenforceable, that is not itself invalid, void, or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, void, or unenforceable.
16. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such State without giving effect to its
principles of conflicts of laws.
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17. Notices. All notices, demands, and other communications required or
permitted hereunder shall be made in writing and shall be deemed to have been
duly given if delivered by hand, against receipt, or mailed, postage prepaid,
certified or registered mail, return receipt requested, and addressed to the
Company at:
PLX Technology, Inc.
390 Potrero Road
Sunnyvale, CA 94086
Attention: Michael J. Salameh, President
and to Indemnitee at:
--------------------------
--------------------------
--------------------------
Notice of change of address shall be effective only when given in accordance
with this Section. All notices complying with this Section shall be deemed to
have been received on the date of hand delivery or on the third business day
after mailing.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement as of the day specified above.
PLX TECHNOLOGY, INC.
By:
-------------------------------------
Michael J. Salameh, President
INDEMNITEE
By:
-------------------------------------
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EXHIBIT 10.2
PLX TECHNOLOGY, INC.
1998 STOCK INCENTIVE PLAN
1. Purposes of the Plan. The purposes of this Stock Incentive Plan are
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of the Committees
appointed to administer the Plan.
(b) "Applicable Laws" means the legal requirements relating to
the administration of stock incentive plans, if any, under applicable provisions
of federal securities laws, California corporate and securities laws, the Code,
the rules of any applicable stock exchange or national market system, and the
rules of any foreign jurisdiction applicable to Awards granted to residents
therein.
(c) "Award" means the grant of an Option, Restricted Stock, SAR,
Dividend Equivalent Right, Performance Unit, Performance Share, or other right
or benefit under the Plan.
(d) "Award Agreement" means the written agreement evidencing the
grant of an Award executed by the Company and the Grantee, including any
amendments thereto.
(e) "Board" means the Board of Directors of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means any committee appointed by the Board to
administer the Plan.
(h) "Common Stock" means the common stock of the Company.
(i) "Company" means PLX Technology, Inc, a California
corporation.
(j) "Consultant" means any person who is engaged by the Company
or Related Entity to render consulting or advisory services as an independent
contractor and is compensated for such services.
(k) "Continuous Status as an Employee, Director or Consultant"
means that the provision of services to the Company or a Related Entity in any
capacity of Employee, Director or Consultant, is not interrupted or terminated.
Continuous Status as an Employee, Director or Consultant shall not be considered
interrupted in the case of (i) any approved leave of absence, (ii) transfers
between locations of the Company or among the Company, any Related Entity, or
any successor, in any capacity of Employee, Director or Consultant, or (iii) any
change
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in status as long as the individual remains in the service of the Company or a
Related Entity in any capacity of Employee, Director or Consultant (except as
otherwise provided in the Award Agreement). An approved leave of absence shall
include sick leave, military leave, or any other authorized personal leave. For
purposes of Incentive Stock Options, no such leave may exceed ninety (90) days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract.
(l) "Corporate Transaction" means any of the following
shareholder-approved transactions to which the Company is a party:
(i) a merger or consolidation in which the Company is not
the surviving entity, except for a transaction the principal purpose of which is
to change the state in which the Company is incorporated;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital stock of
the Company's subsidiary corporations) in connection with the complete
liquidation or dissolution of the Company; or
(iii) any reverse merger in which the Company is the
surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding securities
are transferred to a person or persons different from those who held such
securities immediately prior to such merger.
(m) "Director" means a member of the Board.
(n) "Dividend Equivalent Right" means a right entitling the
Grantee to compensation measured by dividends paid with respect to Common Stock.
(o) "Employee" means any person, including an Officer or
Director, who is an employee of the Company or any Related Entity. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(p) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(q) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) Where there exists a public market for the Common
Stock, the Fair Market Value shall be (A) the closing price for a Share for the
last market trading day prior to the time of the determination (or, if no
closing price was reported on that date, on the last trading date on which a
closing price was reported) on the stock exchange determined by the
Administrator to be the primary market for the Common Stock or the Nasdaq
National Market, whichever is applicable or (B) if the Common Stock is not
traded on any such exchange or national market system, the average of the
closing bid and asked prices of a Share on the Nasdaq Small Cap Market for the
day prior to the time of the determination (or, if no such prices were reported
on that date, on the last date on which such prices were reported), in each
case, as reported in The Wall Street Journal or such other source as the
Administrator deems reliable; or
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(ii) In the absence of an established market of the type
described in (i), above, for the Common Stock, the Fair Market Value thereof
shall be determined by the Administrator in good faith and in a manner
consistent with Section 260.140.50 of Title 10 of the California Code of
Regulations.
(r) "Grantee" means an Employee, Director or Consultant who
receives an Award under the Plan.
(s) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code
(t) "Non-Qualified Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(u) "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.
(v) "Option" means a stock option granted pursuant to the Plan.
(w) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(x) "Performance Shares" means Shares or an award denominated in
Shares which may be earned in whole or in part upon attainment of performance
criteria established by the Administrator.
(y) "Performance Units" means an award which may be earned in
whole or in part upon attainment of performance criteria established by the
Administrator and which may be settled for cash, Shares or other securities or a
combination of cash, Shares or other securities as established by the
Administrator.
(z) "Plan" means this 1998 Stock Incentive Plan.
(aa) "Registration Date" means the closing of the first sale of
Common Stock to the general public pursuant to a registration statement filed
with and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
(bb) "Related Entity" means any Parent, Subsidiary and any
business, corporation, partnership, limited liability company or other entity in
which the Company, a Parent or a Subsidiary holds a substantial ownership
interest, directly or indirectly.
(cc) "Restricted Stock" means Shares issued under the Plan to the
Grantee for such consideration, if any, and subject to such restrictions on
transfer, rights of first refusal, repurchase provisions, forfeiture provisions,
and other terms and conditions as established by the Administrator.
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(dd) "SAR" means a stock appreciation right entitling the Grantee
to Shares or cash compensation, as established by the Administrator, measured by
appreciation in the value of Common Stock.
(ee) "Share" means a share of the Common Stock.
(ff) "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.
(a) Subject to the provisions of Section 11(a), below, the
maximum aggregate number of Shares which may be issued pursuant to all Awards
(including Incentive Stock Options) is eight hundred thousand (800,000) Shares.
The Shares may be authorized, but unissued, or reacquired Common Stock.
(b) If an Award expires or becomes unexercisable without having
been exercised in full, or is surrendered pursuant to an Award exchange program,
or if any unissued Shares are retained by the Company upon exercise of an Award
in order to satisfy the exercise price for such Award or any withholding taxes
due with respect to such Award, such unissued or retained Shares shall become
available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that actually have been issued under the Plan pursuant to an
Award shall not be returned to the Plan and shall not become available for
future distribution under the Plan, except that if unvested Shares are
forfeited, or repurchased by the Company at their original purchase price, such
Shares shall become available for future grant under the Plan.
4. Administration of the Plan.
(a) Plan Administrator. With respect to grants of Awards to
Employees, Directors, Officers or Consultants, the Plan shall be administered by
(A) the Board or (B) a Committee (or a subcommittee of the Committee) designated
by the Board, which Committee shall be constituted in such a manner as to
satisfy Applicable Laws. Once appointed, such Committee shall continue to serve
in its designated capacity until otherwise directed by the Board. The Board may
authorize one or more Officers to grant Awards and may limit such authority as
the Board determines from time to time.
(b) Multiple Administrative Bodies. The Plan may be administered
by different bodies with respect to Directors, Officers, Consultants, and
Employees who are neither Directors nor Officers.
(c) Powers of the Administrator. Subject to Applicable Laws and
the provisions of the Plan (including any other powers given to the
Administrator hereunder), and except as otherwise provided by the Board, the
Administrator shall have the authority, in its discretion:
(i) to select the Employees, Directors and Consultants to
whom Awards may be granted from time to time hereunder;
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(ii) to determine whether and to what extent Awards are
granted hereunder;
(iii) to determine the number of Shares or the amount of
other consideration to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreement for use under the
Plan;
(v) to determine the terms and conditions of any Award
granted hereunder;
(vi) to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of applicable foreign jurisdictions
and to afford Grantees favorable treatment under such laws; provided, however,
that no Award shall be granted under any such additional terms, conditions,
rules or procedures with terms or conditions which are inconsistent with the
provisions of the Plan;
(vii) to amend the terms of any outstanding Award granted
under the Plan, including a reduction in the exercise price (or base amount on
which appreciation is measured) of any Award to reflect a reduction in the Fair
Market Value of the Common Stock since the grant date of the Award, provided
that any amendment that would adversely affect the Grantee's rights under an
outstanding Award shall not be made without the Grantee's written consent;
(viii) to construe and interpret the terms of the Plan and
Awards granted pursuant to the Plan; and
(ix) to take such other action, not inconsistent with the
terms of the Plan, as the Administrator deems appropriate.
(d) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be conclusive and
binding on all persons.
5. Eligibility. Awards other than Incentive Stock Options may be granted
to Employees, Directors and Consultants. Incentive Stock Options may be granted
only to Employees of the Company, a Parent or a Subsidiary. An Employee,
Director or Consultant who has been granted an Award may, if otherwise eligible,
be granted additional Awards. Awards may be granted to such Employees, Directors
or Consultants who are residing in foreign jurisdictions as the Administrator
may determine from time to time.
6. Terms and Conditions of Awards.
(a) Type of Awards. The Administrator is authorized under the
Plan to award any type of arrangement to an Employee, Director or Consultant
that is not inconsistent with the provisions of the Plan and that by its terms
involves or might involve the issuance of (i) Shares, (ii) an Option, a SAR or
similar right with an exercise or conversion privilege at a fixed or variable
price related to the Common Stock and/or the passage of time, the occurrence of
one or
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more events, or the satisfaction of performance criteria or other conditions, or
(iii) any other security with the value derived from the value of the Common
Stock or securities issued by a Related Entity. Such awards include, without
limitation, Options, sales or bonuses of Restricted Stock, SARs, Dividend
Equivalent Rights, Performance Units or Performance Shares, and an Award may
consist of one such security or benefit, or two or more of them in any
combination or alternative.
(b) Designation of Award. Each Award shall be designated in the
Award Agreement. In the case of an Option, the Option shall be designated as
either an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of Shares subject to Options designated as Incentive Stock Options which
become exercisable for the first time by a Grantee during any calendar year
(under all plans of the Company or any Parent or Subsidiary) exceeds $100,000,
such excess Options, to the extent of the Shares covered thereby in excess of
the foregoing limitation, shall be treated as Non-Qualified Stock Options. For
this purpose, Incentive Stock Options shall be taken into account in the order
in which they were granted, and the Fair Market Value of the Shares shall be
determined as of the date the Option with respect to such Shares is granted.
(c) Conditions of Award. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, or other consideration) upon settlement of the Award, payment
contingencies, and satisfaction of any performance criteria. The performance
criteria established by the Administrator may be based on any one of, or
combination of, increase in share price, earnings per share, total shareholder
return, return on equity, return on assets, return on investment, net operating
income, cash flow, revenue, economic value added, personal management
objectives, or other measure of performance selected by the Administrator.
Partial achievement of the specified criteria may result in a payment or vesting
corresponding to the degree of achievement as specified in the Award Agreement.
(d) Deferral of Award Payment. The Administrator may establish
one or more programs under the Plan to permit selected Grantees the opportunity
to elect to defer receipt of consideration upon exercise of an Award,
satisfaction of performance criteria, or other event that absent the election
would entitle the Grantee to payment or receipt of Shares or other consideration
under an Award. The Administrator may establish the election procedures, the
timing of such elections, the mechanisms for payments of, and accrual of
interest or other earnings, if any, on amounts, Shares or other consideration so
deferred, and such other terms, conditions, rules and procedures that the
Administrator deems advisable for the administration of any such deferral
program.
(e) Award Exchange Programs. The Administrator may establish one
or more programs under the Plan to permit selected Grantees to exchange an Award
under the Plan for one or more other types of Awards under the Plan on such
terms and conditions as determined by the Administrator from time to time.
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(f) Separate Programs. The Administrator may establish one or
more separate programs under the Plan for the purpose of issuing particular
forms of Awards to one or more classes of Grantees on such terms and conditions
as determined by the Administrator from time to time.
(g) Early Exercise. The Award may, but need not, include a
provision whereby the Grantee may elect at any time while an Employee, Director
or Consultant to exercise any part or all of the Award prior to full vesting of
the Award. Any unvested Shares received pursuant to such exercise may be subject
to a repurchase right in favor of the Company or to any other restriction the
Administrator determines to be appropriate.
(h) Term of Award. The term of each Award shall be the term
stated in the Award Agreement, provided, however, that the term shall be no more
than ten (10) years from the date of grant thereof. However, in the case of an
Incentive Stock Option granted to a Grantee who, at the time the Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Incentive Stock Option shall be five (5) years from the date of grant
thereof or such shorter term as may be provided in the Award Agreement.
(i) Non-Transferability of Awards. Awards 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 Grantee, only by the Grantee.
(j) Time of Granting Awards. The date of grant of an Award shall
for all purposes be the date on which the Administrator makes the determination
to grant such Award, or such other date as is determined by the Administrator.
Notice of the grant determination shall be given to each Employee, Director or
Consultant to whom an Award is so granted within a reasonable time after the
date of such grant.
7. Award Exercise or Purchase Price, Consideration, Taxes and Reload
Options.
(a) Exercise or Purchase Price. The exercise or purchase price,
if any, for an Award shall be as follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of
the grant of such Incentive Stock Option owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be not less than one
hundred ten percent (110%) of the Fair Market Value per Share on the date of
grant.
(B) granted to any Employee other than an Employee
described in the preceding paragraph, the per Share exercise price shall be not
less than one hundred percent (100%) of the Fair Market Value per Share on the
date of grant.
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(ii) In the case of a Non-Qualified Stock Option:
(A) granted to a person who, at the time of the
grant of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the per Share exercise price shall be not less than one hundred ten percent
(110%) of the Fair Market Value per Share on the date of grant.
(B) granted to any person other than a person
described in the preceding paragraph, the per Share exercise price shall be not
less than eighty-five percent (85%) of the Fair Market Value per Share on the
date of grant.
(iii) In the case of the sale of Shares:
(A) granted to a person who, at the time of the
grant of such Award, or at the time the purchase is consummated, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the per Share purchase price
shall be not less than one hundred percent (100%) of the Fair Market Value per
share on the date of grant.
(B) granted to any person other than a person
described in the preceding paragraph, the per Share purchase price shall be not
less than eighty-five percent (85%) of the Fair Market Value per Share on the
date of grant.
(iv) In the case of other Awards, such price as is
determined by the Administrator.
(b) Consideration. Subject to Applicable Laws, the consideration
to be paid for the Shares to be issued upon exercise or purchase of an Award
including the method of payment, shall be determined by the Administrator (and,
in the case of an Incentive Stock Option, shall be determined at the time of
grant). In addition to any other types of consideration the Administrator may
determine, the Administrator is authorized to accept as consideration for Shares
issued under the Plan the following:
(i) cash;
(ii) check;
(iii) delivery of Grantee's promissory note with such
recourse, interest, security, and redemption provisions as the Administrator
determines as appropriate;
(iv) if the exercise occurs on or after the Registration
Date, surrender of Shares or delivery of a properly executed form of attestation
of ownership of Shares as the Administrator may require (including withholding
of Shares otherwise deliverable upon exercise of the Award) which have a Fair
Market Value on the date of surrender or attestation equal to the aggregate
exercise price of the Shares as to which said Award shall be exercised (but only
to the
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extent that such exercise of the Award would not result in an accounting
compensation charge with respect to the Shares used to pay the exercise price
unless otherwise determined by the Administrator);
(v) if the exercise occurs on or after the Registration
Date, delivery of a properly executed exercise notice together with such other
documentation as the Administrator and the broker, if applicable, shall require
to effect an exercise of the Award and delivery to the Company of the sale or
loan proceeds required to pay the exercise price; or
(vi) any combination of the foregoing methods of payment.
(c) Taxes. No Shares shall be delivered under the Plan to any
Grantee or other person until such Grantee or other person has made arrangements
acceptable to the Administrator for the satisfaction of any foreign, federal,
state, or local income and employment tax withholding obligations, including,
without limitation, obligations incident to the receipt of Shares or the
disqualifying disposition of Shares received on exercise of an Incentive Stock
Option. Upon exercise of an Award the Company shall withhold or collect from
Grantee an amount sufficient to satisfy such tax obligations.
(d) Reload Options. In the event the exercise price or tax
withholding of an Option is satisfied by the Company or the Grantee's employer
withholding Shares otherwise deliverable to the Grantee, the Administrator may
issue the Grantee an additional Option, with terms identical to the Award
Agreement under which the Option was exercised, but at an exercise price as
determined by the Administrator in accordance with the Plan.
8. Exercise of Award.
(a) Procedure for Exercise; Rights as a Shareholder.
(i) Any Award granted hereunder shall be exercisable at
such times and under such conditions as determined by the Administrator under
the terms of the Plan and specified in the Award Agreement but in the case of an
Option, in no case at a rate of less than 20% per year over five (5) years from
the date the Option is granted, subject to reasonable conditions such as
continued employment. However, in the case of an Option granted to an Officer,
Director or Consultant, the Award Agreement may provide that the Option may
become fully exercisable, subject to reasonable conditions such as continued
employment, at any time or during any period established in the Award Agreement.
(ii) An Award shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Award by the person entitled to exercise the Award and full payment
for the Shares with respect to which the Award is exercised has been received by
the Company. Until the issuance (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company) of
the stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to
Shares subject to an Award, notwithstanding the exercise of an Option or other
Award. The Company shall issue (or cause to
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be issued) such stock certificate promptly upon exercise of the Award. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in the
Award Agreement or Section 11(a), below.
(b) Exercise of Award Following Termination of Employment,
Director or Consulting Relationship. In the event of termination of a grantee's
Continuous Status as an Employee, Director or Consultant for any reason other
than disability or death (but not in the event of a grantee's change of status
from Employee to Consultant or from Consultant to Employee), such Grantee may,
but only within three (3) months after the date of such termination (but in no
event later than the expiration date of the term of such Award as set forth in
the Award Agreement), exercise his or her Award to the extent that the Grantee
was entitled to exercise it at the date of such termination or to such other
extent as may be determined by the Administrator. The Grantee's Award Agreement
may provide that upon the event of termination of the Grantee's Continuous
Status as an Employee, Director or Consultant for "Cause," the Grantee's right
to exercise the Award shall terminate concurrently with the termination of
Grantee's Continuous Status as an Employee, Director or Consultant. The term
"Cause" shall be as defined in the Award Agreement. If the Grantee should die
within three (3) months after the date of such termination, the Grantee's estate
or the person who acquired the right to exercise the Award by bequest or
inheritance may exercise the Award to the extent that the Grantee was entitled
to exercise it at the date of such termination within twelve (12) months of the
Grantee's date of death, but in no event later than the expiration date of the
term of such Award as set forth in the Award Agreement. In the event of a
grantee's change of status from Employee to Consultant, an Employee's Incentive
Stock Option shall convert automatically to a Non-Qualified Stock Option on the
day three (3) months and one day following such change of status. To the extent
that the Grantee is not entitled to exercise the Award at the date of
termination, or if Grantee does not exercise such Award to the extent so
entitled within the time specified herein, the Award shall terminate.
(c) Disability of Grantee. In the event of termination of a
grantee's Continuous Status as an Employee, Director or Consultant as a result
of his or her disability, Grantee may, but only within twelve (12) months from
the date of such termination (and in no event later than the expiration date of
the term of such Award as set forth in the Award Agreement), exercise the Award
to the extent otherwise entitled to exercise it at the date of such
termination; provided, however, that if such disability is not a "disability"
as such term is defined in Section 22(e)(3) of the Code, in the case of an
Incentive Stock Option such Incentive Stock Option shall automatically convert
to a Non-Qualified Stock Option on the day three (3) months and one day
following such termination. To the extent that the Grantee is not entitled to
exercise the Award at the date of termination, or if Grantee does not exercise
such Award to the extent so entitled within the time specified herein, the
Award shall terminate.
(d) Death of Grantee. In the event of the death of a grantee, the
Award may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Award as
set forth in the Award Agreement), by the Grantee's estate or by a person who
acquired the right to exercise the Award by bequest or inheritance, but only to
the extent that the Grantee was entitled to exercise the Award at the date of
death. If, at the time of death, the Grantee was not entitled to exercise his or
her entire Award,
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the Shares covered by the unexercisable portion of the Award shall immediately
revert to the Plan. If, after death, the Grantee's estate or a person who
acquired the right to exercise the Award by bequest or inheritance does not
exercise the Award within the time specified herein, the Award shall terminate.
(e) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Award previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Grantee at the time that such offer is made.
9. Conditions Upon Issuance of Shares.
(a) Shares shall not be issued pursuant to the exercise of an
Award unless the exercise of such Award and the issuance and delivery of such
Shares pursuant thereto shall comply with all Applicable Laws, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
(b) As a condition to the exercise of an Award, the Company may
require the person exercising such Award to represent and warrant at the time of
any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
Applicable Laws.
10. Repurchase Rights. If the provisions of an Award Agreement grant to
the Company the right to repurchase Shares upon termination of the Grantee's
Continuous Status as an Employee, Director or Consultant, the Award Agreement
shall provide that the repurchase price will be either:
(a) Not less than the Fair Market Value of the Shares to be
repurchased on the date of termination of the Grantee's Continuous Status as an
Employee, Director or Consultant, and the right to repurchase must be exercised
for cash or cancellation of purchase money indebtedness for the Shares within
ninety (90) days of the termination of the Grantee's Continuous Status as an
Employee, Director or Consultant (or in the case of Shares issued upon exercise
of Awards after the date of termination of the Grantee's Continuous Status as an
Employee, Director or Consultant, within ninety (90) days after the date of the
Award exercise), and the right terminates when the Company's securities become
publicly traded; or
(b) The original purchase price, provided that the right to
repurchase at the original purchase price lapses at the rate of at least twenty
percent (20%) of the Shares subject to the Award per year over five (5) years
from the date the Award is granted (without respect to the date the Award was
exercised or became exercisable), and the right to repurchase must be exercised
for cash or cancellation of purchase money indebtedness for the Shares within
ninety (90) days of termination of the Grantee's Continuous Status as an
Employee, Director or Consultant (or in the case of Shares issued upon exercise
of Awards after the date of termination of the Grantee's Continuous Status as an
Employee, Director or Consultant, within ninety (90) days after the date of the
Award exercise).
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(c) In addition to the restrictions set forth in (a) and (b)
above, the Shares held by an Officer, Director or Consultant may be subject to
additional or greater restrictions.
11. Adjustments Upon Changes in Capitalization or Corporate Transaction.
(a) Adjustments upon Changes in Capitalization. Subject to any
required action by the shareholders of the Company, the number of Shares covered
by each outstanding Award, and the number of Shares which have been authorized
for issuance under the Plan but as to which no Awards have yet been granted or
which have been returned to the Plan, as well as the price per share of Common
Stock covered by each such outstanding Award, 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 similar event resulting in
an increase or decrease in the number of issued shares of Common Stock. 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 hereof shall be made with respect to, the
number or price of Shares subject to an Award.
(b) Corporate Transaction. Except as provided otherwise in an
individual Award Agreement, in the event of any Corporate Transaction, the Award
will terminate immediately prior to the specified effective date of the
Corporate Transaction, unless the Award is assumed or an equivalent Award is
substituted by the successor corporation or a Parent or Subsidiary of such
successor corporation. For the purposes of this subsection, the Award shall be
considered assumed or substituted for an equivalent Award if, following the
Corporate Transaction, the Award confers with substantially equivalent
provisions as the original Award, for each Share subject to the Award
immediately prior to the Corporate Transaction, (i) the consideration (whether
stock, cash, or other securities or property) received in the Corporate
Transaction by holders of Common Stock for each Share subject to the Award held
on the effective date of the Corporate 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), or (ii) the right to purchase such
consideration in the case of an Option or similar Award; provided, however, that
if such consideration received in the Corporate Transaction was 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 or exchange of the Award for each Share subject to
the Award 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 Corporate Transaction.
12. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company. It shall continue in effect for a term of ten (10) years unless sooner
terminated.
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13. Amendment, Suspension or Termination of the Plan.
(a) The Board may at any time amend, suspend or terminate the
Plan. To the extent necessary to comply with Applicable Laws, the Company shall
obtain shareholder approval of any Plan amendment in such a manner and to such a
degree as required.
(b) No Award may be granted during any suspension of the Plan or
after termination of the Plan.
(c) Any amendment, suspension or termination of the Plan
(including termination of the Plan under Section 12, above) shall not affect
Awards already granted, and such Awards shall remain in full force and effect as
if the Plan had not been amended, suspended or terminated, unless mutually
agreed otherwise between the Grantee and the Administrator, which agreement must
be in writing and signed by the Grantee and the Company.
14. Reservation of Shares.
(a) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
(b) 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.
15. No Effect on Terms of Employment/Consulting Relationship. The Plan
shall not confer upon any Grantee any right with respect to continuation of
employment or consulting relationship with the Company, nor shall it interfere
in any way with his or her right or the Company's right to terminate his or her
employment or consulting relationship at any time, with or without cause.
16. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under Applicable Laws. Any Award exercised
before shareholder approval is obtained shall be rescinded if shareholder
approval is not obtained within the time prescribed, and Shares issued on the
exercise of any such Award shall not be counted in determining whether
shareholder approval is obtained.
17. Information to Grantees. The Company shall provide to each Grantee,
during the period for which such Grantee has one or more Awards outstanding,
copies of financial statements at least annually.
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EXHIBIT 10.3
PLX TECHNOLOGY, INC.
1999 STOCK INCENTIVE PLAN
1. Purposes of the Plan. The purposes of this Stock Incentive Plan are
to attract and retain the best available personnel, to provide additional
incentive to Employees, Directors and Consultants and to promote the success of
the Company's business.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of the Committees
appointed to administer the Plan.
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange
Act.
(c) "Applicable Laws" means the legal requirements relating to
the administration of stock incentive plans, if any, under applicable provisions
of federal securities laws, state corporate and securities laws, the Code, the
rules of any applicable stock exchange or national market system, and the rules
of any foreign jurisdiction applicable to Awards granted to residents therein.
(d) "Award" means the grant of an Option, SAR, Dividend
Equivalent Right, Restricted Stock, Performance Unit, Performance Share, or
other right or benefit under the Plan.
(e) "Award Agreement" means the written agreement evidencing the
grant of an Award executed by the Company and the Grantee, including any
amendments thereto.
(f) "Board" means the Board of Directors of the Company.
(g) "Cause" means, with respect to the termination by the Company
or a Related Entity of the Grantee's Continuous Service, that such termination
is for "Cause" as such term is expressly defined in a then-effective written
agreement between the Grantee and the Company or such Related Entity, or in the
absence of such then-effective written agreement and definition, is based on, in
the determination of the Administrator, the Grantee's: (i) refusal or failure to
act in accordance with any specific, lawful direction or order of the Company or
a Related Entity; (ii) unfitness or unavailability for service or unsatisfactory
performance (other than as a result of Disability); (iii) performance of any act
or failure to perform any act in bad faith and to the detriment of the Company
or a Related Entity; (iv) dishonesty, intentional misconduct or material breach
of any agreement with the Company or a Related Entity; or (v) commission of a
crime involving dishonesty, breach of trust, or physical or emotional harm to
any person. At least 30 days prior to the termination of the Grantee's
Continuous Service pursuant to (i) or (ii) above, the Administrator shall
provide the Grantee with notice of the Company's or such Related Entity's intent
to terminate, the reason therefor, and an opportunity for the Grantee to cure
such defects in his or her service to the Company's or such Related
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Entity's satisfaction. During this 30 day (or longer) period, no Award issued to
the Grantee under the Plan may be exercised or purchased.
(h) "Change in Control" means a change in ownership or control of
the Company effected through either of the following transactions:
(i) the direct or indirect acquisition by any person or
related group of persons (other than an acquisition from or by the Company or by
a Company-sponsored employee benefit plan or by a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Company) of beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities pursuant to
a tender or exchange offer made directly to the Company's stockholders which a
majority of the Continuing Directors who are not Affiliates or Associates of the
offeror do not recommend such stockholders accept, or
(ii) a change in the composition of the Board over a
period of thirty-six (36) months or less such that a majority of the Board
members (rounded up to the next whole number) ceases, by reason of one or more
contested elections for Board membership, to be comprised of individuals who are
Continuing Directors.
(i) "Code" means the Internal Revenue Code of 1986, as amended.
(j) "Committee" means any committee appointed by the Board to
administer the Plan.
(k) "Common Stock" means the common stock of the Company.
(l) "Company" means PLX Technology, Inc., a Delaware corporation.
(m) "Consultant" means any person (other than an Employee or,
solely with respect to rendering services in such person's capacity as a
Director) who is engaged by the Company or any Related Entity to render
consulting or advisory services to the Company or such Related Entity.
(n) "Continuing Directors" means members of the Board who either
(i) have been Board members continuously for a period of at least thirty-six
(36) months or (ii) have been Board members for less than thirty-six (36) months
and were elected or nominated for election as Board members by at least a
majority of the Board members described in clause (i) who were still in office
at the time such election or nomination was approved by the Board.
(o) "Continuous Service" means that the provision of services to
the Company or a Related Entity in any capacity of Employee, Director or
Consultant, is not interrupted or terminated. Continuous Service shall not be
considered interrupted in the case of (i) any approved leave of absence, (ii)
transfers between locations of the Company or among the Company, any Related
Entity, or any successor, in any capacity of Employee, Director or Consultant,
or (iii) any change in status as long as the individual remains in the service
of the
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Company or a Related Entity in any capacity of Employee, Director or Consultant
(except as otherwise provided in the Award Agreement). An approved leave of
absence shall include sick leave, military leave, or any other authorized
personal leave. For purposes of Incentive Stock Options, no such leave may
exceed ninety (90) days, unless reemployment upon expiration of such leave is
guaranteed by statute or contract.
(p) "Corporate Transaction" means any of the following
transactions:
(i) a merger or consolidation in which the Company is
not the surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Company is incorporated;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital stock of
the Company's subsidiary corporations) in connection with the complete
liquidation or dissolution of the Company;
(iii) any reverse merger in which the Company is the
surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding securities
are transferred to a person or persons different from those who held such
securities immediately prior to such merger; or
(iv) an acquisition by any person or related group of
persons (other than the Company or by a Company-sponsored employee benefit plan)
of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act)
of securities possessing more than fifty percent (50%) of the total combined
voting power of the Company's outstanding securities (whether or not in a
transaction also constituting a Change in Control), but excluding any such
transaction that the Administrator determines shall not be a Corporate
Transaction.
(q) "Director" means a member of the Board or the board of
directors of any Related Entity.
(r) "Disability" means that a Grantee would qualify for benefit
payments under the long-term disability policy of the Company or the Related
Entity to which the Grantee provides services regardless of whether the Grantee
is covered by such policy.
(s) "Dividend Equivalent Right" means a right entitling the
Grantee to compensation measured by dividends paid with respect to Common Stock.
(t) "Employee" means any person, including an Officer or
Director, who is an employee of the Company or any Related Entity. The payment
of a director's fee by the Company or a Related Entity shall not be sufficient
to constitute "employment" by the Company.
(u) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(v) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
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(i) Where there exists a public market for the Common
Stock, the Fair Market Value shall be (A) the closing price for a Share for the
last market trading day prior to the time of the determination (or, if no
closing price was reported on that date, on the last trading date on which a
closing price was reported) on the stock exchange determined by the
Administrator to be the primary market for the Common Stock or the Nasdaq
National Market, whichever is applicable or (B) if the Common Stock is not
traded on any such exchange or national market system, the average of the
closing bid and asked prices of a Share on the Nasdaq Small Cap Market for the
day prior to the time of the determination (or, if no such prices were reported
on that date, on the last date on which such prices were reported), in each
case, as reported in The Wall Street Journal or such other source as the
Administrator deems reliable; or
(ii) In the absence of an established market for the
Common Stock of the type described in (i), above, the Fair Market Value thereof
shall be determined by the Administrator in good faith.
(w) "Grantee" means an Employee, Director or Consultant who
receives an Award pursuant to an Award Agreement under the Plan.
(x) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
(y) "Non-Qualified Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(z) "Officer" means a person who is an officer of the Company or
a Related Entity within the meaning of Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder.
(aa) "Option" means an option to purchase Shares pursuant to an
Award Agreement granted under the Plan.
(bb) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(cc) "Performance Shares" means Shares or an Award denominated in
Shares which may be earned in whole or in part upon attainment of performance
criteria established by the Administrator.
(dd) "Performance Units" means an Award which may be earned in
whole or in part upon attainment of performance criteria established by the
Administrator and which may be settled for cash, Shares or other securities or a
combination of cash, Shares or other securities as established by the
Administrator.
(ee) "Plan" means this 1999 Stock Incentive Plan.
(ff) "Registration Date" means the first to occur of (i) the
closing of the first sale to the general public of (A) the Common Stock or (B)
the same class of securities of a
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successor corporation (or its Parent) issued pursuant to a Corporate Transaction
in exchange for or in substitution of the Common Stock, pursuant to a
registration statement filed with and declared effective by the Securities and
Exchange Commission under the Securities Act of 1933, as amended; and (ii) in
the event of a Corporate Transaction, the date of the consummation of the
Corporate Transaction if the same class of securities of the successor
corporation (or its Parent) issuable in such Corporate Transaction shall have
been sold to the general public pursuant to a registration statement filed with
and declared effective by, on or prior to the date of consummation of such
Corporate Transaction, the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
(gg) "Related Entity" means any Parent, Subsidiary and any
business, corporation, partnership, limited liability company or other entity in
which the Company, a Parent or a Subsidiary holds a substantial ownership
interest, directly or indirectly.
(hh) "Restricted Stock" means Shares issued under the Plan to the
Grantee for such consideration, if any, and subject to such restrictions on
transfer, rights of first refusal, repurchase provisions, forfeiture provisions,
and other terms and conditions as established by the Administrator.
(ii) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
Act or any successor thereto.
(jj) "SAR" means a stock appreciation right entitling the Grantee
to Shares or cash compensation, as established by the Administrator, measured by
appreciation in the value of Common Stock.
(kk) "Share" means a share of the Common Stock.
(ll) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
(mm) "Related Entity Disposition" means the sale, distribution or
other disposition by the Company of all or substantially all of the Company's
interests in any Related Entity effected by a sale, merger or consolidation or
other transaction involving that Related Entity or the sale of all or
substantially all of the assets of that Related Entity.
3. Stock Subject to the Plan.
(a) Subject to the provisions of Section 10, below, the maximum
aggregate number of Shares which may be issued pursuant to all Awards (including
Incentive Stock Options) is [NUMBER] Shares. The Shares to be issued pursuant to
Awards may be authorized, but unissued, or reacquired Common Stock.
(b) Any Shares covered by an Award (or portion of an Award) which
is forfeited or canceled, expires or is settled in cash, shall be deemed not to
have been issued for purposes of determining the maximum aggregate number of
Shares which may be issued under the Plan. If any unissued Shares are retained
by the Company upon exercise of an Award in
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<PAGE> 6
order to satisfy the exercise price for such Award or any withholding taxes due
with respect to such Award, such retained Shares subject to such Award shall
become available for future issuance under the Plan (unless the Plan has
terminated). Shares that actually have been issued under the Plan pursuant to an
Award shall not be returned to the Plan and shall not become available for
future issuance under the Plan, except that if unvested Shares are forfeited, or
repurchased by the Company at their original purchase price, such Shares shall
become available for future grant under the Plan.
4. Administration of the Plan.
(a) Plan Administrator.
(i) Administration with Respect to Directors and
Officers. With respect to grants of Awards to Directors or Employees who are
also Officers or Directors of the Company, the Plan shall be administered by (A)
the Board or (B) a Committee designated by the Board, which Committee shall be
constituted in such a manner as to satisfy the Applicable Laws and to permit
such grants and related transactions under the Plan to be exempt from Section
16(b) of the Exchange Act in accordance with Rule 16b-3. Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board.
(ii) Administration With Respect to Consultants and
Other Employees. With respect to grants of Awards to Employees or Consultants
who are neither Directors nor Officers of the Company, the Plan shall be
administered by (A) the Board or (B) a Committee designated by the Board, which
Committee shall be constituted in such a manner as to satisfy the Applicable
Laws. Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. The Board may authorize one or
more Officers to grant such Awards and may limit such authority as the Board
determines from time to time.
(iii) Administration Errors. In the event an Award is
granted in a manner inconsistent with the provisions of this subsection (a),
such Award shall be presumptively valid as of its grant date to the extent
permitted by the Applicable Laws.
(b) Powers of the Administrator. Subject to Applicable Laws and
the provisions of the Plan (including any other powers given to the
Administrator hereunder), and except as otherwise provided by the Board, the
Administrator shall have the authority, in its discretion:
(i) to select the Employees, Directors and Consultants
to whom Awards may be granted from time to time hereunder;
(ii) to determine whether and to what extent Awards are
granted hereunder;
(iii) to determine the number of Shares or the amount of
other consideration to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreements for use under
the Plan;
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(v) to determine the terms and conditions of any Award
granted hereunder;
(vi) to amend the terms of any outstanding Award granted
under the Plan, provided that any amendment that would adversely affect the
Grantee's rights under an outstanding Award shall not be made without the
Grantee's written consent;
(vii) to construe and interpret the terms of the Plan
and Awards granted pursuant to the Plan, including without limitation, any
notice of Award or Award Agreement, granted pursuant to the Plan;
(viii) to establish additional terms, conditions, rules
or procedures to accommodate the rules or laws of applicable foreign
jurisdictions and to afford Grantees favorable treatment under such laws;
provided, however, that no Award shall be granted under any such additional
terms, conditions, rules or procedures with terms or conditions which are
inconsistent with the provisions of the Plan; and
(ix) to take such other action, not inconsistent with
the terms of the Plan, as the Administrator deems appropriate.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be conclusive and
binding on all persons.
5. Eligibility. Awards other than Incentive Stock Options may be granted
to Employees, Directors and Consultants. Incentive Stock Options may be granted
only to Employees of the Company, a Parent or a Subsidiary. An Employee,
Director or Consultant who has been granted an Award may, if otherwise eligible,
be granted additional Awards. Awards may be granted to such Employees, Directors
or Consultants who are residing in foreign jurisdictions as the Administrator
may determine from time to time.
6. Terms and Conditions of Awards.
(a) Type of Awards. The Administrator is authorized under the
Plan to award any type of arrangement to an Employee, Director or Consultant
that is not inconsistent with the provisions of the Plan and that by its terms
involves or might involve the issuance of (i) Shares, (ii) an Option, a SAR or
similar right with a fixed or variable price related to the Fair Market Value of
the Shares and with an exercise or conversion privilege related to the passage
of time, the occurrence of one or more events, or the satisfaction of
performance criteria or other conditions, or (iii) any other security with the
value derived from the value of the Shares. Such awards include, without
limitation, Options, SARs, sales or bonuses of Restricted Stock, Dividend
Equivalent Rights, Performance Units or Performance Shares, and an Award may
consist of one such security or benefit, or two (2) or more of them in any
combination or alternative.
(b) Designation of Award. Each Award shall be designated in the
Award Agreement. In the case of an Option, the Option shall be designated as
either an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the
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<PAGE> 8
extent that the aggregate Fair Market Value of Shares subject to Options
designated as Incentive Stock Options which become exercisable for the first
time by a Grantee during any calendar year (under all plans of the Company or
any Parent or Subsidiary) exceeds $100,000, such excess Options, to the extent
of the Shares covered thereby in excess of the foregoing limitation, shall be
treated as Non-Qualified Stock Options. For this purpose, Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares shall be determined as of the date the
Option with respect to such Shares is granted.
(c) Conditions of Award. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, or other consideration) upon settlement of the Award, payment
contingencies, and satisfaction of any performance criteria. The performance
criteria established by the Administrator may be based on any one of, or
combination of, increase in share price, earnings per share, total stockholder
return, return on equity, return on assets, return on investment, net operating
income, cash flow, revenue, economic value added, personal management
objectives, or other measure of performance selected by the Administrator.
Partial achievement of the specified criteria may result in a payment or vesting
corresponding to the degree of achievement as specified in the Award Agreement.
(d) Acquisitions and Other Transactions. The Administrator may
issue Awards under the Plan in settlement, assumption or substitution for,
outstanding awards or obligations to grant future awards in connection with the
Company or a Related Entity acquiring another entity, an interest in another
entity or an additional interest in a Related Entity whether by merger, stock
purchase, asset purchase or other form of transaction.
(e) Deferral of Award Payment. The Administrator may establish
one or more programs under the Plan to permit selected Grantees the opportunity
to elect to defer receipt of consideration upon exercise of an Award,
satisfaction of performance criteria, or other event that absent the election
would entitle the Grantee to payment or receipt of Shares or other consideration
under an Award. The Administrator may establish the election procedures, the
timing of such elections, the mechanisms for payments of, and accrual of
interest or other earnings, if any, on amounts, Shares or other consideration so
deferred, and such other terms, conditions, rules and procedures that the
Administrator deems advisable for the administration of any such deferral
program.
(f) Award Exchange Programs. The Administrator may establish one
or more programs under the Plan to permit selected Grantees to exchange an Award
under the Plan for one or more other types of Awards under the Plan on such
terms and conditions as determined by the Administrator from time to time.
(g) Separate Programs. The Administrator may establish one or
more separate programs under the Plan for the purpose of issuing particular
forms of Awards to one or more classes of Grantees on such terms and conditions
as determined by the Administrator from time to time.
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(h) Early Exercise. The Award Agreement may, but need not,
include a provision whereby the Grantee may elect at any time while an Employee,
Director or Consultant to exercise any part or all of the Award prior to full
vesting of the Award. Any unvested Shares received pursuant to such exercise may
be subject to a repurchase right in favor of the Company or a Related Entity or
to any other restriction the Administrator determines to be appropriate.
(i) Term of Award. The term of each Award shall be the term
stated in the Award Agreement, provided, however, that the term of an Incentive
Stock Option shall be no more than ten (10) years from the date of grant
thereof. However, in the case of an Incentive Stock Option granted to a Grantee
who, at the time the Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5)
years from the date of grant thereof or such shorter term as may be provided in
the Award Agreement.
(j) Transferability of Awards. Incentive Stock Options 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 Grantee, only by the Grantee; provided,
however, that the Grantee may designate a beneficiary of the Grantee's Incentive
Stock Option in the event of the Grantee's death on a beneficiary designation
form provided by the Administrator. Other Awards shall be transferable to the
extent provided in the Award Agreement.
(k) Time of Granting Awards. The date of grant of an Award shall
for all purposes be the date on which the Administrator makes the determination
to grant such Award, or such other date as is determined by the Administrator.
Notice of the grant determination shall be given to each Employee, Director or
Consultant to whom an Award is so granted within a reasonable time after the
date of such grant.
7. Award Exercise or Purchase Price, Consideration, Taxes and Reload
Options.
(a) Exercise or Purchase Price. The exercise or purchase price,
if any, for an Award shall be as follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of
the grant of such Incentive Stock Option owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be not less than one
hundred ten percent (110%) of the Fair Market Value per Share on the date of
grant; or
(B) granted to any Employee other than an
Employee described in the preceding paragraph, the per Share exercise price
shall be not less than one hundred percent (100%) of the Fair Market Value per
Share on the date of grant.
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<PAGE> 10
(ii) In the case of a Non-Qualified Stock Option, the
per Share exercise price shall be not less than one hundred percent (100%) of
the Fair Market Value per Share on the date of grant unless otherwise determined
by the Administrator.
(iii) In the case of other Awards, such price as is
determined by the Administrator.
(iv) Notwithstanding the foregoing provisions of this
Section 7(a), in the case of an Award issued pursuant to Section 6(d), above,
the exercise or purchase price for the Award shall be determined in accordance
with the principles of Section 424(a) of the Code.
(b) Consideration. Subject to Applicable Laws, the consideration
to be paid for the Shares to be issued upon exercise or purchase of an Award
including the method of payment, shall be determined by the Administrator (and,
in the case of an Incentive Stock Option, shall be determined at the time of
grant). In addition to any other types of consideration the Administrator may
determine, the Administrator is authorized to accept as consideration for Shares
issued under the Plan the following, provided that the portion of the
consideration equal to the par value of the Shares must be paid in cash or other
legal consideration permitted by the Delaware General Corporation Law:
(i) cash;
(ii) check;
(iii) delivery of Grantee's promissory note with such
recourse, interest, security, and redemption provisions as the Administrator
determines as appropriate;
(iv) surrender of Shares or delivery of a properly
executed form of attestation of ownership of Shares as the Administrator may
require (including withholding of Shares otherwise deliverable upon exercise of
the Award) which have a Fair Market Value on the date of surrender or
attestation equal to the aggregate exercise price of the Shares as to which said
Award shall be exercised (but only to the extent that such exercise of the Award
would not result in an accounting compensation charge with respect to the Shares
used to pay the exercise price unless otherwise determined by the
Administrator);
(v) with respect to Options, payment through a
broker-dealer sale and remittance procedure pursuant to which the Grantee (A)
shall provide written instructions to a Company designated brokerage firm to
effect the immediate sale of some or all of the purchased Shares and remit to
the Company, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the purchased
Shares and (B) shall provide written directives to the Company to deliver the
certificates for the purchased Shares directly to such brokerage firm in order
to complete the sale transaction; or
(vi) any combination of the foregoing methods of
payment.
(c) Taxes. No Shares shall be delivered under the Plan to any
Grantee or other person until such Grantee or other person has made arrangements
acceptable to the
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Administrator for the satisfaction of any foreign, federal, state, or local
income and employment tax withholding obligations, including, without
limitation, obligations incident to the receipt of Shares or the disqualifying
disposition of Shares received on exercise of an Incentive Stock Option. Upon
exercise of an Award, the Company shall withhold or collect from Grantee an
amount sufficient to satisfy such tax obligations.
(d) Reload Options. In the event the exercise price or tax
withholding of an Option is satisfied by the Company or the Grantee's employer
withholding Shares otherwise deliverable to the Grantee, the Administrator may
issue the Grantee an additional Option, with terms identical to the Award
Agreement under which the Option was exercised, but at an exercise price as
determined by the Administrator in accordance with the Plan.
8. Exercise of Award.
(a) Procedure for Exercise; Rights as a Stockholder.
(i) Any Award granted hereunder shall be exercisable at
such times and under such conditions as determined by the Administrator under
the terms of the Plan and specified in the Award Agreement.
(ii) An Award shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance with
the terms of the Award by the person entitled to exercise the Award and full
payment for the Shares with respect to which the Award is exercised, including,
to the extent selected, use of the broker-dealer sale and remittance procedure
to pay the purchase price as provided in Section 7(b)(v). Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to Shares subject to an Award,
notwithstanding the exercise of an Option or other Award. The Company shall
issue (or cause to be issued) such stock certificate promptly upon exercise of
the Award. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the stock certificate is issued, except as
provided in the Award Agreement or Section 10, below.
(b) Exercise of Award Following Termination of Continuous
Service.
(i) An Award may not be exercised after the termination
date of such Award set forth in the Award Agreement and may be exercised
following the termination of a Grantee's Continuous Service only to the extent
provided in the Award Agreement.
(ii) Where the Award Agreement permits a Grantee to
exercise an Award following the termination of the Grantee's Continuous Service
for a specified period, the Award shall terminate to the extent not exercised on
the last day of the specified period or the last day of the original term of the
Award, whichever occurs first.
(iii) Any Award designated as an Incentive Stock Option
to the extent not exercised within the time permitted by law for the exercise of
Incentive Stock Options following the termination of a Grantee's Continuous
Service shall convert automatically to a
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Non-Qualified Stock Option and thereafter shall be exercisable as such to the
extent exercisable by its terms for the period specified in the Award Agreement.
(c) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Award previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Grantee at the time that such offer is made.
9. Conditions Upon Issuance of Shares.
(a) Shares shall not be issued pursuant to the exercise of an
Award unless the exercise of such Award and the issuance and delivery of such
Shares pursuant thereto shall comply with all Applicable Laws, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
(b) As a condition to the exercise of an Award, the Company may
require the person exercising such Award to represent and warrant at the time of
any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
Applicable Laws.
10. Adjustments Upon Changes in Capitalization. Subject to any required
action by the shareholders of the Company, the number of Shares covered by each
outstanding Award, and the number of Shares which have been authorized for
issuance under the Plan but as to which no Awards have yet been granted or which
have been returned to the Plan, the exercise or purchase price of each such
outstanding Award, as well as any other terms that the Administrator determines
require adjustment shall be proportionately adjusted for (i) any increase or
decrease in the number of issued Shares resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Shares, (ii)
any other increase or decrease in the number of issued Shares effected without
receipt of consideration by the Company, or (iii) as the Administrator may
determine in its discretion, any other transaction with respect to Common Stock
to which Section 424(a) of the Code applies; 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 Administrator and its determination shall be final, binding and conclusive.
Except as the Administrator determines, 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 hereof shall be made with respect to,
the number or price of Shares subject to an Award.
11. Corporate Transactions/Changes in Control/Related Entity
Dispositions. Except as may be provided in an Award Agreement:
(a) Effective upon the consummation of a Corporate Transaction,
all outstanding Awards under the Plan shall terminate. However, all such Awards
shall not terminate if they are, in connection with the Corporate Transaction,
assumed by the successor corporation or Parent thereof.
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(b) Effective upon the consummation of a Related Entity
Disposition, for purposes of the Plan and all Awards, the Continuous Service of
each Grantee who is at the time engaged primarily in service to the Related
Entity involved in such Related Entity Disposition shall terminate and each
Award of such Grantee which is at the time outstanding under the Plan shall be
exercisable in accordance with the terms of the Award Agreement evidencing such
Award. However, such Continuous Service shall be not to deemed to terminate if
such Award is, in connection with the Related Entity Disposition, assumed by the
successor entity or its parent.
12. Effective Date and Term of Plan. The Plan shall become effective
upon the earlier to occur of its adoption by the Board or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated. Subject to Section 16, below, and Applicable
Laws, Awards may be granted under the Plan upon its becoming effective.
13. Amendment, Suspension or Termination of the Plan.
(a) The Board may at any time amend, suspend or terminate the
Plan. To the extent necessary to comply with Applicable Laws, the Company shall
obtain stockholder approval of any Plan amendment in such a manner and to such a
degree as required.
(b) No Award may be granted during any suspension of the Plan or
after termination of the Plan.
(c) Any amendment, suspension or termination of the Plan
(including termination of the Plan under Section 12, above) shall not affect
Awards already granted, and such Awards shall remain in full force and effect as
if the Plan had not been amended, suspended or terminated, unless mutually
agreed otherwise between the Grantee and the Administrator, which agreement must
be in writing and signed by the Grantee and the Company.
14. Reservation of Shares.
(a) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
(b) 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.
15. No Effect on Terms of Employment/Consulting Relationship. The Plan
shall not confer upon any Grantee any right with respect to the Grantee's
Continuous Service, nor shall it interfere in any way with his or her right or
the Company's right to terminate the Grantee's Continuous Service at any time,
with or without cause.
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16. No Effect on Retirement and Other Benefit Plans. Except as
specifically provided in a retirement or other benefit plan of the Company or a
Related Entity, Awards shall not be deemed compensation for purposes of
computing benefits or contributions under any retirement plan of the Company or
a Related Entity, and shall not affect any benefits under any other benefit plan
of any kind or any benefit plan subsequently instituted under which the
availability or amount of benefits is related to level of compensation. The Plan
is not a "Retirement-Plan" or "Welfare Plan" under the Employee Retirement
Income Security Act of 1974, as amended.
17. Stockholder Approval. The grant of Incentive Stock Options under the
Plan shall be subject to approval by the stockholders of the Company within
twelve (12) months before or after the date the Plan is adopted excluding
Incentive Stock Options issued in substitution for outstanding Incentive Stock
Options pursuant to Section 424(a) of the Code. Such stockholder approval shall
be obtained in the degree and manner required under Applicable Laws. The
Administrator may grant Incentive Stock Options under the Plan prior to approval
by the stockholders, but until such approval is obtained, no such Incentive
Stock Option shall be exercisable. In the event that stockholder approval is not
obtained within the twelve (12) month period provided above, all Incentive Stock
Options previously granted under the Plan shall be exercisable as Non-Qualified
Stock Options.
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EXHIBIT 10.3 PART 2
PLX TECHNOLOGY, INC.
1999 NON-EMPLOYEE DIRECTOR OPTION PROGRAM
ARTICLE I
ESTABLISHMENT AND PURPOSE OF THE PROGRAM
1.01 ESTABLISHMENT OF PROGRAM
The PLX Technology, Inc. 1999 Non-Employee Director Option Program (the
"Program") is adopted pursuant to the PLX Technology, Inc. 1999 Stock Incentive
Plan (the "Plan") and, in addition to the terms and conditions set forth below,
is subject to the provisions of the Plan.
1.02 PURPOSE OF PROGRAM
The purpose of the Program is to enhance the ability of the Company to attract
and retain directors who are not Employees ("Non-Employee Directors") through a
program of automatic Option grants.
1.03 EFFECTIVE DATE OF THE PROGRAM
The Program is effective as of the Registration Date.
ARTICLE II
DEFINITIONS
Capitalized terms in this Program, unless otherwise defined herein, have the
meaning given to them in the Plan.
ARTICLE III
OPTION TERMS
3.01 DATE OF GRANT AND NUMBER OF SHARES
A Non-Qualified Stock Option to purchase 15,000 shares of Common Stock shall be
granted ("Initial Grant") to each Non-Employee Director elected or appointed to
the Board after the Registration Date upon the date each such Non-Employee
Director first becomes a Non-Employee Director. In addition, immediately
following each annual meeting of the Company's stockholders, commencing with the
annual meeting of the
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Company's stockholders in 2000, each Non-Employee Director who continues as a
Non-Employee Director following such annual meeting shall be granted a
Non-Qualified Stock Option to purchase 5,000 shares of Common Stock ("Subsequent
Grant"); provided that no Subsequent Grant shall be made to any Non-Employee
Director who has not served as a director of the Company, as of the time of such
annual meeting, for at least eleven (11) months. Each such Subsequent Grant
shall be made on the date of the annual stockholders' meeting in question.
3.02 VESTING
Each Option under the Program will be fully vested and exercisable as to all
Shares subject to the Option on the date of grant.
3.03 EXERCISE PRICE
The exercise price per share of Common Stock of each Initial Grant and
Subsequent Grant shall be one hundred percent (100%) of the Fair Market Value
per Share on the date of grant.
3.04 OTHER TERMS
The Administrator shall determine the remaining terms and conditions of the
Options awarded under the Program.
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<PAGE> 1
EXHIBIT 10.4
--------------------------
LEASE AGREEMENT
by and between
AETNA LIFE INSURANCE COMPANY,
a Connecticut corporation
as Landlord
and
PLX TECHNOLOGY, INC.,
a California corporation
as Tenant
dated December __, 1995
--------------------------
<PAGE> 2
LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into by and between Landlord
and Tenant on the Lease Date. The defined terms used in this Lease which are
defined in the Basic Lease Information attached to this Lease Agreement ("Basic
Lease Information") shall have the meaning and definition given them in the
Basic Lease Information. The Basic Lease Information, the exhibits, and this
Lease Agreement are and shall be construed as a single instrument and are
referred to herein as the "Lease".
1. DEMISE: In consideration for the rents and all other charges and
payments payable by Tenant, and for the agreements, terms and conditions to be
performed by Tenant in this Lease, LANDLORD DOES HEREBY LEASE TO TENANT, AND
TENANT DOES HEREBY HIRE AND TAKE FROM LANDLORD, the Premises described below
(the "Premises"), upon the agreements, terms and conditions of this Lease for
the Term hereinafter stated.
2. PREMISES: The Premises demised by this Lease is the building (the
"Building") specified in the Basic Lease Information. The Building contains the
square footage specified in the Basic Lease Information. The location and
dimensions of the Premises are depicted on Exhibit A, which is attached hereto
and incorporated herein by this reference. Tenant shall have the non-exclusive
right to use the parking and other common areas on the real property on which
the Building is situated (the "Property"). No easement for light or air is
incorporated in the Premises.
The Premises demised by this Lease shall also include the Tenant
Improvements (as that term is defined in Exhibit B, attached hereto and
incorporated herein by this reference) to be constructed by Landlord within the
interior of the Premises. Landlord shall construct the Tenant Improvements on
the terms and conditions set forth in Exhibit B. Landlord and Tenant agree to
and shall be bound by the terms and conditions of Exhibit B.
3. TERM: The term of this Lease (the "Term") shall be for the period of
months specified in the Basic Lease Information, commencing on the earliest to
occur of the following dates (the "Commencement Date"):
(a) The date the Tenant Improvements are approved by the
appropriate governmental agency as being in accordance with its building code
and the building permit issued for such improvements, as evidenced by the
issuance of a final building inspection approval; provided, however, that the
date determined pursuant to this Paragraph 3(a) shall not be earlier than March
1, 1995; or
(b) The date Landlord's architect and general contractor have
both certified in writing to Tenant that the Tenant Improvements have been
substantially completed in accordance with the plans and specifications
therefor; provided, however, that the date determined pursuant to this Paragraph
3(b) shall not be earlier than March 1, 1995; or
(c) The date Tenant commences occupancy of the Premises;
provided, however, that Tenant shall not be deemed to have commenced occupancy
of the Premises if
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<PAGE> 3
Tenant enters upon the Premises solely for the purpose of installing its
telephone equipment and preparing the Premises for occupancy in accordance with
Section 7(c) below; when the Commencement Date has been determined pursuant to
the foregoing, Landlord and Tenant shall promptly execute a Commencement Date
Memorandum in the form attached hereto as Exhibit C.
4. RENT:
(a) Base Rent. Tenant shall pay to Landlord, in advance on the
first day of each month, without further notice or demand and without offset or
deduction, the monthly installments of rent specified in the Basic Lease
Information (the "Base Rent").
Upon execution of this Lease, Tenant shall pay to Landlord the
Prepaid Rent specified in the Basic Lease Information to be applied toward Base
Rent for the month of the Term specified in the Basic Lease Information.
(b) Additional Rent. This Lease is intended to be a net Lease;
and subject to Paragraph 12(c) below, the Rent owing hereunder is to be paid by
Tenant absolutely net of all costs and expenses relating to Landlord's ownership
of the Property and the Building. The provisions of this Paragraph 4(b) for the
payment of Expenses (as hereinafter defined) are intended to pass on to Tenant
all such costs and expenses. In addition to the Base Rent, Tenant shall pay to
Landlord, in accordance with this Paragraph 4, all costs and expenses paid or
incurred by Landlord in connection with the management, operation, maintenance
and repair of the Property and the Building (the "Expenses"), including, without
limitation, all the following items related to the Premises, the Building, the
Property, and/or the Outside Areas (as defined in Paragraph 4(b)(3)) (the
"Additional Rent"):
(1) Taxes and Assessments. All real estate taxes and
assessments shall include any form of assessment, license, fee, tax, levy,
penalty (if a result of Tenant's delinquency), or tax (other than net income,
estate, succession, inheritance, transfer or franchise taxes), imposed by any
authority having the direct or indirect power to tax, or by any city, county,
state or federal government or any improvement or other district or division
thereof, whether such tax is (i) determined by the area of the Premises, the
Building or the Property, or any part thereof, or the Rent and other sums
payable hereunder by Tenant or by other tenants, including, but not limited to,
any gross income or excise tax levied by any of the foregoing authorities with
respect to receipt of Rent or other sums due under this Lease; (ii) upon any
legal or equitable interest of Landlord in the Premises, the Building or the
Property, or any part thereof; (iii) upon this transaction or any document to
which Tenant is a party creating or transferring any interest in the Premises,
the Building or the Property; (iv) levied or assessed in lieu of, in
substitution for, or in addition to, existing or additional taxes against the
Premises, the Building or the Property, whether or not now customary or within
the contemplation of the parties; or (v) surcharged against the parking area.
Tenant and Landlord acknowledge that Proposition 13 was adopted by the voters of
the State of California in the June, 1978 election and that assessments, taxes,
fees, levies and charges may be imposed by governmental agencies for such
purposes as fire protection, street, sidewalk, road, utility construction and
maintenance, refuse removal and for other governmental services which may
formerly have been provided without charge to property owners or occupants. It
is the intention of the parties that all new and
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increased assessments, taxes, fees, levies and charges due to Proposition 13 or
any other cause are to be included within the definition of real property taxes
for purposes of this Lease.
(2) Insurance. All insurance premiums, including premiums
for "all risk" fire and extended coverage (including earthquake endorsements)
insurance for the Premises and the Building, public liability insurance, other
insurance as Landlord deems necessary, and any deductibles paid under policies
of any such insurance.
(3) Outside Areas Expenses. All costs to maintain,
repair, replace, supervise, insure (including provision of public liability
insurance) and administer the areas outside of the Premises and the Building
("Outside Areas"), including parking areas, landscaping (including maintenance
contracts), sprinkler systems, sidewalks, driveways, curbs, lighting systems,
and utilities for Outside Areas.
(4) Parking Charges. Any parking charges or other costs
levied, assessed or imposed by, or at the direction of, or resulting from
statutes or regulations, or interpretations thereof, promulgated by any
governmental authority or insurer in connection with the use or occupancy of the
Premises, the Building, the Outside Areas and/or the Property.
(5) Maintenance and Repair of Premises and Building.
Except for costs which are the responsibility of Landlord pursuant to Section
12(c) below, all costs to maintain, repair, and replace the Premises and the
Building, including without limitation, the roof coverings of the Premises and
the Building, the heating, ventilation, and air conditioning ("HVAC") systems
serving the Premises and the Building (including the cost of maintenance
contracts), and all utility and plumbing systems, fixtures and equipment serving
the Premises and the Building but which are located in the Outside Areas.
(6) Management and Administration. All costs for
management and administration of the Premises, the Building and the Property,
including a property management fee, accounting,-auditing, billing, postage,
employee benefits, payroll taxes, etc.
(c) Payment of Additional Rent.
(1) Upon commencement of this Lease, Landlord shall
submit to Tenant an estimate of monthly Additional Rent for the period between
the Commencement Date and the following December 31 and Tenant shall pay such
estimated Additional Rent on a monthly basis concurrently with the payment of
the Base Rent. Tenant shall continue to make said monthly payments until
notified by Landlord of a change therein. By March 1 of each calendar year,
Landlord shall endeavor to provide to Tenant a statement showing the actual
Additional Rent due to Landlord for the prior calendar year, prorated from the
Commencement Date during the first year. If the total of the monthly payments of
Additional Rent that Tenant has made for the prior calendar year is less than
the actual Additional Rent chargeable to Tenant for such prior calendar year,
then Tenant shall pay the difference in a lump sum within ten (10) days after
receipt of such statement from Landlord. Any overpayment by Tenant of Additional
Rent for the prior calendar year shall be credited towards the Additional Rent
next due.
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(2) The actual Additional Rent for the prior calendar year
shall be used for purposes of calculating Tenant's monthly payment of estimated
Additional Rent for the current year, subject to adjustment as provided above,
except that in any year in which resurfacing of the parking area or material
roof repairs are planned, Landlord may include the estimated cost of such work
in the estimated monthly Additional Rent. Landlord shall make the final
determination of Additional Rent for the year in which this Lease terminates as
soon as possible after termination of such year. Tenant shall remain liable for
payment of any amount due to Landlord in excess of the estimated Additional Rent
previously paid by Tenant, and, conversely, Landlord shall promptly return to
Tenant any overpayment, even though the Term has expired and Tenant has vacated
the Premises. Failure of Landlord to submit statements as called for herein
shall not be deemed a waiver of Tenant's obligation to pay Additional Rent as
herein provided.
(d) General Payment Terms. The Base Rent, Additional Rent,
amortization payments on the Tenant Improvement Loan (as defined in Exhibit B),
if any, and all other sums payable by Tenant to Landlord hereunder are referred
to as the "Rent". All Rent shall be paid without deduction, offset or abatement
in lawful money of the United States of America. Checks are to be made payable
to Koll Management Services, Inc. and shall be mailed to: Koll Management
Services, Inc., Agents for Sunnyvale Pension, Dept. No. 66169, El Monte,
California 91735, or to such other person or place as Landlord may, from time to
time, designate to Tenant in writing. Rent for any partial month during the Term
shall be prorated for the portion thereof falling due within the Term.
5. LATE CHARGE: Notwithstanding any other provision of this Lease,
Tenant hereby acknowledges that late payment to Landlord of Rent, or other
amounts due hereunder will cause Landlord to incur costs not contemplated by
this Lease, the exact amount of which will be extremely difficult to ascertain.
If any Rent or other sums due from Tenant are not received by Landlord or by
Landlord's designated agent within ten (10) days after their due date, then
Tenant shall pay to Landlord a late charge equal to ten percent (10%) of such
overdue amount, plus any attorneys' fees incurred by Landlord by reason of
Tenant's failure to pay Rent and/or other charges when due hereunder. Landlord
and Tenant hereby agree that such late charges represent a fair and reasonable
estimate of the cost that Landlord will incur by reason of Tenant's late
payment. Landlord's acceptance of such late charges shall not constitute a
waiver of Tenant's default with respect to such overdue amount or estop Landlord
from exercising any of the other rights and remedies granted under this Lease.
Initials: Landlord ________ Tenant __________
6. SECURITY DEPOSIT: Concurrently with Tenant's execution of the Lease,
Tenant shall deposit with Landlord the Security Deposit specified in the Basic
Lease Information as security for the full and faithful performance of each and
every term, covenant and condition of this Lease. Landlord may use, apply or
retain the whole or any part of the Security Deposit as may be reasonably
necessary (a) to remedy Tenant's default in the payment of any Rent, (b) to
repair damage to the Premises caused by Tenant, (c) to clean the Premises upon
termination of this Lease, (d) to reimburse Landlord for the payment of any
amount which Landlord may reasonably spend or be required to spend by reason of
Tenant's default, or (e) to compensate
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Landlord for any other loss or damage which Landlord may suffer by reason of
Tenant's default. Should Tenant faithfully and fully comply with all of the
terms, covenants and conditions of this Lease, within thirty (30) days following
the expiration of the Term, the Security Deposit or any balance thereof shall be
returned to Tenant or, at the option of Landlord, to the last assignee of
Tenant's interest in this Lease. Landlord shall not be required to keep the
Security Deposit separate from its general funds and Tenant shall not be
entitled to any interest on such deposit. If Landlord so uses or applies all or
any portion of said deposit, within five (5) days after written demand therefor
Tenant shall deposit cash with Landlord in an amount sufficient to restore the
Security Deposit to the full extent of the above amount, and Tenant's failure to
do so shall be a default under this Lease. In the event Landlord transfers its
interest in this Lease, Landlord shall transfer the then remaining amount of the
Security Deposit to Landlord's successor in interest, and thereafter Landlord
shall have no further liability to Tenant with respect to such Security Deposit.
7. POSSESSION:
(a) Tenant's Right of Possession. Subject to Paragraph 7(b),
Tenant shall be entitled to possession of the Premises upon commencement of the
Term.
(b) Delay in Delivering Possession. If for any reason whatsoever,
Landlord cannot deliver possession of the Premises to Tenant at the commencement
of the Term, this Lease shall not be void or voidable, nor shall Landlord, or
Landlord's agents, be liable to Tenant for any loss or damage resulting
therefrom. Tenant shall not be liable for Rent until Landlord delivers
possession of the Premises to Tenant. The expiration date of the Term shall be
extended by the same number of days that Tenant's possession of the Premises was
delayed.
(c) Early Access. Notwithstanding anything to the contrary
contained in Section 7(a) above, Tenant shall have the right to enter upon the
Premises at such times as shall be acceptable to Landlord during the two (2)
week period preceding the Commencement Date solely for the purpose of installing
telephone equipment and preparing the Premises for Tenant's occupancy, provided,
however, that Tenant shall not be permitted to conduct business in the Premises
during such period, and, provided further, that Landlord shall not be liable to
Tenant or its employees or agents for any loss or damage to property, or injury
to person, arising from or related to the construction of the Tenant
Improvements. Tenant shall take all reasonable precautions to protect against
such loss, damage or injury during the construction of the Tenant Improvements,
and shall not interfere with such construction. Tenant shall cooperate with all
reasonable directives of Landlord in order to minimize any disruption or delay
in completion of the Tenant Improvements. Tenant's entry upon the Premises
pursuant to this Section 7(c) shall be subject to all of the terms and
conditions of this Lease, excepting only the covenant to pay Rent.
8. USE OF PREMISES:
(a) Permitted Uses. The Premises shall be used for the Permitted
Uses specified in the Basic Lease Information and for no other use. The Premises
shall not be used to create any nuisance or trespass, for any illegal purpose,
for any purpose not permitted by
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applicable laws and regulations, or for any purpose that would vitiate the
insurance or increase the premiums for insurance on the Premises or the
Building. Tenant agrees not to overload the floor(s) of the Premises.
(b) Compliance with Governmental Regulations. Tenant shall, at
Tenant's expense, faithfully observe and comply with all municipal, state and
federal statutes, rules, regulations, ordinances, requirements, and orders, now
in force or which may hereafter be in force pertaining to the Premises or
Tenant's use thereof, including without limitation, any statutes, rules,
regulations, ordinances, requirements, or orders requiring installation of fire
sprinkler systems, seismic reinforcement and related alterations, and removal of
asbestos, whether substantial in cost or otherwise, and all recorded covenants,
conditions and restrictions affecting the Property ("Private Restrictions") now
in force or which may hereafter be in force; provided, however, that Tenant
shall not be required to make structural changes to the Premises not related to
Tenant's specific use of the Premises unless the requirement for such changes is
imposed as a result of any improvements or additions made or proposed to be made
at Tenant's request; and, provided further, that, subject to Exhibit B hereto,
Tenant shall not be required to make any changes to the Premises necessitated by
the Americans with Disabilities Act not related to Tenant's specific use of the
Premises unless the requirement for such changes is imposed as a result of any
improvements or additions made or proposed to be made at Tenant's request. The
judgment of any court of competent jurisdiction, or the admission of Tenant in
any action or proceeding against Tenant, whether Landlord be a party thereto or
not, that Tenant has violated any such rule, regulation, ordinance, statute or
Private Restrictions, shall be conclusive of that fact as between Landlord and
Tenant.
9. ACCEPTANCE OF PREMISES: By entry hereunder, Tenant accepts the
Premises as suitable for Tenant's intended use and as being in good and sanitary
operating order, condition and repair, AS IS, and without representation or
warranty by Landlord as to the condition, use or occupancy which may be made
thereof. Any exceptions to the foregoing must be by written agreement executed
by Landlord and Tenant. Notwithstanding anything in this Paragraph 9 to the
contrary, Landlord shall cause the roof on the Premises to be in good condition
and the electrical, plumbing, lighting and HVAC systems to be in good working
order on the Commencement Date.
10. SURRENDER: Tenant agrees that on the last day of the Term, or on the
sooner termination of this Lease, Tenant shall surrender the Premises to
Landlord (a) in good condition and repair (damage by Acts of God, fire, and
normal wear and tear excepted), but with all interior walls painted or cleaned
so they appear painted, any carpets cleaned, and with all floors cleaned and
waxed, together with all alterations, additions and improvements which may have
been made in or on the Premises; except that Tenant shall remove trade fixtures
put in at the expense of Tenant and any alterations, additions and improvements
as to which Landlord has, prior to the date of surrender, consented to or
requested removal; and (b) otherwise in accordance with Paragraph 32(f). Tenant
shall repair all damage caused by such removal and otherwise restore the
Premises in accordance with the preceding sentence at Tenant's sole cost and
expense. On or before the expiration or sooner termination of this Lease, Tenant
shall remove all of Tenant's personal property from the Premises. All property
of Tenant not so removed, unless such non-removal is consented to by Landlord,
shall be deemed abandoned by Tenant, provided
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that in such event Tenant shall remain liable to Landlord for all costs incurred
in storing and disposing of such abandoned property of Tenant. If the Premises
are not surrendered at the end of the Term or sooner termination of this Lease,
and in accordance with the provisions of this Paragraph 10 and of Paragraph
32(f), Tenant shall indemnify, defend and hold Landlord harmless from and
against any and all loss or liability resulting from delay by Tenant in so
surrendering the Premises including, without limitation, any loss or liability
resulting from any claim against Landlord made by any succeeding tenant founded
on or resulting from such delay and losses to Landlord due to lost opportunities
to lease any portion of the Premises to succeeding tenants, together with, in
each case, actual attorneys' fees and costs.
11. ALTERATIONS AND ADDITIONS:
(a) Tenant shall not make, or permit to be made, any alteration
or addition to the Premises, or any part thereof, without the prior written
consent of Landlord, such consent not to be unreasonably withheld.
(b) Any alteration or addition to the Premises shall be at
Tenant's sole cost and expense, in compliance with all applicable laws and
requirements requested by Landlord, and in accordance with plans and
specifications approved in writing by Landlord.
(c) In the event Landlord consents to a proposed alteration or
addition, such consent shall include Landlord's advice whether or not such
proposed alteration or addition shall be required to be removed at the
expiration or termination of this Lease. If Landlord fails so to advise Tenant
regarding whether or not a proposed alteration or addition may be removed at the
expiration or termination of this Lease, then Tenant shall be required to
surrender the alteration or addition to Landlord with the Premises, without
compensation to Tenant, at the expiration or termination of this Lease. All
additions, alterations or improvements, including, but not limited to, heating,
lighting, electrical, air conditioning, fixed partitioning, drapery, wall
covering and paneling, built-in cabinet work and carpeting installations made by
Tenant, together with all property that has become an integral part of the
Premises, shall at once be and become the property of Landlord, and shall not be
deemed trade fixtures.
(d) Tenant agrees not to proceed to make such alterations or
additions, notwithstanding consent from Landlord to do so, until five (5) days
after Tenant's receipt of such consent, in order that Landlord may post
appropriate notices to avoid any liability to contractors or material suppliers
for payment for Tenant's improvements. Tenant will at all times permit such
notices to be posted and to remain posted until the completion of work.
12. MAINTENANCE OF PREMISES:
(a) Maintenance by Tenant. Throughout the Term, Tenant shall, at
its sole expense, (1) keep and maintain in good order and condition, repair, and
replace the Premises, and every part thereof, including glass, windows, window
frames, skylights, interior and exterior doors and door frames, and the interior
of the Premises, (excepting only those portions of the Premises to be maintained
by Landlord, as provided in Paragraph 12(c) below), (2) keep and maintain in
good order and condition, repair, and replace all utility and plumbing systems,
fixtures and equipment, including without limitation, electricity, gas, water,
and sewer, located in
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or on the Premises, and furnish all expendables, including light bulbs, paper
goods and soaps, used in the Premises, (3) repair all damage to the Premises or
the Outside Areas caused by the negligence or willful misconduct of Tenant or
its agents, employees, contractors or invitees. Tenant shall not do anything to
cause any damage, deterioration or unsightliness to the Premises and the Outside
Areas.
(b) Landlord's Right to Maintain and Repair at Tenant's Expense.
Notwithstanding the foregoing, Landlord shall have the right, but not the
obligation, at Tenant's expense, to enter the Premises and perform Tenant's
maintenance, repair and replacement work. Within ten (10) days after invoice
therefor from Landlord, Tenant shall pay all costs and expenses incurred by
Landlord in connection with such maintenance, repair and replacement work.
(c) Maintenance by Landlord. Subject to the provisions of
Paragraphs 12(a), 22 and 23, and further subject to Tenant's obligation under
Paragraph 4 to reimburse Landlord, in the form of Additional Rent, for the cost
and expense of the following items, Landlord agrees to repair and maintain the
following items: the roof coverings (provided that Tenant installs no additional
air conditioning or other equipment on the roof that damages the roof
coverings); the HVAC systems serving the Premises and the Building; the utility
and plumbing systems, fixtures, and equipment located outside the Premises; and
the parking areas, pavement, landscaping, sprinkler systems, sidewalks,
driveways, curbs, and lighting systems in the Outside Areas. Subject to the
provisions of Paragraphs 12(a), 22 and 23, Landlord, at its own cost and
expense, agrees to repair and maintain the following items: the structural
portions of the roof, provided that Tenant installs no additional air
conditioning or other equipment on the roof that damages structural portions of
the roof (and specifically excluding the roof coverings), the foundation, the
footings, the floor slab, the load bearing walls, and the exterior walls
(excluding any glass therein) of the Building. Landlord shall not be required to
repair or maintain conditions created due to any act, negligence or omission of
Tenant or its agents, contractors, employees or invitees. Landlord's obligation
hereunder to repair and maintain is subject to the condition precedent that
Landlord shall have received written notice of the need for such repairs and
maintenance. Tenant shall promptly report in writing to Landlord any defective
condition known to it which Landlord is required to repair, and failure to so
report such defects shall make Tenant responsible to Landlord for any liability
incurred by Landlord by reason of such condition.
(d) Tenant's Waiver of Rights. Tenant hereby expressly waives all
rights to make repairs at the expense of Landlord or to terminate this Lease, as
provided for in California Civil Code Sections 1941 and 19,42, and 1932(l),
respectively, and any similar or successor statute or law in effect or any
amendment thereof during the Term.
13. LANDLORD'S INSURANCE: Landlord shall purchase and keep in force
fire, extended coverage and "all risk" insurance covering the Premises and the
Building. Tenant shall, at its sole cost and expense, comply with any and all
reasonable requirements pertaining to the Premises and the Building of any
insurer necessary for the maintenance of reasonable fire and public liability
insurance, covering the Premises and the Building and appurtenances. Landlord,
at Tenant's cost, may maintain "Loss of Rents" insurance, insuring that the Rent
will
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be paid in a timely manner to Landlord for a period of at least twelve (12)
months if the Premises or the Building are destroyed or rendered unusable or
inaccessible by any cause insured against under this Lease.
14. TENANT'S INSURANCE:
(a) Public Liability Insurance. Tenant shall, at Tenant's
expense, secure and keep in force a "broad form" public liability insurance and
property damage policy covering the Premises, insuring Tenant, and naming
Landlord and its lenders as additional insureds, against any liability arising
out of the ownership, use, occupancy or maintenance of the Premises. The minimum
limit of coverage of such policy shall be in the amount of not less than Three
Million Dollars ($3,000,000.00) for injury or death of one person in any one
accident or occurrence and in the amount of not less than Three Million Dollars
($3,000,000.00) for injury or death of more than one person in any one accident
or occurrence, shall include an extended liability endorsement providing
contractual liability coverage (which shall include coverage for Tenant's
indemnification obligations in this Lease), and shall contain a severability of
interest clause or a cross liability endorsement. Such insurance shall further
insure Landlord and Tenant against liability for property damage of at least
Three Million Dollars ($3,000,000.00). The limit of any insurance shall not
limit the liability of Tenant hereunder. No policy shall be cancelable or
subject to reduction of coverage, and loss payable clauses shall be subject to
Landlord's approval. Such policies of insurance shall be issued as primary
policies and not contributing with or in excess of coverage that Landlord may
carry, by an insurance company authorized to do business in the State of
California for the issuance of such type of insurance coverage and rated A:XIII
or better in Best's Key Rating Guide. A copy of said policy or a certificate
evidencing to Landlord's reasonable satisfaction that such insurance is in
effect shall be delivered to Landlord upon commencement of the Term, and
thereafter whenever Landlord shall reasonably request.
(b) Personal Property Insurance. Tenant shall maintain in full
force and effect on all of its fixtures and equipment on the Premises, a policy
or policies of fire and extended coverage insurance with standard coverage
endorsement to the extent of the full replacement cost thereof. During the term
of this Lease the proceeds from any such policy or policies of insurance shall
be used for the repair or replacement of the fixtures and equipment so insured.
Landlord shall have no interest in the insurance upon Tenant's equipment and
fixtures and will sign all documents reasonably necessary in connection with the
settlement of any claim or loss by Tenant. Landlord will not carry insurance on
Tenant's possessions. Tenant shall furnish Landlord with a certificate
evidencing to Landlord's reasonable satisfaction that such insurance is in
effect, and whenever required, shall satisfy Landlord that such policy is in
full force and effect.
15. INDEMNIFICATION:
(a) Of Landlord. Tenant shall indemnify and hold harmless
Landlord and agents, employees, partners, shareholders, directors, invitees, and
independent contractors (collectively "Agents") of Landlord against and from any
and all claims, liabilities, judgments, costs, demands, causes of action and
expenses (including, without limitation, reasonable
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attorneys' fees) arising from (1) Tenant's use of the Premises or from any
activity done, permitted or suffered by Tenant in or about the Premises, the
Building or the Property, and (2) any act, neglect, fault, willful misconduct or
omission of Tenant, or Tenant's Agents or from any breach or default in the
terms of this Lease by Tenant, and (3) any action or proceeding brought on
account of any matter in items (1) or (2). If any action or proceeding is
brought against Landlord by reason of any such claim, upon notice from Landlord,
Tenant shall defend the same at Tenant's expense by counsel reasonably
satisfactory to Landlord. As a material part of the consideration to Landlord,
Tenant hereby assumes all risk of damage to property or injury to persons in or
about the Premises from any cause whatsoever (except that which is caused by the
sole active negligence or willful misconduct by Landlord or its Agents or by the
failure of Landlord to observe any of the terms and conditions of this Lease, if
such failure has persisted for an unreasonable period of time after written
notice of such failure), and Tenant hereby waives all claims in respect thereof
against Landlord. The obligations of Tenant under this Paragraph 15 shall
survive any termination of this Lease.
(b) No Impairment of Insurance. The foregoing indemnity shall not
relieve any insurance carrier of its obligations under any policies required to
be carried by either party pursuant to this Lease, to the extent that such
policies cover the peril or occurrence that results in the claim that is subject
to the foregoing indemnity.
16. SUBROGATION: Landlord and Tenant hereby mutually waive any claim
against the other during the Term for any injury to person or loss or damage to
any of their property located on or about the Premises or the Property that is
caused by or results from perils covered by insurance carried by the respective
parties, to the extent of the proceeds of such insurance actually received with
respect to such injury, loss or damage, whether or not due to the negligence of
the other party or its agents. Because the foregoing waivers will preclude the
assignment of any claim by way of subrogation to an insurance company or any
other person, each party now agrees to immediately give to its insurer written
notice of the terms of these mutual waivers and shall have their insurance
policies endorsed to prevent the invalidation of the insurance coverage because
of these waivers. Nothing in this Paragraph shall relieve a party of liability
to the other for failure to carry insurance required by this Lease.
17. ABANDONMENT: Tenant shall not abandon the Premises at any time
during the Term. In the event of abandonment, the rights and remedies of Tenant
and Landlord shall be determined in accordance with the applicable California
statutes in effect at the time of abandonment.
18. FREE FROM LIENS: Tenant shall keep the Premises, the Building and
the Property free from any liens arising out of any work performed, materials
furnished, or obligations incurred by or for Tenant.
19. ADVERTISEMENTS AND SIGNS: Tenant shall not place or permit to be
placed in, upon, or about the Premises, the Building or the Property any signs,
advertisements or notices without obtaining Landlord's prior written consent or
without complying with applicable laws and will not conduct, or permit to be
conducted, any sale by auction on the Premises or otherwise on the Property.
Tenant shall remove any sign, advertisement or notice placed on the
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Premises by Tenant upon the expiration of the Term or sooner termination of this
Lease, and Tenant shall repair any damage or injury to the Premises, the
Building or the Property caused thereby, all at Tenant's expense. If any signs
are not removed, or necessary repairs not made, Landlord shall have the right to
remove the signs and repair any damage or injury to the Premises, the Building
or the Property at Tenant's sole cost and expense.
20. UTILITIES: Tenant shall pay for all water, gas, heat, light, power,
telephone service and all other materials and services supplied to the Premises.
If Tenant fails to pay for any of the foregoing when due, Landlord may pay the
same and add such amount to the Rent.
21. ENTRY BY LANDLORD: Tenant shall permit Landlord and its Agents to
enter into and upon the Premises at all reasonable times, upon reasonable notice
(except in the case of an emergency, for which no notice shall be required), and
subject to Tenant's reasonable security arrangements, for the purpose of
inspecting the same or showing the Premises to prospective purchasers, lenders
or tenants or to alter, improve, maintain and repair the Premises as required or
permitted of Landlord under the terms hereof, without any rebate of Rent and
without any liability to Tenant for any loss of occupation or quiet enjoyment of
the Premises thereby occasioned (except for actual damages resulting from the
negligence or willful misconduct of Landlord or its agents); and Tenant shall
permit Landlord to post notices of non-responsibility and ordinary "for sale" or
"for lease" signs, provided that Landlord may post such "for lease" signs and
exhibit the Premises to prospective tenants only during the six (6) months prior
to termination of this Lease. No such entry shall be construed to be a forcible
or unlawful entry into, or a detainer of, the Premises, or an eviction of Tenant
from the Premises.
22. DESTRUCTION AND DAMAGE:
(a) If the Premises are damaged by fire or other perils covered
by extended coverage insurance, Landlord shall, at Landlord's option:
(1) In the event of total destruction (which shall mean
destruction or damage in excess of twenty-five percent (25%) of the full
insurable value thereof) of the Premises, elect either to commence promptly to
repair and restore the Premises and prosecute the same diligently to completion,
in which event this Lease shall remain in full force and effect; or not to
repair or restore the Premises, in which event this Lease shall terminate.
Landlord shall give Tenant written notice of its intention within sixty (60)
days after the occurrence of such destruction. If Landlord elects not to restore
the Premises, this Lease shall be deemed to have terminated as of the date of
such total destruction.
(2) In the event of a partial destruction (which shall
mean destruction or damage to an extent not exceeding twenty-five percent (25%)
of the full insurable value thereof) of the Premises for which Landlord will
receive insurance proceeds sufficient to cover the cost to repair and restore
such partial destruction and, if the damage thereto is such that the Premises
may be substantially repaired or restored to its condition existing immediately
prior to such damage or destruction within one hundred eighty (180) days from
the date of such destruction, Landlord shall commence and proceed diligently
with the work of repair and restoration, in which event the Lease shall continue
in full force and effect. If such repair and restoration
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requires longer than one hundred eighty (180) days or if the insurance proceeds
therefor (plus any amounts Tenant may elect or is obligated to contribute) are
not sufficient to cover the cost of such repair and restoration, Landlord may
elect either to so repair and restore, in which event the Lease shall continue
in full force and effect, or not to repair or restore, in which event the Lease
shall terminate. In either case, Landlord shall give written notice to Tenant of
its intention within sixty (60) days after the destruction occurs. If Landlord
elects not to restore the Premises, this Lease shall be deemed to have
terminated as of the date of such partial destruction.
(3) Notwithstanding anything to the contrary contained in
this Paragraph, in the event of damage to the Premises occurring during the last
twelve (12) months of the Term, Landlord may elect to terminate this Lease by
written notice of such election given to Tenant within thirty (30) days after
the damage occurs.
(b) If the Premises are damaged by any peril not covered by
extended coverage insurance, and the cost to repair such damage exceeds any
amount Tenant may agree to contribute, Landlord may elect either to commence
promptly to repair and restore the Premises and prosecute the same diligently to
completion, in which event this Lease shall remain in full force and effect; or
not to repair or restore the Premises, in which event this Lease shall
terminate. Landlord shall give Tenant written notice of its intention within
sixty (60) days after the occurrence of such damage. If Landlord elects not to
restore the Premises, this Lease shall be deemed to have terminated as of the
date on which Tenant surrenders possession of the Premises to Landlord, except
that if the damage to the Premises materially impairs Tenant's ability to
continue its business operations in the Premises, then this Lease shall be
deemed to have terminated as of the date such damage occurred.
(c) In the event of repair and restoration as herein provided,
the monthly installments of Base Rent shall be abated proportionately in the
ratio which Tenant's use of the Premises is impaired during the period of such
repair or restoration, to the extent of rental abatement insurance proceeds
received by Landlord. Tenant shall not be entitled to any compensation or
damages for loss of use of the whole or any part of the Premises and/or any
inconvenience or annoyance occasioned by such damage, repair or restoration.
(d) If Landlord is obligated to or elects to repair or restore as
herein provided, Landlord shall repair or restore only those portions of the
Premises which were originally provided at Landlord's expense, substantially to
their condition existing immediately prior to the occurrence of the damage or
destruction; and Tenant shall promptly repair and restore, at Tenant's expense,
Tenant's fixtures, improvements, alterations and additions in and to the
Premises which were not provided at Landlord's expense.
(e) Tenant hereby waives the provisions of California Civil Code
Section 1932(2) and Section 1933(4) which permit termination of a lease upon
destruction of the leased premises, and the provisions of any similar law now or
hereinafter in effect, and the provisions of this Paragraph 22 shall govern
exclusively in case of such destruction.
23. CONDEMNATION: If twenty-five percent (25%) or more of the Premises
or the parking area for the Premises is taken for any public or quasi-public
purpose by any lawful
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governmental power or authority, by exercise of the right of appropriation,
inverse condemnation, condemnation or eminent domain, or sold to prevent such
taking (each such event being referred to as a "Condemnation"), Landlord may, at
its option, terminate this Lease as of the date title vests in the condemning
party. If the Premises after any Condemnation and any repairs by Landlord would
be untenantable for the conduct of Tenant's business operations, Tenant shall
have the right to terminate this Lease as of the date title vests in the
condemning party. If either party elects to terminate this Lease as provided
herein, such election shall be made by written notice to the other party given
within thirty (30) days after the nature and extent of such Condemnation have
been finally determined. Tenant shall not because of such taking assert any
claim against Landlord. Landlord shall be entitled to receive the proceeds of
all Condemnation awards, and Tenant hereby assigns to Landlord all of its
interest in such awards. If less than twenty-five percent (25%) of the Premises
or the parking area is taken, Landlord at its option may terminate this Lease.
If neither Landlord nor Tenant elects to terminate this Lease to the extent
permitted above, Landlord shall promptly proceed to restore the Premises to the
extent of any Condemnation award received by Landlord, to substantially the same
condition as existed prior to such Condemnation, allowing for the reasonable
effects of such Condemnation, and a proportionate abatement shall be made to the
Base Rent corresponding to the time during which, and to the portion of the
floor area of the Premises (adjusted for any increase thereto resulting from any
reconstruction) of which, Tenant is deprived on account of such Condemnation and
restoration. The provisions of California Code of Civil Procedure Section
1265.130, which allows either party to petition the Superior Court to terminate
the Lease in the event of a partial taking of the Premises, and any other
applicable law now or hereafter enacted, are hereby waived by Landlord and
Tenant.
24. ASSIGNMENT AND SUBLETTING:
(a) Tenant shall not voluntarily or by operation of law, (1)
mortgage, pledge, hypothecate or encumber this Lease or any interest herein, (2)
assign or transfer this Lease or any interest herein, sublease the Premises or
any part thereof, or any right or privilege appurtenant thereto, or allow any
other person (the employees, agents and invitees of Tenant excepted) to occupy
or use the Premises, or any portion thereof, without first obtaining the written
consent of Landlord, which consent shall not be withheld unreasonably. When
Tenant requests Landlord's consent to such assignment or subletting, it shall
notify Landlord in writing of the name and address of the proposed assignee or
subtenant and the nature and character of the business of the proposed assignee
or subtenant and shall provide current financial statements for the proposed
assignee or subtenant prepared in accordance with generally accepted accounting
principles. Tenant shall also provide Landlord with a copy of the proposed
sublease or assignment agreement, including all material terms and conditions
thereof. Landlord shall have the option, to be exercised within thirty (30) days
of receipt of the foregoing, to (1) cancel this Lease as of the commencement
date stated in the proposed sublease or assignment, (2) acquire from Tenant the
interest, or any portion thereof, in this Lease and/or the Premises that Tenant
proposes to assign or sublease, on the same terms and conditions as stated in
the proposed sublet or assignment agreement, (3) consent to the proposed
assignment or sublease, or (4) refuse its consent to the proposed assignment or
sublease, providing that such consent shall not be unreasonably withheld.
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(b) Without otherwise limiting the criteria upon which Landlord
may withhold its consent, Landlord may take into account the reputation and
credit worthiness of the proposed assignee or subtenant, the character of the
business proposed to be conducted in the Premises or portion thereof sought to
be subleased, and the potential impact of the proposed assignment or sublease on
the economic value of the Premises. In any event, Landlord may withhold its
consent to any assignment or sublease, if (1) the actual use proposed to be
conducted in the Premises or portion thereof conflicts with the provisions of
Paragraph 8(a) or (b) above, or (2) the proposed assignment or sublease requires
alterations, improvements or additions to the Premises or portions thereof.
(c) If Landlord approves an assignment or subletting as herein
provided, Tenant shall pay to Landlord, as Additional Rent, the difference, if
any, between (1) the Base Rent plus Additional Rent allocable to that part of
the Premises affected by such assignment or sublease pursuant to the provisions
of this Lease, and (2) the rent and any additional rent payable by the assignee
or sublessee to Tenant, after deducting the costs incurred by Tenant in
connection with any such assignment or sublease. The assignment or sublease
agreement, as the case may be, after approval by Landlord, shall not be amended
without Landlord's prior written consent, and shall contain a provision
directing the assignee or subtenant to pay the rent and other sums due
thereunder directly to Landlord upon receiving written notice from Landlord that
Tenant is in default under this Lease with respect to the payment of Rent.
Landlord's collection of such rent and other sums shall not constitute an
acceptance by Landlord of attornment by such assignee or subtenant. A consent to
one assignment, subletting, occupation or use shall not be deemed to be a
consent to any other or subsequent assignment, subletting, occupation or use,
and consent to any assignment or subletting shall in no way relieve Tenant of
any liability under this Lease. Any assignment or subletting without Landlord's
consent shall be void, and shall, at the option of Landlord, constitute a
Default under this Lease.
(d) Tenant shall pay Landlord's reasonable fees (including,
without limitation, the fees of Landlord's counsel), incurred in connection with
Landlord's review and processing of documents regarding any proposed assignment
or sublease, which fees shall not exceed the sum of One Thousand Dollars
($1,000.00).
(e) Tenant acknowledges and agrees that the restrictions,
conditions and limitations imposed by this Paragraph 24 on Tenant's ability to
assign or transfer this Lease or any interest herein, to sublet the Premises or
any part thereof, to transfer or assign any right or privilege appurtenant to
the Premises, or to allow any other person to occupy or use the Premises or any
portion thereof, are, for the purposes of California Civil Code Section 1951.4,
as amended from time to time, and for all other purposes, reasonable at the time
that the Lease was entered into, and shall be deemed to be reasonable at the
time that Tenant seeks to assign or transfer this Lease or any interest herein,
to sublet the Premises or any part thereof, to transfer or assign any right or
privilege appurtenant to the Premises, or to allow any other person to occupy or
use the Premises or any portion thereof.
25. TENANT'S DEFAULT: The occurrence of any one of the following events
shall constitute an event of default on the part of Tenant ("Default"):
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(a) The abandonment of the Premises by Tenant;
(b) Failure to pay any installment of Rent or any other monies
due and payable hereunder, said failure continuing for a period of three (3)
days after the same is due;
(c) A general assignment by Tenant for the benefit of creditors;
(d) The filing of a voluntary petition in bankruptcy by Tenant,
the filing of a voluntary petition for an arrangement, the filing of a petition,
voluntary or involuntary, for reorganization, or the filing of an involuntary
petition by Tenant's creditors, said involuntary petition remaining undischarged
for a period of sixty (60) days;
(e) Receivership, attachment, or other judicial seizure of
substantially all of Tenant's assets on the Premises, such attachment or other
seizure remaining undismissed or undischarged for a period of sixty (60) days
after the levy thereof;
(f) Failure of Tenant to execute and deliver to Landlord any
estoppel certificate, subordination agreement, or lease amendment within the
time periods and in the manner required by Paragraph 30 or 31 or 42;
(g) An assignment or sublease, or attempted assignment or
sublease, of this Lease or the Premises by Tenant contrary to the provision of
Paragraph 24, unless such assignment or sublease is expressly conditioned upon
Tenant having received Landlord's consent thereto;
(h) Failure of Tenant to restore the Security Deposit to the
amount and within the time period provided in Paragraph 6 above;
(i) Failure in the performance of any of Tenant's covenants,
agreements or obligations hereunder (except those failures specified as events
of Default in other Paragraphs of this Paragraph 25, which shall be governed by
such other Paragraphs), which failure continues for ten (10) days after written
notice thereof from Landlord to Tenant provided that, if Tenant has exercised
reasonable diligence to cure such failure and such failure cannot be cured
within such ten (10) day period despite reasonable diligence, Tenant shall not
be in default under this subparagraph unless Tenant fails thereafter diligently
and continuously to prosecute the cure to completion; and
(j) Chronic delinquency by Tenant in the payment of Rent, or any
other periodic payments required to be paid by Tenant under this Lease. "Chronic
delinquency" shall mean failure by Tenant to pay Rent, or any other payments
required to be paid by Tenant under this Lease within three (3) days after
written notice thereof for any three (3) months (consecutive or nonconsecutive)
during any twelve (12) month period. In the event of a Chronic Delinquency, in
addition to Landlord's other remedies for Default provided in this Lease, at
Landlord's option, Landlord shall have the right to require that Rent be paid by
Tenant quarterly, in advance.
Tenant agrees that any notice given by Landlord pursuant to
Paragraph 25(i) or (j) above shall satisfy the requirements for notice under
California Code of Civil Procedure
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Section 1161, and Landlord shall not be required to give any additional notice
in order to be entitled to commence an unlawful detainer proceeding.
26. LANDLORD'S REMEDIES:
(a) Termination. In the event of any Default by Tenant, then in
addition to any other remedies available to Landlord at law or in equity and
under this Lease, Landlord shall have the immediate option to terminate this
Lease and all rights of Tenant hereunder by giving written notice of such
intention to terminate. In the event that Landlord shall elect to so terminate
this Lease then Landlord may recover from Tenant:
(1) the worth at the time of award of any unpaid Rent and
any other sums due and payable which have been earned at the time of such
termination; plus
(2) the worth at the time of award of the amount by which
the unpaid Rent and any other sums due and payable which would have been earned
after termination until the time of award exceeds the amount of such rental loss
Tenant proves could have been reasonably avoided; plus
(3) the worth at the time of award of the amount by which
the unpaid Rent and any other sums due and payable for the balance of the term
of this Lease after the time of award exceeds the amount of such rental loss
that Tenant proves could be reasonably avoided; plus
(4) any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course would be likely to
result therefrom, including, without limitation, any costs or expenses incurred
by Landlord (i) in retaking possession of the Premises; (ii) in maintaining,
repairing, preserving, restoring, replacing, cleaning, altering or
rehabilitating the Premises or any portion thereof, including such acts for
reletting to a new tenant or tenants; (iii) for leasing commissions; or (iv) for
any other costs necessary or appropriate to relet the Premises; plus
(5) such reasonable attorneys' fees incurred by Landlord
as a result of a Default, and costs in the event suit is filed by Landlord to
enforce such remedy; and plus
(6) at Landlord's election, such other amounts in addition
to or in lieu of the foregoing as may be permitted from time to time by
applicable law.
As used in subparagraphs (1) and (2) above, the "worth at the time of award" is
computed by allowing interest at an annual rate equal to twelve percent (12%)
per annum or the maximum rate permitted by law, whichever is less. As used in
subparagraph (3) above, the "worth at the time of award" is computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award, plus one percent (1%). Tenant waives redemption
or relief from forfeiture under California Code of Civil Procedure Sections 1174
and 1179, or under any other present or future law, in the event Tenant is
evicted or Landlord takes possession of the Premises by reason of any Default of
Tenant hereunder.
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(b) Continuation of Lease. In the event of any Default by Tenant,
then in addition to any other remedies available to Landlord at law or in equity
and under this Lease, Landlord shall have the remedy described in California
Civil Code Section 1951.4 (Landlord may continue this Lease in effect after
Tenant's Default and abandonment and recover Rent as it becomes due, provided
Tenant has the right to sublet or assign, subject only to reasonable
limitations).
(c) Re-entry. In the event of any Default by Tenant, Landlord
shall also have the right, with or without terminating this Lease, in compliance
with applicable law, to re-enter the Premises and remove all persons and
property from the Premises; such property may be removed and stored in a public
warehouse or elsewhere at the cost of and for the account of Tenant.
(d) Reletting. In the event of the abandonment of the Premises by
Tenant or in the event that Landlord shall elect to re-enter as provided in
Paragraph 26(c) or shall take possession of the Premises pursuant to legal
proceeding or pursuant to any notice provided by law, then if Landlord does not
elect to terminate this Lease as provided in Paragraph 26(a), Landlord may from
time to time, without terminating this Lease, relet the Premises or any part
thereof for such term or terms and at such rental or rentals and upon such other
terms and conditions as Landlord in its sole discretion may deem advisable with
the right to make alterations and repairs to the Premises. In the event that
Landlord shall elect to so relet, then rentals received by Landlord from such
reletting shall be applied in the following order: (1) to reasonable attorneys'
fees incurred by Landlord as a result of a Default and costs in the event suit
is filed by Landlord to enforce such remedies; (2) to the payment of any
indebtedness other than Rent due hereunder from Tenant to Landlord; (3) to the
payment of any costs of such reletting; (4) to the payment of the costs of any
alterations and repairs to the Premises; (5) to the payment of Rent due and
unpaid hereunder; and (6) the residue, if any, shall be held by Landlord and
applied in payment of future Rent and other sums payable by Tenant hereunder as
the same may become due and payable hereunder. Should that portion of such
rentals received from such reletting during any month, which is applied to the
payment of Rent hereunder, be less than the Rent payable during the month by
Tenant hereunder, then Tenant shall pay such deficiency to Landlord. Such
deficiency shall be calculated and paid monthly. Tenant shall also pay to
Landlord, as soon as ascertained, any costs and expenses incurred by Landlord in
such reletting or in making such alterations and repairs not covered by the
rentals received from such reletting.
(e) Termination. No re-entry or taking of possession of the
Premises by Landlord pursuant to this Paragraph 26 shall be construed as an
election to terminate this Lease unless a written notice of such intention is
given to Tenant or unless the termination thereof is decreed by a court of
competent jurisdiction. Notwithstanding any reletting without termination by
Landlord because of any Default by Tenant, Landlord may at any time after such
reletting elect to terminate this Lease for any such Default.
(f) Cumulative Remedies. The remedies herein provided are not
exclusive and Landlord shall have any and all other remedies provided herein or
by law or in equity.
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(g) No Surrender. No act or conduct of Landlord, whether
consisting of the acceptance of the keys to the Premises, or otherwise, shall be
deemed to be or constitute an acceptance of the surrender of the Premises by
Tenant prior to the expiration of the Term, and such acceptance by Landlord of
surrender by Tenant shall only flow from and must be evidenced by a written
acknowledgment of acceptance of surrender signed by Landlord. The surrender of
this Lease by Tenant, voluntarily or otherwise, shall not work a merger unless
Landlord elects in writing that such merger take place, but shall operate as an
assignment to Landlord of any and all existing subleases, or Landlord may, at
its option, elect in writing to treat such surrender as a merger terminating
Tenant's estate under this Lease, and thereupon Landlord may terminate any or
all such subleases by notifying the sublessee of its election so to do within
five (5) days after such surrender.
27. ATTORNEYS' FEES: If either party hereto fails to perform any of its
obligations under this Lease or if any dispute arises between the parties hereto
concerning the meaning or interpretation of any provision of this Lease, then
the defaulting party or the party not prevailing in such dispute, as the case
may be, shall pay any and all costs and expenses incurred by the other party on
account of such default and/or in enforcing or establishing its rights
hereunder, including, without limitation, court costs and reasonable attorneys'
fees and disbursements. Any such attorneys' fees and other expenses incurred by
either party in enforcing a judgment in its favor under this Lease shall be
recoverable separately from and in addition to any other amount included in such
judgment, and such attorneys' fees obligation is intended to be severable from
the other provisions of this Lease and to survive and not be merged into any
such judgment.
28. TAXES: Tenant shall be liable for and shall pay, prior to
delinquency, all taxes levied against personal property and trade or business
fixtures of Tenant. If any alteration, addition or improvement installed by
Tenant pursuant to Paragraph 11, or any personal property, trade fixture or
other property of Tenant, is assessed and taxed with the Property, Tenant shall
pay such taxes to Landlord within ten (10) days after delivery to Tenant of a
statement therefor.
29. EFFECT OF CONVEYANCE: The term "Landlord" as used in this Lease,
means only the owner for the time being of the Property containing the Premises,
so that, in the event of any sale of the Property, the Building or the Premises,
Landlord shall be and hereby is entirely freed and relieved of all covenants and
obligations of Landlord hereunder accruing from and after the transfer, and it
shall be deemed and construed, without further agreement between the parties and
the purchaser at any such sale, that the purchaser of the Property, the Building
or the Premises has assumed and agreed to carry out any and all covenants and
obligations of Landlord hereunder.
30. TENANT'S ESTOPPEL CERTIFICATE: From time to time, upon written
request of Landlord, Tenant shall execute, acknowledge and deliver to Landlord
or its designee, a written certificate stating (a) the date this Lease was
executed, the Commencement Date of the Term and the date the Term expires; (b)
the date Tenant entered into occupancy of the Premises; (c) the amount of Rent
and the date to which such Rent has been paid; (d) that this Lease is in full
force and effect and has not been assigned, modified, supplemented or amended in
any way (or, if assigned, modified, supplemented or amended, specifying the date
and terms of any
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agreement so affecting this Lease); (e) that this Lease represents the entire
agreement between the parties with respect to Tenant's right to use and occupy
the Premises (or specifying such other agreements, if any); (f) that all
obligations under this Lease to be performed by Landlord as of the date of such
certificate have been satisfied (or specifying those as to which Tenant claims
that Landlord has yet to perform); (g) that all required contributions by
Landlord to Tenant on account of Tenant's improvements have been received (or
stating exceptions thereto); (h) that on such date there exist no defenses or
offsets that Tenant has against the enforcement of this Lease by Landlord (or
stating exceptions thereto); (i) that no Rent or other sum payable by Tenant
hereunder has been paid more than one (1) month in advance (or stating
exceptions thereto); (j) that security has been deposited with Landlord, stating
the amount thereof; and (k) any other matters evidencing the status of this
Lease that may be required either by a lender making a loan to Landlord to be
secured by a deed of trust covering the Building or by a purchaser of the
Building. Any such certificate delivered pursuant to this Paragraph 30 may be
relied upon by a prospective purchaser of Landlord's interest or a mortgagee of
Landlord's interest or assignee of any mortgage upon Landlord's interest in the
Premises. If Tenant shall fail to provide such certificate within ten (10) days
of receipt by Tenant of a written request by Landlord as herein provided, such
failure shall, at Landlord's election, constitute a Default under this Lease,
and Tenant shall be deemed to have given such certificate as above provided
without modification and shall be deemed to have admitted the accuracy of any
information supplied by Landlord to a prospective purchaser or mortgagee.
31. SUBORDINATION: Landlord shall have the right to cause this Lease to
be and remain subject and subordinate to any and all mortgages, deeds of trust
and ground leases, if any ("Encumbrances") that are now or may hereafter be
executed covering the Premises, or any renewals, modifications, consolidations,
replacements or extensions thereof, for the full amount of all advances made or
to be made thereunder and without regard to the time or character of such
advances, together with interest thereon and subject to all the terms and
provisions thereof; provided only, that in the event of termination of any such
ground lease or upon the foreclosure of any such mortgage or deed of trust, so
long as Tenant is not in default, the holder thereof ("Holder") shall agree to
recognize Tenant's rights under this Lease as long as Tenant shall pay the Rent
and observe and perform all the provisions of this Lease to be observed and
performed by Tenant. Within ten (10) days after Landlord's written request,
Tenant shall execute, acknowledge and deliver any and all reasonable documents
required by Landlord or the Holder to effectuate such subordination. If Tenant
fails to do so, such failure shall constitute a Default by Tenant under this
Lease. Notwithstanding anything to the contrary set forth in this Paragraph 31,
Tenant hereby attorns and agrees to attorn to any person or entity purchasing or
otherwise acquiring the Premises at any sale or other proceeding or pursuant to
the exercise of any other rights, powers or remedies under such Encumbrance.
32. ENVIRONMENTAL COVENANTS:
(a) As used in this Lease, the term "Hazardous Materials" shall
mean and include any substance that is or contains (a) any "hazardous substance"
as now or hereafter defined in Section 101(14) of the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
("CERCLA") (42 U.S.C. Section 9601 et seq.) or any regulations promulgated under
CERCLA; (b) any "hazardous waste" as now or hereafter defined in the
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Resource Conservation and Recovery Act, as amended ("RCRA") (42 U.S.C. Section
6901 et seq.) or any regulations promulgated under RCRA; (c) any substance now
or hereafter regulated by the Toxic Substances Control Act, as amended ("TSCA")
(15 U.S.C. Section 2601 et seq.) or any regulations promulgated under TSCA; (d)
petroleum, petroleum by-products, gasoline, diesel fuel, or other petroleum
hydrocarbons; (e) asbestos and asbestos-containing material, in any form,
whether friable or non-friable; (f) polychlorinated biphenyls; (g) lead and
lead-containing materials; or (h) any additional substance, material or waste
(A) the presence of which on or about the Premises (i) requires reporting,
investigation or remediation under any Environmental Laws (as hereinafter
defined), (ii) causes or threatens to cause a nuisance on the Premises or any
adjacent property or poses or threatens to pose a hazard to the health or safety
of persons on the Premises or any adjacent property, or (iii) which, if it
emanated or migrated from the Premises, could constitute a trespass, or (B)
which is now or is hereafter classified or considered to be hazardous or toxic
under any Environmental Laws.
(b) As used in this Lease, the term "Environmental Laws" shall
mean and include (a) CERCLA, RCRA and TSCA; and (b) any other federal, state or
local laws, ordinances, statutes, codes, rules, regulations, orders or decrees
now or hereinafter in effect relating to (i) pollution, (ii) the protection or
regulation of human health, natural resources or the environment, (iii) the
treatment, storage or disposal of Hazardous Materials, or (iv) the emission,
discharge, release or threatened release of Hazardous Materials into the
environment.
(c) Tenant agrees that during its use and occupancy of the
Premises it will (a) not (i) permit Hazardous Materials to be present on or
about the Premises except in a manner and quantity necessary for the ordinary
performance of Tenant's business or (ii) release, discharge or dispose of any
Hazardous Materials on, in, at, under, or emanating from, the Premises or the
Property; (b) comply with all Environmental Laws relating to the Premises and
the use of Hazardous Materials on or about the Premises and not engage in or
permit others to engage in any activity at the Premises in violation of any
Environmental Laws; and (c) immediately notify Landlord of (i) any inquiry,
test, investigation or enforcement proceeding by any governmental agency or
authority against Tenant, Landlord or the Premises relating to any Hazardous
Materials or under any Environmental Laws or (ii) the occurrence of any event or
existence of any condition that would cause a breach of any of the covenants set
forth in this Section 32.
(d) If Tenant's use of Hazardous Materials on or about the
Premises results in a release, discharge or disposal of Hazardous Materials on,
in, at, under, or emanating from, the Premises or the Property, Tenant agrees to
investigate, clean up, remove or remediate such Hazardous Materials in full
compliance with (a) the requirements of (i) all Environmental Laws and (ii) any
governmental agency or authority responsible for the enforcement of any
Environmental Laws; and (b) any additional requirements of Landlord that are
reasonably necessary to protect the value of the Premises or the Property.
(e) Upon reasonable notice to Tenant, Landlord may inspect the
Premises for the purpose of determining whether there exists on the Premises any
Hazardous Material or other condition or activity that is in violation of the
requirements of this Lease or of any Environmental Laws. Tenant will supply to
Landlord such historical and operational
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information regarding the Premises as may be reasonably requested to facilitate
any such inspection and will make available for meetings appropriate personnel
having knowledge of such matters. Tenant agrees to give Landlord at least sixty
(60) days' prior notice of its intention to vacate the Premises so that Landlord
will have an opportunity to perform such an inspection prior to such vacation.
The right granted to Landlord herein to perform inspections shall not create a
duty on Landlord's part to inspect the Premises, or liability on the part of
Landlord for Tenant's use, storage or disposal of Hazardous Materials, it being
understood that Tenant shall be solely responsible for all liability in
connection therewith.
(f) Landlord shall have the right, but not the obligation, prior
or subsequent to an event of default, without in any way limiting Landlord's
other rights and remedies under this Lease, to enter upon the Premises, or to
take such other actions as it deems necessary or advisable, to investigate,
clean up, remove or remediate any Hazardous Materials or contamination by
Hazardous Materials present on, in, at, under, or emanating from, the Premises
or the Property in violation of Tenant's obligations under this Lease or under
any Environmental Laws. Notwithstanding any other provision of this Lease,
Landlord shall also have the right, at its election, in its own name or as
Tenant's agent, to negotiate, defend, approve and appeal, at Tenant's expense,
any action taken or order issued by any governmental agency or authority with
regard to any such Hazardous Materials or contamination by Hazardous Materials.
All costs and expenses paid or incurred by Landlord in the exercise of the
rights set forth in this Subsection 32(f), shall be payable by Tenant upon
demand.
(g) Tenant shall surrender the Premises to Landlord upon the
expiration or earlier termination of this Lease free of debris, waste or
Hazardous Materials placed on or about the Premises by Tenant or its agents,
employees, contractors or invitees, and in a condition which complies with all
Environmental Laws.
(h) Tenant agrees to indemnify and hold harmless Landlord from
and against any and all claims, losses (including, without limitation, loss in
value of the Premises or the Property, liabilities and expenses (including
attorney's fees) sustained by Landlord attributable to (i) any Hazardous
Materials placed on or about the Premises by Tenant or its Agents or (ii)
Tenant's breach of any provision of this Section 32. Notwithstanding anything
herein to the contrary, Tenant shall not be required to indemnify Landlord
against any costs or liabilities attributable to Hazardous Materials placed on
or about the Premises prior to the Commencement Date by third parties not
related to Tenant or its Agents provided that neither Tenant nor its Agents have
contributed to or exacerbated the presence of such Hazardous Materials.
(i) The provisions of this Section 32 shall survive the
expiration or earlier termination of this Lease.
33. NOTICES: All notices and demands which may or are to be required or
permitted to be given to either party by the other hereunder shall be in writing
and shall be sent by United States mail, postage prepaid, certified, or by
personal delivery or overnight courier, addressed to the addressee at the
address for such addressee as specified in the Basic Lease Information, or to
such other place as such party may from time to time designate in a notice to
the other party given as provided herein, or by telex or telecopy at the number
therefor
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<PAGE> 23
designated by the addressee in a written notice given as provided herein. Notice
shall be deemed given upon the earlier of actual receipt or the third day
following deposit in the United States mail in the manner described above.
34. WAIVER: The waiver of any breach of any term, covenant or condition
of this Lease shall not be deemed to be a waiver of such term, covenant or
condition or any subsequent breach of the same or any other term, covenant or
condition herein contained. The subsequent acceptance of Rent by Landlord shall
not be deemed to be a waiver of any preceding breach by Tenant, other than the
failure of Tenant to pay the particular rental so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of such
Rent. No delay or omission in the exercise of any right or remedy of Landlord on
any Default by Tenant shall impair such a right or remedy or be construed as a
waiver. Any waiver by Landlord of any Default must be in writing and shall not
be a waiver of any other Default concerning the same or any other provisions of
this Lease.
35. HOLDING OVER: Any holding over after the expiration of the Term,
without the express written consent of Landlord, shall constitute a Default and,
without limiting Landlord's remedies provided in this Lease, such holding over
shall be construed to be a tenancy at sufferance, at a rental rate of one
hundred fifty percent (150%) of the Base Rent last due in this Lease, plus
Additional Rent, and shall otherwise be on the terms and conditions herein
specified, so far as applicable.
36. SUCCESSORS AND ASSIGNS: The terms, covenants and conditions of this
Lease shall, subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators and assigns of all of the parties
hereto. If Tenant shall consist of more than one entity or person, the
obligations of Tenant under this Lease shall be joint and several.
37. TIME: Time is of the essence of this Lease and each and every term,
condition and provision herein.
38. BROKERS: Landlord and Tenant each represents and warrants to the
other that neither it nor its officers or agents nor anyone acting on its behalf
has dealt with any real estate broker except the Broker(s) specified in the
Basic Lease Information in the negotiating or making of this Lease, and each
party agrees to indemnify and hold harmless the other from any claim or claims,
and costs and expenses, including attorneys' fees, incurred by the indemnified
party in conjunction with any such claim or claims of any other broker or
brokers to a commission in connection with this Lease as a result of the actions
of the indemnifying party.
39. LIMITATION OF LIABILITY: Tenant agrees that, in the event of any
default or breach by Landlord with respect to any of the terms of the Lease to
be observed and performed by Landlord (a) Tenant shall look solely to the estate
and property of Landlord or any successor in interest in the Property and the
Premises, for the satisfaction of Tenant's remedies for the collection of a
judgment (or other judicial process) requiring the payment of money by Landlord;
(b) no other property or assets of Landlord, its partners, shareholder,
officers, directors or any successor in interest shall be subject to levy,
execution or other enforcement procedure for the satisfaction of Tenant's
remedies; (c) no personal liability shall at any time be asserted or
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enforceable against Landlord's partners or successors in interest (except to the
extent permitted in (a) above), or against Landlord's shareholders, officers or
directors, or their respective partners, shareholders, officers, directors or
successors in interest; and (d) no judgment will be taken against any partner,
shareholder, officer or director of Landlord. The provisions of this section
shall apply only to the Landlord and the parties herein described, and shall not
be for the benefit of any insurer nor any other third party.
40. FINANCIAL STATEMENTS: Within thirty (30) days after Landlord's
request, Tenant shall deliver to Landlord the then current financial statements
of Tenant (including interim periods following the end of the last fiscal year
for which annual statements are available), including a balance sheet and profit
and loss statement for the most recent prior year, all prepared in accordance
with generally accepted accounting principles consistently applied.
41. RULES AND REGULATIONS: Tenant agrees to comply with such reasonable
rules and regulations as Landlord may adopt from time to time for the orderly
and proper operating of the Building and parking and other common areas. Such
rules may include but shall not be limited to the following: (a) restriction of
employee parking to a limited, designated area or areas; and (b) regulation of
the removal, storage and disposal of Tenant's refuse and other rubbish at the
sole cost and expense of Tenant. The rules and regulations shall be binding upon
Tenant upon delivery of a copy of them to Tenant. Landlord shall not be
responsible to Tenant for the failure of any other person to observe and abide
by any of said rules and regulations.
42. MORTGAGEE PROTECTION:
(a) Modifications for Lender. If, in connection with obtaining
financing for the Building or any portion thereof, Landlord's lender shall
request reasonable modifications to this Lease as a condition to such financing,
Tenant shall not unreasonably withhold, delay or defer its consent to such
modifications, provided such modifications do not materially adversely affect
Tenant's rights or increase Tenant's obligations under this Lease.
(b) Rights to Cure. Tenant agrees to give to any trust deed or
mortgage holder ("Holder"), by registered mail, at the same time as it is given
to Landlord, a copy of any notice of default given to Landlord, provided that
prior to such notice Tenant has been notified, in writing, (by way of notice of
assignment of rents and leases, or otherwise) of the address of such Holder.
Tenant further agrees that if Landlord shall have failed to cure such default
within the time provided for in this Lease, then the Holder shall have an
additional twenty (20) days after expiration of such period, or after receipt of
such notice from Tenant (if such notice to the Holder is required by this
Paragraph 42(b)), whichever shall last occur within which to cure such default
or if such default cannot be cured within that time, then such additional time
as may be necessary if within such twenty (20) days, any Holder has commenced
and is diligently pursuing the remedies necessary to cure such default
(including but not limited to commencement of foreclosure proceedings, if
necessary to effect such cure), in which event this Lease shall not be
terminated.
43. ENTIRE AGREEMENT: This Lease, including the Exhibits and any Addenda
attached hereto, which are hereby incorporated herein by this reference,
contains the entire
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agreement of the parties hereto, and no representations, inducements, promises
or agreements, oral or otherwise, between the parties, not embodied herein or
therein, shall be of any force and effect.
44. INTEREST: Any installment of Rent and any other sum due from Tenant
under this Lease which is not received by Landlord within ten (10) days from
when the same is due shall bear interest from such tenth (10th) day until paid
at an annual rate equal to the maximum rate of interest permitted by law.
Payment of such interest shall not excuse or cure any Default by Tenant. In
addition, Tenant shall pay all costs and attorneys' fees incurred by Landlord in
collection of such amounts.
45. CONSTRUCTION: This Lease shall be construed and interpreted in
accordance with the laws of the State of California. The parties acknowledge and
agree that no rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall be employed in the interpretation of
this Lease, including the Exhibits and any Addenda attached hereto. All captions
in this Lease are for reference only and shall not be used in the interpretation
of this Lease. Whenever required by the context of this Lease, the singular
shall include the plural, the masculine shall include the feminine, and vice
versa. If any provision of this Lease shall be determined to be illegal or
unenforceable, such determination shall not affect any other provision of this
Lease and all such other provisions shall remain in full force and effect.
46. RENEWAL OPTION: Tenant shall have one (1) option (the "Renewal
Option") to extend the Term for an additional period of either three (3) or five
(5) years, as selected by Tenant, beyond the Expiration Date (the "Renewal
Term"). The Renewal Option shall be effective only if Tenant is not in default
under this Lease, nor has any event occurred which with the giving of notice or
the passage of time, or both, would constitute a default hereunder, either at
the time of exercise of the Renewal Option or the time of commencement of the
Renewal Term. The Renewal Option must be exercised, if at all, by written notice
from Tenant to Landlord given not more than nine (9) months nor less than six
(6) months prior to the expiration of the initial Term, which notice shall
specify the desired length of the Renewal Term (i.e., three (3) or five (5)
years). Any such notice given by Tenant to Landlord shall be irrevocable. If
Tenant fails to exercise the Renewal Option in a timely manner as provided for
above, the Renewal Option shall be void. The Renewal Term shall be upon the same
terms and conditions as the initial Term, except that the annual Rent during the
Renewal Term shall be equal to the higher of (i) the prevailing market rate for
space comparable to the Premises in size, location, condition, quality and type
at the commencement of the Renewal Term, or (ii) the Rent payable hereunder
immediately prior to the expiration of the initial Term. As used herein, the
term "prevailing market rate" shall mean the base annual rental for such
comparable space, taking into account any additional rental and all other
payments and escalations payable hereunder and by tenants under leases of such
comparable space. If Tenant disputes Landlord's determination of the prevailing
market rate, Tenant shall so notify the Landlord within ten (10) days following
Landlord's notice to Tenant of the prevailing market rate and such dispute shall
be resolved as follows:
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(a) Within thirty (30) days following Tenant's notice to Landlord
of Tenant's dispute of Landlord's determination of the prevailing market rate,
Landlord and Tenant shall meet no less than two (2) times, at a mutually
agreeable time and place, to attempt to resolve any such disagreement.
(b) If within this thirty (30) day period Landlord and Tenant
cannot reach agreement as to the prevailing market rate, they shall each select
one appraiser to determine the prevailing market rate. Each such appraiser shall
arrive at a determination of the prevailing market rate and submit his
conclusions to Landlord and Tenant within thirty (30) days of the expiration of
the thirty (30) day consultation period described in paragraph (a) above.
(c) If only one appraisal is submitted within the requisite time
period, it shall be deemed to be the prevailing market rate. If both appraisals
are submitted within such time period, and if the two appraisals so submitted
differ by less than ten (10) percent of the higher of the two, the average of
the two shall be the prevailing market rate. If the two appraisals differ by
more than ten (10) percent of the higher of the two, then the two appraisers
shall immediately select a third appraiser who will within thirty (30) days of
his selection make a determination of the prevailing market rate and submit such
determination to Landlord and Tenant. This third appraisal will then be averaged
with the closer of the two previous appraisals and the result shall be the
prevailing market rate.
(d) All appraisers specified pursuant hereto shall be licensed
real estate brokers in the State of California with not less than five (5)
years' experience appraising commercial properties in the County of Santa Clara.
Each party shall pay the cost of the appraiser selected by such party and
one-half (1/2) of the cost of the third appraiser plus one-half (1/2) of any
other costs incurred in connection with the appraisal.
47. REPRESENTATIONS AND WARRANTIES OF TENANT: Tenant hereby makes the
following representations and warranties, each of which is material and being
relied upon by Landlord, is true in all respects as of the date of this Lease,
and shall survive the expiration or termination of the Lease.
(a) If Tenant is an entity, Tenant is duly organized, validly
existing and in good standing under the laws of the state of its organization
and the persons executing this Lease on behalf of Tenant have the full right and
authority to execute this Lease on behalf of Tenant and to bind Tenant without
the consent or approval of any other person or entity. Tenant has full power,
capacity, authority and legal right to execute and deliver this Lease and to
perform all of its obligations hereunder. This Lease is a legal, valid and
binding obligation of Tenant, enforceable in accordance with its terms.
(b) Tenant has not (1) made a general assignment for the benefit
of creditors, (2) filed any voluntary petition in bankruptcy or suffered the
filing of an involuntary petition by any creditors, (3) suffered the appointment
of a receiver to take possession of all or substantially all of its assets, (4)
suffered the attachment or other judicial seizure of all or substantially all of
its assets, (5) admitted in writing its inability to pay its debts as they come
due, or (6) made an offer of settlement, extension or composition to its
creditors generally.
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48. LIMITATION OF TENANT'S LIABILITY: Notwithstanding anything in this
Lease to the contrary, Landlord shall not institute any legal action or
proceeding against the members of the Board of Directors of Tenant in connection
with the enforcement of Landlord's remedies hereunder.
Landlord and Tenant have executed and delivered this Lease as of the
Lease Date specified in the Basic Lease Information.
LANDLORD: TENANT:
AETNA LIFE INSURANCE COMPANY, PLX TECHNOLOGY, INC.,
a Connecticut corporation a California corporation
By: By:
--------------------------------- -----------------------------------
Print Print
Name: Name:
------------------------------ --------------------------------
Its: Its:
------------------------------ --------------------------------
By:
----------------------------------
Print
Name:
--------------------------------
Its:
---------------------------------
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<PAGE> 28
LEASE AGREEMENT
BASIC LEASE INFORMATION
Lease Date: December __, 1995
Landlord: AETNA LIFE INSURANCE COMPANY,
a Connecticut corporation
Landlord's Address: c/o Aetna Realty Investors, Inc.
1740 Technology Drive, Suite 600
San Jose, California 95110
Tenant: PLX TECHNOLOGY, INC.,
a California corporation
Tenant's Address: 390 Potrero Avenue
Sunnyvale, California 94086
Building: 390 Potrero Avenue
Sunnyvale, California 94086
Premises: Premises containing approximately twenty thousand
(20,000) rentable square feet in the Building
Months of Term: Sixty (60) months
<TABLE>
<CAPTION>
Monthly Base Rent: Months Sq. Ft. Monthly Rate Monthly Rent
------ ------- ------------ ------------
<S> <C> <C> <C> <C>
1-12 20,000 $0.78 $15,600.00
13-24 20,000 $0.80 $16,000.00
25-36 20,000 $0.82 $16,400.00
37-48 20,000 $0.84 $16,800.00
49-60 20,000 $0.86 $17,200.00
</TABLE>
Prepaid Rent: Fifteen Thousand Six Hundred Dollars ($15,600.00)
Month To Which
Pre-paid Rent First (1st) month of the Term
Applied:
Security Deposit: Seventeen Thousand Two Hundred Dollars ($17,200.00)
Permitted Use: General office use and research and development and
testing of semiconductors
Brokers: Cornish & Carey Commercial
BT Commercial
i
<PAGE> 29
Tenant Improvements
Allowance: Sixty Thousand Dollars ($60,000)
Tenant
Improvements Loan: Up to Forty Thousand Dollars ($40,000)
Exhibits: Exhibit A Diagram of the Premises
Exhibit B Tenant Improvements
Exhibit B-1 Final Plans and Specifications for Tenant Improvements
Exhibit C Commencement Date Memorandum
Exhibit D Tenant Improvement Loan Amortization Memorandum
ii
<PAGE> 30
EXHIBIT A
DIAGRAM OF THE PREMISES
<PAGE> 31
EXHIBIT B
TENANT IMPROVEMENTS
This exhibit, entitled "Tenant Improvements," is and shall constitute
EXHIBIT B to the Lease Agreement, dated as of the Lease Date, by and between
Landlord and Tenant for the Premises. The terms and conditions of this EXHIBIT B
are hereby incorporated into and are made a part of the Lease. Capitalized terms
used, but not otherwise defined, in this EXHIBIT B have the meanings ascribed to
such terms in the Lease.
1. Tenant Improvements. Subject to the conditions set forth below,
Landlord agrees to construct certain Tenant Improvements in the Premises
pursuant to the terms of this EXHIBIT B.
2. Definition. "Tenant Improvements" as used in the Lease and this
EXHIBIT B shall include only those improvements within the interior portions of
the Premises which are depicted on the Final Plans and Specifications (hereafter
defined in Paragraph 3) or described hereinbelow. "Tenant Improvements" shall
specifically not include any alterations, additions, or improvements installed
or constructed by Tenant, and any of Tenant's personal property or trade
fixtures.
The Tenant Improvements may include:
(a) Partitioning, doors, floor coverings, finishes, ceilings,
wall coverings and painting, millwork and similar items.
(b) Electrical wiring, lighting fixtures, outlets and switches,
and other electrical work.
(c) Duct work, terminal boxes, defusers and accessories required
for the completion of the heating, ventilation and air conditioning systems
serving the Premises, including the cost of meter and key control for after-hour
air conditioning.
(d) Any additional Tenant requirements including, but not limited
to odor control, special heating, ventilation and air conditioning, noise or
vibration control or other special systems.
(e) All fire and life safety control systems such as fire walls,
sprinklers, halon, fire alarms, including piping, wiring and accessories
installed within and serving the Premises.
(f) All plumbing, fixtures, pipes, and accessories to be
installed within and serving the Premises.
3. Plans and Specifications. Landlord shall retain an architect selected
by Landlord ("Architect") for the preparation of preliminary and final working
architectural and engineering plans and specifications for the Tenant
Improvements ("Final Plans and Specifications"). Landlord reserves the right to
substitute for the Architect another architect of its selection.
B-1
<PAGE> 32
Tenant shall cooperate diligently with the Architect and shall furnish within
ten (10) days after request therefor, all information required by the Architect
for completion of the Final Plans and Specifications, and shall provide (in
writing, if requested by Landlord), not later than three (3) business days after
request therefor, any approval or disapproval of preliminary or Final Plans and
Specifications which Tenant is permitted to give under this EXHIBIT B. Landlord
and Tenant shall indicate their approval of the Final Plans and Specifications
by initialing them and attaching them to the Lease as EXHIBIT B-1. Upon
completion of the Final Plans and Specifications and approval thereof by
Landlord and Tenant, Landlord will obtain subcontractor trade bids and furnish a
cost breakdown to Tenant. In the event the estimated Tenant Improvements Cost
(hereafter defined in Paragraph 7), based on such bids and the reasonably
anticipated costs of other items constituting the Tenant Improvements Cost,
exceeds the sum of the Tenant Improvements Allowance (hereafter defined in
Paragraph 5) and the Tenant Improvements Loan (hereafter defined in Paragraph 6)
plus any amounts which Tenant desires to pay as an Excess Tenant Improvements
Cost (hereafter defined in Paragraph 8.A.) ("Tenant's T.I. Budget"), at Tenant's
request, the Final Plans and Specifications may be revised once, at Tenant's
cost and expense. Any such revisions shall be subject to Landlord's approval,
and the amended Final Plans and Specifications, as approved by Landlord and
Tenant, shall thereafter be deemed to be the Final Plans and Specifications for
the Tenant Improvements. The amended Final Plans and Specifications shall be
approved by Tenant (in writing, if requested by Landlord) not later than three
(3) days after Landlord's request therefor. Landlord shall thereafter submit
such amended Final Plans and Specifications to its contractor and subcontractor
for rebidding, and shall furnish a cost breakdown to Tenant. If the estimated
Tenant Improvements Cost, as determined by the bids based on the amended Final
Plans and Specifications and the reasonably anticipated costs of other items
constituting the Tenant Improvements Cost, result in an Excess Tenant
Improvements Cost, then Tenant shall pay such Excess Tenant Improvements Cost as
and when required by Paragraph 8.A. Tenant's failure to approve or disapprove
any matters which Tenant shall be entitled to approve or disapprove pursuant to
this Paragraph 3 shall be conclusively deemed to be approval of same by Tenant.
4. Landlord to Construct Improvements. When the Final Plans and
Specifications (as amended, if required by Paragraph 3 above) have been approved
by Landlord and Tenant, Landlord shall submit such Final Plans and
Specifications to all governmental authorities having rights of approval over
the Tenant Improvement work and shall apply for all governmental approvals and
building permits. Subject to satisfaction of all conditions precedent and
subsequent to its obligations under this EXHIBIT B, and further subject to the
provisions of Paragraph 8.A., Landlord shall thereafter commence and proceed to
complete construction of the Tenant Improvements in a good and workmanlike
manner.
5. Tenant Improvements Allowance. Landlord shall provide an allowance
for the planning and construction of the Tenant Improvements in the amount
specified in the Basic Lease Information ("Tenant Improvements Allowance").
Subject to Paragraph 6 below, the Tenant Improvements Allowance shall be the
maximum contribution by Landlord for the Tenant Improvements Cost, as defined in
Paragraph 7. Should the actual cost of planning and constructing those Tenant
Improvements depicted on the Final Plans and Specifications be less than the
Tenant Improvements Allowance, the Tenant Improvements Allowance shall be
reduced to an amount equal to said actual cost.
B-2
<PAGE> 33
6. Tenant Improvements Loan. In addition to the Tenant Improvements
Allowance, Landlord agrees to loan to Tenant up to Forty Thousand Dollars
($40,000.00) for Tenant Improvements (the "Tenant Improvements Loan"). The
Tenant Improvements Loan shall be repayable by Tenant to Landlord in
substantially equal self-amortizing installments over the initial term of the
Lease, together with interest on the balance outstanding from time to time at
the rate of twelve percent (12%) per annum; provided, however, that in the event
the Lease shall terminate for any reason prior to the scheduled expiration
thereof, the Tenant Improvements Loan and all accrued and unpaid interest
thereon shall immediately become due and payable in full. When the Tenant
Improvements have been completed and the amount of the Tenant Improvements Loan
has been determined by Landlord, the parties shall promptly execute a Tenant
Improvement Loan Amortization Memorandum in the form of EXHIBIT B-2 hereto.
7. Tenant Improvements Cost. The Tenant Improvements Cost ("Tenant
Improvements Cost") shall include all costs and expenses associated with the
design, preparation, approval and construction of the Tenant Improvements,
including, but not limited, to the following:
(a) All costs of preliminary and final architectural and
engineering plans and specifications for the Tenant Improvements, and
engineering costs associated with completion of the State of California energy
utilization calculations under Title 24 legislation;
(b) All costs of obtaining building permits and other necessary
authorizations from local governmental authorities, and all costs of complying
with the Americans With Disabilities Act and any other federal, state or local
law, ordinance, statute, code or regulation applicable to or triggered by the
construction of the Tenant Improvements;
(c) All costs of interior design and finish schedule plans and
specifications including as-built drawings;
(d) All direct and indirect costs of procuring, constructing and
installing the Tenant Improvements in the Premises, including, but not limited
to, the construction fee for overhead and profit and the cost of all on-site
supervisory and administrative staff, office, equipment and temporary services
rendered by Landlord's contractor in connection with construction of the Tenant
Improvements;
(e) All fees payable to the Architect and Landlord's engineering
firm if they are required by Tenant to redesign any portion of the Tenant
Improvements following Tenant's approval of the Final Plans and Specifications;
(f) All construction and project management fees payable by
Landlord to Landlord's property management company or any other individual or
entity; and
(g) Utility connection fees.
In no event shall the Tenant Improvements Cost include any costs of procuring,
constructing or installing in the Premises any of Tenant's personal property or
trade fixtures.
B-3
<PAGE> 34
8. Excess Tenant Improvements Cost and Retention.
A. Excess Tenant Improvements Cost. If the Tenant Improvements
Cost is more than the sum of the Tenant Improvements Allowance and the Tenant
Improvements Loan, then the difference between the sum of the Tenant
Improvements Cost and the sum of the Tenant Improvements Allowance and the
Tenant Improvements Loan ("Excess Tenant Improvements Cost") shall be paid by
Tenant to Landlord in cash, within ten (10) days of delivery of statements from
Landlord to Tenant therefor. If construction of the Tenant Improvements will
result in Excess Tenant Improvements Cost, Landlord shall not be obligated to
commence construction of the Tenant Improvements if payment of the Excess Tenant
Improvements Costs by Tenant is not received within ten (10) days after delivery
by Landlord to Tenant of a statement therefor; provided, however, that Landlord
may, at its option, commence construction of the Tenant Improvements, in which
event Tenant shall pay the Excess Tenant Improvements Cost within ten (10) days
after delivery by Landlord to Tenant of the statement therefor. If Landlord so
elects to commence construction of the Tenant Improvements or has already
commenced construction of the Tenant Improvements when there occurs an Excess
Tenant Improvements Cost, then Landlord shall be entitled to suspend or
terminate construction of the Tenant Improvements if payment by Tenant to
Landlord of the Excess Tenant Improvement Costs has not been received within ten
(10) days after delivery by Landlord to Tenant of a statement therefor.
B. Retention. Landlord shall pay the items of Tenant Improvements
Cost first from ninety percent (90%) of the Tenant Improvements Allowance and
Tenant Improvements Loan, and shall retain ten percent (10%) of the Tenant
Improvements Allowance and Tenant Improvements Loan for contingencies, and then
shall invoice Tenant for items of Tenant Improvements Cost thereafter incurred.
Landlord shall be entitled to suspend or terminate construction of the Tenant
Improvements if payment of any invoice given by Landlord to Tenant under this
Paragraph 8.B. is not received within ten (10) days after delivery to Tenant.
Upon completion of the Tenant Improvements, the amount of any then unused Tenant
Improvements Allowance and Tenant Improvements Loan shall be applied to any
unpaid Tenant Improvements Costs, and if Tenant has paid any amounts to Landlord
pursuant to this Paragraph 8.B., the unused balance of the Tenant Improvements
Allowance and Tenant Improvements Loan, if any, shall be paid to Tenant to
reimburse Tenant for payments made by Tenant under this Paragraph 8.B., if any
(but not in excess of the aggregate amount actually paid, if any, by Tenant
under this Paragraph 8.B.).
9. Change Request. When the Final Plans and Specifications have been
approved by Landlord, there shall be no changes without Landlord's prior written
consent, except for (a) necessary on-site installation variations or minor
changes necessary to comply with building codes and other governmental
regulations; (b) one revision, if requested by Tenant, to adjust the estimated
Tenant Improvements Cost to Tenant's T.I. Budget therefor, as permitted by
Paragraph 3 above; and (c) changes approved in writing by both parties. Any
costs related to such governmentally required or requested and approved changes
shall be added to the Tenant Improvements Cost and, to the extent such cost
results in Excess Tenant Improvements Cost, shall be paid for by Tenant as and
with any Excess Tenant Improvements Cost as set forth in Paragraph 8.A. The
billing for such additional costs to Tenant shall be accompanied by evidence of
the amounts billed as is customarily used in the business. Costs related to
changes shall
B-4
<PAGE> 35
include, without limitation, any architectural or design fees, And Landlord's
general contractor's price for effecting the change.
10. Termination. If the Lease is terminated prior to completion of the
Tenant Improvements, for any reason due to the Default of Tenant under the
Lease, in addition to any other damages available to Landlord, Tenant shall pay
to Landlord, within five (5) days of receipt of a statement therefor, all costs
incurred by Landlord through the date of termination in connection with the
Tenant Improvements. Landlord shall have the right to terminate the Lease, upon
written notice to Tenant, if Landlord is unable to obtain a building permit for
the Tenant Improvements within one hundred twenty (120) days from the date the
Lease is mutually executed.
11. Interest. Any payments required to be made by Tenant hereunder which
are not paid when due shall bear interest at the maximum rate permitted by law
from the due date therefor until paid.
12. Disclaimer. Landlord shall have no liability to Tenant in the event
construction of the Tenant Improvements is delayed or prevented due to any cause
beyond Landlord's reasonable control. If Tenant is entitled or permitted to
enter the Premises prior to completion of the Tenant Improvements, Landlord
shall not be liable to Tenant or its employees or agents for any loss or damage
to property, or injury to person, arising from or related to construction of the
Tenant Improvements. Tenant shall take all reasonable precautions to protect
against such loss, damage or injury during construction of the Tenant
Improvements, and shall not interfere with the conduct of the Tenant Improvement
work. Tenant shall cooperate with all reasonable directives of Landlord and
Landlord's contractor in order to minimize any disruption or delay in completion
of the Tenant Improvements work.
B-5
<PAGE> 36
EXHIBIT B-1
FINAL PLANS AND SPECIFICATIONS
Reference is hereby made to that certain Lease Agreement dated December
__, 1995 by and between Aetna Life Insurance Company, a Connecticut corporation,
as landlord ("Landlord"), and PLX Technology, Inc., a California corporation, as
tenant ("Tenant") ("Lease Agreement").
The Final Plans and Specifications (as defined in Exhibit B to the Lease
Agreement) consists of the following described drawings, specifications and
other documents:
Title of Drawing, Specification
or Other Document Date
The Final Plans and Specifications have been initialed by both Landlord
and Tenant and are on file with Landlord.
Initials: Landlord _______ Tenant _______
<PAGE> 37
EXHIBIT C
COMMENCEMENT DATE MEMORANDUM
LANDLORD: AETNA LIFE INSURANCE COMPANY
TENANT: PLX TECHNOLOGY, INC.
DATE: December __, 1995
PREMISES: Located at 390 Potrero Avenue, Sunnyvale, California
Tenant hereby accepts the Premises as being in the condition required
under the Lease, with all Tenant Improvements completed (except for minor
punchlist items which Landlord agrees to complete).
The Commencement Date of the above referenced Lease is hereby
established as ________________, 1995.
TENANT:
PLX TECHNOLOGY, INC.,
a California corporation
By
--------------------------------------
Print
Name:
-----------------------------------
Its
------------------------------------
Approved and Agreed:
AETNA LIFE INSURANCE COMPANY,
a Connecticut corporation
By
----------------------------------
Print
Name:
-------------------------------
Its
---------------------------------
<PAGE> 38
EXHIBIT D-2
TENANT IMPROVEMENT LOAN
AMORTIZATION MEMORANDUM
LANDLORD: AETNA LIFE INSURANCE COMPANY
TENANT: PLX TECHNOLOGY, INC.
DATE: December __, 1995
PREMISES: Located at 390 Potrero Avenue, Sunnyvale, California
Tenant hereby acknowledges and agrees that Landlord has made a Tenant
Improvement Loan to Tenant in the amount of _____________________ ($________)
pursuant to Paragraph 6 of Exhibit B to the Lease and that said Tenant
Improvement Loan, together with interest thereon at the rate of twelve percent
(12%) per annum, shall be amortized over the Term of the Lease in monthly
installments of _____________________ ($________), said installments to be due
and payable concurrently with the installments of Base Rent.
TENANT:
PLX TECHNOLOGY, INC.,
a California corporation
By
--------------------------------------
Print
Name:
-----------------------------------
Its
------------------------------------
Approved and Agreed:
AETNA LIFE INSURANCE COMPANY,
a Connecticut corporation
By
----------------------------------
Print
Name:
-------------------------------
Its
---------------------------------
<PAGE> 1
EXHIBIT 10.5
LEASE AGREEMENT
THIS LEASE, made this 17th day of October, 1997 between THE ARRILLAGA
FOUNDATION and THE PEERY FOUNDATION and PLX TECHNOLOGY, INC., a California
corporation, hereinafter called Tenant.
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord those certain premises (the "Premises") outlined in red on Exhibit "A",
attached hereto and incorporated herein by this reference thereto more
particularly described as follows:
A portion of that certain 32,500+/- square foot, one-story building
located at 350 Potrero Avenue, Suite 102, Sunnyvale, California 94086,
consisting of approximately 14,400+/- square feet of space. Said
Premises is more particularly shown within the area outlined in Red on
Exhibit A attached hereto. The entire parcel, of which the Premises is a
part, is shown within the area outlined in Green on Exhibit A attached.
The Premises shall be improved by Landlord as shown on Exhibit B
attached hereto, and is leased on an "as-is" basis, in its present
condition, and in the configuration as shown in Red on Exhibit B
attached hereto.
The word "Premises" as used throughout this lease is hereby defined to
include the nonexclusive use of landscaped areas, sidewalks and driveways in
front of or adjacent to the Premises, and the nonexclusive use of the area
directly underneath or over such sidewalks and driveways. The gross leasable
area of the building shall be measured from outside of exterior walls to outside
of exterior walls, and shall include any atriums, covered entrances or egresses
and covered loading areas.
Said letting and hiring is upon and subject to the terms, covenants and
conditions hereinafter set forth and Tenant covenants as a material part of the
consideration for this Lease to perform and observe each and all of said terms,
covenants and conditions. This Lease is made upon the conditions of such
performance and observance.
1. USE. Tenant shall use the Premises only in conformance with applicable
governmental laws, regulations, rules and ordinances for the purpose of general
office, light manufacturing, research and development, and storage and other
uses necessary for Tenant to conduct Tenant's business, provided that such uses
shall be in accordance with all applicable governmental laws and ordinances, and
for no other purpose. Tenant shall not do or permit to be done in or about the
Premises nor bring or keep or permit to be brought or kept in or about the
Premises anything which is prohibited by or will in any way increase the
existing rate of (or otherwise affect) fire or any insurance covering the
Premises or any part thereof, or any of its contents, or will cause a
cancellation of any insurance covering the Premises or any part thereof. Tenant
shall not do or permit to be done anything in, on or about the Premises which
will in any way obstruct or interfere with the rights of other tenants or
occupants of the Premises or neighboring premises or injure or annoy them, or
use or allow the Premises to be used for any improper, immoral, unlawful or
objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance
in, on or about the Premises. No sale by auction shall be permitted on the
Premises. Tenant shall not place any loads upon the floors, walls, or ceiling
which endanger the structure, or place any harmful fluids or other materials in
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<PAGE> 2
the drainage system of the building, or overload existing electrical or other
mechanical systems. No waste materials or refuse shall be dumped upon or
permitted to remain upon any part of the Premises or outside of the building in
which the Premises are a part, except in trash containers placed inside exterior
enclosures designated by Landlord for that purpose or inside of the building
proper where designated by Landlord. No materials, supplies, equipment, finished
products or semi-finished products, raw materials or articles of any nature
shall be stored upon or permitted to remain outside the Premises. Tenant shall
not place anything or allow anything to be placed near the glass of any window,
door partition or wall which may appear unsightly from outside the Premises. No
loudspeaker or other device, system or apparatus which can be heard outside the
Premises shall be used in or at the Premises without the prior written consent
of Landlord. Tenant shall not commit or suffer to be committed any waste in or
upon the Premises. Tenant shall indemnify, defend and hold Landlord harmless
against any loss, expense, damage, reasonable attorneys' fees, or liability
arising out of failure of Tenant to comply with any applicable law related to
Tenant's use of the Premises. Tenant shall comply with any covenant, condition,
or restriction ("CC&R's") affecting the Premises. The provisions of this
paragraph are for the benefit of the Landlord only and shall not be construed to
be for the benefit of any tenant or occupant of the Premises.
2. TERM*
A. The term of this Lease shall be for a period of seven (7) years
(unless sooner terminated as hereinafter provided) and, subject to Paragraphs 2B
and 3, shall commence on the 1st day of December, 1997 and end on the 30th day
of November, 2004.
B. Possession of the Premises shall be deemed tendered and the term of
the Lease shall commence when the first of the following occurs:
(a) One day after a Certificate of Occupancy is granted by the
proper governmental agency, or, if the governmental agency having jurisdiction
over the area in which the Premises are situated does not issue certificates of
occupancy, then the same number of days after certification by Landlord's
architect or contractor that Landlord's construction work has been completed; or
(b) Upon the occupancy of the Premises by any of Tenant's
operating personnel; or
(c) When the Tenant Improvements have been substantially
completed for Tenant's use and occupancy, in accordance and compliance with
Exhibit B of this Lease Agreement; or
(d) As otherwise agreed in writing.
3. POSSESSION. If Landlord, for any reason whatsoever, cannot deliver possession
of said premises to Tenant at the commencement of the said term, as hereinbefore
specified, this Lease shall not be void or voidable; no obligation of Tenant
shall be affected thereby; nor shall Landlord or Landlord's agents be liable to
Tenant for any loss or damage resulting therefrom; but in that event the
commencement and termination dates of the Lease, and all other dates affected
thereby shall be revised to conform to the date of Landlord's delivery of
possession, as specified in Paragraph 2B, above. The above is, however, subject
to the provision that the period of delay of delivery of the Premises shall not
exceed 30 days from the commencement date herein (except those delays caused by
Acts of God, strikes, war,
- --------
* It is agreed in the event said Lease commences on a date other than the first
day of the month the term of the Lease will be extended to account for the
number of days in the partial month. The Basic Rent during the resulting partial
month will be pro-rated (for the number of days in the partial month) at the
Basic Rent rate scheduled for the projected commencement date as shown in
Paragraph 39.
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<PAGE> 3
utilities, governmental bodies, weather, unavailable materials, and delays
beyond Landlord's control shall be excluded in calculating such period) in which
instance Tenant, at its option, may, by written notice to Landlord, terminate
this Lease.
4. RENT.
A. Basic Rent. Tenant agrees to pay to Landlord at such place as
Landlord may designate without deduction, offset, prior notice, or demand, and
Landlord agrees to accept as Basic Rent for the leased Premises the total sum of
Two Million Seven Hundred Eighty-Two Thousand Eighty and no/100 Dollars
($2,782,080.00) in lawful money of the United States of America, payable as
follows:
See Paragraph 39 for Basic Rent Schedule.
B. Time for Payment. Full monthly rent is due in advance on the first
day of each calendar month. In the event that the term of this Lease commences
on a date other than the first day of a calendar month, on the date of
commencement of the term hereof Tenant shall pay to Landlord as rent for the
period from such date of commencement to the first day of the next succeeding
calendar month that proportion of the monthly rent hereunder which the number of
days between such date of commencement and the first day of the next succeeding
calendar month bears to thirty (30). In the event that the term of this Lease
for any reason ends on a date other than the last day of a calendar month, on
the first day of the last calendar month of the term hereof Tenant shall pay to
Landlord as rent for the period from said first day of said last calendar month
to and including the last day of the term hereof that proportion of the monthly
rent hereunder which the number of days between said first day of said last
calendar month and the last day of the term hereof bears to thirty (30).
C. Late Charge. Notwithstanding any other provision of this Lease, if
Tenant is in default in the payment of rental as set forth in this Paragraph 4
when due, or any party thereof, Tenant agrees to pay Landlord, in addition to
the delinquent rental due, a late charge for each rental payment in default ten
(10) days. Said late charge shall equal ten percent (10%) of each rental payment
so in default.
D. Additional Rent. Beginning with the commencement date of the term of
this Lease, Tenant shall pay to Landlord or to Landlord's designated agent in
addition to the Basic Rent and as Additional Rent the following:
(a) All Taxes relating to the Premises as set forth in Paragraph
9, and
(b) All insurance premiums relating to the Premises, as set forth
in Paragraph 12, and
(c) All charges, costs and expenses, which tenant is required to
pay hereunder, together with all interest and penalties, costs and expenses
including reasonable attorneys' fees and legal expenses, that may accrue thereto
in the event of Tenant's failure to pay such amounts, and all damages,
reasonable costs and expenses which Landlord may incur by reason of default of
Tenant or failure on Tenant's part to comply with the terms of this Lease. In
the event of nonpayment by Tenant of Additional Rent, Landlord shall have all
the rights and remedies with respect thereto as Landlord has for nonpayment of
rent.
The Additional Rent due hereunder shall be paid to Landlord or
Landlord's agent (i) within five (5) days for taxes and insurance and within
thirty (30) days for all other Additional Rent items after presentation of
invoice from Landlord or Landlord's agent setting forth such Additional Rent
and/or (ii) at the option of Landlord, Tenant shall pay to Landlord monthly, in
advance, Tenant's prorata share of an
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Initials: __________
<PAGE> 4
amount estimated by Landlord to be Landlord's approximate average monthly
expenditure for such Additional Rent items, which estimated amount shall be
reconciled within 120 days of the end of each calendar year or more frequently
if Landlord elects to do so at Landlord's sole and absolute discretion as
compared to Landlord's actual expenditure for said Additional Rent items, with
Tenant paying to Landlord, upon demand, any amount of actual expenses expended
by Landlord in excess of said estimated amount, or Landlord crediting to Tenant
(providing Tenant is not in default in the performance of any of the terms,
covenants and conditions of this Lease) any amount of estimated payments made by
Tenant in excess of Landlord's actual expenditures for said Additional Rent
items. Within thirty (30) days after receipt of Landlord's reconciliation,
Tenant shall have the right, at Tenant's sole expense, to audit, at a mutually
convenient time at Landlord's office, Landlord's records relating to the
foregoing expenses. Such audit must be conducted by Tenant or an independent
nationally recognized accounting firm that is not being compensated by Tenant or
other third party on a contingency fee basis. Landlord shall be provided a
complete copy of said audit at no expense to Landlord. If such audit reveals
that Landlord has overcharged Tenant, the amount overcharged shall be credited
to Tenant's account within thirty (30) days after the audit is concluded.
The respective obligations of Landlord and Tenant under this paragraph
shall survive the expiration or other termination of the term of this Lease, and
if the term hereof shall expire or shall otherwise terminate on a day other than
the last day of a calendar year, the actual Additional Rent incurred for the
calendar year in which the term hereof expires or otherwise terminates shall be
determined and settled on the basis of the statement of actual Additional Rent
for such calendar year and shall be prorated in the proportion which the number
of days in such calendar year preceding such expiration or termination bears to
365.
E. Fixed Management Fee. Beginning with the Commencement Date of the
Term of this Lease, Tenant shall pay to Landlord, in addition to the Basic Rent
and Additional Rent, a fixed monthly management fee ("Management Fee") equal to
2% of the Basic Rent due for each month during the Lease Term.
F. Place of Payment of Rent and Additional Rent. All Basic Rent
hereunder and all payments hereunder for Additional Rent shall be paid to
Landlord at the office of Landlord at A&P Foundations, 2560 Mission College
Blvd., Suite 101, Santa Clara, California 95054 or to such other person or to
such other place as Landlord may from time to time designate in writing.
G. Security Deposit. Concurrently with Tenant's execution of this Lease,
Tenant shall deposit with Landlord the sum of Seventy-Four Thousand Eight
Hundred Eighty and No/100 Dollars ($74,880.00). Said sum shall be held by
Landlord as a Security Deposit for the faithful performance by Tenant of all of
the terms, covenants and conditions of this Lease to be kept and performed by
Tenant during the term hereof. If Tenant defaults with respect to any provision
of this Lease, including, but not limited to, the provisions relating to the
payment of rent and any of the monetary sums due herewith, Landlord may (but
shall not be required to) use, apply or retain all or any part of this Security
Deposit for the payment of any other amount which Landlord may spend by reason
of Tenant's default or to compensate Landlord for any other loss or damage which
Landlord may suffer by reason of Tenant's default. If any portion of said
Deposit is used or applied, Tenant shall, within ten (10) days after written
demand therefor, deposit cash with Landlord in the amount sufficient to restore
the Security Deposit to its original amount. Tenant's failure to do so shall be
a material breach of this Lease. Landlord shall not be required to keep this
Security deposit separate from its general funds, and Tenant shall not be
entitled to interest on such Deposit. If Tenant fully and faithfully performs
every provision of this Lease to be performed by it, the Security Deposit or any
balance thereof shall be returned to Tenant (or at Landlord's option, to the
last assignee of Tenant's interest hereunder) at the expiration of the Lease
term and after
Page 4 of 18
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<PAGE> 5
Tenant has vacated the Premises. In the event of termination of Landlord's
interest in this Lease, Landlord shall transfer said Deposit to Landlord's
successor in interest whereupon Tenant agrees to release Landlord from liability
for the return of such Deposit or the accounting therefor.
5. ACCEPTANCE AND SURRENDER OF PREMISES. Subject to Paragraph 40 by entry
hereunder, Tenant accepts the Premises as being in good and sanitary order,
condition and repair and accepts the building and improvements included in the
Premises in their present condition and without representation or warranty by
Landlord as to the condition of such building or as to the use or occupancy
which may be made thereof. Any exceptions to the foregoing must be by written
agreement executed by Landlord and Tenant. Tenant agrees on the last day of the
Lease term, or on the sooner termination of this Lease, to surrender the
Premises promptly and peaceably to Landlord in good condition and repair (damage
by Acts of God, fire, normal wear and tear excepted), with all interior walls
painted, or cleaned so that they appear freshly painted, and repaired and
replaced, if damaged; all floors cleaned and waxed; all carpets cleaned and
shampooed; all broken, marred or nonconforming acoustical ceiling tiles
replaced; all windows washed; the air-conditioning and heating systems serviced
by a reputable and licensed service firm and in good condition and repair; the
plumbing and electrical systems and lighting in good order and repair, including
replacement of any burned out or broken light bulbs or ballasts; the lawn and
shrubs in good condition including the replacement of any dead or damaged
plantings; the sidewalk, driveways and parking areas in good order, condition
and repair, together with all alterations, additions, and improvements which may
have been made in, to, or on the Premises (except moveable trade fixtures
installed at the expense of Tenant) except that Tenant shall ascertain from
Landlord within thirty (30) days before the end of the term of this Lease
whether Landlord desires to have the Premises or any part or parts thereof
restored to their condition and configuration as when the Premises were
delivered to Tenant and if Landlord shall so desire, then Tenant shall restore
said Premises or such part or parts thereof before the end of this Lease at
Tenant's sole cost and expense. Tenant, on or before the end of the term or
sooner termination of this Lease, shall remove all of Tenant's personal property
and trade fixtures from the Premises, and all property not so removed on or
before the end of the term or sooner termination of this Lease shall be deemed
abandoned by Tenant and title to same shall thereupon pass to Landlord without
compensation to Tenant. Landlord may, upon termination of this lease, remove all
moveable furniture and equipment so abandoned by Tenant, at Tenant's sole cost,
and repair any damage caused by such removal at Tenant's sole cost. If the
Premises be not surrendered at the end of the term or sooner termination of this
Lease, Tenant shall indemnify Landlord against loss or liability resulting from
the delay by Tenant in so surrendering the Premises including, without
limitation, any claims made by any succeeding tenant founded on such delay.
Nothing contained herein shall be construed as an extension of the term hereof
or as a consent of Landlord to any holding over by Tenant. The voluntary or
other surrender of this Lease or the Premises by Tenant or a mutual cancellation
of this Lease shall not work as a merger and, at the option of Landlord, shall
either terminate all or any existing subleases or subtenancies or operate as an
assignment to Landlord of all or any such subleases or subtenancies
6. ALTERATIONS AND ADDITIONS. Tenant shall not make, or suffer to be made, any
alteration or addition to the Premises, or any part thereof, without the written
consent of Landlord first had and obtained by Tenant (such consent not to be
unreasonably withheld), but at the cost of Tenant, and any addition to, or
alteration of, the Premises, except moveable furniture and trade fixtures, shall
at once become a part of the Premises and belong to Landlord. Landlord reserves
the right to approve all contractors and mechanics proposed by Tenant to make
such alterations and additions. Tenant shall retain title to all moveable
furniture and trade fixtures placed in the Premises. All heating, lighting,
electrical, air-conditioning, floor to ceiling partitioning, drapery, carpeting,
and floor installations made by Tenant, together with all property that has
become an integral part of the Premises, shall not be deemed trade fixtures.
Tenant agrees that it will not proceed to make such alteration or additions,
without having obtained consent from Landlord to do so, and until five (5) days
from the receipt of such consent, in order
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that Landlord may post appropriate notices to avoid any liability to contractors
or material suppliers for payment for Tenant's improvements. Tenant will at all
times permit such notices to be posted and to remain posted until the completion
of work. Tenant shall, if required by Landlord, secure at Tenant's own cost and
expense, a completion and lien indemnity bond, satisfactory to Landlord, for
such work. Tenant further covenants and agrees that any mechanic's lien filed
against the Premises for work claimed to have been done for, or materials
claimed to have been furnished to Tenant, will be discharged by Tenant, by bond
or otherwise, within ten (10) days after the filing thereof, at the cost and
expense of Tenant. Any exceptions to the foregoing must be made in writing and
executed by both Landlord and Tenant.
7. TENANT MAINTENANCE. Tenant shall, at its sole cost and expense, keep and
maintain the Premises (including appurtenances) and every part thereof in a high
standard of maintenance and repair, and in good and sanitary condition. Tenant's
maintenance and repair responsibilities herein referred to include, but are not
limited to, janitorization, plumbing systems within the non-common areas of the
Premises (such as water and drain lines, sinks), electrical systems within the
non-common areas of the Premises (such as outlets, lighting fixtures, lamps,
bulbs, tubes, ballasts), heating and air-conditioning controls within the
non-common areas of the Premises (such as mixing boxes, thermostats, time
clocks, supply and return grills), all interior improvements within the Premises
including, but not limited to: wall coverings, window coverings, acoustical
ceilings, vinyl tile, carpeting, partitioning, doors (both interior and
exterior, including closing mechanisms, latches, locks), and all other interior
improvements of any nature whatsoever. Tenant agrees to provide carpet shields
under all rolling chairs or to otherwise be responsible for wear and tear of the
carpet caused by such rolling chairs if such wear and tear exceeds that caused
by normal foot traffic in surrounding areas. Areas of excessive wear shall be
replaced at Tenant's sole expense upon Lease termination.
8. TAXES.
A. As Additional Rent and in accordance with Paragraph 4D of this Lease,
Tenant shall pay to Landlord, or if Landlord so directs, directly to the Tax
Collector, all Real Property Taxes relating to the Premises. In the event the
Premises leased hereunder consist of only a portion of the entire tax parcel,
Tenant shall pay to Landlord Tenant's proportionate share of such real estate
taxes allocated to the leased Premises by square footage or other reasonable
basis as calculated and determined by Landlord. If the tax billing pertains 100%
to the leased Premises, and Landlord chooses to have Tenant pay said real estate
taxes directly to the Tax Collector, then in such event it shall be the
responsibility of Tenant to obtain the tax and assessment bills and pay, prior
to delinquency, the applicable real property taxes and assessments pertaining to
the leased Premises, and failure to receive a bill for taxes and/or assessments
shall not provide a basis for cancellation of or nonresponsibility for payment
for payment of penalties for nonpayment or late payment by Tenant. The term
"Real Property Taxes," as used herein, shall mean (i) all taxes, assessments,
levies and other charges of any kind or nature whatsoever, general and special,
foreseen and unforeseen (including all installments of principal and interest
required to pay any general or special assessments for public improvements and
any increases resulting from reassessments caused by any change in ownership of
the Premises) now or hereafter imposed by any governmental or quasi-governmental
authority or special district having the direct or indirect power to tax or levy
assessments, which are levied or assessed against, or with respect to the value,
occupancy or use of, all or any portion of the Premises (as now constructed or
as may at any time hereafter be constructed, altered, or otherwise changed) or
Landlord's interest therein; any improvements located within the Premises
(regardless of ownership); the fixtures, equipment and other property of
Landlord, real or personal, that are an integral part of and located in the
Premises; or parking areas, public utilities, or energy within the Premises;
(ii) all charges, levies or fees imposed by reason of environment regulation or
other governmental control of the Premises; and (iii) all costs and fees
(including reasonable attorneys' fees) incurred by Landlord in
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reasonably contesting any Real Property Tax and in negotiating with public
authorities as to any Real Property Tax. If at any time during the term of this
lease the taxation or assessment of the Premises prevailing as of the
commencement date of this Lease shall be altered so that in lieu of or in
addition to any Real Property Tax described above there shall be levied,
assessed or imposed (whether by reason of a change in the method of taxation or
assessment, creation of a new tax or charge, or any other cause) an alternate or
additional tax or charge (i) on the value, use or occupancy of the Premises or
Landlord's interest therein or (ii) on or measured by the gross receipts, income
or rentals from the Premises, on Landlord's business of leasing the Premises, or
computed in any manner with respect to the operation of the Premises, then any
such tax or charge, however designated, shall be included within the meaning of
the term "Real Property Taxes" for purposes of this Lease. If any Real Property
Tax is based upon property or rents unrelated to the Premises, then only that
part of such Real Property Tax that is fairly allocable to the Premises shall be
included within the meaning of the term "Real Property Taxes." Notwithstanding
the foregoing, the term "Real Property Taxes" shall not include estate,
inheritance, gift or franchise taxes of Landlord or the federal or state net
income tax imposed on Landlord's income from all sources.
B. Taxes on Tenant's Property. Tenant shall be liable for and shall pay
ten days before delinquency, taxes levied against any personal property or trade
fixtures placed by Tenant in or about the Premises. If any such taxes on
Tenant's personal property or trade fixtures are levied against Landlord or
Landlord's property or if the assessed value of the Premises is increased by the
inclusion therein of a value placed upon such personal property or trade
fixtures of Tenant and Landlord, after written notice to Tenant, pays the taxes
based on such increased assessment, which Landlord shall have the right to do
regardless of the validity thereof, but only under proper protest if requested
by Tenant, Tenant shall upon demand, as the case may be, repay to Landlord the
taxes so levied against Landlord, or the proportion of such taxes resulting from
such increase in the assessment; provided that in any such event Tenant shall
have the right, in the name of Landlord and with Landlord's full cooperation, to
bring suit in any court of competent jurisdiction to recover the amount of such
taxes so paid under protest, and any amount so recovered shall belong to Tenant.
9. LIABILITY INSURANCE. Tenant, at Tenant's expense, agrees to keep in force
during the term of this Lease a policy of commercial general liability insurance
with combined single limit coverage of not less than Two Million Dollars
($2,000,000) per occurrence for bodily injury and property damage occurring in,
on or about the Premises, including parking and landscaped areas. Such insurance
shall be primary and noncontributory as respects and insurance carried by
Landlord. The policy or policies effecting such insurance shall name Landlord as
additional insureds, and shall insure any liability of Landlord, contingent or
otherwise, as respects acts or omissions of Tenant, its agents, employees or
invitees or otherwise by any conduct or transactions of any of said persons in
or about or concerning the Premises, including any failure of Tenant to observe
or perform any of its obligations hereunder; shall be issued by an insurance
company admitted to transact business in the State of California; and shall
provide that the insurance effected thereby shall not be canceled, except upon
thirty (30) days' prior written notice to Landlord. A certificate of insurance
of said policy shall be delivered to Landlord. If, during the term of this
Lease, in the considered opinion of Landlord's Lender, insurance advisor, or
counsel, the amount of insurance described in this Paragraph 10 is not adequate,
Tenant agrees to increase said coverage to such reasonable amount as Landlord's
Lender, insurance advisor, or counsel shall deem adequate.
10. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION INSURANCE.
Tenant shall maintain a policy or policies of fire and property damage insurance
in "all risk" from with a sprinkler leakage endorsement insuring the personal
property, inventory, trade fixtures, and leasehold improvements within the
leased Premises for the full replacement
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value thereof. The proceeds from any of such policies shall be used for the
repair or replacement of such items so insured.
Tenant shall also maintain a policy or policies of workman's
compensation insurance and any other employee benefit insurance sufficient to
comply with all laws.
11. PROPERTY INSURANCE. Landlord shall purchase and keep in force, and as
Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall
pay to Landlord (or Landlord's agent if so directed by Landlord) Tenant's
proportionate share (allocated to the leased Premises by square footage or other
equitable basis as calculated and determined by Landlord) of the deductibles on
insurance claims and the cost of, policy or policies of insurance covering loss
or damage to the Premises (excluding routine maintenance and repairs and
incidental damage or destruction caused by accidents or vandalism for which
Tenant is responsible under Paragraph 7) in the amount of the full replacement
value thereof, providing protection against those perils included within the
classification of "all risks" insurance and flood and/or earthquake insurance,
if available, plus a policy of rental income insurance in the amount of one
hundred percent (100%) of twelve (12) months Basic Rent, plus sums paid as
Additional Rent. If such insurance cost is increased due to Tenant's use of the
Premises, Tenant agrees to pay to Landlord the full cost of such increase.
Tenant shall have no interest in nor any right to the proceeds of any insurance
procured by Landlord for the Premises.
Landlord and Tenant do each hereby respectively release the other, to
the extent of insurance coverage of the releasing party, from any liability for
loss or damage caused by fire or any of the extended coverage casualties
included in the releasing party's insurance policies, irrespective of the cause
of such fire or casualty; provided, however, that if the insurance policy of
either releasing party prohibits such waiver, then this waiver shall not take
effect until consent to such waiver is obtained. If such waiver is so
prohibited, the insured party affected shall promptly notify the other party
thereof.
12. INDEMNIFICATION. Landlord shall not be liable to Tenant and Tenant hereby
waives all claims against Landlord for any injury to or death of any person or
damage to or destruction of property in or about the Premises by or from any
cause whatsoever, including, without limitation, gas, fire, oil electricity or
leakage of any character from the roof, walls, basement or other portion of the
Premises but excluding, however, the willful misconduct or negligence of
Landlord, its agents, servants, employees, invitees, or contractors of which
negligence Landlord has knowledge and reasonable time to correct. Except as to
injury to persons or damage to property to the extent arising from the willful
misconduct or the negligence of Landlord, its agents, servants, employees,
invitees, or contractors, Tenant shall hold Landlord harmless from and defend
Landlord against any and all expenses, including reasonable attorneys' fees, in
connection therewith, arising out of any injury to or death of any person or
damage to or destruction of property occurring in, on or about the Premises, or
any part thereof, from any cause whatsoever.
13. COMPLIANCE. Tenant, at its sole cost and expense, shall promptly comply with
all laws, statutes, ordinances and governmental rules, regulations or
requirements now or hereafter in effect; with the requirements of any board of
fire underwriters or other similar body now or hereafter constituted; and with
any direction or occupancy certificate issued pursuant to law by any public
officer; provided, however, that no such failure shall be deemed a breach of the
provisions if Tenant, immediately upon notification, commences to remedy or
rectify said failure. The judgment of any court of competent jurisdiction or the
admission of Tenant in any action against Tenant, whether Landlord be a party
thereto or not, that Tenant has violated any such law, statute, ordinance or
governmental rule, regulation, requirement, direction or provision, shall be
conclusive of that fact as between Landlord and Tenant. Tenant shall, at its
sole cost and expense, comply with any and all requirements pertaining to said
Premises, of any insurance organization or company, necessary for the
maintenance of reasonable fire and public liability insurance covering
requirements pertaining to said
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Premises, of any insurance organization or company, necessary for the
maintenance of reasonable fire and public liability insurance covering the
Premises.
14. LIENS. Tenant shall keep the Premises free from any liens arising out of any
work performed, materials furnished or obligation incurred by Tenant. In the
event that Tenant shall not, within ten (10) days following the imposition of
such lien, cause the same to be released of record, Landlord shall have, in
addition to all other remedies provided herein and by law, the right, but no
obligation, to cause the same to be released by such means as it shall deem
proper, including payment of the claim giving rise to such lien. All sums paid
by Landlord for such purpose, and all expenses incurred by it in connection
therewith, shall be payable to Landlord by Tenant on demand with interest at the
prime rate of interest as quoted by the Bank of America.
15. ASSIGNMENT AND SUBLETTING. Tenant shall not assign, transfer, or hypothecate
the leasehold estate under this Lease, or any interest therein, and shall not
sublet the Premises, or any part thereof, or any right or privilege appurtenant
thereto, or suffer any other person or entity to occupy or use the Premises, or
any portion thereof, without, in each case, the prior written consent of
Landlord which consent will not be unreasonably withheld. As a condition for
granting this consent to any assignment, transfer, or subletting, Landlord shall
require Tenant to pay to Landlord, as Additional Rent, all rents and/or
additional consideration due Tenant from its assignees, transferees, or
subtenants in excess of the Rent payable by Tenant to Landlord hereunder for the
assigned, transferred and/or subleased space. Tenant shall, by thirty (30) days
written notice, advise Landlord of its intent to assign or transfer Tenant's
interest in the Lease or sublet the Premises or any portion thereof for any part
of the term hereof. Within fifteen (15) days after receipt of said written
notice, Landlord may, in its sole discretion, elect to terminate this Lease as
to the portion of the Premises described in Tenant's notice on the date
specified in Tenant's notice by giving written notice of such election to
terminate. If no such notice to terminate is given to Tenant within said fifteen
(15) day period, Tenant may proceed to locate an acceptable sublessee, assignee,
or other transferee for presentment to Landlord for Landlord's approval, all in
accordance with the terms, covenants, and conditions of this paragraph 15. If
Tenant intends to sublet twenty-five percent (25%) or more of the Premises and
Landlord elects to terminate this Lease, this Lease shall be terminated on the
date specified in Tenant's notice. If, however, this Lease shall terminate
pursuant to the foregoing with respect to less than all the Premises, the rent,
as defined and reserved hereinabove shall be adjusted on a pro rata basis to the
number of square feet retained by Tenant, and this Lease as so amended shall
continue in full force and effect. In the event Tenant is allowed to assign,
transfer or sublet the whole or any part of the Premises, with the prior written
consent of Landlord, no assignee, transferee or subtenant shall assign or
transfer this Lease, either in whole or in part, or sublet the whole or any part
of the Premises, without also having obtained the prior written consent of
Landlord, which consent shall not be unreasonably withheld. A consent of
Landlord to one assignment, transfer, hypothecation, subletting, occupation or
use by any other person shall not release Tenant from any of Tenant's
obligations hereunder or be deemed to be a consent to any subsequent similar or
dissimilar assignment, transfer, hypothecation, subletting, occupation or use by
any other person. Any such assignment, transfer, hypothecation, subletting,
occupation or use without such consent shall be void and shall constitute a
breach of this Lease by Tenant and shall, at the option of Landlord exercised by
written notice to Tenant, terminate this Lease. The leasehold estate under this
Lease shall not, nor shall any interest therein, be assignable for any purpose
by operation of law without the written consent of Landlord, which consent shall
not be unreasonably withheld. As a condition to its consent, Landlord shall
require Tenant to pay all expenses in connection with the assignment, and
Landlord shall require Tenant's assignee or transferee (or other assignees or
transferees) to assume in writing all of the obligations under this Lease and
for
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Tenant to remain liable to Landlord under the Lease. Notwithstanding the above,
in no event will Landlord consent to a sub-sublease.
16. SUBORDINATION AND MORTGAGES. In the event Landlord's title or leasehold
interest is now or hereafter encumbered by a deed of trust, upon the interest of
Landlord in the land and buildings in which the demised Premises are located, to
secure a loan from a lender (hereinafter referred to as "Lender") to Landlord,
Tenant shall, at the request of Landlord or Lender, execute in writing an
agreement subordinating it rights under this Lease to the lien of such deed of
trust, or, of so requested, agreeing that the lien of Lender's deed of trust
shall be or remain subject and subordinate to the rights of Tenant under this
Lease and provided Lender executes a reasonable non-disturbance agreement.
Notwithstanding any such subordination, Tenant's possession under this Lease
shall not be disturbed if Tenant is not in default and so long as Tenant shall
pay all rent and observe and perform all of the provisions set forth in this
Lease.
17. ENTRY BY LANDLORD. Landlord reserves, and shall at all reasonable times
after at least 24 hours notice (except in emergencies) have the right to enter
the Premises to inspect them; to perform any services to be provided by Landlord
hereunder; to make repairs or provide any services to a contiguous tenant(s); to
submit the Premises to prospective purchasers, mortgagers or tenants; to post
notices of nonresponsibility; and to alter, improve or repair the Premises or
other parts of the building, all without abatement of rent, and may erect
scaffolding and other necessary structures in or through the Premises where
reasonably required by the character of the work to be performed; provided,
however, that the business of Tenant shall be interfered with to the least
extent that is reasonably practical. Any entry to the Premises by Landlord for
the purposes provided for herein shall not under any circumstances be construed
or deemed to be a forcible or unlawful entry into or a detainer of the Premises
or an eviction, actual or constructive, of Tenant from the Premises or any
portion thereof.
18. BANKRUPTCY AND DEFAULT. The commencement of a bankruptcy action or
liquidation action or reorganization action or insolvency action or an
assignment of or by Tenant for the benefit of creditors, or any similar action
undertaken by Tenant, or the insolvency of Tenant, shall, at Landlord's option,
constitute a breach of this Lease by Tenant. If the trustee or receiver
appointed to serve during a bankruptcy, liquidation, reorganization, insolvency
or similar action elects to reject Tenant's unexpired Lease, the trustee or
receiver shall notify Landlord in writing of its election within thirty (30)
days after an order for relief in a liquidation action or within thirty (30)
days after the commencement of any action.
Within thirty (30) days after court approval of the assumption of this
Lease, the trustee or receiver shall cure (or provide adequate assurance to the
reasonable satisfaction of Landlord that the trustee or receiver shall cure) any
and all previous defaults under the unexpired Lease and shall compensate
Landlord for all actual pecuniary loss and shall provide adequate assurance of
future performance under said Lease to the reasonable satisfaction of Landlord.
Adequate assurance of future performance, as used herein, includes, but shall
not be limited to: (i) assurance of source and payment of rent, and other
consideration due under this Lease; (ii) assurance that the assumption or
assignment of this Lease will not breach substantially any provision, such as
radius, location, use, or exclusivity provision, in any agreement relating to
the above-described Premises.
Nothing contained in this section shall affect the existing right of
Landlord to refuse to accept an assignment upon commencement of or in connection
with a bankruptcy, liquidation, reorganization or insolvency action or an
assignment of Tenant for the benefit of creditors or other similar act. Nothing
contained in this Lease shall be construed as giving or granting or creating an
equity in the demised Premises to Tenant. In no event shall the leasehold estate
under this Lease, or any interest therein, be assigned by voluntary or
involuntary bankruptcy proceeding without the prior written consent of
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Landlord. In no event shall this Lease or any rights or privileges hereunder be
an asset of Tenant under any bankruptcy, insolvency or reorganization
proceedings.
The failure to perform or honor any covenant, condition or
representation made under this Lease shall constitute a default hereunder by
Tenant upon expiration of the appropriate grace period hereinafter provided.
Tenant shall have a period of five (5) days from the date of written notice from
Landlord within which to cure any default in the payment of rental or adjustment
thereto. Tenant shall have a period of thirty (30) days from the date of written
notice from Landlord within which to cure any other default under this Lease.
Upon an uncured default of this Lease by Tenant, Landlord shall have the
following rights and remedies in addition to any other rights or remedies
available to Landlord at law or in equity:
(a) The rights and remedies provided for by California Civil Code
Section 1951.2, including, but not limited to, recovery of the worth at the time
of award of the amount by which the unpaid rent for the balance of the term
after the time of award exceeds the amount of rental loss for the same period
that Tenant proves could be reasonably avoided, as computed pursuant to
subsection (b) of said Section 1951.2. Any proof by Tenant under subparagraph
(2) and (3) of Section 1951.2 of the California Civil Code of the amount of
rental loss that could be reasonably avoided shall be made in the following
manner: Landlord and Tenant shall each select a licensed real estate broker in
the business of renting property of the same type and use as the Premises and in
the same geographic vicinity. Such two real estate brokers shall select a third
licensed real estate broker, and the three licensed real estate brokers so
selected shall determine the amount of the rental loss that could be reasonably
avoided from the balance of the term of this Lease after the time of award. The
decision of the majority of said licensed real estate brokers shall be final and
binding upon the parties hereto.
(b) The rights and remedies provided by California Civil Code
Section which allows Landlord to continue the Lease in effect and to enforce all
of its rights and remedies under this Lease, including the right to recover rent
as it becomes due, for so long as Landlord does not terminate Tenant's right to
possession; acts of maintenance or preservation, efforts to relet the Premises,
or the appointment of a receiver upon Landlord's initiative to protect its
interest under this Lease shall not constitute a termination of Tenant's right
to possession.
(c) The right to terminate this Lease by giving notice to Tenant
in accordance with applicable law.
(d) To the extent permitted by law, the right and power to enter
the Premises and remove therefrom all persons and property, to store such
property in a public warehouse or elsewhere at the cost of and for the account
of Tenant, and to sell such property and apply such proceeds therefrom pursuant
to applicable California law. Landlord may from time to time sublet the Premises
or any part thereof for such term or terms (which may extend beyond the term of
this Lease) and at such rent and such other terms as Landlord in its reasonable
sole discretion may deem advisable, with the right to make alterations and
repairs to the Premises. Upon each subletting, (i) Tenant shall be immediately
liable to pay Landlord, in addition to indebtedness other than rent due
hereunder, the reasonable cost of such subletting, including, but not limited
to, reasonable attorneys' fees, and any real estate commissions actually paid,
and the cost of such reasonable alterations and repairs incurred by Landlord and
the amount, if any, by which the rent hereunder for the period of such
subletting (to the extent such period does not exceed the term hereof) exceeds
the amount to be paid as rent for the Premises for such period or (ii) at the
option of Landlord, rents received from such subletting shall be applied first
to payment of indebtedness other than rent due hereunder from Tenant to
Landlord; second, to the payment of any costs of such subletting and of such
alterations and repairs; third to payment of rent due and unpaid hereunder,
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and the residue, if any, shall be held by Landlord and applied in payment of
future rent as the same becomes due hereunder. If Tenant has been credited with
any rent to be received by such subletting under option (i) and such rent shall
not be promptly paid to Landlord by the subtenant(s), or if such rentals
received from such subletting under option (ii) during any month be less than
that to be paid during that month by Tenant hereunder, Tenant shall pay any such
deficiency to Landlord. Such deficiency shall be calculated and paid monthly. No
taking possession of the Premises by Landlord shall be construed as an election
on its part to terminate this Lease unless a written notice of such intention be
given to Tenant. Notwithstanding any such subletting without termination,
Landlord may at any time hereafter elect to terminate this Lease for such
previous breach.
(e) The right to have a receiver appointed for Tenant upon
application by Landlord, to take possession of the Premises and to apply any
rental collected from the Premises and to exercise all other rights and remedies
granted to Landlord pursuant to subparagraph d. above.
19. ABANDONMENT. Tenant shall not vacate or abandon the Premises at any time
during the term of this Lease, and if Tenant shall abandon, vacate or surrender
said Premises, or be dispossessed by the process of law, or otherwise, any
personal property belonging to Tenant and left on the Premises shall be deemed
to be abandoned, at the option of Landlord, except such property as may be
mortgaged to Landlord.
20. DESTRUCTION. In the event the Premises are destroyed in whole or in part
from any cause, except for routine maintenance and repairs and incidental damage
and destruction caused from vandalism and accidents for which Tenant is
responsible under Paragraph 7, Landlord may, at its option:
(a) Rebuild or restore the Premises to their condition prior to
the damage or destruction, or
(b) Terminate this Lease (providing that the Premises is damaged
to the extent of 33-1/3% of the replacement cost).
If Landlord does not give Tenant notice in writing within thirty (30)
days from the destruction of the Premises of its election to either rebuild and
restore them, or to terminate this Lease, Landlord shall be deemed to have
elected to rebuild or restore them, in which event Landlord agrees, at its
expense, except for any deductible, which is the responsibility of Tenant,
promptly to rebuild or restore the premises to their condition prior to the
damage or destruction. Tenant shall be entitled to a reduction in rent while
such repair is being made in proportion that the area of the Premises rendered
untenantable by such damaged bears to the total area of the Premises. If
Landlord initially estimates that the rebuilding or restoration will exceed 180
days or if Landlord does not complete the rebuilding or restoration within one
hundred eighty (180) days following the date of destruction (such period of time
to be extended for delays caused by the fault or neglect of Tenant or because of
Acts of God, acts of public agencies, labor disputes, strikes, fires, freight
embargoes, rainy or stormy weather, inability to obtain materials, supplies or
fuels, acts of contractors or subcontractors, or delay of the contractors or
subcontractors due to such causes or other contingencies beyond the control of
Landlord), then Tenant shall have the right to terminate this Lease by giving
fifteen (15) days prior written notice to Landlord. Notwithstanding anything
herein to the contrary, Landlord's obligation to rebuild or restore shall be
limited to the building and interior improvements constructed by Landlord as
they existed as of the commencement date of the Lease and shall not include
restoration of Tenant's trade fixtures, equipment, merchandise, or any
improvements, alterations or additions made by Tenant to the Premises, which
Tenant shall forthwith replace or fully repair at Tenant's sole cost and expense
provided this Lease is not cancelled according to the provisions above.
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Unless this Lease is terminated pursuant to the foregoing provisions,
this Lease shall remain in full force and effect. Tenant hereby expressly waives
the provisions of Section 1932, Subdivision 2, in Section 1933, Subdivision 4 of
the California Civil Code.
In the event that the building in which the Premises are situated is
damaged or destroyed to the extent of not less than 33-1/3% of the replacement
cost thereof, Landlord may elect to terminate this Lease, whether the Premises
by injured or not. Notwithstanding anything to the contrary herein, Landlord may
terminate this Lease in the event of an uninsured event or if insurance proceeds
are insufficient to cover one hundred percent (100%) of the rebuilding costs net
of the deductible.
21. EMINENT DOMAIN. If all or any part of the Premises shall be taken by any
public or quasi-public authority under the power of eminent domain or conveyance
in lieu thereof, this Lease shall terminate as to any portion of the Premises so
taken or conveyed on the date when title vests in the condemnor, and Landlord
shall be entitled to any and all payment, income, rent, award, or any interest
therein whatsoever which may be paid or made in connection with such taking or
conveyance, and Tenant shall have no claim against Landlord or otherwise for the
value of any unexpired term of this Lease. Notwithstanding the foregoing
paragraph, any compensation specifically awarded Tenant for loss of business,
Tenant's personal property, moving cost or loss of goodwill, shall be and remain
the property of Tenant.
If any action or proceeding is commenced for such taking of the Premises
or any part thereof, or if Landlord is advised in writing by any entity or body
having the right or power of condemnation of its intention to condemn the
Premises or any portion thereof, then Landlord shall have the right to terminate
this Lease by giving Tenant written notice thereof within sixty (60) days of the
date of receipt of said written advice, or commencement of said action or
proceeding, or taking conveyance, which termination shall take place as of the
first to occur of the last day of the calendar month next following the month in
which such notice is given or the date on which title to the Premises shall vest
in the condemnor.
In the event of such a partial taking or conveyance of the Premises, if
the portion of the Premises taken or conveyed is so substantial that the Tenant
can no longer reasonably conduct its business, Tenant shall have the privilege
of terminating this Lease within sixty (60) days from the date of such taking or
conveyance, upon written notice to Landlord of its intention so to do, and upon
giving of such notice this Lease shall terminate on the last day of the calendar
month next following the month in which such notice is given, upon payment by
Tenant of the rent from the date of such taking or conveyance to the date of
termination.
If a portion of the Premises be taken by condemnation or conveyance in
lieu thereof and neither Landlord nor Tenant shall terminate this Lease as
provided herein, this Lease shall continue in full force and effect as to the
part of the Premises not so taken or conveyed, and the rent herein shall be
apportioned as of the date of such taking or conveyance so that thereafter the
rent to be paid by Tenant shall be in the ratio that the area of the portion of
the Premises not so taken or conveyed bears to the total area of the Premises
prior to such taking.
22. SALE OR CONVEYANCE BY LANDLORD. In the event of a sale or conveyance of the
Premises or any interest therein, by any owner of the reversion then
constituting Landlord, the transferor shall thereby be released from any further
liability upon any of the terms, covenants or conditions (express or implied)
herein contained in favor of Tenant, and in such event, insofar as such transfer
is concerned, Tenant agrees to look solely to the responsibility of the
successor in interest of such transferor in and to the Premises and this Lease.
This Lease shall not be affected by any such sale or conveyance, and Tenant
agrees to attorn to the successor in interest of such transferor.
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23. ATTORNMENT TO LENDER OR THIRD PARTY. In the event the interest of Landlord
in the land and buildings in which the leased Premises are located (whether such
interest of Landlord is a fee title interest or a leasehold interest) is
encumbered by deed of trust, and such interest is acquired by the lender or any
third party through judicial foreclosure or by exercise of a power of sale at
private trustee's foreclosure sale, Tenant hereby agrees to attorn to the
purchaser at any such foreclosure sale and to recognize such purchaser as the
Landlord under this Lease. In the event the lien of the deed of trust securing
the loan from a Lender to Landlord is prior and paramount to the Lease, this
Lease shall nonetheless continue in full force and effect for the remainder of
the unexpired term hereof, at the same rental herein reserved and upon all the
other terms, conditions and covenants herein contained.
24. HOLDING OVER. Any holding over by Tenant after expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall not constitute a renewal or extension of the Lease or
give Tenant any rights in or to the leased Premises except as expressly provided
in this Lease. Any holding over after the expiration or other termination of the
term of this Lease, with the consent of Landlord, shall be construed to be a
tenancy from month to month, on the same terms and conditions herein specified
insofar as applicable except that the monthly Basic Rent shall be increased to
an amount equal to one hundred fifty percent (150%) of the monthly Basic Rent
required during the last month of the Lease term.
25. CERTIFICATE OF ESTOPPEL. Tenant shall at any time upon not less than ten
(10) days prior written notice from Landlord execute, acknowledge and deliver to
Landlord a statement in writing (i) certifying that this Lease is unmodified and
in full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect) and the date to which the rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, or specifying
such defaults, if any, are claimed. Any such statement may be conclusively
relied upon by any prospective purchaser or encumbrancer of the Premises.
Tenant's failure to deliver such statement within such time shall be conclusive
upon Tenant that this Lease is in full force and effect, without modification
except as may be represented by Landlord; that there are no uncured defaults in
Landlord's performance, and that not more than one month's rent has been paid in
advance.
26. CONSTRUCTION CHANGES. It is understood that the description of the Premises
and the location of ductwork, plumbing and other facilities therein are subject
to such minor changes as Landlord or Landlord's architect determines to be
desirable in the course of construction of the Premises, and no such changes
shall affect this Lease or entitle Tenant to any reduction of rent hereunder or
result in any liability of Landlord to Tenant. Landlord does not guarantee the
accuracy of any drawings supplied to Tenant and verification of the accuracy of
such drawings rests with Tenant.
27. RIGHT OF LANDLORD TO PERFORM. All terms, covenants and conditions of this
Lease to be performed or observed by Tenant shall be performed or observed by
Tenant at Tenant's sole cost and expense and without any reduction of rent. If
Tenant shall fail to pay any sum of money, or other rent, required to be paid by
it hereunder and such failure shall continue for five (5) days after written
notice by Landlord, or shall fail to perform any other term or covenant
hereunder on its part to be performed, and such failure shall continue for
thirty (30) days after written notice thereof by Landlord, Landlord, without
waiving or releasing Tenant from any obligation of Tenant hereunder, may, but
shall not be obliged to, make any such payment or perform any such other term or
covenant on Tenant's part to be performed. All sums so paid by Landlord and all
necessary costs of such performance by Landlord together with interest thereon
at the rate of the prime rate of interest per annum ad quoted by the Bank of
America from the date of such payment on performance by Landlord, shall be paid
(and Tenant covenants to make such payment) to Landlord on demand by Landlord,
and Landlord shall have (in addition to any
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other right or remedy of Landlord) the same rights and remedies in the event of
nonpayment by Tenant as in the case of failure by Tenant in the payment of rent
hereunder.
28. ATTORNEYS' FEES.
A. In the event that either Landlord or Tenant should bring suit for the
possession of the Premises, for the recovery of any sum under this Lease, or
because of the breach of any provision of this Lease, or for any other relief
against the other party hereunder, then all costs and expenses, including
reasonable attorneys' fees, incurred by the prevailing party therein shall be
paid by the other party, which obligation on the part of the other party shall
be deemed to have occurred on the date of the commencement of such action and
shall be enforceable whether or not the action is prosecuted to judgment.
B. Should Landlord be named as a defendant in any suit brought against
Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant
shall pay to Landlord its costs and expenses incurred in such suit, including a
reasonable attorney's fee.
29. WAIVER. The waiver by either party of the other party's failure to perform
or observe any term, covenant or condition herein contained to be performed or
observed by such waiving party shall not be deemed to be a waiver of such term,
covenant or condition or of any subsequent failure of the party failing to
perform or observe the same or any other such term, covenant or condition
therein contained, and no custom or practice which may develop between the
parties hereto during the term hereof shall be deemed a waiver of, or in any way
affect, the right of either party to insist upon performance and observance by
the other party in strict accordance with the terms hereof.
30. NOTICES. All notices, demands, requests, advices or designations which may
be or are required to be given by either party to the other hereunder shall be
in writing. All notices, demands, requests, advices or designations by Landlord
to Tenant shall be sufficiently given, made or delivered if personally served on
Tenant by leaving the same at the premises of it sent by United States certified
or registered mail, postage prepaid, addressed to Tenant at the Premises. All
notices, demands, requests, advices or designations by Tenant to Landlord shall
be sent by United States certified or registered mail, postage prepaid,
addressed to Landlord at its offices at A&P Foundations, 2560 Mission College
Blvd., Suite 101, Santa Clara, CA 95054. Each notice, request, demand, advice
or designation referred to in this paragraph shall be deemed received on the
date of the personal service or mailing thereof in the manner herein provided,
as the case may be.
31. EXAMINATION OF LEASE. Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for a lease,
and this instrument is not effective as a lease or otherwise until its execution
and delivery by both Landlord and Tenant.
32. DEFAULT BY LANDLORD. Landlord shall not be in default unless Landlord fails
to perform obligations required of Landlord within a reasonable time, but in no
event earlier than thirty (30) days after written notice by Tenant to Landlord
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have heretofore been furnished to Tenant in
writing, specifying wherein Landlord has failed to perform such obligations;
provided, however, that if the nature of Landlord's obligations is such that
more than thirty (30) days are required for performance, then Landlord shall not
be in default if Landlord commences performance within such thirty (30) day
period and thereafter diligently prosecutes the same to completion.
Page 15 of 18
Initials: __________
Initials: __________
<PAGE> 16
33. CORPORATE AUTHORITY. If Tenant is a corporation (or a partnership), each
individual executing this Lease on behalf of said corporation (or partnership)
represents and warrants that he is duly authorized to execute and deliver this
Lease on behalf of said corporation (or partnership) in accordance with the
by-laws of said corporation (or partnership in accordance with the partnership
agreement) and that this Lease is binding upon said corporation (or partnership)
in accordance with its terms. If Tenant is a corporation, Tenant shall, within
thirty (30) days after execution of this Lease, deliver to Landlord a certified
copy of the resolution of the Board of Directors of said corporation authorizing
or ratifying the execution of this Lease.
34. LIMITATION OF LIABILITY. In consideration of the benefits accruing
hereunder, Tenant and all successors and assigns covenant and agree that, in the
event of any actual or alleged failure, breach or default hereunder by Landlord:
(a) the sole and exclusive remedy shall be against Landlord's
interest in the Premises leased herein;
(b) no partner of Landlord shall be sued or named as a party in
any suit or action (except as may be necessary to secure jurisdiction of the
partnership);
(c) no service of process shall be made against any partner of
Landlord (except as may be necessary to secure jurisdiction of the partnership);
(d) no partner of Landlord shall be required to answer or
otherwise plead to any service of process;
(e) no judgment will be taken against any partner of Landlord;
(f) any judgment taken against any partner of Landlord may be
vacated and set aside at any time without hearing;
(g) no writ of execution will ever be levied against the assets
of any partner of Landlord;
(h) these covenants and agreements are enforceable by both
Landlord and also by any partner of Landlord.
Tenant agrees that each of the foregoing covenants and agreements shall
be applicable to any covenant or agreement either expressly contained in this
Lease or imposed by statute or at common law.
35. SIGNS. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside of
the Premises or any exterior windows of the Premises without the written consent
of Landlord first had and obtained and Landlord shall have the right to remove
any such sign, placard, picture, advertisement, name or notice without notice to
and at the expense of Tenant. If Tenant is allowed to print or affix or in any
way place a sign in, on or about the Premises, upon expiration or other sooner
termination of this Lease, Tenant at Tenant's sole cost and expense shall both
remove such sign and repair all damage in such a manner as to restore all
aspects of the appearance of the Premises to the condition prior to the
placement of said sign.
All approved signs or lettering on outside doors shall be printed,
painted, affixed or inscribed at the expense of Tenant by a person approved of
by Landlord.
Page 16 of 18
Initials: __________
Initials: __________
<PAGE> 17
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door partition or wall which may appear unsightly from
outside the Premises.
36. MISCELLANEOUS AND GENERAL PROVISIONS.
A. Use of Building Name. Tenant shall not, without the written consent
of Landlord, use the name of the building for any purpose other than as the
address of the business conducted by Tenant in the Premises.
B. Choice of Law; Severability. This Lease shall in all respects be
governed by and construed in accordance with the laws of the State of
California. If any provision of this Lease shall be invalid, unenforceable or
ineffective for any reason whatsoever, all other provisions hereof shall be and
remain in full force and effect.
C. Definition of Terms. The term "Premises" includes the space leased
hereby and any improvements now or hereafter installed therein or attached
thereto. The term "Landlord" or any pronoun used in place thereof includes the
plural as well as the singular and the successors and assigns of Landlord. The
term "Tenant" or any pronoun used in place thereof includes the plural as well
as the singular and individuals, firms, associations, partnerships and
corporations, and their and each of their respective heirs, executors,
administrators, successors and permitted assigns, according to the context
hereof, and the provisions of this Lease shall inure to the benefit of and bind
such heirs, executors, administrators, successors and permitted assigns.
The term "person" includes the plural as well as the singular and
individuals, firms, associations, partnerships and corporations. Words used in
any gender include other genders. If there be more than one Tenant, the
obligations of Tenant hereunder are joint and several. The paragraph headings of
this Lease are for convenience of reference only and shall have no effect upon
the construction or interpretation of any provision hereof.
D. Time of Essence. Time is of the essence of this Lease and of each and
all of its provisions.
E. Quitclaim. At the expiration or earlier termination of this Lease,
Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) days
after written demand from Landlord to Tenant, any quitclaim deed or other
document required by any reputable title company, licensed to operate in the
State of California, to remove the cloud or encumbrance created by this Lease
from the real property of which Tenant's Premises are a part.
F. Incorporation of Prior Agreements; Amendments. This instrument along
with any exhibits and attachments hereto constitutes the entire agreement
between Landlord and Tenant relative to the Premises and this agreement and the
exhibits and attachments may be altered, amended or revoked only by an
instrument in writing signed by both Landlord and Tenant. Landlord and Tenant
agree hereby that all prior or contemporaneous oral agreements between and among
themselves and their agents or representatives relative to the leasing of the
Premises are merged in or revoked by this agreement.
G. Recording. Neither Landlord nor Tenant shall record this Lease or a
short form memorandum hereof without the consent of the other.
Page 17 of 18
Initials: __________
Initials: __________
<PAGE> 18
H. Amendments for Financing. Tenant further agrees to execute any
amendments required by a lender to enable Landlord to obtain financing, so long
as Tenant's rights hereunder are not substantially affected.
I. Additional Paragraphs. Paragraphs 39 through 55 are added hereto and
are included as a part of this Lease.
J. Clauses, Plats and Riders. Clauses, plats and riders, if any, signed
by Landlord and Tenant and endorsed on or affixed to this Lease are a part
hereof.
K. Diminution of Light, Air or View. Tenant covenants and agrees that no
diminution or shutting off of light, air or view by any structure which may be
hereafter erected (whether or not by Landlord) shall in any way affect his
Lease, entitle Tenant to any reduction of rent hereunder or result in any
liability of Landlord to Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Lease as of the day and year last written below.
LANDLORD: TENANT:
THE ARRILLAGA FOUNDATION PLX TECHNOLOGY, INC.
a California corporation
By /s/ JOHN ARRILLAGA By /s/ WILLIAM E. HART
--------------------------------- ---------------------------------
John Arrillaga, President
Date: 11/4/97 Title Vice President-Operations
--------------------------------- ---------------------------------
THE PEERY FOUNDATION Type or Print Name William E. Hart
-----------------
By /s/ RICHARD T. PEERY Date: 10/30/97
--------------------------------- ------------------------------
Richard T. Peery, President
Date: 11/3/97
------------------------------
Page 18 of 18
<PAGE> 1
EXHIBIT 10.6-8
EMPLOYEE STOCK PURCHASE AGREEMENT
This Agreement is made as of the _____ day of _______ by and between PLX
TECHNOLOGY Inc., a California corporation (the "Corporation"), and ________ (the
"Purchaser").
W I T N E S S E T H:
WHEREAS, the Corporation desires to issue, and the Purchaser desires to
purchase, Common Stock of the Corporation as herein described, on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. The Purchaser hereby agrees to purchase from the Corporation and the
Corporation agrees to sell to the Purchaser _______ shares of the Corporation's
Common Stock for a purchase price of _______ per share.
2. (a) All of the shares of the Corporation's Common Stock being
purchased by the Purchaser pursuant to this Agreement (hereinafter sometimes
collectively referred to as the "Stock") shall be subject to the option as to
the Stock ("Purchase Option") set forth in this paragraph 2. In the event the
Purchaser shall cease to be employed by the Corporation (including a parent or
subsidiary of the Corporation) for any reason, or no reason, with or without
cause, the Corporation shall have the right, at any time within 60 days after
the date the Purchaser ceases to be so employed, to exercise the Purchase
Option, which consists of the right to purchase from the Purchaser or his
personal representative, as the case may be, at the purchase price per share set
forth in paragraph 1 above (the "Option Price"), up to but not exceeding the
number of shares of Stock specified in subparagraph (b) below, upon the terms
hereinafter set forth.
(b) Until ______________, all of the shares of the Stock shall
constitute shares subject to the Purchase Option (the "Shares Subject to
Repurchase"). On ___________ the number of Shares Subject to Repurchase shall be
reduced by twenty-five percent (25%) to seventy-five percent (75%) of the Stock.
Thereafter, at the end of each calendar month during which the Purchaser is
employed by the Corporation, the Shares Subject to Repurchase shall be reduced
by an additional two and eighty-three one thousands percent (2.083%) of the
Stock.
(c) This Agreement is not an employment contract, and nothing in
this Agreement shall affect in any manner whatsoever the right or power of the
Corporation, or a parent or subsidiary of the Corporation, to terminate
Purchaser's employment, for any reason, with or without the cause.
3. The Purchase Option shall be exercised by written notice signed by an
officer of the Corporation and delivered or mailed as provided in paragraph 14.
The Option Price shall be payable, at the option of the Corporation, in
cancellation of all or a portion of any outstanding indebtedness of the
Purchaser to the Corporation or in cash (by check) or both.
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<PAGE> 2
4. The Corporation may assign its rights under paragraphs 2 and 3
hereof.
5. If, from time to time during the term of the Purchase Option:
(i) there is any stock dividend or liquidating dividend of cash
and/or property stock split, or other change in the character or amount
of any of the outstanding securities of the Corporation; or
(ii) there is any consolidation, merger or sale of all, or
substantially all, of the assets of the Corporation;
then, in such event any and all new, substituted or additional securities or
other property to which the Purchaser is entitled by reason of his ownership of
the Stock shall be immediately subject to the Purchase Option and be included in
the word "Stock" for all purposes of the Purchase Option with the same force and
effect as the shares of Stock subject to the Purchase Option under the terms of
paragraph 2. While the total Option Price shall remain the same after each such
event, the Option Price per share of Stock upon exercise of the Purchase Option
shall be appropriately adjusted.
6. All certificates representing any shares of Stock subject to the
provisions of this Agreement shall have endorsed thereon legends substantially
to the following effect:
(a) "Any disposition of any interest in the securities
represented by this certificate is subject to restrictions, and the securities
represented by this certificate are subject to an option, contained in a certain
agreement by the record holder hereof and the corporation, a copy of which will
be mailed to any holder of this certificate without charge within 5 days of
receipt by the corporation of a written request therefor."
(b) "The securities represented by this certificate have not been
registered under the Securities Act of 1933 and, accordingly, may not be offered
for sale, sold or otherwise transferred except (i) upon effective registration
of the securities represented by this certificate under the Securities Act of
1933, or (ii) upon acceptance by the issuer of an opinion of counsel in such
form and by such counsel, or other documentation, as shall be satisfactory to
counsel for the issuer that such registration is not required."
(c) Any legend required to be placed thereon by appropriate Blue
Sky officials.
(d) Any legend required to be placed thereon by the Corporation's
bylaws.
7. The Purchaser acknowledges and is aware that the Stock to be issued
to him by the Corporation pursuant to this Agreement has not been registered
under the Securities Act of 1933, as amended. In this connection, Purchaser
warrants and represents to the Corporation that he is acquiring the Stock for
investment and not with a view to or for sale in connection with any
distribution of said Stock or with any present intention of distributing or
selling said Stock and he does not presently have reason to anticipate any
change in circumstances or any particular occasion or event which would cause
him to sell said Stock. On or prior to the closing
2
<PAGE> 3
hereunder, Purchaser shall execute and deliver to the Corporation a letter
confirming the investment representations set forth herein, substantially in the
form attached hereto as Exhibit 1 and incorporated by this reference.
8. As security for his faithful performance of the terms of this
Agreement and to insure that the Stock will be available for delivery upon
exercise of the Purchase Option by the Corporation as herein provided, the
Purchaser agrees to deliver to and deposit with the Secretary of the Corporation
(the "Escrow Agent"), as escrow agent in this transaction, two Stock Assignments
duly endorsed (with date and number of shares blank) in the form attached hereto
as Exhibit 2, together with the certificate or certificates evidencing the
Stock, said documents to be held by the Escrow Agent and delivered by the Escrow
Agent pursuant to the joint Escrow Instructions of the Corporation and the
Purchaser set forth in Exhibit 3 attached hereto and incorporated by this
reference, which instructions shall also be executed by the Purchaser and
delivered to the Escrow Agent at the closing hereunder.
9. The Purchaser shall not sell or transfer any shares of the Stock then
subject to the Purchase Option.
10. The Corporation shall not be required (i) to transfer on its books
any shares of Stock of the Corporation which shall have been sold or transferred
in violation of any of the provisions set forth in this Agreement or (ii) to
treat as owner of such shares or to accord the right to vote as such owner or to
pay dividends to any transferee to whom such shares shall have been so
transferred.
11. Subject to the provisions of paragraph 9 above, the Purchaser shall,
during the term of this Agreement, exercise all rights and privileges of a
shareholder of the Corporation with respect to the Stock deposited in said
escrow.
12. Sections 2, 3, and 4 of this Agreement shall terminate on
____________ or upon the exercise in full of the Purchase Option, whichever
first occurs.
13. The parties agree to execute such further instruments and to take
such further action as may reasonably be necessary to carry out the intent of
this Agreement.
14. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to the other party hereto at his address hereinafter
shown below his signature or at such other address as such party may designate
by ten days' advance written notice to the other party hereto.
15. This Agreement shall be governed by the laws of the State of
California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
PLX TECHNOLOGY, INC.
3
<PAGE> 4
By ________________________________
Michael J. Salamah
Title: President
PURCHASER
________________________________
Address:
4
<PAGE> 5
EXHIBIT 1
to
Employee Stock Purchase Agreement
"Investment Letter"
PLX TECHNOLOGY, INC.
390 Potrero Avenue
Sunnyvale, CA 94086
Gentlemen:
In connection with the proposed purchase of _______ shares of Common Stock (the
"Securities") of PLX TECHNOLOGY, INC., a California corporation (the
"Corporation"), by ____________ (the "Purchaser"), the Purchaser hereby agrees,
represents, and warrants as follows:
1. Purchase Entirely for Own Account.
I represent and warrant that I am purchasing the Securities
solely for my own account for investment and not with a view to or for sale or
distribution of the Securities or any portion thereof and not with any present
intention of selling, offering to sell or otherwise disposing of or distributing
the Securities or any portion thereof. I also represent that the entire legal
and beneficial interest of the Securities I am purchasing is being purchased
for, and will be held for the account of, the Purchaser only and neither in
whole nor in part for any other person.
2. Residence.
I represent and warrant that my principal residence is in the
United States and is located at:
_________________________
_________________________
3. Information Concerning Corporation.
I represent and warrant that I have heretofore discussed the
Corporation and its plans, operations and financial condition with its officers
and that I have heretofore received all such information as I deem necessary and
appropriate to enable me to evaluate the financial risk inherent in making an
investment in the Securities of the Corporation and I further represent and
warrant that I have received satisfactory and complete information concerning
the business and financial condition of the Corporation in response to all
inquiries in respect thereof.
4. Economic Risk.
I represent and warrant that I realize that my purchase of the
Securities will be a highly speculative investment and that I am able, without
impairing my financial condition,
1
<PAGE> 6
to hold the Securities for an indefinite period of time and to suffer a complete
loss on my investment.
5. Restricted Securities.
I represent and warrant that the Corporation has disclosed to me
in writing:
(a) that the sale of the Securities which I am purchasing has not
been registered under the Securities Act of 1933, as amended (the "Act"), and
the Securities must be held indefinitely unless a transfer of them is
subsequently registered under the Act or an exemption from such registration is
available;
(b) in any event, during the period ending on the later of (i)
nine months from the date of sale of the Securities to me and (ii) nine months
from the date of any other sale by the Corporation of any of its Common Stock or
any similar security which might be deemed to be part of the same issue as the
sale of Securities to me, any resale or other transfer of the Securities by me
may be made only in accordance with appropriate state securities laws;
(c) that the sale of the Securities which I am purchasing is
subject to a right of first refusal held by the Corporation and its assigns as
set forth in the Corporation's bylaws;
(d) the share certificate representing the Securities will be
stamped with the legends restricting transfer specified in the Employee Stock
Purchase Agreement between the Corporation and the Purchaser dated as of
__________________ ; and
(e) the Corporation will make a notation in its records of the
aforementioned restrictions on transfer and legends.
6. Disposition under Rule 144.
I represent and warrant that I understand that the Securities are
restricted securities within the meaning of Rule 144 promulgated under the Act;
that the exemption from registration under Rule 144 will not be available in any
event for at least one (1) year from the date of sale of the Securities to me,
and even then will not be available unless (i) a public trading market then
exists for the Common Stock of the Corporation, (ii) adequate information
concerning the Corporation is then available to the public, and (iii) other
terms and conditions of Rule 144 are complied with; and that any sale of the
Securities may be made by me only in limited amounts in accordance with such
terms and conditions.
7. Further Limitations on Disposition.
Without in any way limiting my representations set forth above, I
further agree that I shall in no event make any disposition of all or any
portion of the Securities which I am purchasing unless and until:
2
<PAGE> 7
(a) There is then in effect a Registration Statement under the
Act covering such proposed disposition and such disposition is made in
accordance with said Registration Statement; or
(b) (i) I shall have notified the Corporation of the proposed
disposition and shall have furnished the Corporation with a detailed statement
of the circumstances surrounding the proposed disposition, (ii) I shall have
furnished the Corporation with an opinion of my own counsel to the effect that
such disposition will not require registration of such shares under the Act, and
(iii) such opinion of my counsel shall have been concurred in by counsel for the
Corporation, such concurrence not to be unreasonably withheld, and the
Corporation shall have advised me of such concurrence.
Dated as of _____________________.
Very truly yours,
__________________________________
3
<PAGE> 8
EXHIBIT 3
To
Employee Stock Purchase Agreement
Joint Escrow Instructions
Date: ______________________
Secretary
PLX Technology, Inc.
390 Potrero Avenue
Sunnyvale, CA 94086
Dear Sir:
As Escrow Agent for both PLX Technology, Inc. (the "Corporation"), and
_________________ ( "Purchaser"), you are hereby authorized and directed to hold
the documents delivered to you pursuant to the terms of that certain Employee
Stock Purchase Agreement ("Agreement") dated as of _________________, to which a
copy of these Joint Escrow Instructions is attached as Exhibit 3, in accordance
with the following instructions:
1. In the event the Corporation shall elect to exercise the Purchase
Option set forth in the Agreement, the Corporation shall give the Purchaser and
you a written notice specifying the number of shares of stock to be purchased,
the purchase price, and the time for a closing thereunder at the principal
office of the Corporation. Purchaser and the Corporation hereby irrevocably
authorize and direct you to close the transaction contemplated by such notice in
accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver the same, together with the certificate
evidencing the shares of stock to be transferred, to the Corporation against the
simultaneous delivery to you of the purchase price (by check) for the number of
shares of stock being purchased pursuant to the exercise of the Purchase Option.
3. Purchaser irrevocably authorizes the Corporation to deposit with you
any certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as referred to in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as his
attorney-in-fact and agent for the terms of this escrow to execute with respect
to such securities negotiable and complete any transaction herein contemplated,
including but not limited to any appropriate filing with state or government
officials or bank officials. Subject to the provisions of this paragraph 3,
Purchaser shall exercise all rights and privileges of a shareholder of the
Corporation while the stock is held by you.
4. This escrow shall terminate upon termination of Sections 2, 3 and 4
of the Agreement in accordance with the provisions of paragraph 12 thereof.
1
<PAGE> 9
5. If at the time of termination of this escrow you should have in your
possession any documents, securities or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith and
in the exercise of you own good judgment, and any act done or omitted by you
pursuant to the advice of your own attorneys shall be conclusive evidence of
such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree of any court,
you shall not be liable to any of the parties hereto or to any other person,
firm or corporation by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow, Instructions or any
documents deposited with you.
11. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be Secretary of the Corporation or if you shall resign by
written notice to each party. In the event of any such termination, the
Corporation shall appoint your successor as Secretary of the Corporation as
successor Escrow Agent.
12. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
13. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such dispute shall have been settled either by mutual written agreement of
the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction
2
<PAGE> 10
after the time for appeal has expired and no appeal has been perfected, but you
shall be under no duty whatsoever to institute or defend any such proceedings.
14. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following address, or at such other addresses as a party may designate by
twenty-one days' advance written notice to each of the other parties hereto.
CORPORATION: PLX TECHNOLOGY, Inc.
390 Potrero Avenue
Sunnyvale, CA 94086
PURCHASER: _________________
_________________
_________________
ESCROW AGENT: Secretary
PLX TECHNOLOGY, Inc.
390 Potrero Avenue
Sunnyvale, CA 94086
15. By signing these Joint Escrow Instructions, you become a part hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
16. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advice you in connection with your
obligations hereunder, you may rely upon the advice of such counsel, and you may
pay such counsel reasonable compensation therefor. The Corporation shall be
responsible for all fees generated by such legal counsel in connection with your
obligations hereunder.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
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<PAGE> 11
18. This Agreement shall be governed by the laws of the State of
California.
Very truly yours,
PLX TECHNOLOGY, Inc.
By:________________________________
Michael J. Salameh
Title: President
PURCHASER:
___________________________________
ESCROW AGENT:
___________________________________
__________________, Secretary
4
<PAGE> 1
EXHIBIT 10.7
PLEDGE AGREEMENT
1. As collateral security for the payment of the certain $______________
Promissory Note issued this date to PLX Technology, Inc. ("Pledgee") by the
undersigned (hereinafter called "indebtedness"), the undersigned hereby assigns,
transfers to and pledges with the Pledgee ______________ (__________) shares of
Common Stock of PLX Technology, Inc. that were this day delivered to be
deposited with Pledgee, together with any stock rights, rights to subscribe,
dividends paid in cash, or any property received by the undersigned in
connection with the complete or partial liquidation of Pledgee, and in addition
any stock dividends, dividends paid in stock, new securities or other property
except cash dividends (other than liquidating dividends) to which the
undersigned is or may hereafter become entitled to receive on account of such
property and in the event that the undersigned receives any such rights or
dividends, the undersigned will immediately deliver them to Pledgee to be held
by Pledgee hereunder in the same manner as the property originally pledged
hereunder. All property assigned, transferred to and pledged with Pledgee under
this paragraph is hereinafter called "collateral."
2. At any time, without notice, and at the expense of the undersigned,
Pledgee in its name or in the name of its nominee or of the undersigned may, but
shall not be obligated to: (1) collect by legal proceedings or otherwise all
dividends (except cash dividends other than liquidating dividends), interest,
principal payments and other sums now or hereafter payable upon or on account of
said collateral; (2) enter into any extension, reorganization, deposit, merger,
or consolidation agreement, or any agreement in any way relating to or affecting
the collateral, and in connection therewith may deposit or surrender control of
such collateral thereunder, accept other property in exchange for such
collateral, and do and perform such acts and things as it may deem proper, and
any money or property received in exchange for such collateral shall be applied
to the indebtedness or thereafter held by it pursuant to the provisions hereof;
(3) insure, process and preserve the collateral; (4) cause the collateral to be
transferred to its name or to the name of its nominee; (5) exercise as to such
collateral all the rights, powers, and remedies of an owner, except that so long
as the indebtedness is not in default the undersigned shall retain all voting
rights as to the collateral.
3. The undersigned agrees to pay, prior to delinquency, all taxes,
charges, liens and assessments against the collateral, and upon the failure of
the undersigned to do so Pledgee at its option may pay any of them and shall be
the sole judge of the legality and validity thereof and the amount necessary to
discharge the same.
4. All advances, charges, costs and expenses, including reasonable
attorneys' fees, incurred or paid by Pledgee in exercising any right, power or
remedy conferred by this agreement, or in the enforcement thereof, shall become
a part of the indebtedness secured hereunder and shall be paid to Pledgee by the
undersigned immediately and without demand.
5. At the option of Pledgee and without necessity of demand or notice,
all or any part of the indebtedness of the undersigned shall immediately become
due and payable irrespective of any agreed maturity, upon the happening of any
of the following events: (1) failure to keep or perform any of the terms or
provisions of this agreement; (2) default in the payment of principal
1
<PAGE> 2
or interest when due; (3) the levy of any attachment, execution or other process
against the collateral; or (4) the insolvency, bankruptcy, general assignment
for the benefit of creditors, filing of any petition in bankruptcy or for relief
under the provisions of the National Bankruptcy Act, of, by, or against the
undersigned.
6. In the event of the nonpayment of any indebtedness when due, or upon
the happening of any of the events specified in the last preceding paragraph,
Pledgee may then or at any time thereafter, at its election, apply, set off,
collect or sell in one or more sales, or take such steps as may be necessary to
liquidate and reduce to cash in the hands of Pledgee in whole or in part, with
or without any previous demands or demand of performance or notice or
advertisement, the whole or any part of the collateral in such order as Pledgee
may elect, and any such sale may be made either at public or private sale at its
place of business or elsewhere, or at any broker's board or securities exchange,
either for cash or upon credit or for future delivery; provided, however, that
if such disposition is at private sale, then the purchase price of the
collateral shall be equal to the public market price then in effect, or, if at
the time of sale no public market for the collateral exists, then, in
recognition of the fact that the sale of the collateral would have to be
registered under the Securities Act of 1933 and that the expenses of such
registration are commercially unreasonable for the type and amount of collateral
pledged hereunder, Pledgee and the undersigned hereby agree that such private
sale shall be at a purchase price mutually agreed to by Pledgee and the
undersigned or, if the parties cannot agree upon a purchase price, then at a
purchase price established by a majority of three independent appraisers
knowledgeable of the value of such collateral, one named by the undersigned
within 10 days after written request by the Pledgee to do so, one named by
Pledgee within such 10 day period, and the third named by the two appraisers so
selected, with the appraisal to be rendered by such body within 30 days of the
appointment of the third appraiser. The cost of such appraisal, including all
appraiser's fees, shall be charged against the proceeds of sale as an expense of
such sale. Pledgee may be the purchaser of any or all collateral so sold and
holds the same thereafter in its own right free from any claim of the
undersigned or right of redemption. Demands of performance, notices of sale,
advertisements and presence of property at sale are hereby waived, and Pledgee
is hereby authorized to sell hereunder any evidence of debt pledged to it. Any
sale hereunder may be conducted by any officer or agent of Pledgee.
7. The proceeds of the sale of any of the collateral and all sums
received or collected by Pledgee from or on account of such collateral shall be
applied by Pledgee to the payment of expenses incurred or paid by Pledgee in
connection with any sale, transfer or delivery of the collateral, to the payment
of any other costs, charges, attorneys' fees or expenses mentioned herein, and
to the payment of the indebtedness or any part hereof, all in such order and
manner as Pledgee in its discretion may determine. Pledgee shall pay any balance
to the undersigned.
8. Pledgee shall be under no duty or obligation whatsoever to make or
give any presentments, demands for performance, notices of non-performance,
protests, notices of protest or notices of dishonor in connection with any
obligations or evidences of indebtedness held by Pledgee as collateral, or in
connection with any obligations or evidences of indebtedness which constitute in
whole or in part the indebtedness secured hereunder.
2
<PAGE> 3
9. Pledgee may at any time deliver the collateral or any part thereof to
the undersigned and the receipt of the undersigned shall be a complete and full
acquittance for the collateral so delivered, and Pledgee shall thereafter be
discharged from any liability or responsibility therefor.
10. Upon the transfer of all or any part of the indebtedness, Pledgee
may transfer all or any part of the collateral and shall be fully discharged
thereafter from all liability and responsibility with respect to such collateral
so transferred, and the transferee shall be vested with all the rights and
powers of Pledgee hereunder with respect to such collateral so transferred; but
with respect to any collateral not so transferred Pledgee shall retain all
rights and powers hereby given.
11. Until all indebtedness shall have been paid in full, the power of
sale and all other rights, powers and remedies granted to Pledgee hereunder
shall continue to exist and may be exercised by Pledgee at any time and from
time to time irrespective of the fact that the indebtedness of any part thereof
may have become barred by any statute of limitations, or that the personal
liability of the undersigned may have ceased.
12. Pledgee agrees that so long as the indebtedness is not in default,
Pledgee will, at the request of the undersigned, release from pledge such shares
of PLX Technology, Inc. Common Stock held hereunder as collateral for the
indebtedness at the rate of one share for each, $_______ of principal amount of
indebtedness paid. The Pledgee further agrees that if the undersigned makes no
such request any such shares eligible for such release shall continue to be held
hereunder as collateral for the remaining indebtedness, pursuant to SEC Rule
144(d)(2).
13. The rights, powers and remedies given to Pledgee by this agreement
shall be in addition to all rights, powers and remedies given to Pledgee by
virtue of any statute or rule of law. Pledgee may exercise its Pledgee's lien or
right of set off with respect to the indebtedness in the same manner as if the
indebtedness were unsecured. Any forbearance or failure or delay by Pledgee in
exercising any right, power or remedy hereunder shall not be deemed to be a
waiver of such right, power or remedy, and any single or partial exercise of any
right, power or remedy hereunder shall not preclude the further exercise
thereof; and every right, power or remedy of Pledgee shall continue in full
force and effect until such right, power or remedy is specifically waived by an
instrument in writing executed by Pledgee.
3
<PAGE> 4
14. In addition to the collateral specified in paragraph 1 above, the
undersigned, with the consent of Pledgee, may also from time to time assign,
transfer, and pledge to Pledgee such additional collateral as security for the
payment of the indebtedness ("additional collateral") as the undersigned may
specify in a written notice delivered to Pledgee. The terms upon which any such
additional collateral is assigned, transferred, and pledged, shall be as shall
be agreed to by the undersigned and Pledgee.
Date: ______________________
___________________________________
4
<PAGE> 1
EXHIBIT 10.8
PROMISSORY NOTE
$___________ Dated: ______________
FOR VALUE RECEIVED, the undersigned ____________ promises to pay to the
order of PLX Technology, Inc. ("PLX"), a California corporation, the principal
sum of _______________($__________) with interest (6% compounded annually) from
the date hereof on the unpaid principal at the minimum rate necessary, under any
applicable provision of the Internal Revenue Code of 1954, as amended, to avoid
the treatment as interest of any amounts other than amounts stated to be
interest pursuant to the terms of this Note. The entire unpaid balance of the
principal, together with all accrued interest, shall be payable on the earlier
to occur of the following:
(a) ______________ or
(b) The effectiveness of a registration statement filed under the
Securities Act of 1933, as amended, covering securities of PLX pursuant to which
such securities may be offered and sold to the public provided, however, that if
the undersigned is restricted (by the "Market Stand-Off Agreement" executed this
date, or otherwise) from selling a sufficient number of shares of Common Stock
to covert the unpaid principal and interest balance then due under this Note,
then the amount of unpaid principal and interest that would become due under
this subparagraph (b) shall be reduced to the amount that would be covered by
sale of shares then allowed to be sold.
If payment is not made when due, and if action be instituted on this
Note, the undersigned agrees to pay reasonable attorney's fees and costs of suit
as fixed by court.
The undersigned shall have the night to prepay all or any part of the
unpaid principal amount of this Note without premium at any time prior to the
maturity hereof on ten (10) days' prior written notice.
This Note is originally secured by a pledge of ____________ (________)
shares of Common Stock of PLX pursuant to the terms of a Pledge Agreement of
even date herewith avouch is on file with the Secretary of PLX, and which is
attached hereto as Appendix A.
IN WITNESS WHEREOF, the undersigned has caused this Note to be signed,
dated and delivered as of the day and year first above written.
___________________________________
Accepted:
PLX Technology, Inc.
By: _______________________________
___________________, Secretary
<PAGE> 2
MARKET STAND-OFF AGREEMENT
In consideration of the issuance and sale to the undersigned by PLX Technology,
Inc., (the "Company") of _______________(________) shares of Common Stock the
undersigned ("Shareholder") hereby agrees that, if requested by the Company and
the underwriter managing the, offering of Common Stock (or other securities) of
the Company, not to sell or otherwise transfer or dispose of any Common Stock
(or other securities) of the Company held by Purchaser, without the prior
consent of the Company or of such underwriter during any period requested by the
Company and such underwriter (not to exceed on hundred fifty (150) days)
following the effective date of a registration statement of the Company filed
under the Securities Act of 1933, as amended, provided that: (a) it is the first
such registration statement of the Company including shares (or securities) to
be sold on its behalf to the public in an underwritten offering; and (b) all
officers and directors of the Company enter into similar agreements.
Shareholder acknowledges that the Company may impose stop-transfer instruction
with respect to the shares (or securities) subject to the foregoing restrictions
until the end of said period.
SHAREHOLDER
By:
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
January 14, 1999 (except for Note 11, as to which the date is January 25, 1999)
in the Registration Statement (Form S-1) and related Prospectus of PLX
Technology, Inc. for the registration of 3,795,000 shares of its common stock.
Our audits also included the financial statement schedule of PLX
Technology, Inc. for each of the three years in the period ended December 31,
1998 listed in item 16(b) of this Registration Statement. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Ernst & Young LLP
San Jose, California
March __, 1999
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the approval of
the Certificate of Incorporation in the State of Delaware as described in Note
11 to the financial statements.
/s/ Ernst & Young LLP
San Jose, California
February 3, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1996 JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1996 DEC-31-1997 DEC-31-1998
<CASH> 0 2,701,131 5,638,369
<SECURITIES> 0 0 0
<RECEIVABLES> 0 2,717,399 2,246,044
<ALLOWANCES> 0 (158,648) (173,287)
<INVENTORY> 0 1,213,413 1,344,346
<CURRENT-ASSETS> 0 6,715,394 10,122,745
<PP&E> 0 1,948,155 3,036,834
<DEPRECIATION> 0 (785,513) (1,522,141)
<TOTAL-ASSETS> 0 8,013,489 11,766,477
<CURRENT-LIABILITIES> 0 3,124,156 4,006,679
<BONDS> 0 0 0
0 0 0
0 4,580 4,580
<COMMON> 0 4,660 4,612
<OTHER-SE> 0 4,880,093 7,750,606
<TOTAL-LIABILITY-AND-EQUITY> 0 8,013,489 11,766,477
<SALES> 9,813,499 17,533,631 26,276,201
<TOTAL-REVENUES> 9,813,499 17,533,631 26,276,201
<CGS> (4,526,402) (6,975,659) (9,671,384)
<TOTAL-COSTS> (4,526,402) (6,975,659) (9,671,384)
<OTHER-EXPENSES> (4,394,269) (8,567,121) (13,221,821)
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> (2,118) (12) (34)
<INCOME-PRETAX> 929,843 2,034,749 3,458,159
<INCOME-TAX> (38,514) (110,355) (692,000)
<INCOME-CONTINUING> 891,329 1,924,394 2,766,159
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 891,329 1,924,394 2,766,159
<EPS-PRIMARY> 0.28 0.58 0.77
<EPS-DILUTED> 0.05 0.11 0.15
</TABLE>
<PAGE> 1
EXHIBIT 99.1
CONSENT OF NOMINEE DIRECTOR
I hereby consent to the reference to me as a Nominee Director under the caption
"Management" in the Registration Statement on Form S-1 and related Prospectus
of PLX Technology, Inc. (the "Company") for the registration of shares of the
Company's Common Stock, $.001 par value.
Dated: February 4, 1999
/s/ Young K. Sohn
---------------------------------
Young K. Sohn
